<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
REGISTRATION NO. 333-14227
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LAZARE KAPLAN INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-2728690
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 972-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SHELDON L. GINSBERG
LAZARE KAPLAN INTERNATIONAL INC.
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 972-9700
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FREDERICK R. CUMMINGS, JR., ESQ. EARL D. WEINER, ESQ.
WARSHAW BURSTEIN COHEN SULLIVAN & CROMWELL
SCHLESINGER & KUH, LLP 125 BROAD STREET
555 FIFTH AVENUE NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10017 (212) 558-3820
(212) 984-7700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this registration statement.
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated November 19, 1996
PROSPECTUS
2,200,000 SHARES
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC.
COMMON STOCK
($1.00 PAR VALUE)
---------------------
Of the 2,200,000 shares of Common Stock offered hereby, 1,800,000 shares
are being sold by Lazare Kaplan International Inc. (the 'Company') and 400,000
shares are being sold by the Company's Chairman, Maurice Tempelsman (the
'Selling Stockholder'). See 'Principal and Selling Stockholders and Security
Ownership of Management.' The Company will not receive any of the proceeds from
the sale of Common Stock by the Selling Stockholder.
The Common Stock is listed on the American Stock Exchange under the symbol
'LKI.' On November 18, 1996, the closing price for the Common Stock was $19 1/4
per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE 'RISK
FACTORS,' COMMENCING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholder
<S> <C> <C> <C> <C>
Per share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
(1) See 'Underwriting' for indemnification arrangements.
(2) Before deducting expenses of the offering estimated at $ .
(3) The Company has granted the Underwriters a 30 day option to purchase up to
330,000 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions shown above, solely to cover
over-allotments, if any. If this option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
'Underwriting.'
---------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or about
December , 1996.
---------------------
UBS SECURITIES FURMAN SELZ
, 1996
<PAGE>
<PAGE>
[LOGO]
[GRAPHIC OF DIAMOND DISPLAY GOES HERE]
Lazare Kaplan International Inc., a multi-national diamond company, is engaged
in rough diamond sourcing, in cutting and polishing these diamonds into
gemstones and in selling polished diamonds to an international network of
quality retail jewelers.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the 'Commission').
Reports, proxy statements and other information filed by the Company can be
inspected and copied at the principal office of the Commission, Public Reference
Room, 450 Fifth Street, N.W., Washington, DC 20549, and at the regional offices
of the Commission located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60651-2511 and at Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies can be obtained from the
Commission at prescribed rates by writing to the Commission at 450 Fifth Street,
N.W., Washington, DC 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
Web site is http://www.sec.gov. The Common Stock of the Company is listed on the
American Stock Exchange. Reports, proxy and information statements, and other
information concerning the Company can be inspected and copied at the American
Stock Exchange, 86 Trinity Place, New York, NY 10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended May 31, 1996
and the Company's Quarterly Report on Form 10-Q for the quarter ended August 31,
1996, which were filed with the Commission, are incorporated in this Prospectus
by reference. The Company will provide, upon request, without charge to each
person to whom this Prospectus is delivered, a copy of any or all of the
documents incorporated herein by reference except for certain exhibits to such
documents. Requests for such copies should be directed to Chief Financial
Officer, Lazare Kaplan International Inc., 529 Fifth Avenue, New York, NY 10017,
telephone number (212) 972-9700. Any statement contained in a document
incorporated herein by reference shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this Prospectus
modifies or replaces such statement.
3
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Prospectus, including the information set forth under 'Risk Factors.'
Except as otherwise specified, all share and per share data described herein are
based on the assumption that the Underwriters' over-allotment option is not
exercised. Certain statements contained in the Prospectus Summary and elsewhere
in this Prospectus regarding matters that are not historical facts, such as the
Company's continued ability to obtain rough diamonds and the Company's plans to
expand its business and with respect to strategic alliances and other agreements
with third parties, are forward-looking statements (as such term is defined in
the Securities Act of 1933, as amended) and because such statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed herein under 'Risk Factors.'
THE COMPANY
GENERAL
Lazare Kaplan International Inc. is engaged in the cutting, polishing and
selling of ideally proportioned diamonds. The Company markets such diamonds
internationally under the brand name 'Lazare Diamonds'r'.' Ideally proportioned
diamonds are distinguished from non-ideal cut ('commercial') diamonds by the
symmetrical relationship of their facets, which maximizes brilliance, sparkle
and fire. Due to these characteristics, Lazare Diamonds command a premium in the
marketplace. The Company believes there are only a few other companies in the
world engaged in the production of ideally proportioned diamonds and that it is
the largest producer of ideal cut diamonds. In addition, the Company cuts and
polishes commercial diamonds, which it markets to wholesalers, distributors and
through select retail jewelers. Those stones purchased by the Company and not
selected for manufacturing are promptly resold as rough diamonds in the
marketplace. The Company is also engaged in the trading of rough diamonds. The
Company believes that the combination of its cutting and polishing operations
and its trading operations enables the Company to purchase larger quantities of
rough diamonds from which it may select those rough diamonds best suited for the
Company's current needs. See 'Business.'
GROWTH STRATEGY
The Company seeks to expand its current business by increasing its
marketing efforts, adding to its sources of rough diamonds, improving
manufacturing efficiencies, diversifying its product line and pursuing
additional strategic opportunities.
The Company is focusing on expanding its marketing and distribution efforts by
distributing its polished diamonds into new geographic markets, exploring
alternative distribution opportunities and selectively increasing the number of
customers selling the Company's products in existing markets.
The Company seeks to increase its access to sources of supply of rough diamonds
by pursuing new business ventures in rough diamond producing countries. The
recent agreements in Russia and Angola are two examples of this effort. See
' -- Recent Developments.'
The Company endeavors to increase productivity and yield (rough weight to
polished weight conversion) by seeking to enhance efficiency in its existing
manufacturing facilities through worker incentives, training programs and
state-of-the-art technology.
The Company seeks to diversify its product line by manufacturing a broader
range of sizes and types of polished diamonds in response to changing market
demand.
The Company evaluates acquisition opportunities and alliances with strategic
partners which could allow it to integrate vertically by entering into the
diamond retail or mining sectors.
4
<PAGE>
<PAGE>
MARKETING STRATEGY
The Company's marketing strategy is directed primarily toward quality
conscious consumers throughout the United States, the Far East and Europe. The
Company focuses its distribution efforts for Lazare Diamonds on selectivity with
a view to helping retailers who carry the product maintain a competitive
advantage. Lazare Diamonds can be found at some of the most prestigious jewelry
stores around the world, including those with international reputations and
those known only in their communities as being the highest quality retail
jewelers. This strategy helps ensure that the Company's product is presented in
an environment consistent with its superior quality and image. The Company also
sells to certain jewelry manufacturers and diamond wholesalers. The Company has
developed a comprehensive grading system for its diamonds, which allows jewelers
to order inventory by category rather than through the more cumbersome process
of visual selection. In addition, the Company designs, manufactures (through
independent contractors) and sells a line of high quality jewelry that features
Lazare Diamonds. See 'Business -- Marketing, Sales and Distribution.'
An important element of the Company's strategy is the promotion of the
Lazare Diamonds brand name. Every Lazare Diamond bears a laser inscription on
its outer perimeter, invisible to the naked eye, containing the Lazare Kaplan
logo and an identification number unique to each stone. The laser signature
allows consumers to register their Lazare Diamonds with the Company under its
program, The Lazare Diamond Registry'r', thereby providing proof of ownership in
case of loss or theft. See 'Business -- Marketing, Sales and Distribution.'
DIAMOND SUPPLY
The Company's principal supplier of rough diamonds is the Diamond Trading
Company (the 'DTC'), an affiliate of De Beers Centenary AG. Based on published
reports, the Company believes that the DTC controls approximately 75% of the
value of world rough diamond output. The Company has been a client of the DTC
for more than 50 years. In order to diversify its sources of rough diamond
supply, however, the Company has broadened its purchasing capabilities
throughout Africa and has an office in Antwerp to supplement its rough diamond
needs by secondary market purchases. The Company also has expanded its
operations and entered into relationships with other primary source suppliers.
The Company believes that this ability to diversify rough diamond sourcing
allows it to maintain quantities and qualities of polished inventory that best
meet its customers' needs. See ' -- Recent Developments' and
'Business -- Diamond Supply.'
MANUFACTURING OPERATIONS
The Company currently has three manufacturing facilities. The Company's
domestic manufacturing operation, located in Puerto Rico, is believed by the
Company to be the largest diamond cutting facility in the United States. The
Company believes its work force in Puerto Rico is the most highly skilled in the
world. This facility generally produces polished diamonds having weights of 1/5
of a carat and greater. In 1993 the Company opened its factory, located in
Molepolole, Botswana, which is operated in partnership with the Government of
Botswana. This new state-of-the-art factory expands the Company's product line
by cutting and polishing ideal cut diamonds in smaller sizes (generally smaller
than 1/5 of a carat in size) than those produced in Puerto Rico. The Company's
third manufacturing operation is conducted in cooperation with the Russian
Government agency responsible for diamond exports and the Russian national
stockpile and is located at this agency's facility in Moscow, Russia. The
Company believes this facility, opened in 1991, is one of the largest factories
in the world primarily dedicated to the cutting and polishing of large rough
diamonds. See 'Business -- Properties.'
RECENT DEVELOPMENTS
On July 16, 1996, the Company announced that it had signed a ten year
agreement with AK Almazi Rossii Sakha ('ARS'), a Russian company, for the
cutting, polishing and marketing of large rough gem diamonds. According to
published reports, ARS is the largest producer of rough diamonds in Russia with
annual production in excess of $1.2 billion, accounting for over 20% of the
value of the world's supply of rough diamonds. In accordance with the terms of
the agreement, the Company has begun to equip a diamond cutting factory
(estimated to cost $600,000, half of which will be borne by
5
<PAGE>
<PAGE>
ARS) within the existing ARS facility in Moscow. This new facility will be
staffed by Russian technicians and managed and supervised by Company personnel.
ARS has agreed to supply a minimum of $45 million per year of large rough gem
diamonds selected by the Company as being suitable for processing at this
facility. The Company has agreed to sell the resulting polished diamonds through
its worldwide distribution network. The proceeds from the sale of these polished
diamonds, after reimbursement of the costs incurred by each of the parties,
generally will be shared equally with ARS. This agreement does not require the
Company to advance funds for the purchase of rough diamonds. The Company
anticipates that the facility will commence cutting and polishing before June
1997. See 'Business -- Cutting and Polishing' and 'Risk Factors -- Risk of
Foreign Operations.'
In July 1996, the Company signed a five year agreement, approved by the
Government of Angola, for the supply of a portion of the rough diamonds mined in
Angola and for the joint cutting, polishing and marketing of that production.
The agreement, entered into with Empresa Nacional de Diamantes de Angola
('Endiama'), Angola's national diamond mining company, and a company owned by a
consortium of Angolan investors, provides for Endiama to sell to the Company a
portion of the rough diamonds mined in Angola consisting of sizes and qualities
selected by the Company as being suitable for cutting and sale as polished
diamonds, or for resale as rough diamonds. See 'Business -- Diamond Supply.'
In October 1996, Aiwa Co., Ltd. ('Aiwa'), the Japanese distributor with
whom the Company has had a marketing relationship since 1972, announced that it
entered into an agreement in Japan with Seiko Corporation ('Seiko'), one of the
world's largest watchmakers. In connection with this agreement, the Company and
Aiwa intend that Seiko will act as the exclusive distributor in Japan for Lazare
Diamonds. The Company plans to form a joint venture in Japan with Aiwa (to be
known as Lazare Kaplan Japan) to provide promotional and other support services
to Seiko. This joint venture will implement an arrangement whereby Seiko will
distribute, market and promote Lazare Diamonds in Japan. Seiko is generally
recognized as a leader in consumer brand marketing and has a well developed
network of contacts and retailers. Aiwa, with a distribution network of over
200 retailers and wholesalers, will continue to be an important customer of the
Company's non-branded polished diamonds.
BACKGROUND
Lazare Kaplan International Inc. was incorporated in 1972 under the laws of
the State of Delaware as the successor to a business which was founded by Mr.
Lazare Kaplan in 1903. The Company's principal stockholder is Maurice
Tempelsman, the Chairman of the Board. Mr. Tempelsman and his son, Leon
Tempelsman, are the only general partners of Leon Tempelsman & Son ('LTS'), a
New York limited partnership, which holds 1,528,416 shares of Common Stock. In
addition, prior to this offering, Maurice Tempelsman is the direct beneficial
holder of 2,310,409 shares of Common Stock and holds, directly and indirectly,
approximately 61.3% of the Company's issued and outstanding Common Stock.
Maurice Tempelsman is the Selling Stockholder referred to in this Prospectus.
THE OFFERING(1)
<TABLE>
<S> <C>
Common Stock offered by:
The Company.............................................................................. 1,800,000 shares
The Selling Stockholder(2)............................................................... 400,000 shares
Total.................................................................................... 2,200,000 shares
Common Stock to be outstanding after the offering............................................. 8,061,071 shares
Use of proceeds by the Company......................................................Repayment of Senior Notes and
reduction of bank indebtedness
American Stock Exchange symbol.............................................................................. LKI
</TABLE>
- ------------
(1) Assumes Underwriters' over-allotment option is not exercised.
(2) Maurice Tempelsman, the Chairman of the Board of the Company and the
Company's principal stockholder, is the Selling Stockholder.
6
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31, AUGUST 31,
-------------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.................. $151,875 $158,075 $204,047 $178,143 $266,321 $61,697 $69,400
EBITDA(2).................. $ 1,646 $ 3,362 $ 8,705 $ 4,243 $ 13,566 $ 2,498 $ 3,199
Income/(loss) before income
tax provision and
minority interest........ $ (2,287) $ (728) $ 2,803 $ (1,418) $ 7,149 $ 886 $ 1,595
Income/(loss) before
minority interest(3)..... $ (2,951) $ (903) $ 2,685 $ (1,632) $ 6,690 $ 829 $ 1,502
Net income/(loss).......... $ (2,951) $ (903) $ 3,024 $ (1,153) $ 7,013 $ 786 $ 1,659
Net income/(loss) per
share.................... $ (0.48) $ (0.15) $ 0.49 $ (0.18) $ 1.12 $ 0.13 $ 0.26
Weighted average number of
shares outstanding....... 6,121,680 6,121,680 6,226,708 6,309,071 6,288,157 6,236,021 6,484,029
Pro Forma Statement of Operations Data(4)(5):
Net sales................................................................. $266,321 -- $69,400
EBITDA(2)................................................................. $ 13,635 -- $ 3,216
Income/(loss) before income tax provision and minority interest........... $ 10,578 -- $ 2,360
Income/(loss) before minority interest(3)................................. $ 10,050 -- $ 2,251
Net income/(loss)......................................................... $ 10,373 -- $ 2,408
Net income/(loss) per share............................................... $ 1.28 -- $ 0.29
Supplementary shares outstanding(6)....................................... 8,088,157 -- 8,284,029
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
--------------------------------------
ACTUAL AS ADJUSTED(5)(7)
----------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital....................................................... $ 75,960 $ 82,420
Total assets.......................................................... $ 114,400 $ 114,077
Short-term debt....................................................... $ 9,460 $ 3,000
Long-term debt........................................................ $ 34,230 $ 8,762
Stockholders' equity.................................................. $ 46,579 $ 78,184
</TABLE>
- ------------
(1) Fiscal 1995 results include a non-recurring charge of $1.8 million relating
to a write-down of the Company's polished small stone inventory. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(2) EBITDA represents net income/(loss) before interest expense, taxes, minority
interest, depreciation and amortization. EBITDA should not be considered as
a substitute for net income, as an indicator of operating performance, or as
an alternative to cash flow as a measure of liquidity.
(3) Reflects the use of the Company's net operating loss carryforwards. See Note
3 to the Consolidated Financial Statements.
(4) Reflects the effect on the historical income statement data for the year
ended May 31, 1996 and for the quarter ended August 31, 1996 of the
reduction of interest expense of $3,360,000 and $748,000, respectively, as
if the offering made hereby had been completed June 1, 1995 and the Company
had prepaid the outstanding balance on its Senior Notes and a portion of the
balance then outstanding under the Company's revolving loan and lines of
credit. The historical income statement data have not been adjusted to
reflect (a) the write-off of deferred financing costs associated with the
Senior Notes of approximately $340,000 and $323,000 for the year ended May
31, 1996 and the quarter ended August 31, 1996, respectively, or (b) the
prepayment premium associated with the prepayment of the Senior Notes. See
'Use of Proceeds.'
(5) Gives effect to the sale of the shares of Common Stock offered by the
Company hereby at an assumed offering price of $20 1/4 per share (the
closing price on the American Stock Exchange on November 13, 1996) and the
application of the estimated net proceeds from such sale.
(6) Supplementary shares outstanding reflects the adjustment to the historical
weighted average shares outstanding at May 31, 1996 and August 31, 1996 for
the sale of the shares issued in connection with this offering.
(7) The balance sheet data have been adjusted to reflect (a) the impact of the
repayment of the Senior Notes outstanding of $21,430,000 at August 31, 1996
and of $10,498,000 for the repayment of other bank indebtedness, (b) the
write-off of deferred financing costs associated with the Senior Notes and
(c) the payment of the prepayment premium associated with the prepayment of
the Senior Notes. See 'Use of Proceeds.'
7
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<PAGE>
RISK FACTORS
Potential purchasers of Common Stock should consider carefully the
following matters, as well as the other information contained in this
Prospectus, before deciding to purchase shares of Common Stock offered hereby.
Availability of Rough Diamonds. The Company's business is dependent upon
the availability of rough diamonds, the world's known sources of which are
highly concentrated. Historically, the Company's principal supplier of rough
diamonds has been the Diamond Trading Company (the 'DTC'), which, based on
published reports, together with its affiliates, controls approximately 75% of
the value of world diamond output. The Company has been a client of the DTC for
over 50 years and believes its relations with the DTC are good. For the three
fiscal years ended May 31, 1996, 1995 and 1994, approximately 50%, 47% and 58%,
respectively, of the Company's purchases of rough diamonds were from the DTC.
The Company has diversified its sources of supply over the last several years by
entering into arrangements with other suppliers of rough diamonds. This
diversification includes the expansion of purchasing of rough diamonds in
Africa, and expanding operations at its office in Antwerp to supplement the
Company's rough diamond buying needs by making purchases in the secondary
market. However, if there should be any interruption in the Company's
relationship with the DTC as its primary source supplier of rough diamonds, such
interruption could have a material adverse effect on the Company's operations.
The Company's sources of supply could also be adversely affected by political
and economic developments in producing countries over which the Company has no
control. See ' -- Risk of Foreign Operations' and 'Business -- Diamond Supply.'
Effect of Possible Diamond Supply and Price Fluctuations. Through its
control of the world's rough diamond supply and its own inventory, De Beers
Centenary AG, an affiliate of the DTC, can exert significant control over the
pricing of rough and polished diamonds. Global rough diamond pricing can be
affected positively or negatively by general economic conditions as well as by
imbalances in the supply of and demand for rough and/or polished diamonds. In
recent years, significant short-term increases of rough diamond supply have
reportedly originated from Russia and Angola. Should there be a material and
sudden increase in the availability of rough diamonds beyond the global
marketplaces' capacity to absorb, including increases in available diamonds from
such sources or from new sources, the Company and the diamond industry could be
materially adversely affected. Major fluctuations in the prices of rough and
polished diamonds have occurred in the past. Any large rapid increase in rough
diamond prices could materially adversely affect the Company's revenue and
operating margins if the increased cost cannot be passed along to the Company's
customers in a timely manner. Any rapid decrease in the price of polished
diamonds could materially adversely affect the Company in terms of inventory
losses and lower margins. See 'Business -- Pricing.'
Risk of Foreign Operations. The world's sources of rough diamonds are
highly concentrated in a limited number of countries, including Angola,
Australia, Botswana, Ghana, Guinea, Namibia, Russia, Sierra Leone, South Africa
and Zaire. Varying degrees of political and economic risk exist in these
countries. As a consequence, the diamond business is subject to various
sovereign risks beyond the industry's control, such as changes in laws and
policies affecting foreign trade and investment. In addition, the Company is
subject to various political and economic risks, including the instability of
foreign economies and governments, labor disputes, war and civil disturbances
and other risks that could cause production difficulties or stoppages, restrict
the movement of inventory or result in the deprivation or loss of contract
rights or the taking of property by nationalization or expropriation without
fair compensation. Recent news articles report that there is a Russian
governmental investigation into alleged tax irregularities at ARS. Recent
reports also indicate that ARS has denied these allegations. See 'The
Company -- Recent Developments.'
Luxury Product. The Company produces a luxury product that it sells
domestically and internationally primarily to quality retailers. Consumers
purchase polished diamonds with discretionary, disposable income. Consumer
purchasing patterns can be influenced by general economic conditions in
consuming countries, employment levels and consumer confidence. A negative trend
in any of these items could have a material adverse effect on the Company.
8
<PAGE>
<PAGE>
Dependence on Key Personnel. The success of the Company is highly dependent
upon the efforts of Maurice Tempelsman and Leon Tempelsman, the loss of whose
combined services would have a material adverse effect on the Company. See
'Management.'
Limited Trading Market and Possible Volatility of Common Stock Prices.
Although the Common Stock has been traded on the American Stock Exchange since
1972, trading activity of the Common Stock has been limited, totalling
approximately 119,225 shares per month on average over the 12 months ended
September 30, 1996. Accordingly, this low trading volume may have had a
significant effect on the market price of the Common Stock, and historic prices
may not necessarily be indicative of market prices in a more liquid market. See
'Price Range of Common Stock.'
Control by Existing Stockholders. Upon the completion of this offering, the
shares of Common Stock beneficially owned by Maurice Tempelsman, the Chairman of
the Board of the Company, together with the shares of Common Stock beneficially
owned by his son, Leon Tempelsman, the Vice-Chairman and President of the
Company (Maurice Tempelsman and Leon Tempelsman, collectively, the
'Tempelsmans'), will constitute 3,771,038 shares, or approximately 45.9% of the
Common Stock then outstanding (44.1% if the Underwriter's over-allotment option
is exercised in full). See 'Principal and Selling Stockholders and Security
Ownership of Management.' As a result of the ownership of such shares, the
Tempelsmans effectively will continue to be able to elect all of the Company's
directors, to determine the outcome of all corporate actions requiring
stockholder approval, and otherwise to control the Company's business. See
'Certain Transactions.'
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock offered by it hereby are estimated to be approximately $33,828,000
(approximately $40,109,550 if the Underwriters' over-allotment option is
exercised in full based on an assumed offering price of $20 1/4, the closing
price of the Common Stock on November 13, 1996). The Company currently intends
to use a portion of the proceeds to prepay all or a portion of the outstanding
principal balance of its Senior Notes of $21,430,000, and the prepayment
premiums associated therewith of up to approximately $1,900,000. The Senior
Notes bear interest at the rate of 9.97% per annum and mature May 15, 2001.
The Company intends to use the remaining proceeds to repay a portion of the
balance outstanding under its revolving loan, of which $19,260,000 was
outstanding as of August 31, 1996. The weighted average interest rate for the
three months ended August 31, 1996 on the revolving loan was 8.10%. The Company
intends to draw down funds under its existing $35,500,000 revolving loan from
time to time until the expiration thereof on June 1, 1999 for general corporate
purposes, including the working capital requirements for the Company's expansion
in Russia and Angola. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.' The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholder.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the American Stock Exchange under
the symbol 'LKI.' The Company intends to list the shares of Common Stock offered
hereby on the American Stock Exchange. The following chart sets forth the high
and low sale prices of the Common Stock on the American Stock Exchange during
the fiscal quarters of the Company listed below. See 'Risk Factors -- Limited
Trading Market and Possible Volatility of Common Stock Prices.'
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
MAY 31, 1995 MAY 31, 1996 MAY 31, 1997
--------------------- --------------------- ---------------------
HIGH LOW HIGH LOW HIGH LOW
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
First quarter................................. $ 9 7/8 $8 7/8 $ 7 7/8 $6 1/2 $16 1/2 $ 12 1/2
Second quarter................................ 9 3/4 8 1/2 7 9/16 6 1/8 21 7/8* 16 1/2*
Third quarter................................. 9 3/4 8 5/8 9 6 3/4
Fourth quarter................................ 8 3/4 7 1/2 14 3/4 7 5/8
</TABLE>
- ------------
* Through November 18, 1996.
9
<PAGE>
<PAGE>
For a recent closing price for the Common Stock on the American Stock
Exchange see the cover page of this Prospectus.
DIVIDEND POLICY
The Company has not paid any cash dividends to the holders of its Common
Stock since 1982. The Company intends to retain future earnings to provide funds
for the operation and expansion of its business and, accordingly, does not
anticipate resuming the payment of cash dividends in the foreseeable future. In
addition, pursuant to the terms of the Company's long term revolving loan
facility, the Company is not permitted to declare and pay cash dividends. The
Company's ability to declare and pay cash dividends is also restricted under the
terms of its Senior Notes.
CAPITALIZATION
The following table sets forth short-term debt and the capitalization of
the Company (i) as of August 31, 1996 and (ii) as adjusted to reflect the sale
of the 1,800,000 shares of Common Stock offered by the Company hereby at an
assumed offering price of $20 1/4, the closing price of the Common Stock on
November 13, 1996, and the application of the estimated net proceeds therefrom
to prepay the Company's long-term Senior Notes and a portion of certain other
bank indebtedness, as well as the impact of the prepayment premium associated
with the prepayment of the Senior Notes and the write-off of deferred financing
costs associated with the Senior Notes. See 'Prospectus Summary -- Summary of
Financial Information.' This information should be read in conjunction with the
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt...................................................... $ 9,460 $ 3,000
------- -----------
Long-term debt....................................................... $34,230 $ 8,762
Stockholders' equity:
Common Stock, $1.00 par value, 10,000,000 shares authorized;
issued and outstanding, 6,185,531 at August 31, 1996 and
7,985,531 shares, as adjusted................................. 6,186 7,986
Additional paid-in capital...................................... 26,138 58,166
Retained earnings............................................... 14,255 12,032
------- -----------
Total stockholders' equity........................................... 46,579 78,184
------- -----------
Total capitalization....................................... $80,809 $86,946
------- -----------
------- -----------
</TABLE>
10
<PAGE>
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data presented below as of and for each of the five years in
the period ended May 31, 1996 have been derived from the consolidated financial
statements of the Company, which financial statements for each of the two years
in the period ended May 31, 1996 were audited by Ernst & Young LLP, independent
auditors, and for each of the three years in the period ended May 31, 1994 by
Deloitte & Touche LLP, independent auditors. The selected data presented below
as of and for the three-month periods ended August 31, 1995 and 1996 are derived
from unaudited financial statements, but, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of results of operations for these periods. The results of
operations for the three months ended August 31, 1996 are not necessarily
indicative of the results to be expected for the entire year. The data should be
read in conjunction with the consolidated financial statements, related notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere in this Prospectus. All data is in
thousands, except share and per share data.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------
1992 1993 1994 1995(1) 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net sales.............................................. $151,875 $158,075 $204,047 $178,143 $266,321
Cost of sales.......................................... 140,348 146,819 187,664 165,686 243,685
-------- -------- -------- -------- --------
11,527 11,256 16,383 12,457 22,636
-------- -------- -------- -------- --------
Selling, general & administrative expenses............. 10,980 8,977 9,833 10,386 11,439
Interest expense, net of interest income............... 2,834 3,007 3,747 3,489 4,048
-------- -------- -------- -------- --------
13,814 11,984 13,580 13,875 15,487
-------- -------- -------- -------- --------
Income/(loss) before income tax provision and minority
interest............................................. (2,287) (728) 2,803 (1,418) 7,149
Income tax provision(2)................................ 664 175 118 214 459
-------- -------- -------- -------- --------
Income/(loss) before minority interest................. (2,951) (903) 2,685 (1,632) 6,690
Minority interest in (income)/loss of consolidated
subsidiary........................................... -- -- 339 479 323
-------- -------- -------- -------- --------
Net income/(loss)...................................... $ (2,951) $ (903) $ 3,024 $ (1,153) $ 7,013
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income/(loss) per share............................ ($0.48) ($0.15) $0.49 ($0.18) $1.12
Weighted average number of shares...................... 6,121,680 6,121,680 6,226,708 6,309,071 6,288,157
<CAPTION>
THREE MONTHS
ENDED
AUGUST 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Statement of Operations Data
Net sales.............................................. $ 61,697 $ 69,400
Cost of sales.......................................... 57,019 63,868
--------- --------
4,678 5,532
--------- --------
Selling, general & administrative expenses............. 2,776 2,992
Interest expense, net of interest income............... 1,016 945
--------- --------
3,792 3,937
--------- --------
Income/(loss) before income tax provision and minority
interest............................................. 886 1,595
Income tax provision(2)................................ 57 93
--------- --------
Income/(loss) before minority interest................. 829 1,502
Minority interest in (income)/loss of consolidated
subsidiary........................................... (43) 157
--------- --------
Net income/(loss)...................................... $ 786 $ 1,659
--------- --------
--------- --------
Net income/(loss) per share............................ $0.13 $0.26
Weighted average number of shares...................... 6,236,021 6,484,029
</TABLE>
<TABLE>
<S> <C> <C> <C>
Pro Forma Statement of Operations Data(3)(4):
Net sales............................................................................. $266,321 -- $ 69,400
Cost of sales......................................................................... $243,685 -- $ 63,868
Selling, general & administrative expenses............................................ $ 11,370 -- $ 2,975
Interest expense, net of interest income.............................................. $ 688 -- $ 197
Income/(loss) before income tax provision and minority interest....................... $ 10,578 -- $ 2,360
Income tax provision(2)............................................................... $ 528 -- $ 109
Income/(loss) before minority interest................................................ $ 10,050 -- $ 2,251
Minority interest in (income)/loss of consolidated subsidiary......................... $ 323 -- $ 157
Net income............................................................................ $ 10,373 -- $ 2,408
Supplementary net income per share.................................................... $ 1.28 -- $ 0.29
Supplementary shares outstanding(5)................................................... 8,088,157 -- 8,284,029
</TABLE>
- ------------
(1) Fiscal 1995 results include a non-recurring charge of $1.8 million relating
to a write-down of the Company's polished small stone inventory. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(2) Reflects the use of the Company's net operating loss carryforwards. See Note
3 to the Consolidated Financial Statements.
(3) Reflects the effect on the historical income statement data for the year
ended May 31, 1996 and for the quarter ended August 31, 1996 of the
reduction in interest expense of $3,360,000 and $748,000, respectively, as
if the offering made hereby had been completed June 1, 1995 and the Company
had prepaid the outstanding balance on its Senior Notes and a portion of the
balance then outstanding under the Company's revolving loan and lines of
credit. The historical income statement data have not been adjusted to
reflect (a) the write-off of deferred financing costs associated with the
Senior Notes of approximately $340,000 and $323,000 for the year ended May
31, 1996 and the quarter ended August 31, 1996, respectively or (b) the
prepayment premium associated with the prepayment of the Senior Notes. See
'Use of Proceeds.'
(4) Gives effect to the sale of the shares of Common Stock offered by the
Company hereby at an assumed offering price of $20 1/4 per share (the
closing price on the American Stock Exchange on November 13, 1996) and the
application of the estimated net proceeds from such sale.
(5) Supplementary shares outstanding reflects the adjustment to the historical
weighted average shares outstanding at May 31, 1996 and August 31, 1996 for
the sale of the shares issued in connection with this offering.
<TABLE>
<CAPTION>
AT MAY 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (in thousands):
Working capital............................................... $61,079 $53,011 $52,333 $59,290 $74,069
Total assets.................................................. 77,977 86,452 93,178 99,163 105,066
Short-term notes payable...................................... 3,000 12,005 17,185 11,410 3,000
Long-term debt................................................ 30,000 30,000 25,715 26,430 34,155
Stockholders' equity.......................................... 36,573 35,671 38,751 37,695 44,870
<CAPTION>
AT AUGUST 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Balance Sheet Data (in thousands):
Working capital............................................... $60,365 $75,960
Total assets.................................................. 103,638 114,400
Short-term notes payable...................................... 9,785 9,460
Long-term debt................................................ 26,430 34,230
Stockholders' equity.......................................... 38,481 46,579
</TABLE>
11
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company believes that it has achieved a worldwide reputation as a
premier manufacturer of ideally proportioned diamonds, which command premium
prices in the marketplace. The Company's current and long-term strategic efforts
are focused on maintaining and expanding this position in domestic and
international markets. The Company's results of operations and growth are
dependent on its ability to obtain rough diamonds of suitable quality for
manufacture into ideally proportioned diamonds and to maintain and expand its
worldwide customer base for these products.
The Company's current operations do not require substantial capital
expenditures, and its working capital needs relate primarily to inventories of
diamonds and customer receivables. Any significant increase in sales would
therefore result in a commensurate need for increased working capital. The
Company believes that its current infrastructure will support a substantial
increase in sales without a commensurate increase in its selling, general and
administrative expenses.
The following table sets forth the Company's net sales of polished and
rough diamonds for the periods shown (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MAY 31, AUGUST 31,
------------------------------ -----------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Polished diamonds................................. $ 51,484 $ 73,097 $ 89,968 $19,956 $18,169
Rough diamonds.................................... 152,563 105,046 176,353 41,741 51,231
-------- -------- -------- ------- -------
Total net sales.............................. $204,047 $178,143 $266,321 $61,697 $69,400
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
See 'Business -- Marketing, Sales and Distribution' for a discussion of the
Company's domestic and international sales for such periods.
RESULTS OF OPERATIONS FOR THE FISCAL QUARTER ENDED AUGUST 31, 1996
NET SALES
Net sales during the three month period ended August 31, 1996 of
$69,400,000 were $7,703,000 or 12% above the $61,697,000 in sales during the
three month period ended August 31, 1995.
Revenue from the sale of polished diamonds decreased 9% to $18,169,000
during the three month period ended August 31, 1996 from $19,956,000 during the
comparable three month period ended August 31, 1995. This decrease was
attributable to lower sales in Japan as the Company continued to examine
opportunities for augmenting its channels of distribution with its existing
distributor, and a decrease in sales from its Russian production caused by a
temporary delay in shipments of polished diamonds from Russia. The delayed
shipments were subsequently exported and received by the Company during
September and October of 1996.
Rough sales increased to $51,231,000 for the three months ended August 31,
1996 from $41,741,000 a year ago. The increase over the prior year is a result
of continued growth in the Company's rough buying operations in Africa.
GROSS PROFIT
The Company's gross margin on net sales of polished diamonds includes all
overhead costs associated with the purchase, sale and manufacture of rough
diamonds (the 'Polished Diamond Gross Margin'). During the quarter ended August
31, 1996, the Polished Diamond Gross Margin was 18%, three percentage points
higher than the 15% level in the quarter ended August 31, 1995. The increase
from last year resulted from increased sales of larger diamonds (which
historically have higher margins) and selling price increases to offset the
increased cost of rough diamonds. During the quarter ended
12
<PAGE>
<PAGE>
August 31, 1996, overall gross margin (both polished and rough diamonds) on net
sales was 8.0% compared to 7.6% for the quarter ended August 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first quarter ended
August 31, 1996 were $2,992,000 (4.3% of net sales), compared to $2,776,000
(4.5% of net sales) for the quarter ended August 31, 1995. The increase was
primarily attributable to higher consulting and legal expenses associated with
the development of expansion opportunities.
INTEREST EXPENSE
Net interest expense for the quarter ended August 31, 1996 was $945,000
compared to $1,016,000 for the quarter ended August 31, 1995. The decrease was
due primarily to the decrease in the interest rate charged on the Company's
Senior Notes in the current year.
INCOME PER SHARE
Income per share is computed based on the weighted average number of shares
outstanding including, as appropriate, the assumed exercise of all dilutive
stock options, during each period. Income per share for the quarter ended August
31, 1996 was $.26 as compared to $.13 for the quarter ended August 31, 1995.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994
In this discussion the years '1996', '1995' and '1994' refer to the fiscal
years ended May 31, 1996, 1995 and 1994, respectively.
NET SALES
Net sales in 1996 of $266,321,000 were $88,178,000 or 50% greater than net
sales of $178,143,000 in 1995.
The Company's net revenue from the sale of polished diamonds of $89,968,000
in 1996 was 23% greater than 1995 polished sales. The increase was due to
continued growth in the United States market as well as increased volume
associated with the Company's cutting and polishing venture with the Russian
Government organization responsible for diamond policy and the national
stockpile in Russia.
Rough diamond sales increased 68% to $176,353,000 in 1996. This increase
was attributable to continued expansion of the Company's rough diamond buying
operations, primarily in Angola, as well as increases in the supply of rough
diamonds from the DTC, the Company's primary supplier during the current year.
Net sales in 1995 of $178,143,000 were $25,904,000 or 13% less than the net
sales of $204,047,000 in 1994. This reduction was primarily attributable to a
decrease in sales of rough diamonds, which was partially offset by an increase
in sales of polished diamonds.
The Company's net revenue from the sale of polished diamonds of $73,097,000
in 1995 increased 42% compared to 1994 polished sales of $51,484,000. The
increase was a result of increased polished diamond sales in the United States
and the Pacific Rim due to increased demand and strengthening local economies as
well as a stronger market in Japan.
Rough diamond sales decreased 31% in 1995 compared to 1994. This decrease
was a result of industry-wide market conditions and reduced supplies of rough
diamonds made available from the DTC. See 'Risk Factors -- Availability of Rough
Diamonds.'
GROSS PROFIT
Polished Diamond Gross Margin for 1996 was 16%, an increase of three
percentage points from the 1995 level of 13%. The increase was due to an
improvement in the quality of diamonds sold as well
13
<PAGE>
<PAGE>
as an increase in sales of larger diamonds, which traditionally carry higher
margins, as compared to the prior year.
The gross margin on sales of rough diamonds not selected for manufacturing
and sales of rough diamonds from the rough trading operation, including an
allocation of overhead costs estimated to be associated with the purchase and
sale of rough diamonds, has averaged approximately 3% for the three years ended
May 31, 1996.
During 1996, the combined gross margin on net sales of both polished
diamonds and rough diamonds was 8.5%. This compares to 7.0% in 1995 and 8.0% in
1994.
Polished Diamond Gross Margin was 13% in 1995, a decrease of 11 percentage
points from the 1994 level of 24%. Contributing to this decrease was a
non-recurring charge of approximately $1.8 million to write down to market value
the Company's inventory of small polished stones produced at its manufacturing
facility in Botswana. The carrying value of this inventory was burdened with the
pre-operating expenses incurred and manufacturing inefficiencies experienced
during the startup phase of the factory, which, combined with the market
conditions that existed during the year, caused such carrying value to exceed
its selling price in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in 1996 of $11,439,000 (4.3%
of net sales) increased 10% or $1,053,000 compared with expenses of $10,386,000
(5.8% of net sales) in 1995. The increase was attributable to higher
compensation, commissions and benefits of $916,000 in 1996 as well as additional
rent, depreciation and office expenses associated with the overall expansion of
the Company's business.
Selling, general and administrative expenses in 1995 of $10,386,000 (5.8%
of net sales) increased 6% or $553,000 compared with expenses of $9,833,000
(4.8% of net sales) in 1994. The increase was primarily attributable to a theft
of polished diamonds that was not covered by insurance.
INTEREST EXPENSE
Net interest expense was $4,048,000, $3,489,000 and $3,747,000 in 1996,
1995 and 1994, respectively. The increase in interest expense in 1996 was due
primarily to higher average short-term borrowings of $13,196,000 as compared to
$9,186,000 in 1995 and a full year of the higher interest rate charged on the
Senior Notes (See Note 6 to the Consolidated Financial Statements and
Liquidity -- Capital Resources below). The decrease in interest expense in 1995
was due primarily to lower average short-term borrowings of $9,186,000 in 1995
as compared to $14,371,000 in 1994.
INCOME/(LOSS) PER SHARE
During 1996, 1995 and 1994 income/(loss) per share was computed based on
the weighted average number of shares outstanding, including the impact of
dilutive stock options during the period. For 1996, income per share was $1.12
as compared to loss per share of ($.18) in 1995 and income per share of $.49 in
1994.
FOREIGN OPERATIONS
International business accounts for a major portion of the Company's
revenues and profits. All foreign sales are denominated in U.S. dollars, and all
purchases of rough diamonds worldwide are denominated in U.S. dollars.
Therefore, the Company does not experience any material foreign currency
exposure in connection with these activities. The functional currency for Lazare
Kaplan Botswana (Pty) Ltd. is the U.S. dollar, and this subsidiary was not
materially affected by foreign currency translation adjustments during the year.
14
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at August 31, 1996 was $75,960,000, which was
$1,891,000 greater than its working capital at May 31, 1996. The increase was
due to higher inventories and accounts receivable partially offset by an
increase in short-term borrowings in the current year.
On May 14, 1996 the Company entered into a long-term unsecured, revolving
loan agreement with two banks. The agreement provided that the Company may
borrow up to $27,500,000 in the aggregate, at an interest rate of any of a)
one-eighth of one percent above the bank's prime rate, b) two and one half
percent above the London Interbank Offered Rate (LIBOR), or c) two and one-half
percent above the bank's cost of funds rate. The applicable interest rate is
contingent upon the method of borrowing selected by the Company. Effective in
November 1996, the two banks agreed to increase the amount the Company may
borrow to $35,500,000. All amounts borrowed under this agreement are due and
payable on June 1, 1999. As of August 31, 1996, there was an aggregate balance
outstanding of $19,260,000 under the loan agreement.
In September 1996, the Company entered into a loan agreement with one of
its banks providing for an additional short-term line of credit of up to $8.0
million, with an interest rate equal to any one of a) one-eighth of one percent
above the bank's prime rate, b) two and one half percent above LIBOR, or c) two
and one-half percent above the bank's cost of funds rate. The applicable
interest rate is contingent upon the method of borrowing selected by the
Company. All amounts borrowed under this agreement are due and payable on
January 31, 1997.
The Company has a $3.0 million credit facility, payable on demand, at a
rate of one-half of one percent above the six-month LIBOR. At August 31, 1996,
the full amount of this facility had been drawn upon.
After giving effect to the offering of the shares of Common Stock offered
by the Company hereby and the related repayment of indebtedness by the Company
as described under 'Use of Proceeds', the Company will have additional capacity
under its revolving loan. The Company believes that its cash flow from
operations, together with such borrowing capacity, will be sufficient to meet
the Company's operating needs and capital expenditures for the next 12 months.
BUSINESS
Lazare Kaplan International Inc. is engaged in the cutting, polishing and
selling of ideally proportioned diamonds. The Company markets these diamonds
internationally under the brand name 'Lazare Diamonds'r'. Ideally proportioned
diamonds are distinguished from commercial cut diamonds by the symmetrical
relationship of their facets, which maximizes brilliance, sparkle and fire. Due
to these characteristics, Lazare Diamonds command a premium in the marketplace.
The Company believes there are only a few other companies in the world engaged
in the production of ideally proportioned diamonds and that it is the largest
producer of ideal cut diamonds. In addition, the Company cuts and polishes
commercial diamonds, which it markets to wholesalers, distributors and through
select retail jewelers. The Company is also engaged in the trading of rough,
unprocessed, natural diamonds. The Company is the successor to a business that
began in 1903. The Company's principal offices are located at 529 Fifth Avenue,
New York, New York 10017. The Company's telephone number is (212) 972-9700.
IDEAL CUT DIAMONDS
Every Lazare Diamond is cut to ideal proportions. This method of cutting
diamonds results in diamonds that possess characteristics that the Company
believes are most desired by consumers: optimum brilliance, sparkle and fire. A
mathematical formula including the precise measurements for the diamonds' angles
and proportions governs the production of ideal cut diamonds (see Diagram I).
Because more of the rough diamond is cut away in order to achieve these
specifications, it is more costly than other methods of manufacturing. In
addition, a very high level of skill is required in the manufacturing process.
The Company believes that less than one percent of the world's diamonds are cut
to these exacting tolerances.
15
<PAGE>
<PAGE>
DIAGRAM I: IDEAL CUT SPECIFICATIONS
[ILLUSTRATION GOES HERE]
Diagram II illustrates the reflection and refraction of light as it passes
through a diamond. In an ideal cut diamond, light rays enter the diamond and are
reflected back through the top of the diamond toward the eye, thus maximizing
the brilliance, sparkle and fire of each diamond (Illustration A). In a diamond
cut too deep or too shallow (Illustrations B and C, respectively), the light
'leaks' out through the side or bottom of the diamond causing a dispersion of
light and a loss of brilliance.
DIAGRAM II: PATH OF LIGHT IN THREE DIAMONDS
<TABLE>
<CAPTION>
IDEAL CUT NON-IDEAL CUT
<S> <C> <C>
[ILLUSTRATION] [ILLUSTRATION] [ILLUSTRATION]
</TABLE>
Each Lazare Diamond is inscribed with the Company's logo and identification
number using the Company's unique laser inscription process, thus authenticating
the diamond as a Lazare Diamond. This laser 'signature', which is invisible to
the naked eye but visible when viewed under ten-power magnification, serves as
the purchaser's assurance that he is buying an authentic Lazare Diamond. Diagram
III illustrates the laser inscription.
DIAGRAM III: LASER INSCRIPTION
[PHOTO]
DIAMOND SUPPLY
The Company's business is dependent upon the availability of rough
diamonds, the world's known sources of which are highly concentrated. Based on
published reports, the Company believes that Angola, Australia, Botswana,
Brazil, Ghana, Guinea, Ivory Coast, Namibia, Russia, Sierra Leone, South Africa
and Zaire account for more than 90% of present world rough gem diamond
production. The Central Selling Organization (the 'CSO'), which is affiliated
with De Beers Centenary AG, a Swiss company, is the dominant world-wide
marketing mechanism of the diamond industry. The CSO seeks to maintain an
orderly and stable market for diamonds by regulating the quantity and selection
of
16
<PAGE>
<PAGE>
diamonds that reach the market. This is achieved either by directly owning
diamond mines, entering into multi-year purchase agreements with host
governments, or by purchasing diamonds in the secondary market. Sales for the
CSO are made in London by the Diamond Trading Company (the 'DTC') to a select
group of clients ('sightholders') which, according to published reports, number
approximately 160 worldwide, including the Company. Based upon published
reports, the Company believes that approximately 75% of the value of world
diamond output is purchased for resale by the DTC and its affiliated companies.
In order to maintain their purchasing relationship, sightholders have
traditionally been expected to purchase all of the diamonds offered to them by
the DTC. Companies that are not sightholders of the DTC must either purchase
their requirements from sightholders or seek access to that portion of the world
supply not marketed by the DTC.
Historically, the Company's principal supplier of rough diamonds has been
the DTC, which periodically invites its clients to submit their requirements as
to the amount and type of rough diamonds they wish to purchase. Employees of the
Company attend offerings of rough diamonds ('sights') held by the DTC
periodically during the year in London. At sights, the Company purchases, at the
DTC's stated price, an assortment of rough diamonds known as a 'series', the
composition of which attempts to take into account the qualitative and
quantitative requirements of the Company based on requests submitted to the DTC
by the Company. The Company and its predecessor have been sightholders for more
than 50 years. The Company's subsidiary in Botswana is also a sightholder.
In order to diversify its sources of supply, the Company has entered into
arrangements with other primary source suppliers, has expanded its rough diamond
purchasing capabilities throughout Africa, and has established an office in
Antwerp to supplement its rough diamond needs by making purchases in the
secondary market. For the three years ended May 31, 1996, 1995 and 1994,
approximately 50%, 47% and 58%, respectively, of the Company's diamond purchases
were from the DTC, down from approximately 82% in 1988.
In December 1994 the Company reached an agreement with Empresa Nacional de
Diamantes de Angola ('Endiama'), Angola's national diamond mining company,
pursuant to which the Company was granted a license to purchase rough diamonds
from local Angolan miners and export such diamonds for resale. This is one of
three such licenses granted by Endiama. The agreement entitles the Company to
establish buying offices throughout Angola, the first of which was set up during
1995 in Luanda, the capital of Angola. The Company currently has three buying
offices located in Angola, including the office in Luanda, and intends to
establish additional buying offices in the future. The agreement will run for a
term of five years and is subject to renewal thereafter.
In July 1996 the Company signed a five year agreement, approved by the
Government of Angola, for the supply of a portion of the rough diamonds mined in
Angola and the joint cutting, polishing and marketing of a portion of that
production. The agreement, entered into with Endiama and Sociedade Angolana de
Exploracao, Lapidacao e Comercializacao de Diamantes, a company owned by a
consortium of Angolan investors, provides for Endiama to sell to the Company a
portion of the rough diamonds mined in Angola consisting of sizes and qualities
selected by the Company as being suitable for cutting and sale as polished
diamonds, or for resale as rough diamonds. Purchases under this arrangement
began in August 1996. The Company intends to cut and polish the rough diamonds
at its existing facilities. After an agreed period of consistent, uninterrupted
supply of rough diamonds, a feasibility study will be undertaken by the Company
to examine the economic viability of establishing a diamond cutting factory in
Angola. In the agreement, the parties acknowledge that it is their long-term
intention to create a diamond polishing facility in Angola with the capacity for
polishing at least $40 million of rough diamonds per year. However, the
arrangement is now in an early stage and there can be no assurances that the
Company will be supplied with suitable diamonds for cutting and polishing, that
the Company will be supplied with a sufficient and consistent quantity of
diamonds, or that the feasibility study will result in a recommendation to
proceed with the creation of the polishing operation.
In addition to its purchase of rough diamonds the Company also has
arrangements for the marketing of diamonds cut and polished in Russia. See
' -- Cutting and Polishing.'
The Company believes that it has good relations with its suppliers, that
its trade reputation and established customer base will continue to assure
access to primary sources of diamonds and that its sources of supply are
sufficient to enable the Company to meet its present and foreseeable needs.
17
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<PAGE>
However, the Company's sources of supply could be affected by political and
economic developments in producing countries over which the Company has no
control. While the Company believes that alternative sources of supply may be
available, any significant disruption of the Company's access to its primary
source suppliers could have a material adverse effect on its ability to purchase
rough diamonds. See 'Risk Factors -- Risk of Foreign Operations.'
CUTTING AND POLISHING
The Company currently has three primary cutting and polishing operations,
one located in Puerto Rico, one located in Botswana, and one located in Moscow,
Russia conducted in cooperation with the Russian Government organization
responsible for diamond policy and the Russian national stockpile. Under this
last arrangement, rough diamonds supplied by this organization are polished by
Russian technicians in Moscow, under the management and supervision of Company
technical personnel and subsequently marketed by the Company. The diamonds,
which are primarily commercial quality diamonds, are sold through the Company's
worldwide distribution network. The proceeds from the sale of these polished
gems are shared by the parties.
In July 1996 the Company announced that it had reached an agreement, for a
term of ten years, with AK Almazi Rossii Sakha (ARS) of Russia for the cutting,
polishing and marketing of large rough gem diamonds. According to published
reports, ARS is the largest producer of rough diamonds in Russia with annual
production in excess of $1.2 billion, accounting for over 20% of the world's
supply of diamonds. Under the terms of the agreement, the Company has begun to
equip a diamond cutting factory (estimated to cost $600,000, half of which will
be borne by ARS) within the ARS facility in Moscow. This new facility will be
staffed by Russian technicians and managed and supervised by Company personnel.
ARS has agreed to supply a minimum of $45 million per year of large rough gem
diamonds selected by the Company as being suitable for processing in this
facility. The Company has agreed to sell the resulting polished diamonds through
its worldwide distribution network. The proceeds from the sale of these polished
diamonds, after reimbursement of costs incurred by each of the parties,
generally will be shared equally with ARS. The agreement does not require the
Company to advance funds for the purchase of rough diamonds. This agreement will
serve as a long-term off-take arrangement to secure the repayment of the $60
million financing anticipated to be received by ARS from a United States
commercial bank and to be guaranteed by the Export-Import Bank of the United
States ('Ex-Im') for the purchase by ARS of U.S. manufactured mining equipment.
This equipment will be used by ARS to increase production in its diamond mines.
The Ex-Im has stated that this agreement is the first transaction approved under
the Ex-Im's General Project Incentive Agreement with the Ministry of Finance and
the Central Bank of the Russian Federation signed on December 1993. The Company
anticipates that this facility will commence cutting and polishing before June
1997.
The Company believes that its factory in Puerto Rico is the largest cutting
and polishing facility in the United States. Each rough diamond received in
Puerto Rico is evaluated against strict management standards designed to
maximize its potential economic contribution to the Company. Expert technicians,
assisted by proprietary computer software, determine whether to cut the rough
diamond to ideal proportions, or to commercial proportions, or to resell the
rough diamond. The shape of the rough diamond, its color, clarity, size,
potential profitability and salability, are among the criteria used in making
such determinations. The Company's production workers are compensated
principally on a piece rate basis. The Company has an incentive program that
rewards its factory managers and supervisors for maximizing the manufactured
results, based on the following criteria: gross margin, yield (rough weight to
polished weight conversion) and efficiency.
Rough diamonds selected for cutting are analyzed and where desirable are
sorted for sawing or cleaving to achieve the desired shape and to eliminate
imperfections. They are then cut and polished into finished gems. Each finished
ideal cut diamond (weighing .18 carat and larger) which is marketed as a Lazare
Diamond is then inscribed with the Lazare Kaplan logo and its own identification
number by the Company's patented laser inscription process. All of these
operations are performed by the Company's employees. The Company believes its
work force in Puerto Rico is the most highly skilled in the diamond industry.
The Company has undertaken a worker training program at its facility in Puerto
Rico to provide a constant flow of skilled labor to satisfy its needs for
further growth.
18
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Through its subsidiary, Lazare Kaplan Botswana (Pty) Limited, the Company,
pursuant to a long term license issued by the Government of Botswana, owns and
operates a diamond cutting and polishing factory in Molepolole, Botswana. Lazare
Kaplan Botswana began operations in its newly constructed facility in early
1993. The factory, which is a state-of-the-art facility, uses both automated and
manual equipment and is committed to train and employ Batswana workers.
Currently, there are 535 employees at this facility, of whom 97 are trainees.
This factory cuts and polishes rough diamonds to ideal proportions in sizes that
currently are not processed by the Company's facility in Puerto Rico. The
factory, which is still in the beginning stages, is concentrating on the
manufacture of rough diamonds of somewhat smaller size (generally smaller than
1/5 carat in size). The size range manufactured will be expanded as the skills
of its employees are developed. Lazare Kaplan Botswana, which is owned by the
Company (60%), the Government of Botswana (5.1%), and the Botswana Development
Corporation (34.9%), purchases rough diamonds on its own account directly from
the DTC, as well as from third party sources, for manufacture in the Botswana
factory. Botswana is widely regarded today as the most important rough gem
diamond producing country in the world.
The Company believes that it is recognized in the diamond industry for the
high quality and brilliance of the gems it cuts and that it also enjoys a
reputation as an imaginative and innovative cutter of large and difficult
diamonds.
PRICING
ROUGH DIAMOND PRICES
Through its control of approximately 75% of the value of the world diamond
output, the DTC can exert significant control over the pricing of rough and
polished diamonds to maintain an orderly market by adjusting supplies in the
marketplace. Rough diamond prices established by the DTC have been characterized
historically by steady increases over the long term; however, prices in the
secondary market have experienced a greater degree of volatility, particularly
during the late 1970's. Traditionally, the Company has been able to pass along
such price increases to its customers. From time to time, however, the Company
has absorbed these price increases in the short term to maintain an orderly
pricing relationship with its customers. This has, in the past, caused temporary
adverse effects on the Company's earnings. However, a large rapid increase in
rough diamond prices could materially adversely affect the Company's revenue and
operating margins if the increased cost of rough diamonds could not be passed
along to its customers in a timely manner.
According to published reports, during 1995 there was an emergence of a
two-tier market for rough diamonds. The first tier is comprised of better
quality rough diamonds, for which the DTC continues to maintain an orderly
market. The Company conducts its cutting and polishing operations almost
exclusively in this segment of the market. The second tier is comprised of
small, less expensive, imperfect rough diamonds. The prices for these diamonds
are determined principally by supply and demand. Consequently, there has been
considerable volatility in the prices of less expensive diamonds since 1995.
Because the Company focuses primarily on better quality rough diamonds, this
volatility has not had a significant effect on the Company.
POLISHED DIAMOND PRICES
Over the past 60 years, increases in the price of rough diamonds have
generally resulted in a corresponding increase in the price of polished
diamonds. During the period of high inflation in the late 1970's, investors
speculated in hard assets, driving polished diamond prices to exceptionally high
levels which in turn caused significant increases in the cost of rough diamonds.
However, the moderation of inflation during the early 1980's resulted in a
sudden and massive shift of investments from hard assets to financial
instruments, resulting in dramatic price declines for polished diamonds which
caused a market liquidity crisis as prices of some categories of polished
diamonds fell below the inventory costs of such diamonds. Since this period in
the early 1980's, the Company believes the pricing of polished diamonds has
returned to its historical pattern of responding to increases in the pricing of
rough diamonds. However, there can be no assurance that volatility in the price
of polished diamonds could
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<PAGE>
not occur again. Any rapid decrease in the price of polished diamonds could have
a material adverse effect on the Company in terms of inventory losses, lower
sales and lower margins.
The Company has broadened its sales base and implemented strict inventory,
pricing and purchasing controls which it believes could lessen the impact of
significant fluctuations in the price of rough and polished diamonds. These
include computerized rough diamond evaluation programs, automatic economic order
quantity models and inventory utilization programs.
MARKETING, SALES AND DISTRIBUTION
MARKETING STRATEGY
The Company's marketing strategy is directed primarily toward quality
conscious consumers throughout the United States, the Far East and Europe. The
Company focuses its distribution efforts for Lazare Diamonds on selectivity with
a view to helping retailers who carry the product maintain a competitive
advantage. Lazare Diamonds can be found at some of the most prestigious jewelry
stores around the world, including both those with international reputations and
those known only in their communities as being the highest quality retail
jewelers. This strategy helps ensure that the Company's product is presented in
an environment consistent with its superior quality and image.
The Company also sells to certain jewelry manufacturers and diamond
wholesalers. The Company has developed a comprehensive grading system for its
diamonds, which allows jewelers to order inventory by category rather than
through the more cumbersome process of visual selection. In addition, the
Company designs, manufactures (through independent contractors) and sells a line
of high quality jewelry that features Lazare Diamonds.
A key element of the Company's strategy is the promotion of the Lazare
Diamonds brand name directly to consumers. The Company is able to market its
diamonds under a brand name to retailers because (a) the ideal cut
differentiates the Company's diamonds from commercial diamonds in the
marketplace and (b) each Lazare Diamond is inscribed with the Company's logo and
identification number using the Company's unique laser inscription process, thus
authenticating the diamonds. The Company holds a domestic patent, which expires
in 2000, and various international patents for this process. In addition, the
Company has a domestic patent -- pending for a new and improved laser
inscription process.
The Company's decision to pursue the brand name strategy is reinforced by
two factors -- a rising trend among informed consumers to purchase quality,
brand name products, and the need among upscale jewelers to set themselves apart
in an increasingly competitive market by carrying and promoting a differentiated
product.
Building awareness and acceptance of Lazare Diamonds is accomplished
through a comprehensive marketing program which includes sales training,
cooperative advertising, sales promotion and public relations. The advertising
program includes usage of a toll-free number which consumers may call to receive
additional information about the product and to be referred to jewelers carrying
Lazare Diamonds and Lazare Diamond jewelry in their geographic area. A wide
assortment of sales promotion materials has been designed to facilitate
jewelers' sales of the Company's diamonds and fine jewelry line to consumers.
Public relations events are offered to help build traffic in retail stores. The
Company believes these marketing programs have been and will continue to be
instrumental in increasing sales. The Company has no current plans to sell its
diamonds directly to consumers and intends to continue concentrating its
marketing efforts towards quality retail jewelers.
The Lazare Diamond Registry program has been established by the Company to
enable consumers to register their Lazare Diamonds with the Company using the
laser inscribed identification number, thereby providing proof of ownership in
case of loss or theft.
SALES AND DISTRIBUTION
While the purchase and sale of rough diamonds is concentrated among
relatively few parties, industry wide retailing of polished diamonds occurs
through over 39,000 jewelry stores in the United States, over 26,000 retailers
in Japan and over 48,000 retail stores in Europe. The Company's sales
20
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<PAGE>
efforts for its polished diamonds are directed primarily toward the fine quality
segment of these retailers (the majority of which are independently owned and
operated) and, to a lesser extent, to jewelry manufacturers and wholesalers.
Full time regional sales representatives located throughout the United States,
Hong Kong and Antwerp, are compensated on a commission basis and handle sales
throughout their respective territories.
The Company's sales force is supported by a New York based telemarketing
department. Sales to certain of the Company's largest accounts are handled by
headquarters personnel. Most of the Company's major accounts are customers of
long standing.
The Company has been actively working to expand its foreign business
activities, particularly in the Far East countries of Japan, Hong Kong,
Singapore, Taiwan, Thailand, Korea, Malaysia and Indonesia. In October 1996,
Aiwa Co., Ltd. ('Aiwa'), the Japanese distributor with whom the Company has had
a marketing relationship since 1972, announced that it entered into an agreement
in Japan with Seiko Corporation ('Seiko'), one of the world's largest
watchmakers. In connection with this agreement, the Company and Aiwa intend that
Seiko will act as the exclusive distributor in Japan for Lazare Diamonds. The
Company plans to form a joint venture in Japan with Aiwa (to be known as Lazare
Kaplan Japan) to provide promotional and other support services to Seiko. This
joint venture will implement an arrangement whereby Seiko will distribute,
market and promote Lazare Diamonds in Japan. Seiko is generally recognized as a
leader in consumer brand marketing and has a well developed network of contacts
and retailers. Aiwa, with a distribution network of over 200 retailers and
wholesalers, will continue to be an important customer of the Company's
non-branded polished diamonds.
The Company uses a comprehensive sorting and inventory classification
system for grading color and clarity of its ideal cut polished diamonds. This
system, combined with the fact that the Company's diamonds are uniformly cut to
ideal proportions, reduces and in some cases eliminates the need for customers
to view diamonds before placing orders. The system enables customers to
standardize their inventories, order by mail or telephone and minimize their
inventory investment.
The percentages of the Company's total domestic and foreign net sales to
its customers, which include a combination of both rough diamonds and polished
diamonds sales taken together, for the past three fiscal years and for the three
months ended August 31, 1995 and 1996 are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MAY 31, AUGUST 31,
------------------------ ---------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percentage of Net Sales to Customers
United States........................................ 16% 25% 23% 23% 16%
Far East............................................. 6% 13% 8% 7% 7%
Europe, Israel & Other............................... 78% 62% 69% 70% 77%
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
The world's rough diamond trading market is primarily located in Belgium
and Israel; therefore, the majority of the Company's rough diamond sales have
been transacted with foreign customers. The foreign sales decrease in 1995 as
compared to the prior year was a result of the decrease in rough diamond sales
in 1995 as compared to 1994. In 1996, due to an increase in production and sales
of polished diamonds, the Company sold a greater portion of its polished
diamonds domestically than it had in prior years. Offsetting this percentage
increase in domestic sales was a continued increase in rough diamond sales to
foreign customers. In the fiscal quarter ended August 31, 1996, domestic sales
decreased as compared to the first quarter in the prior year. This decrease was
due to the fact that the Company experienced a temporary delay in shipments of
polished diamonds from its Russian operation during the first quarter of fiscal
1996. In the prior year, a large portion of these polished diamonds was sold to
domestic customers.
The Company believes that due to the possible international resale of
diamonds by its customers, the above percentages may not represent the final
location of retail sales of its product. As all foreign sales are denominated in
United States dollars, the Company does not experience any material foreign
21
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<PAGE>
currency exposure on its foreign revenue. The profitability of foreign sales of
either polished or rough diamonds is consistent with that of domestic sales of
similar merchandise.
COMPETITION
The polished and rough diamond business is highly competitive. While the
Company believes that it has achieved a reputation as a leading cutter and
distributor of high quality ideal cut diamonds, it faces competition in sales to
its customers in the United States and abroad from many other suppliers. In
addition, the Company sells rough diamonds in the competitive world market. A
substantial number of cutters and polishers and traders, some of which the
Company believes to be larger or to have greater financial resources than the
Company, sell diamonds of all qualities to the Company's customers.
The Company believes there are significant barriers to entry by potential
competitors into the business of manufacturing ideally proportioned diamonds.
Among the most important of these barriers are the need for significant working
capital to purchase rough diamonds and hold polished inventory, the access to
adequate supplies of rough diamonds, the limited number of persons with the
skills necessary to cut ideally proportioned diamonds, the difficulty in
obtaining access to upscale channels of distribution, the importance of public
recognition of an established brand name and the establishment of computer
systems to gauge and monitor the manufacturing and distribution network.
EMPLOYEES
At September 30, 1996, the Company had 700 full-time employees. The Company
also has six regional sales representatives. The Company maintains an
apprenticeship program at its facility in Puerto Rico, through which it trains
its cutters, who are highly skilled workmen. The Company also has a program in
Botswana through which it trains cutters and polishers. The Company provides
paid vacations, sick leave, group life, disability, hospitalization and medical
insurance for its employees. The Company has a 401(k) retirement plan for its
U.S. and Puerto Rico employees. The Company believes that it has satisfactory
relationships with its employees. None of the Company's employees is represented
by a union.
22
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth information regarding executive officers and
directors of the Company.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES DIRECTOR
NAME WITH THE COMPANY AGE SINCE
- -------------------------------- --------------------------------------------------------------- --- --------
<S> <C> <C> <C>
Maurice Tempelsman.............. Chairman of the Board, Director 67 1984
Leon Tempelsman................. Vice Chairman of the Board, President, Director 40 1984
George R. Kaplan................ Vice Chairman of the Board, Director 78 1972
Sheldon L. Ginsberg............. Executive Vice President and Chief Financial Officer, Director 42 1989
Robert Speisman................. Vice President -- Sales, Director 43 1989
Lucien Burstein................. Secretary, Director 74 1984
Michael W. Butterwick........... Director 69 1982
Myer Feldman.................... Director 79 1984
</TABLE>
BACKGROUND
The early 1980's were a time of crisis in the diamond industry caused by
dramatic price declines coupled with over-leveraged inventories (see
'Business -- Marketing, Sales and Distribution') which led to the Company's
filing of a petition under Chapter 11 of the United States Bankruptcy Code. In
1984, Maurice Tempelsman and Leon Tempelsman acquired a controlling interest in
the Company by an investment of more than $22,500,000. As a condition precedent
to such investment, the Company voluntarily withdrew its petition. The
Tempelsman family has long been involved primarily in rough diamond trading. The
Tempelsmans' strength historically lay in their rough diamond sourcing
capabilities built over more than forty years of contacts and business relations
in the leading diamond producing countries. This investment was, and continues
to be, viewed by the Tempelsmans as a strategic long-term investment.
BIOGRAPHICAL INFORMATION
Maurice Tempelsman is the Chairman of the Board and a director of the
Company and a general partner of Leon Tempelsman & Son, a limited partnership
with interests in the international diamond and mining industries. He has held
these positions since 1984. Prior to that time, he was President and Chief
Executive Officer of its predecessor, Leon Tempelsman & Son, Inc. Maurice
Tempelsman is the father of Leon Tempelsman and the father-in-law of Robert
Speisman.
Leon Tempelsman is the Vice Chairman of the Board, the President and a
director of the Company and a general partner of Leon Tempelsman & Son. He has
held these positions since 1984. Prior to that time, he was President of LTS
Industries, Inc., a wholly-owned subsidiary of Leon Tempelsman & Son, Inc.,
engaged in selling polished diamonds to retailers. Leon Tempelsman is the son of
Maurice Tempelsman and the brother-in-law of Robert Speisman.
The Company believes that neither the Tempelsmans nor LTS currently engages
directly or indirectly in any activities competing with those of the Company.
George R. Kaplan has been Vice Chairman of the Board since 1984 and a
director of the Company since 1972. Mr. Kaplan has been associated with the
Company or its predecessor for more than 58 years.
Sheldon L. Ginsberg has been Executive Vice President and Chief Financial
Officer since February 1996. He was the Vice President and Chief Financial
Officer from April 1991 until February 1996. He was the Vice
President -- Finance from January 1986 until April 1991. Mr. Ginsberg has been a
director of the Company since 1989.
Robert Speisman has been the Vice President -- Sales of the Company since
1986. From April 1984 to April 1986 he was the manager of telemarketing. From
April 1981 to 1984 he was the Director of Sales and Marketing for LTS
Industries, Inc. Mr. Speisman has been a director of the Company since
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1989. Mr. Speisman is the son-in-law of Maurice Tempelsman and the
brother-in-law of Leon Tempelsman.
Lucien Burstein is, and for more than the past five years has been, a
partner in the law firm of Warshaw Burstein Cohen Schlesinger & Kuh, LLP, which
acts as general counsel to the Company. Mr. Burstein has been Secretary to the
Company and a director of the Company since 1984.
Michael W. Butterwick is, and for more than the past five years has been,
an independent business consultant. Mr. Butterwick has been a director of the
Company since 1982.
Myer Feldman is, and for more than the past five years has been, a partner
in the law firm of Ginsburg, Feldman and Bress, Chartered Attorneys. He has been
a director of the Company since 1984.
All officers were elected at the Annual Meeting of the Board of Directors
held in November 1996, and hold office until the next Annual Meeting of the
Board of Directors and until their respective successors have been duly elected
and qualified. All directors were elected at the Annual Meeting of Stockholders
held in November 1996 and hold office until the next Annual Meeting of
Stockholders and until their respective successors have been duly elected and
qualified. All outside directors receive a fee equal to $1,250 per quarter;
accordingly, $5,000 in directors' fees was paid by the Company for the fiscal
year ended May 31, 1996 to each of Messrs. Burstein, Butterwick and Feldman, for
a total of $15,000. Mr. Burstein credits his fee against legal fees of Warshaw
Burstein Cohen Schlesinger & Kuh, LLP incurred by the Company for each period
for which directors' fees are paid.
PRINCIPAL AND SELLING STOCKHOLDERS AND SECURITY OWNERSHIP
OF MANAGEMENT
The following table reflects as of November 13, 1996 the beneficial
ownership of shares of Common Stock of the Company (a) by those persons known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (b) by each director of the Company, and (c) by all directors and
officers as a group. Except as otherwise noted, the named beneficial owner has
sole voting and investment power. In addition, the table reflects the effect of
the sale of the shares of Common Stock offered hereby, assuming the
Underwriters' over-allotment option is not exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED OWNED PERCENTAGE OF COMMON
NAME AND ADDRESS AS OF AS OF STOCK BENEFICIALLY
OF BENEFICIAL OWNER NOVEMBER 13, 1996 NOVEMBER 13, 1996 OWNED AFTER OFFERING
- ---------------------------------------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>
Maurice Tempelsman(1)(2)(3) ........................ 3,838,825 61.3% 42.7%
529 Fifth Avenue
New York, NY 10017
Leon Tempelsman(2)(3)(4) ........................... 1,860,629 29.0% 22.7%
529 Fifth Avenue
New York, NY 10017
Myer Feldman ....................................... 338,259 5.4% 4.2%
1250 Connecticut, N.W.
Suite 800
Washington, DC 20036
Sheldon L. Ginsberg(5) ............................. 46,305 0.7% 0.6%
529 Fifth Avenue
New York, NY 10017
Robert Speisman(2)(6) .............................. 44,800 0.7% 0.6%
529 Fifth Avenue
New York, NY 10017
George R. Kaplan(7) ................................ 23,965 0.4% 0.3%
529 Fifth Avenue
New York, NY 10017
Lucien Burstein .................................... 1,500 less than 0.1% less than 0.1%
555 Fifth Avenue
New York, NY 10017
</TABLE>
(table continued on next page)
24
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED OWNED PERCENTAGE OF COMMON
NAME AND ADDRESS AS OF AS OF STOCK BENEFICIALLY
OF BENEFICIAL OWNER NOVEMBER 13, 1996 NOVEMBER 13, 1996 OWNED AFTER OFFERING
- ---------------------------------------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>
Michael W. Butterwick .............................. 0 -- --
Sapperton House
Sapperton
Cirencester
Glos. GL7 GILE, England
Dimensional Fund Advisors, Inc.(8) ................. 317,300 5.0% 3.9%
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
All officers and directors as a group(1)-(7)........ 4,625,867 71.1% 50.9%
</TABLE>
- ------------
(1) Maurice Tempelsman, the Selling Stockholder, is the Company's Chairman of
the Board and its principal stockholder. Mr. Tempelsman is offering 400,000
shares of Common Stock in this offering. Mr. Tempelsman has advised the
Company that he is participating in the offering to diversify his
investments. The shares owned by Mr. Tempelsman after the offering are
eligible for future sale pursuant to Rule 144 under the Securities Act,
which, among other restrictions, limits the volume and manner of any such
sales. In addition, Mr. Tempelsman has agreed with the Underwriters that for
a period of 180 days from the date of this Prospectus, he will not issue,
sell, offer, or agree to sell, grant, distribute or otherwise dispose of any
of his Common Stock. The shares of Common Stock being offered for sale by
Mr. Tempelsman will be borrowed from Leon Tempelsman & Son, a New York
limited partnership ('LTS') of which each of Mr. Tempelsman and Leon
Tempelsman, as the only general partners, has sole power to vote and
dispose. LTS will receive from Mr. Tempelsman amounts equal to dividends and
other distributions, if any, that would have been paid on the borrowed
shares, plus a customary fee, and Mr. Tempelsman will be obligated to repay
the borrowing by delivering to LTS shares equal in number to the borrowed
shares three business days after demand by LTS. Mr. Tempelsman intends to
repay the borrowing within 20 days of the date of such borrowing.
(2) Maurice Tempelsman, the Chairman of the Board and a director of the Company,
is the father of Leon Tempelsman and the father-in-law of Robert Speisman,
Vice President-Sales of the Company. Each of Maurice Tempelsman, Leon
Tempelsman and Robert Speisman disclaims beneficial ownership of shares
beneficially owned by the others.
(3) Number and percentage of shares include the 1,528,416 shares owned by LTS.
(4) Number and percentage of shares include 2,240 shares held by the spouse of
Leon Tempelsman, 26,816 shares owned by his sister, Rena Speisman, 26,725
shares owned by his sister, Marcy Meiller, 34,641 shares owned by Rena
Speisman as custodian for her children, and 1,600 shares held by his
brother-in-law, Scott Meiller, as to all of which shares Leon Tempelsman has
been granted a proxy. Number and percentage of shares also include 34,641
shares held by Leon Tempelsman as custodian for his children, 150,550 shares
which are the subject of currently exercisable options granted to Mr.
Tempelsman pursuant to the Company's 1988 Stock Option Incentive Plan (the
'Plan'), and 1,528,416 shares owned by LTS, of which each of Maurice and
Leon Tempelsman, as the sole general partners, has sole power to vote and
dispose.
(5) Number and percentage include an aggregate of 46,300 shares which are the
subject of currently exercisable options granted to Sheldon L. Ginsberg
pursuant to the Plan.
(6) Number and percentage of shares do not include the 1,528,416 shares owned by
LTS, of which Rena Speisman, the wife of Robert Speisman, is a limited
partner. Number and percentage of shares also do not include 61,457 shares
owned by Rena Speisman for herself and as custodian for the children of
Robert and Rena Speisman, as to all of which beneficial ownership is
disclaimed by Mr. Speisman.
(footnotes continued on next page)
25
<PAGE>
<PAGE>
(footnotes continued from previous page)
Number and percentage include 44,800 shares which are the subject of
currently exercisable options granted to Mr. Speisman pursuant to the Plan.
(7) Number and percentage of shares do not include 1,500 shares owned by the
spouse of George Kaplan, the beneficial ownership of which is disclaimed by
Mr. Kaplan.
(8) All of such shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, as to all of which Dimensional Fund Advisors Inc.
serves as investment manager. Dimensional Fund Advisors Inc. disclaims
beneficial ownership of all of such shares.
CERTAIN TRANSACTIONS
The Company has entered into a sublease with Leon Tempelsman & Son, a New
York limited partnership of which Maurice Tempelsman and Leon Tempelsman are the
sole general partners ('LTS'), under which approximately 30% of the 20th Floor
at 529 Fifth Avenue, New York, New York, the Company's principal offices, is
sublet to LTS. The sublease is prorated to the same rental rate per square foot
which the Company is paying to the landlord under its lease for the 19th and
20th Floors at the same location. Rental payments under the sublease amount to a
base annual rent of $89,518 (excluding escalations).
The Company is a party to an agreement dated August 11, 1982, as amended on
April 8, 1983 (the 'Agreement'), with GIA Gem Trade Laboratory, Inc. ('GTL'), a
wholly owned subsidiary of Gemological Institute of America, Inc., pursuant to
which the Company has granted a license to GTL to use a laser micro-inscription
system developed by the Company in connection with GTL's business of grading
diamonds and identifying gem stones and issuing reports thereon. The Agreement,
unless earlier terminated in accordance with its terms, expires in the year
2000, when the United States patent on the laser micro-inscription device
expires. George R. Kaplan, Vice Chairman of the Board of the Company, is a Board
Member Emeritus of the Board of Governors of the Gemological Institute of
America. The Agreement, which requires GTL to pay to the Company royalties based
on fees charged by GTL for inscribing gem stones, was the result of arms-length
negotiations between the Company and GTL.
The Company's principal stockholder is LTS, of which Maurice Tempelsman and
Leon Tempelsman, both directors and officers of the Company, are the only
general partners. See 'Principal and Selling Stockholders and Security Ownership
of Management' and 'Management'. The Company believes that neither the
Tempelsmans nor LTS currently engage directly or indirectly in any activities
competitive with those of the Company.
Lucien Burstein, a director of the Company, is a partner of the law firm of
Warshaw Burstein Cohen Schlesinger & Kuh, LLP, which has been general counsel to
the Company since 1984.
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, $1.00 par value, of which 6,261,071 are issued and outstanding,
and of which there will be, immediately after this offering, 8,061,071 shares
issued and outstanding (assuming the Underwriters' over-allotment option is not
exercised). As of November 14, 1996, there were approximately 231 record holders
of shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Stockholders
do not have cumulative voting rights. Each share of Common Stock is entitled to
share equally in such dividends as the Board of Directors, in its discretion,
may validly declare from funds legally available therefor. See 'Dividend
Policy.' In the event
26
<PAGE>
<PAGE>
of liquidation, each outstanding share of Common Stock entitles its holder to
participate ratably in the assets remaining after payment of liabilities.
Stockholders have no preemptive rights or other rights to subscribe for or
purchase additional shares of any class of capital stock or any other securities
of the Company and there are no redemption or sinking fund provisions with
regard to the Common Stock or any conversion rights. All outstanding shares of
Common Stock are, and those offered hereby will be, validly issued, fully paid
and nonassessable.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
'Underwriting Agreement') among the Company, the Selling Stockholder and the
underwriters named below (the 'Underwriters'), for whom UBS Securities LLC and
Furman Selz LLC are acting as representatives (the 'Representatives'), the
Underwriters have agreed to purchase the following respective number of shares
of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- ---------
<S> <C>
UBS Securities LLC.........................................................................
Furman Selz LLC............................................................................
---------
Total.................................................................................
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $. per share. The Underwriters may allow and
such dealers may reallow a concession not in excess of $. per share to certain
other dealers. After the public offering of the shares of Common Stock, the
offering price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 330,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of the Underwriters, except for the sale or issuance
by the Company of shares of Common Stock pursuant to outstanding employee stock
options. Maurice Tempelsman, Leon Tempelsman and LTS have agreed that, subject
to certain exceptions, they will not, for a period of 180 days after the date of
this Prospectus, without the prior written consent of UBS Securities LLC,
directly or indirectly, offer, sell or otherwise dispose of any shares of Common
Stock beneficially owned by them, or any securities convertible into or
exercisable or exchangeable for Common Stock.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
27
<PAGE>
<PAGE>
UBS Securities LLC ('UBS') has been engaged by the Company as the Company's
exclusive financial advisor for a 12 month term expiring April 30, 1997 with
respect to various investment banking matters (each such matter a
'Transaction'). The Company has agreed to pay UBS an annual retainer fee of
$100,000. In addition, if during the term of the engagement a Transaction is
consummated, the Company has agreed to pay UBS a transaction fee in an amount to
be specified in a letter agreement to be entered into between the Company and
UBS at such time. UBS has agreed to charge competitive fees for its services,
and where market indices exist on fees for similar services, fees consistent
with market practices. The Company has also agreed to pay UBS a percentage of
the value of each Transaction initiated by UBS during the term and consummated
within six months of the termination of the engagement based upon an agreed
formula.
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the Company by
Warshaw Burstein Cohen Schlesinger & Kuh, LLP, New York, New York, and for the
Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company at May
31, 1996 and 1995 and for each of the two years in the period ended May 31,
1996, included in this Prospectus and elsewhere in the Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, and the
consolidated statements of operations, cash flows, stockholders' equity and
financial statement schedule for the year ended May 31, 1994 have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their respective
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports, given upon the authority of such firms as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement (the 'Registration Statement') under
the Securities Act of 1933, as amended, with respect to the securities covered
by this Prospectus.
This Prospectus omits certain information contained in the Registration
Statement. For further information, reference is made to the Registration
Statement, the exhibits and financial statements filed as a part thereof, which
may be examined without charge at the office of the Commission, and photocopies
of which, or any portion thereof, may be obtained upon payment of the prescribed
fee.
Statements contained in this Prospectus as to the contents of any agreement
or other document referred to are not complete, and where such agreement or
other document is an exhibit to the Registration, each statement is deemed to be
qualified and amplified in all respects by the provisions of the exhibit.
28
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report of Ernst & Young LLP................................................................ F-2
Independent Auditors' Report of Deloitte & Touche LLP............................................................ F-3
Consolidated Statements of Operations for the years ended May 31, 1996, 1995 and 1994............................ F-4
Consolidated Balance Sheets as of May 31, 1996 and 1995.......................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended May 31, 1996, 1995 and 1994.................. F-6
Consolidated Statements of Cash Flows for the years ended May 31, 1996, 1995 and 1994............................ F-7
Notes to Consolidated Financial Statements for the years ended May 31, 1996, 1995 and 1994....................... F-8
Consolidated Statements of Operations for the three months ended August 31, 1996 and 1995 (unaudited)............ F-15
Consolidated Balance Sheets as of August 31, 1996 (unaudited) and May 31, 1996................................... F-16
Consolidated Statements of Cash Flows for the three months ended August 31, 1996 and 1995 (unaudited)............ F-17
Notes to Consolidated Financial Statements for the three months ended August 31, 1996 (unaudited)................ F-18
</TABLE>
F-1
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
LAZARE KAPLAN INTERNATIONAL INC.
We have audited the accompanying consolidated balance sheets of Lazare
Kaplan International Inc. and subsidiaries as of May 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Lazare Kaplan International Inc. and subsidiaries at May
31, 1996 and 1995 and the consolidated results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
July 9, 1996
New York, New York
F-2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
LAZARE KAPLAN INTERNATIONAL INC.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Lazare Kaplan International Inc. and
subsidiaries for the year ended May 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Lazare Kaplan
International Inc. and subsidiaries for the year ended May 31, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
July 13, 1994 (August 31, 1994 as to Note 11)
F-3
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended May 31,
- ------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
Net sales (Note 1) $ 266,321 $ 178,143 $ 204,047
Cost of sales (Note 1) 243,685 165,686 187,664
- ------------------------------------------------------------------------------------------------------------------
22,636 12,457 16,383
- ------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 11,439 10,386 9,833
Interest expense, net of interest income 4,048 3,489 3,747
- ------------------------------------------------------------------------------------------------------------------
15,487 13,875 13,580
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) before income tax provision and minority interest 7,149 (1,418) 2,803
Income tax provision (Notes 1 and 3) 459 214 118
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) before minority interest 6,690 (1,632) 2,685
Minority interest in loss of consolidated subsidiary 323 479 339
- ------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $ 7,013 $ (1,153) $ 3,024
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
NET INCOME/(LOSS) PER SHARE (NOTE 1) $ 1.12 $ (0.18) $ 0.49
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
Weighted average number of shares 6,288,157 6,309,071 6,226,708
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
-------------------
ASSETS
CURRENT ASSETS:
Cash $ 905 $ 2,532
Accounts receivable, less allowance for doubtful accounts ($281 and $220 in 1996 and 1995,
respectively) 25,493 22,302
Inventories (Note 1):
Rough stones 9,320 11,928
Polished stones 46,979 43,806
-------------------
Total inventories 56,299 55,734
-------------------
Prepaid expenses and other current assets 10,142 6,166
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 92,839 86,734
PROPERTY, PLANT AND EQUIPMENT, net (Notes 1 and 2) 7,198 6,704
OTHER ASSETS 5,029 5,725
- --------------------------------------------------------------------------------------------------------------------
$105,066 $99,163
- --------------------------------------------------------------------------------------------------------------------
-------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other current liabilities (Notes 1 and 4) $ 15,770 $16,034
Notes payable -- other (Note 5) 3,000 3,000
Notes payable -- banks (Note 5) - 4,125
Current portion of long-term debt (Note 6) - 4,285
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 18,770 27,444
SENIOR NOTES AND OTHER LONG-TERM DEBT (Notes 5 and 6) 34,155 26,430
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 52,925 53,874
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST (Notes 1 and 7) 7,271 7,594
STOCKHOLDERS' EQUITY (Note 8)
Common stock, par value $1 per share:
Authorized, 10,000,000 shares
Outstanding, 6,176,425, 1996 and 6,147,808, 1995 6,176 6,148
Additional paid-in capital 26,098 25,964
Retained earnings 12,596 5,583
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 44,870 37,695
- --------------------------------------------------------------------------------------------------------------------
$105,066 $99,163
- --------------------------------------------------------------------------------------------------------------------
-------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
(In thousands) Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
Balance, May 31, 1993 $6,122 $ 25,837 $ 3,712 $35,671
Net Income - - 3,024 3,024
Exercise of Stock Options, 9,426 shares issued 9 47 - 56
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1994 6,131 25,884 6,736 38,751
Net Loss - - (1,153) (1,153)
Exercise of Stock Options, 16,702 shares issued 17 80 - 97
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1995 6,148 25,964 5,583 37,695
Net Income - - 7,013 7,013
Exercise of Stock Options, 28,617 shares issued 28 134 - 162
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1996 $6,176 $ 26,098 $12,596 $44,870
- ---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended May 31,
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 7,013 ($1,153) $ 3,024
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization 2,234 1,924 1,899
Provision for uncollectible accounts 70 70 170
Minority interest in loss of consolidated subsidiary (323) (479) (339)
Gain on sale of fixed assets (54) (43) -
(Increase)/decrease in assets and increase/(decrease) in liabilities:
Accounts receivable (3,261) 828 (3,211)
Inventories (565) (2,248) (4,993)
Prepaid expenses and other current assets (3,976) (2,911) 803
Other assets (403) (488) -
Accounts payable and other current liabilities (264) 4,697 3,029
----------------------------
Net cash provided by operating activities 471 197 382
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 222 79 -
Capital expenditures (1,797) (1,578) (972)
----------------------------
Net cash used in investing activities (1,575) (1,499) (972)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in minority interest - 7,883 -
(Decrease)/increase in short-term borrowings (8,410) (5,775) 895
Increase in long-term borrowings 7,725 715 -
Proceeds from exercise of stock options 162 97 56
----------------------------
Net cash (used in)/provided by financing activities (523) 2,920 951
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash (1,627) 1,618 361
Cash at beginning of year 2,532 914 553
----------------------------
Cash at end of year $ 905 $2,532 $ 914
- ---------------------------------------------------------------------------------------------------------------------
----------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,183 $3,737 $ 4,003
Income taxes 407 314 239
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Capitalized Leases - - $ 61
- ---------------------------------------------------------------------------------------------------------------------
----------------------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
1. ACCOUNTING POLICIES
- ---------------------------------------------------------
a. The Company and its principles of consolidation
The Company and its subsidiaries are engaged in the cutting, polishing and
selling of diamonds and the trading of uncut rough diamonds. The consolidated
financial statements include the accounts of the Company and its subsidiaries,
all of which are wholly owned except for Lazare Kaplan Botswana (Pty) Ltd.,
which was owned 60% by the Company at May 31, 1996 and 1995 and 85% by the
Company at May 31, 1994. Minority interest represents the minority stockholders'
proportionate share of the equity of Lazare Kaplan Botswana (Pty) Ltd. All
material intercompany balances and transactions have been eliminated.
b. Sales and accounts receivable
The Company's net sales to customers in each of the following regions for
the years ended May 31, 1996, 1995 and 1994 are set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------
--------------------
United States 23% 25% 16%
Far East 8% 13% 6%
Europe, Israel & other 69% 62% 78%
- ---------------------------------------------------
100% 100% 100%
- ---------------------------------------------------
--------------------
</TABLE>
No single customer of the Company accounted for 10% or more of the
Company's net sales for the fiscal years ended May 31, 1996, 1995 and 1994. The
Company generally does not require collateral on its receivables.
c. Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
d. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is computed using
the straight-line method over the shorter of asset lives or lease terms.
e. Deferred costs
The Company deferred the recognition of certain costs for professional
fees, travel and total staffing incurred during the construction and training
period of the Company's cutting and polishing facility in Botswana. Such costs
included only direct and incremental costs incurred during the start-up period.
These costs are being amortized over a five year period which began on June 1,
1993. All other deferred costs are amortized over their estimated useful lives
ranging from two to ten years.
f. Foreign currency
All foreign sales of the Company are denominated in U.S. dollars and all
purchases of rough diamonds worldwide are denominated in U.S. dollars.
Therefore, the Company does not experience any foreign currency exposure in
connection with these activities. In addition, the functional currency for
Lazare Kaplan Botswana (Pty) Ltd. is the U.S. dollar. Any gains or losses from
foreign currency translations relating to this subsidiary were immaterial and
are included in results of operations.
g. Income taxes
The Company provides for deferred income taxes in accordance with Statement
of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income
Taxes', whereby deferred income taxes are determined based upon the enacted
income tax rates for the years in which these taxes are estimated to be payable
or recoverable. Deferred income taxes reflect the net tax effects of (a)
temporary difference between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss carryforwards.
The Company and its domestic subsidiaries file a consolidated income tax
return. The Company's foreign subsidiaries are not subject to Federal income
taxes and their provisions for income taxes have been computed based on the
effective tax rates, if any, in the foreign countries.
There were no taxable dividends paid to the Company from foreign
subsidiaries during 1996.
h. Net income/(loss) per share
Net income/(loss) per share is computed based on the weighted average
number of shares outstanding
F-8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
including the impact of dilutive stock options during each period.
i. Risks and Uncertainties
The Company's business is dependent upon the availability of rough
diamonds. Approximately 75% of the world's diamond output is controlled by
DeBeers Centenary AG and its affiliated companies. Although DeBeers has
historically been the Company's major supplier of rough diamonds, the Company
has successfully diversified its sources of supply by entering into arrangements
with other primary source suppliers and has been able to supplement its rough
diamond needs by purchasing supplies in the secondary market. While the Company
believes that it has good relationships with its suppliers and that its sources
of supply are sufficient to meet its present and foreseeable needs, the
Company's rough diamond supplies, and therefore, its manufacturing capacity,
could be adversely affected by political and economic developments over which it
has no control.
Further, through its control of the world's diamond output, DeBeers can
exert significant control over the pricing of rough and polished diamonds. A
large rapid increase in rough diamond prices could adversely affect the
Company's revenue and operating margins if the increased cost of the rough
diamonds could not be passed along to its customers in a timely manner.
Alternatively, any rapid decrease in the price of polished diamonds could
adversely affect the Company in terms of inventory losses and lower margins.
j. Stock Option Incentive Plan
The Company accounts for its incentive stock options under the provisions
of Accounting Principles Board No. 25 'Accounting for Stock Issued to Employees'
and intends to continue to do so.
2. PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------------------------
Property, plant and equipment consists of (in thousands):
<TABLE>
<CAPTION>
May 31,
- -----------------------------------------------------
1996 1995
<S> <C> <C>
- -----------------------------------------------------
-----------------
Land and buildings $ 4,710 $4,170
Leasehold improvements 1,812 1,139
Machinery, tools and equipment 5,322 5,064
Furniture and fixtures 1,242 1,656
Computer installation 2,311 2,225
Construction in progress 364 -
- -----------------------------------------------------
15,761 14,254
Less accumulated depreciation and
amortization 8,563 7,550
- -----------------------------------------------------
$ 7,198 $6,704
- -----------------------------------------------------
-----------------
Depreciation and amortization rates:
- -----------------------------------------------------
Buildings 2 TO 3.7%
Leasehold improvements 3.7 TO 20%
Machinery, tools and equipment 10 TO 25%
Furniture and fixtures 10 TO 20%
Computer installation 10 TO 33%
- -----------------------------------------------------
</TABLE>
Depreciation expense for 1996, 1995 and 1994 was $1,135,000, $1,088,000 and
$1,094,000, respectively.
F-9
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
3. INCOME TAXES
- ---------------------------------------------------------
The items comprising the Company's net deferred tax liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
May 31,
- -----------------------------------------------------
1996 1995
<S> <C> <C>
- -----------------------------------------------------
--------------------
Deferred tax assets:
Operating loss and other
carryforwards $ 9,500 $ 13,200
Other 500 400
Deferred tax liabilities:
Depreciation 600 1,100
- -----------------------------------------------------
9,400 12,500
Less: Valuation allowance (9,400) (12,500)
- -----------------------------------------------------
Net deferred tax liabilities $ 0 $ 0
- -----------------------------------------------------
--------------------
</TABLE>
The income tax provision is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Year ended May 31,
- ------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------
---------------------
Current:
Federal $ 158 $- $ 68
State and local 143 40 185
Foreign 158 174 70
- ------------------------------------------------------
459 214 323
- ------------------------------------------------------
Deferred:
Federal - - (68)
State and local - - (137)
- ------------------------------------------------------
- - (205)
- ------------------------------------------------------
$ 459 $214 $118
- ------------------------------------------------------
---------------------
</TABLE>
Income/(loss) before income taxes from the Company's domestic and foreign
operations was $7,742,000 and ($593,000), respectively for the year ended May
31, 1996.
The tax provision is different from amounts computed by applying the
Federal income tax rate to the income before taxes as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------
<S> <C> <C> <C>
---------------------------
Tax provision (benefit)
at statutory rate $ 2,430 $(482) $ 953
(Decrease)/increase in
taxes resulting from:
Differential
attributable to
foreign operations 374 502 764
State and local taxes,
net of Federal
benefit 94 26 48
Net operating loss
carryforward
arising in current
year not resulting
in current benefit - 168 -
Utilization of net
operating loss
carryforwards (2,439) - (1,647)
- ------------------------------------------------------
Actual tax provision $ 459 $ 214 $ 118
- ------------------------------------------------------
---------------------------
</TABLE>
The Company has available Federal net operating losses to offset future
taxable income which expire as follows (in thousands):
<TABLE>
<CAPTION>
Net
operating
Year losses
<S> <C>
- --------------------------------------------------------
---------
1998 $ 4,100
1999 4,200
2000 4,300
2001 3,500
2002 500
2007 1,000
2008 1,500
2010 400
- --------------------------------------------------------
$19,500
- --------------------------------------------------------
---------
</TABLE>
F-10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
In addition, the Company has New York State and New York City net operating
loss carryforwards of approximately $22,500,000 each, expiring from 1998 to
2008. The Company has Puerto Rico net operating loss carryforwards of
approximately $3,500,000 expiring from 1997 through 2002 and Botswana net
operating loss carryforwards of approximately $3,400,000 expiring from 1998
through 2000.
4. ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES
- ---------------------------------------------------------
Accounts payable and other current liabilities consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
- -----------------------------------------------------
-----------------
Accounts payable $ 7,861 $5,377
Accrued expenses and income taxes 7,909 10,657
- -----------------------------------------------------
$15,770 $16,034
- -----------------------------------------------------
-----------------
</TABLE>
5. LINES OF CREDIT
- ---------------------------------------------------------
On May 14, 1996 the Company entered into a long-term unsecured, revolving
loan agreement with two banks. The agreement provides that the Company may
borrow up to $27,500,000 in the aggregate, at an interest rate of any of a)
one-eighth of one percent above the bank's prime rate (which was 8.25% on May
31, 1996), b) two and one half percent above the London Interbank Offered Rate
(LIBOR), or c) two and one-half percent above the bank's cost of funds rate. The
applicable interest rate is contingent upon the method of borrowing selected by
the Company. All amounts borrowed under this agreement are due and payable on
June 1, 1999. As of May 31, 1996, there was an aggregate balance outstanding of
$12,725,000 under this loan agreement. The proceeds of this facility were used
to repay a) all amounts outstanding under the Company's short-term lines of
credit, b) a long-term promissory note in the amount of $5,000,000, which had a
maturity date of December 2, 1996, and c) the annual installment of $4,285,000
which was due on May 15, 1996 with respect to the Company's Senior Note
obligation. In addition, the Company intends to use the proceeds of this
facility for its working capital needs and to fund its future annual
installments due under the Senior Note Agreement. The revolving loan agreement
contains certain provisions that require, among other things, (a) maintenance of
defined levels of current working capital and annual cash flow, (b) limitations
of borrowing levels, capital expenditures, and rental obligations and (c)
limitations on restricted payments, including the amount of dividends.
Through May 14, 1996, the Company had unsecured lines of credit with three
banks. These loan agreements provided that the Company could borrow up to $19.0
million, in the aggregate. Two of the facilities, in amounts of $3.0 million and
$8.0 million, carried an interest rate equal to the respective bank's prime rate
or one and one-half percent above LIBOR, depending upon the method of borrowing
utilized by the Company. The third facility, in the amount of $8.0 million,
carried an interest rate of one-eighth of a percent above the bank's prime rate,
or one and five-eighths percent above LIBOR depending upon the method of
borrowing utilized by the Company. The outstanding balances due under these
facilities were repaid in full with the proceeds of the long-term revolving loan
described above. As of May 31, 1995 there was an aggregate balance outstanding
on these facilities of $4,125,000. The weighted average interest rate during
1996 and 1995 on the Company's revolving loan and lines of credit was 7.83% and
8.12%, respectively.
The Company has a $3.0 million credit facility, payable on demand, at a
rate of one-half of one percent above the six-month LIBOR (which was 6.31% on
June 12). At May 31, 1996, the full amount of this facility had been drawn upon.
The weighted average interest rate during 1996 and 1995 on this facility was
6.47% and 6.20%, respectively.
6. SENIOR NOTES AND OTHER LONG-TERM DEBT
- ---------------------------------------------------------
In May, 1991 the Company, through a private placement, issued $30,000,000
of unsecured 9.97% Senior Notes, due May 15, 2001. Interest is payable
semi-annually every May 15 and November 15.
F-11
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
Repayments of $4,285,000 annually commenced on May 15, 1995 and end in 2000 with
the remaining principal of $4,290,000 payable on May 15, 2001.
Provisions of the Senior Notes require, among other things, (a) maintenance
of defined levels of consolidated tangible net worth and current working
capital, (b) limitation of borrowing levels and (c) limitations on restricted
payments, including the amount of dividends. Under the provisions of the Senior
Notes, the Company was not permitted to declare or pay any dividends either in
cash or property through August 31, 1994. Commencing September 1, 1994, this
restriction was modified to allow the declaration of dividends subject to
certain limitations set forth in the Senior Note Agreement.
On December 1, 1992, the Senior Notes were amended to revise the
consolidated fixed charge ratio and increase the interest rate to 10.47% through
August 31, 1994. On August 25, 1995, these Senior Notes were again amended to
eliminate the requirements of the consolidated fixed charge ratio retroactively
for the fiscal quarters ended February 28, 1995 and May 31, 1995, to revise the
consolidated fixed charge ratio for all subsequent measurement periods through
the quarter ending May 31, 1996, and to increase the interest rate to 10.97%
retroactively from March 1, 1995 through May 31, 1996. Beginning June 1, 1996
the interest rate on the Senior Notes reverted to the original lower rate of
9.97%.
On May 31, 1995 the Company entered into a long-term promissory note with a
bank in the amount of $5,000,000. The note, which bore interest at the bank's
prime rate and had a maturity date of December 2, 1996, was repaid in full with
the proceeds of the long-term revolving loan described above.
7. MINORITY INTEREST
- ---------------------------------------------------------
On August 31, 1994, the Botswana Development Corporation ('BDC') invested
21.8 million pula (approximately $8.0 million) for an equity position in Lazare
Kaplan Botswana (Pty) Ltd. In exchange for its investment the BDC received
common shares and cumulative, redeemable, non-voting, participating preference
shares of this subsidiary. Following this transaction, the Company owns 60% of
Lazare Kaplan Botswana (Pty) Ltd., the BDC owns 34.9% and the Government of
Botswana owns 5.1%.
8. STOCK OPTION INCENTIVE PLAN
- ---------------------------------------------------------
A Stock Option Incentive Plan was approved by the Board of Directors on
March 11, 1988 (the 'Plan'). The Plan has reserved 650,000 shares of the common
stock of the Company for issuance to key employees of the Company and its
subsidiaries.
The purchase price of each share of common stock subject to an incentive
option under the Plan is not to be less than 100 percent of the fair market
value of the stock on the day preceding the day the option is granted (110
percent for 10 percent beneficial owners). The Compensation Committee determines
the period or periods of time during which an option may be exercised by the
participant and the number of shares as to which the option is exercisable
during such period or periods, provided that the option period shall not extend
beyond ten years (five years in the case of 10 percent beneficial owners) from
the date the option is granted.
F-12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
A summary of the Plan's activity for each of the three years in the period
ended May 31, 1996 is as follows:
<TABLE>
<CAPTION>
Number
of shares Option price
<S> <C> <C>
- -------------------------------------------------------
---------------------------
Outstanding -- June 1,
1993 520,533 $5.000-$ 7.625
Options issued 101,750 $6.000-$ 8.387
Options exercised (11,434) $5.000-$ 8.000
Options canceled (10,601) $5.125-$ 7.625
- -------------------------------------------------------
Outstanding -- May 31,
1994 600,248 $5.000-$ 8.387
Options issued 28,750 $8.500-$ 9.350
Options exercised (34,231) $5.000-$ 7.625
Options canceled (4,618) $6.000-$ 7.625
- -------------------------------------------------------
Outstanding -- May 31,
1995 590,149 $5.000-$ 9.350
Options surrendered (115,300) $7.625-$ 9.350
Options re-issued 115,300 $6.375-$7.0125
Options exercised (39,751) $5.000-$ 7.625
- -------------------------------------------------------
Outstanding -- May 31,
1996 550,398 $5.000-$ 7.625
- -------------------------------------------------------
---------------------------
Exercisable options 433,698
- -------------------------------------------------------
---------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
- ---------------------------------------------------------
Future minimum payments (excluding sub-lease income) under noncancelable
operating leases with initial terms of more than one year consist of the
following at May 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Operating
Year leases
<S> <C>
- --------------------------------------------------------
---------
1997 $ 559
1998 429
1999 360
2000 326
2001 326
Thereafter 744
- --------------------------------------------------------
$ 2,744
- --------------------------------------------------------
---------
</TABLE>
Rental expense, including additional charges paid for increases in real
estate taxes and other escalation charges for the years ended May 31, 1996, 1995
and 1994, was approximately $584,000, 549,000 and $565,000, respectively.
10. PROFIT SHARING PLAN
- ---------------------------------------------------------
The Company has a profit sharing and retirement plan subject to Section
401(k) of the Internal Revenue Code. The plan covers all full-time employees in
the United States and Puerto Rico who complete at least one year of service.
Participants may contribute up to a defined percentage of their annual
compensation through salary deductions. The Company intends to match employee
contributions in an amount equal to $0.50 for every pretax dollar contributed by
the employee up to 6% of the first $20,000 of compensation, provided the
Company's pretax earnings for that fiscal year exceed $3,500,000. The Company
did not make matching contributions for calendar years 1995, 1994 or 1993.
11. GEOGRAPHIC SEGMENT INFORMATION
- ---------------------------------------------------------
Revenue, gross profit and income/(loss) before income tax provision and
minority interest for each of the three years in the period ended May 31, 1996
and identifiable assets at the end of each of those years, classified by
geographic area, which was determined by where sales originated from and where
identifiable assets are held, were as follows (in thousands):
F-13
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
UNITED ELIMI- CONSOLI-
STATES EUROPE AFRICA NATIONS DATED
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
Year ended May 31, 1996
Net sales to unaffiliated customers $175,032 $69,544 $21,745 $ - $266,321
Transfers between geographic areas 20,470 12,057 20,337 (52,864) -
------------------------------------------------------
Total revenue $195,502 $81,601 $42,082 $(52,864) $266,321
------------------------------------------------------
Gross profit $ 20,798 $ 703 $ 4,511 $ (3,376) $ 22,636
------------------------------------------------------
Income/(loss) before income tax provision and minority
interest $ 6,988 $ 262 $ (886) $ 785 $ 7,149
------------------------------------------------------
Identifiable assets at May 31, 1996 $ 97,935 $13,150 $26,192 $(32,211) $105,066
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
Year ended May 31, 1995
Net sales to unaffiliated customers $123,322 $49,684 $ 5,137 $ - $178,143
Transfers between geographic areas 22,196 16,679 22,810 (61,685) -
------------------------------------------------------
Total revenue $145,518 $66,363 $27,947 $(61,685) $178,143
------------------------------------------------------
Gross profit $ 11,866 $ 561 $ 6,259 $ (6,229) $ 12,457
------------------------------------------------------
(Loss)/income before income tax provision and minority
interest $ (495) $ 100 $ (615) $ (408) $ (1,418)
------------------------------------------------------
Identifiable assets at May 31, 1995 $ 91,980 $11,536 $23,552 $(27,905) $ 99,163
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
Year ended May 31, 1994
Net sales to unaffiliated customers $130,070 $73,921 $ 56 $ - $204,047
Transfers between geographic areas 22,092 13,984 8,737 (44,813) -
------------------------------------------------------
Total revenue $152,162 $87,905 $ 8,793 $(44,813) $204,047
------------------------------------------------------
Gross profit $ 15,663 $ 772 $ 85 $ (137) $ 16,383
------------------------------------------------------
Income/(loss) before income tax provision and minority
interest $ 4,990 $ 420 $(2,461) $ (146) $ 2,803
------------------------------------------------------
Identifiable assets at May 31, 1994 $ 92,628 $ 8,386 $20,374 $(28,210) $ 93,178
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
</TABLE>
The identifiable assets which are included in the eliminations primarily
represent advances to affiliates. These advances are included therein since the
Company, which is the parent company, finances the operations of these
affiliates.
F-14
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
------------------------
Net Sales $ 69,400 $ 61,697
Cost of Sales 63,868 57,019
- -------------------------------------------------------------------------------------------------------------------
5,532 4,678
- -------------------------------------------------------------------------------------------------------------------
Selling, General & Administrative Expenses 2,992 2,776
Interest Expense -- net 945 1,016
- -------------------------------------------------------------------------------------------------------------------
3,937 3,792
- -------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interest 1,595 886
Income tax provision (Note 2) 93 57
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest 1,502 829
Minority interest in income/(loss) of consolidated subsidiary (157) 43
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,659 $ 786
- -------------------------------------------------------------------------------------------------------------------
------------------------
NET INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------------------
------------------------
Income per share $ 0.26 $ 0.13
- -------------------------------------------------------------------------------------------------------------------
------------------------
Average number of shares outstanding during the period 6,484,029 6,236,021
- -------------------------------------------------------------------------------------------------------------------
------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-15
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August
31, May 31,
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1996
- --------------------------------------------------------------------------------------------------------------------
--------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 827 $ 905
Accounts receivable -- net 28,570 25,493
Inventories
Rough diamonds 11,287 9,320
Polished diamonds 50,596 46,979
--------------------
Prepaid expenses and other current assets 11,157 10,142
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 102,437 92,839
PROPERTY, PLANT & EQUIPMENT -- net 7,173 7,198
OTHER ASSETS 4,790 5,029
- --------------------------------------------------------------------------------------------------------------------
$114,400 $105,066
- --------------------------------------------------------------------------------------------------------------------
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable & other current liabilities $ 17,017 $ 15,770
Notes payable -- other 3,000 3,000
Notes payable -- banks 6,460 -
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 26,477 18,770
SENIOR NOTES AND OTHER LONG-TERM DEBT 34,230 34,155
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 60,707 52,925
- --------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 7,114 7,271
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share:
Authorized 10,000,000 shares; issued and outstanding, 6,185,531 shares and 6,176,425
shares 6,186 6,176
Additional paid-in capital 26,138 26,098
Retained earnings 14,255 12,596
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 46,579 44,870
- --------------------------------------------------------------------------------------------------------------------
$114,400 $105,066
- --------------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-16
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
- ----------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,659 $ 786
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization 619 573
Provision for uncollectible accounts 15 15
Minority interest in income/(loss) of consolidated subsidiary (157) 43
Loss on disposition of fixed assets 22 -
(Increase)/decrease in assets and increase/(decrease) in liabilities:
Accounts receivable (3,092) (3,969)
Inventories (5,584) (1,293)
Other current assets (1,015) (976)
Non-current assets (42) (15)
Accounts payable and other current liabilities 1,247 5,271
------------------
Net cash provided by/(used in) operating activities (6,328) 435
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 11 -
Capital expenditures (346) (312)
------------------
Net cash used in investing activities (335) (312)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in short-term borrowings 6,460 (1,625)
Increase in long-term debt 75 -
Proceeds from exercise of stock options 50 -
------------------
Net Cash provided by/(used in) financing activities 6,585 (1,625)
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) in cash (78) (1,502)
Cash at beginning of year 905 2,532
------------------
Cash at end of period $ 827 $ 1,030
- ----------------------------------------------------------------------------------------------------------------------
------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-17
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. INTERIM FINANCIAL REPORTING
- ---------------------------------------------------------
This financial information has been prepared in conformity with the
accounting principles and practices reflected in the financial statements
included in the annual report filed with the Commission for the preceding fiscal
year. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly Lazare
Kaplan International Inc.'s operating results for the three months ended August
31, 1996 and 1995 and the financial position as of August 31, 1996.
The operating results for the interim periods presented are not necessarily
indicative of the operating results for a full year.
2. TAXES
- ---------------------------------------------------------
The Company's subsidiaries conduct business in foreign countries. The
subsidiaries are not subject to Federal income taxes and their provisions have
been determined based upon the effective tax rates, if any, in the foreign
countries.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The Company's net deferred tax asset, which is
comprised primarily of operating loss carryforwards, is approximately $8,600,000
less a valuation allowance of approximately $8,600,000 resulting in no net
deferred tax asset.
For the three months ended August 31, 1996, the Company has utilized
approximately $2,100,000 of net operating loss carryforwards to offset Federal,
state and local income taxes.
At August 31, 1996, the Company has available U.S. net operating losses of
$17.4 million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
- -------------------------------------------------------
-----------
1998 $ 2,000,000
1999 4,200,000
2000 4,300,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
2010 400,000
- -------------------------------------------------------
$17,400,000
- -------------------------------------------------------
-----------
</TABLE>
F-18
<PAGE>
<PAGE>
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.......................... 3
Incorporation of Certain Documents by
Reference.................................... 3
Prospectus Summary............................. 4
Summary Financial Information.................. 7
Risk Factors................................... 8
Use of Proceeds................................ 9
Price Range of Common Stock.................... 9
Dividend Policy................................ 10
Capitalization................................. 10
Selected Financial Information................. 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 12
Business....................................... 15
Management..................................... 23
Principal and Selling Stockholders and Security
Ownership of Management...................... 24
Certain Transactions........................... 26
Description of Common Stock.................... 26
Underwriting................................... 27
Validity of Common Stock....................... 28
Experts........................................ 28
Additional Information......................... 28
Index to Financial Statements.................. F-1
</TABLE>
2,200,000 SHARES
[LOGO]
LAZARE KAPLAN
INTERNATIONAL INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
UBS SECURITIES
FURMAN SELZ
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the shares of Common
Stock being registered hereby, other than underwriting discounts and
commissions.
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Securities and Exchange Commission Registration Fee............................... $ 16,483
National Association of Securities Dealers, Inc. Filing Fee....................... 5,940
American Stock Exchange Listing Fee............................................... 17,500
Transfer Agent and Registrar Fee.................................................. 3,000
Accounting Fees and Expenses...................................................... 100,000
Legal Fees and Expenses (not including Blue Sky Fees and Expenses)................ 175,000
Blue Sky Fees and Expenses........................................................ 5,000
Miscellaneous..................................................................... 112,077
--------
Total................................................................... $435,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following states the general effect of all statutes, charter
provisions, by-laws, contracts or other arrangements under which any controlling
person, director or officer of the Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such:
Section 145 of the Delaware General Corporation Law provides:
145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS:
INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have
II-1
<PAGE>
<PAGE>
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (l) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or, if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to 'the corporation' shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to 'other enterprises' shall
include employee benefit plans; references to 'fines' shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to 'serving at the request of the corporation' shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner 'not
opposed to the best interests of the corporation' as referred to in this
section.
II-2
<PAGE>
<PAGE>
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person, who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Certificate of Incorporation of the Company provides:
SEVENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person.
The Certificate of Incorporation further provides:
EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of his
fiduciary duty as a director, provided that nothing contained herein shall
eliminate or limit the liability of a director (i) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law or any amendment thereto of any successor thereto,
or (iv) for any transaction from which the director derived an improper
personal benefit. Neither the amendment nor repeal of this Article EIGHTH
nor the adoption of any provision of the certificate of incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect
of this Article EIGHTH in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article EIGHTH would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
The By-Laws of the Company provide:
ARTICLE VI
INDEMNIFICATION
1. EXECUTIVE OFFICERS. The corporation shall indemnify its executive
officers and those of its subsidiaries to the same extent as they would have
been insured under the terms of an insurance policy issued to the corporation by
National Union Fire Insurance Company of Pittsburgh, Pennsylvania for the policy
year beginning September 26, 1984 and ending September 26, 1985 had such policy
been in effect at the time a claim is made against any such executive officers.
The executive officers of the corporation and its subsidiaries entitled to
indemnification pursuant to this Article VI, Section l, shall include such
persons who may hold the offices, either currently or in the future, as were
covered under the aforementioned policy in the policy year indicated.
Any indemnification pursuant to this Article VI, Section l shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section l provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under this Article VI,
Section l shall continue after any person has ceased to serve in the capacity
which would have entitled him to such indemnification. Any subsequent repeal or
amendment of this Article VI, Section l or any provision hereof, which shall
have the effect of limiting, qualifying or restricting the powers or rights of
indemnification provided or permitted hereunder shall not, solely by reason of
such repeal or
II-3
<PAGE>
<PAGE>
amendment, eliminate, restrict or otherwise affect the right or power of the
corporation to indemnify any person or affect any right of indemnification of
such person with respect to claims made prior to such repeal or amendment.
The indemnification provided under this Article VI, Section l shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise.
The corporation shall have the right to impose, as conditions to any
indemnification provided or permitted pursuant to this Article VI, Section l,
such reasonable requirements and conditions as the Board of Directors or
stockholders may deem appropriate in each specific case and circumstance,
including but not limited to (i) that any counsel representing the person to be
indemnified in connection with the defense or settlement of any action shall be
selected by the corporation, subject to the approval of the person to be
indemnified, which consent shall not be unreasonably withheld, (ii) that the
corporation shall have the right, at its option, to assume and control the
defense or settlement of any claim or proceeding made, initiated or threatened
against the person to be indemnified, and (iii) that the corporation shall be
subrogated, to the extent of any payments made by way of indemnification, to all
of the indemnified person's right of recovery, and that the person to be
indemnified shall execute all writings and do everything necessary to assure
such rights of subrogations to the corporation.
2. OUTSIDE DIRECTORS. The corporation shall indemnify its outside (i.e.
non-officer) directors and those of its subsidiaries to the same extent as they
would have been insured under the terms of an insurance policy issued to the
corporation by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania, for the policy year beginning September 26, 1984 and ending
September 26, 1985 had such policy been in effect at the time a claim is made
against any such outside director. The outside directors of the corporation and
its subsidiaries entitled to indemnification pursuant to this Article VI,
Section 2 shall include such persons who may hold the offices, either currently
or in the future, as were covered under the aforementioned policy in the policy
year indicated.
Any indemnification pursuant to this Article VI, Section 2 shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section 2 provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under Article VI, Section 2
shall continue after any person has ceased to serve in the capacity which would
have entitled him to such indemnification. Any subsequent repeal or amendment of
this Article VI, Section 2 or any provision hereof, which shall have the effect
of limiting, qualifying or restricting the powers or rights of indemnification
provided or permitted hereunder shall not, solely by reason of such repeal or
amendment, eliminate, restrict or otherwise affect the right or power of the
corporation to indemnify any person or affect any right of indemnification of
such person with respect to claims made prior to such repeal or amendment.
The indemnification provided under this Article VI, Section 2 shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise.
The corporation shall have the right to impose, as conditions to any
indemnification provided or permitted pursuant to Article VI, Section 2, such
reasonable requirements and conditions as the Board of Directors or stockholders
may deem appropriate in each specific case and circumstance, including but not
limited to (i) that any counsel representing the person to be indemnified in
connection with the defense or settlement of any action shall be selected by the
corporation, subject to the approval of the person to be indemnified, which
consent shall not be unreasonably withheld, (ii) that the corporation shall have
the right, at its option, to assume and control the defense or settlement of any
claim or proceeding made, initiated or threatened against the person to be
indemnified, and (iii) that the corporation shall be subrogated, to the extent
of any payments made by way of indemnification, to all of the indemnified
person's right of recovery, and that the person to be indemnified shall execute
all writings and do everything necessary to assure such rights of subrogation to
the corporation.
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3. EXECUTIVE OFFICERS AND DIRECTORS PRIOR TO APRIL 9, 1984. The corporation
shall indemnify its directors and executive officers and those of its
subsidiaries who were in office prior to April 9, 1984 to the same extent as
they would have been insured under the terms of an insurance policy issued to
the corporation by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania for the policy year beginning September 26, 1984 and ending
September 26, 1985 had such policy been in effect at the time a claim is made
against any such director or officer. The directors and officers of the
corporation and its subsidiaries entitled to indemnification pursuant to this
Article VI, Section 3 shall include such persons who held the offices as were
covered under the aforementioned policy in the policy year indicated.
Any indemnification pursuant to this Article VI, Section 3 shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section 3, provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under this Article VI,
Section 3 shall continue after any person has ceased to serve in the capacity
which would have entitled him to such indemnification hereunder. Any subsequent
repeal or amendment of this Article VI, Section 3 or any provision hereof, which
shall have the effect of limiting, qualifying or restricting the powers or
rights of indemnification provided or permitted hereunder shall not, solely by
reason of such repeal or amendment, eliminate, restrict or otherwise affect the
right or power of the corporation to indemnify any person or affect any right of
indemnification of such person with respect to claims made prior to such repeal
or amendment.
The indemnification provided under this Article VI, Section 3 shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise. The corporation shall
have the right to impose, as conditions to any indemnification provided or
permitted pursuant to this Article VI, Section 3, such reasonable requirements
and conditions as the Board of Directors or stockholders may deem appropriate in
each specific case and circumstance, including but not limited to (i) that any
counsel representing the person to be indemnified in connection with the defense
or settlement of any action shall be selected by the corporation, subject to the
approval of the person to be indemnified, which consent shall not be
unreasonably withheld, (ii) that the corporation shall have the right, at its
option, to assume and control the defense or settlement of any claim or
proceeding made, initiated or threatened against the person to be indemnified,
and (iii) that the corporation shall be subrogated, to the extent of any
payments made by way of indemnification, to all of the indemnified person's
right of recovery, and that the person to be indemnified shall execute all
writings and do everything necessary to assure such rights of subrogation to the
corporation.
4. DIRECTORS. The corporation shall indemnify its existing directors and
those of its subsidiaries to the same extent as they would have been insured
under the terms of an insurance policy issued to the corporation by National
Union Fire Insurance Company of Pittsburgh, Pennsylvania for the policy year
beginning September 26, 1984 and ending September 26, 1985 had such policy been
in effect at the time a claim is made against any such director. The directors
of the corporation and its subsidiaries entitled to indemnification pursuant to
this Article VI, Section 4 shall include such persons who may hold the offices,
either currently or in the future, as were covered under the aforementioned
policy in the policy year indicated.
Any indemnification pursuant to this Article VI, Section 4 shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section 4 provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under this Article VI,
Section 4 shall continue after any person has ceased to serve in the capacity
which would have entitled him to such indemnification hereunder. Any subsequent
repeal or amendment of this Article VI, Section 4 or any provision hereof, which
shall have the effect of limiting, qualifying or restricting the powers or
rights of indemnification provided or permitted hereunder shall not, solely by
reason of such repeal or amendment, eliminate, restrict or otherwise affect the
right or power of the corporation to indemnify any person or affect any right of
indemnification of such person with respect to claims made prior to such repeal
or amendment.
II-5
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<PAGE>
The indemnification provided under this Article VI, Section 4 shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise.
The corporation shall have the right to impose, as conditions to any
indemnification provided or permitted pursuant to this Article VI, Section 4,
such reasonable requirements and conditions as the Board of Directors or
stockholders may deem appropriate in each specific case and circumstance,
including but not limited to (i) that any counsel representing the person to be
indemnified in connection with the defense or settlement of any action shall be
selected by the corporation, subject to the approval of the person to be
indemnified, which consent shall not be unreasonably withheld, (ii) that the
corporation shall have the right, at its option, to assume and control the
defense or settlement of any claim or proceeding made, initiated or threatened
against the person to be indemnified, and (iii) that the corporation shall be
subrogated, to the extent of any payments made by way of indemnification, to all
of the indemnified person's right of recovery, and that the person to be
indemnified shall execute all writings and do everything necessary to assure
such rights of subrogation to the corporation.
5. SEVERABILITY. If any of the provisions of this Article VI, or any part
hereof, is hereafter construed to be invalid or unenforceable, the same shall
not affect the remaining provisions of this Article VI, which shall remain in
full effect without regard to the invalid portion or portions.
In addition, the By-Laws provide that the Company has the authority to
obtain liability insurance.
ITEM 16. (a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBITS
- -------- ---------------------------------------------------------------------------------------------------------
<C> <S>
(1)* -- Form of Underwriting Agreement
(4) -- Specimen of Certificate of Common Stock -- incorporated herein by reference to Exhibit 4(a) to
Amendment No. 1 to Registration Statement on Form S-2 of the Registrant filed with the Commission on
October 4, 1990
(5)* -- Opinion of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (including consent)
(10) -- Material Contracts
(a) -- Lazare Kaplan International Inc. Amended and Restated 1988 Stock Option Incentive Plan -- incorporated
herein by reference to Exhibit 4.1 to Registration Statement on Form S-8 of the Registrant filed with
the Commission on November 5, 1990.
(b) -- Note Agreement dated as of May 15, 1991 by and between the Registrant, Allstate Life Insurance
Company, Monumental Insurance Company and PFL Life Insurance Company -- incorporated herein by
reference to Exhibit 28 to Report on Form 8-K dated May 23, 1991 filed with the Commission on June 4,
1991.
(c) -- First Amendment to Note Agreement, dated as of February 28, 1992, by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(d) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(d) -- Second Amendment to Note Agreement, dated as of March 25, 1992 by and between the Registrant, Allstate
Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(e) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(e) -- Third Amendment to the Note Agreement, dated as of December 1, 1992 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(f) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1993 filed with the Commission on August 30, 1993.
(f) -- Fourth Amendment to the Note Agreement, dated as of August 25, 1995 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10 to Report on Form 10-Q of the Registrant for
the quarterly period ended August 31, 1995 filed with the Commission on October 13, 1995.
</TABLE>
II-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBITS
- -------- ---------------------------------------------------------------------------------------------------------
<C> <S>
(g) -- Agreement, dated December 5, 1990, by and between the Registrant and the Government of the Republic of
Botswana -- incorporated herein by reference to Exhibit 10(f) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(h) -- Subscription Agreement, dated August 24, 1994 among the Registrant and the Botswana Development
Corporation-incorporated herein by reference to Exhibit 10(h) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1994 filed with the Commission on August 31, 1994.
(i) -- Loan Agreement, dated May 14, 1996 among the Registrant, Fleet Bank, N.A. and Bank Leumi Trust Company
of New York -- incorporated herein by reference to Exhibit 10(i) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1996 filed with the Commission on August 28, 1996.
(j) -- Cooperation Agreement, dated July 5, 1996, among the Registrant, Empresa Nacional de Diamantes de
Angola and Sociedade Angolana de Exploracao, Lapidacao e Comercializacao de Diamantes -- incorporated
herein by reference to Exhibit (1) to Current Report on Form 8-K of the Registrant filed with the
Commission on October 31, 1996 (certain portions of this agreement are subject to a request for
confidential treatment).
(k) -- Cooperation Agreement, dated July 15, 1996, between the Registrant and AK Almazi Rossii Sakha
--incorporated herein by reference to Exhibit (2) to Current Report on Form 8-K/A of the Registrant
filed with the Commission on November 18, 1996 (certain portions of this agreement are subject to
a request for confidential treatment).
(23)(a)* -- Consent of Deloitte & Touche LLP (included on page S-2 as part of Independent Auditors' Consent and
Report as to Schedules)
(23)(b)* -- Consent of Ernst & Young LLP
(23)(c) -- Consent of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (included as part of Exhibit 5 of the
Registration Statement)
(25)** -- Power of Attorney
</TABLE>
(b) FINANCIAL STATEMENTS AND SCHEDULES.
(1) The Financial Statements are included in the Prospectus; see 'Index to
Financial Statements' in the Prospectus.
(2) The following financial statement schedule of the Company included
herein should be read in conjunction with audited financial statements included
in the Prospectus.
<TABLE>
<CAPTION>
SCHEDULE NUMBER DESCRIPTION OF SCHEDULE
--------------- -----------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules for the Company are omitted because either they are not
applicable or the required information is shown in the financial statements or
notes thereto.
- ------------
* Filed herewith.
** Previously filed with filing of Registration Statement on October 16, 1996.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
II-7
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<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing of Form S-2 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York, State of New York, on
November 19, 1996.
LAZARE KAPLAN INTERNATIONAL INC.
By /S/ SHELDON L. GINSBERG
...................................
SHELDON L. GINSBERG
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* Chairman of the Board of Directors November 19, 1996
.........................................
(MAURICE TEMPELSMAN)
* Vice Chairman of the Board of Directors and November 19, 1996
......................................... President (principal executive officer)
(LEON TEMPELSMAN)
* Director November 19, 1996
.........................................
(GEORGE R. KAPLAN)
* Director November 19, 1996
.........................................
(LUCIEN BURSTEIN)
* Director November 19, 1996
.........................................
(MICHAEL W. BUTTERWICK)
* Director November 19, 1996
.........................................
(MYER FELDMAN)
SHELDON L. GINSBERG Director, Executive Vice President and Chief November 19, 1996
......................................... Financial Officer (principal financial and
(SHELDON L. GINSBERG) accounting officer)
* Director November 19, 1996
.........................................
(ROBERT SPEISMAN)
*By: /s/ SHELDON L. GINSBERG
.........................................
(SHELDON L. GINSBERG)
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
<PAGE>
To the Board of Directors and Stockholders
LAZARE KAPLAN INTERNATIONAL INC.
We have audited the consolidated financial statements of Lazare Kaplan
International Inc. and subsidiaries as of May 31, 1996 and 1995 and for the
years then ended and have issued our report thereon dated July 9, 1996 (included
elsewhere within the Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration Statement
for the years ended May 31, 1996 and 1995. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the years ended May 31, 1996 and 1995.
ERNST & YOUNG LLP
New York, New York
July 9, 1996
S-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement of Lazare Kaplan
International Inc. and subsidiaries on Form S-2 of our report dated July 13,
1994 (August 31, 1994 as to Note 11), appearing in the Prospectus, which is part
of this Registration Statement, and to the reference to us under the headings
'Selected Financial Information' and 'Experts' in such Prospectus.
Our audit of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Lazare Kaplan
International Inc. and subsidiaries, listed in Item 16(b). This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
November 18, 1996
S-2
<PAGE>
<PAGE>
SCHEDULE II
LAZARE KAPLAN INTERNATIONAL INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- -------
ADDITIONS
-----------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------------------- -------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1996:
Allowance for doubtful accounts............... $220,046 $ 70,000 $-- $ 8,781 (B) $281,265
-------- --------- -------------- -------- --------
Sales returns and allowances.................. $ -- $ -- $-- $ -- $ --
-------- --------- -------------- -------- --------
YEAR ENDED MAY 31, 1995:
Allowance for doubtful accounts............... $165,169 $ 70,000 $-- $15,123 (B) $220,046
-------- --------- -------------- -------- --------
Sales returns and allowances.................. $ -- $ -- $-- $ -- $ --
-------- --------- -------------- -------- --------
YEAR ENDED MAY 31, 1994:
Allowance for doubtful accounts............... $403,837 $ 10,000 $-- $248,668(B) $165,169
-------- --------- -------------- -------- --------
Sales returns and allowances.................. $268,632 $(268,632)(A) $-- $ -- $ --
-------- --------- -------------- -------- --------
</TABLE>
- ------------
(A) Adjustments to reserve balance
(B) Amounts written off
S-3
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC.
Appendix to Registration Statement on Form S-2
Diagram I
This is a drawing of the side view of a diamond, including the angles and
proportions that comprise the formula for cutting a diamond to ideal
proportions.
Diagram II
Illustration A
This is a drawing of the side view of a diamond that is ideal cut, with a line
depicting the path that light takes when it enters and then is released from a
diamond cut to ideal proportions.
Illustration B
This is a drawing of the side view of a diamond that is cut deep, with a line
depicting the path that light takes when it enters and then is released from a
diamond that is cut this way.
Illustration C
This is a drawing of the side view of a diamond that is cut shallow, with a line
depicting the path that light takes when it enters and then is released from a
diamond that is this way.
Diagram III
This is a drawing of the side view of an ideal cut diamond containing a circle
in the center depicting a magnified portion of the outer perimeter (i.e. girdle)
of the diamond. Within the circle is the Lazare Kaplan logo and a six-digit
number.
STATEMENT OF DIFFERENCES
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The registered trademark shall be expressed as 'r'
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2,200,000 Shares
LAZARE KAPLAN INTERNATIONAL INC.
Common Stock
UNDERWRITING AGREEMENT
December __, 1996
UBS Securities LLC
Furman Selz LLC
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Lazare Kaplan International Inc., a Delaware corporation (the
"Company"), proposes to issue and sell 1,800,000 shares of its authorized but
unissued Common Stock, $1.00 par value per share (the "Common Stock"), and the
stockholder of the Company listed on Schedule B hereto (the "Selling
Securityholder") proposes to sell an aggregate of 400,000 shares of Common Stock
(collectively, such 2,200,000 shares of Common Stock are hereinafter referred to
as the "Firm Shares") to the several underwriters listed on Schedule A to this
Agreement (collectively, the "Underwriters"). The Company also proposes to grant
to the Underwriters an option to purchase up to 330,000 additional shares (the
"Option Shares") of Common Stock on the terms and for the purposes set forth in
Section 3(c). The Firm Shares and the Option Shares are hereinafter collectively
referred to as the "Shares."
The Company and the Selling Securityholder severally wish to
confirm as follows their agreements with you (the "Representatives") and the
other Underwriters on whose behalf you are acting in connection with the several
purchases by the Underwriters of the Shares.
1. REGISTRATION STATEMENT. A registration statement
on Form S-2 (File No. 333-14227) including a prospectus
relating to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, has been filed
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with the Commission and either (i) has been declared effective under the Act and
is not proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. There have been delivered to you three signed copies
of such registration statement and each amendment thereto, together with three
copies of each exhibit filed therewith. Copies of such registration statement
and amendments (but without exhibits) and of the related preliminary prospectus
have been delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. If such registration statement (the "initial
registration statement") has been declared effective, either (i) an additional
registration statement (the "additional registration statement") relating to the
Shares may have been filed with the Commission pursuant to Rule 462(b) ("Rule
462(b)") under the Act and, if so filed, has become effective upon filing
pursuant to such Rule and the Shares all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Shares will all have been duly registered under the Act pursuant to the
initial registration statement and such additional registration statement. If
the Company does not propose to amend the initial registration statement or if
an additional registration statement has been filed and the Company does not
propose to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the execution
and delivery of this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the
Act or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of this
Agreement, the additional registration statement means (i) if the Company has
advised the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or the
most recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c), or (ii)
if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as
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amended by such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this Agreement but the
Company has advised the Representatives that it proposes to file one, "Effective
Time" with respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes effective
pursuant to Rule 462(b). "Effective Date" with respect to the initial
registration statement or the additional registration statement (if any) means
the date of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all material incorporated by reference
therein, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration statement
as of the Effective Time of the additional registration statement pursuant to
the General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration statement
as of its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the
Act, is hereinafter referred to as the "Initial Registration Statement". The
additional registration statement, as amended at its Effective Time, including
the contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration Statement".
The Initial Registration Statement and the Additional Registration Statement are
hereinafter referred to collectively as the "Registration Statements" and
individually as a "Registration Statement". The form of prospectus relating to
the Shares, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, including all material
incorporated by reference in such prospectus, is hereinafter referred to as the
"Prospectus". The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective that
omits Rule 430A Information. The term "Rule 430A Information" means information
with respect to the Shares and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule 430A of
the Rules and Regulations. The term "Offering Memorandum" as used in this
Agreement shall mean the Offering Memorandum consisting of the Prospectus and a
Canadian wrap-around used in connection with the offering of
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the Shares in Canada. No document has been or will be
prepared or distributed in reliance on Rule 434 under the
Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SELLING SECURITYHOLDER.
(a) Each of the Company and the Selling
Securityholder hereby represents and warrants as follows:
(i) The Company has not received, and has no
notice of, any order of the Commission preventing or suspending the use of any
Preliminary Prospectus, or instituted proceedings for that purpose, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the Rules and Regulations. If the
Effective Time of the Initial Registration Statement is prior to the execution
and delivery of this Agreement: (i) on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement conformed in all
respects to the requirements of the Act and the Rules and Regulations and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed, or will
conform, in all respects to the requirements of the Act and the Rules and
Regulations and did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) on the date of this Agreement, the Initial Registration
Statement and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the Prospectus
is included, each Registration Statement and the Prospectus will conform, in all
respects to the requirements of the Act and the Rules and Regulations, and
neither of such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. If
the Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
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Initial Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act and the
Rules and Regulations, neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
and no Additional Registration Statement has been or will be filed. The
foregoing representations and warranties in this section 2(a) do not apply to
any statements made in, or omissions from, a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it being
understood and agreed that the only such information is that described as such
in Section 9(b). The Company has not distributed any offering material in
connection with the offering or sale of the Shares other than the Registration
Statement, the Preliminary Prospectus, the Prospectus, the Offering Memorandum
or any other materials, if any, permitted by the Act.
(ii) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own, lease and
operate its properties and conduct its business as described in the Registration
Statement. The Company is duly qualified to do business as a foreign corporation
in good standing in each jurisdiction where the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect on the
business, properties, financial condition or results of operations or business
prospects of the Company and its Subsidiaries (as hereinafter defined) taken as
a whole (a "Material Adverse Effect"). The Company has no subsidiaries (as
defined in the Rules and Regulations) that are currently engaged in any business
activity other than the subsidiaries set forth on Schedule 2(a)(ii)(A)
(collectively, the "Subsidiaries"). The Company owns directly or indirectly 100%
of the outstanding capital stock of each of the Subsidiaries, other than Lazare
Kaplan Botswana (Pty) Ltd., of which the Company owns 60% of the outstanding
common stock. Other than (i) the Subsidiaries, (ii) the subsidiaries of the
Company listed on Schedule 2(a)(ii)(B) hereto and as set forth on such Schedule
2(a)(ii)(B) and (iii) the other entities listed on Schedule 2(a)(ii)(C) hereto
and as set forth on such Schedule 2(a)(ii)(C), the Company does not own,
directly or indirectly, any shares of stock or any other equity or long-term
debt securities of any corporation or have any equity interest in any firm,
partnership, joint venture,
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association or other entity. Complete and correct copies of the certificates of
incorporation and of the bylaws of the Company and the Subsidiaries and all
amendments thereto have been delivered to the Representatives, and except as set
forth in the exhibits to the Registration Statement no changes therein will be
made subsequent to the date hereof and prior to the Closing Date or, if later,
the Option Closing Date. No subsidiary of the Company listed on Schedule
2(a)(ii)(B) hereto currently conducts any business activity or has any
liabilities or assets (other than the initial cash capitalization of such
subsidiary). Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of the properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material Adverse Effect.
All of the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable and
(except as otherwise described in this Section 2(a)) are owned directly or
indirectly by the Company subject to no security interest, other encumbrance or
adverse claims. No options, warrants or other rights to purchase, agreements or
other obligation to issue or other rights to convert any obligation into shares
of capital stock or ownership interests in the Subsidiaries are outstanding.
(iii) The Company has full power and authority
(corporate and otherwise) to enter into this Agreement and to perform the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company. The performance of this Agreement by the
Company and the consummation by the Company of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any indenture, mortgage, deed
of trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, or any lease, contract or other agreement or instrument to which
the Company or any Subsidiary is a party or by which its properties are bound,
or (ii) the certificate of incorporation or bylaws of the Company or any
Subsidiary or (iii) any law, order, rule, regulation, writ, injunction or decree
of any court or governmental agency or body to which the Company or any
Subsidiary is subject. The Company is
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not required to obtain or make (as the case may be) any consent, approval,
authorization, order, designation or filing by or with any court or regulatory,
administrative or other governmental agency or body as a requirement for the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or under state securities or blue sky ("Blue Sky")
laws or under the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD"), or under applicable Canadian securities laws.
(iv) Except as disclosed in the Prospectus,
there is not pending or, to the Company's knowledge, threatened, any action,
suit, claim, proceeding or investigation against the Company or its Subsidiaries
or any of their respective officers or any of their respective properties,
assets or rights before any court or governmental agency or body or otherwise
which might result in a Material Adverse Effect, or prevent consummation of the
transactions contemplated hereby. There are no statutes, rules, regulations,
agreements, contracts, leases or documents that are required to be described in
the Prospectus, or to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations that have not been accurately described in
all material respects in the Prospectus or filed as exhibits to the Registration
Statement.
(v) All outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of any preemptive right, resale
right, right of first refusal or similar right. The authorized and outstanding
capital stock of the Company conforms in all material respects to the
description thereof contained in the Registration Statement, the Offering
Memorandum and the Prospectus (and such description correctly states the
substance of the provisions of the instruments defining the capital stock of the
Company).
(vi) The Shares to be sold by the Company
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable. The Shares to be sold by the
Selling Securityholder are duly authorized, are duly and validly issued, fully
paid and nonassessable. The Shares conform to the description
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thereof in the Prospectus. Except as set forth in the Prospectus, no preemptive
right, co-sale right, right of first refusal or other similar rights of
securityholders exists with respect to any of the Shares or the issue and sale
thereof other than those that have been expressly waived prior to the date
hereof. No holder of securities of the Company has the right to cause the
Company to include such holder's securities in the Registration Statement. No
further approval or authorization of any security holder, the Board of Directors
or any duly appointed committee thereof or others is required for the issuance
and sale or transfer of the Shares, either by the Company or the Selling
Securityholder, except as may be required under the Act, the Exchange Act or
under state securities or Blue Sky laws. Except as disclosed in or contemplated
by the Prospectus, the Offering Memorandum and the financial statements of the
Company, and the related notes thereto, included in the Prospectus and the
Offering Memorandum, the Company does not have outstanding any options or
warrants to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option and other plans or arrangements, and the options or other
rights granted and exercised thereunder, incorporated by reference in the
Prospectus and the Offering Memorandum accurately and fairly presents, in all
material respects, as of the date of such information, the information required
to be shown with respect to such plans, arrangements, options and rights.
(vii) The Shares to be sold by the Selling
Securityholder are listed on the American Stock Exchange, and prior to the
Closing Date the Shares to be issued and sold by the Company will be authorized
for listing by the American Stock Exchange upon official notice of issuance. The
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the American Stock Exchange, nor has the Company
received any notification that the Commission or the American Stock Exchange is
contemplating terminating such registration or listing.
(viii) Ernst & Young LLP and Deloitte & Touche LLP (the
"Accountants"), each of whom has examined certain of the financial statements,
together with the related schedules and notes, of the Company filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are, or were at the time of
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such examination, respectively, independent public accountants within the
meaning of the Act and the Rules and Regulations. The financial statements of
the Company, together with the related schedules and notes, forming part of the
Registration Statement, the Offering Memorandum and the Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. All
financial statements, together with the related schedules and notes, filed with
the Commission as part of the Registration Statement have been prepared in
accordance with generally accepted accounting principles as in effect in the
United States consistently applied throughout the periods involved except as may
be otherwise stated in the Registration Statement. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein. No other financial
statements or schedules are required by the Act or the Rules and Regulations to
be included in the Registration Statement.
(ix) Subsequent to the respective dates as of
which information is given in the Registration Statement, the Offering
Memorandum and the Prospectus, there has not been (i) any material adverse
change, or any development which is likely to cause a material adverse change,
in the business, properties or assets described or referred to in the
Registration Statement, or the results of operations, financial condition,
business or operations of the Company and its Subsidiaries taken as a whole,
(ii) any transaction which is material to the Company or its Subsidiaries,
except transactions in the ordinary course of business, (iii) any obligation,
direct or contingent, which is material to the Company and its Subsidiaries
taken as a whole, incurred by the Company or its Subsidiaries, except
obligations incurred in the ordinary course of business, (iv) any change in the
capital stock (other than shares of Common Stock issued pursuant to stock
options issued pursuant to stock option plans that the Prospectus indicates are
outstanding) or outstanding indebtedness of the Company or its Subsidiaries or
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company. Neither the Company nor its Subsidiaries has any
material contingent obligation which is not disclosed in the Registration
Statement.
(x) Except as set forth in the Prospectus
and the Offering Memorandum, (i) the Company and each Subsidiary have good and
marketable title to all material properties and assets described in the
Prospectus and the
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Offering Memorandum as owned by them, free and clear of any pledge, lien,
security interest, charge, encumbrance, claim, equitable interest, or
restriction that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them or that would have a
Material Adverse Effect, (ii) the agreements to which the Company or any
Subsidiary is a party described in the Prospectus and the Offering Memorandum
are valid agreements, enforceable against the Company or such Subsidiary in
accordance with their terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles, and, to the Company's knowledge, the other contracting party or
parties thereto are not in material breach or default under any of such
agreements and (iii) the Company and each Subsidiary have valid and enforceable
leases for the properties described in the Prospectus and the Offering
Memorandum as leased by it, and such leases conform in all material respects to
the description thereof, if any, set forth in the Registration Statement.
(xi) The Company and each Subsidiary now hold
and at the Closing Date and any later Option Closing Date, as the case may be,
will hold, all licenses, certificates, approvals and permits from all state,
United States, foreign and other regulatory authorities that are material to the
conduct of the business of the Company (as such business is currently
conducted), except for such licenses, certificates, approvals and permits the
failure of which to hold would not have a Material Adverse Effect), all of which
are valid and in full force and effect (and there is no proceeding pending or,
to the knowledge of the Company, threatened which may cause any such license,
certificate, approval or permit to be withdrawn, cancelled, suspended or not
renewed). Neither the Company nor any Subsidiary is in violation of its
certificate of incorporation or bylaws, or, except for defaults or violations
which would not have a Material Adverse Effect, in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which it is a party or by which it or any of its properties are
bound, or in violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body. All of the descriptions in
the Registration Statement and Prospectus of the legal and governmental
proceedings by or before any foreign, state or local government body exercising
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comparable authority are true, complete and accurate in all
material respects.
(xii) The Company and each Subsidiary have
filed on a timely basis all necessary federal, state and foreign income,
franchise and other tax returns and has paid all taxes shown thereon as due, and
the Company has no knowledge of any tax deficiency which has been or might be
asserted against the Company or any Subsidiary which might have a Material
Adverse Effect. All material tax liabilities are adequately provided for within
the financial statements of the Company.
(xiii) The Company and its Subsidiaries maintain insurance
of the types and in the amounts adequate for their business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering product liability and real and
personal property owned or leased against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(xiv) Neither the Company nor its Subsidiaries
are involved in any labor dispute or disturbance nor, to the knowledge of the
Company, is any such dispute or disturbance threatened.
(xv) Except as described in the Prospectus
and the Offering Memorandum, the Company and each Subsidiary own or possess
adequate licenses or other rights to use all patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, manufacturing processes, formulae, trade secrets,
know-how, franchises, and other material intangible property and assets
(collectively, "Intellectual Property") necessary to the conduct of their
businesses as conducted and as proposed to be conducted as described in the
Prospectus and the Offering Memorandum. The Company has no knowledge of any
facts which would preclude it from having rights to its patent applications
referenced in the Prospectus and the Offering Memorandum. The Company has no
knowledge that it or any Subsidiary lacks or will be unable to obtain any rights
or licenses to use any of the Intellectual Property necessary to conduct the
business now conducted or proposed to be conducted by it as described in the
Prospectus and the Offering Memorandum, except as described in the Prospectus
and the Offering Memorandum. The Prospectus and the Offering Memorandum fairly
and accurately describe the Company's rights with respect to the Intellectual
Property. The Company has not received any
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notice of infringement or of conflict with rights or claims of others with
respect to any Intellectual Property. The Company is not aware of any patents of
others which are infringed upon by potential products or processes referred to
in the Prospectus and the Offering Memorandum in such a manner as to materially
and adversely affect the Company and its Subsidiaries taken as a whole, except
as described in the Prospectus and the Offering Memorandum.
(xvi) Neither the Company nor any of its
Subsidiaries has incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement other than the underwriting
discounts and commissions contemplated hereby.
(xvii) Except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively, "environmental
laws"), owns or operates any real property contaminated with any substance that
is subject to any environmental laws (to the knowledge of the Company after
reasonable investigation), is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to any
environmental laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation which might lead to such a claim.
(xviii) Neither the Company nor any of its Subsidiaries has
at any time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any foreign, United States or
state governmental officer or official, or other person charged with similar
public of quasi-public duties, other than payments required or permitted by the
laws of the United States.
(xix) The Company has timely and properly
filed with the Commission all reports and other documents required to have been
filed by it with the Commission pursuant to the Act and the Rules and
Regulations. True and complete copies of all such reports and other documents
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filed with the Commission since January 1, 1993 have been delivered to you.
(xx) Neither the Company nor any of its
affiliates has any asset located in Cuba. In addition, neither the Company nor
any of its affiliates does business with the government of Cuba or with any
person or affiliate located in Cuba within the meaning of Section 517.075,
Florida Statutes, and the Company agrees to comply with such Section if prior to
the completion of the distribution of the Shares it commences doing such
business.
(b) The Selling Securityholder hereby represents
and warrants as follows:
(i) The Selling Securityholder has good and
marketable title to all of the Shares to be sold by the Selling Securityholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver the
same hereunder, and that upon the delivery of and payment for such Shares
hereunder, the several Underwriters will receive good and marketable title
thereto, free and clear of all liens, encumbrances, equities, security interests
and claims whatsoever.
(ii) The Selling Securityholder specifically
agrees that the Shares represented by the certificates held by the Selling
Securityholder are subject to the interests of the several Underwriters and the
Company, and that the obligations of the Selling Securityholder shall not be
terminated by any act of the Selling Securityholder or by operation of law,
whether by the death or incapacity of the Selling Securityholder or the
occurrence of any other event; if any such death, incapacity, dissolution,
liquidation or other such event should occur before the delivery of such Shares
hereunder, certificates for such Shares shall be delivered by the Selling
Securityholder or his estate in accordance with the terms and conditions of this
Agreement as if such death, incapacity, dissolution, liquidation or other event
had not occurred.
(iii) The Selling Securityholder has reviewed
the Registration Statement and Prospectus and, although the Selling
Securityholder has not independently verified the accuracy or completeness of
all the information contained therein, nothing has come to the attention of the
Selling Securityholder that would lead the Selling Securityholder to believe
that (i) on the Effective Date, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated
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therein or necessary in order to make the statements therein not misleading or
(ii) on the Effective Date the Prospectus contained and, on the Closing Date and
any later date on which Option Shares are to be purchased, contains any untrue
statement of a material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, the Selling
Securityholder agrees to sell to the several Underwriters the number of Firm
Shares set forth in Schedule B opposite the name of the Selling Securityholder,
and each of the Underwriters agrees to purchase from the Company and the Selling
Securityholder the respective aggregate number of Firm Shares set forth opposite
its name on Schedule A, plus such additional number of Firm Shares which such
Underwriter may become obligated to purchase pursuant to Section 3(b) hereof.
The price at which such Firm Shares shall be sold by the Company and purchased
by the several Underwriters shall be $_____ per share. The price at which such
Firm Shares shall be sold by the Selling Securityholder and purchased by the
several Underwriters shall be $_____ per share. The obligation of each
Underwriter to the Company and the Selling Securityholder shall be to purchase
from the Company and the Selling Securityholder that number of the Firm Shares
which represents the same proportion of the total number of the Firm Shares to
be sold by each of the Company and the Selling Securityholder pursuant to this
Agreement as the number of the Firm Shares set forth opposite the name of such
Underwriter in Schedule A hereto represents of the total number of the Firm
Shares to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Firm Shares or Option Shares agreed to be
purchased by such Underwriter or
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Underwriters, the Company or the Selling Securityholder shall immediately give
notice thereof to you and the non-defaulting Underwriters shall have the right
within 24 hours after such default to purchase, or procure one or more other
Underwriters or substitute Underwriters to purchase, in such proportions as may
be agreed upon between you and such purchasing Underwriter or Underwriters or
substitute Underwriters and upon the terms herein set forth, all or any part of
the Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such Firm
Shares or Option Shares, as the case may be, the number of Firm Shares or Option
Shares, as the case may be, which each non-defaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased on a
pro rata basis (as adjusted by you in such manner as you deem advisable to avoid
fractional shares) to absorb the remaining Firm Shares or Option Shares, as the
case may be, which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the Firm Shares or Option Shares, as the case may be,
which the defaulting Underwriter or Underwriters agreed to purchase if the
aggregate number of such Firm Shares or Option Shares, as the case may be,
exceeds 10% of the total number of Firm Shares or Option Shares, as the case may
be, which all Underwriters agreed to purchase hereunder. If the total number of
Firm Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company and the
Selling Securityholder shall have the right, within 24 hours next succeeding the
24-hour period referred to above, to make arrangements with other underwriters
or purchasers reasonably satisfactory to you for purchase of such Firm Shares or
Option Shares, as the case may be, on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholder shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes in
the Registration Statement, the Offering Memorandum, the Prospectus or any other
documents or arrangements may be made. If the aggregate number of Firm Shares or
Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters agreed to purchase exceeds 10% of the total number of Firm Shares
or Option Shares, as the case may be, which all Underwriters agreed to purchase
hereunder, and (i) if neither the non-defaulting Underwriters nor the Company
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and the Selling Securityholder shall make arrangements within the 24-hour
periods stated above for the purchase of all the Firm Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholder to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Securityholder and (ii)
if, in connection with the election by the Underwriters to purchase Option
Shares in accordance with the terms of this Agreement, neither the
non-defaulting Underwriters nor the Company and the Selling Securityholder shall
make arrangements within the 24-hour periods stated above for the purchase of
all the Option Shares for which such election has been made, the provisions of
Section 3(c) and 5(b) of this Agreement shall terminate with respect to such
Option Shares but this Agreement shall otherwise remain in full force and
effect. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase all
or any portion of the Option Shares from the Company at the same price per share
as the Underwriters shall pay for the Firm Shares purchased from the Company.
Said option may be exercised only to cover over-allotments in the sale of the
Firm Shares by the Underwriters and may be exercised in whole or in part at any
time (but not more than once) on or before the 30th day after the date of this
Agreement upon written notice (including notice by telecopy if confirmed in
writing delivered by hand or courier no later than 5:00 p.m. on the business day
next following the date of such delivery by telecopy) by you to the Company
setting forth the aggregate number of the Option Shares as to which the several
Underwriters are exercising the option. Delivery of certificates for the Option
Shares, and payment therefor, shall be made as provided in Section 5 hereof.
Each Underwriter will purchase such percentage of the Option Shares as is equal
to the percentage of Firm Shares that such Underwriter is purchasing, the exact
number of shares to be adjusted by you in such manner as you deem advisable to
avoid fractional shares.
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4. OFFERING BY UNDERWRITERS.
The terms of the public offering of the Shares in the United
States by the Underwriters shall be as set forth in the Prospectus. The terms of
the private placement of the Shares in Canada by the Underwriters shall be as
set forth in the Offering Memorandum. The Underwriters may from time to time
change the public offering and private placement prices after the closing of the
public offering and the private placement, respectively, and increase or
decrease the concessions and discounts to dealers as they may determine.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the
Option Shares (if the option granted pursuant to Section 3(c) hereof shall have
been exercised not later than 1:00 p.m., New York time, on the date at least two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004
at 9:00 a.m., New York City time, on the [FOURTH] business day after the date of
this Agreement, or at such time on such other day, not later than seven full
business days after such [FOURTH] business day, as shall be agreed upon in
writing by the Company, the Selling Securityholder and you (the "Closing Date").
For purposes of Rule 15c6-1 under the Exchange Act, the Closing Date (if later
than the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Shares sold pursuant to
the offering.
(b) If the option granted pursuant to Section 3(c) hereof
shall be exercised after 1:00 p.m., New York City time, on the date two business
days preceding the Closing Date, and on or before the 30th day after the date of
this Agreement, delivery of certificates for the Option Shares, and payment
therefor, shall be made at the office of Sullivan & Cromwell, 125 Broad Street,
New York, New York 10004 at 9:00 a.m., New York City time, on the third business
day after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be
made to the Company or its order and payment for the Shares purchased from the
Selling Securityholder shall be made to the Selling Securityholder, in each case
by one or more certified or official bank check or checks or wire transfers in
same day funds. Such payment shall be made upon delivery of certificates for the
Shares to you for the respective accounts of the several
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Underwriters against receipt therefor signed by you. Certificates for the Shares
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least three business days before the
Closing Date, in the case of Firm Shares, and at least two business days prior
to the Option Closing Date, in the case of the Option Shares. Such certificates
will be made available to the Underwriters for inspection, checking and
packaging at a location in New York, New York, designated by the Underwriters
not less than one full business day prior to the Closing Date or, in the case of
the Option Shares, by 3:00 p.m., New York time, on the business day preceding
the Option Closing Date.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholder for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
Option Closing Date. Any such payment by you shall not relieve such Underwriter
from any of its obligations hereunder.
(d) As compensation for the Underwriters' commitments, the
Selling Securityholder will pay to the Representatives for the Underwriters'
proportionate accounts the sum of $__________ per share times the total number
of Firm Shares purchased by the Underwriters from the Selling Stockholder on the
Closing Date. Such payment will be made on the Closing Date by certified or
official bank check or wire transfer in same day funds.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING
SECURITYHOLDER. Each of the Company and the Selling
Securityholder respectively covenants and agrees as follows:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by UBS Securities LLC
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second
business day following the execution and delivery of this Agreement or (B) the
fifteenth business day after the Effective Date of the Initial Registration
Statement. The Company will advise UBS Securities LLC promptly of any such
filing pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement
and an additional registration statement is necessary to register a portion of
the Shares
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under the Act but the Effective Time thereof has not occurred as of such
execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by UBS
Securities LLC. The Company will advise UBS Securities LLC promptly of any
proposal to amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial Registration
Statement, the Additional Registration Statement (if any) or the Prospectus and
will not effect such amendment or supplementation without UBS Securities LLC's
consent; and the Company will also advise UBS Securities LLC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any amendment
or supplementation of a Registration Statement or the Prospectus. The Company
will notify UBS Securities LLC promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information. Promptly upon the request of UBS Securities LLC, the
Company will prepare and file with the Commission any amendments or supplements
to the Registration Statement or Prospectus which, in the reasonable opinion of
the Representatives, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters. The Company will promptly
prepare and file with the Commission, and promptly notify UBS Securities LLC of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. In case any Underwriter is required to
deliver a prospectus within the nine-month period referred to in Section
10(a)(3) of the Act in connection with the sale of the Shares, the Company will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act. The Company
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will file no amendment or supplement to the Registration Statement or Prospectus
that shall not previously have been submitted to UBS Securities a reasonable
time prior to the proposed filing thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the Act and
Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise the Representatives, promptly
after it shall receive notice or obtain knowledge thereof of the issuance of any
stop order by the Commission suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the initiation or threat of any
proceeding for that purpose; and the Company and the Selling Securityholder will
promptly use their best efforts to prevent the issuance of any such stop order
or to obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for offering and sale under the securities
laws of such jurisdictions as the Representatives may designate and to continue
such qualifications in effect for so long as may be required for purposes of the
distribution of the Shares, except that the Company shall not be required in
connection therewith or as a condition thereof to qualify as a foreign
corporation, or to execute a general consent to service of process in any
jurisdiction, or to make any undertaking with respect to the conduct of its
business. In each jurisdiction in which the Shares shall have been qualified,
the Company will make and file such statements, reports and other documents in
each year as are or may be reasonably required by the laws of such jurisdictions
so as to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares, or as
otherwise may be required by law.
(d) The Company will furnish to the Representatives, as soon
as available, copies of the Registration Statement (three of which will be
signed and which will include all exhibits), each Preliminary Prospectus, the
Prospectus, the Offering Memorandum and any amendments or supplements to such
documents, including any prospectus prepared to permit compliance with Section
10(a)(3) of the Act, all in such quantities as the Representatives may from time
to time reasonably request.
(e) The Company will make generally available to
its stockholders as soon as practicable, but in any event
not later than the 45th day following the end of the fiscal
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quarter first occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section 11(a)
of the Act and Rule 158 of the Rules and Regulations and covering a twelve-month
period beginning after the effective date of the Registration Statement, and
will advise the Representatives in writing when such statement has been made
available.
(f) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to stockholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to
time, such other "non-confidential" information concerning the Company as UBS
Securities LLC may reasonably request.
(g) Prior to or simultaneously with the execution and delivery
of this Agreement, the Company will obtain agreement from each beneficial owner
of the Company's Common Stock listed on Schedule C to this Agreement providing
that such person will not, for a period of 180 days after the date of the
Prospectus, without the prior written consent of UBS Securities LLC, directly or
indirectly, offer to sell, sell, contract to sell, grant any option to purchase,
or otherwise dispose of, any shares of Common Stock beneficially owned as of the
date such lockup agreement is executed (including, without limitation, shares of
Common Stock which may be deemed to be beneficially owned in accordance with the
Rules and Regulations and shares of Common Stock which may be issued upon
exercise of a stock option or warrant) or any securities convertible into or
exercisable or exchangeable for such Common Stock except, (a) by operation of
law, (b) pursuant to a bona fide gift to any person or other entity which agrees
in writing to be bound by this restriction or (c) pursuant to a pledge of Common
Stock to secure a bona fide loan to such beneficial owner. Each such person or
entity shall also agree and consent to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of shares of Common Stock
held by such person or entity, except in compliance with the foregoing
restriction.
(h) The Company shall not, during the 180 days
following the effective date of the Registration Statement,
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except with your prior written consent as Representatives, file a registration
statement covering any of its shares of capital stock, except that one or more
registration statements on Form S-8 may be filed at any time following the
effective date of the Registration Statement.
(i) The Company shall not, during the 180 days following the
effective date of the Registration Statement, except with your prior written
consent as Representatives, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any options, rights or warrants with respect to shares of Common
Stock, or any securities convertible into or exchangeable for Common Stock,
other than (i) the sale of Shares hereunder, (ii) the grant of options or the
issuance of shares of Common Stock under the Company's stock option plans or
stock purchase plan, as the case may be, existing on the date hereof, and (iii)
the issuance of shares of Common Stock upon exercise of the currently
outstanding options or warrants described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) The Company will use its best efforts to maintain listing
of its shares of Common Stock on the American Stock Exchange for a period of
five years after the Closing Date; provided, that the Company may, at its
election, terminate the listing of its shares of Common Stock on the American
Stock Exchange if, prior to any such termination, its shares of Common Stock are
approved for listing on The New York Stock Exchange, Inc.
7. EXPENSES.
The Company and the Selling Securityholder agree with each Underwriter
that:
(a) The Company and the Selling Securityholder will pay and
bear all costs, fees and expenses (other than, except as specified herein, fees
of counsel to the Underwriters) in connection with the preparation, printing and
filing of the Registration Statement (including financial statements, schedules
and exhibits), the Offering Memorandum (including fees relating to the filing of
reports in Canada) Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the reproduction of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the Blue Sky
Memorandum and any
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instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any;
the cost of all stock certificates representing the Shares and Transfer Agents'
and Registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent public accountants; the cost
of furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), the Offering Memorandum, Preliminary
Prospectuses and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and expenses incident to securing any required
review and the cost of qualifying the Shares under the laws of such
jurisdictions within the United States as you may designate (including filing
fees and fees and disbursements of legal counsel to the Underwriters in
connection with such NASD filings and Blue Sky qualifications); listing
application fees of the American Stock Exchange; and all other expenses directly
incurred by the Company or the Selling Securityholder in connection with the
performance of their obligations hereunder. The Selling Securityholder will pay
any transfer taxes incident to the transfer to the Underwriters of the Shares
being sold by the Selling Securityholder.
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or the Selling Securityholder to perform any agreement on either of
their part to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, the Company or the Selling Securityholder
will, in addition to paying the expenses described in clause (a) above,
reimburse the several Underwriters for all actual out-of-pocket expenses
(including reasonable fees and disbursements of legal counsel to the
Underwriters) incurred by the Underwriters in reviewing the Registration
Statement and the Prospectus and in preparing the Offering Memorandum in
otherwise investigating, preparing to market or marketing the Shares. Neither
the Company nor the Selling Securityholder will in any event be liable to any of
the several Underwriters for any loss of anticipated profits from the sale by
them of the Shares.
(c) The provisions of paragraphs (a) and (b) of this Section
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholder hereby agree to pay and
shall not affect any agreement which the Company and the Selling Securityholder
make, or may have made, for the sharing of any such expenses and costs.
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8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company and the Selling
Securityholder herein, to the performance by the Company and the Selling
Securityholder of their obligations hereunder and to the following additional
conditions:
(a) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York time, on
the date of this Agreement or such later date as shall have been consented to by
UBS Securities LLC. If the Effective Time of the Additional Registration
Statement (if any) is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus is
printed and distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by UBS Securities LLC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 6(a) of this
Agreement. No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been initiated or, to the knowledge of the Company, the Selling Securityholder
or any Underwriter, threatened by the Commission, and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
reasonable satisfaction of the Underwriters.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement, the Offering
Memorandum and the Prospectus, and the registration, authorization, issue, sale
and delivery of the Shares shall have been reasonably satisfactory to the
Representatives, and the Representatives shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this subsection.
(c) You shall have received, at no cost to you,
on the Closing Date and on any later Option Closing Date, as
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the case may be, the opinion of Warshaw Burstein Cohen Schlesinger & Kuh, LLP,
counsel to the Company and the Selling Securityholder, dated the Closing Date or
such later Option Closing Date, in the form attached hereto on Appendix A,
addressed to the Underwriters and with reproduced copies of signed counterparts
thereof for each of the Representatives.
(d) You shall have received from Sullivan & Cromwell, legal
counsel to the Underwriters, an opinion and letter, dated the Closing Date or on
any later Option Closing Date, as the case may be, in form and substance
reasonably satisfactory to you, with respect to the sufficiency of all corporate
proceedings undertaken by the Company and other legal matters relating to this
Agreement and the transactions contemplated hereby as you may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may have reasonably requested for the purpose of enabling them to pass upon
such matters.
(e) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
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(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) the unaudited financial statements
included in the Registration Statements do not comply
as to form in all material respects with the
applicable accounting requirements of the Act and the
related published Rules and Regulations or any
material modifications should be made to such
unaudited financial statements for them to be in
conformity with generally accepted accounting
principles;
(B) the unaudited consolidated net sales,
net operating income, net income and net income per
share amounts for the three month periods ended
August 31, 1996 and August 31, 1995 included in the
Prospectus do not agree with the amounts set forth in
the unaudited consolidated financial statements for
those same periods or were not determined on a basis
substantially consistent with that of the
corresponding amounts in the audited statements of
income;
(C) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt
of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet
read by such accountants, there was any decrease in
consolidated net assets, as compared with amounts
shown on the latest balance sheet included in the
Prospectus; or
(D) for the period from the closing date of
the latest income statement included in the
Prospectus to the closing date of the latest
available income statement read by such accountants
there were any decreases, as
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compared with the corresponding period of the
previous year and with the period of corresponding
length ended the date of the latest income statement
included in the Prospectus, in consolidated net
sales, or net operating income, or in the total or
per share amounts of consolidated net income;
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration Statement is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time, and (iii) "Prospectus" shall mean the prospectus
included in the Registration Statements. All financial statements and
schedules included in material
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incorporated by reference into the Prospectus shall be deemed included
in the Registration Statements for purposes of this subsection.
[Additional clauses will be added for other data included in
the Registration Statements, including the pro forma computations of
earnings per share and the adjusted balance sheet information or
earnings statements and for the financial statements from which the
capsule information is derived.].
(f) You shall have received on the Closing Date and on any
later Option Closing Date, as the case may be, a certificate of the President
and the Chief Financial Officer of the Company, dated the Closing Date or such
later date, to the effect that as of such date (and you shall be satisfied that
as of such date):
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing
Date or any later Option Closing Date, as the case may be; and the Company has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied under this Agreement at or prior to the
Closing Date or any later Option Closing Date, as the case may be;
(ii) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has been issued,
and no proceedings for that purpose have been instituted or are pending or, to
the best of their knowledge, threatened under the Act;
(iii) The Additional Registration Statement (if any)
satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was
filed pursuant to Rule 462(b), including payment of the applicable filing fee
in accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter;
(iv) They have carefully reviewed the Registration
Statement, the Offering Memorandum and the Prospectus; and, when the
Registration Statement became effective and at all times subsequent thereto
up to the delivery of such certificate, the Registration Statement and the
Prospectus and any amendments or supplements thereto contained all statements
and information required to be included therein or necessary to make the
statements therein not misleading; and when the Registration Statement became
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effective, and at all times subsequent thereto up to the delivery of such
certificate, none of the Registration Statement, the Prospectus or the Offering
Memorandum or any amendment or supplement thereto included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and, since
the effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus or Offering
Memorandum that has not been so set forth; and
(v) Subsequent to the respective dates as of
which information is given in the Registration Statement, the Offering
Memorandum and the Prospectus, there has not been (A) any material adverse
change in the properties or assets described or referred to in the Registration
Statement, the Offering Memorandum and the Prospectus or in the condition
(financial or otherwise), operations, business or prospects of the Company and
its Subsidiaries, (B) any transaction which is material to the Company and its
Subsidiaries, except transactions entered into in the ordinary course of
business, (C) any obligation, direct or contingent, incurred by the Company or
its Subsidiaries, which is material to the Company and its Subsidiaries taken as
a whole, (D) any change in the capital stock or outstanding indebtedness of the
Company or its Subsidiaries which is material to the Company and its
Subsidiaries taken as a whole or (E) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company.
(g) The Company and the Selling Securityholder shall have
furnished to you such further certificates and documents as you shall reasonably
request as to the accuracy of the representations and warranties of the Company
and the Selling Securityholder herein, as to the performance by the Company and
the Selling Securityholder of their obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
(h) The Firm Shares and the Option Shares, if any, shall have
been approved for listing upon notice of issuance on the American Stock
Exchange.
(i) The Representatives shall have received a letter, dated
such Closing Date, of Ernst & Young LLC which meets the requirements of
subsection (e) of this Section, except that the specified date referred to in
such subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
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All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to the Representatives. The Company or the Selling Securityholder,
as the case may be, will furnish you with such number of conformed copies of
such opinions, certificates, letters and documents as you shall reasonably
request.
In case any of the conditions specified in this Section 8
shall not be fulfilled, this Agreement may be terminated by you by giving notice
to the Company and to the Selling Securityholder. Any such termination shall,
except as provided in Section 7(b), be without liability of the Company or the
Selling Securityholder to the Underwriters and without liability of the
Underwriters to the Company or the Selling Securityholder; provided, however,
that in the event of such termination, the Company and the Selling
Securityholder agree, jointly and severally, to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholder under this Agreement.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Securityholder jointly and
severally agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company and the Selling Securityholder
jointly and severally agree to reimburse each such Underwriter and controlling
person for any legal or other actual out-of-pocket expenses (including, except
as otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any post-effective amendment
thereto or in the Offering Memorandum, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a
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material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or in the Offering Memorandum or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that (1) the indemnity
agreements of the Company and the Selling Securityholder contained in this
paragraph (a) shall not apply to any such losses, claims, damages, liabilities
or expenses that arise out of or are based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such documents
in reliance upon and in conformity with written information furnished to the
Company by an Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information furnished
by any Underwriter consists of the information described as such in subsection
(b) below and (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus or Offering Memorandum shall not inure to
the benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Shares which is the
subject thereof (or to the benefit of any person controlling such Underwriter)
if at or prior to the written confirmation of the sale of such Shares a copy of
the Prospectus (or the Prospectus as amended or supplemented or, in the case of
purchasers resident in Ontario, Canada, the revised Offering Memorandum) was not
sent or delivered to such person and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented or, in the case of
purchasers resident in Ontario, Canada, the revised Offering Memorandum) unless
the failure is the result of noncompliance by the Company with paragraph (a) of
Section 6 hereof. The indemnity agreements of the Company and the Selling
Securityholder contained in this paragraph (a) and the representations and
warranties of the Company and the Selling Securityholder contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its executive officers, each of its directors, and
each person (including each partner or officer thereof) who controls the Company
within the meaning of Section 15 of the Act, and the Selling Securityholder from
and against any and all losses,
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claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise and to reimburse each of them for any legal or other
actual out-of-pocket expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof) or any
post-effective amendment thereto or in the Offering Memorandum or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or in the Offering Memorandum or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein, and will
reimburse any legal or other actual out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by the indemnified parties in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Underwriter consists of
the following information in the Prospectus and the Offering Memorandum
furnished on behalf of each Underwriter: the last paragraph at the bottom of the
cover page of the Prospectus concerning the terms of the offering by the
Underwriters, the legend concerning over-allotments and stabilizing on the
inside front cover page of the Prospectus, the concession and reallowance
figures appearing in the third paragraph under the caption "Underwriting" in the
Prospectus and the information appearing under the caption "Representation by
Purchasers" in the Offering Memorandum. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect
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regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs
(a) and (b) of this Section 9 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the
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indemnified party or parties shall be entitled, at its or their own expense to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the second preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 10 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the
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offering of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Securityholder, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Shares (before deducting expenses) received by the Company
and the Selling Securityholder and the total underwriting discount and
commissions received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount and commissions applicable to the Shares
purchased by such Underwriter. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
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Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in paragraph (c) of this Section 9).
(e) Neither the Company nor the Selling Securityholder will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of the Selling Securityholder under the
Selling Securityholder's representations and warranties contained in Section 2
hereof and under the indemnity and reimbursement agreements contained in the
provisions of this Section 9 and Section 11 hereof shall be limited to an amount
equal to the initial public offering price of the stock sold by the Selling
Securityholder to the Underwriters. The Company and the Selling Securityholder
may agree, as among themselves and without limiting the rights of the
Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
10. TERMINATION. This Agreement may be terminated by you at any time on
or prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, by giving written notice to the Company and the Selling
Securityholder (i) if the Company or the Selling Securityholder shall have
failed, refused or been unable, at or prior to the Closing Date, or on or prior
to any later Option Closing Date, as the case may be, to perform any agreement
on its part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company or the Selling
Securityholder is not fulfilled, or (ii) if trading on the New York Stock
Exchange, the American Stock Exchange or the
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Nasdaq National Market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market, by such trading exchanges or by order of
the Commission or any other governmental authority having jurisdiction, or if a
banking moratorium shall have been declared by federal or New York authorities,
or (iii) if the Company shall have sustained a loss by strike, fire, flood,
accident or other calamity of such character as to have a Material Adverse
Effect regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets in the United States as in the
reasonable judgment of the Representatives makes it inadvisable or impracticable
to proceed with the offering, sale and delivery of the Shares, or (v) if there
shall have occurred an outbreak or escalation of hostilities between the United
States and any foreign power or of any other insurrection or armed conflict
involving the United States or other national or international calamity,
hostilities or crisis or the declaration by the United States of a national
emergency which, in the reasonable judgment of the Representatives, adversely
affects the marketability of the Shares, or (vi) if since the respective dates
as of which information is given in the Registration Statement, the Offering
Memorandum and the Prospectus, there shall have occurred any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company or the business
affairs, management, or business prospects of the Company, whether or not
arising in the ordinary course of business, or (vii) if any foreign, federal or
state statute, regulation, rule or order of any court or other governmental
authority shall have been enacted, published, decreed or otherwise promulgated
which in the reasonable judgment of the Representatives materially and adversely
affects or will materially and adversely affect the business or operations of
the Company, or trading in the Common Stock shall have been suspended, or (viii)
there shall have occurred a material adverse decline in the value of securities
generally on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market or (ix) action shall be taken by any foreign, federal,
state or local government or agency in respect of its monetary or fiscal affairs
which, in the reasonable judgment of the Representatives, has a material adverse
effect on the securities markets in the United States. If this Agreement shall
be terminated in accordance with this Section 10, there shall be no liability of
the Company or the Selling Securityholder to the
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Underwriters and no liability of the Underwriters to the Company or the Selling
Securityholder; provided, however, that in the event of any such termination the
Company and the Selling Securityholder agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholder under this Agreement,
including all costs and expenses referred to in Section 7.
If you elect to terminate this Agreement as provided in this Section
10, the Company shall be notified promptly by you by telephone or telecopy,
confirmed by letter within 24 hours of such notice by telephone or telecopy.
11. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section 9 of
this Agreement (and subject to the limitation on reimbursement of expenses set
forth in Section 9(c) and subject, in the case of Selling Securityholder, to the
provisions of paragraph (f) of Section 9), the Company and the Selling
Securityholder hereby jointly and severally agree to reimburse on a quarterly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 9 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
(b) In addition to their other obligations under Section 9 of
this Agreement (and subject to the limitation on reimbursement of expenses set
forth in Section 9(c)), the Underwriters hereby agree to reimburse on a
quarterly basis the Company and the Selling Securityholder for all reasonable
legal and other expenses incurred in connection with investigating or defending
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (b) of Section 9 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and
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enforceability of the obligations under this Section 11 and the possibility that
such payments might later be held to be improper; provided, however, that (i) to
the extent any such payment is ultimately held to be improper, the Company and
the Selling Securityholder shall promptly refund it and (ii) the Company and the
Selling Securityholder shall provide to the Underwriter, upon request,
reasonable assurances of its ability to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholder and the several
Underwriters and, with respect to the provisions of Section 9 hereof, the
several parties (in addition to the Company, the Selling Securityholder and the
several Underwriters) indemnified under the provisions of said Section 9, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Shares from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing and, if to the Underwriters, shall
be mailed or delivered by hand or telecopy to UBS Securities LLC, 299 Park
Avenue, New York, NY 10171, Attention: Mr. Richard Messina, Telecopy No. (212)
__________, with a copy to Sullivan & Cromwell, 125 Broad Street, New York, New
York 10004, Attention: Earl D. Weiner, Esq., Telecopy No. (212) 558-3588; and if
to the Company or the Selling Security Holder, shall be mailed or delivered by
hand or telecopy to it or him at the Company's office, 529 Fifth Avenue, New
York, New York 10017, Attention: Executive Vice President and Chief Financial
Officer, Telecopy No. (212) 697-3197, with a copy to Warshaw Burstein Cohen
Schlesinger & Kuh, LLP, 555 Fifth Avenue, New York, New York 10017, Attention:
Frederick J. Cummings, Esq., Telecopy No. (212) 972-9150. All notices given by
telecopy shall be confirmed by letter delivered by hand or courier no later than
5:00 p.m. on the business day next following the day of delivery of such notice
by telecopy.
14. AMENDMENTS AND WAIVERS. Any provisions of this Agreement
may be amended or waived prior to the Closing Date if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party
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against whom the waiver is to be effective. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter of this Agreement.
16. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or the Selling Securityholder
or the Company's respective directors or officers, and (ii) delivery of and
payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
You will act as Representatives of the several Underwriters in all
dealings with the Company under this Agreement, and any action under or in
respect of this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters, and the Company
and the Selling Securityholder shall be entitled to rely on any such action
taken by you jointly or by UBS Securities.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York, without regard to the conflicts of laws
principles thereof.
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Please sign and return to the Company and to the Selling Securityholder
in care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholder and the several Underwriters in accordance with its terms.
Very truly yours,
LAZARE KAPLAN INTERNATIONAL INC.
By:_________________________
Name:
Title:
SELLING SECURITYHOLDER
Maurice Tempelsman
______________________
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
FURMAN SELZ LLC
By: UBS SECURITIES LLC
for itself and as attorney-in-fact
for Furman Selz LLC
By: ______________________________
Title:
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
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<PAGE>
SCHEDULE A
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Underwriters Purchased
------------ ---------
<S> <C>
UBS Securities LLC............................................................
Furman Selz LLC ..............................................................
Total [ ]
==========
</TABLE>
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<PAGE>
<PAGE>
SCHEDULE B
SELLING SECURITYHOLDER
Maurice Tempelsman
c/o Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10017
400,000 shares
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SCHEDULE C
STOCKHOLDERS TO ENTER INTO LOCK-UP AGREEMENTS
Maurice Tempelsman
Leon Tempelsman
Leon Tempelsman & Son
c/o Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10017
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APPENDIX A
FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE
SELLING SECURITYHOLDERS
Warshaw Burstein Cohen Schlesinger & Kuh, LLP shall opine to
the effect that:
(A) The Company has been duly organized and is validly
existing as a corporation, and is in good standing under, the laws of the State
of Delaware;
(B) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect;
(C) Other than the Subsidiaries, the Company does not own or
control, directly or indirectly, any corporation, association or other entity.
Each Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of the properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material Adverse Effect.
All of the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and non-assessable and,
except as otherwise stated in the Registration Statement, are owned by the
Company, in each case subject to no security interest, other encumbrance or
adverse claim; to the best of such counsel's knowledge, no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligation into shares of capital stock or ownership
interests in the Subsidiaries are outstanding;
(D) The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, $1.00 par
A-1
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<PAGE>
value, of which there are outstanding __ shares (including the Firm Shares plus
the number of Option Shares issued on the date hereof); the authorized shares of
the Company's Common Stock have been duly authorized; the issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have not been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right known to such counsel;
(E) The Shares to be issued by the Company pursuant to this
Agreement have been duly authorized and will be, upon issuance and delivery
against payment therefor in accordance with the terms hereof, validly issued,
fully paid and nonassessable, and, to the knowledge of such counsel, the
stockholders of the Company do not have any preemptive right, co-sale right,
registration right, right of first refusal or other similar right, which rights
have not previously been waived, in connection with the purchase or sale of any
of the Shares;
(F) Good and marketable title to the shares of the Shares sold
by the Selling Securityholders under the Underwriting Agreement, free and clear
of all liens, encumbrances, equities, security interests and claims, have been
transferred to the Underwriters who have severally purchased such Shares under
the Underwriting Agreement, assuming for the purpose of this opinion that the
Underwriters purchased the same in good faith without notice of any adverse
claims;
(G) The Company has full corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters the
Firm Shares or the Option Shares, as the case may be, to be issued and sold by
it hereunder;
(H) The Underwriting Agreement has been duly
executed and delivered by or on behalf of the Selling
Securityholder;
(I) The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly executed
and delivered by the Company and the Selling Securityholders;
(J) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the Additional
Registration Statement (if any) was filed and became effective under the
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<PAGE>
Act as of the date and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the subparagraph of
Rule 424(b) specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of a Registration Statement
or any part thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Act;
(K) The Registration Statement, all Preliminary Prospectuses,
the Prospectus, and each amendment or supplement thereto (other than the
financial statements, financial data and supporting schedules included therein,
as to which such counsel need express no opinion), comply as to form in all
material respects with the requirements of the Act and the applicable Rules and
Regulations and to such counsel's knowledge, there are no agreements, contracts,
leases or documents of a character required to be described in, or filed as an
exhibit to, the Registration Statement which are not described or filed as
required by the Act and the applicable Rules and Regulations;
(L) The terms and provisions of the capital stock of the
Company conform to the description thereof contained in the Registration
Statement and the Prospectus, and the information in the Prospectus under the
caption "Description of Capital Stock", to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel and is
correct, and the form of certificate evidencing the Common Stock complies with
the applicable provisions of Delaware law;
(M) The statements in the Registration Statement and the
Prospectus summarizing statutes, rules and regulations, including the Delaware
corporation law and the description of the certificate of incorporation and
bylaws are accurate and fairly and correctly present the information required to
be presented by the Act or the Rules and Regulations in all material respects;
and such counsel does not know of any statutes, rules or regulations required to
be described in the Registration Statement or the Prospectus that are not
described or referred to therein as required;
(N) The statements under the caption "Description of Capital
Stock" in the Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate summaries and
fairly
A-3
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<PAGE>
and correctly present, in all material respects, the information called for with
respect to such documents and matters; provided that such counsel shall be
entitled to rely on representations of the Company with respect to certain
factual matters contained in such statements, and provided further that such
counsel shall state that nothing has come to the attention of such counsel which
leads them to believe that such representations are not true and correct in all
material respects;
(O) The information required to be set forth in the
Registration Statement in answer to Items 9 and 10 (insofar as it relates to
such counsel) of Form S-2 is to the best of such counsel's knowledge accurately
and adequately set forth therein in all material respects or no response is
required with respect to such Items;
(P) The execution, delivery and performance of this Agreement
and the consummation of the transactions therein contemplated do not and will
not (a) conflict with or result in a breach of any of the terms or provisions of
or, constitute a default under, the certificate of incorporation or bylaws of
the Company, any agreement or document filed as an exhibit to the Registration
Statement, or any statute, rule or regulation applicable to the Company or the
Selling Securityholders (except that no opinion need to be expressed with
respect to compliance with federal and state securities laws) or (b) to the
knowledge of such counsel, result in the creation or imposition of any lien or
encumbrance upon any of the assets of the Company or the Selling Securityholders
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default or result in the
acceleration of any obligation under, any indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note agreement, other evidence of indebtedness,
lease, contract or other agreement or instrument to which the Company is a party
or by which its property is bound or (c) to the knowledge of such counsel,
conflict with or result in a violation or breach of, or constitute a default
under, any applicable license, authorization, approval, permit, judgment,
franchise, order, writ or decree of any court or governmental agency or body;
(Q) The Company has the corporate power and authority to own
or lease all of the assets owned or leased by it and to conduct its business, in
each case as described in the Registration Statement and the Prospectus, and has
all licenses, permits, consents, orders, approvals and authorizations of any
federal or state government authority that are necessary to conduct its business
as described in
A-4
<PAGE>
<PAGE>
the Registration Statement and the Prospectus, except where failure to have such
licenses, permits, consents, orders, approvals and authorizations would not have
a Material Adverse Effect.
(R) Based insofar as factual matters with respect to the
Shares to be sold by the Selling Securityholders are concerned solely upon
certificates of the Selling Securityholders, the accuracy of which counsel has
no reason to question no authorization, approval, consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the execution and delivery of this Agreement by the
Company and the Selling Securityholders and the consummation of the transactions
therein contemplated, except such as may have been obtained under the Act and
the Rules and Regulations or such as may be required under state securities or
Blue Sky laws or by the bylaws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters;
(S) The Company is not in violation of its certificate of
incorporation or bylaws, and to the best of such counsel's knowledge, the
Company is not in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument by which it or any of its properties may be bound or
affected, except where such default would not materially adversely affect the
Company and, to the best of such counsel's knowledge, the Company is in
compliance with all laws, rules, regulations, judgments, decrees, orders and
statutes of any court or jurisdiction to which it is subject, except where
noncompliance would not materially adversely affect the Company;
(T) To such counsel's knowledge, there are no pending or
threatened actions, suits, claims, proceedings or investigations that, if
successful, would have a Material Adverse Effect or would limit, revoke, cancel,
suspend, or cause not to be renewed any existing license, certificate,
registration, approval or permit, known to such counsel, from any state,
federal, or regulatory authority that is material to the conduct of the business
of the Company as presently conducted, or that is of a character otherwise
required to be disclosed in the Registration Statement or the Prospectus under
the Act or the applicable Rules and Regulations;
(U) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common Stock or
other securities of the
A-5
<PAGE>
<PAGE>
Company have registration rights with respect to securities of the Company and,
except as set forth in the Registration Statement and Prospectus, all holders of
securities of the Company having registration rights with respect to shares of
Common Stock or other securities have, with respect to the offering contemplated
hereby, waived such rights or such rights have otherwise been waived or such
rights have expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement.
(V) No transfer taxes are required to be paid in connection
with the sale or delivery to the Underwriters of the Firm Shares or the Option
Shares;
(W) The Shares sold by the Selling Securityholders are listed
and duly admitted to trading on the American Stock Exchange, and the Shares
issued and sold by the Company will have been duly authorized for listing by the
American Stock Exchange upon official notice of issuance.
In addition, such counsel shall include a statement to the
effect that such counsel has participated in conferences with officials and
other representatives of the Company, the Selling Securityholders, the
Representatives, Underwriters' Counsel and the independent public accountants of
the Company, at which conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which caused them to believe that, at the time the Registration
Statement became effective the Registration Statement (except as to financial
statements, financial and statistical data and supporting schedules contained
therein, as to which such counsel need express no opinion) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or at
the Closing Date or any later Option Closing Date, as the case may be, the
Registration Statement or the Prospectus (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under,which they were made, not misleading.
Counsel rendering the foregoing may rely (i) as to questions
of law not involving the laws of the State of New York, the United States or the
General Corporation Law of
A-6
<PAGE>
<PAGE>
the State of Delaware upon opinions of local counsel, and (ii) as to questions
of fact upon representations of the Selling Securityholders and representations
or certificates of officers of the Company and of governmental officials, as the
case may be, in which case its opinion is to state that it is so doing and that
it has no actual knowledge of any material misstatement or inaccuracy in such
opinions, representations or certificates, and that they believe that they and
the Underwriters are justified in relying on such opinions or certificates.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
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<PAGE>
[LETTER HEAD OF WARSHAW BURSTEIN COHEN SCHLESINGER & KUH, LLP]
EXHIBIT (5)
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Lazare Kaplan International Inc.
Registration Statement on Form S-2
File No. 333-14227
----------------------------------
Dear Sir or Madam:
We have acted as counsel to Lazare Kaplan International Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-2, File No. 333-14227, filed with the
Securities and Exchange Commission on October 16, 1996, amended this date,
together with the exhibits and schedules thereto (the "Registration Statement"),
relating to the public offering (including the underwriters' over-allotment
option) of 2,530,000 shares of the common stock, par value $1.00, of the Company
(the "Common Stock"). This opinion is being delivered to you pursuant to Item
601(b)(5) of Regulation S-K.
In the preparation of our opinion, we have examined (i) the Registration
Statement, (ii) the Certificate of Incorporation, as amended to date, of the
Company, (iii) the Bylaws, as amended to date, of the Company, and (iv) the
records of corporate proceedings of
<PAGE>
<PAGE>
Securities and Exchange
Commission
Page 2
the Company. We have also examined copies of such documents, corporate records,
certificates of public officials and other instruments, and have conducted such
other investigations of fact, as we have deemed necessary or advisable for
purposes of our opinion.
In our examinations, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
the originals of all documents submitted to us as certified, photostatic or
conformed copies, and the authenticity of the originals of all such latter
documents.
Based upon the foregoing, we are of the opinion that the Common Stock is
duly authorized and, when issued and paid for under the terms and conditions set
forth in the Registration Statement, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we further consent to the reference made to us under
the caption "Legal Matters" in the Registration Statement and the Prospectus
included therein.
A member of our firm is a director of the Company.
Sincerely yours,
WARSHAW BURSTEIN COHEN
SCHLESINGER & KUH, LLP
By: /s/ Warshaw Burstein Cohen
Schlesinger & Kuh. LLP
<PAGE>
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EXHIBIT (23)(b)
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Selected Financial
Information" and "Experts" and to the use of our report dated July 9, 1996, in
the Registration Statement (Form S-2, No. 333-14227) and related Prospectus of
Lazare Kaplan International Inc. for the registration of 2,200,000 shares of its
common stock.
We also consent to the use of our report dated July 9, 1996 with respect to the
financial statement schedule of Lazare Kaplan International Inc. for the years
ended May 31, 1996 and 1995 included in the Registration Statement.
Ernst & Young LLP
New York, New York
November 18, 1996
<PAGE>
