-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EtbaoV6vz/SntXXVM7X+ijXJeOap4MAkDthR5/1zhINpBn1fVS/KeFK/uylwNod+ NKj5uGQXvXkx03+qxvUH9A== 0000947871-02-001626.txt : 20020812 0000947871-02-001626.hdr.sgml : 20020812 20020812150725 ACCESSION NUMBER: 0000947871-02-001626 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20020812 GROUP MEMBERS: DR. LORENZO ROSSI DE MONTELERA GROUP MEMBERS: HENRY BIRKS &SONSHOLDINGS INC. GROUP MEMBERS: HENRY BIRKS &SONSINC. GROUP MEMBERS: REGALUXE INVESTMENTS SARL SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MAYORS JEWELERS INC/DE CENTRAL INDEX KEY: 0000817946 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-JEWELRY STORES [5944] IRS NUMBER: 592290953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-39267 FILM NUMBER: 02726695 BUSINESS ADDRESS: STREET 1: 14051 NW 14TH ST CITY: SUNRISE STATE: FL ZIP: 33323 BUSINESS PHONE: 9548462719 MAIL ADDRESS: STREET 1: 13801 NW 14TH STREET CITY: SUNRISE STATE: FL ZIP: 33323 FORMER COMPANY: FORMER CONFORMED NAME: JAN BELL MARKETING INC DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HENRY BIRKS & SONS INC CENTRAL INDEX KEY: 0001179821 IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1240 PLULLYS SQUARE CITY: MONTREAL QUEBEC CANADA STATE: E6 ZIP: J3B3H6 BUSINESS PHONE: 5163972509 MAIL ADDRESS: STREET 1: 1240 PLULLYS SQUARE CITY: MONTREAL QUEBEC CANADA STATE: E6 ZIP: H3B3H66 SC 13D 1 sch13d_080902.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 Mayor's Jewelers, Inc. ---------------------- (Name of Issuer) Common Stock, $0.0001 Par Value ------------------------------- (Title of Class of Securities) 578462103 --------- (CUSIP Number) Sabine Bruckert, Esq. Vice President and General Counsel Henry Birks & Sons Inc. 1240 Square Phillips Montreal, Quebec, Canada, H3B 3H4 Telephone: (514) 397-2511 ------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) - With a copy to - Brice T. Voran, Esq. Shearman & Sterling Commerce Court West 199 Bay Street, Suite 4405 Toronto, Ontario M5L 1E8 Telephone (416) 360-8484 ------------------------- July 31, 2002 ------------- (Date of Event which Requires Filing of this Statement) [ ] The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 1 - -------------------------------------------------------------------------------- CUSIP No. 578462103 Page 2 of 5 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person HENRY BIRKS & SONS INC. - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) |_| (b) |X| - -------------------------------------------------------------------------------- (3) SEC Use Only - -------------------------------------------------------------------------------- (4) Source of Funds AF, OO - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). |_| - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization CANADA - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of Shares Beneficially Owned By Each Reporting Person With - -------------------------------------------------------------------------------- (8) Shared Voting Power 87,273,787 - -------------------------------------------------------------------------------- (9) Sole Dispositive Power - -------------------------------------------------------------------------------- (10) Shared Dispositive Power 87,273,787 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 87,273,787 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 81.1% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) CO - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- CUSIP No. 578462103 Page 3 of 5 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person HENRY BIRKS & SONS HOLDINGS INC. - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) |_| (b) |X| - -------------------------------------------------------------------------------- (3) SEC Use Only - -------------------------------------------------------------------------------- (4) Source of Funds AF, OO - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). |_| - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization CANADA - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of Shares Beneficially Owned By Each Reporting Person With - -------------------------------------------------------------------------------- (8) Shared Voting Power 87,273,787 - -------------------------------------------------------------------------------- (9) Sole Dispositive Power - -------------------------------------------------------------------------------- (10) Shared Dispositive Power 87,273,787 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 87,273,787 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 81.1% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) HC - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- CUSIP No. 578462103 Page 4 of 5 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person REGALUXE INVESTMENTS Sarl - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) |_| (b) |X| - -------------------------------------------------------------------------------- (3) SEC Use Only - -------------------------------------------------------------------------------- (4) Source of Funds OO - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). |_| - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization LUXEMBOURG - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of Shares Beneficially Owned By Each Reporting Person With - -------------------------------------------------------------------------------- (8) Shared Voting Power 87,273,787 - -------------------------------------------------------------------------------- (9) Sole Dispositive Power - -------------------------------------------------------------------------------- (10) Shared Dispositive Power 87,273,787 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 87,273,787 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 81.1% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) CO - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- CUSIP No. 578462103 Page 5 of 5 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person Dr. Lorenzo Rossi de Montelera - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) |_| (b) |X| - -------------------------------------------------------------------------------- (3) SEC Use Only - -------------------------------------------------------------------------------- (4) Source of Funds: AF - OO - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). |_| - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization ITALIAN - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of Shares Beneficially Owned By Each Reporting Person With - -------------------------------------------------------------------------------- (8) Shared Voting Power 87,273,787 - -------------------------------------------------------------------------------- (9) Sole Dispositive Power - -------------------------------------------------------------------------------- (10) Shared Dispositive Power 87,273,787 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficially Owned by Each Reporting Person 87,273,787 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) |_| - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 81.1% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) IN - -------------------------------------------------------------------------------- 5 Item 1. Security and Issuer The class of securities to which this statement relates to is the shares of common stock, $0.0001 par value (the "Shares") of Mayor's Jewelers, Inc., a Delaware corporation ("Mayor's"). The Shares are listed on the American Stock Exchange. The address of the principal executive office of Mayor's is 14051 N.W. 14th Street, Sunrise, Florida, 33323. Item 2. Identity and Background This statement is being jointly filed by the following persons (collectively, the "Reporting Persons"): 1. Henry Birks & Sons Inc. ("Birks"), a corporation incorporated under the laws of Canada, is controlled by Henry Birks & Sons Holdings Inc. ("Holdings"). The principal business of Birks is retail jewelry, timepieces and fine gifts operations in Canada. The principal business address and principal office address of Birks is 1240 Square Phillips, Montreal, Quebec, Canada, H3B 3H4, Canada; and 2. Holdings, a corporation incorporated under the laws of Canada, is controlled by Regaluxe Investment Sarl ("Regaluxe"). The principal business of Holdings is as an investment holding company. The principal office address of Holdings is care of Mendelsohn Rosentzveig Schacter, Me Marc Cantin, 1000, rue Sherbrooke Ouest, 27th floor, Montreal, Quebec H3A 3GA, Canada; and its business address is 1240 Square Phillips, Montreal, Quebec, Canada, H3B 3H4, Canada and 3. Regaluxe is a Luxembourg corporation in which Dr. Lorenzo Rossi di Montelera holds a controlling interest. The principal business of Regaluxe is an investment holding company. The principal office and business address of Regaluxe is 25A boulevard Royal, 2449, Luxembourg; 4. Dr. Lorenzo Rossi de Montelera, the Chairman of Birks, is an Italian citizen whose business address is 25 A boulevard Royal, 2449 Luxembourg. Neither the filing of this Schedule 13D nor the information contained herein shall be deemed to constitute an affirmation by Holdings, Regaluxe or Dr. Rossi de Montelera that any of them is the beneficial owner of the Shares referred to herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or for any other purpose, and such beneficial ownership is expressly disclaimed. The name, present principal occupation or employment and name, principal business and address of any corporation or other organization in which such employment is conducted and the citizenship of each director and executive officer of each of the Reporting Persons is set forth in Annex A, B and C, as the case may be, and such Annexes are incorporated herein by reference. Pursuant to Rule 13d-1(k) under the Exchange Act, the Reporting Persons have agreed to file jointly one statement with respect to their ownership of the Shares. During the last five years, none of the Reporting Persons, and, to the best of each such Reporting Person's knowledge, none of the executive officers or directors of such Reporting Person have been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration Pursuant to a Securities Purchase Agreements (the "Purchase Agreement") to be entered into between Holdings, Birks and Prime Investments S.A. ("Prime") substantially in a form of Exhibit 2, for aggregate consideration of $15,000,000 Holdings and Prime will each purchase from Birks and Birks will issue to each of Holdings and Prime: (i) $5,000,000 aggregate principal amount of Preferred Shares of Birks (the "Preferred Sharers"); and (ii) $2,500,000 aggregate principal amount of Convertible Notes of Birks (the "Convertible Notes"). Regaluxe will contribute $7,500,000 to Holdings which in return will contribute to Birks to enable Birks to make its investment pursuant to the Investment Agreement. Item 4. Purpose of Transaction Pursuant to an Investment Agreement (the "Investment Agreement"), dated July 31, 2002, between Mayor's and Birks, for aggregate consideration of $15,000,000 Birks will purchase from Mayor's and Mayor's will issue to Birks: (i) 15,000 shares of Series A Convertible Preferred Stock of Mayor's, convertible into 50,000,000 Shares (the "Preferred Stock"); (ii) Warrants exercisable for 12,424,596 Shares at an exercise price of $0.30 per Share (the "A Warrants"); (iii) Warrants exercisable for 12,424,596 Shares at an exercise price of $0.35 per Share (the "B Warrants"); and (iv) Warrants exercisable for 12,424,595 Shares at an exercise price of $0.40 per Share (the "C Warrants" and with the Preferred Stock, the A Warrants and the B Warrants, hereinafter collectively referred to as the "Securities"). The Securities have been acquired by the Reporting Persons for investment purposes and for the purpose of obtaining control of Mayor's. The holders of the Preferred Stock will be entitled to vote as a class to elect a percentage of the members of the board of directors of Mayor's equal to the percentage of the outstanding Shares that would be represented by the Preferred Stock if converted. There are now nine authorized members of the board of directors of Mayor's. Upon completion of the transactions under the Investment Agreement, the Reporting Persons will be entitled to elect six of the nine authorized members of the board of directors of Mayor's and will thus acquire control of the board of director's of Mayor's. The Reporting Persons have the following plans and proposals: (a) The Reporting Persons currently do not intend to acquire additional Shares of Mayor's nor to dispose of Shares of Mayor's, but may formulate plans to do so in the future. The Reporting Persons intend to review, on a continuous basis, various factors related to their direct or indirect investment, as the case may be, in Mayor's, including the price and availability of the Shares, subsequent developments affecting Mayor's business, other investment and business opportunities available to the Reporting Persons and general stock market and economic conditions. Based upon these and other factors, the Reporting Persons may decide to purchase additional Shares or may decide in the future to sell all or part of their investment in Mayor's; (b) The Reporting Persons have no plans or proposals to cause Mayor's to enter into any extraordinary corporate transaction, such as a merger, reorganization or liquidation of Mayor's or any of its subsidiaries; (c) The Reporting Persons have no plans or proposals to cause Mayor's or any of its subsidiaries to sell or transfer a material amount of assets; (d) The completion of the transactions contemplated by the Investment Agreement will result in the issuance of a new class of stock, the Preferred Stock, which will be entitled vote as a class to elect a percentage of the members of the Board of Directors of Mayor's equal to the percentage of the outstanding Shares that would be represented by the Preferred Stock if converted. As the beneficial owners of all of the Preferred Stock, the Reporting Persons will be entitled to elect six of the nine authorized members of the board of directors of Mayor's. The Reporting Persons anticipate that upon completion of the Investment Agreement, six current members of the board of directors of Mayor's will resign and each will be replaced by a person nominated by the Reporting Persons. The Reporting Persons will thus acquire control of Mayor's Board of Directors. The Reporting Persons also anticipate that upon completion of the Investment Agreement, certain senior management positions will be filled by persons appointed by the Reporting Persons; (e) Other than the issuance of the Securities under the Investment Agreement, the Reporting Persons have no plans to make any material changes in the present capitalization or dividend policy of Mayor's; (f) The Reporting Persons have no plans or proposals to cause Mayor's to make any other material change in its business or corporate structure; (g) Other than an amendment to Mayor's certificate of incorporation to increase the number of authorized Shares, the Reporting Persons have no plans or proposals to cause Mayor's to change its certificate of incorporation or bylaws or to take other actions which may impede the acquisition of control of Mayor's by any person; (h) The Reporting Persons have no plans or proposals to cause the Shares to be delisted from any securities exchange or cease to be authorized to be quoted in an inter-dealer quotation system; The Reporting Persons understand that the American Stock Exchange may require a shareholder vote prior to the insuance of Shares underlying the Securities . However, the right to convert the Securities is not conditional upon shareholder approval and the Reporting Persons reserve the right to convert the Preferred Securities and exercise the Warrants without shareholder approval which may result in a delisting of the Shares. (i) The Reporting Persons have no plans or proposals to cause the Shares to become eligible for termination of registration pursuant to Section 12(g) of the Exchange Act; and (j) The Reporting Persons have no plans or proposals to take any actions similar to those enumerated above. Item 5. Interest in Securities of the Issuer (a) Based on the most recent information available, the aggregate number and percentage of the Shares (the securities identified pursuant to Item 1 of this Schedule 13D) that are beneficially owned by each of the Reporting Persons is set forth in boxes 11 and 13 of the second part of the cover page to this Schedule 13D for each of the Reporting Persons, and such information is incorporated herein by reference. Of the 87,273,787 Shares beneficially owned by the Reporting Persons, 50,000,000 Shares are issuable upon conversion of Preferred Stock, 12,424,596 Shares are issuable upon exercise of the A Warrants, 12,424,596 Shares are issuable upon exercise of the B Warrants and 12,424,595 Shares are issuable upon exercise of the C Warrants. (b) The numbers of Securities as to which each of the Reporting Persons has sole voting power, shared voting power, sole dispositive power and shared dispositive power are set forth in boxes 7, 8, 9 and 10, respectively, on the second part of the cover page to this Schedule 13D for each of the Reporting Persons, and such information is incorporated herein by reference. (c) Except as described herein, none of the Reporting Persons, nor, to the best knowledge of the Reporting Persons, any person listed in Annex A, B, or C, as the case may be, beneficially owns, or has acquired or disposed of, any Shares during the last 60 days. (d) No person is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, Shares held by the Reporting Persons other than each of the Reporting Persons. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with respect to Securities of the Issuer None of the persons named in Item 2 nor to the best knowledge of each of the Reporting Persons any person listed in Annex A, B, or C as the case may be, has any contracts, arrangements, understandings or relationships (legal or otherwise) with any person with respect to any securities of Mayor's, including, but not limited to, transfer or voting of any securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Birks has entered into a registration rights agreement with Mayor's. The registration rights agreement includes rights to require Mayor's to register the offer and sale of Shares held by Birks on up to three different occasions. Birks may also require Mayor's to file registration statements on Form S-3, provided Mayor's remains eligible to use that form. These rights are subject to various conditions and limitations. Under the registration rights agreement, Mayor's will bear all expenses incurred in connection with the registrations, other than any underwriting discounts and commissions. Registration of Shares upon the exercise of these registration rights would result in such Shares becoming freely tradable without restriction under the Securities Act. Pursuant to a Deed of Hypothec (the "Deed") to be entered into between Birks, and National Bank Trust Inc., as trustee for Prime, Birks will pledge 2250 shares of Preferred Stock (the "Pledged Stock") convertible into 7,500,000 Shares as security for the Convertible Notes to be issued to Prime under the Purchase Agreement. The Deed contains standard default and similar provisions. In an event of default, subject to an Intercreditor Agreement to be entered into between Holdings and Prime, Holdings and Prime will have shared voting and dispositive power over the Pledged Stock. Item 7. Material to be filed as Exhibits Exhibit 1 Investment Agreement dated July 31, 2002. Exhibit 2 Form of Purchase Agreement to be entered into between Birks and Prime Exhibit 3 Form of Registration Rights Agreement to be entered into between Mayor's and Birks upon completion of the Investment Agreement. Exhibit 4 Joint Filing Agreement dated as of August 9, 2002 among Birks, Holdings, Regaluxe and Dr. Rossi. SIGNATURE --------- After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 9, 2002 HENRY BIRKS & SONS INC. By: /s/ Sabine Bruckert ---------------------------- Name: Sabine Bruckert Title: General Counsel and Corporate Secretary SIGNATURE --------- After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 9, 2002 HENRY BIRKS & SONS HOLDINGS INC. By: /s/ Marc Cantin -------------------------------------- Name: Marc Cantin Title: Director and Corporate Secretary SIGNATURE --------- After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 9, 2002 REGALUXE INVESTMENT Sarl By: /s/ Gerald Berclaz ------------------------------------- Name: Gerald Berclaz Title: Director SIGNATURE --------- After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 9, 2002 DR. LORENZO ROSSI DI MONTELERA /s/ Lorenzo Rossi Di Montelera ------------------------------------------ Annex Index ----------- Annex Description - ----- ----------- A Directors and Executive Officers of Henry Birks & Sons Inc. B Directors and Executive Officers of Henry Birks & Sons Holdings Inc. C Directors and Executive Officers of Regaluxe Investment Sarl. ANNEX A DIRECTORS AND EXECUTIVE OFFICERS OF HENRY BIRKS & SONS INC. The following table sets forth certain information with respect to the directors and executive officers of Henry Birks & Sons Inc.
Present Principal Occupation or Employment and the Name, Principal Business and Address of any Corporation or other Organization in which such employment is conducted Name Citizenship Dr. Lorenzo Rossi di Montelera Businessman Italian Regaluxe Investment Sarl 25 A boulevard Royal 2449 Luxembourg Thomas A. Andruskevich President and Chief Executive Officer, Henry American Birks & Sons Inc., 1240 Square Phillips, Montreal, Quebec, Canada, H3B 3H4 Shirley A. Dawe Consultant, President Canadian Shirley Dawe Associates Inc. 119 Crescent Road, Toronto Ontario, Canada, M4W 1T8 Rosamond Ivey Consultant Canadian JRS Groups 30 St. Clair Street West, Suite 1200 Toronto, Ontario, M4V 3A1 Margherita Oberti Professor, Corpus Christi College Canadian 5935 Iona Drive, Vancouver, B.C., V6T 1J7, Canada Peter O'Brien Lawyer, Stikeman, Elliott Canadian 1155, Blvd. Rene-Levesque W. Montreal, Quebec H3B 3V2 Canada Filippo Recami Chief Executive Officer and Managing Director Italian Regaluxe Investment Sarl 25 A boulevard Royal 2449 Luxembourg
ANNEX B DIRECTORS AND EXECUTIVE OFFICERS OF HENRY BIRKS & SONS HOLDINGS INC. The following table sets forth certain information with respect to the directors and executive officers of Henry Birks & Sons Holdings Inc.
Present Principal Occupation or Employment Citizenship Name and the Name, Principal Business and Address of any Corporation or other Organization in which such employment is conducted Dr. Lorenzo Rossi di Montelera Businessman Italian Regaluxe Investment Sarl. 25 A boulevard Royal 2449 Luxembourg Me Marc Cantin Lawyer, Mendelsohn Rosentzveig Schacter Canadian 1000, rue Sherbrooke Ouest, 27floor Montreal, Quebec H3A 3G4 Canada Mrs. Margherita Oberti Professor, Corpus Christi College Canadian 5935 Iona Drive, Vancouver, B.C., V6T 1J7 Canada
ANNEX C DIRECTORS AND EXECUTIVE OFFICERS OF REGALUXE INVESTMENT Sarl The following table sets forth certain information with respect to the directors and executive officers of Regaluxe Investments Sarl
Present Principal Occupation or Employment and the Name, Principal Business and Address of any Corporation or other Organization in which such employment is conducted Name Citizenship Davide Barberis-Canonico Businessman Italian Manifatture di Ponzone Ponzone (Biella) Italia Gerald Berclaz Director Swiss Regaluxe Investment Sarl 25 A boulevard Royal 2449 Luxembourg Filippo Recami Chief Executive Officer and Managing Director Italian Regaluxe Investment Sarl 25 A boulevard Royal 2449 Luxembourg Lorenzo Rossi di Montelera Businessman Italian Regaluxe Investment Sarl 25 A boulevard Royal 2449 Luxembourg Carlo Schlesser President Luxembourg Partner SGG Arthur Andersen 23 avenue Monterey, 1086 Luxembourg Jean-Paul Reiland Manager Luxembourg SGG Arthur Andersen 23 avenue Monterey, 1086 Luxembourg
Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 1 Investment Agreement dated July 31, 2002. 2 Form of Purchase Agreement to be entered into Birks and Prime 3 Form of Registration Rights Agreement to be entered into between Mayor's and Birks upon completion of the Investment Agreement. 4 Joint Filing Agreement dated as of August 9, 2002 among Henry Birks & Sons Inc., Henry Birks & Sons Holdings Inc. and Regaluxe Investment Sarl and Dr. Lorenzo Rossi di Montelera. EX-1 3 ex1_080902.txt SCHEDULE 13D EXHIBIT 1 EXHIBIT 1 -------------------- INVESTMENT AGREEMENT -------------------- Between MAYOR'S JEWELERS, INC. and HENRY BIRKS & SONS INC. Dated as of July 30, 2002 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms...........................................1 SECTION 1.02. Definitions.....................................................9 SECTION 1.03. Interpretation and Rules of Construction........................10 ARTICLE II PURCHASE AND SALE SECTION 2.01. Purchase and Sale of the Shares and Warrants....................11 SECTION 2.02. Option Shares...................................................11 SECTION 2.03. Purchase Price..................................................11 SECTION 2.04. Closing.........................................................11 SECTION 2.05. Closing Deliveries by the Seller................................11 SECTION 2.06. Closing Deliveries by the Purchaser.............................13 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER SECTION 3.01. Organization, Authority and Qualification of the Seller.........13 SECTION 3.02. Subsidiaries....................................................14 SECTION 3.03. Capitalization..................................................15 SECTION 3.04. Authorization and Issuance of Shares and Warrants...............15 SECTION 3.05. Corporate Books and Records.....................................16 SECTION 3.06. No Conflict.....................................................16 SECTION 3.07. Governmental Consents and Approvals.............................16 SECTION 3.08. Financial Information; Books and Records........................16 SECTION 3.09. Accounting System...............................................17 SECTION 3.10. Absence of Undisclosed Liabilities..............................17 SECTION 3.11. Receivables.....................................................17 i SECTION 3.12. Inventories.....................................................18 SECTION 3.13. Purchase Orders.................................................18 SECTION 3.14. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions...........................................18 SECTION 3.15. Litigation......................................................21 SECTION 3.16. Compliance with Laws............................................21 SECTION 3.17. Environmental and Other Permits and Licenses; Related Matters...22 SECTION 3.18. Material Contracts..............................................22 SECTION 3.19. Intellectual Property...........................................24 SECTION 3.20. Real Property...................................................25 SECTION 3.21. Tangible Personal Property......................................26 SECTION 3.22. Assets..........................................................26 SECTION 3.23. Suppliers.......................................................27 SECTION 3.24. Employee Benefit Matters........................................27 SECTION 3.25. Labor Matters...................................................29 SECTION 3.26. Key Employees...................................................30 SECTION 3.27. Certain Interests...............................................30 SECTION 3.28. Taxes...........................................................31 SECTION 3.29. Insurance.......................................................32 SECTION 3.30. Full Disclosure.................................................32 SECTION 3.31. Brokers.........................................................32 SECTION 3.32. S-3 Eligibility.................................................32 SECTION 3.33. SEC Documents...................................................32 SECTION 3.34. Compliance with Cuba Act........................................33 SECTION 3.35. Investment Company Act..........................................33 SECTION 3.36. Registration Rights.............................................33 ii SECTION 3.37. Officer's Certificates..........................................33 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER SECTION 4.01. Organization of the Purchaser...................................33 SECTION 4.02. Authority and Qualification of the Purchaser....................33 SECTION 4.03. Enforceability..................................................34 SECTION 4.04. No Conflict.....................................................34 SECTION 4.05. Litigation......................................................34 SECTION 4.06. Brokers.........................................................34 SECTION 4.07. Investment Intent...............................................34 SECTION 4.08. Disclosure......................................................34 SECTION 4.09. Financing.......................................................35 ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.01. Conduct of Business Prior to the Closing........................35 SECTION 5.02. Access to Information...........................................35 SECTION 5.03. Regulatory and Other Authorizations; Notices and Consents.......36 SECTION 5.04. Notice of Developments..........................................36 SECTION 5.05. No Solicitation or Negotiation..................................37 SECTION 5.06. Listing.........................................................37 SECTION 5.07. Use of Intellectual Property....................................37 SECTION 5.08. Payments on Behalf of Affiliates................................37 SECTION 5.09. Further Action..................................................38 ARTICLE VI CONDITIONS TO CLOSING SECTION 6.01. Conditions to Obligations of the Purchaser......................38 SECTION 6.02. Conditions to Obligations of the Seller.........................39 iii ARTICLE VII INDEMNIFICATION SECTION 7.01. Survival of Representations and Warranties......................40 SECTION 7.02. Indemnification by the Seller...................................40 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.01. Termination.....................................................42 SECTION 8.02. Effect of Termination...........................................43 SECTION 8.03. Termination Fee.................................................43 SECTION 8.04. Amendment.......................................................43 SECTION 8.05. Waiver..........................................................43 SECTION 8.06. Survival........................................................43 ARTICLE IX GENERAL PROVISIONS SECTION 9.01. Expenses........................................................43 SECTION 9.02. Notices.........................................................44 SECTION 9.03. Public Announcements............................................45 SECTION 9.04. Severability....................................................45 SECTION 9.05. Entire Agreement................................................45 SECTION 9.06. Assignment......................................................45 SECTION 9.07. No Third Party Beneficiaries....................................45 SECTION 9.08. Currency........................................................46 SECTION 9.09. Governing Law...................................................46 SECTION 9.10. Waiver of Jury Trial............................................46 SECTION 9.11. Headings........................................................46 SECTION 9.12. Counterparts....................................................46 iv EXHIBITS Exhibit A.........Form of Certificate of Designation of Series A Convertible Preferred Stock Exhibit B.........Form of Warrant Agreements Exhibit C.........Form of Registration Rights Agreement Exhibit D.........Form of Management Expense Reimbursement Agreement Exhibit E.........Form of Manufacturing and Sales Agreement Exhibit F.........Fiscal 2002 Plan Exhibit G.........Term Sheet v DISCLOSURE SCHEDULE The Disclosure Schedule shall include the following Sections: 3.01 Organization, Authority and Qualification of the Seller 3.02 Subsidiaries 3.03 Capitalization 3.05 Corporate Books and Records 3.10 Absence of Undisclosed Liabilities 3.11 Receivables 3.12 Inventories 3.13 Purchase Orders 3.14 Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions 3.15 Litigation 3.16 Compliance with Laws 3.17 Environmental and Other Permits and Licenses; Related Matters 3.18 Material Contracts 3.19 Intellectual Property 3.20 Real Property 3.21 Tangible Personal Property 3.23 Suppliers and Customers 3.24 Employee Benefit Matters 3.25 Labor Matters 3.26 Key Employees 3.27 Certain Interests 3.28 Taxes 3.29 Insurance vi 3.31 Brokers 5.01 Conduct of Business Prior to the Closing 6.01 Closure of Stores INVESTMENT AGREEMENT (this "Agreement"), dated as of July 30, 2002, between Mayor's Jewelers, Inc., a Delaware corporation (the "Seller") and Henry Birks & Sons Inc., a Canadian corporation (the "Purchaser"). WHEREAS, the Seller is engaged in the retail jewelry business at various locations in the United States (the "Business"); and WHEREAS, upon the terms and subject to the conditions set forth herein, the Purchaser wishes to subscribe for and purchase from the Seller, and the Seller wishes to issue and sell to the Purchaser, 15,000 shares of Series A Convertible Preferred Stock of the Seller (the "Shares") convertible into shares of, and warrants exercisable to purchase shares of (the "Warrants"), the Common Stock, par value $0.0001 (the "Common Stock"), of the Seller; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Seller and the Purchaser hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. For purposes of this Agreement: "Action" means any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority. "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "Ancillary Agreements" means the Management Expense Reimbursement Agreement, the Manufacturing and Sales Agreement, the Certificate of Designation of Series A Convertible Preferred Stock, the Warrant Agreements and the Registration Rights Agreement. "Assets" means the assets and properties of the Seller and the Subsidiaries. "Business Combination" means, except with respect to the transactions contemplated by this Agreement, (A) any acquisition or purchase of all or any portion of the capital stock, or securities convertible into, or exchangeable or exercisable for, or repayable with, capital stock of the Seller or assets of the Seller or any Subsidiary (other than Inventory to be sold in the ordinary course of business consistent with past practice), (B) other than with a wholly owned Subsidiary, any merger, consolidation or other business combination with the Seller or (C) any recapitalization or reorganization involving or otherwise relating to the Seller. "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in New York, NY. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended through the Closing Date. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System, as amended through the Closing Date. "Claims" means any and all administrative, regulatory or judicial actions, suits, petitions, appeals, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations, proceedings, consent orders or consent agreements. "Code" means the Internal Revenue Code of 1986, as amended through the date hereof. "control" (including the terms "controlled by" and "under common control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract, credit arrangement or otherwise. "Credit Agreement" means the Revolving Credit, Tranche B Loan and Security Agreement entered into between Mayor's Jewelers, Inc. and Fleet Retail Finance Inc. and Back Bay Capital Funding LLC, dated as of May 30, 2002. "Disclosure Schedule" means the Disclosure Schedule dated as of the date hereof, delivered by the Seller to the Purchaser in connection with this Agreement. "Encumbrance" means any security interest, pledge, hypothecation, mortgage, lien (including, without limitation, environmental and tax liens), violation, charge, lease, license, encumbrance, servient easement, adverse claim, reversion, reverter, preferential arrangement, restrictive covenant, condition or restriction of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership. "Environment" means surface waters, groundwaters, soil, subsurface strata and ambient air. "Environmental Claims" means any Claims relating in any way to any Environmental Law or any Environmental Permit, including, without limitation, (a) any and all Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the Environment. "Environmental Laws" means all applicable Laws, now or hereafter in effect and as amended, and any judicial or enforceable administrative interpretation thereof, including, without limitation, any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety, natural resources or Hazardous Materials, excluding aesthetics or land use but including, without limitation, CERCLA, 42 U.S.C.ss.ss. 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.ss.ss.6901 et seq.; the Hazardous Materials 2 Transportation Act, 49 U.S.C.ss.ss.5101 et seq.; the Clean Water Act, 33 U.S.C.ss.ss.1251 et seq.; the Toxic Substances Control Act, 15 U.S.C.ss.ss.2601 et seq.; the Clean Air Act, 42 U.S.C.ss.ss.7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.ss.ss.300f et seq.; the Atomic Energy Act, 42 U.S.C.ss.ss.2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.ss.ss.136 et seq.; and the Federal Food, Drug and Cosmetic Act, 21 U.S.C.ss.ss.301 et seq. "Environmental Permits" means all permits, approvals, identification numbers, licenses and other authorizations required under or issued pursuant to any applicable Environmental Law. "Exchange Act" means the United States Securities and Exchange Act of 1934, as amended. "Fiscal 2002 Plan" means the internal business plan of the Seller provided to the Purchaser containing estimates of its financial performance for fiscal 2002, attached hereto as Exhibit F. "Foreign Corrupt Practices Act" means the Foreign Corrupt Practices Act, 15 U.S.C.ss.ss.78 dd-1 et seq., as amended. "Foreign Official" means (a) an officer or employee of any non-United States Governmental Authority or any political subdivision, department, agency or instrumentality thereof; (b) a Person acting in an official capacity for or on behalf of any such Governmental Authority; (c) a member or official of any political party outside of the United States; and (d) any other meanings or interpretation given to the term under the Foreign Corrupt Practices Act as it applies to the Business. "Governmental Authority" means any United States or non-United States federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body. "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. "Hazardous Materials" means (a) petroleum and petroleum products, radioactive materials, asbestos-containing materials, urea formaldehyde foam insulation, transformers or other equipment that contain polychlorinated biphenyls and radon gas, (b) any other chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants" or "pollutants", or words of similar import, under any applicable Environmental Law, and (c) any other chemical, material or substance which is regulated by any Environmental Law. "Indebtedness" means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising 3 under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness of others referred to in clauses (a) through (g) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including, without limitation, any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all Indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. "Indemnified Party" means a Purchaser Indemnified Party. "Indemnifying Party" means the Seller pursuant to Section 7.02. "Intellectual Property" means (i) patents, patent applications, and statutory invention registrations, (ii) trademarks, service marks, domain names, trade dress, logos, trade names, corporate names, and other identifiers of source or goodwill, including, without limitation, registrations and applications for registration thereof, (iii) mask works and copyrights, including, without limitation, copyrights in computer software, and registrations and applications for registration thereof, and (iv) confidential and proprietary information, including, without limitation, trade secrets, know-how and invention rights. "Inventories" means all inventory, merchandise, finished goods, raw materials, packaging, labels, supplies and other personal property related to the Business and maintained, held or stored by or for the Seller or any Subsidiary on the Closing Date, and any prepaid deposits for any of the same. "Investment Documents" means this Agreement, the Ancillary Agreements, and any certificate, Financial Statements, Interim Financial Statement, report or other document delivered pursuant to this Agreement or the transactions contemplated by this Agreement. "IRS" means the Internal Revenue Service of the United States. 4 "knowledge" when used in reference to the "knowledge of the Seller" or the "Seller's knowledge" means the actual knowledge of the Board of Directors or senior management of the Seller as well as any notice or notification with respect to any event or circumstance received by the Seller or any Subsidiary from the time when it would have been brought to the attention of the senior management of the Seller had the Seller maintained reasonable routines for communicating significant information to the senior management of the Seller and there was reasonable compliance with the routines by the Seller. "Law" means any United States or non-United States federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including, without limitation, common law). "Leased Real Property" means the real property leased by the Seller or any Subsidiary, in each case, as tenant, together with, to the extent leased by the Seller or any Subsidiary, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Seller or any Subsidiary attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing. "Liabilities" means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law (including, without limitation, any Environmental Law), Action or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking. "Licensed Intellectual Property" means Intellectual Property licensed to the Seller or any Subsidiary pursuant to the Seller IP Agreements. "Management Expense Reimbursement Agreement" means the agreement to be entered into between the Seller and the Purchaser on the Closing Date substantially in the form of Exhibit D hereto. "Manufacturing and Sales Agreement" means the agreement to be entered into between the Seller and the Purchaser on the Closing Date substantially in the form of Exhibit E hereto. "Material Adverse Effect" means any circumstance, change in or effect on the Business or the Seller or any Subsidiary that, individually or in the aggregate with all other circumstances, changes in or effects on the Business, the Seller or any Subsidiary: (a) is or is reasonably likely to be materially adverse to the business, operations, assets or liabilities (including, without limitation, contingent liabilities), material supplier relationships, results of operations or the condition (financial or otherwise) of the Business, the Seller and the Subsidiaries taken as a whole or (b) is reasonably likely to materially adversely effect the ability of the Purchaser to operate or conduct the Business in the manner in which it is currently operated or conducted by the Seller or its Subsidiaries taken as a whole; provided, however, the following shall not be taken into account in determining whether a Material Adverse Effect has occurred: (i) the announcement or pendency of this Agreement or the transactions contemplated 5 hereby, (ii) the taking of any action approved or consented to by the Purchaser, (iii) the effects of changes or developments not uniquely relating to the Seller in the retail jewelry industry or the U.S. economy; and provided, further, that any negative deviation in the Seller's financial performance in the items indicated below for the period from May 31, 2002 to the Closing Date (including any part month in such period, which shall be included based on the actual number of days to the Closing Date in such month divided by the total number of days in such month) from results indicated for such period (on a cumulative basis) in the Fiscal 2002 Plan in excess of the percentages set forth next to such item will be a Material Adverse Effect: Net Sales 10% Net Income (loss) 20% "Owned Real Property" means the real property owned by the Seller that is related to the Business, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Seller that are related to the Business attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing. "Permitted Encumbrances" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced and as to which neither the Seller nor any Subsidiary is otherwise subject to civil or criminal liability due to its existence: (a) liens for Taxes, assessments and governmental charges or levies not yet due and payable; (b) Encumbrances imposed by Law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar liens arising in the ordinary course of business securing obligations that (i) are not overdue for a period of more than 30 days and (ii) are not in excess of $2,500 in the case of a single property or $5,000 in the aggregate at any time; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (d) minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that (i) were not incurred in connection with any Indebtedness, (ii) do not render title to the property encumbered thereby unmarketable and (iii) do not, individually or in the aggregate, materially adversely affect the value of or the use of such property for its current and anticipated purposes and (e) Encumbrances pursuant to the Credit Agreement. "Person" means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. "Proposing Party" means any party who makes an unsolicited bona fide proposal with respect to a Business Combination. "Purchase Price Bank Account" means a bank account in the United States to be designated by the Seller in a written notice to the Purchaser at least five Business Days before the Closing. "Real Property" means the Leased Real Property and the Owned Real Property. 6 "Receivables" means any and all accounts receivable, notes and other amounts receivable from third parties, including, without limitation, customers and employees, arising from the conduct of the Business before the Closing Date, whether or not in the ordinary course, together with any unpaid financing charges accrued thereon. "Registration Rights Agreement" means the agreement to be entered into between the Seller and the Purchaser on the Closing Date substantially in the form of Exhibit C hereto. "Regulations" means the Treasury Regulations (including Temporary Regulations) promulgated by the United States Department of Treasury with respect to the Code or other federal tax statutes. "Release" means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like into or upon any land or water or air or otherwise entering into the Environment. "Remedial Action" means all action to (a) clean up, remove, treat or handle in any other way Hazardous Materials in the Environment; (b) prevent the Release of Hazardous Materials so that they do not migrate, endanger or threaten to endanger public health or the Environment; or (c) perform remedial investigations, feasibility studies, corrective actions, closures and post-remedial or post-closure studies, investigations, operations, maintenance and monitoring. "SEC" means the Securities and Exchange Commission. "Securities Act" means the United States Securities Act of 1933, as amended. "Seller Intellectual Property" means Intellectual Property owned by the Seller or any Subsidiary. "Seller IP Agreements" means (a) licenses of Intellectual Property by the Seller or any Subsidiary to any third party, (b) licenses of Intellectual Property by any third party to the Seller or any Subsidiary, (c) agreements between the Seller or any Subsidiary and any third party relating to the development or use of Intellectual Property, the development or transmission of data, or the use, modification, framing, linking, advertisement, or other practices with respect to Internet web sites, and (d) consents, settlements, decrees, orders, injunctions, judgments or rulings governing the use, validity or enforceability of Seller Intellectual Property. "Seller Software" means all software material to the operation of the Business. "Seller's Accountants" means Deloitte & Touche LLP, independent accountants of the Seller. "Shares" means the shares of Series A Convertible Preferred Stock of the Seller (including the Option Shares), which will be convertible subject to adjustment, into Common Stock at a conversion price of $0.30 per share of Common Stock and have a liquidation preference of $1,000 per share, to be issued by the Seller substantially in the form provided for in Exhibit A hereto, entitled to the benefit of the rights and preferences set out in the Certificate of 7 Designation of Series A Convertible Preferred Stock substantially in the form of Exhibit A hereto, and delivered to the Purchaser or its nominee in connection with the transactions herein contemplated, at a purchase price of $1000 per share. "Subsidiaries" means Mayor's Jewelers, Inc., a Florida corporation, American Horological Corporation, a Florida corporation, JBM Retail Company, Inc., a Delaware corporation, JBM Venture Co. Inc., a Delaware corporation, Club Duty Free, a Delaware corporation, Designer Timepieces, Inc., a Delaware corporation, Ultimate Fine Jewelry and Watches, Inc., a Delaware corporation, Ultimate Fine Jewelry International, Inc., a Delaware corporation, UPKE, Inc., a Delaware corporation, JBM International, Inc., a Delaware corporation, Jewelry Depot, Inc., a Delaware corporation, Mayor's Jewelers Intellectual Property Holding Company, a Delaware corporation, Exclusive Diamonds International, Ltd., an Israeli corporation, Regal Diamonds International (T.A.) Ltd., a Delaware corporation, Jan Bell Marketing/Puerto Rico, Inc., a Puerto Rico corporation, Mayor's Jewelers Receivables Holding Company, a Nevada corporation, Maier & Berkele, Inc. a Georgia corporation, Maier's Jewelers, Inc., a Georgia Corporation, and any and all corporations, partnerships, limited liability companies, joint ventures, associations and other entities controlled by the Seller directly or indirectly through one or more intermediaries. "Superior Proposal" means any proposal made by a Proposing Party to enter into a Business Combination, which the Board of Directors of the Seller determines in its good faith judgment to be more favorable to the Seller's stockholders than the transactions contemplated by this Agreement. "Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any government or taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs' duties, tariffs, and similar charges. "Trade Secrets" means trade secrets, know-how and other confidential or proprietary technical, business and other information, including, without limitation, manufacturing and production processes and techniques, research and development information, technology, drawings, specifications, designs, plans, proposals, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans, customer and supplier lists and information, and all rights in any jurisdiction to limit the use or disclosure thereof. "U.S. GAAP" means United States generally accepted accounting principles and practices in effect from time to time applied consistently throughout the periods involved. "USTs" means underground storage tanks, as such term is defined in the Resource Conservation and Recovery Act, as amended, and the regulations promulgated thereunder. 8 "Vendors" means any and all vendors who are unaffiliated with the Seller or any Subsidiary and who supply raw materials, components, spare parts, supplies, goods, merchandise or services to the Seller or any Subsidiary. "Warrant Agreements" means the agreements with respect to the Warrants to be entered into between the Seller and the Purchaser on the Closing Date substantially in the form of Exhibits B-I, B-II and B-III hereto. "Warrants" means the warrants exercisable to purchase, subject to adjustment, (i) 12,424,596 shares of Common Stock at an exercise price of $0.30 per share of Common Stock, (ii) 12,424,596 shares of Common Stock at an exercise price of $0.35 per share of Common Stock and (iii) 12,424,595 shares of Common Stock at an exercise price of $0.40 per share of Common Stock, to be issued by the Seller under the Warrant Agreements and delivered to the Purchaser or its nominee in connection with the transactions herein contemplated. SECTION 1.02. Definitions. The following terms have the meanings set forth in the Sections set forth below: Definition Location "Agreement".......................................... Preamble "Ancillary Lease Documents".......................... 3.20(d) "Business"........................................... Recitals "Closing"............................................ 2.04 "Closing Date"....................................... 2.04 "Closing Date Payment"............................... 2.03 "Closing Date Note" 2.03 "Common Stock"....................................... Recitals "ERISA".............................................. 3.24(a) "Financial Statements"............................... 3.08(a)(i) "Interim Financial Statements"....................... 3.08(a)(ii) "Interim Financial Statements Date".................. 3.08(a)(ii) "lease".............................................. 3.17(a) "Loss"............................................... 7.02(a) "Material Contracts"................................. 3.17(a) "Multiemployer Plan"................................. 3.24(b) "Multiple Employer Plan"............................. 3.24(b) "Option Shares"...................................... 2.02 "Options"............................................ 3.19(d) "Plans".............................................. 3.24(a) "Purchaser".......................................... Preamble "Purchase Price"..................................... 2.02 "Purchaser Indemnified Party"........................ 7.02(a) "Return"............................................. 3.28(a) "SEC Documents"...................................... 3.23 "Seller"............................................. Preamble "Seller Indemnified Party"........................... 7.03(a) 9 Definition Location "Seller Marks"....................................... 5.07 "Shares"............................................. Recitals "Surviving Representations and Warranties"........... 7.01 "Tangible Personal Property"......................... 3.21(a) "Termination Agreements" 6.01(k) "Termination Fee Event".............................. 8.03 "Third Party Claims"................................. 7.02(b) "WARN"............................................... 3.24(g) "Warrants"........................................... Recitals SECTION 1.03. Interpretation and Rules of Construction. In this Agreement, except to the extent that the context otherwise requires: (a) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or a Schedule to, this Agreement unless otherwise indicated; (b) the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement; (c) the words "hereof," "herein" and "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement; (d) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein; (e) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (f) any Law defined or referred to herein or in any agreement or instrument that is referred to herein means such Law or statute as from time to time amended, modified or supplemented, including, without limitation, by succession of comparable successor Laws; (g) references to a Person are also to its permitted successors and assigns; and (h) the use of "or" is not intended to be exclusive unless expressly indicated otherwise. 10 ARTICLE II PURCHASE AND SALE SECTION 2.01. Purchase and Sale of the Shares and Warrants. Upon the terms and subject to the conditions of this Agreement, at the Closing, the Seller shall issue and deliver to the Purchaser, the Shares and Warrants, and the Purchaser shall purchase the Shares and Warrants. SECTION 2.02. Option Shares. Upon the terms and subject to the conditions of this Agreement, the Seller grants to the Purchaser an option to purchase up to an additional 250 shares of Series A Convertible Preferred Stock (the "Option Shares"), which may be exercised, in whole or in part, at the Purchaser's sole discretion; provided, the Purchaser shall notify the Seller in writing 72 hours prior to the Closing of its intent to exercise the Option Shares and setting forth the number of Option Shares to be exercised. At the Closing, the Seller shall issue and deliver to the Purchaser, the Options Shares and the Purchaser shall purchase the Option Shares. The Purchaser's right to exercise the Option Shares shall expire on the earlier of the termination of this Agreement and the Closing Date. SECTION 2.03. Purchase Price. The aggregate purchase price for the Shares and Warrants shall be $15,000,000, payable to the Seller as follows: (a) $10,000,000 in cash on the Closing Date (the "Closing Date Payment") and (b) an unconditional promissory note of the Purchaser in a principal amount of $5,000,000 payable on September 30, 2002 without interest (the "Closing Date Note"); provided, however, to the extent that any Option Shares are exercised, the principal amount of the Closing Date Note shall be increased by the aggregate purchase price of the Option Shares to be purchased at a purchase price of $1000 per share. SECTION 2.04. Closing. Subject to the terms and conditions of this Agreement, the sale and purchase of the Shares and the Warrants contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Holland & Knight LLP, One East Broward Boulevard, Suite 1300, Ft. Lauderdale, Florida at 10:00 A.M. Eastern Standard Time on the first Business Day following the satisfaction or waiver of all conditions to the obligations of the parties set forth in Section 6.01 and Section 6.02 or at such other place or at such other time or on such other date as the Seller and the Purchaser may mutually agree upon in writing (the day on which the Closing takes place being the "Closing Date"). SECTION 2.05. Closing Deliveries by the Seller. At the Closing, the Seller shall deliver or cause to be delivered to the Purchaser: (a) one or more stock certificates evidencing the Shares, in substantially the form provided in Exhibit A hereto, registered in the name of the Purchaser or a nominee of the Purchaser that is an entity owned or controlled by the Purchaser as designated in an instruction to the Seller provided not less than two days prior to the Closing Date; (b) the Warrant Agreements executed by Seller evidencing the Warrants, in substantially the form of Exhibits B-I, B-II and B-III hereto; 11 (c) a Registration Rights Agreement executed by the Seller in substantially the form of Exhibit C hereto; (d) a Management Expense Reimbursement Agreement executed by the Seller in substantially the form of Exhibit D hereto; (e) a Manufacturing and Sales Agreement executed by the Seller in substantially the form of Exhibit E hereto; (f) a receipt for the Closing Date Payment and Closing Date Note; (g) evidence of the filing of the Certificate of Designation of Series A Convertible Preferred Stock with the Secretary of State of the State of Delaware; (h) a true and complete copy, certified by the Secretary of the Seller, of the resolutions adopted by the Board of Directors of the Seller evidencing its authorization of the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated by this Agreement and thereby; (i) a certificate of the Secretary of the Seller certifying the names and signatures of the officers of the Seller authorized to sign this Agreement and the Ancillary Agreements and the other documents to be delivered hereunder and thereunder; (j) a copy of (i) the Certificates of Incorporation, as amended (or similar organizational documents), of the Seller and of each Subsidiary, certified by the Secretary of State of the jurisdiction in which each such entity is incorporated or organized, as of a date not earlier than 15 Business Days prior to the Closing Date and accompanied by a certificate of the Secretary of each such entity, dated as of the Closing Date, stating that no amendments have been made to such Certificate of Incorporation (or similar organizational documents) since such date, and (ii) the By-laws (or similar organizational documents) of the Seller and of each Subsidiary, certified by the Secretary of each such entity; (k) a certificate of the Seller (which complies with Section 1445 of the Code) of non-foreign status executed in accordance with the provisions of the Foreign Investment in Real Property Tax Act; (l) good standing certificates for the Seller and for each Subsidiary from the Secretary of State of the jurisdiction in which each such entity is incorporated or organized and from the Secretary of State in each other jurisdiction in which the properties owned or leased by any of the Seller or any Subsidiary, or the operation of its business in such jurisdiction, requires the Seller or any Subsidiary to qualify to do business as a foreign corporation, in each case dated as of a date not earlier than 15 Business Days prior to the Closing Date and accompanied by bring-down telegrams dated the Closing Date; (m) the Seller's notification pursuant to Section 5.04(a); and (n) the certificates and other documents required to be delivered pursuant to Section 6.01. 12 SECTION 2.06. Closing Deliveries by the Purchaser. At the Closing, the Purchaser shall deliver to the Seller; (a) the Closing Date Payment by wire transfer in immediately available funds to the Purchase Price Bank Account; (b) the Closing Date Note; (c) the Warrant Agreements executed by the Purchaser evidencing the Warrants, in substantially the form of Exhibits B-I, B-II and B-III hereto; (d) a Registration Rights Agreement executed by the Purchaser in substantially the form of Exhibit C hereto; (e) a Management Expense Reimbursement Agreement executed by the Purchaser in substantially the form of Exhibit D hereto; (f) a Manufacturing and Sales Agreement executed by the Purchaser in substantially the form of Exhibit E hereto; (g) a true and complete copy, certified by the Secretary of the Purchaser, of the resolutions duly and validly adopted by the Board of Directors of the Purchaser evidencing its authorization of the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement; and (h) the certificates required to be delivered pursuant to Section 6.02. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER As an inducement to the Purchaser to enter into this Agreement, the Seller hereby represents and warrants to the Purchaser as follows, except as otherwise disclosed in the Disclosure Schedule with the disclosure of a specific item in any one section of the Disclosure Schedule being deemed a disclosure as to all other appropriate sections of the Disclosure Schedules if there is an explicit cross-reference to another section or sections of the Disclosure Schedule: SECTION 3.01. Organization, Authority and Qualification of the Seller. (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority to enter into this Agreement and the Ancillary Agreements, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated by this Agreement and thereby. This Agreement has been, and upon their execution the Ancillary Agreements shall have been, duly executed and delivered by the Seller, and (assuming due authorization, execution and delivery by the Purchaser) this Agreement constitutes, and upon their execution the Ancillary Agreements shall constitute, legal, valid and binding obligations of the Seller, enforceable against the Seller 13 in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (b) The execution and delivery of this Agreement and the Ancillary Agreements by the Seller has been duly authorized by the Board of Directors of the Seller and no other corporate action will be required by the Seller to authorize the consummation of the transactions and the performance by the Seller contemplated in this Agreement and the Ancillary Agreements. (c) The Seller is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not reasonably be expected to have a Material Adverse Effect, and all such jurisdictions are set forth in Section 3.01(c) of the Disclosure Schedule. All corporate actions taken by the Seller have been duly authorized, and the Seller has not taken any action that in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Certificate of Incorporation or By-laws. True and correct copies of the Certificate of Incorporation and By-laws of the Seller, each as in effect on the date hereof, have been delivered by the Seller to the Purchaser. SECTION 3.02. Subsidiaries. (a) Section 3.02(a) of the Disclosure Schedule sets forth a true and complete list of all Subsidiaries, listing for each Subsidiary its name, type of entity, the jurisdiction and date of its incorporation or organization, its authorized capital stock, partnership capital or equivalent, the number and type of its issued and outstanding shares of capital stock, partnership interests or similar ownership interests and the current ownership of such shares, partnership interests or similar ownership interests. (b) Other than the Subsidiaries, there are no other corporations, partnerships, joint ventures, associations or other entities in which the Seller or any Subsidiary controls or owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent or otherwise) to acquire the same. Other than the Subsidiaries, neither the Seller nor any Subsidiary is a member of (nor is any part of the Business conducted through) any partnership nor is the Seller or any Subsidiary a participant in any joint venture or similar arrangement. (c) Each Subsidiary that is a corporation: (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) has all necessary power and authority to own, operate or lease the properties and assets owned, operated or leased by such Subsidiary and to carry on its business as it has been and is currently conducted by such Subsidiary and (iii) is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not reasonably be expected to have a Material Adverse Effect. Each Subsidiary that is not a corporation: (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has all necessary power and authority to own, operate or lease the properties and assets owned, operated or leased by such Subsidiary and 14 to carry on its business as it has been and is currently conducted by such Subsidiary and (iii) is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. SECTION 3.03. Capitalization. (a) The authorized capital stock of the Seller consists of 50,000,000 shares of Common Stock, par value $0.0001 per share, (b) 1,000 shares of Non-Voting Common Stock, par value $0.0001 per share, and (c) 5,000,000 shares of Preferred Stock, par value $0.0001 per share. As of the date hereof, (i) 19,525,749 shares of Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) 6,575,053 shares of Common Stock are reserved for issuance pursuant to employee stock options granted pursuant to the Stock Option Plan, no shares of Non-Voting Common Stock are outstanding and (iv) no shares of Preferred Stock are outstanding. None of the issued and outstanding shares of Common Stock was issued in violation of any preemptive rights. Except as set forth in Section 3.03(a) of the Disclosure Schedule and the Stock Option Plan and the stock options issued thereunder, the Shares and the Warrants, there are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to any shares of Common Stock or obligating the Seller to issue or sell any shares of Common Stock, or any other interest in, the Seller. There are no outstanding contractual obligations of the Seller to repurchase, redeem or otherwise acquire any shares of Common Stock or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Common Stock to which the Seller, any Subsidiary or, to the Seller's knowledge, any other Person is a party. (b) All the outstanding shares of capital stock of each Subsidiary that is a corporation are validly issued, fully paid, nonassessable and free of preemptive rights and are owned by the Seller, whether directly or indirectly, free and clear of all Encumbrances. There are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the capital stock of any Subsidiary or obligating the Seller or any Subsidiary to issue or sell any shares of capital stock of, or any other interest in, any Subsidiary. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any shares of capital stock of or any other interests in any Subsidiary to which the Seller, any Subsidiary or, to the Seller's knowledge, any other Person is a party. (c) Except as set forth in Section 3.03(c) of the Disclosure Schedule, the stock register of each Subsidiary accurately records: (i) the name and address of each Person owning shares of capital stock of such Subsidiary and (ii) the certificate number of each certificate evidencing shares of capital stock issued by such Subsidiary, the number of shares evidenced by each such certificate, the date of issuance thereof and, in the case of cancellation, the date of cancellation. SECTION 3.04. Authorization and Issuance of Shares and Warrants. The Shares and Warrants have been duly authorized by the Seller for issuance and sale to the Purchaser 15 pursuant to this Agreement and when issued and delivered by the Seller pursuant to this Agreement against payment of the consideration therefor, will be validly issued, fully paid and non-assessable and will not be subject to preemptive or other similar rights of any securityholder of the Seller. SECTION 3.05. Corporate Books and Records. Except as set forth in Section 3.05 of the Disclosure Schedule, the minute books of the Seller and the Subsidiaries contain in all material respects accurate records of all meetings and accurately reflect in all material respects all other actions taken by the stockholders, Boards of Directors and all committees of the Boards of Directors of the Seller and the Subsidiaries. Complete and accurate copies of all such minute books and of the stock register of the Seller and each Subsidiary have been provided by the Seller to the Purchaser. SECTION 3.06. No Conflict. The execution, delivery and performance of this Agreement and the Ancillary Agreements by the Seller do not and will not (a) violate, conflict with or result in the breach of any provision of the certificate of incorporation or by-laws (or similar organizational documents) of the Seller or any Subsidiary, or (b) conflict with or violate (or cause an event which could have a Material Adverse Effect as a result of) any Law or Governmental Order applicable to the Seller, any Subsidiary or any of their respective assets, properties or businesses including, without limitation, the Business, or (c) in any material respect, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any property or asset of the Seller or any Subsidiary or any of the Shares or Warrants pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Seller or any Subsidiary is a party or by which any of the Shares, Warrants or any of such assets or properties is bound or affected. SECTION 3.07. Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and each Ancillary Agreement by the Seller do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any Governmental Authority, except those which have already been obtained. SECTION 3.08. Financial Information; Books and Records. (a) True and complete copies of (i) the audited consolidated balance sheet of the Seller for each of the two fiscal years ended as of February 2, 2002 and February 3, 2001, and the related audited consolidated statements of operations and cash flows of the Seller for each of the two fiscal years ended February 2, 2002 and February 3, 2001, together with all related notes and schedules thereto, accompanied by the reports thereon of the Seller's Accountants (collectively referred to herein as the "Financial Statements") and (ii) the unaudited consolidated condensed balance sheet of the Seller as of May 4, 2002 (the "Interim Financial Statements Date") and the related unaudited consolidated condensed statements of operations and cash flows of the Seller for the thirteen weeks ended the Interim Financial Statements Date, together with all related notes thereto (collectively referred to herein as the "Interim Financial Statements") have been 16 delivered by the Seller to the Purchaser. The Financial Statements (i) were prepared in accordance with the books of account and other financial records of the Seller and the Subsidiaries, (ii) present fairly the consolidated financial condition and results of operations of the Seller and the Subsidiaries as of the dates thereof or for the periods covered thereby in all material respects, and (iii) have been prepared in accordance with U.S. GAAP applied on a basis consistent with the past practices of the Seller and the Subsidiaries and (iv) include all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial condition of the Seller and the Subsidiaries and the results of the operations of the Seller and the Subsidiaries as of the dates thereof or for the periods covered thereby. The Interim Financial Statements (i) present fairly the consolidated financial condition and results of operations of the Seller and (ii) have been prepared in accordance with U.S. GAAP in a manner consistent with the preparation of the Financial Statements, except that the Interim Financial Statements do not contain complete footnotes that would be required by U.S. GAAP and are subject to normal year-end audit adjustments. (b) The books of account and other financial records of the Seller and the Subsidiaries: (i) reflect all items of income and expense and all assets and Liabilities required to be reflected therein in accordance with U.S. GAAP applied on a basis consistent with the past practices of the Seller and the Subsidiaries, respectively and (ii) are in all material respects complete and correct, and do not contain or reflect any material inaccuracies or discrepancies. SECTION 3.09. Accounting System. The Seller and its Subsidiaries maintain a system of accounting controls sufficient to provide reasonable assurances that: (A) transactions are executed in accordance with management's general or specific authorizations, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. GAAP and to maintain accountability for assets, (C) access to assets is permitted only in accordance with management's general or specific authorization, and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. SECTION 3.10. Absence of Undisclosed Liabilities. There are no Liabilities of the Seller or any Subsidiary other than (i) the Liabilities set forth in the Interim Financial Statements, (ii) Liabilities disclosed in the Disclosure Schedule and (iii) any Liabilities incurred subsequent to the Interim Financial Statements Date in the ordinary course of business, which individually are in an amount not in excess of $100,000. SECTION 3.11. Receivables. Section 3.11 of the Disclosure Schedule is an aged list of the Receivables as of the Interim Financial Statements Date showing separately those Receivables that as of such date had been outstanding for (a) 29 days or less, (b) 30 to 59 days, (c) 60 to 89 days, (d) 90 to 119 days and (e) more than 119 days. All Receivables reflected on the Interim Financial Statements arose from, and the Receivables existing on the Closing Date will have arisen from, the sale of Inventory or services in the ordinary course of business consistent with past practice and, to the knowledge of the Seller, constitute, as the case may be, only valid, undisputed claims of the Seller or a Subsidiary not subject to valid claims of setoff or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice. In management's judgment, the reserve for bad debts reflected in the Interim Financial Statements is adequate. 17 SECTION 3.12. Inventories. Subject to amounts reserved therefor on the Interim Financial Statements, the values at which all Inventories are carried on the Interim Financial Statements reflect the historical inventory valuation policy of the Seller and the Subsidiaries of stating such Inventories at the lower of cost (determined in a manner consistent with the valuation of Inventories in the Financial Statements) or market value. Except as set forth in Section 3.12 of the Disclosure Schedule: (a) The Seller or a Subsidiary, as the case may be, has good and marketable title to the Inventories free and clear of all Encumbrances, except for those existing under the Credit Agreement. (b) The Seller has adequately provided for obsolescence and the provision for obsolescence is accurately reflected in the Interim Financial Statements. The Inventories do not consist of any items held on consignment or subject to any other similar lien or encumbrance. Neither the Seller nor any Subsidiary is under any obligation or liability with respect to accepting returns of items of Inventory or merchandise in the possession of their customers other than in the ordinary course of business consistent with past practice. (c) Neither the Seller nor any Subsidiary has acquired or committed to acquire or manufacture Inventory for sale which is not of a quality and quantity usable in the ordinary course of business within a reasonable period of time and consistent with past practice. The Inventories are in good and merchantable condition in all material respects, are suitable and usable for the purposes for which they are intended and are in a condition such that they can be sold in the ordinary course of the Business consistent with past practice. SECTION 3.13. Purchase Orders. As of July 30, 2002 open purchase orders issued by the Seller or any Subsidiary totaled $8,335,341 at cost. Section 3.13 of the Disclosure Schedule lists all purchase orders which have been issued by the Seller or any Subsidiary and which were open as of July 30, 2002. SECTION 3.14. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions. Since the Interim Financial Statements Date, the Business has been conducted in the ordinary course and consistent with past practice. As amplification and not limitation of the foregoing, since the Interim Financial Statements Date, neither the Seller nor any Subsidiary has: (a) except as set forth in Section 3.14 of the Disclosure Schedule, permitted or allowed any of the Assets to be subjected to any Encumbrance, other than Permitted Encumbrances and Encumbrances that will be released at or prior to the Closing; (b) except as set forth in Section 3.14 of the Disclosure Schedule and except in the ordinary course of business consistent with past practice, discharged or otherwise obtained the release of any Encumbrance related to the Business, the Seller or the Subsidiaries or paid or otherwise discharged any Liability related to the Business, the Seller or the Subsidiaries, other than current liabilities reflected on the Interim Financial Statements and current liabilities incurred in the ordinary course of business consistent with past practice since the Interim Financial Statements Date; 18 (c) written down (or failed to write down in accordance with U.S. GAAP consistent with past practice) the value of any Inventories or Receivables or revalued any of the Assets other than in the ordinary course of business consistent with past practice and in accordance with U.S. GAAP; (d) except as set forth in Section 3.14 of the Disclosure Schedule, amended, terminated, cancelled or compromised any material claims of the Seller or any Subsidiary or waived any other rights of substantial value to the Seller or any Subsidiary; (e) except as set forth in Section 3.14 of the Disclosure Schedule, sold, transferred, leased, subleased, licensed or otherwise disposed of any properties or assets, real, personal or mixed (including, without limitation, leasehold interests and intangible property), other than the sale of Inventories in the ordinary course of business consistent with past practice; (f) issued or sold any capital stock, notes, bonds or other securities, or any option, warrant or other right to acquire the same, of the Seller or any Subsidiary; (g) redeemed any of the capital stock or declared, made or paid any dividends or distributions (whether in cash, securities or other property) to the holders of capital stock of the Seller or any Subsidiary or otherwise, other than dividends, distributions and redemptions declared, made or paid by the Seller solely to the Seller or by any Subsidiary solely to the Seller or another Subsidiary; (h) merged with, entered into a consolidation with or acquired an interest of 5% or more in any Person or acquired a substantial portion of the assets or business of any Person or any division or line of business thereof, or otherwise acquired any material assets other than in the ordinary course of business consistent with past practice; (i) made any capital expenditure or commitment for any capital expenditure in excess of $5,000 individually or $50,000 in the aggregate; (j) made any express or deemed election or settled or compromised any liability with respect to Taxes of the Seller or any Subsidiary; (k) made any loan to, guaranteed any Indebtedness of or otherwise incurred any Indebtedness on behalf of any Person; (l) except in the ordinary course consistent with past practice, failed to pay any creditor any amount in excess of $5,000 individually or $100,000 in the aggregate owed to such creditor when due or to make any payment when due as required pursuant to any contract, agreement or other obligation, including, without limitation, any compensation owed to employees or consultants, and any payment or tax owed to any government body and is not in default with respect to any of the foregoing; (m) (i) except as set forth in Section 3.14 of the Disclosure Schedule, which amount may be disclosed in the aggregate, granted any increase, or announced any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by the Seller or any Subsidiary to any of its employees, including, without limitation, any increase or 19 change pursuant to any Plan, (ii) except as set forth in Section 3.14 of the Disclosure Schedule, which amount may be disclosed in the aggregate, established or increased or promised to increase any benefits under any Plan; or (iii) except as set forth in Section 3.14 of the Disclosure Schedule, which amounts shall be disclosed per individual employee, granted any increase, or announced any increase, in the wages, salaries, compensation, bonuses, incentives, pension or other benefits payable by the Seller or any Subsidiary to any employee of the Seller of any Subsidiary whose total compensation in the 12 months ended May 3, 2002 exceeded $100,000; (n) except for merchandise sold to employees in accordance with the Seller's policy for sales to employees and consistent with past practice, entered into any agreement, arrangement or transaction with any of its directors, officers, employees or stockholders (or with any relative, beneficiary, spouse or Affiliate of such Persons); (o) except as set forth in Section 3.14 of the Disclosure Schedule, terminated, discontinued, closed or disposed of any plant, facility or other business operation, or laid off any employees or implemented any early retirement, separation or program providing early retirement window benefits within the meaning of Section 1.401(a)-4 of the Regulations or announced or planned any such action or program for the future; (p) allowed any Permit or Environmental Permit that was issued or relates to the Seller or any Subsidiary or otherwise relates to the Business to lapse or terminate or failed to renew any insurance policy, Permit or Environmental Permit that is scheduled to terminate or expire within 45 calendar days of the Closing Date; (q) except as set forth in Section 3.14 of the Disclosure Schedule, suffered any casualty loss or damage with respect to any of the Assets which in the aggregate have a replacement cost of more than $100,000, whether or not such loss or damage shall have been covered by insurance; (r) amended, modified or consented to the termination of any Material Contract or the Seller's or any Subsidiary's rights thereunder; (s) amended or restated the certificate of incorporation or By-laws (or other organizational documents) of the Seller or any Subsidiary; (t) (i) abandoned, sold, assigned, or granted any security interest in or to any item of the Owned Intellectual Property, Licensed Intellectual Property, Seller IP Agreements, including, without limitation, failing to perform or cause to be performed all applicable filings, recordings and other acts, and pay or caused to be paid all required fees and taxes, to maintain and protect its interest in such Intellectual Property, (ii) granted to any third party any license with respect to any Owned Intellectual Property or Licensed Intellectual Property, other than licenses of Seller Software to the customers of the Seller or Subsidiaries in the ordinary course of its business, (iii) developed, created or invented any Intellectual Property jointly with any third party (other than such joint development, creation or invention with a third party that is in progress prior to Interim Financial Statements Date), or (iv) disclosed, or allow to be disclosed, any confidential Intellectual Property, unless such Intellectual Property is subject to a confidentiality or non-disclosure covenant protecting against disclosure thereof; 20 (u) agreed, whether in writing or otherwise, to take any of the actions specified in this Section 3.14 or granted any options to purchase, rights of first refusal, rights of first offer or any other similar rights or commitments with respect to any of the actions specified in this Section 3.14, except as expressly contemplated by this Agreement and the Ancillary Agreements. SECTION 3.15. Litigation. Except as set forth in Section 3.15 of the Disclosure Schedule (which, with respect to each Action set forth therein, sets forth the parties, nature of the proceeding, date and method commenced, amount of charges or other relief sought and, if applicable, paid or granted), there are no Actions by or against the Seller or any Subsidiary (or by or against the Seller or any Affiliate thereof and relating to the Business, the Seller or any Subsidiary) or affecting any of the Assets or the Business pending before any Governmental Authority (or, to the knowledge of the Seller, threatened to be brought by or before any Governmental Authority). None of the matters set forth in Section 3.15 of the Disclosure Schedule has or has had or would be reasonably expected to have a Material Adverse Effect on the Seller or could affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated by this Agreement or thereby. Except as set forth in Section 3.15 of the Disclosure Schedule, none of the Seller, the Subsidiaries or any of the Assets, is subject to any Governmental Order (nor, to the knowledge of the Seller, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) on the Seller or any Subsidiary which has or has had a Material Adverse Effect or could affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated by this Agreement or thereby. SECTION 3.16. Compliance with Laws. (a) The Seller and the Subsidiaries have each conducted and continue to conduct the Business substantially in accordance with all Laws and Governmental Orders applicable to the Seller or any Subsidiary or any of the Assets, or the Business, and neither the Seller nor any Subsidiary is in violation of any such Law or Governmental Order the violation of which would reasonably be expected to have a Material Adverse Effect. (b) Section 3.16(b) of the Disclosure Schedule sets forth a brief description of each Governmental Order naming the Seller or any Subsidiary or any of their properties or assets, including, without limitation, the Assets, or the Business, and no Governmental Order has, has had or would reasonably be expected to have a Material Adverse Effect or would reasonably be expected to affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated by this Agreement or thereby. (c) The Seller has received a copy of the Foreign Corrupt Practices Act and understands its requirements. None of the Seller, any Subsidiary or any officer, director, employee, agent or representative of the Seller or any Subsidiary (i) has taken any action which is or could be deemed to be a violation of the Foreign Corrupt Practices Act in respect of the Business; (ii) is aware of any action or conduct which could be deemed to be a violation of the Foreign Corrupt Practices Act in respect of the Business or (iii) has offered, given, paid, authorized the payment of, or promised, directly or indirectly, any money, gift, promise or other 21 thing of value to any Foreign Official (or to any Person while knowing it will be offered, given or promised to a Foreign Official) for any purpose including, by way of example, influencing any act or decision of such Person acting in their official capacity, inducing such Person to do or omit to do any action in violation of their lawful duty, inducing such Person to use their influence with any Governmental Authority to affect or influence any act or decision of such Governmental Authority, in order to assist the Seller or any Subsidiary to obtain or retain business for or with, or in directing business to, any Person. (d) None of the Seller, any Subsidiary or any officer, director, employee, agent or representative of the Seller or any Subsidiary has furthered or supported any foreign boycott in violation of the Anti-Boycott laws and regulations of the United States promulgated pursuant to the Export Administration Act of 1979 (50 U.S.C.A. App. ss. 2407, and regulations promulgated thereunder). SECTION 3.17. Environmental and Other Permits and Licenses; Related Matters. (a) (i) The Seller and each Subsidiary is in substantial compliance with all applicable Environmental Laws and as such Environmental Laws are currently applied or interpreted by the applicable Governmental Authority and as they might affect the Real Property, and, in all material respects, all Environmental Permits. (ii) There has been no Release of any Hazardous Material on any of the Real Property or, during the period of the Seller's or any Subsidiary's ownership, lease, use or occupancy thereof, on any property formerly owned, leased, used or occupied by the Seller or any Subsidiary, except as have occurred in the ordinary course of business and in conformity with all applicable Environmental Laws. (iii) There are no Environmental Claims pending or threatened against the Seller, any Subsidiary or the Real Property, and there are no circumstances that can reasonably be expected to form the basis of any such Environmental Claim. (iv) Neither the Seller nor any Subsidiary has any actual or alleged liability, whether fixed or contingent, under any Environmental Law. Neither the Execution of this Agreement or the Ancillary Agreements nor the consummation of the transactions contemplated by this Agreement or thereby will require any Remedial Action or notice to or consent of Governmental Authorities or third parties pursuant to any applicable Environmental Law or Environmental Permit. SECTION 3.18. Material Contracts. (a) Section 3.18(a) of the Disclosure Schedule lists each of the following contracts and agreements (including oral agreements) of the Seller and the Subsidiaries (such contracts and agreements, together with all contracts, agreements, leases and subleases concerning the use, occupancy, management or operation of any Real Property (including all contracts, agreements, 22 leases and subleases listed or otherwise set forth in Section 3.20(d) of the Disclosure Schedule, all Seller IP Agreements listed or otherwise set forth in Section 3.19(a) of the Disclosure Schedule, and all contracts, agreements, leases and subleases relating to Tangible Personal Property listed or otherwise set forth in Section 3.21(b) of the Disclosure Schedule), being "Material Contracts"): (i) each contract, agreement, invoice, purchase order and other arrangement, for the purchase of Inventory, spare parts, other materials or personal property, with any supplier or for the furnishing of services to the Seller, any Subsidiary or otherwise related to the Business under the terms of which the Seller or any Subsidiary: (A) is likely to pay or otherwise give consideration of more than $100,000 in the aggregate during the fiscal year ended February 1, 2003, (B) is likely to pay or otherwise give consideration of more than $100,000 in the aggregate over the remaining term of such contract or (C) cannot be cancelled by the Seller or such Subsidiary without penalty or further payment and without more than 30 days' notice; (ii) each contract, agreement, invoice, sales order and other arrangement, for the sale of Inventory or other personal property, or for the furnishing of services by the Seller or any Subsidiary which: (A) is likely to involve consideration of more than $100,000 in the aggregate during the fiscal year ended February 1, 2003, (B) is likely to involve consideration of more than $100,000 in the aggregate over the remaining term of the contract or (C) cannot be cancelled by the Seller or such Subsidiary without penalty or further payment and without more than 30 days' notice; (iii) all broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing, consulting and advertising contracts and agreements to which the Seller or any Subsidiary is a party; (iv) all management contracts and contracts with independent contractors or consultants (or similar arrangements) to which the Seller or any Subsidiary is a party and which are not cancellable without penalty or further payment and without more than 30 days' notice; (v) all contracts and agreements relating to Indebtedness of the Seller or any Subsidiary of greater than $100,000 in the aggregate; (vi) all contracts and agreements with any Governmental Authority to which the Seller or any Subsidiary is a party; (vii) all contracts and agreements that limit or purport to limit the ability of the Seller or any Subsidiary to compete in any line of business or with any Person or in any geographic area or during any period of time; (viii) all contracts and agreements between or among the Seller or any Subsidiary, on one hand, and any Affiliate of the Seller (other than the Seller or any Subsidiary), on the other hand; (ix) all contracts and agreements providing for benefits under any Plan; and 23 (x) all other contracts and agreements, whether or not made in the ordinary course of business, which are material to the Seller, any Subsidiary or the conduct of the Business, or the absence of which would have a Material Adverse Effect. For purposes of this Section 3.18 and Sections 3.20, 3.21 and 3.22, the term "lease" shall include, without limitation, any and all leases, subleases, sale/leaseback agreements or similar arrangements. (b) Each Material Contract: (i) is valid and binding on the parties thereto and is in full force and effect and (ii) upon consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, except to the extent that any consents set forth in Section 3.07 of the Disclosure Schedule are not obtained, shall continue in full force and effect without penalty or other adverse consequence. None of the Seller nor any Subsidiary is in material breach of, or default under, any Material Contract. (c) No other party to any Material Contract is in breach thereof or default thereunder and none of the Seller or any Subsidiary has received any notice of termination, cancellation, breach or default under any Material Contract. (d) The Seller has made available to the Purchaser true and complete copies of all Material Contracts. (e) There is no contract, agreement or other arrangement granting any Person any preferential right to purchase, other than in the ordinary course of business consistent with past practice, any of the Assets or any of the Shares. SECTION 3.19. Intellectual Property. (a) Section 3.19(a) of the Disclosure Schedule sets forth a true and complete list of (i) all patents and patent applications, registered trademarks and trademark applications, registered copyrights and copyright applications, and domain names included in the Owned Intellectual Property, (ii) all Seller IP Agreements, and (iii) other Owned Intellectual Property material to the Business. (b) The Seller or a Subsidiary is the exclusive owner of the entire right, title and interest in and to the Owned Intellectual Property, and has a valid license to use the Licensed Intellectual Property in connection with the Business. The Seller or a Subsidiary is entitled to use all Owned Intellectual Property and Licensed Intellectual Property in the continued operation of the Business without limitation, subject only to the terms of the Seller IP Agreements. The Owned Intellectual Property and the Licensed Intellectual Property have not been adjudged invalid or unenforceable in whole or in part, and are valid and enforceable. (c) The conduct of the Business as currently conducted does not infringe or misappropriate the Intellectual Property of any third party, and no Action alleging any of the foregoing are pending, and no Claim has been threatened or asserted against the Seller or any Subsidiary alleging any of the foregoing. To the Seller's knowledge, no person is engaging in any activity that infringes the Owned Intellectual Property. (d) No Owned Intellectual Property is subject to any Governmental Order restricting the use of such Intellectual Property or that would impair the validity or enforceability 24 of such Intellectual Property in a manner that would reasonably be expected to have a Material Adverse Effect. SECTION 3.20. Real Property. (a) Section 3.20(a) of the Disclosure Schedule lists: (i) the street address of each parcel of Owned Real Property and (ii) the date on which each parcel of Owned Real Property was acquired. (b) Section 3.20(b) of the Disclosure Schedule lists: (i) the street address of each parcel of Leased Real Property, (ii) the identity of the lessor, lessee and current occupant (if different from lessee) of each such parcel of Leased Real Property, (iii) the terms (referencing applicable renewal periods) and rental payment amounts (including all escalations) pertaining to each such parcel of Leased Real Property, and (iv) the current use of each such parcel of Leased Real Property. (c) Except as described in Section 3.20(c) or 3.16(a) of the Disclosure Schedule, there is no material violation of any Law (including, without limitation, any building, planning or zoning law) relating to any of the Real Property. The Seller has made available to the Purchaser true, legible and complete copies of each deed for each parcel of Owned Real Property and, to the extent available, for each parcel of Leased Real Property and all the title insurance policies, title reports, surveys, certificates of occupancy, environmental reports and audits, appraisals, permits, other Encumbrances, title documents and other documents relating to or otherwise affecting the Real Property, the operations of the Seller or any Subsidiary thereon or any other uses thereof. Either the Seller or a Subsidiary, as the case may be, is in peaceful and undisturbed possession of each parcel of Real Property, and there are no contractual or legal restrictions that preclude or restrict the ability to use the Real Property for the purposes for which it is currently being used. All existing water, sewer, steam, gas, electricity, telephone, cable, fiber optic cable, Internet access and other utilities required for the construction, use, occupancy, operation and maintenance of the Real Property are adequate for the conduct of the Business as it has been and currently is conducted. There are no material latent defects or material adverse physical conditions affecting the Real Property or any of the facilities, buildings, structures, erections, improvements, fixtures, fixed assets and personalty of a permanent nature annexed, affixed or attached to, located on or forming part of the Real Property. Neither the Seller nor any Subsidiary has leased or subleased any parcel or any portion of any parcel of Real Property to any other Person and no other Person has any rights to the use, occupancy or enjoyment thereof pursuant to any lease, sublease, license, occupancy or other agreement, nor has the Seller or any Subsidiary assigned its interest under any lease or sublease listed in Section 3.20(b) of the Disclosure Schedule to any third party. (d) Section 3.20(d) of the Disclosure Schedule sets forth a true and complete list of all leases and subleases relating to the Real Property and any and all ancillary documents (the "Ancillary Lease Documents") pertaining thereto (including, but not limited to, all amendments, modifications, supplements, exhibits, schedules, addenda and restatements thereto and thereof and all consents, including, without limitation, consents for alterations, assignments and sublets, documents recording variations, memoranda of lease, options, rights of expansion, extension, first refusal and first offer and evidence of commencement dates and expiration dates). With respect to each of such leases and subleases, none of the Seller nor any Subsidiary has exercised or given any notice of exercise, nor has any lessor or landlord exercised or 25 received any notice of exercise by a lessor or landlord of, any option, right of first offer or right of first refusal contained in any such lease or sublease, including, without limitation, any such option or right pertaining to purchase, expansion, renewal, extension or relocation (collectively, "Options"). (e) There are no condemnation proceedings or eminent domain proceedings of any kind pending or, to the knowledge of the Seller, threatened against the Real Property. (f) Except as set forth in Section 3.20(f) of the Disclosure Schedule, to the knowledge of the Seller, all the Real Property is occupied under a valid and current certificate of occupancy or similar permit, the transactions contemplated by this Agreement and the Ancillary Agreements will not require the issuance of any new or amended certificate of occupancy and there are no facts that would prevent the Real Property from being occupied by the Seller or any Subsidiary, as the case may be, after the Closing substantially in the same manner as occupied by the Seller or such Subsidiary immediately prior to the Closing. (g) The rental set forth in each lease or sublease of the Leased Real Property is the actual rental being paid, and there are no separate agreements or understandings with respect to the same. (h) Each of the Seller or a Subsidiary, as the case may be, has the full right to exercise any Options contained in the leases and subleases pertaining to the Leased Real Property on the terms and conditions contained therein and upon due exercise would be entitled to enjoy the full benefit of such Options with respect thereto. (i) All waivers or amendments with respect to the Leased Real Property that are, or will be, required as a result of the transactions herein contemplated have been obtained or will be obtained by Closing. SECTION 3.21. Tangible Personal Property. (a) Section 3.21(a) of the Disclosure Schedule lists each item or distinct group of machinery, equipment, tools, supplies, furniture, fixtures, personalty, vehicles, rolling stock and other tangible personal property (the "Tangible Personal Property") used in the Business or owned or leased by the Seller or any Subsidiary. (b) Section 3.21(b) of the Disclosure Schedule sets forth a true and complete list of all leases and subleases for Tangible Personal Property and any and all material ancillary documents pertaining thereto (including, but not limited to, all amendments, consents and evidence of commencement dates and expiration dates). SECTION 3.22. Assets. (a) Each of the Seller or a Subsidiary, as the case may be, owns, leases or has the legal right to use all the properties and assets, including, without limitation, the Owned Intellectual Property, the Licensed Intellectual Property, Seller IP Agreements, the Real Property and the Tangible Personal Property, used or intended to be used in the conduct of the Business or otherwise owned, leased or used by the Seller or any Subsidiary, and, with respect to contract rights, is a party to and enjoys the right to the benefits of all contracts, agreements and other arrangements used or intended to be used by the Seller or any 26 Subsidiary or in or relating to the conduct of the Business, all of which properties, assets and rights constitute Assets. (b) The Assets constitute all the properties, assets and rights forming a part of, used, held or intended to be used in, and all such properties, assets and rights as are necessary in the conduct of, the Business. At all times since the Interim Financial Statements Date, the Seller has caused the Assets to be maintained in accordance with good business practice, and all the Assets are in good operating condition and repair and are suitable for the purposes for which they are used and intended. SECTION 3.23. Suppliers. Listed in Section 3.23 of the Disclosure Schedule are the names and addresses of all the suppliers from which the Seller and the Subsidiaries ordered supplies, merchandise and other goods for the Business having an aggregate purchase price of $100,000 or more during the twelve-month period ended the Interim Financial Statements Date and the amount for which each such supplier invoiced the Seller and the Subsidiaries during such period. Except as set forth in Section 3.23 of the Disclosure Schedule, neither of the Seller nor any Subsidiary has received any notice or has any reason to believe that any such supplier will not sell supplies, merchandise and other goods to the Seller or any Subsidiary at any time after the Closing Date on terms and conditions substantially similar to those used in its current sales to the Business, subject only to general and customary price increases. SECTION 3.24. Employee Benefit Matters. (a) Plans and Material Documents. Section 3.24(a) of the Disclosure Schedule lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, whether legally enforceable or not, to which the Seller or any Subsidiary is a party, with respect to which the Seller or any Subsidiary has any obligation or which are maintained, contributed to or sponsored by the Seller or any Subsidiary for the benefit of any current or former employee, officer or director of the Seller or any Subsidiary, (ii) each employee benefit plan for which the Seller or any Subsidiary could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated, (iii) any plan in respect of which the Seller or any Subsidiary could incur liability under Section 4212(c) of ERISA, and (iv) any contracts, arrangements or understandings between the Seller or any of its Affiliates and any employee of the Seller or of any Subsidiary, including, without limitation, any contracts, arrangements or understandings relating to the sale of the Seller (collectively, the "Plans"). Each Plan is in writing and the Seller has furnished to the Purchaser a complete and accurate copy of each Plan and a complete and accurate copy of each material document prepared in connection with each such Plan, including, without limitation, a copy of (i) each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the most recently filed IRS Form 5500, if applicable, (iv) if such Plan is intended to be qualified under Section 401(a) of the Code, the most recently received IRS determination letter for each such Plan, and (v) the most recently prepared actuarial report and financial statement in connection with such Plan if applicable. There are no other employee benefit plans, programs, arrangements or agreements, whether formal or informal, whether in writing or not, to which the Seller or any Subsidiary is a party, with respect to which the Seller or any Subsidiary has any 27 obligation or which are maintained, contributed to or sponsored by the Seller or any Subsidiary for the benefit of any current or former employee, officer or director of the Seller or any Subsidiary. Neither the Seller nor any Subsidiary has any express or implied commitment, whether legally enforceable or not, to (i) create, incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual, or (iii) to modify, change or terminate any Plan, other than with respect to a modification, change or termination required by ERISA or the Code. (b) Absence of Certain Types of Plans. None of the Plans is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Seller or any Subsidiary could incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). None of the Plans provides for the payment of separation, severance, termination or similar-type benefits to any Person or obligates the Seller or any Subsidiary to pay separation, severance, termination or similar-type benefits solely as a result of any transaction contemplated by this Agreement or as a result of a "change in control", within the meaning of such term under Section 280G of the Code. None of the Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Seller or any Subsidiary. Each of the Plans is subject only to the laws of the United States or a political subdivision thereof. (c) Compliance with Applicable Law. Each Plan is now and always has been operated in all respects in accordance with the requirements of all applicable Law, including, without limitation, ERISA and the Code, and all persons who participate in the operation of such Plans and all Plan "fiduciaries" (within the meaning of Section 3(21) of ERISA) have always acted in accordance with the provisions of all applicable Law, including, without limitation, ERISA and the Code. The Seller (and each Subsidiary) has performed all obligations required to be performed by it under, is not in any respect in default under or in violation of, and has no knowledge of any default or violation by any party to, any Plan. No legal action, suit or claim is pending or, to the knowledge of the Seller, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could give rise to any such action, suit or claim. (d) Qualification of Certain Plans. Each Plan which is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code has received a favorable determination letter from the IRS that it is so qualified, and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt, and, to the best of the Seller's knowledge, no fact or event has occurred since the date of such determination letter from the IRS to adversely affect the qualified status of any such Plan or the exempt status of any such trust. Each trust maintained or contributed to by the Seller or any Subsidiary which is intended to be qualified as a voluntary employees' beneficiary association and which is intended to be exempt from federal income taxation under Section 501(c)(9) of the Code has received a favorable determination letter from the IRS that it is so qualified and so exempt, and, to the best of the Seller's knowledge, no fact or event has occurred since the date of such determination by the IRS to adversely affect such qualified or exempt status. 28 (e) Absence of Certain Liabilities and Events. There has been no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Neither the Seller nor any Subsidiary has incurred any liability for any penalty or tax arising under Section 4971, 4972, 4980, 4980B or 6652 of the Code or any liability under Section 502 of ERISA, and no fact or event exists which could give rise to any such liability. Neither the Seller nor any Subsidiary has incurred any liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course), including, without limitation, any liability in connection with (i) the termination or reorganization of any employee benefit plan subject to Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer Plan, and no fact or event exists which could give rise to any such liability. No complete or partial termination has occurred within the five years preceding the date hereof with respect to any Plan. No reportable event (within the meaning of Section 4043 of ERISA) has occurred or is expected to occur with respect to any Plan subject to Title IV of ERISA. No Plan had an accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of the most recently ended plan year of such Plan. None of the assets of the Seller or any Subsidiary is the subject of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code; neither the Seller nor any Subsidiary has been required to post any security under Section 307 of ERISA or Section 401(a)(29) of the Code; and no fact or event exists which could give rise to any such lien or requirement to post any such security. (f) Plan Contributions and Funding. All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Governmental Authority, and no fact or event exists which could give rise to any such challenge or disallowance. As of the Closing Date, no Plan which is subject to Title IV of ERISA will have an "unfunded benefit liability" (within the meaning of Section 4001(a)(18) of ERISA). (g) WARN Act. The Seller and the Subsidiaries are in compliance with the requirements of the Workers Adjustment and Retraining Notification Act ("WARN") and have no liabilities pursuant to WARN. SECTION 3.25. Labor Matters. (a) Neither the Seller nor any Subsidiary is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Seller or any Subsidiary, and currently there are no organizational campaigns, petitions or other unionization activities seeking recognition of a collective bargaining unit which could affect the Seller or any Subsidiary; (b) there are no controversies, strikes, slowdowns or work stoppages pending or, to knowledge of the Seller, threatened between the Seller or any Subsidiary and any of their respective employees, and neither the Seller nor any Subsidiary has experienced any such controversy, strike, slowdown or work stoppage within the past three years; (c) neither the Seller nor any Subsidiary has breached or otherwise failed to comply with the provisions of any collective bargaining or union contract, and there are no grievances outstanding against the Seller or any Subsidiary under any such agreement or contract which could have a Material Adverse Effect; (d) there are no unfair labor practice complaints pending against the Seller or any Subsidiary before the National Labor Relations Board or any other Governmental Authority or any current union representation questions involving employees of 29 the Seller or any Subsidiary which could have a Material Adverse Effect; (e) the Seller and each Subsidiary are currently in compliance in all material respects with all applicable Laws relating to the employment of labor, including, without limitation, those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Authority and has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Seller or any Subsidiary and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing; (f) the Seller and each Subsidiary has paid in full to all their respective employees or adequately accrued for in accordance with U.S. GAAP all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees; (g) there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Authority with respect to any Persons currently or formerly employed by the Seller or any Subsidiary; (h) neither the Seller nor any Subsidiary is a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices; (i) there is no charge or proceeding with respect to a violation of any occupational safety or health standard that has been asserted or is now pending or threatened with respect to the Seller or any Subsidiary; and (j) there is no charge of discrimination in employment or employment practices, for any reason, including, without limitation, age, gender, race, religion or other legally protected category, which has been asserted or is now pending or, to the Seller's knowledge, threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Authority in any jurisdiction in which the Seller or any Subsidiary has employed or currently employs any Person. SECTION 3.26. Key Employees. Section 3.26 of the Disclosure Schedule lists the name, place of employment, the current annual salary rates, bonuses, deferred or contingent compensation, pension, accrued vacation, "golden parachute" and other like benefits paid or payable (in cash or otherwise) in fiscal 2001 and 2002, the date of employment and a description of the position and job function of each current salaried employee, officer, director, consultant or agent of the Seller or any Subsidiary whose annual compensation exceeded (or, in the fiscal year ended 2002, is expected to exceed) $100,000. SECTION 3.27. Certain Interests. (a) Except as set forth in Section 3.27 of the Disclosure Schedule, no officer or director of the Seller or any Subsidiary and, to the Seller's knowledge, no stockholder of the Seller required to file a Schedule 13D or 13G with the SEC under the Exchange Act, and no relative or spouse (or relative of such spouse) who resides with, or is a dependent of, any such officer, director or stockholder: (i) has any direct or indirect financial interest in any competitor, supplier or customer of the Seller or any Subsidiary or the Business; (ii) owns, directly or indirectly, in whole or in part, or has any other interest in any tangible or intangible property which the Seller or any Subsidiary uses or has used in the conduct of the Business or otherwise; or (iii) has outstanding any Indebtedness to the Seller or any Subsidiary. 30 (b) Neither the Seller nor any Subsidiary has any Liability or any other obligation of any nature whatsoever to any officer, director or stockholder of the Seller or any Subsidiary or to any relative or spouse (or relative of such spouse) who resides with, or is a dependent of, any such officer, director or stockholder. SECTION 3.28. Taxes. Except as set forth in Section 3.28 of the Disclosure Schedule, (a) (i) All returns and reports in respect of Taxes required to be filed with respect to the Seller and each Subsidiary (each a "Return") (including, without limitation, the consolidated federal income tax return of the Seller and any state, local or other Return that includes the Seller or any Subsidiary on a consolidated, combined or unitary basis) have been timely filed; (ii) all Taxes required to be shown on such returns and reports or otherwise due have been timely paid; (iii) all such returns and reports (insofar as they relate to the activities or income of the Seller or any Subsidiary) are true, correct and complete in all material respects; (iv) there are no tax liens on any assets of the Seller or any Subsidiary; (v) neither Seller nor any Affiliate is a party to any agreement or arrangement that would result, separately or in the aggregate, in the actual or deemed payment by the Seller or a Subsidiary of any "excess parachute payments" within the meaning of section 280G of the Code (without regard to Section 280G(b)(4) of the Code); (vi) from the date hereof and after the Closing Date, the Seller or any Subsidiary, except any Subsidiary not incorporated in the United States, has been and continues to be a member of the affiliated group (within the meaning of Section 1504(a)(1) of the Code) for which the Seller files a consolidated return as the common parent, and has not been includible in any other consolidated return for any taxable period for which the statute of limitations has not expired; and (vii) none of the Seller or Subsidiaries is doing business in or engaged in a trade or business in any jurisdiction in which it has not filed all required income or franchise tax return. (b) (i) Section 3.28 of the Disclosure Schedule contains a description of all adjustments relating to returns of the Seller and any Subsidiary that have been proposed formally or informally by any Tax authority (insofar as either relates to the activities or income of the Seller or any Subsidiary or could result in liability of the Seller or any Subsidiary on the basis of joint and/or several liability), along with a summary of the status of such audit or examination. No other adjustment has been proposed and, to the knowledge of the Seller, no basis exists for any such adjustment; and (ii) there are no pending or, to the knowledge of the Seller, threatened actions or proceedings for the assessment or collection of Taxes against the Seller or any Subsidiary. (c) (i) There are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which the Seller or any Subsidiary may be subject; (ii) there are no requests for information from a Tax Authority currently outstanding that could affect the Taxes of the Seller or any Subsidiary; (iii) there are no proposed reassessments of any property owned by the Seller or any Subsidiary or other proposals that could increase the amount of any Tax to which the Seller or any Subsidiary would be subject; (iv) no power of attorney that is currently in force has been granted with respect to any matter relating to Taxes that could affect the Seller or any Subsidiary; and (v) none of the Seller or Subsidiaries (A) has or is projected to have an amount includible in its income for the current taxable year under Section 951 of the Code, (B) has been a passive foreign investment company within the meaning of Section 1296 of the Code, (C) has an unrecaptured overall foreign loss within the meaning of 31 Section 904(f) of the Code or (D) has participated in or cooperated with an international boycott within the meaning of section 999 of the Code. (d) On the Interim Financial Statements, reserves and allowances have been provided, and on the Closing Statement of Net Assets, reserves and allowances will be provided, in each case adequate to satisfy all Liabilities for Taxes relating to the Seller, the Subsidiaries and the Business for periods through the Closing Date. SECTION 3.29. Insurance. All material assets, properties and risks of the Seller and each Subsidiary are, and for the past five years have been, covered by valid and, except for insurance policies that have expired under their terms in the ordinary course, currently effective insurance policies or binders of insurance (including, without limitation, general liability insurance, property insurance and workers' compensation insurance) issued in favor of the Seller or a Subsidiary, as the case may be, in each case with responsible insurance companies, in such types and amounts and covering such risks as are consistent with customary practices and standards of companies engaged in businesses and operations similar to those of the Seller or such Subsidiary, as the case may be. The Seller carries and has maintained in full force and effect errors and omissions insurance coving its officers and directors in amounts deemed adequate by its Board of Directors. Section 3.29 of the Disclosure Schedule sets forth all insurance policies of the Seller and the Subsidiaries in effect as of the date hereof, providing the following details with respect to each such policy: name of insured, name of carrier, cost of policy, risks covered by policy, amount of coverage under policy, amount of deductible under policy and expiry date of policy. SECTION 3.30. Full Disclosure. The Seller has no actual knowledge of any facts pertaining to the Seller, any Subsidiary or the Business which would reasonably be expected to have a Material Adverse Effect which have not been disclosed in this Agreement, the Disclosure Schedule, the Financial Statements or the Interim Financial Statements or otherwise disclosed to the Purchaser by the Seller in writing. SECTION 3.31. Brokers. Except as set forth in Section 3.31 of the Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement or the Ancillary Agreements based upon arrangements made by or on behalf of the Seller. SECTION 3.32. S-3 Eligibility. The Seller reasonably believes it is eligible to register secondary offerings of its securities on Form S-3 under the Securities Act. SECTION 3.33. SEC Documents. The Seller has timely filed with the SEC all reports, schedules, forms, proxy statements, registration statements and other documents required to be filed by the Seller under the Securities Act and the Exchange Act, as the case may be, (collectively, all such reports, schedules, forms, proxy statements, registration statements and documents, the "SEC Documents"). As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents. As of their respective filing dates, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact 32 required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent such statements have been modified or superseded by a later SEC Document filed and publicly available prior to the Closing, the circumstances or bases for which modifications or supersessions have not and will not individually or in the aggregate result in any material liability or obligation of the Seller under the Securities Act or the Exchange Act. SECTION 3.34. Compliance with Cuba Act. The Seller has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder, or is exempt therefrom. SECTION 3.35. Investment Company Act. The Seller is not, and upon the issuance and sale of the Shares and Warrants as herein contemplated and the application of the net proceeds therefrom will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). SECTION 3.36. Registration Rights. There are no persons with registration rights or other similar rights to have any securities registered by the Seller under the Securities Act. SECTION 3.37. Officer's Certificates. Any certificate signed by any officer of the Seller or any of its subsidiaries delivered to the Purchaser or to counsel for the Purchaser shall be deemed a representation and warranty by the Seller to the Purchaser as to the matters covered thereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER As an inducement to the Seller to enter into this Agreement, the Purchaser hereby represents and warrants to the Seller as follows: SECTION 4.01. Organization of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. SECTION 4.02. Authority and Qualification of the Purchaser. The Purchaser has all necessary power and authority to enter into this Agreement and the Ancillary Agreements, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated by this Agreement and thereby. The execution and delivery of this Agreement and the Ancillary Agreements by the Purchaser, the performance by the Purchaser of its obligations hereunder and thereunder and the consummation by the Purchaser of the transactions contemplated by this Agreement and thereby have been duly authorized by all requisite action on the part of the Purchaser and no other action need be taken. 33 SECTION 4.03. Enforceability. This Agreement has been, and upon their execution the Ancillary Agreements shall have been, duly executed and delivered by the Purchaser, and (assuming due authorization, execution and delivery by the Seller) this Agreement constitutes, and upon their execution the Ancillary Agreements shall constitute, legal, valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, except to the extent that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. SECTION 4.04. No Conflict. The execution, delivery and performance of this Agreement and the Ancillary Agreements by the Purchaser do not and will not (a) violate, conflict with or result in the breach of any provision of the articles of incorporation or by-laws (or similar organizational documents) of the Purchaser, or (b) conflict with or violate any Law or Governmental Order applicable to the Purchaser or its assets, properties or businesses, or (c) in any material respect, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any property or asset of the Purchaser pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Purchaser is a party or by which any of such assets or properties is bound or affected. SECTION 4.05. Litigation. There are no material Actions by or against the Purchaser (or by or against the Purchaser or any Affiliate thereof and relating to its business) or affecting any of the Purchaser's assets pending before any Governmental Authority (or, to the knowledge of the Purchaser, threatened to be brought by or before any Governmental Authority) that would reasonably be expected to have a materially adverse affect on the Purchaser, the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated by this Agreement or thereby. The Purchaser is not subject to any Governmental Order (nor, to the knowledge of the Purchaser, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) on the Purchaser which has or has had or could have a materially adverse affect on the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated by this Agreement or thereby. SECTION 4.06. Brokers. Except for Bear, Stearns & Co. Inc., no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement or the Ancillary Agreements based upon arrangements made by or on behalf of the Purchaser. SECTION 4.07. Investment Intent. The Purchaser is not acquiring the Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. SECTION 4.08. Disclosure. Information, including financial information, with respect to the Purchaser provided by the Purchaser in writing to the Seller is accurate in all 34 material respects and does not omit to state a material fact necessary to make such written information, in light of the circumstances in which it was provided to the Seller, not misleading. SECTION 4.09. Financing. The Purchaser has received commitments from third parties to invest sufficient funds in the Purchaser to allow the Purchaser to meet its obligations hereunder. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.01. Conduct of Business Prior to the Closing. (a) The Seller covenants and agrees that, except as described in Section 5.01(a) of the Disclosure Schedule and pursuant to Section 6.01(g), between the date hereof and the time of the Closing, neither the Seller nor any Subsidiary shall conduct its business other than in the ordinary course and consistent with the Seller's and such Subsidiary's prior practice. Without limiting the generality of the foregoing, except as described in Section 5.01(a) of the Disclosure Schedule and pursuant to Section 6.01(g), between the date hereof and the Closing Date, the Seller shall cause each Subsidiary to (i) continue their advertising and promotional activities, and pricing and purchasing policies, in accordance with past practice; (ii) not shorten or lengthen the customary payment cycles for any of their payables or receivables; (iii) use their best efforts to (A) preserve intact their business organizations and the business organization of the Business, (B) keep available to the Purchaser the services of the employees of the Seller and each Subsidiary, (C) continue in full force and effect without material modification all existing policies or binders of insurance currently maintained in respect of the Seller, each Subsidiary and the Business and (D) preserve their current relationships with their customers, suppliers and other persons with which they have had significant business relationships; and (iv) exercise, but only after notice to the Purchaser and receipt of the Purchaser's prior written approval, any rights of renewal pursuant to the terms of any of the leases or subleases set forth in Section 3.20(b) of the Disclosure Schedule which by their terms would otherwise expire. (b) Except as described in Section 6.01(b) of the Disclosure Schedule, the Seller covenants and agrees that, between the date hereof and the time of the Closing, without the prior written consent of the Purchaser, neither the Seller nor any Subsidiary will do any of the things enumerated in the second sentence of Section 3.14 (including, without limitation, clauses (a) through (u) thereof). (c) For the period from the date hereof through the Closing Date, the Seller covenants and agrees to and to cause each Subsidiary to maintain the level, mix and quality of the Inventories consistent with past practice. (d) Notwithstanding anything to the contrary in this Section 5.01, the Purchaser acknowledges that the Seller and the Business shall at all times be controlled by the Board of Directors of the Seller. SECTION 5.02. Access to Information. From the date hereof until the Closing, upon reasonable notice, the Seller shall cause its officers, directors, employees, agents, 35 representatives, accountants and counsel and shall cause the Subsidiaries and each of the Subsidiaries' officers, directors, employees, agents, representatives, accountants and counsel to: (i) afford the officers, employees, agents, accountants, counsel, financing sources and representatives of the Purchaser reasonable access, during normal business hours, to the offices, properties, plants, other facilities, books and records of the Seller and each Subsidiary and to those officers, directors, employees, agents, accountants and counsel of the Seller and of each Subsidiary who have any knowledge relating to the Seller, any Subsidiary or the Business and (ii) furnish to the officers, employees, agents, accountants, counsel, financing sources and representatives of the Purchaser such additional financial and operating data and other information regarding the assets, properties, liabilities and goodwill of the Seller, the Subsidiaries and the Business (or legible copies thereof) as the Purchaser may from time to time reasonably request. SECTION 5.03. Regulatory and Other Authorizations; Notices and Consents. (a) The Seller shall use its reasonable efforts to obtain (or cause the Subsidiaries to obtain) all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the Ancillary Agreements and will cooperate fully with the Purchaser in promptly seeking to obtain all such authorizations, consents, orders and approvals. (b) The Seller shall or shall cause the Subsidiaries to give promptly such notices to third parties and use its or their reasonable efforts to obtain such third party consents and estoppel certificates as the Purchaser may in its sole discretion deem necessary or desirable in connection with the transactions contemplated by this Agreement. (c) The Purchaser shall cooperate and use all reasonable efforts to assist the Seller in giving such notices and obtaining such consents and estoppel certificates; provided, however, that the Purchaser shall have no obligation to give any guarantee or other consideration of any nature in connection with any such notice, consent or estoppel certificate or to consent to any change in the terms of any agreement or arrangement which the Purchaser in its sole discretion may deem adverse to the interests of the Purchaser, the Seller, any Subsidiary or the Business. SECTION 5.04. Notice of Developments. (a) Prior to the Closing, the Seller shall promptly notify the Purchaser in writing of (i) all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement which could result in any breach of a representation or warranty or covenant of the Seller in this Agreement or which could have the effect of making any representation or warranty of the Seller in this Agreement untrue or incorrect in any respect, (ii) any purchase from or purchase order to any Vendor, except Rolex, in excess of $50,000 and (iii) all other material developments affecting the assets, Liabilities, business, financial condition, operations, results of operations, customer or supplier relations, employee relations, projections or prospects of the Seller, any Subsidiary or the Business. (b) Prior to the Closing, the Purchaser shall promptly notify the Seller in writing of (i) all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement which could result in any breach of a representation or warranty or covenant of 36 the Purchaser in this Agreement or which could have the effect of making any representation or warranty of the Purchaser in this Agreement untrue or incorrect in any respect. SECTION 5.05. No Solicitation or Negotiation. The Seller immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted prior to the date of this Agreement concerning any investment in the Seller. From and after the date hereof, the Seller shall not, nor shall it permit any of its Subsidiaries to, nor shall they authorize or instruct any of their respective officers, directors or employees to, and shall use their best efforts to cause any advisor retained by them, not to, directly or indirectly through another Person, (i) solicit, initiate or knowingly encourage (including by way of furnishing information, or knowingly take any other action designed to facilitate, any Business Combination, or (ii) participate in any substantive discussions or negotiations regarding any Business Combination; provided, that if, at any time prior to the Closing, the Board of Directors of the Seller (A) receives an unsolicited bona fide proposal from a Proposing Party, (B) determines in its good faith judgment that providing information to the Proposing Party or participating in negotiations or discussions with the Proposing Party could reasonably be expected to result in a Superior Proposal and (C) receives specific legal advice from its outside attorneys that the Board of Director's of the Seller could be in violation of its fiduciary duties to the Seller's stockholders if it refused to consider such proposal, furnish information, engage in discussions and negotiations or enter into a Business Combination, as the case may be, provided that the Seller is not otherwise in breach of its obligations under this Section 5.05, then the Seller may (X) after giving the Purchaser 24 hours prior written notice, furnish information with respect to the Seller pursuant to a confidentiality agreement with such Proposing Party substantially similar to the Confidentiality Agreement between the Seller and Birks, dated April 19, 2002, (Y) after giving the Purchaser 24 hours prior written notice, engage in discussions and negotiations with the Proposing Party (Z) after giving the Purchaser 72 hours prior written notice, which indicates the identity of the Proposing Party and the terms and conditions of the Superior Proposal, enter into an agreement with respect to a Business Combination with the Proposing Party, subject to Section 8.03; provided, further, if the Seller receives a Superior Proposal, the Purchaser shall have the right to submit an alternative offer from the Purchaser, which is at least equal to the Superior Proposal. SECTION 5.06. Listing. The Seller shall use its reasonable efforts to list the Common Stock, which the Shares are convertible into and the Warrants exercisable into, on the American Stock Exchange and will use its reasonable efforts to maintain the listing of its Common Stock on the American Stock Exchange without stockholder approval of the transactions contemplated herein. SECTION 5.07. Use of Intellectual Property. The Seller acknowledges that from and after the Closing, the name "Mayor's Jewelers" and all similar or related names, marks and logos (all of such names, marks and logos being the "Seller Marks") shall be owned by the Seller or a Subsidiary, that no other person shall have any rights in the Seller Marks. SECTION 5.08. Payments on Behalf of Affiliates. Payments made or received by the Purchaser pursuant to Article VII hereof shall, in appropriate circumstances, be made on behalf of, or received in trust for the benefit of, the relevant Affiliate of the Purchaser. The Purchaser may direct in writing any such payment to be made by or to the appropriate Affiliate, 37 and the other party shall comply with any such direction received at least two Business Days prior to the date such payment is due. SECTION 5.09. Further Action. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and consummate and make effective the transactions contemplated by this Agreement. ARTICLE VI CONDITIONS TO CLOSING SECTION 6.01. Conditions to Obligations of the Purchaser. The obligations of the Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions: (a) Representations, Warranties and Covenants. (i) The representations and warranties of the Seller contained in this Agreement that are subject to a materiality qualifier shall have been true and correct when made and shall be true and correct as of the Closing Date with the same force and effect as if made as of the Closing Date and the representations and warranties of the Seller contained in this Agreement that are not subject to a materiality qualifier shall have been true and correct when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date; (ii) the covenants and agreements contained in this Agreement to be complied with by the Seller on or before the Closing Date shall have been complied with in all material respects; and (iii) there shall not have been since the date hereof, any change in the capital stock of the Seller (other than as a result of the exercise of stock options) or any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Seller and the Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business; the Purchaser shall receive a certificate to such effect as specified in clauses (i), (ii) and (iii) of this paragraph 6.01(a) signed by the Chief Operating Officer and one other officer of the Seller dated the Closing Date; (b) No Proceeding or Litigation. No Action shall have been commenced or threatened by or before any Governmental Authority against either the Seller or the Purchaser, seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which, in the sole and absolute discretion of the Purchaser, is likely to render it impractical to consummate such transactions or which could have a Material Adverse Effect or otherwise render inadvisable, in the reasonable discretion of the Purchaser, the consummation of the transactions contemplated by this Agreement; (c) Consents and Approvals. The Purchaser and the Seller shall have received, each in form and substance satisfactory to the Purchaser, all authorizations, consents, orders and approvals of all Governmental Authorities and officials and all third party consents and estoppel certificates, listed in Schedule I hereto; 38 (d) Board Approval. The Investment Documents and the transactions contemplated thereunder shall be approved by the Board of Directors of the Seller, including unanimous approval by the independent members of such Board of Directors of the Seller; true copies of the resolutions of the Board of Directors of the Seller shall be provided to the Purchaser at closing along with an attestation as to authenticity signed by the Secretary of the Seller; (e) Senior Financing. Upon Closing, the terms of the Credit Agreement shall be amended substantially in accordance with the terms, conditions and covenants set forth in Exhibit G hereto; (f) Rolex. The Purchaser in its reasonable discretion shall be satisfied that the business terms under which the Seller has the right to purchase and sell Rolex products are substantially the same on the Closing Date as they were on the date hereof; (g) Lease Termination. The Seller shall have executed agreements to terminate leases in accordance with Schedule II hereto; (h) Ancillary Agreements. The Seller shall have executed and delivered to the Purchaser each of the Ancillary Agreements to which it is a party; and (i) Market Disruptions. On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, the American Stock Exchange, the NASDAQ National Market or the Toronto Stock Exchange; (ii) a general moratorium on commercial banking activities in New York or within Canada or the European Union declared by the relevant authorities or a material disruption in commercial banking services in the United States, Canada or the European Union; (iii) the outbreak or escalation of hostilities involving the United States or Canada or the declaration by the United States or Canada of a national emergency or war involving the United States or Canada, if the effect of any such event specified in this clause (iii) in the reasonable judgment of the Purchaser makes it impracticable or inadvisable to proceed with the transactions contemplated hereby on the terms and in the manner contemplated hereunder. SECTION 6.02. Conditions to Obligations of the Seller. The obligations of the Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions: (a) Representations, Warranties and Covenants. (i) The representations and warranties of the Purchaser contained in this Agreement shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made as of the Closing Date; (ii) the covenants and agreements contained in this Agreement to be complied with by the Purchaser on or before the Closing Date shall have been complied with in all material respects; and (iii) there shall not have been since the date hereof any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs of the Purchaser, whether or not arising in the ordinary course of business; the Seller shall receive a certificate to such effect as specified in 39 clauses (i), (ii) and (iii) of this paragraph 6.02(a) signed by an officer of the Purchaser dated the Closing Date; (b) Board Approval. The transactions contemplated by the Investment Documents shall be approved by the Board of Directors of the Purchaser; true copies of the resolutions of the Board of Directors of the Purchaser shall be provided to the Seller at closing along with an attestation as to authenticity signed by the Secretary of the Purchaser; and (c) Ancillary Agreements. The Purchaser shall have executed and delivered to the Seller each of the Ancillary Agreements to which it is a party. ARTICLE VII INDEMNIFICATION SECTION 7.01. Survival of Representations and Warranties. The representations and warranties of the Seller contained in Sections 3.04, 3.06, 3.08, 3.10 and 3.30 (the "Surviving Representations and Warranties") of this Agreement shall survive the Closing until the first anniversary of the Closing Date. All other representations and warranties of the Seller contained in this Agreement shall not survive the Closing. Neither the period of survival nor the liability of the Seller with respect to the Surviving Representations and Warranties shall be reduced by any investigation made at any time by or on behalf of the Purchaser. If written notice of a claim has been given prior to the expiration of the applicable Surviving Representations and Warranties by the Purchaser to the Seller, then the relevant Surviving Representations and Warranties shall survive as to such claim, until such claim has been finally resolved. The representations and warranties of the Purchaser contained in this Agreement shall not survive the Closing. SECTION 7.02. Indemnification by the Seller. (a) The Purchaser and its Affiliates, officers, directors, employees, agents, successors and assigns (each a "Purchaser Indemnified Party") shall be indemnified and held harmless by the Seller for and against any and all Liabilities, losses, diminution in value, damages, claims, costs and expenses, interest, awards, judgments and penalties (including, without limitation, attorneys' and consultants' fees and expenses) actually suffered or incurred by them (including, without limitation, any Action brought or otherwise initiated by any of them) (hereinafter a "Loss"), arising out of or resulting from: (i) the breach of any Surviving Representation or Warranty made by the Seller contained in the Investment Documents; (ii) the breach of any covenant or agreement by the Seller contained in the Investment Documents; (iii) Claims against the Purchaser arising out of, resulting from, or in connection with, any claim against any member of the Board of Directors of the Seller that alleges that any member of the Board of Directors of the Seller breached his fiduciary duties to the Seller or the Stockholders of the Seller, which may arise out of, or result from or in connection with the transactions contemplated herein. 40 To the extent that the Seller's undertakings set forth in this Section 7.02 may be unenforceable, the Seller shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all Losses incurred by any Purchaser Indemnified Party. No amounts of indemnity shall be payable as a result of claims arising under Section 7.02(a) unless and until Losses for which indemnification has been claimed pursuant to such Section exceed $250,000 in the aggregate. (b) A Purchaser Indemnified Party shall give the Seller notice of any matter which a Purchaser Indemnified Party has determined has given or could give rise to a right of indemnification under this Agreement, within 60 days of such determination, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises. The obligations and Liabilities of the Seller under this Article VII with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article VII ("Third Party Claims") shall be governed by and be contingent upon the following additional terms and conditions: if a Purchaser Indemnified Party shall receive notice of any Third Party Claim, the Purchaser Indemnified Party shall give the Seller notice of such Third Party Claim within 30 days of the receipt by the Purchaser Indemnified Party of such notice; provided, however, that the failure to provide such notice shall not release the Seller from any of its obligations under this Article VII except to the extent that the Seller is materially prejudiced by such failure and shall not relieve the Seller from any other obligation or Liability that it may have to any Purchaser Indemnified Party otherwise than under this Article VII. If the Seller acknowledges in writing its obligation to indemnify the Purchaser Indemnified Party hereunder against any Losses that may result from such Third Party Claim, then the Seller shall be entitled to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it gives notice of its intention to do so to the Purchaser Indemnified Party within five days of the receipt of such notice from the Purchaser Indemnified Party; provided, however, that if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of the Purchaser Indemnified Party in its sole and absolute discretion for the same counsel to represent both the Purchaser Indemnified Party and the Seller, then the Purchaser Indemnified Party shall be entitled to retain its own counsel in each jurisdiction for which the Purchaser Indemnified Party determines counsel is required, at the expense of the Seller. In the event that the Seller exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Purchaser Indemnified Party shall cooperate with the Seller in such defense and make available to the Seller, at the Seller's expense, all witnesses, pertinent records, materials and information in the Purchaser Indemnified Party's possession or under the Purchaser Indemnified Party's control relating thereto as is reasonably required by the Seller. Similarly, in the event the Purchaser Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Seller shall cooperate with the Purchaser Indemnified Party in such defense and make available to the Purchaser Indemnified Party, at the Seller's expense, all such witnesses, records, materials and information in the Seller's possession or under the Seller's control relating thereto as is reasonably required by the Purchaser Indemnified Party. No such Third Party Claim may be settled by the Seller without the prior written consent of the Purchaser Indemnified Party. 41 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.01. Termination. This Agreement may be terminated at any time prior to the Closing: (a) by the Purchaser if, between the date hereof and the Closing: (i) an event or condition occurs that has resulted in a Material Adverse Effect, (ii) the representations and warranties of the Seller contained in this Agreement that are subject to a materiality qualifier shall not have been true and correct when made and the representations and warranties of the Seller contained in this Agreement that are not subject to a materiality qualifier shall not have been true and correct when made in all material respects , (iii) the Seller shall not have complied with the covenants or agreements contained in this Agreement to be complied with by it in all material respects, (iv) the Board of Directors of the Seller has amended, modified or revoked its recommendation, authorization or approval of this Agreement, the Ancillary Agreements and the performance by the Seller of its obligations hereunder and thereunder, (v) the Seller enters into an agreement with respect to a Business Combination with a Person other than the Purchaser or (vi) the Seller or any Subsidiary makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against the Seller or any Subsidiary seeking to adjudicate any of them a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency or reorganization; (b) by the Seller if, between the date hereof and the Closing: (i) there has been a material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Purchaser, whether or not arising in the ordinary course of business, (ii) the representations and warranties of the Purchaser contained in this Agreement shall not have been true and correct when made in all material respects, (iii) the Purchaser shall not have complied with the covenants or agreements contained in this Agreement to be complied with by it in all material respects, (iv) the Purchaser makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against the Purchaser seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency or reorganization or (v) the Board of Director's of the Seller determines in its good faith judgment that it has received a Superior Proposal from a Proposing Party and the Seller will enter into an agreement with respect to a Business Combination with such Proposing Party in accordance with Section 5.05; termination of this Agreement pursuant to clause (v) of this Section 8.01(b) is subject to the Seller giving the Purchaser 72 hours prior written notice of its intent to terminate in accordance with Section 5.05; (c) by either the Seller or the Purchaser if the Closing shall not have occurred by August 31, 2002; provided, however, that the right to terminate this Agreement under this Section 8.01(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date; 42 (d) by either the Purchaser or the Seller in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or (e) by the mutual written consent of the Seller and the Purchaser. SECTION 8.02. Effect of Termination. In the event of termination of this Agreement as provided in Section 8.01, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except (a) as set forth in Section 8.03 and Section 9.01 and (b) that nothing herein shall relieve either party from liability for any breach of this Agreement. SECTION 8.03. Termination Fee. The Seller will pay to the Purchaser within five days after any Termination Fee Event a termination fee in the amount of US$750,000. For the purposes of this Agreement, "Termination Fee Event" shall mean (x) the Purchaser terminates this Agreement pursuant to clauses (i), (ii), (iii), (iv) or (v) of Section 8.01(a), (y) the Seller terminates this Agreement pursuant to clause (v) of Section 8.01(b) or (z) the Seller consummates a Business Combination or enters into an agreement with respect to a Business Combination with any Person other than the Purchaser within six months from the date of this Agreement. SECTION 8.04. Amendment. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Seller and the Purchaser or (b) by a waiver in accordance with Section 8.05. SECTION 8.05. Waiver. Either party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto or (c) waive compliance with any of the agreements of the other party or conditions to such party's obligations contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 8.06. Survival. This Article VIII shall survive for the benefit of the Purchaser for a period of six months from the date hereof. ARTICLE IX GENERAL PROVISIONS SECTION 9.01. Expenses. (a) Upon Closing, the Seller shall promptly pay to the Purchaser all of its out-of-pocket costs and expenses (including, without limitation, all legal, 43 accounting, tax, audit, commercial banking fees, commitment fees and investment banking fees, as well as any travel, lodging or other incidental expenses) incurred by the Purchaser and its Affiliates or on their behalf in connection with or related to this Agreement and the Ancillary Agreements and the transactions contemplated hereunder and thereunder. (b) If this Agreement is terminated for any reason, the Seller shall promptly pay to the Purchaser (i) all out-of-pocket costs and expenses (including, without limitation, all legal, accounting, tax, audit and investment banking fees, as well as any travel, lodging or other incidental expenses) required to be paid by the Purchaser and its Affiliates or on their behalf in connection with or related to this Agreement and the Ancillary Agreements and the transactions contemplated hereunder and thereunder to a maximum of US$200,000 and in addition (ii) all other out-of-pocket costs and expenses incurred by the Purchaser and its Affiliates in efforts to obtain third-party financing in connection with this Agreement and the Ancillary Documents (including but not limited to commercial banking fees, commitment fees, due diligence expenses and legal fees). (c) All costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred by the Seller in connection with this Agreement and the Ancillary Agreements and the transactions contemplated hereunder and thereunder shall be paid by the Seller, whether or not the Closing shall have occurred. SECTION 9.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by an internationally recognized overnight courier service, by telecopy or registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.02): (a) if to the Seller: Mayor's Jewelers, Inc. 14051 N.W. 14th Street Sunrise, Florida 33323 Attention: Mark Weinstein with a copy to: Holland & Knight LLP 701 Brickell Avenue Suite 3000 Miami, Florida 33131 Attention: Harvey Goldman, Esq. (b) if to the Purchaser: Henry Birks & Sons Inc. 44 1240 Square Phillips Montreal, Quebec H3B 3H4 Attention: Sabine Bruckert, Esq. with a copy to: Shearman & Sterling 199 Bay Street Commerce Court West Suite 4405, P.O. Box 247 Toronto, Ontario M5L 1E8 Attention: Brice T. Voran, Esq. SECTION 9.03. Public Announcements. No party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated by this Agreement or otherwise communicate with any news media without the prior written consent of the other party, and the parties shall cooperate as to the timing and contents of any such press release or public announcement. SECTION 9.04. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated by this Agreement are consummated as originally contemplated to the greatest extent possible. SECTION 9.05. Entire Agreement. This Agreement and the Ancillary Agreements constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and undertakings, both written and oral, between the Seller and the Purchaser with respect to the subject matter hereof and thereof. SECTION 9.06. Assignment. This Agreement may not be assigned by operation of law or otherwise without the express written consent of the Seller and the Purchaser (which consent may be granted or withheld in the sole discretion of the Seller or the Purchaser); provided, however, that the Purchaser may assign this Agreement or any of its rights and obligations hereunder to one or more Affiliates of the Purchaser without the consent of the Seller. SECTION 9.07. No Third Party Beneficiaries. Except for the provisions of Article VII relating to indemnified parties, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any 45 union or any employee or former employee of the Seller, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement. SECTION 9.08. Currency. Unless otherwise specified in this Agreement, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars. SECTION 9.09. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in any New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York for the purpose of any Action arising out of or relating to this Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the transactions contemplated by this Agreement may not be enforced in or by any of the above-named courts. SECTION 9.10. Waiver of Jury Trial. Each of the parties hereto hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement. Each of the parties hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce that foregoing waiver and (b) acknowledges that it and the other party hereto have been induced to enter into this Agreement and the transactions contemplated by this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 11.09. SECTION 9.11. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.12. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. 46 IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. MAYOR'S JEWELERS, INC. By: /s/ David Boudreau ----------------------------------------- Name: David Boudreau Title: Senior Vice President, Chief Financial Officer HENRY BIRKS & SONS INC. By: /s/ Thomas A. Andruskevich --------------------------------------------- Name: Thomas A. Andruskevich Title: President and Chief Executive Officer 47 EX-2 4 ex2_080902.txt SCHEDULE 13 D EXHIBIT 2 EXHIBIT 2 DRAFT HENRY BIRKS & SONS, INC. SECURITIES PURCHASE AGREEMENT July_, 2002 TABLE OF CONTENTS Page 1. PURCHASE AND SALE OF PREFERRED SHARES AND NOTES...........................2 1.1 Sale and Issuance of Preferred Shares and Notes..................2 1.2 Closings.........................................................2 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................2 2.1 Organization, Good Standing and Qualification....................3 2.2 Capitalization and Voting Rights.................................3 2.3 Subsidiaries.....................................................4 2.4 Authorization....................................................4 2.5 Valid Issuance of Preferred Shares, Notes and Conversion Shares...........................................................5 2.6 Consents.........................................................5 2.7 Offering.........................................................5 2.8 Securities Laws..................................................6 2.9 Litigation.......................................................6 2.10 Intellectual Property............................................6 2.11 Compliance with Other Instruments................................7 2.12 Agreements, Action...............................................7 2.13 Related-Party Transactions.......................................9 2.14 Financial Statements.............................................9 2.15 Recent Changes..................................................10 2.16 Tax Returns.....................................................12 2.17 Compliance with Laws: Permits...................................13 2.18 Environmental and Safety Laws...................................13 2.19 Disclosure......................................................14 2.20 Registration Rights.............................................14 2.21 Corporate Documents; Minute Books...............................14 2.22 Title to Property and Assets....................................14 2.23 Insurance.......................................................15 2.24 Employee Benefit Plans..........................................15 2.25 Labor Agreements and Actions; Employee Compensation.............16 2.26 Obligations of Management.......................................17 2.27 Voting Agreements...............................................17 2.28 Acknowledgment Regarding Prime Investments SA Purchase of Preferred Shares and Notes......................................17 2.29 No Integrated Offering..........................................17 2.30 No Brokers......................................................18 2.31 Inventory.......................................................18 2.32 MJI and the Investment Agreement................................18 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS..........................18 3.1 Authorization...................................................18 3.2 Purchase Entirely for Own Account...............................18 3.3 No Conflict.....................................................19 3.4 Litigation......................................................19 3.5 Legends.........................................................19 4. COVENANTS................................................................19 4.1 Best Efforts....................................................19 4.2 Use of Proceeds.................................................19 4.3 Reservation of Shares...........................................19 4.4 Legal Compliance................................................19 4.5 Material Transactions...........................................19 4.6 Ratable Treatment of Holders of Preferred Shares and Holders of Notes........................................................20 4.7 Transferability.................................................20 5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING..........................20 5.1 Representations and Warranties..................................20 5.2 Performance.....................................................20 5.3 Compliance Certificate..........................................20 5.4 Qualifications; Consents........................................20 5.5 Proceedings and Documents.......................................21 5.6 Shareholders' Agreement, Security Agreement, Senior Lenders' Priority Agreement, Pari Passu Creditors' Priority Agreement, -ii- Intercreditor Agreement, Diamond Supply Agreement and Diamond Consignment Agreement...........................................21 5.7 Filing of Articles of Amendment.................................21 5.8 Reservation of Conversion Shares................................21 5.9 Secretary's Certificate.........................................21 5.10 Board of Directors..............................................21 5.11 Opinion of Company Counsel......................................21 5.12 Acquisition Transaction.........................................21 5.13 No Material Adverse Change or Development.......................22 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.......................22 6.1 Representations and Warranties..................................22 6.2 Performance.....................................................22 6.3 Qualifications; Consents........................................22 6.4 Shareholders' Agreement, Intercreditor Agreement, Senior Lenders' Priority Agreement, Pari Passu Creditor's Priority Agreement, Security Agreement, Diamond Supply Agreement and Diamond Consignment Agreement...........................................22 6.5 Filing of Articles of Amendment.................................22 7. MISCELLANEOUS............................................................23 7.1 Survival........................................................23 7.2 Successors and Assigns..........................................23 7.3 Governing Law and Jurisdiction..................................23 7.4 Titles and Subtitles............................................23 7.5 Notices.........................................................23 7.6 Finder's Fee....................................................24 7.7 Expenses........................................................24 7.8 Amendments and Waivers..........................................24 7.9 Delays or Omissions.............................................24 7.10 Severability....................................................24 7.11 Entire Agreement................................................25 7.12 Pronouns........................................................25 7.13 Counterparts....................................................25 7.14 Jury Trial......................................................25 -iii- 7.15 Publicity and Confidentiality...................................25 7.16 Further Assurances..............................................26 7.17 Language........................................................26 7.18 Termination.....................................................26 7.19 Joint Participation in Drafting.................................26 SCHEDULE A Schedule of Investors SCHEDULE B Schedule of Exceptions SCHEDULE C Use of Proceeds -iv- SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made on the ____day of July, 2002, by and among HENRY BIRKS & SONS INC., a corporation governed by the laws of Canada (the "Company") and the investors listed on Schedule A, each, an "Investor" and collectively, the "Investors"). WHEREAS: A. The Company desires to sell, and the Investors desire to purchase upon the terms and conditions stated in this Agreement, (i) ______________1 of the Company's Series A Convertible Preferred Shares, without par value (the "Preferred Shares"), which are convertible into the Company's voting common shares, without par value (the "Voting Common Stock") (the rights, preferences, privileges, restrictions and conditions of the Preferred Shares, are set forth in the articles of amendment in the form attached hereto as Exhibit A (the "Articles of Amendment") and (ii) the Company's convertible notes in the aggregate principal amount of US$5,000,000 which are convertible into shares of Voting Common Stock, in the form attached hereto as Exhibit B (the "Notes"). The Notes are secured by, among other things, the collateral described in that certain Deed of Hypothec between the Company and National Bank Trust Inc., as trustee for the Investors (the "Trustee") in the form attached hereto as Exhibit C (the "Security Agreement"). The shares of Voting Common Stock issuable upon conversion of the Notes in accordance with its terms and upon conversion of the Preferred Shares in accordance with the terms of the Articles of Amendment are referred to herein as the "Conversion Shares". C. At the First Closing (as defined below), the parties hereto shall execute and deliver a Shareholders' Agreement, in the form attached hereto as Exhibit D (the "Shareholders' Agreement"), the Company and one of the Investors shall execute and deliver a Diamond Supply Agreement, in the form attached hereto as Exhibit E (the "Diamond Supply Agreement") and a Diamond Consignment Agreement in the form attached hereto as Exhibit F (the "Diamond Consignment Agreement"), the Investors and the Trustee shall execute and deliver an Intercreditor Agreement in the form as attached as Exhibit G (the "Intercreditor Agreement"), the Trustee and two creditors of the Company shall execute and deliver a Priority and Cession of Rank Agreement in the form as attached as Exhibit H (the "Senior Lenders' Priority Agreement") the Trustee and a creditor of the Company shall execute and deliver a Priority and Cession of Rank Agreement in the form attached as Exhibit I (the "Pari Passu Creditor's Priority Agreement") and the parties thereto will execute and deliver the Security Agreement. This Agreement, the Articles of Amendment, the Notes, the Shareholders' Agreement, Diamond Supply Agreement, Diamond Consignment Agreement, Intercreditor Agreement, Senior Lenders' Priority Agreement, and Pari Passu Creditor's Priority Agreement shall be collectively referred to as the "Transaction Documents." NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: - -------- 1 Insert a number of shares which is the quotient of (a) US $10,000,000 divided by (b) the US dollar equivalent of CDN$7.73 using the noon rate of exchange of the Bank of Canada on the Closing Date. 1. PURCHASE AND SALE OF PREFERRED SHARES AND NOTES. 1.1 Sale and Issuance of Preferred Shares and Notes. (a) The Company's board of directors shall duly approve and file the Articles of Amendment with the Director appointed under the Canada Business Corporations Act on or before the First Closing. (b) Subject to the terms and conditions of this Agreement, each Investor agrees, jointly and not solidarily, to purchase at the First Closing for cash, and the Company agrees to sell and issue to each Investor at the First Closing, that number of Preferred Shares set forth opposite such Investor's name in column 2 on Schedule A for the purchase price set forth opposite such Investor's name in column 3 on Schedule A. The purchase price for each Preferred Share shall be [US $] per share2 and shall be paid in US Dollars. Subject to terms and conditions of this Agreement, each Investor agrees, jointly and not solidarily to purchase at the Second Closing (as defined below) for cash, Notes in the aggregate principal U.S. dollar amount set forth opposite such Investor's name in column 4 on Schedule A for the aggregate amount set forth opposite such Investors name in column 5 on Schedule A. The Purchase Price for the Notes shall be paid in U.S. Dollars. 1.2 Closings. (a) The purchase and sale of the Preferred Shares shall take place at the Montreal offices of Stikeman Elliot at 10:00 A.M. (Montreal time), on August 15, 2002, or at such other time and place as the Company and the Investors may mutually agree upon in writing (which time and place are designated as the "First Closing"). The purchase and sale of the Notes shall take place at the Montreal offices of Stikeman Elliot at 10:00 A.M. (Montreal time), on September 30, 2002, or at such other time and place as the Company and the Investors may mutually agree upon in writing (which time and place are designated as the "Second Closing". The First Closing and the Second Closing shall sometimes be collectively referred to herein as the "Closing". (b) At the First Closing, the Company shall deliver to each Investor a certificate representing the number of Preferred Shares such Investor is purchasing hereunder against payment of the purchase price therefor by check or wire transfer, which payment shall be made by each Investor at the First Closing. At the Second Closing, the Company shall deliver to each Investor a duly executed Note in the aggregate principal amount set forth opposite such Investor's name in column 4 on Schedule A against payment of the purchase price therefor by check or wire transfer, which payment shall be made by each Investor at the Second Closing. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company makes the representations and warranties to each Investor that are set forth in this Article 2; provided that such representations and warranties shall be modified by the - -------- 2 Insert an amount which is equal to the US dollar equivalent of CND$7.73 using the Bank of Canada noon rate of exchange on the business day immediately preceding the Closing Date. -2- information set forth on the Schedule of Exceptions (the "Schedule of Exceptions") attached hereto as Schedule B beneath the applicable Section heading and any reference to subsidiaries in any representation and warranty of the Company shall exclude Mayor's Jewelers Inc., a Delaware corporation ("MJI"), unless such company is specifically referred to in such representation or warrant: 2.1 Organization, Good Standing and Qualification. The Company and each of its subsidiaries is a corporation duly incorporated and existing under the laws of the jurisdiction in which it is incorporated. The Company and each of its subsidiaries is duly qualified as an extra-provincial or foreign corporation to do business in each jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure to be so qualified could reasonably be expected to have a material adverse effect on the business, assets, liabilities, properties, condition (financial or otherwise), prospects or operations of the Company and its subsidiaries, taken as a whole (an "MAE"). The Company and each of its subsidiaries has all requisite corporate power to own and operate its properties and assets as now conducted and as presently proposed to be conducted. 2.2 Capitalization and Voting Rights. The authorized capital of the Company consists, or will consist immediately prior to the First Closing, of: (i) Preferred Shares. ________ 3Series A Convertible Preferred Shares without par value. The rights, privileges and preferences of the Preferred Shares are as stated in the Articles of Amendment. The Company has not authorized or agreed to issue any Preferred Shares other than the Preferred Shares to be sold hereunder. (ii) Common Stock. An unlimited number of shares of Voting Common Stock, of which _________________ shares were issued and outstanding on _________, 2002 and an unlimited number of shares of Non-Voting Common Stock, without par value of which ___ shares were issued and outstanding as of ________, 2002. (b) The outstanding shares of Voting Common Stock and Non-Voting Common Stock are owned by the stockholders and in the numbers specified on the Schedule of Exceptions attached hereto. (c) The outstanding shares of Voting Common Stock and Non-Voting Common Stock are all duly authorized and validly issued, are fully paid and non-assessable, and were issued in compliance with all applicable laws concerning the issuance of securities. (d) Except for (i) the conversion privileges of the Preferred Shares to be sold pursuant to this Agreement as such privileges are set forth in the Articles of Amendment and the conversion privileges of the Notes to be sold pursuant to this Agreement, (ii) the rights provided in Article IV of that certain Shareholders' Rights Agreement and (iii) currently outstanding - -------- 3 Insert a number equal to the quotient of (i) $5,000,000 divided by (ii) the US Dollar equivalent of CND$7.73 using the Bank of Canada's noon rate of exchange on the Business Day immediately preceding the Closing Date. -3- options to purchase up to _________ shares of Voting Common Stock and _________ shares of Non-Voting Common Stock granted to employees pursuant to the Company's Stock Option Plan (the "Option Plan"), there are not outstanding any options, warrants, rights (including conversion, preemptive rights or rights to exchange) or agreements of any kind for the purchase or acquisition from the Company of any shares of its capital stock or other securities of the Company. The Option Plan reserves a total of _______ shares of Voting Common Stock and __________ shares of Non-Voting Common Stock (including the shares issuable upon exercise of the aforementioned outstanding options) for issuance upon exercise of options granted thereunder to officers, directors, employees and consultants of the Company or any of its subsidiaries and as _______. 2002, options to purchase up to _______ shares of Voting Common Stock and _____________ shares of Non-Voting Common Stock upon exercise thereof remain eligible for future grants under the Option Plan. The Schedule of Exceptions sets forth with respect to all outstanding options (and other rights to acquire any shares of the Company's capital stock or other security of the Company, if any), the holder, number and type of shares or security covered, exercise price and expiration or termination date. Options granted under the Option Plan contain vesting and buy back provisions as described in the Schedule of Exceptions and no acceleration or changes in the vesting provisions of any outstanding options or lapse of a repurchase right will occur in connection with or upon the occurrence of any event (e.g., termination, change in control, etc.) or otherwise for any reason except as specifically described in Schedule of Exceptions. 2.3 Subsidiaries. Except as set forth in the Schedule of Exceptions or as contemplated by the Investment Agreement referred to on Schedule C, the Company (i) does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity, (ii) is not a participant in any joint venture, partnership, or similar arrangement and (iii) is not, directly or indirectly, subject to any obligation or requirement to provide funds to, or invest in any corporation, limited liability company or general partnership, association, joint venture or other entity or enterprise. For each of the Company's direct or indirect subsidiaries, the Schedule of Exceptions sets forth the name of such subsidiary, its jurisdiction of incorporation, its authorized and outstanding capital stock and its stockholders. The Schedule of Exceptions describes in reasonable detail all applicable joint venture, partnership or similar arrangement or obligation to provide funds to or invest in any corporation, limited liability company, general or limited partnership, association or joint venture or other entity or enterprise. 2.4 Authorization. The Company has all necessary corporate power and authority to enter into this Agreement and to carry out its obligations under this Agreement. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and filing of the Articles of Amendment and for the authorization, execution and delivery of the other Transaction Documents to which the Company is a party and the performance of all obligations of the Company hereunder and thereunder, and the authorization, sale and issuance of the Preferred Shares and the Notes being sold hereunder and the reservation for issuance of the Conversion Shares upon conversion of the Preferred Shares in accordance with the terms of the Articles of Amendment and upon conversion of the Notes in accordance with the terms hereof and thereof and the registration of the hypothec and other rights created by the Security Agreement in all relevant jurisdictions, has been taken or will be -4- taken prior to the First Closing.4 This Agreement and the other Transaction Documents to which the Company is a party, when executed and delivered, will constitute valid and legally binding obligations of the Company, enforceable against it in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 2.5 Valid Issuance of Preferred Shares, Notes and Conversion Shares. The Preferred Shares and the Notes that are being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein will be duly and validly issued, fully paid and non-assessable and will be free and clear of any and all liens, claims or other encumbrances and of restrictions on transfer, other than restrictions on transfer under the Articles of Amendment, this Agreement, the Shareholders' Agreement and under applicable securities laws. The Conversion Shares issuable upon conversion of the Preferred Shares and the Notes have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Articles of Amendment and the Notes, respectively will be duly and validly issued, fully paid and non-assessable and will be free and clear of any and all liens, claims or other encumbrances and of restrictions on transfer other than restrictions on transfer under the Company's Articles, the Notes, the Shareholders' Agreement and under applicable securities laws. The issuance of the Preferred Shares and the Notes pursuant to this Agreement and the subsequent conversion of the Preferred Shares and the Notes into the Conversion Shares in accordance with the terms of the Articles of Amendment and the Notes, respectively, are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. 2.6 Consents. No consent, approval, order, permission or authorization of, or registration, qualification, designation, declaration or filing with, any federal, provincial, state, municipal or local Governmental Authority (as defined below) or any natural person, sole proprietorship, firm, corporation, partnership, trust, limited liability company, joint venture, association, body corporate or other entity of any kind and a natural person in such person's capacity as trustee, executor, administrator or other legal representative (each, a "Person") is required in connection with the consummation of the transactions contemplated by this Agreement and the Transaction Documents which have not been obtained or made prior to the First Closing, except for such filings as are required pursuant to applicable securities laws, which filings, if any, will be effected within the required statutory period [and filings registering the hypothec and the Senior Lenders' Priority Agreement and the Pari Passu Creditor's Agreement which shall be filed for registration by the Company immediately following the Second Closing]. 2.7 Offering. Subject in part to the truth and accuracy of each Investor's representation set forth in Section 3 of this Agreement, the offer, sale and issuance of the Preferred Shares and Notes as contemplated by this Agreement and the issuance of the Conversion Shares upon conversion of the Preferred Shares and Notes in accordance with the terms of the Articles of Amendment and the Notes respectively will be exempt from the - -------- 4 We expect the Company to do whatever is required to register the Deed of Hypothec. -5- registration requirements of applicable securities laws, and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable provincial securities laws. Neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would bring the sale of such shares by the Company within the registration provisions of any applicable securities laws, or otherwise cause the loss of such exemptions. 2.8 Securities Laws. The Company is a "closed company," as such term is defined in Section 5 of the Securities Act (Quebec). 2.9 Litigation. Except as set forth in the Schedule of Exceptions, there is no action, suit, proceeding or investigation, claim, complaint or grievance, including appeals and applications for review, in progress, or to the Company's knowledge, currently threatened, against or relating to the Company or any of its subsidiaries before any court, Governmental Authority, commission, board, bureau, agency or arbitration panel that questions, the validity of this Agreement or the other Transaction Documents or the right of the Company to enter into such agreements or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in an MAE, or any change in the current equity ownership of the Company (except as contemplated hereby) or any of its subsidiaries, nor is the Company aware that there is any basis for any of the foregoing. The foregoing includes, without limitation, actions, suits, proceedings, or investigations, claims, complaints or grievances pending or threatened involving the prior employment of any of the Company's or any subsidiary's employees, their use in connection with the Company's or such subsidiary's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. Neither the Company nor any of its subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or Governmental Authority, commission, board, bureau, agency, arbitrator or instrumentality. There is no action, suit, proceeding, investigation claim, complaint or grievance by the Company or any of its subsidiaries currently pending. 2.10 Intellectual Property. (a) To the best of the Company's knowledge, the Company or one of its subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, industrial designs, patterns, drawings, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently proposed to be conducted, without any infringement of or conflict with the valid rights of others and the lack of which could reasonably be expected to have an MAE, and neither the Company nor any of its subsidiaries has received any notice of alleged infringement upon or conflict with the asserted rights of others, nor is it aware of any basis to the best of the Company's knowledge therefor. Without limiting the foregoing, to the best of the Company's knowledge each of the Company and its subsidiaries has the right to use all of its trade secrets (including without limitation all know how, concepts, computer programs, domain names, websites, databases and technical data) free and clear of any rights, liens, encumbrances or claims of others, other than as contemplated by the liens in favor the Investors provided in the Security Agreement and liens of the senior lenders and pari passu creditor identified in the Senior Lenders' Priority Agreements and the Pari Passu Creditor's Priority Agreement. There are -6- no outstanding options, licenses or agreements of any kind relating to any of the foregoing, nor is the Company or any of its subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, industrial designs, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses arising from the purchase of commercially available software legally in the possession of the Company or its subsidiaries. Except for "off the shelf" software used in the ordinary course of its business, neither the Company nor any of its subsidiaries is obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of any patent, trademark, trade name, copyright, industrial design or other intangible asset, with respect to the use thereof or in connection with the conduct of its business, or otherwise. The Company is not aware of any violation by a third party of any of the Company's or any of its subsidiaries' patents, trademarks, service marks, trade names, copyrights, trade secrets, industrial designs, information or other proprietary rights and processes. (b) The Company is not aware that any of its or its subsidiaries employees, officers or consultants is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement of any kind, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their ability to use their best efforts to fulfill their duties to the Company and its subsidiaries or that would conflict with the Company's and its subsidiaries' business as now conducted or as presently proposed to be conducted or that would prevent such individual from assigning inventions to the Company or one of its subsidiaries, as applicable. 2.11 Compliance with Other Instruments. Neither the Company nor any of its subsidiaries is in violation or default of (i) any provision of its governing documents (which in the case of the Company consist of its Articles and By-laws), or (ii) any material instrument, judgment, order, writ, decree, mortgage, lease, contract, statute, rule, or regulation applicable to the Company or any of its subsidiaries. To the Company's knowledge, neither the Company nor any of its subsidiaries has taken any action or failed to take any action (nor has any other event or condition occurred), which would result in the loss of any right of the Company or any of its subsidiaries granted under any license, distribution agreement or other agreements which may be material to the Company's or such subsidiary's business. The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby will not result in any such violation, or conflict with or constitute, with or without the passage of time and giving of notice, either a default thereunder or an event that results in the creation of any lien, charge, or encumbrance upon any property or assets of the Company or any of its subsidiaries other than as contemplated by the Security Agreement or the suspension, revocation, impairment, forfeiture or non-renewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties or applicable to any subsidiary of the Company, its business operations or its assets or properties. 2.12 Agreements, Action. (a) Except for agreements contemplated by the Transaction Documents, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, stockholders or any affiliate thereof. -7- (b) Except as set forth on the Schedule of Exceptions, there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its subsidiaries is a party or by which it or any asset of the Company or any of its subsidiaries is bound that involve (i) obligations (contingent or otherwise) of the Company and any of its subsidiaries, in excess of [$__________] or any commitment to or by the Company or any of its subsidiaries that may reasonably extend beyond ______ years and which does not or cannot be terminated without penalty on less than ____ months notice or which is outside the ordinary course of business, (ii) the license of the trade name and trademark Birks, (iii) provisions restricting or affecting the development, manufacture, sale or distribution of the Company's or its subsidiaries' products or services, (iv) a warranty with respect to services rendered or products sold or leased, other than the standard warranty terms (which terms are described in the Schedule of Exceptions) granted by the Company or its subsidiaries in the ordinary course of business, (v) indemnification by the Company or any of its subsidiaries for any obligations or (vi) any agreement, whether oral or written, which is or would be material to the Company and its subsidiaries, taken as a whole (collectively, the "Contracts"). All of the Contracts are valid and binding obligations of the parties thereto and in full force and effect and enforceable by the Company or its subsidiary (as the case may be) in accordance with their respective terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or provincial laws affecting the rights of creditors, (ii) rules of law governing specific performance, injunctive relief or other equitable remedies (whether considered in a proceeding at law or in equity) or (iii) indemnification provisions to the extent limited by statutes, judicial decisions or public policy considerations. The Company or the Company's applicable subsidiary has performed in all materials respects all obligations required to be performed by it and is not in default under or in breach of nor in receipt of any claim of default or breach under any Contract and neither the Company nor any of its subsidiaries has any present expectation or intention of not fully performing all such obligations. No event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance by the Company or any of its subsidiaries under any Contract. The Company has no knowledge of any material default or anticipated material breach or termination by any other parties to any Contract. (c) Except as set forth on the Schedule of Exceptions, since March 31, 2002, neither the Company nor any of its subsidiaries has (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock (except for dividends by the subsidiaries to the Company or other subsidiaries), (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of [$_______], or, in the case of indebtedness or liabilities individually less than [$_______] in excess of [$_______] in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, (iv) discharged or satisfied any lien or encumbrance, or paid any obligation other than liabilities incurred in the ordinary course of business, (v) sold, exchanged or otherwise disposed of any of its assets or rights or cancelled any debts or entitlements, other than the sale of its inventory in the ordinary course of business or (vi) mortgaged, pledged, subjected to lien, granted a security interest in or otherwise encumbered any of its assets or property (except for security interests created pursuant to the Security Agreement). -8- (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same Person (including Persons or entities the Company has reason to believe are affiliated with each other) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such sections. (e) Except as disclosed on the Schedule of Exceptions, the Company has not engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution, or winding up of the Company. (f) Neither the Company nor any of its subsidiaries is a party to or bound or affected by any contract, agreement, commitment or instrument, or subject to any restriction under its governing documents (the Articles and By-laws in the case of the Company), containing any covenant expressly limiting the freedom of the Company or any of its subsidiaries to compete in any line of business, transfer or move any of its assets or operations and which adversely affects its business as now conducted or as proposed to be conducted, its properties, or its financial condition. 2.13 Related-Party Transactions. There are no obligations of the Company or any of its subsidiaries to or on behalf of (including by way of guarantee, commitments to extend credit or otherwise) any officers, directors, stockholders or employees of the Company or any of its subsidiaries (collectively, the "Insiders") other than (a) for payment of compensation for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company or any of its subsidiaries consistent with the Company's or such subsidiary's past practice and (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under the Option Plan). None of the Insiders nor any members of their immediate families, are indebted to the Company. None of the officers or directors or, to the best of the Company's knowledge, employees or stockholders of the Company or its subsidiaries, or any members of their immediate families, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company or any of its subsidiaries has a material business relationship, or any firm or corporation which competes with the Company or any of its subsidiaries, other than passive investments in publicly traded companies (representing less than 1% of such company). Except as set forth on the Schedule of Exceptions, no Insider or any member of any Insider's immediate family, is, directly or indirectly, interested in any material Contract with the Company or any of its subsidiaries. 2.14 Financial Statements. The Company has delivered to each Investor the audited consolidated financial statements (consolidated balance sheet and consolidated statements of operations, stockholders' equity and cash flows, including notes thereto) of the Company and its subsidiaries at March 31, 2002 and for the fiscal year then ended (the "Financial Statements"). The Financial Statements are accurate and complete in all material respects and is consistent with -9- the books and records of the Company and its subsidiaries. The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent throughout the periods indicated and with each other, and fairly present the assets, liabilities, financial condition and operating results of the Company and its subsidiaries as of the date, and for the period, indicated therein. Except as set forth in the Financial Statements, the Company and its subsidiaries, taken as a whole, do not have any material liabilities or obligations, contingent or otherwise, other than (i) liabilities or obligations that have arisen after March 31, 2002 in the ordinary course of business and consistent with the Company's and such subsidiaries past practice, and (ii) obligations under contracts and commitments incurred in the ordinary course of business that would not be required to be reflected in financial statements prepared in accordance with generally accepted accounting principles, which in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company and its subsidiaries, taken as a whole. Except as disclosed in the Financial Statements, neither the Company nor any of its subsidiaries is a guarantor or indemnitor of any indebtedness of (or otherwise obligated to make any loans or extend any credit to) any other Person. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 2.15 Recent Changes. Since March 31, 2002, there has not been: (a) any change in the business, assets, liabilities, properties, condition (financial or otherwise), prospects or operations of the Company or its subsidiaries, taken as a whole, from that reflected in the Financial Statements, other than changes in the ordinary course of business consistent with past practice, none of which, individually or in the aggregate, could reasonably be expected to have an MAE; (b) any damage, destruction or loss, whether or not covered by insurance, that could reasonably be expected to have an MAE; (c) any waiver or compromise by the Company or its subsidiaries of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company or its subsidiaries, except for immaterial items in the ordinary course of business consistent with past practice; (e) any change or amendment to a contract or arrangement by which the Company or any of its subsidiaries or any of their assets or properties is bound or subject which could reasonably be expected to have an MAE; (f) any material change in any compensation arrangement or agreement with any Insider; (g) any sale, assignment or transfer of any material intellectual proprietary information or material assets of the Company or any subsidiary, or disclosure of any confidential information to any person or entity; -10- (h) any resignation or termination (including any threat or expectation thereof) of any officer or key employee of the Company or any subsidiary which could reasonably be expected to have a MAE; (i) any declaration or payment of any dividend or other distribution of any assets of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, or other encumbrance created by the Company or any of its subsidiaries, with respect to any of its properties or assets, except liens for taxes not yet due or payable; (k) receipt of notice that there has been a loss of, or order cancellation by, any major customer of the Company or any of its subsidiaries; (l) any labor organization activity related to the Company or any of its subsidiaries; (m) any material change in the contingent obligations of the Company or any of its subsidiaries, whether by way of guaranty, endorsement, indemnity or otherwise; (n) capital expenditures or commitments therefor that aggregate in excess of [$__________]; (o) any loans or advances to, or any investments in, any Person other than a subsidiary of the Company), other than advances for travel expenses made in the ordinary course of business consistent with past practice; (p) any loan to the Company or any subsidiary or other debt, obligation or liability incurred or assumed by the Company or any of its subsidiaries, other than current liabilities incurred in the ordinary course of business consistent with past practice; (q) any material transaction to which the Company or any of its subsidiaries is a party that is not in the ordinary course of business consistent with past practice; (r) any material tax election or change in tax or accounting (s) any material suits, actions, claims, audits, investigations, or the settlement of any of the foregoing; (t) except for the issuance of the Preferred Shares hereunder, the Conversion Shares upon the exercise of the Preferred Shares and Notes, shares of Non-Voting Common Stock or Voting Common Stock upon exercise of options issued pursuant to the Option Plan, or the issuance of options pursuant to the Option Plan, any issuance of stocks, bonds or other securities of the Company or any of subsidiary; (u) any other event or condition of any character that, either individually or in the aggregate, could reasonably be expected to have an MAE; or -11- (v) any agreement or commitment by the Company or any of its subsidiaries take any of the actions described in subsections (a) through (u) above. 2.16 Tax Returns. (a) The Company and each of its subsidiaries have timely filed all its Tax Returns (as defined below) required to be filed by it with the appropriate Governmental Authority and has duly, completely and correctly reported all income and all other amounts and information required to be reported thereon. The Company and each of its subsidiaries have duly and timely paid all Taxes (as defined below) including all installments on account of Taxes for the current year, that are due and payable by it and the Company and each of its subsidiaries have established reserves that are reflected on the Financial Statements that are adequate for the payment by the Company of all Taxes , if any, that are not yet due and payable and that related to periods ending on or prior to the Closing Date. (b) The Company and each of its subsidiaries have not requested, or entered into any agreement or other arrangement or executed any waiver providing for, any extension of time within which (i) to file any Tax Return covering any Taxes for which the Company or any of its subsidiaries is or may by liable, (ii) to file any elections, designations or similar things relating to Taxes for which the Company or any of its subsidiaries; is or may be liable, (iii) the Company or any of its subsidiaries is required to pay or remit any Taxes or amounts on account of Taxes, or (iv) any Governmental Authority may assess or collect Taxes for which the Company or any of its subsidiaries is or may be liable. (c) The Canadian federal and provincial income and capital tax liabilities of the Company and each of its subsidiaries has been assessed by the relevant taxing authorities and notices of assessment have been issued to each such entity by the relevant taxing authorities for all taxation years prior to and including the taxation year ended December 31, 2001. (d) There are no actions, suits, proceedings, investigations, audits or claims now pending or, to the knowledge of the Company, threatened, against the Company or any of its subsidiaries in respect of any Taxes and there are no matters under discussion, audit or appeal with any Governmental Authority relating to Taxes. (e) The Company has duly and timely withheld from any amount paid or credited by it to or for the account or benefit of any Person, including, without limitation, any of its employees, officers and directors and any non-resident Person, the amount of all Taxes and other deductions required by any applicable law, rule or regulation to be withheld from any such amount and has duly and timely remitted the same to the appropriate Governmental Authority. (f) Except as disclosed in the Schedule of Exceptions, for purposes of the Income Tax Act (Canada) or any applicable provincial or municipal taxing statute, no Person of group of Persons has ever acquired or had the right to acquire control of the Company. (g) There are no actual or proposed Tax deficiencies, assessments, charges or adjustments with respect to the Company or any of its subsidiaries or any assets or operations of the Company or any of its subsidiaries. -12- (h) Neither the Company nor any of its subsidiaries have ever been party to a Tax sharing agreement or any other agreement to indemnify any person for any Tax liability. "Tax" or "Taxes" includes, without limitation, all taxes, duties, fees, premiums, assessments, imposts, levies and other charges of any kind whatsoever imposed by any Governmental Authority, together with all interest, penalties, fines, additions to tax or other additional amounts imposed in respect thereof, including, without limitation, those levied on, or measured by, or referred to as income, gross receipts, profits, real property, personal property, land transfer, franchise, capital, capital stock, transfer, excise, stamp, license, business, payroll, employment, unemployment, disability, severance, occupation, windfall, sales, goods and services, use, value-added, health, social services, education and social security taxes, all surtaxes, all customs duties and impost and export taxes, premium, environmental, employees' income withholding, foreign or domestic withholding, alternative or add-on minimum or other similar taxes, all licenses, franchise and registration fees and all unemployment insurance, health insurance and Canada, Quebec and other government pension plan premiums. "Tax Returns" includes, without limitation, all returns, reports, declarations, elections, notices, filings, information returns and statements filed in respect of Taxes. "Governmental Authorities" means any government, regulatory authority, governmental department, agency, commission, board, tribunal, crown corporation, or court or other law, rule or regulation-making entity having or purporting to have jurisdiction on behalf of any nation, or province or state or other subdivision thereof or any municipality, district or other subdivision thereof. 2.17 Compliance with Laws: Permits. Neither the Company nor any of its subsidiaries is in violation of any Laws (as defined below) or restriction of any Governmental Authority, in respect of the conduct of its business or the ownership of its properties which violation would reasonably be expected to have a MAE and the Company or any of its subsidiaries have not received any notice of any alleged breach thereof. The Company and each of its subsidiaries has all (and is not in default under any) franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it or as may be presently proposed, the lack of which (or default under) could reasonably be expected to have an MAE. Such authorizations are in full force and effect in accordance with their terms, and there have been no violations thereof and no proceedings are pending or, to the knowledge of the Company, threatened, which could result in their revocation or limitation. "Laws" means all applicable laws, by-laws, rules, regulations, orders, directives, ordinances, protocols, codes, guidelines, policies, notices, directions and judgments or other requirements of any Governmental Authority. In connection with the representations set forth in this Section 2.17, the term Laws shall exclude Environmental Laws (as defined below) which are covered by Section 2.18. 2.18 Environmental and Safety Laws. The Company, each of its subsidiaries, the operation of their respective businesses and any real property that the Company or any of its subsidiaries owns or has owned, leases or has leased or otherwise occupies or uses or has occupied or used (the "Premises") are, to the best of the Company's knowledge after due inquiry, -13- in compliance with all applicable Environmental Laws (as defined below). Any release by the Company or any of its subsidiaries of any hazardous substance into the environment complied and complies with all Environmental Laws. The Company has not received any citation, directive, letter or other communication, written or oral, or any notice of any proceeding, claim or lawsuit, from any Person arising out of the ownership or occupation of the Premises (including, to the best of its knowledge, as may relate to any previous occupants), or the conduct of its operations, and the Company is not aware of any basis therefor, and no material expenditures are or will be required in order to comply with any such Environmental Laws. "Environmental Laws" means all Laws relating in full or in part to the protection of the environment, product liability and employee and public health and safety, and includes, without limitation, those Environmental Laws relating to the storage, generation, use, handling, manufacture, processing, labeling, advertising, sale, display, transportation, treatment, release and disposal of hazardous substances. 2.19 Disclosure. The Company has provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Preferred Shares and Notes. To the best of the Company's knowledge, neither this Agreement (including all the exhibits and schedules hereto) nor any other Transaction Documents nor any other certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made. The financial projections of the Company and its subsidiaries provided to the Investors were prepared by the Company in good faith based upon the Company's and such subsidiaries' past experience in their respective businesses and the Company believes that there is a reasonable basis for such projections. 2.20 Registration Rights. Except as provided in the Shareholders' Agreement, [and that certain Management Investors Shareholders Agreement dated as of April 5, 2002 between the Company and the Management Investors named therein], the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any Person. 2.21 Corporate Documents; Minute Books. The Articles and By-laws of the Company, including any and all amendments have been delivered or made available to the Investors and such Articles and By-laws as so amended are in full force and effect and no amendments are being made to the same. The minute books of the Company and its subsidiaries contain a complete summary of all meetings of directors and stockholders of the Company and each of its subsidiaries or resolutions passed by the directors or shareholders thereof on consent since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material aspects. The share certificate book, register of shareholders, register of transfers and register of directors of the Company, are complete and accurate. 2.22 Title to Property and Assets. The Company or its subsidiaries have good title to or valid leasehold interests in all property and assets disclosed in the Financial Statements as being owned or leased, as applicable, by the Company and its subsidiaries. The property and assets the Company owns, and the property and assets the Company's subsidiaries own, are owned by the Company or such subsidiaries free and clear of all mortgages, liens, claims, loans -14- and encumbrances, except for (i) statutory liens for the payment of current taxes that are not yet delinquent, (ii) liens, encumbrances and security interests set forth in the Financial Statements or in the Schedule of Exceptions and (iii) liens, encumbrances and security interests that arise in the ordinary course of business and minor defects in title, none of which, individually or in the aggregate, materially impair the Company's ownership or use of such property or assets. With respect to the property and assets leased by the Company or any of its subsidiaries, the Company or such subsidiary is in material compliance with such leases and holds its leasehold interest free of any liens, claims or encumbrances, subject to clauses (i), (ii) and (iii). All material facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company or its subsidiaries are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. 2.23 Insurance. The Company has in force fire, casualty, product liability and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its or its subsidiaries' material properties or assets which might be damaged or destroyed or sufficient to cover liabilities to which the Company or its subsidiaries may reasonably become subject, and which types and amounts of other insurance with respect to the business and properties, on both a per occurrence and an aggregate basis, are as customarily carried by Persons engaged in the same or similar business as the Company and its subsidiaries. No default or event has occurred that could give rise to a default under any such policy. 2.24 Employee Benefit Plans. (a) A complete list of all Pension/Benefit Plans (as defined) of the Company and of its subsidiaries is set forth in the Schedule of Exceptions. (b) Each Pension/Benefit Plan of the Company or of its subsidiaries is, and has been, established, registered, qualified, administered and invested, in compliance with the terms thereof and all applicable Laws and the Company has not received, in the last three years, any notice from any Person questioning or challenging such compliance. (c) All obligations under the Pension/Benefit Plans (whether pursuant to the terms thereof or applicable Law) have been satisfied, and there are no outstanding defaults or violations thereunder by the Company or any of its subsidiaries nor does the Company have any knowledge of any default or violation by any other party to any Pension/Benefit Plan. (d) All contributions or premiums required to be made under the terms of any of Pension/Benefit Plans of the Company and its subsidiaries as of the date of this Agreement have been timely made in accordance with the terms thereof and all applicable Law, or, if not yet due, have been properly reflected in the Financial Statements and no Taxes, penalties or fees are owing or exigible under any Pension/Benefit Plan. (e) No suit, administrative proceeding, action or other adverse proceeding or claim has been brought or threatened against or with respect to any Pension/Benefit Plan of the Company or of its subsidiaries (other than routine benefits claims) and there is no pending audit or inquiry by any Governmental Authority with respect to any Pension/Benefit Plan of the Company or of any of its subsidiaries which if adversely determined could reasonably be -15- expected to have a MAE. No event has occurred and, to the knowledge of Company, there exists no condition or set of circumstances that could subject the Company or any subsidiary of the Company to any material liability (other than for routine benefit liabilities) relating in any way to any Pension/Benefit Plan. (f) There are no going concern unfunded actuarial liabilities, past service unfunded liabilities or solvency deficiencies respecting any of the Pension/Benefit Plans of the Company or any of its subsidiaries. "Pension/Benefit Plans" means all plans, arrangements, agreements, programs, policies or practices, whether oral or written, formal or informal, funded or unfunded, to which the Company is a party to or bound by or under which the Company has any liability or contingent liability, relating to (i) retirement savings or pensions, including, without limitation, any defined benefit pension plan, defined contribution pension plan, group registered retirement savings plan, or supplemental pension or retirement plan, or (ii) any bonus, profit sharing, deferred compensation, incentive compensation, hospitalization, health, dental, disability, unemployment insurance, vacation pay, severance pay or other benefit plan with respect to any of its employees or former employees, individuals working on contract with it or other individuals providing services to it of a kind normally provided to employees, and all statutory plans which the Company is required to comply with, including, without limitation, the Canada or Quebec Pension Plans and plans administered pursuant to applicable provincial health tax, workers compensation and unemployment insurance legislation. 2.25 Labor Agreements and Actions; Employee Compensation. Neither the Company nor any of its subsidiaries is bound by or subject to (and none of their assets or properties is bound by or subject to) any written or oral, express or implied, collective bargaining agreement, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company or any of its subsidiaries. There is no strike or other labor dispute involving the Company or any of its subsidiaries pending, or to the best of the Company's knowledge, threatened, that could have a MAE on the assets, properties, financial condition, operating results, or business of the Company or any of its subsidiaries (as presently conducted and presently proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or any group of key employees, intends to terminate their employment with the Company or any of its subsidiaries, nor does the Company have a present intention to terminate the employment of any of the foregoing. Neither the Company nor any of its subsidiaries is party to a written contract of employment entered into with any employees or any oral contracts of employment which are not terminable on the giving of reasonable notice in accordance with applicable Law. Except as set forth on the Schedule of Exceptions, neither the Company nor any of its subsidiaries is a party to or bound by any currently effective deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. To the best of its knowledge, the Company has complied in all material respects with all Laws relating to employees, including employment standards, occupational health and safety, pay equity and employment equity and neither the Company nor any of its subsidiaries has received any notice alleging otherwise. There are no outstanding decision or settlements or pending settlements under the employment standards legislation which -16- place any obligation upon the Company or any of its subsidiaries, to do or refrain from doing any act. All current assessments under workplace safety and insurance legislation in relation to the Company or any of its subsidiaries have been paid or accrued and the Company or any of its subsidiaries have note been subject to any special or penalty assessment under such legislation which has not been paid. 2.26 Obligations of Management. Except as set forth on the Schedule of Exceptions, each officer and key employee of the Company and each of its subsidiaries is currently devoting substantially all of his or her business time to the conduct of the business of the Company or such subsidiary. The Company is not aware that any officer or key employee of the Company or any subsidiary is planning to work less than full time at the Company or its subsidiaries in the future. No officer or key employee of the Company or any subsidiary is currently working or, to the Company's knowledge, plans to work for a competitive enterprise, whether or not such officer or key employee is or will be compensated by such enterprise, except that upon the consummation of the transaction contemplated by the Investment Agreement referred to on Schedule C, certain employees of the Company may become employees of or consultants to MJI. 2.27 Voting Agreements. Except as set forth on the Schedule of Exceptions, or as provided in the Shareholders Agreement, the Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any Persons, that affects or relates to the voting or giving of written consents with respect to any security of the Company or by a director of the Company. Without limiting the foregoing, except as set forth herein and in the Shareholders' Agreement, the Company has no agreement, obligation or commitment with respect to the election of any individual or individuals to the Board of Directors, and to the best of the Company's knowledge, there is no voting agreement or other arrangement among its stockholders with respect to the election of any individual or individuals to the Board of Directors. 2.28 Acknowledgment Regarding Prime Investments SA Purchase of Preferred Shares and Notes. The Company acknowledges and agrees that Prime Investments SA ("PI") is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or any of the other Transaction Documents or the transactions contemplated hereby or thereby, the relationship between the Company and PI is "arms-length" and any statement made by PI or any of its representatives or agents in connection with this Agreement and the other Transactions Documents and the transactions contemplated hereby and thereby (other than the representations and warranties of PI herein and in the other Transaction Documents) has not been relied upon by the Company, its officers or directors in any way. The Company further acknowledges that the Company's decision to enter into this Agreement and the other Transactions Documents has been based solely on an independent evaluation by the Company and its representatives. 2.29 No Integrated Offering. Neither the Company, nor any of its Affiliates (as defined), nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Preferred Shares or Notes being issued hereby under applicable securities laws or cause this offering of Preferred Shares, Notes and Conversion Shares to be integrated with any prior offering of securities of the Company for purposes such securities laws. -17- 2.30 No Brokers. The Company has taken no action which would give rise to any claim by any Person for brokerage commissions, finder's fees or similar payments by any Investor relating to this Agreement or the transactions contemplated hereby. 2.31 Inventory. All inventory of the Company and its subsidiaries is valued on the Company's consolidated books and records at the lower of cost and net realizable value. Inventories of work-in-progress and the Company's manufactured finished goods are valued at the lower of the average cost and net realizable value. Average cost includes material, labour and overhead costs. Except, to the extent of the Company's reserves for obsolete or unmerchantable inventory reflected in the Company's Financial Statements, all such inventory, after consideration of reserves consisting of finished goods is of merchantable quality and is saleable in the ordinary course of business consistent with past practice. 2.32 MJI and the Investment Agreement. The Company and its counsel have participated in the drafting and negotiating of the Investment Agreement referred to on Schedule C. The Company has completed its due diligence of MJI and is satisfied with the results of such due diligence review. In the course of the Company's negotiations with MJI nothing has come to the Company's attention that would cause it to believe on the date hereof and on each Closing Date that the representations and warranties of MJI set forth in the Investment Agreement are true and correct in all material respects. As of each Closing Date, MJI shall have performed, satisfied and complied in all material respects with all agreements, obligations and conditions contained in the Investment Agreement that are required to be performed, satisfied or complied with by MJI on or before the Closing (as defined in the Investment Agreement). 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor hereby represents, warrants and covenants to the Company that: 3.1 Authorization. Such Investor has full power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. Such Investor is a corporation duly incorporated and existing under the laws of the jurisdiction in which it is incorporated. 3.2 Purchase Entirely for Own Account. Such Investor understands that this Agreement is made with such Investor in reliance upon such Investor's representation to the Company that the Preferred Shares, Notes and Conversion Shares thereof (collectively the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in or otherwise distributing the same. Such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. -18- 3.3 No Conflict. The execution, delivery and performance by each Investor of this Agreement and the other Transaction Documents to which such Investor is a party do not and will not (a) violate, conflict with or result in the breach of any provision of the organizational documents of the Investor, or (b) conflict with or violate any Law or governmental order applicable to the Investor or its assets, properties or business, or (c) in any material respect, conflict with, result in any breach of, constitute a default or (event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any encumbrance or any property or asset of the Investor pursuant to, any note, bond mortgage or indenture, contract, agreement, lease, sublease, license, permit franchise or other instrument or arrangement to which the Investor is a party or by which any of such assets or properties is bound or affected. 3.4 Litigation. There are no material actions, suits or proceedings pending before any Governmental Authority by or against the Investor (or by or against the Investor or any affiliate thereof and relating to its business) or affecting any of the Investor's assets pending before any Governmental Authority (or, to the knowledge of the Investor, threatened to be brought by or before any Governmental Authority) that would reasonably be expected to effect the legality, validity or enforceability of this Agreement, any Transaction Document or the consummation of the transactions contemplated by this Agreement or thereby. 3.5 Legends. It is understood that the certificates evidencing the Securities may bear one or more restrictive legends as may be required by the Shareholders' Agreement or applicable legislation. 4. COVENANTS. 4.1 Best Efforts. The parties shall use their commercially reasonable best efforts timely to satisfy each of the conditions described in Sections 5 and 6 of this Agreement. 4.2 Use of Proceeds. The Company shall use the proceeds from the sale of the Preferred Shares and Notes as set forth on Schedule C. 4.3 Reservation of Shares. The Company shall at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Voting Common Stock to provide for the full conversion of the outstanding Preferred Shares and outstanding Notes and issuance of the Conversion Shares in connection therewith. 4.4 Legal Compliance. The Company shall conduct its business and the business of its subsidiaries in compliance with all laws, ordinances or regulations of governmental entities applicable to such businesses, except where the failure to do so would not have a MAE. 4.5 Material Transactions. So long as the Investors shall hold any Notes and Preferred Shares, the written consent of the Required Investors shall be required for the Company or any of its subsidiaries to enter into any material transaction with any Insider or any Affiliate of any Insider, other than transactions in the ordinary course of the Company's or such subsidiaries business on terms not less favorable to the Company than it could obtain in an arms-length transaction. For purposes of this Agreement, the term "Required Investors" means (i) -19- for the period commencing the First Closing and ending on the fifth anniversary of the First Closing, Investors holding Preferred Shares and Notes (determined on an as converted basis) and (ii) at any time after the fifth anniversary of the First Closing, (a) Investors owning sixty-seven percent (67%) of the outstanding Preferred Shares and (b) Investors owning sixty-seven percent (67%) of the outstanding Notes. 4.6 Ratable Treatment of Holders of Preferred Shares and Holders of Notes. So long as the Preferred Shares are outstanding, the Corporation agrees to deal ratably with the holders thereof in any and all matters, other than the conversion thereof at the election of a holder of Preferred Shares. So long as the Notes are outstanding, the Company agrees to deal ratably with the holders thereof in all matters other than the conversion thereof at the election of the holder of the Notes. 4.7 Transferability. Without the consent of the Corporation, which shall not be unreasonably withheld, neither Investor will transfer its Preferred Shares or Notes to any Person who is not directly or indirectly through one or more intermediaries controlled by or under common control with the applicable Investor. 5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of each Investor under Section 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same force and effect as though such representations and warranties had been made on and as of the date of such Closing (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date). 5.2 Performance. The Company shall have performed, satisfied and complied in all material respects, with all agreements, obligations and conditions contained in this Agreement that are required to be performed, satisfied or complied with by the Company on or before the Closing. 5.3 Compliance Certificate. The President of the Company shall deliver to each Investor at the Closing a certificate stating that the conditions specified in Sections 5.1, 5.2 and 5.13 have been fulfilled. 5.4 Qualifications; Consents. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of Canada or of any province that are required in connection with the lawful issuance and sale of the Notes and Preferred Shares pursuant to this Agreement and the Conversion Shares upon conversion of the Notes and Preferred Shares shall be duly obtained and effective as of the Closing. The Company shall also have obtained any and all consents and waivers, if any, required for the consummation of the transactions contemplated by this Agreement and the Transaction Documents. -20- 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors and the Investors' special counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.6 Shareholders' Agreement, Security Agreement, Senior Lenders' Priority Agreement, Pari Passu Creditors' Priority Agreement, Intercreditor Agreement, Diamond Supply Agreement and Diamond Consignment Agreement. At the First Closing (i) the Company and each Investor shall have executed and delivered the Shareholders' Agreement, (ii) the Trustee and the Investors shall have executed and delivered the Intercreditor Agreement, (iii) the Trustee and two creditors of the Company shall have executed and delivered the Priority Agreement, (iv) the Trustee and one creditor of the Company shall have executed and delivered the Acknowledgement Agreement, (v) the Company and the Trustee shall have executed and delivered the Security Agreement and (vi) [ ] and the Company shall have executed and delivered the Diamond Supply Agreement and the Diamond Consignment Agreement. 5.7 Filing of Articles of Amendment. The Articles of Amendment shall have been filed with the Director appointed under the Canada Business Corporations Act and shall be in full force and effect at the time of Closing. 5.8 Reservation of Conversion Shares. The Conversion Shares issuable upon conversion of the Preferred Shares and Notes shall have been duly authorized and reserved for issuance upon such conversion. 5.9 Secretary's Certificate. The Investors shall have received from the Company's Secretary, a certificate having attached thereto (i) the Company's Articles as in effect at the time of the Closing, (ii) the Company's Bylaws as in effect at the time of Closing; (iii) resolutions approved by the Board of Directors and the Company's stockholders, as necessary, authorizing the transactions contemplated hereby, including without limitation the filing of the Articles of Amendment, and (iv) good standing certificates with respect to the Company from the applicable authorities in its state of formation. 5.10 Board of Directors. The Company and Henry Birks & Sons Holdings Inc. shall have taken all necessary corporate action such that immediately following the Closing, the authorized size of the Board of Directors of the Company shall be ___ members and the Board shall consist of the following directors: [_________]. 5.11 Opinion of Company Counsel. Each Investor shall have received from Stikeman Elliott, counsel for the Company, an opinion, dated as of the Closing, in substantially the form attached as Exhibit J. 5.12 Acquisition Transaction. The Company shall have delivered to each of the Investors true and correct copies of the transaction documents required to consummate of the acquisition transaction described on Schedule C (the "Acquisition Transaction") and the Company and the parties to the Acquisition Transaction shall have executed and delivered all of the documents and agreements required to consummate the Acquisition Transaction and -21- complied with all of their obligations thereunder except for the payment of the purchase price therefor. Immediately following the First Closing, the cash portion of the purchase price described in the Acquisition Transaction shall be paid and immediately following the Second Closing the note delivered in connection with the Acquisition Transaction shall be paid in full. 5.13 No Material Adverse Change or Development. There shall have been no material adverse changes and no material adverse developments in the business, properties, operations, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, since the date hereof, and no information, of which the Investor is not currently aware, shall come to the attention of the Investor that is materially adverse to the Company. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor: 6.1 Representations and Warranties. The representations and warranties of the Investors contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Performance. The Investors shall have performed and complied with all agreements and conditions herein required to be performed or complied with by such Investors on or before the Closing, including the delivery of the purchase price in accordance with Section 1.2(b) hereof. 6.3 Qualifications; Consents. All authorizations, approvals or permits, if any, of any Governmental Authority that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. The Company shall also have obtained any and all consents and waivers, if any, required for the consummation of the transactions contemplated by this Agreement and the Shareholders' Agreement. 6.4 Shareholders' Agreement, Intercreditor Agreement, Senior Lenders' Priority Agreement, Pari Passu Creditor's Priority Agreement, Security Agreement, Diamond Supply Agreement and Diamond Consignment Agreement. At the First Closing (i) the Company and each Investor shall have executed and delivered the Shareholders' Agreement, (ii) the Trustee and the Investors shall have executed and delivered the Intercreditor Agreement, (iii) the Trustee and two creditors of the Company shall have executed and delivered the Priority Agreement, (iv) the Trustee and one creditor of the Company shall have executed and delivered the Acknowledgement Agreement, (v) the Company and the Trustee shall have executed and delivered the Security Agreement and (vi) [ ] and the Company shall have executed and delivered the Diamond Supply Agreement and the Diamond Consignment Agreement. 6.5 Filing of Articles of Amendment. The Articles of Amendment shall have been filed with the Director appointed under the Canada Business Corporations Act and shall be in full force and effect at the time of Closing. -22- 7. MISCELLANEOUS. 7.1 Survival. The warranties, representations and pre-closing covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the First and Second Closings for a period of six months from the Second Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company and the post-closing covenants of the Company and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery and the Closings. 7.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including permitted transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.3 Governing Law and Jurisdiction. (a) This Agreement shall be governed by and construed under the laws of the Province of Quebec and the federal laws of Canada, applicable therein. (b) The Company and the Investors irrevocably consent to the jurisdiction of the courts of the Province of Quebec in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be heard and determined in such courts. The Company and the Investors irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of any Investor to serve process in any other manner permitted by Law. The Company and the Investors agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 7.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.5 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the address as set forth on the signature page hereof or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. -23- 7.6 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.7 Expenses. Irrespective of whether the Closing is effected, the Company and each Investor shall pay all costs and expenses that such Person incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, or any other Transaction Document, or the Articles of Amendment, the prevailing party shall be entitled to reasonable attorney's fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled. 7.8 Amendments and Waivers. (a) Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding (including Conversion Shares), each future holder of all such securities and the Company. (b) Each Investor acknowledges that by operation of Section 7.8(a) above, the Required Investors will have the power to diminish or eliminate all rights of such Investor under this Agreement. 7.9 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any party's part of any breach, default or noncompliance under this Agreement, or any waiver on such party's part of any provisions or conditions of the Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative. 7.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable Law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. -24- 7.11 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. 7.12 Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties hereto may require. 7.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed Execution Page(s) hereof to be physically delivered to the other party within five (5) days of the execution hereof, provided that the failure to so deliver any manually executed Execution Page shall not effect the validity or enforceability of this Agreement. 7.14 Jury Trial. Each party to this Agreement hereby waives a trial by jury in any legal action or proceeding relating to this Agreement. 7.15 Publicity and Confidentiality. From and after the date hereof, the Company and each Investor agrees that it shall make no written or other public disclosure or announcement regarding this transaction or regarding the parties hereto to any Person without the prior written consent of the other parties, provided that disclosures to Investor's capital investors, the professional advisors and employees of each of the parties hereto and, with prior notice to the applicable Investor, regulatory authorities or as otherwise required by law shall be permitted. Neither the Company nor any Investor shall issue any press release or generate other publicity concerning the transactions contemplated hereby without the prior written consent of the other parties hereto. All documents, materials and information ("Information") relating to the Company provided to the Investors by the Company or its representatives, and all Information relating to an Investor provided to the Company by such Investor, are confidential and proprietary to the disclosing party, and each Investor jointly and severally, the Company and their representatives, respectively, will maintain the Information in strict confidence. Such confidential and proprietary documents, material and information shall not however include documents, materials or information that (a) is now and subsequently becomes generally available to the public or such Investor, the Company or their respective representatives, as the case may be, through no fault or breach on the part of such Investor, the Company or their respective representatives, as the case may be, (b) such Investor, the Company or their respective representatives, as the case may be, can demonstrate to have had rightfully in its possession without a confidentiality obligation prior to disclosure hereunder or (c) is independently developed by such Investor, the Company or their respective representatives, as the case may be, without the use of any confidential or proprietary documents, materials or information of the Company, such Investor or their respective representatives, as the case may be. -25- 7.16 Further Assurances. At and after Closing, the Company and each Investor agree to take and do such further actions and things reasonably required to consummate the purchase and sale of securities contemplated hereby. 7.17 Language. The parties have required that this Agreement and all instruments relating hereto be in the English language; les parties ont exige que la presente convention et tout autre document afferent aux presentes soient en langue anglaise. 7.18 Termination. In the event that the First Closing shall not have occurred on or before ________, 2002, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date. Notwithstanding any termination of this Agreement, any party not in breach of this Agreement shall preserve all rights and remedies it may have against another party hereto for a breach of this Agreement prior to or relating to the termination hereof. 7.19 Joint Participation in Drafting. Each party to this Agreement has participated in the negotiation and drafting of this Agreement and the other Transaction Documents to which it is a party. As such, the language used herein and therein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. [SIGNATURE PAGES TO FOLLOW] -26- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE COMPANY: HENRY BIRKS & SONS INC. By:__________________________________ Name:________________________________ Its:___________________________________ Address: 1240 Phillips Square Montreal Quebec H3B 3H4 Telecopier: (514) 397-2577 Attention: President and Corporate Secretary with copies to: Stikeman Elliott Suite 4000 1155 Rene-Levesque Blvd. West Montreal, Quebec H3B 3V2 Fax: (514) 397-3222 Telephone: (514) 397-3000 Attention: J. Anthony Penhale, Esq. Nicolas J. Beugnot, Esq. INVESTORS: PRIME INVESTMENTS SA By:__________________________________ Name:________________________________ Its:___________________________________ -27- Address: Saphir Building lst Floor 63 Boulevard Prince Felix L1513 - Luxembourg The postal address and telephone numbers are: P.O. Box 415 L-2014 Luxembourg Contact Person: Mr. Marco Dijkerman Telephone: 352-427171224 Fax: 352-421961 with copies to: Wolf, Block, Schorr and Solis-Cohen LLP 250 Park Avenue New York, New York 10177 Telephone: 212 883-4911 Fax: 212 672-1111 Attention: Lawrence L. Ginsburg, Esq. HENRY BIRKS & SONS HOLDINGS INC. By:__________________________________ Name:________________________________ Its:___________________________________ Address: ______________________________ ______________________________ with copies to: -28- EX-3 5 ex3_080902.txt REGISTRATION RIGHTS AGREEMENT Exhibit 3 -------------------- REGISTRATION RIGHTS AGREEMENT -------------------- Between MAYOR'S JEWELERS, INC. and HENRY BIRKS & SONS INC. Dated as of August 20, 2002 REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August 20, 2002, between Mayor's Jewelers, Inc., a Delaware corporation (the "Seller"), and Henry Birks & Sons Inc., a Canadian corporation (the "Purchaser"). WHEREAS, subject to the terms and subject to the conditions set forth in an Investment Agreement dated the date hereof between the Seller and the Purchaser, wherein the Purchaser has subscribed for and purchased from the Seller, and the Seller has issued and sold to the Purchaser, a total of 15,000 shares of Series A Convertible Preferred Stock of the Seller (the "Shares") convertible into 50,000,000 shares of, and warrants (the "Warrants") exercisable to purchase 37,272,787 shares of, the Common Stock, par value $0.0001 (the "Common Stock"), of the Seller; WHEREAS, the Shares and the Warrants and the Common Stock issuable upon conversion of the Shares or exercise of the Warrants have not been registered under the Securities Act of 1993, as amended (the "Securities Act"); WHEREAS the Seller and the Purchaser are entering into this Agreement to provide for certain rights and obligations with respect to the registration under the Securities Act of the Common Stock issuable upon conversion of the Shares or exercise of the Warrants. NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the Seller and the Purchaser hereby agree as follows: 5.1 S-3 Registration Statement. At any time six months following the date hereof, upon the written request of the Purchaser, the Seller shall be obligated to: 5.1.1 Prepare and file a registration statement with the SEC on Form S-3 under the Securities Act (or in the event that the Seller is ineligible to use such form, such other form as the Seller is eligible to use under the Securities Act) (the "Registration Statement") covering the resale of the Common Stock held by the Purchaser following conversion of its Shares or upon exercise of its Warrants (the "Registrable Securities"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. Such Registration Statement shall, in addition and without limitation, register (pursuant to Rule 416 under the Securities Act, or otherwise) such additional indeterminate number of Registrable Securities as shall be necessary to prevent dilution resulting from stock splits, stock dividends or similar transactions. Thereafter, the Seller shall use its reasonable best efforts to cause such Registration Statement and other filings to be declared effective as soon as practicable. 5.1.2 Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to keep the Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement as set forth in the Registration Statement and then on a continuous basis in accordance with Rule 415 under the Securities Act; and, notify the Purchaser of the effectiveness of such Registration Statement and any amendments or supplements thereto. 5.1.3 Furnish to the Purchaser such numbers of copies of a current prospectus conforming with the requirements of the Securities Act, copies of the Registration Statement, any amendment or supplement thereto and any documents incorporated by reference therein and such other documents as the Purchaser may reasonably require in order to facilitate the disposition of Registrable Securities owned by the Purchaser. 5.1.4 Register and qualify, or obtain an appropriate exemption from registration or qualification for, the securities covered by such Registration Statement under such other securities or "Blue Sky" laws of each jurisdiction of the United States as the Purchaser may reasonably request, (B) prepare and file in those jurisdictions such supplements (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof, (C) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times, and (D) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided that the Seller shall not be required in connection therewith or as a condition thereto to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified, or to file a general consent to service of process in any jurisdiction with respect to matters unrelated to the issuance of the Common Stock pursuant hereto. 5.1.5 Promptly notify the Purchaser in writing of the happening of any such event as a result of which the prospectus (including any supplements thereto or thereof) included in such Registration Statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and use its reasonable best efforts to promptly update and/or correct such prospectus to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to the Purchaser as the Purchaser may reasonably request. 5.1.6 Promptly notify the Purchaser of the issuance by the SEC or any state securities commission or agency of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Seller shall take all actions necessary to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time. 5.1.7 Permit counsel, designated by the Purchaser to review (A) the Registration Statement and (B) all amendments and supplements thereto relating to information concerning the Purchaser within a reasonable period of time prior to filing thereof, to the extent practicable. 5.1.8 List the Registrable Securities covered by such Registration Statement with all securities exchange(s) and/or markets on which the Common Stock is then listed and prepare and file any required filings with the National Association of Securities Dealers, Inc. or any exchange or market where the shares of Common Stock are traded. 5.1.9 If applicable, take all steps necessary to enable the Purchaser to avail itself of the prospectus delivery mechanism set forth in Rule 153 (or successor thereto) under the Securities Act. 5.1.10 Provide a CUSIP number and a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. 5.1.11 At the reasonable request of the Purchaser, prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement. 5.1.12 Furnish to the Purchasers (i) a "10b-5 negative assurances letter" from the Seller's counsel and (ii) an independent auditor's comfort letter, each of which shall be addressed to the Purchaser and similar to such as would be provided in an underwritten offering. 5.1.13 In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. 5.2 Suspension of Registration Statement. Upon written notice to the Purchaser, the Seller may suspend the use of any prospectus used in connection with the Registration Statement if the Board of Directors of the Seller determines in good faith based upon advice of counsel that the use of the prospectus would be misleading because of material non-public information known to the Seller and disclosure of which is determined by the Board of Directors to be materially detrimental to the Seller and is not otherwise required by law; provided, however, that the Seller may utilize this provision only once in any twelve (12) month period and any such suspension shall not exceed forty-five (45) calendar days. The Seller will use its reasonable best efforts to cause any such suspension to terminate at the earliest possible date. 5.3 Expenses. The Seller shall pay the expenses incurred by it in complying with its obligations under this Agreement, including all registration and filing fees, exchange listing fees, the fees and expenses of counsel for the Seller, the reasonable fees and expenses of one counsel retained by the Purchaser or the Purchasers, which counsel shall be reasonably satisfactory to the Seller, and the fees and expenses of accountants for the Seller, but excluding any brokerage fees, selling commissions or underwriting discounts incurred by the Purchaser in connection with sales under the Registration Statement. 5.4 Registration Other Than On Form S-3. The Seller shall seek to continue to qualify for registration on Form S-3 or any comparable or successor form or forms, or in the event that the Seller is ineligible to use form, such form as the Seller is eligible to use under the Securities Act. If the Seller is ineligible to use Form S-3, the Purchaser may, on demand, require the Seller to register the Registrable Securities under the Securities Act on such other form the Seller is eligible to use, and may require the Seller to do so on up to three (3) separate registration statements; in addition to other rights of the Purchasers under this Agreement, the Purchaser may require the Seller to register the Registrable Securities on any registration statement of the Seller filed with the SEC for purposes of a public offering of the Seller's securities. 5.5 Effectiveness of Registration Statement. In the case of the registration effected by the Seller pursuant to this Agreement, the Seller will use its reasonable best efforts to keep such registration effective until the Purchaser has completed the sales or distribution described in the Registration Statement relating thereto or, if earlier, until such Registrable Securities may be sold under Rule 144(k) (provided that the Seller's transfer agent has accepted an instruction from the Seller to such effect). 5.6 Indemnification. i) The Seller will indemnify the Purchaser, each of its directors, officers and partners, and each person controlling the Purchaser within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document incident to any registration, qualification or compliance effected by the Seller pursuant to this Agreement, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Seller of the Securities Act or any state securities law or in either case, any rule or regulation thereunder applicable to the Seller and relating to action or inaction required of the Seller in connection with any such registration, qualification or compliance, and will reimburse the Purchaser, each of its officers, directors and partners, and each person controlling the Purchaser, for any legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Seller will not be liable in any such case to the Purchaser to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Seller by or on behalf of the Purchaser therefor and stated to be specifically for use therein. The indemnity agreement contained in this Agreement shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Seller (which consent will not be unreasonably withheld). 5.6.1 The Purchaser (the "Indemnifying Purchaser") will severally indemnify the Seller, each of its directors, officers and partners, each person who controls the Seller within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, and will reimburse the Seller and its directors, officers and partners, or control persons for any legal or any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Seller by such Indemnifying Purchaser and stated to be specifically for use therein; provided, however, that the obligations of an Indemnifying Purchaser hereunder shall be limited to an amount equal to the net proceeds received by such Indemnifying Purchaser of securities sold pursuant to the Registration Statement. The indemnity agreement contained in this Agreement shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities if such settlement is effected without the consent of the Indemnifying Purchaser (which consent shall not be unreasonably withheld). 5.6.2 Each party entitled to indemnification under this Agreement (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld) and the Indemnified Party may participate in such defense at the Indemnified Party's expense (unless the Indemnified Party shall have reasonably concluded that there may be a conflict of interest between the Indemnifying Party and the Indemnified Party in such action, in which case the fees and expenses of counsel shall be at the expense of the Indemnifying Party), and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless, and only to the extent that, the Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. 5.6.3 If the indemnification provided for in this Agreement is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue (or alleged untrue) statement of a material fact or the omission (or alleged omission) to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the provisions of this Section, the Purchaser shall not be required to contribute any amount in excess of the gross proceeds received by the Purchaser from securities sold pursuant to the Registration Statement. 5.6.4 Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any underwritten public offering contemplated by this Agreement are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall be controlling. 5.7 Available Information. With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of restricted securities to the public without registration, the Seller agrees to use its reasonable best efforts to (i) make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act, or any successor rule, at all times after the date hereof, (ii) use its reasonable best efforts to file with the SEC in a timely manner all reports and other documents required of the Seller under the Securities Act and the Exchange Act at any time, and (iii) so long as the Purchaser owns any Registrable Securities, furnish to the Purchaser upon request, a written statement by the Seller as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Seller, and such other reports and documents so filed as the Purchaser may reasonably request in availing itself of any rule or regulation of the SEC allowing the Purchaser to sell any such securities without registration. 5.8 Notice to the Seller. The Purchaser shall notify the Seller in writing promptly after, and in no event later than five (5) business days after, the sale or other disposition by the Purchaser of any of the Registrable Securities. 5.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated by this Agreement are consummated as originally contemplated to the greatest extent possible. 5.10 No Third Party Beneficiaries. Except for the provisions of Section 1.06 relating to indemnified parties, this Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person, including, without limitation, any union or any employee or former employee of the Seller, any legal or equitable right, benefit or remedy of any nature whatsoever, including, without limitation, any rights of employment for any specified period, under or by reason of this Agreement. 5.11 Currency. Unless otherwise specified in this Agreement, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars. 5.12 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in any New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York for the purpose of any Action arising out of or relating to this Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the transactions contemplated by this Agreement may not be enforced in or by any of the above-named courts. 5.13 Waiver of Jury Trial. Each of the parties hereto hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement. Each of the parties hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce that foregoing waiver and (b) acknowledges that it and the other party hereto have been induced to enter into this Agreement and the transactions contemplated by this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 13. 5.14 Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 5.15 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. 5.16 Assignment. The Purchaser may assign its registration rights under this Agreement in connection with a transfer of the Registrable Securities, prior to the date of the initial filing of the Registration Statement with the SEC, to an affiliate of the Purchaser, provided each such transferee agrees in a written instrument delivered to the Seller to be bound by this Agreement. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. MAYOR'S JEWELERS, INC. By: ----------------------------------- Name: Title: HENRY BIRKS & SONS INC. By: ----------------------------------- Name: Title: EX-4 6 ex4_080902.txt JOINT FILING AGREEMENT Exhibit 4 CUSIP No. 578462103 AGREEMENT CONCERNING JOINT FILING OF SCHEDULE 13D The undersigned agree as follows: (i) each of them is individually eligible to use the Schedule 13D to which this Exhibit is attached, and such Schedule 13D is filed on behalf of each of them; and (ii) each of them is responsible for the timely filing of such Schedule 13D and any amendments thereto, and for the completeness and accuracy of the information concerning such person contained therein; but none of them is responsible for the completeness or accuracy of the information concerning the other person making the filing, unless such person knows of has reason to believe that such information is inaccurate. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same instrument. Dated: August 9, 2002 HENRY BIRKS & SONS INC. By: /s/ Sabine Bruckert --------------------------------- Name: Sabine Bruckert Title: General Counsel and Corporate Secretary HENRY BIRKS & SONS HOLDINGS INC. By: /s/ Marc Cantin --------------------------------- Name: Marc Cantin Title: Director and Corporate Secretary REGALUXE INVESTMENT Sarl. By: /s/ Gerald Berclaz --------------------------------- Name: Gerald Berclaz Title: Director DR. LORENZO ROSSI DI MONTELERA /s/ Lorenzo Rossi di Montelera --------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----