Exhibit 10.19
PRIME INVESTMENTS SA
Saphir Building 1st Floor
00 Xxxxxxxxx Xxxxxx Xxxxx
X0000 - Xxxxxxxxxx
as of Xxxxxx 00, 0000
Xxxxx Xxxxx & Sons Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxx X0X 0X0
Attention: Xxxxxx X. Xxxxxxxxxxxx
RE: Diamond Inventory Supply Agreement
Dear Sirs:
We write to you to confirm our understanding with respect to your diamond
inventory needs. In accordance with the terms and conditions set out in this
letter, we or a related entity designated by us, will be entitled to supply you
and your subsidiaries and affiliates as of December 31st, 2002 (collectively,
"Birks") with at least 45% on an annualized cost basis in Canadian dollars of
your aggregate loose diamond requirements including Canadian diamonds if the
following conditions are met a) our prices remaining competitive relative to
market, and b) meeting your needs in terms of quality, cut, standards and
specifications. We shall also be required to provide you with satisfactory
evidence of origin for Canadian diamonds.
To implement the foregoing, Birks will provide us, on at least an annual
basis -- during the early part of February [the first being due February,
2003(1) for the current calendar year] -- with the diamond requirements of Birks
and each of its subsidiaries and affiliates ("Requirements"). Such Requirements
will be broken down by each entity in the Birks group, and shall provide as much
detailed specifications as possible, including delivery requirements.
Based on your Requirements, we will provide you, by the end of each
February, with the quotes for each requested category of diamonds (and for each
weight, color and clarity requested). Shortly after receipt of said quotes,
Birks will confirm its Requirements ("Confirmed Requirements") and its forecast
for the current year. These Confirmed Requirements will constitute an
understanding that prices quoted are deemed competitive for the purpose of this
agreement. If Birks is concerned about quotes received not being competitive
compared to market, Birks shall inform us and we both agree to reasonably
attempt to come to an agreement. The price quoted or agreed upon shall apply
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(1) From the date hereof until the first Requirements ("Trial Period"), Birks
will provide Prime (or its designee) with the first opportunity to fulfill
Birks' special and supplemental requirements for loose diamonds. We hereby
confirm that the attached quote (Attachment A) is valid for the Trial
Period.
Xxxxx Xxxxx & Sons, Inc.
August 15, 2002
Page 2
to all comparable items until submission of the next Requirements. By the end of
April, we will begin delivering according to your Confirmed Requirements.
There shall be an annual reconciliation (conducted in approximately January
- February) to determine: (a) the actual amount of diamonds purchased by Birks
and by each of its subsidiaries and affiliates (and the cost thereof); and (b)
the percentage of those purchases supplied by us. The parties will thereafter
make reasonable attempts to adjust future transactions based on such
reconciliation and consistent with the obligations and rights created hereunder.
We will provide you with an audit trail of the diamond manufacturing from
the Rough Stage to the Polished Stage as the production is from our NWT factory
and comes with a GNWT Certificate. In order to establish the provenance of
Canadian diamonds, it is understood that we assign unique diamond identification
numbers to each rough diamond, which can be tracked back to the original invoice
of the mine from which the original rough diamond was extracted. On your
invoice, this identification number, along with the rough diamond crystal
weight, will be indicated next to each polished diamond listed. In addition the
invoice will include a certification that each Canadian diamond listed has been
indeed mined from Canada. A copy of the original invoice from the mine clearly
identifying the parcel from which the rough diamond came will accompany the
invoice(s) to you.
Accompanying this letter is a list of diamond parameters (Attachment B)
which, we are advised, provides details about what is and is not acceptable to
you. We understand that you only want to offer to your customers diamonds you
feel are cut to take maximum advantage of a diamond's ability to affect light.
The standards reflect the stringent characteristics necessary for a
top-of-the-line diamond. Our strict compliance with the attached parameters
shall in each instance be deemed acceptable.
We understand that you will need a Xxxxx report with each diamond
submitted, each in its own stonepaper, to you for consideration for weights
above 0.18 ct. We understand that you only sell 1.00 cts.+ diamonds with an
accompanying GIA Diamond Report, along with your own Birks Diamond Certificate.
Therefore, we recognize that you must be comfortable with and agree with the GIA
report. Once you have approved the GIA diamond report, the diamond will be sent
back to GIA to laser engrave Birks' identification number and logo. On the
revised GIA report there will be notations that indicate your laser-engraving
trademarks. All diamonds sent for your review over one carat will have a
photocopy of the GIA report. We will also provide you with a copy of the GIA
report for each diamond less than one carat that has a GIA report.
Xxxxx Xxxxx & Sons, Inc.
August 15, 2002
Page 3
We understand that your present policy does not allow you to accept any
color lower than I color. We also understand that you are only purchasing those
diamonds that fall within the D-H, VS1-SI1 ranges. If agreeable, those diamonds
that are higher clarity (IF, VVS) may be consigned to you on a long-term basis,
the whole according to a satisfactory consignment agreement. We recognize that
you mount these diamonds in diamond engagement rings, and will request an
invoice for each as they are sold. Unless otherwise agreed, you understand that
we will not be able to laser engrave diamonds delivered on consignment
We authorize you to laser-engrave 'Birks", a maple leaf, and your
identification number on the girdle. There should be no other identification
marks other than the Birks trademark and ID numbers on the diamonds. With the
above VVS+ consignment program, we understand that you would not require the NWT
ID # be removed, but would also require that your marks be laser-engraved on the
girdle. If a diamond is returned, you understand that your numbers would have to
be polished out.
We agree to 60 days payment terms.
We represent and warrant that our diamond weights are accurate, that all
diamonds are natural and not synthetic, that there will be no diamond
enhancement or treatment.
We agree to comply and provide you with the information and documentation
required under the Voluntary Code of Conduct for Authentication of Canadian
Diamond propounded by Industry Canada, Competition Bureau, as may be amended
from time to time, a current copy of which is annexed (Attachment C).
We understand that you and your subsidiaries may from time to time enter
into agreements whereby your subsidiaries will be required to present a proposed
purchase plan to an independent committee setting forth (i) a schedule of the
goods to be purchased from you for a fiscal year and (ii) the cost of such goods
(a "Purchase Plan"). We further understand that such independent committee shall
review the Purchase Plan and approve the Purchase Plan either (i) as proposed or
(ii) as modified by the independent committee in consultation with the
management of the subsidiary. We recognize that at any time during the pendency
of such agreement between you and your subsidiaries, the independent committee
shall have authority to investigate, audit, review or otherwise examine any
goods purchased or to be purchased hereunder from you, including without
limitation, the cost to you of such goods, the quality of such goods, your rate
of return, comparable goods, third-party vendors and other matters deemed
important by the independent committee. We both agree to use our best effort to
comply with the reasonable requests and directions of such independent committee
and we further agree to accept any determinations made by such committee with
respect to
Xxxxx Xxxxx & Sons, Inc.
August 15, 2002
Page 4
diamonds to be provided by us to you or your subsidiaries. Such determinations
shall not reduce our continued entitlement to supply diamonds hereunder for the
future. Our obligations in this regard shall not require that we provide any
information or documentation that we deem to be confidential (such as pricing,
etc.)
In the event that we or one of our affiliates takes any affirmative action
to reduce our initial investment in Birks (and for this purpose our failure to
convert our debenture by the fifth anniversary of the date of issuance shall be
deemed such affirmative action), our entitlement to supply your diamond needs
will be reduced as follows. For every percentage reduction from US$7.5 million
to US$5 million, there will be a proportionate reduction from 45% of your
diamond needs (at US$7.5 million) to 33% of your diamond needs (at US$5
million). For example, a reduction of US$1.25 million in our initial investment
of US$7.5 million to US$6.25 million will result in a reduction of our
entitlement to supply 45% of your diamond needs to 39% of your needs, i.e, 50%
of the difference between 45% and 33%. For every percentage reduction of our
initial investment below US$5 million, there shall be a corresponding reduction
in the percentage of diamonds to be supplied by us to you. As additional
example, if there is a further reduction from US$5 million to US$2.5 million our
entitlement shall be reduced from 33% to 16.5% Otherwise, this agreement shall
remain in full force and effect until terminated by either party on at least six
(6) months written notice.
Any claim or dispute under this Agreement (including, but not limited to, a
determination as to whether there has been a material breach hereof) will be
resolved exclusively through arbitration in New York before and under the rules
and procedures of the New York Diamond Dealers Club. That forum will not be
empowered to resolve any disputes of any nature between user arising under any
other agreement.
Finally, we understand that you may consider buying from time to time other
pieces of jewelry from our affiliates or us.
If this meets with your approval, please return a signed copy of this
letter.
Sincerely,
PRIME INVESTMENTS SA
By: /s/ Xxxx X. Xxxxxxxx
---------------------------------
Name: Xxxx X. Xxxxxxxx
Title
Xxxxx Xxxxx & Sons, Inc.
August 15, 2002
Page 5
We agree to the terms hereof. Signed and accepted on August 15, 2002.
XXXXX XXXXX & SONS INC.
By: /s/ Xxxxxx X. Xxxxxxxxxxxx
-------------------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxxx
Title: President and Chief Executive Officer
ATTACHMENT B
BIRKS DIAMOND STANDARDS -- FOR ROUND BRILLIANT CUT
All round brilliant-cut diamonds must indeed be round, and not
out-of-round. Diamonds meeting the criteria listed below will meet Birks
Excellent-cut standards.
COLOR: D-I
CLARITY: IF-SI1
PROPORTIONS:
Table size: <=63% for diamonds less than 0.18 ct. (melee)
53-60% for diamonds greater than or equal to 0.18 ct.
crown height: between 13.8 and 16.0%
crown angles: between 33.5 and 35.4 degrees
girdle: thin to slightly thick.
pavilion depth: between 42.5 and 44.0%
total depth: between 59.5 and 62.5%
culet: none to medium
polish: good to excellent
symmetry: good to excellent
fluorescence: none to medium
OTHER PARAMETERS: Diamonds will NOT meet Birks' standards if they have:
-- distinct and easily-louped polishing lines
-- any fracture filling
-- any laser drilling
-- any open marks (cavities, pits, open feathers) on the
surface of the diamond
-- chipped culets, pits, cavities
-- facets which are not symmetrical and do not align and point
properly
-- very small facets and naturals will be accepted only on
diamonds less than 0.18ct.
-- been processed using the GE treatment (High Temperature/High
Pressure)
Unless otherwise notified, all diamonds 0.18 ct. or larger will be
submitted individually, with a Xxxxx label containing all the information listed
above attached to the stonepaper. The label should also contain the cutter/
supplier's name and the memo number.
