EXHIBIT 10(o)
PROCESSING AGREEMENT*
This processing agreement (the "Agreement") is made this 20th day of
February, 1999 by and between GE [*] a company whose principal place of business
is [*]("GE[*]), and which is an indirect wholly-owned subsidiary of General
Electric Company, a New York corporation ("GE"), and Pegasus Overseas Ltd., a
company organized under the laws of the Bahamas ("POL"), and which is a direct
wholly-owned subsidiary of Xxxxxx Xxxxxx International Inc., a Delaware
corporation ("LKI") (each of GE[*] and POL being a "Party" and collectively, the
"Parties"), and sets forth the terms and conditions under which POL will acquire
certain [*] and [*] gem diamonds for delivery to GE[*] for processing and, after
such gem diamonds have been received back from GE[*], sell such gem diamonds.
Certain capitalized terms used but not defined herein have the meanings assigned
to them in Attachment A.
PART I - SOURCING OF GEM DIAMONDS
I. AGREEMENT TO SOURCE DIAMONDS. (A) On a regular basis to the extent
practicable in the circumstances, GE[*] shall advise POL regarding GE[*]'s
expected schedule for processing gem diamonds and its available capacity for
processing gem diamonds meeting the Specifications.
(B) POL shall take all steps necessary or appropriate to purchase (at the lowest
prices commercially obtainable by it), select, sort and screen [*]and [*] gem
diamonds meeting the Specifications (the "Gem Diamonds") and deliver them to the
GE[*] or GE facility specified in paragraph VII(I) for processing. Such
deliveries shall be made on a [*] basis (or more frequently if POL has
accumulated Gem Diamonds having a cost of approximately [*] or more). Each
package of Gem Diamonds delivered shall include documentation (i) setting forth
the Acquisition Cost for each of the Gem Diamonds included therein, (ii)
certifying that any required duty, tax or other fee arising from POL's
acquisition and/or delivery of the Gem Diamonds has been or will be paid on a
timely basis, (iii) assigning an identification code to each Gem Diamond in the
package, and (iv) containing such other customary information, if any, as the
parties shall determine to be necessary or useful to consign such package of Gem
Diamonds to GE[*] for processing (collectively, the "POL Delivery
Documentation"). POL shall indemnify GE[*] and hold GE[*] harmless from and
against all costs incurred in connection with POL's acquiring, sorting,
screening and delivery of Gem Diamonds to GE[*] (other than the Acquisition Cost
and Preparation Costs, which shall be allocated as set forth in paragraphs (D),
(E) and (F), below, but including, without limitation, boiling, packing,
shipping, insurance, duty and taxes). If GE[*] determines that any gem diamonds
delivered by POL do not meet the Specifications as to [*]or [*], GE[*] may
decline to accept such Gem Diamonds for processing. In the event of any failure
by Gem Diamonds delivered by POL to meet the Specifications, GE[*] shall so
notify POL in writing and POL shall identify the source of such Gem Diamonds and
suspend purchases from that source until it believes that gem diamonds from such
source will again meet the Specifications.
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* Certain portions of this agreement have been omitted pursuant to a request for
confidential treatment.
(C) As an inducement to POL to maximize the amount of Gem Diamonds it delivers
hereunder, GE[*] shall advance [*] of the Acquisition Cost and [*] of the
Estimated Preparation Costs for those Gem Diamonds delivered to GE[*] for
processing hereunder (excluding any gem diamonds which GE[*] declines to accept
for processing pursuant to paragraph I(B)). Such payment shall be made by wire
transfer to the bank account specified in writing by POL to GE[*] (which may be
changed by POL upon ten days' advance written notice to GE[*]) (the "POL
Account") within [*] after GE[*]'s receipt of such Gem Diamonds together with
the POL Delivery Documentation. Ownership, title and (except as set forth below)
risk of loss with respect to the Gem Diamonds purchased, sorted and delivered to
GE[*] for processing in accordance with this Agreement shall remain with POL
throughout the time that such Gem Diamonds are in GE[*]'s possession, provided
that GE[*] shall protect and hold such Gem Diamonds in a separate, safe and
secure location for POL property only, using a commercially reasonable degree of
care in view of the value of such Gem Diamonds. GE[*] shall maintain, at its
expense and for the benefit of POL as named insured, insurance for the Gem
Diamonds, covering the Gem Diamonds at all times when they are located at a
GE[*] facility (or the facility of a GE[*] Affiliate) for processing or being
delivered by GE[*] to POL after processing, pursuant to paragraph II(A). Such
insurance shall (i) be provided by a responsible insurance carrier reasonably
satisfactory to POL, (ii) cover all risks covered by the types of insurance
customarily carried by LKI and its Affiliates for similar inventory and
operations, (iii) provide benefits covering no less than the estimated value of
such Gem Diamonds (depending upon their stage of completion) as the Parties
shall determine, (iv) unless the Parties shall otherwise agree in writing, not
provide for any "deductible" to be applied to any loss, and (v) provide that POL
receive at least 30 days prior written notice of any material change or
termination of the insurance policy. Promptly upon written request therefor,
GE[*] shall deliver a Certificate of Insurance to POL, evidencing the foregoing
insurance. GE[*] shall be responsible to POL for any uninsured loss or damage
resulting in any diminishment of the value of POL's interest in any Gem Diamonds
while in GE[*]'s possession or under GE[*]'s control (including Gem Diamonds in
transit when GE[*] is responsible for delivery). It is understood and agreed
that any insurance payments or payments with respect to uninsured losses of Gem
Diamonds received by POL will be distributed pursuant to paragraph III(D) hereof
as if they were proceeds received upon sale of such Gem Diamonds. GE[*] will use
all reasonable business efforts to avoid the production of Special Inventory
Diamonds. Notwithstanding anything to the contrary contained herein, GE[*] shall
not have any liability for loss of potential value or other consequential
damages as a result of (i) producing Special Inventory Diamonds, (ii) any
failure to produce improvement, or a sufficient level of improvement, in any Gem
Diamond, or (iii) [*]to Gem Diamonds during the act of processing.
(D) The Pre-Processing Cost Factor to be applied during the first [*] is [*] per
carat of Prepared Gem Diamond delivered to GE[*] for processing. The
Post-Processing Cost Factor to be applied during the first [*] is [*] per carat
of Prepared Gem Diamond delivered to GE[*] for processing. The Certification
Cost Factor to be applied during the first [*] is [*] per carat of Prepared Gem
Diamond delivered to GE[*] for processing. As used herein, the term "Prepared
Gem Diamond" means a Gem Diamond that is either (i) [*] or (ii) [*] at
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the time of delivery to GE[*] for processing, and does not include Gem Diamonds
which are [*]upon such delivery. Notwithstanding anything to the contrary set
forth in this Agreement, except as the Parties shall agree on a case-by-case
basis, the Pre-Processing Costs, Post-Processing Costs and Certification Costs
attributable to a Gem Diamond which is [*]when delivered to GE[*] for processing
shall be zero, and no Estimated Preparation Costs will be payable by GE[*] in
respect thereof. If POL shall determine in good faith that any such Gem Diamond
should be [*] and [*] and certified, POL shall separately invoice GE[*] for [*]
of the Post-Processing Costs and [*] of the Certification Costs associated with
such Gem Diamond, using the Post-Processing Cost Factor and Certification Cost
Factor then in effect. Such invoices shall be payable by wire transfer to the
POL Account within [*] after GE[*]'s receipt thereof. POL shall supply to GE[*]
[*] the so-called "[*] WIP report," identifying which [*]Gem Diamonds have been
converted to [*] and [*] Gem Diamonds during the preceding [*].
(E) Within [*] days following the end of each [*] during the term of this
Agreement, the Parties shall confer to determine the Pre-Processing Cost Factor,
Post-Processing Cost Factor and Certification Cost Factor to be applied during
the then current [*] and to determine what changes, if any, should be made in
Annex 1 to Attachment A to this Agreement. If any changes are determined to be
necessary or desirable, then the Parties shall formally amend Annex 1 in
writing. During the pendency of such determination, the Parties will continue to
use the factors applicable during the prior [*]. Once the factors have been
reset, they shall apply retroactively to the beginning of the [*], and the
parties shall account to one another within [*] days thereafter to reconcile any
resulting discrepancy in amounts paid before the factors were reset. POL shall
use reasonable business efforts to minimize the Pre-Processing Costs,
Post-Processing Costs and Certification Costs, including, as necessary, reducing
or reassigning any underutilized personnel or other resources when necessary,
and shall not exceed the levels of staffing and other resources described in
Annex 1 to Attachment A to this Agreement without GE[*]'s prior written consent.
In no event shall the total personnel costs included in the Preparation Costs
increase by more than [*] in any calendar year. POL and GE[*] shall agree upon
the scope and timing of, and conduct, an annual on-site operational review at
the facilities of POL's Affiliate in [*] in order to ensure that all reasonable
measures are taken to maximize productivity and make efficient use of resources.
(F) In addition, within [*] days following the end of each [*] during the term
of this Agreement (and, if this Agreement shall expire or be terminated at any
time other than the end of a [*], within [*] days after such expiration or
termination), the Parties shall confer to determine whether the total amount of
Estimated Preparation Costs paid by GE[*] in respect of Gem Diamonds received
from POL during such period was equal to [*] of the total Preparation Costs
actually paid or incurred by POL during such period. If not, the parties shall
account to one another so that the amount paid by GE[*] equals [*] of such
actual Preparation Costs. In making any determination hereunder, each Party
shall bring forth all such data and documentation as such Party shall consider
to be relevant or that the other Party shall reasonably request including,
without limitation, (i) itemized invoices from diamond certification
laboratories, (ii) itemized invoices from POL's service vendors,
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and (iii) substantiation of any labor charges and variable material charges for
consumable materials applied [*] to the activities of POL and its Affiliates
hereunder and included in the Pre-Processing Costs or the Post-Processing Costs.
(G) If POL acquires Gem Diamonds meeting the requirements of paragraph I(B) as
part of a larger purchase that includes gem diamonds that are not the subject of
this Agreement (the "Co-mingled Diamonds") and it is impractical for POL to
negotiate with its source of supply a specific purchase price for the Co-mingled
Diamonds, POL shall assign to such Co-mingled Diamonds such Acquisition Cost as
POL determines to be appropriate in light of all the circumstances.
PART II - DELIVERY AND SALE OF GEM DIAMONDS
II. DELIVERY OF GEM DIAMONDS TO POL. (A) After processing, at its own expense,
the gem diamonds delivered by POL which meet the Specifications (using a process
designed to improve color, brightness and brilliance), GE[*] shall return the
processed Gem Diamonds and any Unprocessed Gem Diamonds (as defined below) to
POL together with documentation (i) certifying that any required duty, tax or
other fee arising from GE[*]'s delivery to POL of the Gem Diamonds has been or
will be paid on a timely basis, (ii) setting forth the Acquisition Cost of each
such Gem Diamond, and (iii) containing such other customary information, if any
as the parties shall determine to be necessary or useful for the return of such
Gem Diamonds to POL, and accompanied by the same identification code(s) that
accompanied the Gem Diamonds when received from POL (collectively, the "GE[*]
Delivery Documentation"), on a [*] basis (or more frequently, if GE[*] desires,
with respect to quantities having an aggregate market value of approximately [*]
or more). GE[*] shall also supply to POL [*] a report identifying which Gem
Diamonds have been processed during the preceding [*]. The Parties understand
and agree that the Acquisition Cost of a processed Gem Diamond shall not be an
accurate indicator of its value, and POL agrees that it shall not use
Acquisition Cost as the appropriate measure of a processed Gem Diamond's
insurable value after redelivery by GE[*]. For purposes of delivering Gem
Diamonds to POL, GE[*] shall use its best efforts to segregate in separate
parcels, (i) processed Gem Diamonds whose color, brightness and brilliance have
not improved (the "Unimproved Processed Diamonds"), (ii) processed Gem Diamonds
whose color, brightness and brilliance have improved, and (iii) any Unprocessed
Gem Diamonds as referred to below. GE[*] shall deliver such Gem Diamonds with
the GE[*] Delivery Documentation to POL's designated facility located in [*] and
GE[*] shall indemnify POL and hold POL harmless from and against all third party
costs arising in connection with such processing and delivery to POL, including,
without limitation, packing, shipping, insurance, duty and any taxes relating
thereto. GE[*] shall also deliver to POL Unprocessed Gem Diamonds which GE[*]
determines would, if processed, likely become Special Inventory Diamonds, and
any gem diamonds that do not meet the Specifications. Gem diamonds which are not
accepted by GE[*] due to failure to meet the Specifications relating to [*]or
[*] and for which GE[*] does not make any payment under paragraph I(C), shall no
longer be subject to this Agreement, and shall be transferred by POL to an
Affiliate
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for resale. Any other gem diamonds that GE[*] does not process shall be referred
to herein as "Unprocessed Gem Diamonds". Within [*] days after the end of each
calendar [*], GE[*] shall notify POL in writing of the amount of Special
Inventory Diamonds produced during such calendar [*], and POL shall take such
steps as shall be necessary to sell and transfer title to such Special Inventory
Diamonds to GE[*], upon payment by GE[*] of the Salvage Value thereof. In the
event that the Salvage Value for any Special Inventory Diamonds is a negative
number, POL shall pay the absolute value of such Salvage Value to GE[*] upon
transfer of title to GE[*]. GE[*] may use for its internal purposes or otherwise
dispose of (but may not resell on a commercial basis as gem stones) any Special
Inventory Diamonds purchased from POL hereunder.
(B) If GE[*] develops technical expertise and capability and constructs or
acquires necessary equipment to successfully process gem diamonds that are of
[*] those referred to in the Specifications (as in effect on the date hereof),
GE[*] will promptly modify the Specifications to include such [*] and [*] of gem
diamonds.
III. SALES AGREEMENT. (A) POL shall sell the Gem Diamonds processed by GE[*] in
accordance with the terms of this Agreement. In preparation for sale, POL will,
directly or through its Affiliates or third parties, further [*] [*]and [*](at
the facility of POL's Affiliate in [*] or such other location as the Parties may
agree), as necessary, any [*][*], and [*]and [*]Gem Diamonds successfully
processed by GE[*] (including Unimproved Processed Diamonds), and arrange,
through LKI, for their certification by the [*] POL shall accumulate the Gem
Diamonds in such quantities (and in separate parcels for Gem Diamonds in each of
the categories referred to in the third sentence of paragraph II(A)), as POL
determines, based upon its knowledge and expertise, will make economically
attractive and marketable parcels of Gem Diamonds. Pending sale, POL shall
protect and hold such Gem Diamonds in a separate, safe and secure location for
GE[*]-processed Gem Diamonds only, using a commercially reasonable degree of
care in view of the value of such Gem Diamonds. POL shall maintain, at its
expense, insurance for the Gem Diamonds, covering the Gem Diamonds at all times
after they are initially purchased by POL and until they are ultimately sold by
POL, except when they are (x) located at a GE[*] facility for processing, or (y)
being delivered by GE[*] to POL after processing, pursuant to paragraph II(A).
Such insurance shall (i) be provided by the same insurance carrier(s) who
provide the analogous insurance maintained by LKI, which shall, in any event, be
reasonably satisfactory to GE[*] (it being understood and agreed that Lloyd's of
London shall be satisfactory as the initial provider of insurance hereunder),
(ii) cover all risks covered by the types of insurance customarily carried by
LKI and its Affiliates for similar inventory and operations, (iii) provide
benefits covering no less than the estimated value of such Gem Diamonds
(depending upon their stage of completion) as the Parties shall determine, (iv)
unless the Parties shall otherwise agree in writing, not provide for any
"deductible" to be applied to any loss, (v) identify GE[*] (following its
receipt of the Gem Diamonds under paragraph I(B)) as an additional insured to
the extent of [*] of such insured value, and (vi) provide that GE[*] receive at
least 30 days prior written notice of any material change or termination of the
insurance policy. Promptly upon written request therefor, POL shall deliver a
Certificate of Insurance to GE[*], evidencing the foregoing
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insurance. POL shall be responsible to GE[*] for any uninsured loss or damage
resulting in any diminishment of the value of GE[*]'s interest in any Gem
Diamonds while in POL's possession or under POL's control (including Gem
Diamonds in transit when POL is responsible for delivery, and Gem Diamonds on
consignment to POL's customers). POL shall not have any liability for loss of
potential value or other consequential damages as a result of (i) any failure to
produce improvement, or a sufficient level of improvement, in any Gem Diamond,
or (ii) [*]or other [*]to Gem Diamonds during pre-processing or post-
processing. POL shall conduct its marketing and sales efforts in accordance with
the provisions of paragraph IV and shall not distribute, and shall not encourage
or facilitate distribution of the Gem Diamonds by any of its purchasers thereof,
in a manner inconsistent therewith, including by way of example and not
limitation, without their disclosure of the legend in paragraph IV(A). POL and
its Affiliates and GE[*] and its Affiliates shall not make any disclosures,
representations or warranties to third parties regarding the processed Gem
Diamonds except as expressly contemplated by paragraph IV without mutual written
agreement between GE[*] and POL.
(B) (1) Using marketing and sales efforts comparable to those used by LKI and
its Affiliates for LKI's gem diamond inventory of similar quality, color and
size, POL shall, at its own expense, take all steps necessary and appropriate to
market and sell all Gem Diamonds received from GE[*] in a commercially prompt
manner. Such sales of Gem Diamonds shall be made to third party unaffiliated
brokers, wholesalers, dealers, traders, and manufacturers (or in the case of [*]
and [*] Gem Diamonds, to third party unaffiliated manufacturers, wholesalers,
retailers, brokers, dealers, auction houses and traders), in each case on a
basis and in a manner consistent with the terms in this Agreement. POL shall
sell Gem Diamonds received from GE[*] at the highest prices commercially
obtainable by it. POL shall use its best efforts to sell significant quantities
of processed Gem Diamonds to purchasers who have significant wholesale, retail
or distribution operations in [*].
(2) Within [*] Business Days following the end of each calendar [*] during the
term of this Agreement, POL shall deliver to GE[*] a letter in the form of
Attachment C hereto, signed by an officer of POL.
(3) For so long as this Agreement shall be in effect, POL shall not (i) market
or sell, directly or indirectly (except for the sale of rejected gem diamonds to
an Affiliate pursuant to paragraph II(A) and the sale of Unprocessed Gem
Diamonds pursuant to paragraph III(C)), or (ii) allow its name to be used in the
marketing or sale of, any diamonds other than Gem Diamonds processed by GE[*]
under this Agreement.
(C) POL shall remit to GE[*], by wire transfer to GE[*]'s bank account as
specified in writing to POL (which may be changed by GE[*] upon ten days'
advance written notice to POL) (the "GE[*] Account"), a processing fee of [*]
per Gem Diamond for each Gem Diamond received hereunder from GE[*] (other than
Unprocessed Gem Diamonds) (the "Processing Fee"), which shall be due and payable
upon POL's receipt of such Gem Diamonds together with the related GE[*] Delivery
Documentation and an invoice for such
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fee. POL shall remit the Processing Fee by wire transfer to the GE[*] Account
within [*] days after receipt of such Gem Diamonds and the related GE[*]
Delivery Documentation. If, over any period of [*] months or more, more than [*]
of the Gem Diamonds processed by GE[*] hereunder are less then [*] (when
delivered by POL for processing), then the Parties shall confer in good faith to
determine if it would be appropriate to ascribe a lower Processing Fee to such
Gem Diamonds. No Processing Fee shall be payable with respect to Unprocessed Gem
Diamonds. Upon receipt of Unprocessed Gem Diamonds from GE[*], POL shall
undertake such additional processing as it deems necessary, and sell such
Unprocessed Gem Diamonds in accordance with paragraphs III(B) and III(D) hereof.
(D) POL shall net against the aggregate gross proceeds received on the sale of
each Gem Diamond received hereunder from GE[*] those fees or commissions
actually paid to, or collected and retained by, any of the auction houses listed
on Attachment B hereto in connection with the sale of such Gem Diamond, and
shall remit to GE[*] by wire transfer to the GE[*] Account [*] of such net
proceeds, deducting from such payment and retaining the Processing Fee paid, or
payable, with respect to such Gem Diamond. Such payment to GE[*], with respect
to any given Gem Diamond, shall be made on (i) that [*] which falls on the [*]
day after it is sold, or if such [*] day is not a [*], on the last [*] prior to
such [*] day, or (ii) if earlier, the [*] following actual receipt by POL of the
proceeds of the sale of such Gem Diamond. Notwithstanding the foregoing,
remittance to GE[*] with respect to any Gem Diamond sold to an Affiliate of POL
shall be made within [*] Business Days after the sale. To the extent provided in
paragraph III(E) below, all proceeds from the sale of each Gem Diamond hereunder
shall be held in constructive trust for GE[*] pending payment thereof as
described herein. It is expressly understood and agreed that such payment
includes repayment of the advance made under paragraph I(C) with respect to the
sold Gem Diamond, and is final. Except for any Processing Fees which may then
still be payable under paragraph III(C), no further payments shall be due from
POL to GE[*] with respect to such Gem Diamonds. Except as set forth in paragraph
II(A), POL shall not sell or transfer any Gem Diamond received hereunder from
GE[*] to an Affiliate of POL unless such transaction, and the proposed price
thereof, have received the prior written approval of GE[*]. POL shall submit to
GE[*] by facsimile on each [*], photocopies of the sales invoice (with customer
identity deleted, except in the case of a sale to any Affiliate of POL) for each
Gem Diamond sold on or after the preceding [*], which invoices shall state, the
[*], sale price, and a uniquely identifiable code number, for the Gem Diamond
sold thereby. In addition, with respect to each [*] sales, POL shall provide to
GE[*], within [*] days following the end of each calendar [*], a usage report
(the "Usage Report") (i) itemizing, for each transaction within such prior [*]
period, the Gem Diamonds sold, the sales revenue received and the funds remitted
to GE[*], and (ii) setting forth an inventory of all post-processing Gem
Diamonds on-hand at POL as of the end of such prior calendar [*] (other than
Special Inventory Diamonds) (including as on-hand any Gem Diamonds POL has
placed on consignment). Within [*] days after the execution of this Agreement,
POL shall develop and implement a process to specifically identify and track
receipt and sales of each (i) [*] and [*] Gem Diamond, and (ii) [*]Gem Diamond
of [*] carats or more in weight, covered by this Agreement (including those
already in inventory). A first-in, first-out ("FIFO") inventory accounting
method may be used for [*]Gem Diamonds of less than
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[*] carats in weight.
(E) (1) POL hereby grants to GE[*] a continuing purchase money security interest
and a constructive trust in proceeds (hereinafter, the "security interest") in
the amount described below in all inventories of Gem Diamonds purchased for
processing hereunder and all products, proceeds, substitutions, and accessions
thereof or thereto (all of which are referred to hereinafter as the
"Collateral"). With respect to each Gem Diamond (except any Gem Diamond which is
rejected by GE[*] at delivery under paragraph I(B) for failure to meet
specifications), such security interest shall arise upon the delivery of such
Gem Diamond to GE[*] in accordance with paragraph I(B) and continue until
remittance of GE[*]'s portion of the proceeds upon the subsequent sale of such
Gem Diamond pursuant to paragraph III(D). Such security interest shall at all
times have a value equal to the greater of (i) [*] of the total Acquisition
Cost, Preparation Costs and Processing Fees paid or incurred by the Parties with
respect to the Gem Diamonds contained in such inventory, or (ii) [*] of the
total Acquisition Cost paid or incurred by the Parties with respect to the Gem
Diamonds contained in such inventory. The foregoing grant of a security interest
shall continue in full force and effect for so long as there shall be any unsold
Gem Diamonds in inventory hereunder or any payment is due to GE[*] with respect
to any sold Gem Diamond.
(2) Upon request from GE[*], POL shall execute all such additional agreements or
instruments as may reasonably be required by GE[*] in connection with the
creation and perfection of the security interest granted herein, including
without limitation, financing statements or similar instruments suitable for
filing in such jurisdictions and localities as GE[*] may determine. To the
extent permitted under applicable law, a photocopy or other reproduction of any
financing statement or other instrument executed pursuant to this paragraph
III(E)(2) shall be sufficient for filing to perfect the security interests
granted herein. It is the intention of the parties that any instrument described
in this paragraph shall be sufficient to evidence the security interest in
whatever amount it shall represent from time to time, regardless of the value of
the security interest at the time such instrument was executed or filed.
(3) POL shall keep the Collateral at (i) its facilities or those of its
Affiliates in [*] (ii) the facilities of its service vendor in [*], and (iii)
the facilities of GE[*] and its Affiliates in [*], or (iv) at such other
location(s) as GE[*] shall agree in advance in writing; provided that nothing
herein shall prohibit POL from transporting or consigning any Collateral as
necessary in connection with its preparation for sale, or sale, in the ordinary
course of POL's business. POL shall not use or keep the Collateral in
circumstances which violate the conditions of any policy of insurance thereon.
To the extent permitted by applicable law, GE[*] shall have the right to receive
ownership and physical possession of Gem Diamond inventory having a realizable
market value equal to its security interest hereunder in the event of the
Bankruptcy of POL.
(4) POL hereby represents and warrants to GE[*] that no Lien currently exists
against any of its assets including, without limitation, any inventories of Gem
Diamonds, which has,
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or in the event of the Bankruptcy of POL, would have, a superior or equal
priority to the security interest created hereby. POL covenants and agrees that,
except for Permitted Liens, it shall not create any Lien against, or permit any
Lien to attach to, the Collateral which has, or in the event of the Bankruptcy
of POL, would have, a superior or equal priority to the security interest
created hereby.
PART III - GENERAL PROVISIONS
IV. OTHER PROVISIONS RELATED TO PROCESSED GEM DIAMONDS.
(A) Disclosure of Processing. (1) The following legend shall be contained in (i)
each set of GE[*] Delivery Documentation, and (ii) a letter delivered by POL to
the management of each of its customers upon the occasion of such customer's
receipt of its first delivery of processed Gem Diamonds (other than any
Unimproved Processed Diamonds):
If the processed gem Diamonds are in a [*]state:
Every diamond in this parcel is a natural gem diamond that has been
processed to improve its color, brightness and brilliance. Each one is
identical to any other natural diamond with the same color, clarity and
size. This improvement is permanent and does not require any special
care or maintenance. The process applied does not involve irradiation,
laser drilling, surface coating or fracture filling, and results in no
adverse change in the all-natural contents of the diamond.
If the processed gem Diamonds are in a [*], [*] or [*] and [*] state:
[This] [Each] diamond [in this group] is a natural gem diamond that has
been processed to improve its color, brightness and brilliance. [It]
[Each] is identical in all respects to any other natural diamond with
the same cut, color, clarity and size. This improvement is permanent
and does not require any special care or maintenance. The process
applied does not involve irradiation, laser drilling, surface coating
or fracture filling, and results in no adverse change in the
all-natural contents of the diamond.
In addition, such letter delivered by POL to first-time buyers of processed Gem
Diamonds shall be accompanied by a copy of the press release, in such form as
the Parties shall determine, published by the Parties following the execution of
this Agreement.
(2) The text of the legends and the letter described in paragraph IV(A)(1) may
be modified from time to time, subject to each Party's written consent not to be
unreasonably withheld, it being understood that consent would be deemed to be
unreasonably withheld if the modification proposed is based upon advice of legal
counsel (of the Party proposing modification). In the event of any agreed
modification, such modified legends and letters shall thereafter be used to the
same extent and in the same manner as specified in this paragraph IV(A).
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(B) Sample Testing of [*] and [*] Gem Diamonds. POL or its Affiliate has [*] and
[*] a sample of processed Gem Diamonds provided to it by GE[*] (the "Sample
Diamonds") and has sent the Sample Diamonds to: (1) [*] (2) [*] (3) [*] and (4)
[*]for grading as to their quality, clarity and color. POL has provided GE[*]
with a copy of all documentation received from each laboratory relating to the
inspection and grading of the Sample Diamonds. POL has arranged for the Sample
Diamonds to be stored, together with the laboratory reports and any
certifications, for safekeeping in a segregated area identifying them as the
Sample Diamonds. POL shall bear [*] of the acquisition, cutting and polishing
and other incidental costs for the Sample Diamonds and shall own and bear the
risk of loss with respect to the Sample Diamonds, but may not sell or dispose of
them without GE[*]'s prior written consent.
(C) Representations; Indemnities. (1) GE[*] hereby covenants and agrees that
GE[*]'s and its Affiliates' activities conducted in connection with this
Agreement will be conducted in accordance with this Agreement, that such
activities will, to the best of GE[*]'s and GE's knowledge, not violate the
rights of any person who is not and has not in the past been affiliated with or
employed by POL, LKI or their Affiliates and that such activities and their
other businesses will be conducted in accordance with all applicable laws and
regulations. GE[*] represents and warrants to POL that as a result of GE[*]'s
processing of Gem Diamonds, the color, brightness and brilliance resulting from
such processing will not change and is permanent to the same extent that the
color, brightness and brilliance of an unprocessed, natural diamond having the
same color, brightness and brilliance will not change and is permanent. GE[*]
and its Affiliates who conduct activities in connection with this Agreement
hereby indemnify and hold harmless, on an after-tax basis, POL and its
Affiliates and their employees, officers and directors from and against any
loss, cost, liability, expense or obligation (including reasonable attorneys'
fees and costs of defense) (collectively, "Losses") incurred by any such
indemnified party arising from any claim (including, without limitation, any
litigation or other judicial or administrative proceeding or any investigation
of any type or nature), or imposed on them by any third party (including any
governmental, administrative or similar body, including, without limitation, any
taxing authority) (any of the foregoing hereinafter referred to as a "Claim"),
arising out of or resulting from a breach by GE[*] or its Affiliates of GE[*]'s
covenants, representations or warranties in this Agreement.
(2) POL hereby covenants and agrees that POL's and its Affiliates' activities
conducted in connection with this Agreement will be conducted in accordance with
this Agreement, that such activities will, to the best of POL's and LKI's
knowledge, not violate the rights of any person who is not and has not in the
past been affiliated with or employed by GE[*], GE or their Affiliates and that
such activities and their other businesses will be conducted in accordance with
all applicable laws and regulations. POL and its Affiliates who conduct
activities in connection with this Agreement hereby indemnify and hold harmless,
on an after-tax basis, GE[*] and its Affiliates and their employees, officers,
and directors from and against any Losses incurred by any such indemnified party
arising from, or imposed on them in connection with, any Claim arising out of or
resulting from a breach by POL or its Affiliates of POL's covenants,
representations or warranties in this Agreement.
10
(3) (a) Each Party will promptly notify the other Party in writing (in the case
of notice to GE[*], with notice being given to the General Manager of GE [*] and
in the case of notice to POL, with notice being given to the President of POL)
of any Claim or any investigation or inquiry by any independent laboratory or
any governmental, regulatory or administrative body or any media organization
relating to processed Gem Diamonds, the method of processing, the disclosure or
activities referred to in paragraph IV or similar matters. The Parties shall
consult with each other regarding defending against or responding to any such
Claim, investigation or inquiry, provided, however, that any Party against whom
request for indemnity is made under paragraph IV(C)(1) or (2) above and who
acknowledges in writing to the other Party its obligation to so indemnify, may,
at its election, control the defense, including the selection of counsel, of any
Claim which is the subject of such request for indemnity (other than in a
proceeding relating to a Claim asserted by a taxing authority, in which case the
indemnified party may, at its election, control the defense and select counsel,
provided, however, that the indemnifying party shall, subject to the indemnified
party's right to control the defense, have a right to participate fully at its
expense in such proceeding).
(b) Any response by POL or any Affiliate to an inquiry regarding the
type, nature, purpose or effect of the processing involving statements other
than a response consisting of the same substance as that contained in the
disclosure legend in paragraph IV(A), shall require GE[*]'s prior written
consent, which shall not be unreasonably withheld. In addition, each Party may,
following consultation with the other Party, disclose publicly the information
regarding the processing as described in the legends in paragraph IV(A), if it
determines that such disclosure is advisable due to a lack of public knowledge,
misperception or misunderstanding in the marketplace or advice of counsel.
(4) In the event that a Claim is made by any third party, or any governmental or
other authority, alleging that the disclosure provided for in paragraph IV(A)
hereof, the press release described in the Transition Agreement or any written
amendments or modifications to the foregoing are in any way unlawful (an "Other
Claim"), each Party will contribute to any (i) amounts payable to any third
party (including any judgments or settlements made in favor of such third
party), and (ii) legal or other out of pocket expenses in connection with
defending against such Other Claim (the amounts referred to in the foregoing
clauses (i) and (ii), hereinafter collectively referred to as the "Costs") in
the following proportion: [*]) of the Costs will be paid by GE[*] and [*] of the
Costs will be paid by POL.
(5) (a) In the event that an Other Claim is brought against both Parties, the
Parties shall in good faith consult with each other to select single counsel to
represent both Parties in any proceeding concerning such Other Claim If the
Parties are unable to so select a single counsel, then each Party shall assume
the defense of such Other Claim as against itself. The Parties shall cooperate
and consult in good faith with each other regarding defending against or
responding to such Other Claim.
(b) In the event that an Other Claim is brought against only one Party,
such named Party will promptly give written notice thereof to the other Party,
in the manner provided in paragraph IV(C)(3)(a) above. The Party against which
the Other Claim was brought shall
11
have the right to control the defense of such Other Claim with counsel of its
choice. The Parties shall cooperate and consult in good faith with each other
regarding defending against or responding to such Other Claim; provided,
however, that the non-named Party may select separate counsel to protect its
interest in such proceeding to the extent possible, if, in good faith, it is
believed by such Party that there may be a conflict between their positions in
conducting the defense of such Other Claim.
(6) In the event that an Other Claim is brought against one Party or both
Parties, each Party hereby agrees that neither will, without the prior written
consent of the other, settle, compromise or consent to the entry of any judgment
relating to such Claim without first having given thirty (30) days' prior
written notice to the other Party and conferring in good faith with such other
party during such thirty (30) day period regarding any possible alternatives to
such settlement, compromise or judgment.
(7) Each of the Parties represents and warrants to the other that, to the best
of its knowledge and belief, the implementation of this Agreement by means of
the compliance of each of them with the provisions herein will not violate any
law or regulation.
(8) The provisions hereof shall not be deemed to limit either Party's rights in
the event of that the other Party shall fail in any way to comply with the
disclosure procedures set forth in paragraph IV (A) hereof.
V. CONFIDENTIALITY; INTELLECTUAL PROPERTY AND OTHER RIGHTS.
(A) (1) Each of POL and GE[*] and their respective Affiliates shall, and shall
cause, including by requiring execution of confidentiality agreements consistent
herewith, their respective employees, officers, directors and advisers
("Representatives") to, keep secret and confidential, except to the extent
permitted by paragraphs III(A) and IV, (a) the existence and terms of this
Agreement, (b) the activities conducted pursuant to this Agreement, and (c) all
information and data regarding the shipments, costs, sales, prices, and
processing schedules, and (2) POL shall, and shall cause its Representatives to,
keep secret and confidential all Specifications, processes, effects of
processes, equipment, equipment settings and other functional information,
technical knowledge, experience, technology, intellectual property or know-how,
including any modifications or improvements thereto (the "Technical
Information") that may have been or be made available or otherwise learned or
acquired in connection with or in contemplation of the activities contemplated
by this Agreement (whether before or after the date of this Agreement), in each
case except (x) as otherwise expressly permitted by this Agreement, (y) with
respect to information covered hereby (other than Technical Information) that
has been broadly and publicly disseminated not in violation of any
confidentiality obligation applicable to the Party (or its Affiliates or
Representatives) seeking to disclose the information or (z) to the extent
compelled to be disclosed by court or administrative order or similar judicial
process and after giving the other Party reasonable written notice and an
opportunity to seek a protective order and in any event after obtaining
confidential treatment to the fullest extent available under law. GE[*] shall
use its best efforts to prevent disclosure of Technical Information in any
manner that would be reasonably expected to have a material adverse
12
effect on the marketability or sale prices for Gem Diamonds processed by GE[*]
or its Affiliates under this Agreement, provided that GE[*] and its Affiliates
shall be permitted to use and disclose such Technical Information as needed to
protect their proprietary and property rights therein, to conduct their
businesses, including without limitation to develop technical capability and
processes referred to in paragraph II(B) and to the extent it determines is
necessary in connection with any of the matters referred to in paragraph IV. To
the extent consistent with the foregoing, each Party further agrees to disclose
the information referred to above only to its Affiliates and Representatives who
need to have such information to assist such Party in fulfilling its obligations
and performance under this Agreement and to take measures necessary (including
by requiring execution of confidentiality agreements consistent herewith) to
ensure such persons maintain the confidentiality of such information in
accordance with the terms of this paragraph as applicable to GE[*] and POL. In
the event either Party determines, based upon advice of its legal counsel, that
this Agreement or any information required to be kept confidential as referred
to above, must be disclosed under the Exchange Act, the rules of any national
securities exchange or the rules, regulations or requirements of a federal
agency or other governmental authority, such Party shall promptly notify the
other Party in writing of the nature and extent of the disclosure counsel has
advised is required to be made and such other Party's written consent thereto,
including with regard to the actual text of any such disclosure, shall be
required (but may not be unreasonably withheld) prior to making such disclosure,
and in all events the disclosing Party shall obtain confidential treatment for
any disclosed information to the fullest extent obtainable without enduring
undue hardship or material detriment to its business. Each Party acknowledges
that money damages will not be adequate compensation for a breach of this
paragraph and thus injunctive relief shall, in addition to other remedies, also
be available.
(B) All rights and interests to and in all Technical Information are and shall
remain fully vested in GE[*] and/or its Affiliates, as applicable, and nothing
in this Agreement nor any activities of the Parties or their Affiliates
conducted in connection herewith or in contemplation hereof shall be deemed or
construed to transfer, license or vest any right, interest, claim or benefit in,
to, or under any such Technical Information to POL, LKI, any of their
Affiliates, or any other person or entity. Any Technical Information in written
form (including copies, summaries, excerpts, analyses or reports reflecting or
incorporating any Technical Information) shall be promptly returned to GE[*]
upon any termination of this Agreement or, with respect to Technical
Information, upon GE[*]'s earlier request.
VI. TERMINATION AND RENEWAL.
(A) This Agreement may be terminated as follows:
(1) If, during the term of this Agreement, without reference to any other costs
of either Party, the [*] (calculated in accordance with United States GAAP,
consistently applied) received from the sale of Gem Diamonds during any
[*]period of [*]calendar [*]is less than the [*] paid or incurred by the Parties
with respect to the Gem Diamonds sold during such [*] period, then either Party
shall have the right to terminate this Agreement upon [*] months' written
notice. Notwithstanding the foregoing, a Party shall not be permitted to
13
terminate this Agreement pursuant to this clause (A)(1) if such Party's breach
or non-fulfillment of its obligations under this Agreement materially
contributed to the circumstances giving rise to such right of termination. No
[*] measurement period used for purposes of this paragraph shall commence prior
to the Commencement Date (as that term is defined in that certain Transition
Agreement of even date herewith by and between the Parties).
(2) In the event that a Party materially breaches this Agreement, the
non-breaching Party may terminate this Agreement if the breach is not cured
within [*]days after written notice of such breach by the nonbreaching Party to
the breaching Party (or may terminate this Agreement immediately in the case of
a material breach that is not curable, including without limitation a breach of
paragraph IV(A) or paragraph V).
(3) In the event a Change of Control occurs or is pending pursuant to a written
agreement, the Party that is not undergoing a Change of Control (with respect to
itself or an Affiliate) may terminate the Agreement upon [*]prior notice. Each
Party shall notify the other Party in writing as much in advance as possible of
any such proposed or pending Change of Control.
(4) Either GE[*] or POL may terminate this Agreement upon [*]days' advance
written notice if: (x) litigation or other judicial, administrative or
investigative process or proceeding relating to any of the activities conducted
in connection with this Agreement has been formally commenced against it or its
Affiliate, and (y) legal counsel for such Party or its Affiliate determines,
based upon the information available to it, that it is more likely than not that
the outcome of such litigation or other process will be in favor of the person
or group that commenced such litigation or other process and will result in (A)
a material adverse economic effect, measured in the context of the economics of
this Agreement (including, by way of example, [*] or [*]or other monetary award
or payment(s)), or (B) permanent injunctive or other similar equitable relief
resulting in such an adverse economic effect, or (C) other relief (such as, for
example, a declaratory judgment) that, if granted, would, in the good faith
judgment of the chief executive officer of a Party or its parent entity, result
in such injury to its business reputation or goodwill that had such Party been
aware of the likelihood of such litigation or other process occurring, it would
not have entered into this Agreement.
(5) Notwithstanding anything to the contrary set forth herein, either GE[*] or
POL may suspend its performance under this Agreement without liability during
the pendency of any litigation or other judicial proceeding relating to this
Agreement which is commenced against it or any of its Affiliates by the other
Party or any of its Affiliates.
(B) Unless earlier terminated as provided above, this Agreement shall have a
term ending on December 31, 2009, provided, that it shall be automatically
renewed (for a five-year term with similar subsequent possible renewals) unless
either Party gives written notice of termination on or before the date that is
six months prior to the scheduled termination date.
14
(C) Upon the occurrence of any termination pursuant to paragraph VI(A) or the
nonrenewal of this Agreement pursuant to paragraph VI(B), the Parties shall
promptly take all necessary and appropriate actions to effectuate the
termination of the activities contemplated by this Agreement in an orderly
manner consistent with the provisions set forth herein. Any termination of this
Agreement shall not terminate or impair any Party's accrued or vested rights
hereunder. Without limiting the generality of the foregoing, upon any
termination of this Agreement, the Parties shall provide that (i) all Gem
Diamonds then in process (whether in possession of GE[*] for processing or at
any other pre-sale stage under this Agreement) are brought to completion so as
to be ready for sale, (ii) all finished Gem Diamonds are divided into
appropriate categories by grade, size, color and shape, and (iii) all such
categories are equitably divided between GE[*] and POL such that ownership and
physical possession of Gem Diamonds representing [*] of the total estimated
market value in each category is transferred to GE[*] by POL, and the remainder
retained by POL. Notwithstanding any termination of this Agreement, the
following provisions shall survive and continue to apply indefinitely or as
otherwise provided below:
(i) the indemnity obligations in paragraph IV(C) as they relate to events or
occurrences while the Agreement was in effect;
(ii) the confidentiality and nondisclosure obligations in paragraph V(A) (except
GE[*], its Affiliates and Representatives shall no longer be bound to keep the
Technical Information confidential);
(iii) the provisions in paragraph V(B) relating to GE[*]'s and its Affiliates'
rights with respect to the Technical Information;
(iv) paragraph VII(A) (to the extent it relates to provisions of the Agreement
still in effect); VII(B) (to the extent provided therein); VII(E) (as it relates
to retaining books and records and also as necessary to carry out the audit
process for the year in which the Agreement terminated); VII(H) (as it relates
to obligations still in effect); and VII(I), (J), and (K); and
(v) GE and LKI shall continue to be bound by paragraphs IV(A) and (C), V(A) and
(B) (to same extent applicable to GE[*] and POL, respectively), VII(B) (to same
extent applicable, if at all, to GE[*] or POL, respectively), VII(H), (I), (J)
and (K).
VII. MISCELLANEOUS.
(A) The Parties shall use their best efforts to ensure that any dispute or
controversy relating to the validity, interpretation, implementation, breach or
termination of any provision of this Agreement between the Parties (a "Dispute")
shall be promptly and amicably settled by discussions between the chief
executive officer of each of POL and of the [*] Division of GE (or their
respective successors). If no resolution is reached by such persons within 30
days, the matter will be presented for resolution to [*], President and Chief
Executive Officer, GE [*] of GE, or his successor and Mr. Xxxxxxx Xxxxxxxxxx,
15
Chairman, LKI or his successor. In the event the Dispute then remains unresolved
for an additional 30 day period, either Party may submit the Dispute for
resolution by mediation pursuant to the Center for Public Resources Model
Procedure for Mediation of Business Disputes as then in effect. Mediation will
continue for at least 60 days and if the Dispute then remains unresolved, the
Parties shall within 20 days after such 60 day period ends, agree upon a
third-party arbitrator or, if they cannot agree, permit the American Arbitration
Association to appoint a third-party arbitrator, whose decision will be binding
upon the Parties and enforceable in courts having jurisdiction to enforce such
decisions.
(B) (1) In consideration of the important commitments that each Party makes in
this Agreement, during the existence of this Agreement: (i) without the prior
written consent of POL, GE[*] and GE shall not, and shall use their best efforts
to ensure that each Affiliate of GE or GE[*] does not, whether directly or
indirectly for itself or others undertake -- or sell, distribute, offer for sale
or market natural gem diamonds that have been subjected to -- the same or
similar type of processing of natural gem diamonds (meaning processing to
improve color, brightness and brilliance) as is to be conducted pursuant to this
Agreement, as such process may be modified or improved during the existence of
this Agreement, except as contemplated by this Agreement, and (ii) without the
prior written consent of GE[*], POL and LKI shall not, and shall use their best
efforts to ensure that each Affiliate of POL or LKI does not, whether directly
or indirectly for itself, himself or others, process gem diamonds, or
manufacture, cut, polish, finish, purchase, sell, distribute, offer for sale, or
market gem diamonds processed in the same or similar way as the Gem Diamonds are
processed by GE[*] (meaning processing to improve color, brightness and
brilliance), as such process may be modified or improved during the existence of
this Agreement, except as contemplated by this Agreement; provided that POL,
LKI, or their Affiliates shall not be deemed to have violated this provision if
none of them knew, or with reasonable inquiry could have known, that any such
gem diamonds had been or were to be so processed, it being understood that
knowledge of the employees and Representatives of POL, LKI and each of their
Affiliates shall be attributed to each of POL, LKI, and each Affiliate. The
Parties agree that in the event this Agreement is terminated pursuant to
paragraph VI(A)(2) due to a material breach of this Agreement by a Party, the
restrictions in this paragraph VII(B) shall continue to apply to the breaching
Party and its Affiliates to the same extent as above for a period of [*] after
such termination. No such extension shall apply in the event of a termination of
this Agreement by mutual consent of the Parties.
(2) The foregoing restrictions in paragraph VII(B)(1) shall not be construed to
apply to any (x) Financial Services Business of a Party or of any of its
Affiliates, (y) any passive investment activity by any pension or retirement
fund or program operated by or for the benefit of any Party or its Affiliates,
or (z) any business activity which would otherwise violate the foregoing
restrictions which is acquired from or carried on by any entity (an "Acquired
Company") which is acquired by, combined with, or otherwise becomes an Affiliate
of, any Party after the date hereof, provided that, within one hundred and
eighty (180) days after the purchase or other acquisition of the Acquired
Company, such party disposes of the relevant portion of the Acquired Company's
business or causes such Acquired Company to comply with the foregoing
restrictions.
16
(C) POL shall not:
(1) actively participate from an office in the United States in (i) arranging,
negotiating, or concluding purchases of, or entering into or otherwise
concluding supply agreements for, Gem Diamonds, or (ii) marketing or promoting
the sale of Gem Diamonds, or soliciting any orders, negotiating any sales
contracts, or performing other significant activities in connection with the
pursuit and/or consummation of any sales of Gem Diamonds; provided that POL may
purchase Gem Diamonds in the United States through a related party acting on its
behalf, but only if POL compensates such related party on an arm's length basis
for such purchasing activity on its behalf (for purposes of this Agreement, the
terms "arm's length" and "related party" are defined in Section 482 of the
Internal Revenue Code);
(2) represent to any person that POL can be contacted through an office in the
United States;
(3) accept any orders received by an office in the United States (and instead
all such orders shall be promptly referred to an office outside the United
States as described below); or
(4) notwithstanding anything to the contrary set forth in this Agreement, hold
inventory of Gem Diamonds in the United States except on a short-term basis as
shall be necessary in connection with the certification of such inventory.
POL also agrees that it will maintain, in its own name, one or more offices
outside the United States, and that such office or offices shall materially
participate in all sales by POL of Gem Diamonds in connection with this
Agreement. In particular, and without limiting the foregoing, such office or
offices of POL outside the United States shall actively participate in
soliciting all orders, negotiating all sales contracts, and performing all other
significant activities in connection with the pursuit and/or the consummation of
sales of Gem Diamonds in connection with this Agreement. For purposes of this
paragraph, POL shall be considered to maintain an office in its own name if such
office is maintained by a wholly-owned (direct or indirect) subsidiary of POL
and such subsidiary is a dependent agent of POL that has, and regularly
exercises, authority to negotiate and conclude contracts on behalf of POL
(whether as a disclosed or undisclosed agent).
(D) The Parties agree that each Party's respective obligations under this
Agreement may be suspended for a reasonable time as a result of an inability to
perform in a commercially reasonable manner due to force majeure (including
embargoes, acts of God or governmental entities, labor strikes or third party
actions not controllable by a Party) and agree to provide prompt written notice
to each other regarding the commencement and termination of any such event.
(E) Each of GE[*] and POL shall maintain and retain accurate and complete books
and records relating to the transactions and activities conducted pursuant to
this Agreement, separate and apart from those maintained by any of their
respective Affiliates. On an annual basis beginning in [*], coincident with the
annual end of [*] determination and
17
reconciliation provided for in paragraphs I(E) and I(F), (i) GE[*] and POL shall
conduct a physical inventory of all Gem Diamonds which have been delivered to
GE[*] for processing or are at any subsequent stage of completion, and (ii)
Ernst & Young shall prepare and submit to the Parties a special report (subject
to review by GE[*]'s auditors) reporting the results of its methodical
examination and review ("audit") of the books and records maintained by the
Parties which reflect or contain information relevant to determining the
accuracy of amounts of Gem Diamond inventories, Acquisition Costs (including,
without limitation, Acquisition Costs assigned by POL to any Co-mingled
Diamonds), Preparation Costs, Pre-Processing Costs, Post-Processing Costs,
Certification Costs, the Post-Processing Cost Factor, the Pre-Processing Cost
Factor, the Certification Cost Factor, Processing Fees, Salvage Values payments
under paragraph III(D), sales revenues, cumulative losses for purposes of
paragraph VI(A)(1), information in POL Delivery Documentation, GE[*] Delivery
Documentation and Usage Reports, or any other amounts (or information necessary
to determine such amounts) payable by or to a Party under this Agreement and
such other information as may be mutually agreed by the Parties (collectively,
the "Material Information"). Such special report shall be finalized and
delivered to the Parties no later than [*] of the relevant year. GE[*] shall pay
Ernst & Young's fees, except that POL shall pay any such fees which arise from
revalidation of its special report which is requested by GE[*]'s auditors and
produces a material change in such report. Prior to commencement of such audit,
the Parties shall cause Ernst & Young and GE[*]'s auditors to enter into
appropriate confidentiality agreements. Each Party will, and will cause its
Representatives to, cooperate fully in such audit. In addition, each of GE[*]
and POL and their Representatives shall be entitled, on reasonable advance
notice, to have access, at their own expense, to the other Party's (and its
Affiliates') books, records, supporting documentation relating to the Material
Information (other than customer and supplier names and addresses and other
proprietary, competitively sensitive information that is not an essential
component of Material Information as may be agreed by the Parties) and to
discuss such matters with knowledgeable personnel and advisers of such Party, in
each case as necessary to verify the accuracy and completeness thereof. The
results of any such independent audit shall be binding upon the Parties and the
amounts payable under this Agreement by or to a Party shall be adjusted to
correct any errors or miscalculations that are identified as a result of any
such audit. POL has committed to GE[*], and GE[*] is relying upon such
commitment, that POL will conduct its sourcing activities and selling activities
hereunder in a manner that reflects that POL is to receive the synergistic and
market benefits of its affiliation with LKI (to be passed along to GE[*] under
the purchasing and selling transactions contemplated by this Agreement) but as
though POL were not controlled by LKI to the extent such control could be used
to deprive POL of any benefit or advantage (including without limitation through
transfer pricing or similar dealings) that POL would have as a non-controlled
entity.
(F) The Parties hereto and any of their Affiliates who perform any activities
contemplated by this Agreement are independent contractors. Nothing in this
Agreement is intended, or shall be deemed or construed, or be treated by any
person, to constitute the establishment of, or result in the existence of, any
partnership, agency, franchise or joint venture relationship among any of the
Parties or their Affiliates. Except as and to the extent, if any, expressly
provided in this Agreement, no Party shall incur debts or make any
18
commitments for or on behalf of the other Party or its Affiliates. The Parties
agree that they and their Affiliates will report the transactions described
herein in a manner consistent with this Agreement for tax purposes.
(G) All amounts payable to a Party under this Agreement shall be denominated and
payable in U.S. dollars and no foreign currency exchange rate fluctuations shall
be taken into account in determining the amount of any payment. The Parties
agree to use their best efforts to take such further actions, including entering
into supplemental agreements, amendments to this Agreement and preparing and
executing other additional documentation, as reasonably necessary or appropriate
to more fully reflect and implement the agreements understandings, intentions
and arrangements contemplated by this Agreement.
(H) Each of GE on the one hand and LKI on the other hand shall take any and all
actions as are reasonably necessary or appropriate to cause and enable
(including, if necessary, by providing funding) GE[*] and its relevant
Affiliates and POL and its relevant Affiliates, respectively, including any
assignee pursuant to paragraph VII(I), to perform their respective obligations
under this Agreement in a timely manner and shall be directly responsible for
their respective nonperformance or delayed performance.
(I) The provisions of this Agreement shall inure to the benefit of the Parties
hereto, their Affiliates who perform activities to the extent permitted hereby
and their permitted assigns. No Party's rights, obligations or performance under
this Agreement may be assigned (with a merger into, or a similar transaction
with, another entity in which the Party is not the surviving entity being
treated as an assignment) or subcontracted, except that (1) GE[*]'s rights,
obligations and performance may be assigned or subcontracted to GE or to an
Affiliate of GE reasonably acceptable to POL (written notice to be given prior
to any proposed assignment or subcontract subject to such acceptance), and (2)
POL's rights, obligations and performance may be assigned or subcontracted to an
Affiliate of POL reasonably acceptable to GE[*] (written notice to be given
prior to any proposed assignment or subcontract subject to such acceptance).
Notwithstanding the foregoing, the Parties understand that GE[*]'s processing
will take place at GE's facility located in [*], through a [*]; GE[*] will use
its commercially reasonable efforts to relocate such processing activities to
GE[*]'s facility located in [*] by [*] Nothing in this Agreement shall give or
be construed to give any other person or entity any legal or equitable rights
under, or with respect to the subject matter of, this Agreement. This Agreement
(including the Attachments hereto and the Specifications), the Confidentiality
Agreement dated February 19, 1997 to which LKI and GE are parties, that certain
Joint Defense Agreement fully executed on February 4, 1998 by LKI and GE, and
that certain Transition Agreement of even date herewith by and among GE, GE[*],
LKI and POL contain the entire agreement of the Parties with respect to the
subject matter hereof and thereof. This Agreement may be modified only in a
writing signed by the Parties and, with respect to any of the matters referred
to on the signature page hereof as being binding upon GE and LKI, also signed by
GE and LKI.
(J) Notices to be given by one Party to the other under this Agreement shall be
effective
19
when delivered at the address (or facsimile number) specified below, as the same
may be changed from time to time:
If to GE[*] to: GE [*]
[*]
[*]
with a copy to: GE [*]
[*]
and to: General Electric Company
0000 Xxxxxx Xxxxxxxx, X0X
Xxxxxxxxx, XX 00000
Attention: Senior Counsel for Transactions
Fax: 000-000-0000
If to POL: Pegasus Overseas Ltd.
c/o Graham, Xxxxxxxx & Co.
Sassoon House
Xxxxxxx Street and Victoria Avenue
P.O. Box N272
Nassau, New Providence, Bahamas
Attention: President
Fax: 000-000-0000
with a copy to: Xxxxxx Xxxxxx International Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: President
Fax: 000-000-0000
and to: Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxxx Xxxxxxxx
Fax: 000-000-0000
and to: Xxxxxxx Xxxxxxxx Xxxxx Xxxxxxxxxxx & Kuh L.L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
Fax: 000-000-0000
(K) This Agreement and the performance hereunder shall be governed by and
construed under the laws of the State of New York, without regard to the choice
of law rules of such state, and each Party and other signatory hereto and their
respective Affiliates which
20
conduct activities in connection with this Agreement shall submit to the
jurisdiction of state and federal courts situated in New York, New York for the
purpose of facilitating the enforcement of any arbitration award or decision
under paragraph VII(A) or injunctive relief as contemplated by paragraph V(A).
[Remainder of page intentionally left blank.]
21
IN WITNESS WHEREOF, the Parties have duly executed this Agreement, in one or
more counterparts, as of the date first written above.
Witness: PEGASUS OVERSEAS LTD.
/s/ Xxxxx X. Xxxxxx By: /s/ Xxxxxxx Xxxxxxxxxx
--------------------------- -------------------------------
Xxxxx X. Xxxxxx Name: Xxxxxxx Xxxxxxxxxx
Title: Chairman
GE [*]
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Director
The below listed companies shall be subject to and bound by paragraphs
III(B)(3), IV(A) and (C), V(A) and (B), and VII(B), (H), (I), (J) and (K) of
this Agreement:
XXXXXX XXXXXX INTERNATIONAL INC. WITNESS:
/s/ Xxxxxxx Xxxxxxxxxx /s/ Xxxxx X. Xxxxxx
-------------------------------- --------------------------------
Name: Xxxxxxx Xxxxxxxxxx Xxxxx X. Xxxxxx
Title: Chairman
GENERAL ELECTRIC COMPANY
/s/ Xxxxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Vice President and General Manager
22
ATTACHMENT A
(A) The following terms used but not defined in the Agreement have the following
meanings:
"ACQUISITION COST" with respect to any Gem Diamond or package of Gem
Diamonds, means [*]) of (i) POL's actual out-of-pocket purchase price for such
Gem Diamond(s), and (ii) any additional out-of-pocket costs related to the
purchase of Gem Diamonds paid by POL or its Affiliates and approved in writing
by GE[*], in each case, without any profit or xxxx-up thereon, and in the case
of a purchase by POL from an Affiliate, without any profit or xxxx-up on such
Affiliate's out-of-pocket costs. In the event that POL acquires Co-mingled
Diamonds, POL will make a good faith estimate of the market value of the
Co-mingled Diamonds and will apply an appropriate discount to that market value
such that as a result the Acquisition Cost for such Gem Diamonds shall be no
greater than POL's actual out-of-pocket purchase price for such Gem Diamonds
(plus any related additional costs approved as described above), provided that
in no event shall the Acquisition Cost be an amount higher than the comparable
price at which the individual Gem Diamonds constituting a portion of the
Co-mingled Diamonds could be purchased separately from an independent dealer,
trader or other third party.
"AFFILIATE" means a person that, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person.
"BANKRUPTCY" means, with respect to any Party, (i) such Party's ceasing
to function as a going concern (including inability to meet obligations as they
mature), (ii) the appointment of a receiver for such Party's assets, (iii) the
initiation of any proceeding by or against such Party under any bankruptcy or
insolvency law (which proceeding, if initiated by a third party, has not been
dismissed within sixty (60) days after the commencement thereof), (iv) such
Party's making of an assignment for the benefit of creditors or entering into
any similar arrangement, or (v) (A) the declaration of a material default by any
lender to such Party with regard to any debt or obligation for money owed, which
default is not cured on or before the expiration of any applicable cure period,
and (B) the acceleration of such debt or obligation for money owed, and (C) the
continuation of such declaration and acceleration at the time of the
determination of such bankruptcy.
"BUSINESS DAY" means any day other than a Saturday or Sunday or other
day on which the commercial banks in [*] [*] or [*] are required or authorized
by law or executive order to close.
"CERTIFICATION COST FACTOR" for any [*] or other period means an amount
reasonably estimated to represent the per-carat allocation of the Certification
Costs for such period over the number of carats of Prepared Gem Diamonds
expected to be delivered to GE[*] by POL during such period.
"CERTIFICATION COSTS" for any period means the actual amount of the
costs listed
A-1
in Part C of Annex 1 attached hereto paid or incurred by POL or its Affiliates
during such period in obtaining certification of Gem Diamonds as required by
Paragraph III(A) of the Agreement from [*]certification laboratories, without
any profit or xxxx-up thereon, and reflecting any discount or rebate paid or
credited in any form to POL or its Affiliates.
"CHANGE OF CONTROL" means:
(A) with respect to LKI (i) the Tempelsman Family ceasing to have
beneficial ownership of Voting Shares possessing more than [*]of the total
voting power of all outstanding Voting Shares, or (ii) the acquisition in a
transaction or series of transactions by a person or a group (within the meaning
of Rule 13d-5 and Section 13(d) under the Exchange Act) (a "Group") of
beneficial ownership of Voting Shares possessing total voting power greater than
the total voting power represented by the Voting Shares beneficially owned by
the Tempelsman Family, or (iii) the acquisition in a transaction or series of
transactions by a Disqualifying Person, as a person or as part of a Group, of
beneficial ownership of Voting Shares possessing at least [*] of the total
voting power of all outstanding Voting Shares, if in connection with or as a
result of such ownership interest, such Disqualifying Person either (x) does
not, at all times thereafter, meet the requirements of Rule 13d-1(b) or (c)
under the Exchange Act or (y) has access to information that is subject to the
confidentiality and nondisclosure requirements of paragraph V(A), or (iv) the
approval by the shareholders of LKI and/or its Board of Directors of a plan for
its liquidation, dissolution, merger or consolidation unless, in the case of a
merger or consolidation, those persons holding Voting Shares immediately
following such transaction have substantially the same proportionate voting
rights in respect of such entity as they had in respect of LKI immediately prior
to such transaction, or (v) the election or appointment of any person to the
Board of Directors of LKI or the resignation of any person or persons on such
board if, following such election, appointment or resignation, a majority of the
members of such Board ceases to consist of individuals who are Continuing
Directors, or (vi) LKI ceasing to be subject to the periodic public reporting
requirements of the Exchange Act or the regulations thereunder, provided that
the occurrence of the event described in this clause (vi) shall not be deemed in
itself to constitute a Change of Control if at all times following such event
either Xxxxxxx Xxxxxxxxxx or Xxxx Xxxxxxxxxx continues to serve as the chief
executive officer or president (or such other highest ranking officer position)
and Chairman or Vice Chairman of the Board of Directors of LKI, or (vii) the
acquisition in a transaction or series of transactions by a person or a group
(other than the Tempelsman Family, or a subsidiary of LKI or another entity
controlled by the Tempelsman Family) of a majority of the assets or business of
LKI; and
(B) with respect to POL (or another Affiliate of LKI performing
substantial activities under the Agreement) (i) the Tempelsman Family or LKI (or
a subsidiary of LKI) ceasing to own Voting Shares with voting power sufficient
to elect a majority of the directors to the Board of Directors of POL or such
Affiliate), or (ii) the acquisition in a transaction or series of transactions
by a Disqualifying Person, as a person or as part of a Group, of beneficial
ownership of Voting Shares possessing at least [*] of the total voting power of
all outstanding Voting Shares, if in connection with or as a result of such
ownership interest, such Disqualifying Person (x) does not, at all times
thereafter, meet the requirements of Rule 13d-1(c) under the Exchange Act
(whether or not actually applicable) or (y) has
A-2
access to information that is subject to the confidentiality and nondisclosure
requirements of paragraph V(A), or (iii) the acquisition in a transaction or
series of transactions by a person or a Group (other than the Tempelsman Family,
LKI or a subsidiary of LKI) of at least a majority of the assets or business of
POL or such Affiliate, or (iv) the approval by the shareholders and/or the Board
of Directors of POL or such Affiliate of a plan for liquidation, dissolution,
merger or consolidation of POL or such Affiliate unless, in the case of a merger
or consolidation, those persons holding Voting Shares immediately following such
transaction have substantially the same proportionate voting rights in respect
of such entity as they had in respect of POL or such Affiliate immediately prior
to such transaction; and
(C) with respect to GE[*] (or another Affiliate of GE[*] performing
substantial activities under the Agreement) (i) GE (or a subsidiary of GE)
ceasing to own Voting Shares with voting power sufficient to elect a majority of
the directors to the Board of Directors of GE[*] or such Affiliate, (ii) the
acquisition in a transaction or series of transactions by a person or a Group
(other than GE or a subsidiary of GE) of at least a majority of the assets or
business of GE[*] or such Affiliate, or (iii) the approval by the shareholders
and/or the Board of Directors of GE[*] or such Affiliate of a plan for
liquidation, dissolution, merger or consolidation of GE[*] or such Affiliate
unless, in the case of a merger or consolidation, those persons holding Voting
Shares immediately following such transaction have substantially the same
proportionate voting rights in respect of such entity as they had in respect of
GE[*] or such Affiliate immediately prior to such transaction; and
(D) any of the foregoing transactions or events constituting a Change
of Control that occurs with respect to any successor or any assignee (under
paragraph VII(I)) of any of LKI, POL, GE[*] or any Affiliate as referred to
above.
"COMPETITIVE BUSINESS" means manufacturing, processing and/or dealing
in [*], or engaging in activities intended to produce results that are similar
to those resulting from the processing performed by GE[*] pursuant to the
Agreement.
"CONTINUING DIRECTOR" with respect to any company or similar entity
means a member of the Board of Directors of such entity who either (i) was a
member of such Board on the date hereof, or (ii) was nominated or appointed
(before his initial election) to serve as a member by a majority of the members
of such Board who were persons described in clause (i) hereof at the time of
such nomination or appointment, or (iii) was nominated or appointed (before his
initial election) to serve as a member by a majority of the members of such
Board who are persons described in clause (ii) hereof at the time of such
nomination or appointment, provided in the case of clauses (ii) and (iii) that
such member was not nominated or appointed as a result of or in connection with
a proxy solicitation or proposal by a person other than a member of the
Tempelsman Family.
"CONTROL" (including the terms "CONTROLLED," "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether
A-3
through the ownership of stock or as trustee or executor, by contract or credit
arrangement or otherwise.
"DISQUALIFYING ACTIVITY" means a conviction, guilty plea or plea of
no-contest for (i) a felony under U.S. law, (ii) a crime involving dishonesty,
fraud or moral turpitude that has or is likely to have a material adverse affect
on the business reputation or goodwill of such person, Group or Affiliated
entity, or (iii) comparably serious criminal activity under other applicable
law.
"DISQUALIFYING PERSON" means (i) a person or Group that is engaged in a
Competitive Business on the date on which such determination is made or has been
so engaged within the last five years, or (ii) a person or Group that has, or
has an executive level officer or key employee that has, while an executive
level officer or key employee, engaged in a Disqualifying Activity within the
period of five years prior to the date on which such determination is made.
"ESTIMATED PREPARATION COSTS" means, with respect to any Prepared Gem
Diamond, (i) the number of carats in such Gem Diamond, when delivered to GE[*]
for processing, multiplied by (ii) the sum of the Pre-Processing Cost Factor,
the Post- Processing Cost Factor and the Certification Cost Factor.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINANCIAL SERVICES BUSINESS" shall include any activities undertaken
in connection with or in furtherance of (i) Financing, (ii) Leasing, (iii)
Default Recovery Activities or (iv) Other Financial Services Activities.
"Financing" shall include the making, entering into, purchase of, or
participation in (i) secured or unsecured loans, conditional sales agreements,
debt instruments or transactions of a similar nature, (ii) non-voting preferred
equity investments, and (iii) voting equity investments (where such investment
in voting equity is made in connection with a transaction referred to in either
or both of clauses (i) or (ii) of this definition) which do not result in either
(a) the ownership of [*]or greater equity interest in the entity in which such
investment is made by the person making such investment and its Affiliates in
the aggregate or (b) an acquisition that would at the time of such acquisition
cause such person to be an Affiliate of such entity.
"Leasing" shall include the leasing, under operating leases, finance leases or
rental agreements, of property, whether real, personal, tangible or intangible.
"Other Financial Services Activities" shall include the offering, sale,
distribution or provision, directly or through any distribution system or
channel, of any financial products, financial services, asset management
services or products or services or products related or ancillary to any of the
foregoing.
"Default Recovery Activities" shall include the exercise of any rights or
remedies in
A-4
connection with any Financing, Leasing or Other Financial Services Activity
(whether such rights or remedies arise under any agreement relating to such
Financing, Leasing or Other Financial Services Activity, under applicable law or
otherwise) or in connection with the purchase or sale of goods and services
including, without limitation, any foreclosure, realization or repossession of
any collateral or other security for any Financing (including the equity in any
entity or business) or Other Financial Services Activities or any property
subject to any Leasing.
"GAAP" means generally accepted accounting principles, applied
consistently with prior periods.
"[*] means a period of [*]calendar months ending on either [*] or [*]
provided that the first [*] shall be the period beginning on the date of the
Agreement and ending on [*]
"INDEBTEDNESS FOR MONEY BORROWED" means all obligations for borrowed
money, including (i) any obligation owed for all or any part of the purchase
price of real property or other assets or for services, (ii) any capital lease
obligation, (iii) any obligation of reimbursement, (iv) any guarantee of
repayment for money borrowed, and (v) any factored receivables.
"LIEN" means any mortgage, lien, pledge, charge, security interest,
claim, restriction, encumbrance, or right, title or interest in any third party.
"PERMITTED LIENS" means (i) Liens arising from and attaching to pledges
or deposits by POL under workers' compensation laws, unemployment insurance
laws, social security laws, or similar legislation, or arising from and
attaching to deposits to secure public or statutory obligations of POL or
deposits as security for contested taxes or import duties or for the payment of
rent to any non-Affiliated party; (ii) Liens imposed by law in connection with
the provision of goods or services to POL by non-Affiliated third parties, such
as carriers' and warehousemen's liens, provided that payment for the goods or
services giving rise to the lien is not yet due and payable or is being
contested by POL in good faith and by appropriate proceedings; (iii) Liens for
POL's taxes, assessments or governmental charges not yet due and payable or the
validity of which is being contested in good faith and by appropriate
proceedings and for which proper and adequate book reserves have been
established by POL to the extent required by GAAP as then in effect, and then
only to the extent that a bond has been filed in cases where the filing of a
bond is permitted to avoid the creation of a Lien against any of POL's
properties. Except to the extent expressly set forth in this paragraph, in no
event shall Permitted Liens against the Collateral include any Lien arising from
or relating to any Indebtedness for Money Borrowed of POL or any of its
Affiliates.
"POST-PROCESSING COST FACTOR" for any [*] or other period means an
amount reasonably estimated to represent the per-carat allocation of the
Post-Processing Costs for such period over the number of carats of Prepared Gem
Diamonds expected to be delivered to GE[*] by POL during such period.
A-5
"POST-PROCESSING COSTS" for any period means the actual amount of the
costs listed in Part B of Annex 1 attached hereto paid or incurred by POL during
such period in preparing Gem Diamonds for sale subsequent to processing by GE[*]
under the Agreement, without any profit or xxxx-up thereon, and reflecting any
discount or rebate paid or credited in any form to POL or its Affiliates.
"PREPARATION COSTS" means the Pre-Processing Costs, the Post-Processing
Costs and the Certification Costs.
"PRE-PROCESSING COST FACTOR" for any [*] or other period means an
amount reasonably estimated to represent the per-carat allocation of the
Pre-Processing Costs for such period over the number of carats of Prepared Gem
Diamonds expected to be delivered to GE[*] by POL during such period.
"PRE-PROCESSING COSTS" for any period means the actual amount of the
costs listed in Part A of Annex 1 attached hereto paid or incurred by POL during
such period in preparing Gem Diamonds for processing by GE[*], without any
profit or xxxx-up thereon, and reflecting any discount or rebate paid or
credited in any form to POL or its Affiliates.
"SALVAGE VALUE" when used with reference to Special Inventory Diamonds,
means the sum of (i) [*] of the Acquisition Cost of the Gem Diamond from which
such Special inventory Diamonds were produced, plus (ii) [*] of the Preparation
Cost allocable to such Gem Diamond, less (iii) the portion of such Preparation
Cost representing the Post- Processing Costs and the Certification Costs
allocable to such Gem Diamond.
"SPECIAL INVENTORY DIAMOND" means a Gem Diamond processed by GE[*]
that, as a result of such process, has [*]or been [*]into, or is otherwise of, a
[*]of less than .[*]of a carat and thus would be, in GE[*]'s good faith
judgment, uneconomic to market and sell as a processed Gem Diamond.
"SPECIFICATIONS" means the specifications for gem diamonds POL is to
purchase and supply to GE[*] as contemplated by the Agreement as provided in
writing by GE[*] to POL on or prior to the date hereof and as the same may be
modified from time to time by written notice from GE[*] to POL.
"SUBSIDIARY" or "SUBSIDIARIES" of any person means any corporation,
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any other subsidiary) owns, directly or
indirectly, 50% or more of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
"TEMPELSMAN FAMILY" means (i) Mr. Xxxxxxx Xxxxxxxxxx; (ii) any
descendant (whether biological or adopted) of Mr. Xxxxxxx Xxxxxxxxxx; (iii) the
spouse of any person described in clause (i) or (ii) hereof; (iv) the estate of
any person described in clause (i), (ii), or (iii) hereof; (v) any trust created
by or arising under the will of any person described
A-6
in clause (i), (ii), or (iii) hereof; or (vi) a corporation, limited liability
company or other entity with respect to which the persons described in clauses
(i) - (v) above own Voting Shares possessing at least 51% of the total voting
power of all outstanding Voting Shares (or such higher percentage as needed to
elect a majority of the board of directors of a company or similar governing
body of another organization).
"VOTING SHARE" means an outstanding security possessing the right to
vote on matters submitted to the stockholders and "voting power" shall mean the
right to vote in the election of directors to the board of directors of a
company or similar governing body of another organization.
A-7
(B) The following terms are defined in the Agreement as indicated below.
TERM AGREEMENT REFERENCE [p]
---- -------------------------
Agreement Introductory Paragraph
Claim IV(C)(I)
Collateral III(E)
Co-mingled Diamonds I(G)
Costs IV(C)(4)(a)
Dispute VII(A)
FIFO II(E)
GE Introductory Paragraph
Gem Diamonds I(B)
GE[*] Introductory Paragraph
GE[*] Account III(C)
GE[*] Delivery Documentation II(A)
[* ]
Initial Marketing Period III(D)(1)
LKI Introductory Paragraph
Losses IV(C)(1)
Material Information VII(E)
Other Claim IV(C)(4)(b)
Party Introductory Paragraph
POL Introductory Paragraph
POL Account I(C)
POL Delivery Documentation I(B)
Prepared Gem Diamond I(D)
Processing Fee III(C)
Representatives V(A)(1)
Sample Diamonds IV(B)
Technical Information V(A)(1)
Unimproved Processed Diamonds II(A)
Unprocessed Gem Diamonds II(A)
Usage Report III(C)
A-8
ANNEX 1
PART A - PRE-PROCESSING COSTS
The cost of such [*] and other preparation of Gem Diamonds as the Parties shall
agree in writing is necessary, including:
The actual invoiced costs (net of any discounts or rebates, whether or
not appearing on such invoices) of [*] and other preparation performed
for POL by third-party vendors, and delivery costs to and from such
third-party vendors
The compensation and benefits paid to [*] located in [*](currently [*]
dedicated full time to the implementation of the Agreement who shall
perform certain [*]and other [*]work on Gem Diamonds and coordinate [*]
and preparation by third-party vendors
Ordinary and necessary travel and living expenses of other experts
required to travel for purposes of monitoring or supervising the [*],
[*]and preparation of Gem Diamonds
The Pre-Processing Costs shall not include the Acquisition Cost, or the costs of
boiling, packing, shipping, insurance, duty and taxes paid in connection with
delivering Gem Diamonds to GE[*] for processing.
PART B - POST-PROCESSING COSTS
The costs of such further cutting, polishing and completion by POL or its
Affiliates of Gem Diamonds as the Parties shall agree in writing is necessary,
including:
The compensation and benefits paid to [*] located in [*] dedicated full
time to the implementation of the Agreement who shall perform cutting,
polishing and other finishing work on Gem Diamonds and [*] POL employee
located in [*] dedicated full time to the implementation of the
Agreement who shall coordinate activities with [*] certification
laboratories
[*]toward material handling costs
Direct variable material costs for grit, lapping wheels and similar
materials consumed by POL and its Affiliates in finishing Gem Diamonds
under the Agreement, but excluding indirect costs including, without
limitation, electricity, heat, other utilities, plant overhead and
depreciation
The Post-Processing Costs shall not include the costs of any capital equipment
used in performing finishing activities or the Certification Costs.
PART C - CERTIFICATION COSTS
Certification fees paid to [*] certification laboratories
A-9
Material handling costs relating to certification by [*] certification
laboratories
A-10
ATTACHMENT B
Sotheby's, Inc.
Christie's, Inc.
Xxxxxxxx International Auctioneers
Xxxxx Xxxxxxx Galleries, Inc.
ATTACHMENT C
[Letterhead of Pegasus Overseas Ltd.]
[Date]
GE [*]
[*]
RE: PROCESSING AGREEMENT DATED FEBRUARY 20, 1999 (THE "AGREEMENT")
Ladies/Gentlemen:
Pegasus Overseas Ltd. ("POL") hereby represents and warrants to you
that, with respect to all Gem Diamonds received from you under the Agreement and
marketed and sold by POL during the [*] ended __________, it has achieved such
sales utilizing marketing methods, procedures, pricing and related arrangements
no different from those ordinarily utilized during that [*] by its Affiliates in
the sale in comparable markets of comparable diamonds not processed by you, and
that [*].
Sincerely,
PEGASUS OVERSEAS LTD.
By: _______________________
Its:
