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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2728690
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
529 FIFTH AVENUE, NEW YORK, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 972-9700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK ($1 PAR VALUE) AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of July 31, 1996, 6,179,476 shares of the registrant's common stock
were outstanding, and the aggregate market value of common stock held by
non-affiliates of the registrant, computed by reference to the closing price for
the registrant's stock on the American Stock Exchange at that date was
$23,047,563.
DOCUMENTS INCORPORATED BY REFERENCE
1996 definitive proxy statement to be filed with the Commission-
incorporated by reference into Part III.
1996 Annual Report to Stockholders for the fiscal year ended May 31,
1996 to be filed with the Commission-incorporated by reference into Parts II and
IV.
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Item 1. The Company
Lazare Kaplan International Inc., which began its business in
1903, is engaged in the cutting, polishing and selling of ideally proportioned
diamonds which it markets 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 worldwide engaged primarily in the production of ideally
proportioned diamonds and that it is the largest producer in this segment of the
diamond industry. In addition, the Company also cuts and polishes non-ideal cut
(commercial) diamonds which it markets to wholesalers and distributors and, to a
growing extent, through its traditional channels of distribution. The Company is
also engaged in the trading of rough uncut diamonds.
The Company's strategy in the selling of Lazare Diamonds is
directed primarily toward quality conscious consumers throughout the United
States, the Far East and Europe. The Company generally sells to select retail
jewelers in each geographic market in order to maintain an image of selectivity
and prestige consistent with its overall marketing strategy. The Company has
developed a comprehensive grading system for its ideal cut 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 and
sells a line of high quality jewelry which features Lazare Diamonds.
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 containing the Lazare Kaplan logo and an
identification number unique to the stone. This patented laser "signature",
which is invisible to the naked eye but visible when magnified at least ten
times, serves as the purchaser's assurance that he is buying an authentic Lazare
Diamond. This laser signature also allows consumers to register their Lazare
Diamonds with the Company under its unique program, The Lazare Diamond
Registry'r', thereby providing proof of ownership in case of loss or theft.
Each rough diamond obtained by the Company for manufacturing and
considered for sale as a polished diamond is evaluated against strict management
standards designed to maximize its potential economic contribution to the
Company's profitability. Expert technicians, assisted by proprietary computer
software, determine whether to cut the stone to ideal proportions, cut the stone
as a commercial diamond for sale, or resell the stone as rough. The shape of the
rough stone, its color, clarity and overall potential economic contribution, are
among the criteria used in making such a determination.
The Company's involvement in the purchase and sale of rough
diamonds, through its Antwerp, Belgium office, provides it with the ability to
dispose of those diamonds not selected for cutting and polishing, as well as
access to supplemental sources of supply. This activity allows the Company to
maintain quantities and qualities of inventory which best meet its customers'
needs.
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The Company's principal stockholder is Maurice Tempelsman, the
Chairman of the Board. Mr. Tempelsman and his son, Leon Tempelsman, are the sole
general partners of Leon Tempelsman & Son ("LTS"), a New York limited
partnership. LTS is the holder of 1,528,416 shares of common stock, all of which
are deemed to be owned indirectly by each of Leon Tempelsman and Maurice
Tempelsman. In addition, Maurice Tempelsman is the direct beneficial holder of
2,335,809 shares of common stock. The aggregate number of common shares held by
Maurice Tempelsman, directly and indirectly, is 3,864,225 constituting 62.6% of
the Company's issued and outstanding common stock.
Lazare Kaplan International Inc. was incorporated in 1972 under
the laws of the State of Delaware as the successor to a business which
originated in 1903. Diamond Supply
Rough Diamonds
The Company's business is dependent upon the availability of
rough diamonds, the world's known sources of which are highly concentrated.
Angola, Australia, Botswana, Brazil, Ghana, Guinea, Namibia, Sierra Leone, South
Africa, Russia 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 primary
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. Sales for the CSO are made in
London by the Diamond Trading Company (the "DTC") to a select group of clients,
including the Company. Based upon published reports, the Company believes that
approximately 75% of the world diamond output is purchased for resale by the DTC
and its affiliated companies. In order to maintain their purchasing
relationship, the DTC's clients have traditionally been expected to purchase all
of the diamonds offered to them by the DTC. Non-clients of the DTC must either
purchase their requirements from clients of the DTC 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 stones they wish to purchase.
Employees of the Company attend offerings ("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 stones known as a "series", the composition
of which attempts to take into account the market in which the Company operates
and the Company's quantity requirements. The Company has been a client of the
DTC for more than 50 years.
In order to diversify its sources of supply, the Company has
entered into arrangements with other primary source suppliers, opened rough
diamond buying offices in Angola, and has established an office in Antwerp to
supplement its rough diamond needs by making purchases in the secondary market.
For each of the past three years ended May 31, the Company purchased less than
60% of its diamond purchases from the DTC.
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In November 1993, the Company reached an agreement with the
Ghanaian Government, Ghana Consolidated Diamonds Limited and De Beers Centenary
pursuant to which, the parties would, subject to a feasibility study, form a new
company to acquire, expand and operate the Akwatia/Birim Diamond and Gold
Concessions now owned by Ghana Consolidated Diamonds. In June, 1995 DeBeers
Centenary announced that its feasibility study was complete. During the
feasibility period, output at the mine increased significantly as a result of
changes made to operations and revenue increased. However, DeBeers informed the
Company and the Ghanaian Government that it has withdrawn from the project
stating its belief that the cost of its participation will likely outweigh the
economic potential it may realize. The Company anticipates maintaining its
position as marketing agent; however, should the Company not be able to maintain
its position as marketing agent; its ability to recoup certain pre-operating
costs may not be assured.
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 manufacturing facility in Molepolole, Botswana. The factory
is a state-of-the-art facility using both automated and manual equipment, and
currently operates with approximately 530 local employee/trainees and 13
expatriates. Lazare Kaplan Botswana, which is owned by the Company (60%), the
Government of Botswana (5.1%), and the Botswana Development Corporation (34.9%),
has been given its own sight allocation from the DTC from which it selects rough
diamonds for manufacture in its facility. Botswana is widely regarded today as
the most important rough gem diamond producing country in the world.
In December 1994 the Company reached an agreement with the
National Diamond Company of Angola, Endiama, U.E.E., pursuant to which the
Company may purchase rough diamonds from local Angolan miners and export such
diamonds for resale. The agreement entitles the Company to establish buying
offices in Angola, the first of which was set up in Luanda, the capital of
Angola. The Company presently has three buying offices, including Luanda, which
operate in the diamond producing regions and intends to establish additional
buying offices in the future. The agreement will run for a term of 5 years and
is subject to renewal thereafter.
Polished Diamonds
In addition to its purchase of rough diamonds, the Company
also purchases polished diamonds from a number of sources. These diamonds are
purchased with the intention either to resell them or to recut them to ideal
proportions at the Company's manufacturing facility in Puerto Rico.
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Availability of Sources of Supply
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 over which the Company has no control. While the Company
believes that alternative sources of supply may be available, any significant
disruption of the Company's access to its primary source suppliers could have a
material adverse effect on its ability to purchase rough diamonds.
Cutting and Polishing
The Company has three primary cutting and polishing
operations: Lazare Kaplan Puerto Rico, located in Puerto Rico, Lazare Kaplan
Botswana (Pty) Ltd., located in Botswana, and a diamond polishing operation
located in Moscow conducted in cooperation with Roskomdragmet, the Russian
Government organization responsible for diamond policy. Under this last
arrangement, rough diamonds supplied by Roskomdragmet are polished by Russian
technicians in Moscow, under the management and supervision of Company technical
personnel and marketed by the Company. The diamonds, which are non-ideal cut,
commercial quality diamonds, are sold through the Company's worldwide
distribution network.
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. ARS is the
largest producer of rough diamonds in Russia with annual production in excess of
$1.2 billion, which represents over 20% of the world's supply of diamonds. Under
the terms of the agreement, the Company will immediately begin to equip and
manage a diamond cutting factory within the ARS facility in Moscow to be staffed
by Russian technicians. ARS will supply a minimum of $45 million per year of
large rough gem diamonds for processing in this facility. The Company will sell
the resulting polished gem stones through its worldwide distribution network.
The net profit from the sale of these polished gems will be shared with ARS.
This agreement will serve as a long-term offtake arrangement to secure the
repayment of the $60 million financing received by ARS and guaranteed by the
Export-Import Bank of the United States 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 Company's factory in Puerto Rico is believed to be the
largest cutting facility in the United States. Each stone 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 stone to ideal
proportions, cut the stone as a commercial diamond or resell the stone as rough.
The shape of the rough stone, its color and clarity and overall potential
economic contribution, are among the criteria used in making such
determinations. The Company has an incentive program that rewards its factory
managers and supervisors based on maximizing the manufactured results of the
following criteria: gross margin, yield (rough weight to polished weight
conversion) and efficiency.
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Rough stones 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 gemstone (weighing .18 carats 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 ensure a constant flow of skilled labor to satisfy its needs
for further growth.
The Lazare Kaplan Botswana diamond cutting and polishing
factory in Molepolole, 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. As of July 31, 1996, there were 543 employees, of which 112
were trainees. This factory cuts and polishes rough diamonds to ideal
proportions in sizes which are presently 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 stones of somewhat smaller size. The
size range manufactured will be expanded as the skills of its employees are
developed. Lazare Kaplan Botswana purchases rough on its own account directly
from the DTC for manufacture in the Botswana factory.
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 stones.
Pricing
Rough Diamond Prices
Through its control of approximately 75% 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 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.
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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 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 implemented strict inventory, pricing and
purchasing controls which it believes could lessen the impact of fluctuations in
the price of rough and polished diamonds. These include computerized rough stone
evaluation programs, automatic economic order quantity models and inventory
utilization programs.
Marketing, Sales and Distribution
Marketing Strategy
The Company's sales strategy is directed primarily toward
quality conscious consumers throughout the United States, the Pacific Rim and
Europe. The Company generally sells to select retail jewelers in each geographic
market in order to maintain an image of selectivity and prestige consistent with
its overall marketing strategy. The Company also sells to certain jewelry and
diamond manufacturers and 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 and sells a line of high quality
jewelry which 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 believes that
ideal cutting presents a clear competitive advantage over other diamonds in the
marketplace by providing the Company with the opportunity to establish a brand
name and to market its diamonds under this name through retailers. 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 highly differentiated product.
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 "labelling" enables the Company to pursue
the brand name diamond strategy. The Company holds various domestic and
international patents for this process.
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Building awareness and acceptance of Lazare Diamonds is
accomplished through a comprehensive marketing program which includes co-op
advertising, sales promotion and public relations. The advertising includes 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 which 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 does not intend to sell its diamonds directly to
consumers and plans to continue concentrating its marketing efforts towards the
quality retail jeweler.
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.
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 and in Hong Kong and Antwerp, who are compensated on a commission
basis, handle sales throughout the United States, the Pacific Rim and Europe.
The Company's sales force is supported by a New York based
telemarketing department. Sales to certain of the Company's largest accounts are
handled by headquarters personnel. Most of the Company's major accounts are
customers of long standing.
The Company has been working on the expansion of its
activities abroad, particularly in the Pacific Rim countries of Japan, Hong
Kong, Singapore, Taiwan, Thailand, Korea, Malaysia, Indonesia and Brunei. In
Japan, the Company has had a marketing relationship since 1972 with Aiwa Co.,
Ltd., the Japanese importer-marketer of Lazare Diamonds. Aiwa Co., 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 European market and
has expanded 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 stones are
uniformly cut to ideal proportions, reduces and in some cases eliminates the
need for customers to view stones before placing orders. The system enables
customers to standardize their inventories, order by mail or telephone and
minimize their inventory investment.
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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 are
set forth below:
<TABLE>
<CAPTION>
Years ended May 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Percentage of Net Sales to Customers
Domestic 16% 25% 23%
Foreign 84% 75% 77%
</TABLE>
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. Historically, the majority of the Company's rough diamond sales have been
to foreign customers. In 1996, due to an increase in production and sales of
polished diamonds from the Company's operation in Russia, the Company sold a
greater portion of its polished diamonds domestically than it had in prior
years. 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 foreign currency
exposure on its foreign revenue. A portion of all foreign polished sales are
accompanied by bank guarantees, letters of credit or are shipped on a C.O.D.
basis. 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 diamonds, it faces competition in
sales to its customers in the United States and abroad from many other
suppliers. A substantial number of cutters and merchants, 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
also sells rough diamonds, primarily through its Antwerp office, in the
competitive world market.
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 capital, the limited number of persons with the skills necessary
to cut ideally proportioned diamonds, the difficulty in obtaining access to
upscale channels of distribution, the importance of public recognition of an
established brand name and the establishment of computer systems to gauge and
monitor the manufacturing and distribution network.
Employees
At July 31, 1996, the Company had 709 full-time employees,
which includes 112 trainees in Botswana. The Company also has 6 regional sales
representatives. The Company maintains an apprenticeship program at its
facilities in Caguas, 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 to work at the Company's new facility. 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.
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Item 2. Properties
The Company leases office space, a portion of which is
devoted to sales rooms, at 529 Fifth Avenue, New York City, for a term expiring
September 30, 2003 at an annual rental rate of approximately $278,000 (subject
to escalations). The Company also subleases space at the same address to LTS for
a like term at a rental rate per square foot which is the same as the Company is
paying to the landlord.
The Company also owns a manufacturing facility in Caguas,
Puerto Rico. The Caguas facility consists of approximately 7,500 square
feet.
The Company leases office space in Antwerp, Belgium for a
term expiring May 31, 2003 at an annual rental rate of approximately $48,000
(1,500,000 Belgian francs).
The Company also has a 40% ownership interest in a 330
square meter office in Antwerp, Belgium, a portion of which is devoted to sales
rooms.
The Company leases office space in Hong Kong for a term
expiring April 30, 1997 at an annual rental rate of approximately $67,000
(514,800 Hong Kong dollars).
The Company leases land in Botswana for a nominal amount
for a term of 50 years with the right to renew for an additional 50 years. The
Company has constructed its cutting and polishing factory on such land. The
facility is approximately 4,300 square meters.
The Company believes that its facilities are fully equipped
and adequate to fulfill its operating and manufacturing needs.
Item 3. Legal Proceedings
The Company is not involved in any significant legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
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Executive Officers of the Registrant
The following table sets forth information regarding executive
officers of the Company.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
Maurice Tempelsman Chairman of the Board 67
Leon Tempelsman Vice Chairman of the 40
Board and President
George R. Kaplan Vice Chairman of the 78
Board
Sheldon L. Ginsberg Executive Vice President and 42
Chief Financial Officer
Robert Speisman Vice President - Sales 43
</TABLE>
All officers were elected at the Annual Meeting of the
Board of Directors held in November 1995, and hold office until the next Annual
Meeting of the Board of Directors and until their respective successors have
been duly elected and qualified.
Maurice Tempelsman, Chairman of the Board and a director
of the Company, is a general partner of Leon Tempelsman & Son, a partnership
with interests in the international diamond and mining industries, positions he
has held since 1984. Maurice Tempelsman is the father of Leon Tempelsman and the
father-in-law of Robert Speisman.
Leon Tempelsman, Vice Chairman of the Board, President and
a director of the Company, is a general partner of Leon Tempelsman & Son,
positions he has held since 1984. Leon Tempelsman is the son of Maurice
Tempelsman and the brother-in-law of Robert Speisman.
The Company believes that neither the Tempelsmans nor LTS
currently engages directly or indirectly in any activities competitive
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.
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.
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Robert Speisman has been the Vice President - Sales of
the Company since 1986. 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.
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
The Registrant's common stock (par value $1 per share) is
traded on the American Stock Exchange.
Market prices and other information with respect to the
Registrant's common stock are hereby incorporated by reference from page 1 of
the Registrant's Annual Report.
Item 6. Selected Financial Data
Selected financial data are hereby incorporated by
reference from page 5 of the Registrant's Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion and analysis of financial
condition and results of operations is hereby incorporated by reference from
pages 6 to 9 of the Registrant's Annual Report.
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Item 8. Financial Statements and Supplementary Data
(a) The following financial statements and supplementary data are
hereby incorporated by reference from pages 10 to 21 of the Registrant's Annual
Report.
(i) Report of Ernst & Young LLP
(ii) Consolidated Statements of Operations for each of the
three years in the period ended May 31, 1996.
(iii) Consolidated Statements of Stockholder's Equity for each
of the three years in the period ended May 31, 1996.
(iv) Consolidated Balance Sheets as at May 31, 1996 and May 31,
1995.
(v) Consolidated Statements of Cash Flows for each of the
three years in the period ended May 31, 1996.
(vi) Notes to Consolidated Financial Statements.
(b) Report on Financial Statements and Financial Statement
Schedule of Deloitte & Touche LLP for the year ended May 31, 1994.
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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. Our audit also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the results of operations and cash
flows of Lazare Kaplan International Inc. and subsidiaries for the year ended
May 31, 1994 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
July 13, 1994 (August 31, 1994 as to Note 11)
14
<PAGE>
<PAGE>
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure
During the fiscal year ended May 31, 1994, the Board of
Directors of the Company considered changing the Company's independent certified
public accountants and, effective September 16, 1994, Ernst & Young LLP was
appointed in replacement of Deloitte & Touche LLP to serve as the Company's
independent certified public accountants for the Company's fiscal year ending
May 31, 1995. In connection with the audits of the most recent fiscal year of
the Company and all subsequent interim periods preceding such dismissal, there
was no disagreement between the Company and Deloitte & Touche LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Deloitte & Touche LLP would have caused them to make reference
thereto in their report on the financial statements for such period. The reports
of Deloitte & Touche LLP for such period did not contain an adverse opinion or
disclaimer of opinion nor were they qualified as to uncertainty, audit scope, or
accounting principles. The decision to replace Deloitte & Touche LLP with Ernst
& Young LLP as the Company's independent certified accountants was unanimously
approved by the Audit Committee of the Board of Directors of the Company and
ratified by the stockholders of the Company at the 1994 Annual Meeting of
Stockholders.
15
<PAGE>
<PAGE>
Part III
Except for information regarding Executive Officers of the
Registrant, which, in accordance with Instruction G to Form 10-K, is included in
Part I hereof, the information called for by Part III (Items 10, 11, 12 and 13)
is incorporated by reference herein from the Registrant's definitive proxy
statement to be filed with the Commission within 120 days after the close of its
fiscal year ended May 31, 1996.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. The response to this portion of Item 14 is set forth in
Item 8 of Part II hereof.
2. Financial Statement Schedules
Report on Financial Statement Schedule and Consent of
Ernst & Young LLP for each of the two years in the period
ended May 31, 1996.
Report on Financial Statements and Financial Statement
Schedule of Deloitte & Touche LLP for the year ended May
31, 1994 (included in its report filed under Item 8(b) of
this Report on Form 10-K).
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
16
<PAGE>
<PAGE>
REPORT AND CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Lazare Kaplan International Inc. and subsidiaries of our
report dated July 9, 1996 included in the 1996 Annual Report to Stockholders of
Lazare Kaplan International Inc. and subsidiaries. Our audits also included the
consolidated financial statement schedules of Lazare Kaplan International Inc.
and subsidiaries for each of the two years in the period May 31, 1996, listed in
the accompanying index at Item 14(a)(2). These consolidated financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, these consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.
We consent to the incorporation by reference in
Registration Statement No. 33-20528 of Lazare Kaplan International Inc. on Form
S-8, of our report dated July 9, 1996 (July 16, 1996 as to Note 12) with respect
to the consolidated financial statements and schedule of Lazare Kaplan
International Inc. included and incorporated by reference in the Annual Report
on Form 10-K for the year ended May 31, 1996.
Ernst & Young LLP
New York, New York
August 28, 1996
17
<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
18
<PAGE>
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
fourth quarter of the fiscal year ended May 31, 1996.
(c) Exhibits
(3) (a) Certificate of Incorporation, as amended -
incorporated herein by reference to Exhibit 3(a) to
Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1987 filed with the
Commission on August 26, 1987, as amended on
January 14, 1988.
(b) Certificate of Amendment of Certificate of
Incorporation filed with the Secretary of State of
the State of Delaware on November 1, 1990 -
incorporated herein by reference to Exhibit (3)(b)
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.
(c) By-laws, as amended - incorporated herein by
reference to Exhibit 3(b) to Report on Form 10-K of
the Registrant for the fiscal year ended May 31,
1987 filed with the Commission on August 26, 1987,
as amended on January 14, 1988.
(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
19
<PAGE>
<PAGE>
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.
(i) Loan Agreement, dated May 14, 1996 among the
Registrant, Fleet Bank, N.A. and Bank Leumi Trust
Company of New York.
20
<PAGE>
<PAGE>
(13) 1996 Annual Report to Security Holders - incorporated
herein by reference to the 1996 Annual Report to
Stockholders of the Registrant to be filed with the
Commission.
(21) Subsidiaries
(24)(a) Consent of Deloitte & Touche LLP
(24)(b) Consent of Ernst & Young LLP (Included in their report
filed under Item 14(a)(2) of this Report on Form 10-K).
(27) Financial Data Schedule
21
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
LAZARE KAPLAN INTERNATIONAL INC.
By /s/ Leon Tempelsman
Leon Tempelsman, Vice Chairman and President
(principal executive officer)
By /s/ Sheldon L. Ginsberg
Sheldon L. Ginsberg, Executive Vice President and
Chief Financial Officer (principal financial
officer)
Dated: August 28, 1996
22
<PAGE>
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report 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 August 28, 1996
(Maurice Tempelsman) Board of Directors
(s) Leon Tempelsman Vice Chairman of the August 28, 1996
(Leon Tempelsman) Board of Directors
(s) George R. Kaplan Vice Chairman of the August 28, 1996
(George R. Kaplan) Board of Directors
(s) Lucien Burstein Director August 28, 1996
(Lucien Burstein)
(s) Myer Feldman Director August 28, 1996
(Myer Feldman)
(s) Michael W. Butterwick Director August 28, 1996
(Michael W. Butterwick)
(s) Sheldon L. Ginsberg Director August 28, 1996
(Sheldon L. Ginsberg)
(s) Robert Speisman Director August 28, 1996
(Robert Speisman)
</TABLE>
23
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 1-7848
May 31, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
- ------- --------
<S> <C> <C>
(3) (a) Certificate of Incorporation, as amended - incorporated herein by
reference to Exhibit 3(a) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1987 filed with the
Commission on August 26, 1987, as amended on January 14, 1988.
(b) Certificate of Amendment of Certificate of Incorporation filed
with the Secretary of State of the State of Delaware on November
1, 1990 - incorporated herein by reference to Exhibit (3)(b) 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.
(c) By-laws, as amended - incorporated herein by reference to Exhibit
3(b) to Report on Form 10-K of the Registrant for the fiscal year
ended May 31, 1987 filed with the Commission on August 26, 1987,
as amended on January 14, 1988.
(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.
24
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Exhibit Page No.
------- --------
<S> <C> <C>
(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 of Form 10-K of the Registrant for the fiscal year ended
May 31, 1993 filed with the Commission on August 30, 1993.
25
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Exhibit Page No.
------- --------
<S> <C> <C>
(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 and Fleet
Bank, N.A. and Bank Leumi Trust Company of New York. 27
(13) 1996 Annual Report to Security Holders - incorporated herein by
reference to the 1996 Annual Report to Stock holders of the Registrant
to be filed with the Commission. 157
(21) Subsidiaries 180
(24)(a) Consent of Deloitte & Touche LLP 181
(24)(b) Consent of Ernst & Young LLP (included in their report filed under Item
14(a)(2) of this Report on Form 10-K)
(27) Financial Data Schedule 182
</TABLE>
26
STATEMENT OF DIFFERENCES
The division symbol shall be expressed as............... [div]
The registered trademark symbol shall be expressed as... 'r'
<PAGE>
<PAGE>
================================================================================
LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A.
AND
BANK LEUMI TRUST COMPANY OF NEW YORK
MAY 14, 1996
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS.............................................................................................1
ARTICLE 2. COMMITMENTS; LOANS; GUARANTIES.........................................................................18
Section 2.1 Loans...........................................................................18
Section 2.2 Notices Relating to Loans.......................................................18
Section 2.3 Disbursement of Loan Proceeds...................................................19
Section 2.4 Notes...........................................................................20
Section 2.5 Low Points; Mandatory Commitment
Reductions; Repayment of Loans................................................20
Section 2.6 Interest........................................................................22
Section 2.7 Fees............................................................................23
Section 2.8 Voluntary Changes in Commitment. ...............................................23
Section 2.9 Use of Proceeds of Loans........................................................23
Section 2.10 Computations....................................................................24
Section 2.11 Minimum Amounts of Borrowings,
Conversions and Prepayments...................................................24
Section 2.12 Time and Method of Payments.....................................................24
Section 2.13 Lending Offices.................................................................25
Section 2.14 Several Obligations.............................................................25
Section 2.15 Guaranties......................................................................25
Section 2.16 Pro Rata Treatment Between Banks................................................25
Section 2.17 Sharing of Payments
and Set-Off Between Banks.....................................................26
Section 2.18 Conversions of Loans............................................................26
Section 2.19 Additional Costs; Capital Requirements..........................................27
Section 2.20 Limitation on Types of Loans....................................................29
Section 2.21 Illegality......................................................................29
Section 2.22 Certain Conversions pursuant
to Sections 2.19 and 2.21....................................................30
Section 2.23 Indemnification.................................................................31
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.........................................................................32
Section 3.1 Organization....................................................................32
Section 3.2 Power, Authority, Consents......................................................33
Section 3.3 No Violation of Law or Agreements...............................................33
Section 3.4 Due Execution, Validity, Enforceability.........................................34
Section 3.5 Title to Properties.............................................................34
Section 3.6 Judgments, Actions, Proceedings.................................................34
Section 3.7 No Defaults, Compliance With Laws...............................................34
Section 3.8 Burdensome Documents............................................................35
Section 3.9 Financial Statements; Pro Forma
Balance Sheet; Projections....................................................35
Section 3.10 Tax Returns.....................................................................36
Section 3.11 Intangible Assets...............................................................36
Section 3.12 Regulation U....................................................................36
Section 3.13 Name Changes, Mergers, Acquisitions.............................................36
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 3.14 Full Disclosure.................................................................37
Section 3.15 Licenses and Approvals..........................................................37
Section 3.16 Labor Disputes; Collective Bargaining
Agreements; Employee Grievances...............................................37
Section 3.17 Condition of Assets.............................................................38
Section 3.18 ERISA...........................................................................38
ARTICLE 4. CONDITIONS TO THE LOANS................................................................................40
Section 4.1 Conditions to Initial Loans.....................................................40
Section 4.2 Conditions to Subsequent Loans..................................................41
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION........................................................................42
Section 5.1 Annual Financial Statements.....................................................42
Section 5.2 Quarterly Financial Statements..................................................42
Section 5.3 Compliance Information..........................................................42
Section 5.4 No Default Certificate..........................................................43
Section 5.5 Certificate of Accountants......................................................43
Section 5.6 Accountants' Reports............................................................43
Section 5.7 Copies of Documents.............................................................44
Section 5.8 Notices of Defaults.............................................................44
Section 5.9 ERISA Notices and Requests......................................................44
Section 5.10 Accounts Receivable Aging; Field
Audit and Additional Information..............................................45
ARTICLE 6. AFFIRMATIVE COVENANTS..................................................................................47
Section 6.1 Books and Records...............................................................47
Section 6.2 Inspections and Audits. ........................................................47
Section 6.3 Maintenance and Repairs.........................................................48
Section 6.4 Continuance of Business.........................................................48
Section 6.5 Copies of Corporate Documents...................................................48
Section 6.6 Perform Obligations.............................................................48
Section 6.7 Notice of Litigation............................................................48
Section 6.8 Insurance.......................................................................49
Section 6.9 Financial Covenants.............................................................49
Section 6.10 Notice of Certain Events........................................................50
Section 6.11 Comply with ERISA...............................................................50
Section 6.12 Environmental Compliance........................................................50
ARTICLE 7. NEGATIVE COVENANTS.....................................................................................51
Section 7.1 Indebtedness....................................................................51
Section 7.2 Liens...........................................................................52
Section 7.3 Guaranties......................................................................53
</TABLE>
-ii-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 7.4 Mergers, Acquisitions...........................................................53
Section 7.5 Redemptions; Distributions......................................................53
Section 7.6 Changes in Business.............................................................54
Section 7.7 Prepayments.....................................................................54
Section 7.8 Investments.....................................................................54
Section 7.9 Fiscal Year.....................................................................55
Section 7.10 ERISA Obligations...............................................................55
Section 7.11 Amendments and Waivers of Documents.............................................56
Section 7.12 Capital Expenditures............................................................57
Section 7.13 Rental Obligations..............................................................57
Section 7.14 Use of Cash.....................................................................57
Section 7.15 Management Fees.................................................................58
Section 7.16 Transactions with Affiliates....................................................58
Section 7.17 Hazardous Material..............................................................58
ARTICLE 8. EVENTS OF DEFAULT......................................................................................60
Section 8.1 Payments........................................................................60
Section 8.2 Certain Covenants...............................................................60
Section 8.3 Other Covenants.................................................................60
Section 8.4 Other Defaults..................................................................61
Section 8.5 Representations and Warranties..................................................61
Section 8.6 Bankruptcy......................................................................62
Section 8.7 Judgments.......................................................................62
Section 8.8 ERISA...........................................................................62
Section 8.9 Ownership of Stock of the Borrower..............................................63
Section 8.10 Key Executive Management........................................................63
Section 8.11 Additional Guarantors...........................................................64
ARTICLE 9. MISCELLANEOUS PROVISIONS...............................................................................65
Section 9.1 Fees and Expenses; Indemnity....................................................65
Section 9.2 Taxes...........................................................................66
Section 9.3 Payments........................................................................66
Section 9.4 Survival of Agreements and
Representations; Construction.................................................67
Section 9.5 Lien on and Set-off of Deposits.................................................67
Section 9.6 Modifications, Consents and
Waivers; Entire Agreement. ...................................................67
Section 9.7 Remedies Cumulative; Counterclaims..............................................68
Section 9.8 Further Assurances..............................................................68
Section 9.9 Notices.........................................................................68
Section 9.10 Counterparts....................................................................70
Section 9.11 Severability....................................................................70
Section 9.12 Binding Effect; No Assignment
or Delegation by Bo...........................................................70
Section 9.13 Assignments and Participations by Banks.........................................70
Section 9.15 GOVERNING LAW; CONSENT TO JURIS-
DICTION; WAIVER OF TRIAL BY JURY......................................................73
</TABLE>
-iii-
<PAGE>
<PAGE>
EXHIBITS
A Form of Note
B Form of Assignment and Acceptance
C Form of No Default Certificate
SCHEDULES
3.1(a) States of Incorporation and Qualification, and
Capitalization and Ownership of Stock, of
Borrower and Guarantors
3.1(b) Subsidiaries of Borrower and each Guarantor
3.2 Consents, Waivers, Approvals; Violation of
Agreements
3.6 Judgments, Actions, Proceedings
3.7 Defaults; Compliance with Laws, Regulations,
Agreements
3.8 Burdensome Documents
3.11 Patents, Trademarks, Trade Names, Service Marks,
Copyrights
3.13 Name Changes, Mergers, Acquisitions
3.18 ERISA
7.1 Permitted Indebtedness and Guaranties
7.2 Permitted Security Interests, Liens and
Encumbrances
ANNEX
I Name and State/Country of Organization of
Guarantors
-iv-
<PAGE>
<PAGE>
LOAN AGREEMENT
AGREEMENT, made this 14th day of May, 1996, by and among:
LAZARE KAPLAN INTERNATIONAL INC., a Delaware corporation
(the "BORROWER");
FLEET BANK, N.A. (formerly NatWest Bank N.A.), a national
banking association, ("FLEET"); and
BANK LEUMI TRUST COMPANY OF NEW YORK, a New York banking corporation
("BANK LEUMI"; Fleet and Bank Leumi are hereinafter sometimes referred to
individually as a "BANK" and together as the "BANKS");
W I T N E S S E T H:
WHEREAS, the Borrower wishes to obtain loans from the Banks in the
aggregate principal sum of up to Twenty-Seven Million Five Hundred Thousand
($27,500,000) Dollars, and the Banks are willing to make such loans to the
Borrower in an aggregate principal amount of up to such sum on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL COSTS: as defined in subsection 2.19(b)
hereof.
AFFECTED LOANS: as defined in Section 2.22 hereof.
AFFECTED TYPE: as defined in Section 2.22 hereof.
AFFILIATE: as to any Person, any other Person that directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event: (i) any Person that owns directly or indirectly 5% or more of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control
<PAGE>
<PAGE>
such corporation or other Person; and (ii) each director and executive officer
of the Borrower shall be deemed to be an Affiliate of the Borrower.
ANNUAL CASH FLOW: as at any date of determination thereof, the
Cash Flow of the Borrower and the Subsidiaries for the immediately preceding
four full fiscal quarters for which the Banks have received financial statements
in compliance with Section 5.1 or Section 5.2 hereof (or, if as at any date of
determination the Banks shall not yet have received financial statements
delivered in compliance with Section 5.1 or Section 5.2 hereof, then the Cash
Flow of the Borrower and the Subsidiaries for such immediately preceding four
fiscal quarters shall be determined by the Banks in their sole judgment based,
in the Banks' discretion, on such financial information as it shall have
requested and received from the Borrower).
APPLICABLE LENDING OFFICE: with respect to each Bank, with
respect to each type of Loan, the Lending Office as designated for such type of
Loan below its name on the signature pages hereof or such other office of such
Bank or of an affiliate of such Bank as such Bank may from time to time specify
to Borrower as the office at which its Loans of such type are to be made and
maintained.
APPLICABLE MARGIN:
(i) with respect to any Prime Rate Loan, one-eighth of
one (1/8%) percent;
(ii) with respect to any LIBOR Loan, two and one-half
(2-1/2%) percent; and
(iii) with respect to any Designated Rate Loan, two and
one-half (2-1/2%) percent.
ASSIGNMENT AND ACCEPTANCE: an agreement in the form of
Exhibit B hereto.
BANK LEUMI: as defined in the heading of this
Agreement.
BORROWING NOTICE: as defined in Section 2.2 hereof.
BUSINESS DAY: any day other than Saturday, Sunday or
any other day on which commercial banks in New York City are
authorized or required to close under the laws of the State of
New York.
CAPITAL EXPENDITURES: for any period, the aggregate
amount of all payments made during such period by any Person
directly or indirectly for the purpose of acquiring, constructing
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or maintaining fixed assets, real property or equipment that, in accordance with
GAAP, would be added as a debit to the fixed asset account of such Person,
including, without limitation, all amounts paid or payable during such period
with respect to Capitalized Lease Obligations and interest that are required to
be capitalized in accordance with GAAP.
CAPITALIZED LEASE: any lease the obligations to pay
rent or other amounts under which constitute Capitalized Lease Obligations.
CAPITALIZED LEASE OBLIGATIONS: as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP, consistently applied.
CASH: as to any Person, such Person's cash and cash
equivalents, as defined in accordance with GAAP consistently applied.
CASH FLOW: for any period, the consolidated net income of any
Person after all income taxes paid by such Person during such period plus, but
only to the extent such items shall have been deducted in determining such net
income, depreciation and amortization of assets, minus all Capital Expenditures
incurred by such Person during such period (but in no event shall such amount
exceed the amount permitted to be incurred under Section 7.12 hereof); as to all
of the foregoing, as determined in accordance with GAAP, consistently applied.
CERCLA: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss.9601, et seq.
CODE: the Internal Revenue Code of 1986, as it may be
amended from time to time.
COMMITMENT: as to each Bank, the amount set forth
opposite such Bank's name on the signature pages hereof under the
caption "Commitment" as such amount is subject to reduction in
accordance with the terms hereof.
COMMITMENT FEE: as defined in subsection 2.7(a)
hereof.
COMMITMENT REDUCTION PERIOD: as defined in subsection
2.5(a)(i) hereof.
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COMMITMENT TERMINATION DATE: May 31, 1999.
COMPLIANCE DATE: as defined in subsection 8.2(b)
hereof.
CONTROLLED GROUP: all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(b), 414(c) or 414(m) of the Code and Section
4001(a)(2) of ERISA.
CREDIT PERIOD: the period commencing on the date of
this Agreement and ending on the Commitment Termination Date.
CURRENT ASSETS: as determined in accordance with GAAP,
consistently applied; provided, however, that any of such assets that are
subject to a pledge, lien or security interest to secure payment of any
Indebtedness that is not included in Current Liabilities shall be excluded from
Current Assets to the extent of such Indebtedness.
CURRENT LIABILITIES: as determined in accordance with GAAP,
consistently applied, and shall include, as of the date of determination
thereof: (i) all Indebtedness payable on demand or maturing within one year
after such date without any option on the part of the obligor to extend or renew
beyond such year, (ii) final maturities, installments and prepayments of
Indebtedness required to be made within one year after such date (in each case,
except as set forth in clause (iv) below), (iii) the unpaid principal balance of
the Notes (excluding any proceeds of the Loans used or to be used (A) in
compliance with subsection 2.9(b) hereof to repay Bank Leumi and (B) in
compliance with subsection 2.9(e) hereof to repay the Senior Notes (including
payments thereof made on May 15, 1996)), and (iv) all other items (including
taxes accrued as estimated and reserves for deferred income taxes) that in
accordance with GAAP, would be included on a balance sheet as current
liabilities (other than that portion of the Senior Notes required to be paid
within one year after such date).
DEBT INSTRUMENT: as defined in subsection 8.4(a)
hereof.
DEFAULT: an event which with notice or lapse of time,
or both, would constitute an Event of Default.
DEFINED CONTRIBUTION PLAN: a plan which is not covered by
Title IV of ERISA or subject to the minimum funding standards of Section 412 of
the Code and which provides for an individual account for each participant and
for benefits based solely on the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any forfeitures of
accounts of
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other participants which may be allocated to such participant's account.
DESIGNATED RATE LOANS: Loans the interest on which is
determined on the basis of rates referred to in subparagraph (ii)
of the definition of "Fixed Base Rate" in this Article 1.
DESIGNATED RATE NOTICE: as defined in
subsection 2.2(c) hereof.
DISPOSAL: the discharge, deposit, injection, dumping,
spilling, leaking or placing of any hazardous materials into or on any land or
water so that such hazardous materials or constituent thereof may enter the
environment or be emitted into the air or discharged into any waters, including
ground waters.
DOLLARS AND $: lawful money of the United States of
America.
ELIGIBLE ASSIGNEE: a commercial bank or other
financial institution organized under the laws of the United
States of America or any state and having a combined capital and
surplus of at least $50,000,000.
EMPLOYEE BENEFIT PLAN: any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained or contributed to by
the Borrower or any of its ERISA Affiliates for employees of Borrower or any of
its ERISA Affiliates or (b) has at any time within the preceding six (6) years
been maintained or contributed to by the Borrower or any of its ERISA Affiliates
for employees of any Loan Party or any current or former ERISA Affiliate.
ENVIRONMENTAL LAWS AND REGULATIONS: all federal, state and
local environmental, health and safety laws, regulations, ordinances, orders,
judgments and decrees applicable to the Borrower or any other Loan Party, or any
of their respective assets or properties.
ENVIRONMENTAL LIABILITY: any liability under any applicable
Environmental Laws and Regulations for any disposal, release or threatened
release of a Hazardous Substance pollutant or contaminant as those terms are
defined under CERCLA, and any liability which would require a removal, remedial
or response action, as those terms are defined under CERCLA, by any person or
any environmental regulatory body having jurisdiction over the Borrower or any
other Loan Party and/or any liability arising under any Environmental Laws and
Regulations for the Borrower's or any other Loan Party's failure to comply with
such laws and regulations, including without limitation, the failure to comply
with or obtain any applicable environmental permit.
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ENVIRONMENTAL PROCEEDING: any judgment, action, proceeding or
investigation pending before any court or governmental authority, with respect
to the Borrower or any other Loan Party and arising under or relating to any
Environmental Laws and Regulations.
ERISA: the Employee Retirement Income Security Act of
1974, as it may be amended from time to time, and the regulations
promulgated thereunder.
ERISA AFFILIATE: with respect to any Loan Party, any
corporation, person or trade or business which is a member of a group which is
under common control with any Loan Party, who together with any Loan Party, is
treated as a single employer within the meaning of Sections 414(b) - (o) of the
Code and, if applicable, Sections 4001(a)(14) and (b) of ERISA.
EVENT OF DEFAULT: as defined in Article 8 hereof.
FACILITY FEE: as defined in subsection 2.7(b) hereof.
FEE(S): as defined in subsection 2.7(c) hereof.
FINANCIAL STATEMENTS: the Borrower's audited consolidated
balance sheet as at May 31, 1995, together with the related audited consolidated
statements of earnings, stockholder's equity and cash flows for the fiscal year
then ended, and the Borrower's unaudited consolidated balance sheet as at
February 29, 1996, together with the related unaudited consolidated statements
of earnings, stockholder's equity and cash flows for the nine-month period then
ended.
FIXED BASE RATE: with respect to any LIBOR Loan or
Designated Rate Loan for any Interest Period therefor:
(i) if such Loan is a LIBOR Loan, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted by the Reference Bank
at approximately 10:00 a.m. New York time (or as soon thereafter as practicable)
two (2) LIBOR Business Days prior to the first day of such Interest Period for
the offering by the Reference Bank to leading banks in the LIBOR interbank
market of Dollar deposits having a term comparable to such Interest Period and
in an amount comparable to the principal amount of the LIBOR Loans to be made by
the Banks to which such Interest Period relates; and
(ii) if such Loan is a Designated Rate Loan, the fixed rate of
interest determined at the sole discretion of the Banks based upon a rate per
annum or blending of rates per annum at which the Banks are able to raise funds
to fund a Designated Rate Loan in amounts and with maturities comparable to the
Designated Rate Loan requested, the source of which may change daily;
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provided, however, that there shall not necessarily be any direct correlation
between such rate of interest and the Banks' cost of funding the specific
Designated Rate Loan requested.
FIXED RATE: for any Fixed Rate Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Banks to be equal to: (i) the Fixed Base Rate for
such Loan for such Interest Period; divided by (ii) 1 minus the Reserve
Requirement for such Loan for such Interest Period. The Banks shall use their
best efforts to advise the Borrower of the Fixed Rate as soon as practicable
after each change in the Fixed Rate; provided, however, that the failure of the
Banks to so advise the Borrower on any one or more occasions shall not affect
the rights of the Banks or the obligations of the Borrower hereunder.
FIXED RATE LOANS: LIBOR Loans and Designated Rate
Loans.
FLEET: as defined in the heading of this Agreement.
GAAP: generally accepted accounting principles, as in
effect in the United States.
GUARANTOR(S): as defined in Section 2.15 hereof.
GUARANTY(IES): as defined in Section 2.15 hereof.
HAZARDOUS MATERIALS: any toxic chemical, Hazardous
Substances, contaminants or pollutants, medical wastes,
infectious wastes, or Hazardous Wastes.
HAZARDOUS SUBSTANCE: as set forth in Section 101(14)
of CERCLA or comparable provisions of state or local law.
HAZARDOUS WASTE: as set forth in the Resource
Conservation and Recovery Act, 42 U.S.C. ss.9603(5), and the
Environmental Protection Agency's implementing regulations, or
state or local law.
INDEBTEDNESS: with respect to any Person, all: (i) liabilities
or obligations, direct and contingent, which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person at the date as of which Indebtedness is to be
determined, including, without limitation, Capitalized Lease Obligations of such
Person; (ii) liabilities or obligations of others for which such Person is
directly or indirectly liable, by way of guaranty (whether by direct guaranty,
suretyship, discount, endorsement, take-or-pay agreement, agreement to purchase
or advance or keep in funds or other agreement having the effect of a guaranty)
or otherwise in each case to support
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Indebtedness of other Persons; (iii) liabilities or obligations secured by Liens
on any assets of such Person, whether or not such liabilities or obligations
shall have been assumed by it; and (iv) liabilities or obligations of such
Person, direct or contingent, with respect to letters of credit issued for the
account of such Person and bankers acceptances created for such Person.
INTEREST PERIOD:
(a) with respect to any LIBOR Loan, each period commencing on
the date such Loan is made or converted from a Loan or Loans of another type, or
the last day of the next preceding Interest Period with respect to such Loan,
and ending on the same day in the first, second, third or sixth calendar month
thereafter, as the Borrower may select as provided in Section 2.2 hereof, except
that each such Interest Period that commences on the last LIBOR Business Day of
a calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last LIBOR
Business Day of the appropriate subsequent calendar month;
(b) with respect to any Designated Rate Loan, each period
commencing on the date such Loan is made or converted from a Loan or Loans of
another type, or the last day of the next preceding Interest Period with respect
to such Loan, and ending on the day set forth by the Banks in a Designated Rate
Notice to the Borrower pursuant to Section 2.2 hereof.
Notwithstanding the foregoing: (i) any Interest Period that commences prior to a
Commitment Reduction Period shall end no later than the day immediately
preceding the first Business Day of such Commitment Reduction Period if the
aggregate principal amount of the Loans or portions thereof to which such
Interest Period would be applicable would include any portion of the aggregate
principal amount of the Loans that is due and payable on such Commitment
Reduction Period; (ii) each Interest Period that would otherwise end on a day
that is not a Business Day shall end on the next succeeding Business Day (or, in
the case of an Interest Period for LIBOR Loans, if such next succeeding LIBOR
Business Day falls in the next succeeding calendar month, on the next preceding
LIBOR Business Day); (iii) no more than five (5) Interest Periods per Bank for
Fixed Rate Loans shall be in effect at the same time; (iv) any Interest Period
for any type of Loan that commences before the Commitment Termination Date shall
end no later than the Commitment Termination Date; and (v) notwithstanding
clauses (i) and (iv) above, no Interest Period shall have a duration of less
than one month (in the case of LIBOR Loans). In the event that the Borrower
fails to select the duration of any Interest Period for any Loan within the time
period and otherwise as provided in Section 2.2 hereof, such
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Loans will be automatically converted into a Prime Rate Loan on the last day of
the preceding Interest Period for such Loan.
INVESTMENT: by any Person:
(a) the amount paid or the value of property or services
contributed by such Person for or in connection with the acquisition by such
Person of any stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of any other Person; and
(b) the amount of any advance, loan or extension of credit by
such Person, to any other Person, or guaranty or other similar obligation of
such Person with respect to any Indebtedness of such other Person, and (without
duplication) any amount committed to be advanced, loaned, or extended by such
Person to any other Person, or any amount the payment of which is committed to
be assured by a guaranty or similar obligation by such Person for the benefit
of, such other Person.
IRS: Internal Revenue Service.
KEY EXECUTIVE MANAGEMENT: as defined in Section 8.10
hereof.
LATEST BALANCE SHEET: as defined in subsection 3.9(a)
hereof.
LEASES: leases and subleases (other than Capitalized Leases),
licenses for the use of real property, easements, grants, and other attachment
rights and similar instruments under which the Borrower has the right to use
real or personal property or rights of way.
LIBOR BUSINESS DAY: a Business Day on which dealings
in Dollar deposits are carried out in the LIBOR interbank market.
LIBOR LOANS: Loans the interest on which is determined on the
basis of rates referred to in subparagraph (i) of the definition of "Fixed Base
Rate" in this Article 1.
LIEN: any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing), any conditional sale or other title retention agreement, any
lease in the nature of any of the foregoing, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction in connection with the foregoing.
LOAN(S): as defined in Section 2.1 hereof. Loans of
different types made or converted from Loans of other types on
the same day (or of the same type but having different Interest
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Periods) shall be deemed to be separate Loans for all purposes of this
Agreement.
LOAN DOCUMENTS: this Agreement, the Notes, the Guaranties and
all other documents executed and delivered in connection herewith or therewith
(other than any opinions of counsel issued in connection herewith or therewith),
including all amendments, modifications and supplements of or to all such
documents.
LOAN PARTY: the Borrower, any Guarantor and any other
Person (other than the Banks) which now or hereafter executes and
delivers to either Bank any Loan Document.
MANAGEMENT FEES: for any period, all fees, emoluments or
similar compensation paid or incurred by any Person (other than any such fees,
emoluments or similar compensation paid to or incurred and payable to the
Borrower) in respect of services rendered in connection with the management or
supervision of the management of such Person, other than salaries, bonuses and
other compensation paid to any full-time executive employee in respect of such
full-time employment.
MATERIAL ADVERSE EFFECT: with respect to any Person, a
material adverse effect on: (i) the business, condition (financial or
otherwise), assets, liabilities or operations of such Person, (ii) the ability
of such Person to perform its obligations under any Loan Document to which it is
a party, or (iii) the validity or enforceability of this Agreement or the other
Loan Documents or the rights or remedies of the Banks hereunder or thereunder.
MATURITY DATE: June 1, 1999.
MONTHLY DATES: the first day of each calendar month, the first
of which shall be the first such day after the date of this Agreement, provided
that, if any such date is not a LIBOR Business Day, the relevant Monthly Date
shall be the next succeeding LIBOR Business Day (or, if the next succeeding
LIBOR Business Day falls in the next succeeding calendar month, then on the next
preceding LIBOR Business Day).
MULTIEMPLOYER PLAN: a "multiemployer plan" as defined in
Section 4001(a)(3) or ERISA to which any Loan Party or any ERISA Affiliate is
making, or is accruing an obligation to make, contributions or has made, or been
obligated to make, contributions within the preceding six (6) years.
NEW TYPE LOANS: as defined in Section 2.22 hereof.
NOTE(S): as defined in Section 2.4 hereof.
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OBLIGATIONS: collectively, all of the Indebtedness,
liabilities and obligations of the Borrower to the Banks, whether
now existing or hereafter arising, whether or not currently
contemplated, including, without limitation, those arising under
the Loan Documents.
PBGC: Pension Benefit Guaranty Corporation.
PENSION PLAN: at any time an employee pension benefit plan
that is covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code and is maintained either: (i) by the Borrower or
any ERISA Affiliate for employees of the Borrower, or by the Borrower for any
ERISA Affiliate, or (ii) pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which the Borrower or any ERISA Affiliate is then making or accruing an
obligation to make contributions or has within the preceding five (5) plan years
made contributions.
PERMITTED LIENS: as to any Person: (i) pledges or deposits by
such Person under workers' compensation laws, unemployment insurance laws,
social security laws, or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness of such Person), or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or deposits of
Cash or United States Government Bonds to secure surety, appeal, performance or
other similar bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent; (ii) Liens imposed
by law, such as carriers', warehousemen's, materialmen's and mechanics' liens,
or Liens arising out of judgments or awards against such Person with respect to
which such Person at the time shall currently be prosecuting an appeal or
proceedings for review; (iii) Liens for taxes, assessments or governmental
charges not yet subject to penalties for non-payment or the validity of which is
being contested as permitted by Section 6.6 hereof; (iv) minor survey
exceptions, minor encumbrances, easements or reservations of, or rights of,
others for rights of way, highways and railroad crossings, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real properties; and (v) Liens incidental to
the conduct of the business of such Person or to the ownership of such Person's
property that were not incurred in connection with Indebtedness of such Person,
all of which Liens referred to in the preceding clause (v) do not in the
aggregate materially detract from the value of the properties to which they
relate or materially impair their use in the operation of the business taken as
a whole of such Person, and as to all the foregoing only to the extent arising
and continuing in the ordinary course of business.
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PERSON: an individual, a corporation, a limited liability
company, a partnership, a joint venture, a trust or unincorporated organization,
a joint stock company or other similar organization, a government or any
political subdivision thereof, a court, or any other legal entity, whether
acting in an individual, fiduciary or other capacity.
PLAN: at any time an employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either: (i) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower, or by the Borrower
for any other member of such Controlled Group, or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Borrower or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
POST-DEFAULT RATE:
(i) in respect of any Loans a rate per annum equal to:
(x) if such Loans are Prime Rate Loans, 2% above
the Prime Rate as in effect from time to time commencing on the date of the
Event of Default that resulted in the Post-Default Rate being instituted plus
the Applicable Margin for Prime Rate Loans (but in no event less than the
interest rate in effect on the due date), or
(y) if such Loans are Fixed Rate Loans, 2% above
the rate of interest in effect thereon at the time of the Event of Default that
resulted in the Post-Default Rate being instituted until the end of the then
current Interest Period therefor and, thereafter, 2% above the Prime Rate as in
effect from time to time plus the Applicable Margin for Prime Rate Loans (but in
no event less than the interest rate in effect on the due date); and
(ii) in respect of other amounts payable by the Borrower hereunder
(other than interest) not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period commencing on the
due date until such other amounts are paid in full equal to 2% above the Prime
Rate as in effect from time to time plus the Applicable Margin for Prime Rate
Loans (but in no event less than the interest rate in effect on the due date).
PRIME RATE: the interest rate established from time to
time by Fleet as its prime rate at the Principal Office.
Notwithstanding the foregoing, the Borrower acknowledges that
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Fleet may regularly make domestic commercial loans at rates of interest less
than the rate of interest referred to in the preceding sentence. Each change in
any interest rate provided for herein based upon the Prime Rate resulting from a
change in the Prime Rate shall take effect at the time of such change in the
Prime Rate.
PRIME RATE LOANS: Loans that bear interest at a rate
based upon the Prime Rate.
PRINCIPAL OFFICE: the principal office of Fleet
presently located at 10 Exchange Place, Jersey City, New Jersey
07302.
PROJECTIONS: the projected balance sheets, income statements
and statements of cash flow of the Borrower for the quarterly periods during the
fiscal years ending May 31, 1996, 1997, and 1998, and the related assumptions
thereto, all prepared by the Borrower.
PURCHASE MONEY SECURITY INTEREST: as defined in
subsection 7.2(b) hereof.
REFERENCE BANK: a bank appearing on the display designated as
page "LIBOR" on the Reuters Monitor Money Rates Service (or such other page as
may replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks); provided that if no such offered rate
shall appear on such display, "Reference Bank" shall mean a bank in the London
interbank market as selected by the Banks.
REGULATION D: Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be amended or supplemented from time to
time.
REGULATORY CHANGE: as to either Bank, any change after the
date of this Agreement in United States federal, state or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class of Banks,
including such Bank, of or under any United States federal, state or foreign
laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
RELEASE: as set forth in Section 101(22) of CERCLA or
state or local law.
RESERVE REQUIREMENT: for any LIBOR Loans for any
period as to which interest is payable hereunder, the average
maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained
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during such period under Regulation D by member banks of the Federal Reserve
System in New York City with deposits exceeding One Billion ($1,000,000,000)
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against: (i) any category of liabilities that
includes deposits by references to which the Fixed Rate for LIBOR Loans is to be
determined as provided in the definition of "Fixed Base Rate" in this Article 1,
or (ii) any category of extensions of credit or other assets that include LIBOR
Loans.
SENIOR DEBT: the aggregate outstanding principal balance of:
(i) all Loans, (ii) all Indebtedness under the Senior Note Agreement, (iii) all
Indebtedness in respect of the Supplier Loan, (iv) all Indebtedness secured by
Purchase Money Security Interests, conditional sale arrangements or other
similar security interests, and (v) all Capitalized Lease Obligations.
SENIOR NOTE AGREEMENT: the Note Agreement dated as of May 15,
1991 between the Borrower, Allstate Life Insurance Company, Monumental Life
Insurance Company, and PFL Life Insurance Company (individually, a "SENIOR
NOTEHOLDER" and collectively, the "SENIOR NOTEHOLDERS"), as amended by a First
Amendment to Note Agreement dated as of February 28, 1992, a Second Amendment to
Note Agreement dated as of March 25, 1992, a Third Amendment to Note Agreement
dated as of December 1, 1992 and a Fourth Amendment to Note Agreement dated as
of August 25, 1995, each executed by the Borrower and the Senior Noteholders.
SENIOR NOTEHOLDER(S): as defined in the definition of
Senior Note Agreement in this Article 1.
SENIOR NOTES: collectively, the three 9.97% Senior Notes Due
May 15, 2001 executed by the Borrower in the original aggregate principal amount
of $30,000,000, each in favor of a Senior Noteholder and each dated May 15,
1991.
SUBORDINATED DEBT: Unsecured Indebtedness for money borrowed
which does not permit any payment or prepayment of the principal amount thereof
prior to the payment in full of the Obligations, and that is subordinated to
such prior payment and is otherwise subordinated thereto under terms
satisfactory in form and substance to the Banks, as evidenced by the Banks'
written consent thereto given prior to the creation of such Indebtedness.
SUBSIDIARY: with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corpora-
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tion, of which a majority of the securities having ordinary voting power for the
election of directors (other than securities having such power only by reason of
the happening of a contingency) are at the time owned by such Person and/or one
or more Subsidiaries of such Person, or (ii) in the case of a partnership or
joint venture in which such Person is a general partner or joint venturer or of
which a majority of the partnership or other ownership interests are at the time
owned by such Person and/or one or more of its Subsidiaries. Unless the context
otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries
of the Borrower at any and all times after the requisite number of voting
securities of any corporation are obtained by the Borrower or one or more of its
Subsidiaries, with respect to a corporation, or the requisite partnership or
other ownership interests are obtained by the Borrower or one or more of its
Subsidiaries, with respect to a partnership or joint venture.
SUPPLIER LOAN: the Loan in the original principal
amount of $3,000,000 made to the Borrower pursuant to that
certain agreement dated November 8, 1985, as extended from time
to time.
TANGIBLE NET WORTH: the sum of capital surplus, earned
surplus and capital stock, minus deferred charges, intangibles
and treasury stock, all as determined in accordance with GAAP
consistently applied.
TEMPELSMAN GROUP: (i) Maurice Tempelsman and his lineal
descendants (including any legally adopted children of their lineal
descendants); (ii) the spouse of any Person described in (i); (iii) the estate
of any Person described in (i) or (ii); (iv) any trust, a majority of the
trustees of which are Persons described in (i) or (ii); (v) any corporation more
than 50% of the Voting Stock of which is owned by a Person described in (i),
(ii), (iii), (iv) or (vi); or (vi) any partnership, association or company more
than 50% of the voting interest in which is owned by Persons described in (i),
(ii), (iii), (iv) or (v).
TERMINATION EVENT: any one of the following:
(a) a "Reportable Event" described in Section 4043 of ERISA
and the regulations issued thereunder for which the 30 day notice has not been
waived pursuant to the regulations issued thereunder;
(b) the withdrawal of any Loan Party or any ERISA Affiliate
from a Pension Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA or was deemed such under Section
4068(f) of ERISA; or
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(c) the termination of a Pension Plan, the filing of a notice
of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a termination under Section 4041 of ERISA;
(d) the institution of proceedings to terminate a
Pension Plan by the PBGC;
(e) any other event or condition which would constitute
grounds under Section 4042(a) of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan;
(f) the partial or complete withdrawal of any Loan
Party or any ERISA Affiliate from a Multiemployer Plan;
(g) the imposition of a Lien pursuant to Section 412 of
the Code or Section 302 of ERISA;
(h) any event or condition which results in the reorganization
or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of
ERISA, respectively; or
(i) any event or condition which results in the termination of
a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC
of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.
TOTAL COMMITMENT: the aggregate obligation of the Banks to
make Loans hereunder not exceeding Twenty Seven Million Five Hundred Thousand
($27,500,000) Dollars, as the same shall and/or may be reduced from time to time
pursuant to Article 2 hereof.
UNUSED COMMITMENT: as at any date, for each Bank, the
difference, if any, between: (i) the amount of such Bank's
Commitment as in effect on such date, and (ii) the then aggregate
outstanding principal amount of all Loans made by such Bank.
VOTING STOCK: capital stock of any class of a corporation
having power under ordinary circumstances to vote for the election of members of
the board of directors of such corporation, or persons performing similar
functions (whether or not at the time stock of any class shall have or might
have special voting powers or rights by reason of the happening of any
contingency).
WHOLLY-OWNED: with respect to any Subsidiary, any
Subsidiary 100% of the Voting Stock of which is owned by the
Borrower and/or its Wholly-Owned Subsidiaries.
Any accounting terms used in this Agreement that are not specifically defined
herein shall have the meanings customarily given
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to them in accordance with GAAP as in effect on the date of this Agreement,
except that references in Article 5 to such principles and calculations made to
determine compliance with any covenant contained in Articles 6 and 7 hereof
shall be deemed to refer to such principles as in effect on the date of the
financial statements delivered pursuant thereto.
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ARTICLE 2. COMMITMENTS; LOANS; GUARANTIES.
SECTION 2.1 LOANS.
Each Bank hereby severally agrees, on the terms
and subject to the conditions of this Agreement, to make loans (individually a
"LOAN" and, collectively, the "LOANS") to the Borrower during the Credit Period
to and including the Commitment Termination Date in an aggregate principal
amount at any one time outstanding up to, but not exceeding, the Commitment of
such Bank as then in effect. Subject to the terms of this Agreement, during the
Credit Period the Borrower may borrow, prepay, repay (provided that prepayment
and repayment of Fixed Rate Loans shall be subject to the provisions of Section
2.23 hereof) and reborrow up to the amount of the Total Commitment (after giving
effect to the mandatory and voluntary reductions required and permitted herein)
by means of Prime Rate Loans or Fixed Rate Loans, and during such period and
thereafter until the date of the payment in full of all of the Loans or the
Commitment Termination Date, the Borrower may convert Loans of one type into
Loans of another type (as provided in Section 2.18 hereof).
SECTION 2.2 NOTICES RELATING TO LOANS.
The Borrower shall give the Banks written notice
of each termination or reduction of the Commitments, each borrowing, conversion
and prepayment of each Loan and of the duration of each Interest Period
applicable to each Fixed Rate Loan (in each case, a "BORROWING NOTICE"). Each
such written notice shall be irrevocable and shall be effective only if received
by the Banks not later than 2:00 p.m., New York City time (except as otherwise
specified in subsection (c) below with respect to Designated Rate Loans), on the
date that is:
(a) In the case of each notice of termination or
reduction and each notice of borrowing, repayment or prepayment of, or
conversion into, Prime Rate Loans, the date of the related termination,
reduction, borrowing, repayment, prepayment or conversion;
(b) In the case of each notice of borrowing or
prepayment of, or conversion into, LIBOR Loans, or the duration of an Interest
Period for LIBOR Loans, two (2) LIBOR Business Days prior to the date of the
related borrowing, prepayment, or conversion or the first day of such Interest
Period; and
(c) (i) With respect to each borrowing of, or
conversion into, a Designated Rate Loan, the Borrower shall, not less than two
(2) Business Days prior to the proposed borrowing or conversion, notify the
Banks in writing (which notification may be by telecopy) not later than 2:00
p.m., New York City time, of its interest in borrowing, or converting into, a
Designated
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Rate Loan, and the dollar amount thereof (which in no event shall be less than
One Million ($1,000,000) Dollars) and the Interest Period therefor. Thereafter,
the Borrower shall, not later than 2:00 p.m., New York City time, on the
proposed date of borrowing or conversion again notify the Banks of its interest
in so borrowing or converting, whereupon the Banks shall, not later than 2:30
p.m., New York City time, on the date of the proposed borrowing or conversion
notify the Borrower, which notice may be telephonic or written (each, a
"DESIGNATED RATE NOTICE") of the amount of, interest rate on and Interest Period
with respect to, the Designated Rate Loan that the Banks are willing to make
available to the Borrower. Upon the Borrower's receipt of a Designated Rate
Notice, the Borrower may choose to accept the terms set forth therein by
delivering to the Banks, not later than one-half (1/2) hour (and in any event,
not later than 3:00 p.m., New York City time) after the time of the Banks'
Designated Rate Notice, a Borrowing Notice (which delivery may be by telecopy).
(ii) It is acknowledged and confirmed by the
Borrower that neither Bank shall be obligated to make, and in fact neither Bank
shall make, all or any portion of such requested Designated Rate Loan unless
each Bank, in its discretion, agrees to make its pro rata share of such
requested Designated Rate Loan, and such agreement is set forth in the notice
from the Banks to the Borrower referred to in such Designated Rate Notice.
(d) Each such notice of termination or reduction
shall specify the amount thereof. Each such notice of borrowing, conversion or
prepayment shall specify the amount (subject to Section 2.1 hereof) and type of
Loans to be borrowed, converted or prepaid (and, in the case of a conversion,
the type of Loans to result from such conversion), the date of borrowing,
conversion or prepayment (which shall be: (x) a Business Day in the case of each
borrowing or prepayment of Prime Rate Loans and Designated Rate Loans, and (y) a
LIBOR Business Day in the case of each borrowing or prepayment of LIBOR Loans
and each conversion of or into a LIBOR Loan), and with respect to Designated
Rate Loans, shall specify the amount set forth in the Designated Rate Notice.
Each such notice of the duration of an Interest Period shall specify the Loans
to which such Interest Period is to relate. Each Bank shall notify the other
Bank of the content of each such Borrowing Notice as promptly as practicable
after its receipt thereof.
SECTION 2.3 DISBURSEMENT OF LOAN PROCEEDS.
The Borrower shall give the Banks notice of each
borrowing hereunder as provided in Section 2.2 hereof. The Banks
shall disburse such sums to the Borrower by depositing in
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immediately available funds the amount thereof in an account of the Borrower
designated by the Borrower maintained with each Bank.
SECTION 2.4 NOTES.
(a) The Loans made by each Bank shall be evi-
denced by a single promissory note of the Borrower in substantially the form of
Exhibit A hereto (each, a "NOTE" and collectively, the "NOTES"). Each Note shall
be dated the date of the initial borrowing of the Loans under this Agreement,
shall be payable to the order of such Bank in a principal amount equal to such
Bank's Commitment as originally in effect, and shall otherwise be duly
completed. The Notes shall be payable as provided in Sections 2.1 and 2.5
hereof.
(b) Each Bank shall enter on a schedule attached
to its Note a notation with respect to each Loan made hereunder of: (i) the date
and principal amount thereof, (ii) each payment and prepayment of principal
thereof, (iii) whether the interest rate is initially to be determined in
accordance with subsection 2.6(a)(i), 2.6(a)(ii) or 2.6(a)(iii) hereof, and (iv)
the Interest Period, if applicable. The failure of either Bank to make a
notation on the schedule to its Note as aforesaid shall not limit or otherwise
affect the obligation of the Borrower to repay the Loans in accordance with
their respective terms as set forth herein.
SECTION 2.5 LOW POINTS; MANDATORY COMMITMENT
REDUCTIONS; REPAYMENT OF LOANS.
(a) The maximum aggregate amount of the Total
Commitment shall be automatically reduced (with each such reduction being
applied, pursuant to Section 2.16 hereof, pro rata between the Banks with
respect to the amounts of their respective Commitments), as follows:
(i) for a period comprised of any thirty
(30) consecutive days as selected by the Borrower during each of the periods set
forth below (each such thirty (30) day period, and the period referred to in
subsection 2.5(a)(ii) below, is hereinafter referred to as a "COMMITMENT
REDUCTION PERIOD"), the maximum aggregate amount of the Total Commitment
(subject to any voluntary reductions thereof as provided in Section 2.8 hereof)
during each such period shall equal the amount set forth opposite the applicable
period:
MAXIMUM
PERIOD TOTAL COMMITMENT
November, 1996 through
March, 1997 $12,800,000
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MAXIMUM
PERIOD TOTAL COMMITMENT
November, 1997 through
March, 1998 $16,500,000;
(ii) the maximum aggregate amount of the
Total Commitment (subject to any voluntary reductions thereof as provided in
Section 2.8 hereof) during the period commencing March 31 and ending at the
close of business on May 14 of each year, shall equal $23,200,000; and
(iii) the maximum aggregate amount of the
Total Commitment shall be zero on the Maturity Date and the Borrower shall pay
to the Banks on such date an amount sufficient to repay in full the principal
amount of the Loans outstanding on such Date.
(b) The Loans: (i) shall be repaid as and when
necessary to cause the aggregate principal amount of the Loans outstanding not
to exceed each Bank's Commitment, as reduced pursuant to subsection 2.5(a) or
subsection 2.8(a) hereof, and (ii) may be repaid at any time and from time to
time, in whole or in part, without premium or penalty, upon prior written notice
to the Banks as provided in Section 2.2 hereof. Any repayment of less than the
entire outstanding principal balance of the Loans shall be made in integral
multiples of $100,000 and any amount so repaid may, subject to the terms and
conditions hereof, including the borrowing limitation imposed by the
Commitments, be reborrowed hereunder during the Credit Period; provided,
however, that: (A) Fixed Rate Loans may be repaid only on the last day of an
Interest Period for such Loans, and (B) all repayments of Loans or any portion
thereof shall be made together with payment of all interest accrued on the
amount repaid through the date of such repayment.
(c) Except as otherwise set forth in Sections
2.19, 2.20 and 2.22 hereof, all payments and repayments made pursuant to the
terms hereof shall be applied first to Prime Rate Loans, and shall be applied to
Fixed Rate Loans only to the extent any such payment exceeds the principal
amount of Prime Rate Loans outstanding at the time of such payment.
(d) The Borrower may request a Fixed Rate Loan
only if compliance with subsection 2.5(a) hereof (with the payments provided for
therein being applied in accordance with subsection 2.5(c) hereof) would not
result in any portion of the principal amount of such Fixed Rate Loan being paid
prior to the last day of the Interest Period applicable thereto.
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SECTION 2.6 INTEREST.
(a) The Borrower shall pay to each Bank interest
on the unpaid principal amount of each Loan made by such Bank for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the following rates per annum:
(i) During such periods that such Loan is a
Prime Rate Loan, the Prime Rate plus the Applicable Margin;
(ii) During such periods that such Loan is a
LIBOR Loan, for each Interest Period relating thereto, the Fixed Rate for such
Loan for such Interest Period plus the Applicable Margin; and
(iii) During such periods that such Loan is a
Designated Rate Loan, for each Interest Period relating thereto, the Fixed Rate
for such Loan for such Interest Period plus the Applicable Margin.
(b) Notwithstanding the foregoing, whenever an
Event of Default has occurred and is continuing, the Borrower shall pay interest
on any Loan, and on any other amount payable by the Borrower hereunder (to the
extent permitted by law) for the period commencing on the occurrence of such
Event of Default until such Event of Default has been cured or waived as acknow-
ledged in writing by the Banks at the applicable Post-Default Rate.
(c) Except as provided in the next sentence,
accrued interest on each Loan shall be payable: (i) in the case of a Prime Rate
Loan, monthly on the Monthly Dates, (ii) in the case of a Fixed Rate Loan,
monthly on the Monthly Dates and on the last day of each Interest Period for
such Loan, and (iii) in the case of all Loans, upon the payment or prepayment
thereof or the conversion thereof into a Loan of another type (but only on the
principal so paid, prepaid or converted). Interest that is payable at the
Post-Default Rate shall be payable from time to time on demand of either Bank.
Promptly after the establishment of any interest rate provided for herein or any
change therein, the Banks will notify the Borrower thereof, provided that the
failure of the Banks to so notify the Borrower shall not affect the obligations
of the Borrower hereunder or under any of the Notes in any respect.
(d) Anything in this Agreement or any of the
Notes to the contrary notwithstanding, the obligation of the Borrower to make
payments of interest shall be subject to the limitation that payments of
interest shall not be required to be made to either Bank to the extent that such
Bank's receipt thereof would not be permissible under the law or laws applicable
to such Bank limiting rates of interest that may be charged or
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collected by such Bank. Any such payments of interest that are not made as a
result of the limitation referred to in the preceding sentence shall be made by
the Borrower to such Bank on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to such
Bank limiting rates of interest that may be charged or collected by such Bank.
Such deferred interest shall not bear interest.
SECTION 2.7 FEES.
(a) The Borrower shall pay to the Banks pro rata
according to their respective Commitments, a commitment fee (the "COMMITMENT
FEE") in the aggregate amount of $103,125. The Commitment Fee shall be payable
annually on the first and second anniversary of the date hereof or, if earlier,
on the date the Commitments are terminated.
(b) Simultaneously with the execution and deliv-
ery of this Agreement, the Borrower shall pay to the Banks pro rata according to
their respective Commitments, a non-refundable facility fee (the "FACILITY FEE")
in the aggregate amount of $103,125.
(c) The Commitment Fee and the Facility Fee are
hereinafter sometimes referred to individually as a "FEE" and
together as the "FEES".
SECTION 2.8 VOLUNTARY CHANGES IN COMMITMENT.
The Borrower shall be entitled to terminate or
reduce the Commitments provided that the Borrower shall give notice of such
termination or reduction to the Banks as provided in Section 2.2 hereof and that
any partial reduction of the Commitments shall be in an aggregate amount equal
to $1,000,000 or an integral multiple thereof. Any such termination or reduction
shall be permanent and irrevocable.
SECTION 2.9 USE OF PROCEEDS OF LOANS.
The proceeds of the Loans hereunder may be used by
the Borrower solely for the following purposes:
(a) the repayment in full of all amounts
outstanding under the line of credit evidenced by a certain Promissory Note
dated April 30, 1996 in the original principal amount of $8,000,000 made by the
Borrower in favor of Fleet;
(b) the repayment in full of all amounts
outstanding under the term loan facility evidenced by a promissory note dated
May 31, 1995 (as extended on February 29, 1996) in the original principal amount
of $5,000,000 made by the Borrower in favor of Bank Leumi;
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(c) the repayment in full of all amounts
outstanding under the line of credit evidenced by a certain Promissory Note
dated May 8, 1996 in the original principal amount of $4,250,000 made by the
Borrower in favor of Chemical Bank;
(d) the repayment in full of all amounts
outstanding under the line of credit evidenced by a certain Promissory Note
dated February 22, 1996 in the original principal amount of $3,000,000 made by
the Borrower in favor of Bank Leumi;
(e) the repayment of not more than $4,285,000 per
year of Indebtedness in respect of the Senior Note Agreement as
evidenced by the Senior Notes; and
(f) the working capital purposes of the Borrower.
SECTION 2.10 COMPUTATIONS.
Interest on all Loans and each Fee shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last) occurring in the period for which
payable.
SECTION 2.11 MINIMUM AMOUNTS OF BORROWINGS,
CONVERSIONS AND PREPAYMENTS.
Except for borrowings, conversions and prepayments
that exhaust the full remaining amount of the Commitments (in the case of
borrowings) or result in the conversion or prepayment of all Loans of a
particular type (in the case of conversions or prepayments) or conversions made
pursuant to Section 2.18, subsection 2.19(b) or Section 2.21 hereof, each
borrowing from the Banks, each conversion of Loans of one type into Loans of
another type and each prepayment of principal of Loans hereunder shall be in an
amount at least equal to $100,000 in the aggregate from the Banks in the case of
Prime Rate Loans and $1,000,000 in the aggregate from the Banks in the case of
Fixed Rate Loans or an integral multiple thereof (borrowings, conversions and
prepayments of different types of Loans at the same time hereunder to be deemed
separate borrowings, conversions and prepayments for purposes of the foregoing,
one for each type).
SECTION 2.12 TIME AND METHOD OF PAYMENTS.
All payments of principal, interest, Fees and
other amounts (including indemnities) payable by the Borrower hereunder shall be
made in Dollars, in immediately available funds, to the Banks at the lending
office designated below its name on the signature pages hereof (or such other
address as each such Bank may from time to time specify to the Borrower) not
later than 2:00 p.m., New York City time, on the date on which
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such payment shall become due (and the Bank for whose account any such payment
is to be made may, but shall not be obligated to, debit the amount of any such
payment that is not made by such time to any ordinary deposit account of the
Borrower with such Bank). Additional provisions relating to payments are set
forth in Section 9.3 hereof.
SECTION 2.13 LENDING OFFICES.
The Loans of each type made by each Bank shall be
made and maintained at such Bank's Applicable Lending Office for Loans of such
type.
SECTION 2.14 SEVERAL OBLIGATIONS.
Except as provided in subsection 2.2(c)(ii)
hereof, the failure of either Bank to make any Loan to be made by it on the date
specified therefor shall not relieve the other Bank of its obligations to make
its Loans on such date, but neither Bank shall be responsible for the failure of
the other Bank to make Loans to be made by such other Bank.
SECTION 2.15 GUARANTIES.
The due payment and performance of the Obligations
shall be guaranteed to the Banks by each of the entities listed on Annex I
hereto and each Wholly-Owned Subsidiary which after the date hereof is or
becomes actively engaged in business (hereinafter referred to individually as a
"GUARANTOR" and collectively as the "GUARANTORS"), by the execution and delivery
to the Banks, simultaneously with the execution and delivery of this Agreement
(or, with respect to a Wholly-Owned Subsidiary which after the date hereof is or
becomes actively engaged in business, within thirty (30) days of the time it
becomes actively engaged in business), by each Guarantor of a Guaranty in form
and substance satisfactory to the Banks (hereinafter referred to individually as
a "GUARANTY" and collectively as the "GUARANTIES").
SECTION 2.16 PRO RATA TREATMENT BETWEEN BANKS.
Except as otherwise provided herein: (i) each
borrowing from the Banks under Section 2.1 hereof will be made from the Banks
and each payment of each Fee shall be made for the account of the Banks pro rata
according to their respective Unused Commitments; (ii) each partial reduction of
the Total Commitment shall be applied to the Commitments of the Banks pro rata
according to each Bank's respective Commitment; (iii) each conversion of Loans
of a particular type under Section 2.18 hereof (other than conversions provided
for by Section 2.21 or 2.22 hereof) will be made pro rata between the Banks
according to the respective principal amounts of such Loans held by the Banks;
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(iv) each payment and prepayment of principal of or interest on Loans of a
particular type will be made to the Banks pro rata in accordance with the
respective unpaid principal amounts of such Loans held by the Banks; and (v)
Interest Periods for Loans of a particular type shall be allocated between the
Banks pro rata according to the respective principal amounts of such Loans held
by the Banks.
SECTION 2.17 SHARING OF PAYMENTS
AND SET-OFF BETWEEN BANKS.
The Borrower hereby agrees that, in addition to
(and without limitation of) any right of set-off, banker's lien or counterclaim
a Bank may otherwise have, each Bank shall be entitled, at its option, to offset
balances held by it at any of its offices against any principal of or interest
on any of its Loans hereunder, any Fee payable to it, or any costs, expenses or
other amounts that is not paid in each case when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly notify
the Borrower and the other Bank thereof, provided that its failure to give such
notice shall not affect the validity thereof. If a Bank shall effect payment of
any principal of or interest on Loans held by it under this Agreement through
the exercise of any right of set-off, banker's lien, counterclaim or similar
right, it shall promptly purchase from the other Bank participations in the
Loans held by the other Bank in such amounts, and make such other adjustments
from time to time as shall be equitable, to the end that both the Banks shall
share the benefit of such payment pro rata in accordance with the unpaid
principal and interest on the Loans held by each of them. To such end, both the
Banks shall make appropriate adjustments between themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. The Borrower agrees that either Bank so purchasing a participation
in the Loans held by the other Bank may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans in the amount of such par-
ticipation. Nothing contained herein shall require either Bank to exercise any
such right or shall affect the right of either Bank to exercise and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Borrower.
SECTION 2.18 CONVERSIONS OF LOANS.
The Borrower shall have the right to convert Loans
of one type into Loans of another type from time to time, provided that: (i)
the Borrower shall give the Banks notice of each such conversion as provided in
Section 2.2 hereof; (ii) Fixed Rate Loans may be converted only on the last day
of an Interest Period for such Loans; and (iii) except as required by Sections
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2.19 or 2.21 hereof, no Prime Rate Loan may be converted into a Fixed Rate Loan
if on the proposed date of conversion a Default or an Event of Default exists.
The Banks shall use their best efforts to notify the Borrower of the
effectiveness of such conversion, and the new interest rate to which the
converted Loans are subject, as soon as practicable after the conversion;
provided, however, that any failure to give such notice shall not affect the
Borrower's obligations, or the Banks' rights and remedies, hereunder in any way
whatsoever.
SECTION 2.19 ADDITIONAL COSTS; CAPITAL REQUIREMENTS.
(a) In the event of any change in any existing or
future law or regulation, guideline or interpretation thereof by any court or
administrative or governmental authority (foreign or domestic) charged with the
administration thereof, or compliance by either Bank with any request or
directive (whether or not having the force of law) of any such authority shall,
impose, modify or deem applicable or result in the application of, any capital
maintenance, capital ratio or similar requirement against loan commitments made
by either Bank hereunder, and the result of any event referred to above is to
impose upon either Bank, or increase any capital requirement applicable as a
result of the making or maintenance of, such Bank's Commitment or the obligation
of the Borrower hereunder with respect to such Commitment (which imposition of
capital requirements may be determined by each Bank's reasonable allocation of
the aggregate of such capital increases or impositions), then, provided that the
Bank shall, as set forth in the following sentence, deliver a certificate to the
Borrower setting forth the basis for the increased fees prior to making demand,
upon demand made by such Bank as promptly as practicable after it obtains
knowledge that such law, regulation, guideline, interpretation, request or
directive exists and determines to make such demand, the Borrower shall
immediately pay to such Bank from time to time as specified by such Bank
additional commitment fees which shall be sufficient to compensate such Bank for
such imposition of or increase in capital requirements together with interest on
each such amount from ten (10) days after the date demanded until payment in
full thereof at the Post-Default Rate. A certificate setting forth in reasonable
detail the amount necessary to compensate such Bank as a result of an imposition
of or increase in capital requirements submitted by such Bank to the Borrower
shall be presumed correct, absent manifest error, as to the amount thereof.
(b) In the event that any Regulatory Change
shall: (i) change the basis of taxation of any amounts payable to either Bank
under this Agreement or the Notes in respect of any Loans including, without
limitation, Fixed Rate Loans (other than taxes imposed on the overall net income
of such Bank for any such Loans by the United States of America or the
jurisdiction in which such Bank has its principal office); or (ii) impose or
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modify any reserve, Federal Deposit Insurance Corporation premium or assessment,
special deposit or similar requirements relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, such Bank
(including any of such Loans or any deposits referred to in the definition of
"Fixed Base Rate" in Article 1 hereof); or (iii) impose any other conditions
affecting this Agreement in respect of Loans, including, without limitation,
Fixed Rate Loans (or any of such extensions of credit, assets, deposits or
liabilities); and the result of any event referred to in clause (i), (ii) or
(iii) above shall be to increase such Bank's costs of making or maintaining any
Loans, including, without limitation, Fixed Rate Loans, or its Commitment, or to
reduce any amount receivable by such Bank hereunder in respect of any of its
Fixed Rate Loans, or its Commitment (such increases in costs and reductions in
amounts receivable are hereinafter referred to as "ADDITIONAL COSTS") in each
case, only to the extent that such Additional Costs are not included in the
Fixed Base Rate applicable to such Fixed Rate Loans, then, upon demand made by
such Bank as promptly as practicable after it obtains knowledge that such a
Regulatory Change exists and determines to make such demand (a copy of which
demand shall be delivered to the Banks), the Borrower shall pay to such Bank
from time to time as specified by such Bank, additional commitment fees or other
amounts which shall be sufficient to compensate such Bank for such increased
cost or reduction in amounts receivable by such Bank from the date of such
change, together with interest on each such amount from ten (10) day after the
date demanded until payment in full thereof at the Post-Default Rate. All
references to any "Bank" shall be deemed to include any participant in such
Bank's Commitment.
(c) Without limiting the effect of the foregoing
provisions of this Section 2.19, in the event that, by reason of any Regulatory
Change, either Bank either: (i) incurs Additional Costs based on or measured by
the excess above a specified level of the amount of a category of deposits or
other liabilities of such Bank which includes deposits by reference to which the
interest rate on Fixed Rate Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Bank which includes
Fixed Rate Loans, or (ii) becomes subject to restrictions on the amount of such
a category of liabilities or assets that it may hold, then, if such Bank so
elects by notice to the Borrower (with a copy to the other Bank), the obligation
of such Bank to make, and to convert Loans of any other type into, Loans of such
type hereunder shall be suspended until the date such Regulatory Change ceases
to be in effect (and all Loans of such type then outstanding shall be converted
into Prime Rate Loans or into Fixed Rate Loans of another duration, as the case
may be, in accordance with Sections 2.18 and 2.22 hereof).
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(d) Determinations by either Bank for purposes of
this Section 2.19 of the effect of any Regulatory Change on its costs of making
or maintaining Loans or on amounts receivable by it in respect of Loans, and of
the additional amounts required to compensate such Bank in respect of any
Additional Costs, shall be set forth in writing in reasonable detail and shall
be presumed correct, absent manifest error.
(e) Each Bank claiming any additional amounts
payable pursuant to this Section 2.19 agrees to use reasonable efforts
(consistent with legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such a designation would avoid the
need for, or reduce the amount of any such additional amounts and would not, in
the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank.
SECTION 2.20 LIMITATION ON TYPES OF LOANS.
Anything herein to the contrary notwithstanding,
if, on or prior to the determination of an interest rate for any LIBOR Loans for
any Interest Period therefor, the Banks determine (which determination shall be
conclusive):
(a) by reason of any event affecting the money
markets in the United States of America or the LIBOR interbank market,
quotations of interest rates for the relevant deposits are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
the rate of interest for such Loans under this Agreement; or
(b) the rates of interest referred to in the
definition of "Fixed Base Rate" in Article 1 hereof upon the basis of which the
rate of interest on any LIBOR Loans for such period is determined, do not
accurately reflect the cost to the Banks of making or maintaining such Loans for
such period,
then the Banks shall give the Borrower prompt notice thereof (and shall
thereafter give the Borrower prompt notice of the cessation, if any, of such
condition), and so long as such condition remains in effect, the Banks shall be
under no obligation to make Loans of such type or to convert Loans of any other
type into Loans of such type and the Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Loans of the affected type
either prepay such Loans in accordance with Section 2.8 hereof or convert such
Loans into Loans of another type in accordance with Section 2.18 hereof.
SECTION 2.21 ILLEGALITY.
Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for either Bank
or its Applicable Lending Office to: (i) honor its obligation to
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make LIBOR Loans hereunder, or (ii) maintain LIBOR Loans hereunder, then such
Bank shall promptly notify the Borrower thereof (with a copy to the other Bank),
describing such illegality in reasonable detail (and shall thereafter promptly
notify the Borrower and the other Bank of the cessation, if any, of such
illegality), and such Bank's obligation to make LIBOR Loans and to convert other
types of Loans into LIBOR Loans hereunder shall, upon written notice given by
such Bank to the Borrower, be suspended until such time as such Bank may again
make and maintain LIBOR Loans and such Bank's outstanding LIBOR Loans shall be
converted into Prime Rate Loans, Designated Rate Loans (as shall be designated
in a notice from the Borrower pursuant to Section 2.2 hereof, and with respect
to Designated Rate Loans, subject to the issuance of a Designated Rate Notice)
in accordance with Sections 2.18 and 2.22 hereof.
SECTION 2.22 CERTAIN CONVERSIONS PURSUANT
TO SECTIONS 2.19 AND 2.21.
If the Loans of either Bank of a particular type
(Loans of such type are hereinafter referred to as "AFFECTED LOANS" and such
type is hereinafter referred to as the "AFFECTED TYPE") are to be converted
pursuant to Section 2.19 or 2.21 hereof, such Bank's Affected Loans shall be
converted into Prime Rate Loans, or Fixed Rate Loans of another type, as the
case may be (the "NEW TYPE LOANS") on the last day(s) of the then current
Interest Period(s) for the Affected Loans (or, in the case of a conversion
required by subsection 2.19(b) or Section 2.21 hereof, on such earlier date as
such Bank may specify to the Borrower with a copy to the other Bank) and, until
such Bank gives notice as provided below that the circumstances specified in
Section 2.19 or 2.21 hereof that gave rise to such conversion no longer exist:
(a) to the extent that such Bank's Affected Loans
have been so converted, all payments and prepayments of principal that would
otherwise be applied to such Affected Loans shall be applied instead to its New
Type Loans;
(b) all Loans that would otherwise be made by
such Bank as Loans of the Affected Type shall be made instead as New Type Loans
and all Loans of such Bank that would otherwise be converted into Loans of the
Affected Type shall be converted instead into (or shall remain as) New Type
Loans; and
(c) if Loans of the other Bank that are the same
type as the Affected Type are subsequently converted into Loans of another type
(which type is other than New Type Loans), then such Bank's New Type Loans shall
be automatically converted on the conversion date into Loans of such other type
to the extent necessary so that, after giving effect thereto, all Loans held by
such Bank and the other Bank whose Loans are so converted are
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held pro rata (as to principal amounts, types and, to the extent applicable,
Interest Periods) in accordance with their respective Commitments.
SECTION 2.23 INDEMNIFICATION.
The Borrower shall pay to each Bank, upon the
request of each Bank, such amount or amounts as shall compensate such Bank for
any loss (including loss of profit), cost or expense incurred by such Bank (as
reasonably determined by such Bank) as a result of:
(a) any payment or prepayment or conversion of a
Fixed Rate Loan held by such Bank on a date other than the last day of an
Interest Period for such Fixed Rate Loan; or
(b) any failure by the Borrower to borrow a Fixed
Rate Loan held by such Bank on the date for such borrowing specified in the
relevant Borrowing Notice under Section 2.2 hereof, such compensation to
include, without limitation, an amount equal to: (i) any loss or expense
suffered by such Bank during the period from the date of receipt of such early
payment or prepayment or the date of such conversion to the last day of such
Interest Period if the rate of interest obtainable by such Bank upon the
redeployment of an amount of funds equal to such Bank's pro rata share of such
payment, prepayment or conversion or failure to borrow or convert is less than
the rate of interest applicable to such Fixed Rate Loan for such Interest
Period, or (ii) any loss or expense suffered by such Bank in liquidating LIBOR
deposits prior to maturity that correspond to such Bank's pro rata share of such
payment, prepayment, conversion, failure to borrow or failure to convert. The
determination by each such Bank of the amount of any such loss or expense, when
set forth in a written notice to the Borrower, containing such Bank's
calculation thereof in reasonable detail, shall be presumed correct, in the
absence of manifest error.
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Banks that:
SECTION 3.1 ORGANIZATION.
(a) The Borrower and each Guarantor is duly
organized and validly existing under the laws of its state or country of
organization and has the power to own its assets and to transact the business in
which it is presently engaged and in which it proposes to be engaged. Schedule
3.1(a) hereto accurately and completely lists, as to each of the Borrower and
each Guarantor: (i) the state or country of incorporation or organization of
each such entity, and the type of legal entity that each of them is, (ii) as to
each of them that is a corporation, the classes and number of authorized and
outstanding shares of capital stock of each such corporation, and, with respect
to the Guarantors, the registered owners of such outstanding shares of capital
stock, and (iii) the business in which each of such entities is engaged. All of
the foregoing shares or other equity interests that are issued and outstanding
have been duly and validly issued and are fully paid and non-assessable, and are
owned by the Persons referred to on Schedule 3.1(a). Except as set forth on
Schedule 3.1(a), there are no outstanding warrants, options, contracts or
commitments of any kind entitling any Person to purchase or otherwise acquire
any shares of capital stock or other equity interests of any Guarantor nor are
there outstanding any securities that are convertible into or exchangeable for
any shares of capital stock or other equity interests of any Guarantor.
(b) Schedule 3.1(b) hereto accurately and
completely lists each Subsidiary of the Borrower and each Subsidiary of each
Guarantor together with an indication of whether or not such Subsidiary is
actively engaged in business. Except as set forth on Schedule 3.1(b), neither
the Borrower nor any Guarantor has any Subsidiary.
(c) Each of the Borrower and each Guarantor is in
good standing in its state or country of organization and in each state in which
it is qualified to do business. There are no jurisdictions other than as set
forth on Schedule 3.1(a) hereto in which the character of the properties owned
or proposed to be owned by the Borrower or any Guarantor or in which the
transaction of the business of the Borrower or any Guarantor as now conducted or
as proposed to be conducted requires or will require the Borrower or any
Guarantor to qualify to do business and as to which failure so to qualify could
have a Material Adverse Effect on the Borrower or any Guarantor.
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SECTION 3.2 POWER, AUTHORITY, CONSENTS.
The Borrower and each Guarantor has the power to
execute, deliver and perform the Loan Documents to be executed by it. The
Borrower has the power to borrow hereunder and has taken all necessary corporate
action to authorize the borrowing hereunder on the terms and conditions of this
Agreement. The Borrower and each Guarantor has taken all necessary action,
corporate or otherwise, to authorize the execution, delivery and performance of
the Loan Documents to be executed by it. No consent or approval of any Person
(including, without limitation, any stockholder of the Borrower or any corporate
Guarantor or any partner in any partnership Guarantor), no consent or approval
of any landlord or mortgagee, no waiver of any Lien or right of distraint or
other similar right and no consent, license, certificate of need, approval,
authorization or declaration of any governmental authority, bureau or agency, is
or will be required in connection with the execution, delivery or performance by
the Borrower or any Guarantor, or the validity, enforcement or priority, of the
Loan Documents or any Lien created and granted thereunder, except as set forth
on Schedule 3.2 hereto, each of which either has been duly and validly obtained
on or prior to the date hereof and is now in full force and effect, or is
designated on Schedule 3.2 as waived by the Banks.
SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS.
The execution and delivery by the Borrower and
each Guarantor of each Loan Document to which it is a party and performance by
it hereunder and thereunder, will not violate any provision of law and will not,
except as set forth on Schedule 3.2 hereto, conflict with or result in a breach
of any order, writ, injunction, ordinance, resolution, decree, or other similar
document or instrument of any court or governmental authority, bureau or agency,
domestic or foreign, or any certificate of incorporation or by-laws of the
Borrower or any corporate Guarantor or any partnership agreement or other
organizational document or instrument of any Guarantor that is not a
corporation, or create (with or without the giving of notice or lapse of time,
or both) a default under or breach of any agreement, bond, note or indenture to
which the Borrower or any Guarantor is a party, or by which any of them is bound
or any of their respective properties or assets is affected, or result in the
imposition of any Lien of any nature whatsoever upon any of the properties or
assets owned by or used in connection with the business of the Borrower or any
Guarantor.
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SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Agreement and each other Loan Document to
which any Loan Party is a party has been duly executed and delivered by the Loan
Party that is a party thereto and each constitutes the valid and legally binding
obligation of the Borrower or such other Loan Party that is a party thereto,
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws, now or hereafter in effect, relating to or affecting the
enforcement of creditors' rights generally and except that the remedy of specif-
ic performance and other equitable remedies are subject to judicial discretion.
SECTION 3.5 TITLE TO PROPERTIES.
The Borrower has good and marketable title in fee
simple to, or valid leasehold interests in, all property necessary or used in
the ordinary course of its business, except for such defects in title as do not,
individually or in the aggregate, have a Material Adverse Effect. All of such
property owned by the Borrower is owned by it free and clear of any Lien of any
nature whatsoever, except as permitted by Section 7.2 hereof.
SECTION 3.6 JUDGMENTS, ACTIONS, PROCEEDINGS.
Except as set forth on Schedule 3.6 hereto: (a)
there are no outstanding judgments, actions or proceedings, including, without
limitation, any Environmental Proceeding, pending before any court or
governmental authority, bureau or agency, with respect to or, to the best of the
Borrower's knowledge, threatened against or affecting the Borrower or any
Guarantor, involving, in the case of any court proceeding, a claim in excess of
$250,000 and in any case could reasonably be expected to have a Material Adverse
Effect on the Borrower or any Guarantor, nor, to the best of the Borrower's
knowledge, is there any reasonable basis for the institution of any such action
or proceeding that is probable of assertion, nor (b) are there any such actions
or proceedings in which the Borrower or any Guarantor is a plaintiff or
complainant.
SECTION 3.7 NO DEFAULTS, COMPLIANCE WITH LAWS.
Except as set forth on Schedule 3.7 hereto,
neither the Borrower nor any Guarantor is in default under any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgment to which
it is a party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it or used in the
conduct of its business is affected, which default could have a Material Adverse
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Effect on the Borrower or any Guarantor. The Borrower and each Guarantor has
complied and is in compliance in all respects with all applicable laws,
ordinances and regulations, resolutions, decrees and other similar documents and
instruments of all courts and governmental authorities, bureaus and agencies,
domestic and foreign, including, without limitation, all applicable provisions
of the Americans with Disabilities Act (42 U.S.C. ss.12101-12213) and the
regulations issued thereunder and all applicable Environmental Laws and
Regulations, except for any non-compliance which does not have a Material
Adverse Effect on the Borrower or any Guarantor.
SECTION 3.8 BURDENSOME DOCUMENTS.
Except as set forth on Schedule 3.8 hereto,
neither the Borrower nor any Guarantor is a party to or bound by, nor are any of
the properties or assets owned by the Borrower or any Guarantor used in the
conduct of their respective businesses affected by, any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment, including, without
limitation, any of the foregoing relating to any Environmental Liability, that
could have a Material Adverse Effect on the Borrower or any Guarantor.
SECTION 3.9 FINANCIAL STATEMENTS; PRO FORMA
BALANCE SHEET; PROJECTIONS.
(a) Each of the Financial Statements is correct
and complete and presents fairly the consolidated financial position of the
Borrower and the Subsidiaries, and each other entity to which it relates, as at
its date, and has been prepared in accordance with GAAP. Neither the Borrower
nor any Subsidiary, nor any other entity to which any of the Financial
Statements relates, has any material obligation, liability or commitment, direct
or contingent (including, without limitation, any Environmental Liability), that
is not reflected in the Financial Statements and would otherwise be required to
be so stated or reflected thereon in accordance with GAAP consistently applied.
There has been no material adverse change in the financial position or
operations of the Borrower, or any Subsidiary or any other entity to which any
of the Financial Statements relates since the date of the latest balance sheet
included in the Financial Statements (the "LATEST BALANCE SHEET"). The
Borrower's fiscal year is the twelve-month period ending on May 31 in each year.
(b) The Projections have been prepared on the
basis of the assumptions accompanying them and reflect as of the date thereof
the Borrower's good faith projections, after reasonable analysis, of the
matters set forth therein, based on such assumptions.
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SECTION 3.10 TAX RETURNS.
Each of the Borrower and the Subsidiaries has
filed all federal, state and local tax returns required to be filed by it and
has paid the amount of tax shown as due thereon, on or before the due dates
thereof. Except to the extent that reserves therefor are reflected in the
Financial Statements: (i) there are no material federal, state or local tax
liabilities of the Borrower or any Subsidiary known to the Borrower due or to
become due for any tax year ended on or prior to the date of the Latest Balance
Sheet relating to such entity, whether incurred in respect of or measured by the
income of such entity, that are not properly reflected in the Latest Balance
Sheet relating to such entity, and (ii) there are no material claims pending or,
to the knowledge of the Borrower, proposed or threatened against any of the
Borrower or any Subsidiary for past federal, state or local taxes, except those,
if any, as to which proper reserves are reflected in the Financial Statements.
SECTION 3.11 INTANGIBLE ASSETS.
Each of the Borrower and the Guarantors possesses
all patents, trademarks, service marks, trade names, and copyrights, and rights
with respect to the foregoing, necessary to conduct its business as now
conducted and as proposed to be conducted, without any conflict known to the
Borrower with the patents, trademarks, service marks, trade names, and
copyrights and rights with respect to the foregoing, of any other Person which
would have a Material Adverse Effect on the Borrower or any Guarantor, and each
of such patents, trademarks, service marks, trade names, copyrights and rights
with respect thereto, together with any pending applications therefor, are
listed on Schedule 3.11 hereto.
SECTION 3.12 REGULATION U.
No part of the proceeds received by the Borrower
from the Loans will be used directly or indirectly for: (a) any purpose other
than as set forth in Section 2.9 hereof, or (b) the purpose of purchasing or
carrying, or for payment in full or in part of Indebtedness that was incurred
for the purposes of purchasing or carrying, any "margin stock", as such term is
defined in ss.221.3 of Regulation U of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II, Part 221.
SECTION 3.13 NAME CHANGES, MERGERS, ACQUISITIONS.
Except as set forth on Schedule 3.13 hereto,
neither the Borrower nor any Guarantor has within the six-year period
immediately preceding the date of this Agreement changed its name, been the
surviving entity of a merger or consolidation, or acquired all or substantially
all of the assets of any Person
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except in connection with the merger of Wholly-Owned Subsidiaries
of the Borrower into the Borrower.
SECTION 3.14 FULL DISCLOSURE.
None of the Financial Statements, the Pro Forma
Balance Sheet, the Projections, nor any certificate, opinion, or any other
statement made or furnished in writing to either Bank by or on behalf of the
Borrower or any Guarantor in connection with this Agreement or the transactions
contemplated herein, contains any untrue statement of a material fact, or omits
to state a material fact necessary in order to make the statements contained
therein or herein not misleading, as of the date such statement was made. There
is no fact known to the Borrower that has, or would in the now foreseeable
future have, a Material Adverse Effect on the Borrower or any Guarantor, which
fact has not been set forth herein, in the Financial Statements, the Pro Forma
Balance Sheet, the Projections, or any certificate, opinion or other written
statement so made or furnished to the Banks.
SECTION 3.15 LICENSES AND APPROVALS.
The Borrower and each Guarantor has all necessary
licenses, permits and governmental authorizations, including, without
limitation, licenses, permits and authorizations arising under or relating to
Environmental Laws and Regulations, to own and operate its properties and to
carry on its business as now conducted.
SECTION 3.16 LABOR DISPUTES; COLLECTIVE BARGAINING
AGREEMENTS; EMPLOYEE GRIEVANCES.
(a) There are no collective bargaining agreements
or other labor contracts covering the Borrower or any Guarantor; (b) no such
collective bargaining agreement or other labor contract will expire during the
term of this Agreement; (c) no union or other labor organization is seeking to
organize, or to be recognized as bargaining representative for, a bargaining
unit of employees of the Borrower or any Guarantor; (d) there is no pending or
threatened strike, work stoppage, material unfair labor practice claim or
charge, arbitration or other material labor dispute against or affecting the
Borrower or any Guarantor or their representative employees; (e) there has not
been, during the five (5) year period prior to the date hereof, a strike, work
stoppage, material unfair labor practice claim or charge, arbitration or other
material labor dispute against or affecting the Borrower or any Guarantor or any
of their representative employees which has not been resolved in favor of the
Borrower, and (f) there are no actions, suits, charges, demands, claims,
counterclaims or proceedings pending or, to the best of the Borrower's
knowledge, threatened against the Borrower or any Guarantor, by or on behalf of,
or with, its employees, other than
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employee grievances arising in the ordinary course of business that are not, in
the aggregate, material or that could not reasonably be expected to have a
Material Adverse Effect on the Borrower or any Guarantor.
SECTION 3.17 CONDITION OF ASSETS.
All of the assets and properties of the Borrower,
that are reasonably necessary for the operation of its business, are in good
working condition, ordinary wear and tear excepted, and are able to serve the
function for which they are currently being used.
SECTION 3.18 ERISA.
(a) Except as disclosed on Schedule 3.18 hereto,
no Employee Benefit Plan, including without limitation, any Multiemployer Plan,
exists or has ever existed and neither any Loan Party nor any ERISA Affiliate is
a participating employer in any Employee Benefit Plan in which more than one
employer makes contributions as described in Sections 4063 and 4064 of ERISA.
Except as disclosed on Schedule 3.18, no Loan Party nor any ERISA Affiliate has
any contingent liability with respect to any post-retirement benefit under any
Employee Welfare Benefit Plan which is a welfare plan (as defined in Section
3(1) of ERISA), other than liability for health plan continuation coverage
described in Part 6 of Title I of ERISA, which together with any disclosed
liability on Schedule 3.18, would not result in liability to any Loan Party or
ERISA Affiliate in excess of $500,000. The Borrower has given to the Banks true
and complete copies of all the following: (i) each Employee Benefit Plan and
related trust agreement (including all amendments and commitments with respect
to such Employee Benefit Plan or trust) which any Loan Party or ERISA Affiliate
maintains or is committed to contribute to as of the date hereof and the most
recent summary plan description, actuarial report, determination letter issued
by the IRS and Form 5500 filed in respect of each such Employee Benefit Plan;
and (ii) a listing of all of the Multiemployer Plans to which any Loan Party or
ERISA Affiliate contributes or is committed to contribute and the aggregate
amount of the most recent annual contributions required to be made to each such
Multiemployer Plan, together with any information which has been provided to any
Loan Party or ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan and the collective bargaining agreement pursuant to which
such contribution is required to be made.
(b) Each Employee Benefit Plan complies, in both
form and operation in all material respects, with its terms, ERISA and the Code
including, without limitation, Code Section 4980B, and no condition exists or
event has occurred with respect to any such plan which would result in the
incurrence by any Loan
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Party or ERISA Affiliate of any material liability, fine or penalty. Each
Employee Benefit Plan, related trust agreement, arrangement and commitment of
each Loan Party and ERISA Affiliate is legally valid and binding in full force
and effect. Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to be so qualified,
and each trust related to such plan has been determined to be exempt under
Section 501(a) of the Code. To the knowledge of any Loan Party, nothing has
occurred or is expected to occur that would adversely affect the qualified
status of the Employee Benefit Plan or any related trust subsequent to the
issuance of such determination letter. No Employee Benefit Plan is being audited
or investigated by any government agency or subject to any pending or threatened
claim or suit.
(c) Neither the Borrower nor any ERISA Affiliate
have ever maintained or contributed to a Multiemployer Plan. Neither the
Borrower nor any ERISA Affiliate has maintained or contributed to a Pension Plan
within the last six years.
(d) Neither any Loan Party nor any ERISA
Affiliate nor any fiduciary of any Employee Benefit Plan has engaged in a
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
The execution, delivery and performance of the terms of any agreements that are
related to this transaction will not constitute a prohibited transaction under
the aforementioned sections.
(e) There are no agreements which will provide
payments to any officer, employee, shareholder or highly compensated individual
which will be "parachute payments" under Section 280G of the Code that are
nondeductible to any Loan Party and which will be subject to the tax under
Section 4999 of the Code for which any Loan Party would have a material
withholding liability.
(f) All references to the Borrower or Loan Party
in this Section 3.18 or in any other Section of this Agreement relating to ERISA
shall be deemed to refer to the Borrower or Loan Party, as applicable, and any
other entity which is considered an ERISA Affiliate.
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ARTICLE 4. CONDITIONS TO THE LOANS.
SECTION 4.1 CONDITIONS TO INITIAL LOANS.
The obligation of each Bank to make the initial
Loan to be made by it hereunder shall be subject to the fulfillment (to the
reasonable satisfaction of the Banks) of the following conditions precedent:
(a) The Borrower shall have executed and
delivered to each Bank its Note.
(b) Each Guarantor shall have executed and
delivered to the Banks its Guaranty.
(c) The Borrower shall have paid to each Bank,
its pro rata portion of the Facility Fee.
(d) The Borrower shall have delivered to the
Banks (i) summaries of policies of insurance owned by the Borrower covering or
in any manner relating to the assets and property of the Borrower; and (ii)
evidence of the Borrower's liability insurance policies;
(e) Warshaw Burstein Cohen Schlesinger & Kuh,
LLP, general counsel to the Borrower and the Guarantors, shall have delivered
their opinion to, and in form and substance reasonably satisfactory to, the
Banks.
(f) The Banks shall have received true and
complete copies of the Financial Statements and the Projections, each certified
as such in a certificate executed by the president or a vice president of the
Borrower.
(g) The Banks shall have received copies of the
following:
(i) All of the consents, approvals and
waivers referred to on Schedule 3.2 hereto (except only those which, as stated
on Schedule 3.2, shall not be delivered);
(ii) The certificates of incorporation of the
Borrower and the domestic Guarantor, certified by the Secretary of State of
their respective states of incorporation and, in the case of non-domestic
Guarantors, by an appropriate notary public;
(iii) The by-laws of the Borrower and the
Guarantors, certified by their respective secretaries or
directors, as applicable;
(iv) All corporate action taken by the
Borrower and the Guarantors to authorize the execution, delivery
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and performance of each of the Loan Documents to which each is a party and the
transactions contemplated thereby, certified by their respective secretaries or
directors, as applicable;
(v) (i) With respect to the Borrower and the
domestic Guarantor, good standing certificates and telegrams as of dates not
more than twenty (20) and two (2) days, respectively, prior to the date of the
initial Loan, from the Secretary of State of their respective states of
incorporation and each state in which each of them is qualified to do business
and (ii) with respect to Lazare Kaplan Ghana Ltd., a certificate of compliance
from the Registrar of Companies of Bermuda; and
(vi) An incumbency certificate (with specimen
signatures) with respect to the Borrower and the Guarantors.
(h) (i) The Borrower shall have complied and
shall then be in compliance with all of the terms, covenants and
conditions of this Agreement;
(ii) After giving effect to the initial
Loan, there shall exist no Default or Event of Default hereunder; and
(iii) The representations and warranties
contained in Article 3 hereof shall be true and correct on the
date hereof;
and the Banks shall have received a Compliance Certificate dated the date hereof
certifying, inter alia, that the conditions set forth in this subsection 4.1(h)
are satisfied on such date.
(i) All legal matters incident to the initial
Loans shall be satisfactory to counsel to each Bank.
SECTION 4.2 CONDITIONS TO SUBSEQUENT LOANS.
The obligation of each Bank to make each Loan
subsequent to its initial Loan shall be subject to the fulfillment (to the
reasonable satisfaction of the Banks) of the following conditions precedent:
(a) The Banks shall have received a Borrowing
Notice in accordance with Section 2.2 hereof.
(b) All legal matters incident to such Loan shall
be reasonably satisfactory to counsel for the each Bank.
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ARTICLE 5. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION.
While the Commitments are outstanding, and, in the event any
Loan remains outstanding, so long as the Borrower is indebted to either Bank and
until payment in full of the Notes and full and complete performance of all of
its other obligations arising hereunder, the Borrower shall deliver to each
Bank:
SECTION 5.1 ANNUAL FINANCIAL STATEMENTS.
Annually, as soon as available, but in any event
within ninety (90) days after the last day of each of its fiscal years, a
consolidated and consolidating balance sheet of the Borrower and the
Subsidiaries as at such last day of the fiscal year, and consolidated and
consolidating statements of income and retained earnings and statements of cash
flow, for such fiscal year, each prepared in accordance with GAAP consistently
applied, in reasonable detail, and, as to the consolidated statements, certified
without qualification by Ernst & Young LLP or another firm of independent
certified public accountants reasonably satisfactory to the Banks, and
certified, as to the consolidating statements, by the chief financial officer of
the Borrower, as fairly presenting the financial position and the results of
operations of the Borrower and the Subsidiaries as at and for the year ending on
its date and as having been prepared in accordance with GAAP consistently
applied.
SECTION 5.2 QUARTERLY FINANCIAL STATEMENTS.
As soon as available, but in any event within
forty-five (45) days after the end of the Borrower's first three fiscal
quarterly periods, a consolidated and consolidating balance sheet of the
Borrower and the Subsidiaries as of the last day of such quarter and
consolidated and consolidating statements of income and retained earnings and
statements of cash flow, for such quarter, and on a comparative basis figures
for the corresponding period of the immediately preceding fiscal year, all in
reasonable detail, each such statement to be certified in a certificate of the
president or chief financial officer of the Borrower as fairly presenting the
financial position and the results of operations of the Borrower and the
Subsidiaries as at its date and for such quarter and as having been prepared in
accordance with GAAP consistently applied (subject to year-end audit
adjustments).
SECTION 5.3 COMPLIANCE INFORMATION.
Promptly after a written request therefor, such
other financial data or information evidencing compliance with
the requirements of this Agreement, the Notes and the other Loan
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Documents, as either Bank may reasonably request from time to time.
SECTION 5.4 NO DEFAULT CERTIFICATE.
Not later than twenty (20) days after the end of
each calendar month, a certificate of the chief financial officer of the
Borrower to the effect that no Event of Default exists hereunder. In addition,
at the same time as it delivers the financial statements required under the
provisions of Section 5.1 and 5.2 hereof, a certificate of the chief financial
officer of the Borrower substantially in the form of Exhibit C hereto to the
effect that no Event of Default exists hereunder and that: (i) the signatory
thereto has reviewed the relevant terms of this Agreement and the other Loan
Documents and has made, or caused to be made, under his or her supervision, a
review of the transactions of the Borrower from the beginning of the accounting
period covered by the financial statements being delivered therewith through the
date of the certificate, and (ii) no default under any other agreement to which
the Borrower is a party or by which it is bound, or by which, to the best
knowledge of the Borrower, any of its properties or assets, taken as a whole,
may be materially affected (which default would have a Material Adverse Effect
on the Borrower), and no event which, with the giving of notice or the lapse of
time, or both, would constitute such an Event of Default or default, exists, or,
if such cannot be so certified, specifying in reasonable detail the exceptions,
if any, to such statement. Such certificate shall be accompanied by a detailed
calculation indicating compliance with the covenants contained in Sections 6.9,
7.12 and 7.13 hereof.
SECTION 5.5 CERTIFICATE OF ACCOUNTANTS.
At the same time as it delivers the financial
statements required under the provisions of Section 5.1 hereof, a certificate of
the independent certified public accountants of the Borrower addressed
specifically to both the Borrower and the Banks to the effect that during the
course of their audit of the operations of the Borrower and its condition as of
the end of the fiscal year, nothing has come to their attention which would
indicate that a Default or an Event of Default hereunder has occurred or that
there was any violation of the covenants of the Borrower contained in Section
6.9 or Article 7 of this Agreement, or, if such cannot be so certified,
specifying in reasonable detail the exceptions, if any, to such statement.
SECTION 5.6 ACCOUNTANTS' REPORTS.
Promptly upon receipt thereof, copies of all other
reports, including, without limitation, all "management letters",
submitted to the Borrower by its independent accountants in
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connection with any annual or interim audit or review of the books of the
Borrower made by such accountants.
SECTION 5.7 COPIES OF DOCUMENTS.
Promptly upon their becoming available, copies of
any: (i) financial statements, projections, non-routine reports, notices (other
than routine correspondence), requests for waivers and proxy statements, in each
case, delivered by the Borrower or any Guarantor to any lending institution
other than the Banks; (ii) correspondence or notices received by the Borrower
from any federal, state or local governmental authority that regulates the
operations of the Borrower or any Guarantor, relating to an actual or threatened
change or development that would be materially adverse to the Borrower or any
Guarantor,; (iii) registration statements and any amendments and supplements
thereto, and any regular and periodic reports, if any, filed by the Borrower or
any Guarantor with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any or all of the
functions of the said Commission; (iv) letters of comment or correspondence sent
to the Borrower or any Guarantor by any such securities exchange or such
Commission in relation to the Borrower's filings under the Securities and
Exchange Act of 1934; and (v) written reports submitted by the Borrower or any
Guarantor by its independent accountants in connection with any annual or
interim audit of the books of the Borrower or any Guarantor made by such
accountants.
SECTION 5.8 NOTICES OF DEFAULTS.
Promptly, notice of the occurrence of any Default
or Event of Default, or any event that would constitute or cause a material
adverse change in the condition, financial or otherwise, or the operations of
the Borrower or any Guarantor.
SECTION 5.9 ERISA NOTICES AND REQUESTS.
Notice of each of the following within ten (10)
days after such event or occurrence:
(a) any Loan Party or ERISA Affiliate knowing
that a Defined Contribution Plan has been terminated or partially terminated,
together with a written statement by the appropriate chief financial officer
setting forth the details of such event;
(b) any Loan Party or ERISA Affiliate knowing
that a prohibited transaction (as defined in Section 406 of ERISA or Section
4975 of the Code) has occurred with respect to any Employee Benefit Plan, and a
written statement by the appropriate chief financial officer setting forth the
details of such transaction and the action taken with respect thereto;
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(c) any increase in the benefits of any existing
Employee Benefit Plan or the establishment of any new Employee Benefit Plan or
the commencement of contributions to any Employee Benefit Plan to which any Loan
Party or ERISA Affiliate had not theretofore been contributing, together with a
written notice of such occurrence;
(d) receipt by any Loan Party or ERISA Affiliate
of any favorable or unfavorable determination letter from the IRS regarding the
qualification of a Pension Plan under Section 401(a) of the Code, together with
a copy of such letter;
(e) the filing of an annual report (Form 5500
series), including Schedule B thereto, filed by any Loan Party or ERISA
Affiliate with respect to an Employee Benefit Plan, together with a copy of such
report; and
(f) receipt by any Loan Party or ERISA Affiliate
of all correspondence with the PBGC, the Secretary of Labor of the United States
of America or any representative of the IRS with respect to any Employee Benefit
Plans, relating to an actual or threatened change or development which would be
materially adverse to the Borrower or any ERISA Affiliate.
SECTION 5.10 ACCOUNTS RECEIVABLE AGING; FIELD
AUDIT AND ADDITIONAL INFORMATION.
Such other information regarding the business,
affairs and condition of the Borrower and the Subsidiaries as the Banks may from
time to time reasonably request, including, without limitation:
(a) a report which shall be certified as true and
correct by the president or the chief financial officer of the Borrower and
which shall be delivered not more than thirty (30) days after the end of each
fiscal quarter, containing a detailed aged accounts receivable trial balance
showing accounts receivable of the Borrower and the Subsidiaries (including,
without limitation, accounts receivable with respect to both "rough" and
"polished"), as of the last day of such fiscal quarter in the following
categories: total balance; due future; due now; 30 days and over; 60 days and
over; 90 days and over; and 120 days and over; and
(b) No earlier than ninety (90) days after the
end of each fiscal year of the Borrower commencing with the end of the fiscal
year ending May 31, 1997, a written commercial finance accounts receivable,
collateral and systems audit, which audit shall be performed at the expense of
the Borrower (as set forth in Section 6.2 hereof) by an auditor reasonably
satisfactory to the Banks; provided, that the Banks shall use
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their best efforts to limit the costs of such audit and such audit shall be
performed in the Borrower's New York office.
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ARTICLE 6. AFFIRMATIVE COVENANTS.
While the Commitments are outstanding, and, in the event any
Loan remains outstanding, so long as the Borrower is indebted to either Bank,
and until payment in full of the Notes and full and complete performance of all
of its other obligations arising hereunder, the Borrower shall, and shall cause
each Guarantor to:
SECTION 6.1 BOOKS AND RECORDS.
Keep proper books of record and account in a
manner reasonably satisfactory to the Banks in which full, true and correct
entries shall be made of all dealings or transactions in relation to its
business and activities.
SECTION 6.2 INSPECTIONS AND AUDITS.
Permit either Bank to make or cause to be made
inspections and audits of any books, records and papers of the Borrower and the
Guarantors and to make extracts therefrom and copies thereof, or to make
inspections and examinations of any properties and facilities of the Borrower
and the Guarantors, on reasonable written notice, at all such reasonable times
and as often as either Bank may reasonably require, in order to assure that the
Borrower is and will be in compliance with its obligations under the Loan
Documents or to evaluate each Bank's investment in the then outstanding Notes.
The costs of such examinations and inspections shall be allocated as follows:
(a) so long as no Event of Default has occurred and is continuing, the cost of
one such examination and inspection per calendar year shall be borne by the
Borrower, it being understood that the audits referred to in subsection 5.10(b)
hereof shall constitute such audit, and all other examinations and inspections
which are made by either Bank during such calendar year shall be borne by the
Banks, and (b) whenever an Event of Default exists hereunder, the costs of all
examinations and audits shall be borne by the Borrower. Each Bank agrees to
treat as confidential all nonpublic information furnished to it pursuant to the
provisions of this Section 6.2 which has been designated in writing as
confidential by an officer of the Borrower; provided that each Bank reserves the
right to make such disclosure to (i) such Bank's directors, officers, employees,
agents, attorneys and professional consultants, (ii) any other Bank, (iii) any
Person to which such Bank offers to sell its Note or any part thereof or a
participation in all or any part of such Note (as more fully set forth in
subsection 9.13(e) hereof), (iv) any Federal or state regulatory authority
having jurisdiction over such Bank, (v) any nationally recognized rating agency
or (vi) any other Person to which such delivery or disclosure may be necessary
or appropriate (a) in order to comply with any law, rule, regulation or order
applicable to such Bank, (b) in response to any subpoena
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or other legal process or informal investigative order, (c) in connection with
any litigation to which such Bank is a party or (d) in order to protect such
Bank's investment in its Note to the extent reasonably required in connection
with the exercise of any remedy hereunder.
SECTION 6.3 MAINTENANCE AND REPAIRS.
Maintain in good repair, working order and condi-
tion, subject to normal wear and tear, all material properties and assets from
time to time owned by it and used in or necessary for the operation of its
business, and make all reasonable repairs, replacements, additions and
improvements thereto.
SECTION 6.4 CONTINUANCE OF BUSINESS.
Do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence
and all permits, rights and privileges necessary for the proper conduct of its
business and continue to engage in the same line of business and comply in all
material respects with all applicable laws, regulations and orders.
SECTION 6.5 COPIES OF CORPORATE DOCUMENTS.
Subject to the prohibitions set forth in Section
7.11 hereof, promptly deliver to the Banks copies of any amendments or
modifications to its and any Guarantor's certificate of incorporation and
by-laws, certified with respect to the certificate of incorporation by the
Secretary of State of its state of incorporation and, with respect to the
by-laws, by the secretary or assistant secretary of such corporation.
SECTION 6.6 PERFORM OBLIGATIONS.
Pay and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges shall be contested in good faith and by appropriate
proceedings and that, to the extent required by GAAP then in effect, proper and
adequate book reserves relating thereto are established by the Borrower, or, as
the case may be, by the appropriate Guarantor, and then only to the extent that
a bond is filed in cases where the filing of a bond is necessary to avoid the
creation of a Lien against any of its properties.
SECTION 6.7 NOTICE OF LITIGATION.
Promptly notify the Banks in writing of any
litigation, legal proceeding or dispute, other than disputes in
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the ordinary course of business or, whether or not in the ordinary course of
business, involving amounts in excess of Two Hundred Fifty Thousand ($250,000)
Dollars, affecting the Borrower or any Guarantor, whether or not fully covered
by insurance, and regardless of the subject matter thereof (excluding, however,
any actions relating to workers' compensation claims or negligence claims
relating to use of motor vehicles, if fully covered by insurance, subject to
deductibles).
SECTION 6.8 INSURANCE.
(a) (i) Maintain with responsible insurance
companies rated A:XII or better by A.M. Best Company, Inc.; provided, however,
that insurance coverage provided by Lloyd's of London shall be deemed to meet
the requirements of this Section 6.8, such insurance on such of its properties,
in such amounts and against such risks as is customarily maintained by similar
businesses; and (ii) file with the Banks upon their request a detailed list of
the insurance then in effect, stating the names of the insurance companies, the
amounts and rates of the insurance, the dates of the expiration thereof and the
properties and risks covered thereby; and
(b) Carry all insurance available through the
PBGC or any private insurance companies covering its obligations to the PBGC.
SECTION 6.9 FINANCIAL COVENANTS.
Have or maintain, on a consolidated basis with the
Subsidiaries, at all times:
(a) A ratio of Current Assets to Current
Liabilities at not less than 2.50:1.00.
(b) A ratio of Senior Debt to Tangible Net Worth
at not more than 1.50:1.00.
(c) Annual Cash Flow as at the dates referred to
below at not less than the amount set forth below opposite the
applicable date:
DATE MINIMUM ANNUAL CASH FLOW
May 31, 1996 $2,000,000
November 30, 1996 $2,500,000
May 31, 1997 $3,000,000
November 30, 1997 $4,000,000
May 31, 1998 $5,000,000
For purposes of calculations made to determine compliance with this Section 6.9,
"Project Indebtedness" (as such term is defined
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in the Senior Note Agreement, as in effect on the date hereof)
shall be excluded.
SECTION 6.10 NOTICE OF CERTAIN EVENTS.
Promptly notify the Banks in writing if the
Borrower or any other Loan Party receives: (a) any notice of any violation or
administrative or judicial complaint or order having been filed or about to be
filed against the Borrower or such other Loan Party alleging violations of any
Environmental Law and Regulation, or (b) any notice from any governmental body
or any other Person alleging that the Borrower or such other Loan Party is or
may be subject to any Environmental Liability; and promptly upon receipt
thereof, provide the Banks with a copy of such notice together with a statement
of the action the Borrower or such other Loan Party intends to take with respect
thereto.
SECTION 6.11 COMPLY WITH ERISA.
Materially comply with all applicable provisions
of ERISA and the Code now or hereafter in effect.
SECTION 6.12 ENVIRONMENTAL COMPLIANCE.
Operate all property owned, operated or leased by
it in compliance with all Environmental Laws and Regulations, such that no
Environmental Liability arises under any Environmental Laws and Regulations,
which results in a Lien on any property of the Borrower or any other Loan Party
and which would have a Material Adverse Effect on the Borrower or any other Loan
Party.
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ARTICLE 7. NEGATIVE COVENANTS.
While the Commitments are outstanding, and, in the event any
Loan remains outstanding, so long as the Borrower is indebted to either Bank and
until payment in full of the Notes and full and complete performance of all of
its other obligations arising hereunder, the Borrower shall not and shall not
permit any Guarantor to do, agree to do, or permit to be done, any of the
following:
SECTION 7.1 INDEBTEDNESS.
Create, incur, permit to exist or have outstanding
any Indebtedness, except:
(a) Indebtedness of the Borrower to the Banks
under this Agreement and the Notes;
(b) (i) Taxes, assessments and governmental
charges, in any case either not more than 90 days past due from the original due
date thereof or not then due and delinquent, (ii) non-interest bearing accounts
payable and accrued liabilities, in any case not more than 180 days past due
from the original due date thereof (or with respect to clause (i) or (ii), which
the Borrower or a Guarantor is contesting in good faith the amount or validity
thereof by appropriate proceedings, and then only to the extent it has set aside
on its books adequate reserves therefor), and (iii) non-interest bearing
deferred liabilities other than for borrowed money (e.g., deferred compensation
and deferred taxes), in each case incurred and continuing in the ordinary course
of business;
(c) Indebtedness secured by the security inter-
ests referred to in subsection 7.2(c) hereof and Capitalized Lease Obligations,
in each case incurred only if, after giving effect thereto, the limit on Capital
Expenditures set forth in Section 7.12 hereof would not be breached;
(d) Indebtedness of the Borrower to the Senior
Noteholders under the Senior Note Agreement, as in effect on the
date hereof;
(e) Indebtedness of the Borrower in respect of
the Supplier Loan, as in effect on the date hereof;
(f) Subordinated Debt (as defined in this
Agreement) of the Borrower and the Guarantors to the extent permitted to exist
under subsection 7.3(b) of the Senior Note Agreement, as in effect on the date
hereof;
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(g) Current Debt (as defined in the Senior Note
Agreement, as in effect on the date hereof) to the extent
permitted under subsection 7.3(c) thereof;
(h) Consolidated Secured Debt (as defined in the
Senior Note Agreement, as in effect on the date hereof) to the extent permitted
under subsection 7.3(d) thereof;
(i) Indebtedness of any Guarantor to the extent
permitted under subsection 7.3(e) of the Senior Note Agreement,
as in effect on the date hereof;
(j) Project Indebtedness (as defined in the
Senior Note Agreement, as in effect on the date hereof) to the extent permitted
under subsection 7.3(f) thereof; and
(k) As set forth on Schedule 7.1 hereto.
SECTION 7.2 LIENS.
Create, or assume or permit to exist, any Lien on
any of the properties or assets of the Borrower or any of its
Subsidiaries, whether now owned or hereafter acquired, except:
(a) Permitted Liens;
(b) Purchase money mortgages or security
interests, conditional sale arrangements and other similar security interests,
on motor vehicles and equipment acquired by the Borrower or any Subsidiary or
any Guarantor (hereinafter referred to individually as a "PURCHASE MONEY
SECURITY INTEREST") with the proceeds of the Indebtedness referred to in
subsection 7.1(c) hereof; provided, however, that:
(i) The transaction in which any Purchase
Money Security Interest is proposed to be created is not then
prohibited by this Agreement;
(ii) Any Purchase Money Security Interest
shall attach only to the property or asset acquired in such transaction and
shall not extend to or cover any other assets or properties of the Borrower or,
as the case may be, a Subsidiary or Guarantor;
(iii) The Indebtedness secured or covered by
any Purchase Money Security Interest shall not exceed the lesser of the cost or
fair market value of the property or asset acquired and shall not be renewed,
extended or prepaid from the proceeds of any borrowing by the Borrower or any
Subsidiary or any Guarantor; and
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(iv) The aggregate amount of all Indebtedness
secured by Purchase Money Security Interests shall not at any
time exceed $1,300,000;
(c) The interests of the lessor under any Capi-
talized Lease permitted hereunder;
(d) Liens to the extent permitted under
subsections 7.6(e) through 7.6(h) of the Senior Note Agreement,
as in effect on the date hereof; and
(e) As set forth on Schedule 7.2 hereto.
SECTION 7.3 GUARANTIES.
Except as set forth on Schedule 7.1 hereto and
except, with respect to the Guarantors, to the Guaranties, assume, endorse, be
or become liable for, or guarantee, the obligations of any Person, except by the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business. For the purposes hereof, the term "guarantee" shall include
any agreement, whether such agreement is on a contingency or otherwise, to
purchase, repurchase or otherwise acquire Indebtedness of any other Person, or
to purchase, sell or lease, as lessee or lessor, property or services, in any
such case primarily for the purpose of enabling another person to make payment
of Indebtedness, or to make any payment (whether as an advance, capital
contribution, purchase of an equity interest or otherwise) to assure a minimum
equity, asset base, working capital or other balance sheet or financial
condition, in connection with the Indebtedness of another Person, or to supply
funds to or in any manner invest in another Person in connection with such
Person's Indebtedness.
SECTION 7.4 MERGERS, ACQUISITIONS.
Except to the extent permitted under Section 7.8
of the Senior Note Agreement, as in effect on the date hereof, merge or
consolidate with any Person (whether or not the Borrower or any Subsidiary or
any Guarantor is the surviving entity), or acquire all or substantially all of
the assets or any of the capital stock of any Person.
SECTION 7.5 REDEMPTIONS; DISTRIBUTIONS.
(a) Purchase, redeem, retire or otherwise
acquire, directly or indirectly, or make any sinking fund payments with respect
to, any shares of any class of stock of the Borrower or any Subsidiary or any
Guarantor now or hereafter outstanding or set apart any sum for any such
purpose; or
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(b) Declare or pay any dividends or make any
distribution of any kind on the Borrower's or any Subsidiary's outstanding
stock, or set aside any sum for any such purpose, except that the Borrower or a
Guarantor may declare or pay any dividend payable solely in shares of its common
stock.
SECTION 7.6 CHANGES IN BUSINESS.
Except to the extent permitted under subsection
7.8(b) of the Senior Note Agreement, as in effect on the date hereof, make any
material change in its business, or in the nature of its operation, or liquidate
or dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, assets or
business except in the ordinary course of business and for a fair consideration
or discount, sell, pledge, hypothecate or otherwise dispose of accounts
receivable.
SECTION 7.7 PREPAYMENTS.
Make any voluntary or optional prepayment of any
Indebtedness for borrowed money incurred or permitted to exist under the terms
of this Agreement, other than Indebtedness evidenced by the Notes or prepayments
made with the proceeds derived from the issuance of equity of the Borrower.
SECTION 7.8 INVESTMENTS.
Make, or suffer to exist, any Investment in any
Person, including, without limitation, any shareholder, director, officer or
employee of the Borrower, except:
(a) Investments in:
(i) obligations issued or guaranteed by the
United States of America;
(ii) certificates of deposit, bankers accep-
tances and other "money market instruments" issued by any bank or trust company
organized under the laws of the United States of America or any State thereof
and having capital and surplus in an aggregate amount of not less than
$100,000,000;
(iii) open market commercial paper bearing the
highest credit rating issued by Standard & Poor's Corporation or by another
nationally recognized credit rating agency;
(iv) repurchase agreements entered into with
any bank or trust company organized under the laws of the United States of
America or any State thereof and having capital and surplus in an aggregate
amount of not less than $100,000,000 relating to United States of America
government obligations; and
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(v) shares of "money market funds", each
having net assets of not less than $100,000,000;
in each case maturing or being due or payable in full not more than one (1) year
after the Borrower's acquisition thereof;
(b) Investments in the form of loans or advances
in the ordinary and usual course of business to employees of the Borrower or any
Guarantor (including moving expenses incurred in connection with such employee's
relocation), provided that such expenses are incidental to carrying on the
business of the Borrower or any Guarantor and the outstanding principal amount
of all such loans to any one employee shall at no time exceed $100,000 and the
aggregate outstanding principal amount of all such loans shall at no time exceed
$500,000; and
(c) Investments to the extent permitted under
subsection 7.9(i) of the Senior Note Agreement, as in effect on
the date hereof.
SECTION 7.9 FISCAL YEAR.
Change its fiscal year.
SECTION 7.10 ERISA OBLIGATIONS.
(a) Permit the occurrence of a termination or
partial termination of a Defined Contribution Plan which would result in a
liability to any Loan Party or ERISA Affiliate in excess of $500,000; or
(b) Engage, or permit any Loan Party or ERISA
Affiliate to engage, in any prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code, for which a civil penalty pursuant to Section 502(i)
of ERISA or a tax pursuant to Section 4975 of the Code in excess of $500,000 is
imposed; or
(c) Engage or permit any Loan Party or ERISA
Affiliate to engage, in any breach of fiduciary duty under Part 4 of Title I of
ERISA for which twenty (20%) percent of the applicable recovery amount under
Section 502(l) of ERISA could exceed $500,000; or
(d) Permit the establishment of any Employee
Benefit Plan providing post-retirement welfare benefits or establish or amend
any Employee Benefit Plan which establishment or amendment could result in
liability to any Loan Party or ERISA Affiliate or increase the obligation of any
Loan Party or ERISA Affiliate to a Multiemployer Plan which liability or
increase, individually or together with all similar liabilities and increases,
is material to any Loan Party or ERISA Affiliate; or
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(e) Fail, or permit any Loan Party or ERISA
Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan
in compliance in all material respects with the provisions of ERISA, the Code
and all other applicable laws and the regulations and interpretations thereof
which liability individually or together with all similar liabilities is
material to any Loan Party or ERISA Affiliate.
SECTION 7.11 AMENDMENTS AND WAIVERS OF DOCUMENTS.
(a) Modify, amend, supplement or terminate, or
agree to modify, amend, supplement or terminate, its certificate of
incorporation or by-laws, the Senior Note Agreement, or the documents and
instruments covering or evidencing the Supplier Loan, in any manner; provided,
however, that: (i) the Borrower or any Guarantor may from time to time modify,
amend or supplement or agree to modify, amend or supplement its certificate of
incorporation or its by-laws if, but only if, any such modification, amendment
or supplement would not have a Material Adverse Effect on the Borrower or any
Guarantor; and (ii) the Borrower may modify, amend or supplement the Senior Note
Agreement or the documents and instruments covering or evidencing the Supplier
Loan if any such modification, amendment, or supplement does not have the effect
of: (i) imposing any additional or increased restrictions or limitations on the
interests, rights or powers of the Borrower under the Senior Note Agreement or
the documents and instruments covering or evidencing the Supplier Loan,
including, without limitation, any increase in the rate of interest payable on
all or any portion of the Indebtedness covered or evidenced thereby or any
shortening of the maturity of all or any portion of the principal of such
Indebtedness; or (ii) adversely affecting or imposing any additional or
increased limitations or restrictions on the interests, rights or powers of the
Banks under this Agreement or any of the other Loan Documents, and provided
further, however, that not less than ten (10) days prior to the execution of any
such modification, amendment, or supplement, the Borrower shall give each Bank
written notice thereof.
(b) Notwithstanding anything to the contrary
contained in this Section 7.11 or in this Agreement, in the event
that:
(i) the Borrower enters into modification,
amendment, or supplement of the Senior Note Agreement, the effect of which would
be that one or more covenants or events of default contained therein would be
less restrictive on the Borrower than under the Senior Note Agreement as in
effect on the date hereof, or
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(ii) a waiver or consent is issued under the
Senior Note Agreement in favor of the Borrower, the effect of which would be
that one or more covenants or events of default under the Senior Note Agreement,
as in effect on the date hereof, would be waived or consented to,
then, to the extent that this Agreement contains a cross-default provision
relating to such covenant(s) or event(s) of default or incorporates by reference
such covenant(s) or event(s) of default, such modification, amendment, or
supplement or waiver or consent would not, unless agreed to in writing by the
Banks, be effective for the purposes of such cross-default or incorporation by
reference, and such covenant(s) and/or event(s) of default would be deemed for
such purposes to be as in effect on the date hereof.
SECTION 7.12 CAPITAL EXPENDITURES.
Make or be or become obligated to make Capital
Expenditures if, after giving effect thereto, the aggregate amount of all such
expenditures during any fiscal year would exceed One Million Three Hundred
Thousand ($1,300,000) Dollars.
SECTION 7.13 RENTAL OBLIGATIONS.
Enter into, or permit to remain in effect, any
Lease (other than Capitalized Leases that are governed by Section 7.12 hereof),
if, after giving effect thereto, the aggregate amount of all rentals and other
obligations, including, without limitation, all percentage rents and additional
rent, due from the Borrower thereunder would exceed five (5%) percent of the
Borrower's Tangible Net Worth during any fiscal year.
SECTION 7.14 USE OF CASH.
Use, or permit to be used, in any manner or to any
extent, any of the Borrower's Cash for the benefit of any Person, except: (a) in
connection with the payment or prepayment of expenses (other than Capital
Expenditures) directly incurred for the benefit of the Borrower in the
maintenance and operation of its business, in each case only in the ordinary
course of its business, (b) for Capital Expenditures permitted by Section 7.12
hereof, (c) for the payment (but not prepayment, except to the extent permitted
by this Agreement) of scheduled, required payments of principal and interest on
Indebtedness of the Borrower permitted to exist hereunder, and (d) for uses
that are otherwise specifically permitted by this Agreement.
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SECTION 7.15 MANAGEMENT FEES.
Pay, or be or become obligated to pay, any Manage-
ment Fees to any Person, or any interest on any deferred obligation therefor,
including, without limitation, to any shareholder, director, officer or employee
of the Borrower.
SECTION 7.16 TRANSACTIONS WITH AFFILIATES.
Except as expressly permitted by this Agreement,
directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer,
sell, lease, assign or otherwise dispose of any assets to an Affiliate; (c)
merge into or consolidate with or purchase or acquire assets from an Affiliate;
or (d) enter into any other transaction directly or indirectly with or for the
benefit of any Affiliate (including, without limitation, guarantees and
assumptions of obligations of an Affiliate); provided, however, that: (i)
payments on Investments expressly permitted by Section 7.8 hereof may be made,
(ii) any Affiliate who is a natural person may serve as an employee or director
of the Borrower and receive reasonable compensation for his services in such
capacity, and (iii) the Borrower may enter into any transaction with an
Affiliate providing for the leasing of property, the rendering or receipt of
services or the purchase or sale of product, inventory and other assets in the
ordinary course of business if the monetary or business consideration arising
therefrom would be substantially as advantageous to the Borrower as the monetary
or business consideration that would obtain in a comparable arm's length
transaction with a Person not an Affiliate.
SECTION 7.17 HAZARDOUS MATERIAL.
(a) To the extent such is within the Borrower's
control, cause or permit:
(i) any Hazardous Material to be placed,
held, located or disposed of, on, under or at the real property used by the
Borrower in the operations of its business or any part thereof, except for such
Hazardous Materials that are necessary or desirable for the Borrower's or any
tenant's operation of its business thereon and which shall be used, stored,
treated and disposed of in compliance in all material respects with all
applicable Environmental Laws and Regulations; or
(ii) such real property or any part thereof
to be used as a collection, storage, treatment or disposal site
for any Hazardous Material.
(b) The Borrower acknowledges and agrees that the
Banks shall have no liability or responsibility for either:
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(i) damage, loss or injury to human health,
the environment or natural resources caused by the presence, disposal, release
or threatened release of Hazardous Materials on any part of such real property;
or
(ii) abatement and/or clean-up required under
any applicable Environmental Laws and Regulations for a release, threatened
release or disposal of any Hazardous Materials located at such real property or
used by or in connection with the Borrower's or any such tenant's business.
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ARTICLE 8. EVENTS OF DEFAULT.
If any one or more of the following events ("EVENTS OF
DEFAULT") shall occur and be continuing, the Commitments shall terminate and the
entire unpaid balance of the principal of and interest on the Notes outstanding
and all other obligations and Indebtedness of the Borrower to the Banks arising
hereunder and under the other Loan Documents shall immediately become due and
payable upon written notice to that effect given to the Borrower by the Banks
(except that in the case of the occurrence of any Event of Default described in
Section 8.6 no such notice shall be required), without presentment or demand for
payment, notice of non-payment, protest or further notice or demand of any kind,
all of which are expressly waived by the Borrower:
SECTION 8.1 PAYMENTS.
Failure to make any payment or mandatory prepay-
ment of principal or interest upon either Note or to make any
payment of any Fee when due; or
SECTION 8.2 CERTAIN COVENANTS.
(a) Failure to perform or observe any of the
agreements of the Borrower or any Guarantor contained in Article
7 hereof; or
(b) Failure to perform or observe any of the
covenants of the Borrower or the Guarantor contained in Section 6.9 hereof;
provided, however, if on any date (the "COMPLIANCE DATE") not later than 30 days
after the earlier of (i) delivery by the Banks to the Borrower of a notice with
respect to such default, or (ii) the date on which the Borrower first obtains
actual knowledge of any such default, there shall have been contributed to the
capital of the Borrower and/or the Guarantors a sum in Cash in immediately
available funds (and as evidenced by such written instruments or documents as
shall be reasonably satisfactory to the Banks), in an amount which after giving
effect thereto would enable the Borrower and the Guarantors to meet the
requirements as in effect on the Compliance Date of the covenant giving rise to
the default, then no Event of Default shall be deemed to have occurred under
this subsection 8.2(b) with respect to such default without any further action
by the Banks; or
SECTION 8.3 OTHER COVENANTS.
(a) Failure by the Borrower to perform or observe
any other term, condition or covenant of this Agreement or of any of the other
Loan Documents to which it is a party, which shall remain unremedied for a
period of 30 days after notice thereof shall have been given to the Borrower by
the Banks; or
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(b) Failure by any Loan Party other than the
Borrower to perform or observe any term, condition or covenant of any of the
Loan Documents to which it or he is a party, which shall remain unremedied for a
period of 30 days after notice thereof shall have been given to the Borrower by
the Bank; or
SECTION 8.4 OTHER DEFAULTS.
(a) Failure to perform or observe any term,
condition or covenant of any bond, note, debenture, loan agreement, indenture,
guaranty, trust agreement, mortgage or similar instrument to which the Borrower
is a party or by which it is bound, or by which any of its properties or assets
may be affected including, without limitation, the Senior Note Agreement and
the instruments and documents covering or evidencing the Supplier Loan (each, a
"DEBT INSTRUMENT"), so that, as a result of any such failure to perform, the
Indebtedness included therein or secured or covered thereby has been declared
due and payable prior to the date on which such Indebtedness would otherwise
become due and payable and the aggregate amount of all such Indebtedness
(exclusive of Indebtedness covered by the Senior Note Agreement), whether
covered by one or more Debt Instruments, is not less than $1,000,000; or
(b) Any event or condition referred to in any
Debt Instrument shall occur or fail to occur, so that, as a result thereof, the
Indebtedness included therein or secured or covered thereby has been declared
due and payable prior to the date on which such Indebtedness would otherwise
become due and payable and the aggregate amount of all such Indebtedness
(exclusive of Indebtedness covered by the Senior Note Agreement), whether
covered by one or more Debt Instruments, is not less than $1,000,000; or
(c) Failure to pay any Indebtedness for borrowed
money due at final maturity or pursuant to demand under any Debt Instrument and
the aggregate amount of all such Indebtedness (exclusive of Indebtedness covered
by the Senior Note Agreement), whether covered by one or more Debt Instruments,
is not less than $1,000,000;
SECTION 8.5 REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made in writing to
either of the Banks in any of the Loan Documents or in connection with the
making of the Loans, or any certificate, statement or report made or delivered
in compliance with this Agreement, shall have been false or misleading in any
material respect when made or delivered; or
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SECTION 8.6 BANKRUPTCY.
(a) The Borrower or any Guarantor shall make an
assignment for the benefit of creditors, file a petition in bankruptcy, be
adjudicated insolvent, petition or apply to any tribunal for the appointment of
a receiver, custodian, or any trustee for it or a substantial part of its
assets, or shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or the Borrower or any
Guarantor shall take any corporate action to authorize any of the foregoing
actions; or there shall have been filed any such petition or application, or any
such proceeding shall have been commenced against it, that remains undismissed
for a period of sixty (60) days or more; or any order for relief shall be
entered in any such proceeding; or the Borrower or any Guarantor by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or the appointment of a custodian, receiver
or any trustee for it or any substantial part of any of its properties, or shall
suffer any custodianship, receivership or trusteeship to continue undischarged
for a period of sixty (60) days or more; or
(b) The Borrower or any Guarantor shall generally
not pay its debts as such debts become due; or
(c) The Borrower or any Guarantor shall have
concealed, removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any of them
or made or suffered a transfer of any of its property that may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a Lien upon any of its
property through legal proceedings or distraint that is not vacated within sixty
(60) days from the date thereof; or
SECTION 8.7 JUDGMENTS.
Any judgment against the Borrower or any
attachment, levy or execution against any of its properties for any amount in
excess of $500,000 shall remain unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of sixty (60) days or more; or
SECTION 8.8 ERISA.
(a) The termination of any Plan or the institu-
tion by the PBGC of proceedings for the involuntary termination
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of any Plan, in either case, by reason of, or that results or could result in, a
"material accumulated funding deficiency" under Section 412 of the Code; or
(b) Failure by the Borrower to make required
contributions, in accordance with the applicable provisions of
ERISA, to each of the Plans hereafter established or assumed by
it; or
SECTION 8.9 OWNERSHIP OF STOCK OF THE BORROWER.
The acquisition, through purchase or otherwise
(including the agreement to act in concert without more) by any Person or group
of Persons acting in concert (other than the Tempelsman Group), directly or
indirectly, in one or more transactions, of beneficial ownership or control of
securities representing, at such time or from time to time, combined voting
power of the Company's Voting Stock in excess of the combined voting power of
the Company's Voting Stock held by the Tempelsman Group, or (b) the holding by
the Tempelsman Group of less than 40% of the combined Voting Power of the
Borrower's Voting Stock; provided, however, that if the Tempelsman Group holds
less than 50% but 40% or more of the combined voting power of the Company's
Voting Stock, an Event of Default shall be deemed to have occurred unless
Maurice Tempelsman and Leon Tempelsman enter into non-competition agreements
with the Borrower in form reasonably satisfactory to the Banks. For purposes of
this Section 8.9, "beneficial ownership" shall have the meaning set forth in
Rule 13d-3 under the Securities and Exchange Act of 1934; or
SECTION 8.10 KEY EXECUTIVE MANAGEMENT.
All of Maurice Tempelsman, Leon Tempelsman,
Sheldon L. Ginsberg, Robert Speisman and James L. Barnes (collectively "KEY
EXECUTIVE MANAGEMENT") shall cease for any reason whatsoever, including, without
limitation, death or disability (as such disability shall be determined in the
sole and reasonable judgment of the Banks) to be and continuously perform their
respective duties as executive officers or significant employees of the Borrower
or, if such cessation shall occur as a result of the death or such disability,
one or more successors satisfactory to the Banks, in their sole and reasonable
discretion, shall not have become and shall not have commenced to perform the
duties of Key Executive Management within thirty (30) days after such cessation;
provided, however, that if any satisfactory successor shall have been so elected
and shall have commenced performance of such duties within such period, the name
of such successor or successors shall be deemed to have been inserted in place
of such Key Executive Management in this Section 8.10; or
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SECTION 8.11 ADDITIONAL GUARANTORS.
Any Wholly-Owned Subsidiary which, after the date
hereof, is, or becomes, actively engaged in business, fails to execute and
deliver to the Banks a Guaranty substantially in the form of the Guaranties
executed and delivered to the Banks by the Guarantors.
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ARTICLE 9. MISCELLANEOUS PROVISIONS.
SECTION 9.1 FEES AND EXPENSES; INDEMNITY.
The Borrower will promptly pay all costs of the
Banks in preparing the Loan Documents and all costs and expenses of the issue of
the Notes and of the Borrower's and the other Loan Parties' performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, and the reasonable fees and expenses and disburse-
ments of counsel to the Banks in connection with the preparation, execution and
delivery, and in cases following a default or following a request for waiver,
the enforcement, administration, and interpretation of this Agreement, the other
Loan Documents and all other agreements, instruments and documents relating to
this transaction, the consummation of the transactions contemplated by all such
documents, the preservation of all rights of the Banks, the negotiation,
preparation, execution and delivery of any amendment, modification or supplement
of or to, or any consent or waiver under, any such document (or any such
instrument that is proposed but not executed and delivered) and with any claim
or action threatened, made or brought against either Bank arising out of or
relating to any extent to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby (other than a claim or action
resulting from the gross negligence, willful misconduct, or intentional
violation of law by the Banks). In addition, the Borrower will promptly pay all
costs and expenses (including, without limitation, reasonable fees and
disbursements of counsel) suffered or incurred by each Bank in connection with
its enforcement of the payment of the Notes held by it or any other sum due to
it under this Agreement or any of the other Loan Documents or any of its other
rights hereunder or thereunder. In addition to the foregoing, the Borrower shall
indemnify each Bank and each of their respective directors, officers, employees,
attorneys, agents and Affiliates against, and hold each of them harmless from,
any loss, liabilities, damages, claims, costs and expenses (including reasonable
attorneys' fees and disbursements) suffered or incurred by any of them arising
out of, resulting from or in any manner connected with, the execution, delivery
and performance of each of the Loan Documents, the Loans and any and all
transactions related to or consummated in connection with the Loans (other than
as a result of the gross negligence, willful misconduct or intentional violation
of law by the Banks), including, without limitation, losses, liabilities,
damages, claims, costs and expenses suffered or incurred by either Bank or any
of their respective directors, officers, employees, attorneys, agents or
Affiliates arising out of or related to any Environmental Liability or
Environmental Proceeding, or in investigating, preparing for, defending against,
or providing evidence, producing documents or taking any other action in respect
of any commenced or threatened litigation, administrative
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proceeding or investigation under any federal securities law or any other
statute of any jurisdiction, or any regulation, or at common law or otherwise
against the Banks or any of their officers, directors, affiliates, agents or
Affiliates. The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Borrower to the Banks hereunder or at common
law or otherwise. The provisions of this Section 9.1 shall survive the payment
of the Notes and the termination of this Agreement.
SECTION 9.2 TAXES.
If, under any law in effect on the date of the
closing of any Loan hereunder, or under any retroactive provision of any law
subsequently enacted, it shall be determined that any Federal, state or local
tax is payable in respect of the issuance of any Note, or in connection with the
filing or recording of any assignments, mortgages, financing statements, or
other documents (whether measured by the amount of Indebtedness secured or
otherwise) as contemplated by this Agreement, then the Borrower will pay any
such tax and all interest and penalties, if any, and will indemnify the Banks
against and save each of them harmless from any loss or damage resulting from or
arising out of the nonpayment or delay in payment of any such tax. If any such
tax or taxes shall be assessed or levied against either Bank or any other holder
of a Note, such Bank, or such other holder, as the case may be, may notify the
Borrower and make immediate payment thereof, together with interest or penalties
in connection therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrower. Notwithstanding any other
provision contained in this Agreement, the covenants and agreements of the
Borrower in this Section 9.2 shall survive payment of the Notes and the
termination of this Agreement.
SECTION 9.3 PAYMENTS.
As set forth in Article 2 hereof, all payments by
the Borrower on account of principal, interest, fees and other charges
(including any indemnities) shall be made to the Banks in lawful money of the
United States of America in immediately available funds, by wire transfer or
otherwise, not later than 2:00 p.m. New York City time on the date such payment
is due. Any such payment made on such date but after such time shall, if the
amount paid bears interest, be deemed to have been made on, and interest shall
continue to accrue and be payable thereon until, the next succeeding Business
Day. If any payment of principal or interest becomes due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day and
such extension shall be included in computing interest in connection with such
payment. All payments hereunder and under the Notes shall be made without
set-off or counterclaim and in such amounts
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as may be necessary in order that all such payments shall not be less than the
amounts otherwise specified to be paid under this Agreement and the Notes (after
withholding for or on account of: (i) any present or future taxes, levies,
imposts, duties or other similar charges of whatever nature imposed by any
government or any political subdivision or taxing authority thereof, other than
any tax (except those referred to in clause (ii) below) on or measured by the
net income of the Bank to which any such payment is due pursuant to applicable
federal, state and local income tax laws, and (ii) deduction of amounts equal to
the taxes on or measured by the net income of such Bank payable by such Bank
with respect to the amount by which the payments required to be made under this
sentence exceed the amounts otherwise specified to be paid in this Agreement and
the Notes). Upon payment in full of any Note, the Bank holding such Note shall
mark the Note "Paid" and return it to the Borrower.
SECTION 9.4 SURVIVAL OF AGREEMENTS AND
REPRESENTATIONS; CONSTRUCTION.
All agreements, representations and warranties
made herein shall survive the delivery of this Agreement and the Notes. The
headings used in this Agreement and the table of contents are for convenience
only and shall not be deemed to constitute a part hereof. All uses herein of the
masculine gender or of singular or plural terms shall be deemed to include uses
of the feminine or neuter gender, or plural or singular terms, as the context
may require.
SECTION 9.5 LIEN ON AND SET-OFF OF DEPOSITS.
As security for the due payment and performance of
all the Obligations, the Borrower hereby grants to the Banks a Lien on any and
all deposits or other sums at any time credited by or due from either Bank to
the Borrower, whether in regular or special depository accounts or otherwise,
and any and all monies, securities and other property of the Borrower, and the
proceeds thereof, now or hereafter held or received by or in transit to either
Bank from or for the Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums, monies,
securities and other property, may at any time after the occurrence and during
the continuance of any Event of Default be set-off, appropriated and applied by
either Bank against any of the Obligations, whether or not any of such
Obligations is then due or is secured by any collateral.
SECTION 9.6 MODIFICATIONS, CONSENTS AND
WAIVERS; ENTIRE AGREEMENT.
No modification, amendment or waiver of or with
respect to any provision of this Agreement, any Notes or any of
the other Loan Documents and all other agreements, instruments
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and documents delivered pursuant hereto or thereto, nor consent to any departure
by the Borrower from any of the terms or conditions thereof, shall in any event
be effective unless it shall be in writing and signed by each Bank. Any such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No consent to or demand on the Borrower in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Agreement and the other Loan Documents embody the
entire agreement and understanding among the Banks and the Borrower and
supersede all prior agreements and understandings relating to the subject matter
hereof.
SECTION 9.7 REMEDIES CUMULATIVE; COUNTERCLAIMS.
Each and every right granted to the Banks
hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of either Bank or the holder
of any Note to exercise, and no delay in exercising, any right shall operate as
a waiver thereof, nor shall any single or partial exercise of any right preclude
any other or future exercise thereof or the exercise of any other right. The due
payment and performance of the Obligations shall be without regard to any
counterclaim, right of offset or any other claim whatsoever that the Borrower
may have against either Bank and without regard to any other obligation of any
nature whatsoever that either Bank may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower (unless such
counterclaim or offset would, under applicable law, be permanently and
irrevocably lost if not brought in such action) in any action, suit or
proceeding instituted by either Bank for payment or performance of the
Obligations .
SECTION 9.8 FURTHER ASSURANCES.
At any time and from time to time, upon the
request of the Banks, the Borrower shall execute, deliver and acknowledge or
cause to be executed, delivered and acknowledged, such further documents and
instruments and do such other acts and things as the Banks may reasonably
request in order to fully effect the purposes of this Agreement, the other Loan
Documents and any other agreements, instruments and documents delivered pursuant
hereto or in connection with the Loans.
SECTION 9.9 NOTICES.
All notices, requests, reports and other communi-
cations pursuant to this Agreement shall be in writing, either by letter
(delivered by hand or commercial messenger service or sent by certified mail,
return receipt requested, except for routine reports delivered in compliance
with Article 5 hereof which may
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be sent by ordinary first-class mail) or telegram or telecopy,
addressed as follows:
(a) If to the Borrower:
Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10017
Attention: Executive Vice President and
Chief Financial Officer
Telecopier No.: (212) 972-8561
with a copy to:
Warshaw Burstein Cohen Schlesinger
& Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attention: Frederick R. Cummings, Jr., Esq.
Telecopier No.: (212) 972-9150
(b) If to either Bank:
To its address set forth below its
name on the signature pages hereof
with a copy (other than in the case of
Borrowing Notices and reports and other
documents delivered in compliance with
Article 5 hereof) to:
Winston & Strawn
MetLife Building
200 Park Avenue
New York, New York 10166-4193
Attention: Richard S. Talesnick, Esq.
Telecopier No.: (212) 294-4700
Any notice, request, demand or other communication hereunder shall be deemed to
have been given on: (x) the day on which it is telecopied to such party at its
telecopier number specified above (provided such notice shall be effective only
if followed by one of the other methods of delivery set forth herein) or
delivered by receipted hand or such commercial messenger service to such party
at its address specified above, or (y) on the third Business Day after the day
deposited in the mail, postage prepaid, if sent by mail, or (z) on the day it is
delivered to the telegraph company, addressed as aforesaid, if sent by
telegraph. Any party hereto may change the Person, address or telecopier number
to whom or which notices are to be given hereunder, by notice duly given
hereunder; provided, however,
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that any such notice shall be deemed to have been given hereunder only when
actually received by the party to which it is addressed.
SECTION 9.10 COUNTERPARTS.
This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
SECTION 9.11 SEVERABILITY.
The provisions of this Agreement are severable,
and if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision in this Agreement in any
jurisdiction. Each of the covenants, agreements and conditions contained in this
Agreement is independent and compliance by the Borrower with any of them shall
not excuse non-compliance by the Borrower with any other. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of,
another covenant shall not avoid the occurrence of a Default or an Event of
Default if such action is taken or condition exists.
SECTION 9.12 BINDING EFFECT; NO ASSIGNMENT
OR DELEGATION BY BORROWER.
This Agreement shall be binding upon and inure to
the benefit of the Borrower and its successors and to the benefit of the Banks
and their respective successors and assigns. The rights and obligations of the
Borrower under this Agreement shall not be assigned or delegated without the
prior written consent of the Banks, and any purported assignment or delegation
without such consent shall be void.
SECTION 9.13 ASSIGNMENTS AND PARTICIPATIONS BY BANKS.
(a) Each Bank may assign to one or more Banks or
other entities all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Loans owing to it, and the Note or Notes held by it); provided, however,
that: (i) the parties to such assignment shall execute and deliver to the Bank
not a party thereto an Assignment and Acceptance, (ii) each such assignment
shall be of a constant, and not a varying, percentage of all of the assigning
Bank's rights and obligations under this Agreement,
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(iii) the amount of the Commitment of the assigning Bank being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$3,000,000 and shall be an integral multiple of $1,000,000, and (iv) each such
assignment shall be to an Eligible Assignee or a domestic Affiliate of either
Bank. Upon such execution, delivery, acceptance and recording, from and after
the effective date specified in each Assignment and Acceptance, which effective
date shall be at least five (5) Business Days after the execution thereof: (x)
the assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Bank hereunder, and (y) the
Bank assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Bank's rights and obligations under this Agreement, such
Bank shall cease to be a party hereto). With respect to any Assignment and
Acceptance, the Bank Assignor thereunder shall not be released from any claims
or liabilities arising out of actions taken by such Bank in respect of the Loan
Documents prior to the execution, delivery, acceptance and recording of and
prior to the effective date specified in, each such Assignment and Acceptance.
(b) By executing and delivering an Assignment and
Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to
and agree with each other and the other parties hereto as follows: (i) other
than as provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon such assigning Bank or
the other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this
-71-
<PAGE>
<PAGE>
Agreement; (v) such assignee confirms that it is an Eligible Assignee; and (vi)
such assignee agrees that it will perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
(c) Upon its execution of an Assignment and
Acceptance, the assigning Bank shall give prompt notice thereof to the Borrower.
Within five (5) Business Days after its receipt of such notice, the Borrower, at
its own expense, shall execute and deliver to the Eligible Assignee in exchange
for the surrendered Note a new Note to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by the Eligible Assignee pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained a Commitment
hereunder, deliver to the assigning Bank a new Note to its order in an amount
equal to the Commitment retained by it hereunder. Such new Note(s) shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.
(d) Each Bank may, without the prior consent of
the other Bank or the Borrower, sell participations to one or more Banks or
other entities in all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Loans owing to it, and the Note held by it); provided, however, that: (i)
such Bank's obligations under this Agreement (including, without limitation, its
Commitment hereunder) shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Bank shall remain the holder of any such Note for all purposes of
this Agreement, and the Borrower and the other Bank shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, and such Bank shall retain the sole right to
enforce the obligations of the Borrower relating to the Loans and to approve any
amendment, modification or waiver of any provision of this Agreement.
(e) Either Bank may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.13, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower furnished to such Bank
by or on behalf of the Borrower; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Bank.
-72-
<PAGE>
<PAGE>
(f) Anything in this Section 9.13 to the contrary
notwithstanding, either Bank may assign and pledge all or any portion of its
Loans and its Notes to any Federal Reserve Bank (and its transferees) as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank. No such assignment shall release the assigning Bank from its obligations
hereunder.
SECTION 9.14 CONFIDENTIALITY.
In handling any information provided under this
Agreement by the Borrower, each of the Banks and their respective officers,
agents, attorneys, accountants or designees shall exercise the same degree of
care that such Person exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public information
thereby received except that disclosure of such information may be made as set
forth in Section 6.2 hereof.
SECTION 9.15 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF TRIAL BY JURY.
(A) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND
ALL OTHER DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION
HEREWITH AND THEREWITH, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES
PERTAINING TO CONFLICTS OF LAWS.
(B) THE BORROWER IRREVOCABLY CONSENTS THAT ANY
LEGAL ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER
RELATING TO THIS AGREEMENT, AND EACH OTHER LOAN DOCUMENT MAY BE BROUGHT IN ANY
COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE BORROWER, BY THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY
COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR
PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED
FOR IN SECTION 9.9 HEREOF. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES
ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR
BASIS. THE BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO
ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE
STATE OF NEW YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF
THE STATE OF NEW YORK. NOTHING IN THIS SECTION 9.15 SHALL AFFECT OR
-73-
<PAGE>
<PAGE>
IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF ANY BANK TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
(C) EACH OF THE BORROWER AND THE BANKS WAIVES
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF, THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY,
PERFECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first above written.
LAZARE KAPLAN INTERNATIONAL INC.
By SHELDON L. GINSBERG
_______________________________
Title EXEC. V.P. & C.F.O.
-74-
<PAGE>
<PAGE>
COMMITMENT:
$16,500,000 FLEET BANK, N.A.
BY Karen A. Purelis
-------------------------------
Karen A. Purelis,
Vice President
Lending Office for Prime Rate
Loans, LIBOR Loans and Designated
Rate Loans:
1133 Avenue of the Americas
New York, New York 10036
Attention: Karen A. Purelis
Vice President
Address for Notices:
Fleet Bank, N.A.
1133 Avenue of the Americas
New York, New York 10036
Attention: Karen A. Purelis
Vice President
Telex: 232369
Answer-Back Code: NBNA UR
Telecopier: (212) 703-1824
-75-
<PAGE>
<PAGE>
COMMITMENT:
$11,000,000 BANK LEUMI TRUST COMPANY OF
NEW YORK
BY Jeff Pfeffer
-------------------------------
Jeff Pfeffer
Senior Vice President
BY Ivan Feldman
-------------------------------
Ivan Feldman
Assistant Vice President
Lending Office for Prime Rate
Loans; LIBOR Loans and Designated
Rate Loans:
579 Fifth Avenue
New York, New York 10017
Attention: Ivan Feldman
Assistant Vice
President
Address for Notices:
579 Fifth Avenue
New York, New York 10017
Attention: Ivan Feldman
Assistant Vice
President
Telecopier: (212) 407-4482
-76-
<PAGE>
<PAGE>
EXHIBITS, SCHEDULES AND ANNEX TO
LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
EXHIBITS
A Form of Note
B Form of Assignment and Acceptance
C Form of No Default Certificate
SCHEDULES
3.1(a) States of Incorporation and Qualification, and
Capitalization and Ownership of Stock, of Borrower and
Guarantors
3.1(b) Subsidiaries of Borrower and each Guarantor
3.2 Consents, Waivers, Approvals; Violation of Agreements
3.6 Judgments, Actions, Proceedings
3.7 Defaults; Compliance with Laws, Regulations, Agreements
3.8 Burdensome Documents
3.11 Patents, Trademarks, Trade Names, Service Marks,
Copyrights
3.13 Name Changes, Mergers, Acquisitions
3.18 ERISA
7.1 Permitted Indebtedness and Guaranties
7.2 Permitted Security Interests, Liens and Encumbrances
ANNEX
I Names and State/Country of Organization of Guarantors
<PAGE>
<PAGE>
EXHIBIT A
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
FORM OF NOTE
$__________ New York, New York
____________, 1996
FOR VALUE RECEIVED, the undersigned LAZARE KAPLAN INTERNATIONAL INC., a
Delaware corporation (the "BORROWER"), hereby promises to pay to the order of
______________________ (the "BANK") on the Maturity Date (as defined in the Loan
Agreement dated the date hereof between the Borrower, _________________________
and the Bank (as such Loan Agreement may be amended, modified or supplemented,
the "LOAN AGREEMENT")), the lesser of (i) the principal sum of
__________________________ Dollars ($____________), or (ii) the aggregate unpaid
principal amount of the Loans (as defined in the Loan Agreement) made by the
Bank to the Borrower pursuant to the Loan Agreement, and to pay interest on the
unpaid principal amount of each Loan from the date thereof at the rates per
annum and for the periods set forth in or established by the Loan Agreement and
calculated as provided therein.
All indebtedness outstanding under this Note shall bear interest
(computed in the same manner as interest on this Note prior to the relevant due
date) at the applicable Post-Default Rate (as such term is defined in the Loan
Agreement) for all periods when an Event of Default has occurred and is
continuing, commencing on the occurrence of such Event of Default until such
Event of Default has been cured or waived as acknowledged in writing by the
Bank, and all of such interest shall be payable on demand.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Bank to the extent
that the Bank's receipt thereof would not be permissible under the law or laws
applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank. Any such payments of interest which are not made as a
result of the limitation referred to in the preceding sentence shall be made by
the Borrower to the Bank on the earliest interest payment date or dates on which
the receipt thereof would be permissible under the laws applicable to the Bank
limiting rates of interest which may be charged or collected by the Bank.
<PAGE>
<PAGE>
Payment of both principal and interest on this Note are to be made at
the office of the Bank at ___________________________, or such other place as
the holder hereof shall designate to the Borrower in writing, in lawful money of
the United States of America in immediately available funds.
This Note is one of the Notes referred to in the Loan Agreement, may be
prepaid upon and subject to terms and conditions thereof and is entitled to the
benefits thereof.
The Bank is hereby authorized by the Borrower to record on the schedule
to this Note (or on a supplemental schedule thereto) the amount of each Loan
made by the Bank to the Borrower and the amount of each payment or prepayment of
principal of such Loans received by the Bank, it being understood, however, that
failure to make any such notation shall not affect the rights of the Bank or the
obligations of the Borrower hereunder in respect of this Note. The Bank may, at
its option, record such matters in its internal records rather than on such
schedule.
Upon the occurrence of any Event of Default, as defined in the Loan
Agreement, the principal amount of and accrued interest on this Note may be
declared due and payable in the manner and with the effect provided in the Loan
Agreement.
The Borrower shall pay costs and expenses of collection, including,
without limitation, attorneys' fees and disbursements in the event that any
action, suit or proceeding is brought by the holder hereof to collect this Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES
PERTAINING TO CONFLICTS OF LAWS.
LAZARE KAPLAN INTERNATIONAL
INC.
BY___________________________
TITLE
-2-
<PAGE>
<PAGE>
SCHEDULE TO NOTE
This Note evidences Loans made under the within described Loan
Agreement, in the principal amounts, and on the dates set forth below, subject
to the payments or prepayments of principal set forth below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INTEREST PERIOD
PRINCIPAL (IF OTHER THAN A AMOUNT UNPAID
AMOUNT TYPE PRIME RATE LOAN) OF PRINCIPAL PRINCIPAL NOTATION
DATE OF LOAN OF LOAN AND INTEREST RATE REPAID BALANCE MADE BY
---- --------- ------- ------------------ ------------ --------- --------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT B
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated ___________
Reference is hereby made to the Loan Agreement dated ____________, 1996
(the "LOAN AGREEMENT") by and among Lazare Kaplan International Inc., a Delaware
corporation (the "BORROWER"), Fleet Bank, N.A. and Bank Leumi Trust Company of
New York (individually a "BANK" and together the "BANKS"). Capitalized terms
used herein that are defined in the Loan Agreement that are not otherwise
defined herein shall have the respective meanings ascribed thereto in the Loan
Agreement.
_______________________________, a __________________ (the "ASSIGNOR")
and _______________________________________, a ________________, (the
"ASSIGNEE") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, a __ % interest in and
to all of the Assignor's rights and obligations under the Loan Agreement as of
the Effective Date (as defined below) (including, without limitation, such
percentage interest in the Assignor's Commitment as in effect on the Effective
Date, and the Loans owing to the Assignor on the Effective Date, and the Note(s)
held by the Assignor).
2. The Assignor: (i) represents and warrants that as of the date hereof
its Commitment (without giving effect to assignments thereof that have not yet
become effective) is $__________ and the aggregate outstanding principal amount
of Loans owing to it (without giving effect to assignments thereof that have not
yet become effective) is $__________; (ii) represents and warrants that it is
the legal and beneficial owner of the interest being assigned by it hereunder,
and that such interest is free and clear of any adverse claim; (iii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Agreement or any other instrument or document furnished pursuant thereto; (iv)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or any other Loan Party or the
performance or observance by the Borrower or any other Loan Party of any of its
obligations under the Loan Agreement or any other instrument or document
furnished pursuant thereto; (v) attaches the Note(s) referred to in paragraph 1
above in exchange for new Note(s) as follows: a Note dated the
<PAGE>
<PAGE>
Effective Date (as such term is defined below) in the principal amount of $
__________ payable to the order of the Assignee and a Note dated the Effective
Date in the principal amount of $ __________ payable to the order of the
Assignor; and (vi) represents and warrants that it shall not be released from
any claims or liabilities arising out of any actions taken by it in respect of
the Loan Documents prior to the execution, delivery, acceptance and recording of
this Assignment and Acceptance, and prior to the Effective Date (defined below).
3. The Assignee: (i) confirms that it has received a copy of the Loan
Agreement, together with copies of such financial statements and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Assignor or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Loan Agreement; (iii) confirms that it is [an Eligible
Assignee][domestic Affiliate of the Assignor]; (iv) agrees that it will perform
in accordance with their terms all of the obligations which by the terms of the
Loan Agreement are required to be performed by it as a Bank; and (v) specifies
as its addresses for Prime Rate Loans, LIBOR Loans and Designated Rate Loans
(and address for notices) the offices set forth beneath its name on the
signature pages hereof.
4. The effective date for this Assignment and Acceptance
shall be ________________ (the "EFFECTIVE DATE").
5. As of the Effective Date: (i) the Assignee shall be a party to the
Loan Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Bank thereunder and (ii) the Assignor
shall, to the extent provided in this Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Agreement.
6. From and after the Effective Date, the Borrower shall make all
payments under the Loan Agreement and the Note(s) in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Loan
Agreement and the Note(s) for periods prior to the Effective Date directly
between themselves.
-2-
<PAGE>
<PAGE>
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to its
rules pertaining to conflicts of laws.
[NAME OF ASSIGNOR]
BY_________________________________
TITLE
[NAME OF ASSIGNEE]
BY_________________________________
TITLE
LENDING OFFICE FOR PRIME RATE
LOANS:
LENDING OFFICE FOR LIBOR
LOANS AND CD LOANS:
ATTENTION:
ADDRESS FOR NOTICES:
ATTENTION:
TELEPHONE NO.:
TELEX NO.:
ACCEPTED THIS ___ DAY
OF ______________, 199_
[INSERT NAME OF NON-ASSIGNING
BANK]
BY___________________________
TITLE
-3-
<PAGE>
<PAGE>
EXHIBIT C
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
FORM OF NO DEFAULT CERTIFICATE
The undersigned hereby certifies that, as of ___________, 199_: (i)
(s)he is the Chief Financial Officer of LAZARE KAPLAN INTERNATIONAL INC., the
borrower (the "BORROWER") under that certain Loan Agreement dated
______________, 1996 (the "LOAN AGREEMENT") by and among the Borrower, Fleet
Bank, N.A. and Bank Leumi Trust Company of New York (together, the "BANKS"),
(ii) (s)he has reviewed the relevant terms of the Loan Agreement and the other
Loan Documents and has made, or caused be made, under his/her supervision, a
review of the transactions of the Borrower from the beginning of the accounting
period covered by the financial statements being delivered herewith through the
date hereof, (iii) except as may be set forth below, no Default or Event of
Default under the Loan Agreement and no default under any other agreement to
which the Borrower is a party or by which it is bound, or by which any of its
properties or assets, taken as a whole, may be materially affected, exists, and
(iv) the representations and warranties contained in Article 3 of the Loan
Agreement are true and with the same effect as though such representations and
warranties were made on the date hereof (other than the representation and
warranty contained in subsection 3.6(b) of the Loan Agreement, which
representation and warranty is expressly stated to have been made only as of the
date of the closing of the initial Loan under the Loan Agreement), except for
changes in the ordinary course of business none of which, either singly or in
the aggregate, have had a Material Adverse Effect (as defined in the Loan
Agreement) on the Borrower.
The following representations and warranties are made by the
undersigned from her/his personal knowledge, after diligent inquiry, and with
full knowledge that the Banks will rely thereon. This Certificate is given
pursuant to and in compliance with Section 5.4 of the Loan Agreement.
On behalf of the Borrower, the undersigned hereby represents and
warrants that, with respect to the Sections of the Loan Agreement set forth
below and the covenants contained therein, the Borrower is in full compliance
unless otherwise indicated:
<PAGE>
<PAGE>
IN FULL NOT IN
COVENANT COMPLIANCE COMPLIANCE
5.1 Annual Financial [ ] [ ]
Statements
5.2 Quarterly Financial [ ] [ ]
Statements
5.3 Compliance Information [ ] [ ]
5.4 No Default Certificate [ ] [ ]
5.5 Certificate of [ ] [ ]
Accountants
5.6 Accountant's Reports [ ] [ ]
5.7 Copies of Documents [ ] [ ]
5.8 Notices of Defaults [ ] [ ]
5.9 ERISA Notices and [ ] [ ]
Requests
5.10 Accounts Receivable [ ] [ ]
Aging; Field Audit and
Additional Information
6.1 Books and Records [ ] [ ]
6.2 Inspections and Audits [ ] [ ]
6.3 Maintenance and [ ] [ ]
Repairs
6.4 Continuance of Busines [ ] [ ]
6.5 Copies of Corporate [ ] [ ]
Documents
-2-
<PAGE>
<PAGE>
IN FULL NOT IN
COVENANT COMPLIANCE COMPLIANCE
6.6 Perform Obligations [ ] [ ]
6.7 Notice of Litigation [ ] [ ]
6.8 Insurance [ ] [ ]
6.9 (a) Current Assets to [ ] [ ]
Current Liabilities
(See Schedule 1
attached hereto for
supporting
calculations)
6.9 (b) Senior Debt to [ ] [ ]
Tangible Net Worth
(See Schedule 2
attached hereto for
supporting
calculations)
6.9 (c) Annual Cash Flow [ ] [ ]
(See Schedule 3
attached hereto for
supporting
calculations)
6.10 Notice of Certain [ ] [ ]
Events
6.11 Comply with ERISA [ ] [ ]
6.12 Environmental [ ] [ ]
Compliance
7.1 Indebtedness [ ] [ ]
7.2 Liens [ ] [ ]
-3-
<PAGE>
<PAGE>
IN FULL NOT IN
COVENANT COMPLIANCE COMPLIANCE
7.3 Guaranties [ ] [ ]
7.4 Mergers, Acquisitions [ ] [ ]
7.5 Redemptions; [ ] [ ]
Distributions
7.6 Changes in Business [ ] [ ]
7.7 Prepayments [ ] [ ]
7.8 Investments [ ] [ ]
7.9 Fiscal Year [ ] [ ]
7.10 ERISA Obligations [ ] [ ]
7.11 Amendments and Waivers [ ] [ ]
of Documents
7.12 Capital Expenditures [ ] [ ]
(See Schedule 4
attached hereto for
supporting
calculations)
-4-
<PAGE>
<PAGE>
IN FULL NOT IN
COVENANT COMPLIANCE COMPLIANCE
7.13 Operating Leases (See [ ] [ ]
Schedule 5 attached
hereto for supporting
calculations)
7.14 Use of Cash [ ] [ ]
7.15 Management Fees [ ] [ ]
7.16 Transactions with [ ] [ ]
Affiliates
7.17 Hazardous Material [ ] [ ]
With respect to any item identified above as not being in compliance,
the undersigned has attached, and certifies as to the accuracy of, statements
specifying the violation, condition, or events which result in such
non-compliance, the nature and status thereof, and the actions that the Borrower
proposes to take with respect thereto to bring the Borrower into full compliance
with the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of the _____day of ___________, ____.
------------------------------
CHIEF FINANCIAL OFFICER
OF LAZARE KAPLAN INTERNATIONAL
INC.
-5-
<PAGE>
<PAGE>
SCHEDULE 1
CURRENT ASSETS TO CURRENT LIABILITIES
Date: _____________
Current Assets $___________________
(DIVIDED BY [div]) Current Liabilities $___________________
(EQUALS =) Ratio of Current Assets
to Current Liabilities ___________________
Not less than 2.5:1.0
Compliance (Y/N):__________________
<PAGE>
<PAGE>
SCHEDULE 2
SENIOR DEBT TO TANGIBLE NET WORTH
Date: _____________
Period: _____________
Senior Debt $___________________
(DIVIDED BY [div]) Tangible Net Worth $___________________
(EQUALS =) Ratio of Senior Debt
to Tangible Net Worth ___________________
Not more than 1.5:1.0
Compliance (Y/N): __________________
<PAGE>
<PAGE>
SCHEDULE 3
ANNUAL CASH FLOW
Date: _____________
Period: Four consecutive fiscal quarters ending ___________
Net Income $___________________
(ADD) + Depreciation $___________________
+ Amortization $___________________
(SUBTRACT) - Capital Expenditures $___________________
Incurred (up to
amount permitted
under Section 7.12
(EQUALS) = Annual Cash Flow $___________________
Required Amount $___________________
Compliance (Y/N):___________________
<PAGE>
<PAGE>
SCHEDULE 4
CAPITAL EXPENDITURES
Date: ___________
Period Covered: ________________
Total amount permitted $______________
Total amount expended during period $______________
Compliance (Y/N):___________________
<PAGE>
<PAGE>
SCHEDULE 5
OPERATING LEASES
Date: ___________
Period Covered: ________________
Total amount permitted $______________
Total amount expended during period $______________
Compliance (Y/N):___________________
<PAGE>
<PAGE>
SCHEDULE 3.1(a)
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
STATES OF INCORPORATION AND QUALIFICATION,
AND CAPITALIZATION AND OWNERSHIP
OF STOCK, OF BORROWER AND GUARANTORS
<TABLE>
<CAPTION>
AUTHORIZED
STATES OF & OUTSTANDING
NAME OF COMPANY INCORPORATION QUALIFICATIONS SHARES OWNER BUSINESS
<S> <C> <C> <C> <C> <C>
Lazare Kaplan Delaware New York Authorized: Publicly held Purchase of rough
International Inc. 20,000,000 shares of diamonds. Sale of
("LKI") common stock Ideal cut Lazare
Outstanding: Diamonds to
6,155,496 shares quality retail
jewelers
internationally.
Lazare Kaplan Europe Delaware Authorized: 100% by LKI Purchase and sale
Inc. 1,000 shares of of rough, ideal
common stock cut and commercial
Outstanding: quality diamonds.
100 shares
Lazare Kaplan Ghana Bermuda Authorized: 11,922 shares held Purchase and sale
Ltd. 12,000 shares of by LKI, 4 shares of rough diamonds
common stock held by LKI in Ghana.
Outstanding: nominees, and 4
11,930 shares shares held by
Bermuda nominees
Lazare Kaplan Belgium Authorized: 99 shares held by Purchase and sale
Belgium, 1,250,000 BF Lazare Kaplan of rough, ideal
N.V. Outstanding: Europe Inc., cut and commercial
100 shares 1 share held by quality diamonds.
LKI nominee
Supreme Gems N.V. Belgium Authorized: 90 shares held by Purchase and sale
1,250,000 BF Lazare Kaplan of ideal cut
Outstanding: Belgium, N.V., 10 diamonds.
100 shares shares held by LKI
nominee
</TABLE>
<PAGE>
<PAGE>
SCHEDULE 3.1(b)
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
SUBSIDIARIES OF BORROWER
AND EACH GUARANTOR
PARENT SUBSIDIARIES/DIVISIONS
LAZARE KAPLAN INTERNATIONAL INC. LAZARE KAPLAN (SIERRA LEONE)
LIMITED, Delaware,
Inactive
LAZARE KAPLAN JAPAN INC.,
Delaware,
Inactive
LAZARE KAPLAN EUROPE INC.,
Delaware Holding Company,
Active
LAZARE KAPLAN AFRICA INC.,
Delaware,
Inactive
LAZARE KAPLAN (BERMUDA) LTD.,
Bermuda Holding Company,
Inactive
LAZARE KAPLAN BOTSWANA (PTY)
LTD. (60% OWNED). Cuts and
polishes melee in Botswana
factory.
Active
LK ENTERPRISES INC., Delaware
Inactive
RCS INC., Delaware
Inactive
LK RUSSIA INC., Delaware
Inactive
LAZARE KAPLAN GHANA LTD.,
Bermuda
Purchase and sale of rough
diamonds in Ghana
<PAGE>
<PAGE>
Active
LAZARE KAPLAN EUROPE INC. LAZARE KAPLAN BELGIUM N.V.
Belgium
Purchase and sale of rough
diamonds. Purchase and sale
of ideal cut and commercial
quality diamonds
Active
LAZARE KAPLAN BELGIUM, N.V. SUPREME GEMS N.V., Belgium
Purchase and sale of ideal cut
diamonds
Active
LAZARE KAPLAN BELGIUM JEWELRY
N.V., Belgium
Inactive
LAZARE KAPLAN (BERMUDA) LTD. KAPLAN OFFSHORE TRADING
LIMITED, Bermuda
Purchase and sale of rough
diamonds.
Inactive
NOTE: ALL SUBSIDIARIES ARE 100% OWNED UNLESS SPECIFICALLY NOTED
OTHERWISE.
-2-
<PAGE>
<PAGE>
SCHEDULE 3.2
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
CONSENTS, WAIVERS, APPROVALS;
VIOLATION OF AGREEMENTS
None
<PAGE>
<PAGE>
SCHEDULE 3.6
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
JUDGMENTS, ACTIONS, PROCEEDINGS
Lazare Kaplan International Inc. Melvyn Schnabel, U.S. District Court, Southern
District of New York, 95 CV 4583 (JFK) -- Action against former salesman based
on his failure to return to the Borrower jewelry and diamonds entrusted to him.
<PAGE>
<PAGE>
SCHEDULE 3.7
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
DEFAULTS; COMPLIANCE WITH LAWS,
REGULATIONS, AGREEMENTS
None
<PAGE>
<PAGE>
SCHEDULE 3.8
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
BURDENSOME DOCUMENTS
None
<PAGE>
<PAGE>
SCHEDULE 3.11
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
PATENTS, TRADEMARKS, TRADE
NAMES, SERVICE MARKS, COPYRIGHTS
1. Domestic Trademarks: See Attached 2 pages.
2. Foreign Trademarks: See Attached 10 pages.
3. Patents: See Attached 4 pages.
<PAGE>
<PAGE>
SCHEDULE 3.11 (CONT)
1. Domestic Trademarks
See Attached 2 pages
<PAGE>
<PAGE>
SCHEDULE 3.11
Domestic Trademarks held by Lazare Kaplan International Inc. or predecessors:
1. LAZARE KAPLAN (No. 1,118,189)
Owner: Lazare Kaplan, Inc.
Issued: 5/15/79 Expires 5/15/99
First Use: 6/16/36
2. BEAUTY IS IN THE CUTTING (with design) (No. 1,118,735)
Owner: Lazare Kaplan, Inc.
Issued: 5/22/79 Expires: 5/22/99
First Use: 121/72
3. OVAL ELEGANCE (No. 684,436)
Owner: Lazare Kaplan, Inc.
Issued: 9/1/59
Renewed: 9/30/79 Expires: 9/30/99
First Use: 10/16/58
4. 'LX' WITH DIAMOND DEVICE (No. 1,150,360)
Owner: Lazare Kaplan, Inc.
Issued: 4/7/81 Expires: 4/7/01
First Use: 9/26/78
5. 'LK' IN CIRCLED LOGO (No. 749,772)
Owner: Lazare Kaplan, Inc.
Issued: 5/21/63
Renewed: 5/21/83 Expires: 5/21/03
First Use: 1958
6. A.D. LEVERIDGE (No. 814,437)
Owner: Lazare Kaplan, Inc.
Issued: 9/6/66
Renewed: 9/2/86 Expires: 9/2/06
First Use: August 1937
7. THE LAZARE DIAMOND (No. 1,433,774)
Owner: Lazare Kaplan, Inc. (Certificate of Ownership
<PAGE>
<PAGE>
and Merger filed with SS8 & 15 Affidavit,
Assignment to Lazare Kaplan International
Inc. recorded on March 16, 1992)
Issued: 3/24/87 Expires: 3/24/07
First Use: 10/10/85
8. SETTING THE STANDARD FOR BRILLIANCE (No. 1,439,108)
Owner: Lazare Kaplan, Inc. (Certificate of Ownership
and Merger filed with SS8 & 15 Affidavit)
Issued: 5/12/87 Expires 5/12/07
First Use: 10/10/85
9. THE LAZARE DIAMOND REGISTRY (No. 1,481, 863)
Owner: Lazare Kaplan, Inc.
Issued: 3/22/88 Expires 3/22/08
10. LAZARE DIAMONDS (No. 1,670,188)
Owner: Lazare Kaplan International Inc.
Issued: 12/31/91 Expires: 12/31/01
First Use: 10/10/85
11. THE FIRE BURNS (No. 1,682,857)
Owner: Lazare Kaplan International Inc.
Issued: 4/14/92 Expires: 4/14/02
First Use: 11/21/90
12. LAZARE DIAMOND TWINS (No. 1,812,887)
Owner: Lazare Kaplan International Inc.
Issued: 12/21/93 Expires: 12/21/03
First Use: 10/28/92
13. DIAMOND ROUGE (No. 75/013505)
Application pending.
<PAGE>
<PAGE>
SCHEDULE 3.11 (CONT)
2. Foreign Trademarks
See Attached 10 pages
<PAGE>
<PAGE>
Abelman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 1
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARE DIAMONDS AUSTRIA
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 148034 July 2, 1993 Renewal Due: July 31, 2003 Registered
App No: AM1302/93 March 19, 1993
Class (Int): 14 our ref: 835104
Goods: Class Heading, to protect diamonds.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS BENELUX
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 523322 June 1, 1993 Renewal Due: October 12, 2012 Registered
App No: 787148 October 12, 1992
Class (Int): 14, 16 our ref: 835105
Goods: Class headings.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN BENELUX
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 364515 March 11, 1990 Renewal Due: March 11, 2000 Registered
App No: 635459 March 11, 1980
Org No: 365515 March 11, 1980
Class (Int): 14, 16 our ref: 41888
Goods: Class headings.
--Merger from LAZARE KAPLAN INC. recorded Jul 2 1990.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE BENELUX
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 364514 March 11, 1990 Renewal Due: March 11, 2000 Registered
App No: 635458 March 11, 1980
Org No: 364514 March 11, 1980
Class (Int): 14 our ref: 41889
Goods: Class heading.
--Merger from LAZARE KAPLAN INC. recorded Jul 2 1990.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN BERMUDA
LAZARE KAPLAN, INC.
Reg No: A9154 June 13, 1987 Renewal Due: June 13, 2001 Registered
App No: NONE June 13, 1980
Org No: A9154 June 13, 1980
Class (Int): 14 our ref: 42459
GOODS DIAMONDS.
--CHANGE OF NAME FROM LAZARE KAPLAN & SONS, INC. RECORDED
SEPTEMBER 1, 1987.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE BERMUDA
LAZARE KAPLAN, INC.
Reg No: 9483 May 1, 1987 Renewal Due: May 1, 2001 Registered
App No: NONE April 16, 1980
Org No: A9483 May 1, 1980
Class (Int): 14 our ref: 42588
GOODS DIAMONDS
--CHANGE OF NAME FROM LAZARE KAPLAN AND SONS, INC. RECORDED
SEPTEMBER 1, 1987.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Abelman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 2
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LK IN DIAMOND DEIVE (NEW LOGO) CANADA
LAZARE KAPLAN & SONS, INC.
Reg No: 148034 November 28, 1995 Renewal Due: November 28, 2010 Registered
App No: 450818 March 4, 1980
Org No: 263096 November 28, 1980
our ref: 908366
GOODS: DIAMONDS
--FIRST USE IN CANADA SINCE AT LEAST AS EARLY
AS JUNE 22, 1979.
- -----------------------------------------------------------------------------------------------
LAZARE CHINA (TAIWAN)
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 616528 October 16 1993 Renewal Due: October 16, 2003 Registered
App No: 81077191 November 17, 1992
Class (Loc): 56
our ref: 835106
Goods: Diamonds, precious metals, pearls and jades, coral
crystal, agates, precious stones.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK LOGO - THE AMERICAN CLASSICS CHINA (TAIWAN)
LAZARE KAPLAN & SONS, INC.
App No: 81002619 January 17, 1992 App. Pending
Class (Loc): 56 our ref: 832659
Goods: Class Heading (to protect diamonds).
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN FRANCE
LAZARE KAPLAN, INC.
Reg No: 1125966 March 4, 1990 Renewal Due: March 4, 2000 Registered
App No: 546963 March 4, 1980
Org No: 1125988 March 4, 1980
Class (Int): 14 our ref: 41886
Goods: Class heading.
--Merger from LAZARE KAPLAN INC. pending.
--Merger from LAZARE KAPLAN INTERNATIOANL INC. recorded
Jul 27 1990.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE FRANCE
LAZARE KAPLAN, INC.
Reg No: 1609304 March 4, 1990 Renewal Due: March 4, 2000 Registered
App No: 546962 March 4, 1980
Org No: 1125888 March 4, 1980
Class (Int): 14 our ref: 43054
GOODS: PRECIOUS METALS AND THEIR ALLOYS AND GOODS
IN PRECIOUS METALS OR COATED THEREWITH (EXCEPT
CUTLERY, FORKS AND SPOONS), JEWELRY, PRECIOUS
STONES, HOROLOGICAL AND OTHER CHRONOMETRIC INSTRUMENTS.
--MERGER FROM LAZARE KAPLAN INTERNATIONAL INC. RECORDED
JULY 27, 1990.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Abelman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 3
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARE DIAMONDS GERMANY
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 2047213 October 18, 1993 Renewal Due: October 14, 2002 Registered
App No: L36358/14WZ October 14, 1992
Class (Int): 14 our ref: 834284
Goods: Jewelry, ornamental goods or applied art goods of
precious metals or their alloys; also plated goods; diamonds,
precious stones; horological and other chronometric instruments.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN GERMANY (WEST)
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 1013575 March 4, 1990 Renewal Due: March 4, 2000 Registered
App No: L24087/14WZ March 4 1980
Org No: 1013575 March 4 1980
Class (Int): 14 our ref: 42410
GOODS: JEWELRY, ORNAMENTAL GOODS OR APPLIED ART
GOODS OF PRECIOUS METALS OR THEIR ALLOYS, ALSO
PLATED; JEWELRY GOODS, PRECIOUS STONES, HOROLOGICAL
AND OTHER CHRONOMETRIC INSTRUMENTS.
--CHANGE OF NAME FROM LAZARE KAPLAN INC. RECORDED MARCH 26,
1991.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE GERMANY (WEST)
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 1013674 March 4, 1990 Renewal Due: March 4, 2000 Registered
App No: L24087/14WZ March 4 1980
Org No: 1013574 March 4 1980
Class (Int): 14 our ref: 42295
Goods: All goods in the class (to protect diamonds).
--Change of name from LAZARE KAPLAN INC. recorded March 26,
1991.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMOND HONG KONG
LAZARE KAPLAN INTERNATIONAL INC.
DEFERRED
Class (Int): 14 our ref: 835107
Goods: Diamond, precious stones, jewelry.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMOND IN CHINESE 7 LK LOGO HONG KONG
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 6806/93 Registered
Class (Int): 14 our ref: 832346
Goods: Diamonds
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN HONG KONG
LAZARE KAPLAN & SONS, INC.
App No: 648/80 March 18, 1980 App. Pending
Class (Int): 14 our ref: 4259
GOODS ALL GOODS IN CLASS (TO PROTECT DIAMONDS).
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 4
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
[LOGO]
LK LOGO - THE AMERICAN CLASSICS HONG KONG
LAZARE KAPLAN INTERNATIONAL INC.
Renewal Due: November 23, 1998 App. Pending
App No: 9001/91 November 23, 1991
Class (Int): 14 our ref: 832660
Goods: Diamonds, precious stones, jewelry.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE I HONG KONG
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 179/1983 March 18, 1987 Renewal Due: March 18, 2001 Registered
App No: 648/80 March 18, 1980
Org No: 179/1983 March 18, 1980
Class (Int): 14 our ref: 42592
GOODS: DIAMONDS.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC. RECORDED APRIL
19, 1988.
--MERGER FROM LAZARE KAPLAN INC. RECORDED NOVEMBER 6, 1993.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS INDONESIA
LAZARE KAPLAN INTERNATIONAL INC.
App No: NONE August 2, 1993 App. Pending
Class (Int): 14 our ref: 835108
Goods: Class Heading to protect diamonds.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN IRELAND
LAZARE KAPLAN, INC.
Reg No: B102969 March 4, 1987 Renewal Due: March 4, 2001 Registered
App No: 601/80 March 4, 1980
Org No: B102969 March 4, 1980
Class (Int): 14 our ref: 42594
GOODS: ALL GOODS IN THE CLASS.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC. RECORDED JULY
2, 1990.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE I IRELAND
LAZARE KAPLAN, INC.
Reg No: 99568 March 4, 1987 Renewal Due: March 4, 2001 Registered
App No: 602/80 April 30, 1980
Org No: 99568 March 4, 1980
Class (Int): 14 our ref: 42593
GOODS: PRECIOUS STONES.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC. RECORDED JULY
2, 1990.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 5
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARE KAPLAN ISRAEL
LAZARE KAPLAN, INC.
Reg No: 49626 March 7, 1987 Renewal Due: March 7, 2001 Registered
App No: 49626 March 7, 1980
Org No: 49626 March 7, 1980
Class (Int): 14 our ref: 42596
GOODS PRECIOUS STONES; JEWELERY.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC.
RECORDED AUG 17 1987.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE I ISRAEL
LAZARE KAPLAN, INC.
Reg No: 49627 March 7, 1987 Renewal Due: March 7, 2001 Registered
App No: 49627 March 7, 1980
Org No: 49627 March 7, 1980
Class (Int): 14 our ref: 42595
GOODS PRECIOUS STONES; JEWELRY.
--DISCLAIMER NO CLAIM IS MADE TO THE EXCLUSIVE
USE OF THE DEVICE OF A DIAMOND.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC.
RECORDED AUG 17 1987.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS ITALY
LAZARE KAPLAN & SONS, INC.
Reg No: 382332 November 27, 1985 Renewal Due: March 20, 2000 Registered
App No: 40074C/80 March 20, 1980
Class (Int): 14 our ref: 42596
Goods: Class heading.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE I ITALY
LAZARE KAPLAN & SONS, INC.
Reg No: 382332 November 27, 1985 Renewal Due: March 20, 2000 Registered
App No: 40074C/80 March 20, 1980
Class (Int): 14 our ref: 42597
GOODS: CLASS HEADING.
- -----------------------------------------------------------------------------------------------
A.D. LEVERIDGE JAPAN
LAZARE KAPLAN INTERNATIONAL INC.
App No: TO FOLLOW July 8, 1992 App. Pending
Class (Int): 9 our ref: 837994
Goods: Physical and chemical apparatus and instruments,
electronic gemstone gauges, other measuring apparatus and
instruments, electrical distribution or control machines and
apparatus, rotary converters, phase modifiers, batteries,
electrical and magnetic measuring instruments, electric wires
and cables, photographic apparatus and instruments, motion
picture apparatus and instruments, optical apparatus and
instruments, glasses, processed glass (excluding those for
building use), life-saving apparatus, electrical communication
machines and apparatus, records, metronomes, applied
electronic machines and instruments, ozone generators, electric
cells, rockets, et al.
- -----------------------------------------------------------------------------------------------
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 6
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
[LOGO]
LK LOGO - LAZARE KAPLAN JAPAN
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 1459341 April 30, 1991 Renewal Due: April 30, 2001 Registered
App No: 20842/1976
Org No: 1459341 April 30, 1981
Class (Loc): 21 our ref: 908365
Goods: Personal accessories, buttons, bags, pouches, jewels
and their imitations, artifical flowers, toiletry articles.
--Merger and change of name from LAZARE KAPLAN & SONS INC.
into Lazare Kaplan International, Inc., recorded Apr 08 1991
- -----------------------------------------------------------------------------------------------
[LOGO]
LAZARE KAPLAN WITH KATAKANA EQUIVALENT JAPAN
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 1421751 June 27, 1990 Renewal Due: March 27, 2000 Registered
App No: 139305/1975 December 1, 1975
Org No: 1421751 June 27, 1980
Class (Loc): 21 our ref: 42589
GOODS: PERSONAL ORNAMENTS, BUTTONS, BAGS, POUCHES,
JEWELS AND IMITATIONS THEREOF, ARTIFICIAL FLOWERS,
TOILET ARTICLES
--MERGER AND CHANGE OF NAME FROM LAZARE KAPLAN AND SONS, INC.
INTO LAZARE KAPLAN INTERNATIONAL, INC. RECORDED APR 08 1991.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN-HALLMARK OF QUALITY JAPAN
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 1729264 November 27, 1994 Renewal Due: August 27, 2004 Registered
App No: 27376/1982 April 1, 1982
Org No: 1729264 November 27, 1984
Class (Loc): 21 our ref: 804197
GOODS: PERSONAL OUTFITTINGS, BUTTONS, BAGS, POUCHES
JEWELS AND THEIR IMITATIONS, ARTIFICIAL FLOWERS,
TOILET SET.
--ASSOCIATED WITH REG NOS. 1421751 AND 1459341.
--MERGER AND CHANGE OF NAME FROM LAZARE KAPLAN & SONS INC.
INC. INTO LAZARE KAPLAN INTERNATIONAL INC. RECORDED
APRIL 8, 1991.
- -----------------------------------------------------------------------------------------------
LK IN DIAMOND DEVICE (NEW LOGO) JAPAN
LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 1533158 August 27, 1992 Renewal Due: August 27, 2002 Registered
App No: 84870/1978 November 20, 1978
Org No: 1533158 August 27, 1982
Class (Loc): 21 our ref: 42603
GOODS: PERSONAL OUTFITTINGS, BUTTONS, BAGS, POUCHES,
JEWELS AND IMITATIONS THEREOF, ARTIFICIAL FLOWERS,
TOILET SET.
--MERGER AND CHANGE OF NAME FROM LAZARE KAPLAN AND SONS, INC. TO
LAZARE KAPLAN INTERNATIONAL, INC. RECORDED APR 08 1991.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 7
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LK LOGO - THE AMERICAN CLASSICS JAPAN
[LOGO] LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 2637359 March 31, 1994 Renewal Due: December 31, 2003 Registered
App No: 114748/91 November 6, 1991
Class (Loc): 21 our ref: 83266
Goods: Class heading (to protect diamonds and jewels.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE II JAPAN
LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 1720468 October 31, 1994 Renewal Due: July 31, 2004 Registered
App No: 44272/1978 July 1, 1976
Org No: 1720468 October 31, 1984
Class (Loc): 21 our ref: 42599
Goods: Diamonds and all other goods included in this class.
--Merger and Change of name from Lazre Kaplan & Sons Inc.
into Lazare Kaplan International, Inc. recorded Apr 08 1991.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS KOREA
LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 303721 December 13, 1994 Renewal Due: December 13, 2004 Registered
App No: 93/23109 July 5, 1993
Class (Loc): 44 our ref: 835109
Goods: Diamond, gold, unrefined gold products, gold metal,
gold-based alloy, gold platings, gold base alloy platings, gold
leaf, unrefined silver products, silver metal, silver base
alloy, silver-base alloy casting leaf, silver-base alloy
casting, silver leaf, platinum.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN KOREA
LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 208781 Registered
App No: 89/25995
Class (Loc): 44 our ref: 829371
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN KOREA
LAZARE KAPLAN INTERNATIONAL, INC.
CLT.HANDL.
App No: 90/435
Class (Loc): 110 our ref: 929370
- -----------------------------------------------------------------------------------------------
Lk LOGO, THE AMERICAN CLASSICS KOREA
[LOGO] LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 251467 October 7, 1992 Renewal Due: October 7, 2002 Registered
App No: 91/32466 November 14, 1991
Class (Loc): 44 our ref: 832662
Goods: Diamond, ruby, coral, opal, pearl, jade, agate,
artificial precious stone, quartz, garnet, topaz, jasper,
turkey stone, jellowjade, emerald, unrefined gold product,
sapphire, gold metal.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 8
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARE DIAMONDS MALAYSIA
LAZARE KAPLAN INTERNATIONAL, INC.
Renewal Due: November 3, 1999 App. Pending
App No: 92/07701 November 3, 1992
Class (Int): 14 our ref: 835110
Goods: Diamonds, precious stones, jewelry.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMOND TWINS SINGAPORE
LAZARE KAPLAN INTERNATIONAL, INC.
App No: 9987/92 December 31, 1992 App. Pending
Class (Int): 21 our ref: 836468
Goods: Diamonds.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS SINGAPORE
LAZARE KAPLAN INTERNATIONAL, INC.
App No: 7921/92 October 16, 1992 App. Pending
Class (Int): 14 our ref: 835111
Goods: Diamonds, precious stones, jewelry.
- -----------------------------------------------------------------------------------------------
LK LOGO - THE AMERICAN CLASSICS SINGAPORE
[LOGO] LAZARE KAPLAN INTERNATIONAL, INC.
App No: 10130/91 November 12, 1991 App. Pending
Class (Int): 14 our ref: 832663
Goods: Diamonds, precious stones and jewelry.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN SOUTH AFRICA
LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 880/1153 March 5, 1990 Renewal Due: March 5, 2000 Registered
App No: 80/1153 March 5, 1980
Org No: 880/1153 March 5, 1980
Class (Int): 14 our ref: 42405
Goods: All goods in the class.
--Merger from Lazare Kaplan Inc. recorded Oct 29 1990.
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE I SOUTH AFRICA
LAZARE KAPLAN INTERNATIONAL, INC.
Reg No: 80/1154 March 5, 1990 Renewal Due: March 5, 2000 Registered
App No: 80/1154 March 5, 1980
Org No: 88/1154 March 5, 1980
Class (Int): 14 our ref: 41719
Goods: Jewelry, precious stones, precious metals and their
alloys and goods in precious metals or coated therewith
(except cutlery, forks and spoons).
--Disclaimer: No claim is made to the exclusive use of the
letters "L or K' or the device of a diamond apart from the mark
--Merger from Lazare Kaplan Inc. recorded Oct 29 1990.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 9
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
LAZARE DIAMONDS SPAIN
LAZARE KAPLAN INTERNATIONAL INC.
Renewal Due: November 18, 1997 App. Pending
App No: 173718 November 18, 1992 TAX DUE: November 18, 1997
Class (Int): 14 our ref: 935112
Goods: Class Heading, to protect diamonds.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS SWITZERLAND
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 403957 October 9, 1992 Renewal Due: October 9, 2012 Registered
App No: 7294/1992 October 9, 1992
Class (Int): 14 our ref: 834285
Goods: diamonds.
- -----------------------------------------------------------------------------------------------
LAZARE KAPLAN SWITZERLAND
LAZARE KAPLAN & SONS, INC.
Reg No: 307395 March 12, 1980 Renewal Due: March 12, 2000 Registered
App No: 1381 March 12, 1980
Class (Int): 14 our ref: 42404
GOODS ALL GOODS IN THE CLASS; (TO PROTECT DIAMONDS).
- -----------------------------------------------------------------------------------------------
[LOGO]
LK WITH DIAMOND DEVICE I SWITZERLAND
LAZARE KAPLAN & SONS, INC.
Reg No: 307421 March 12, 1980 Renewal Due: March 12, 2000 Registered
App No: 1382 March 12, 1980
Class (Int): 14 our ref: 42403
GOODS ALL GOODS IN THE CLASS; (TO PROTECT DIAMONDS).
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS THAILAND
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: KHOR23434 December 30, 1994 Renewal Due: July 5, 2003 Registered
App No: 247508 July 6, 1993
Class (Int): 14 our ref: 835113
Goods: Diamonds, precious stones, jewelry.
- -----------------------------------------------------------------------------------------------
LAZARE DIAMONDS UNITED KINGDOM
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: B1129614 March 3, 1987 Renewal Due: March 3, 2001 Registered
App No: B1129614 March 3, 1980
Org No: B1129614 March 3, 1980
Class (Int): 14 our ref: 42804
GOODS: PRECIOUS STONES, SEMI-PRECIOUS STONES AND
JEWELLERY.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC. RECORDED
NOVEMBER 20, 1987.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
Ableman, Frayne & Schwab
WARSHAW BURNSTEIN COHEN SCHLESINGER & KUH May 1, 1996
Page 10
- --------------------------------------------------------------------------------
TRADEMARK REPORT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
[LOGO]
LAZARE DIAMOND DEVICE I UNITED KINGDOM
LAZARE KAPLAN, INC.
Reg No: B1129615 March 3, 1987 Renewal Due: March 3, 2001 Registered
App No: 1129615 March 3, 1980
Org No: B1129615 March 3, 1980
Class (Int): 14 our ref: 42808
GOODS: PRECIOUS STONES, SEMI-PRECIOUS STONES AND
JEWELLERY.
--CHANGE OF NAME LAZARE KAPLAN AND SONS, INC. RECORDED
NOVEMBER 20, 1987.
- -----------------------------------------------------------------------------------------------
A.D. LEVERIDGE (SIGNATURE) UNITED STATES
LAZARE KAPLAN INTERNATIONAL INC.
Reg No: 0814437 September 6, 1966 Renewal Due: September 6, 2006 Registered
App No: 201129 September 2, 1964 USE AFF. DUE
Class (Int): 14 our ref: 929511
Goods: Measuring gauge with accessory booklet of tables for
estimating weights of fancy shaped gems and brilliants.
--Section 8 filed.
--First use: August 1937.
--Merger from Lazare Kaplan Inc. recorded on Reel 734,
Frame 272 with effect from August 23, 1990.
- -----------------------------------------------------------------------------------------------
<PAGE>
<PAGE>
SCHEDULE 3.11 (CONT)
3. Patents
See Attached 4 pages
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL, INC. DATE: May 1, 1996 PAGE NO. 1
- --------------------------------------------------------------------------
CLIENT OWNER INVENTOR DOCKET NO. [AFID
COUNTRY APPLN NUMBER : FILING DATE EXP. DATE : STATUS [CLT CDE
AGENT PATENT NUMBER: GRANT DATE TAX-GN-DATE: TAX STATUS:WORKING-DUE
TITLE TYPE OF PAT KIND OF CASE
RELATED CASE PRIORITY
COMMENTS
COMMENTS (CONT'D)
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306988]
Austria :Dec 09 1981 Dec 0-9 2001: [C385500]
Austria 0019017: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------]
Lazare Kapla Lazare Kaplan Internation.Inc. [306989]
Belgium :Dec 09 1981 Dec 0-9 2001: [C365500]
Belgium 0054840: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [307005]
China (Taiwan) Feb 16 1999: [C385500]
China (Taiwan) NI-20221: Feb 16 1984: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306990]
France :Dec 09 1981 Dec 09 2001: [C385500]
France 0054840: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306991]
West Germany :Dec 09 1981 Dec 09 2001: [C385500]
West Germany P3174357.9: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306995]
Ireland :Nov 24 1981 Nov 24 2001: [C385500]
Ireland 52371: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL, INC. DATE: May 1, 1996 PAGE NO. 2
- --------------------------------------------------------------------------
CLIENT OWNER INVENTOR DOCKET NO. [AFID
COUNTRY APPLN NUMBER : FILING DATE EXP. DATE : STATUS [CLT CDE
AGENT PATENT NUMBER: GRANT DATE TAX-GN-DATE: TAX STATUS:WORKING-DUE
TITLE TYPE OF PAT KIND OF CASE
RELATED CASE PRIORITY
COMMENTS
COMMENTS (CONT'D)
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306996]
Israel :Nov 12 2001: Nov 12 2001: [C385500]
Israel 64274: Nov 22 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [308061]
Israel : : [C385500]
Israel 56805: Mar 06 1997: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306994]
Italy :Dec 09 1981 Dec 09 2001: [C385500]
Italy 0054840: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [307004]
Japan : Dec 09 2001: [C385500]
Japan 1403769: Mar 27 1987: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [307000]
Korea : Nov 06 2001: [C385500]
Korea 18566: Nov 06 1988: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306997]
Luxembourg :Dec 09 1981 Dec 09 2001: [C385500]
Luxembourg 0054840: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL, INC. DATE: May 1, 1996 PAGE NO. 3
- --------------------------------------------------------------------------
CLIENT OWNER INVENTOR DOCKET NO. [AFID
COUNTRY APPLN NUMBER : FILING DATE EXP. DATE : STATUS [CLT CDE
AGENT PATENT NUMBER: GRANT DATE TAX-GN-DATE: TAX STATUS:WORKING-DUE
TITLE TYPE OF PAT KIND OF CASE
RELATED CASE PRIORITY
COMMENTS
COMMENTS (CONT'D)
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306998]
Mexico : Dec 29 2001: [C385500]
Mexico 154902: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306993]
Netherlands :Dec 09 1981 Dec 09 2001: [C385500]
Netherlands 0054840: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [307003]
Portugal : Jan 27 2001: [C385500]
Portugal 75022: Jan 27 1986: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306999]
Rep of S. Africa 81/7935:Nov 16 1981 Nov 16 2001: [C385500]
Rep of S. Africa 81/7935: Nov 16 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [307001]
Sweden :Dec 09 1981 Dec 07 2001: [C385500]
Sweden 81110279.7: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [307002]
Switzerland :Dec 09 1981 Dec 09 2001: [C385500]
Switzerland P054840.6: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL, INC. DATE: May 1, 1996 PAGE NO. 4
- --------------------------------------------------------------------------
CLIENT OWNER INVENTOR DOCKET NO. [AFID
COUNTRY APPLN NUMBER : FILING DATE EXP. DATE : STATUS [CLT CDE
AGENT PATENT NUMBER: GRANT DATE TAX-GN-DATE: TAX STATUS:WORKING-DUE
TITLE TYPE OF PAT KIND OF CASE
RELATED CASE PRIORITY
COMMENTS
COMMENTS (CONT'D)
- ---------------------------------------------------------------------------
Lazare Kapla Lazare Kaplan Internation.Inc. [306992]
United Kingdom :Dec 09 1981 Dec 09 2001: [C385500]
United Kingdom 0054840: Dec 09 1981: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------]
Lazare Kapla Lazare Kaplan Internation.Inc. [307006]
United States 220195:Dec 23 1980 Jul 12 2000: [C385500]
Comm. of Pats 4392476:Jul 12 1983 Jul 12 1983: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------]
Lazare Kapla Lazare Kaplan Internation.Inc. [307007]
United States 849867:Mar 12 1992 Aug 30 2011: [C385500]
Comm. of Pats 5341694:Aug 30 1994 Aug 30 1994: :
.PlacingIdentif.IndiciaOn.PreciousStonesDiamn
- --------------------------------------------------------------------------]
Lazare Kapla Lazare Kaplan Internation.Inc. [307008]
United States 633440:Dec 20 1990 Nov 10 2006: [C385500]
Comm. of Pats D330873:Nov 10 1992 :NOT TAXABLE:
Gemstone
- --------------------------------------------------------------------------]
<PAGE>
<PAGE>
SCHEDULE 3.13
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
NAME CHANGES, MERGERS, ACQUISITIONS
None.
<PAGE>
<PAGE>
SCHEDULE 3.18
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
ERISA
Lazare Kaplan International Inc. 401(k) Plan for Savings and
Investment
Flexible Benefits Cafeteria Plan - sec 125 plan effective 1/1/96
Premium Only Plan - sec 125 plan terminated 12/31/95
Severance Pay Policy
Medical and health insurance benefits provided under Cafeteria
Plan
Short Term and Long Term Disability Plan
<PAGE>
<PAGE>
SCHEDULE 7.1
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
PERMITTED INDEBTEDNESS AND GUARANTIES
None
<PAGE>
<PAGE>
SCHEDULE 7.2
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
PERMITTED SECURITY INTERESTS,
LIENS AND ENCUMBRANCES
Mortgage executed by the Borrower in favor of Banco Popular, San Juan, Puerto
Rico for residential property located at Bairoa Golden Gate II, Caguas, Puerto
Rico. Amount due as of April 30, 1996: $60,004.87.
<PAGE>
<PAGE>
ANNEX I
TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
NAMES AND STATE/COUNTRY OF
ORGANIZATION OF GUARANTORS
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
STATE/COUNTRY VOTING STOCK
NAME OF GUARANTOR OF JURISDICTION OWNED BY BORROWER
<S> <C> <C>
Lazare Kaplan Europe Inc. Delaware 100%
Lazare Kaplan Belgium, N.V. Belgium 100%
by Lazare Kaplan
Europe Inc.
Lazare Kaplan Ghana Ltd. Bermuda 100%
Supreme Gems N.V. Belgium 100%
by Lazare Kaplan
Belgium, N.V.
</TABLE>
<PAGE>
<PAGE>
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC.
[MAP]
1996 Annual Report
The leader in ideal cut diamonds for over 90 years.
<PAGE>
<PAGE>
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAZARE KAPLAN INTERNATIONAL INC. 1996 ANNUAL REPORT
Lazare Kaplan International Inc. is engaged in the cutting and polishing of
ideal cut diamonds, which it laser inscribes and distributes to quality retail
jewelers internationally under the brand name 'Lazare Diamonds'r'. Diamonds cut
and polished by Lazare Kaplan craftsmen, whatever their size, are finished to
precise proportions, bringing out all of the diamond's natural brilliance, fire
and luster. In addition, Lazare Kaplan also cuts and polishes non-ideal cut
(commercial) diamonds. These stones are sold through wholesalers and
distributors and, to a growing extent, through Lazare Kaplan's traditional
channels of distribution. Lazare Kaplan is also engaged in the trading of uncut
rough diamonds.
AMERICAN STOCK EXCHANGE
The Company's common stock is traded on the American Stock Exchange under the
ticker symbol LKI.
FORM 10-K
Upon written request, a copy of the Company's Form 10-K Annual Report without
exhibits for the year ended May 31, 1996 as filed with the Securities and
Exchange Commission, will be made available to stockholders without charge.
Requests should be directed to the Controller, Ms. James, Lazare Kaplan
International Inc., 529 Fifth Avenue, New York, New York 10017.
ANNUAL MEETING
November 6, 1996
10 A.M.
The Cornell Club
Six East 44th Street
Fifth Floor, Room AB
New York, New York 10017
MARKET PRICES OF COMMON STOCK BY FISCAL QUARTER
- -------------------------------------
<TABLE>
<CAPTION>
FISCAL 1996
-----------------
HIGH LOW
<S> <C> <C>
- -------------------------------
FIRST 7 7/8 6 1/2
SECOND 7 9/16 6 1/8
THIRD 9 6 3/4
FOURTH 14 3/4 7 5/8
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995
-----------------
High Low
<S> <C> <C>
- -------------------------------
First 9 7/8 8 7/8
Second 9 3/4 8 1/2
Third 9 3/4 8 5/8
Fourth 8 3/4 7 1/2
- -------------------------------
</TABLE>
As of June 30, 1996 there were
approximately 231 stockholders of
record of the 6,177,778 issued and
outstanding shares of the common
stock of the Company.
1
<PAGE>
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
Our Company's performance last year showed marked improvement in volume and
profitability from the previous year. Net revenue grew to $266,321,000, an
increase of 50% over revenue of $178,143,000. Net profit was $7,013,000 compared
to a loss of $1,153,000. Management is heartened by these results; they reflect
improved performance in most segments of our business, as well as early benefits
flowing from strategic deployment of resources and personnel into new areas of
opportunity for Lazare Kaplan at a time when the industry continues to go
through important structural changes.
For all practical purposes the diamond industry is now a two tier industry.
Supply and demand of rough diamonds in the better qualities and larger sizes are
in balance -- with some shortages developing -- while smaller sizes,
particularly in the lower qualities, are in excess supply. Substantial price
increases have taken place in the better segment while prices for the lower-end
have declined, are volatile, and will probably remain so for some time in the
future. Our product line, marketing strategy, and inventory are concentrated in
the better quality segment, thus avoiding the risks of the lower segment and
permitting us to seek out opportunities for growth and profitability in this
more stable segment of the market.
Global demand for diamond jewelry grew by over 5%. The United States market
was particularly active with good demand by the quality jewelers that stock and
market the ideal cut Lazare Diamonds'r'. Despite the slowdown encountered by the
overall retail industry, quality jewelry stores throughout the United States
were able to sell through to the consumer. We have reduced the delivery cost to
our customers, focused our sales and marketing efforts on fewer accounts doing
greater volume, and successfully maintained the product and service quality for
which the Company is known in the industry.
The Japanese market is slowly recovering from an extended recession. Demand
for diamonds is rising as consumer confidence is driving deferred purchasing
power. We continue to work in harmony with our long standing distributor AIWA
Co. Ltd. in exploring several new approaches to recover greater market share in
this important market for fine quality diamonds. The Japanese diamond industry
has become increasingly competitive, and we are witnessing a compression of the
multi-layered distribution chain. This works to the advantage of the Japanese
consumer, and thus will, in time, increase the size of the market as the
consumer gets more value for his/her discretionary spending resources. We
believe that this evolving pattern and the initiatives we are taking to address
it will, over time, benefit the Company's ability to gain market share with
Lazare Diamonds and other products.
The Pacific Rim region is a growing market of increasing importance to our
Company. We are participating aggressively in the expansion of this relatively
new diamond market by working closely with our existing distributors and seeking
new opportunities in the Philippines, Korea, and other countries. Our regional
sales office in Hong Kong has completed its first full year of operation. This
has enabled us to pursue, in an efficient and cost effective way, efforts to
expand our presence in the region and gain market share.
Our manufacturing facility in Puerto Rico continues to be the mainstay of
our Lazare Diamonds ideal cut stone business and enables us to supply our
customers efficiently and to maintain the back-up inventory essential to a
service posture. Further progress has been made in combining the exceptionally
high craftsmanship of our skilled employees in Puerto Rico with the latest
state-of-the-art automated technology.
Lazare Kaplan Botswana, in which our company has a 60% shareholding, and
the Botswana Development Corporation and the Government of Botswana hold the
remaining 40%, now employs 543 workers. We are gratified that in the relatively
short period of several years, the 530 local employees were able to acquire,
through extensive training and supervision, the skills and proficiency to
produce smaller size ideal cut stones (melees). Productivity and yield are
improving and, prompted by our vigorous worldwide marketing efforts, the high
quality diamonds produced by Lazare Kaplan Botswana are receiving excellent
2
<PAGE>
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
acceptance in the market and command a premium. Regrettably, despite our efforts
and those of the Government of Botswana, the issue of adequate suitable supply
of rough diamonds for this state-of-the-art facility has not yet been resolved.
Employment of its local citizens continues to be an important political and
social priority of the Botswana Government and we continue to receive the full
support of that Government. In the context of the generally known realities that
now govern the global diamond industry, the supply issue should be a relatively
simple one to resolve to everyone's satisfaction, and we are dismayed that it
has taken so long. However, we remain confident that a satisfactory solution
will be reached before too long, enabling this outstanding new facility to reach
its full potential for the benefit of its shareholders and the people of
Botswana.
Our cooperation agreement with Roskomdragmet (the Russian Government
organization responsible for diamond policy and the national stockpile) in
Russia continues to expand satisfactorily, with occasional delays in shipping
finished product due to complex local administrative requirements. Additional
skilled Russian employees were added to this important facility that cuts and
polishes larger size gem stones. Our worldwide marketing organization continues
to make an important contribution to the economic success of this venture.
Russia is one of the world's major producers of gem quality rough diamonds and
it is the stated policy of the Russian Government to encourage the growth of its
domestic cutting industry. We believe that this venture is a good example of a
successful cooperation, adding value to large rough stones, opening new markets
for diamonds polished in Russia by Russian craftsmen, and providing
Roskomdragmet with access to important markets and market information.
Our Company recently reached a ten year agreement with AK Almazi Rossii
Sakha (ARS) of Russia for the cutting and marketing of large rough gem diamonds.
ARS is the largest producer of rough diamonds in Russia with annual production
in excess of $1.2 billion and accounts for over 20% of the world's diamond
supply. Under the agreement a minimum of $45 million of rough stones per year
will be cut and polished in Russia, by Russian craftsmen under the supervision
of the Company's experts. The finished gems will be marketed by the Company
through its global network. This agreement also serves as a long term off-take
arrangement to secure the repayment of $60 million financing for the sale of
mining equipment to ARS approved by the Board of Directors of the Export-Import
Bank of the United States. The agreement was signed in Moscow in the presence of
United States Vice President Al Gore and Russia's Prime Minister Victor
Chernomyrdin, who jointly preside over the U.S.-Russia Binational Commission.
Together with ARS we are now equipping the new cutting facility that should be
operational before the end of 1996. The Export-Import Bank of the United States
and ARS are in the process of completing the documentation for the loan
facility.
As Russian society continues on the difficult, courageous, political and
economic course it has chosen -- reaffirmed by the outcome of the recent
elections -- we continue to examine important opportunities for growth and
expansion in Russia.
Our Company continues to be the marketing agent for Ghana Consolidated
Diamond Mines in selling its production of rough diamonds. Unfortunately, the
types of diamonds produced in Akwatia and Birim have been greatly affected by
the price decline and volatility in the lower end segment of the market. The
Government of Ghana is now completing the process of selecting a new mining
partner from several candidates.
Our rough diamond trading center in Belgium is an increasingly important
source of revenue and profits. Additional supplies were secured from one of our
major suppliers that had previously been curtailed, while the supply of rough
diamonds from our buying offices in Africa represent an important area of
growth.
We have completed our first year of operation under the rough buying and
export license granted by the Government of Angola. We have deployed a team of
exceptionally experienced and proficient technicians in various parts of Angola
and the volume of diamonds we are able to purchase continues to grow.
3
<PAGE>
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are particularly pleased with the wholehearted support and encouragement we
are receiving from the highest levels of the Angolan Government as well as its
national diamond company, Endiama. We continue to examine new opportunities, as
the peace process takes effect and the country turns its attention to economic
and social development.
The Company has entered a joint venture with Trans Hex Group Limited (a
South African diamond and industrial minerals company) for mining diamonds on a
concession in Namibia which is in the early stages of exploration. Preliminary
results look encouraging and the systematic drilling program is going forward
under Trans Hex's operational management.
We continue to review opportunities to strengthen our balance sheet to
improve earnings by lowering interest costs, to service sinking fund payments on
outstanding Senior Notes, and to provide adequate liquidity to take advantage of
the many opportunities we are examining. We have also engaged the services of
UBS Securities Inc. to act as our financial advisor.
We are very proud of the performance of all departments: marketing and
sales; strategic planning; manufacturing and polished operations; trading;
finance, accounting and information systems; and office services. We are
thankful to our personnel, all over the world, for their dedication, commitment
and professionalism.
<TABLE>
<S> <C>
/s/ Maurice Tempelsman /s/ Leon Tempelsman
Maurice Tempelsman Leon Tempelsman
Chairman of the Board Vice Chairman and President
</TABLE>
<PAGE>
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995 1994 1993 1992
<CAPTION>
- -------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $266,321 $178,143 $204,047 $158,075 $151,875
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before income tax provision and
minority interest $ 7,149 $ (1,418) $ 2,803 $ (728) $ (2,287)
- -----------------------------------------------------------------------------------------------------------------
Net income/(loss) $ 7,013 $ (1,153) $ 3,024 $ (903) $ (2,951)
- -----------------------------------------------------------------------------------------------------------------
Net income/(loss) per share (based on the
weighted average number of shares) $ 1.12 $ (0.18) $ 0.49 $ (0.15) $ (0.48)
- -----------------------------------------------------------------------------------------------------------------
At May 31:
Total assets $105,066 $ 99,163 $ 93,178 $ 86,452 $ 77,977
- -----------------------------------------------------------------------------------------------------------------
Long-term debt $ 34,155 $ 26,430 $ 25,715 $ 30,000 $ 30,000
- -----------------------------------------------------------------------------------------------------------------
Working capital $ 74,069 $ 59,290 $ 52,333 $ 53,011 $ 61,079
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 44,870 $ 37,695 $ 38,751 $ 35,671 $ 36,573
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: No cash dividends were declared or paid by the Company during the past
five fiscal years.
5
<PAGE>
<PAGE>
[Logo]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<S> <C>
NET SALES EARNINGS BEFORE INTEREST & TAXES (EBIT)
($MILLIONS) ($MILLIONS)
[BAR CHART] [BAR CHART]
</TABLE>
This discussion and analysis should be read in conjunction with the
Selected Financial Data on page 5 and the audited financial statements and
related notes of the Company commencing on page 10 of this report. In this
discussion, the years '1996', '1995' and '1994' refer to the fiscal years ended
May 31, 1996, 1995 and 1994, respectively.
RESULTS OF OPERATIONS
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 Roskomdragmet
(the Russian Government organization responsible for diamond policy) in Russia.
Rough diamond sales increased 68% to $176,353,000 in 1996. This increase is
attributable to continued expansion of the Company's rough buying operations,
primarily in Angola, as well as increases in the supply of rough diamonds from
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.
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 Pacific Rim due to increased demand and strengthening local economies as
well as a stronger market in Japan.
Rough diamond sales decreased 31% in 1995. This decrease was a result of
industry-wide market conditions and reduced supplies of rough diamonds made
available from the Company's primary supplier.
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
stones (the 'Polished Diamond Gross Margin'). Polished Diamond Gross Margin for
1996 was 16%, an increase of 3 percentage points from the 1995 level of 13%. The
increase was due to an improvement in the quality of stones sold as well as an
increase in sales of larger stones, which traditionally carry higher margins, as
compared to the prior year.
6
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The gross margin on sales of rough stones not selected for manufacturing
and sales of rough stones from the rough trading operation, including an
allocation of overhead costs estimated to be associated with the purchase and
sale of rough stones, has traditionally been approximately 3%.
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%. The decrease was primarily due to a
non-recurring charge of approximately $1.8 million to write down to market value
the Company's small stone polished inventory.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 1996 of $11,439,000
increased 10% or $1,053,000 compared with expenses of $10,386,000 in 1995. The
increase was attributable to higher compensation, commissions and benefits of
$916,000 in the current year 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
increased 6% or $553,000 compared with expenses of $9,833,000 in 1994. The
increase was primarily attributable to a non-recoverable insurance claim
associated with a theft of polished diamonds.
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 Financial Statements and Liquidity -- Capital
Resources below). The decrease in interest expense in 1995 was due to lower
average short-term borrowings of $9,186,000 in 1995 as compared to $14,371,000
in 1994.
Income/(Loss) Per Share
During 1996, 1995 and 1994 income/(loss) per share was computed based on
the weighted average number of shares outstanding, including the impact of
dilutive stock options during the period. For 1996, income per share was $1.12
as compared to loss per share of ($.18) in 1995 and income per share of $.49 in
1994.
FOREIGN OPERATIONS
International business represents 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 foreign currency exposure in connection with
these activities. In addition, 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 -- CAPITAL RESOURCES
The Company's working capital at May 31, 1996 was $74,069,000, an increase
of $14,779,000 from 1995. This increase was primarily due to the refinancing by
the Company of its short-term lines of credit into long-term obligations.
The Company's working capital at May 31, 1995 was $59,290,000, an increase
of $6,957,000 from 1994. This increase was primarily due to the cash investment
made by the Botswana Development Corporation in Lazare Kaplan Botswana (Pty)
Ltd.
Net fixed asset additions totaled $1,797,000, $1,578,000 and $1,033,000 in
1996, 1995 and 1994, respectively. In 1996, the fixed asset additions related
primarily to diamond equipment to be used in the Company's manufacturing
facilities. The fixed asset additions in 1995 and 1994 were primarily
attributa-
7
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
ble to the construction by the Company of a cutting and polishing factory and a
training facility in Botswana. The factory, completed during 1993, is a
state-of-the-art facility, using both automated and manual equipment, and
currently employs in excess of 500 skilled workers. During 1996, 1995 and 1994,
$479,000, $543,000 and $735,000 of fixed assets were placed in service in
Botswana, respectively.
In May 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 May 31, 1996, there was an
aggregate balance outstanding of $12,725,000 under the 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
described below 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.
Through May 14, 1996 the Company had short-term 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 the amounts of $3.0 million
and $8.0 million, respectively, 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
loan described above.
The Company entered into a long-term promissory note with a bank in the
amount of $5,000,000 as of May 31, 1995. 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 loan described above.
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 May 31, 1996, the
full amount of this facility had been drawn upon.
During August 1994, the Company completed its transaction with the Botswana
Development Corporation ('BDC') whereby the BDC invested 21.8 million pula
(approximately $8.0 million) for an equity position in Lazare Kaplan Botswana
(Pty) Ltd. The investment is in the form of common shares and cumulative,
redeemable, non-voting participating preference shares. As a result of 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%.
In May 1991, the Company, through a private placement, issued $30,000,000
of 9.97% Senior Notes, due May 15, 2001. These Senior Notes were amended on
December 1, 1992 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
8
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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%.
Management believes the Company has the ability to meet its current and
anticipated financing needs.
On July 16, 1996, the Company announced that it had signed a ten year
agreement with AK Almazi Rossii Sakha (ARS) of Russia for the cutting/polishing
and marketing of large rough gem diamonds. Under the terms of the agreement, the
Company will immediately begin to equip and manage a diamond cutting factory
within the ARS facility in Moscow to be staffed by Russian technicians. ARS will
supply a minimum of $45 million per year of large rough gem diamonds for
processing at this facility. The Company will sell the resulting polished gem
stones through its worldwide distribution network. The net profit from the sale
of these polished gems will be shared with ARS. This agreement will serve as a
long-term off-take arrangement to secure the repayment of the $60 million
financing received by ARS and guaranteed by the Export-Import Bank of the United
States for the purchase by ARS of U.S. manufactured mining equipment which will
be used by ARS to increase production in its diamond mines.
Stockholders' equity was $44,870,000 at May 31, 1996, $37,695,000 at May
31, 1995 and $38,751,000 at May 31, 1994. The increase in 1996 was attributable
to the net income earned during the year. The decrease in 1995 was attributable
to the net loss incurred. The increase in 1994 was attributable to the net
income earned during the period. Stockholders received no dividends in 1996,
1995 or 1994.
9
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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.
10
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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.
11
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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.
12
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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.
13
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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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
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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.
15
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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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>
16
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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.
17
<PAGE>
<PAGE>
[Logo]
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.
18
<PAGE>
<PAGE>
[Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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):
19
<PAGE>
<PAGE>
[Logo]
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.
20
<PAGE>
<PAGE>
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. The financial
statements for the year ended May 31, 1994 were audited by other auditors whose
report dated July 13, 1994 (August 31, 1994 as to Note 11) expressed an
unqualified opinion on those statements.
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
21
<PAGE>
<PAGE>
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATE INFORMATION
<TABLE>
<S> <C> <C>
CORPORATE HEADQUARTERS DIRECTORS AND OFFICERS REGISTRAR AND TRANSFER AGENT
529 Fifth Avenue Maurice Tempelsman ChaseMellon Shareholder Services
New York, New York 10017 Director; P.O. Box 444
Telephone (212) 972-9700 Chairman of the Board Pittsburgh, PA 15230
SUBSIDIARIES Leon Tempelsman COUNSEL
Lazare Kaplan (Sierra Leone) Limited Director; Warshaw Burstein Cohen
Lazare Kaplan Japan Inc. Vice Chairman of the Board Schlesinger & Kuh, LLP
Lazare Kaplan Belgium, N.V. and President 555 Fifth Avenue
Lazare Kaplan Europe Inc. George R. Kaplan New York, New York 10017
Lazare Kaplan Africa Inc. Director; INDEPENDENT AUDITORS
Lazare Kaplan Botswana (Pty) Limited Vice Chairman of the Board Ernst & Young LLP
Lazare Kaplan Ghana Ltd. Michael W. Butterwick 787 Seventh Avenue
Lazare Kaplan (Bermuda) Ltd. Director; New York, New York 10019
Kaplan Offshore Trading Limited Business Consultant
Supreme Gems N.V. Lucien Burstein
Lazare Kaplan Belgium Jewelry N.V. Director;
LK Enterprises Inc. Secretary
RCS, Inc. Partner
Lazare Kaplan (Russia) Inc. Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
(attorneys)
Myer Feldman
Director;
Partner
Ginsburg, Feldman and Bress,
Chartered (attorneys)
Sheldon L. Ginsberg
Director;
Executive Vice President and
Chief Financial Officer
Robert Speisman
Director;
Vice President - Sales
</TABLE>
22
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC., 529 FIFTH AVENUE, NEW YORK, NY 10017
(212) 972-9700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF
LAZARE KAPLAN INTERNATIONAL INC.
<TABLE>
<CAPTION>
NAME ORGANIZED UNDER LAWS OF
---- -----------------------
<S> <C>
Lazare Kaplan (Sierra Leone)
Limited Sierra Leone
Lazare Kaplan Japan Inc. Delaware
Lazare Kaplan Europe Inc. Delaware
Lazare Kaplan Belgium, N.V. Belgium
Lazare Kaplan Africa Inc. Delaware
Lazare Kaplan Botswana
(Pty) Limited Botswana
Lazare Kaplan Ghana Ltd. Bermuda
Lazare Kaplan (Bermuda) Ltd. Bermuda
Kaplan Offshore Trading Company Bermuda
Supreme Gems N.V. Belgium
Lazare Kaplan Belgium Jewelry N.V. Belgium
LK Enterprises Inc. Delaware
RCS, Inc. Delaware
Lazare Kaplan (Russia) Inc. Delaware
<PAGE>
</TABLE>
<PAGE>
EXHIBIT 24(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 33-20528 of Lazare Kaplan International Inc. on Form S-8, of our
report dated July 13, 1994 (August 31, 1994 as to Note 11) incorporated by
reference in the Annual Report on Form 10-K for the year ended May 31, 1996.
Deloitte & Touche LLP
New York, New York
August 23, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the balance
sheet and income statement and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 95
<SECURITIES> 0
<RECEIVABLES> 25,774
<ALLOWANCES> 281
<INVENTORY> 56,299
<CURRENT-ASSETS> 92,839
<PP&E> 15,761
<DEPRECIATION> 8,563
<TOTAL-ASSETS> 105,066
<CURRENT-LIABILITIES> 18,770
<BONDS> 34,155
<COMMON> 6,176
0
0
<OTHER-SE> 38,694
<TOTAL-LIABILITY-AND-EQUITY> 105,066
<SALES> 266,321
<TOTAL-REVENUES> 266,321
<CGS> 243,685
<TOTAL-COSTS> 243,685
<OTHER-EXPENSES> 11,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,048
<INCOME-PRETAX> 7,149
<INCOME-TAX> 459
<INCOME-CONTINUING> 7,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,013
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
