Document:

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                                                                   Exhibit 10.56

                              SETTLEMENT AGREEMENT
                              --------------------

         This agreement (the "Agreement") is entered into, effective May 10,
2004, (the "Effective Date") between Meade Instruments Corp. ("Meade"), on the
one hand, and Celestron Acquisition, LLC ("Celestron") and James Feltman
("Feltman"), on the other.

                                   BACKGROUND
                                   ----------

A. As used in this Agreement, the "Parties" are any and all of Meade, Celestron
and Feltman.

B. Several lawsuits (collectively, the "Litigation") are presently pending
between one or more of the Parties in the United States District Court for the
Central District of California, including:

         1.       Case No. SACV 01-976 GLT (MLGx)(the "976 Case"), in which
                  Meade has sued Celestron International Inc. and Tasco Sales
                  Inc., and Tasco Worldwide, alleging infringement of U.S.
                  Patent No. 6,304,376 (the "'376 Patent"), false and misleading
                  representations in violation of the Lanham Act, unfair
                  competition, and unlawful business practices. Celestron has
                  denied liability and asserted defenses including
                  noninfringement and invalidity in this case and has
                  counterclaimed alleging infringement by Meade of Celestron's
                  U.S. Design Patent No. D438,221 (the "'221 Patent").

         2.       Case No. SACV 02-544 GLT (MLGx)(the "544 Case"), in which
                  Meade has sued Celestron International Inc. and Tasco Sales
                  Inc., Tasco Worldwide, and James S. Feltman, alleging
                  infringement of U.S. Patent No. 6,392,799 (the "'799 Patent").
                  Celestron has denied liability and asserted defenses including
                  noninfringement and invalidity in this case and has
                  counterclaimed alleging infringement by Meade of Celestron's
                  U.S. Design Patent No. D454,899 (the "'899 Patent").

         3.       Case No. SACV 02-558 GLT (MLGx)(the "558 Case"), in which
                  Meade has sued Celestron International Inc. and Tasco Sales
                  Inc., Tasco Worldwide, James S. Feltman, Rick Hedrick, Manishi
                  Gupta, and James Barnaby, seeking correction of inventorship
                  of U.S. Patent No. 6,369,942 (the "'942 Patent") and alleging
                  false and misleading representations in violation of the
                  Lanham Act, unfair competition, and unlawful, unfair, and
                  fraudulent business practices. Celestron has denied liability
                  and asserted various defenses in this case.

         4.       Case No. SACV 02-1097 GLT (MLGx)(the "1097 Case"), in which
                  Celestron Acquisition LLC has sued Meade, alleging
                  infringement of U.S. Patent No. 6,467,738 (the "'738 Patent").
                  Meade has denied liability and asserted defenses including
                  noninfringement, invalidity, and inequitable conduct in this
                  case.

C. The assets of Celestron International Inc. and Tasco Sales Inc., and Tasco
Worldwide have been sold by Feltman, as trustee, pursuant to assignments for
benefit of creditors. Celestron has purchased some of the assets of Celestron

                                       1
<PAGE>

International Inc. Celestron International Inc., Tasco Sales Inc., and Tasco
Worldwide have ceased operations and, consequently, have ceased participation in
the 976, 544, and 558 Cases. Celestron has appeared in those cases as a
defendant and counterclaimant.

D. As required by Court rules, the Parties have recently participated in a
settlement procedure to explore the possibility of resolving the Litigation by
an agreed compromise. On May 10, 2004, representatives of the Parties
participated in a mediation conducted by Antonio Piazza, Esq., in San Francisco,
California. At the conclusion of the mediation, the Parties, with the advice and
assistance of Mr. Piazza, agreed upon a compromise to resolve the Litigation,
which they memorialized in a handwritten agreement of that date (the
"Handwritten Agreement"). A true and correct copy of the Handwritten Agreement
is attached hereto as Exhibit "A." In the Handwritten Agreement, the Parties
agreed to sign a more formal agreement. This Agreement is that more formal
agreement.

E. As used in this Agreement, the "Subject Patents" are any and all of:

         1.       The '376 Patent and '799 Patent and any and all patents
                  Related to either of them (collectively, the "Meade Patents");

         2.       The '221 Patent, '899 Patent, and '738 Patent and any and all
                  patents Related to any of them (collectively, the "Celestron
                  Patents"); and

         3.       The '942 Patent and any and all patents Related to it
                  (collectively, the "Corrected Patents").

F. As used in this Agreement, a patent is "Related" to another patent if: (1)
the patent results from a continuation application, divisional application, or
continuation in-part application or any other type of application, claiming
priority from the other patent or its predecessor applications, or (2) the
patent is a reissue, reexamination, or extension of the patent or of any patent
resulting from any of the foregoing applications.

G. As used in this Agreement, an "Affiliate" of a given entity is any other
entity that controls, is controlled by, or is under common control with, the
given entity.

H. As used in this Agreement, "Computerized Telescope" means motorized
telescopes, telescope mounts, and telescope systems (collectively, "Telescope")
that internally or externally provide electronic data corresponding to a
Telescope position, whether defined as alt-az coordinates, RA-Dec coordinates, a
specific celestial object, or otherwise.

I. As used in this Agreement, a "License" means a non-exclusive license, for the
full remaining term of any and all of the specified patents, to make, use, have
made, sell, offer for sale, or import any and all products, methods or anything
else covered by the specified patents. As used in this Agreement, a "License"
extends not only to the Party specified as receiving such License, but also to
the Party's customers, suppliers, vendors, employees, and agents for conduct in
their capacities as such. All Licenses referred to in this Agreement are paid-up
and royalty-free except insofar as this Agreement expressly provides for
royalties.

                                       2
<PAGE>

J. As used in this Agreement, "Licensed Products" means any and all products
that include or use, with an altitude-azimuth mount or a mount functioning, or
capable of functioning, in an altitude-azimuth configuration, any
level-and-point North alignment procedure, or similar type of alignment
procedure using altitude and azimuth terrestrial reference positions (e.g.,
level-and-point South). Licensed Products include products that include "Easy
Align" (i.e., the alignment method currently or formerly used in certain Meade
products or any method that is based thereon) and "Auto-Align" (i.e., the
alignment method currently or formerly used in certain Celestron products or any
method that is based thereon), only if such Auto Align or Easy-Align alignment
methods include or use a level-and-point North alignment procedure, or similar
type of alignment procedure using altitude and azimuth terrestrial reference
positions. The parties hereby acknowledge and agree that a polar oriented
computerized German equatorial mount (as such mount is currently commonly known
in the trade and as such term is used in Celestron's current print
advertisements) shall not be considered a Licensed Product for purposes of this
Agreement.

                              TERMS AND CONDITIONS
                              --------------------

         In consideration of the mutual covenants, representations, warranties
and agreements and the conditions set forth in this Agreement, the Parties agree
as follows:

1.       LICENSES
         --------

         1.1 Celestron shall pay Meade royalties (the "Royalties") as follows:

                  (a) Royalties shall be equal to the greater of $100 per unit
or 8% of Celestron's net revenue from each unit , for each unit sold by
Celestron of any Licensed Product after August 15, 2004. For purposes of this
Section, "net revenue" shall mean gross sales less actual discounts, actual
rebates, actual refunds and actual returns.

                  (b) Royalty payments shall be made quarterly within thirty
(30) days after the end of each calendar quarter and shall be accompanied by a
declaration under penalty of perjury by a Celestron officer, certifying the
amount of revenues as provided in this Paragraph 1.1 and the calculation and
amount of resulting royalties.

                  (c) Royalties will continue on all Licensed Products until the
expiration of the last Meade Patent.

                  (d) Royalties shall be due only for Licensed Products.

                  (e) Notwithstanding anything contained in this Agreement to
the contrary, Celestron shall not pay any Royalties on the sale of any products,
whether or not such products are Licensed Products, sold and shipped by
Celestron to Costco Wholesale Corporation ("Costco") prior to or on November 30,
2004 to the extent Celestron does not sell in excess of 45,000 units of Licensed
Products in the aggregate. Celestron shall pay Royalties on any sales of
Licensed Products to Costco (i) in amounts in excess of 45,000 units in the
aggregate, regardless of whether such sales occurred prior to or after November
30, 2004, or (ii) following November 30, 2004.

                                       3
<PAGE>

         1.2 Subject to and during Celestron's compliance with the terms and
conditions of this Agreement, Meade grants Celestron a License under the Meade
Patents and the Corrected Patents.

         1.3 Meade shall have the right at its cost upon reasonable notice and
not to exceed once per year, to have an independent accounting firm inspect,
copy and audit Celestron's books and records concerning royalties under this
Agreement. Meade agrees that it shall use the results of any such audit solely
for the purpose of enforcing its rights under this Agreement and for no other
purpose, and shall otherwise ensure the confidentiality of any audit, the
results of the audit and any copies, extracts or analyses made therefrom.

         1.4 Concurrent with the execution of this Agreement, Meade shall
deliver to Celestron signed memoranda memorializing the License set forth in
Paragraph 1.2 in a form suitable for recordation with the U.S. Patent and
Trademark Office.

         1.5 The License set forth in Paragraph 1.2 shall not be assigned,
sublicensed or transferred, except upon the sale of substantially all of
Celestron's assets or the sale or merger of Celestron, without Meade's written
consent.

         1.6 Celestron agrees that the Meade Patents are valid and enforceable
and cover the Licensed Products, and Celestron agrees not to challenge the
foregoing in any case or proceeding relating to any product whatsoever. The
Parties shall issue a joint announcement that Celestron agrees to the validity
of Meade's Patents and Meade agrees to the validity of Celestron's Patents.

         1.7 Celestron agrees to mark its Licensed Products with the numbers of
the Meade Patents as soon as practical after receipt of written notice from
Meade identifying such patents.

         1.8 Celestron grants Meade a License under the Celestron Patents.
Concurrent with the execution of this Agreement, Celestron shall deliver to
Meade signed memoranda memorializing such License in a form suitable for
recordation with the U.S. Patent and Trademark Office.

2.       MUTUAL RELEASES AND COVENANT NOT TO SUE
         ---------------------------------------

         2.1 As used in this Section 2:

                  (a) "Claims" means any and all claims, demands, causes of
action, suits, choses in action, controversies, actions, judgments, liens,
indebtednesses, damages, losses, and liabilities of whatever kind and character,
whether known or unknown, asserted or unasserted, whether or not stated in the
Litigation, relating to or arising out of any matter whatsoever before the
Effective Date, from the beginning of the world. "Claims" does not include any
rights created or obligations imposed by this Agreement. "Claims" also does not
include any claims, demands, causes of action, suits, choses in action,
controversies, actions, judgments, liens, indebtednesses, damages, losses, or
liabilities to the extent they are based on events arising after the Effective
Date.

                  (b) "Release" means to forever completely discharge, release,
waive, set over, and relinquish the Claims.

                                       4
<PAGE>

                  (c) "Releasee" means a Party (and "Releasees" means Parties)
against whom a Party or Parties Release claims. A Releasee includes not only the
entity, but also the entity's directors, officers, shareholders, owners,
partners, managers, members, parents, subsidiaries, predecessors, successors,
executors, administrators, assigns, agents, employees, attorneys and
representatives.

                  (d) "Releasor" means a Party (and "Releasors" means Parties)
who Release(s) claims against another Party or Parties. A Releasor includes not
only the entity, but also the entity's directors, officers, shareholders,
owners, partners, managers, members, parents, subsidiaries, predecessors,
successors, executors, administrators, assigns, agents, employees, attorneys and
representatives. Where two or more Releasors are identified in connection with a
particular Release, the Release shall extend to and include Claims which are
joint, several, or joint and several as concerns the Releasors.

         2.2 Meade, as Releasor, agrees to and does hereby Release the Claims
against Celestron, James Feltman, Alan Hale, Joseph Lupica, Rick Hedrick,
Manishi Gupta and James Barnaby and their customers, suppliers and vendors in
their capacity as such.

         2.3 Celestron and James Feltman, as Releasors, agree to and do hereby
Release the Claims against Meade and its customers, suppliers and vendors in
their capacity as such.

         2.4 It is the intention of each Releasor in executing this Agreement
that the same shall be effective as a bar to each and every Claim and in
furtherance of this intention, each Releasor does hereby expressly waive and
relinquish the provisions, rights and benefits of Section 1542 of the California
Civil Code. Each Releasor warrants that it is familiar with and has been advised
of the provisions of California Civil Code Section 1542, which provides as
follows:

                  "A general release does not extend to claims which the
                  creditor does not know or suspect to exist in his favor at the
                  time of executing the release, which if known by him must have
                  materially affected his settlement with the debtor."

         2.5 Concurrent with the execution of this Agreement, Celestron shall
deliver to Meade releases signed by Alan Hale, Joseph Lupica, Rick Hedrick,
Manishi Gupta and James Barnaby, in the form attached as Exhibit "B" to this
Agreement, in which Alan Hale, Joseph Lupica, Rick Hedrick, Manishi Gupta and
James Barnaby, as Releasors, Release the Claims against Meade and its customers,
suppliers and vendors in their capacity as such.

         2.6 Meade agrees not to assert any existing or future patents against
any existing Celestron non-Computerized Telescope that is available on the
market as of the date hereof. Celestron agrees not to assert any existing or
future patents against any existing Meade non-Computerized Telescope that is
available on the market as of the date hereof.

3.       '942 PATENT
         -----------

         3.1 Celestron hereby represents and warrants to Meade that Celestron
owns all right, title and interest in the `942 Patent and that it has succeeded
to all rights formerly held by the inventors of the `942 Patent. Celestron
hereby stipulates to correction of inventorship of the '942 Patent as sought by
Meade in the 558 Case and, concurrent with the execution of this Agreement,

                                       5
<PAGE>

delivers to Meade a signed stipulation, in the form attached as Exhibit "C" to
this Agreement, for entry of judgment accordingly, with each party to bear its
own attorneys' fees and costs from the 558 Case.

         3.2 Celestron shall assign and transfer the '942 Patent to Meade.
Concurrent with the execution of this Agreement, Celestron delivers to Meade an
executed assignment suitable for recordation with the U.S. Patent and Trademark
Office in the form attached as Exhibit "D" to this Agreement.

4. DISMISSAL OF LITIGATION The Parties shall promptly sign and file with the
Court stipulations in the form attached as Exhibit "E" to this Agreement,
providing for the dismissal with prejudice of the 976, 554, and 1097 Cases, as
well as the appeal to the U.S. Court of Appeals for the Federal Circuit of the
976 Case, with each party to bear its own attorneys' fees and costs from the
cases, and requesting that Judge Gary Taylor of the United States District Court
for the Central District of California, Southern Division, Santa Ana, retain
jurisdiction to enforce and interpret the Settlement and this Agreement. In the
event Judge Taylor is no longer a sitting active federal judge, then another
federal judge sitting in the United States District Court for the Central
District of California, Southern Division, Santa Ana, shall enforce and
interpret the Settlement and this Agreement. The dismissals shall be effective
regardless of whether the Court retains such jurisdiction. Celestron and
Feltman, severally and not jointly, represent and warrant that they have full
authority to settle and dismiss all counterclaims and defenses asserted by
Celestron International Inc., Tasco Sales Inc., and Tasco Worldwide in the
Litigation.

5. JOINT ANNOUNCEMENT The Parties will issue a mutually acceptable joint public
announcement that the Parties have settled the Litigation, that Celestron agrees
to the validity of the Meade Patents, and that Meade agrees to the validity of
the Celestron Patents.

6. BINDING This Agreement is binding on any and all Affiliates, successors, and
assigns of the respective Parties.

7. NOTICES Any notice required or permitted to be given hereunder shall be given
by overnight mail and e-mail, unless required to be given in some different
fashion by the terms of this Agreement. Notice shall be deemed to have been
given upon actual receipt of the notice. Notice shall be given as follows:

IF TO MEADE:                               IF TO CELESTRON:

Meade Instruments Corp.                    Celestron Acquisition, LLC
6001 Oak Canyon                            2835 Columbia Street
Irvine, CA 92618                           Torrance, California 90503
Attention: General Counsel                 Attention: President
mark.peterson@meade.com                    jlupica@celestron.com

                                       6
<PAGE>

with a copy to:                            with a copy to:

Attention: William J. O'Brien              Jeffer, Mangels, Butler & Marmaro LLP
O'Melveny & Myers LLP                      1900 Avenue of the Stars, 7th Floor
400 South Hope Street                      Los Angeles, California  90067
Los Angeles, California 90071              Attention:  Robert E. Braun, Esq.
wobrien@omm.com                            rbraun@jmbm.com

and

Turner Green Afrasiabi & Arledge LLP
535 Anton Boulevard, Suite 850
Costa Mesa, California  92626
Attention: Peter R. Afrasiabi
pafrasiabi@turnergreen.com

8. OWNERSHIP OF RIGHTS Each Party represents and warrants that it owns all
rights to all patents, technology, or other matters that it has agreed herein to
license.

9. NO ASSIGNMENT OF CLAIMS The Parties covenant that none of them has assigned
or caused to be transferred to any person or entity not a Party to this
Agreement any of the Claims or rights released by such Party in this Agreement.

10. ENTIRE AGREEMENT This Agreement expresses the Handwritten Agreement and the
Parties' entire understanding regarding its subject matter - including the
Settlement, the Litigation, and the Subject Patents, and supersedes in their
entirety any and all written or oral agreements previously existing between or
among the Parties with respect to the subject matter of this Agreement,
including, without limitation, the Handwritten Agreement. This Agreement is
final and may not be amended, modified or changed, and no waiver of any
provision of this Agreement shall be effective, except by an instrument in
writing signed by the Party(ies) against whom the amendment, modification,
change or waiver is sought to be enforced.

11. ASSUMPTION OF RISK Except as for the representations expressly stated in
this Agreement:

                  (a) In entering into this Agreement, each Party assumes the
risk of any misrepresentation, concealment or mistake;

                  (b) If any Party should later discover that any fact relied
upon by it in entering into this Agreement was untrue or that any fact was
concealed from it, or that its understanding of the facts or the law was
incorrect, the Party shall not be entitled to set aside or rescind this
Agreement, or to any other relief; and

                  (c) This Agreement is intended to be and is final and binding
upon each Party regardless of any claims of misrepresentation, contract made
without the intention to perform it, concealment of fact, mistake of fact or law
or any other circumstance whatsoever.

                                       7
<PAGE>

12. CONSULTATION WITH COUNSEL The Parties each acknowledge that they have had
the opportunity to consult with legal counsel of their choice prior to execution
of this Agreement, have in fact done so, and have been specifically advised by
counsel of the consequences of this Agreement and their respective rights and
obligations hereunder.

13. CONSTRUCTION The Parties further acknowledge that the terms of this
Agreement are the result of negotiations between them, and that this Agreement
shall not be construed in favor of, or against, any party by reason of the
extent to which a Party or its counsel participated in its drafting, or by
reason of the extent to which this Agreement may be inconsistent with prior
drafts thereof.

14. COUNTERPARTS This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument representing the agreement of the Parties to this Agreement.

15. AUTHORITY Each person signing this Agreement in a representative capacity
expressly represents that the signatory has the subject Party's authority to so
sign and that the subject Party will be bound by the signatory's execution of
this Agreement. Each Party expressly represents that such Party does not require
any third party's consent to enter into this Agreement, including, without
limitation, the consent of any spouse, insurer, assignee, licensee, secured
lender, or regulatory agency.

16. HEADINGS AND CAPTIONS Headings and captions used in this Agreement are for
ease of reference only, and do not constitute part of this Agreement, nor shall
they be used as an aid in the construction hereof.

Dated: July 1, 2004                        Meade Instruments Corp.

                                           By: /S/ STEVEN G. MURDOCK
                                              -------------------------------
                                           Name: Steven G. Murdock
                                           Its:  President, CEO and Secretary

Dated: July 1, 2004                        Celestron Acquisition, LLC

                                           By: /S/ JOSEPH LUPICA
                                              -------------------------------
                                           Name: Joseph Lupica
                                           Its: President

Dated: July __, 2004                           /S/ JAMES S. FELTMAN
                                              -------------------------------
                                               James S. Feltman

                                       8
<PAGE>

                                LIST OF EXHIBITS
                                ----------------

EXHIBIT A         Handwritten Agreement

EXHIBIT "B"       Additional Releases

EXHIBIT "C"       Stipulation

EXHIBIT "D"       Form of Assignment

EXHIBIT "E"       Form of StipulationsQuickLinks
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Exhibit 4.2  

        UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 

        TRANSFERS
OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS
OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. 

	 
	 	 
	 	 

	 	 	CUSIP No.	 	 
	 	 	 	 	

83/8%
Senior Note due June 1, 2012 

	 
	 	 
	 	 
	 	 
	 	 

	No.	 	 	 	 	 	$	 	 
	 	 	
	 	 	 	 	 	

        Finlay
Fine Jewelry Corporation promises to pay to Cede & Co., or registered assigns, the principal sum
of                        Dollars on June 1, 2012. 

        Interest
Payment Dates: June 1 and December 1. 

        Record
Dates: May 15 and November 15. 

        Reference
is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at
this place. 

	 
	 	 
	 	 
	 	 

	Dated:	 	 	 	, 2004	 	 
	 	 	
	 	 	 	 

	 
	 	 
	 	 

	 	 	FINLAY FINE JEWELRY CORPORATION
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

        This
is one of the Global Notes referred to in the within-mentioned Indenture: 

HSBC
BANK USA, NATIONAL ASSOCIATION as Trustee 

	 
	 	 
	 	 

	By:	 	 	 	 
	 	 	
 Authorized Officer	 	 

83/8% Senior Note due June 1, 2012  

        Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 

        1.     Interest.    Finlay
Fine Jewelry Corporation, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at
83/8% per annum from June 3, 2004 until maturity. The Company shall pay interest semiannually in arrears on June 1 and December 1 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from June 3, 2004; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the
face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be
December 1, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months. 

        2.     Method
of Payment.    The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of
business on the May 15 or November 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except
as provided in Section 2.12 of the Indenture with respect to defaulted interest. Principal, premium, if any, and interest on the Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all payments of principal, premium and interest with respect to Notes the Holders of which have given wire transfer instructions
to the Company prior to the relevant record date will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. Such payment shall be in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and private debts. 

        3.     Paying
Agent and Registrar.    Initially, HSBC Bank USA, National Association (the successor to HSBC Bank USA, formerly known as Marine Midland Bank), the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act
in any such capacity. 

        4.     Indenture.    The
Company issued the Notes under an Indenture dated as of June 3, 2004 ("Indenture") between the Company and the Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code SS 77aaa-77bbbb), as in
effect on the date on which the Indenture is qualified thereunder. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. 

        The
Notes are general, unsecured senior obligations of the Company. The Company shall be entitled, subject to its compliance with Section 4.09 of the Indenture, to issue
Additional Notes pursuant to Section 2.15 of the Indenture. The Notes issued on the Issue Date and any Additional Notes will be treated as a single class for all purposes under the Indenture. 

        5.     Optional
Redemption.    (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Notes are not redeemable at the Company's
option prior to June 1, 2008. Thereafter, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on June 1 of the years indicated below: 

	Year
 
	 	Percentage
	 
	2008	 	104.188	%
	2009	 	102.094	%
	2010 and thereafter	 	100.00  	%

        (b)   Notwithstanding
the foregoing, until June 1, 2007, the Company may on any one or more occasions redeem an aggregate principal amount not to exceed 35% of the
aggregate principal amount of Notes (which includes Additional Notes, if any) originally issued at a redemption price of 108.375% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of Public Equity Offerings by the Company; provided that at least 65% of such aggregate principal amount of Notes (which includes
Additional Notes, if any) originally issued remains outstanding immediately after the occurrence of each such redemption (excluding Notes held by the Company and its Subsidiaries); and provided,
further, that such redemption shall occur within 120 days of the date of the closing of such Public Equity Offering. 

        6.     Mandatory
Redemption.    Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect
to the Notes. There are no sinking fund payments with respect to the Notes. 

        7.     Repurchase
at Option of Holder.    (a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to make an offer
(a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be
no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of Notes as a result of a Change of Control. 

        (b)   If
the Company or any Subsidiary of the Company consummates any Asset Sales, within 45 days after the first day of a calendar month in which the aggregate amount
of Excess Proceeds exceeds $10.0 million, the Company shall be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to any such offer is less than the remaining Excess Proceeds,
the Company or any of its Subsidiaries may use any remaining Excess Proceeds for general corporate purposes or otherwise make an investment of such remaining amounts in any manner that is not
prohibited by the Indenture. If the aggregate principal amount of Notes tendered in connection with such Asset Sale Offer and surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. 

        8.     Notice
of Redemption.    Notice of redemption will be mailed by first class mail at least 30 days but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. Notes and portions of Notes selected for redemption shall be in amounts of $1,000
or whole multiples of $1,000, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be
redeemed. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on
Notes or portions thereof called for redemption. 

        9.     Denominations,
Transfer, Exchange.    The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer
of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required (a) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption and ending at the close of business on
the day of selection, (b) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or
(c) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. 

        10.   Persons
Deemed Owners.    The registered Holder of a Note may be treated as its owner for all purposes, subject to the provisions of the Indenture with respect
to record dates for the payment of interest. 

        11.   Amendment,
Supplement and Waiver.    Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for,
Notes) and, subject to the provisions of Sections 6.04 and 6.07 of the Indenture, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of,
premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or
exchange offer for, Notes). Without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated notes are issued in registered form for purposes of Section 163(f) of the
Internal Revenue Code (the "Code"), or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code), to provide for the assumption of the Company's
obligations to Holders of the Notes in case of a merger or consolidation, or sale of all or substantially all of the Company's assets, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act. 

        12.   Defaults
and Remedies.    Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes;
(ii) default in payment of the principal of or premium, if any, on the Notes when due at maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or
otherwise; (iii) failure by the Company to comply with the provisions of Sections 3.09, 4.10, 4.15 or Article 5 of the Indenture; (iv) failure by the Company or any Subsidiary
Guarantor for 45 days after notice to comply with any of the covenants in the Indenture or the Notes 

(other
than those covenants addressed elsewhere in Section 6.01 of the Indenture); (v) default under any mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (including any Indebtedness the payment of which is guaranteed by the Company or any of
its Subsidiaries) other than a Receivables Subsidiary whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure
to pay principal or a premium, if any, on such Indebtedness at the Stated Maturity for such payment of principal or premium, if any, or such later date as has been agreed in a writing (provided such
writing is entered into prior to such Stated Maturity) by the parties to the documentation relating to such Indebtedness (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated, aggregates $12.5 million or more; (vi) failure by the Company or any of its Subsidiaries other than a Receivables
Subsidiary to pay final judgments aggregating in excess of $12.5 million, which judgments are not paid, discharged or stayed for a period of 60 days (or 90 days if prior to such
sixtieth day the Company has delivered to the Trustee an Officers' Certificate attesting that a financially responsible insurance company of recognized national standing has acknowledged in writing
complete liability for such judgment and attached a copy of such acknowledgment thereto); (vii) repudiation by any Subsidiary Guarantor of its obligations under any Subsidiary Guarantee or,
except as permitted by the Indenture, any Subsidiary Guarantee shall be held in a judicial proceeding to be unenforceable or invalid in any material respect or shall cease to be in full force and
effect; (viii) the Company or any of its Subsidiaries (other than a Receivables Subsidiary) within the meaning of any Bankruptcy Law (a) commences a voluntary case, (b) consents
to the entry of an order for relief against it in an involuntary case, (c) consents to the appointment of a custodian of it or for all or substantially all of its property, (d) makes a
general assignment for the benefit of its creditors, or (e) generally is not paying its debts as they become due; or (ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (a) is for relief against the Company or any of its Subsidiaries (other than a Receivables Subsidiary), (b) appoints a custodian of the Company or any of
its Subsidiaries or for all or substantially all of the property of the Company or any of its Subsidiaries (other than a Receivables Subsidiary) or (c) orders the liquidation of the Company or any of
its Subsidiaries (other than a Receivables Subsidiary) and any such order or decree described in this clause (ix) remains unstayed and in effect for 60 consecutive days. 

        In
the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of a Payment Default or the acceleration of any
Indebtedness described in clause (v) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if (i) any Payment Default described in
clause (v)(a) of the preceding paragraph has been cured or waived and (ii) the holders of any accelerated Indebtedness described in clause (v)(b) of the preceding paragraph have
rescinded the declaration of acceleration in respect of such Indebtedness; provided in each such case that (a) such cure, waiver or rescission of such declaration of acceleration shall have
been made in writing within 30 days of the date of such Payment Default or declaration, as
the case may be, and (b) the annulment of the acceleration of such Notes would not conflict with any judgment or decree of a court of competent jurisdiction and (c) all existing Events
of Default, except nonpayment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. 

        A
Default under clause (iv) the first paragraph of this Paragraph 12 is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes give written notice to the Company of the default and the Company does not cure the Default within the period provided in such clause. The notice must specify in reasonable
detail the Default, demand that it be remedied and state that the notice is a "Notice of Default". If the Holders of 25% or more in principal amount of the then outstanding Notes request the Trustee
to give such notice on their behalf, the Trustee shall do so. 

        If
any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Trustee and the
Company may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising under clause (viii) or (ix) of the first
paragraph of this Paragraph 12, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries, that taken together would constitute a Significant Subsidiary, all
outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes
notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their
interest. Under certain circumstances, the Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes
rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default
or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 

        In
the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of
the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to June 1, 2008 by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to June 1, 2008, then the premium specified in
the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. 

        13.   Trustee
Dealings With Company.    The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee; however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign. 

        14.   No
Recourse Against Others.    No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is against public policy. 

        15.   Authentication.    This
Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 

        16.   Abbreviations.    Customary
abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (—joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 

        17.   Cusip
Numbers.    Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on
the Notes or as 

contained
in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 

        18.   Additional
Information.    The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: 

Finlay
Fine Jewelry Corporation

529 Fifth Avenue

New York, New York 10017

Attention: Secretary and Corporate Counsel 

 
 

ASSIGNMENT FORM    
    

To
assign this Note, fill in the form below: 

I
or we assign and transfer this Note to 

        (Print
or type assignee's name, address and zip code) 

        (Insert
assignee's soc. sec. or tax I.D. No.) 

and
irrevocably appoint                        agent to transfer this Note on the books of the Company. The agent may substitute
another to act for him. 

	Date:	 	 	Your Signature:	 
	 	
	 	 	

	

 Sign exactly as your name appears on the other side of this Note.

SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY  

        The following increases or decreases in this Global Note have been made: 

	Date of Exchange
 
	 	Amount of decrease

in principal amount

of this Global Note
	 	Amount of increase

in principal amount

of this Global Note
	 	Principal amount of

this Global Note

following such

decrease or increase
	 	Signature of

authorized officer of

Trustee or Notes

Custodian

	 	 	 	 	 	 	 	 	 

 
 

OPTION OF HOLDER TO ELECT PURCHASE    
    

        If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: 

        o
Section 4.10                o Section 4.15 

        If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased (if all, write "ALL"): $                   

	 	 	Your Signature:	 
	 	 	 	

	 	 	 	(Sign exactly as your name appears on the face of this Note)

	 	 	Tax Identification No:	 
	 	 	 	

Signature
Guarantee.* 

	*
	NOTICE:
The signature must be guaranteed by an institution which is a member of one of the following recognized signature guarantee programs:

	(1)
	The
Securities Transfer Agent Medallion Program (STAMP);

	(2)
	The
New York Stock Exchange Medallion Program (MSP);

	(3)
	The
Stock Exchange Medallion Program (SEMP). 

QuickLinks

ASSIGNMENT FORM

OPTION OF HOLDER TO ELECT PURCHASE

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