SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

      [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934*

            For the Fiscal Year Ended February 2, 2002

      [_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the Transition Period from _________ to __________

                        Commission File Number: 33-59380

                         FINLAY FINE JEWELRY CORPORATION
             (Exact name of registrant as specified in its charter)

            Delaware                                             13-3287757
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

     529 Fifth Avenue New York, NY                                 10017
(Address of principal executive offices)                         (zip code)

                                  212-808-2800
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12 (b) of the Act: None
        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes [X*]     No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of April 24, 2002 there were 1,000 shares of common stock, par value $.01 per
share, of the Registrant outstanding. As of such date, all shares of common
stock were owned by the Registrant's parent, Finlay Enterprises, Inc., a
Delaware corporation.

*The Registrant is not subject to the filing requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934 and is voluntarily filing this Annual
Report on Form 10-K.

================================================================================
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION

                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2002

                                      INDEX

                                                                         Page(s)
                                                                         -------

PART I
    Item 1.   Business...................................................... 3
    Item 2.   Properties....................................................15
    Item 3.   Legal Proceedings.............................................15
    Item 4.   Submission of Matters to a Vote of Security Holders...........15

PART II
    Item 5.   Market for the Registrant's Common Equity and Related
                 Stockholder Matters........................................16
    Item 6.   Selected Consolidated Financial Data..........................17
    Item 7.   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations........................19
    Item 7a.  Quantitative and Qualitative Disclosures about Market Risk....29
    Item 8.   Financial Statements and Supplementary Data...................30
    Item 9.   Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure........................30

PART III
    Item 10.  Directors and Executive Officers of the Registrant............31
    Item 11.  Executive Compensation........................................34
    Item 12.  Security Ownership of Certain Beneficial Owners and
                 Management.................................................42
    Item 13.  Certain Relationships and Related Transactions................45

PART IV
    Item 14.  Exhibits, Financial Statement Schedules and Reports on
                 Form 8-K...................................................48

SIGNATURES       ...........................................................54


                                       2
<PAGE>

                                     PART I

Item 1. Business

The Company

      Finlay Fine Jewelry Corporation, a Delaware corporation, and its wholly
owned subsidiaries ("Finlay Jewelry") is a wholly owned subsidiary of Finlay
Enterprises Inc., a Delaware corporation (the "Holding Company"). References to
"Finlay" mean, collectively, the Holding Company and Finlay Jewelry. All
references herein to "Departments" refer to fine jewelry departments operated
pursuant to license agreements or other arrangements with host department
stores.

      Finlay is one of the leading retailers of fine jewelry in the United
States. Finlay operates leased fine jewelry Departments in major department
stores for retailers such as The May Department Stores Company ("May"),
Federated Department Stores ("Federated"), Belk, the Carson Pirie Scott division
of Saks Incorporated, Marshall Field's and Dillard's. Finlay sells a broad
selection of moderately priced fine jewelry, including necklaces, earrings,
bracelets, rings and watches, and markets these items principally as fashion
accessories with an average sales price of approximately $183 per item. Average
sales per Department were $925,000 in 2001 and the average size of a Department
is approximately 700 square feet.

      On a domestic basis, Finlay's sales have increased from $719.6 million in
1997 to $952.8 million in 2001, a compound annual growth rate of 7.3%. Income
from operations before depreciation and amortization expenses has increased from
$67.9 million to $80.1 million in the same period. Finlay has increased in size
from 797 locations at the beginning of 1997 to 1,006 locations at the end of
2001.

      As of February 2, 2002, Finlay operated its 1,006 locations in 22 host
store groups, in 45 states and the District of Columbia. Finlay's largest host
store relationship is with May, for which Finlay has operated Departments since
1948. Finlay operates the fine jewelry departments in all of May's 434
department stores. Finlay's second largest host store relationship is with
Federated, for which Finlay has operated Departments since 1983. Finlay operates
Departments in 159 of Federated's 458 department stores. Over the past three
years, store groups owned by May and Federated accounted for an average of 47%
and 22%, respectively, of Finlay's domestic sales. Management believes that it
maintains excellent relations with its host store groups, 17 of which have had
leases with Finlay for more than five years (representing 78% of Finlay's sales
in 2001) and 15 of which have had leases with Finlay for more than ten years
(representing 74% of Finlay's sales in 2001).

      As a result of Federated's closure of its Stern's division, Finlay closed
23 Stern's Departments during the Spring of 2001. Subsequently, Federated
converted the majority of the Departments to a host store in which Finlay does
not operate. Additionally, during 2001, Federated acquired the Liberty House
department store chain and converted those Departments to a host store in which
Finlay does not operate. Finlay operated in all twelve of the Liberty House
department stores through mid-November 2001.

      On April 3, 2000, Finlay completed the acquisition of certain assets of
Jay B. Rudolph, Inc. ("J.B. Rudolph") for $20.6 million, consisting primarily of
inventory and fixed assets. By acquiring J.B. Rudolph (the "J.B. Rudolph
Acquisition"), Finlay added 57 Departments and also added new host store
relationships with Bloomingdale's, and Dayton's and Hudson's (both now operating
as Marshall Field's). Finlay financed the J.B. Rudolph Acquisition with
borrowings under Finlay's revolving credit agreement with General Electric
Capital Corporation and the other lenders thereto (the "Revolving Credit
Agreement"). The J.B. Rudolph Acquisition was accounted for as a purchase, and,
accordingly, the


                                       3
<PAGE>

operating  results of the former J.B. Rudolph  departments have been included in
Finlay   Jewelry's   consolidated   financial   statements  since  the  date  of
acquisition.

      On January 3, 2000, Societe Nouvelle d'Achat de Bijouterie - S.O.N.A.B.
("Sonab"), Finlay Jewelry's European leased jewelry department subsidiary, sold
the majority of its assets for $9.9 million. After the sale, the buyer operated
more than 80 locations previously included in Sonab's 130-location base in
France. The remaining departments were closed in 1999. Finlay Jewelry recorded a
pre-tax charge of $28.6 million for the write-down of assets for disposition and
related closure expenses.

      On December 1, 2000, the Holding Company announced that its Board of
Directors had approved a stock repurchase program to acquire up to $20 million
of outstanding common stock, par value $.01 per share ("Common Stock"). The
Holding Company may, at the discretion of management, purchase its Common Stock,
from time to time through September 30, 2002 under the stock repurchase program.
The extent and timing of repurchases will depend upon general business and
market conditions, stock prices, availability under Finlay's revolving credit
facility, compliance with certain restrictive covenants and its cash position
and requirements going forward. To date, the Holding Company repurchased
1,126,892 shares for $11.2 million.

      On April 24, 1998, the Holding Company completed a public offering of
1,800,000 shares of its Common Stock at a price of $27.50 per share (the "1998
Offering"), of which 567,310 shares were sold by the Holding Company.
Concurrently with the 1998 Offering, the Holding Company and Finlay Jewelry
completed the public offering of $75.0 million aggregate principal amount of 9%
Senior Debentures due May 1, 2008 (the "Senior Debentures") and $150.0 million
aggregate principal amount of 8"% Senior Notes due May 1, 2008 (the "Senior
Notes"), respectively. In addition, on April 24, 1998, Finlay's Revolving Credit
Agreement was amended to increase the line of credit thereunder to $275.0
million and to make certain other changes.

      On May 26, 1998, the net proceeds to the Holding Company from the 1998
Offering, the sale of the Senior Debentures, together with other available
funds, were used to redeem the Holding Company's 12% Senior Discount Debentures
due 2005 (the "Old Debentures"), including associated premiums. Also, on May 26,
1998, Finlay Jewelry used the net proceeds from the sale of the Senior Notes to
redeem Finlay Jewelry's 10"% Senior Notes due 2003 (the "Old Notes"), including
associated premiums. The above transactions, excluding the 1998 Offering, are
referred to herein as the "Refinancing".

      On October 6, 1997, Finlay completed the acquisition of certain assets of
the Diamond Park Fine Jewelers division of Zale Corporation ("Diamond Park"), a
leading operator of Departments, for approximately $63.0 million. By acquiring
Diamond Park (the "Diamond Park Acquisition"), Finlay added 139 Departments and
also added new host store relationships with Marshall Field's, Parisian and
Dillard's, formerly the Mercantile Stores.

      Finlay's fiscal year ends on the Saturday closest to January 31.
References to 1997, 1998, 1999, 2000, 2001 and 2002 relate to the fiscal years
ending on January 31, 1998, January 30, 1999, January 29, 2000, February 3,
2001, February 2, 2002 and February 1, 2003, respectively. Each of the fiscal
years includes 52 weeks except 2000, which includes 53 weeks.

      Finlay Jewelry is a wholly owned subsidiary of the Holding Company. The
principal executive offices of Finlay Jewelry are located at 529 Fifth Avenue,
New York, New York 10017 and its telephone number at this address is (212)
808-2800.


                                       4
<PAGE>

General

      Overview. Host stores benefit from outsourcing the operation of their fine
jewelry departments. By engaging Finlay, host stores gain specialized
managerial, merchandising, selling, marketing, inventory control and security
expertise. Additionally, by avoiding the high working capital investment
typically required of the jewelry business, host stores improve their return on
investment and can potentially increase their profitability.

      As a lessee, Finlay benefits from the host stores' reputation, customer
traffic, advertising, credit services and established customer base. Finlay also
avoids the substantial capital investment in fixed assets typical of stand-alone
retail formats. These factors have generally enabled Finlay's new Departments to
achieve profitability within their first twelve months of operation. Finlay
further benefits because net sales proceeds are generally remitted to Finlay by
each host store on a monthly basis with essentially all customer credit risk
borne by the host store.

      As a result of Finlay's strong relationships with its vendors, management
believes that Finlay Jewelry's working capital requirements are lower than those
of many other jewelry retailers. In recent years, on average, approximately 50%
of Finlay's domestic merchandise has been carried on consignment. The use of
consignment merchandise also reduces Finlay's inventory exposure to changing
fashion trends because, in general, unsold consigned merchandise can be returned
to the vendor.

      Industry. Management believes that current trends in jewelry retailing,
particularly in the department store sector, provide a significant opportunity
for Finlay's growth. Consumers spent approximately $51.3 billion on jewelry
(including both fine and costume jewelry) in the United States in 2001, an
increase of approximately $21.2 billion over 1991, according to the United
States Department of Commerce. In the department store sector in which Finlay
operates, consumers spent $4.3 billion on fine jewelry in 2000. Management
believes that demographic factors such as the maturing of the U.S. population
and an increase in the number of working women have resulted in greater
disposable income, thus contributing to the growth of the fine jewelry retailing
industry. Management also believes that jewelry consumers today increasingly
perceive fine jewelry as a fashion accessory, resulting in purchases which
augment Finaly's gift and special occasion sales. Finlay's Departments are
typically located in "high traffic" areas of leading department stores, enabling
Finlay to capitalize on these consumer buying patterns.

      Growth Strategy. Finlay intends to continue to pursue the following key
initiatives to increase sales and earnings:

      o     Increase Comparable Department Sales. In 1999 and 2000, Finlay
            achieved domestic comparable Department sales increases of 8.1% and
            2.1%, respectively. During 2001, Finlay's comparable Department
            sales decreased by 3.0% due to the challenging retail environment.
            Finlay's merchandising and marketing strategy includes emphasizing
            key merchandise items, increasing focus on holiday and event-driven
            promotions, participating in host store marketing programs and
            positioning its Departments as a "destination location" for fine
            jewelry. Finlay believes that comparable Department sales will
            benefit from these strategies.

      o     Add Departments Within Existing Host Store Groups. Finlay's well
            established relationships with many of its host store groups have
            enabled Finlay to add Departments in new locations opened by
            existing host stores. Finlay has operated Departments in May stores
            since 1948 and operates the fine jewelry departments in all of May's
            434 department stores. Finlay has also operated Departments in
            Federated stores since 1983 and operates Departments in 159 of
            Federated's 458 department stores.


                                       5
<PAGE>

      o     Establish New Host Store Relationships. Finlay has an opportunity to
            grow primarily by establishing new relationships with department
            stores that presently operate their own fine jewelry departments or
            have an interest in opening jewelry departments. Finlay seeks to
            establish these new relationships by demonstrating to department
            store management the potential for improved financial performance.
            Finlay has added such host store groups as Burdines, The Bon Marche
            and Elder Beerman. Through acquisitions Finlay has added Marshall
            Field's, Parisian, Dillard's and Bloomingdale's to its host store
            relationships.

      o     Improve Operating Leverage. Selling, general and administrative
            expenses as a percentage of sales, on a domestic basis, declined
            from 42.4% in 1997 to 41.3% in 2001. Finlay seeks to continue to
            leverage expenses both by increasing sales at a faster rate than
            expenses and by reducing its current level of certain operating
            expenses. For example, Finlay has demonstrated that by increasing
            the selling space (with host store approval) of certain high volume
            Departments, incremental sales can be achieved without having to
            incur proportionate increases in selling and administrative
            expenses. In addition, management believes Finlay will benefit from
            further investments in technology and refinements of operating
            procedures designed to allow Finlay's sales associates more time for
            customer sales and service. Finlay's central distribution facility,
            which became fully operational in 1998, has enabled Finlay to
            improve the flow of merchandise to Departments and to reduce payroll
            and freight costs.

      Merchandising Strategy. Finlay seeks to maximize sales and profitability
through a unique merchandising strategy known as the "Finlay Triangle", which
integrates store management (including host store management and Finlay's store
group management), vendors and Finlay's central office. By coordinating efforts
and sharing access to information, each Finlay Triangle participant plays a role
which emphasizes its area of expertise in the merchandising process, thereby
increasing productivity. Within guidelines set by the central office, Finlay's
store group management contributes to the selection of the specific merchandise
most appropriate to the demographics and customer tastes within their particular
geographical area. Finlay's advertising initiatives and promotional planning are
closely coordinated with both host store management and Finlay's store group
management to ensure the effective use of Finlay's marketing programs. Vendors
participate in the decision-making process with respect to merchandise
assortment, including the testing of new products, marketing, advertising and
stock levels. By utilizing the Finlay Triangle, opportunities are created for
the vendor to assist in identifying fashion trends thereby improving inventory
turnover and profitability, both for the vendor and Finlay. As a result,
management believes it capitalizes on economies of scale by centralizing certain
activities, such as vendor selection, advertising and planning, while allowing
store management the flexibility to implement merchandising programs tailored to
the host store environments and clientele.


                                       6
<PAGE>

                               The Finlay Triangle

                                   ----------
                              / ^   CENTRAL  \  ^
                             / /     OFFICE   \  \
                            / /    ----------  \  \
                           v /                  v  \
                          ----------       ------------
                            VENDORS  <----     STORE
                                     ---->  MANAGEMENT
                          ----------       ------------

      Finlay has structured its relationships with vendors to encourage sharing
of responsibility for marketing and merchandise management. Finlay furnishes to
vendors, through on-line access to Finlay's information systems, the same sales,
stock and gross margin information that is available to Finlay's store group
management and central office for each of the vendor's styles in Finlay's
merchandise assortment. Using this information, vendors are able to participate
in decisions to replenish inventory which has been sold and to return or
exchange slower-moving merchandise. New items are tested in specially selected
"predictor" Departments where sales experience can indicate an item's future
performance in Finlay's other Departments. Management believes that the access
and input which vendors have in the merchandising process results in a better
assortment, timely replenishment, higher turnover and higher sales of inventory,
differentiating Finlay from its competitors.

      Since many of the host store groups in which Finlay operates differ in
fashion image and customer demographics, Finlay's flexible approach to
merchandising is designed to complement each host store's own merchandising
philosophy. Finlay emphasizes a "fashion accessory" approach to fine jewelry and
watches, and seeks to provide items that coordinate with the host store's
fashion focus as well as to maintain stocks of traditional and gift merchandise.

Store Relationships

      Host Store Relationships. As of February 2, 2002, Finlay operated 1,006
locations (including one stand-alone store) in 22 host store groups, in 45
states and the District of Columbia. By acquiring Diamond Park in 1997, Finlay
added 139 Departments in three host store groups. By acquiring J.B. Rudolph in
April 2000, Finlay added 57 Departments in three host store groups. Finlay's
largest host store relationship is with May, for which Finlay has operated
Departments since 1948. Finlay operates the fine jewelry departments in all of
May's 434 department stores. Finlay's second largest host store relationship is
with Federated, for which Finlay has operated Departments since 1983. Finlay
operates Departments in 159 of Federated's 458 department stores. Over the past
three years, store groups owned by May and Federated accounted for an average of
47% and 22%, respectively, of Finlay's domestic sales.

      Finlay also operates 119 Departments in store groups owned by Saks
Incorporated. Additionally, Finlay operates in several other host store groups,
such as Belk, The Bon-Ton and Gottschalks. Management believes that it maintains
excellent relations with its host store groups, 17 of which have had leases with
Finlay for more than five years (representing 78% of Finlay's sales in 2001) and
15 of which have had leases with Finlay for more than ten years (representing
74% of Finlay's sales in 2001). As a consequence of the strong and, in many
instances, long-term relationships, host store groups have routinely renewed
Finlay's lease agreements at their renewal dates. Management believes that the
majority of its lease agreements will continue to be renewed routinely.


                                       7
<PAGE>

      The following table identifies the host store groups in which Finlay
operated Departments at February 2, 2002, the year in which Finlay's
relationship with each host store group commenced and the number of Departments
operated by Finlay in each host store group. The table also provides similar
information regarding Finlay's stand-alone location.

                                             Inception of     Number of
Host Store Group/Location                    Relationship    Departments
-------------------------                    ------------    -----------

May
Robinsons-May...............................     1948            56
Filene's....................................     1977            42
Lord & Taylor...............................     1978            84
Famous Barr/L.S. Ayres/Jones................     1979            43
Kaufmann's..................................     1979            51
Foley's.....................................     1986            65
Hecht's/Strawbridge's.......................     1986            79
Meier & Frank...............................     1988            14
                                                               ----
    Total May Departments...................                                 434

Federated
Rich's/Lazarus/Goldsmith's..................     1983            69
Burdines....................................     1992            46
The Bon Marche..............................     1993            21
 Bloomingdale's.............................     2000            23
                                                               ----
    Total Federated Departments.............                                 159

Saks Incorporated
Younkers....................................     1973            32
Carson Pirie Scott/Bergner's/Boston Store...     1977            51
Parisian....................................     1997            33
Herberger's.................................     1999             3
                                                               ----
    Total Saks Incorported Departments......                                 119

Other Departments
Gottschalks.................................     1969            38
Belk........................................     1975            63
The Bon-Ton.................................     1986            44
Elder Beerman...............................     1992            35
Dillard's...................................     1997            56
Marshall Field's (1)........................     1997            57
                                                               ----
    Total Other Departments.................                                 293
                                                                           -----
    Total Departments.......................                               1,005

Stand-Alone Store
New York Jewelry Outlet.....................     1994                          1
                                                                           -----

    Total...................................                               1,006
                                                                           =====

----------
(1)   Includes the former Dayton's and Hudson's Departments added in 2000 as a
      result of the J.B. Rudolph Acquisition.


                                       8
<PAGE>

      Terms of Lease Agreements. Finlay's lease agreements typically have an
initial term of one to five years. Finlay has, where possible, entered into
five-year lease agreements. Substantially all of Finlay's lease agreements
contain renewal options or provisions for automatic renewal absent prior notice
of termination by either party. Lease renewals are generally for one to five
year periods. In exchange for the right to operate a Department within the host
store, Finlay pays each host store group a lease fee, calculated as a percentage
of sales (subject to a minimum annual fee in a limited number of cases).

      Finlay's lease agreements require host stores to remit sales proceeds for
each month (without regard to whether such sales were cash, store credit or
national credit card) to Finlay approximately three weeks after the end of such
month. During the months of November and December, however, most host store
groups are required to remit to Finlay 75% of the estimated months' sales prior
to or shortly following the end of that month. Each host store group withholds
from the remittance of sales proceeds a lease fee and other expenditures, such
as advertising costs, which the host store group may have incurred on Finlay's
behalf.

      Finlay is usually responsible for providing and maintaining any fixtures
and other equipment necessary to operate its Departments, while the host store
is typically required to provide clean space for installation of any necessary
fixtures. The host store is generally responsible for paying utility costs
(except certain telephone charges), maintenance and certain other expenses
associated with the operation of the Departments. Finlay's lease agreements
typically provide that Finlay is responsible for the hiring (subject to the
suitability of such employees to the host store) and discharge of its sales and
Department supervisory personnel, and substantially all lease agreements require
Finlay to provide its employees with salaries and certain benefits comparable to
those received by the host store's employees. Many of Finlay's lease agreements
provide that Finlay may operate the Departments in any new stores opened by the
host store group. In certain instances, Finlay is operating Departments without
written agreements, although the arrangements in respect of such Departments are
generally in accordance with the terms described herein.

      In several cases, Finlay is subject to limitations under its lease
agreements which prohibit Finlay from operating Departments for competing host
store groups within a certain geographical radius of the host stores (typically
five to ten miles). Such limitations restrict Finlay from further expansion
within areas where it currently operates Departments, including expansion by
possible acquisitions. Certain lease agreements, however, make an exception for
adding Departments in stores established by groups with which Finlay has a
preexisting lease arrangement. In addition, Finlay has from time to time
obtained the consent of an existing host store group to operate in another host
store group within a prohibited area. For example, May and Federated have
granted consents of this type to Finlay with respect to one another's stores.
Further, Finlay sought and received the consent of certain of its existing host
store groups in connection with the Diamond Park Acquisition and the J.B.
Rudolph Acquisition.

      Credit. Substantially all consumer credit risk is borne by the host store
rather than by Finlay. Purchasers of Finlay's merchandise at a host store are
entitled to the use of the host store's credit facilities on the same basis as
all of the host store's customers. Payment of credit card or check transactions
is generally guaranteed to Finlay by the host store, provided that the proper
credit approvals have been obtained in accordance with the host store's policy.
Accordingly, payment to Finlay in respect of its sales proceeds is generally not
dependent on when, or if, payment is received by the host store.


                                       9
<PAGE>

      Departments Opened/Closed. During 2001, Department openings offset by
closings resulted in a net decrease of 47 Departments. The openings totaled 33
Departments, and were all within existing store groups. The closings totaled 80
Departments and included 23 Departments as a result of Federated's closure of
its Stern's division, 16 Proffitt's Departments as a result of closing a number
of smaller Departments as well as Proffitt's consolidation of its stores at the
end of 2001 under one lessee and twelve Departments as a result of Federated's
acquisition of the Liberty House department store chain. The balance of the
closings were within existing store groups. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--2001 Compared with
2000".

      The following table sets forth data regarding the number of domestic
Departments and stand-alone stores which Finlay has operated from the beginning
of 1997:

                                                 Fiscal Year Ended
                                ------------------------------------------------
                                Jan. 31,  Jan. 30,  Jan. 29,   Feb. 3,   Feb. 2,
                                  1998      1999      2000      2001      2002
                                -------    ------    ------    ------    ------
Departments/Stores:

Open at beginning of period ..      797       959       959       987     1,053
Opened during period .........      172        68        61        86        33
Closed during period .........      (10)      (68)      (33)      (20)      (80)
                                -------    ------    ------    ------    ------
Open at end of period ........      959       959       987     1,053     1,006
                                -------    ------    ------    ------    ------
Net increase (decrease) ......      162        --        28        66       (47)
                                =======    ======    ======    ======    ======

      For the periods presented in the table above, Department closings were
primarily attributable to: ownership changes in host store groups; the
bankruptcy of certain host store groups; internal consolidation within host
store groups; the closing or sale by host store groups of individual stores;
host store group decisions to consolidate with one lessee; and Finlay's decision
to close unprofitable Departments. To management's knowledge, none of the
Department closings during the periods presented in the table above resulted
from dissatisfaction of a host store group with Finlay's performance.

Products and Pricing

      Each of Finlay's Departments offers a broad selection of necklaces,
earrings, bracelets, rings and watches. Other than watches, substantially all of
the fine jewelry items sold by Finlay are made from precious metals and many
also contain diamonds or colored gemstones. Finlay also provides jewelry and
watch repair services. Finlay does not carry costume or gold-filled jewelry.
Specific brand identification is generally not important within the fine jewelry
business, except for watches and designer jewelry. With respect to watches,
Finlay emphasizes brand name vendors, including Seiko, Citizen, Movado and
Bulova. Many of Finlay's lease agreements with host store groups restrict Finlay
from selling certain types of merchandise or, in some cases, selling particular
merchandise below certain price points.


                                       10
<PAGE>

      The following table sets forth the domestic sales and percentage of sales
by category of merchandise for 1999, 2000 and 2001:

<TABLE>
<CAPTION>
                                           Fiscal Year Ended
                  -----------------------------------------------------------------
                     Jan. 29, 2000           Feb. 3, 2001           Feb. 2, 2002
                  -------------------    -------------------    -------------------
                                % of                   % of                   % of
                    Sales      Sales       Sales      Sales       Sales      Sales
                  --------   --------    --------   --------    --------   --------
                                        (Dollars in millions)
<S>                 <C>         <C>      <C>           <C>        <C>         <C>
Diamonds ......     $219.1       24.7%   $  267.7       26.7%     $264.0       27.7%
Gold ..........      193.1       21.8       222.3       22.2       216.1       22.7
Gemstones .....      194.5       22.0       209.5       21.0       201.7       21.2
Watches .......      151.7       17.1       167.9       16.8       152.2       16.0
Other (1) .....      127.8       14.4       132.7       13.3       118.8       12.4
                  --------   --------    --------   --------    --------   --------
Total Sales ...     $886.2      100.0%   $1,000.1      100.0%     $952.8      100.0%
                  ========   ========    ========   ========    ========   ========
</TABLE>

----------
(1)   Includes special promotional items, remounts, estate jewelry, pearls,
      beads, cubic zirconia, sterling silver and men's jewelry, as well as
      repair services and accommodation sales to Finlay employees.

      See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

      Finlay sells its merchandise at prices generally ranging from $50 to
$1,000. In 2001, the average price of items sold by Finlay was approximately
$183 per item. An average Department has over 5,000 items in stock. Consistent
with fine jewelry retailing in general, a substantial portion of Finlay's sales
are made at prices discounted from listed retail prices. Finlay's advertising
and promotional planning are closely coordinated with its pricing strategy.
Publicized sales events are an important part of Finlay's marketing efforts. A
substantial portion of Finlay's sales occur during such promotional events. The
amount of time during which merchandise may be offered at discount prices is
limited by applicable laws and regulations. See "Legal Proceedings".

Purchasing and Inventory

      General. A key element of Finlay's strategy has been to lower the working
capital investment required for operating its existing Departments and opening
new Departments. In recent years, on average, approximately 50% of Finlay's
domestic merchandise has been obtained on consignment and certain additional
inventory has been purchased with extended payment terms. In 2001, Finlay's net
monthly investment in inventory (i.e., the total cost of inventory owned and
paid for) averaged 34% of the total cost of its on-hand merchandise. Finlay is
generally granted exchange privileges which permit Finlay to return or exchange
unsold merchandise for new products at any time. In addition, Finlay structures
its relationships with vendors to encourage their participation in and
responsibility for merchandise management. By making the vendor a participant in
Finlay's merchandising strategy, Finlay has created opportunities for the vendor
to assist in identifying fashion trends, thereby improving inventory turnover
and profitability. As a result, Finlay's direct capital investment in inventory
has been reduced to levels which it believes are low for the retail jewelry
industry. In addition, Finlay's inventory exposure to changing fashion trends is
reduced because, in general, unsold consignment merchandise can be returned to
the vendor.

      Management believes the willingness of vendors to participate in the
inventory management process is due, in part, to the large volume of merchandise
which Finlay sells in its Departments and the desire of vendors to take
advantage of Finlay's nationwide distribution network. By offering their
merchandise through Finlay's Departments, vendors are able to reach a broad
spectrum of the marketplace in


                                       11
<PAGE>

coordination with national or regional advertising campaigns conducted by the
vendors or their service organizations.

      In 2001, merchandise obtained by Finlay from its 40 largest vendors (out
of a total of approximately 500 vendors) generated approximately 77% of sales,
and merchandise obtained from Finlay's largest vendor generated approximately
10% of sales. Finlay does not believe the loss of any one of its vendors would
have a material adverse effect on its business.

      Gold Consignment Agreement. Finlay Jewelry is party to an amended and
restated gold consignment agreement (the "Gold Consignment Agreement"), which
expires on June 30, 2002. Finlay Jewelry is currently in the process of amending
and extending the Gold Consignment Agreement. The Gold Consignment Agreement
enables Finlay to receive merchandise by providing gold, or otherwise making
payment, to certain vendors who currently supply Finlay with merchandise on
consignment. While the merchandise involved remains consigned, title to the gold
content of the merchandise transfers from the vendors to the gold consignor.
Although the gold consignor has increased the limit to the lesser of (i) 160,000
fine troy ounces or (ii) $45.0 million worth of gold, subject to a formula as
prescribed by the Gold Consignment Agreement, Finlay Jewelry is currently
limited by the indentures relating to the Senior Notes (the "Senior Note
Indenture") and the Senior Debentures (the "Senior Debenture Indenture", and
collectively, with the Senior Note Indenture, the "Senior Indentures") to $37.0
million worth of gold. Finlay intends to obtain approval for the increase from
the holders of the Senior Notes and Senior Debentures. At February 2, 2002,
amounts outstanding under the Gold Consignment Agreement totaled 127,519 fine
troy ounces, valued at approximately $36.0 million. The average amount
outstanding under the Gold Consignment Agreement was $33.3 million in 2001.

      Under the Gold Consignment Agreement, Finlay is required to pay a daily
consignment fee on the dollar equivalent of the fine gold value of the ounces of
gold consigned thereunder. The daily consignment fee is based on a floating rate
which, as of February 2, 2002, was 3.0% per annum. In addition, Finlay is
required to pay a fee of 0.5% if the amount of gold consigned has a value equal
to or less than $12.0 million. In conjunction with the Gold Consignment
Agreement, Finlay granted to the gold consignor a first priority perfected lien
on, and a security interest in, specified gold jewelry of participating vendors
approved under the Gold Consignment Agreement and a lien on proceeds and
products of such jewelry subject to the terms of an intercreditor agreement
between the gold consignor and the Revolving Credit Agreement lenders.

Operations

      General. Most of Finlay's Departments have between 50 and 150 linear feet
of display cases (with an average of approximately 70 linear feet) generally
located in high traffic areas on the main floor of the host stores. Each
Department is supervised by a manager whose primary duties include customer
sales and service, scheduling and training of personnel, maintaining security
controls and merchandise presentation. Most of the Departments utilize up to 260
staff hours per week on a permanent basis, depending on the Department's sales
volume, and employ additional sales staff during the peak year-end holiday
season. Each Department is open for business during the same hours as its host
store. Subject to the terms of the applicable host store group lease agreement,
Finlay is generally responsible for its own operating decisions within each of
its Department operations, including the hiring and compensation of sales staff.
See "--Store Relationships--Terms of Lease Agreements".

      To parallel host store operations, Finlay establishes separate group
service organizations responsible for managing Departments operated for each
host store. Staffing for each group organization varies with the number of
Departments in each group. Typically, Finlay services each host store group with
a group


                                       12
<PAGE>

manager, an assistant group manager, one or more group buyers, one or more
regional supervisors who oversee the individual Department managers and a number
of clerical employees. Each group manager reports to a regional vice president,
who is responsible for supervision of up to seven host store groups. In its
continued efforts to improve comparable Department sales through improved
operating efficiency, Finlay has taken steps to minimize administrative tasks at
the Department level, to improve customer service and, as a result, sales.

      Finlay had average domestic sales per linear foot of approximately $12,700
in 1999, $13,600 in 2000 and $13,300 in 2001. Finlay determines average sales
per linear foot by dividing its sales by the aggregate estimated measurements of
the outer perimeters of the display cases of Finlay's Departments. Finlay had
average domestic sales per Department of approximately $911,000, $981,000 and
$925,000 in 1999, 2000 and 2001, respectively.

      Management Information and Inventory Control Systems. Finlay and its
vendors use Finlay's management information systems to monitor sales, gross
margin and inventory performance by location, merchandise category, style number
and vendor. Using this information, Finlay is able to monitor merchandise trends
and variances in performance and improve the efficiency of its inventory
management. Finlay also measures the productivity of its sales force by
maintaining current statistics for each employee such as sales per hour,
transactions per hour and transaction size. In March 2002, Finlay implemented a
new merchandising and inventory control system and a point-of-sale system for
Finlay's Departments. These systems will serve to support future growth of
Finlay as well as provide improved analysis and reporting capabilities to
facilitate merchandising solutions. Additionally, these systems will provide the
foundation for future productivity and expense control initiatives.

      Personnel and Training. Finlay considers its employees an important
component of its operations and devotes substantial resources to training and
improving the quality of sales and management personnel. Finlay seeks to
motivate its employees by linking a substantial percentage of their compensation
to performance standards. In most cases, individual sales personnel are
compensated on an hourly basis and paid a commission on sales. Department
managers are generally compensated on the basis of a salary plus a percentage of
their Department's sales. Group managers and regional vice presidents are
eligible to earn bonuses of up to 50% of their base salaries upon the
achievement of specified goals.

      As of the end of 2001, Finlay employed approximately 6,500 persons in the
United States, approximately 95% of whom were regional and local sales and
supervisory personnel and the balance of whom were employed in administrative or
executive capacities. Of Finlay's 6,500 employees, approximately 3,400 were
part-time employees, working less than 32 hours per week. Finlay's labor
requirements fluctuate because of the seasonal nature of Finlay's business. See
"--Seasonality". Management believes that its relations with its employees are
good. Less than 1% of Finlay's employees are unionized.

      Advertising. Finlay promotes its products through four-color direct mail
catalogs, using targeted mailing lists, and newspaper advertising of the host
store groups. Finlay maintains an in-house advertising staff responsible for
preparing a majority of Finlay's advertisements and for coordinating the
finished advertisements with the promotional activities of the host stores.
Finlay's gross advertising expenditures over the past five fiscal years have
consistently been approximately 6% of sales, a level which is consistent with
the jewelry industry's reliance on promotional efforts to generate sales. The
majority of Finlay's lease agreements with host store groups require Finlay to
expend certain specified minimum percentages of the respective Department's
annual sales on advertising and promotional activities.


                                       13
<PAGE>

      Inventory Loss Prevention and Insurance. Finlay undertakes substantial
efforts to safeguard its merchandise from loss or theft, including the
installation of safes at each location and the taking of a daily diamond
inventory. During 2001, inventory shrinkage amounted to approximately 1.0% of
sales. Finlay maintains insurance covering the risk of loss of merchandise in
transit or on Finlay's premises (whether owned or on consignment) in amounts
that management believes are reasonable and adequate for the types and amounts
of merchandise carried by Finlay.

      Gold Hedging. The cost to Finlay of gold merchandise sold on consignment
in some cases is not fixed until the sale is reported to the vendor or the gold
consignor in the case of merchandise sold pursuant to the Gold Consignment
Agreement. In such cases, the cost of merchandise varies with the price of gold
and Finlay is exposed to the risk of fluctuations in the price of gold between
the time Finlay establishes the advertised or other retail price of a particular
item of merchandise and the date on which the sale of the item is reported to
the vendor or gold consignor. In order to hedge against this risk and to enable
Finlay to determine the cost of such goods prior to their sale, Finlay may elect
to fix the price of gold prior to the sale of such merchandise. Accordingly,
Finlay at times enters into futures contracts, such as options or forwards or a
combination thereof. The value of gold hedged under such contracts represented
approximately 5.4% of Finlay Jewelry's cost of goods sold in 2001. Under such
contracts, Finlay obtains the right to purchase a fixed number of troy ounces of
gold at a specified price per ounce for a specified period. Such contracts
typically have durations ranging from one to nine months and are generally
priced at the spot gold price plus an amount based on prevailing interest rates
plus customary transactions costs. When sales of such merchandise are reported
to the consignment vendors and the cost of such merchandise becomes fixed,
Finlay sells its related hedge position. At February 2, 2002, Finlay Jewelry had
several open positions in futures contracts, for gold totaling 17,500 fine troy
ounces, valued at $4.8 million, which expire during 2002. The fair market value
of gold under such contracts was $4.9 million at February 2, 2002.

      The primary effect on liquidity from using futures contracts is associated
with the related margin requirements. Historically, cash flows related to
futures margin requirements have not been material to Finlay's total working
capital requirements. Finlay manages the purchase of futures contracts by
estimating and monitoring the quantity of gold that it anticipates it will
require in connection with its anticipated level of sales of the type described
above. Finlay's gold hedging transactions are entered into by Finlay in the
ordinary course of its business. Finlay's gold hedging strategies are determined
and monitored on a regular basis by Finlay's senior management and its Board of
Directors.

Competition

      Finlay faces competition for retail jewelry sales from national and
regional jewelry chains, other department stores, local independently owned
jewelry stores and chains, specialty stores, mass merchandisers, catalog
showrooms, discounters, direct mail suppliers, televised home shopping and the
internet. Management believes that competition in the retail jewelry industry is
based primarily on the price, quality, fashion appeal and perceived value of the
product offered and on the reputation, integrity and service of the retailer.
See "--Store Relationships--Terms of Lease Agreements" with respect to certain
limitations on Finlay's ability to compete.

Seasonality

      The retail jewelry business is highly seasonal. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Seasonality".


                                       14
<PAGE>

Item 2. Properties

      The only real estate owned by Finlay is the central distribution facility,
totaling 106,200 square feet at 205 Edison Avenue, Orange, Connecticut. Finlay
leases approximately 18,400 square feet at 521 Fifth Avenue, New York, New York,
and 49,100 square feet at 529 Fifth Avenue, New York, New York for its
executive, accounting, advertising, the majority of its data processing
operations and other administrative functions. The leases for such space expire
September 30, 2008. For certain operations at 500 Eighth Avenue, New York, New
York, Finlay has leased approximately 9,200 square feet under a lease which
expires September 30, 2002. Finlay also leases retail space for its New York
Jewelry Outlet store in Destin, Florida. Generally, as part of Finlay's lease
arrangements, host stores provide office space to Finlay's host store group
management personnel free of charge.

Item 3. Legal Proceedings

      Finlay is involved in certain legal actions arising in the ordinary course
of business. Management believes none of these actions, either individually or
in the aggregate, will have a material adverse effect on Finlay's business,
financial position or results of operations.

      Commonly in the retail jewelry industry, a substantial amount of
merchandise is sold at a discount to the "regular" or "original" price. Finlay's
experience is consistent with this practice. See "Business--Products and
Pricing". A number of states in which Finlay operates have regulations which
require retailers who offer merchandise at discounted prices to offer the
merchandise at the "regular" or "original" prices for stated periods of time.
Management believes it is in substantial compliance with all applicable legal
requirements with respect to such practices.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during the fourth
quarter of 2001.


                                       15
<PAGE>

                                     PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

      Finlay Jewelry is a wholly owned subsidiary of the Holding Company.
Accordingly, there is no established public trading market for Finlay Jewelry's
common stock.

      During 2001, cash dividends of $7.2 million were distributed by Finlay
Jewelry to the Holding Company. The distributions are generally utilized to pay
interest on the Senior Debentures and certain expenses of the Holding Company
such as legal, accounting and directors' fees. Certain restrictive covenants in
the indenture relating to the Senior Notes (the "Senior Note Indenture"), the
Revolving Credit Agreement and the Gold Consignment Agreement currently restrict
annual distributions from Finlay Jewelry to the Holding Company to 0.25% of
Finlay Jewelry's net sales for the preceding fiscal year and also allow
distributions to the Holding Company to enable it to make interest payments on
the Senior Debentures.

      There was one record holder of Finlay Jewelry's common stock at April 24,
2002.


                                       16
<PAGE>

Item 6. Selected Consolidated Financial Data

      The selected consolidated financial information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto. See "Index to Consolidated Financial Statements". The balance sheet
data of Finlay Jewelry at February 3, 2001 and February 2, 2002 and the
statement of operations data for each of the fiscal years ended January 29,
2000, February 3, 2001 and February 2, 2002 were derived from consolidated
financial statements of Finlay Jewelry, which statements have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere herein. The balance sheet data of Finlay Jewelry at
January 31, 1998, January 30, 1999 and January 29, 2000 and the statement of
operations data for the fiscal years ended January 31, 1998 and January 30, 1999
were derived from consolidated financial statements of Finlay Jewelry, which
statements have been audited by Arthur Andersen LLP, independent public
accountants, and which are not included or incorporated herein.

<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended (1)
                                                          -------------------------------------------------------------
                                                           Jan. 31,     Jan. 30,     Jan. 29,     Feb. 3,       Feb. 2,
                                                             1998         1999         2000        2001          2002
                                                          ---------    ---------    ---------   ----------    ---------
                                                                              (Dollars in thousands)
<S>                                                       <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
   Sales ..............................................   $ 769,862    $ 863,428    $ 912,978   $1,000,120    $ 952,789
   Cost of sales ......................................     371,085      421,450      449,912      496,291      479,255
   Cost of sales - Sonab inventory write-down (2) .....          --           --        7,839           --           --
                                                          ---------    ---------    ---------   ----------    ---------
   Gross margin (3) ...................................     398,777      441,978      455,227      503,829      473,534
   Selling, general and administrative expenses .......     325,752      364,002      378,112      409,019      393,457
   Nonrecurring charges associated with the sale
     and closure of Sonab (2) .........................          --           --       20,792           --           --
   Depreciation and amortization ......................      12,163       15,672       16,895       17,549       20,089
                                                          ---------    ---------    ---------   ----------    ---------
   Income (loss) from operations ......................      60,862       62,304       39,428       77,261       59,988
   Interest expense, net ..............................      24,413       24,612       22,565       23,117       19,989
   Nonrecurring interest associated with
     refinancing (4) ..................................          --          417           --           --           --
                                                          ---------    ---------    ---------   ----------    ---------
   Income (loss) before income taxes and
     extraordinary charges ............................      36,449       37,275       16,863       54,144       39,999
   Provision (benefit) for income taxes ...............      15,528       15,323        7,801       22,715       16,672
                                                          ---------    ---------    ---------   ----------    ---------
   Income (loss) before extraordinary charges .........      20,921       21,952        9,062       31,429       23,327
   Extraordinary charges from early extinguishment
     of debt, net (5) .................................          --        4,755           --           --           --
                                                          ---------    ---------    ---------   ----------    ---------
   Net income (loss) ..................................   $  20,921    $  17,197    $   9,062   $   31,429    $  23,327
                                                          =========    =========    =========   ==========    =========

Operating and Financial Data:
   Number of Departments (end of period) (6):
     Consolidated .....................................       1,117        1,109          987        1,053        1,006
     Domestic .........................................         959          959          987        1,053        1,006
   Percentage increase (decrease) in sales (7) ........        12.3%        12.2%         5.7%         9.5%        (4.7)%
   Percentage increase (decrease) in comparable
     Department sales (6)(8):
     Consolidated .....................................         5.5%         3.9%         6.8%         2.1%        (3.0)%
     Domestic .........................................         5.7%         5.4%         8.1%         2.1%        (3.0)%
   Average domestic sales per Department (9) ..........   $     820    $     857    $     911   $      981    $     925
   EBITDA (10) ........................................      73,025       77,976       56,323       94,810       80,077
   Capital expenditures ...............................      19,338       14,874       14,972       18,118       13,850
</TABLE>


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended (1)
                                                          -------------------------------------------------------------
                                                           Jan. 31,     Jan. 30,     Jan. 29,      Feb. 3,      Feb. 2,
                                                             1998         1999         2000         2001         2002
                                                          ---------    ---------    ---------    ---------    ---------
                                                                              (Dollars in thousands)
<S>                                                       <C>          <C>          <C>          <C>          <C>
Cash flows provided from (used in):
   Operating activities ...............................   $  74,314    $ (13,018)   $  46,448    $  34,455    $  42,636
   Investing activities ...............................     (79,366)     (23,134)     (21,054)     (30,403)     (17,432)
   Financing activities ...............................      (2,349)      40,067       (7,159)      (7,640)      (7,231)

Balance Sheet Data-End of Period:
   Working capital ....................................   $  65,705    $ 126,723    $ 132,696    $ 152,003    $ 173,334
   Total assets .......................................     501,454      541,403      554,994      602,254      583,422
   Short-term debt, including current portion of
     long-term debt ...................................          --           --           --           --           --
   Long-term debt, excluding current portion ..........     135,000      150,000      150,000      150,000      150,000
   Total stockholder's equity (deficit) ...............     101,826      152,083      157,026      179,423      193,596
</TABLE>

----------
      (1)   Each of the fiscal years for which information is presented includes
            52 weeks except 2000, which includes 53 weeks.

      (2)   Included in 1999 are nonrecurring charges associated with the sale
            and closure of Sonab totaling $28.6 million. Included in cost of
            sales is $7.8 million for the write-down of inventory with the
            balance of $20.8 million recorded as an operating expense. Refer to
            Note 13 of Notes to Consolidated Financial Statements.

      (3)   Finlay utilizes the LIFO method of accounting for inventories. If
            Finlay had valued inventories at actual cost, as would have resulted
            from the specific identification inventory valuation method, the
            gross margin would have increased (decreased) as follows: $(2.3)
            million, $(1.0) million, $(1.1) million, $1.8 million and $3.8
            million for 1997, 1998, 1999, 2000 and 2001, respectively.

      (4)   As a result of certain call requirements associated with the Old
            Notes, Finlay had outstanding both the new debt and the old debt for
            a period of twenty-five days in 1998. The net effect of the above,
            offset by reduced interest expense on the borrowings under the
            Revolving Credit Agreement and interest income on excess cash
            balances, was $0.4 million.

      (5)   The extraordinary charges of $8.0 million include $5.4 million for
            the redemption premium on the Old Notes and $2.0 million to write
            off deferred financing costs associated with the Old Notes. The
            income tax benefit on the extraordinary charges totaled $3.2
            million.

      (6)   Includes Departments and stand-alone locations.

      (7)   Excluding sales for the 53rd week of 2000, the percentage increase
            in sales for 2000 was 8.8% and the percentage decrease in sales for
            2001 was 4.1%.

      (8)   Comparable Department sales are calculated by comparing the sales
            from Departments open for the same months in the comparable periods.

      (9)   Average domestic sales per Department is determined by dividing
            domestic sales by the average of the number of domestic Departments
            open at the beginning and at the end of each period.

      (10)  EBITDA represents income from operations before depreciation and
            amortization expenses. For 1999, consolidated EBITDA includes the
            nonrecurring charge totaling $28.6 million associated with the sale
            and closure of Sonab. Finlay Jewelry believes EBITDA provides
            additional information for determining its ability to meet future
            debt service requirements. EBITDA should not be construed as a
            substitute for income from operations, net income or cash flow from
            operating activities (all as determined in accordance with generally
            accepted accounting principles) for the purpose of analyzing
            Finlay's operating performance, financial position and cash flows as
            EBITDA is not defined by generally accepted accounting principles.
            Finlay has presented EBITDA, however, because it is commonly used by
            certain investors and analysts to analyze and compare companies on
            the basis of operating performance and to determine a company's
            ability to service and/or incur debt. Finlay's computation of EBITDA
            may not be comparable to similar titled measures of other companies.


                                       18
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

      The following should be read in conjunction with "Selected Consolidated
Financial Information" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K.

      Certain statements under this caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" under the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). See "Special Note Regarding Forward-Looking Statements".

Critical Accounting Policies and Estimates

      Finlay Jewelry's Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States.
These generally accepted accounting principles require management to make
estimates and assumptions that affect certain financial statement accounts
reported and disclosed at the date of the financial statements. Actual results
could differ from those estimates.

      Finlay Jewelry's significant accounting policies are described in Note 2
of Notes to the Consolidated Financial Statements. Finlay believes that the
following discussion addresses the critical accounting policies, which are those
that are most important to the portrayal of Finlay Jewelry's financial condition
and results and require management's most difficult, subjective or complex
judgments. Finlay Jewelry is not aware of any likely events or circumstances
which would result in different amounts being reported that would materially
affect its financial condition or results of operations.

      Merchandise Inventories

      Finlay Jewelry values its inventories at the lower of cost or market. The
cost is determined by the last-in, first-out method utilizing selected producer
price indices published for jewelry and watches by the Bureau of Labor
Statistics. Factors related to inventories such as future consumer demand and
the economy's impact on consumer discretionary spending, inventory aging,
ability to return merchandise to vendors, merchandise condition and anticipated
markdowns are analyzed to determine estimated net realizable values. A provision
is recorded to reduce the cost of inventories to the estimated net realizable
values, if required. Any significant unanticipated changes in the factors above
could have a significant impact on the value of the inventories and Finlay
Jewelry's reported operating results.

      Finlay is exposed to market risk related to changes in the price of gold
and at times enters into futures contracts, such as options or forwards, to
hedge against the risk of gold price fluctuations. Finlay Jewelry adopted
Statement of Financial Accounting Standard ("SFAS") No. 133 " Accounting for
Derivative Instruments and Hedging Activities", which requires that all
derivative instruments be recorded on the balance sheet as either an asset or a
liability measured at its fair value. The impact on Finlay Jewelry's financial
condition, results of operations and cash flows, upon the adoption of SFAS No.
133 was immaterial.


                                       19
<PAGE>

      Revenue Recognition

      Finlay Jewelry recognizes revenue upon the sale of merchandise, either
owned or consigned, to its customers, net of anticipated returns.

      Covenant Requirements

      Finlay Jewelry's agreements covering the Revolving Credit Agreement and
the Senior Notes each require that Finlay comply with certain restrictive and
financial covenants. In addition, Finlay Jewelry is party to the Gold
Consignment Agreement, which also contains certain covenants. Refer to Notes 3
and 4 of Notes to the Consolidated Financial Statements. During 2001, in
anticipation of not meeting one of the financial covenants under the Revolving
Credit Agreement, the covenant was amended. As of and for the year ended
February 2, 2002, Finlay was in compliance with all of its covenants. Should
Finlay's results of operations significantly erode, Finlay may not be in
compliance with its covenants. Although management believes that Finlay would be
able to obtain a waiver or amendment, in the event that Finlay is unable to
obtain such waiver or amendment, the outstanding balances could become due
immediately.

Recent Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives are no longer to be
amortized but tested for impairment on an annual basis. Finlay Jewelry adopted
this pronouncement in 2002 and is currently evaluating whether goodwill is
impaired. Finlay Jewelry's annual goodwill amortization in 2001 totaled $3.7
million.

      In October 2001, the FASB issued SFAS No. 144 "Accounting for Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This extends
the reporting requirements to include reporting separately as discontinued
operations, components of an entity that have either been disposed of or
classified as held-for-sale. Finlay Jewelry has adopted the provisions of SFAS
No. 144 in 2002 and does not anticipate that such adoption will have a
significant effect on Finlay Jewelry's results of operations or financial
position.


                                       20
<PAGE>

Results of Operations

      The following table sets forth operating results as a percentage of sales
for the periods indicated:

                                                        Fiscal Year Ended
                                                   ---------------------------
                                                   Jan. 29,   Feb. 3,   Feb. 2,
                                                     2000      2001      2002
                                                   --------   -------   -------
Statement of Operations Data:
Sales ...........................................    100.0%    100.0%    100.0%
Cost of sales ...................................     49.3      49.6      50.3
Cost of sales - Sonab inventory write-down (1) ..      0.8        --        --
                                                   -------    ------    ------
  Gross margin ..................................     49.9      50.4      49.7
Selling, general and administrative expenses ....     41.4      40.9      41.3
Nonrecurring charges associated with the sale
   and closure of Sonab (1) .....................      2.3        --        --
Depreciation and amortization ...................      1.9       1.8       2.1
                                                   -------    ------    ------
Income (loss) from operations ...................      4.3       7.7       6.3
Interest expense, net ...........................      2.5       2.3       2.1
                                                   -------    ------    ------
Income (loss) before income taxes ...............      1.8       5.4       4.2
Provision for income taxes ......................      0.8       2.3       1.7
                                                   -------    ------    ------
Net income (loss) ...............................      1.0%      3.1%      2.5%
                                                   =======    ======    ======

Other Supplemental Data:
EBITDA (2)(3) ...................................      6.2%      9.5%      8.4%

----------
(1)   See Note 2 to "Selected Consolidated Financial Data".

(2)   EBITDA represents income from operations before depreciation and
      amortization expenses. Finlay Jewelry believes EBITDA provides additional
      information for determining its ability to meet future debt service
      requirements. See Note 10 to "Selected Consolidated Financial Data".

(3)   For 1999, EBITDA as a percentage of sales includes the nonrecurring
      charges associated with the sale and closure of Sonab. Excluding these
      charges, EBITDA as a percentage of sales was 9.3%.

2001 Compared with 2000

      Sales. Sales decreased $47.3 million, or 4.7%, in 2001 compared to 2000.
Excluding sales for the 53rd week of 2000, sales decreased 4.1%. Comparable
Department sales decreased 3.0%. Management attributes this decrease in
comparable Department sales primarily to a challenging retail environment and
the extraordinary events of September 11, 2001 and its impact on the economy,
which resulted in reduced consumer discretionary spending. Total sales were
negatively impacted by $17.3 million as a result of closing the Stern's and
Liberty House Departments offset by the benefit of a full year of sales from the
former J.B. Rudolph departments and the net effect of new Department openings
and closings.

      Finlay's merchandising and marketing strategy includes the following
initiatives: (i) emphasizing its "Key Item" and "Best Value" merchandising
programs, which provide a targeted assortment of items at competitive prices;
(ii) increasing focus on holiday and event-driven promotions as well as host
store marketing programs; and (iii) positioning Finlay's Departments as a
"destination location" for fine jewelry.


                                       21
<PAGE>

      During 2001, Finlay opened 33 Departments within existing store groups,
which included 22 Departments in May. During this period Finlay closed 80
Departments which were comprised of the following:

<TABLE>
<CAPTION>
                        Number of
     Store Group       Departments                       Reason
--------------------   -----------  --------------------------------------------------
<S>                        <C>      <C>
Stern's ............       23       Store group was closed by Federated.
Proffitt's .........       16       Closed smaller Departments and, at the end of 2001,
                                      host store consolidated under one lessee.
Liberty House ......       12       Federated's acquisition of Liberty House.
Dillard's ..........        7       Closed smaller Departments.
Other ..............       22       Department closings within existing store groups.
                          ---
                           80
                          ===
</TABLE>

      Gross margin. Gross margin decreased by $30.3 million in 2001 compared to
2000 and, as a percentage of sales, gross margin decreased by 0.7%, primarily
due to (i) management's continued efforts to increase market penetration and
market share through its pricing strategy, (ii) a charge of $3.8 million in the
LIFO provision compared to the prior year's provision of $1.8 million and (iii)
a charge of $1.5 million for the markdown of aged inventory.

      Selling, general and administrative expenses. SG&A totaled $393.5 million,
a decrease of $15.6 million, or 3.8%, in 2001 compared to 2000 due primarily to
payroll expense and lease fees associated with the decrease in Finlay Jewelry's
sales. SG&A as a percentage of sales increased to 41.3% in 2001 from 40.9% in
2000 as a result of the negative impact of payroll and other expenses as a
percentage of sales due to the lower sales volume.

      Depreciation and amortization. Depreciation and amortization increased by
$2.5 million in 2001 compared to 2000, reflecting $13.9 million in capital
expenditures and an increase in capitalized software costs for the most recent
twelve months. Additionally, during 2001, Finlay began amortizing the
capitalized software for its new merchandising and point-of-sale systems. These
costs were offset by the effect of certain assets becoming fully depreciated.
The increase in fixed assets was primarily due to the addition of new
Departments and the renovation of existing Departments.

      Interest expense, net. Interest expense decreased by $3.1 million
reflecting a lower weighted average interest rate (7.4% for 2001 compared to
8.5% for 2000) and a decrease in average borrowings ($230.8 million for 2001
compared to $246.6 million for 2000).

      Provision for income taxes. The income tax provision for 2001 and 2000
reflects an effective tax rate of 40.5%.

      Net income. Net income of $23.3 million for 2001 represents a decrease of
$8.1 million as compared to net income of $31.4 million in 2000 as a result of
the factors discussed above.

2000 Compared with 1999

      Sales. Sales increased $87.1 million, or 9.5%, in 2000 compared to 1999.
Comparable Department sales increased 2.1%. Management attributes this increase
in comparable Department sales primarily to the "Key Item" and "Best Value"
merchandising programs and to the marketing initiatives discussed above. These
factors were offset by a general softening in the retail environment in the
latter part of 2000. Sales from the operation of net new Departments contributed
$68.0 million, primarily relating to the J.B.


                                       22
<PAGE>

Rudolph Acquisition and the net effect of new Department openings and closings
offset by the sale and closure of Sonab at the end of 1999. Excluding Sonab's
sales which totaled $26.8 million in 1999, sales on a domestic basis increased
12.9% in 2000.

      During 2000, Finlay opened 86 Departments and closed 20 Departments. The
Department openings were comprised of the following:

<TABLE>
<CAPTION>
                        Number of
     Store Group       Departments                       Reason
--------------------   -----------  --------------------------------------------------
<S>                        <C>      <C>
Bloomingdale's .......     23       J.B. Rudolph Acquisition.
Hudson's .............     21       J.B. Rudolph Acquisition.
Dayton's .............     13       J.B. Rudolph Acquisition.
Meier & Frank ........      7       May's acquisition of ZCMI.
Other ................     22       Department openings within existing store groups.
                          ---
                           86
                          ===
</TABLE>

      The Department closings were comprised of the following:

<TABLE>
<CAPTION>
                                     Number of
     Store Group                    Departments                       Reason
--------------------                -----------  --------------------------------------------------
<S>                                     <C>      <C>
New York Jewelry Outlet.........         6       Sold in May 2000.
Other...........................        14       Department closings within existing store groups.
                                       ---
                                        20
                                       ===
</TABLE>

      Gross margin. Gross margin increased by $48.6 million in 2000 compared to
1999 and, as a percentage of sales, gross margin increased by 0.5%, primarily
due to a nonrecurring charge in 1999 of $7.8 million relating to the write-down
of inventory in conjunction with the sale and closure of Sonab's operations
offset by (i) management's continued efforts to increase market penetration and
market share through its pricing strategy and (ii) a charge of $1.8 million in
the LIFO provision compared to the prior year's benefit of $1.0 million.

      Selling, general and administrative expenses. SG&A totaled $409.0 million,
an increase of $30.9 million, or 8.2%, in 2000 compared to 1999 due primarily to
payroll expense and lease fees associated with the increase in Finlay Jewelry's
sales. SG&A as a percentage of sales decreased to 40.9% in 2000 from 41.4% in
1999 as a result of the negative impact of Sonab's 1999 SG&A as a percentage of
sales in addition to expenses related to Finlay's year 2000 remediation project
of approximately $2.0 million in 1999. On a domestic basis, SG&A as a percentage
of sales improved 0.1%.

      Nonrecurring charges associated with the sale and closure of Sonab. As a
result of the sale of the majority of Sonab's assets and the disposition of the
remaining assets, Finlay Jewelry recorded a nonrecurring charge of $20.8 million
in 1999. The components of the charge relate to the realization of foreign
exchange losses, payroll and severance costs, other close-down costs and the
write-off of undepreciated assets.

      Depreciation and amortization. Depreciation and amortization increased by
$0.7 million in 2000 compared to 1999, reflecting $18.1 million in capital
expenditures and an increase in capitalized software costs for the most recent
twelve months. These costs were offset by the effect of certain assets becoming
fully depreciated, as well as the disposition and write-off of Sonab's fixed
assets. On a domestic basis, depreciation and amortization increased by $1.3
million. The increase in fixed assets was primarily due to the addition of new
Departments, the renovation of existing Departments and the inclusion of the
cost of fixed assets acquired in connection with the J.B. Rudolph Acquisition.


                                       23
<PAGE>

      Interest expense, net. Interest expense increased by $0.6 million
reflecting a higher weighted average interest rate (8.5% for 2000 compared to
8.0% for 1999) offset slightly by a decrease in average borrowings ($246.6
million for 2000 compared to $254.2 million for 1999).

      Provision for income taxes. The income tax provision for 2000 and 1999
reflects an effective tax rate of 40.5%.

      Net income. Net income of $31.4 million for 2000 represents an increase of
$22.4 million as compared to net income of $9.1 million in 1999 as a result of
the factors discussed above. Excluding the nonrecurring charges in 1999 relating
to the sale and closure of Sonab, net income for 2000, on a domestic basis,
increased by $1.5 million.

Liquidity and Capital Resources

      Finlay's primary capital requirements are for funding working capital for
new Departments and for working capital growth of existing Departments and, to a
lesser extent, capital expenditures for opening new Departments, renovating
existing Departments and information technology investments. For 2000 and 2001,
capital expenditures totaled $14.1 million (exclusive of the fixed assets
acquired in the J.B. Rudolph Acquisition, which totaled $4.0 million) and $13.9
million, respectively. Total capital expenditures for 2002 are estimated to be
approximately $12.0 to $13.0 million. Although capital expenditures are limited
by the terms of the Revolving Credit Agreement, to date this limitation has not
precluded Finlay from satisfying its capital expenditure requirements.

      Finlay's operations substantially preclude customer receivables as
Finlay's lease agreements require host stores to remit sales proceeds for each
month (without regard to whether such sales were cash, store credit or national
credit card) to Finlay approximately three weeks after the end of such month. In
recent years, on average, approximately 50% of Finlay's domestic merchandise has
been carried on consignment. Accordingly, management believes that relatively
modest levels of working capital are required in comparison to many other
retailers. Finlay Jewelry's working capital balance was $173.3 million at
February 2, 2002, an increase of $21.3 million from February 3, 2001. The
increase resulted primarily from the impact of 2001's net income, exclusive of
depreciation and amortization and fixed asset disposals associated with the
closed store groups, partially offset by capital expenditures and additions to
deferred charges.

      The seasonality of Finlay's business causes working capital requirements,
and therefore borrowings under the Revolving Credit Agreement, to reach their
highest level in the months of October, November and December in anticipation of
the year-end holiday season. Accordingly, Finlay experiences seasonal cash needs
as inventory levels peak. During 2001, by closely monitoring sales and the
effects of the slowing economy, Finlay Jewelry reduced inventory by 6% over the
previous year. This had a favorable impact on Finlay Jewelry's liquidity.
Additionally, Finlay's lease agreements provide for accelerated payments during
the months of November and December, which require most host store groups to
remit to Finlay 75% of the estimated months' sales prior to or shortly following
the end of that month. These proceeds result in a significant increase in
Finlay's cash, which is used to reduce Finlay's borrowings under the Revolving
Credit Agreement.

      The Revolving Credit Agreement, which expires in March 2003, provides
Finlay with a line of credit of up to $275.0 million, inclusive of a $50.0
million acquisition facility, to finance working capital needs. Finlay intends
to renew the Revolving Credit Agreement and expects to begin this process during
the summer of 2002. There can be no assurances that a new revolving credit
facility will be executed on terms equal to or more favorable than the expiring
Revolving Credit Agreement, or that a new agreement


                                       24
<PAGE>

can be completed at all. Finlay would be adversely affected if it were unable to
secure a new revolving credit facility. Amounts outstanding under the Revolving
Credit Agreement bear interest at a rate equal to, at Finlay's option, (i) the
Index Rate (as defined in the Revolving Credit Agreement) plus a margin ranging
from zero to 1.0% or (ii) adjusted LIBOR plus a margin ranging from 1.0% to
2.0%, in each case depending on the financial performance of Finlay.

      In each year, Finlay is required to reduce the outstanding revolving
credit balance and letter of credit balance under the Revolving Credit Agreement
to $50.0 million or less and $20.0 million or less, respectively, for a 30
consecutive day period (the "Balance Reduction Requirement"). Borrowings under
the Revolving Credit Agreement at February 2, 2002 and February 3, 2001 were
zero. The average amounts outstanding under the Revolving Credit Agreement for
2000 and 2001 were $96.6 million and $80.8 million, respectively. The maximum
amount outstanding for 2001 was $125.2 million, at which point the unused excess
availability was $95.5 million, excluding the acquisition facility. At February
2, 2002, Finlay was in compliance with all of its covenants under the Revolving
Credit Agreement.

      Finlay's long-term needs for external financing will depend on its rate of
growth, the level of internally generated funds and the ability to continue
obtaining substantial amounts of merchandise on advantageous terms, including
consignment arrangements with its vendors. As of February 2, 2002, $359.7
million of consignment merchandise from approximately 300 vendors was on hand as
compared to $381.7 million at February 3, 2001. For 2001, Finlay had an average
balance of consignment merchandise of $377.4 million as compared to an average
balance of $372.9 million in 2000. See "Business--Store Relationships" and
"Business--Purchasing and Inventory".

      A significant amount of Finlay's operating cash flow has been used or will
be required to pay interest, directly or indirectly, with respect to the Senior
Debentures, the Senior Notes and amounts due under the Revolving Credit
Agreement, including the payments required pursuant to the Balance Reduction
Requirement. As of February 2, 2002, Finlay Jewelry's outstanding borrowings
included a $150.0 million balance under the Senior Notes. At February 2, 2002,
Finlay was in compliance with all of its covenants under the Senior Note
Indenture.

      Finlay Jewelry is party to the Gold Consignment Agreement, which expires
on June 30, 2002. The Gold Consignment Agreement enables Finlay Jewelry to
receive merchandise by providing gold, or otherwise making payment, to certain
vendors. While the merchandise involved remains consigned, title to the gold
content of the merchandise transfers from the vendors to the gold consignor.
Although the gold consignor has increased the limit to the lesser of (i) 160,000
fine troy ounces or (ii) $45.0 million worth of gold, subject to a formula as
prescribed by the Gold Consignment Agreement, Finlay Jewelry is currently
limited by the Senior Indentures to $37.0 million worth of gold. Finlay intends
to obtain approval for the increase from the holders of the Senior Notes and
Senior Debentures. Finlay Jewelry is currently in the process of amending and
extending the Gold Consignment Agreement, however, there are no assurances that
this will be completed. At February 2, 2002, amounts outstanding under the Gold
Consignment Agreement totaled 127,519 fine troy ounces, valued at approximately
$36.0 million. The average amount outstanding under the Gold Consignment
Agreement was $33.3 million in 2001. At February 2, 2002, Finlay Jewelry was in
compliance with the covenants under the Gold Consignment Agreement.


                                       25
<PAGE>

      The following tables summarize Finlay Jewelry's contractual and commercial
obligations which may have an impact on future liquidity and the availability of
capital resources, as of February 2, 2002 (dollars in thousands):

<TABLE>
<CAPTION>
                                                             Payments Due By Period
                                ----------------------------------------------------------------------------------
Contractual Obligations           Total     Less than 1 year    1 - 3 years     4 - 5 years     After 5 years
-----------------------         --------    ----------------    -----------     -----------     -------------
<S>                             <C>               <C>              <C>             <C>             <C>
Senior Notes
   (due 2008) (1) ............  $150,000          $   --           $   --          $   --          $150,000
Operating leases (2)..........    19,346           3,263            6,481           6,407             3,195
                                --------          ------           ------          ------          --------
Total ........................  $169,346          $3,263           $6,481          $6,407          $153,195
                                ========          ======           ======          ======          ========
</TABLE>

-----------
(1)  The  Holding  Company  has  $75.0  million  of Senior  Debentures  due 2008
     outstanding.  Refer  to  Note  4 of  Notes  to the  Consolidated  Financial
     Statements.

(2)  Represents future minimum payments under noncancellable operating leases.

<TABLE>
<CAPTION>
                                               Amount of Commitment Expiration Per Period
                                -----------------------------------------------------------------------------
Other Commercial Commitments      Total     Less than 1 year    1 - 3 years     4 - 5 years     After 5 years
----------------------------     -------    ----------------    -----------     -----------     -------------
<S>                              <C>             <C>               <C>             <C>               <C>
Revolving Credit Agreement
  (due 2003) (1) .............   $    --         $    --           $   --           $ --             $ --
Gold Consignment
  Agreement (due 2002) (2) ...    36,000          36,000               --             --               --
Letters of credit ............     4,250           2,000            2,250             --               --
                                 -------         -------           ------           ----             ----
Total ........................   $40,250         $38,000           $2,250           $ --             $ --
                                 =======         =======           ======           ====             ====
</TABLE>

----------
(1)   There were no borrowings under the Revolving Credit Agreement at February
      2, 2002. The average amount outstanding during 2001 was $80.8 million and
      the outstanding balance as of April 15, 2002 was $59.2 million.

(2)   Represents amount outstanding at February 2, 2002.

      Finlay believes that, based upon current operations, anticipated growth,
and continued availability under the Revolving Credit Agreement, Finlay Jewelry
will, for the forseeable future, be able to meet its debt service and
anticipated working capital obligations, and to make distributions to the
Holding Company sufficient to permit the Holding Company to meet its debt
service obligations and to pay certain other expenses as they come due. No
assurances, however, can be given that Finlay Jewelry's current level of
operating results will continue or improve or that Finlay Jewelry's income from
operations will continue to be sufficient to permit Finlay Jewelry and the
Holding Company to meet their debt service and other obligations. Currently,
Finlay Jewelry's principal financing arrangements restrict annual distributions
from Finlay Jewelry to the Holding Company to 0.25% of Finlay Jewelry's net
sales for the preceding fiscal year and also allow distributions to the Holding
Company to enable it to make interest payments on the Senior Debentures. The
amounts required to satisfy the aggregate of Finlay Jewelry's interest expense,
distributions to the Holding Company for interest payments and required
amortization payments totaled $22.2 million and $19.0 million for 2000 and 2001,
respectively.

      On December 1, 2000, the Holding Company announced that its Board of
Directors had approved a stock repurchase program to acquire up to $20 million
of outstanding Common Stock. The Holding Company may, at the discretion of
management, purchase its Common Stock, from time to time through September 30,
2002 under the stock repurchase program. The extent and timing of repurchases
will depend upon general business and market conditions, stock prices,
availability under Finlay's revolving


                                       26
<PAGE>

credit facility, compliance with certain restrictive covenants and its cash
position and requirements going forward. To date, the Holding Company has
repurchased 1,126,892 shares for $11.2 million.

      In March 2002, Finlay implemented a new merchandising and inventory
control system and a point-of-sale system for Finlay's Departments. These
systems will serve to support future growth of Finlay as well as provide
improved analysis and reporting capabilities and more timely sales and inventory
information to facilitate merchandising solutions. Additionally, these systems
will provide the foundation for future productivity and expense control
initiatives. At February 2, 2002, a total of approximately $18.8 million has
been expended for software and implementation costs and is included in Deferred
charges and other assets.

      Section 382 of the Internal Revenue Code of 1986, as amended (the "Code")
restricts utilization of net operating loss ("NOL") carryforwards after an
ownership change exceeding 50%. As a result of certain recapitalization
transactions in 1993, a change in ownership of the Holding Company exceeding 50%
occurred within the meaning of Section 382 of the Code. Similar restrictions
apply to other carryforwards. Consequently, there is a material limitation on
Finlay Jewelry's annual utilization of such NOLs or other carryforwards. Finlay
Jewelry had, at October 31, 2001 (the Company's tax year end), a NOL for tax
purposes of approximately $3.5 million which is subject to an annual limit of
approximately $2.0 million per year. However, for financial reporting purposes,
no NOL exists as of February 2, 2002.

      From time to time, Finlay enters into futures contracts, such as options
or forwards, based upon the anticipated sales of gold product in order to hedge
against the risk arising from its payment arrangements. Changes in the market
value of futures contracts are accounted for as an addition to or reduction from
the inventory cost. For the year ended February 2, 2002, the gain or loss on
open futures contracts was not material. At February 2, 2002, Finlay Jewelry had
several open positions in futures contracts for gold, which expire during 2002,
totaling 17,500 fine troy ounces, valued at $4.8 million. There can be no
assurance that these hedging techniques will be successful or that hedging
transactions will not adversely affect Finlay Jewelry's results of operations or
financial position.

      On February 8, 2001, Federated announced its plans to close its Stern's
division of which Finlay operated 23 Departments. During March 2001, Finlay
closed two Departments and the remaining 21 Stern's Departments were closed
during the second quarter of 2001. Subsequently, Federated converted the
majority of the Departments to a host store in which Finlay does not operate.
Finlay's 2001 sales were reduced by approximately $16.0 million as a result of
these closings. In 2001, Finlay recorded a charge of approximately $1.0 million
related to the write-off of fixed assets and employee severance.

      During 2001, Federated acquired the Liberty House department store chain
and converted those Departments to a host store in which Finlay does not
operate. Finlay operated in all twelve of the Liberty House department stores
through mid-November 2001. Finlay's 2001 sales were reduced by approximately
$5.0 million as a result of these closings. In 2001, Finlay recorded a charge of
approximately $150,000 related to the write-off of fixed assets and employee
severance.

      On April 3, 2000, Finlay completed the acquisition of certain assets of
J.B. Rudolph for $20.6 million, consisting primarily of inventory and fixed
assets. During 2000, the J.B. Rudolph Acquisition required additional working
capital to increase the inventory levels in anticipation of the year-end holiday
season. Finlay financed the J.B. Rudolph Acquisition and subsequent inventory
build-up with borrowings under its Revolving Credit Agreement.

      During 1998, Sonab, Finlay Jewelry's European leased jewelry department
subsidiary, began to experience lower sales trends due to the transition from a
promotional pricing strategy to an everyday low price strategy. This change was
made as a result of Sonab reassessing its pricing policy following certain local
French court decisions. The adverse impact of such change continued through
1999. As a result of the foregoing, on January 3, 2000, Sonab sold the majority
of its assets for approximately $9.9 million.


                                       27
<PAGE>

After the sale, the buyer operated more than 80 locations previously included in
Sonab's 130-location base in France. The remaining Departments were closed.
Finlay Jewelry recorded a pre-tax charge in the fourth quarter of 1999 of $28.6
million. The charge included the write down of inventory and fixed assets,
employee payroll and severance costs, realization of foreign exchange losses and
other close-down costs. As of February 2, 2002, Finlay Jewelry's exit plan has
been completed with the exception of certain employee litigation and other legal
matters. To date, Finlay Jewelry has charged a total of $26.3 million against
its original estimate of $28.6 million. All of Sonab's employees, excluding
those that were hired by the buyer, were involuntarily terminated, including
sales associates, supervisors and corporate personnel. Finlay Jewelry does not
believe future operating results or liquidity will be materially impacted by any
remaining payments.

SEASONALITY

      Finlay's business is highly seasonal, with a significant portion of its
sales and income from operations generated during the fourth quarter of each
year, which includes the year-end holiday season. The fourth quarter accounted
for an average of 42% of Finlay's domestic sales and 77% of its domestic income
from operations for 1999, 2000 and 2001. Finlay has typically experienced net
losses in the first three quarters of its fiscal year. During these periods,
working capital requirements have been funded by borrowings under the Revolving
Credit Agreement. Accordingly, the results for any of the first three quarters
of any given fiscal year, taken individually or in the aggregate, are not
indicative of annual results. See Note 10 of Notes to Consolidated Financial
Statements of Finlay Jewelry.

      Finlay Jewelry's Sales and Income (loss) from operations for each quarter
of 1999, 2000 and 2001 were as follows:

                                                     Fiscal Quarter
                                       -----------------------------------------
                                         First     Second      Third     Fourth
                                       --------   --------   --------   --------
                                                (dollars in thousands)
                                                      (unaudited)
1999:
  Sales .............................. $168,379   $183,367   $175,280   $385,952
  Income (loss) from operations (1) ..    2,577      7,097      3,004     26,750
2000:
  Sales ..............................  178,614    211,229    189,728    420,549
  Income (loss) from operations ......    4,580     10,263      5,649     56,769
2001:
  Sales ..............................  193,249    196,167    175,292    388,081
  Income (loss) from operations ......    4,381      5,751      1,753     48,103

----------
(1)   The fourth quarter of 1999 includes $28.6 million (pre-tax) of expenses
      associated with the sale and closure of Sonab.

Inflation

      The effect of inflation on Finlay's results of operations has not been
material in the periods discussed.


                                       28
<PAGE>

Special Note Regarding Forward-Looking Statements

      This Annual Report on Form 10-K ("Form 10-K") includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements other than statements of historical
information provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and known
uncertainties. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results, performances or
achievements to differ materially from those reflected in, or implied by, the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", as well as trends in
the general economy in the United States, low or negative growth in the economy
or in the financial markets which reduce discretionary spending on goods
perceived to be luxury items, the events of September 11, 2001 and related
events which negatively impacted the economy and/or the financial markets and
reduced discretionary spending on such goods, competition in the retail jewelry
business, the seasonality of the retail jewelry business, Finlay Jewelry's
ability to increase comparable Department sales and to open new Departments,
Finlay Jewelry's dependence on certain host store relationships due to the
concentration of sales generated by such host stores, the availability to Finlay
Jewelry of alternate sources of merchandise supply in the case of an abrupt loss
of any significant supplier, Finlay Jewelry's ability to continue to obtain
substantial amounts of merchandise on consignment, Finlay Jewelry's compliance
with applicable contractual covenants, Finlay Jewelry's dependence on key
officers, Finlay Jewelry's ability to integrate future acquisitions into its
existing business, Finlay Jewelry's high degree of leverage and the availability
to Finlay Jewelry of financing and credit on favorable terms and changes in
regulatory requirements which are applicable to Finlay Jewelry's business. Other
such factors include the ability of the Holding Company to complete the
repurchases contemplated under its stock repurchase program, the adequacy of
Finlay's working capital to complete the repurchases, the availability and
liquidity of the Holding Company's Common Stock, and overall market conditions
for the Holding Company's Common Stock.

      Readers are cautioned not to rely on these forward-looking statements,
which reflect management's analysis, judgment, belief or expectation only as of
the date hereof. Finlay Jewelry undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof or to reflect the occurrence of unanticipated events. In
addition to the disclosure contained herein, readers should carefully review any
disclosure of risks and uncertainties contained in other documents Finlay
Jewelry files or has filed from time to time with the Securities and Exchange
Commission (the "Commission") pursuant to the Exchange Act.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

      Finlay Jewelry is exposed to market risk through the interest rate on its
borrowings under the Revolving Credit Agreement, which has a variable interest
rate. In seeking to minimize the risks from interest rate fluctuations, Finlay
Jewelry manages exposures through its regular operating and financing
activities. In addition, the majority of Finlay Jewelry's borrowings are under
fixed rate arrangements, as described in Note 4 of Notes to Consolidated
Financial Statements. In addition, Finlay Jewelry is exposed to market risk
related to changes in the price of gold, and selectively uses forward contracts
to manage this risk. Finlay Jewelry enters into forward contracts for the
purchase of gold to hedge the risk of gold price fluctuations for future sales
of gold consignment merchandise. Finlay Jewelry does not enter into forward
contracts or other financial instruments for speculation or trading purposes.
The fair value of gold under the forward contracts was $4.9 million at February
2, 2002.


                                       29
<PAGE>

Item 8. Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Finlay Fine Jewelry Corporation

Report of Independent Public Accountants.....................................F-2

Consolidated Statements of Operations for the years ended
    January 29, 2000, February 3, 2001 and February 2, 2002..................F-3

Consolidated Balance Sheets as of February 3, 2001 and
    February 2, 2002.........................................................F-4

Consolidated Statements of Changes in Stockholder's Equity
    for the years ended January 29, 2000, February 3, 2001 and
    February 2, 2002.........................................................F-5

Consolidated Statements of Cash Flows for the years ended
    January 29, 2000, February 3, 2001 and February 2, 2002..................F-6

Notes to Consolidated Financial Statements...................................F-7

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

      There have been no changes in or disagreements with Finlay Jewelry's
accountants on matters of accounting or financial disclosure.


                                       30
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Finlay Fine Jewelry Corporation

Report of Independent Public Accountants.....................................F-2

Consolidated Statements of Operations for the years ended
    January 29, 2000, February 3, 2001 and February 2, 2002..................F-3

Consolidated Balance Sheets as of February 3, 2001 and
    February 2, 2002.........................................................F-4

Consolidated Statements of Changes in Stockholder's Equity
    for the years ended January 29, 2000, February 3, 2001 and
    February 2, 2002.........................................................F-5

Consolidated Statements of Cash Flows for the years ended
    January 29, 2000, February 3, 2001 and February 2, 2002..................F-6

Notes to Consolidated Financial Statements...................................F-7


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Finlay Fine Jewelry Corporation:

We have audited the accompanying consolidated balance sheets of Finlay Fine
Jewelry Corporation (a Delaware corporation) and subsidiaries as of February 3,
2001 and February 2, 2002, and the related consolidated statements of
operations, changes in stockholder's equity and cash flows for the fiscal years
ended January 29, 2000, February 3, 2001 and February 2, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Finlay Fine Jewelry Corporation
and subsidiaries as of February 3, 2001 and February 2, 2002, and the results of
their operations and their cash flows for the fiscal years ended January 29,
2000, February 3, 2001 and February 2, 2002, in conformity with accounting
principles generally accepted in the United States.


                                                             ARTHUR ANDERSEN LLP

New York, New York
March 20, 2002


                                      F-2
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      Year Ended
                                                         -------------------------------------
                                                         January 29,  February 3,  February 2,
                                                            2000         2001         2002
                                                         -----------  -----------  -----------
<S>                                                      <C>          <C>          <C>
Sales ................................................   $  912,978   $1,000,120   $  952,789
Cost of sales ........................................      449,912      496,291      479,255
Cost of sales - Sonab inventory write-down ...........        7,839           --           --
                                                         ----------   ----------   ----------
    Gross margin .....................................      455,227      503,829      473,534
Selling, general and administrative expenses .........      378,112      409,019      393,457
Nonrecurring charges associated with the sale and
    closure of Sonab .................................       20,792           --           --
Depreciation and amortization ........................       16,895       17,549       20,089
                                                         ----------   ----------   ----------
    Income (loss) from operations ....................       39,428       77,261       59,988
Interest expense, net ................................       22,565       23,117       19,989
                                                         ----------   ----------   ----------
     Income  (loss) before income taxes ..............       16,863       54,144       39,999
Provision (benefit) for income taxes .................        7,801       22,715       16,672
                                                         ----------   ----------   ----------
     Net income (loss) ...............................   $    9,062   $   31,429   $   23,327
                                                         ==========   ==========   ==========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-3
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                         February 3,  February 2,
                                                                            2001         2002
                                                                         -----------  -----------
<S>                                                                      <C>          <C>
                                ASSETS
Current assets
  Cash and cash equivalents ..........................................   $   31,249   $   49,222
  Accounts receivable - department stores ............................       23,677       17,505
  Other receivables ..................................................       30,856       25,953
  Merchandise inventories ............................................      324,265      304,508
  Prepaid expenses and other .........................................        2,880        2,351
                                                                         ----------   ----------
     Total current assets ............................................      412,927      399,539
                                                                         ----------   ----------
Fixed assets
  Equipment, fixtures and leasehold improvements .....................      117,871      119,743
  Less - accumulated depreciation and amortization ...................       44,028       47,717
                                                                         ----------   ----------
     Fixed assets, net ...............................................       73,843       72,026
                                                                         ----------   ----------
Deferred charges and other assets ....................................       20,685       20,811
Goodwill .............................................................       94,799       91,046
                                                                         ----------   ----------
     Total assets ....................................................   $  602,254   $  583,422
                                                                         ==========   ==========

                 LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities
  Accounts payable - trade ...........................................   $  162,242   $  132,156
  Accrued liabilities:
     Accrued salaries and benefits ...................................       20,806       19,369
     Accrued miscellaneous taxes .....................................        4,117        6,521
     Accrued interest ................................................        3,583        3,597
     Other ...........................................................       15,488       13,496
  Income taxes payable ...............................................       46,433       44,771
  Deferred income taxes ..............................................        3,097        3,001
  Due to parent ......................................................        5,158        3,294
                                                                         ----------   ----------
     Total current liabilities .......................................      260,924      226,205
Long-term debt .......................................................      150,000      150,000
Other non-current liabilities ........................................       11,907       13,621
                                                                         ----------   ----------
     Total liabilities ...............................................      422,831      389,826
                                                                         ----------   ----------
Stockholder's equity
  Common Stock, par value $.01 per share; authorized 5,000 shares;
     issued and outstanding 1,000 shares .............................           --           --
  Additional paid-in capital .........................................       82,975       82,975
  Retained earnings ..................................................       96,448      110,525
  Accumulated other comprehensive income .............................           --           96
                                                                         ----------   ----------
     Total stockholder's equity ......................................      179,423      193,596
                                                                         ----------   ----------
     Total liabilities and stockholder's equity ......................   $  602,254   $  583,422
                                                                         ==========   ==========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-4
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                       Common Stock                           Foreign     Accumulated
                                    -----------------  Additional             Currency       Other          Total
                                      Number             Paid-in  Retained  Translation  Comprehensive  Stockholder's  Comprehensive
                                    of shares  Amount    Capital  Earnings   Adjustment     Income         Equity          Income
                                    ---------  ------  ---------- --------  -----------  -------------  -------------  -------------
<S>                                    <C>       <C>      <C>      <C>         <C>            <C>          <C>             <C>
Balance, January 30, 1999 .........   1,000     $ --     $82,975  $ 73,897    $(4,789)       $ --         $152,083
  Net income (loss) ...............      --       --          --     9,062         --          --            9,062        $ 9,062
  Foreign currency translation
    adjustment ....................      --       --          --        --      4,789          --            4,789          4,789
                                                                                                                          -------
  Comprehensive income ............                                                                                       $13,851
                                                                                                                          =======
  Dividends on common stock .......      --       --          --    (8,908)        --          --           (8,908)
                                      -----     ----     -------  --------    -------        ----         --------
Balance, January 29, 2000 .........   1,000       --      82,975    74,051         --          --          157,026
  Net income (loss) ...............      --       --          --    31,429         --          --           31,429        $31,429
                                                                                                                          -------
  Comprehensive income ............                                                                                       $31,429
                                                                                                                          =======
  Dividends on common stock .......      --       --          --    (9,032)        --          --           (9,032)
                                      -----     ----     -------  --------    -------        ----         --------
Balance, February 3, 2001 .........   1,000       --      82,975    96,448         --          --          179,423
  Net income (loss) ...............      --       --          --    23,327         --          --           23,327        $23,327
  Fair value of gold forward
    contracts at February 4, 2001..      --       --          --        --         --          24               24             24
  Change in fair value of gold
    forward contracts .............      --       --          --        --         --          72               72             72
                                                                                                                          -------
  Comprehensive income ............                                                                                       $23,423
                                                                                                                          =======
  Dividends on common stock .......      --       --          --    (9,250)        --          --           (9,250)
                                      -----     ----     -------  --------    -------        ----         --------
Balance, February 2, 2002 .........   1,000     $ --     $82,975  $110,525    $    --        $ 96         $193,596
                                      =====     ====     =======  ========    =======        ====         ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-5
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                Year Ended
                                                                                  --------------------------------------
                                                                                  January 29,   February 3,   February 2,
                                                                                     2000          2001          2002
                                                                                  ----------    ----------    ----------
<S>                                                                               <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss) ...........................................................   $    9,062    $   31,429    $   23,327
  Adjustments to reconcile net income (loss) to net cash provided
     from operating activities:
  Depreciation and amortization ...............................................       16,895        17,549        20,089
  Amortization of deferred financing costs ....................................          854         1,013         1,025
  Loss on sale and closure of Sonab ...........................................       18,672            --            --
  Other, net ..................................................................        2,172         1,538         4,335
  Changes in operating assets and liabilities, net of effects from purchase
     of J.B. Rudolph assets (Note 11) and disposition of Sonab assets
     (Note 13):
     (Increase) decrease in accounts and other receivables ....................       (4,655)       (9,165)       10,310
     (Increase) decrease in merchandise inventories ...........................       (2,311)      (30,892)       22,003
     (Increase) decrease in prepaid expenses and other ........................          239          (814)          530
     Increase (decrease) in accounts payable and accrued liabilities ..........        6,329        23,508       (35,004)
     Increase (decrease) in deferred income taxes .............................         (492)        1,423           (96)
     Decrease in due to parent ................................................         (317)       (1,134)       (3,883)
                                                                                  ----------    ----------    ----------
        NET CASH PROVIDED FROM OPERATING ACTIVITIES ...........................       46,448        34,455        42,636
                                                                                  ----------    ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements .................      (14,972)      (14,120)      (13,850)
  Deferred charges and other ..................................................       (7,237)       (4,022)       (4,347)
  Proceeds from sale of Sonab assets ..........................................        1,155         7,592           765
  Payment for purchase of J.B. Rudolph assets .................................           --       (20,605)           --
  Proceeds from sale of outlet assets .........................................           --           752            --
                                                                                  ----------    ----------    ----------
        NET CASH USED IN INVESTING ACTIVITIES .................................      (21,054)      (30,403)      (17,432)
                                                                                  ----------    ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility .....................................      620,286       743,852       726,915
  Principal payments on revolving credit facility .............................     (620,286)     (743,852)     (726,915)
  Payment of dividends ........................................................       (7,159)       (7,640)       (7,231)
                                                                                  ----------    ----------    ----------
        NET CASH USED IN FINANCING ACTIVITIES .................................       (7,159)       (7,640)       (7,231)
                                                                                  ----------    ----------    ----------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH ...............................         (108)           79            --
                                                                                  ----------    ----------    ----------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................       18,127        (3,509)       17,973
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................       16,631        34,758        31,249
                                                                                  ----------    ----------    ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................   $   34,758    $   31,249    $   49,222
                                                                                  ==========    ==========    ==========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-6
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION OF THE COMPANY AND SIGNIFICANT TRANSACTIONS

      Finlay Fine Jewelry Corporation, a Delaware corporation (together with its
wholly owned subsidiaries, "Finlay Jewelry"), is a wholly owned subsidiary of
Finlay Enterprises, Inc. (the "Holding Company"). References to "Finlay" mean
collectively, the Holding Company and Finlay Jewelry. Finlay is a retailer of
fine jewelry products and operates leased fine jewelry departments in department
stores throughout the United States. All references herein to leased departments
refer to departments operated pursuant to license agreements or other
arrangements with host department stores.

1998 Offering and Refinancing

      On April 24, 1998, the Holding Company completed a public offering of
1,800,000 shares of its common stock, par value $.01 per share ("Common Stock"),
at a price of $27.50 per share (the "1998 Offering"), of which 567,310 shares
were sold by the Holding Company. Concurrently with the 1998 Offering, the
Holding Company and Finlay Jewelry completed the public offering of $75.0
million aggregate principal amount of 9% Senior Debentures due May 1, 2008 (the
"Senior Debentures") and $150.0 million aggregate principal amount of 8"% Senior
Notes due May 1, 2008 (the "Senior Notes"), respectively. In addition, on April
24, 1998, the revolving credit agreement (the "Revolving Credit Agreement"),
with General Electric Capital Corporation ("G.E. Capital") and the other lenders
named therein, was amended to increase the line of credit thereunder to $275.0
million and to make certain other changes.

      On May 26, 1998, the net proceeds to the Holding Company from the 1998
Offering, the sale of the Senior Debentures, together with other available
funds, were used to redeem the Holding Company's then outstanding 12% Senior
Discount Debentures due 2003. Also, on May 26, 1998, Finlay Jewelry used the net
proceeds from the sale of the Senior Notes to redeem Finlay Jewelry's then
outstanding 10"% Senior Notes due 2003.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

      Basis of Accounting and Presentation: The accompanying Consolidated
Financial Statements have been prepared on the accrual basis of accounting in
accordance with United States generally accepted accounting principles, which,
for certain financial statement accounts, requires the use of management's
estimates. Actual results may differ from these estimates.

      Fiscal Year: Finlay Jewelry's fiscal year ends on the Saturday closest to
January 31. References to 1999, 2000, 2001 and 2002 relate to the fiscal years
ended on January 29, 2000, February 3, 2001, February 2, 2002 and February 1,
2003. Each of the fiscal years includes 52 weeks except 2000, which includes 53
weeks.

      Reclassification: Certain prior period amounts have been reclassified to
conform with current year presentation.


                                      F-7
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

      Merchandise Inventories: Consolidated inventories are stated at the lower
of cost or market determined by the last-in, first-out ("LIFO") method. The cost
to Finlay of gold merchandise sold on consignment, which typically varies with
the price of gold, is not fixed until the merchandise is sold. Finlay at times
enters into futures contracts, such as options or forwards, based upon the
anticipated sales of gold product in order to hedge against the risk of gold
price fluctuations. Changes in the market value of futures contracts are
accounted for as an addition to or reduction from the inventory cost. For the
years ended January 29, 2000, February 3, 2001 and February 2, 2002, the
gain/loss on open futures contracts was not material. At both February 3, 2001
and February 2, 2002, Finlay Jewelry had several open positions in futures
contracts for gold totaling 46,300 fine troy ounces and 17,500 fine troy ounces,
respectively, valued at $12.6 million and $4.8 million, respectively. The fair
value of gold under such contracts was $4.9 million at February 2, 2002.

      On February 4, 2001, Finlay Jewelry adopted Statement of Financial
Accounting Standards, ("SFAS") No.133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement requires that all derivative instruments
be recorded on the balance sheet as either an asset or liability measured at its
fair value. Finlay Jewelry has designated its existing derivative instruments,
consisting of gold forward contracts, as cash flow hedges. For derivative
instruments designated as cash flow hedges, the effective portion of the change
in the fair value of the derivative is recorded in accumulated other
comprehensive income, a separate component of stockholder's equity, and is
reclassified into earnings when the offsetting effects of the hedged transaction
affects earnings. Upon adoption, the fair value of the gold forward contracts
resulted in the recognition of an asset of $40,800. At February 2, 2002, the
fair value of the gold forward contracts resulted in the recognition of an asset
of $160,500. The amount recorded in accumulated other comprehensive income of
$96,000, net of tax, is expected to be reclassified into earnings during 2002.

      Finlay Jewelry has documented all relationships between hedging
instruments and hedged items, as well as its risk management objectives and
strategy for undertaking various hedge transactions. Finlay Jewelry also
assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in cash flows of hedged items. Finlay Jewelry believes that
the designated hedges will be highly effective and that the related hedge
accounting will not have a material impact on Finlay Jewelry's results of
operations.

      Depreciation and Amortization: Depreciation and amortization, except where
otherwise indicated, are computed by the straight-line method over the estimated
useful lives of the fixed assets ranging from three to thirty-nine years.

      Principles of Consolidation: The consolidated financial statements include
the accounts of Finlay Jewelry and its wholly owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.


                                      F-8
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

      Software Development Costs: Software development costs have been accounted
for in accordance with Statement of Position (the "SOP") No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use",
which Finlay Jewelry adopted in 1999. The SOP states that software development
costs that are incurred in the preliminary project stage are expensed as
incurred. Once the specified criteria of the SOP have been met, internal and
external direct costs incurred in developing or obtaining computer software as
well as related interest costs are capitalized. Training and data conversion
costs are expensed as incurred. In addition, costs incurred for the routine
operation and maintenance of management information systems and software are
expensed as incurred.

      Included in Deferred charges and other assets in the accompanying
Consolidated Balance Sheets at February 3, 2001 and February 2, 2002 are gross
capitalized software costs of $19,894,000 and $24,254,000, respectively, and
accumulated amortization of $3,367,000 and $6,564,000, respectively. In 2000,
Finlay Jewelry capitalized $380,000 of internal direct costs and $400,000 of
interest in connection with the implementation of certain software projects.

      Intangible Assets Arising from Acquisition: The excess purchase price paid
over the fair market value of net assets acquired ("Goodwill") was recorded in
accordance with Accounting Principles Board ("APB") Opinion No. 16 -"Accounting
for Business Combinations" and is being amortized on a straight-line basis. The
Goodwill related to Finlay's 1988 reorganization, the Diamond Park Acquisition
(as defined in Note 14) and the J.B. Rudolph Acquisition (as defined in Note 11)
is being amortized over 40 years, 20 years and 10 years, respectively. Finlay
Jewelry continually evaluates the carrying value and the economic useful life of
Goodwill based on the Finlay Jewelry's operating results and the expected future
net cash flows and will adjust the carrying value and the related amortization
periods, if and when appropriate. Amortization of Goodwill for 1999, 2000 and
2001 totaled $3,726,000, $3,711,000 and $3,753,000, respectively. Accumulated
amortization of Goodwill at February 3, 2001 and February 2, 2002 totaled
$38,250,000 and $42,003,000, respectively.

      The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets" in July 2001, which addresses the
financial accounting and reporting standards for the acquisition of intangible
assets outside of a business combination and for goodwill and other intangible
assets subsequent to their acquisition. The accounting standard requires that
goodwill no longer be amortized over its estimated useful life but tested for
impairment on an annual basis. The completion of a transitional impairment test
is required within six months of adoption. Upon adoption of this statement, the
impairment, if any, is treated as a cumulative effect of a change in accounting
principle. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. As a result of adopting SFAS No. 142, Finlay will no longer amortize
goodwill, which totals approximately $3,700,000 annually. Finlay is currently
evaluating whether goodwill is impaired under SFAS No. 142.

      Foreign Currency Translation: For 1999, results of operations for Finlay
Jewelry's foreign subsidiary were translated into U.S. dollars using the average
exchange rates during the period, while assets and liabilities were translated
using current rates in accordance with SFAS No. 52, "Foreign Currency
Translation". The resulting translation adjustments were recorded directly into
a separate component of Stockholder's equity, the balance of which was written
off in conjunction with the 1999 sale and closure of Sonab (refer to Note 13).


                                      F-9
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

      Comprehensive Income: In 1998, Finlay Jewelry adopted SFAS No. 130,
"Reporting Comprehensive Income", which requires disclosure of comprehensive
income in a financial statement. Comprehensive income is defined as the total of
net income and all other nonowner changes in equity, which are recorded directly
to stockholder's equity and, therefore, bypass net income. Finlay Jewelry has
chosen to disclose comprehensive income, which encompasses net income and, in
1999, the foreign currency translation adjustment, in the accompanying
Consolidated Statements of Changes in Stockholder's Equity. In 2000, there were
no such adjustments and therefore, comprehensive income was the same as Finlay
Jewelry's net income. In 2001, the only non-owner change in equity related to
the change in fair value of Finlay Jewelry's outstanding gold forward contracts.

      Debt Issuance Costs: Debt issuance costs are amortized over the term of
the related debt agreements using the straight line method, which approximates
that of the effective interest method. Net debt issuance costs totaled
$3,812,000 at February 3, 2001 and $2,788,000 at February 2, 2002. The debt
issuance costs are reflected as a component of Deferred charges and other assets
in the accompanying Consolidated Balance Sheets. Amortization of debt issuance
costs for 1999, 2000 and 2001 totaled $1,012,000, $1,013,000 and $1,025,000,
respectively, and have been recorded as a component of Interest expense, net in
the accompanying Consolidated Statements of Operations.

      Revenue Recognition: Finlay Jewelry recognizes revenue upon the sale of
merchandise, either owned or consigned, to its customers, net of anticipated
returns.

      Cost of Sales: Cost of sales includes the cost of merchandise sold, repair
expense, shipping, shrinkage and inventory losses. Buying and occupancy costs
such as lease fees are not included in Cost of sales and are reflected in
Selling, general and administrative expenses in the accompanying Consolidated
Statements of Operations.

      Advertising Costs: All costs associated with advertising are expensed in
the month that the advertising takes place. For 1999, 2000 and 2001, gross
advertising expenses, before vendor support, were $55,053,000, $59,434,000 and
$53,029,000, respectively, and are included in Selling, general and
administrative expenses in the accompanying Consolidated Statements of
Operations.

      Statements of Cash Flows: Finlay Jewelry considers cash on hand, deposits
in banks and deposits in money market funds as cash and cash equivalents.
Interest paid during 1999, 2000 and 2001 was $21,368,000, $22,154,000 and
$18,950,000, respectively. Income taxes paid in 1999, 2000 and 2001 totaled
$3,309,000, $4,622,000 and $14,643,000, respectively.

      Fair Value of Financial Instruments: Cash, accounts receivable, short-term
borrowings, accounts payable and accrued liabilities are reflected in the
consolidated financial statements at fair value due to the short-term maturity
of these instruments. Marketable securities are recorded in the consolidated
financial statements at current market value, which approximates cost. The fair
value of Finlay Jewelry's debt and off-balance sheet financial instruments are
disclosed in Note 4 and in Merchandise Inventories above.

      Stock-Based Compensation: Stock-based compensation is recognized using the
intrinsic value method. For disclosure purposes, pro forma net income and
earnings per share are disclosed, in Note 5, as if the fair value method had
been applied. Deferred compensation is amortized using the straight line method
over the vesting period.


                                      F-10
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

      Accounting for the Impairment of Long-Lived Assets: SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", requires long-lived assets as well as identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not be recoverable. Based upon this
analysis, Finlay Jewelry has not recorded any impairment charges since the
adoption of this Statement.

      The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", which supersedes SFAS No. 121 for financial statements
issued for fiscal years beginning after December 15, 2001. This extends the
reporting requirements to include reporting separately as discontinued
operations, components of an entity that have either been disposed of or
classified as held-for-sale. Finlay Jewelry has adopted SFAS No. 144 in 2002 and
does not anticipate that such adoption will have a significant effect on
Finlay's results of operations or financial position.

      Seasonality: A significant portion of Finlay's revenues are generated in
the fourth quarter due to the seasonality of the retail industry. As such,
results for interim periods are not indicative of annual results. Refer to Note
10 for unaudited quarterly financial data.

NOTE 3--MERCHANDISE INVENTORIES

      Merchandise inventories consisted of the following:

<TABLE>
<CAPTION>
                                                               February 3,  February 2,
                                                                  2001         2002
                                                               -----------  -----------
                                                                   (in thousands)
<S>                                                            <C>          <C>
Jewelry goods - rings, watches and other fine jewelry
    (specific identification basis) ........................   $  330,447   $  314,473
Less:  Excess of specific identification cost over LIFO
    inventory value ........................................        6,182        9,965
                                                               ----------   ----------
                                                               $  324,265   $  304,508
                                                               ==========   ==========
</TABLE>

      The LIFO method had the effect of increasing Income before income taxes in
1999 by $1,131,000 and decreasing income before income taxes in 2000 and 2001 by
$1,801,000 and $3,783,000, respectively. Finlay determines its LIFO inventory
value by utilizing selected producer price indices published for jewelry and
watches by the Bureau of Labor Statistics. Due to the application of APB Opinion
No. 16, inventory valued at LIFO for income tax reporting purposes is
approximately $22,800,000 lower than that for financial reporting purposes at
February 2, 2002.

      Approximately $381,724,000 and $359,729,000 at February 3, 2001 and
February 2, 2002, respectively, of merchandise received on consignment has been
excluded from Merchandise inventories and Accounts payable-trade in the
accompanying Consolidated Balance Sheets.

      Finlay Jewelry is party to an amended and restated gold consignment
agreement (the "Gold Consignment Agreement"), which expires on June 30, 2002.
Finlay Jewelry is currently in the process of amending and extending the Gold
Consignment Agreement. The Gold Consignment Agreement enables Finlay Jewelry to
receive merchandise by providing gold, or otherwise making payment, to certain
vendors who currently supply Finlay with merchandise on consignment. While the
merchandise involved remains consigned, title to the gold content of the
merchandise transfers from the vendors to the gold consignor.


                                      F-11
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--MERCHANDISE INVENTORIES (continued)

      Although the gold consignor has increased the limit to the lesser of (i)
160,000 fine troy ounces or (ii) $45.0 million worth of gold, subject to a
formula as prescribed by the Gold Consignment Agreement, Finlay Jewelry is
currently limited by the Senior Indentures (as defined in Note 4) to $37.0
million worth of gold. Finlay intends to obtain approval for the increase from
the holders of the Senior Notes and Senior Debentures. At February 3, 2001 and
February 2, 2002, amounts outstanding under the Gold Consignment Agreement
totaled 118,597 and 127,519 fine troy ounces, respectively, valued at
approximately $31.4 million and $36.0 million, respectively. The purchase price
per ounce is based on the daily Second London Gold Fixing. For financial
statement purposes, the consigned gold is not included in Merchandise
inventories on Finlay Jewelry's Consolidated Balance Sheets and, therefore, no
related liability has been recorded.

      Under the Gold Consignment Agreement, Finlay is required to pay a daily
consignment fee on the dollar equivalent of the fine gold value of the ounces of
gold consigned thereunder. The daily consignment fee is based on a floating rate
which, as of February 3, 2001 and February 2, 2002, was approximately 2.8% and
3.0%, respectively, per annum. In addition, Finlay is required to pay a fee of
0.5% if the amount of gold consigned has a value equal to or less than $12.0
million. Included in interest expense for the year ended February 3, 2001 and
February 2, 2002 are consignment fees of $979,000 and $1,228,000, respectively.

      In conjunction with the Gold Consignment Agreement, Finlay Jewelry granted
the gold consignor a first priority perfected lien on, and a security interest
in, specified gold jewelry of participating vendors approved under the Gold
Consignment Agreement and a lien on proceeds and products of such jewelry
subject to the terms of an intercreditor agreement between the gold consignor
and G.E. Capital.

      The Gold Consignment Agreement requires Finlay Jewelry to comply with
certain covenants, including restrictions on the incurrence of certain
indebtedness, the incurrence or creation of liens, engaging in certain
transactions with affiliates and related parties and limitations on the payment
of dividends. In addition, the Gold Consignment Agreement also contains various
financial covenants, including fixed charge coverage ratio requirements and
certain maximum debt limitations. Finlay Jewelry was in compliance with all of
its covenants as of and for the year ended February 2, 2002.

NOTE 4--SHORT AND LONG-TERM DEBT

      The Holding Company and Finlay Jewelry are parties to the Revolving Credit
Agreement with G.E. Capital and the other lenders thereto which provides Finlay
with a senior secured revolving line of credit of up to $275.0 million (the
"Revolving Credit Facility"), inclusive of a $50.0 million acquisition facility.
The Revolving Credit Facility provides Finlay with a facility maturing in March
2003, for borrowings based on an advance rate of (i) up to 85% of eligible
accounts receivable and (ii) up to 60% of eligible owned inventory after taking
into account such reserves or offsets as G.E. Capital may deem appropriate (the
"Borrowing Base"). Eligibility criteria are established by G.E. Capital, which
retains the right to adjust the Borrowing Base in its reasonable judgement by
revising standards of eligibility, establishing reserves and/or increasing or
decreasing from time to time the advance rates (except that any increase in the
borrowing base rate percentage shall require the consent of the other lenders).
Finlay Jewelry is permitted to use up to $30 million of the Revolving Credit
Agreement for the issuance or guarantee of letters of credit issued for the
account of Finlay Jewelry. The outstanding revolving credit balance and letter
of credit balance under the Revolving Credit Agreement are required to be
reduced each year to $50


                                      F-12
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

million or less and $20 million or less, respectively, for a 30 consecutive day
period (the "Balance Reduction Requirement"). Funds available under the
Revolving Credit Agreement are utilized to finance working capital needs.

      Amounts outstanding under the Revolving Credit Agreement bear interest at
a rate equal to, at Finlay's option, (i) the Index Rate (as defined) plus a
margin ranging from zero to 1.0% or (ii) adjusted LIBOR plus a margin ranging
from 1.0% to 2.0%, in each case depending on the financial performance of
Finlay. "Index Rate" is defined as the higher of (i) the rate publicly quoted
from time to time by The Wall Street Journal as the "base rate on corporate
loans at large U.S. money center commercial banks" and (ii) the Federal Funds
Rate plus 50 basis points per annum. A letter of credit fee of 1.5% per annum of
the face amount of letters of credit guaranteed under the Revolving Credit
Agreement is payable monthly in arrears. An unused facility fee on the average
unused daily balance of the Revolving Credit Facility is payable monthly in
arrears equal to 0.375% per annum up to $225.0 million and 0.25% per annum up to
$275.0 million. Upon the occurrence (and during the continuance) of an event of
default under the Revolving Credit Agreement, interest would accrue at a rate
which is 2% in excess of the rate otherwise applicable, and would be payable
upon demand.

      The Revolving Credit Agreement is secured by a first priority perfected
security interest in all of Finlay Jewelry's (and any subsidiary's) present and
future tangible and intangible assets, excluding any of Finlay Jewelry's lease
agreements which are not assignable without the lessor's consent.

      The Revolving Credit Agreement contains customary covenants, including
limitations on or relating to capital expenditures, liens, indebtedness,
investments, mergers, acquisitions, affiliate transactions, management
compensation and the payment of dividends and other restricted payments. In
addition, the lenders have the right to approve certain private sales of Common
Stock. The Revolving Credit Agreement also contains various financial covenants,
including minimum earnings and fixed charge coverage ratio requirements and
certain maximum debt limitations. During 2001, in anticipation of not meeting
one of the financial covenants under the Revolving Credit Agreement, the
covenant was amended. Finlay was in compliance with all of its covenants as of
and for the year ended February 2, 2002.

      There were no amounts outstanding at February 3, 2001 or February 2, 2002
under the Revolving Credit Agreement. The maximum amounts outstanding under the
Revolving Credit Agreement during 1999, 2000 and 2001 were $158,200,000,
$155,559,000 and $125,231,000, respectively. The average amounts outstanding for
the same periods were $104,200,000, $96,612,000 and $80,753,000, respectively.
The weighted average interest rates were 7.4%, 8.6% and 5.5% for 1999, 2000 and
2001, respectively.

      At February 3, 2001 and February 2, 2002, Finlay had letters of credit
outstanding totaling $4.3 million in each year, which guarantee various trade
activities. The contract amount of the letters of credit approximate their fair
value.


                                      F-13
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

      Long-term debt consisted of the following:

                                                     February 3,   February 2,
                                                        2001          2002
                                                     -----------   -----------
                                                         (in thousands)
            Senior Notes (a) ....................... $  150,000    $  150,000
                                                     ==========    ==========

----------
(a)   On April 24, 1998, Finlay Jewelry issued 8"% Senior Notes due May 1, 2008
      with an aggregate principal amount of $150,000,000. Interest on the Senior
      Notes is payable semi-annually on May 1 and November 1 of each year, and
      commenced on November 1, 1998. Except in the case of certain equity
      offerings, the Senior Notes are not redeemable prior to May 1, 2003.
      Thereafter, the Senior Notes will be redeemable, in whole or in part, at
      the option of Finlay, at specified redemption prices plus accrued and
      unpaid interest, if any, to the date of the redemption. In the event of a
      Change of Control (as defined in the indenture relating to the Senior
      Notes (the "Senior Note Indenture")), each holder of the Senior Notes will
      have the right to require Finlay Jewelry to repurchase its Senior Notes at
      a purchase price equal to 101% of the principal amount thereof plus
      accrued and unpaid interest thereon to the repurchase date. The Senior
      Notes rank senior in right of payment to all subordinated indebtedness of
      Finlay Jewelry and pari passu in right of payment with all unsubordinated
      indebtedness of Finlay Jewelry. However, because the Revolving Credit
      Agreement is secured by a pledge of substantially all the assets of Finlay
      Jewelry, the Senior Notes are effectively subordinated to the borrowings
      under the Revolving Credit Agreement. The Senior Note Indenture contains
      restrictions relating to, among other things, the payment of dividends,
      the issuance of disqualified stock, the making of certain investments or
      other restricted payments, the incurrence of additional indebtedness, the
      creation of certain liens, entering into certain transactions with
      affiliates, the disposition of certain assets and engaging in mergers and
      consolidations.

      The fair value of the Senior Notes at February 2, 2002, determined based
      on market quotes, was approximately $136,500,000.

      On April 24, 1998, the Holding Company issued 9% Senior Debentures due May
      1, 2008 with an aggregate principal amount of $75,000,000. Interest on the
      Senior Debentures is payable semi-annually on May 1 and November 1 of each
      year, and commenced on November 1, 1998. The Senior Debentures are secured
      by a first priority lien on and security interest in all of the issued and
      outstanding stock of Finlay Jewelry. However, the operations of the
      Holding Company are conducted through Finlay Jewelry and, therefore, the
      Holding Company is dependent upon the cash flow of Finlay Jewelry to meet
      its obligations, including its obligations under the Senior Debentures. As
      a result, the Senior Debentures are effectively subordinated to all
      indebtedness and all other obligations of Finlay Jewelry. The indenture
      relating to the Senior Debentures (the "Senior Debenture Indenture" and
      collectively, with the Senior Note Indenture, the "Senior Indentures")
      contains restrictions relating to, among other things, the payment of
      dividends, the issuance of disqualified stock, the making of certain
      investments or other restricted payments, the incurrence of additional
      indebtedness, the creation of certain liens, entering into certain
      transactions with affiliates, the disposition of certain assets and
      engaging in mergers and consolidations.


                                      F-14
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

      Finlay was in compliance with all of the provisions of the Senior
Indentures as of and for the year ended February 2, 2002.

      The aggregate amounts of long-term debt payable in each of the five years
in the period ending February 2, 2007 and thereafter are as follows:

                                                             (in thousands)
                                                             --------------

            2002 ...........................................    $     --
            2003 ...........................................          --
            2004 ...........................................          --
            2005 ...........................................          --
            2006 ...........................................          --
            Thereafter .....................................     150,000
                                                                --------
                                                                $150,000
                                                                ========

      Interest expense for 1999, 2000 and 2001 was $22,665,000, $23,229,000 and
$20,089,000, respectively. Interest income for the same periods was $100,000,
$112,000 and $100,000, respectively.

NOTE 5--LONG-TERM INCENTIVE PLANS AND OTHER

      The Holding Company's Long Term Incentive Plan (the "1993 Plan") permits
the Holding Company to grant to key employees of the Holding Company and its
subsidiaries, consultants and certain other persons, and directors of the
Holding Company (other than members of the Compensation Committee of the Holding
Company's Board of Directors), the following: (i) stock options; (ii) stock
appreciation rights in tandem with stock options; (iii) limited stock
appreciation rights in tandem with stock options; (iv) restricted or
nonrestricted stock awards subject to such terms and conditions as the
Compensation Committee shall determine; (v) performance units which are based
upon attainment of performance goals during a period of not less than two nor
more than five years and which may be settled in cash or in Common Stock at the
discretion of the Compensation Committee; or (vi) any combination of the
foregoing. Under the 1993 Plan, the Holding Company may grant stock options
which are either incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or non-incentive
stock options. As of February 2, 2002, an aggregate of 732,596 shares of the
Holding Company's Common Stock has been reserved for issuance pursuant to the
1993 Plan, of which a total of 521,253 shares are subject to options granted to
certain senior management, key employees and a director. The exercise prices of
such options range from $7.23 per share to $16.50 per share.

      On March 6, 1997, the Board of Directors of the Holding Company adopted
the 1997 Long Term Incentive Plan (the "1997 Plan"), which was approved by the
Holding Company's stockholders in June 1997. The 1997 Plan, which is similar to
the 1993 Plan, is intended as a successor to the 1993 Plan and provides for the
grant of the same types of awards as are currently available under the 1993
Plan. Of the 1,850,000 shares of the Holding Company's Common Stock that have
been reserved for issuance pursuant to the 1997 Plan, a total of 1,128,782
shares, as of February 2, 2002, are subject to options granted to certain senior
management, key employees and directors. The exercise prices of such options
range from $7.05 per share to $24.313 per share.


                                      F-15
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--LONG-TERM INCENTIVE PLANS AND OTHER (continued)

      Finlay has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". As permitted by SFAS No. 123, Finlay
elected to continue to account for stock-based compensation using the intrinsic
value method. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had the fair value method of accounting been
applied to the Holding Company's stock option plans, which requires recognition
of compensation cost ratably over the vesting period of the stock options, net
would have been reduced by $773,000 in 1999, $2.0 million in 2000 and $716,000
in 2001. This pro forma impact only reflects options granted since the beginning
of 1995 and therefore the resulting compensation cost may not be representative
of that to be expected in future years.

      The fair value of options granted in 1999, 2000 and 2001 was estimated
using the Black-Scholes option-pricing model based on the weighted average
market price at the grant date of $11.80 in 1999, $12.75 in 2000 and $7.48 in
2001 and the following weighted average assumptions: risk free interest rate of
6.03%, 6.80% and 4.62% for 1999, 2000 and 2001, respectively, expected life of
seven years for each of 1999, 2000 and 2001 and volatility of 48.57% for 1999,
49.48% for 2000 and 51.13% for 2001. The weighted average fair value of options
granted in 1999, 2000 and 2001 was $4.54, $5.22 and $2.57, respectively.

      The following summarizes the transactions pursuant to the Holding
Company's 1993 Plan and 1997 Plan for 1999, 2000 and 2001:

<TABLE>
<CAPTION>
                                               1999                         2000                         2001
                                    -------------------------    -------------------------    -------------------------
                                     Number of      Wtd. Avg.     Number of      Wtd. Avg.     Number of      Wtd. Avg.
                                      Options       Ex. Price      Options       Ex. Price      Options       Ex. Price
                                    ----------     ----------    ----------     ----------    ----------     ----------
<S>                                  <C>           <C>            <C>           <C>            <C>           <C>
Outstanding at beginning of year ..  1,117,833     $    10.27     1,138,400     $     9.79     1,361,036     $    12.10
Granted ...........................     71,000          11.80       272,100          12.75       324,000           7.48
Exercised .........................    (11,000)          7.23       (10,633)          7.94       (14,967)          8.13
Forfeited .........................    (39,433)         14.14       (38,831)         13.73       (20,034)          9.84
                                    ----------     ----------    ----------     ----------    ----------     ----------
Outstanding at end of year ........  1,138,400           9.79     1,361,036          12.10     1,650,035          11.26
                                    ==========     ==========    ==========     ==========    ==========     ==========
Exercisable at end of year ........    436,801     $    10.88       880,282     $    11.89       973,421     $    12.22
</TABLE>

      The options outstanding at February 2, 2002 have exercise prices between
$7.05 and $24.313, with a weighted average exercise price of $11.26 and a
weighted average remaining contractual life of 5.99 years. Options generally
vest in five years and expire in ten years from their dates of grant.

      On December 1, 2000, the Holding Company announced that its Board of
Directors had approved a stock repurchase program to acquire up to $20 million
of outstanding Common Stock. The Holding Company may, at the discretion of
management, purchase its Common Stock, from time to time, through September 30,
2002. The extent and timing of repurchases will depend upon general business and
market conditions, stock prices, availability under the Revolving Credit
Facility, compliance with certain restrictive covenants and its cash position
and requirements going forward. The repurchase program may be modified, extended
or terminated by the Board of Directors at any time. During 2000, Finlay
repurchased 92,000 shares for $1,119,000. During 2001, Finlay repurchased an
additional 507,330 shares for $4,248,000. In April 2002, as part of the Holding
Company's stock repurchase program, the Holding Company repurchased 526,562
shares for $5,792,000 from a partnership, the managing partner of the general
partner of which is also a director of Finlay.


                                      F-16
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--LONG-TERM INCENTIVE PLANS AND OTHER (continued)

      On February 4, 2001, an executive officer of Finlay was issued 100,000
shares of Common Stock, subject to restrictions ("Restricted Stock"), pursuant
to a restricted stock agreement. The Restricted Stock becomes fully vested after
four years of continuous employment by Finlay and is accounted for as a
component of the Holding Company's stockholders' equity.

NOTE 6--LEASE AGREEMENTS

      Finlay conducts substantially all of its operations as leased departments
in department stores. All of these leases, as well as rentals for office space
and equipment, are accounted for as operating leases. A substantial number of
such operating leases expire on various dates through 2008.

      Substantially all of the department store leases provide that the title to
certain fixed assets of Finlay transfers upon termination of the leases, and
that Finlay will receive the undepreciated value of such fixed assets from the
host store in the event such transfers occur. The values of such fixed assets
are recorded at the inception of the lease arrangement and are reflected in the
accompanying Consolidated Balance Sheets.

      In several cases, Finlay is subject to limitations under its lease
agreements with host department stores which prohibit Finlay from operating
departments for other store groups within a certain geographical radius of the
host store.

      The store leases provide for the payment of fees based on sales, plus, in
some instances, installment payments for fixed assets. Contingent fees, as
represented in the table below, are not guaranteed by the lease agreements with
host department stores. Lease expense, included in Selling, general and
administrative expenses, is as follows (in thousands):

                                                Year Ended
                                  --------------------------------------
                                  January 29,   February 3,   February 2,
                                     2000          2001          2002
                                  ----------    ----------    ----------
            Minimum fees .....    $   22,264    $   15,851    $   10,151
            Contingent fees ..       126,518       149,245       147,633
                                  ----------    ----------    ----------
                 Total .......    $  148,782    $  165,096    $  157,784
                                  ==========    ==========    ==========


                                      F-17
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--LEASE AGREEMENTS (continued)

      Future minimum payments under noncancellable operating leases having
initial or remaining noncancellable lease terms in excess of one year are as
follows as of February 2, 2002:

                                                       (in thousands)
                                                       --------------
            2002 ....................................     $ 3,263
            2003 ....................................       3,188
            2004 ....................................       3,293
            2005 ....................................       3,183
            2006 ....................................       3,224
            Thereafter ..............................       3,195
                                                          -------
                 Total minimum payments required ....     $19,346
                                                          =======

NOTE 7--PENSION PLAN

      Finlay maintains a defined contribution profit-sharing plan to provide
retirement benefits for all personnel. This plan provides for company matching
contributions of $.25 for each $1.00 of employee contribution, up to 5% of the
employee's salary, as limited by the Code. Additionally, Finlay contributes 2%
of the employees' earnings annually, as limited by the Code. Vesting in Finlay's
contributions begins upon completion of three years of employment and accrues at
the rate of 20% per year. Effective January 1, 2002, Finlay's matching
contribution will begin vesting upon completion of two years of employment and
will accrue at the rate of 20% per year. The cost of the defined contribution
plan maintained by Finlay totaled $2,074,000, $1,989,000 and $1,856,000 for
1999, 2000, and 2001, respectively.

NOTE 8--INCOME TAXES

      For income tax reporting purposes, Finlay Jewelry has an October 31 year
end. Finlay Jewelry files a consolidated Federal income tax return with its
wholly owned subsidiaries and its parent, the Holding Company. Finlay Jewelry's
provision for income taxes and deferred tax assets and liabilities was
calculated as if Finlay Jewelry filed its tax return on a stand-alone basis.

      Deferred income taxes at year end reflect the impact of temporary
differences between amounts of assets and liabilities for financial and tax
reporting purposes.


                                      F-18
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--INCOME TAXES (continued)

      Deferred tax assets and liabilities at year end are as follows:

                                                        February 3,  February 2,
                                                           2001         2002
                                                        -----------  -----------
                                                             (in thousands)
Deferred Tax Assets
  Uniform inventory capitalization .................... $    3,990   $    4,024
  Expense not currently deductible ....................      1,560        1,731
  AMT credit ..........................................        566          566
                                                        ----------   ----------
                                                             6,116        6,321
  Valuation allowance .................................        100          100
                                                        ----------   ----------
     Total current ....................................      6,016        6,221
                                                        ----------   ----------
  Deferred financing costs-non-current ................        173          139
                                                        ----------   ----------
     Total non-current ................................        173          139
                                                        ----------   ----------
        Total deferred tax assets .....................      6,189        6,360
                                                        ----------   ----------
Deferred Tax Liabilities
  LIFO inventory valuation ............................      9,113        9,222
                                                        ----------   ----------
     Total current ....................................      9,113        9,222
                                                        ----------   ----------
Depreciation ..........................................     11,846       13,538
                                                        ----------   ----------
     Total non-current ................................     11,846       13,538
                                                        ----------   ----------
        Total deferred tax liabilities ................     20,959       22,760
                                                        ----------   ----------
          Net deferred income tax liabilities ......... $   14,770   $   16,400
                                                        ==========   ==========
     Net current deferred income tax liabilities ...... $    3,097   $    3,001
     Net non-current deferred income tax liabilities ..     11,673       13,399
                                                        ----------   ----------
          Net deferred income tax liabilities ......... $   14,770   $   16,400
                                                        ==========   ==========

      The components of income tax expense are as follows (in thousands):

                                                      Year Ended
                                        --------------------------------------
                                        January 29,   February 3,  February 2,
                                           2000          2001         2002
                                        -----------   -----------  -----------
            Current domestic taxes ..   $    7,122    $   20,224   $   15,042
            Current foreign taxes ...         (410)           --           --
            Deferred taxes ..........        1,013         2,491        1,630
                                        ----------    ----------   ----------
            Income tax expense ......   $    7,801    $   22,715   $   16,672
                                        ==========    ==========   ==========


                                      F-19
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--INCOME TAXES (continued)

      A reconciliation of the income tax provision computed by applying the
federal statutory rate to Income (loss) before income taxes to the Provision for
income taxes on the accompanying Consolidated Statements of Operations is as
follows (in thousands):

                                                       Year Ended
                                        ---------------------------------------
                                        January 29,    February 3,   February 2,
                                           2000           2001          2002
                                        ----------     ----------    ----------
Federal Statutory provision ...........    $5,9024     $   18,950    $   13,999
Foreign taxes .........................       (410)            --            --
State tax, net of federal benefit .....        714          2,566         1,467
Non-deductible amortization ...........      1,037          1,037         1,037
Loss (benefit) of foreign tax credit ..        410             --            --
Other .................................        148            162           169
                                        ----------     ----------    ----------
Provision for income taxes ............ $    7,801     $   22,715    $   16,672
                                        ==========     ==========    ==========

      Section 382 of the Code restricts utilization of net operating loss
("NOL") carryforwards after an ownership change exceeding 50%. As a result of
certain recapitalization transactions in 1993, a change in ownership of the
Holding Company exceeding 50% occurred within the meaning of Section 382 of the
Code (a "Change of Control"). Similar restrictions will apply to other
carryforwards. Consequently, there is a material limitation on the annual
utilization of Finlay Jewelry's NOL and other carryforwards which requires a
deferral or loss of the utilization of such carryforwards. At October 31, 2001,
Finlay Jewelry has a NOL carryforward for tax purposes of approximately
$3,500,000 which is subject to an annual limit of approximately $2,000,000 per
year, which expires in 2005. At October 31, 2001, Finlay Jewelry also had
Alternative Minimum Tax Credit ("AMT") carryovers of $566,000 which may be used
indefinitely to reduce federal income taxes.

      SFAS No. 109 "Accounting for Income Taxes," requires that the tax benefit
of such NOLs and tax credits be recorded as an asset to the extent that
management assesses the utilization to be "more likely than not". As the
accompanying Consolidated Financial Statements include profits earned after the
tax year end at October 31 (the profit of the year-end holiday season), for
financial reporting purposes only, the NOL carryforward has been absorbed in
full and no NOL carryfoward exists as of February 2, 2002. Management determined
at February 2, 2002, that based upon Finlay Jewelry's history of operating
earnings and its expectations for the future, no change to the valuation
allowance is warranted.

NOTE 9--COMMITMENTS AND CONTINGENCIES

      Finlay Jewelry, from time to time, is involved in litigation concerning
its business affairs. Management believes that the resolution of all pending
litigation will not have a material adverse effect on the consolidated financial
statements.

      Finlay has an employment agreement with one senior executive which
provides for a minimum salary level as well as incentive compensation based on
meeting specific financial goals. Such agreement has a


                                      F-20
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9--COMMITMENTS AND CONTINGENCIES (continued)

remaining term of three years and has a remaining aggregate minimum value of
$2,910,000 as of February 2, 2002.

      The Revolving Credit Agreement, the Gold Consignment Agreement and the
Senior Note Indenture currently restrict annual distributions from Finlay
Jewelry to the Holding Company to 0.25% of Finlay Jewelry's net sales for the
preceding fiscal year and also allow distributions to the Holding Company to
enable it to make interest payments on the Senior Debentures. During 1999,
dividends of $8,908,000 were declared and $7,159,000 was distributed to the
Holding Company. During 2000, dividends of $9,032,000 were declared and
$7,640,000 was distributed to the Holding Company. During 2001, dividends of
$9,250,000 were declared and $7,231,000 was distributed to the Holding Company.

      Finlay Jewelry's concentration of credit risk consists principally of
accounts receivable. Over the past three years, approximately 69% of Finlay's
domestic sales were from operations in the May Department Stores Company ("May")
and departments operated in store groups owned by Federated Department Stores
("Federated"), of which approximately 47% and 22% represented Finlay's sales in
May and Federated, respectively. Finlay Jewelry believes that the risk
associated with these receivables, other than those from department store groups
indicated above, would not have a material adverse effect on Finlay Jewelry's
financial position or results of operations.

NOTE 10--QUARTERLY FINANCIAL DATA (UNAUDITED)

      The following table summarizes the quarterly financial data for 2000 and
2001 (dollars in thousands):

                                       Year Ended February 3, 2001
                           ---------------------------------------------------
                              First         Second       Third         Fourth
                             Quarter       Quarter      Quarter       Quarter
                           ----------    ----------   ----------    ----------
Sales ..................   $  178,614    $  211,229   $  189,728    $  420,549
Gross margin ...........       91,278       106,179       96,495       209,877
Net income (loss) ......         (515)        2,312         (617)       30,249

                                       Year Ended February 2, 2002
                           ---------------------------------------------------
                              First         Second       Third         Fourth
                             Quarter       Quarter      Quarter       Quarter
                           ----------    ----------   ----------    ----------
Sales ..................   $  193,249    $  196,167   $  175,292    $  388,081
Gross margin ...........       98,368        97,687       87,612       189,867
Net income (loss) ......         (482)          153       (2,123)       25,779


                                      F-21
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11--JAY B. RUDOLPH, INC. ACQUISITION

      On April 3, 2000, Finlay completed the acquisition of certain assets of
Jay B. Rudolph, Inc. ("J.B. Rudolph") for $20.6 million, consisting primarily of
inventory of approximately $16.3 million and fixed assets of approximately $4.0
million. By acquiring J.B. Rudolph (the "J.B. Rudolph Acquisition"), Finlay
added 57 departments and also added new host store relationships with
Bloomingdale's and Dayton's and Hudson's (both now operating as Marshall
Field's). Finlay financed the acquisition of J.B. Rudolph with borrowings under
the Revolving Credit Agreement. The J.B. Rudolph Acquisition was accounted for
as a purchase, and, accordingly, the operating results of the former J.B.
Rudolph departments have been included in Finlay Jewelry's consolidated
financial statements since the date of acquisition. Finlay Jewelry recorded
goodwill of $1.7 million.

      For the year ended February 3, 2001, unaudited pro forma sales and net
income were $1,010,911 and $27,009, respectively. The pro forma information is
provided for informational purposes only and was prepared assuming the J.B.
Rudolph Acquisition occurred at the beginning of 2000. It is based on historical
information, as well as certain assumptions and estimates, and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined company.

NOTE 12--STORE GROUP CLOSINGS

      On February 8, 2001, Federated announced its plans to close its Stern's
division of which Finlay operated 23 departments. During March 2001, Finlay
closed two departments and the remaining 21 Stern's departments were closed
during the second quarter of 2001. Finlay's 2001 sales were reduced by
approximately $16.0 million as a result of these closings. In 2001, Finlay
recorded a charge of approximately $1.0 million related to the write-off of
fixed assets and employee severance.

      During 2001, Federated acquired the Liberty House department store chain.
Finlay operated in all twelve of the Liberty House department stores through
mid-November 2001. Finlay's 2001 sales were reduced by approximately $5.0
million as a result of these closings. In 2001, Finlay recorded a charge of
approximately $150,000 related to the write-off of fixed assets and employee
severance.

NOTE 13--SALE AND CLOSURE OF SONAB

      During 1998, Societe Nouvelle d' Achat de Bijouterie - S.O.N.A.B.
("Sonab"), Finlay Jewelry's European leased jewelry department subsidiary, began
to experience lower sales trends due to the transition from a promotional
pricing strategy to an everyday low price strategy. This change was made as a
result of Sonab reassessing its pricing policy following certain local French
court decisions. The adverse impact of such change continued through 1999. As a
result of the foregoing, on January 3, 2000, Sonab sold the majority of its
assets for approximately $9.9 million. After the sale, the buyer operated more
than 80 locations previously included in Sonab's 130-location base in France.
The remaining departments were closed.


                                      F-22
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13--SALE AND CLOSURE OF SONAB (continued)

      Finlay Jewelry recorded a pre-tax charge in the fourth quarter of 1999 of
$28.6 million for the write-down of assets for disposition and related closure
expenses. The pre-tax components of the charge, the related income tax effects
and the net cash portion of the charge are as follows (dollars in millions):

      Costs associated with the write-down of inventory for liquidation.. $ 7.8
      Costs associated with the write off of undepreciated fixed assets..   1.5
      Realization of foreign exchange losses ............................   9.2
      Payroll and severance costs .......................................   5.0
      Other close-down costs (a) ........................................   5.1
                                                                          -----

      Sub-total .........................................................  28.6
      Income tax benefit ................................................ (11.6)
                                                                          -----

      Net after tax .....................................................  17.0
      Non cash--foreign exchange losses above ...........................  (9.2)
                                                                          -----

      Net cash portion of charge ........................................ $ 7.8
                                                                          =====

----------
(a)   Including transfer of inventory, furniture removal, main office costs
      during close-down period, lease termination costs, litigation and
      professional fees.

      As of February 2, 2002, Finlay Jewelry's exit plan has been completed with
the exception of certain employee litigation and other legal matters. To date,
Finlay Jewelry has charged a total of $26.3 million against its original
estimate of $28.6 million. All of Sonab's employees, excluding those that were
hired by the buyer, were involuntarily terminated, including sales associates,
supervisors and corporate personnel. Finlay Jewelry does not believe future
operating results will be materially impacted by any remaining payments.

NOTE 14--DIAMOND PARK ACQUISITION

      On October 6, 1997, Finlay completed the acquisition of certain assets of
the Diamond Park Fine Jewelers division of Zale Corporation ("Diamond Park"), a
leading operator of leased departments, for approximately $63.0 million. By
acquiring Diamond Park, Finlay added 139 departments and also added new host
store relationships with Marshall Field's, Parisian and Dillard's, formerly the
Mercantile Stores. Finlay financed the acquisition of Diamond Park (the "Diamond
Park Acquisition") with borrowings under the Revolving Credit Agreement.

      The Diamond Park Acquisition was accounted for as a purchase, and,
accordingly, the operating results of the former Diamond Park departments have
been included in Finlay's consolidated financial statements since the date of
the acquisition. Finlay recorded goodwill of approximately $12.4 million.


                                      F-23
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      Set forth below is certain information with respect to each of the current
executive officers and directors of the Holding Company and Finlay Jewelry. Each
of the persons listed as a director is a member of the Board of Directors of
both the Holding Company and Finlay Jewelry.

           Name               Age                      Position
--------------------------    ---     ------------------------------------------
Arthur E. Reiner..........     61     Chairman of the Board, President and Chief
                                      Executive Officer of the Holding Company,
                                      Chairman and Chief Executive Officer of
                                      Finlay Jewelry and Director
Joseph M. Melvin..........     51     Executive Vice President and Chief
                                      Operating Officer of the Holding Company
                                      and President and Chief Operating Officer
                                      of Finlay Jewelry
Leslie A. Philip..........     55     Executive Vice President and Chief
                                      Merchandising Officer of the Holding
                                      Company and Finlay Jewelry
Edward Stein..............     57     Senior Vice President and Director of
                                      Stores of Finlay Jewelry
Bruce E. Zurlnick.........     50     Senior Vice President, Treasurer and Chief
                                      Financial Officer of the Holding Company
                                      and Finlay Jewelry
David B. Cornstein........     63     Director
Rohit M. Desai............     63     Director
Michael Goldstein.........     60     Director
James Martin Kaplan.......     57     Director
John D. Kerin.............     63     Director
Thomas H. Lee.............     58     Director
Norman S. Matthews........     69     Director
Hanne M. Merriman.........     60     Director
Warren C. Smith, Jr.......     45     Director

      The Holding Company, an affiliate of Thomas H. Lee Company (together with
its affiliate transferees, the "Lee Investors"), Mr. Cornstein, Mr. Reiner and
certain others are parties to a Stockholders' Agreement (the "Stockholders'
Agreement") which provides, among other things, the parties thereto must vote
their shares in favor of certain directors who are nominated by the Lee
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 Holding Company. The various designees currently serving on the Board of
Directors are Messrs. Lee, Smith, Cornstein, Kaplan, and Reiner. The
Stockholders' Agreement also provides for an Executive Committee to consist of
at least five directors, including, under certain conditions, designees of Mr.
Lee, and Mr. Cornstein. The Executive Committee of the Holding Company's Board
consists at present of Messrs. Lee, Desai, Matthews, Cornstein, Kaplan and
Reiner. See information under the caption "Certain Relationships and Related
Transactions--Stockholders Agreement".


                                       31
<PAGE>

      Under the Holding Company's Restated Certificate of Incorporation, the
Holding Company's Board of Directors is classified into three classes. The
members of each class will serve staggered three-year terms. Messrs. Desai,
Goldstein and Lee are Class I directors; Messrs. Cornstein, Kaplan, Kerin and
Reiner are Class II directors; and Messrs. Matthews and Smith and Ms. Merriman
are Class III directors. The terms of the Class I, Class II and Class III
directors expire at the annual meeting of stockholders to be held in 2002, 2003
and 2004, respectively. Officers serve at the discretion of the Board of
Directors.

      The business experience, principal occupations and employment of each of
the executive officers and directors of the Holding Company and Finlay Jewelry,
together with their periods of service as directors and executive officers of
the Holding Company and Finlay Jewelry, are set forth below.

      Arthur E. Reiner became Chairman of the Holding Company effective February
1, 1999 and, from January 1995 to such date, served as Vice Chairman of the
Holding Company. Mr. Reiner has also served as President and Chief Executive
Officer of the Holding Company since January 30, 1996 and as Chairman of the
Board and Chief Executive Officer of Finlay Jewelry since January 3, 1995. Prior
to joining Finlay, Mr. Reiner had spent over 30 years with the Macy's
organization. From February 1992 to October 1994, Mr. Reiner was Chairman and
Chief Executive Officer of Macy's East, a subsidiary of Macy's. From 1988 to
1992, Mr. Reiner was Chairman and Chief Executive Officer of Macy's Northeast,
which was combined with Macy's Atlanta division to form Macy's East in 1992.

      Joseph M. Melvin was appointed as Executive Vice President and Chief
Operating Officer of the Holding 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 May, including, from 1990 to March 1997,
as Chairman of the Board and Chief Operating Officer of Filene's (a division of
May).

      Leslie A. Philip has been Executive Vice President and Chief Merchandising
Officer of the Holding 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 Macy's, and from 1988 to 1993, Ms.
Philip was Senior Vice President--Merchandise--Fine Jewelry at Macy's. Ms.
Philip held various other positions at Macy's from 1970 to 1988.

      Edward Stein 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.

      Bruce E. Zurlnick has been Senior Vice President, Treasurer and Chief
Financial Officer of the Holding Company and Finlay Jewelry since January 2000.
From June 1990 to December 1999, he was Treasurer of the Holding Company and
Vice President and Treasurer of Finlay Jewelry. From December 1978 through May
1990, Mr. Zurlnick held various finance and accounting positions with Finlay's
predecessors.

      David B. Cornstein has been Chairman Emeritus of the Holding Company since
his retirement from day-to-day involvement with the Holding Company effective
January 31, 1999. He served as Chairman of the Holding Company from May 1993
until his retirement, and has been a director of the Holding Company and Finlay
Jewelry since their inception in December 1988. Mr. Cornstein is a Principal of
Pinnacle Advisors Limited. From December 1988 to January 1996, Mr. Cornstein was
President and Chief Executive Officer of the Holding Company. From December 1985
to December 1988, Mr. Cornstein was President, Chief Executive Officer and a
director of a predecessor of the Holding Company. Mr. Cornstein is a director of
TeleHubLink Corporation.


                                       32
<PAGE>

      Rohit M. Desai has been a director of the Holding Company and Finlay
Jewelry since May 1993. Mr. Desai is the founder of and, since its formation in
1984, has been Chairman and President of Desai Capital Management Incorporated,
a specialized equity investment management firm in New York which manages the
assets of various institutional clients, including Equity-Linked Investors-II,
Private Equity Investors III, L.P. and Private Equity Investors IV, L.P. Mr.
Desai is also the managing general partner of the general partner of
Equity-Linked Investors-II and the managing member of the general partners of
Private Equity Investors III, L.P. and Private Equity Investors IV, L.P. Mr.
Desai serves as a director of The Rouse Company, SITEL Corporation and
Independence Community Bank Corp.

      Michael Goldstein has been a director of the Holding Company and Finlay
Jewelry since May 1999. Mr. Goldstein has been Chairman of the Toys "R" Us
Children's Fund, Inc. since June 2001. Mr. Goldstein was Chairman of the Board
of Toys "R" Us, Inc. from February 1998 to June 2001. From February 1994 to
February 1998, Mr. Goldstein was Vice Chairman of the Board and Chief Executive
Officer of Toys "R" Us, Inc., and served as acting Chief Executive Officer from
August 1999 to January 14, 2000. Mr. Goldstein is also a director of Toys "R"
Us, Inc. and United Retail Group Inc.

      James Martin Kaplan has been a director of the Holding Company, Finlay
Jewelry and their predecessors since 1985. Mr. Kaplan is a partner of the law
firm of Blank Rome Tenzer Greenblatt LLP, counsel to Finlay, the successor to
Tenzer Greenblatt LLP, which he joined in 1998. From 1977 to 1998, Mr. Kaplan
was a partner with the law firm of Zimet, Haines, Friedman & Kaplan, former
counsel to Finlay.

      John D. Kerin has been a director since December 1999. Since January 2000,
Mr. Kerin has been a consultant to The McGraw Hill Companies, Inc. From July
1979 to January 2000, Mr. Kerin 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.

      Thomas H. Lee has been a director of the Holding Company and Finlay
Jewelry since May 1993. Since 1974, Mr. Lee has been President of Thomas H. Lee
Company. He is a director of Metris Companies, Inc., Vail Resorts, Inc. and
Wyndham International, Inc.

      Norman S. Matthews has been a director of the Holding Company and Finlay
Jewelry since July 1993. Mr. Matthews has been a retail consultant based in New
York for more than the past five years. Mr. Matthews served as President of
Federated in 1987-1988. He is also a director of Toys "R" Us, Inc., The
Progressive Corporation, Henry Schein, Inc., Eye Care Centers of America, Inc.
and Sunoco, Inc.

      Hanne M. Merriman was elected a director of the Holding Company and Finlay
Jewelry in December 1997. Ms. Merriman is the Principal in Hanne Merriman
Associates, a retail business consulting firm. She 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. She is a member of the National Women's Forum.

      Warren C. Smith, Jr. has served as a director of the Holding Company and
Finlay Jewelry since May 1993. Mr. Smith is a Managing Director of TH Lee Putnam
Ventures and has been employed by Thomas H. Lee Company or its affiliates since
1990. He is also a director of Eye Care Centers of America, Inc.


                                       33
<PAGE>

Item 11. Executive Compensation

                           Summary Compensation Table

      The following table sets forth information with respect to the
compensation in 2001, 2000 and 1999 of Finlay's Chief Executive Officer and each
of the four other most highly compensated executive officers of the Holding
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                      2001    $900,000   $180,900       $ 18,465         --           100,000          $ 29,071
   Chairman, President                2000     750,000    145,875         19,292         --           100,000            28,453
   and Chief Executive                1999     750,000    447,825         19,292         --                --            28,064
   Officer of the Holding
   Company and Chairman
   and Chief Executive
   Officer of Finlay Jewelry
Joseph M. Melvin                      2001    $387,060   $ 77,799             --         --            45,000          $ 83,895(4)
   Executive Vice President           2000     387,059     75,283             --         --            20,000           133,277(4)
   and Chief Operating                1999     372,887    183,528             --         --                --             8,705
   Officer of the Holding
   Company and President
   and Chief Operating
   Officer of Finlay Jewelry
Leslie A. Philip                      2001    $406,691   $ 81,745             --         --            50,000          $158,895(5)
   Executive Vice President           2000     406,691     79,101             --         --            30,000           208,277(5)
   and Chief Merchandising            1999     383,356    193,345             --         --                --             9,209
   Officer of the Holding
   Company and
   Finlay Jewelry
Edward Stein                          2001    $347,052   $ 69,757             --         --            15,000          $  8,895
   Senior Vice President and          2000     347,052     67,503             --         --            10,000             8,277
   Director of Stores                 1999     328,720    166,028             --         --            20,000            10,083
   of Finlay Jewelry
Bruce E. Zurlnick                     2001    $262,500   $ 52,763             --         --            15,000          $  8,895
   Senior Vice President,             2000     249,996     50,095             --         --             5,000             8,277
   Treasurer and Chief                1999     213,333    105,000             --         --            10,000             8,569
   Financial Officer of the
   Holding 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 2001".

      (3)   Includes for each Named Executive Officer the sum of the following
            amounts earned in 2001, 2000 and 1999 for such Named Executive
            Officer:


                                       34
<PAGE>

                                           Life       Retirement      Medical
                                       Insurance(a)   Benefits(b)   Benefits(c)
                                       ------------   -----------   -----------
Arthur E. Reiner ........      2001      $ 20,176      $  5,525      $  3,370
                               2000        20,176         5,200         3,077
                               1999        20,176         5,200         2,688

Joseph M. Melvin ........      2001      $     --      $  5,525      $  3,370
                               2000            --         5,200         3,077
                               1999           817         5,200         2,688

Leslie A. Philip ........      2001      $     --      $  5,525      $  3,370
                               2000            --         5,200         3,077
                               1999         1,321         5,200         2,688

Edward Stein ............      2001      $     --      $  5,525      $  3,370
                               2000            --         5,200         3,077
                               1999         2,195         5,200         2,688

Bruce E. Zurlnick .......      2001      $     --      $  5,525      $  3,370
                               2000            --         5,200         3,077
                               1999           681         5,200         2,688

            (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)   Included in the other compensation set forth in Note 3 above, were
            special bonuses of $75,000 and $125,000 in accordance with a
            retention agreement entered into in February 1999 that Finlay paid
            to Mr. Melvin in February 2002 and February 2001, respectively. See
            "- Employment and Other Agreements and Change of Control
            Arrangements".

      (5)   Included in the other compensation set forth in Note 3 above, were
            special bonuses of $150,000 and $200,000 in accordance with a
            retention agreement entered into in February 1999 that Finlay paid
            to Ms. Philip in February 2002 and February 2001, respectively. See
            "- Employment and Other Agreements and Change of Control
            Arrangements".

      Mr. Reiner was named Chairman of the Holding Company effective February 1,
1999 and, from January 1995 to such date, served as Vice Chairman of the Holding
Company. For a discussion of the employment and other arrangements with Mr.
Reiner, see "--Employment and Other Agreements and Change of Control
Arrangements".


                                       35
<PAGE>

Long-Term Incentive Plans

      The Holding Company currently has two long-term incentive plans, for which
it has reserved a total of 2,582,596 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 Holding Company's Long Term Incentive Plan (the
"1993 Plan"), of which 171,944 shares have been issued to date in connection
with exercises of options granted under the 1993 Plan and 536,053 shares are
reserved for issuance upon exercise of currently outstanding options. The
remaining 24,599 shares of Common Stock are available for future grants under
the 1993 Plan. In 1997, the Holding Company's Board of Directors and
stockholders approved the Holding Company's 1997 Long Term Incentive Plan (as
amended, the "1997 Plan" and, together with the 1993 Plan, the "Incentive
Plans"), which is intended as a successor to the 1993 Plan. The 1997 Plan is
similar to the 1993 Plan and provides for the grant of the same types of awards
as are currently available under the 1993 Plan. The maximum number of shares of
Common Stock available for issuance under the 1997 Plan is 1,850,000. Of this
total, 25,500 shares have been issued to date in connection with exercises of
options granted under the 1997 Plan, 106,000 shares have been issued to date in
connection with restricted stock arrangements and 1,117,582 shares are reserved
for issuance upon exercise of currently outstanding options. The remaining
600,918 shares of Common Stock are available for future grants under the 1997
Plan. See "--Option/SAR Grants in 2001".

      The Incentive Plans permit the Holding Company to grant to key employees
of the Holding Company and its subsidiaries, consultants and certain other
persons and directors of the Holding 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 Holding 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 Holding Company may grant stock options
which are either "incentive stock options" ("Incentive Options") within the
meaning of Section 422 of 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 Holding
Company. Nonincentive Options will not give the optionee the tax benefits of
Incentive Options, but generally will entitle the Holding 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
Holding 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


                                       36
<PAGE>

addition, an Incentive Option that is granted to an employee who, at the time
the option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the "employer corporation" (as
used in the Code) or any parent or subsidiary thereof shall have a per share
exercise price which is at least 110% of the fair market value of the Common
Stock on the date the option is granted and the duration of any such option may
not exceed five years from the date of grant. Options granted under the
Incentive Plans become exercisable at such time or times as the Compensation
Committee may determine at the time the option is granted. Options are
nontransferable (except by will or intestacy on the death of the optionee) and
during a participant's lifetime are exercisable only by the participant.

      In making grants to employees under the Incentive Plans, the Holding
Company has on occasion utilized a uniform Agreement and Certificate of Option
(the "Option Agreement"), under which the Holding 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 Holding 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 Holding 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


                                       37
<PAGE>

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 2001

      In 2001, the Holding Company granted options to purchase a total of
324,000 shares of Common Stock, of which options to purchase an aggregate of
225,000 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 2001. No stock appreciation rights were
issued by the Holding Company in 2001.

<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                                                       for Option Term ($)
                          Options/SARs    Employees in   Exercise or Base Price                          --------------------------
Name                       Granted (#)    Fiscal Year          ($/share)          Expiration Date(s)         5%             10%
-----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>                  <C>                  <C>                 <C>          <C>
Arthur E. Reiner........     100,000         32.9                 7.05                 09-27-11            443,371      1,123,588
Joseph M. Melvin........      45,000         14.8                 7.05                 09-27-11            199,517        505,615
Leslie A. Philip........      50,000         16.4                 7.05                 09-27-11            221,685        561,794
Edward Stein............      15,000          4.9                 7.05                 09-27-11             66,506        168,538
Bruce E. Zurlnick.......      15,000          4.9                 7.05                 09-27-11             66,506        168,538
</TABLE>

Certain Information Concerning Stock Options/SARs

      The following table sets forth certain information with respect to stock
options exercised in 2001 as well as the value of stock options at the fiscal
year end. No stock appreciation rights were exercised during 2001.

Aggregated Option/SAR Exercises in 2001 and Fiscal Year-End Option SAR Value

<TABLE>
<CAPTION>
                                                         Number of
                                                        Securities            Value of
                                                        Underlying          Unexercised
                                                        Unexercised         In-the-Money
                                                       Options/SARs       Options/SARs at
                              Shares                    at Year-End         Year-End ($)
                             Acquired       Value      Exercisable/         Exercisable/
           Name             on Exercise   Realized     Unexercisable    Unexercisable (1)(2)
           ----             -----------   --------     -------------    --------------------
<S>                              <C>         <C>      <C>                 <C>
Arthur E. Reiner..........       --          --       354,632/180,000          --/$276,000
Joseph M. Melvin..........       --          --        70,000/ 75,000     $31,200/$124,200
Leslie A. Philip..........       --          --       106,667/ 83,333     $46,800/$138,000
Edward Stein..............       --          --        43,467/ 41,533     $61,388/$ 51,592
Bruce E. Zurlnick.........       --          --        18,733/ 27,600     $26,523/$ 45,456
</TABLE>

----------
(1)   The values of Unexercised In-the-Money Options/SARs represent the
      aggregate amount of the excess of $9.81, 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.


                                       38
<PAGE>

Compensation Committee Interlocks and Insider Participation

      The Board of Directors of each of the Holding Company and Finlay Jewelry
have established a Compensation Committee (the "Compensation Committee"). The
Compensation Committee is presently comprised of Rohit M. Desai, Thomas H. Lee
and Norman S. Matthews. All decisions with respect to executive compensation,
and all decisions with respect to benefit plans, involving employees of the
Holding 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 Holding Company or any of its subsidiaries.

      In connection with a series of recapitalization transactions in 1993 (the
"1993 Recapitalization"), the Holding Company, the Lee Investors, partnerships
managed by Desai Capital Management Incorporated (collectively, the "Desai
Investors"), certain members of management of the Holding Company (the
"Management Stockholders") and certain other stockholders entered into (i) the
Registration Rights Agreement, which grants certain registration rights to the
Lee 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 Management Stockholders and certain other
stockholders. See "Certain Transactions".

      The Holding Company and Finlay Jewelry have entered into management
agreements with Thomas H. Lee Capital LLC (the "Lee Management Agreement") and
DCMI (collectively, the "Management Agreements"), affiliates of Mr. Lee and Mr.
Desai, respectively. Pursuant to the Management Agreements, as amended, Thomas
H. Lee Capital LLC and DCMI receive $90,000 and $30,000 per year plus expenses,
respectively, for consulting and management advisory services rendered to the
Holding Company and Finlay Jewelry. Each of the Management Agreements, which
terminate in May 2003, 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 Holding Company or Finlay
Jewelry.

      Any future transactions between the Holding Company and/or Finlay Jewelry
and the officers, directors and affiliates thereof will be on terms no less
favorable to the Holding 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 Holding Company
or Finlay Jewelry, as the case may be.

Employment and Other Agreements and Change of Control Arrangements

      Mr. Reiner is party to an employment agreement dated as of January 3,
1995, as last amended in November 2000, pursuant to which he is serving as
Chairman of the Board, President and Chief Executive Officer of the Holding
Company for a term expiring on January 31, 2005. In accordance with the
agreement, Mr. Reiner received an annual base salary of $750,000 through January
31, 2001, and since that date his salary has been at an annual rate of $900,000.
Under the agreement, his base salary is to be increased in increments of not
less than $35,000 per year. In addition to his base salary, Mr. Reiner is
entitled to an annual bonus payment based on the satisfaction by Finlay of
certain financial performance criteria. Under Mr. Reiner's agreement, Finlay is
required to provide Mr. Reiner with certain insurance and other ancillary
benefits.


                                       39
<PAGE>

      In connection with the extension of Mr. Reiner's employment agreement to
January 31, 2005, the Holding Company issued to Mr. Reiner in February 2001 an
aggregate of 100,000 shares of restricted stock which will become vested and
nonforfeitable if Mr. Reiner is continuously employed by Finlay through January
31, 2005. If Mr. Reiner's employment is terminated without cause or for other
specified circumstances, a pro rata portion of the restricted stock would become
nonforfeitable. If Mr. Reiner's employment is terminated prior to a change of
control (as defined in the agreement) without cause, or under other specified
circumstances, Mr. Reiner would continue to receive his base salary for the
balance of the term and bonus compensation as if such termination had not
occurred. In the event his employment is terminated under certain circumstances
following a change of control, Mr. Reiner would be entitled to a lump sum
payment equal to 299% of his "base amount" (as defined in Section 280G(b)(3) of
the Code), subject to certain restrictions. In addition, upon termination of his
employment coincident with or following a change of control, all of his
restricted stock would become nonforfeitable.

      If at the expiration of the term of employment (or a renewal term) Mr.
Reiner and Finlay cannot agree upon terms to continue his employment, or if his
employment is terminated without cause or for other specified reasons, Mr.
Reiner would be entitled to receive a severance payment in an amount equal to
one year's base salary, together with certain insurance benefits.

      Upon the commencement of his employment, Mr. Reiner purchased 138,525
shares of Common Stock at a price of $7.23 per share. The aggregate price of the
purchased shares was paid in the form of a note issued by Mr. Reiner to the
Holding Company. In April 1998, in connection with the sale by Mr. Reiner of
100,000 of the purchased shares, Mr. Reiner repaid the outstanding balance of
the note.

      In May 1997, the Holding Company appointed Mr. Melvin to serve as
Executive Vice President and Chief Operating Officer of the Holding Company and
President and Chief Operating Officer of Finlay Jewelry. The Holding 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 received from Finlay in July 1997 a $295,000 non-interest-bearing loan,
which was repaid in full in July 1998. 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 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. In February 1999,
Finlay agreed with Mr. Melvin that in the event he continued to be employed by
Finlay in February 2001 and February 2002, Finlay would pay to him special
bonuses of $125,000 and $75,000, respectively. Accordingly, in February 2001 and
February 2002, Mr. Melvin received bonuses of $125,000 and $75,000,
respectively.

      In February 1999, Finlay agreed with Ms. Leslie Philip, the Executive Vice
President and Chief Merchandising Officer of the Holding Company and Finlay
Jewelry, that in the event she continued to be employed by Finlay in February
2001 and February 2002, Finlay would pay to her special bonuses of $200,000 and
$150,000, respectively. Accordingly, in February 2001 and February 2002, Ms.
Philip received bonuses of $200,000 and $150,000, respectively.


                                       40
<PAGE>

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, Smith and Kaplan receive no
compensation for serving as directors of the Holding 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 Holding Company and Finlay Jewelry, each
independent non-employee director receives aggregate compensation at the rate of
$20,000 per year and, 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 committees. 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. See information under
the caption "Executive Compensation--Employment and Other Agreements and Change
of Control Arrangements".


                                       41
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of April 24, 2002 by (i) each person
who, to the knowledge of the Holding Company, was the beneficial owner of more
than 5% of the outstanding Common Stock of the Company, (ii) each of the Holding
Company's directors, the Holding Company's Chief Executive Officer and each of
the four other most highly compensated executive officers of the Holding Company
or Finlay Jewelry, and by all current directors and executive officers as a
group. The Holding Company owns all of the issued and outstanding capital stock
of Finlay Jewelry.

                                                        Shares of Common Stock
                                                        Beneficially Owned (1)
                                                       ------------------------

                                                       Number of     Percentage
                     Name                                Shares       of Class
-----------------------------------------------        ---------     ----------
FMR Corp.(2) ..................................        1,042,700        11.1%
Thomas H. Lee(3) ..............................          984,340        10.4%
Mellon Financial Corporation(4) ...............          875,959         9.3%
Neuberger Berman, LLC(5) ......................          818,400         8.7%
David B. Cornstein(6) .........................          685,439         7.2%
Investment Counselors of Maryland, LLC(7) .....          565,300         6.0%
Becker Capital Management, Inc.(8) ............          561,775         6.0%
Arthur E. Reiner(1)(9) ........................          519,279         5.3%
Leslie A. Philip(1)(10) .......................          118,000         1.2%
Norman S. Matthews(11) ........................          101,000         1.1%
Joseph M. Melvin(1)(12) .......................           87,000           *
Edward Stein(1)(13) ...........................           51,000           *
Bruce E. Zurlnick(1)(14) ......................           22,133           *
Michael Goldstein(15) .........................           22,000           *
Hanne M. Merriman(16) .........................           20,000           *
Warren C. Smith, Jr.(17) ......................           12,590           *
John D. Kerin(1)(18) ..........................           11,000           *
James Martin Kaplan(1) ........................            4,000           *
Rohit M. Desai(19) ............................               --           *
All directors and executive officers
as a group (14 persons)(20) ...................        2,637,781        25.6%

----------
      *Less than one percent.

      (1)   Based on 9,430,561 shares outstanding on April 24, 2002. Except as
            noted below, each beneficial owner has sole voting power and sole
            investment power, subject (in the case of the Holding Company's
            directors and executive officers) to the terms of the Stockholders'
            Agreement. The address for the beneficial owners named in the table,
            unless specified otherwise in a subsequent footnote, is c/o the
            Holding Company, 529 Fifth Avenue, New York, New York 10017.

      (2)   These shares represent shares reported as beneficially owned by FMR
            Corp. in a joint filing on Amendment No. 3 dated June 11, 2001 to a
            Schedule 13G dated February 1, 1999, as amended, filed with the
            Commission by FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson,
            Fidelity Management & Research Company ("Fidelity") and Fidelity Low
            Priced Stock Fund (the "Fund"). According to said


                                       42
<PAGE>

            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, a wholly-owned subsidiary of FMR Corp. and a registered
            investment adviser, is the beneficial owner of the 1,042,700 shares
            which are the subject of the Schedule 13G Amendment as a result of
            its acting as investment adviser to the Fund, an investment company
            which owns all of such 1,042,700 shares. Edward C. Johnson 3d, FMR
            Corp., through its control of Fidelity, and the Fund each has sole
            power to dispose of the 1,042,700 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. The address
            for FMR Corp., Fidelity and the Fund is 82 Devonshire Street,
            Boston, Massachusetts 02109.

      (3)   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.

      (4)   According to Amendment No. 4 dated January 11, 2002 to a Schedule
            13G dated February 4, 1999, as amended, filed with the Commission by
            Mellon Financial Corporation ("Mellon Financial"), (i) Mellon
            Financial has sole power to vote 766,859 shares and sole power to
            dispose of 875,959 shares, and shares power to vote 69,900 shares
            and shares power to dispose of none of such shares, and (ii) The
            Boston Company, Inc. has sole power to vote 604,009 shares and sole
            power to dispose of 713,109 shares, and shares power to vote 69,900
            shares and shares power to dispose of none of such shares. According
            to such Schedule 13G Amendment, shares beneficially owned by Boston
            Safe Advisors, TBC Asset Management, Inc., Boston Safe Deposit and
            Trust Company and Franklin Portfolio Associates as of December 31,
            2001 are reported as beneficially owned by The Boston Company, as a
            holding company, and that as of December 31, 2001, the holding
            company that beneficially owned these shares was Boston Safe Deposit
            and Trust Company. All of the shares reported in the Schedule 13G
            Amendment are beneficially owned by Mellon Financial Corporation and
            direct or indirect subsidiaries, including The Boston Company, Inc.,
            in their various fiduciary capacities. The address for Mellon
            Financial Corporation is One Mellon Center, Pittsburgh, Pennsylvania
            15258.

      (5)   According to Amendment No. 3 dated February 11, 2002 to a Schedule
            13G dated February 10, 1999, as amended, 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 676,900 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
            818,400 shares. Employee(s) of Neuberger Berman, LLC and Neuberger
            Berman Management, Inc. own 348,900 shares in their own personal
            securities accounts.

                                         (Footnotes continued on following page)


                                       43
<PAGE>

            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.

      (6)   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 Holding Company, 529 Fifth Avenue, New York, New York 10017.

      (7)   According to a Schedule 13G, dated March 11, 2002, filed with the
            Commission by Investment Counselors of Maryland, LLC ("Investment
            Counselors"), Investment Counselors has sole power to vote 400,600
            shares and sole power to dispose of all the indicated shares, and
            shares power to vote 164,700 shares and shares power to dispose of
            none of such shares. All of the indicated shares are owned by
            various investment advisory clients of Investment Counselors, which
            is deemed to be a beneficial owner of the shares due to its
            discretionary power to make investment decisions over such shares
            for its clients and its ability to vote such shares. In all cases,
            persons other than Investment Counselors have the right to receive,
            or the power to direct the receipt of, dividends from, or the
            proceeds from the sale of the shares. According to the Schedule 13G,
            no individual client of Investment Counselors holds more than five
            percent of the class. The address for Investment Counselors of
            Maryland, LLC is 803 Cathedral Street, Baltimore, Maryland
            21201-5297.

      (8)   According to an Amendment dated February 6, 2002 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 528,175 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.

      (9)   Includes options to acquire 374,632 shares of Common Stock having
            exercise prices ranging from $12.75 to $14.00 per share. Also
            includes 100,000 shares of restricted stock.

      (10)  Includes options to acquire an aggregate of 118,000 shares of Common
            Stock having exercise prices ranging from $8.25 to $23.1875 per
            share.

      (11)  Includes options to acquire an aggregate of 101,000 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.

      (12)  Includes options to acquire an aggregate of 86,000 shares of Common
            Stock having exercise prices ranging from $8.25 to $24.3125 per
            share.

      (13)  Includes options to acquire an aggregate of 50,000 shares of Common
            Stock having exercise prices ranging from $7.23 to $13.4219 per
            share.

      (14)  Includes options to acquire an aggregate of 21,333 shares of Common
            Stock having exercise prices ranging from $7.23 to $13.5625 per
            share.

      (15)  Includes options to acquire an aggregate of 15,000 shares of Common
            Stock having exercise prices ranging from $11.215 to $13.4375 per
            share. The address of Mr. Goldstein is c/o Toys "R" Us, Inc., 461
            From Road, Paramus, New Jersey 07652.

                                         (Footnotes continued on following page)


                                       44
<PAGE>

      (16)  Includes options to acquire an aggregate of 20,000 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.

      (17)  Mr. Smith's address is c/o Thomas H. Lee Company, 75 State Street,
            Boston, Massachusetts 02109.

      (18)  Includes options to acquire an aggregate of 10,000 shares of Common
            Stock having exercise prices ranging from $11.215 to $14.5938 per
            share.

      (19)  The address of Mr. Desai and ELI-II is c/o Desai Capital Management
            Incorporated, 540 Madison Avenue, New York, New York 10022.

      (20)  Includes options to acquire an aggregate of 862,632 shares of Common
            Stock having exercise prices ranging from $7.23 to $24.3125 per
            share.

Item 13. Certain Relationships and Related Transactions

Stockholders' Agreement

      The Lee Investors, the Management Stockholders, all employees holding
options to purchase Common Stock, certain private investors and the Holding
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 Holding Company. Any employees of Finlay not parties
to the Stockholders' Agreement, as amended, who have received or in the future
receive options to purchase Common Stock in connection with their employment
have also been required or will also be required, as the case may be, to become
parties to the 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, 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 Holding Company. The designees
of the Lee Investors currently serving on the Board of Directors are Messrs. Lee
and Smith; 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 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 Holding
Company. The Executive Committee of the Holding 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.


                                       45
<PAGE>

Registration Rights Agreement

      The Registration Rights Agreement grants certain registration rights to
the Lee Investors, certain other investors and the Management Stockholders. Lee
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 Holding Company shall be obligated to effect, up to
three registrations of "Registrable Securities", subject to the terms and
limitations of the Registration Rights Agreement. The Lee Investors also may
demand registration under certain circumstances. The Registration Rights
Agreement also provides that Management Stockholders holding in the aggregate at
least 20% of the "Registrable Securities" then outstanding will have the right
on one occasion to require the Holding 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 Holding 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 Holding 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
Holding 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 Holding Company completed the 1998 Offering
involving the sale 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 Holding 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
Holding Company. See "Executive Compensation - Employment and Other Agreements
and Change of Control Arrangements."

Stock Repurchase

      In April 2002, as part of the Holding Company's Stock repurchase program,
the Holding Company repurchased 526,562 shares of Common Stock for $5,792,000
from Equity-Linked Investors-II, a partnership the managing partner of the
general partner of which is Rohit M. Desai, a director of Finlay.


                                       46
<PAGE>

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 Holding Company finds reasonable. Although the
indemnification agreements offer coverage similar to the provisions in the
Holding Company's 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 "-- Compensation Committee Interlocks and Insider
Participation" and "-- Employment and Other Agreements and Change of Control
Arrangements" under the caption "Executive Compensation".


                                       47
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a) Documents filed as part of this report:

      (1) Financial Statements.

      See Financial Statements Index included in Item 8 of Part II of this Form
10-K.

      (2) Financial Statement Schedules.

      None.

      (3) Exhibits.

      (Exhibit Number referenced to Item 601 of Regulation S-K).

Item
Number
------

3.1       - Certificate of Incorporation, as amended, of Finlay Jewelry
            (incorporated by reference to Exhibit 3.1 of Form S-1 Registration
            Statement, Registration No. 33-59580).

3.2       - By-laws of Finlay Jewelry (incorporated by reference to Exhibit
            4.1 filed as part of the Current Report on Form 8-K filed by the
            Registrant on June 10, 1993).

4.1       - Article Fourth of the Restated Certificate of Incorporation and
            Articles II and VI of the Bylaws (incorporated by reference to
            Exhibit 4.1 of Form S-1 Registration Statement, Registration No.
            33-59380).

4.2       - Indenture dated as of April 24, 1998 between Finlay Jewelry and
            Marine Midland Bank, as Trustee, relating to Finlay Jewelry's 8-3/8%
            Senior Notes due May 1, 2008 issued by Finlay Jewelry (including
            form of Senior Note) (incorporated by reference to Exhibit 4.1 filed
            as part of the Current Report on Form 8-K filed by Finlay Jewelry on
            May 11, 1998).

4.3       - Stock Purchase Agreement dated as of May 26, 1993 among the
            Holding Company, Finlay Jewelry, THL Equity Holding Corp.,
            Equity-Linked Investors, L.P. and Equity-Linked Investors-II
            (incorporated by reference to Exhibit 4.4 filed as part of the
            Current Report on Form 8-K filed by the Company on June 10, 1993).

4.4(a)    - Amended and Restated Stockholders' Agreement dated as of March 6,
            1995 among the Holding Company, David B. Cornstein, Arthur E.
            Reiner, Robert S. Lowenstein, Norman S. Matthews, Ronald B.
            Grudberg, Harold S. Geneen, James Martin Kaplan, Electra Investment
            Trust, PLC, RHI Holdings, Inc., Jeffrey Branman, The Lee Holders
            listed on the signature page thereto, Equity-Linked Investors, L.P.,
            Equity-Linked Investors-II and certain other security holders
            (incorporated by reference to Exhibit 4.9 filed as part of the
            Annual Report on Form 10-K for the period ended January 28, 1995
            filed by the Company on April 12, 1995).


                                       48
<PAGE>

Item
Number
------

4.4(b)    - Omnibus Amendment to Registration Rights and Stockholders' Agreement
            (incorporated by reference to Exhibit 10.10 filed as part of the
            Quarterly Report on Form 10-Q for the period ended November 1, 1997
            filed by Finlay Jewelry on December 16, 1997).

4.5       - Registration Rights Agreement dated as of May 26, 1993 among the
            Company, David B. Cornstein, Harold S. Geneen, Ronald B. Grudberg,
            Robert S. Lowenstein, John C. Belknap, James Martin Kaplan, Electra
            Investment Trust, PLC, RHI Holdings, Inc., Jeffrey Branman, Andrew
            U. Belknap, Timothy H. Belknap, THL Equity Holding Corp.,
            Equity-Linked Investors, L.P. and Equity-Linked Investors-II
            (incorporated by reference to Exhibit 4.6 filed as part of the
            Current Report on Form 8-K filed by the Company on June 10, 1993).

10.1      - Form of Agreement and Certificate of Option Pursuant to the Long
            Term Incentive Plan of the Holding Company (incorporated by
            reference to Exhibit 10.1 filed as part of the Quarterly Report on
            Form 10-Q for the period ended July 31, 1993 filed by Finlay Jewelry
            on September 14, 1993).

10.2      - The Holding Company's Retirement Income Plan as amended and restated
            February 2002.

10.3      - Executive Medical Benefits Plan of Finlay Jewelry and the Holding
            Company (incorporated by reference to Exhibit 10.3 of Form S-1
            Registration Statement, Registration No. 33-59380).

10.4      - Letter Agreement dated February 1, 1999 by and among Finlay Jewelry,
            the Holding Company and David B. Cornstein (incorporated by
            reference to Exhibit 10.5(d) filed as part of the Annual Report on
            Form 10-K for the period ended January 30, 1999, filed by Finlay
            Jewelry on April 30, 1999).

10.5(a)   - Employment Agreement dated as of January 3, 1995 among the Holding
            Company, Finlay Jewelry and Arthur E. Reiner (incorporated by
            reference to Exhibit 10.7(a) of Form S-1 Registration Statement,
            Registration No. 33-88938).

10.5(b)   - Amendment to Employment Agreement dated as of May 17, 1995 among
            the Holding Company, Finlay Jewelry and Arthur E. Reiner
            (incorporated by reference to Exhibit 10.8(e) filed as part of the
            Annual Report on Form 10-K for the period ended February 1, 1997
            filed by Finlay Jewelry on May 1, 1997).

10.5(c)   - Amendment No. 2 to Employment Agreement dated as of March 5, 1997
            among the Holding Company, Finlay Jewelry and Arthur E. Reiner
            (incorporated by reference to Exhibit 10 filed as part of the
            Quarterly Report on Form 10-Q for the period ended May 3, 1997 filed
            by Finlay Jewelry on June 17, 1997).

10.5(d)   - Amendment No. 3 to Employment Agreement dated July 1, 1997 among
            the Holding Company, Finlay Jewelry and Arthur E. Reiner
            (incorporated by reference to Exhibit 10.6(g) filed as part of the
            Annual Report on Form 10-K for the period ended January 31, 1998,
            filed by Finlay Jewelry on March 24, 1998).


                                       49
<PAGE>

Item
Number
------

10.5(e)   - Amendment No. 4 to Employment Agreement dated as of February 16,
            2000 among the Holding Company, Finlay Jewelry and Arthur E. Reiner
            (incorporated by reference to Exhibit 10.5(h) filed as part of the
            Annual Report on Form 10-K for the period ended January 29, 2000
            filed by Finlay Jewelry on April 28, 2000).

10.5(f)   - Amendment No. 5 to Employment Agreement dated as of November 29,
            2000 among the Holding Company, Finlay Jewelry and Arthur E. Reiner
            (incorporated by reference to Exhibit 10.5(f) filed as part of the
            Annual Report on Form 10-K for the period ended February 3, 2001
            filed by Finlay Jewelry on April 30, 2001).

10.6(a)   - Consulting and Option Agreement dated as of July 7, 1993 by and
            between Finlay Jewelry and Norman S. Matthews (incorporated by
            reference to Exhibit 10.00 filed as part of the Annual Report on
            Form 10-K for the period ended January 29, 1994 filed by Finlay
            Jewelry on April 27, 1994).

10.6(b)   - Amendment to Consulting and Option Agreement dated as of March 6,
            1995 between Norman S. Matthews and Finlay Jewelry (incorporated by
            reference to Exhibit 10.2 filed as part of the Quarterly Report on
            Form 10-Q for the period ended April 29, 1995 filed by Finlay
            Jewelry on June 3, 1995).

10.7      - Employment Agreement dated as of April 18, 1997 between Joseph M.
            Melvin and Finlay Jewelry (incorporated by reference to Exhibit 10.8
            filed as part of the Annual Report on Form 10-K for the period ended
            January 31, 1998, filed by Finlay Jewelry on March 24, 1998).

10.8      - Tax Allocation Agreement dated as of November 1, 1992 between the
            Holding Company and Finlay Jewelry (incorporated by reference to
            Exhibit 19.5 filed as part of the Quarterly Report on Form 10-Q for
            the period ended May 1, 1993 filed by the Company on June 30, 1993).

10.9(a)   - Management Agreement dated as of May 26, 1993 among the Holding
            Company, Finlay Jewelry and Thomas H. Lee Company (incorporated by
            reference to Exhibit 28.2 filed as part of the Current Report on
            Form 8-K filed by Finlay Jewelry on June 10, 1993).

10.9(b)   - Amendment to Management Agreement dated as of January 21, 2002 among
            the Holding Company, Finlay Jewelry and Thomas H. Lee Capital, LLC.

10.10(a)  - Management Agreement dated as of May 26, 1993 among the Holding
            Company, Finlay Jewelry and Desai Capital Management Incorporated
            (incorporated by reference to Exhibit 28.1 filed as part of the
            Current Report on Form 8-K filed by the Company on June 10, 1993).

10.10(b)  - Amendment to Management Agreement dated as of January 21, 2002 among
            the Holding Company, Finlay Jewelry and Desai Capital Management
            Corporation.

10.11(a)  - Long Term Incentive Plan of the Company (incorporated by reference
            to Exhibit 19.5 filed as part of the Quarterly Report on Form 10-Q
            for the period ended May 1, 1993 filed by Finlay Jewelry on June 30,
            1993).


                                       50
<PAGE>

Item
Number
------

10.11(b)  - Amendment No. 1 to the Holding Company's Long Term Incentive Plan
            (incorporated by reference to Exhibit 10.14(b) of the Form S-1
            Registration Statement, Registration No. 33-88938).

10.11(c)  - Amendment to the Holding Company's Long Term Incentive Plan.

10.12     - 1997 Long Term Incentive Plan, as amended.

10.13     - Security Agreement dated as of May 26, 1993 by Finlay Jewelry in
            favor of GE Capital, as agent (incorporated by reference to Exhibit
            19.9 filed as part of the Quarterly Report on Form 10-Q for the
            period ended May 1, 1993 filed by Finlay Jewelry on June 30, 1993).

10.14     - Security Agreement and Mortgage--Trademarks, Patents and Copyrights,
            dated as of May 26, 1993 by Finlay Jewelry in favor of GE Capital,
            as agent (incorporated by reference to Exhibit 19.10 filed as part
            of the Quarterly Report on Form 10-Q for the period ended May 1,
            1993 filed by Finlay Jewelry on June 30, 1993).

10.15(a)  - Amended and Restated Credit Agreement dated as of September 11, 1997
            among G. E. Capital, individually and in its capacity as agent,
            certain other lenders and financial institutions, the Holding
            Company and Finlay Jewelry ("Amended Revolving Credit Agreement")
            (incorporated by reference to Exhibit 10.2 filed as part of the
            Quarterly Report on Form 10-Q for the period ended August 2, 1997
            filed by Finlay Jewelry on September 16, 1997).

10.15(b)  - Amendment No. 1 dated as of September 11, 1997 to the Amended
            Revolving Credit Agreement (incorporated by reference to Exhibit
            10.3 filed as part of the Quarterly Report on Form 10-Q for the
            period ended August 2, 1997 filed by Finlay Jewelry September 16,
            1997).

10.15(c)  - Amendment No. 2 dated October 6, 1997 to the Amended Revolving
            Credit Agreement (incorporated by reference to Exhibit 10.2 as part
            of the Current Report on Form 8-K filed by Finlay Jewelry on October
            17, 1997).

10.15(d)  - Amendment No. 3 dated as of April 24, 1998 to the Amended Revolving
            Credit Agreement (incorporated by reference to Exhibit 10.1 filed as
            part of the Current Report on Form 8-K dated April 24, 1998, as
            filed by Finlay Jewelry on May 11, 1998).

10.15(e)  - Amendment No. 4 dated as of October 28, 1998 to the Amended
            Revolving Credit Agreement (incorporated by reference to Exhibit
            10.25(e) filed as part of the Annual Report on Form 10-K for the
            period ended January 30, 1999, filed by Finlay Jewelry on April 30,
            1999).

10.15(f)  - Amendment No. 5 dated as of October 28, 1998 to the Amended
            Revolving Credit Agreement (incorporated by reference to Exhibit
            10.25(f) filed as part of the Annual Report on Form 10-K for the
            period ended January 30, 1999, filed by Finlay Jewelry on April 30,
            1999).


                                       51
<PAGE>

Item
Number
------

10.15(g)  - Amendment Agreement No. 6 dated as of August 3, 1999 to the Amended
            Revolving Credit Agreement (incorporated by reference to Exhibit
            10.15(g) filed as part of the Annual Report on Form 10-K for the
            period ended January 29, 2000 filed by Finlay Jewelry on April 28,
            2000).

10.15(h)  - Amendment Agreement No. 7 and Waiver dated as of December 31, 1999
            to the Amended Revolving Credit Agreement (incorporated by reference
            to Exhibit 10.15(h) filed as part of the Annual Report on Form 10-K
            for the period ended January 29, 2000 filed by Finlay Jewelry on
            April 28, 2000).

10.15(i)  - Amendment Agreement No. 8 and Consent dated as of March 30, 2000 to
            the Amended Revolving Credit Agreement (incorporated by reference to
            Exhibit 10.15(i) filed as part of the Annual Report on Form 10-K for
            the period ended January 29, 2000 filed by Finlay Jewelry on April
            28, 2000).

10.15(j)  - Amendment Agreement No. 9 dated as of April 20, 2000 to the Amended
            Revolving Credit Agreement (incorporated by reference to Exhibit
            10.15(j) filed as part of the Annual Report on Form 10-K for the
            period ended January 29, 2000 filed by Finlay Jewelry on April 28,
            2000).

10.15(k)  - Amendment No. 10 and Consent dated as of September 29, 2000 to the
            Amended Revolving Credit Agreement (incorporated by reference to
            Exhibit 10.15(k) filed as part of the Annual Report on Form 10-K for
            the period ended February 3, 2001 filed by Finlay Jewelry on April
            30, 2001).

10.15(l)  - Amendment No. 11 dated as of January 31, 2002 to the Amended
            Revolving Credit Agreement.

10.16     - Form of Officer's and Director's Indemnification Agreement
            (incorporated by reference to Exhibit 10.4 filed as part of the
            Quarterly Report on Form 10-Q for the period ended April 29, 1995
            filed by Finlay Jewelry on June 3, 1995).

10.17(a)  - Amended and Restated Gold Consignment Agreement dated as of March
            30, 2001 (the "Amended and Restated Gold Consignment Agreement")
            between Finlay Jewelry, eFinlay, Inc. ("eFinlay") and Sovereign Bank
            (as successor to Fleet National Bank, f/k/a BankBoston, N.A., f/k/a
            The First National Bank of Boston, as successor to Rhode Island
            Hospital Trust National Bank) ("Sovereign Bank"), and the other
            parties which are or may become parties thereto (incorporated by
            reference to Exhibit 10.1 filed as part of the Quarterly Report on
            Form 10-Q for the period ended May 5, 2001 filed by Finlay Jewelry
            on June 18, 2001).

10.17(b)  - First Amendment to the Amended and Restated Gold Consignment
            Agreement.

10.18     - Amended and Restated Security Agreement dated as of March 30, 2001
            between Finlay Jewelry, eFinlay and Sovereign Bank, as agent
            (incorporated by reference to Exhibit 10.2 filed as part of the
            Quarterly Report on Form 10-Q for the period ended May 5, 2001 filed
            by Finlay Jewelry on June 18, 2001).


                                       52
<PAGE>

Item
Number
------

10.19     - Amended and Restated Intercreditor Agreement dated as of March 30,
            2001 between Sovereign Bank, as agent, and GE Capital, as agent, and
            acknowledged by Finlay Jewelry and eFinlay (incorporated by
            reference to Exhibit 10.3 filed as part of the Quarterly Report on
            Form 10-Q for the period ended May 5, 2001 filed by Finlay Jewelry
            on June 18, 2001).

10.20     - Letter Agreement, dated April 4, 2002, by and between Equity-Linked
            Investors-II and the Holding Company.

21.1      - Subsidiaries of Finlay Jewelry

99.1      - Letter Regarding Arthur Andersen LLP.

(b) Reports on Form 8-K

            None.


                                       53
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                 Finlay Fine Jewelry Corporation


Date: April 26, 2002                             By: /s/ ARTHUR E. REINER
                                                     --------------------
                                                       Arthur E. Reiner
                                                     Chairman of the Board

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

          Name                             Title                       Date
          ----                             -----                       ----


  /s/ ARTHUR E. REINER     Chairman of the Board, Chief           April 26, 2002
------------------------   Executive Officer and Director
    Arthur E. Reiner       (Principal Executive Officer)


 /s/ BRUCE E. ZURLNICK     Senior Vice President, Treasurer and   April 26, 2002
------------------------   Chief Financial Officer (Principal
   Bruce E. Zurlnick       Financial and Accounting Officer)


 /s/ DAVID B. CORNSTEIN    Director                               April 26, 2002
------------------------
   David B. Cornstein


 /s/ NORMAN S. MATTHEWS    Director                               April 26, 2002
------------------------
   Norman S. Matthews


/s/ JAMES MARTIN KAPLAN    Director                               April 26, 2002
------------------------
  James Martin Kaplan


   /s/ ROHIT M. DESAI      Director                               April 26, 2002
------------------------
     Rohit M. Desai


   /s/ THOMAS H. LEE       Director                               April 26, 2002
------------------------
     Thomas H. Lee


/s/ WARREN C. SMITH, JR.   Director                               April 26, 2002
------------------------
  Warren C. Smith, Jr.


 /s/ HANNE M. MERRIMAN     Director                               April 26, 2002
------------------------
   Hanne M. Merriman


 /s/ MICHAEL GOLDSTEIN     Director                               April 26, 2002
------------------------
   Michael Goldstein


   /s/ JOHN D. KERIN       Director                               April 26, 2002
------------------------
     John D. Kerin


                                       54