Lugano Diamonds & Jewelry - Bidding Procedures / APA Summary

Bidding Procedures / Asset Purchase Agreement Summary

Parties Involved

• Sellers: Lugano Diamonds & Jewelry Inc. and its affiliated Debtors.
• Agent / Stalking Horse: Enhanced Retail Funding, LLC, pursuant to an Agency Agreement.
• Consultation Parties: The Debtors will consult with any statutory committee, Compass Group Diversified Holdings LLC ("CODT"), and the Agent.

Assets Being Sold

• The sale contemplates some or all of the Debtors’ assets, referred to as the "Agency Assets," which primarily consist of Remaining Merchandise and Owned Furniture, Fixtures, and Equipment (FF&E).
• Merchandise generally includes all finished goods, loose stones and metals, and memo merchandise.
• Excluded Merchandise includes goods held on consignment, goods belonging to sublessees, and certain other items.
• Excluded Assets include avoidance actions arising under the Bankruptcy Code.

Stalking Horse Bid

• The Agency Agreement with Enhanced Retail Funding, LLC serves as a de facto stalking horse bid for the Agency Assets.
• The purchase price structure consists of:
  • A guaranteed amount payable to the Debtors equal to 40% of the aggregate cost value of the Merchandise, secured by a letter of credit posted by the Agent.
  • A profit-sharing mechanism for proceeds generated above the guaranteed amount and the Agent's expenses.
• The Agent is automatically deemed a Qualified Bidder and may credit bid the value of its Agent Protections.
• If the Agency Agreement is selected as the Starting Bid for an auction, its value will include the amount provided for in the agreement plus the value of the Agent Protections.

Credit Bid

• The right of any party to submit a credit bid pursuant to section 363(k) of the Bankruptcy Code is preserved.
• Any party submitting a credit bid is not required to provide a Good Faith Deposit.

Bid Protections

• The Agent is entitled to "Agent Protections" in consideration for its role and for providing the Debtors flexibility to pursue alternative transactions.
• The protections become payable if the Debtors terminate the Agency Agreement in favor of an alternative transaction. The Debtors assert these protections are an actual and necessary cost of preserving the estate under section 503(b).

Overbid

• Initial Overbid: A bid must exceed the value of the Agency Agreement and the Agent Protections by at least $100,000.
• Minimum Overbid Increment: $100,000.

Good Faith Deposit

• Bids must be accompanied by a good-faith deposit equal to 10% of the cash consideration, to be held in escrow.
• The deposit of a successful bidder will be credited toward the purchase price. Deposits from unsuccessful bidders will be returned, though the deposit of a back-up bidder will be retained until three business days after closing.

Bid Requirements

• To be deemed a Qualified Bid, a bid must, among other requirements:
  • Be accompanied by an executed purchase agreement, a redline against the Agency Agreement, adequate assurance information, and a 10% good-faith deposit.
  • Disclose the bidder's identity, specify the assets to be acquired and liabilities to be assumed.
  • Contain no financing, due diligence, or other contingencies.
  • Remain irrevocable until two business days after the closing date and include a commitment to close by Dec. 23, 2025.
  • Waive any claims for a breakup fee, expense reimbursement, or a substantial contribution claim under section 503(b).
  • Include an agreement to serve as a back-up bidder if its bid is the next highest.

Auction Details

• An auction will be held on Dec. 10, 2025, if the Debtors receive at least one competing Qualified Bid.
• The Debtors, in consultation with the Consultation Parties, will select a Starting Bid from the Qualified Bids received and will evaluate all bids based on factors including consideration, closing certainty, and impact on the estates.
• Only Qualified Bidders may participate in the auction, and they must confirm on the record that they have not engaged in collusion.
• Following the auction, the Debtors will identify the Successful Bid and may designate a Back-Up Bid, subject to court approval at the Final Approval Hearing.

Assumption and Assignment

• The Debtors reserve the right to seek court approval for the assumption and assignment of any executory contracts or unexpired leases at a later date.

Sale Free and Clear & Successor Liability

• The Debtors seek to sell the assets free and clear of all liens, claims, encumbrances, and interests to the fullest extent permitted under section 363(f) of the Bankruptcy Code.
• The sale order will provide that the successful purchaser shall have no successor or vicarious liability.

Post-Closing Arrangements

• The Debtors will retain access to necessary books and records to administer their chapter 11 cases following the sale.
• The Debtors request a waiver of the 14-day stay of the sale order under Bankruptcy Rules 6004(h) and 6006(d) to facilitate an expedited closing.

Key Dates

• Interim Approval Hearing: Nov. 18, 2025
• Bid Deadline: Dec. 2, 2025, at 12 p.m. ET
• Qualified Bid Notification Deadline: Dec. 3, 2025
• Sale Objection Deadline: Dec. 4, 2025
• Agent Protections Hearing: Dec. 9, 2025
• Auction (if necessary): Dec. 10, 2025
• Notice of Successful Bidder Deadline: Dec. 11, 2025
• Post-Auction Objection Deadline: Dec. 12, 2025
• Final Approval Hearing: Dec. 17-19, 2025
• Closing Date: Dec. 23, 2025