Karen Millen Holdings Ltd

PROSPECTUS Listing on ICEX Main List Public share offering ISK 1,233 million 90,661,831 shares ISK 13.6 per share JUNE 2005

Mosaic Fashions

TABLE OF CONTENTS Prospectus June 2005

I STATEMENTS AND NOTICE...... 2 Issuer’s Statement...... 2 Manager’s Statement...... 2 Auditors’ Statements ...... 3 References and Glossary of Terms and Abbreviations ...... 4 Publication Calendar of Accounts ...... 4 Notice to Investors ...... 5 II OFFERING AND LISTING OF SHARES...... 6 III SHARE CAPITAL AND OWNERSHIP...... 11 Total Share Capital ...... 11 Issue and Share Rights ...... 13 Ownership...... 14 IV HISTORY ...... 16 Overview...... 16 History of Mosaic Fashions hf. and Predecessors ...... 17 V ACQUISITIONS AND DIVESTMENTS ...... 18 VI ORGANISATION...... 19 Legal Structure...... 19 Organisational Structure ...... 21 VII FASHION RETAIL...... 26 The Fashion Retail Market ...... 26 Mosaic Fashions' Brands ...... 26 Portfolio of Recognised Brands ...... 34 VIII OPERATIONS...... 37 IX FINANCIAL HIGHLIGHTS...... 42 Pro Forma Accounts Compiled from the Statutory Accounts ...... 44 Pro Forma Balance Sheet...... 50 Mosaic Fashions hf., (the parent company) balance sheet as of 20 May 2005 ...... 52 X RISK FACTORS ...... 53

APPENDICES

A Mosaic Fashions hf. - Articles of Association

B Summary of certain Icelandic and UK tax rules

C Mosaic Fashions Ltd. - Financial Statements for the year ended 29 January 2005 D Mosaic Fashions Ltd. - Financial Statements for the year ended 31 January 2004 E Mosaic Fashions hf. (parent company) – Balance Sheet as of 20 May 2005 F Sierra Holdings Ltd. – Financial Statements for the year ended 31 January 2004 G Sierra Holdings Ltd. – Financial Statements for the year ended 25 January 2003 H Karen Millen Holdings Ltd. – Financial Statements for the period ended 1 February 2004 I Karen Millen Holdings Ltd. - Financial Statements for the period ended 2 February 2003 J Whistles Ltd. - Financial Statements for the period ended 2 February 2003

K Reconciliation and details of the pro forma profit and loss account information to the statutory accounts

I STATEMENTS AND NOTICE

Issuer’s Statement The Board of Directors of Mosaic Fashions hf., ID-No. 550405-0320, Sudurlandsbraut 4, 108 Reykjavík, Iceland, hereby declares that, to the best of its knowledge, the information in this Prospectus both accords fully with the facts and no important items have been omitted which could affect evaluation of the Issuer or its shares.

London, 30 May 2005 On behalf of the Board of Directors of Mosaic Fashions hf.

Derek Lovelock, CEO Stewart Binnie, Chairman of the Board Icelandic ID-No. 010150-2569 Icelandic ID-No. 030646-2749

Manager’s Statement Kaupthing Bank hf. – Investment Banking, ID-No. 560882-0419, Borgartún 19, 105 Reykjavík, Iceland, hereby declares that in preparing this Prospectus it has gathered the data which in its estimation was necessary to provide a true and fair picture of Mosaic Fashions hf. and its shares. To the best of our knowledge no important items have been omitted which could effect the evaluation of the Issuer or the shares for which listing is sought.

Reykjavík, 30 May 2005 On behalf of Kaupthing Bank hf. – Investment Banking

Örvar Kærnested, Managing Director, Investment Banking Division

ID–No. 130776-4429

Mosaic Fashions Prospectus June 2005

Auditors’ Statements KPMG Endurskodun hf., reg. no. 590975-0449, Borgartún 27, 105 Reykjavík, has reviewed the Balance Sheet for Mosaic Fashions hf., the parent company, as of 20 May 2005. KPMG Endurskodun hf. has also conducted certain procedures (described on page 49) on the pro forma Consolidated Balance Sheet of Mosaic Fashions hf. prepared by the management of the Company as set out in this Prospectus on page 50-51. We confirm that the information in this Prospectus regarding the abovementioned Balance Sheet for Mosaic Fashions hf. as of 20 May 2005 and the pro forma Balance Sheet on page 51 are consistent with the abovementioned Balance Sheets of Mosaic Fashions hf. Mosaic Fashions

Prospectus June 2005

Reykjavík, 30 May 2005 On behalf of KPMG Endurskodun hf.

Sigurdur Jónsson, state authorised public accountant ID–No. 290256-5269

KPMG Audit Plc, 8 Salisbury Square, London, EC4Y 8BB, United Kingdom, has, in accordance with Auditing Standards issued by the Auditing Practices Board in the United Kingdom, audited the financial statements of Mosaic Fashions Ltd. (formerly Noel Ltd.) for the 52 weeks ended 29 January 2005 and the period from incorporation on 19 August 2003 to 31 January 2004. Our unqualified audit reports were addressed to the members as a body of Mosaic Fashions Ltd. at the dates of their issue, being 6 April 2005 and 28 April 2004 respectively, and are reproduced in full in Appendixes C and D. Our reports stated (in summary) that, in our opinion, the abovementioned financial statements gave a true and fair view of the state of affairs of Mosaic Fashions Ltd. (formerly Noel Ltd.) and its group as at 29 January 2005 and 31 January 2004 respectively and of the profit of the group of companies headed by Mosaic Fashions for the periods then ended, and were properly prepared in accordance with the UK Companies Act 1985. We confirm that the information in this Prospectus regarding the abovementioned financial statements is consistent with the financial statements that we have audited and reported on in accordance with section 235 of the UK Companies Act 1985.

KPMG Audit Plc has conducted certain procedures described on page 42 of this Prospectus with regard to the pro forma profit and loss accounts, which have been prepared by the Directors of the Company, for the last three financial years, ending on 25 January 2003, 31 January 2004 and 29 January 2005 respectively and are presented on page 43 to 46 of this Prospectus. We confirm that the information in this Prospectus regarding the abovementioned pro forma profit and loss accounts is consistent with the pro forma profit and loss accounts that we have conducted certain procedures on.

London, 30 May 2005 KPMG Audit Plc

Chartered Accountants Registered Auditor

References and Glossary of Terms and Abbreviations References to the “Issuer” in this Prospectus shall be construed as referring to Mosaic Fashions hf., ID-No. 550405-0320, unless otherwise clear from the context. References to “Mosaic Fashions hf.”, “Mosaic Fashions”, “the Group” and “the Company” shall be construed as referring to Mosaic Fashions hf., ID-No. 550405-0320, and its subsidiaries and affiliates, unless otherwise clear from the context. Mosaic Fashions hf. is the legal international name of the Company. The Company's legal Icelandic name is M Fashions hf.

The public share offering of new shares in Mosaic Fashions hf. described in this Prospectus and the proposed listing of Mosaic Fashions hf.'s shares on the Iceland Stock Exchange's Main List is arranged by Kaupthing Bank hf.’s Investment Banking Division. References to “the Manager” in this Prospectus shall be construed as referring to Kaupthing Bank hf. – Investment Banking Division, ID-No. 560882-0419, unless otherwise clear from the context.

References to “ICEX” in this Prospectus shall be construed as referring to the Iceland Stock Exchange, that is to Kauphöll Íslands hf., ID-No. 681298-2829, unless otherwise clear from the context. References to the “listing” and the "listing on ICEX Main List" in this Prospectus shall be construed as referring to the proposed listing of the entire issued share capital of Mosaic Fashions hf. on the Main List at the Iceland Stock Exchange, unless otherwise clear from the context.

References to “ISD” in this Prospectus shall be construed as referring to the Icelandic Securities Depository, that is to Verðbréfaskráning Íslands hf., ID-No. 500797-3209, unless otherwise clear from the context.

References to “FSA” in this Prospectus shall be construed as referring to The Financial Supervisory Authority, Iceland, ID-No. 541298-3209, unless otherwise clear from the context.

Reference to "FY2003", "FY2004" and "FY2005" in this Prospectus shall be construed as referring to the financial year ending on 25 January 2003 ("FY2003"), the financial year ending on 31 January 2004 ("FY2004") and the financial year ending on 29 January 2005 ("FY2005") respectively, unless otherwise clear from the context.

Reference to "public offering" in this Prospectus shall be construed as referring to the offering of shares in Mosaic Fashions hf. which will constitute a public offering pursuant to Article 20 of the Icelandic Securities Act no 33/2003 to be subscribed for from 6 June to 10 June 2005 and described in Chapter II of this Prospectus.

The abbreviations used in this Prospectus are listed in the following table. EBITDA ………………………… Earnings before interest, tax, depreciation and amortisation JV ……………………………….. Joint Venture CAGR …………………………... Compounded annual growth rate ISK ……………………………… Icelandic króna GBP …………………………….. British pounds £ ………………………………… British pounds LIBOR ………………………….. London Inter Bank Offered Rate SS ………………………………. Spring-Summer (collection) AW ……………………………… Autumn-Winter (collection) CMT …………………………….. Cut, Make and Trim

Publication Calendar of Accounts Mosaic Fashions hf. hereby announces the following dates for publication of interim and annual accounts for the year ending 31 January 2006 (FY2006).

Interim Accounts Q1 FY2006 28 June 2005

Interim Accounts Q2 FY2006 28 September 2005 Interim Accounts Q3 FY2006 28 December 2005 Annual Accounts FY2006 28 April 2006 Mosaic Fashions Prospectus June 2005

Notice to Investors This Prospectus concerns an initial public offering of new shares in Mosaic Fashions hf. and a primary listing of the entire issued share capital of Mosaic Fashions hf. on the ICEX Main List. The public offering and listing will proceed pursuant to Icelandic law and regulations. This Prospectus is prepared pursuant to current legislation and government and ICEX regulations that apply to the listing. ICEX has reviewed and approved this Prospectus (which is only published in English).

Simultaneously to publication in Iceland, this Prospectus is being distributed in the United Kingdom but is directed only at UK employees of Mosaic Fashions for the purposes of Article 60 of the UK Financial Services and Markets Act 2000 (Financial Mosaic Fashions

Promotion) Order 2001 (as amended) ("Relevant Persons"). This Prospectus must not be acted on or relied on by persons who Prospectus June 2005 are not Relevant Persons. Any investment or investment activity to which this Prospectus relates is available only to Relevant Persons and will be engaged on only with Relevant Persons. Employees of Mosaic Fashions are only allowed to subscribe until 16:00 GMT on the first day of the public offering 6 June 2005.

The listing is intended to take place no later than 21 June 2005, after completion of the public offering which will take place 6- 10 June. The total number of listed shares is intended to be 2,900,461,613. The current number of shares issued by Mosaic Fashions hf. is 2,809,799,782 and 90,661,831 new shares are to be sold in the public offering and issued prior to the listing. On 20 May 2005 the share capital of Mosaic Fashions hf. was increased from the 4,000,000 shares, subscribed for upon the foundation of the Company, to 2,809,799,782 shares. Of the 2,805,799,782 new shares that were issued, 272,469,284 shares were subscribed for in the private offering held between 17-19 May 2005, and 2,533,330,498 shares were issued to Mosaic Fashions Ltd.’s shareholders in exchange for ordinary and preference shares and loan notes otherwise convertible into shares that such shareholders held in Mosaic Fashions Ltd.

As of 20 May 2005, Mosaic Fashions hf. is the sole owner of the entire issued share capital of Mosaic Fashions Ltd. This Prospectus has been prepared to provide clear and thorough information in relation to Mosaic Fashions hf. and its subsidiary undertakings, as well as on the new shares to be issued by Mosaic Fashions hf. Investors are reminded that Mosaic Fashions operates in a market that changes rapidly and the Company has grown quickly in recent years. Investment risk in companies operating under such circumstances is generally greater than in companies operating in a more stable environment. Investors are encouraged to acquaint themselves thoroughly with this Prospectus as well as its Appendices. Investors are advised to pay particular attention to the chapter on Risk Factors. Investors are advised to consider statements made by the Issuer, the Manager and the Auditors regarding this Prospectus. Information provided in this Prospectus is based on facts that were current at the date of publication of this Prospectus. These facts may change from the date of publication until the shares are listed. The Issuer will notify ICEX and publish an annex to the Prospectus should new information of relevance emerge for the evaluation of Mosaic Fashions hf. or the Company's shares during this period. Investors are therefore adv ised to study all public information issued by or relating to Mosaic Fashions hf. and not to rely exclusively on information in this Prospectus.

Th is Prospectus should not be considered or construed as a promise by the Issuer, Manager or other parties of future success in either operations or return on investments. Investors are reminded that investing in shares entails risk as the decision to invest is based on expectations and not promises. Investors must primarily rely on their own judgement regarding any decision to invest in Mosaic Fashions hf.’s shares, bearing in mind the business environment in which the Company operates, anticipated profits, external conditions and the risk inherent in the investment itself. Prospective investors are advised to contact experts such as banks, savings banks and securities firms to assist them in their assessment of the shares in Mosaic Fashions hf. as an investment option. Investors are advised to consider their legal status, including taxation issues that may concern the purchase or sale of shares in Mosaic Fashions hf. and seek external and independent advice in that respect.

The sources of information used in this Prospectus include the comprehensive due diligence reviews conducted on Mosaic Fashions Ltd. and its subsidiaries and advice obtained by the Company and to the Manager. The due diligence reviews were conducted by KPMG LLP, KPMG Endurskodun (finance, tax) and Heatons (legal). BDO Stoy Hayward and Jonsson & Hall Law firm advised the Company and the Manager on a number of issues related to the transaction described in this Prospectus and Slaughter & May advised the Manager on matters of English law.

Attention is drawn to the interests of the party managing the offering. Kaupthing Bank hf. is Mosaic Fashions' investment bank and, amongst other things, led the financing of Mosaic Fashions acquisition of Karen Millen Holdings Ltd. in June 2004. The intended offering is a part of the finalisation of that financing project. Upon the acquisition of Karen Millen Holdings Ltd. the Manager was one of the providers of mezzanine loans to the Company. The total of the mezzanine loans, including prepayment fees, amounts to £78.3 million, which the Company will repay upon completion of the proposed offering and bond issue. The Manager holds a 10.1% stake in the Company. Those Kaupthing Bank hf.'s employees, including their families (dependent children and spouses (married partner, co-habitant and registered partner)) which Kaupthing Bank hf.'s rules, on proprietary securities trading, employee securities trading and separation of operating units etc. (pursuant to article 15 of act 33/2003) apply to, are only allowed to subscribe until 16:00 GMT on 6 June 2005.

This Prospectus and any related offering documentation is not being distributed and must not be mailed or otherwise distributed or sent in or into any country in which distribution would require any additional registration measures or other measures to be taken, other than as applicable under Icelandic law and regulations, or would be in conflict with any law or regulation in such country. This Prospectus is not being sent out, directly or indirectly, by use of mail or any other means or instrumentality (including, without limitation, facsimile transmission, electronic mail, telex, telephone and the Internet) in or into the United States, Australia, Canada or Japan, and the public offer cannot be accepted by any such use, means, instrumentality or facility of, or from within, the United States, Australia, Canada or Japan. Accordingly, this Prospectus, and any related public offering documents are not being and may not be mailed or otherwise distributed, forwarded or sent in or into the United States, Australia, Canada or Japan. The shares have neither been or will be registered under the United States Securities Act of 1933, as amended, or any securities laws of any State of the United States, or the securities laws of Australia, Japan or Canada or its provinces. Accordingly, such shares may not be offered, sold, re-sold or delivered, directly or5 indirectly, within the United States, Australia, Japan or Canada, or to any residents of these countries, except pursuant to an exemption from applicable registration.

II OFFERING AND LISTING OF SHARES

Issuer Alternative internati onal name: Mosaic Fashions hf. Icelandic legal name: M Fashions hf. ID-No. 550405-0320 Domicile: Sudurlandsbraut 4, IS-108 Reykjavík, Iceland Telephone number: +354 414 4125 Headquarters: 1st Floor, 69-77 Paul Street, London, EC2A 4PN, England. Telephone number: +44 (0) 207 452 1000

Issuer’s Operations Mosaic Fashions hf. is registered in Iceland and operates pursuant to Act no. 2/1995 on Public Limited Companies. The objective of the Company, according to Article 3 of its Articles of Association, is to own and run businesses involved in the production, sale and distribution of fashion goods and other related activities, the management of real estate and any other activities which the Company may reasonably be expected to be involved in.

Mosaic Fashions hf. is the holding company of Mosaic Fashions Ltd. The headquarters of Mosaic Fashions hf. and the Group is the same as that of Mosaic Fashions Ltd.

Mosaic Fashions Ltd. is the parent company of four successful design-led fashion womenswear brands: Oasis, Coast, Karen Millen and Whistles. Its main market is currently in the United Kingdom and Ireland, and the Company has plans for further international expansion.

Mosaic Fashions Ltd. was incorporated on 19 August 2003. Its subsidiaries, however, have a longer history. Whistles was founded in 1976, Karen Millen commenced trading in 1981, Oasis Stores was founded in 1991 and Coast was founded in 1996. Mosaic Fashions Ltd. is registered as company No. 4871389 in the Register of Companies for England and Wales.

Manager of Offering and Listing on ICEX Main List Kaupthing Bank hf. – Investment Banking ID-No. 560882-0419 Address: Borgartún 19, IS-105 Reykjavík, Iceland Telephone number +354 444 6000

Mosaic Fashions Prospectus June 2005

Registration The Board of Directors of Mosaic Fashions hf. resolved on 28 April 2005 to prepare the Company for listing of the Company’s entire issued share capital on the ICEX Main List.

The Board of ICEX has agreed to the listing of Mosaic Fashions hf.’s entire issued shares on the ICEX Main List, subject to Mosaic Fashions hf. meeting conditions for listing on the Main List regarding the number of shareholders and share distribution after completion of the public offering. The Board of ICEX has made an exception to the condition regarding the operating history of Mosaic Fashions hf. on the basis that the Mosaic Fashions hf. group meets the relevant critera, even though Mosaic Fashions hf. itself was only incorporated this year. Mosaic Fashions hf. already meets ICEX conditions regarding the size of Mosaic Fashions listed companies. Prospectus June 2005

The outcome of the public offering will be announced to ICEX and the relevant media on 10 June 2005 after 17:00 GMT. The outcome will be published through the ICEX news system on 13 June 2005.

The listing is expected to take place no later than 21 June 2005. The date of listing, which may occur earlier or later than 21 June, will be announced one day in advance through the ICEX news system.

The Board of Directors of Mosaic Fashions hf. has requested that MOSAIC will be the symbol for Mosaic Fashions hf. on ICEX and the ticker symbol for the Company's shares in the ICEX trading system.

ICEX has determined the trading lot as 5,000 shares. A trading lot is the minimum number of shares required for price formation on ICEX.

Mosaic Fashions hf.’s shares have not been previously listed on a regulated stock exchange, although there have been prior listings of certain of the Issuer's subsidiaries. Neither Mosaic Fashions hf. nor its subsidiaries have plans to seek listing on other stock exchanges.

Purpose and Objective of the Offering and Listing The objective of a listing on an organised securities market is to reach a broader group of investors, increase share liquidity and price formation while at the same time making the Company ’s shares more attractive as an investment opportunity. The rationale behind the public offering, along with the private offering held 17-19 May 2005, the refinancing described in Chapter V, and the listing of the Company's shares, is first and foremost to raise capital to enhance the operations of Mosaic Fashions after its recent acquisition of Karen Millen and Whistles, and to provide the platform for further growth and the development of international activities. The Board of Directors of Mosaic Fashions hf. believes that floating Mosaic Fashions in Iceland is a positive move for both the Company and its shareholders, with Icelandic investors having the experience and expertise to help companies execute their growth strategies and to expand internationally.

Authorisation for Recent and Intended Capital Increase The total share capital of Mosaic Fashions hf. amounts to ISK 2,809,799,782 at nominal value.

At a shareholders’ meeting of Mosaic Fashions hf. held on 28 April 2005, the Board of Directors of Mosaic Fashions hf. was authorised to increase the Company’s issued share capital by a nominal value of ISK 2,533,330,498 by issuing new shares to be sold to Mosaic Fashions Ltd.’s existing shareholders at the final private and public offering price. This is in exchange for all ordinary and preference shares and all outstanding capital loans that such shareholders held in Mosaic Fashions Ltd.. Mosaic Fashions hf. will thereby own all the equity and equity related instruments in Mosaic Fashions Ltd. Shareholders’ pre-emptive rights were waived. The description below shows that this authorisation has been used in full.

At the same shareholders’ meeting the Board of Directors was authorised to increase the Company’s share capital by a nominal value of up to ISK 400,000,000 by issuing new shares to be subscribed for in both a private and public offering. Shareholders’ pre-emptive rights were waived. The authorisation is valid until 31 December 2005. The description below shows that the remainder of this authorisation is ISK 127,530,716 nominal value.

The Board of Directors resolved at a Board meeting held on 29 April 2005 to issue new shares to shareholders of Mosaic Fashions Ltd., with the aim of partly or fully exercising the aforementioned authorisation. The consequent exchange of shares is described in this Prospectus.

The Board of Directors resolved at the same Board meeting to offer new shares to institutional investors, high net worth individuals and to the public, with the aim of fully or partly exercising the authorisation mentioned above. The consequential share offerings are described in this Prospectus.

The Board of Directors resolved at a Board meeting held on 19 May 2005 to increase Mosaic Fashions' share capital from the 4,000,000 shares paid at the foundation of the Company to 2,809,799,782 shares. Of the 2,805,799,782 new shares that were issued, 2,533,330,498 shares were issued and sold to Mosaic Fashions Ltd.’s shareholders, in return for their ordinary and

preference shares and loan notes otherwise convertible into shares that such shareholders held in Mosaic Fashions Ltd. 272,469,284 shares were sold in the private offering on 17-19 May 2005.

Process of Recent Private Offering and of Intended Public Offering The offering resolved on the Board meeting held on 29 April 2005 is to be conducted in two stages.

The first stage was a private offering directed at institutional investors and high net worth individuals conducted through a book- building process and completed on 20 May 2005. In the private offering 272,469,284 shares were sold at a price of ISK 13.6 for each share. Shares were sold for ISK 3,705,582,261.

The second stage in the offering is the public offering described in this Prospectus which will be conducted through the internet. In the public offering 90,661,831 shares are to be sold at a price of ISK 13.6 for each share. Shares will be sold for ISK 1,233,000,902. The public offering described in this prospectus will constitute a public offering pursuant to Article 20 of the Icelandic Securities Act no. 33/2003. This Prospectus has been reviewed by ICEX.

The share price in the private offering (which established the share price for the public offering) was determined through a book -building process. All shares issued in the private offering were sold at the price of ISK 13.6 for each share. The share price in the public offering and the price of the shares issued in exchange for ordinary shares, preference shares and loan notes in Mosaic Fashions Ltd. on 20 May 2005, were the same as the private offering share price of ISK 13.6 for each share.

Underwriting The Manager has agreed to underwrite the offering in full. The underwriting of the private offering was at the minimum price of the book-building price range. The underwriting of the public offering is at the offering price of ISK 13.6 for each share.

Cost and Cash Flow The cost of refinancing the mezzanine debt and penalties related to the repayment, the private and public offering, underwriting fees, stamp duties, due diligence reports, the subsequent increase in share capital and of listing is expected to amount to £7.0 million in total. Mosaic Fashions will bear these costs in full.

The amount raised by Mosaic Fashions hf. from the offering will be £40 million (£30 million in the private offering and £10 million in the public offering). Additionally the Company will raise £50 million in a scheduled bond offering and a further £4.6 million through its working capital facilities. According to this, Mosaic Fashions hf.’s estimated cash flow from the share and bond offering is £90 million (£83.0 million when costs related to the offering and the refinancing have been paid). A description of the deployment of the cash is to be found in the discussion above on the Purpose and Objective of the Offering and the Intended Listing.

In addition to the aforementioned costs, stamp duty will be paid on new shares issued to Mosaic Fashions Ltd.’s shareholders in exchange for all equity and equity related instruments in Mosaic Fashions Ltd. This stamp duty is £0.1 million. In addition UK stamp duty will be due from Mosaic Fashions hf. on the acquisition of Mosaic Fashions Ltd.’s shares at the rate of 0.5% of the equity value. Therefore, UK stamp duty of £1.3 to 1.4 million will be due.

Lock-up Eleven members of the Company´s managment, including Stewart Binnie, Derek Lovelock, Richard Glanville and Meg Lustman, have undertaken not to sell the shares they hold in Mosaic Fashions hf. at the time of listing for a period of twelve months after the listing.

Market Making Mosaic Fashions hf. and Kaupthing Bank hf. have entered into an agreement with the aim to improve liquidity in the Company's shares on ICEX in order to promote the development of a market price and to encourage effective and transparent price formation. The amount of bid and offer quotes shall be a minimum of ISK 500,000 at nominal value and the maximum spread between offers of sale and purchase 1.5%. The difference from the last price paid shall not exceed 3%. The maximum amount of transactions per day is ISK 150,000,000 at market value.

Mosaic Fashions Prospectus June 2005

Public Share Offering 6-10 June 2005

Offered Amount and Price

New shares with a value of ISK 1,233,000,902 are to be offered to the public at a fixed price of ISK 13.6 per share. When acquiring the shares, the Investor will not bear any additional fees to the Issuer or the Manager. The number of shares offered is ISK 90,661,831 with nominal value of 1 ISK per share. The offering price and the exact number of shares to be offered in the public offering was determined by the Board of Directors of Mosaic Fashions hf. on 19 May 2005.

Mosaic Fashions

Minimum and Maximum Requested Subscription Prospectus June 2005 The minimum individual requested subscription in the public offering is 7,353 shares, valued at ISK 100,001. The maximum individual requested subscription in the public offering is 2,205,883 shares, valued at ISK 30,000,009.

Allocation to Subscribers In the event that the aggregate number of shares subscribed for in the public offering is greater than 90,661,831 shares, then issued shares will be allocated to individual subscribers as follows:

(A) Individual subscriptions will be reduced on a pro rata basis by up to 50% of the individual subscriptions, which will then be deemed as each individual’s subscription; and (B) if after the adjustments set out in (A) above, the aggregate number of shares subscribed for is greater than 90,661,831, then in addition the maximum individual subscription permitted will be lowered to a level at which the aggregate number of shares subscribed for equals 90,661,831 shares.

Subscription Period 6-10 June 2005 Subscriptions will be accepted from 10:00 GMT on Monday 6 June 2005 until 17:00 GMT on Friday 10 June 2005.

Registering Subscriptions Participation in the public offering is available to all individuals holding an Icelandic ID-Number and all legal entities holding an Icelandic ID-Number, if not prohibited by law. Employees of Mosaic Fashions are only allowed to subscribe until 16:00 GMT on the first day of the public offering 6 June 2005. Those Kaupthing Bank hf.'s employees, including their families (dependent children and spouses (married partner, co-habitant and registered partner)) which Kaupthing Bank hf.'s rules, on proprietary securities trading, employee securities trading and separation of operating units etc. (pursuant to article 15 of act 33/2003) apply to, are only allowed to subscribe until 16:00 GMT on 6 June 2005.

Subscription for shares in the public offering can only be made electronically via a special subscription form on the website of Kaupthing Bank, www.kbbanki.is for an Icelandic version and www.kaupthing.net for an English version.

Before subscribing, an investor must identify himself with login details on the subscription form as follows:

(A) by username and password of KB Net Bank or (B) by ID-No. and a password ordered at the beginning of the internet subscription form and sent instantaneously to an email address provided.

Electronic verification is a precondition for a valid proof of the subscription. Verification of the subscription which appears at the end of subscription can be printed out. From the time of subscription until 31 July 2005 the electronic verification can also be obtained from the website, using the same login details as when subscribing, or from KB Net Bank.

From 11 June until 31 July, notification of allocation and payment instructions can be obtained from the website, using the same login details as when subscribing, or from KB Net Bank.

From investors subscribing for over ISK 5,000,000, the Issuer reserves the right to demand payment security which the Issuer considers adequate. Adequate payment security could be a pledge in other securities, a pledge in a bank account or a custody account. The payment security (e.g. pledge) would be cancelled upon payment of the subscription.

Subscription in the public offering is binding on the subscriber. Subscriptions through the website constitute a legally binding agreement pursuant to which those subscribing are bound to purchase the shares subscribed for and/or allocated to.

When subscribing the investor declares that he has familiarized himself with, understood and agreed the terms and other aspects of this Prospectus.

Kaupthing Bank’s Customer Service Centre will provide information on the public offering by telephone on +354 444 7000, between 9:00 GMT and 20:00 GMT during the subscription period.

Payment From 11 June, notification of allocation and payment instructions can be obtained from the website, using the same login details as when subscribing, or from KB Net Bank.

Payment note for allocated number of shares, payable via Icelandic banks and savings banks and at Icelandic net banks, or payment instructions for swift payments, will also be sent to investors at the end of the subscription period.

Payment shall be made no later than 20 June 2005, according to the payment note or payment instructions for swift payments.

If payment is not received on time or in the correct manner the debt may be collected in accordance with the law and Article 4 of Mosaic Fashions’ Articles of Association. Instead of resorting to collection measures, the Issuer unilaterally reserves the right to invalidate the unpaid subscription without warning or notice or allocate it to a third party pursuant to the provisions of Act no. 2/1995 on Public Limited Companies.

Issuing and Delivering shares Any shares subscribed for through the public offering will be issued electronically at the ISD no later than one day after one quarter of the public offering’s total sales value has been paid for. The issue date should be no later than 21 June 2005, since subscriptions shall be paid for no later than 20 June 2005. One trading day after the shares have been issued electronically, shares will be delivered to each investor one trading day after such investor's shares have been paid for in the correct manner.

Information A copy of this Prospectus along with the material cited in it may be obtained at the following locations:

Mosaic Fashions hf. Address: Sudurlandsbraut 4, 108 Reykjavík, Iceland

Kaupthing Bank hf. – Investment Banking Address: Borgartún 19, IS-105 Reykjavík, Iceland, Telephone number +354 444 6000

Kaupthing Bank hf. – Customer Service Centre Address: Austurstræti 5, IS-101 Reykjavík, Iceland, Telephone number +354 444 7000

A copy of this Prospectus can also be obtained from Kaupthing Bank hf.'s website: www.kbbanki.is or www.kaupthing.net.

Mosaic Fashions Prospectus June 2005

Mosaic Fashions

III SHARE CAPITAL AND OWNERSHIP Prospectus June 2005

Total Share Capital The total issued nominal share capital of Mosaic Fashions hf. is ISK 2,809,799,782. Each share has a nominal value of ISK 1. All issued share capital has been paid for.

Own Shares Mosaic Fashions hf. does not hold any of its own shares. The shareholders’ meeting held on 28 April 2005 authorized the Company’s Board to buy its own shares up to a maximum of 5% of the total issued share capital, at any given time, after the intended listing on ICEX Main List of all the Company's shares. The purchase price of these shares may be up to 20% above the average bid price of shares in the Company during the two weeks preceding the purchase. The authorization is valid for 18 months. By law, Company owned shares do not have voting rights.

Development of the Share Capital The share capital development of Mosaic Fashions Ltd. is a precursor to the share capital development of Mosaic Fashions hf. (which was incorporated on 12 April) and therefore both companies are covered in the section below.

Development of Mosaic Fashions Ltd.’s Share Capital Mosaic Fashions Ltd.’s share capital development is described in the table below from its incorporation on 19 August 2003 (at that date a shelf company incorporated under the name of HSS 188 Ltd.) to 23 May 2005 when the aforementioned ordinary and preference shares and loan notes in Mosaic Fashions Ltd. were transferred to Mosaic Fashions hf. in exchange for shares in Mosaic Fashions hf.

Mosaic Fashions Ltd. - Share Capital Development

Date: Explanation and Price Share Class and Nominal Value A Ord Shares B Ord Shares C Ord Shares D Ord Shares Pref Shares Loan Notes 10% Loan Notes 8%

Nov-03: Company Incorporation New share issue at price £1.0 A ordinary shares each with a nominal value £1.0 506,000 New share issue at price £1.0 B ordinary shares each with a nominal value £1.0 150,000 New share issue at price £1.0 Preference shares each with a nominal value £1.0 30,344,000 506,000 150,000 0 0 30,344,000 0 0 Nov-03: Secondary MBO of Oasis and Coast New share issue at price £1.1 C ordinary shares each with a nominal value £1.0 244,000 New shares at price of £1.33333 D ordinary shares each with a nominal value £1.0 75,000 New capital loan notes unsecured issued Capital loan notes each with a nominal value £1.0 9,681,000 5,361,167 0 0 244,000 75,000 0 9,681,000 5,361,167 June-04: Part of consideration when Karen Millen and Whistles were acquired Redesignation of B shares as A shares 150,000 -150,000 New shares at price of £69.8185 A ordinary shares each with a nominal value £1.0 333,725 New shares at price of £1.0 Preference shares each with a nominal value £1.0 5,488,440 New capital loan notes unsecured issued Capital loan notes each with a nominal value £1.0 8,211,392 483,725 -150,000 0 0 5,488,440 8,211,392 0 March-05: Share issue to employees and employees benefit trust

New shares at price of £77.69 D ordinary shares each with a nominal value £1.0 58,263 April-05: Prepayment of loan notes Loan notes 8% prepayed -4,246,633

Total number of shares and capital loan notes in Mosaic Fashions Ltd. 989,725 0 244,000 133,263 35,832,440 17,892,392 1,114,534

Mosaic Fashions Ltd.’s (then Noel Ltd.) first share issue after its incorporation was in connection with a secondary management buyout backed by an investor group led by Baugur Group hf. The second share issue after incorporation on 25 June 2004 was in connection with Mosaic Fashions Ltd.’s acquisition of Karen Millen and Whistles. The last transactions before the transfer of shares in Mosaic Fashions Ltd. to Mosaic Fashions hf. were part of an agreement between shareholders and managers of Mosaic Fashions Ltd. including the repayment of part of the capital loan notes issued by Mosaic Fashions Ltd. to certain managers in the secondary management buy -out and the issue of D ordinary shares to key employees and the Company’s Employee Benefit Trust.

Development of Mosaic Fashions hf.’s Share Capital Mosaic Fashions hf.’s share development is covered from the incorporation of the Company on 12 April 2005 until 31 May 2005. Mosaic Fashions hf. was incorporated by Kaupthing Bank hf. and Kirna ehf. to facilitate the private offering that took place on the 19-20 May 2005. Mosaic Fashions hf. was incorporated with the minimum share capital 4,000,000 shares priced at ISK 1. On 19-20 May 2005, the owners of Mosaic Fashions Ltd. and certain high net worth individuals and institutional investors subscribed for 2,805,799,782 shares thereof; the owners of Mosaic Fashions Ltd. subscribed for 2,533,330,498 shares and Institutional investors and high net worth individuals 272,469,284 shares. The subscription price was ISK 13.6 per share. Institutional investors and high net worth individuals paid with cash for the shares and existing owners of Mosaic Fashions Ltd. paid with all their ordinary and preference shares and all outstanding capital loans that were held by the shareholders in Mosaic Fashions Ltd.

Mosaic Fashions hf. - Share Capital Development

Date: Explanation and Price Share Class and Nominal Value

15 April 2005: Company incorporation New share issue at price ISK 1.0 Ordinary shares each at nom value ISK 1.0 4,000,000 23 May 2005: Share issue and payment with cash and shares in Mosaic Fashions Ltd. New share issue at price ISK 13.6 Ordinary shares each at nom value ISK 1.0 2,805,799,782 Breakdown (method of payment): Cash from Private Placement Ordinary shares each at nom value ISK 1.0 272,469,284 A ordinary shares in Mosaic Fashions Ltd. Ordinary shares each at nom value ISK 1.0 1,454,578,713 C ordinary shares in Mosaic Fashions Ltd. Ordinary shares each at nom value ISK 1.0 359,587,972 D ordinary shares in Mosaic Fashions Ltd. Ordinary shares each at nom value ISK 1.0 196,392,508 Preference shares in Mosaic Fashions Ltd. Ordinary shares each at nom value ISK 1.0 356,459,182 Loan notes 10% in Mosaic Fashions Ltd. Ordinary shares each at nom value ISK 1.0 166,312,123

2,805,799,782 2,805,799,782

Total number of shares in Moasic Fashions hf. 2,805,799,782

June 2005: Share issue from the intended public offering

New share issue at price ISK 13.6 Ordinary shares each at nom value ISK 1.0 90,661,831

Mosaic Fashions Prospectus June 2005 Total number of shares after intended public offering, 2,896,461,613

Issue and Share Rights

Issue and Share Characteristics The Company’s share capital consists of shares of one Icelandic króna and multiples thereof. Shares are issued electronically at the Icelandic Securities Depository (ISD) and are registered at the ISD under the name of the relevant shareholder. The Company will request that its ticker symbol on the ICEX be MOSAIC. Mosaic Fashions hf.’s distinction at the ISD is MOSAIC Mosaic Fashions and the shares’ ISIN code is IS0000010817.

Prospectus June 2005

Rights All the shares of Mosaic Fashions hf. are of one class and carry equal rights. The Company’s shares carry no special rights and no restrictions are placed on them. Owners of the Company’s share capital have the right to vote at shareholder meetings, the right to receive dividends when declared, enjoy pre-emptive rights to new shares, unless waived, and the right to a portion of the Company’s assets upon liquidation, all according to share ownership, statutes and the Company’s Articles of Association in effect at any given time.

Dividends A resolution on the distribution of dividends shall be made at an Annual General Meeting which shall be held before the end of May each year. Dividends shall be paid to those that are registered as the owner of the Company's shares at the end of the day of the Annual General Meeting when dividends payment is decided. There are no provisions in the Articles of Association on the lapse of the right to a dividend that has not been collected and thus these rights lapse after four years according to Act no. 14/1905 on the Lapse of Debts and Other Claim Rights.

To date, Mosaic Fashions hf. has not paid a dividends. As part of the refinancing of Mosaic Fashions Ltd. there was an interest payment on the Company's capital loans and dividend payment on the Company's preference shares prior to the subscription for shares in Mosaic Fashion hf. The total payment was £10.0 million, based on 8% and 10% interest on capital or principal loans due in 2007 and 2010, respectively, and a dividend payable on preference shares of approximately 14 pence per share.

Dividend Policy Mosaic Fashions hf. aims to pay a dividend to its shareholders in accordance with the provisions of the Icelandic Companies Act. The Company is, however, subject to certain loan agreements which stipulate that the Company shall maintain certain financial covenants. Such financial covenants may limit the ability of the Company to make future dividend payments until full repayment of such facilities (see further following paragraph on Loan Agreement).

Loan Agreement After the refinancing, comprising the two share offerings and the bond issue, certain banks, including Bank of Scotland and Kaupthing Bank hf., will provide a £97.5 million Term Loan Facility in 2 tranches: (i) Tranche A totalling £70.3 million amortized over 4 years to 31 January 2009; and (ii) Tranche B totalling £27.2 million subject to a bullet repayment on 31 January 2009. Both Tranche A and Tranche B of the Term Loan Facility carry interest at LIBOR plus an initial margin of 1.75% respectively. The loans are subject to a downward ratchet based on the ratio of Net Senior Debt / EBITDA. The Facilities Agreement contains certain financial covenants and other ancillary provisions including the right of the banks to require early repayment upon a change of control. As security for entering into the Facilities Agreement, where legally possible, the banks have taken charges over the assets of Mosaic Fashions hf. In turn Mosaic Fashions hf has guaranteed the obligations of the borrowers to the banks under the Facilities Agreement. Where possible, legal charges have also been taken in connection with the Company's long leasehold properties. Mosaic Fashions hf. will also issue bonds worth £50 million. It is envisaged that the bond offering will take place later in 2005, following the proposed listing. The market will determine the terms of the bond issue at the time of the issue.

Right of Ownership and Transfer There are no limitations on the authorization to transfer shares, and shareholders may pledge their shares unless prohibited from doing so by law. Nevertheless, it should be noted that individual shareholders may have agreed that their shares are subject to certain restrictions. A party acquiring a share in the Company cannot exercise his right as a shareholder unless his name has been registered in the share registry or he has announced and proven his ownership of the share. Only general legislative rules apply to the transfer of shares in Mosaic Fashions hf. The electronic registration of securities is governed by Act no. 131/1997 and Regulation no. 397/2000 which is based on that Act.

A printout from the ISD on the ownership of shares in Mosaic Fashions hf. is considered a valid registration of the shares. The Company shall consider the share registry as full proof of ownership to shares and attached rights. Dividends as well as all announcements shall at any given time be sent to the party registered in the Company’s share registry as owner of the shares in question. The Company is in no way liable if payments or announcements do not reach their recipients because a notification of change of address has been neglected.

Rights to electronic shares must be registered at the ISD if they are to enjoy legal protection against legal executions and disposal by means of an agreement. It is forbidden to issue share certificates for registered rights according to an electronic share or endorse them and such transactions are voided. Registration of the ownership of an electronic share at the ISD, subsequent to a Securities Depository final entry, formally gives a registered owner legal authorization to the rights to which he is registered. Priority of incompatible rights is determined by the chronological order of requests from the Banks’ Data Central reaching the Securities Depository.

Tax Issues

The shares of Mosaic Fashions hf. are subject to taxation according to law in effect at any given time.

The Issuer's shares are subject to stamp duty in Iceland which the Issuer will pay when the shares are issued. Stamp duty has been paid on all shares that have already been issued.

The "Appendix: Summary of certain Icelandic and UK tax rules", appendix B has been prepared on the basis that the Issuer is recognised as being UK tax resident, in particular under UK tax law and under the Double Taxation Treaty (ICE-UK Treaty) concluded between Great Britain and Iceland.

However, as Iceland has no legislation, rules or case law in relation to the emigration of corporations, there were some administrative tax issues outstanding at the date of publication of this Prospectus, in particular with respect to Icelandic dividend withholding tax . These outstanding issues will not have any ultimate impact on the tax liability of either the Issuer or its Icelandic or UK shareholders.

Further information on tax issues is contained in Appendix B, "Summary of certain Icelandic and UK tax rules".

Ownership The number of shareholders in Mosaic Fashions hf. was 115 on [30] May 2005. The ten largest shareholders owned a total of 87.0% of the Company's issued share capital and the fifteen largest shareholders in Mosaic Fashions hf. owned a total of 92.6% of the Company's issued share capital. As a consequence of the public offering, the number of shareholders in the Company prior to listing will be substantially increased. The dilution resulting from the new share capital will be 3.1%. Subsequent to the public offering, the largest shareholder, BG Holding ehf., will hold 36.8% stake in the Company. Primary insiders, including the largest shareholders, hold, at the date of this Prospectus and prior to the public offering an aggregate 71.1% of the Company's share capital and are expected to hold subsequent to the public offering an aggregate 59.1% of the Company. Common investors (as defined in regulation 434/1999) thereby hold in aggregate 28.9% of the Company's shares and are expected to hold in aggregate 40.9% of the Company subsequent to the offering, assuming that common investors will buy all shares offered in the public offering.

The Company has no knowledge of any agreement between shareholders on the treatment of votes, but investors are advised to study the relationships between the largest shareholders.

Mosaic Fashions Prospectus June 2005

Post Public Offering Shareholder ID-No. Nominal value Ownership ownership BG Holding ehf 520603-4330 1,066,831,128 38.0% 36.8% 1

Kaupthing Bank hf 560882-0419 285,000,375 10.1% 9.8% Derek Lovelock 010150-2569 231,421,693 8.2% 8.0% Karen Millen2 691100-9010 185,474,590 6.6% 6.4% Kevin Stanford3 691100-9010 185,474,590 6.6% 6.4% Kaupthing Bank Luxembourg SA as nominee for various parties 440598-9009 139,761,687 5.0% 4.8%

Richard Glanville 020855-2669 117,876,513 4.2% 4.1% Mosaic Fashions Jane Woolf 010558-3019 100,492,972 3.6% 3.5% Prospectus June 2005 Zaboo Limited4 541004-9040 80,204,656 2.9% 2.8% Mosaic Fashions Employment Benefit Trust, c/o Abacus Corporate Trustee Ltd.5 51,704,035 1.8% 1.8% 10 largest total 2,444,242,239 87.0% 84.3% Margaret (Meg) Lustman 060862-2659 39,455,620 1.4% 1.4% Sharon O’Connor 030466-2339 39,455,620 1.4% 1.4% Hannah Russell 290472-2539 31,563,092 1.1% 1.1% Lífeyrissjódir Bankastræti 7 711297-3919 24,818,182 0.9% 0.9% Eignarhaldsfélagið ISP ehf 450900-2810 21,489,462 0.8% 0.7% 15 largest total 2,601,024,215 92.6% 89.7% 90 other shareholders total 208,775,567 7.4% 7.2% Total share capital before public offering 2,809,799,782 100.0% 96.9% Public offering 90,661,831 3.1% Total share capital post public offering 2,900,461,613 100.0% 1 Kaupthing Bank Luxembourg AS partly as Nominee 2 Partly a life interest settlement and Landsbanki Luxembourg SA acts fully as Nominee 3 Partly a life interest settlement and Landsbanki Luxembourg SA acts fully as Nominee 4 Landsbanki Luxembourg SA as Nominee 3 Kaupthing Bank Luxembourg AS as Nominee

About the Largest Shareholders BG Holding ehf. is a subsidiary of Baugur Group hf. which is an international investment company focusing on retail investments and real estate operations in northern Europe. Among other principal assets owned by Baugur Group hf. are Giant Bidco (which owns Iceland Stores and Booker), Hagar hf. the largest food and speciality retailer in Iceland, the toy company Hamleys, the Goldsmiths jewellery store chain, the MK One fashion chain and Julian Graves, a speciality food chain. The managing director of Baugur Group’s investments in the UK is Gunnar Sigurdsson, a board member of Mosaic Fashions hf.

Kaupthing Bank hf. is among the Nordic region's eight largest banking groups and the largest bank in Iceland. The Bank has operations in ten countries, including all the Nordic countries. Kaupthing Bank hf. is the leading player in all key areas of the Icelandic financial market. Kaupthing Bank hf. owns 9% in Baugur Group hf. The Notice to Investors (page 5 in this Prospectus) describes the commercial relationship between Mosaic Fashions and the Bank, including the Bank’s role as manager of the offering described in this Prospectus and as the Company’s primary lender.

Derek Lovelock, Richard Glanville, Jane Woolf, Sharon O'Connor, Hannah Russell and Meg Lustman, who are all senior employees of Mosaic Fashions, together hold 19.9 per cent in the Company prior to the public offering; and will subsequently hold 19.3%.

In total, the employees, including the Mosaic Fashions Employment Benefit Trust, hold a 35.8% stake in the Company, which will decrease to an ownership of 34.7% after the offering. Stewart Binnie, the Chairman, of the Board owns a 0.2% stake in the Company. The senior employees of Mosaic Fashions and the Chairman of the Board have undertaken not to sell the shares they will hold in Mosaic Fashions hf. at the time of listing for a period of 12 months.

Kevin Stanford and Karen Millen, the founders of Karen Millen, each own a 7.3% stake in the Company. Both are employees of Mosaic Fashions.

Zaboo Ltd. is co-owned by two individuals, Sigurdur Á. Bollason and Magnús Ármann.

When studying the list of shareholders the reader should keep in mind the effect of the public share offering. The reader should also keep in mind the effect of the share scheme set up for key employees which is described earlier in this chapter on Share Capital (page 11) and Ownership (page 14).

IV HISTORY

Overview Mosaic Fashions hf. is the parent company of four design-led fashion womenswear brands: Oasis, Coast, Karen Millen and Whistles. These niche brands are positioned in the upper-middle market of the UK high street and trade at different price points. Each brand has a strong personality and is differentiated by its product range, store environment and customer service. Mosaic Fashions maintains a consistently innovative and design-led approach across the Group by focusing on product development and brand positioning.

Oasis and Coast maintain niche brand positionings away from the mass brands at the upper end of the middle market. · Oasis targets fashion-aware 18-30 year old independent women by offering a range of individual clothing and accessories. · Coast is a more premium brand providing contemporary occasionwear for the 25-45 year old stylish woman. It is positioned evenly between the mid and high price point brackets.

Karen Millen and Whistles have niche positionings outside the mainstream middle market and operate at the upper end of the high street, bordering on the premium designer brands. · Karen Millen brings “designer-wear” to the high street with a bold range of fashion and accessories targeting the 18- 40 year old body -conscious woman. · Whistles appeals to women who are confident in mixing and exploring colours, textures and accessories and who are style conscious with high fashion aspirations and the disposable income to match. It is Mosaic Fashions’ most premium brand and is closest to being a designer brand.

The brands in the Mosaic Fashions' portfolio design, originate and procure all the merchandise sold in their stores. These ranges were, at the end of the last financial year (FY2005), sold through 554 stores and concessions in the UK, Ireland, Europe and the USA and through 73 Franchised stores in 15 countries. In addition, Oasis traded in 34 department store concessions at the end of FY2005 throughout China under an exclusive license to Oasis Pacific Rim Ltd. a joint venture between Mosaic Fashions and Maiden Fashions Ltd., key shareholders of which are experienced retailers in China and throughout Asia Pacific. Since the end of the last financial year, the joint venture has set up a further 27 outlets.

Mosaic Fashions has exclusively licensed its Oasis intellectual property rights (IPR) for the purpose of manufacturing and distributing non-clothing products, such as footwear, watches and eyewear. Karen Millen IPR has been licensed for the production of eyewear. Mosaic Fashions has set up an intimates brand known as Odille featuring lingerie and afterwear ranges and associated lifestyle products. Currently sold in 38 Oasis stores and 12 House of Fraser lingerie departments, this range will be further developed for sale throughout Europe and USA.

The strategy of Mosaic Fashions is to develop strongly differentiated and independent brands leveraging a shared skills base and infrastructure for services such as distribution, IT systems and accounting. The individual brands are managed as distinct businesses, each with its own team supporting product development, merchandising and retail operations. Growth for the Group will be through the development of its brands organically, both domestically and internationally, as well as by diversifying into new product areas. This development is underpinned by the Group’s ability to utilise its key skills and experience to drive margin and cost-efficiencies as well as set strategy, allocate resources and manage performance.

Mosaic Fashions Prospectus June 2005

History of Mosaic Fashions hf. and Predecessors*

Mosaic Fashions key milestones 1976 Whistles founded by husband and wife Richard and Lucille Lewin 1981 Karen Millen and Kevin Stanford commenced trading 1991 Oasis Stores founded by Michael and Maurice Bennett Mosaic Fashions 1995 Oasis Stores listed on the London Stock Exchange 1996 Coast founded as a fashion clubwear brand Prospectus June 2005 1998 Oasis acquires Coast 1999 Derek Lovelock, current CEO of Mosaic Fashions, appointed as CEO 2000 Richard Glanville and Meg Lustman, appointed as CFO and Business Development Director 2001 Oasis Stores taken private, through a management buyout 2003 Secondary buyout supported by Baugur Group and investor group led by Kaupthing 2004 Karen Millen and Whistles acquired. Company name changed to Mosaic Fashions 2005 Decision taken to pursue a listing on ICEX

The story of Mosaic Fashions hf. can be traced back to 1991 when Michael and Maurice Bennett founded Oasis Stores. Four years later (in 1995) Oasis Stores Plc was floated on the London Stock Exchange.

In April 1998, Oasis expanded its range of operations with the acquisition of the fashion brand Coast for £800,000 thereby becoming a multi -brand business.

In November 1999, Derek Lovelock was appointed CEO. In January, 2001 the whole company was offered for sale and in August’ 2001 the management team of Oasis Stores Plc, led by Derek Lovelock, acquired the Company through a special purpose vehicle, Sierra Acquisitions Ltd (a subsidiary of Sierra Holdings Ltd.) and took the Company back into private ownership. PPM Ventures, the private equity division of Prudential plc. supported the acquisition.

In November 2003, a secondary management buyout supported by Baugur Group hf. acquired the entire issued share capital of Sierra Holdings Ltd. for a mixture of cash and equity issued by Mosaic Fashions Ltd. (then Noel Ltd.) to the Oasis and Coast management teams and other shareholders.

On 25 June 2004, having acquired Karen Millen and Whistles through the acquisition of Karen Millen Holdings Ltd., Noel Ltd. changed its name to Mosaic Fashions Ltd.

For the purpose of listing the shares described in this Prospectus, Mosaic Fashions hf., an Icelandic holding company, was incorporated on 12 April 2005. The trade name of the Company is Mosaic Fashions hf. From the time of its incorporation its sole activity has been to commit itself to acquiring all the shares in Mosaic Fashions Ltd. and to make necessary arrangements as a parent company of the Group to facilitate the offering and prepare the listing.

* The history of the individual brands is described under the description of individual brands in the following chapter. In the Legal Structure section later in this chapter there is a more thorough description of the legal entities participating in the different corporate actions throughout the history of Mosaic Fashions

* The history of the individual brands is described under the description of individual brands in the following chapter. In the Legal Structure17

V ACQUISITIONS AND DIVESTMENTS

Mosaic Fashions Ltd acquires Oasis and Coast On 15 November 2003, Mosaic Fashions Ltd. (then Noel Ltd), together with, its subsidiary, Noel Acquisitions Ltd., acquired the entire issued share capital of Sierra Holdings Ltd.. Sierra Holdings Limited owned directly or indirectly a 100% stake in each of Oasis Stores Ltd. and Oasis Fashions Ireland Ltd. and a 50% stake in the joint venture Oasis Pacific Rim Ltd. The total enterprise value of the acquired group, including costs in connection with the acquisition, amounted to £158.9 million. The acquisition financing consisted of £41.0 million of equity, £68.7 million of senior debt provided by Kaupthing Bank hf. and Bank of Scotland plc, £35.0 million of mezzanine debt provided by Kaupthing Bank hf., £5.5 million in seller’s proceeds rolled over into loan notes and £8.7 million of existing cash resources and working capital. Equity and preference shares were financed by Baugur Group hf., Kaupthing Bank hf. and management.

Mosaic Fashions Ltd acquires Karen Millen and Whistles On 25 June 2004, Mosaic Fashions Ltd, (then Noel Ltd.) acquired the entire issued share capital of Karen Millen Holdings Ltd. which owns 100% of each of Karen Millen Ltd., Whistles Ltd., Karen Millen US Ltd., Karen Millen Holland BV, Karen Millen France SARL, Karen Millen Deutschland GmbH and Karen Millen Belgium SPRL (all trading companies of Karen Millen and Whistles). The total enterprise value of the whole group acquired plus costs in connection with the acquisition amounted to £122.5 million. The acquisition was financed through the roll over of vendor proceeds amounting to £37.0 million into Mosaic Fashions Ltd. shares, £40.0 million in senior debt provided by Kaupthing Bank hf. and Bank of Scotland plc, £30.0 in mezzanine debt provided by Kaupthing Bank hf., £13.0 million of existing cash resources and working capital and £2.5 million with existing seasonal debt.

Mosaic Fashions Ltd. comes under the ownership of Mosaic Fashions hf. On 19 and 20 May 2005 certain institutional investors and high net worth individuals that participated in the private placement and the former shareholders of Mosaic Fashions Ltd. subscribed for shares in Mosaic Fashions hf. Institutional investors and high net worth individuals subscribed for 272,469,284 shares sold at ISK 13.6 per share, and paid in total ISK equivalent of £30 million. Simultaneously the current shareholders of Mosaic Fashions Ltd. and certain creditors subscribed for 2,533,330,499 shares in exchange for the consideration all their common and preference shares and all outstanding capital loans held in Mosaic Fashions Ltd. Mosaic Fashions hf. will thereby own all equity and equity related instruments in Mosaic Fashions Ltd.

The £30 million raised from the private placement, together with the £10 million to be raised in the public offering and the £50 million to be raised in the proposed bond issue will be used to refinance the existing £77.6 million of mezzanine debt of Mosaic Fashions Ltd. plus a redemption penalty cost of £0.7 million, to cover the dividend and accrued interest on the preference shares and capital loans of £10 million, pay stamp duty of £1.5 million and deal costs of £4.8 million. After the refinancing, the total debt of Mosaic Fashions will amount to £149.6 million and its equity value will amount to approximately £308 million. To facilitate the refinancing of its mezzanine debt Mosaic Fashions has acquired a waiver from its senior lenders.

Mosaic Fashions Prospectus June 2005

Mosaic Fashions

VI ORGANISATION Prospectus June 2005

Legal Structure The Legal structure of Mosaic Fashions hf. is the result of certain acquisitions entered into by Oasis Stores Ltd. and Karen Millen Holdings Ltd. The legal structure was set up for financing purposes and to simplify it would result in extra costs to the Group.

Sierra Holdings Ltd. was incorporated in England in June 2001, as part of the management buyout of Oasis Stores Plc. Sierra Acquisitions Ltd. was also incorporated for this purpose. In September 2001, Sierra Acquisitions Ltd. acquired the entire issued share capital of Oasis Stores Plc (now Oasis Stores Ltd.). PPMV Ventures Limited and Bank of Scotland plc funded the acquisition.

In November 2003, as part of the secondary management buyout of Oasis Stores Ltd., Noel Ltd. (now Mosaic Fashions Ltd.) and its subsidiary, Noel Acquisitions Ltd. acquired the entire issued share capital of Sierra Holdings Ltd. from the Oasis management team and PPMV Ventures Limited. The consideration was a mixture of cash (paid by Noel Acquisitions Ltd.) and equity (issued by Mosaic Fashions Ltd. to the Oasis management team). The acquisition was funded by investment from, amongst others, Baugur ID (Baugur Group hf./ BG Holding ehf.) and with debt provided by Bank of Scotland plc and Kaupthing Bank hf. to Mosaic Fashions Ltd. via its subsidiary, Patsy Ltd. Patsy is the immediate holding company of Noel Acquisitions Ltd. Following the completion of this acquisition, the Sierra Holdings Ltd. shares acquired by Mosaic Fashions Ltd. were transferred down the group to Noel Acquisitions Ltd. such that Sierra Holdings Ltd. became a wholly owned subsidiary of Noel Acquisitions Ltd.

In June 2004, Mosaic Fashions Ltd. and Mohave Ltd. acquired the entire issued share capital of Karen Millen Holdings Ltd. for a mixture of cash (paid by Mohave Ltd.) and equity. Mohave Ltd. is a wholly owned subsidiary of Sonora Holdings Ltd., which in turn is a wholly owned subsidiary of Mosaic Fashions Ltd. This acquisition was again funded by investment from Baugur ID and others and through bank debt. Mohave Ltd now owns the entire issued share capital of Karen Millen Holdings Ltd.

All of Mosaic Fashions hf.’s subsidiaries are wholly owned, except for Oasis Pacific Rim which is a limited liability, joint venture company 50% of which is owned by Mosaic Fashions and 50% is owned by Maiden Fashion Ltd., a company owned by experienced retailers in China and Asia Pacific.

Principal Subsidiaries Oasis Stores Ltd., (ID-No: 2571150. Registered office 13-16 Lakeside, Stanton Harcourt, Witney, Oxfordshire, OX29 5TR) is a 100% owned subsidiary of Mosaic Fashions hf. The total share capital of Oasis Stores Ltd. is 52,457,175.0 ordinary shares of £0.01 each and has been paid in full. In FY 2005, the book value of Oasis Stores Ltd.'s capital and reserves amounted to £47.3 million. Oasis Stores Ltd. was incorporated on 2 January 1991. No dividend was paid last year. Mosaic Fashions hf. and Oasis Stores Ltd. trade with each other. There are no irregular loan agreements between the two.

Karen Millen Ltd., (ID-No: 2567238. Registered office 13-16 Lakeside, Stanton Harcourt, Witney, Oxfordshire, OX29 5TR) is a 100% owned subsidiary of Mosaic Fashions hf. The total share capital of Karen Millen Ltd. is 950.0 ordinary shares of £1 each that have been paid in full. In FY 2005, the book value of Karen Millen Ltd.'s capital and reserves amounted to £17.0 million. Karen Millen Ltd. was incorporated on 10 December 1990. No dividend was paid last year, other than a dividend in specie to Kevin Stanford and Karen Millen before Mosaic Fashions Ltd.’s acquisition of Karen Millen Holdings Ltd. Mosaic Fashions hf. and Karen Millen Ltd. trade with each other. There are no irregular loan agreements between the two.

Whistles Ltd., (ID-No: 1514754. Registered office 13-16 Lakeside, Stanton Harcourt, Witney, Oxfordshire, OX29 5TR) is a 100% owned subsidiary of Mosaic Fashions hf. The total share capital of Whistles Ltd. is 2,146.0 ordinary shares of $1 each and has been paid in full. In FY 2005, the book value of Whistles Ltd.'s capital and reserves amounted to £4.1 million. Whistles Ltd. was incorporated on 28 December 1980. No dividend was paid last year. Mosaic Fashions hf. and Whistles Ltd. trade with each other. There are no irregular loan agreements between the two.

As part of the refinancing of the Group, preference shareholders and capital loan holders of Mosaic Fashions Ltd. were paid a special dividend and accrued interest as stated in the Dividends section under Issue and Share Rights on page 13.

Overseas operations for owned stores are traded through locally registered companies, except for Karen Millen US Ltd., a UK registered company.

Mosaic Fashions Prospectus June 2005

Organisational Structure Profitability and risk awareness are the dynamic forces that shape the organisational structure of Mosaic Fashions. Scalability is sought without compromising the distinctive and separate brands.

Mosaic Fashions Prospectus June 2005

This organisational structure mitigates the risk inherent in managing a fashion retail business. The design and buying of each brand’s collections are managed independently of other brands within the Group. Therefore, any range failure or fashion misinterpretation in any particular brand is likely to be offset by the success of other collections of different brands within the Group.

The four brands operate individually and are independently managed, with separate product development and retail teams for each business supported by group infrastructure and central services.

The role of the Group is to provide direction and support to the individual brands. The span of Mosaic Fashions’ businesses allows the management team to have a broad understanding of the women’s fashion retail market and the trends and issues affecting it. This perspective blends well with the focus and specific accountability that the individual management teams have for the performance of their own brands. By working together, the management ensures that each brand has a clear strategy and the resources to ensure that its plans can be achieved.

The shared services allow the individual brands to leverage world-class skills, systems and experience too costly for businesses of their scale to access. The ability to develop best practice and transfer skills across all parts of the Group is a key strength for the business.

Corporate Governance Corporate governance in Mosaic Fashions hf. is defined as the framework by which the Company is directed and controlled and the means by which relationships between the Company’s management, its Board, its shareholders and other stakeholders are conducted.

The aim of the corporate governance programme in Mosaic Fashions hf. is to ensure disclosure and transparency, define the responsibilities of the Board and the management, define the rights and obligations of shareholders and stakeholders, ensure the equitable treatment of shareholders and avoid conflicts of interests between the parties.

The Board is ultimately responsible for the Group’s system of internal controls and for reviewing their effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable assurance against material misstatement or loss. The Board has adopted a Code of Business conduct, which provides practical guidance for all staff and which helps identify and evaluate the significant risks affecting the business and the policies and procedures by which these risks are managed.

In 2004, the Iceland Chamber of Commerce, ICEX and the Confederation of Icelandic Employers issued Guidelines on Corporate Governance. Mosaic Fashions hf. has studied and believes it complies with these Guidelines and it intends to follow them with respect to its future structure and management.

Statutory bodies

Shareholders' Meetings The supreme authority in the affairs of Mosaic Fashions hf., within the limits established by its Articles of Association and statutory provisions, is in the hands of the Company's shareholders’ meetings. Shareholders’ meetings may be attended by shareholders, their representatives and advisors. Shareholders’ meetings are open to representatives of the press and the ICEX.

The Annual General Meeting of Mosaic Fashions hf. shall be held before the end of May each year.

At shareholders’ meetings each share carries one vote. Decisions at shareholders’ meetings are made by majority vote unless otherwise provided for in the Articles of Association or prescribed by law.

Board of Directors The Board of Mosaic Fashions hf. manages the Company’s general affairs and endeavours to keep the organization and operations on course. The Company’s Board of Directors directs company affairs and strives to ensure that the Company’s organisation and activities are in good order at all times and that the accounting for and the handling of the Company’s funds are sufficiently supervised.

The Board of Directors appoints the CEO of Mosaic Fashions hf. and decides on the terms of his employment.

Mosaic Fashions hf. plans to assess the activity, work practices and procedures of the Board annually in light of the Company’s progress, with the assistance of outside parties, when appropriate. The Working Procedures of the Board of Directors state that Board Members should familiarise themselves with the provisions of law, the Company’s Articles of Association, the general securities regulations, the special regulations of the Company on the handling of inside information and insider trading and other relevant rules.

The Board of Mosaic Fashions hf. has a majority of Board Members that are independent of the Company and two Members that are independent of major shareholders.

The following section lists the current members of the Board of Directors and their activities. It is not intended to be exhaustive, but details the main occupations and/or other occupations that are linked to the ownership or operations of Mosaic Fashions hf. Thordis Sigurdardottir was voted on to the Mosaic Fashions hf.'s board on 18 May 2005. Stewart Binnie, Derek Lovelock, Richard Glanville and Gunnar Sigurdsson were voted on to the Mosaic Fashions hf.´s Board of Directors on 28 April 2005.

Apart from Thordís Sigurdardóttir, all board members have been involved as directors of Mosaic Fashions' Group of companies for the past twelve months or more. Further information is provided on when Directors were first elected to a board of a Mosaic

Fashions Group company. In references made to “related parties” that hold shares in Mosaic Fashions hf., related parties are linked to Board Members, where the Board Members have extensive influence over the investment activity of the related party. There are no extraordinary transactions between the Board of Directors and the Company. The Board of Directors has not received any loans or stock options from the Company.

Mosaic Fashions Prospectus June 2005

Stewart Binnie, London, United Kingdom. Chairman of the Board, elected to Sierra Holdings Ltd.'s Board in November 2002. Occupations: Financial adviser with a strong background in retail and investment banking. Own holding and holding of spouse and children under 18 years of age in Mosaic Fashions hf. 5,747,513. Stewart Binnie is not related to other parties that own shares in Mosaic Fashions hf.

Richard Glanville, Essex, United Kingdom. Member of the Board, elected to Oasis Stores Plc's Board in December 2000. Occupations: Finance Director of Mosaic Fashions hf. Own holding and holding of spouse and children under 18 years of age in Mosaic Fashions hf.: 117,876,513. Richard Glanville is not related to other parties that own shares in Mosaic Fashions hf.

Derek Lovelock, Buckinghamshire, United Kingdom. Member of the Board, elected to Oasis Stores Plc's Board in November Mosaic Fashions 1999. Occupations: CEO of Mosaic Fashions hf. and Chairman of the board of Jacques Vert plc. Own holding and holding of spouse and children under 18 years of age in Mosaic Fashions hf.: 231,421,693. Derek Lovelock is not related to other parties Prospectus June 2005 that own shares in Mosaic Fashions hf.

Thordís Sigurdardóttir, ID-No: 020268-5229, Hvassaleiti 113, 103 Reykjavík, Iceland. Member of the Board, elected to Mosaic Fashions hf.'s Board in May 2005. Occupation: Assistant professor and Director of MBA Program at Reykjavík University. Own holding and holding of spouse and children under 18 years of age in Mosaic Fashions hf.: 0. Thordís Sigurdardóttir is not related to other parties that own shares in Mosaic Fashions hf.

Gunnar Sigurdsson, ID-No: 091169-3559, London, United Kingdom. Member of the Board, elected to Mosaic Fashions Ltd.´s Board in March 2004. Occupations: Managing Director of Baugur Group Investments in UK. Own holding and holding of spouse and children under 18 years of age in Mosaic Fashions hf.:1.145.455 shares. Related party: Baugur Group hf. is through its subsidiary BG Holding ehf. the largest shareholder in Mosaic Fashions hf. with 1,066,831,128 shares.

Members of the Board of Directors currently have no stock options or warrants in Mosaic Fashions hf.

Remuneration for the Board of Directors in Mosaic Fashions Ltd. for FY2005 amounted in aggregate £990,763. Stewart Binnie, the Chairman of the Board received £57,000 and the six other Members of the Board, received in aggregate £933,763. Last year the executive board members of Mosaic Fashions Ltd. received £896,179 thereof for their employment as executives at Mosaic Fashions Ltd. No remuneration has been made to the Board of Directors in Mosaic Fashions hf. since its incorporation.

Board Committees The Board of Mosaic Fashions hf. operates both an Audit Committee and a Remuneration Committee.

Each Committee consists of the Chairman and Directors of the Board of Mosaic Fashions hf. who are competent to deal with the Company’s financial issues or remuneration, as the case may be. The independence of a Board member is evaluated as specified under 2.6. of the Corporate Governance guidelines published by the Iceland Chamber of Commerce, the Iceland Stock Exchange and the SA-Confederation of Icelandic Employers.

The Audit Committee’s role is to ensure the integrity of the financial information reported to shareholders, control the Company’s internal auditing and accounting system, evaluate the work of the Company’s financial management and the Company’s elected Auditor.

The Remuneration Committee’s role is to ensure that the CEO's remuneration reflects the long-term performance of the Group, his personal performance and the interests of the shareholders. The CEO is responsible for the remuneration of other employees and for ensuring that it remains in line with the policy of the Remuneration Committee. The Remuneration Committee’s policy is to ensure that the Company can attract and retain high calibre executives. For these purposes the committee consults with external advisers on levels of remuneration in comparable companies where appropriate, the remuneration package for executive directors consists of basic salary, annual bonus, pension arrangements and other taxable benefits.

The Remuneration Committee also determines the policy of the Company regarding employee stock options. Future changes to the stock option policy will be submitted to the Annual General Meeting for approval. The existing stock option scheme is through the Employee Benefit Trust described under the Employees section later in this chapter.

The CEO is responsible for the Company’s strategy, operations and finance and represents the Company in all matters regarding normal operations. He is in charge of accounting, management and HR. The CEO is obliged to provide the Board of Directors and the Auditors with all information on the Company’s operations that they may request and is required to be provided according to law.

The head office of the Company is 69-77 Paul Street, EC2A 4PN London, UK. However, the Registered Office of Mosaic Fashions hf. is Sudurlandsbraut 4, IS-108 Reykjavik, Iceland and the Registered Office of Mosaic Fashions Ltd. is 13-16 Lakeside Stanton Harcourt, Witney, Oxfordshire, OX29 STR as this is where the majority of the accounting team is located.

Auditors A state authorised public accountant or accounting firm is elected as the auditor at each Annual General Meeting of Mosaic Fashions hf. for a term of one year. The Auditor examines the Company’s accounts and all relevant accounts documents for each year of operation, and has access to all the Company’s books and documents for this purpose. Auditors are not elected from among the Members of the Board of the Company or employees. The qualifications and eligibility of the Auditor at elections are in other respects governed by law.

The Chartered Accountants and Registered Auditor of Mosaic Fashions hf. are KPMG Endurskodun hf. ID-no. 590975-0449, Borgartún 27, IS-105 Reykjavik, Iceland.

The Chartered Accountants and Registered Auditor of Mosaic Fashions Ltd are KPMG Audit plc, 8 Salisbury Square, London, EC4Y 86B, United Kingdom. Auditors’ fees in FY2005 were £0.3 million, £0.2 for the auditing and £0.1 million for the provision of other services.

Compliance Officer A Compliance Officer is employed within the Company. The Compliance Officer is directly responsible to the CEO and is independent in his or her duties. The Compliance Officer monitors the implementation of insider rules adopted by the Company, including rules regarding securities trading by employees and primary insiders. The Compliance Officer is responsible for interpreting the rules, and takes decisions based on the rules. The Compliance Officer makes propos als for improved working procedures for various positions within the Company, and helps develop and maintain the compliance monitoring system.

In accordance with applicable regulation and recommendations of the Icelandic Financial Supervisory Authority (FSA) the Company has established rules on the handling of inside information and insider trading which have been confirmed by the FSA.

Key Management and Employees

Senior Management The senior management team under the leadership of the CEO Derek Lovelock comprises three directors at Group level. All have significant management experience in fashion retailing. There are no extraordinary transactions between the Group and the senior management team.

Derek Lovelock, CEO, (1950), joined Oasis Stores Plc as Chief Executive in October 1999. Previously, he was the Chief Executive and a Board Director of Sears plc, where he had responsibility for its Clothing Division encompassing Wallis, Warehouse, Miss Selfridge, Richards, Adams and the Outfit. Prior to joining Sears plc in 1992, he spent eight years with Storehouse plc where, having spearheaded the creation of a fashion division that included brands such as Blazer, Jacadi and Anonymous, he was promoted to the board and given responsibility for Mothercare. Derek Lovelock is a non-executive chairman of Jacques Vert plc and member of its remuneration and audit committees. Jacques Vert plc is a clothing company that is listed on the Alternative Investment Market (AIM) of the London Stock Exchange. Derek Lovelock’s holdings in Mosaic Fashion hf. amount to 231,421,693 shares and holdings of financially related parties amount to 0 shares.

Richard Glanville, Finance Director, (1955), joined Oasis Stores Plc as Finance Director, responsible for Finance, IT, Distributi on, and Company Secretary in 2000. Previously, he was the IT Director of Hays Information Management. He is a qualified accountant and has relevant retail industry experience including roles as CFO at Richards Ltd., Commercial Director at Sears Clothing Ltd., IT director at Comet Ltd. and Commercial Director at Mothercare Ltd.. Richard Glanville’s holdings in Mosaic Fashion hf. amount to 117,876,513 shares and holdings of financially related parties amount to 0 shares.

Meg Lustman, Strategy and Development Director, (1962), joined Oasis Stores Plc as Business Development Director in January 2000. Prior to joining Oasis, she worked for over nine years in a number of strategic and international development roles within Sears plc. With 15 years' experience in UK and international retailing, she combines strategic planning, coaching and project management skills at a senior level. Meg Lustman's holdings in Mosaic Fashion hf. amount to 39,455,620 shares and holdings of financially related parties amount to 0 shares.

The total salary for the CEO of the Company in FY 2005 was £399,858. The term of notice for the CEO is 12 months. In FY

2005 the Group Directors, listed above, together received £748,685 in salaries. The management has not received any loans or stock options from the Company.

Mosaic Fashions Prospectus June 2005

Employees At the end of FY2005 the total number of employees was 5,938, of which 5,200 were in the retail teams and 323 were shared services based in the distribution centres in Oxford and Maidstone. The head office teams are based in Paul Street, London and comprise 350 employees. In FY2005, the average number of employees of Mosaic Fashions Ltd. (formerly Noel Ltd.) was 5,394. The number of employees has increased by 2,318 or 66% between FY2003 and FY2005. 56% of the increase is related to the acquisition of Karen Millen and Whistles and 44% is the result of organic growth in Oasis and Coast. In FY2003 and FY2004 the average number of employees was 3,076 and 3,530 respectively. There are bonus schemes to motivate and incentivise employees across the Group and reward them if business targets are achieved. In addition, an Employee Benefit Trust (EBT) was established in November 2003 to tie senior managers into the Group’s development. Mosaic Fashions

Prospectus June 2005

Employee Benefit Trust The intention of the Employee Benefit Trust (EBT) scheme is to allow dedicated senior managers to participate in the Group's development. This EBT will be enhanced following the flotation of Mosaic Fashions hf in order to further align managers’ interests and rewards with the performance of the Company. The Oasis Employee Benefit Trust was established in November 2003 with a £2.3m investment from the company in preference shares and loan notes. In January 2005, the first payments, totalling £0.6m were made to 85 employees. In March 2005, the scheme was transferred to a Mosaic Fashions EBT and the Company injected a further £1.3m. These additional funds will be used to bring Karen Millen and Whistles’ senior managers into the scheme and to extend the long-term incentives for het existing and new members. Share capital and loan notes already held by the trust were used to purchase shares in Mosaic Fashions Ltd. After the conversion of loan notes and share capital, pursuant to listing into shares in Mosaic Fashions hf., the EBT will own 51,704,035 shares in Mosaic Fashions hf.

VII FASHION RETAIL

The Fashion Retail Market Mosaic Fashions’ primary market is the UK’s £16.0-16.5 billion womenswear market that accounts for approximately 52% of the £29.0-£30.0 billion UK clothing retail market.

The womenswear market experienced CAGR of 3.2% - 3.7% between 1999 and 2004. The growth over this period is explained by strong consumer spending; the reaction to the phenomenon of fast fashion; and the market’s response to significant demographic shifts that have taken place.

· Strong consumer spending over the period is evidenced by the growth in domestic household expenditure on goods and services at market prices, which grew annually at a CAGR of 4.9%. This has been fuelled by low interest rates and rising house prices which have combined to lead to a greater availability of credit;

· The introduction of fast fashion, with retailers taking catwalk fashions to the high street more rapidly, has resulted in more demanding and experimental customers and an increasingly fashionable womenswear market with faster changing product ranges in stores. The main growth driver is increased volume as the market has actually experienced some price deflation over the period. This price deflation has especially been driven by the rise of discount retailers and value retailers selling lower-priced mid-market fashion, as well as factory outlets and supermarkets that have increased price competition. Consequently, there are many successful fashion retailers offering a highly competitive range as measured by price and styling including George at ASDA and Tesco’s clothing ranges. However brands operating above the middle market have been less subject to price deflation;

· The emergent generation of 40+ year-old women has defined the new concept of “middle youth”. These women no longer want to dress as previous generations did. Raised in the 1960’s their demand for fashion has not disappeared and they choose to shop and wear fashion brands rather than classic brands. The response of department stores has been to redevelop their womenswear offer and bring in more fashionable “contemporary” brands to replace the “classic” brands that women of this age bracket no longer wanted. This has allowed many brands, such as Oasis and Coast, to expand their space in department stores and broaden their customer base with minimal risk and expenditure by setting up concessions. (For further information regarding concessions see analysis of "Stand-Alone Stores vs. Concessions" in chapter IX.)

Future prospects for womenswear retailing in the UK are generally quite positive, although it is believed that the growth in private consumption, estimated to be approximately 2.0% in 2005 and 2006, is slowing from the trend rate. However, in the short term the trading climate in the UK is proving challenging as interest rates rise and the rise in house prices slows.

Mosaic Fashions' Brands “Brands” are distinct from “retailers” as they develop a strong relationship with their customer that typically outlives fashion or trends. Brands identify a key customer and develop a retail offer aimed to satisfy her needs and create loyalty. The brand

includes the product range as well as the store environment, customer service and the marketing and communication that the customer experiences whenever she makes contact with the business. It is believed that when the customer values her experience of a brand she is prepared to pay a premium, thereby improving the brand's sales and gross margin. At Mosaic Fashions hf., there is a strong belief in the concept of brands and it is for this reason that the organisation is structured to keep each management team focused on its particular business.

Mosaic Fashions Prospectus June 2005

The following is a description of Mosaic Fashions’ four distinct womenswear brands.

Mosaic Fashions' Market Position

Currently, the Mosaic Fashions brands have approximately 2% market share of the UK’s womenswear market. Mosaic Fashions

Prospectus June 2005 The UK womenswear market varies greatly in respect of price and fashion. Mosaic Fashions’ portfolio is predominantly focused on the high street and its target customers are 18-45 year old women. Whilst all four brands focus on this age range, each brand targets a sub-set of this population in terms of fashionability, style, end-use and price.

In terms of price and fashion, · Oasis is closest to the middle market; · Coast is positioned evenly between the high and mid market; · Karen Millen and Whistles are at the highest level

Management views other mid-market to high-fashion retailers for 18-45 year old women as their main competitors. However, it also analyses the more traditional market as well as the low cost market in order to monitor trends and prices and to gain a better overview of the competition in the general womenswear market in the UK. · Oasis’ main competitors are companies such as Kookai, Warehouse and Morgan. · As a destination occasionwear store, Coast has no direct competition as all other brands offer a wider product range. However Hobbs, Fenn Wright and Manson, Principles and Monsoon are the nearest competitors with respect to their fashion offer and end-use offer. · Karen Millen’s and Whistles’ main competitors are Reiss, Jigsaw and designer brands.

Oasis Oasis is the largest business in the portfolio. The company exclusively incorporating the brand was founded in 1991, by Michael and Maurice Bennett. Four years later Oasis Stores Plc was listed on the London Stock Exchange. Derek Lovelock, the current CEO of the Company, joined in November 1999 as CEO to facilitate the succession of the original owners. Early in 2001 it was decided to sell the whole company and at the end of 2001 the management team of Oasis Stores Plc, backed by PPM Ventures, the private equity division of Prudential plc, took the business private.

The Brand Oasis is a well-established brand trading on the UK high street. It operates at the upper end of the middle market and differentiates itself from the mainstream high street brands with innovative design-led clothing and accessories, the quality and uniqueness of which allow it to trade at a premium price to the middle market.

The brand creates a carefully considered range of clothing and accessories aimed at the fashion aware 18-30 year old woman. Collections are fashionable, wearable and colourful; innovation, quality and differentiation are the key Oasis brand values. More aspirational than other high street brands, its pricing is justified by the quality of the fabrics, consistency of fit and attention to detail in design. Its closest competitors are Warehouse, Morgan and Kookai, all of which operate at similar price points. Other competitors include River Island, Top Shop, Hennes & Mauritz and Zara.

Oasis is synonymous with colour, fun and femininity and the brand philosophy is carried through all aspects of the Oasis experience from the considered selection of each store location and their “boutique and quirky ” interiors, to the development of the Oasis imagery, packaging and labelling, all of which are designed to identify with the fun-loving spirit of the customers.

Oasis offers a broad product range and includes clothing, accessories, footwear, jewellery, luggage, lingerie and lifestyle gifts for women. The product offer spans both the casual end of the market and formal tailoring and special daywear. The buying strategy for Oasis involves selecting product and targeting to its customer base at different store levels across the Company; limited edition ranges and exclusive buys can be found at the Oasis flagship stores.

Oasis Organisational Structure and Directors

Jane Woolf. Buying Director, Oasis, born 1958. Jane Woolf has been with Oasis since its inception and has over 22 years’ experience in retail. As Buying Director she has played a fundamental role in building both Oasis and Warehouse from their beginnings.

Nadia Jones. Design Director, Oasis, born 1968. Joined Oasis plc in 1997. Nadia graduated from Kingston University thirteen years ago with a BA Honours in Fashion Design. Since then she has had a wealth of design experience at high street retailers such as Next and M&S.

Sharon O’Connor. Merchandising Director, Oasis, born 1966. Joined Oasis Stores Plc in 1999. Sharon has over 20 years’ experience in Allocation and Merchandising across Childrenswear, Accessories and primarily Young Fashion. This was gained through roles at Debenhams, Sock Shop and Miss Selfridge.

Jacki Nolan. Retail Operations Director, Oasis born 1959. Joined Oasis plc 1999. Jacki has 19 years’ experience in retail operations, nine of them at Director level including Miss Selfridge and Ravel. Responsibilities have included Area Management, Store Development and Shopfit, Training, Visual Merchandising and International Sales.

Hannah Russell. Group Marketing Director, born 1972. Joined Oasis Plc as Marketing Director in April 1999. Prior to joining Oasis, she was Head of Womenswear Marketing at Arcadia responsible for Topshop, Dorothy Perkins and Principles. During her time at Arcadia, Hannah developed and launched Topshop's Oxford Circus flagship store. Hannah's specialist fashion marketing skills lie in the development of strategic marketing programmes, retail design, innovative PR & special events activity and new product development.

Outlets At the end of FY 2005 Oasis operated globally from 329 outlets and franchise stores. In the UK and Ireland, Oasis trades from 105 stand-alone stores and 132 concessions across approximately 20 different department store chains. Over the period FY2002-FY2005 Oasis increased the number of its concessions in the UK from 49 to 132. Oasis has 17 concessions in Germany, that have significantly over-performed in the difficult fashion market that Germany has experienced over the period. At the end of FY2005 Oasis had 41 franchised stores.

Brand Revenues Between FY2002 and FY2005 Oasis' revenues increased at a CAGR of 7.1%. The growth has mainly been driven by new store and concession openings.

The most significant growth was experienced in FY2004, when sales increased by 12.7%. Increased sales over the year were partly due to the opening of new stores and concessions as well as due to a product mix of more expensive products, such as tailoring that was in fashion. In FY2005, tailoring was not in fashion and as a consequence prices were slightly lower. Over the

year sales increased by 4.7%. Oasis generated 49% of the Company’s revenues in FY2005.

Brand Potential When compared to other Mosaic Fashions brands, Oasis is a relatively mature brand, as illustrated by its geographical penetration in the United Kingdom. However, Oasis has further growth potential; an outlet strategy identified a number of new

Mosaic Fashions Prospectus June 2005 concession and standalone store opening opportunities within the UK.

Internationally, the brand also has an opportunity to grow further by taking a strategic approach to franchising and by identifying new markets and appropriate partners where there is a high degree of fit with the UK offer.

Oasis formed OPR (Oasis Pacific Rim) in 2002 as a joint venture with Maiden Fashions Ltd, shareholders of which include a major retailer based in Hong Kong with operations throughout Asia Pacific. Oasis now trades from 34 department store concessions in China with further significant expansion planned within the Pacific Rim. The OPR product range is sourced locally, based on Oasis UK’s design and brand ethos.

Oasis identified an opportunity in 2003 to enhance its flagship store proposition within major city centres. Subsequently, a successful strategy is now in place that has created destination flagship stores across the country to deliver the ultimate Mosaic Fashions evocation of the brand. By definition, flagship stores are found in large conurbations although in major cities, such as London, there may be more than one flagship store. The business has improved its product offer, store environment, stock Prospectus June 2005 management and customer service. This strategy has had a significant impact on sales, with flagships overperforming in terms of sales and margin since the implementation of the strategy.

Customer research (ICM December 2003) indicated a growing demand from the Oasis customer for more desirable, high price point “designer” collections. In response, Oasis extended its product offer with the launch of three new sub-brands, each with its own unique identity and strategic marketing programme: · New Vintage, a range inspired by vintage clothing and available nationwide. · Odille Intimates, a range of lingerie, afterwear and associated lifestyle items. · Love Rosa, a unique range of separates designed by internationally renowned designer Ann Louise Roswald.

The sub-brand strategy has been highly successful in differentiating Oasis from its high street competitors and in broadening its target audience. It provides an exciting platform for the brand and strengthens its position as a destination store whilst providing new product ranges for flagship stores.

Coast Coast was founded as a fashion clubwear brand in 1996 and was acquired by Oasis Stores Plc in 1998. The brand was loss- making until 2002, but has enjoyed remarkable success since then due to its differentiation and a focus on providing contemporary occasionwear for 25-45 year old women at competitive prices.

The Brand Coast is a niche brand and its strength is in providing women with beautifully designed, quality clothing for special occasions such as weddings, christenings, parties and balls. All garments are exclusively designed in-house and demonstrate attention to detail with a distinct point of difference. Coast’s product, fabrication and styling allow the Coast customer to look and feel fabulous at a competitive price.

Coast’s uniqueness defies comparison with other brands on the market. Coast is positioned evenly in terms of price and fashionability between the middle to higher ends of the High Street. As a destination occasionwear store, Coast has no direct competition as all other brands provide a wider product range. However Monsoon, Fenn Wright & Manson, Hobbs and Principles are the nearest competitors with respect to their fas hion and end-use offer.

The performance of the brand and its unique positioning has attracted widespread attention in the UK retail market and it was awarded “Rising Star of 2002” at the Retail Week Awards.

Retail Operations have built a pro-active relationship with new and existing department store partners and this has enabled Coast to expand at a rate rarely experienced in the UK department store sector. Coast is now a major destination for occasionwear in the UK.

Coast Organisational Structure and Directors

Sandra Clarke. Design Director, Coast, born 1965. Sandra Clarke has been with Coast since 1999 and was promoted to Design Director in 2002. Prior to Coast, Sandra had extensive experience across a variety of product areas through design roles at Mulberry, Marks and Spencer, Artwork and Next.

Antonia Long. Buying Director, Coast, born 1966. Joined Oasis in 1998. Previously Antonia worked in Buying for Etam and Next. She moved from Oasis to Coast as Buying Director in 2004.

Clare Kelly. Merchandising Director, Coast, born 1963. Joined Oasis in 1997. Prior to Oasis, Clare spent 10 years working in Allocation and Merchandising for various companies within Sears Womenswear, including several years spent implementing Merchandising systems. Clare moved from Oasis to Coast in 2000 and has been Merchandising Director since 2002.

Sian Hession. Retail Operations Director, Coast, born 1966. Joined Coast in 1999. Having completed the Management Trainee scheme at Sears, Sian moved to Arcadia as a flagship store manager and later as Area Manager. Following this she moved to Gap as a District Manager for Central London before moving to Coast in 1999 as Head of Retail. Sian Hession was promoted to Retail Director in 2001.

Lynne Burstall. Group Creative Director, Coast, born 1954. Joined Oasis in 1988. Having attained a ‘Master of Design’ at the Royal College of Art, Lynne has spent over 25 years in fashion retail design. Following her roles with Fiorucci and Warehouse, she set up and managed the design team at Oasis and established the design brief at Coast. Lynne now leads the Coast Marketing team whilst giving continued support to the Coast design studio. She is an external examiner at Lancashire University, an advisor to Westminster University and manages many of Mosaic’s relationships with the principal design colleges in the UK.

Outlets At the end of FY2005 Coast operated 167 outlets compared to 46 outlets at the end of FY2002. Of the 167 outlets 142 were concessions and 22 were stand-alone stores, all based in the UK and Ireland. In addition Coast was trading in three franchised stores at 31 January 2005. There has been a significant shift in Coast’s location strategy to more standalone stores, all of which make a positive contribution to Head Office costs.

Brand Revenues Coast’s revenues and number of stores have each risen at a rate rarely seen on the high street. Between FY2002 and FY2005 revenues increased by a CAGR of 80.9%. This robust growth was driven by new store openings and repeat purchases due to the quality of the product and service. In FY2005 turnover increased by 48.6% and amounted to £60.4 million. Coast generated 17% of Mosaic Fashions Ltd.’s revenues in FY2005.

Brand Potential A new Coast interior concept has been developed and was launched in Leeds in June 2004. It creates an overall shopping experience that reflects the brand’s glamour and sense of occasion. Inspiration is taken from the Art Deco era combining unique statement lighting, mirrored furniture and sumptuous fabrics. The customer demands a high level of friendly, personal service and particular attention is paid to creating luxurious, spacious fitting rooms. Expectations are high for the new interior concept. At the same time the management recognises that the continued refinement and development of the brand will result Mosaic Fashions Prospectus June 2005 in the evolution of aspects of the brand delivery.

Having grown Coast through the department store concessions route, the brand is now established and therefore future growth will be driven by solus store openings.

Management is exploiting a number of opportunities that will drive future growth.

Product range expansion will include: · broadening the product range to include more special daywear; · further development of Coast’s accessories and jewellery business; · a premium eveningwear collection “Fairies and Tuxedos” which will be retailed in flagship stores

There are further opportunities for growth in the UK, the Republic of Ireland and internationally. The first international store for Mosaic Fashions

Coast was opened in Dubai in 2004 with the existing franchise partner for Oasis. Its success has encouraged the franchisee to Prospectus June 2005 accelerate the future expansion of the brand in the market with three more branches opening in the past six months and a further three due to open by the year-end. Management believes that there is an opportunity for Coast to leverage the other Mosaic brands’ relationships with franchisees and department stores to support its further international expansion.

Karen Millen Kevin Stanford and Karen Millen commenced trading as a partnership in 1981. The first Karen Millen store opened in 1983 and in November 1989 its first London store opened. In October 2001 Kevin Stanford and Karen Millen sold a large minority stake in Karen Millen Holdings Ltd. to an investor group led by Kaupthing Bank hf. In August 2002, Karen Millen Holdings Ltd. acquired Whistles. In June 2004, Mosaic Fashions Ltd. acquired Karen Millen and Whistles.

The Brand Karen Millen has created a unique niche in the marketplace - delivering high quality, innovative products to dress the cosmopolitan woman. The Karen Millen look is both tailored and structured. It is dressy, sexy, fitted and sharp. It is also very European looking, inspired by Italian designer brands such as D&G and Versace. Prices are double those of the High Street and at least half that of luxury brands.

The brand is positioned as an upper mid-market fashion brand that brings true designer wear to the high street. Its target customer is confident and aspires to luxury and glamour. Karen Millen appeals to a broad range of customer ages because of this image and attitude. Customers typically range from 18 to 40 years old. Karen Millen’s closest competitors are the designer diffusion brands that by their nature are both luxury and international such as: D&G, Moschino, Versace Jeans, DKNY, Pinko and Iceberg. Its competitors on the high street in terms of relative price positioning are Hobbs and Reiss although its fashion and style positioning are very different to these brands.

Karen Millen’s look is status conscious and very European. Product styles are body conscious and accessories are fully co- ordinated. Its impressive store design mirrors these brand values. Each store reveals a strong attention to detail and high quality materials are employed throughout. The Karen Millen brand embodies the aspiration of “having it all”.

Karen Millen Organisation Structure and Directors

Sandy Goldsbrough. Brand Director, Karen Millen, born 1965. Sandy joined Karen Millen in 1996 as Merchandise Director responsible for growing both the Karen Millen and Whistles brands. In March 2005, Sandy Goldsbrough was promoted to Brand Director for Karen Millen. Previous to this, Sandy Goldsbrough held the position of Head of Merchandising at Laura Ashley and worked in various Merchandising positions both there and at Arcadia and Edgars.

Gemma Metheringham. Design Director, Karen Millen, born 1965. Joined 1999. Prior to Karen Millen, Gemma was Head of Womenswear Design at Next for three years and was previously Head of Design at Richards.

Sarah Capp. Retail Operations Director, Karen Millen, born 1966. Having trained as a Designer, Sarah Capp joined Karen Millen in 1988 to help the founders develop the production infrastructure. Sarah then moved into the Retail division, opening new stores for the brand until taking the position of Retail Operations Manager in 1992. Sarah Capp was made Retail Operations Director in 2003.

Sanjay Sharma. International Director, Karen Millen, born 1968. Sanjay joined Karen Millen Holdings in 2001 as Financial Director and became International Director in 2004. Prior to this Sanjay held various finance roles at Nicole Farhi, French Connection and Gerald Endelman.

Outlets Karen Millen operated 109 outlets on 1 February 2005. Of the 109 stores, 71 were based in the UK and Ireland, with 57 stand- alone stores and 14 concessions. Karen Millen has 11 international stand-alone stores and concessions located in the USA, Scandinavia and continental Europe. In addition Karen Millen is sold internationally in 27 franchised stores, across the Middle East, Iceland, the Mediterranean, Russia, Switzerland, the Far East and Australia.

Brand Revenues In FY2005 the brand experienced an 33.3% growth in revenues, which amounted to £89.3 million. The brand generated 25.1% of the Group's revenues in FY2005.

Karen Millen’s revenues grew by just CAGR 2.3% between FY2002 and FY2004, although Karen Millen opened 11 new stores in the UK, 8 international stores and 2 concessions ov er the same period. The reason for the decline in sales was due to range failure as management attempted to introduce a very casual look to its product offer. Since the product has reverted to its brand values, sales have risen to a more successful level.

Brand Potential The international expansion of Karen Millen has already been successfully launched. As Karen Millen’s niche is above that of the mass market, this gives the brand considerable global appeal and has enabled it to trade successfully in new markets. With over 70 outlets in the UK and Ireland alone, Karen Millen’s greatest opportunity for growth is in the international market through targeted expansion in Europe, the USA and the Middle East.

Karen Millen is relatively developed in the UK market but it still has room for further expansion through the opening of additional stand-alone stores and especially new concessions in UK department stores – an area where the brand has historically had a limited presence.

Karen Millen has successfully established a cosmetics and body care range and has licensed its brand into spectacles and sunglasses. There remains a further opportunity to leverage its brand equity by expanding the product range into other relevant areas through selected licensing agreements.

Whistles Whistles was founded in 1976 by husband and wife team Richard and Lucille Lewin.

The Lewins ceased to be shareholders in November 2001 when they sold their remaining stake to Richard Caring. Karen Millen Holdings Ltd. acquired Whistles Ltd in August 2002 with 40 stores trading across the United Kingdom.

The Brand Lucille Lewin launched Whistles as a designer boutique. The Whistles name originally derived from the cockney rhyming slang “whistles and flute” which translates as “suit”.

Whistles has a strong brand heritage and presence, particularly in the London area. Whistles is the premium brand within the Mosaic Fashions portfolio and is positioned alongside designer diffusion brands.

Whistles appeals to women who are confident at mixing and exploring colours, textures and accessories that help to draw out their individual fashion tastes and personal style.

Mosaic Fashions Prospectus June 2005 The Whistles brand brings together an eclectic mix of colour, texture and embellishment in a range that appeals to a confident, 25-45 year old style-conscious woman with high fashion aspirations and disposable income. Whistles’ closest competitors are

Jigsaw, Joseph and LK Bennett. The designer diffusion brands such as DKNY, See by Chloe and Sportmax are nearest with respect to their fashion offer.

Whistles products are conceived by an in-house design team offering grown-up style with a sophisticated fashion edge.

Whistles’ angle on fashion is quirkier than the rest of the high street – it uses its rich brand heritage in artisan and eclectic styles to invent its own inimitable look and style.

The new store concept launched at Brighton in 2002 exemplifies this attitude by taking the customer on an inspiring journey through Parisian antique markets, using authentic furniture, flock wallpaper and customised displays to create a unique and modern twist on designer fashion. Mosaic Fashions

Prospectus June 2005

Whistles Organisational Chart and Directors

Amanda Burrows, Brand Director, Whistles, born 1965. Joined 2005. Amanda began her career in Merchandising at Debenhams before becoming Product Manager for Planet, part of the Windsmoor Group. After four years she moved to House of Fraser to set up the Linea and Therapy brands and was then promoted to Head of Buying – Womenswear across Brands and Own Label.

Virginia James, Design Director, Whistles, born 1961. Joined Whistles in 2002. Virginia has over 20 years’ experience as a womenswear designer holding positions in Miss Selfridge, Warehouse, Marks and Spencer, Fang Bros and most recently as Head of Design at Pringle.

Outlets Whistles is predominantly a UK brand, with a higher concentration of outlets in the London area than any other Mosaic Fashions brand. Over the period FY2003 - FY2005 Whistles opened 28 new outlets, of which 13 were previously Press and Bastyan outlets. On 1 February 2005, Whistles traded from 54 owned outlets of which 29 were stand-alone stores and 25 were concessions. Concessions in House of Fraser and Selfridges department stores generated approximately 50% of Whistles’ concession sales in FY2005. Whistles currently has 2 franchised stores in the Middle East with Karen Millen’s franchise partners.

Brand Revenues In FY2005, Whistles revenues increased by 54.9%, amounting to £32.0 million. This significant increase in revenues is mainly due to an extremely successful product range and increased attention on the High Street as well as 7 new store openings. Whistles generated 9.0% of the Company’s revenues in FY2005.

In FY2004, the brand revenues increased by 10.3%. The increase in revenues is related to a successful change in the product mix in favour of own label products and new store openings but were offset by a loss of approximately £2.4 million of sales revenue following the closure of its wholesale business. Over the financial year Whistles opened 9 new outlets.

Brand Potential Historically, a high proportion of Whistles’ product mix derived from products bought from other designers. Following the acquisition by Karen Millen, management sought to reduce this reliance on outside designers and moved to expand Whistles’ own label range. Own label has since grown successfully and increased margins for the business as well as strengthened the Whistles brand identity.

Changes in Whistles’ infrastructure and focus have transformed the potential of the brand. Strong "Like for Like" expansion will now be gained from building on the strengths of its design exclusivity and brand desirability. There are plans to further expand the range of accessories, which will prompt further growth.

With Whistles being more price competitive and accessible than ever before, management are confident that there is room for significant further growth both in the UK and internationally.

Portfolio of Recognised Brands Management believes that holding four recognised brands in a consolidated company increases the value of each brand as it creates synergies in the operations, increases the overall growth potential of the separate brands and reduces operational risk. Although they operate in the same market, the brands differ in style, price, product choice, maturity, outlets and scale.

Choice The brands’ core focus is womenswear, but each brand offers a different level of choice depending on its core proposition and its customer franchise. · Oasis is the brand offering the broadest range of end use and its categories include tops, bottoms, dresses, coats and jackets, footwear, accessories and intimates. Oasis also sells watches and spectacles through licensing arrangements. · Coast’s clothing range is focused on dressing for special occasions. The brand is beginning to develop a complimentary accessories range. · Karen Millen’s clothing range is not as broad as that of Oasis, with only a limited range of end uses. The footwear and accessories ranges will be developed further. Th e brand also sells makeup and eyewear through a license. · Whistles offers a limited range of footwear and accessories to complement its clothing ranges.

Fashionability The brands range from mid to high fashion on the high street retail market. · Karen Millen and Whistles are high street retailers that offer the highest level of fashionability; · Oasis is the closest to the middle market; and · Coast is situated between the two extremes.

Price The brands cover the price range from mid market prices to the highest price range. When compared to other high street retailers, · Karen Millen and Whistles prices are about double those of the general high street. · Oasis is at the upper end of the middle market; and · Coast sits evenly between the two.

Maturity The brands are at differing stages of their development in the UK market. · Oasis is the cornerstone of the Company being the most mature brand in the portfolio, with a widespread presence in the UK and a broad product range. Future development will be driven by international expansion and via sub- brands. · Coast is the least developed brand, and therefore has the greatest potential for further growth in the future whilst taking care not to become over-represented. · Karen Millen is a developed brand in the UK, but its success still provides an opportunity to leverage the brand, and increase the number of stores and concessions, especially in new markets. · Whistles is a brand that is still evolving under its new management. With its former market positioning and pricing, the brand had limited growth possibilities; however as the brand has become more competitive, its ability to develop

further is crystallising.

Distribution Channels Each brand has developed an individual strategy for growth that complements the brand proposition as well as maximising the Mosaic Fashions Prospectus June 2005 customer opportunity. · Oasis is the most diversified brand with a strong mix of concessions, stand-alones, mail order and factory outlets.

· Coast is the brand that is more represented in department store concessions rather than stand-alone stores. · Karen Millen has very few concessions with the majority of its outlets being stand-alone branches and some factory outlets. · Whistles has an even spread between concessions and stand-alone stores.

Size At the end of FY2005, there were 526 Group-owned outlets in the UK and Ireland, 28 Group-owned international outlets and 73 franchised stores across the four Mosaic Fashions’ Brands. In addition there are 34 concessions in China operated through its Mosaic Fashions joint venture with Maiden Fashions. · Oasis is the largest brand in the portfolio, generating 48.9% of Mosaic Fashions’ turnover from 237 outlets in the UK Prospectus June 2005 and Ireland, 17 German concessions, 41 franchised stores and 34 concessions in China through its joint venture. · Karen Millen is the second largest brand in the portfolio generating 25.1% of Mosaic Fashions’ turnover and has 71 outlets in the UK and Ireland, 11 international stores and concessions and 27 franchised stores. · Coast generates 17.0% of Mosaic Fashions turnover from 164 outlets in the UK and Ireland and 3 franchised stores. · Whistles generates 9.1% of Mosaic Fashions revenues and operates 54 outlets in the UK and 2 franchised stores.

Potential The brands differ in their future potential on the domestic and the international market.

· When compared to other Mosaic Fashions brands, Oasis is a relatively mature brand on the domestic market, as illustrated by its geographical penetration in the United Kingdom and Ireland. However, Oasis has further growth potential; an outlet strategy identified a number of new concession and standalone store opening opportunities within the UK. Internationally, the brand also has an opportunity to grow, further by taking a strategic approach to franchising, licensing (especially in China through an joint venture with Maiden Fashion) and by identifying new markets and appropriate partners where there is a high degree of fit with the UK offer. There is also opportunity to further develop the sub-brands, particularly to expand the distribution of the lingerie range both in the U.K. and Internationally.

· A new Coast interior concept has been developed and was launched in Leeds in June 2004. Expectations are high for the new interior concept. At the same time the management recognises that the continued refinement and development of the brand will result in the evolution of aspects of the brand delivery.

Having grown Coast through the department store concessions route, the brand is now established and therefore future growth will be driven by solus store openings. Management is exploiting a number of opportunities that will drive future growth, e.g. broadening the product range to include more special daywear, further development of Coast´s accessories and jewellery business and a premium eveningwear collection retailed in flagship stores.

There are further opportunities for growth both domestically and internationally. The first international store for Coast was opened in Dubai in 2004 with the existing franchise partner for Oasis. Its success has encouraged the franchisee to accelerate the future expansion of the brand in the market with three more branches opening in the past six months and a further three due to open by the year-end. Management believes that there is an opportunity for Coast to leverage the other Mosaic brands’ relationships with franchisees and department stores to support its further international expansion.

· The international expansion of Karen Millen has already been successfully launched. As Karen Millen’s niche is above that of the mass market, this gives the Brand considerable global appeal and has enabled it to trade successfully in new markets. With over 70 outlets in the UK and Ireland alone, Karen Millen’s greatest opportunity for growth is in the international market through targeted expansion in Europe, the USA and the Middle East.

Karen Millen has successfully established a cosmetics and body care range and has licensed its Brand into spectacles and sunglasses. There remains a further opportunity to leverage its brand equity by expanding the product range into other relevant areas through selected licensing agreements.

· Historically, a high proportion of Whistles’ product mix derived from products bought from other designers. Following the acquisition by Karen Millen, management sought to reduce this reliance on outside designers and moved to expand Whistles’ own label range. Own label has since grown successfully and increased margins for the business as well as strengthened the Whistles brand identity.

Changes in Whistles’ infrastructure and focus have transformed the potential of the brand. Strong "Like for Like" expansion will now be gained from building on the strengths of its design exclusivity and brand desirability. There are plans to expand further the range of accessories, which will prompt further growth.

With Whistles being more price competitive and accessible than ever before, management are confident that there is room for significant further growth both in the UK and internationally.

Synergies in Mosaic Fashions' portfolio of brands Holding four brands in one consolidated company creates clear synergies for the Group as a whole and for the brands individually.

Productivity can be enhanced by leveraging the attractions of the Group as an employer and partner. As an employer, the span and international dimension of the Group allows it to recruit and retain highly skilled retail specialists. As a partner to property developers, department stores, franchisees and other partners, it allows the Group to leverage its combined strength in improved terms for the business as a whole.

Margins can be improved by sharing best practice and skills across all parts of the Group including supply chain management and sourcing skills. In addition, costs of IT, distribution and warehousing, accounting and other shared operational practices can be spread across all four brands thereby improving the profitability of the business.

When the integration of Oasis and Coast, and Karen Millen and Whistles is complete, the management anticipates that synergies will improve the profitability of the Group.

Diversification of Risk Fashion retailing is extremely competitive and there is inherent risk and volatility in managing fashion brands. The clearest risk is the success or failure of each collection. Each brand has two seasons lasting six months, namely autumn-winter and spring- summer. In the fashion retail business, even well established brands launch collections that do not enjoy the same success as previous collections and result in a decline in sales.

As Mosaic Fashions possesses a diverse portfolio of brands, it is better able to cope with the underperformance of any single brand as the diversified nature of its portfolio is offset by the performance in the other brands. To mitigate the fashion risk, Mosaic Fashions has a product development team for each brand and ensures that each brand maintains its differentiated positioning and its independence.

However, the Mosaic Fashions portfolio cannot protect the Company against risks related to the macro-environment such as an economic downturn or other events that can strike the fashion retail market as a whole. For a more thorough description of risk see chapter X on Risk Factors.

Mosaic Fashions Prospectus June 2005

Mosaic Fashions VIII OPERATIONS Prospectus June 2005

Mosaic Fashions’ role at Group level is to set strategy, allocate resources, manage performance, establish controls and manage the development and profitability of both the individual businesses and the Group. The Mosaic directors work closely with each brand and shared services to ensure that all parts of the business are aligned and competent to implement the Group strategy.

Derek Lovelock, the CEO, works directly with the individual brand directors and their teams to position each brand and maintain each brand's distinctive style and offer. This approach allows the business and the brands to grow independently but synergistically with support and guidance from the Company.

The Group directors and brand directors report to the CEO and are based in Paul Street, London. This is also the base for the creative teams (Design, Buying, Merchandising and Marketing) and comprises 350 employees.

Derek Lovelock, CEO, born 1950, Joined Oasis Stores Plc as Chief Executive in October 1999. Previously, he was Chief Executive and a Board Director of Sears plc, where he had the responsibility for its Clothing Division that included Wallis, Warehouse, Miss Selfridge, Richards, Adams and the Outfit. Prior to joining Sears plc in 1992, he spent eight years with Storehouse plc where, having spearheaded the creation of a fashion division that included brands such as Blazer, Jacadi and Anonymous, he was promoted to the board and given responsibility for Mothercare. He is also a non executive chairman of Jacques Vert plc and a member of its Remuneration and Audit committees. Jacques Vert plc is a clothing company and is listed on the Alternative Investment Market (AIM) of the London Stock Exchange.

Richard Glanville, Finance Director, born 1955. Joined Oasis Stores Plc in 2000 as Finance Director also responsible for IT and Distribution, and was the Company Secretary at that time. Prior to joining, he was the director of IT at Hays Information Management. Richard is a qualified accountant and has a wealth of retail industry experience including roles as CFO at Richards Ltd., Commercial Director at Sears Clothing Ltd., IT director at Comet Ltd. and Commercial Director at Mothercare.

Meg Lustman, Strategy and Development Director, born 1962. Joined Oasis Stores Plc as Business Development Director in January 2000. Prior to joining Oasis, Meg Lustman worked for over nine years in a number of strategic and international development roles within Sears plc. With 15 years experience in UK and international retailing, she combines strategic planning, coaching and project management skills at a senior level.

Hannah Russell, Group Marketing Director, born 1972. Joined Oasis Plc as Marketing Director in April 1999. Prior to joining Oasis, she was Head of Womenswear Marketing at Arcadia responsible for Topshop, Dorothy Perkins and Principles. During her time at Arcadia, Hannah developed and launched Topshop's Oxford Circus flagship store. Hannah Russell's specialist fashion marketing experience lies in the development of strategic marketing programmes, retail design, innovative PR & special events activity and new product development.

Liz Jewitt-Cross, born 1964, joined Mosaic Fashions Ltd as Group Human Resources Director in January 2005 following a period of consultancy support to the bus iness during the acquisition of Karen Millen and Whistles. Formerly a human resources director for a major European division of American Express, Liz has enjoyed an extensive human resources career over 20 years spanning major organisations such as Sainsbury Supermarkets, Homebase, Alamo Rent A Car and BHS.

The Group managers and the shared services work with the brand teams to provide a common infrastructure, delivering synergies and optimising best practices across the Group. · The Directors and relevant brand teams are based in Paul St, London; · Mosaic Hong Kong (which is the Company’s sourcing offices for garments produced in the Far East) has 32 employees, all based in Hong Kong; · The Finance, Oasis and Coast I.T. and Distribution teams are based in Stanton Harcourt, Oxfordshire comprising 240 employees. A new 22,000 sq m distribution centre is being constructed there; · The Karen Millen and Whistles I.T. and Distribution operations (comprising approximately 80 employees) continue to be based in Maids tone. Following completion in 2006 of the systems integration and the new distribution centre in Stanton Court, the teams will be fully integrated and relocated there.

International Mosaic Fashions uses a variety of business models to open its operations in overseas markets including, franchising, licensing and company owned stores. The decision as to which business model to use in a new market is determined by market similarity as compared to the UK and the size of the opportunity available to the brand.

Establishing company owned stores becomes more relevant when there is a high market similarity between the markets in which the Company currently operates and potential new markets, and where significant growth opportunities exist. When there are significant market similarities but the opportunity for growth is limited, e.g. in smaller countries, the franchise model is

preferred by the Company. Finally, when there are good market opportunities but insignificant market similarities the preferred

model is the licensing model, such that people with local knowledge control the operations, e.g. the joint venture in China.

There is a specific team dedicated to the international development of all four brands. This allows brand management to maintain their focus on the UK market.

Mosaic Fashions Prospectus June 2005 Karen Millen and Oasis are currently the most established international brands.

Marketing Mosaic Fashions is the holding business for all four brands with the Marketing Director, Hannah Russell, setting the strategy and overseeing the marketing activity of each brand.

The marketing strategy of Mosaic Fashions is to maintain its market leadership in niche womenswear retailing. All four brands in the Group’s portfolio will continue to be lifestyle brands that are aspirational for women.

The Marketing Director’s role is to ensure that each brand follows the marketing strategy that is relevant to its target customer whilst also ensuring that the brands meet central marketing objectives. Each brand has separate brand marketing teams and Mosaic Fashions marketing programmes thereby ensuring that there is clear distinction between the brands from the customers’ perspective. Prospectus June 2005 The marketing mix of each brand blends some or all of the following ingredients according to the individual brands’ needs: · Shop fit and environment including windows and visual merchandising; · Brand identity and imagery; · PR and press; · Advertising; · Customer relationship marketing featuring the store card and website.

Human Resources As an employer of circa 5,900 people, Mosaic Fashions holds an enviable portfolio of brands that both collectively and individually present an attractive career proposition to employees. The group has established a strong reputation as a ‘Destination Employer’ for talented individuals attracted to the prospect of developing their careers across strong brands within an empowering organisation culture.

Each brand, supported by Human Resources, is responsible for the recruitment, retention, remuneration, training and performance management of its staff. The strategic management of policies and learning and development are centrally directed but developed relevant to the individual needs of each brand.

Oasis and Coast are supported by a creative management development curriculum together with comprehensive employee guiding principles. Karen Millen and Whistles are not yet as mature in their HR practices but are increasingly benefiting from the HR expertise available across the Group.

Supply Chain The product ranges for Mosaic Fashions are designed and sourced separately by brand. The individual brand teams work closely with the supply base to maintain control over quality, reduce production lead times, meet the critical path within each operation and ensure that the cost price delivers the required gross margin.

Mosaic Fashions’ suppliers are required to adhere to a “supplier manual” and the supply base is continually monitored and reviewed against pre-agreed criteria to manage risk and ensure the supply base meets the needs of the business.

The sourcing mix is driven by individual brand requirements and fashion trends and is split across three areas;

· Mosaic Hong Kong Office (MHK), manages all Far East sourced product with teams dedicated to each brand working with the individual brand creative teams and the supply base covering price negotiation, critical path management, raw materials sourcing, quality assurance, merchandising and shipping/importation expertise.

Mosaic Fashions was one of the first UK fashion retailers to recognise the growing shift to offshore Far Eastern production and the need to establish a dedicated office in the region. MHK has been instrumental in developing simplified and improved working practices resulting in reduced product lead times and product margin.

As well as managing Far East sourced product on behalf of the individual brands, the MHK Office dual sources Oasis product for Oasis Pacific Rim and manages direct shipment from the Far Eastern supply base to the international markets (e.g. the Middle East, Taiwan etc), thereby reducing lead time and freight costs.

· Production manages the “Cut, Make and Trim” (CMT) product sourced by each brand. The Production team manages raw materials (cloth and trims, e.g. buttons, zips etc), pattern creation and third party factory manufacturing processes with individual teams dedicated to each brand.

The CMT operation is the foundation of all the individual brands’ ranges and is instrumental in developing the individual brand handwriting that maintains each brand's distinctive style and differentiated proposition in the retail marketplace.

A portion of the CMT manufacturing base is located in the UK (approx 10%), delivering speed to market and greater flexibility.

The remaining CMT manufacturing base is in Eastern Europe (in Lithuania and Romania) and Turkey, utilising the specialist skills within each country, offshore production margin benefits and speed to market due to the close proximity of such locations to the UK market.

· “Bought-in” or “fully factored” product is sourced directly by the individual brand creative teams working with product manufactured by third party suppliers, developed in partnership with such suppliers to maintain exclusivity, the distinctive style and market position of each brand.

The bought-in or fully factored suppliers are predominantly offshore and the sourcing decision is driven by fashion trends, third party supplier capability and commercial terms.

Mosaic Fashions has developed long and successful supplier relationships and has received awards in recogniti on of its supplier partnerships.

Oasis' sourcing mix is approximately 40% from the Far East, 25% from CMT and 35% from other sources. Approximately half of Coast’s products are sourced from the Far East, 40% from CMT and 10% from India. Karen Millen's sourcing mix is approximately 50% from the Far East, 45% from CMT and 5% from India. Whistles' sourcing mix is approximately 45% from the Far East, 30% from CMT and 25% from India.

Mosaic Fashions trades with number of suppliers and is not dependent on any individual one. Mosaic Fashions largest suppliers are Irondale in Hong Kong, More Than Basics in Portugal, Multitex in Hong Kong, Yavuz in Turkey and Browning in the UK. None of these five largest suppliers supply more than 5% of the Company's products (in terms of cost of goods sold terms) and together they only supply 18.9% of the Company's products.

Services and Infrastructure Mosaic Fashions’ supply chain is supported by a common infrastructure delivering synergies and optimising best practices across the businesses as described above. In addition, the Group has also established a shared skills and systems base to benefit each brand as follows.

Finance Team The Finance Team was created in February 2005 as a result of the integration and relocation of the Maidstone Finance function (Karen Millen and Whistles) to Stanton Harcourt and Financial Planning to London. The integrated team delivers benefits such as: · external audit and taxation fee savings; · productivity savings due to combined processes; · efficiencies from working on one systems platform; and · enhanced financial planning and controls that ensure strong financial management.

Distribution Centres The Distribution Centres (D.C.) are currently based in Stanton Harcourt (Oasis and Coast) and Maidstone (Karen Millen and Whistles). They handle the delivery, put-away, picking and despatch of product to the UK and International stores. The Mosaic Group D.C. operations will be integrated and relocated to the new site in Stanton Harcourt in 2006. The integrated D.C. operation will deliver significant cost savings as a result of single site operations and a larger, more responsive and efficient automated operation able to support business growth.

Information Technology Teams The Information Technology Teams (I.T.) are currently based in Stanton Harcourt (Oasis and Coast) and Maidstone (Karen

Millen and Whistles).

The I.T. teams are currently working on integrating the central systems (merchandising, production and reporting) to deliver supply chain productivity savings, improved visibility of supply chain processes, costs and margins, streamlined production and merchandising processes and improved reporting and analysis. Mosaic Fashions Prospectus June 2005

The retail systems will be integrated by summer 2006, delivering a “best of breed” solution which will establish and support retail operation’s best practice across the Group and improve management reporting leading to increased commercial and service awareness.

Mosaic Fashions’ integrated central and retail systems will enable a single group I.T. operation to be established in Stanton Harcourt by summer 2006, delivering significant single operation cost savings.

The management believes that one of the key success factors in retail, is to have an integrated IT system to be able to monitor day -to-day operations. Mosaic Fashions has not completed the integration of the Karen Millen systems, but the current IT systems are responsive and the management is fully capable of monitoring its stocks, turnover and other data related to the Mosaic Fashions operations. Prospectus June 2005 Property Team The Property team was created in February 2005 after integrating the Oasis, Coast, Karen Millen and Whistles teams, delivering a coherent location strategy, leveraging synergies to secure preferential property sites and implementing Group best practice in shop design and equipment purchasing.

Business Development Team The Business Development Team is instrumental in delivering Company strategy. The team works with the individual brands to ensure that each brand's strategic plan is properly managed in order to deliver the intended business benefit. The team is also vital in managing the integration of the Group and in sharing best practice across the brand and services teams.

IX FINANCIAL HIGHLIGHTS

Letter from the Auditors of Mosaic Fashions Limited

Board of Directors of Mosaic Fashions hf. Sudurlandsbraut 4, 108 Reykjavík

9 May 2005

Dear Sirs, Pro forma financial information on Mosaic Fashions Limited

We have conducted certain procedures with regard to the pro forma financial information of Mosaic Fashions Limited presented on page 43-46 of this Prospectus. The pro forma financial information has been prepared, for illustrative purposes only, to provide information about how Mosaic Fashions Limited’s acquisition of Sierra Acquisitions Limited and Karen Millen Holdings Limited and the financing of those acquisitions might have affected the financial information presented had they taken place at the beginning of the financial year ended 25 January 2003.

Responsibilities The directors of Mosaic Fashions Limited are solely responsible for the preparation of the pro forma financial information to which this report relates and for the financial statements and financial information from which it has been prepared. It is our responsibility to express an opinion on the basis of preparation of the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Scope We have conducted certain procedures which involved no independent examination of any of the underlying financial information, and consisted primarily of comparing the unadjusted audited and unaudited historical financial information with the source documents, considering the evidence supporting the adjustments, recalculating the amounts based on the information obtained and discussing the pro forma financial information with the directors of Mosaic Fashions Limited. Because the above procedures do not constitute either an audit or review undertaken in accordance with generally accepted auditing standards in the United Kingdom, we do not express any opinion on the fairness of the presentation of the unaudited pro forma financial information. Had we performed additional procedures, or had we performed an audit or review of the pro forma financial information in accordance with generally accepted auditing standards in the United Kingdom, other matters might have come to our attention that would have been reported to you.

Opinion Based on our procedures, nothing has come to our attention that causes us to believe that: · the pro forma financial information has not been compiled on the basis stated; and · such basis is inconsistent with the accounting principles used by Mosaic Fashions Limited.

Consent We consent to the inclusion of this letter end the reference to our opinion in the Prospectus to be issued by Mosaic Fashion hf. in the form and context in which it appears.

Yours faithfully, KPMG Audit Plc Mosaic Fashions Prospectus June 2005

Basis of preparation of Mosaic Fashions financial highlights The Issuer, Mosaic Fashions hf. was incorporated on 12 April 2005. An audited opening balance sheet of Mosaic Fashions hf. (the parent company) has been prepared as of 12 April 2005 and a pro forma balance sheet of Mosaic Fashions hf. and its

subsidiaries, as they are described in the Legal Structure on page 19-20, has been prepared as of 30 January 2005 (reflecting the position that would have prevailed had Mosaic Fashions hf. been incorporated and had been the parent of Mosaic Fashions Ltd at that date) in accordance with International Financial Reporting Standards (IFRS). Mosaic Fashions hf., (the parent company) balance sheet as of 20 May 2005 has been reviewed and is included. These accounts form the basis for the description in this Prospectus of the Group’s balance sheet.

Mosaic Fashions Mosaic Fashions Ltd. was the parent company of the Group until Mosaic Fashions hf. issued shares to the existing shareholders of Mosaic Fashions Ltd. in exchange for all outstanding ordinary shares, preference shares and loan notes issued Prospectus June 2005 by Mosaic Fashions Ltd., to such shareholders, when Mosaic Fashions Ltd. became a wholly owned subsidiary of Mosaic Fashions hf. The annual report and the audited financial statements, under UK GAAP for the 52 weeks ended 29 January 2005 are to be found in Appendix C of this Prospectus. The annual report has not been used as the main source of information for the following financial highlights:

Mosaic Fashions Ltd. was incorporated on 19 August 2003 for the purposes of acquiring Sierra Holdings Limited, the owner of the Oasis and Coast brands. The first accounting period is therefore the period from incorporation on 19 August 2003 to 31 January 2004.

Mosaic Fashions Ltd. acquired Karen Millen Holdings Ltd. in June 2004, adding two new brands, Karen Millen and Whistles, to the existing Oasis and Coast brands.

Accordingly, to illustrate how Mosaic Fashion Ltd.’s financial performance would have been reported, had the above acquisitions taken place at the start of the financial year ending 25 January 2003, pro forma profit and loss accounts have been prepared for the last three financial years, ending on 25 January 2003, 31 January 2004 and 29 January 2005 respectively (“FY2003, FY2004, FY2005”).

The pro forma accounts are based on the statutory accounts of the companies in the Group, including Mosaic Fashions Ltd., Sierra Holdings Ltd., Oasis Stores Ltd. and Karen Millen Holdings Ltd., with adjustments made to include pre-acquisition results in each year for the above acquisitions. Further details and a reconciliation of the pro forma financial information to the statutory accounts are presented in Appendix K.

Since the Group’s financing structure has experienced significant change over the three year period shown and will change as a result of the offering, the profit and loss account is only shown to earnings before interest, tax, depreciation and amortisation (EBITDA).

Underlying Earnings In addition to the above pro forma accounts, management has identified a number of items that they believe should be adjusted to arrive at more realistic trend of results. This is for two main reasons: the acquisitions made in prior periods have led to exceptional items being incurred, including the costs of the transactions. These have been added back to the relevant EBITDA; and in common with many UK retailers, Mosaic Fashions Ltd. usually has an accounting period of 52 weeks ending close to 31 January of each year, with a 53 week period when required, leading to additional sales and profit being recorded. Mosaic Fashions management have removed their estimated impact of the 53rd week from the underlying EBITDA of the relevant year. Whistles Ltd had a 53rd week in FY2003 and Oasis stores Ltd. had a 53rd week in FY2004

Pro Forma Accounts Compiled from the Statutory Accounts

FY2003 FY2004 FY2005 52 weeks* ending 25 January 2003 31 January 2004 29 January 2005

Pro forma Adjusted Pro forma Adjusted Pro forma Adjusted £m accounts accounts accounts

Turnover 259.6 299.2 355.6

Cost of sales (117.2) (129.0) (152.1)

Gross profit 142.4 170.2 203.5

Distribution costs (98.3) (117.9) (140.3) Administrative expenses (22.2) (28.9) (28.6)

Operating profit 22.0 23.4 34.6

Share of loss in continuing joint ventures - (0.1) (0.6) Depreciation and Amortization 10.3 10.9 12.4

EBITDA 32.3 34.2 46.4

Normalized EBITDA adjustments Exceptional items - 7.2 4.2 Other items - - 1.6 Week 53 (0.1) (1.2) -

Normalized EBITDA 32.2 40.4 52.2

Sales growth 15.3% 18.8% Gross margin 54.9% 56.9% 57.2% EBITDA margin 12.5% 11.5% 13.0% Normalised EBITDA margin 12.4% 13.5% 14.7%

* In common with many UK retailers, Mosaic Fashions Ltd. usually has an accounting period of 52 weeks ending close to 31 January , with a 53 week period when required, leading to additional sales and profit being recorded. Mosaic Fashions management have removed their estimated impact of the 53rd week from the underlying EBITDA of the relevant year. Whistles Ltd had a 53rd week in FY2003 and Oasis stores Ltd. had a 53rd week in FY2004

Analysis

Pro Forma Turnover Pro forma turnover grew by 15.3% in FY2004 and 18.8% in FY2005 (14.4% and 19.9% respectively, excluding the impact of the 53rd week in FY2004 for Oasis/Coast and for Whistles in FY2003), as a result of organic growth, including new store openings. The key points to note for each brand are:

Oasis: In FY2004 turnover grew by 12.7% excluding the impact of the 53rd week and grew in FY2005 by 4.7% excluding the Mosaic Fashions Prospectus June 2005 impact of the 53rd week in FY2004. As with Mosaic Fashion’s other brands, management has increased the number of sales

outlets, both own stores and concessions. The rate of growth in FY2005 was held back as a result of the Autumn-Winter collection being less popular than the Spring-Summer collection.

Coast: Coast demonstrated very strong performance in last two financial years as turnover grew by 88.5% in FY2004 and

48.6% in FY2005. The key drivers of this growth were increases in the number of sales outlets, particularly department store concessions, and successful collections. Additionally, Coast’s strong turnover growth led to increased space allocations in concessions resulting in further growth.

Karen Millen: Total turnover grew 3.0% in FY2004 as Karen Millen decided to close a number of its Press & Bastyan-branded stores, some of which were converted to Whistles outlets. This reduction in sales was offset by the full year effect of store Mosaic Fashions openings in FY2003 and sales from new stores opened in FY2004. The Spring-Summer collection in 2004 was not as popular with customers as the prior year collection. In FY2005, Karen Millen turnover grew by 33.2% as a result of new store openings, Prospectus June 2005 the full year effect of FY2004 openings and two popular collections.

Whistles: In FY2003, Karen Millen acquired Whistles and turnover initially reduced as the Karen Millen management introduced a new design team and repositioned Whistles towards own brand clothing and away from its historical focus on outside designers, and closed down its wholesale international business. This period of transition led to an initial fall in sales in FY2004 but this was offset by sales from new store openings so that total turnover in FY2004 was 10.3% above the prior year excluding the impact of the 53rd week in FY2003. In FY2005, turnover grew by 54.9% as the store openings part-way through the prior year contributed further growth (the ‘full year effect’) plus strong growth as the benefits of the change in strategy led to strong collections more popular with customers.

Oasis. Coast Karen Millen Whistles Total. FY2003 147.4. 21.5 68.1 22.1* 259.2 FY2004 166.2* 40.6 69.1 20.7. 296.6 Y2005 173.9. 60.4 89.3 32.0. 355.6

*Excluding 53rd week

Pro Forma Gross Margins Pro forma gross profit margin has increased each year, growing from 54.9% in FY2003 to 56.9% in FY2004 and 57.2% in FY2005. The key components of gross margin are the ‘intake margin’, which represents the margin that would be earned if all products were sold at full price (and is therefore a measure of the effectiveness of sourcing) and the level of markdowns required to sell stock during mid-season and end-of-season sales.

The increase in margins has been driven by better sourcing and a focus on margin management to ensure that where a collection does not sell as well as expected initially, the markdowns required to clear the stock are controlled and the stock remaining at the end of the season is limited. Mosaic Fashions’ strategy is to monitor the sales performance of each line closely and to make early, but small, mark downs for lines which are selling slowly, thereby avoiding end of season clearance sales at deep markdowns even if a collection fails to perform to expectations. Karen Millen’s historical strategy was to avoid mid-season sales with a focus on a large end of season sale, which led to lower margins when collections did not perform – as in the Spring-Summer collection of 2003.

Mosaic Fashions' management has increased intake margins by focussing on sourcing quality products as cost-effectively as possible and by managing the supply chain efficiently. A large part of Mosaic Fashions’ products are sourced from China and the Group’s Hong Kong subsidiary has enabled the Company to achieve better prices, more efficient shipping arrangements and much closer liaison with suppliers. Since the acquisition of Karen Millen and Whistles, the Hong Kong office has been expanded to accommodate these two brands and drive further benefits through the consolidation of shipments and by using the Group’s additional buying power to secure better prices. Additionally, as much of the Group’s products are sourced in currencies linked to the US dollar, the weaker dollar has contributed to an increase in margins.

Pro Forma Costs The major distribution cost components are the costs of occupation, principally rent and rates, the wages paid to Mosaic Fashions’ store employees and the costs of running the Group’s warehouse and distribution network

In FY2005, distribution costs were £140.3 million, up 18.9% on the preceding year. Distribution costs also rose by 19.9% in the previous year. The increase is as a result of the increases in the number of sales outlets, the volume of items shipped and cost inflation. Distribution costs relative to turnover have changed little over the period, being 39.5% of turnover in FY2005, compared to 39.4% in FY2004 and 37.9% in FY2003. The increase in FY2004 is due to the increase in the rents paid to department stores for conc essions as a result of higher sales, increased floor space or new trading terms and also because of the increase in the number of concessions, which typically have higher distribution costs than own stores in relation to their sales.

The exceptional items in the table above have distorted the trend in administration costs. After adjusting for exceptional items, in FY2005, administration expenses were only 2.7% higher than they were in FY2003, with cost inflation on head office rents and salaries being largely offset by synergies arising from the acquisition of Karen Millen Holdings Ltd. and other cost saving initiatives. As the acquisition of Karen Millen Holdings Ltd. was made during FY2005, management expect that there will be a full year effect of the cost savings during FY2006 to offset ongoing cost inflation.

Turnover growth combined with gross margin improvement and the tight control of costs has driven an increase in the normalised EBITDA margin from 12.4% in FY2003 to 14.7% in FY2005.

Exceptional Items The following table summarises management’s assessment of material exceptional items over the period.

Exceptional and other items FY2003 FY2004 FY2005 Costs related to the acquisition of Sierra Holdings Ltd. by Mosaic Fashions Ltd. - 3.9 - Costs associated with Mezzanine Finance which is to be repaid as part of the transaction - 1.4 1.6 Exceptional stock write-offs associated with the acquisition - 1.9 - Integration costs relating to the acquisition of Karen Millen Holdings Ltd. with Mosaic Fashions Ltd. - - 4.2

Total - 7.2 5.8

The acquisition of Karen Millen and Whistles in June 2004 and subsequent consolidation of head office functions led to a number of one-off costs, including: the closure of the Karen Millen head office in Maidstone and the associated costs of relocating to the group head office in Paul Street and, redundancy costs across Karen Millen and Whistles.

The costs associated with the acquisition of Sierra Holdings Ltd. by Mosaic Fashions related to legal fees and a contribution to the Sierra Holdings Ltd. Employee Benefit Trust by that company.

Financial Analysis

Sales Analysis In FY2005 Mosaic Fashions Ltd.’s total proforma turnover was £355.6 million. Oasis, its largest brand, achieved revenues of £173.9 million. Coast’s and Karen Millen’s revenues were £60.4 million and £89.3 million respectively, and the revenues of Whistles, the smallest brand in the portfolio, amounted to £32.0 million. Mosaic Fashions Ltd´s. domestic market, the UK and Ireland, accounted for 97.1% of revenues with concessions accounting for just over 37% of this total.

Turnover, including gross franchise sales, broken down by sales channels and brands in FY2005 was:

Karen Oasis Coast Millen Whistles

UK (and Ireland) Stores FY05 70.3% 20.0% 80.0% 59.4%

UK (and Ireland) concessions FY05 29.7% 80.0% 20.0% 40.6%

UK and Ireland FY05 97.8% 100.0% 91.4% 100.0%

Overseas stores FY05 2.2% 0.0% 8.4% 0.0%

Partnership (e.g. Ireland, JV China) 0.0% 0.0% 0.2% 0.0%

Total store revenue 100.0% 100.0% 100.0% 100.0% Mosaic Fashions Prospectus June 2005

The majority of the franchise gross sales originate in the Middle East and the Nordic countries that represent 35% and 38% of total franchise sales respectively, with the remaining franchise sales evenly distributed between the rest of Europe and the rest of the world.

Number of Stores At the end of FY2005 Mosaic Fashions Ltd. operated 554 stores, 73 franchise stores and 34 stores through a joint venture. On the domestic market, UK and Ireland, Mosaic Fashions Ltd. operated 526 stores of which 213 were stand-alone stores and 313 were in concessions. Oasis and Karen Millen operated 17 and 11 overseas stores, respectively. Mosaic Fashions

The total number of stores, franchises and partnership stores has increased by 62.8% from January 2003, from 453 to 708 Prospectus June 2005 outlets. Over the same period Coast has been the fastest growing brand relative to its size with 90 net new store and concession openings; however, Oasis has opened the largest number of new stores with 142 net openings.

In the first quarter of FY2006 Mosaic Fashions opened 47 new stores. Oasis was the main growth driver with 9 new domestic stores and 36 international and joint venture stores.

31 Jan 03 31 Jan 04 31 Jan 05 29 April 05 Domestic Stores Oasis 172 201 237 246 Coast 87 123 164 171 Karen Millen 69 63 71 75 Whistles 38 47 54 56 Total 366 434 526 548

International stores Overseas Oasis 17 17 17 20 Karen Millen 0 11 11 11 Total 17 28 28 31

Franchised stores Oasis 29 26 41 45 Coast 0 0 3 6 Karen Millen 23 25 27 27 Whistles 0 2 2 2 Total 52 53 73 80

Joint venture Oasis 0 0 34 49 Total 0 0 34 49

Overall 435 515 661 708

Stand-Alone Stores vs. Concessions The concession and the stand-alone models have advantages and disadvantages. Management’s view is that operating a combination of both models across the Group provides a balance between the two models.

In the stand-alone model expenses for rent, rates, and maintenance are fixed, and personnel costs are higher than in the concession model; however, stand-alone stores require a higher initial investment in fixtures and fittings. Typically, Mosaic Fashions will enter into a lease for the new premises, usually, in the case of a new lease of between ten and fifteen years’ duration (in the case of Eire this is normally twenty to twenty five years). Over 80% of Mosaic Fashions Ltd.'s leases have at least 6 years to run.

The concession model requires much lower initial capital investment, and has a much higher element of variable costs than the stand-alone model. Typically, Mosaic Fashions will enter into a contract with a department store with a set notice period (normally 3 to 6 months) with a payment typically set as a percentage of the sales value, or with a fixed and variable element,

to cover rent, other property costs and IT and cash handling. In most, but not all, concessions, Mosaic Fashions will employ the staff members working in the concession. The department store typically remits the takings on a weekly or monthly basis, after deducting the concession fee, which means higher working capital.

Other disadvantages of the concession model are a lack of control in respect of locations, footfall, store regulations and personnel. Overall, the concession model is considered to be less risky than stand-alone stores as the initial investment is limited and the costs of occupation vary with the sales value achieved.

The Group doesn't own any real estate.

Seasonality Analysis The year is divided into two six-month seasons: Spring-Summer and Autumn-Winter. Each season ends with a sale to make room for the new season’s stock.

June and December are the key trading months, together generating approximately 25% of annual turnover and approximately 40% of EBITDA. June’s high contribution is driven by high margins from selling full price summer ranges. December’s contribution is driven by the volumes typical of the Christmas gift season. July and January are key months for the sale of reduced price merchandise. February and August are the lowest months for turnover as they follow the sale months of January and July. When the new season stock is introduced in February and September, the weather is often not compatible with the clothes on offer; new season sales pick up in March and September.

Margins drop significantly in July and January over the Sales periods. January is the worst month for EBITDA.

Over last three financial years, approximately 20% of the turnover and EBITDA has been generated in the first quarter of the financial year, 25% has been generated in each of the second and third quarters and 30% is generated in the fourth quarter.

Working Capital Requirements This section is based on un-reviewed pro forma management accounts. Over Mosaic Fashions’ financial year the working capital requirement is driven by the seasonal stock requirement cycle. The greatest working capital requirement results from stock deliveries in preparation for the major trading periods in December for AW and June for SS. The lowest requirement follows the sales at the end of each season. Year-end pro forma working capital as a percentage of annual revenues was 3.2% in FY2004 and 0.9% in FY2005, respectively. The FY2005 position was distorted by creditors relating to exceptional items, and by stocks written off to align with accounting policies. If these had been excluded working capital at that balance sheet date would have amounted to 2.4% of sales. Additionally, stock levels in Karen Millen were significantly lower than the previous year due to changes in the timing of deliveries, as Mosaic Fas hions' management sought to control working capital levels more tightly than their predecessors at Karen Millen.

Capital Expenditure This section is based on un-reviewed pro forma management accounts. The Group’s store expansion programme, especially in Oasis and Coast, has resulted in capital expenditure of £34.0 million over the last two years (£18.5 million and £15.5 million in FY2004 and FY2005 respectively). Capital expenditure of £18.4 million was in respect of new stores (£11.0 million and £7.4 million in FY2004 and FY2005 respectively), maintenance and refits accounted for £9.7 million (£5.3 million and £4.4 million in FY2004 and FY2005 respectively) and non-store capital expenditure was £5.9 million (£2.2 million and £3.7 million in FY2004 and FY2005 respectively). The main elements of Mosaic Fashions’ non-store capital expenditure were a new centralised distribution centre for all brands and a new head office IT system. Non-store capital expenditure is expected to remain at a similar level in FY2006 and then to drop significantly in the following year with the completion of the main integration initiatives.

Operation from the Date of the Last Financial Report As at the date of this Prospectus it is expected that the performance of Mosaic Fashions for the first quarter FY2006 will be in accordance with the Group’s management budget for the period, with growth in turnover and EBITDA similar to the level

experienced in the last two financial years, pro forma.

The company has planned to open approximately 80 outlets domestically and internationally. Over the first quarter of FY2006 the Company opened 47 new outlets.

The Company will publish the results 28 June 2005, with 1Q FY2005 pro forma as a comparable. Mosaic Fashions Prospectus June 2005

Letter from the Auditors of Mosaic Fashions hf.

Board of Directors of Mosaic Fashions hf. Sudurlandsbraut 4, 108 Reykjavik.

Reykjavik, 09 May 2005

Mosaic Fashions Subject: Pro Forma Balance Sheet as of 30 January 2005 for Mosaic Fashion hf. Prospectus June 2005

We have conducted certain procedures with regard to the pro forma Balance Sheet for Mosaic Fashion hf. presented on page 50-51 of this Prospectus. The pro forma Balance Sheet has been prepared, for illustrative purposes only, to provide information about how the Balance Sheet of Mosaic Fashion hf. might look like as of 30 January 2005 but after taking into account the issue of 2,533,330,498 shares on 20 May 2005 to Mosaic Fashions Ltd.’s shareholders (which they have paid for with their ordinary and preference shares and loan notes otherwise convertible into shares that the shareholders hold in Mosaic Fashions Ltd.) and also that the Company would apply with International Financial Reporting Standards (IFRS).

Because of the nature of the aforementioned transaction where the pro forma Balance Sheet is as of 30 January 2005 but the transaction took place on 20 May 2005 the pro forma Balance Sheet may not present a fair reflection of the financial position of the Mosaic Fashion hf. after the mentioned transactions.

Responsibility The directors of Mosaic Fashion hf. are solely responsible for the preparation of the pro forma Balance Sheet to which this report relates and for the financial statements and financial information from which it has been prepared.

It is our responsibility to express an opinion on the basis of preparation of the pro forma Balance Sheet and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Scope We have conducted certain procedures which involved no independent examination of any of the underlying financial information, and consisted primarily of comparing the unaudited/reviewed balance sheet of Mosaic Fashion Ltd. as of 30 January 2005 which is prepared in accordance with IFRS, considering the evidence supporting the adjustments, recalculating the amounts based on the information obtained and discussing the pro forma financial information with the directors of Mosaic Fashion hf. Because the above procedures do not constitute either an audit or review undertaken in accordance with generally accepted auditing standards in Iceland, we do not express any assuranc e of the fair presentation of the unaudited pro forma financial information. Had we performed additional procedures, or had we performed an audit or review of the pro forma financial information in accordance with generally accepted auditing standards in Iceland, other matters might have come to our attention that would have been reported to you.

Opinion Based on our procedures, nothing has come to our attention that causes us to believe that: · the pro forma Balance Sheet has not been properly compiled on the basins stated, · such basis is inconsistent with the accounting principles used by Mosaic Fashion hf. and · the adjustments are not appropriate for the purposes of the pro forma financial information as disclosed.

Consent We consent to the inclusion of this letter end the reference to our opinion in the Prospectus to be issued by Mosaic Fashion hf. in the form and context in which it appears.

KPMG Endurskodun hf.

Pro Forma Balance Sheet The most relevant information for a potential investor is the pro forma consolidated balance sheet of Mosaic Fashions hf. as of 30 January 2005. The pro forma balance sheet is presented in accordance with International Financial Reporting Standards (IFRS) on the next page. It shall be noted that the accounts are not reviewed and are only for illustrative purpos es. In addition the date of the pro forma balance sheet is 30 January 2005 but the incorporation of Mosaic Fashions hf. was 12 April 2005 and Mosaic Fashions Ltd. came into ownership of Mosaic Fashions hf. on 20 May 2005. The IFRS adjustments and the preceding IFRS accounts for Mosaic Fashions Ltd. have not been audited and are like the IFRS rules, subject to changes. The Mosaic Fashions Ltd.’s balance sheet as of 29 January 2005, as shown below, has been audited prior to the preparation of the pro forma consolidated balance sheet, according to UK GAAP together with the opening balance sheet of Mosaic Fashions hf. as of 12 April 2005.

For the preparation of the pro forma consolidated balance sheet of Mosaic Fashions hf. as of 30 January 2005, the group needs to undertake two distinctive transitional phases. These are adjustments made in converting from UK GAAP to International Financial Reporting Standards (IFRS) and the ownership transfer of Mosaic Fashions Ltd. to Mosaic Fashions hf. This transaction is labelled Acquisition of M Ltd. in the pro forma consolidated balance sheet to be found on the next page.

IFRS adjustments The IFRS adjustments relate to the separate recognition of intangible assets on the acquisition of Karen Millen Holdings Ltd. (under IFRS 3 Business Combination and IAS 38 Intangible Assets). Most of the change is as a result of the IFRS 3 - Business Combination on Karen Millen Holdings Ltd. The formal valuation exercise in accordance with IFRS identified a number of intangible assets that should be separately recognised. An adjustment has been made to present separately £50.4 million of other intangible assets, including £36 million for the recognition of the Karen Millen brand name, £8.4 million in respect of the Whistles brand name and £6.0 million for the recognition of the franchise and licenses agreements. Related deferred tax liability was established at 30% tax rate in UK, as the tax base of the brands is nil and the valuation introduces a timing difference under IAS 12. The Company intends not to amortise the brands or other intangible assets, but their valuation in later accounting periods will be subject to impairment tests that will be made at least annually according to IFRS standard IAS 36- Impairment test. Other IFRS adjustments made are less significant, and relate mostly to re classification between balance sheet items.

The pro forma balance sheet item, “acquisition and eliminations”, relates to the transaction whereby Mosaic Fashions Ltd. became a wholly owned subsidiary of Mosaic Fashions hf. and was consolidated. The result is the creation of new share capital and a share premium account amounting to £279.8 million and goodwill arising from the “acquisition” amounting to £215.0 million.

Mosaic Fashions Prospectus June 2005

Pro forma Consolidated Balance Sheet

£ million Mosaic Mosaic Mosaic Fashions Ltd. Fashions hf. Fashions hf. UK Adjust- IFRS Opening Acquisition Eliminations GAAP ment GAAP balance of M Ltd. Consolidated Mosaic Fashions

Non-current assets Prospectus June 2005 Goodwill 197.7 -35.2 162.5 215.0 377.5 Property plant and equipment 52.8 -3.2 49.6 49.6 Other intangible assets 0.0 50.4 50.4 50.4 Investment in subsidiary 0.0 0.0 279.7 -279.7 0.0 Investments in associates & JV 0.2 0.2 0.2 Prepayments 0.0 3.0 3.0 3.0 Non-Current assets 250.7 15.0 265.7 0.0 279.7 480.7

Current assets Inventories 28.3 28.3 28.3 Trade and other receivables 22.2 0.2 22.4 0.1 22.5 Cash and cash equivalents 21.9 21.9 21.9 Current assets 72.4 0.2 72.6 0.1 0.0 72.7

Total Assets 323.1 15.2 338.3 0.1 279.7 553.4

Non-current liabilities Long-term borrowings 180.6 180.6 180.6 Deferred tax provisions 0.6 14.5 15.1 15.1 Other non-current liabilities 0.9 1.9 2.8 2.8 Non-current liabilities 182.1 16.4 198.5 0.0 0.0 198.5

Current liabilities Short term borrowings 17.4 17.4 17.4 Trade and other payables 56.9 56.9 56.9 Current tax payable 0.8 0.8 0.8 Current liabilities 75.1 0.0 75.1 0.0 0.0 75.1

Total Liabilities 257.2 16.4 273.6 0.0 0.0 273.6 Equity Share capital 37.1 37.1 0.1 20.6 -37.1 20.7 Share premium account 23.0 23.0 259.1 -23.0 259.1 Retained earnings 5.8 -1.2 4.6 -4.6 0.0 Total Equity 65.9 -1.2 64.7 0.1 279.7 279.8

Total Liabilities and Equity 323.1 15.2 338.3 0.1 279.7 553.4

Mosaic Fashions hf., (the parent company) balance sheet as of 20 May 2005

In this section the Mosaic Fashions hf., (the parent company) balance sheet is presented in accordance with International Financial Reporting Standards (IFRS). The IFRS accounts for Mosaic Fashions Ltd. have been reviewed but are like the IFRS rules, subject to changes. The Mosaic Fashions hf.’s, (the parent company) balance sheet as of 20 May 2005, as shown below, includes the financial development of the parent Company from incorporation, most notably an issue of shares sold for £309.7 million and paid with £30 million cash and £279.7 million worth of equity and equity related instruments in Mosaic Fashions Ltd. and costs related to the offering and preparation of listing the Company's shares on ICEX.

Mosaic Fashions, Parent company balance sheet £ million Assets:

Investment in subsidiary 281.3 Fixed Assets 281.3

Other receivables 30.2 Current Assets 30.2

Total assets 311.5

Equity:

Issued capital 22.9 Share premium 287.0 Total equity 309.9

Current liabilities Other payables 1.6

Total equity and liabilites 311.5

Mosaic Fashions Prospectus June 2005

Mosaic Fashions

X RISK FACTORS Prospectus June 2005

Investing in shares is subject to numerous risks. Prior to making any investment decision, all of the information in this document and, in particular, the risks and uncertainti es described below, should be carefully considered. The risks and uncertainties described below are some of those that may materially affect the Company and any investment made in its shares. If any or a combination of these events occur, the trading price of the shares could decline and investors might lose all or part of their investment. Additional risks and uncertainties that do not currently exist, that are not presently considered material or of which the Company is unaware may also impair the business and operation of the Company. These risks and uncertainties could have a material adverse impact on the business, income, profits, assets, liquidity and share price of the Company.

Risks Relating to the Company’s Business Operations

Operating Income can be Volatile There are many factors that have an impact on the willingness of the Company’s customers to purchase the goods manufactured and sold by the Company. These factors include the weather, the economy, inflation, disposable income, house prices, the availability of credit, and unemployment. The sales of clothing sold by the Company tend to decline when these and other factors become unfavourable. For example, the weather may have a significant impact on the Company’s operations due to their seasonal nature of such operations (spring-summer and autumn-winter).

Due to the nature of the Company’s operations, the sustainability of its income depends to a great extent on the ability of its employees and advisors to produce novel and fashionable clothing that meets the various demands of its customers. Any miscalculation of customer demand or fashion trends, as well as purchasing mistakes, may result in an adverse negative impact on the Company’s sales levels.

Legal Risk The Company’s operations are to a large extent geographically limited to the United Kingdom. The Company nevertheless has a presence in several other countries through own stores, concession arrangements and franchises. The Company is therefore subject to various legislative, governmental and municipal regulations and standards in the jurisdictions in which it has presence. As the Company aims to expand internationally, the Company’s operations consequently entail an increased legal risk. Foreign regulations in the jurisdictions in which the Company has a presence may be amended in the future with an adverse impact on the Company.

The Company strives to live up to standards set by the multiple regulations described above. It nevertheless can be exposed to various claims, some of which are of a financial nature. Dissatisfied customers who have purchased the Company’s products may present claims for financial loss. The Company may be subject to claims arising from violations of regulations and standards. The Company may also be subject to claims arising from disputes with employees for, among other things, alleged illegal dismissal, discrimination or harassment. These risks may often be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. Liability resulting from any of the above or other claims could have a material adverse effect on the reputation and results of the Company’s operations. Discussion about the Company’s insurance can be found on page 55.

The Company may be party to litigation that, depending on its outcome, might have an adverse impact on the Company’s financial situation. At the date of publication of this Prospectus, the Company is not involved in any litigation that may have a material effect on the Company ’s operations or financial status. Nor is the Company's Board of Directors aware of any pending litigation that may have a material effect on the financial position of the Company.

The Company has entered into numerous concession agreements enabling the Company to operate in an area of a relevant department store and permitting it to sell the Company’s products from such areas for which it pays part of the resulting

turnover. Should these concession arrangements be terminated by the Company’s counterparties, a source of income will be lost accordingly.

IP / Licence The trademarks, copyright, unregistered design rights, domain names, and other intellectual property rights held by the Company are fundamental to its operations. Counterfeit products and other illegal use of the Company’s trademarks can pose a threat to the profitability of the Company.

The Company has attempted to obtain legal protection over its trademarks and other intellectual property rights by means of registration where possible and to the extent practicable. Nevertheless, there can be no assurance that the actions taken by the Company to establish, protect and monitor the use of its intellectual property is successful. The law and practice relating to the protection of intellectual property rights varies greatly from country to country and, as a result, the Company’s rights are more vulnerable in some jurisdictions than in others.

The Company receives a portion of its profits from its licensing partners. Should these partners fail to maintain their operation in a successful manner, the Company’s income from royalties will decline. If a licensee needs to be replaced, it is hoped that any replacement can be effected within a limited period of time. However, income may be lost in the process and additionally the respective brand may consequently lose some goodwill in that jurisdiction.

From time to time, the product development teams in the Company inadvertently infringe the IP rights of other designers. In such instances, the Company takes immediate steps to rectify the situation and to honour the rights of the infringed party.

Suppliers The Company relies on a limited number of suppliers of raw materials used in the manufacture of its products. The materials are mainly sourced from Europe and Asia. Various factors may impede the sourcing of the said materials. In addition, the Company’s profitability may be reduced should such suppliers adversely change the terms of the Company’s contractual arrangements with them.

The Company purchases from its suppliers on terms of trading which have generally been established on an ad hoc basis with each supplier over a period of time. The Company’s intention is to deal with all new suppliers, to the extent possible, on the Company’s own standard terms of purchase. However, at present few suppliers are currently bound by such terms.

Management Risk The Company bases its operations to a large extent on the extensive knowledge and abilities of its key personnel who are experienced in the retail clothing sector and have significant shareholdings in the Company. There can be no assurance that such key personnel will continue to work for the Company or that departing employees can be sufficiently replaced. Should any key employees choose to discontinue their services for the Company, this could be detrimental to the Company’s operations.

The senior management of Mosaic Fashions Ltd. including Derek Lovelock, Richard Glanville and Meg Lustman have undertaken for 12 months after the listing of Mosaic Fashions hf.’s shares, not to sell the shares they will hold in Mosaic Fashions hf. at the time of listing.

Currency Risk The shares of the Company are traded in ISK while the vast majority of the Company’s revenues and costs are in other currencies, principally British pounds, US dollars and Euros. As a consequence, fluctuations in the respective currency rates could have a significant impact on any return on investment in the Company’s shares.

Theoretically, the return on investment in ISK should be affected by the currency risks, not the return in GBP. However, as it is expected that Icelandic investors will hold a large proportion of the shares, fluctuations in the Icelandic economy and the ISK alone could have a significant impact on the share price. As the shares of the Company are traded in ISK, foreign investors are subject to the liquidity risk of the ISK and consequently the bid-ask spread against other currencies.

Tax Risk The Company is not aware of any ongoing tax inspection with respect to the Company’s entities and has no reason to believe such an inspection is imminent. Such inspections may, nevertheless, be initiated at a later stage and adversely impact the financial status of the Company.

Mosaic Fashions Prospectus June 2005

Insurance The Group has purchased various insurance policies, insuring members of the Group against incidents such as delays and property damage. No guarantee can be given that the existing insurance will cover all future claims that may be lodged against the Company although every effort is made to ensure the adequacy of cover. If such claims are legitimate, then they may have a significant negative impact on the Company’s operations, results or financial situation.

Competition

The Company is faced with fierce competition in the retail clothing sector across all its product lines. Several new competitors Mosaic Fashions have emerged over the past few years and more will emerge in the future. Some of these competitors possess great financial strength that makes the competition even more challenging. If the Company becomes unable to compete successfully, its Prospectus June 2005 profitability may be adversely impacted.

Growth and International Expansion The Company intends to grow its business through further expansion both domestically and internationally. Expanding the Company’s operations will require significant investment, increased operating costs, greater allocation of management resources away from daily operations, continued development and integration of the Company’s financial, distribution and information technology systems and the continued training of management and other personnel. Whether such expansion is successful depends on a number of factors, including the availability of desirable locations and franchise/licensing partners, and the ability of the Company and its partners to manage new stores and the expansion in general. The failure of the Company to effectively manage these issues as well as its growth, whilst at the same time maintaining adequate focus on its current operations, could have a material adverse effect on its business, financial condition and results of operations.

Risks Relating to the Offering

Risks Inherent in Equity Investments Equity investments involve a variety of risks. Examples of such risk factors that may have a material effect on the price of the Company’s shares, and thereby on the investment value, are market risk, liquidity risk and counterparty risk. Moreover, it must be kept in mind that shares are a subordinated claim on the assets of companies. This means that in the event of the Company's liquidation, the shareholders will receive what is left after all other claims have been met. In many countries, shares have yielded a better return than bonds measured over long periods of time. Nevertheless, long periods can also be found where the return on shares has been worse than on bonds and even negative. Those who intend to invest in the Company should know that there is no guarantee of a return on their investment in the future and investors should bear in mind that even though stocks can provide a good return in general, there is always a risk that an investment in the shares of individual companies will decline in value. It is therefore suggested that those who intend to invest in stocks pay close attention to diversifying their risk.

Volatile Operating Income The operating income of the Company can be volatile. This may cause revenues for certain periods to fall below expectations and possibly have a negative effect on the price of the Company’s shares. Investors should be aware that the Company operates in a market where income is heavily based upon changing fashion trends. The Company has also recently undergone a major transformation. Investment risk in companies operating under such circumstances is generally greater than in companies operating in a more stable environment.

No Guarantee of Listing or Active Trading Prior to the Public Offering there has been no public trading market for the Company’s ordinary shares. Although the Company intends to apply to have its shares listed on the Iceland Stock Exchange and it believes that such application will be accepted, the Company cannot guarantee that this will be the case. Furthermore, even if the shares are listed, there is no guarantee that an active trading market will be formed with the Company’s shares.

Stock Price can Fluctuate The share price can fluctuate considerably after the Offering due to factors such as, variations in operating income, changes in the market environment, adverse commentary about the Company and its products in the media and changes to the Company’s competitive position. The offer price may not be indicative of the market price for shares in the Company after admission.

Shareholder Structure The structure of shareholder ownership can also be a risk factor for investors. A lack of leading investors or large concentrations of ownership are examples of circumstances that can have a negative effect. Ownership can change rapidly in a short period of time.

Prior to the Offering, there were 55 shareholders in the Company. One shareholder, BG Holding ehf., owns 38.0% of the share capital. After the public offering, BG Holding ehf. will own approximately 36.8% of the Company’s outstanding ordinary shares. BG Holding ehf. may in the future choose to dispose of its shareholding in whole or in part which may result in fluctuations in the share price.

Some of the contractual arrangements to which the Company is party may be subject to change of control provisions. If there are substantial changes to the shareholder base, some of the contracts may be disrupted.

Ability to Pay Dividends may Deteriorate The Company is subject to certain loan agreements that stipulate that the Company shall maintain certain financial covenants. Such financial covenants may limit the ability of the Company to make future dividend payments until full repayment of such facilities. That aside, the Company’s ability to pay dividends depends on its profitability. Should the profitability be reduced, the ability to pay dividends can deteriorate accordingly.

Further Share Capital Increase can Dilute Shareholdings If new shares in the Company are issued, the proportional shareholding of those who already hold shares in the Company will be reduced accordingly, unless they themselves acquire the new shares pro rata to their existing holdings. The purpose of increasing capital is normally to finance projects with the long-term intention of making the Company more valuable in the future. Shareholders may therefore be faced with increased risk for their investment alongside the dilution of their shares. It is probable that the Company will consider increasing its share capital further in the next few years in order to finance the Company’s continuing growth.

Mosaic Fashions Prospectus June 2005

APPENDICES

A Mosaic Fashions hf. - Articles of Association

B Summary of certain Icelandic and UK tax rules

K Reconciliation and details of the pro forma profit and loss account information to the statutory accounts

APPENDIX A:

MOSAIC FASHIONS HF. ARTICLES OF ASSOCIATION

THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK THE ARTICLES OF ASSOCIATION ARE LOCATED BELOW

Samþykktir fyrir M Fashions hf. Articles of Association for Mosaic Fashions hf.

I. kafli / CHAPTER I Nafn, heimili og tilgangur / Company Name, Domicile and Object

1. gr.

Félagið er hlutafélag. Nafn þess er M Fashions hf. Erlent aukaheiti félagsins er Mosaic Fashions hf.

Article 1

The Company is a Public Limited Company. The Company’s name is M Fashions hf. The company’s alternative international name is Mosaic Fashions hf.

2. gr.

Heimili félagsins er á Suðurlandsbraut 4 í Reykjavík.

Article 2

The Company’s legal domicile and venue are at Sudurlandsbraut 4 in Reykjavík.

3. gr.

Tilgangur félagsins er að eiga og reka fyrirtæki sem hafa með höndum framleiðslu, sölu og dreifingu á tískuvarningi og annan skyldan atvinnurekstur, rekstur fasteigna og allt annað sem eðlilegt er að félagið hafi með höndum.

Article 3

The purpose of the company is to own and run businesses involved in the production, sale and distribution of fashion goods and other related activities, the management of real estate and any other activities which the company may reasonably be expected to be involved in.

II. kafli / CHAPTER II Hlutafé félagsins / Share Capital of the Company

4. gr.

Hlutafé félagsins er 2.809.799.782 krónur – tveirmilljarðaráttahundruðogníumilljónirsjöhundruðníutíuogníu- þúsundsjöhundruðáttatíuogtværkrónur – að nafnverði, sem skiptist í einnar krónu hluti. Fylgir eitt atkvæði hverri krónu í hlutafé á hluthafafundi.

Stjórn félagsins er heimilt að auka hlutafé þess um allt að 127.530.716 króna að nafnverði, með áskrift allt að 127.530.716 nýrra hluta. Hluthafar falla frá forgangsrétti sínum skv. 34. gr. laga nr. 2/1995 um hlutafélög. Þessir nýju hlutir skulu vera í sama flokki og með sömu réttindi og aðrir hlutir í félaginu. Þeir skulu veita réttindi í félaginu frá skrásetningardegi hlutafjárhækkunarinnar. Stjórn félagsins er falið að ákveða nánari útfærslu á hækkun þessari m.t.t. sölufyrirkomulags, verðs og greiðsluskilmála. Stjórn félagsins er heimilt að selja hina nýju hluti í hlutafjárútboði. Heimild þessi gildir til 31. desember 2005.

Hluthafafundur getur ákveðið hækkun hlutafjár, hvort heldur er með áskrift nýrra hluta eða útgáfu jöfnunarhluta og þarf sama magn atkvæða og til breytinga á samþykktum þessum. Hluthafar skulu hafa forgangsrétt að öllum nýjum hlutum í hlutfalli við hlutafjáreign sína.

Hluthafafundur getur, með samþykki minnst 2/3 hluta greiddra atkvæða, svo og samþykki hluthafa sem ráða yfir minnst 2/3 hlutum þess hlutafjár sem farið er með atkvæði fyrir á hluthafafundinum, ákveðið að víkja frá forgangi við hækkun hlutafjár, enda sé hluthöfum á engan hátt mismunað.

Greiði hluthafi ekki tilskilið hlutafé á gjalddaga skal hann greiða dráttarvexti af skuldinni frá þeim degi til greiðsludags, auk alls kostnaðar við innheimtu. Jafnframt er heimilt að grípa til annarra þeirra vanefndaúrræða sem lög heimila á hverjum tíma.

Hluthafafundur einn getur ákveðið lækkun hlutafjár.

Article 4

The Company’s share capital amounts to nominal value ISK 2,809,799,782 – twothousendeighthundred- andninemillionssevenhundredninetyninethousendsevenhundredeightytwo – divided into as many shares of one ISK each. At shareholders’ meetings each share shall carry one vote.

The Board of Directors of the Company is authorised to increase the share capital of the Company by up to ISK 127,530,716 nominal value by issuing up to 127,530,716 new shares. The current shareholders shall not have pre-emptive rights to the new shares, pursuant to Article 34 of Act no. 2/1995 on Public Limited Companies. The new shares shall belong to the same class and carry the same rights as other shares in the Company. The new shares shall grant rights within the Company as of the date of registration of the increase of share capital. The Board of Directors of the Company is authorised to determine more specifically how this increase will be executed, with reference to sale process, price and terms of payment. The Board shall be authorized to sell the new shares in a share offering. This authorisation expires on 31 December 2005.

Shareholders’ meetings may decide on an increase in the share capital of the Company, whether through subscription to new shares or through the issue of bonus shares, based on the rules that apply to amendment of these Articles. Shareholders have pre-emptive rights to increased share capital in proportion to their holdings in the Company.

A shareholders meeting can, by a 2/3 majority vote and also the approval of shareholders controlling at least two-third of the share capital in respect of which votes are wielded at the shareholders' meeting, decide to waive pre-emptive rights on increases in share capital, provided that there is no discrimination.

In the event that a shareholder has not paid in his shares by the due date, he shall pay penalty interest on the amount due from that date to the date of payment, in addition to costs accrued from the collection of the payment. Other means for dealing with defaults may also be used, as provided for by law at any time.

Only shareholder’s meetings may decide on a reduction in the share capital.

5. gr.

Hlutabréf félagsins skulu gefin út með rafrænum hætti hjá Verðbréfaskráningu Íslands hf. í samræmi við lög um rafræna skráningu verðbréfa. Þegar hluthafi hefur greitt hlut sinn að fullu til félagsins fær hann útgefið rafbréf í verðbréfamiðstöð og eignaréttindi skráð yfir því og veitir það honum full réttindi, þau er samþykktir félagsins mæla fyrir um. Framsal hluta í félaginu öðlast gildi gagnvart félaginu við skráningu hjá Verðbréfaskráningu Íslands hf.

Article 5

The Company’s Shares shall be issued electronically at the Icelandic Securities Depository, pursuant to the Act on Electronic Registration of Securities. Once a shareholder has paid in his share in full to the Company, he shall be issued an electronic certificate in a securities depositary and a registered title which confers on him the full rights provided for in the Articles of Association of the Company. Transfer of shares becomes effective at registration with the Icelandic Securities Depository.

6. gr.

Stjórn félagsins skal halda hlutaskrá í samræmi við gildandi lög.

Hlutaskráin skal geymd á skrifstofu félagsins og eiga allir hluthafar aðgang að henni og mega kynna sér efni hennar.

Gagnvart félaginu skal hlutaskráin skoðast sem fullgild sönnun yfir eignarrétti að hlutum í félaginu og skal arður á hverjum tíma svo og jöfnunarhlutir, fundarboð og tilkynningar allar sendast til þess aðila sem á hverjum tíma er skráður eigandi viðkomandi hluta í hlutaskrá félagsins. Skal arður greiddur þeim hluthöfum sem eru hluthafar við lok aðalfundardags þegar arðgreiðsla er ákveðin. Ber félagið enga ábyrgð á því ef greiðslur eða tilkynningar misfarast vegna þess að vanrækt hefur verið að tilkynna félaginu um eigenda- eða bústaðaskipti.

Article 6

The Board of Directors shall maintain a register of shares, pursuant to statutory law.

A register of shares shall be kept at the Company's office and all shareholders shall have access thereto and may acquaint themselves with the contents thereof.

For the Company, the Share Ledger shall be regarded as full proof of ownership rights to any shares in the Company, and dividends at any time, as well as bonus shares, notices of meetings and other notices shall be sent to the party registered as the owner of the shares in question in the Share Ledger of the Company. Dividends shall be paid to those that are registered as the owners of the Company’s shares at the end of the day of the Annual General Meeting when dividends payment is decided. The Company assumes no responsibility of payments or notices being lost owing to neglect to notify the Company of changes of ownership or address.

7. gr.

Félagið má eigi veita lán út á hluti sína nema lög leyfi. Félaginu er heimilt að kaupa eigin hluti að því marki sem lög leyfa. Óheimilt er að neyta atkvæðisréttar fyrir þá hluti sem félagið á sjálft.

Article 7

The Company is not permitted to grant credit against share certificates in the Company unless permitted by statutory law. The Company may purchase its own shares to the extent permitted by statutory law. It is not permitted to exercise voting rights for the Company’s own shares.

8. gr.

Hver hluthafi er skyldur til, án sérstakrar skuldbindingar að lúta samþykktum félagsins, eins og þær eru nú, eða þeim síðar kann að verða breytt á löglegan hátt.

Hluthafar bera ekki ábyrgð á skuldbindingum sínum umfram hlut sinn í félaginu.

Article 8

Each shareholder is under obligation, without specific undertaking, to abide by the Articles of Association of the Company in their current form or as legitimately amended at any time.

Shareholders’ liability for the Company’s affairs is limited to their share contribution.

9. gr.

Engin sérréttindi fylgja hlutum í félaginu. Hluthafar eru ekki skyldir að þola innlausn á hlutum sínum nema lög standi til annars.

Article 9

No special rights attach to any share in the Company. Shareholders are not obliged to be subject to the redemption of their shares unless otherwise required by statutory law.

III. kafli / CHAPTER III Hluthafafundir / Shareholders’ Meetings

10. gr.

Æðsta vald í öllum málefnum félagsins, innan þeirra takmarka, sem samþykktir þess og landslög setja, er í höndum lögmætra hluthafafunda. Heimilt er að halda hluthafafund annars staðar en á heimili félagsins.

Article 10

The supreme authority in the affairs of the Company, within the limits established by these Articles of Association and statutory law, is in the hands of legitimate shareholders’ meetings. A shareholders' meeting may be held outside the domicile of the Company.

11. gr.

Aðalfund skal halda fyrir lok maí ár hvert.

Aukafundi skal halda eftir ákvörðun stjórnar eða að kröfu hluthafa sem ráða a.m.k. einum tíunda hluta hlutafjár í félaginu. Skal krafan skriflega gerð og fundarefni tilgreint og fundur boðaður innan fjórtán daga. Ef stjórnin skirrist við að boða fund eftir móttöku slíkrar kröfu má leita atbeina stjórnvalda samkvæmt lögum um hlutafélög.

Article 11

The Annual General Meeting shall be held before the end of May each year.

Extraordinary shareholders’ meetings shall be held at the decision of the Board of Directors, or at the request of a shareholder holding a minimum of 1/10 of the shares of the Company. The request shall be in writing stating the business of the meeting, in which case the extraordinary shareholders’ meeting shall be called within 14 days. If the Board of Directors does not call the extraordinary shareholder’s meeting after receiving such a request, the appropriate authorities can be contacted in accordance with the Public Limited Companies Act.

12. gr.

Til hluthafafundar skal boða á sannanlegan hátt, þ.m.t. með auglýsingu í dagblaði. Fundarefnis skal getið í fundarboði. Tillögur um breytingar á samþykktum félagsins eða um sameiningu þess við önnur félög eða fyrirtæki má ekki taka til meðferðar á fundum þess nema þess hafi verið getið í fundarboði. Ef taka á til meðferðar tillögu til breytinga á samþykktum félagsins, skal greina meginefni tillögunnar í fundarboði. Hluthafafund skal boða með minnst viku en lengst 4 vikna fyrirvara. Hluthafafundur er lögmætur ef löglega er til hans boðað.

Hluthafafundur kýs fundarstjóra og fundarritara. Fundargerðabók skal haldin og í hana skráð það sem gerist á hluthafafundum. Article 12

Shareholders shall be notified of shareholders' meetings by verifiable means, including through an advertisement in a daily newspaper. The notice of the meeting shall state the business of the meeting. Proposals for amendments of these Articles of Association or merger with other companies can not be discussed at shareholders’ meetings unless they were mentioned in the call to the meeting. If the agenda includes a motion to amend the Articles of the Company, the main substance of the motion shall be included in the notice of the meeting. A shareholders' meeting shall be called with at least one week’s notice and at most 4 weeks’ notice. The shareholders' meeting is valid if it has been legitimately called.

A shareholder’s meeting shall elect a chairman and a secretary. Record of Minutes shall be kept and proceedings of the meeting entered into it.

13. gr.

Á aðalfundi skulu eftirfarandi mál tekin til afgreiðslu:

a) Skýrsla stjórnar félagsins um starfsemi þess síðastliðið starfsár. b) Ársreikningur félagsins fyrir liðið starfsár ásamt endurskoðunarskýrslu skal lagður fram til staðfestingar. c) Kosning stjórnar. d) Kosning endurskoðenda. e) Ákvörðun um þóknun til stjórnarmanna. f) Ákvörðun um hvernig fara skuli með tap eða hagnað félagsins á reikningsárinu. g) Önnur mál sem löglega eru upp borin.

Article 13

The Agenda of the Annual General Meeting shall include the following:

a) The report of the Board of Directors on the activities of the Company in the preceding year of activities. b) The accounts of the Company for the preceding financial year, including an audit report, shall be submitted for confirmation. c) Elections to the Board of Directors. d) Election of an Auditor. e) Decision on remuneration to the Members of the Board of the Company. f) Decision on the disposal of earnings or loss of the Company for the preceding financial year. g) Any other business.

14. gr.

Á hluthafafundum fylgir eitt atkvæði hverjum hlut í félaginu. Hluthafar geta með skriflegu umboði veitt umboðsmönnum heimild til að sækja hluthafafund og fara með atkvæðisrétt sinn. Á hluthafafundi ræður afl atkvæða nema öðruvísi sé mælt fyrir í samþykktum þessum eða landslögum. Samþykki allra hluthafa þarf til eftirfarandi:

1) Að skylda hluthafa til að leggja fram fé í félagsþarfir fram yfir skuldbindingar sínar. 2) Að takmarka heimild manna til meðferðar á hlut sínum. 3) Að breyta ákvæðum samþykkta um hlutdeild í félaginu eða jafnrétti á milli hluthafa.

Article 14

At shareholders’ meetings each share shall carry one vote. Shareholders may, with a written letter of proxy, grant a proxy a permission to attend a shareholders' meeting on their behalf and exercise their voting rights. Decisions at shareholders’ meetings shall be taken by majority vote unless otherwise provided in these Articles or statutory law. The consent of all shareholders is required to:

1) Oblige shareholders to contribute funds etc. for Company needs beyond their commitments. 2) Limit shareholders’ rights to dispose of their shares. 3) Amend provisions of these Articles of Association regarding shareholdings in the company or the equal rights of the shareholders.

IV. kafli / CHAPTER IV Stjórn félagsins / The Board of Directors of the Company

15. gr.

Stjórn félagsins skal skipuð fimm mönnum. Skulu þeir kosnir árlega á aðalfundi, til eins árs í senn. Um hæfi stjórnarmanna fer að lögum.

Stjórn félagsins hefur æðsta vald í málefnum félagsins milli hluthafafunda. Hún fer með málefni félagsins og skal annast um að skipulag félagsins og starfsemi sé jafnan í réttu og góðu horfi. Stjórnin skal annast um, að nægilegt eftirlit sé haft með bókhaldi og meðferð fjármuna félagsins. Undirskriftir meirihluta stjórnar skuldbinda félagið.

Stjórnin skiptir sjálf með sér verkum. Formaður kveður stjórnina til funda og stýrir þeim. Fundi skal halda hvenær sem hann telur þess þörf. Formanni er auk þess skylt að boða til stjórnarfundar að kröfu eins stjórnarmanns eða framkvæmdastjóra. Félagsstjórn skal setja sér starfsreglur þar sem nánar skal kveðið á um framkvæmd starfa hennar.

Afl atkvæða ræður úrslitum nema öðruvísi sé fyrir mælt í samþykktum þessum eða öðrum lögmætum fyrirmælum.

Stjórnendur halda gerðabók um það sem gerist á stjórnarfundum og staðfesta hana með undirskrift sinni.

Article 15

The Board of Directors of the Company shall be comprised of five members. They are to be elected at the Annual General Meeting for a term of one year. The eligibility of Members of the Board shall be subject to statutory law.

The Board of Directors of the Company is the supreme authority in the affairs of the Company between shareholders’ meetings. It shall handle the affairs of the Company and ensure that its organization and operation are at all times in correct and appropriate order. The Board shall ensure adequate supervision of the accounts and disposal of the Company's property. The signatures of the majority of the Board of Directors are binding for the Company.

The Board of Directors shall allocate tasks. The Chairman shall convene meetings of the Board and preside at Board meetings. Meetings shall be held at the discretion of the Chairman. The Chairman shall also convene a meeting of the Board if requested by one Member of the Board or the Managing Director. The Board of Directors shall establish rules of procedure setting out further details of the performance of its duties.

Decisions are taken by majority vote unless otherwise provided in these Articles or legitimate instructions.

Members of the Board shall keep minutes of proceedings at Meetings of the Board and confirm such minutes with their signatures.

16. gr.

Einungis meirihluti félagsstjórnar getur veitt prókúruumboð fyrir félagið. Að öðru leyti fer um hlutverk stjórnar samkvæmt lögum.

Article 16

Only the majority of the Board of Directors may assign powers of procuration on behalf of the Company. Otherwise the role of the Board of Directors shall be in accordance with statutory law.

17. gr.

Stjórn félagsins er heimilt að ráða framkvæmdastjóra og ákveða starfskjör hans.

Framkvæmdastjóri hefur með höndum stjórn á daglegum rekstri félagsins og kemur fram fyrir þess hönd í öllum málum sem varða venjulegan rekstur. Hann sér um reikningshald og ráðningu starfsliðs. Framkvæmdastjóra ber að veita stjórnarmönnum og endurskoðendum allar upplýsingar um rekstur félagsins sem þeir kunna að óska og veita ber samkvæmt lögum.

Article 17

The Board of Directors may appoint a Managing Director of the Company and decide on the terms of his employment.

The Managing Director has charge of the day-to-day operations of the Company, and represents the Company in all matters concerning normal operations. The Managing Director shall manage the accounts of the Company and employ the employees of the Company. The Managing Director shall grant board members and auditors all necessary information on the operations of the Company which they might request and should be granted according to statutory law.

V. kafli / CHAPTER V Reikningar og endurskoðun / Accounts and Auditing

18. gr.

Starfsár félagsins og reikningsár er 1. febrúar til 31. janúar.

Framsetning ársreiknings skal vera með skýrum hætti og í samræmi við lög, reglur og góða reikningsskilavenju.

Article 18

The operating year and fiscal year of the Company shall be the 1 February to 31 January.

The annual accounts shall be prepared in a clear way and in accordance with the law and generally accepted accounting standards.

19. gr.

Á aðalfundi skal kjósa félaginu einn eða fleiri löggilta endurskoðendur eða endurskoðunarfélag. Skulu þeir kjörnir til eins árs í senn. Skulu þeir rannsaka reikninga félagsins fyrir hvert starfsár og leggja niðurstöður sínar fyrir aðalfund. Endurskoðendur má ekki kjósa úr hópi stjórnarmanna eða starfsmanna félagsins.

Eigi síðar en þremur mánuðum eftir lok starfsárs og eigi síðar en viku fyrir aðalfund skal stjórn félagsins leggja fram ársreikning, ársskýrslu stjórnar og endurskoðunarskýrslu og gera aðgengilega fyrir hluthafa.

Article 19

A chartered accountant or accounting firm shall be elected auditor at each Annual General Meeting of the Company for a term of one year. The auditor shall examine the Company's accounts for each year of operation and submit their result for the Annual General Meeting of the Company. Auditors or inspectors may not be elected from employees or board members.

No later than three months following the close of the operating year and no later than a week before the Annual General Meeting, the Board of Directors shall submit the annual accounts, annual report from the Board and auditors report, and make available for the shareholders.

VI. kafli / CHAPTER VI Breytingar á samþykktum félagsins / Amendments to the Articles of Association of the Company

20. gr.

Samþykktum þessum má breyta á lögmætum hluthafafundi. Ákvörðun um breytingu félagssamþykkta verður því aðeins gild að hún hljóti samþykki minnst 2/3 hluta greiddra atkvæða, svo og samþykki hluthafa sem ráða yfir minnst 2/3 hlutum þess hlutafjár sem farið er með atkvæði fyrir á hluthafafundinum, enda sé annað atkvæðamagn ekki áskilið í samþykktum þessum eða landslögum.

Article 20

These Articles of Association may be amended at a lawfully convened shareholders' meeting. A decision to amend these Articles of Association is only valid if approved with the support of 2/3 of the cast votes, provided that shareholders controlling at least 2/3 of the shares represented in the meeting participate in the polling, on the condition that other voting power is not reserved in these Articles of Association or in statutory law .

VII. kafli / CHAPTER VII Slit á félaginu / Dissolution of the Company

21. gr.

Með tillögur um skiptingu félagsins og slit á félaginu skal fara sem um breytingar á samþykktum þessum.

Ákvörðun um félagsslit skal tekin af hluthöfum, er ráða yfir minnst 2/3 hlutum af heildarhlutafé í félaginu. Hluthafafundur, sem tekið hefur löglega ákvörðun um að slíta eða skipta félaginu, skal einnig ákveða hvernig ráðstafa skuli eignum þess og greiðslu skulda. Fundurinn skal sömuleiðis ákveða hvort félaginu skuli skipt opinberum skiptum eða kjörin skilanefnd í samræmi við ákvæði hlutafélagalaga.

Hafi hluthafafundur tekið ákvörðun um félagsslit, skal þegar í stað tilkynna hlutafélagaskrá það.

Article 21

Proposals on the division or dissolution of the Company will be subject to the same provisions as amendments to these Articles of Association.

Decision on dissolution of the Company shall be made by shareholders controlling at least 2/3 - two third - of the Company’s share capital. Shareholders’ meeting, which has mad a lawful decision on the division or dissolution of the Company, shall also decide on how the assets of the Company should be disbursed and debts paid. The meeting shall also decide if the Company is to be divided by a public authority or a Winding-up Committee is elected in accordance with provisions in the Public Limited Companies Act.

If a shareholders’ meeting has decided on dissolution of the Company, it shall without delay be announced to the Enterprise register.

VIII. kafli / CHAPTER VIII Önnur ákvæði / Further Provisions

22. gr.

Þar sem ákvæði samþykkta þessara segja ekki til um hvernig með skuli farið, skal hlíta ákvæðum laga um hlutafélög, svo og öðrum lagaákvæðum sem við geta átt.

Article 22

Where the provisions of the present Articles of Association do not stipulate proceedings the provisions of Act No. 2/1995 respecting Public Limited Companies shall be abided by.

Þannig samþykkt á stofnfundi félagsins 12. apríl 2005, með breytingum samþykktum á hluthafafundi félagsins 28. apríl 2005. með breytingum samþykktum á hluthafafundi félagsins 28. apríl 2005. með breytingum samþykktum á hluthafafundi félagsins 18. maí 2005. með breytingum samþykktum á stjórnarfundi félagsins 19. maí 2005.

So adopted at the Company’s establishment meeting on 12 April 2005, amended at the Shareholders Meeting on 28 April 2005 amended at the Shareholders Meeting on 28 April 2005 amended at the Shareholders Meeting on 18 May 2005 amended at the Board Meeting on 19 May 2005

Reykjavík, 20. maí 2005

Reykjavík, 20 May 2005

APPENDIX B:

SUMMARY OF CERTAIN ICELANDIC AND UK TAX RULES

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Appendix ‘B’: Summary of certain Icelandic and UK tax rules

1 General

This summary has been prepared on the basis that the Issuer is recognised as being UK tax resident, in particular under UK tax law and under the Double Taxation Treaty (ICE-UK Treaty) concluded between Great Britain and Iceland.

The information presented in this section is a summary of certain Icelandic and UK tax rules related to the Prospectus, if not otherwise stated. The summary is based on legislation currently in effect and is intended only as general information to shareholders who are residents of Iceland or the UK for tax purposes. The summary does not cover tax issues in cases where securities are held as assets in business operations or by a partnership.

The tax treatment for holders depends in part on their particular circumstances. Each shareholder should consult a tax advisor regarding the tax consequences which may arise for such person as a result of the Prospectus, including the applicability and effect of foreign income tax regulations and provisions contained in treaties concluded to prevent double taxation. Non-UK parties should obtain information on a possible double taxation treaty with the country of residence. If such a treaty has been concluded, the party should establish which country has the taxation right as discussed below.

2 Tax residence of the Issuer

The Issuer has its central management and control in the United Kingdom. According to domestic law of the United Kingdom this means that the company is a UK resident for tax purposes.

According to Article 2 of the Icelandic Tax Act all limited liability companies that are registered in the Icelandic registry of enterprises are Icelandic tax residents.

According to Article 4 subparagraph 3 of the ICE-UK Treaty if an entity is considered to be a resident of both “Contracting States” under domestic tax law, then its residence shall be determined by the ICE-UK Treaty as the Contracting State in which its place of “effective management” is situated. The Issuer has its place of effective management in the UK and therefore is solely a UK tax resident according to the ICE-UK Treaty.

Iceland has no legislation, rules or case law in relation to the emigration of corporations. Therefore the Issuer will still remain subject to the Icelandic tax system due to the fact that under domestic law it is an Icelandic tax resident.

At the time of writing this summary there are still some issues outstanding in relation to taxation. The most important outstanding issue is whether any dividend distributed from the Issuer is subject to Icelandic withholding taxation (prepayment of Icelandic income tax).

If the final conclusion is that the issuer is obliged to remit Icelandic withholding tax on dividends it will not have any impact on the final taxation of the dividend for UK or Icelandic resident shareholders. However UK shareholders would have to reclaim the withholding tax through a refunding mechanism. If withholding tax has to be remitted the Issuer will seek to agree with the Icelandic Tax Authorities a process which minimizes both the time interval and the administration associated with the refund.

The remainder of this summary is written under the assumption that the Issuer is UK tax resident and will not be subject to withholding tax requirements in Iceland.

3 Taxation of dividends

3.1 UK withholding tax

Under current UK tax legislation the Issuer is not required to withhold tax at source from dividend payments made to UK or non-UK resident shareholders.

3.2 UK resident Individuals

A shareholder who for tax purposes is a UK resident Individual and receives a dividend from Mosaic Fashions hf. will be entitled to a tax credit equal to one- ninth of the dividend. This tax credit will reduce the tax that the Individual will suffer on the dividend.

The amount of tax that an Individual will suffer depends on their total taxable income and whether they are a Starting Rate1, Basic Rate2 or Higher Rate3 tax payer. Dividend income is treated as the last income that an Individual receives in a tax year, i.e. the “top slice”. To the extent that this dividend income falls within the Starting Rate or Basic Rate band the tax credit will be treated as fully discharging the Individual’s liability to income tax on the dividend. If the dividend (or part thereof) falls into the Higher Rate band of income tax, then the Individual will pay tax at 32.5% on the amount of the dividend that falls above the Higher Rate threshold. In this case the Individual’s total tax liability on the dividend will still be reduced by the tax credit.

3.3 UK resident Corporates

A shareholder that is a company resident for tax purposes in the UK will not generally be taxable on any dividend that it receives from Mosaic Fashions hf. If the Corporate, however, trades in shares then the dividends received are treated as trading income and taxed accordingly.

1 An individual, after taking account of the personal allowance of £4,745, is a Starting Rate taxpayer for tax year to 5 April 2005 if total income including the dividend does not exceed £2,020 2 An individual, after taking account of the personal allowance of £4,745, is a Basic Rate taxpayer for tax year to 5 April 2005 if total income including the dividend does not exceed £31,400 3 An individual, after taking account of the personal allowance of £4,745, is a Higher Rate taxpayer for tax year to 5 April 2005 if total income including the dividend exceeds £31,400 3.4 Icelandic resident Individuals

For Icelandic resident individuals, dividends are taxed as income from capital. The tax rate is 10% on the dividend received.

Individuals are subject to net worth tax of 0.6% of the nominal value of the shares if net assets exceed ISK 4,838,000 (9,676,000 for couples). Net worth tax credit is valid for the first ISK 1,436,145 (2,872,290 for couples) of nominal value in shares. Provisions regarding net wealth tax have been abolished as of 31 December 2005. No net wealth tax will be levied at assessment 2006.

3.5 Icelandic resident Corporates

Dividends received by one resident company from another resident company are deducted from the taxable income of the recipient company. The deduction also applies to foreign dividends if the resident recipient company can show that the dividends received from a company whose profits have been taxed abroad under provisions that do not substantially deviate from those prevailing in Iceland and that the profits of the foreign company have been subject to taxation at a rate that is not lower than the general tax rate in any OECD country.

This deduction method does however not apply to partnerships, which are subject to 10% income tax.

3.6 Rights of shareholders who are not resident for tax purposes in the UK

The right of a non-UK tax resident shareholder to the UK tax credit on a dividend received from Mosaic Fashions hf., and its ability to claim payment of any part of that tax credit will depend on the existence and terms of any double taxation convention between the UK and the country in which the shareholder is resident.

However, such entitlements to the tax credit have largely been phased out. Therefore, shareholders who are not resident in the UK should consult their own tax advisor concerning whether they are entitled to claim any part of such tax credit and, if so, the procedure for doing so.

4 Capital gains on the sale of shares

4.1 UK resident Individuals

For Individuals any capital gain arising after the annual exemption on a sale of shares in Mosaic Fashions hf. is taxable at 10%, 20% and 40% for Starting Rate, Basic Rate and Higher Rate taxpayers respectively. The capital gain is broadly calculated as the share disposal proceeds received by the Individual less the amount that they originally paid for the shares (including costs of acquisition) and taper relief to the extent that it is available. An Individual may also reduce the capital gain for any brought forward or current year capital losses that they may have incurred.

4.2 UK resident Corporates For Corporates any capital gain on the sale of Mosaic Fashions hf. shares will be subject to Corporation Tax at the Corporate’s usual rate. The capital gain is broadly calculated as the share disposal proceeds received less the amount that the Corporate originally paid for the shares (including costs of acquisition) and indexation to the extent that it is available. Brought forward capital losses or current year losses can be used to reduce any capital gain arising.

For Corporates owning more than 10% of the shares in Mosaic Fashions hf., the disposal may qualify for the Substantial Shareholdings Exemption provided that the relevant conditions are met. If this exemption is considered to be applicable to a Corporate we would recommend that they seek advice from their usual tax advisors to confirm this, as an assessment of the conditions can be complex.

4.3 Icelandic resident Individuals

Capital gains from the sale of shares in Mosaic Fashions hf. are taxable in Iceland pursuant to current laws. Capital gains are taxed at 10%. Upon sale of the shares, the Individual’s average acquisition costs of all shares of the same class and type will be used as the tax base on which the capital gain of the sale is calculated. All direct costs in connection with the purchase of the shares are included in the cost price of the shares (however not interest on loans used for the purchase). An Individual can use losses on the sale of shares in limited liability companies within the same calendar year and offset them against capital gains from the sale of shares. Losses from the sale of shares cannot be carried forward and offset against future capital gains from the sale of shares.

4.4 Icelandic resident Corporates

For Corporates, all gains from sale of shares will be taxed as income from business activities at a rate of 18%.

Gains on the sale of shares are taxable in full regardless of how long the Corporate has owned the shares. A gain is calculated as the difference between the sales price and average cost price of all shares of the same class and type. Corporates can defer the payment of the tax on the capital gains on the sale of shares for two years from the sale. If they invest in Limited Liability Companies (domestic or foreign) within three years from the sale of shares the capital gains are deducted from the purchase price of the new shares and are not taxed until the new shares are sold. If they do not invest the capital gain is taxed on the second year from the sale. When the new shares are sold the taxable purchase price is the purchase price less the capital gains used to buy the new shares.

Taxable legal entities are subject to net worth tax of 0.6% of the nominal value of the shares. Provisions regarding net wealth tax have been abolished as of 31 December 2005. No net wealth tax will be levied at assessment 2006.

Specific tax rules may be applicable to certain categories of corporations, such as mutual funds and investment companies.

5 Stamp duty and stamp duty reserve tax The Mosaic Fashions hf.’s shares are subject to Icelandic Capital Duty, which Mosaic Fashions hf. has paid for all issued shares. The sale of shares is not subject to any subsequent Icelandic Capital Duty.

As transfers of Mosaic Fashions hf. shares will be carried out electronically on the Icelandic Stock Exchange the transfers will not be within the scope of UK Stamp Taxes.

6 Other issues

Shares in Mosaic Fashions hf. fulfil the conditions of item 1 of section B of Article 30 of Act. no 90/2003, with subsequent amendments, on Income Tax and Net Wealth Tax. It discusses the deduction of increased investments in shares before the end of 2002 from the income tax base.

APPENDIX C:

MOSAIC FASHIONS LTD. FINANCIAL STATEMENTS FOR THE YEAR ENDED 29 JANUARY 2005

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APPENDIX D:

MOSAIC FASHIONS LTD. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JANUARY 2004

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APPENDIX E:

MOSAIC FASHIONS HF. (PARENT COMPANY) BALANCE SHEET AS OF 20 MAY 2005

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Mosaic Fashions hf.

Parent Company Balance Sheet May 20, 2005

M Fashions hf. Suðurlandsbraut 4 108 Reykjavík

Kt. 550405-0320 Contents

Endorsement and Signatures of the Board of Directors and the Managing Director ...... 3 Balance Sheet ...... 5

Auditors´ Report ...... 4 Notes ...... 6

Balance Sheet of Mosaic Fashions hf. May 20, 2005 ______2 ______Endorsement and Signatures of the Board of Directors and the Managing Director

Mosaic Fashions hf. was incorporated on April 12, 2005. The object of the Company, according to Article 3 of its Articles of Association, is to own and run businesses involved in the production, sale and distribution of fashion goods and other related activities, the management of real estate and any other activities which the Company may reasonably be expected to be involved in. The operating year of the Company is from February, 1 to January, 31.

On May 19, 2005 the Company increased the Capital Share of ISK 2.805.799.782, thereof ISK 2.533.330.498 was distributed to former shareholders in Mosaic Fashion Ltd.

The Capital Share of the Company amounted to ISK 2.809 million equivalent to GBP 22,9 million.

The Board of Directors and the Managing Director of Mosaic Fashions hf. herby confirm the Parents Balance Sheet of the Company as of May 20, 2005, by means of their signatures.

Reykjavík, May 25, 2005.

Board of Directors:

Managing Director:

Balance Sheet of Mosaic Fashions hf. May 20, 2005 ______3 ______

Balance Sheet May 20, 2005

Parent Notes 20.5.2005

Assets:

Investment in subsidiary ...... 2 281,3 Fixed assets 281,3

Other receivables ...... 30,2 Current assets 30,2

Total assets 311,5

Equity:

Issued capital ...... 3 22,9 Share premium ...... 287,0 Total equity 4 309,9

Current liabilities:

Other payables ...... 1,6

Total equity and liabilities 311,5

Balance Sheet of Mosaic Fashions hf. May 20, 2005 Amounts are in GBP million ______5 ______Notes

Significant accounting policies

Basis of preparation 1. The Balance Sheet is prepared on the historical cost basis and all amounts are presented in Pounds Sterling.

Investments 2. On May 19, 2005 the Company purchased all the shares in Mosaic Fashion Ltd. The shares are stated at original cost price.

Equity

3. Issued capital according the Articles of Association amounts to ISK 2.809.799.782. The Board of the Company has right to increase the Share Capital of nominal value ISK 127.530.716.

4. Summary of equity: Share Share Capital premium Total

Issued capital ...... 0,1 0,1 Capital increase ...... 22,8 287,0 309,8 Equity 20.5.2005 ...... 22,9 287,0 309,9

Balance Sheet of Mosaic Fashions hf. May 20, 2005 Amounts are in GBP million ______6 ______

APPENDIX F:

SIERRA HOLDINGS LTD. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JANUARY 2004

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APPENDIX G:

SIERRA HOLDINGS LTD. FINANCIAL STATEMENTS FOR THE YEAR ENDED 25 JANUARY 2003

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APPENDIX H:

KAREN MILLEN HOLDINGS LTD. FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 FEBRUARY 2004

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APPENDIX I:

KAREN MILLEN HOLDINGS LTD. FINANCIAL STATEMENTS FOR THE PERIOD ENDED 2 FEBRUARY 2003

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APPENDIX J:

WHISTLES LTD. FINANCIAL STATEMENTS FOR THE PERIOD ENDED 2 FEBRUARY 2003

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APPENDIX K:

RECONSILIATION AND DETAILS OF THE PRO FORMA PROFIT AND LOSS ACCOUNT INFORMATION TO THE STATUTORY ACCOUNTS

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Proforma Profit and Loss Account

Explanation of adjustments

Operating Profit Depreciation £m £m 2002/03

Karen Millen Holdings Ltd 7.4 2.7

Add Back Whistles Pre-acquisition 0.1 0.2 Goodwill Amortisation 0.1

Less Whistles 53rd week -0.1 RE Properties 0.0

Rounding 0.2 7.7

Sierra Holdings 13.2 7.5

Add back Goodwill Amortisation 1.0

14.2

Proforma Mosaic Fashions Ltd 21.9 10.3 32.2

2003/04

Karen Millen Holdings Ltd 6.5 3.6

Add Back Goodwill Amortisation 0.2 6.7

Noel Ltd 1.3 2.0

Add back Oasis Stores Pre-Accquisition 15.6 5.4 Exceptionals 0.5 DACS write-off 1.9 FRS 5 prior year 0.1 Legal Fees on Acquisition 0.4 EBT 2.3 Noel Deal Costs etc 0.6 Patsy Mezz Costs etc 1.4

Less Oasis/Coast 53rd Week -1.2

Rounding -0.2 22.7

Proforma Mosaic Fashions Ltd 29.4 11.0 40.4

2004/05

Mosaic Fashions Ltd 28.2 10.0

Add back Karen Millen Pre-Accquisition 6.4 1.7 Exceptionals 4.2 Mosaic 0.1 Patsy 1.4 Noel 0.1 40.4 Rounding 0.1 Proforma Mosaic Fashions Ltd 40.4 11.8 52.2

2005/06

Mosaic Fashions Ltd 53.2 13.7

Add back Contingency -7.7 45.5 Rounding Proforma Mosaic Fashions Ltd 45.5 13.7 59.2 Mosaic Fashions hf. is the parent company of four design-led fashion womenswear brands; Oasis, Coast, Karen Millen and Whistles. At the end of last financial year (January 2005) Mosaic Fashions operated in 554 owned outlets, 73 franchised stores and 34 stores through a joint venture in China.

This Prospectus concerns a primary listing of the entire issued share capital of Mosaic Fashions hf. on the ICEX Main List and an initial public offering of new shares in Mosaic Fashions hf. in June 2005. New 90,661,831 shares with a value of ISK 1,233,000,902 are to be offered to the public at a fixed price of 13.6 per share. Following the public offering, the total number of shares in Mosaic Fashions hf. is intended to be 2,900,461,613 shares.