COOPERATION AGREEMENT
ON THE PROCESSING OF NATURAL DIAMONDS AND THE
MARKETING OF THE RESULTING POLISHED DIAMONDS BETWEEN
AK ALMAZI ROSSII SAKHA AND XXXXXX XXXXXX INTERNATIONAL INC.,
NEW YORK, USA
Joint Stock Company Almazi Rossii Sakha, hereinafter referred to
as ARS, being a legal entity under the laws of the Russian Federation (including
its United Selling Organization Division and any wholly-owned subsidiary of
ARS), and U.S. company Xxxxxx Xxxxxx International Inc., hereinafter referred to
as LKI, being a legal entity under the laws of the U.S. (including any
wholly-owned subsidiary thereof), jointly referred to herein as the Parties,
have made this agreement (the "Agreement") on cooperation in the processing of
natural diamonds and marketing of the resulting polished diamonds;
WHEREAS, ARS desires to increase the sphere of its influence in
the world market of "large" (used herein to refer to stones 10.8 carats or
larger) diamonds and the polished diamonds manufactured from them; and
The cutting of large stones, because of their unique value, must
be supervised by a special group of highly professional experts that have
sufficient experience in the processing and valuation of both rough and polished
large diamonds; and
The ultimate goal is to obtain maximum profit from sales of large
diamonds and/or polished diamonds manufactured from them that are prices
individually, which requires special knowledge of the global market and market
tendencies; and
LKI, which has the technology necessary for processing large
diamonds, employs professionals experienced in the manufacturing, valuation and
marketing of such large diamonds and maintains a corresponding marketing
network, has offered ARS mutually profitable cooperation in this area; and
ARS also seeks, in accordance with the terms of the General
Project Incentive Agreement among the Ministry of Finance of the Russian
Federation, the Central Bank of the Russian Federation and The Export-Import
Bank of the United
---------------------
* Confidential portions omitted and filed separately with the Commission.
States ("Eximbank") dated December 16, 1993 ("the GPIA"), loan finance
guaranteed by the Eximbank for activities furthering its leadership role in
world rough diamond production (the "Eximbank Project"), and Eximbank has
indicated its willingness to proceed with such financing on the basis of LKI's
participation in the international export and sale of ARS diamonds in assured
volumes sufficient to secure the repayment of the loan (although this Agreement
was originally planned by the Parties wholly apart from the Eximbank Project,
and independently stands on its own merit without in any way being dependent or
contingent upon ARS's proceeding with the Eximbank Project).
1. SUBJECT OF AGREEMENT
1.1. ARS, and LKI as its marketing consultant, will coordinate their
joint activities in the selection and valuation of diamonds, in
planning the most efficient way of cutting them and then in
cutting those diamonds in Moscow, and in the certification,
marketing and joint sales of all of those resulting polished
diamonds in the world market, using the LKI and ARS sales
networks.
2. OBLIGATIONS OF THE PARTIES
2.1. The Parties through their authorized representatives shall take
joint decisions on the following items:
2.1.1. Subject to the Minimum Level specified in Article 3.1.3,
on the amount and assortment of diamonds jointly
selected for cutting, the timing of such selections, the
Base Price (denominated in US Dollars) of each diamond
(for sizes from 1.8 to 10.8 carats, for each separate
lot) selected, the cutting of each diamond (for sizes
1.8 to 10.8 carats, for each separate lot) selected, and
the valuation and sale of the resulting diamonds.
2.1.2. On the cutting process technology to be used for each
diamond selected.
2.1.3. By means of written protocols, on the cost of each rough
diamond (for sizes from 1.8 to 10.8 carats, for each
separate lot) selected (hereinafter referred to as the
"Base Price"), on the reimbursable expenses (of both
Parties) related to the cutting and marketing (both
estimated and actual) of each shipment of polished
diamonds, on the final sales price of such shipment
(both
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estimated and actual), and on the net profit
thereon (both estimated and actual).
2.2. The Parties express their intent to conduct this cooperation in
the spirit of mutual trust, openness and confidentiality. Each
Party will keep the other Party fully informed about every
significant decision that must be taken, consult and agree on
such decision, and include the other Party in all stages related
to the fulfillment of this Agreement.
2.3. ARS has the right, and LKI shall provide such an opportunity, for
ARS's representatives to participate in the sales of the polished
diamonds in LKI offices, to recommend purchasers from its own
contacts, and to participate in the presentations of the diamonds
to prospective purchasers, in the sales negotiations and in
signing such papers as may be used to document final sale.
3. ARS OBLIGATIONS
3.1. In addition to the obligations stated above in Article 2, ARS
accepts the following obligations:
3.1.1. To provide in Moscow the facilities necessary for
cutting the rough diamonds, with premises sufficient to
accommodate the number of machines and basic personnel
required to process the Minimum Level of rough diamonds,
as defined in Article 3.1.3.
3.1.2. To provide initially at its own expense but for
reimbursement out of sales proceeds, the agreed upon
number of ARS professionals for all states of joint
work.
3.1.3. To provide (not less than once a month) rough diamonds,
in sizes and qualities suitable for efficient
processing and sale at enhanced prices, and in such
volume and assortment and for such Base Price as maybe
jointly selected and agreed upon by the Parties,
provided that during each successive six month period
diamonds of sufficient and suitable quality are made
available by ARS for such joint selection and pricing
in sufficient quantities and sizes to assure the
selection, processing, export (at regular intervals)
and sales pursuant to this Agreement to (a) large
diamonds with an aggregate Base Price of no less than *
and (b) diamonds of other sizes from 1.8 to 10.8 carats
(distributed by carat size
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within those size groups in
the assortment agreed upon by the Parties) with an
aggregate Base Price of no less than * (collectively
the "Minimum Level").
3.1.4. To provide LKI representatives with all required
documents and information, at all states of selection
and operation on those diamonds which will be the
subject of the joint operations specified in Article 1.1
necessary for the fulfillment of this Agreement.
3.1.5. To assist LKI experts, who are temporarily in Russia to
work under the Agreement, in getting visas, work permits
and residency permits.
3.1.6. To arrange for all necessary Russian government
decisions, export and other permits, licenses, quotas
and solutions of related issues arising in connection
with this Agreement.
3.1.7. To make the necessary arrangements including export
licenses, for the shipping, not less than once a month,
to LKI outside Russia, for marketing and sale outside
Russia, of all polished diamonds, manufactured under
this Agreement.
4. LKI OBLIGATIONS
4.1. In addition to the obligations stated above in Article 2, LKI
accepts the following obligations in return for the right to earn
a fee on the marketing of the polished diamonds outside of
Russia:
4.1.1. To provide to the joint operation initially at its own
expense but for reimbursement out of sales proceeds, the
technical consultants required to supervise or train
those engage din the valuation and cutting of rough and
polished diamonds, and to facilitate the participation
of experts of both Parties in the joint cutting process.
4.1.2. To provide, initially at its own expense but for
reimbursement out of sales proceeds, the required
equipment, tools and materials, including a preagreed
color and clarity master set of diamonds certified by
GIA (collectively the "Equipment") in the amounts,
required by the expected volume of work and workers. If
and to the extent that this Agreement expires or
otherwise terminates, prior to the completion of such
reimbursement, either LKI will be compensated by ARS
for the value of the reimbursement, either LKI will be
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compensated by ARS for the value of the above-
mentioned Equipment left behind by LKI, taken into
account its useful life and physical weariness, or such
Equipment will be returned to LKI.
4.1.3. To provide, initially at its own expense but for
reimbursement out of sales proceeds, to ARS prior to
receiving each shipment of polished diamonds, an
insurance policy for the amount of the Base Price
(listing ARS as beneficiary prior to its receiving form
LKI the Base Price) covering `all risks' of the
processed diamonds during the period of their
transportation, storage and delivery to the buyer up to
the time of final sale.
*
4.1.5. To certify or obtain GIA certification for polished
diamonds when necessary.
4.1.6. To organize and perform, drawing upon ARS
representatives and their knowledge of the ARS
marketing network but retaining at LKI at all times
active physical possession and control of the diamonds,
the sorting, valuation and marketing of all diamonds
polished and delivered to LKI outside Russia under this
Agreement, utilizing its marketing expertise, analyses,
facilities, network and contacts in Antwerp, New York,
Tokyo and worldwide, using such advertisements,
promotion and marketing methods, including the timing
thereof, as may be determined by the Parties to realize
the maximum price obtainable, and the sale of the
polished diamonds at such price. At all stages of sale
of the polished diamonds, ARS has the right to
introduce, in order to conclude the purchase, their
customers who offer a higher price than other customers
known to LKI.
4.1.7. To purchase (for an agreed upon market price) any
polished diamonds that it has received outside of Russia
from the joint cutting operation that remain unsold
within the 90 days sales period, or such extension as
the Parties may agree upon. However, whenever the
Parties cannot agree, with respect to polished
diamonds that remain unsold at the end of such period,
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on the price to be paid by LKI, then LKI shall by these
diamonds at the Base Price plus ARS's and LKI's
reimbursable expenses.
4.1.8. To provide ARS in accordance with its needs the fullest
information and documents available on the performance,
costs, and results of marketing activities, including
copies of necessary certificates and other documents.
4.1.9. To help arrange for visas, reception and residence for
Russian experts during their joint work outside the
Russian Federation.
4.1.10. To transfer to such account as ARS may instruct in
writing:
*
*
*
4.1.11. In the event that ARS proceed with the Eximbank Project,
(a) to take all necessary actions within its control at
each stage to assure that the value of diamonds
selected, processed, exported and sold pursuant to this
Agreement within each successive 6 month period,
meet the Minimum Level of $22.5 million; and (b) to
fully cooperate with ARS and the Eximbank in the
formulation and implementation of such arrangements in
connection with this Agreement as may facilitate ARS'
proceeding with the Eximbank Project.
5. PAYMENT
5.1. ARS and LKI shall jointly define the value of each diamond (for
sizes form 1.8 to 10.8 carats, for each separate lot) selected
for processing (the "Base Price"), and confirm it by an
appropriate protocol. * (i) each Party shall in
good faith propose its best, most reasonable estimate of such
Base Price, (ii) the Parties together shall proceed to polish and
market such diamond (or separate lot of diamonds) in accordance
with this Agreement, (iii) the Base Price to be paid by LKI
pursuant to Article 4.1.10 shall be the Base Price proposed by
LKI, and (iv) upon the sale of such diamond (or separate lot of
diamonds), ARS's share of the profits shall be calculated in
accordance with the following formula, the
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application of which is illustrated
in Appendix A, which Appendix shall be deemed an integral part of
this Agreement:
(a) If the average of the two proposed Base Prices is * of
the LKI proposed Base Price, or if the final sales price
received (less both Parties' reimbursable expenses) is
no greater than that average, then ARS's share shall be
* .
(b) If the average of the two proposed Base Prices is * of
the LKI proposed Base Price, and the final sales price
received (less both Parties' reimbursable expenses) is *
than that average, but no * than the ARS proposed Base
Price, then ARS's share of the incremental proceeds
received from that portion of the price that exceeds the
average shall be * .
(c) If the final sales price * the ARS proposed Base Price,
then ARS's share of the profits from those further
incremental proceeds shall be * ; provided, however,
that if that price is such that ARS's share of the
proceeds under this formula reaches the * of this
proposed Base Price, then any further proceeds derived
from this final increment shall be divided
* between the Parties.
5.2. The Parties agree, that (other than as described in Article 5.1)
the "net profits" from sales of resulting diamonds, as defined in
Paragraph 5.3, were distributed as follows: to ARS, * ; to LKI,
as its fee for marketing the polished diamonds in the United
States and other non-Russian markets, * .
5.3. The Parties agree that `net profits' means the amount realized
from polished diamond sales excluding the cost of rough (the
Base Price) and all ARS and LKI agreed upon expenses related to
cutting, valuation, processing, export from Russia,
transportation, certification, insurance and marketing in
accordance with this Agreement, including all compensation and
related payments (such as international travel and living
expenses) paid to Russian and non-Russian professionals and the
cost of the Equipment. All costs will be jointly and timely
agreed upon and confirmed by appropriate protocols.
5.4. No later than * days after LKI has received from ARS the polished
diamonds for selling (unless the Parties agree to an extension of
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such period), LKI will be obligated to transfer, to such account
as ARS may instruct in writing, from the proceeds received from
the sold polished diamonds (after offsetting the amount already
paid by LKI pursuant to Article 4.1.10(a) and (b)), a sum equal
to the total of ARS's reimbursable expenses and * of the net
profit.
5.5. Notwithstanding any other provision of this Agreement, during the
term of the Eximbank Project repayment period, ARS (in the event
that it proceeds with the Eximbank Project) hereby irrevocably
instructs LKI, and LKI agrees to pay all amounts due to ARS under
this Agreement on the day due by same day wire transfer into the
Collateral Account established pursuant to the Eximbank Project
agreement.
6. THE TERM OF THE AGREEMENT AND SETTLEMENT OF DISPUTES
6.1. This Agreement is valid from the moment of signing and will be
valid for 10 years and may be prolonged thereafter by mutual
consent of the Parties.
6.2. If the external situation makes it impossible in full or in part
for one of the Parties to fulfill any of its obligations under
this Agreement due to unforeseen circumstances (force majeure)
such as fire, natural disasters, war, military operations of any
kind, blockades, or other situations beyond the control of the
Parties, the time of fulfillment of such obligation will be
delayed for a period equal to the duration of the force majeure
circumstances. If such circumstances persist for more than three
months either Party may terminate the fulfillment of its
obligations. The compensation for any Party suffering losses as
a result of such termination will be decided by the Parties when
the decision to terminate this Agreement is taken. Force majeure
does not apply to payment obligations.
6.2.1. The Party that cannot fulfill its obligations due to
force majeure circumstances must make clear to the
other Party the nature of the circumstances that
prevent the fulfillment of the obligations. Proof of
existence of such force majeure circumstances and their
duration will be based upon information from the
Chamber of Trade and Commerce of Russia or the United
States, whichever is the country in which the existence
of such circumstances of force majeure is claimed to
have occurred.
6.3. All disagreements and disputes resulting from or in relation to
this Agreement will be resolved in a friendly manner by
negotiations. Disputes
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unresolved by consultations and negotiations will be decided by
the International Commercial Arbitration Court at the Chamber of
Trade and Industry of the Russian Federation in accordance with
its regulations.
6.4. Each Party stresses that this Agreement is not an agreement to
create a joint venture, partnership, sales or trade agreement or
technology transfer agreement. Except as required by law, each
Party agrees to keep secret this Agreement and any business,
financial, technical or other information received about the
other Party relevant to this Agreement, and further agrees not to
undertake any steps that could undermine the effectiveness of
this Agreement without obtaining the written consent of the other
Party.
7. TRANSFER OF RIGHTS OR OBLIGATIONS; FULL AGREEMENT
7.1. No Party can transfer its rights or obligations under this
Agreement to any other person without the written consent of the
other Party and (until the close of the Eximbank Project
repayment period) by Eximbank. LKI hereby authorizes ARS to make
such pledge or assignment of its revenues under this Agreement as
ARS agrees with Eximbank to make.
7.2. This Agreement reflects the full mutual understanding of the
Parties and any modification therein must be mutually agreed upon
by the Parties and (until the close of the Eximbank Project
repayment period) by Eximbank in writing.
8. LEGAL ADDRESSES
Almazi Rossii Sakha Xxxxxx Xxxxxx International Inc.
678170 Mirny Xx. Xxxxxx 0 000 0xx Xxxxxx
Teletype: 135818 Xxxxx Xxx Xxxx, XX 00000, X.X.X.
Telex: 135113 Xxxxx XX Tel: 000 000-0000
Telefax: (000) 00-000-00 Fax: 000 000-0000
109017 Xxxxxx 0 Xxxxxxx per. 10/12
Teletype: 113258 Vilyui
Telex: 414199 Xxxxx RU
Telefax: (095) 230 6631
This Agreement is signed in Moscow on July 15, 1996 in four
copies, two each in English and Russian, each of which has equal legal and
binding force. In
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separate letters to be delivered by the Parties' legal counsel, the English and
Russian texts of this Agreement shall be certified to be identical.
On behalf of Almazy Rossii Sakha On behalf of Xxxxxx Xxxxxx International
/s/ L.A. Salohav /s/ X. Xxxxxxxxxx
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Appendix A
Example A
-If-
(i) *
-Or-
(ii) *
Example B
-If-
*
Example C
-If-
*
