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As filed with the Securities and Exchange Commission on October 16, 1996
Registration No. _____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
-----------------
Delaware 13-2728690
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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:
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
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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. [ ]
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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. [ ]
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<CAPTION>
Calculation of Registration Fee
- -----------------------------------------------------------------------------------------------
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to to be offering price aggregate registration
be registered registered(1) per unit(2) offering price fee
- ------------- ---------- -------- -------------- ---
<S> <C> <C> <C> <C>
Common Stock, 2,530,000 $21.50 $54,395,000 $16,483.00
$1.00 par value
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 330,000 shares which the Underwriters have a right to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 based on the price of the Company's Common Stock on
October 11, 1996.
------------
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.
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SUBJECT TO COMPLETION, DATED OCTOBER 16, 1996
2,200,000 Shares
[INSERT LKI 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 October 14, 1996, the closing price for the Common Stock
was $21 1/2 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," COMMENCING ON PAGE 7.
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>
==========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNTS AND COMPANY(2) SELLING
COMMISSIONS(1) 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 ____ 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
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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.
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
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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.
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
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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 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."
In August 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
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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."
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>
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(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.
5
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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 $ (2,951) $ (903) $ 2,685 $ (1,632) $ 6,690 $ 829 $ 1,502
interest(3).................
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)................................................................................ $ ........ $
Income/(loss) before income tax
provision and minority interest.......................................................... $ ........ $
Income/(loss) before minority
interest(3).............................................................................. $ ........ $
Net income/(loss)........................................................................ $ ........ $
Net income/(loss) per share.............................................................. $ ........ $
Supplementary shares outstanding(6)...................................................... 8,088,157 ........ 8,284,029
At August 31, 1996
-----------------------
Actual As Adjusted(5)(7)
BALANCE SHEET DATA:
Working capital............................................... $ 75,960
Total assets.................................................. $114,400
Short-term debt............................................... $ 9,460
Long-term debt................................................ $ 34,230
Stockholders' equity.......................................... $ 46,579
</TABLE>
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(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 $_______ and $_______, 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 $______ per share (the
closing price on the American Stock Exchange on ____________, 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 $__________ 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."
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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.
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.
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
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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."
8
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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 $_______
(approximately $_____ if the Underwriters' over-allotment option is exercised in
full). 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 in an amount up to
$1,700,000. 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 $27,500,000 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 October 14, 1996.
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.
9
<PAGE>
<PAGE>
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 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 $
======== =======
Long-term debt: $ 34,230
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
Retained earnings........................................ 14,255
------
Total stockholders' equity....................................... 46,579
------
Total capitalization..................................... $80,809
=======
</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>
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
Cost of sales................................. 140,348 146,819 187,664 165,686 243,685 57,019 63,868
-------- -------- ---------- -------- --------- ------- -------
11,527 11,256 16,383 12,457 22,636 4,678 5,532
-------- -------- ---------- -------- ---------- ------- --------
Selling, general & administrative expenses.... 10,980 8,977 9,833 10,386 11,439 2,776 2,992
Interest expense, net of interest income...... 2,834 3,007 3,747 3,489 4,048 1,016 945
-------- -------- ---------- -------- --------- -------- -------
13,814 11,984 13,580 13,875 15,487 3,792 3,937
-------- -------- ---------- -------- --------- -------- --------
Income/(loss) before income tax provision
and minority interest....................... (2,287) (728) 2,803 (1,418) 7,149 886 1,595
Income tax provision(2)....................... 664 175 118 214 459 57 93
-------- -------- ---------- -------- --------- ------- -------
Income/(loss) before minority interest........ (2,951) (903) 2,685 (1,632) 6,690 829 1,502
Minority interest in (income)/loss of
consolidated subsidiary..................... -- -- 339 479 323 (43) 157
-------- -------- ---------- -------- --------- ------- -------
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............. 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(3)(4):
Net sales............................................................................ $ 266,321 ....... $ 69,400
Cost of sales........................................................................ $ 243,685 ....... $ 63,868
Selling, general & administrative expenses........................................... $ ....... $
Interest expense, net of interest income............................................. $ ....... $
Income/(loss) before income tax provision and minority interest...................... $ ....... $
Income tax provision(2).............................................................. $ ....... $
Income/(loss) before minority interest............................................... $ ....... $
Minority interest in (income)/loss of consolidated subsidiary........................ $ ....... $
Net income........................................................................... $ ....... $
Supplementary net income per share................................................... $ ....... $
Supplementary shares outstanding(5).................................................. 8,088,157 8,284,029
</TABLE>
11
<PAGE>
<PAGE>
(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 $_________ and $_________, 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 $______ per share (the
closing price on the American Stock Exchange on ____________, 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, At August 31,
------------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Working capital............................... $61,079 $53,011 $52,333 $59,290 $74,069 $60,365 $75,960
Total assets.................................. 77,977 86,452 93,178 99,163 105,066 103,638 114,400
Short-term notes payable...................... 3,000 12,005 17,185 11,410 3,000 9,785 9,460
Long-term debt................................ 30,000 30,000 25,715 26,430 34,155 26,430 34,230
Stockholders' equity.......................... 36,573 35,671 38,751 37,695 44,870 38,481 46,579
</TABLE>
12
<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.
13
<PAGE>
<PAGE>
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 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.
14
<PAGE>
<PAGE>
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 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.
15
<PAGE>
<PAGE>
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.
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 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, 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 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.
16
<PAGE>
<PAGE>
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.
DIAGRAM I: IDEAL CUT SPECIFICATIONS
[insert Diagram I][see Appendix for description]
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
[insert Diagram II][see Appendix for description]
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
[insert Diagram III][see Appendix for description]
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 diamonds that reach the market. This is achieved either
17
<PAGE>
<PAGE>
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 August 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.
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
18
<PAGE>
<PAGE>
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.
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
19
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<PAGE>
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 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.
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<PAGE>
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 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.
21
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<PAGE>
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 Japan, the
Company has had a marketing relationship since 1972 with Aiwa Co., Ltd., a large
Japanese importer-marketer ("Aiwa"). Aiwa, with a distribution network of over
200 retailers and wholesalers, is an important customer of the Company's
polished diamonds. Additionally, the Company continues to believe there is
significant growth opportunity in the Japanese market and has begun to explore
expansion in this area.
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
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.
22
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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.
23
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<PAGE>
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, 40 1984
President, Director
George R. Kaplan Vice Chairman of the Board, 78 1972
Director
Sheldon L. Ginsberg Executive Vice President and 42 1989
Chief Financial Officer, Director
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
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.
24
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<PAGE>
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 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.
25
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PRINCIPAL AND SELLING STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table reflects as of October 14, 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>
<TABLE>
<CAPTION>
Percentage of
Number of Shares Common Stock Percentage of Common
Name and Address Beneficially Owned Beneficially Owned Stock Beneficially
of Beneficial Owner As of October 14, 1996 As of October 14, 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
Michael W. Butterwick 0 - - - -
Sapperton House
Sapperton
Cirencester
Glos. GL7 GILE, England
Dimensional Fund Advisors, 317,300 5.0% 3.9%
Inc.(8)
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
All officers and directors as a 4,625,867 71.1% 50.9%
group (1)-(7)
</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
26
<PAGE>
<PAGE>
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 ____ from the date of this Prospectus, he
will not offer, pledge, sell, contract to sell, grant any option for the
sale of or otherwise dispose of any of his Common Stock.
(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 Leon
Tempelsman & Son, a New York limited partnership ("LTS") of which each of
Maurice Tempelsman and Leon Tempelsman, as the only general partners, has
sole power to vote and dispose.
(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. 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.
27
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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 October 14, 1996, there were approximately 238 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 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
28
<PAGE>
<PAGE>
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 ___ 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 ____ 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.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
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.
29
<PAGE>
<PAGE>
EXPERTS
The consolidated financial statements and schedules 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 income, cash flows and shareholder's equity 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.
30
<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>
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 provide 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>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
(Unaudited)
------------------------
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, 1996 May 31, 1996
(unaudited)
---------------------------------
(in thousands)
<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 Summary of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
August 31,
(unaudited)
----------------------
1996 1995
---- ----
(in thousands)
<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.
F-18
<PAGE>
<PAGE>
Taxes (continued)
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-19
<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
Page
Available Information.......................... 2
Incorporation of Certain Documents by Reference 2
Prospectus Summary............................. 3
Summary Financial Information.................. 6
Risk Factors................................... 7
Use of Proceeds................................ 9
Price Range of Common Stock.................... 9
Dividend Policy................................ 9
Capitalization................................ 10
Selected Financial Information................ 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Business...................................... 17
Management.................................... 24
Principal and Selling Stockholders and Security
Ownership of Management..................... 26
Certain Transactions.......................... 28
Description of Common Stock................... 28
Underwriting.................................. 28
Validity of Common Stock...................... 29
Experts....................................... 30
Additional Information........................ 30
Index to Financial Statements................ F-1
2,200,000 Shares
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. 6,000
Filing Fee
American Stock Exchange Listing Fee *
Transfer Agent and Registrar Fee *
Accounting Fees and Expenses *
Legal Fees and Expenses (not including Blue Sky
Fees and Expenses) *
Blue Sky Fees and Expenses 5,000
Miscellaneous *
--------
Total $ *
--------
</TABLE>
- --------------
* To be filed by amendment.
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:
II-1
<PAGE>
<PAGE>
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 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
II-2
<PAGE>
<PAGE>
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.
(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)
II-3
<PAGE>
<PAGE>
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 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.
II-4
<PAGE>
<PAGE>
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.
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.
II-5
<PAGE>
<PAGE>
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.
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.
II-6
<PAGE>
<PAGE>
Item 16. (a) EXHIBITS
Exhibit Numbers Description of Exhibits
(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.
(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.
II-7
<PAGE>
<PAGE>
(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 August __, 1996, among
the Registrant, Empresa Nacional de Diamantes de
Angola and Sociedade Angolana de Exploracao, Lapidacao
e Comercializacao de Diamantes.
(k)* Cooperation Agreement, dated July __, 1996, between the
Registrant and AK Almazi Rossii Sakha.
(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 (included on page II-12 of the
Registration Statement)
(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.
Schedule Number Description of Schedule
VIII Valuation and Qualifying Accounts
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.
- ------------------
* To be filed by amendment
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 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.
II-8
<PAGE>
<PAGE>
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-9
<PAGE>
<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 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 October 16, 1996.
LAZARE KAPLAN INTERNATIONAL INC.
By /s/ Leon Tempelsman
------------------------------------------
Leon Tempelsman, Vice Chairman and President
II-10
<PAGE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
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
<S> <C> <C>
(s) Maurice Tempelsman Chairman of the October 16, 1996
- ----------------------------- Board of Directors
(Maurice Tempelsman)
(s) Leon Tempelsman Vice Chairman of the October 16, 1996
- ----------------------------- Board of Directors and
(Leon Tempelsman) President (principal
executive officer)
(s) George R. Kaplan Vice Chairman of the October 16, 1996
- ----------------------------- Board of Directors
(George R. Kaplan)
(s) Lucien Burstein Director October 16, 1996
- -----------------------------
(Lucien Burstein)
(s) Michael W. Butterwick Director October 16, 1996
- -----------------------------
(Michael W. Butterwick)
(s) Myer Feldman Director October 16, 1996
- -----------------------------
(Myer Feldman)
(s) Sheldon L. Ginsberg Director, Executive Vice October 16, 1996
- ----------------------------- President and Chief
(Sheldon L. Ginsberg) Financial Officer (principal
financial and accounting officer)
(s) Robert Speisman Director October 16, 1996
- -----------------------------
(Robert Speisman)
</TABLE>
II-11
<PAGE>
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Lazare Kaplan International Inc.
hereby severally constitute and appoint Leon Tempelsman and Sheldon L. Ginsberg,
and each of them with full power and authority to act without the other, our
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for us and in our names, place and stead in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any and all certificates, instruments or
other documents relating thereto, and to file the same, with any and all
exhibits thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing necessary, proper or advisable to be done or
performed in and about the premises, as fully to all intents and purposes as we,
or any of us, might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
WITNESS our hands on the dates set forth below.
/s/ Maurice Tempelsman October 16, 1996
- -----------------------------
Maurice Tempelsman
/s/ Leon Tempelsman October 16, 1996
- -----------------------------
Leon Tempelsman
/s/ George R. Kaplan October 16, 1996
- -----------------------------
George R. Kaplan
/s/ Lucien Burstein October 16, 1996
- -----------------------------
Lucien Burstein
/s/ Michael W. Butterwick October 16, 1996
- -----------------------------
Michael W. Butterwick
/s/ Myer Feldman October 16, 1996
- -----------------------------
Myer Feldman
/s/ Sheldon L. Ginsberg October 16, 1996
- -----------------------------
Sheldon L. Ginsberg
/s/ Robert Speisman October 16, 1996
- -----------------------------
Robert Speisman
II-12
<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. 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.
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
October 16, 1996
S-2
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC.
AND SUBSIDIARIES
SCHEDULE VIII-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 costs and other accounts Deductions end
Description of period expenses describe describe of 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.
A-1
STATEMENT OF DIFFERENCES
The register trademark shall be expressed as (r)
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
REGISTRATION STATEMENT ON FORM S-2
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
<S> <C>
(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
<PAGE>
<PAGE>
Exhibit Page No.
Insurance Company - incorporated herein by reference to Exhibit 10(f)
to Report of 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.
(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 27 and 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 August __, 1996, among the
Registrant, Empresa Nacional de Diamantes de Angola and
Sociedade Angolana de Exploracao, Lapidacao e
Comercializacao de Diamantes.
(k)* Cooperation Agreement, dated July __, 1996, between the Registrant and
AK Almazi Rossii Sakha.
(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 (included on page II-12 of the Registration Statement)
- ------------------
* To be filed by amendment
<PAGE>
</TABLE>
<PAGE>
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-_____) 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
October 16, 1996
<PAGE>
