<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1996
REGISTRATION NO. 333-14227
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LAZARE KAPLAN INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-2728690
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 972-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SHELDON L. GINSBERG
LAZARE KAPLAN INTERNATIONAL INC.
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 972-9700
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FREDERICK R. CUMMINGS, JR., ESQ. EARL D. WEINER, ESQ.
WARSHAW BURSTEIN COHEN SULLIVAN & CROMWELL
SCHLESINGER & KUH, LLP 125 BROAD STREET
555 FIFTH AVENUE NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10017 (212) 558-3820
(212) 984-7700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this registration statement.
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated December 11, 1996
PROSPECTUS
2,200,000 SHARES
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC.
COMMON STOCK
($1.00 PAR VALUE)
---------------------
Of the 2,200,000 shares of Common Stock offered hereby, 1,800,000 shares
are being sold by Lazare Kaplan International Inc. (the 'Company') and 400,000
shares are being sold by the Company's Chairman, Maurice Tempelsman (the
'Selling Stockholder'). See 'Principal and Selling Stockholders and Security
Ownership of Management.' The Company will not receive any of the proceeds from
the sale of Common Stock by the Selling Stockholder.
The Common Stock is listed on the American Stock Exchange under the symbol
'LKI.' On December 10, 1996, the closing price for the Common Stock was $18 3/8
per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE 'RISK
FACTORS,' COMMENCING ON PAGE 8. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholder
<S> <C> <C> <C> <C>
Per share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
(1) See 'Underwriting' for indemnification arrangements.
(2) Before deducting expenses of the offering estimated at $ .
(3) The Company has granted the Underwriters a 30 day option to purchase up to
330,000 additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions shown above, solely to cover
over-allotments, if any. If this option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
'Underwriting.'
---------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or about
December , 1996.
---------------------
UBS SECURITIES FURMAN SELZ
, 1996
<PAGE>
<PAGE>
[LOGO]
[GRAPHIC OF DIAMOND DISPLAY]
Lazare Kaplan International Inc., a multi-national diamond company, is engaged
in rough diamond sourcing, in cutting and polishing these diamonds into
gemstones and in selling polished diamonds to an international network of
quality retail jewelers.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the 'Commission').
Reports, proxy statements and other information filed by the Company can be
inspected and copied at the principal office of the Commission, Public Reference
Room, 450 Fifth Street, N.W., Washington, DC 20549, and at the regional offices
of the Commission located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60651-2511 and at Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies can be obtained from the
Commission at prescribed rates by writing to the Commission at 450 Fifth Street,
N.W., Washington, DC 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
Web site is http://www.sec.gov. The Common Stock of the Company is listed on the
American Stock Exchange. Reports, proxy and information statements, and other
information concerning the Company can be inspected and copied at the American
Stock Exchange, 86 Trinity Place, New York, NY 10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended May 31, 1996
and the Company's Quarterly Report on Form 10-Q for the quarter ended August 31,
1996, which were filed with the Commission, are incorporated in this Prospectus
by reference. The Company will provide, upon request, without charge to each
person to whom this Prospectus is delivered, a copy of any or all of the
documents incorporated herein by reference except for certain exhibits to such
documents. Requests for such copies should be directed to Chief Financial
Officer, Lazare Kaplan International Inc., 529 Fifth Avenue, New York, NY 10017,
telephone number (212) 972-9700. Any statement contained in a document
incorporated herein by reference shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this Prospectus
modifies or replaces such statement.
3
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Prospectus, including the information set forth under 'Risk Factors.'
Except as otherwise specified, all share and per share data described herein are
based on the assumption that the Underwriters' over-allotment option is not
exercised. Certain statements contained in the Prospectus Summary and elsewhere
in this Prospectus regarding matters that are not historical facts, such as the
Company's continued ability to obtain rough diamonds and the Company's plans to
expand its business and with respect to strategic alliances and other agreements
with third parties, are forward-looking statements (as such term is defined in
the Securities Act of 1933, as amended) and because such statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed herein under 'Risk Factors.'
THE COMPANY
GENERAL
Lazare Kaplan International Inc. is engaged in the cutting, polishing and
selling of ideally proportioned diamonds. The Company markets such diamonds
internationally under the brand name 'Lazare Diamonds'r'.' Ideally proportioned
diamonds are distinguished from non-ideal cut ('commercial') diamonds by the
symmetrical relationship of their facets, which maximizes brilliance, sparkle
and fire. Due to these characteristics, Lazare Diamonds command a premium in the
marketplace. The Company believes there are only a few other companies in the
world engaged in the production of ideally proportioned diamonds and that it is
the largest producer of ideal cut diamonds. In addition, the Company cuts and
polishes commercial diamonds, which it markets to wholesalers, distributors and
through select retail jewelers. Those stones purchased by the Company and not
selected for manufacturing are promptly resold as rough diamonds in the
marketplace. The Company is also engaged in the trading of rough diamonds. The
Company believes that the combination of its cutting and polishing operations
and its trading operations enables the Company to purchase larger quantities of
rough diamonds from which it may select those rough diamonds best suited for the
Company's current needs. See 'Business.'
GROWTH STRATEGY
The Company seeks to expand its current business by increasing its
marketing efforts, adding to its sources of rough diamonds, improving
manufacturing efficiencies, diversifying its product line and pursuing
additional strategic opportunities.
The Company is focusing on expanding its marketing and distribution efforts by
distributing its polished diamonds into new geographic markets, exploring
alternative distribution opportunities and selectively increasing the number of
customers selling the Company's products in existing markets.
The Company seeks to increase its access to sources of supply of rough diamonds
by pursuing new business ventures in rough diamond producing countries. The
recent agreements in Russia and Angola are two examples of this effort. See
' -- Recent Developments.'
The Company endeavors to increase productivity and yield (rough weight to
polished weight conversion) by seeking to enhance efficiency in its existing
manufacturing facilities through worker incentives, training programs and
state-of-the-art technology.
The Company seeks to diversify its product line by manufacturing a broader
range of sizes and types of polished diamonds in response to changing market
demand.
The Company evaluates acquisition opportunities and alliances with strategic
partners which could allow it to integrate vertically by entering into the
diamond retail or mining sectors.
4
<PAGE>
<PAGE>
MARKETING STRATEGY
The Company's marketing strategy is directed primarily toward quality
conscious consumers throughout the United States, the Far East and Europe. The
Company focuses its distribution efforts for Lazare Diamonds on selectivity with
a view to helping retailers who carry the product maintain a competitive
advantage. Lazare Diamonds can be found at some of the most prestigious jewelry
stores around the world, including those with international reputations and
those known only in their communities as being the highest quality retail
jewelers. This strategy helps ensure that the Company's product is presented in
an environment consistent with its superior quality and image. The Company also
sells to certain jewelry manufacturers and diamond wholesalers. The Company has
developed a comprehensive grading system for its diamonds, which allows jewelers
to order inventory by category rather than through the more cumbersome process
of visual selection. In addition, the Company designs, manufactures (through
independent contractors) and sells a line of high quality jewelry that features
Lazare Diamonds. See 'Business -- Marketing, Sales and Distribution.'
An important element of the Company's strategy is the promotion of the
Lazare Diamonds brand name. Every Lazare Diamond bears a laser inscription on
its outer perimeter, invisible to the naked eye, containing the Lazare Kaplan
logo and an identification number unique to each stone. The laser signature
allows consumers to register their Lazare Diamonds with the Company under its
program, The Lazare Diamond Registry'r', thereby providing proof of ownership in
case of loss or theft. See 'Business -- Marketing, Sales and Distribution.'
DIAMOND SUPPLY
The Company's principal supplier of rough diamonds is the Diamond Trading
Company (the 'DTC'), an affiliate of De Beers Centenary AG. Based on published
reports, the Company believes that the DTC controls approximately 75% of the
value of world rough diamond output. The Company has been a client of the DTC
for more than 50 years. In order to diversify its sources of rough diamond
supply, however, the Company has broadened its purchasing capabilities
throughout Africa and has an office in Antwerp to supplement its rough diamond
needs by secondary market purchases. The Company also has expanded its
operations and entered into relationships with other primary source suppliers.
The Company believes that this ability to diversify rough diamond sourcing
allows it to maintain quantities and qualities of polished inventory that best
meet its customers' needs. See ' -- Recent Developments' and
'Business -- Diamond Supply.'
MANUFACTURING OPERATIONS
The Company currently has three manufacturing facilities. The Company's
domestic manufacturing operation, located in Puerto Rico, is believed by the
Company to be the largest diamond cutting facility in the United States. The
Company believes its work force in Puerto Rico is the most highly skilled in the
world. This facility generally produces polished diamonds having weights of 1/5
of a carat and greater. In 1993 the Company opened its factory, located in
Molepolole, Botswana, which is operated in partnership with the Government of
Botswana. This new state-of-the-art factory expands the Company's product line
by cutting and polishing ideal cut diamonds in smaller sizes (generally smaller
than 1/5 of a carat in size) than those produced in Puerto Rico. The Company's
third manufacturing operation is conducted in cooperation with the Russian
Government agency responsible for diamond exports and the Russian national
stockpile and is located at this agency's facility in Moscow, Russia. The
Company believes this facility, opened in 1991, is one of the largest factories
in the world primarily dedicated to the cutting and polishing of large rough
diamonds. See 'Business -- Properties.'
RECENT DEVELOPMENTS
On July 16, 1996, the Company announced that it had signed a ten year
agreement with AK Almazi Rossii Sakha ('ARS'), a Russian company, for the
cutting, polishing and marketing of large rough gem diamonds. According to
published reports, ARS is the largest producer of rough diamonds in Russia with
annual production in excess of $1.2 billion, accounting for over 20% of the
value of the world's supply of rough diamonds. In accordance with the terms of
the agreement, the Company has begun to equip a diamond cutting factory
(estimated to cost $600,000, half of which will be borne by
5
<PAGE>
<PAGE>
ARS) within the existing ARS facility in Moscow. This new facility will be
staffed by Russian technicians and managed and supervised by Company personnel.
ARS has agreed to supply a minimum of $45 million per year of large rough gem
diamonds selected by the Company as being suitable for processing at this
facility. The Company has agreed to sell the resulting polished diamonds through
its worldwide distribution network. The proceeds from the sale of these polished
diamonds, after reimbursement of the costs incurred by each of the parties,
generally will be shared equally with ARS. This agreement does not require the
Company to advance funds for the purchase of rough diamonds. The Company
anticipates that the facility will commence cutting and polishing before June
1997. See 'Business -- Cutting and Polishing' and 'Risk Factors -- Risk of
Foreign Operations.'
In July 1996, the Company signed a five year agreement, approved by the
Government of Angola, for the supply of a portion of the rough diamonds mined in
Angola and for the joint cutting, polishing and marketing of that production.
The agreement, entered into with Empresa Nacional de Diamantes de Angola
('Endiama'), Angola's national diamond mining company, and a company owned by a
consortium of Angolan investors, provides for Endiama to sell to the Company a
portion of the rough diamonds mined in Angola consisting of sizes and qualities
selected by the Company as being suitable for cutting and sale as polished
diamonds, or for resale as rough diamonds. See 'Business -- Diamond Supply.'
In October 1996, Aiwa Co., Ltd. ('Aiwa'), the Japanese distributor with
whom the Company has had a marketing relationship since 1972, announced that it
entered into an agreement in Japan with Seiko Corporation ('Seiko'), one of the
world's largest watchmakers. In connection with this agreement, the Company and
Aiwa intend that Seiko will act as the exclusive distributor in Japan for Lazare
Diamonds. The Company plans to form a joint venture in Japan with Aiwa (to be
known as Lazare Kaplan Japan) to provide promotional and other support services
to Seiko. This joint venture will implement an arrangement whereby Seiko will
distribute, market and promote Lazare Diamonds in Japan. Seiko is generally
recognized as a leader in consumer brand marketing and has a well developed
network of contacts and retailers. Aiwa, with a distribution network of over 200
retailers and wholesalers, will continue to be an important customer of the
Company's non-branded polished diamonds.
BACKGROUND
Lazare Kaplan International Inc. was incorporated in 1972 under the laws of
the State of Delaware as the successor to a business which was founded by Mr.
Lazare Kaplan in 1903. The Company's principal stockholder is Maurice
Tempelsman, the Chairman of the Board. Mr. Tempelsman and his son, Leon
Tempelsman, are the only general partners of Leon Tempelsman & Son ('LTS'), a
New York limited partnership, which holds 1,528,416 shares of Common Stock. In
addition, prior to this offering, Maurice Tempelsman is the direct beneficial
holder of 2,310,409 shares of Common Stock and holds, directly and indirectly,
approximately 61.3% of the Company's issued and outstanding Common Stock.
Maurice Tempelsman is the Selling Stockholder referred to in this Prospectus.
THE OFFERING(1)
<TABLE>
<S> <C>
Common Stock offered by:
The Company.............................................................................. 1,800,000 shares
The Selling Stockholder(2)............................................................... 400,000 shares
Total.................................................................................... 2,200,000 shares
Common Stock to be outstanding after the offering............................................. 8,061,071 shares
Use of proceeds by the Company......................................................Repayment of Senior Notes and
reduction of bank indebtedness
American Stock Exchange symbol.............................................................................. LKI
</TABLE>
- ------------
(1) Assumes Underwriters' over-allotment option is not exercised.
(2) Maurice Tempelsman, the Chairman of the Board of the Company and the
Company's principal stockholder, is the Selling Stockholder.
6
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31, AUGUST 31,
-------------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.................. $151,875 $158,075 $204,047 $178,143 $266,321 $61,697 $69,400
EBITDA(2).................. $ 1,646 $ 3,362 $ 8,705 $ 4,243 $ 13,566 $ 2,498 $ 3,199
Income/(loss) before income
tax provision and
minority interest........ $ (2,287) $ (728) $ 2,803 $ (1,418) $ 7,149 $ 886 $ 1,595
Income/(loss) before
minority interest(3)..... $ (2,951) $ (903) $ 2,685 $ (1,632) $ 6,690 $ 829 $ 1,502
Net income/(loss).......... $ (2,951) $ (903) $ 3,024 $ (1,153) $ 7,013 $ 786 $ 1,659
Net income/(loss) per
share.................... $ (0.48) $ (0.15) $ 0.49 $ (0.18) $ 1.12 $ 0.13 $ 0.26
Weighted average number of
shares outstanding....... 6,121,680 6,121,680 6,226,708 6,309,071 6,288,157 6,236,021 6,484,029
Pro Forma Statement of Operations Data(4)(5):
Net sales................................................................. $266,321 -- $69,400
EBITDA(2)................................................................. $ 13,635 -- $ 3,216
Income/(loss) before income tax provision and minority interest........... $ 10,403 -- $ 2,315
Income/(loss) before minority interest(3)................................. $ 9,879 -- $ 2,207
Net income/(loss)......................................................... $ 10,202 -- $ 2,364
Net income/(loss) per share............................................... $ 1.26 -- $ 0.29
Supplementary shares outstanding(6)....................................... 8,088,157 -- 8,284,029
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
--------------------------------------
ACTUAL AS ADJUSTED(5)(7)
----------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital....................................................... $ 75,960 $ 82,420
Total assets.......................................................... $ 114,400 $ 114,077
Short-term debt....................................................... $ 9,460 $ 3,000
Long-term debt........................................................ $ 34,230 $ 11,004
Stockholders' equity.................................................. $ 46,579 $ 75,942
</TABLE>
- ------------
(1) Fiscal 1995 results include a non-recurring charge of $1.8 million relating
to a write-down of the Company's polished small stone inventory. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(2) EBITDA represents net income/(loss) before interest expense, taxes, minority
interest, depreciation and amortization. EBITDA should not be considered as
a substitute for net income, as an indicator of operating performance, or as
an alternative to cash flow as a measure of liquidity.
(3) Reflects the use of the Company's net operating loss carryforwards. See Note
3 to the Consolidated Financial Statements.
(4) Reflects the effect on the historical income statement data for the year
ended May 31, 1996 and for the quarter ended August 31, 1996 of the
reduction of interest expense of $3,185,000 and $703,000, respectively, as
if the offering made hereby had been completed June 1, 1995 and the Company
had prepaid the outstanding balance on its Senior Notes and a portion of the
balance then outstanding under the Company's revolving loan and lines of
credit. The historical income statement data have not been adjusted to
reflect (a) the write-off of deferred financing costs associated with the
Senior Notes of approximately $340,000 and $323,000 for the year ended May
31, 1996 and the quarter ended August 31, 1996, respectively, or (b) the
prepayment premium associated with the prepayment of the Senior Notes. See
'Use of Proceeds.'
(5) Gives effect to the sale of the shares of Common Stock offered by the
Company hereby at an assumed offering price of $18.925 per share (the
average of the closing prices on the American Stock Exchange from December
4, 1996 through December 10, 1996) and the application of the estimated
net proceeds from such sale.
(6) Supplementary shares outstanding reflects the adjustment to the historical
weighted average shares outstanding at May 31, 1996 and August 31, 1996 for
the sale of the shares issued in connection with this offering.
(7) The balance sheet data have been adjusted to reflect (a) the impact of the
repayment of the Senior Notes outstanding of $21,430,000 at August 31, 1996
and of $8,256,000 for the repayment of other bank indebtedness, (b) the
write-off of deferred financing costs associated with the Senior Notes and
(c) the payment of the prepayment premium associated with the prepayment of
the Senior Notes. See 'Use of Proceeds.'
7
<PAGE>
<PAGE>
RISK FACTORS
Potential purchasers of Common Stock should consider carefully the
following matters, as well as the other information contained in this
Prospectus, before deciding to purchase shares of Common Stock offered hereby.
Availability of Rough Diamonds. The Company's business is dependent upon
the availability of rough diamonds, the world's known sources of which are
highly concentrated. Historically, the Company's principal supplier of rough
diamonds has been the Diamond Trading Company (the 'DTC'), which, based on
published reports, together with its affiliates, controls approximately 75% of
the value of world diamond output. The Company has been a client of the DTC for
over 50 years and believes its relations with the DTC are good. For the three
fiscal years ended May 31, 1996, 1995 and 1994, approximately 50%, 47% and 58%,
respectively, of the Company's purchases of rough diamonds were from the DTC.
The Company has diversified its sources of supply over the last several years by
entering into arrangements with other suppliers of rough diamonds. This
diversification includes the expansion of purchasing of rough diamonds in
Africa, and expanding operations at its office in Antwerp to supplement the
Company's rough diamond buying needs by making purchases in the secondary
market. However, if there should be any interruption in the Company's
relationship with the DTC as its primary source supplier of rough diamonds, such
interruption could have a material adverse effect on the Company's operations.
The Company's sources of supply could also be adversely affected by political
and economic developments in producing countries over which the Company has no
control. See ' -- Risk of Foreign Operations' and 'Business -- Diamond Supply.'
Effect of Possible Diamond Supply and Price Fluctuations. Through its
control of the world's rough diamond supply and its own inventory, De Beers
Centenary AG, an affiliate of the DTC, can exert significant control over the
pricing of rough and polished diamonds. Global rough diamond pricing can be
affected positively or negatively by general economic conditions as well as by
imbalances in the supply of and demand for rough and/or polished diamonds. In
recent years, significant short-term increases of rough diamond supply have
reportedly originated from Russia and Angola. Should there be a material and
sudden increase in the availability of rough diamonds beyond the global
marketplaces' capacity to absorb, including increases in available diamonds from
such sources or from new sources, the Company and the diamond industry could be
materially adversely affected. Major fluctuations in the prices of rough and
polished diamonds have occurred in the past. Any large rapid increase in rough
diamond prices could materially adversely affect the Company's revenue and
operating margins if the increased cost cannot be passed along to the Company's
customers in a timely manner. Any rapid decrease in the price of polished
diamonds could materially adversely affect the Company in terms of inventory
losses and lower margins. See 'Business -- Pricing.'
Risk of Foreign Operations. The world's sources of rough diamonds are
highly concentrated in a limited number of countries, including Angola,
Australia, Botswana, Ghana, Guinea, Namibia, Russia, Sierra Leone, South Africa
and Zaire. Varying degrees of political and economic risk exist in these
countries. As a consequence, the diamond business is subject to various
sovereign risks beyond the industry's control, such as changes in laws and
policies affecting foreign trade and investment. In addition, the Company is
subject to various political and economic risks, including the instability of
foreign economies and governments, labor disputes, war and civil disturbances
and other risks that could cause production difficulties or stoppages, restrict
the movement of inventory or result in the deprivation or loss of contract
rights or the taking of property by nationalization or expropriation without
fair compensation. Recent news articles report that there is a Russian
governmental investigation into alleged tax irregularities at ARS. Recent
reports also indicate that ARS has denied these allegations. See 'The
Company -- Recent Developments.'
Luxury Product. The Company produces a luxury product that it sells
domestically and internationally primarily to quality retailers. Consumers
purchase polished diamonds with discretionary, disposable income. Consumer
purchasing patterns can be influenced by general economic conditions in
consuming countries, employment levels and consumer confidence. A negative trend
in any of these items could have a material adverse effect on the Company.
8
<PAGE>
<PAGE>
Dependence on Key Personnel. The success of the Company is highly dependent
upon the efforts of Maurice Tempelsman and Leon Tempelsman, the loss of whose
combined services would have a material adverse effect on the Company. See
'Management.'
Limited Trading Market and Possible Volatility of Common Stock Prices.
Although the Common Stock has been traded on the American Stock Exchange since
1972, trading activity of the Common Stock has been limited, totalling
approximately 119,225 shares per month on average over the 12 months ended
September 30, 1996. Accordingly, this low trading volume may have had a
significant effect on the market price of the Common Stock, and historic prices
may not necessarily be indicative of market prices in a more liquid market. See
'Price Range of Common Stock.'
Control by Existing Stockholders. Upon the completion of this offering, the
shares of Common Stock beneficially owned by Maurice Tempelsman, the Chairman of
the Board of the Company, together with the shares of Common Stock beneficially
owned by his son, Leon Tempelsman, the Vice-Chairman and President of the
Company (Maurice Tempelsman and Leon Tempelsman, collectively, the
'Tempelsmans'), will constitute 3,771,038 shares, or approximately 45.9% of the
Common Stock then outstanding (44.1% if the Underwriter's over-allotment option
is exercised in full). See 'Principal and Selling Stockholders and Security
Ownership of Management.' As a result of the ownership of such shares, the
Tempelsmans effectively will continue to be able to elect all of the Company's
directors, to determine the outcome of all corporate actions requiring
stockholder approval, and otherwise to control the Company's business. See
'Certain Transactions.'
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common
Stock offered by it hereby are estimated to be approximately $31,586,000
(approximately $37,457,000 if the Underwriters' over-allotment option is
exercised in full based on an assumed offering price of $18.925, the average of
the closing prices of the Common Stock from December 4, 1996 through December
10, 1996). The Company currently intends to use a portion of the proceeds to
prepay all or a portion of the outstanding principal balance of its Senior
Notes of $21,430,000, and the prepayment premiums associated therewith of up to
approximately $1,900,000. The Senior Notes bear interest at the rate of 9.97%
per annum and mature May 15, 2001. The Company intends to use the remaining
proceeds to repay a portion of the balance outstanding under its revolving loan,
of which $19,260,000 was outstanding as of August 31, 1996. The weighted average
interest rate for the three months ended August 31, 1996 on the revolving loan
was 8.10%. The Company intends to draw down funds under its existing $35,500,000
revolving loan from time to time until the expiration thereof on June 1, 1999
for general corporate purposes, including the working capital requirements for
the Company's expansion in Russia and Angola. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.' The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholder.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the American Stock Exchange under
the symbol 'LKI.' The Company intends to list the shares of Common Stock offered
hereby on the American Stock Exchange. The following chart sets forth the high
and low sale prices of the Common Stock on the American Stock Exchange during
the fiscal quarters of the Company listed below. See 'Risk Factors -- Limited
Trading Market and Possible Volatility of Common Stock Prices.'
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
MAY 31, 1995 MAY 31, 1996 MAY 31, 1997
--------------------- --------------------- ---------------------
HIGH LOW HIGH LOW HIGH LOW
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
First quarter................................. $ 9 7/8 $8 7/8 $ 7 7/8 $6 1/2 $16 1/2 $ 12 1/2
Second quarter................................ 9 3/4 8 1/2 7 9/16 6 1/8 21 7/8 16 1/2
Third quarter................................. 9 3/4 8 5/8 9 6 3/4 19 3/8* 18 3/8*
Fourth quarter................................ 8 3/4 7 1/2 14 3/4 7 5/8
</TABLE>
- ------------
* Through December 10, 1996.
9
<PAGE>
<PAGE>
For a recent closing price for the Common Stock on the American Stock
Exchange see the cover page of this Prospectus.
DIVIDEND POLICY
The Company has not paid any cash dividends to the holders of its Common
Stock since 1982. The Company intends to retain future earnings to provide funds
for the operation and expansion of its business and, accordingly, does not
anticipate resuming the payment of cash dividends in the foreseeable future. In
addition, pursuant to the terms of the Company's long term revolving loan
facility, the Company is not permitted to declare and pay cash dividends. The
Company's ability to declare and pay cash dividends is also restricted under the
terms of its Senior Notes.
CAPITALIZATION
The following table sets forth short-term debt and the capitalization of
the Company (i) as of August 31, 1996 and (ii) as adjusted to reflect the sale
of the 1,800,000 shares of Common Stock offered by the Company hereby at an
assumed offering price of $18.925, the average of the closing prices of the
Common Stock from December 4, 1996 through December 10, 1996, and the
application of the estimated net proceeds therefrom to prepay the Company's
long-term Senior Notes and a portion of certain other bank indebtedness, as
well as the impact of the prepayment premium associated with the prepayment of
the Senior Notes and the write-off of deferred financing costs associated with
the Senior Notes. See 'Prospectus Summary -- Summary of Financial Information.'
This information should be read in conjunction with the consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt...................................................... $ 9,460 $ 3,000
------- -----------
Long-term debt....................................................... $34,230 $11,004
Stockholders' equity:
Common Stock, $1.00 par value, 10,000,000 shares authorized;
issued and outstanding, 6,185,531 at August 31, 1996 and
7,985,531 shares, as adjusted................................. 6,186 7,986
Additional paid-in capital...................................... 26,138 55,924
Retained earnings............................................... 14,255 12,032
------- -----------
Total stockholders' equity........................................... 46,579 75,942
------- -----------
Total capitalization....................................... $80,809 $86,946
------- -----------
------- -----------
</TABLE>
10
<PAGE>
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data presented below as of and for each of the five years in
the period ended May 31, 1996 have been derived from the consolidated financial
statements of the Company, which financial statements for each of the two years
in the period ended May 31, 1996 were audited by Ernst & Young LLP, independent
auditors, and for each of the three years in the period ended May 31, 1994 by
Deloitte & Touche LLP, independent auditors. The selected data presented below
as of and for the three-month periods ended August 31, 1995 and 1996 are derived
from unaudited financial statements, but, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of results of operations for these periods. The results of
operations for the three months ended August 31, 1996 are not necessarily
indicative of the results to be expected for the entire year. The data should be
read in conjunction with the consolidated financial statements, related notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere in this Prospectus. All data is in
thousands, except share and per share data.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------
1992 1993 1994 1995(1) 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net sales.............................................. $151,875 $158,075 $204,047 $178,143 $266,321
Cost of sales.......................................... 140,348 146,819 187,664 165,686 243,685
-------- -------- -------- -------- --------
11,527 11,256 16,383 12,457 22,636
-------- -------- -------- -------- --------
Selling, general & administrative expenses............. 10,980 8,977 9,833 10,386 11,439
Interest expense, net of interest income............... 2,834 3,007 3,747 3,489 4,048
-------- -------- -------- -------- --------
13,814 11,984 13,580 13,875 15,487
-------- -------- -------- -------- --------
Income/(loss) before income tax provision and minority
interest............................................. (2,287) (728) 2,803 (1,418) 7,149
Income tax provision(2)................................ 664 175 118 214 459
-------- -------- -------- -------- --------
Income/(loss) before minority interest................. (2,951) (903) 2,685 (1,632) 6,690
Minority interest in (income)/loss of consolidated
subsidiary........................................... -- -- 339 479 323
-------- -------- -------- -------- --------
Net income/(loss)...................................... $ (2,951) $ (903) $ 3,024 $ (1,153) $ 7,013
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income/(loss) per share............................ ($0.48) ($0.15) $0.49 ($0.18) $1.12
Weighted average number of shares...................... 6,121,680 6,121,680 6,226,708 6,309,071 6,288,157
<CAPTION>
THREE MONTHS
ENDED
AUGUST 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Statement of Operations Data
Net sales.............................................. $ 61,697 $ 69,400
Cost of sales.......................................... 57,019 63,868
--------- --------
4,678 5,532
--------- --------
Selling, general & administrative expenses............. 2,776 2,992
Interest expense, net of interest income............... 1,016 945
--------- --------
3,792 3,937
--------- --------
Income/(loss) before income tax provision and minority
interest............................................. 886 1,595
Income tax provision(2)................................ 57 93
--------- --------
Income/(loss) before minority interest................. 829 1,502
Minority interest in (income)/loss of consolidated
subsidiary........................................... (43) 157
--------- --------
Net income/(loss)...................................... $ 786 $ 1,659
--------- --------
--------- --------
Net income/(loss) per share............................ $0.13 $0.26
Weighted average number of shares...................... 6,236,021 6,484,029
</TABLE>
<TABLE>
<S> <C> <C>
Pro Forma Statement of Operations Data(3)(4):
Net sales........................................................................................ $266,321 --
Cost of sales.................................................................................... $243,685 --
Selling, general & administrative expenses....................................................... $ 11,370 --
Interest expense, net of interest income......................................................... $ 863 --
Income/(loss) before income tax provision and minority interest.................................. $ 10,403 --
Income tax provision(2).......................................................................... $ 524 --
Income/(loss) before minority interest........................................................... $ 9,879 --
Minority interest in (income)/loss of consolidated subsidiary.................................... $ 323 --
Net income....................................................................................... $ 10,202 --
Supplementary net income per share............................................................... $ 1.26 --
Supplementary shares outstanding(5).............................................................. 8,088,157 --
<CAPTION>
Pro Forma Statement of Operations Data(3)(4):
<S> <C>
Net sales........................................................................................ $ 69,400
Cost of sales.................................................................................... $ 63,868
Selling, general & administrative expenses....................................................... $ 2,975
Interest expense, net of interest income......................................................... $ 242
Income/(loss) before income tax provision and minority interest.................................. $ 2,315
Income tax provision(2).......................................................................... $ 108
Income/(loss) before minority interest........................................................... $ 2,207
Minority interest in (income)/loss of consolidated subsidiary.................................... $ 157
Net income....................................................................................... $ 2,364
Supplementary net income per share............................................................... $ 0.29
Supplementary shares outstanding(5).............................................................. 8,284,029
</TABLE>
- ------------
(1) Fiscal 1995 results include a non-recurring charge of $1.8 million relating
to a write-down of the Company's polished small stone inventory. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(2) Reflects the use of the Company's net operating loss carryforwards. See Note
3 to the Consolidated Financial Statements.
(3) Reflects the effect on the historical income statement data for the year
ended May 31, 1996 and for the quarter ended August 31, 1996 of the
reduction in interest expense of $3,185,000 and $703,000, respectively, as
if the offering made hereby had been completed June 1, 1995 and the Company
had prepaid the outstanding balance on its Senior Notes and a portion of the
balance then outstanding under the Company's revolving loan and lines of
credit. The historical income statement data have not been adjusted to
reflect (a) the write-off of deferred financing costs associated with the
Senior Notes of approximately $340,000 and $323,000 for the year ended May
31, 1996 and the quarter ended August 31, 1996, respectively or (b) the
prepayment premium associated with the prepayment of the Senior Notes. See
'Use of Proceeds.'
(4) Gives effect to the sale of the shares of Common Stock offered by the
Company hereby at an assumed offering price of $18.925 per share (the
average of the closing prices on the American Stock Exchange from December
4, 1996 through December 10, 1996) and the application of the estimated net
proceeds from such sale.
(5) Supplementary shares outstanding reflects the adjustment to the historical
weighted average shares outstanding at May 31, 1996 and August 31, 1996 for
the sale of the shares issued in connection with this offering.
<TABLE>
<CAPTION>
AT MAY 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (in thousands):
Working capital............................................... $61,079 $53,011 $52,333 $59,290 $74,069
Total assets.................................................. 77,977 86,452 93,178 99,163 105,066
Short-term notes payable...................................... 3,000 12,005 17,185 11,410 3,000
Long-term debt................................................ 30,000 30,000 25,715 26,430 34,155
Stockholders' equity.......................................... 36,573 35,671 38,751 37,695 44,870
<CAPTION>
AT AUGUST 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Balance Sheet Data (in thousands):
Working capital............................................... $60,365 $75,960
Total assets.................................................. 103,638 114,400
Short-term notes payable...................................... 9,785 9,460
Long-term debt................................................ 26,430 34,230
Stockholders' equity.......................................... 38,481 46,579
</TABLE>
11
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company believes that it has achieved a worldwide reputation as a
premier manufacturer of ideally proportioned diamonds, which command premium
prices in the marketplace. The Company's current and long-term strategic efforts
are focused on maintaining and expanding this position in domestic and
international markets. The Company's results of operations and growth are
dependent on its ability to obtain rough diamonds of suitable quality for
manufacture into ideally proportioned diamonds and to maintain and expand its
worldwide customer base for these products.
The Company's current operations do not require substantial capital
expenditures, and its working capital needs relate primarily to inventories of
diamonds and customer receivables. Any significant increase in sales would
therefore result in a commensurate need for increased working capital. The
Company believes that its current infrastructure will support a substantial
increase in sales without a commensurate increase in its selling, general and
administrative expenses.
The following table sets forth the Company's net sales of polished and
rough diamonds for the periods shown (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MAY 31, AUGUST 31,
------------------------------ -----------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Polished diamonds................................. $ 51,484 $ 73,097 $ 89,968 $19,956 $18,169
Rough diamonds.................................... 152,563 105,046 176,353 41,741 51,231
-------- -------- -------- ------- -------
Total net sales.............................. $204,047 $178,143 $266,321 $61,697 $69,400
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
</TABLE>
See 'Business -- Marketing, Sales and Distribution' for a discussion of the
Company's domestic and international sales for such periods.
RESULTS OF OPERATIONS FOR THE FISCAL QUARTER ENDED AUGUST 31, 1996
NET SALES
Net sales during the three month period ended August 31, 1996 of
$69,400,000 were $7,703,000 or 12% above the $61,697,000 in sales during the
three month period ended August 31, 1995.
Revenue from the sale of polished diamonds decreased 9% to $18,169,000
during the three month period ended August 31, 1996 from $19,956,000 during the
comparable three month period ended August 31, 1995. This decrease was
attributable to lower sales in Japan as the Company continued to examine
opportunities for augmenting its channels of distribution with its existing
distributor, and a decrease in sales from its Russian production caused by a
temporary delay in shipments of polished diamonds from Russia. The delayed
shipments were subsequently exported and received by the Company during
September and October of 1996.
Rough sales increased to $51,231,000 for the three months ended August 31,
1996 from $41,741,000 a year ago. The increase over the prior year is a result
of continued growth in the Company's rough buying operations in Africa.
GROSS PROFIT
The Company's gross margin on net sales of polished diamonds includes all
overhead costs associated with the purchase, sale and manufacture of rough
diamonds (the 'Polished Diamond Gross Margin'). During the quarter ended August
31, 1996, the Polished Diamond Gross Margin was 18%, three percentage points
higher than the 15% level in the quarter ended August 31, 1995. The increase
from last year resulted from increased sales of larger diamonds (which
historically have higher margins) and selling price increases to offset the
increased cost of rough diamonds. During the quarter ended
12
<PAGE>
<PAGE>
August 31, 1996, overall gross margin (both polished and rough diamonds) on net
sales was 8.0% compared to 7.6% for the quarter ended August 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first quarter ended
August 31, 1996 were $2,992,000 (4.3% of net sales), compared to $2,776,000
(4.5% of net sales) for the quarter ended August 31, 1995. The increase was
primarily attributable to higher consulting and legal expenses associated with
the development of expansion opportunities.
INTEREST EXPENSE
Net interest expense for the quarter ended August 31, 1996 was $945,000
compared to $1,016,000 for the quarter ended August 31, 1995. The decrease was
due primarily to the decrease in the interest rate charged on the Company's
Senior Notes in the current year.
INCOME PER SHARE
Income per share is computed based on the weighted average number of shares
outstanding including, as appropriate, the assumed exercise of all dilutive
stock options, during each period. Income per share for the quarter ended August
31, 1996 was $.26 as compared to $.13 for the quarter ended August 31, 1995.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994
In this discussion the years '1996', '1995' and '1994' refer to the fiscal
years ended May 31, 1996, 1995 and 1994, respectively.
NET SALES
Net sales in 1996 of $266,321,000 were $88,178,000 or 50% greater than net
sales of $178,143,000 in 1995.
The Company's net revenue from the sale of polished diamonds of $89,968,000
in 1996 was 23% greater than 1995 polished sales. The increase was due to
continued growth in the United States market as well as increased volume
associated with the Company's cutting and polishing venture with the Russian
Government organization responsible for diamond policy and the national
stockpile in Russia.
Rough diamond sales increased 68% to $176,353,000 in 1996. This increase
was attributable to continued expansion of the Company's rough diamond buying
operations, primarily in Angola, as well as increases in the supply of rough
diamonds from the DTC, the Company's primary supplier during the current year.
Net sales in 1995 of $178,143,000 were $25,904,000 or 13% less than the net
sales of $204,047,000 in 1994. This reduction was primarily attributable to a
decrease in sales of rough diamonds, which was partially offset by an increase
in sales of polished diamonds.
The Company's net revenue from the sale of polished diamonds of $73,097,000
in 1995 increased 42% compared to 1994 polished sales of $51,484,000. The
increase was a result of increased polished diamond sales in the United States
and the Pacific Rim due to increased demand and strengthening local economies as
well as a stronger market in Japan.
Rough diamond sales decreased 31% in 1995 compared to 1994. This decrease
was a result of industry-wide market conditions and reduced supplies of rough
diamonds made available from the DTC. See 'Risk Factors -- Availability of Rough
Diamonds.'
GROSS PROFIT
Polished Diamond Gross Margin for 1996 was 16%, an increase of three
percentage points from the 1995 level of 13%. The increase was due to an
improvement in the quality of diamonds sold as well
13
<PAGE>
<PAGE>
as an increase in sales of larger diamonds, which traditionally carry higher
margins, as compared to the prior year.
The gross margin on sales of rough diamonds not selected for manufacturing
and sales of rough diamonds from the rough trading operation, including an
allocation of overhead costs estimated to be associated with the purchase and
sale of rough diamonds, has averaged approximately 3% for the three years ended
May 31, 1996.
During 1996, the combined gross margin on net sales of both polished
diamonds and rough diamonds was 8.5%. This compares to 7.0% in 1995 and 8.0% in
1994.
Polished Diamond Gross Margin was 13% in 1995, a decrease of 11 percentage
points from the 1994 level of 24%. Contributing to this decrease was a
non-recurring charge of approximately $1.8 million to write down to market value
the Company's inventory of small polished stones produced at its manufacturing
facility in Botswana. The carrying value of this inventory was burdened with the
pre-operating expenses incurred and manufacturing inefficiencies experienced
during the startup phase of the factory, which, combined with the market
conditions that existed during the year, caused such carrying value to exceed
its selling price in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in 1996 of $11,439,000 (4.3%
of net sales) increased 10% or $1,053,000 compared with expenses of $10,386,000
(5.8% of net sales) in 1995. The increase was attributable to higher
compensation, commissions and benefits of $916,000 in 1996 as well as additional
rent, depreciation and office expenses associated with the overall expansion of
the Company's business.
Selling, general and administrative expenses in 1995 of $10,386,000 (5.8%
of net sales) increased 6% or $553,000 compared with expenses of $9,833,000
(4.8% of net sales) in 1994. The increase was primarily attributable to a theft
of polished diamonds that was not covered by insurance.
INTEREST EXPENSE
Net interest expense was $4,048,000, $3,489,000 and $3,747,000 in 1996,
1995 and 1994, respectively. The increase in interest expense in 1996 was due
primarily to higher average short-term borrowings of $13,196,000 as compared to
$9,186,000 in 1995 and a full year of the higher interest rate charged on the
Senior Notes (See Note 6 to the Consolidated Financial Statements and
Liquidity -- Capital Resources below). The decrease in interest expense in 1995
was due primarily to lower average short-term borrowings of $9,186,000 in 1995
as compared to $14,371,000 in 1994.
INCOME/(LOSS) PER SHARE
During 1996, 1995 and 1994 income/(loss) per share was computed based on
the weighted average number of shares outstanding, including the impact of
dilutive stock options during the period. For 1996, income per share was $1.12
as compared to loss per share of ($.18) in 1995 and income per share of $.49 in
1994.
FOREIGN OPERATIONS
International business accounts for a major portion of the Company's
revenues and profits. All foreign sales are denominated in U.S. dollars, and all
purchases of rough diamonds worldwide are denominated in U.S. dollars.
Therefore, the Company does not experience any material foreign currency
exposure in connection with these activities. The functional currency for Lazare
Kaplan Botswana (Pty) Ltd. is the U.S. dollar, and this subsidiary was not
materially affected by foreign currency translation adjustments during the year.
14
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at August 31, 1996 was $75,960,000, which was
$1,891,000 greater than its working capital at May 31, 1996. The increase was
due to higher inventories and accounts receivable partially offset by an
increase in short-term borrowings in the current year.
On May 14, 1996 the Company entered into a long-term unsecured, revolving
loan agreement with two banks. The agreement provided that the Company may
borrow up to $27,500,000 in the aggregate, at an interest rate of any of a)
one-eighth of one percent above the bank's prime rate, b) two and one half
percent above the London Interbank Offered Rate (LIBOR), or c) two and one-half
percent above the bank's cost of funds rate. The applicable interest rate is
contingent upon the method of borrowing selected by the Company. Effective in
November 1996, the two banks agreed to increase the amount the Company may
borrow to $35,500,000. All amounts borrowed under this agreement are due and
payable on June 1, 1999. As of August 31, 1996, there was an aggregate balance
outstanding of $19,260,000 under the loan agreement.
In September 1996, the Company entered into a loan agreement with one of
its banks providing for an additional short-term line of credit of up to $8.0
million, with an interest rate equal to any one of a) one-eighth of one percent
above the bank's prime rate, b) two and one half percent above LIBOR, or c) two
and one-half percent above the bank's cost of funds rate. The applicable
interest rate is contingent upon the method of borrowing selected by the
Company. All amounts borrowed under this agreement are due and payable on
January 31, 1997.
The Company has a $3.0 million credit facility, payable on demand, at a
rate of one-half of one percent above the six-month LIBOR. At August 31, 1996,
the full amount of this facility had been drawn upon.
After giving effect to the offering of the shares of Common Stock offered
by the Company hereby and the related repayment of indebtedness by the Company
as described under 'Use of Proceeds', the Company will have additional capacity
under its revolving loan. The Company believes that its cash flow from
operations, together with such borrowing capacity, will be sufficient to meet
the Company's operating needs and capital expenditures for the next 12 months.
RECENT DEVELOPMENT
On December 9, 1996, the Company announced earnings for the six and three
month periods ended November 30, 1996. The Company reported that net income for
the six months ended November 30, 1996 was $4.6 million, compared to $2.3
million for the six month period ended November 30, 1995. Net income for the
fiscal quarter ended November 30, 1996 was $2.9 million, compared to $1.5
million in the fiscal quarter ended November 30, 1995. The Company reported that
the increase in earnings was primarily due to an increase in polished diamond
sales in the current year combined with improved margins on those sales.
Total net sales for the six months ended November 30, 1996 increased 12% to
$149.7 million from $134.0 million in the six month period ended November 30,
1995. In the fiscal quarter ended November 30, 1996, total net sales increased
11% to $80.3 million from $72.3 million in the fiscal quarter ended November 30,
1995.
Sales of polished diamonds were $51.2 million for the six months ended
November 30, 1996, an increase of 12% from $45.9 million in the six month period
ended November 30, 1995. In the fiscal quarter ended November 30, 1996, polished
diamond sales increased 28% to $33.1 million compared to $25.9 million in the
fiscal quarter ended November 30, 1995. The Company reported that these
increases were attributable to continued growth of polished diamond sales in the
United States and Southeast Asia and, in the second quarter of the current year,
also as a result of increased shipments, a portion of which were delayed from
the first quarter of the current year, of large polished diamonds received from
the Company's facility in Russia.
Revenue from the sale of rough diamonds increased 12% to $98.4 million
during the six months ended November 30, 1996 from $88.1 million during the six
month period ended November 30, 1995.
15
<PAGE>
<PAGE>
For the three months ended November 30, 1996, rough diamond sales increased 2%
to $47.2 million from $46.4 million in the fiscal quarter ended November 30,
1995.
Income before income tax provision was $4.9 million for the six months
ended November 30, 1996 compared to $2.6 million for the six months ended
November 30, 1995. In the fiscal quarter ended November 30, 1996, income before
income tax provision was $3.2 million compared to $1.7 million in the fiscal
quarter ended November 30, 1995.
Earnings per share for the six months ended November 30, 1996 was $0.70
compared to $0.37 for the six months ended November 30, 1995. For the fiscal
quarter ended November 30, 1996, earnings per share was $0.44 compared to $0.25
for the fiscal quarter ended November 30, 1995.
BUSINESS
Lazare Kaplan International Inc. is engaged in the cutting, polishing and
selling of ideally proportioned diamonds. The Company markets these diamonds
internationally under the brand name 'Lazare Diamonds'r'. Ideally proportioned
diamonds are distinguished from commercial cut diamonds by the symmetrical
relationship of their facets, which maximizes brilliance, sparkle and fire. Due
to these characteristics, Lazare Diamonds command a premium in the marketplace.
The Company believes there are only a few other companies in the world engaged
in the production of ideally proportioned diamonds and that it is the largest
producer of ideal cut diamonds. In addition, the Company cuts and polishes
commercial diamonds, which it markets to wholesalers, distributors and through
select retail jewelers. The Company is also engaged in the trading of rough,
unprocessed, natural diamonds. The Company is the successor to a business that
began in 1903. The Company's principal offices are located at 529 Fifth Avenue,
New York, New York 10017. The Company's telephone number is (212) 972-9700.
IDEAL CUT DIAMONDS
Every Lazare Diamond is cut to ideal proportions. This method of cutting
diamonds results in diamonds that possess characteristics that the Company
believes are most desired by consumers: optimum brilliance, sparkle and fire. A
mathematical formula including the precise measurements for the diamonds' angles
and proportions governs the production of ideal cut diamonds (see Diagram I).
Because more of the rough diamond is cut away in order to achieve these
specifications, it is more costly than other methods of manufacturing. In
addition, a very high level of skill is required in the manufacturing process.
The Company believes that less than one percent of the world's diamonds are cut
to these exacting tolerances.
DIAGRAM I: IDEAL CUT SPECIFICATIONS
[ILLUSTRATION]
Diagram II illustrates the reflection and refraction of light as it passes
through a diamond. In an ideal cut diamond, light rays enter the diamond and are
reflected back through the top of the diamond toward the eye, thus maximizing
the brilliance, sparkle and fire of each diamond (Illustration A). In a diamond
cut too deep or too shallow (Illustrations B and C, respectively), the light
'leaks' out through the side or bottom of the diamond causing a dispersion of
light and a loss of brilliance.
16
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DIAGRAM II: PATH OF LIGHT IN THREE DIAMONDS
<TABLE>
<CAPTION>
IDEAL CUT NON-IDEAL CUT
<S> <C> <C>
ILLUSTRATION A ILLUSTRATION B ILLUSTRATION C
</TABLE>
Each Lazare Diamond is inscribed with the Company's logo and identification
number using the Company's unique laser inscription process, thus authenticating
the diamond as a Lazare Diamond. This laser 'signature', which is invisible to
the naked eye but visible when viewed under ten-power magnification, serves as
the purchaser's assurance that he is buying an authentic Lazare Diamond. Diagram
III illustrates the laser inscription.
DIAGRAM III: LASER INSCRIPTION
[PHOTO]
DIAMOND SUPPLY
The Company's business is dependent upon the availability of rough
diamonds, the world's known sources of which are highly concentrated. Based on
published reports, the Company believes that Angola, Australia, Botswana,
Brazil, Ghana, Guinea, Ivory Coast, Namibia, Russia, Sierra Leone, South Africa
and Zaire account for more than 90% of present world rough gem diamond
production. The Central Selling Organization (the 'CSO'), which is affiliated
with De Beers Centenary AG, a Swiss company, is the dominant world-wide
marketing mechanism of the diamond industry. The CSO seeks to maintain an
orderly and stable market for diamonds by regulating the quantity and selection
of diamonds that reach the market. This is achieved either by directly owning
diamond mines, entering into multi-year purchase agreements with host
governments, or by purchasing diamonds in the secondary market. Sales for the
CSO are made in London by the Diamond Trading Company (the 'DTC') to a select
group of clients ('sightholders') which, according to published reports, number
approximately 160 worldwide, including the Company. Based upon published
reports, the Company believes that approximately 75% of the value of world
diamond output is purchased for resale by the DTC and its affiliated companies.
In order to maintain their purchasing relationship, sightholders have
traditionally been expected to purchase all of the diamonds offered to them by
the DTC. Companies that are not sightholders of the DTC must either purchase
their requirements from sightholders or seek access to that portion of the world
supply not marketed by the DTC.
Historically, the Company's principal supplier of rough diamonds has been
the DTC, which periodically invites its clients to submit their requirements as
to the amount and type of rough diamonds they wish to purchase. Employees of the
Company attend offerings of rough diamonds ('sights') held by the DTC
periodically during the year in London. At sights, the Company purchases, at the
DTC's stated price, an assortment of rough diamonds known as a 'series', the
composition of which attempts to take into account the qualitative and
quantitative requirements of the Company based on requests submitted to the DTC
by the Company. The Company and its predecessor have been sightholders for more
than 50 years. The Company's subsidiary in Botswana is also a sightholder.
17
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In order to diversify its sources of supply, the Company has entered into
arrangements with other primary source suppliers, has expanded its rough diamond
purchasing capabilities throughout Africa, and has established an office in
Antwerp to supplement its rough diamond needs by making purchases in the
secondary market. For the three years ended May 31, 1996, 1995 and 1994,
approximately 50%, 47% and 58%, respectively, of the Company's diamond purchases
were from the DTC, down from approximately 82% in 1988.
In December 1994 the Company reached an agreement with Empresa Nacional de
Diamantes de Angola ('Endiama'), Angola's national diamond mining company,
pursuant to which the Company was granted a license to purchase rough diamonds
from local Angolan miners and export such diamonds for resale. This is one of
three such licenses granted by Endiama. The agreement entitles the Company to
establish buying offices throughout Angola, the first of which was set up during
1995 in Luanda, the capital of Angola. The Company currently has three buying
offices located in Angola, including the office in Luanda, and intends to
establish additional buying offices in the future. The agreement will run for a
term of five years and is subject to renewal thereafter.
In July 1996 the Company signed a five year agreement, approved by the
Government of Angola, for the supply of a portion of the rough diamonds mined in
Angola and the joint cutting, polishing and marketing of a portion of that
production. The agreement, entered into with Endiama and Sociedade Angolana de
Exploracao, Lapidacao e Comercializacao de Diamantes, a company owned by a
consortium of Angolan investors, provides for Endiama to sell to the Company a
portion of the rough diamonds mined in Angola consisting of sizes and qualities
selected by the Company as being suitable for cutting and sale as polished
diamonds, or for resale as rough diamonds. Purchases under this arrangement
began in August 1996. The Company intends to cut and polish the rough diamonds
at its existing facilities. After an agreed period of consistent, uninterrupted
supply of rough diamonds, a feasibility study will be undertaken by the Company
to examine the economic viability of establishing a diamond cutting factory in
Angola. In the agreement, the parties acknowledge that it is their long-term
intention to create a diamond polishing facility in Angola with the capacity for
polishing at least $40 million of rough diamonds per year. However, the
arrangement is now in an early stage and there can be no assurances that the
Company will be supplied with suitable diamonds for cutting and polishing, that
the Company will be supplied with a sufficient and consistent quantity of
diamonds, or that the feasibility study will result in a recommendation to
proceed with the creation of the polishing operation.
In addition to its purchase of rough diamonds the Company also has
arrangements for the marketing of diamonds cut and polished in Russia. See
' -- Cutting and Polishing.'
The Company believes that it has good relations with its suppliers, that
its trade reputation and established customer base will continue to assure
access to primary sources of diamonds and that its sources of supply are
sufficient to enable the Company to meet its present and foreseeable needs.
However, the Company's sources of supply could be affected by political and
economic developments in producing countries over which the Company has no
control. While the Company believes that alternative sources of supply may be
available, any significant disruption of the Company's access to its primary
source suppliers could have a material adverse effect on its ability to purchase
rough diamonds. See 'Risk Factors -- Risk of Foreign Operations.'
CUTTING AND POLISHING
The Company currently has three primary cutting and polishing operations,
one located in Puerto Rico, one located in Botswana, and one located in Moscow,
Russia conducted in cooperation with the Russian Government organization
responsible for diamond policy and the Russian national stockpile. Under this
last arrangement, rough diamonds supplied by this organization are polished by
Russian technicians in Moscow, under the management and supervision of Company
technical personnel and subsequently marketed by the Company. The diamonds,
which are primarily commercial quality diamonds, are sold through the Company's
worldwide distribution network. The proceeds from the sale of these polished
gems are shared by the parties.
In July 1996 the Company announced that it had reached an agreement, for a
term of ten years, with AK Almazi Rossii Sakha (ARS) of Russia for the cutting,
polishing and marketing of large rough
18
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gem diamonds. According to published reports, ARS is the largest producer of
rough diamonds in Russia with annual production in excess of $1.2 billion,
accounting for over 20% of the world's supply of diamonds. Under the terms of
the agreement, the Company has begun to equip a diamond cutting factory
(estimated to cost $600,000, half of which will be borne by ARS) within the ARS
facility in Moscow. This new facility will be staffed by Russian technicians and
managed and supervised by Company personnel. ARS has agreed to supply a minimum
of $45 million per year of large rough gem diamonds selected by the Company as
being suitable for processing in this facility. The Company has agreed to sell
the resulting polished diamonds through its worldwide distribution network. The
proceeds from the sale of these polished diamonds, after reimbursement of costs
incurred by each of the parties, generally will be shared equally with ARS. The
agreement does not require the Company to advance funds for the purchase of
rough diamonds. This agreement will serve as a long-term off-take arrangement to
secure the repayment of the $60 million financing anticipated to be received by
ARS from a United States commercial bank and to be guaranteed by the
Export-Import Bank of the United States ('Ex-Im') for the purchase by ARS of
U.S. manufactured mining equipment. This equipment will be used by ARS to
increase production in its diamond mines. The Ex-Im has stated that this
agreement is the first transaction approved under the Ex-Im's General Project
Incentive Agreement with the Ministry of Finance and the Central Bank of the
Russian Federation signed on December 1993. The Company anticipates that this
facility will commence cutting and polishing before June 1997.
The Company believes that its factory in Puerto Rico is the largest cutting
and polishing facility in the United States. Each rough diamond received in
Puerto Rico is evaluated against strict management standards designed to
maximize its potential economic contribution to the Company. Expert technicians,
assisted by proprietary computer software, determine whether to cut the rough
diamond to ideal proportions, or to commercial proportions, or to resell the
rough diamond. The shape of the rough diamond, its color, clarity, size,
potential profitability and salability, are among the criteria used in making
such determinations. The Company's production workers are compensated
principally on a piece rate basis. The Company has an incentive program that
rewards its factory managers and supervisors for maximizing the manufactured
results, based on the following criteria: gross margin, yield (rough weight to
polished weight conversion) and efficiency.
Rough diamonds selected for cutting are analyzed and where desirable are
sorted for sawing or cleaving to achieve the desired shape and to eliminate
imperfections. They are then cut and polished into finished gems. Each finished
ideal cut diamond (weighing .18 carat and larger) which is marketed as a Lazare
Diamond is then inscribed with the Lazare Kaplan logo and its own identification
number by the Company's patented laser inscription process. All of these
operations are performed by the Company's employees. The Company believes its
work force in Puerto Rico is the most highly skilled in the diamond industry.
The Company has undertaken a worker training program at its facility in Puerto
Rico to provide a constant flow of skilled labor to satisfy its needs for
further growth.
Through its subsidiary, Lazare Kaplan Botswana (Pty) Limited, the Company,
pursuant to a long term license issued by the Government of Botswana, owns and
operates a diamond cutting and polishing factory in Molepolole, Botswana. Lazare
Kaplan Botswana began operations in its newly constructed facility in early
1993. The factory, which is a state-of-the-art facility, uses both automated and
manual equipment and is committed to train and employ Batswana workers.
Currently, there are 535 employees at this facility, of whom 97 are trainees.
This factory cuts and polishes rough diamonds to ideal proportions in sizes that
currently are not processed by the Company's facility in Puerto Rico. The
factory, which is still in the beginning stages, is concentrating on the
manufacture of rough diamonds of somewhat smaller size (generally smaller than
1/5 carat in size). The size range manufactured will be expanded as the skills
of its employees are developed. Lazare Kaplan Botswana, which is owned by the
Company (60%), the Government of Botswana (5.1%), and the Botswana Development
Corporation (34.9%), purchases rough diamonds on its own account directly from
the DTC, as well as from third party sources, for manufacture in the Botswana
factory. Botswana is widely regarded today as the most important rough gem
diamond producing country in the world.
The Company believes that it is recognized in the diamond industry for the
high quality and brilliance of the gems it cuts and that it also enjoys a
reputation as an imaginative and innovative cutter of large and difficult
diamonds.
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PRICING
ROUGH DIAMOND PRICES
Through its control of approximately 75% of the value of the world diamond
output, the DTC can exert significant control over the pricing of rough and
polished diamonds to maintain an orderly market by adjusting supplies in the
marketplace. Rough diamond prices established by the DTC have been characterized
historically by steady increases over the long term; however, prices in the
secondary market have experienced a greater degree of volatility, particularly
during the late 1970's. Traditionally, the Company has been able to pass along
such price increases to its customers. From time to time, however, the Company
has absorbed these price increases in the short term to maintain an orderly
pricing relationship with its customers. This has, in the past, caused temporary
adverse effects on the Company's earnings. However, a large rapid increase in
rough diamond prices could materially adversely affect the Company's revenue and
operating margins if the increased cost of rough diamonds could not be passed
along to its customers in a timely manner.
According to published reports, during 1995 there was an emergence of a
two-tier market for rough diamonds. The first tier is comprised of better
quality rough diamonds, for which the DTC continues to maintain an orderly
market. The Company conducts its cutting and polishing operations almost
exclusively in this segment of the market. The second tier is comprised of
small, less expensive, imperfect rough diamonds. The prices for these diamonds
are determined principally by supply and demand. Consequently, there has been
considerable volatility in the prices of less expensive diamonds since 1995.
Because the Company focuses primarily on better quality rough diamonds, this
volatility has not had a significant effect on the Company.
POLISHED DIAMOND PRICES
Over the past 60 years, increases in the price of rough diamonds have
generally resulted in a corresponding increase in the price of polished
diamonds. During the period of high inflation in the late 1970's, investors
speculated in hard assets, driving polished diamond prices to exceptionally high
levels which in turn caused significant increases in the cost of rough diamonds.
However, the moderation of inflation during the early 1980's resulted in a
sudden and massive shift of investments from hard assets to financial
instruments, resulting in dramatic price declines for polished diamonds which
caused a market liquidity crisis as prices of some categories of polished
diamonds fell below the inventory costs of such diamonds. Since this period in
the early 1980's, the Company believes the pricing of polished diamonds has
returned to its historical pattern of responding to increases in the pricing of
rough diamonds. However, there can be no assurance that volatility in the price
of polished diamonds could not occur again. Any rapid decrease in the price of
polished diamonds could have a material adverse effect on the Company in terms
of inventory losses, lower sales and lower margins.
The Company has broadened its sales base and implemented strict inventory,
pricing and purchasing controls which it believes could lessen the impact of
significant fluctuations in the price of rough and polished diamonds. These
include computerized rough diamond evaluation programs, automatic economic order
quantity models and inventory utilization programs.
MARKETING, SALES AND DISTRIBUTION
MARKETING STRATEGY
The Company's marketing strategy is directed primarily toward quality
conscious consumers throughout the United States, the Far East and Europe. The
Company focuses its distribution efforts for Lazare Diamonds on selectivity with
a view to helping retailers who carry the product maintain a competitive
advantage. Lazare Diamonds can be found at some of the most prestigious jewelry
stores around the world, including both those with international reputations and
those known only in their communities as being the highest quality retail
jewelers. This strategy helps ensure that the Company's product is presented in
an environment consistent with its superior quality and image.
The Company also sells to certain jewelry manufacturers and diamond
wholesalers. The Company has developed a comprehensive grading system for its
diamonds, which allows jewelers to order inventory by category rather than
through the more cumbersome process of visual selection. In addition, the
Company designs, manufactures (through independent contractors) and sells a line
of high quality jewelry that features Lazare Diamonds.
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A key element of the Company's strategy is the promotion of the Lazare
Diamonds brand name directly to consumers. The Company is able to market its
diamonds under a brand name to retailers because (a) the ideal cut
differentiates the Company's diamonds from commercial diamonds in the
marketplace and (b) each Lazare Diamond is inscribed with the Company's logo and
identification number using the Company's unique laser inscription process, thus
authenticating the diamonds. The Company holds a domestic patent, which expires
in 2000, and various international patents for this process. In addition, the
Company has a domestic patent -- pending for a new and improved laser
inscription process.
The Company's decision to pursue the brand name strategy is reinforced by
two factors -- a rising trend among informed consumers to purchase quality,
brand name products, and the need among upscale jewelers to set themselves apart
in an increasingly competitive market by carrying and promoting a differentiated
product.
Building awareness and acceptance of Lazare Diamonds is accomplished
through a comprehensive marketing program which includes sales training,
cooperative advertising, sales promotion and public relations. The advertising
program includes usage of a toll-free number which consumers may call to receive
additional information about the product and to be referred to jewelers carrying
Lazare Diamonds and Lazare Diamond jewelry in their geographic area. A wide
assortment of sales promotion materials has been designed to facilitate
jewelers' sales of the Company's diamonds and fine jewelry line to consumers.
Public relations events are offered to help build traffic in retail stores. The
Company believes these marketing programs have been and will continue to be
instrumental in increasing sales. The Company has no current plans to sell its
diamonds directly to consumers and intends to continue concentrating its
marketing efforts towards quality retail jewelers.
The Lazare Diamond Registry program has been established by the Company to
enable consumers to register their Lazare Diamonds with the Company using the
laser inscribed identification number, thereby providing proof of ownership in
case of loss or theft.
SALES AND DISTRIBUTION
While the purchase and sale of rough diamonds is concentrated among
relatively few parties, industry wide retailing of polished diamonds occurs
through over 39,000 jewelry stores in the United States, over 26,000 retailers
in Japan and over 48,000 retail stores in Europe. The Company's sales efforts
for its polished diamonds are directed primarily toward the fine quality segment
of these retailers (the majority of which are independently owned and operated)
and, to a lesser extent, to jewelry manufacturers and wholesalers. Full time
regional sales representatives located throughout the United States, Hong Kong
and Antwerp, are compensated on a commission basis and handle sales throughout
their respective territories.
The Company's sales force is supported by a New York based telemarketing
department. Sales to certain of the Company's largest accounts are handled by
headquarters personnel. Most of the Company's major accounts are customers of
long standing.
The Company has been actively working to expand its foreign business
activities, particularly in the Far East countries of Japan, Hong Kong,
Singapore, Taiwan, Thailand, Korea, Malaysia and Indonesia. In October 1996,
Aiwa Co., Ltd. ('Aiwa'), the Japanese distributor with whom the Company has had
a marketing relationship since 1972, announced that it entered into an agreement
in Japan with Seiko Corporation ('Seiko'), one of the world's largest
watchmakers. In connection with this agreement, the Company and Aiwa intend that
Seiko will act as the exclusive distributor in Japan for Lazare Diamonds. The
Company plans to form a joint venture in Japan with Aiwa (to be known as Lazare
Kaplan Japan) to provide promotional and other support services to Seiko. This
joint venture will implement an arrangement whereby Seiko will distribute,
market and promote Lazare Diamonds in Japan. Seiko is generally recognized as a
leader in consumer brand marketing and has a well developed network of contacts
and retailers. Aiwa, with a distribution network of over 200 retailers and
wholesalers, will continue to be an important customer of the Company's
non-branded polished diamonds.
The Company uses a comprehensive sorting and inventory classification
system for grading color and clarity of its ideal cut polished diamonds. This
system, combined with the fact that the Company's diamonds are uniformly cut to
ideal proportions, reduces and in some cases eliminates the need for
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customers to view diamonds before placing orders. The system enables customers
to standardize their inventories, order by mail or telephone and minimize their
inventory investment.
The percentages of the Company's total domestic and foreign net sales to
its customers, which include a combination of both rough diamonds and polished
diamonds sales taken together, for the past three fiscal years and for the three
months ended August 31, 1995 and 1996 are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MAY 31, AUGUST 31,
------------------------ ---------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percentage of Net Sales to Customers
United States........................................ 16% 25% 23% 23% 16%
Far East............................................. 6% 13% 8% 7% 7%
Europe, Israel & Other............................... 78% 62% 69% 70% 77%
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
The world's rough diamond trading market is primarily located in Belgium
and Israel; therefore, the majority of the Company's rough diamond sales have
been transacted with foreign customers. The foreign sales decrease in 1995 as
compared to the prior year was a result of the decrease in rough diamond sales
in 1995 as compared to 1994. In 1996, due to an increase in production and sales
of polished diamonds, the Company sold a greater portion of its polished
diamonds domestically than it had in prior years. Offsetting this percentage
increase in domestic sales was a continued increase in rough diamond sales to
foreign customers. In the fiscal quarter ended August 31, 1996, domestic sales
decreased as compared to the first quarter in the prior year. This decrease was
due to the fact that the Company experienced a temporary delay in shipments of
polished diamonds from its Russian operation during the first quarter of fiscal
1996. In the prior year, a large portion of these polished diamonds was sold to
domestic customers.
The Company believes that due to the possible international resale of
diamonds by its customers, the above percentages may not represent the final
location of retail sales of its product. As all foreign sales are denominated in
United States dollars, the Company does not experience any material foreign
currency exposure on its foreign revenue. The profitability of foreign sales of
either polished or rough diamonds is consistent with that of domestic sales of
similar merchandise.
COMPETITION
The polished and rough diamond business is highly competitive. While the
Company believes that it has achieved a reputation as a leading cutter and
distributor of high quality ideal cut diamonds, it faces competition in sales to
its customers in the United States and abroad from many other suppliers. In
addition, the Company sells rough diamonds in the competitive world market. A
substantial number of cutters and polishers and traders, some of which the
Company believes to be larger or to have greater financial resources than the
Company, sell diamonds of all qualities to the Company's customers.
The Company believes there are significant barriers to entry by potential
competitors into the business of manufacturing ideally proportioned diamonds.
Among the most important of these barriers are the need for significant working
capital to purchase rough diamonds and hold polished inventory, the access to
adequate supplies of rough diamonds, the limited number of persons with the
skills necessary to cut ideally proportioned diamonds, the difficulty in
obtaining access to upscale channels of distribution, the importance of public
recognition of an established brand name and the establishment of computer
systems to gauge and monitor the manufacturing and distribution network.
EMPLOYEES
At November 30, 1996, the Company had approximately 700 full-time
employees. The Company also has six regional sales representatives. The Company
maintains an apprenticeship program at its facility in Puerto Rico, through
which it trains its cutters, who are highly skilled workmen. The Company also
has a program in Botswana through which it trains cutters and polishers. The
Company provides paid vacations, sick leave, group life, disability,
hospitalization and medical insurance for its employees. The Company has a
401(k) retirement plan for its U.S. and Puerto Rico employees. The Company
believes that it has satisfactory relationships with its employees. None of the
Company's employees is represented by a union.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth information regarding executive officers and
directors of the Company.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES DIRECTOR
NAME WITH THE COMPANY AGE SINCE
- -------------------------------- --------------------------------------------------------------- --- --------
<S> <C> <C> <C>
Maurice Tempelsman.............. Chairman of the Board, Director 67 1984
Leon Tempelsman................. Vice Chairman of the Board, President, Director 40 1984
George R. Kaplan................ Vice Chairman of the Board, Director 78 1972
Sheldon L. Ginsberg............. Executive Vice President and Chief Financial Officer, Director 42 1989
Robert Speisman................. Vice President -- Sales, Director 43 1989
Lucien Burstein................. Secretary, Director 74 1984
Michael W. Butterwick........... Director 69 1982
Myer Feldman.................... Director 79 1984
</TABLE>
BACKGROUND
The early 1980's were a time of crisis in the diamond industry caused by
dramatic price declines coupled with over-leveraged inventories (see
'Business -- Marketing, Sales and Distribution') which led to the Company's
filing of a petition under Chapter 11 of the United States Bankruptcy Code. In
1984, Maurice Tempelsman and Leon Tempelsman acquired a controlling interest in
the Company by an investment of more than $22,500,000. As a condition precedent
to such investment, the Company voluntarily withdrew its petition. The
Tempelsman family has long been involved primarily in rough diamond trading. The
Tempelsmans' strength historically lay in their rough diamond sourcing
capabilities built over more than forty years of contacts and business relations
in the leading diamond producing countries. This investment was, and continues
to be, viewed by the Tempelsmans as a strategic long-term investment.
BIOGRAPHICAL INFORMATION
Maurice Tempelsman is the Chairman of the Board and a director of the
Company and a general partner of Leon Tempelsman & Son, a limited partnership
with interests in the international diamond and mining industries. He has held
these positions since 1984. Prior to that time, he was President and Chief
Executive Officer of its predecessor, Leon Tempelsman & Son, Inc. Maurice
Tempelsman is the father of Leon Tempelsman and the father-in-law of Robert
Speisman.
Leon Tempelsman is the Vice Chairman of the Board, the President and a
director of the Company and a general partner of Leon Tempelsman & Son. He has
held these positions since 1984. Prior to that time, he was President of LTS
Industries, Inc., a wholly-owned subsidiary of Leon Tempelsman & Son, Inc.,
engaged in selling polished diamonds to retailers. Leon Tempelsman is the son of
Maurice Tempelsman and the brother-in-law of Robert Speisman.
The Company believes that neither the Tempelsmans nor LTS currently engages
directly or indirectly in any activities competing with those of the Company.
George R. Kaplan has been Vice Chairman of the Board since 1984 and a
director of the Company since 1972. Mr. Kaplan has been associated with the
Company or its predecessor for more than 58 years.
Sheldon L. Ginsberg has been Executive Vice President and Chief Financial
Officer since February 1996. He was the Vice President and Chief Financial
Officer from April 1991 until February 1996. He was the Vice
President -- Finance from January 1986 until April 1991. Mr. Ginsberg has been a
director of the Company since 1989.
Robert Speisman has been the Vice President -- Sales of the Company since
1986. From April 1984 to April 1986 he was the manager of telemarketing. From
April 1981 to 1984 he was the Director of Sales and Marketing for LTS
Industries, Inc. Mr. Speisman has been a director of the Company since
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1989. Mr. Speisman is the son-in-law of Maurice Tempelsman and the
brother-in-law of Leon Tempelsman.
Lucien Burstein is, and for more than the past five years has been, a
partner in the law firm of Warshaw Burstein Cohen Schlesinger & Kuh, LLP, which
acts as general counsel to the Company. Mr. Burstein has been Secretary to the
Company and a director of the Company since 1984.
Michael W. Butterwick is, and for more than the past five years has been,
an independent business consultant. Mr. Butterwick has been a director of the
Company since 1982.
Myer Feldman is, and for more than the past five years has been, a partner
in the law firm of Ginsburg, Feldman and Bress, Chartered Attorneys. He has been
a director of the Company since 1984.
All officers were elected at the Annual Meeting of the Board of Directors
held in November 1996, and hold office until the next Annual Meeting of the
Board of Directors and until their respective successors have been duly elected
and qualified. All directors were elected at the Annual Meeting of Stockholders
held in November 1996 and hold office until the next Annual Meeting of
Stockholders and until their respective successors have been duly elected and
qualified. All outside directors receive a fee equal to $1,250 per quarter;
accordingly, $5,000 in directors' fees was paid by the Company for the fiscal
year ended May 31, 1996 to each of Messrs. Burstein, Butterwick and Feldman, for
a total of $15,000. Mr. Burstein credits his fee against legal fees of Warshaw
Burstein Cohen Schlesinger & Kuh, LLP incurred by the Company for each period
for which directors' fees are paid.
PRINCIPAL AND SELLING STOCKHOLDERS AND SECURITY OWNERSHIP
OF MANAGEMENT
The following table reflects as of December 10, 1996 the beneficial
ownership of shares of Common Stock of the Company (a) by those persons known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (b) by each director of the Company, and (c) by all directors and
officers as a group. Except as otherwise noted, the named beneficial owner has
sole voting and investment power. In addition, the table reflects the effect of
the sale of the shares of Common Stock offered hereby, assuming the
Underwriters' over-allotment option is not exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED OWNED PERCENTAGE OF COMMON
NAME AND ADDRESS AS OF AS OF STOCK BENEFICIALLY
OF BENEFICIAL OWNER DECEMBER 10, 1996 DECEMBER 10, 1996 OWNED AFTER OFFERING
- ---------------------------------------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>
Maurice Tempelsman(1)(2)(3) ........................ 3,838,825 61.3% 42.7%
529 Fifth Avenue
New York, NY 10017
Leon Tempelsman(2)(3)(4) ........................... 1,860,629 29.0% 22.7%
529 Fifth Avenue
New York, NY 10017
Myer Feldman ....................................... 338,259 5.4% 4.2%
1250 Connecticut, N.W.
Suite 800
Washington, DC 20036
Sheldon L. Ginsberg(5) ............................. 46,305 0.7% 0.6%
529 Fifth Avenue
New York, NY 10017
Robert Speisman(2)(6) .............................. 44,800 0.7% 0.6%
529 Fifth Avenue
New York, NY 10017
George R. Kaplan(7) ................................ 23,965 0.4% 0.3%
529 Fifth Avenue
New York, NY 10017
Lucien Burstein .................................... 1,500 less than 0.1% less than 0.1%
555 Fifth Avenue
New York, NY 10017
</TABLE>
(table continued on next page)
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(table continued from previous page)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED OWNED PERCENTAGE OF COMMON
NAME AND ADDRESS AS OF AS OF STOCK BENEFICIALLY
OF BENEFICIAL OWNER DECEMBER 10, 1996 DECEMBER 10, 1996 OWNED AFTER OFFERING
- ---------------------------------------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C>
Michael W. Butterwick .............................. 0 -- --
Sapperton House
Sapperton
Cirencester
Glos. GL7 GILE, England
Dimensional Fund Advisors, Inc.(8) ................. 317,300 5.0% 3.9%
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
All officers and directors as a group(1)-(7)........ 4,625,867 71.1% 50.9%
</TABLE>
- ------------
(1) Maurice Tempelsman, the Selling Stockholder, is the Company's Chairman of
the Board and its principal stockholder. Mr. Tempelsman is offering 400,000
shares of Common Stock in this offering. Mr. Tempelsman has advised the
Company that he is participating in the offering to diversify his
investments. The shares owned by Mr. Tempelsman after the offering are
eligible for future sale pursuant to Rule 144 under the Securities Act,
which, among other restrictions, limits the volume and manner of any such
sales. In addition, Mr. Tempelsman has agreed with the Underwriters that for
a period of 180 days from the date of this Prospectus, he will not issue,
sell, offer, or agree to sell, grant, distribute or otherwise dispose of any
of his Common Stock. The shares of Common Stock being offered for sale by
Mr. Tempelsman will be borrowed from Leon Tempelsman & Son, a New York
limited partnership ('LTS') of which each of Mr. Tempelsman and Leon
Tempelsman, as the only general partners, has sole power to vote and
dispose. LTS will receive from Mr. Tempelsman amounts equal to dividends and
other distributions, if any, that would have been paid on the borrowed
shares, plus a customary fee, and Mr. Tempelsman will be obligated to repay
the borrowing by delivering to LTS shares equal in number to the borrowed
shares three business days after demand by LTS. Mr. Tempelsman intends to
repay the borrowing within 20 days of the date of such borrowing.
(2) Maurice Tempelsman, the Chairman of the Board and a director of the Company,
is the father of Leon Tempelsman and the father-in-law of Robert Speisman,
Vice President-Sales of the Company. Each of Maurice Tempelsman, Leon
Tempelsman and Robert Speisman disclaims beneficial ownership of shares
beneficially owned by the others.
(3) Number and percentage of shares include the 1,528,416 shares owned by LTS.
(4) Number and percentage of shares include 2,240 shares held by the spouse of
Leon Tempelsman, 26,816 shares owned by his sister, Rena Speisman, 26,725
shares owned by his sister, Marcy Meiller, 34,641 shares owned by Rena
Speisman as custodian for her children, and 1,600 shares held by his
brother-in-law, Scott Meiller, as to all of which shares Leon Tempelsman has
been granted a proxy. Number and percentage of shares also include 34,641
shares held by Leon Tempelsman as custodian for his children, 150,550 shares
which are the subject of currently exercisable options granted to Mr.
Tempelsman pursuant to the Company's 1988 Stock Option Incentive Plan (the
'Plan'), and 1,528,416 shares owned by LTS, of which each of Maurice and
Leon Tempelsman, as the sole general partners, has sole power to vote and
dispose.
(5) Number and percentage include an aggregate of 46,300 shares which are the
subject of currently exercisable options granted to Sheldon L. Ginsberg
pursuant to the Plan.
(6) Number and percentage of shares do not include the 1,528,416 shares owned by
LTS, of which Rena Speisman, the wife of Robert Speisman, is a limited
partner. Number and percentage of shares also do not include 61,457 shares
owned by Rena Speisman for herself and as custodian for the children of
Robert and Rena Speisman, as to all of which beneficial ownership is
disclaimed by Mr. Speisman.
(footnotes continued on next page)
25
<PAGE>
<PAGE>
(footnotes continued from previous page)
Number and percentage include 44,800 shares which are the subject of
currently exercisable options granted to Mr. Speisman pursuant to the Plan.
(7) Number and percentage of shares do not include 1,500 shares owned by the
spouse of George Kaplan, the beneficial ownership of which is disclaimed by
Mr. Kaplan.
(8) All of such shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, as to all of which Dimensional Fund Advisors Inc.
serves as investment manager. Dimensional Fund Advisors Inc. disclaims
beneficial ownership of all of such shares.
CERTAIN TRANSACTIONS
The Company has entered into a sublease with Leon Tempelsman & Son, a New
York limited partnership of which Maurice Tempelsman and Leon Tempelsman are the
sole general partners ('LTS'), under which approximately 30% of the 20th Floor
at 529 Fifth Avenue, New York, New York, the Company's principal offices, is
sublet to LTS. The sublease is prorated to the same rental rate per square foot
which the Company is paying to the landlord under its lease for the 19th and
20th Floors at the same location. Rental payments under the sublease amount to a
base annual rent of $89,518 (excluding escalations).
The Company is a party to an agreement dated August 11, 1982, as amended on
April 8, 1983 (the 'Agreement'), with GIA Gem Trade Laboratory, Inc. ('GTL'), a
wholly owned subsidiary of Gemological Institute of America, Inc., pursuant to
which the Company has granted a license to GTL to use a laser micro-inscription
system developed by the Company in connection with GTL's business of grading
diamonds and identifying gem stones and issuing reports thereon. The Agreement,
unless earlier terminated in accordance with its terms, expires in the year
2000, when the United States patent on the laser micro-inscription device
expires. George R. Kaplan, Vice Chairman of the Board of the Company, is a Board
Member Emeritus of the Board of Governors of the Gemological Institute of
America. The Agreement, which requires GTL to pay to the Company royalties based
on fees charged by GTL for inscribing gem stones, was the result of arms-length
negotiations between the Company and GTL.
The Company's principal stockholder is LTS, of which Maurice Tempelsman and
Leon Tempelsman, both directors and officers of the Company, are the only
general partners. See 'Principal and Selling Stockholders and Security Ownership
of Management' and 'Management'. The Company believes that neither the
Tempelsmans nor LTS currently engage directly or indirectly in any activities
competitive with those of the Company.
Lucien Burstein, a director of the Company, is a partner of the law firm of
Warshaw Burstein Cohen Schlesinger & Kuh, LLP, which has been general counsel to
the Company since 1984.
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, $1.00 par value, of which 6,261,071 are issued and outstanding,
and of which there will be, immediately after this offering, 8,061,071 shares
issued and outstanding (assuming the Underwriters' over-allotment option is not
exercised). As of December 10, 1996, there were approximately 231 record holders
of shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Stockholders
do not have cumulative voting rights. Each share of Common Stock is entitled to
share equally in such dividends as the Board of Directors, in its discretion,
may validly declare from funds legally available therefor. See 'Dividend
Policy.' In the event
26
<PAGE>
<PAGE>
of liquidation, each outstanding share of Common Stock entitles its holder to
participate ratably in the assets remaining after payment of liabilities.
Stockholders have no preemptive rights or other rights to subscribe for or
purchase additional shares of any class of capital stock or any other securities
of the Company and there are no redemption or sinking fund provisions with
regard to the Common Stock or any conversion rights. All outstanding shares of
Common Stock are, and those offered hereby will be, validly issued, fully paid
and nonassessable.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
'Underwriting Agreement') among the Company, the Selling Stockholder and the
underwriters named below (the 'Underwriters'), the Underwriters have agreed to
purchase the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- ---------
<S> <C>
UBS Securities LLC.........................................................................
Furman Selz LLC............................................................................
---------
Total.................................................................................
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if
either Underwriter defaults in its obligation to purchase shares, and the
aggregate obligation of the Underwriter so defaulting does not exceed 10% of
the shares offered hereby, the remaining Underwriter must assume such
obligations.
The Underwriters have advised the Company that the Underwriters propose to
offer the shares of Common Stock directly to the public at the offering price
set forth on the cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $. per share. The Underwriters may allow and
such dealers may reallow a concession not in excess of $. per share to certain
other dealers. After the public offering of the shares of Common Stock, the
offering price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 330,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of the Underwriters, except for the sale or issuance
by the Company of shares of Common Stock pursuant to outstanding employee stock
options. Maurice Tempelsman, Leon Tempelsman and LTS have agreed that, subject
to certain exceptions, they will not, for a period of 180 days after the date of
this Prospectus, without the prior written consent of UBS Securities LLC,
directly or indirectly, offer, sell or otherwise dispose of any shares of Common
Stock beneficially owned by them, or any securities convertible into or
exercisable or exchangeable for Common Stock.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
UBS Securities LLC ('UBS') has been engaged by the Company as the Company's
exclusive financial advisor for a 12 month term expiring April 30, 1997 with
respect to various investment banking
27
<PAGE>
<PAGE>
matters (each such matter a 'Transaction'). The Company has agreed to pay UBS an
annual retainer fee of $100,000. In addition, if during the term of the
engagement a Transaction is consummated, the Company has agreed to pay UBS a
transaction fee in an amount to be specified in a letter agreement to be entered
into between the Company and UBS at such time. UBS has agreed to charge
competitive fees for its services, and where market indices exist on fees for
similar services, fees consistent with market practices. The Company has also
agreed to pay UBS a percentage of the value of each Transaction initiated by UBS
during the term and consummated within six months of the termination of the
engagement based upon an agreed formula.
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the Company by
Warshaw Burstein Cohen Schlesinger & Kuh, LLP, New York, New York, and for the
Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company at May
31, 1996 and 1995 and for each of the two years in the period ended May 31,
1996, included in this Prospectus and elsewhere in the Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, and the
consolidated statements of operations, cash flows, stockholders' equity and
financial statement schedule for the year ended May 31, 1994 have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their respective
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports, given upon the authority of such firms as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement (the 'Registration Statement') under
the Securities Act of 1933, as amended, with respect to the securities covered
by this Prospectus.
This Prospectus omits certain information contained in the Registration
Statement. For further information, reference is made to the Registration
Statement, the exhibits and financial statements filed as a part thereof, which
may be examined without charge at the office of the Commission, and photocopies
of which, or any portion thereof, may be obtained upon payment of the prescribed
fee.
Statements contained in this Prospectus as to the contents of any agreement
or other document referred to are not complete, and where such agreement or
other document is an exhibit to the Registration, each statement is deemed to be
qualified and amplified in all respects by the provisions of the exhibit.
28
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report of Ernst & Young LLP................................................................ F-2
Independent Auditors' Report of Deloitte & Touche LLP............................................................ F-3
Consolidated Statements of Operations for the years ended May 31, 1996, 1995 and 1994............................ F-4
Consolidated Balance Sheets as of May 31, 1996 and 1995.......................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended May 31, 1996, 1995 and 1994.................. F-6
Consolidated Statements of Cash Flows for the years ended May 31, 1996, 1995 and 1994............................ F-7
Notes to Consolidated Financial Statements for the years ended May 31, 1996, 1995 and 1994....................... F-8
Consolidated Statements of Operations for the three months ended August 31, 1996 and 1995 (unaudited)............ F-15
Consolidated Balance Sheets as of August 31, 1996 (unaudited) and May 31, 1996................................... F-16
Consolidated Statements of Cash Flows for the three months ended August 31, 1996 and 1995 (unaudited)............ F-17
Notes to Consolidated Financial Statements for the three months ended August 31, 1996 (unaudited)................ F-18
</TABLE>
F-1
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
LAZARE KAPLAN INTERNATIONAL INC.
We have audited the accompanying consolidated balance sheets of Lazare
Kaplan International Inc. and subsidiaries as of May 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Lazare Kaplan International Inc. and subsidiaries at May
31, 1996 and 1995 and the consolidated results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
July 9, 1996
New York, New York
F-2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
LAZARE KAPLAN INTERNATIONAL INC.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Lazare Kaplan International Inc. and
subsidiaries for the year ended May 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Lazare Kaplan
International Inc. and subsidiaries for the year ended May 31, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
July 13, 1994 (August 31, 1994 as to Note 11)
F-3
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended May 31,
- ------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995 1994
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
Net sales (Note 1) $ 266,321 $ 178,143 $ 204,047
Cost of sales (Note 1) 243,685 165,686 187,664
- ------------------------------------------------------------------------------------------------------------------
22,636 12,457 16,383
- ------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 11,439 10,386 9,833
Interest expense, net of interest income 4,048 3,489 3,747
- ------------------------------------------------------------------------------------------------------------------
15,487 13,875 13,580
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) before income tax provision and minority interest 7,149 (1,418) 2,803
Income tax provision (Notes 1 and 3) 459 214 118
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) before minority interest 6,690 (1,632) 2,685
Minority interest in loss of consolidated subsidiary 323 479 339
- ------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $ 7,013 $ (1,153) $ 3,024
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
NET INCOME/(LOSS) PER SHARE (NOTE 1) $ 1.12 $ (0.18) $ 0.49
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
Weighted average number of shares 6,288,157 6,309,071 6,226,708
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
-------------------
ASSETS
CURRENT ASSETS:
Cash $ 905 $ 2,532
Accounts receivable, less allowance for doubtful accounts ($281 and $220 in 1996 and 1995,
respectively) 25,493 22,302
Inventories (Note 1):
Rough stones 9,320 11,928
Polished stones 46,979 43,806
-------------------
Total inventories 56,299 55,734
-------------------
Prepaid expenses and other current assets 10,142 6,166
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 92,839 86,734
PROPERTY, PLANT AND EQUIPMENT, net (Notes 1 and 2) 7,198 6,704
OTHER ASSETS 5,029 5,725
- --------------------------------------------------------------------------------------------------------------------
$105,066 $99,163
- --------------------------------------------------------------------------------------------------------------------
-------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other current liabilities (Notes 1 and 4) $ 15,770 $16,034
Notes payable -- other (Note 5) 3,000 3,000
Notes payable -- banks (Note 5) - 4,125
Current portion of long-term debt (Note 6) - 4,285
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 18,770 27,444
SENIOR NOTES AND OTHER LONG-TERM DEBT (Notes 5 and 6) 34,155 26,430
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 52,925 53,874
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST (Notes 1 and 7) 7,271 7,594
STOCKHOLDERS' EQUITY (Note 8)
Common stock, par value $1 per share:
Authorized, 10,000,000 shares
Outstanding, 6,176,425, 1996 and 6,147,808, 1995 6,176 6,148
Additional paid-in capital 26,098 25,964
Retained earnings 12,596 5,583
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 44,870 37,695
- --------------------------------------------------------------------------------------------------------------------
$105,066 $99,163
- --------------------------------------------------------------------------------------------------------------------
-------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
(In thousands) Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
Balance, May 31, 1993 $6,122 $ 25,837 $ 3,712 $35,671
Net Income - - 3,024 3,024
Exercise of Stock Options, 9,426 shares issued 9 47 - 56
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1994 6,131 25,884 6,736 38,751
Net Loss - - (1,153 ) (1,153)
Exercise of Stock Options, 16,702 shares issued 17 80 - 97
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1995 6,148 25,964 5,583 37,695
Net Income - - 7,013 7,013
Exercise of Stock Options, 28,617 shares issued 28 134 - 162
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1996 $6,176 $ 26,098 $12,596 $44,870
- ---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended May 31,
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 7,013 ($1,153) $ 3,024
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization 2,234 1,924 1,899
Provision for uncollectible accounts 70 70 170
Minority interest in loss of consolidated subsidiary (323) (479) (339)
Gain on sale of fixed assets (54) (43) -
(Increase)/decrease in assets and increase/(decrease) in liabilities:
Accounts receivable (3,261) 828 (3,211)
Inventories (565) (2,248) (4,993)
Prepaid expenses and other current assets (3,976) (2,911) 803
Other assets (403) (488) -
Accounts payable and other current liabilities (264) 4,697 3,029
----------------------------
Net cash provided by operating activities 471 197 382
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 222 79 -
Capital expenditures (1,797) (1,578) (972)
----------------------------
Net cash used in investing activities (1,575) (1,499) (972)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in minority interest - 7,883 -
(Decrease)/increase in short-term borrowings (8,410) (5,775) 895
Increase in long-term borrowings 7,725 715 -
Proceeds from exercise of stock options 162 97 56
----------------------------
Net cash (used in)/provided by financing activities (523) 2,920 951
- ---------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash (1,627) 1,618 361
Cash at beginning of year 2,532 914 553
----------------------------
Cash at end of year $ 905 $2,532 $ 914
- ---------------------------------------------------------------------------------------------------------------------
----------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,183 $3,737 $ 4,003
Income taxes 407 314 239
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Capitalized Leases - - $ 61
- ---------------------------------------------------------------------------------------------------------------------
----------------------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
1. ACCOUNTING POLICIES
- ---------------------------------------------------------
a. The Company and its principles of consolidation
The Company and its subsidiaries are engaged in the cutting, polishing and
selling of diamonds and the trading of uncut rough diamonds. The consolidated
financial statements include the accounts of the Company and its subsidiaries,
all of which are wholly owned except for Lazare Kaplan Botswana (Pty) Ltd.,
which was owned 60% by the Company at May 31, 1996 and 1995 and 85% by the
Company at May 31, 1994. Minority interest represents the minority stockholders'
proportionate share of the equity of Lazare Kaplan Botswana (Pty) Ltd. All
material intercompany balances and transactions have been eliminated.
b. Sales and accounts receivable
The Company's net sales to customers in each of the following regions for
the years ended May 31, 1996, 1995 and 1994 are set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------
--------------------
<S> <C> <C> <C>
United States 23% 25% 16%
Far East 8% 13% 6%
Europe, Israel & other 69% 62% 78%
- ---------------------------------------------------
100% 100% 100%
- ---------------------------------------------------
--------------------
</TABLE>
No single customer of the Company accounted for 10% or more of the
Company's net sales for the fiscal years ended May 31, 1996, 1995 and 1994. The
Company generally does not require collateral on its receivables.
c. Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
d. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is computed using
the straight-line method over the shorter of asset lives or lease terms.
e. Deferred costs
The Company deferred the recognition of certain costs for professional
fees, travel and total staffing incurred during the construction and training
period of the Company's cutting and polishing facility in Botswana. Such costs
included only direct and incremental costs incurred during the start-up period.
These costs are being amortized over a five year period which began on June 1,
1993. All other deferred costs are amortized over their estimated useful lives
ranging from two to ten years.
f. Foreign currency
All foreign sales of the Company are denominated in U.S. dollars and all
purchases of rough diamonds worldwide are denominated in U.S. dollars.
Therefore, the Company does not experience any foreign currency exposure in
connection with these activities. In addition, the functional currency for
Lazare Kaplan Botswana (Pty) Ltd. is the U.S. dollar. Any gains or losses from
foreign currency translations relating to this subsidiary were immaterial and
are included in results of operations.
g. Income taxes
The Company provides for deferred income taxes in accordance with Statement
of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income
Taxes', whereby deferred income taxes are determined based upon the enacted
income tax rates for the years in which these taxes are estimated to be payable
or recoverable. Deferred income taxes reflect the net tax effects of (a)
temporary difference between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss carryforwards.
The Company and its domestic subsidiaries file a consolidated income tax
return. The Company's foreign subsidiaries are not subject to Federal income
taxes and their provisions for income taxes have been computed based on the
effective tax rates, if any, in the foreign countries.
There were no taxable dividends paid to the Company from foreign
subsidiaries during 1996.
h. Net income/(loss) per share
Net income/(loss) per share is computed based on the weighted average
number of shares outstanding
F-8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
including the impact of dilutive stock options during each period.
i. Risks and Uncertainties
The Company's business is dependent upon the availability of rough
diamonds. Approximately 75% of the world's diamond output is controlled by
DeBeers Centenary AG and its affiliated companies. Although DeBeers has
historically been the Company's major supplier of rough diamonds, the Company
has successfully diversified its sources of supply by entering into arrangements
with other primary source suppliers and has been able to supplement its rough
diamond needs by purchasing supplies in the secondary market. While the Company
believes that it has good relationships with its suppliers and that its sources
of supply are sufficient to meet its present and foreseeable needs, the
Company's rough diamond supplies, and therefore, its manufacturing capacity,
could be adversely affected by political and economic developments over which it
has no control.
Further, through its control of the world's diamond output, DeBeers can
exert significant control over the pricing of rough and polished diamonds. A
large rapid increase in rough diamond prices could adversely affect the
Company's revenue and operating margins if the increased cost of the rough
diamonds could not be passed along to its customers in a timely manner.
Alternatively, any rapid decrease in the price of polished diamonds could
adversely affect the Company in terms of inventory losses and lower margins.
j. Stock Option Incentive Plan
The Company accounts for its incentive stock options under the provisions
of Accounting Principles Board No. 25 'Accounting for Stock Issued to Employees'
and intends to continue to do so.
2. PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------------------------
Property, plant and equipment consists of (in thousands):
<TABLE>
<CAPTION>
May 31,
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
-----------------
<S> <C> <C>
Land and buildings $ 4,710 $4,170
Leasehold improvements 1,812 1,139
Machinery, tools and equipment 5,322 5,064
Furniture and fixtures 1,242 1,656
Computer installation 2,311 2,225
Construction in progress 364 -
- -----------------------------------------------------
15,761 14,254
Less accumulated depreciation and
amortization 8,563 7,550
- -----------------------------------------------------
$ 7,198 $6,704
- -----------------------------------------------------
-----------------
Depreciation and amortization rates:
- -----------------------------------------------------
Buildings 2 TO 3.7%
Leasehold improvements 3.7 TO 20%
Machinery, tools and equipment 10 TO 25%
Furniture and fixtures 10 TO 20%
Computer installation 10 TO 33%
- -----------------------------------------------------
</TABLE>
Depreciation expense for 1996, 1995 and 1994 was $1,135,000, $1,088,000 and
$1,094,000, respectively.
F-9
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
3. INCOME TAXES
- ---------------------------------------------------------
The items comprising the Company's net deferred tax liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
May 31,
- -----------------------------------------------------
1996 1995
- -----------------------------------------------------
--------------------
<S> <C> <C>
Deferred tax assets:
Operating loss and other
carryforwards $ 9,500 $ 13,200
Other 500 400
Deferred tax liabilities:
Depreciation 600 1,100
- -----------------------------------------------------
9,400 12,500
Less: Valuation allowance (9,400) (12,500)
- -----------------------------------------------------
Net deferred tax liabilities $ 0 $ 0
- -----------------------------------------------------
--------------------
</TABLE>
The income tax provision is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Year ended May 31,
- ------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------
---------------------
<S> <C> <C> <C>
Current:
Federal $ 158 $- $ 68
State and local 143 40 185
Foreign 158 174 70
- ------------------------------------------------------
459 214 323
- ------------------------------------------------------
Deferred:
Federal - - (68)
State and local - - (137)
- ------------------------------------------------------
- - (205)
- ------------------------------------------------------
$ 459 $214 $118
- ------------------------------------------------------
---------------------
</TABLE>
Income/(loss) before income taxes from the Company's domestic and foreign
operations was $7,742,000 and ($593,000), respectively for the year ended May
31, 1996.
The tax provision is different from amounts computed by applying the
Federal income tax rate to the income before taxes as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------
---------------------------
<S> <C> <C> <C>
Tax provision (benefit)
at statutory rate $ 2,430 $(482) $ 953
(Decrease)/increase in
taxes resulting from:
Differential
attributable to
foreign operations 374 502 764
State and local taxes,
net of Federal
benefit 94 26 48
Net operating loss
carryforward
arising in current
year not resulting
in current benefit - 168 -
Utilization of net
operating loss
carryforwards (2,439) - (1,647)
- ------------------------------------------------------
Actual tax provision $ 459 $ 214 $ 118
- ------------------------------------------------------
---------------------------
</TABLE>
The Company has available Federal net operating losses to offset future
taxable income which expire as follows (in thousands):
<TABLE>
<CAPTION>
Net
operating
Year losses
- --------------------------------------------------------
---------
<S> <C>
1998 $ 4,100
1999 4,200
2000 4,300
2001 3,500
2002 500
2007 1,000
2008 1,500
2010 400
- --------------------------------------------------------
$19,500
- --------------------------------------------------------
---------
</TABLE>
F-10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
In addition, the Company has New York State and New York City net operating
loss carryforwards of approximately $22,500,000 each, expiring from 1998 to
2008. The Company has Puerto Rico net operating loss carryforwards of
approximately $3,500,000 expiring from 1997 through 2002 and Botswana net
operating loss carryforwards of approximately $3,400,000 expiring from 1998
through 2000.
4. ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES
- ---------------------------------------------------------
Accounts payable and other current liabilities consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------
-----------------
<S> <C> <C>
Accounts payable $ 7,861 $5,377
Accrued expenses and income taxes 7,909 10,657
- -----------------------------------------------------
$15,770 $16,034
- -----------------------------------------------------
-----------------
</TABLE>
5. LINES OF CREDIT
- ---------------------------------------------------------
On May 14, 1996 the Company entered into a long-term unsecured, revolving
loan agreement with two banks. The agreement provides that the Company may
borrow up to $27,500,000 in the aggregate, at an interest rate of any of a)
one-eighth of one percent above the bank's prime rate (which was 8.25% on May
31, 1996), b) two and one half percent above the London Interbank Offered Rate
(LIBOR), or c) two and one-half percent above the bank's cost of funds rate. The
applicable interest rate is contingent upon the method of borrowing selected by
the Company. All amounts borrowed under this agreement are due and payable on
June 1, 1999. As of May 31, 1996, there was an aggregate balance outstanding of
$12,725,000 under this loan agreement. The proceeds of this facility were used
to repay a) all amounts outstanding under the Company's short-term lines of
credit, b) a long-term promissory note in the amount of $5,000,000, which had a
maturity date of December 2, 1996, and c) the annual installment of $4,285,000
which was due on May 15, 1996 with respect to the Company's Senior Note
obligation. In addition, the Company intends to use the proceeds of this
facility for its working capital needs and to fund its future annual
installments due under the Senior Note Agreement. The revolving loan agreement
contains certain provisions that require, among other things, (a) maintenance of
defined levels of current working capital and annual cash flow, (b) limitations
of borrowing levels, capital expenditures, and rental obligations and (c)
limitations on restricted payments, including the amount of dividends.
Through May 14, 1996, the Company had unsecured lines of credit with three
banks. These loan agreements provided that the Company could borrow up to $19.0
million, in the aggregate. Two of the facilities, in amounts of $3.0 million and
$8.0 million, carried an interest rate equal to the respective bank's prime rate
or one and one-half percent above LIBOR, depending upon the method of borrowing
utilized by the Company. The third facility, in the amount of $8.0 million,
carried an interest rate of one-eighth of a percent above the bank's prime rate,
or one and five-eighths percent above LIBOR depending upon the method of
borrowing utilized by the Company. The outstanding balances due under these
facilities were repaid in full with the proceeds of the long-term revolving loan
described above. As of May 31, 1995 there was an aggregate balance outstanding
on these facilities of $4,125,000. The weighted average interest rate during
1996 and 1995 on the Company's revolving loan and lines of credit was 7.83% and
8.12%, respectively.
The Company has a $3.0 million credit facility, payable on demand, at a
rate of one-half of one percent above the six-month LIBOR (which was 6.31% on
June 12). At May 31, 1996, the full amount of this facility had been drawn upon.
The weighted average interest rate during 1996 and 1995 on this facility was
6.47% and 6.20%, respectively.
6. SENIOR NOTES AND OTHER LONG-TERM DEBT
- ---------------------------------------------------------
In May, 1991 the Company, through a private placement, issued $30,000,000
of unsecured 9.97% Senior Notes, due May 15, 2001. Interest is payable
semi-annually every May 15 and November 15.
F-11
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
Repayments of $4,285,000 annually commenced on May 15, 1995 and end in 2000 with
the remaining principal of $4,290,000 payable on May 15, 2001.
Provisions of the Senior Notes require, among other things, (a) maintenance
of defined levels of consolidated tangible net worth and current working
capital, (b) limitation of borrowing levels and (c) limitations on restricted
payments, including the amount of dividends. Under the provisions of the Senior
Notes, the Company was not permitted to declare or pay any dividends either in
cash or property through August 31, 1994. Commencing September 1, 1994, this
restriction was modified to allow the declaration of dividends subject to
certain limitations set forth in the Senior Note Agreement.
On December 1, 1992, the Senior Notes were amended to revise the
consolidated fixed charge ratio and increase the interest rate to 10.47% through
August 31, 1994. On August 25, 1995, these Senior Notes were again amended to
eliminate the requirements of the consolidated fixed charge ratio retroactively
for the fiscal quarters ended February 28, 1995 and May 31, 1995, to revise the
consolidated fixed charge ratio for all subsequent measurement periods through
the quarter ending May 31, 1996, and to increase the interest rate to 10.97%
retroactively from March 1, 1995 through May 31, 1996. Beginning June 1, 1996
the interest rate on the Senior Notes reverted to the original lower rate of
9.97%.
On May 31, 1995 the Company entered into a long-term promissory note with a
bank in the amount of $5,000,000. The note, which bore interest at the bank's
prime rate and had a maturity date of December 2, 1996, was repaid in full with
the proceeds of the long-term revolving loan described above.
7. MINORITY INTEREST
- ---------------------------------------------------------
On August 31, 1994, the Botswana Development Corporation ('BDC') invested
21.8 million pula (approximately $8.0 million) for an equity position in Lazare
Kaplan Botswana (Pty) Ltd. In exchange for its investment the BDC received
common shares and cumulative, redeemable, non-voting, participating preference
shares of this subsidiary. Following this transaction, the Company owns 60% of
Lazare Kaplan Botswana (Pty) Ltd., the BDC owns 34.9% and the Government of
Botswana owns 5.1%.
8. STOCK OPTION INCENTIVE PLAN
- ---------------------------------------------------------
A Stock Option Incentive Plan was approved by the Board of Directors on
March 11, 1988 (the 'Plan'). The Plan has reserved 650,000 shares of the common
stock of the Company for issuance to key employees of the Company and its
subsidiaries.
The purchase price of each share of common stock subject to an incentive
option under the Plan is not to be less than 100 percent of the fair market
value of the stock on the day preceding the day the option is granted (110
percent for 10 percent beneficial owners). The Compensation Committee determines
the period or periods of time during which an option may be exercised by the
participant and the number of shares as to which the option is exercisable
during such period or periods, provided that the option period shall not extend
beyond ten years (five years in the case of 10 percent beneficial owners) from
the date the option is granted.
F-12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
A summary of the Plan's activity for each of the three years in the period
ended May 31, 1996 is as follows:
<TABLE>
<CAPTION>
Number
of shares Option price
- -------------------------------------------------------
---------------------------
<S> <C> <C>
Outstanding -- June 1,
1993 520,533 $5.000-$ 7.625
Options issued 101,750 $6.000-$ 8.387
Options exercised (11,434 ) $5.000-$ 8.000
Options canceled (10,601 ) $5.125-$ 7.625
- -------------------------------------------------------
Outstanding -- May 31,
1994 600,248 $5.000-$ 8.387
Options issued 28,750 $8.500-$ 9.350
Options exercised (34,231 ) $5.000-$ 7.625
Options canceled (4,618 ) $6.000-$ 7.625
- -------------------------------------------------------
Outstanding -- May 31,
1995 590,149 $5.000-$ 9.350
Options surrendered (115,300 ) $7.625-$ 9.350
Options re-issued 115,300 $6.375-$7.0125
Options exercised (39,751 ) $5.000-$ 7.625
- -------------------------------------------------------
Outstanding -- May 31,
1996 550,398 $5.000-$ 7.625
- -------------------------------------------------------
---------------------------
Exercisable options 433,698
- -------------------------------------------------------
---------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
- ---------------------------------------------------------
Future minimum payments (excluding sub-lease income) under noncancelable
operating leases with initial terms of more than one year consist of the
following at May 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Operating
Year leases
- --------------------------------------------------------
---------
<S> <C>
1997 $ 559
1998 429
1999 360
2000 326
2001 326
Thereafter 744
- --------------------------------------------------------
$ 2,744
- --------------------------------------------------------
---------
</TABLE>
Rental expense, including additional charges paid for increases in real
estate taxes and other escalation charges for the years ended May 31, 1996, 1995
and 1994, was approximately $584,000, 549,000 and $565,000, respectively.
10. PROFIT SHARING PLAN
- ---------------------------------------------------------
The Company has a profit sharing and retirement plan subject to Section
401(k) of the Internal Revenue Code. The plan covers all full-time employees in
the United States and Puerto Rico who complete at least one year of service.
Participants may contribute up to a defined percentage of their annual
compensation through salary deductions. The Company intends to match employee
contributions in an amount equal to $0.50 for every pretax dollar contributed by
the employee up to 6% of the first $20,000 of compensation, provided the
Company's pretax earnings for that fiscal year exceed $3,500,000. The Company
did not make matching contributions for calendar years 1995, 1994 or 1993.
11. GEOGRAPHIC SEGMENT INFORMATION
- ---------------------------------------------------------
Revenue, gross profit and income/(loss) before income tax provision and
minority interest for each of the three years in the period ended May 31, 1996
and identifiable assets at the end of each of those years, classified by
geographic area, which was determined by where sales originated from and where
identifiable assets are held, were as follows (in thousands):
F-13
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
UNITED ELIMI- CONSOLI-
STATES EUROPE AFRICA NATIONS DATED
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1996
Net sales to unaffiliated customers $175,032 $69,544 $21,745 $ - $266,321
Transfers between geographic areas 20,470 12,057 20,337 (52,864) -
------------------------------------------------------
Total revenue $195,502 $81,601 $42,082 $(52,864) $266,321
------------------------------------------------------
Gross profit $ 20,798 $ 703 $ 4,511 $ (3,376) $ 22,636
------------------------------------------------------
Income/(loss) before income tax provision and minority
interest $ 6,988 $ 262 $ (886) $ 785 $ 7,149
------------------------------------------------------
Identifiable assets at May 31, 1996 $ 97,935 $13,150 $26,192 $(32,211) $105,066
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
Year ended May 31, 1995
Net sales to unaffiliated customers $123,322 $49,684 $ 5,137 $ - $178,143
Transfers between geographic areas 22,196 16,679 22,810 (61,685) -
------------------------------------------------------
Total revenue $145,518 $66,363 $27,947 $(61,685) $178,143
------------------------------------------------------
Gross profit $ 11,866 $ 561 $ 6,259 $ (6,229) $ 12,457
------------------------------------------------------
(Loss)/income before income tax provision and minority
interest $ (495) $ 100 $ (615) $ (408) $ (1,418)
------------------------------------------------------
Identifiable assets at May 31, 1995 $ 91,980 $11,536 $23,552 $(27,905) $ 99,163
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
Year ended May 31, 1994
Net sales to unaffiliated customers $130,070 $73,921 $ 56 $ - $204,047
Transfers between geographic areas 22,092 13,984 8,737 (44,813) -
------------------------------------------------------
Total revenue $152,162 $87,905 $ 8,793 $(44,813) $204,047
------------------------------------------------------
Gross profit $ 15,663 $ 772 $ 85 $ (137) $ 16,383
------------------------------------------------------
Income/(loss) before income tax provision and minority
interest $ 4,990 $ 420 $(2,461) $ (146) $ 2,803
------------------------------------------------------
Identifiable assets at May 31, 1994 $ 92,628 $ 8,386 $20,374 $(28,210) $ 93,178
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
</TABLE>
The identifiable assets which are included in the eliminations primarily
represent advances to affiliates. These advances are included therein since the
Company, which is the parent company, finances the operations of these
affiliates.
F-14
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
- -------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
------------------------
<S> <C> <C>
Net Sales $ 69,400 $ 61,697
Cost of Sales 63,868 57,019
- -------------------------------------------------------------------------------------------------------------------
5,532 4,678
- -------------------------------------------------------------------------------------------------------------------
Selling, General & Administrative Expenses 2,992 2,776
Interest Expense -- net 945 1,016
- -------------------------------------------------------------------------------------------------------------------
3,937 3,792
- -------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interest 1,595 886
Income tax provision (Note 2) 93 57
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest 1,502 829
Minority interest in income/(loss) of consolidated subsidiary (157) 43
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,659 $ 786
- -------------------------------------------------------------------------------------------------------------------
------------------------
NET INCOME PER SHARE
- -------------------------------------------------------------------------------------------------------------------
------------------------
Income per share $ 0.26 $ 0.13
- -------------------------------------------------------------------------------------------------------------------
------------------------
Average number of shares outstanding during the period 6,484,029 6,236,021
- -------------------------------------------------------------------------------------------------------------------
------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-15
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
- --------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1996
- --------------------------------------------------------------------------------------------------------------------
--------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 827 $ 905
Accounts receivable -- net 28,570 25,493
Inventories
Rough diamonds 11,287 9,320
Polished diamonds 50,596 46,979
--------------------
Prepaid expenses and other current assets 11,157 10,142
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 102,437 92,839
PROPERTY, PLANT & EQUIPMENT -- net 7,173 7,198
OTHER ASSETS 4,790 5,029
- --------------------------------------------------------------------------------------------------------------------
$114,400 $105,066
- --------------------------------------------------------------------------------------------------------------------
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable & other current liabilities $ 17,017 $ 15,770
Notes payable -- other 3,000 3,000
Notes payable -- banks 6,460 -
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 26,477 18,770
SENIOR NOTES AND OTHER LONG-TERM DEBT 34,230 34,155
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 60,707 52,925
- --------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST 7,114 7,271
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share:
Authorized 10,000,000 shares; issued and outstanding, 6,185,531 shares and 6,176,425
shares 6,186 6,176
Additional paid-in capital 26,138 26,098
Retained earnings 14,255 12,596
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 46,579 44,870
- --------------------------------------------------------------------------------------------------------------------
$114,400 $105,066
- --------------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-16
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
- ----------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,659 $ 786
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization 619 573
Provision for uncollectible accounts 15 15
Minority interest in income/(loss) of consolidated subsidiary (157) 43
Loss on disposition of fixed assets 22 -
(Increase)/decrease in assets and increase/(decrease) in liabilities:
Accounts receivable (3,092) (3,969)
Inventories (5,584) (1,293)
Other current assets (1,015) (976)
Non-current assets (42) (15)
Accounts payable and other current liabilities 1,247 5,271
------------------
Net cash provided by/(used in) operating activities (6,328) 435
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 11 -
Capital expenditures (346) (312)
------------------
Net cash used in investing activities (335) (312)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in short-term borrowings 6,460 (1,625)
Increase in long-term debt 75 -
Proceeds from exercise of stock options 50 -
------------------
Net Cash provided by/(used in) financing activities 6,585 (1,625)
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) in cash (78) (1,502)
Cash at beginning of year 905 2,532
------------------
Cash at end of period $ 827 $ 1,030
- ----------------------------------------------------------------------------------------------------------------------
------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-17
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. INTERIM FINANCIAL REPORTING
- ---------------------------------------------------------
This financial information has been prepared in conformity with the
accounting principles and practices reflected in the financial statements
included in the annual report filed with the Commission for the preceding fiscal
year. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly Lazare
Kaplan International Inc.'s operating results for the three months ended August
31, 1996 and 1995 and the financial position as of August 31, 1996.
The operating results for the interim periods presented are not necessarily
indicative of the operating results for a full year.
2. TAXES
- ---------------------------------------------------------
The Company's subsidiaries conduct business in foreign countries. The
subsidiaries are not subject to Federal income taxes and their provisions have
been determined based upon the effective tax rates, if any, in the foreign
countries.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The Company's net deferred tax asset, which is
comprised primarily of operating loss carryforwards, is approximately $8,600,000
less a valuation allowance of approximately $8,600,000 resulting in no net
deferred tax asset.
For the three months ended August 31, 1996, the Company has utilized
approximately $2,100,000 of net operating loss carryforwards to offset Federal,
state and local income taxes.
At August 31, 1996, the Company has available U.S. net operating losses of
$17.4 million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
- -------------------------------------------------------
-----------
<S> <C>
1998 $ 2,000,000
1999 4,200,000
2000 4,300,000
2001 3,500,000
2002 500,000
2007 1,000,000
2008 1,500,000
2010 400,000
- -------------------------------------------------------
$17,400,000
- -------------------------------------------------------
-----------
</TABLE>
F-18
<PAGE>
<PAGE>
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.......................... 3
Incorporation of Certain Documents by
Reference.................................... 3
Prospectus Summary............................. 4
Summary Financial Information.................. 7
Risk Factors................................... 8
Use of Proceeds................................ 9
Price Range of Common Stock.................... 9
Dividend Policy................................ 10
Capitalization................................. 10
Selected Financial Information................. 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 12
Business....................................... 15
Management..................................... 23
Principal and Selling Stockholders and Security
Ownership of Management...................... 24
Certain Transactions........................... 26
Description of Common Stock.................... 26
Underwriting................................... 27
Validity of Common Stock....................... 28
Experts........................................ 28
Additional Information......................... 28
Index to Financial Statements.................. F-1
</TABLE>
2,200,000 SHARES
[LOGO]
LAZARE KAPLAN
INTERNATIONAL INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
UBS SECURITIES
FURMAN SELZ
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the shares of Common
Stock being registered hereby, other than underwriting discounts and
commissions.
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Securities and Exchange Commission Registration Fee............................... $ 16,483
National Association of Securities Dealers, Inc. Filing Fee....................... 5,940
American Stock Exchange Listing Fee............................................... 17,500
Transfer Agent and Registrar Fee.................................................. 3,000
Accounting Fees and Expenses...................................................... 100,000
Legal Fees and Expenses (not including Blue Sky Fees and Expenses)................ 175,000
Blue Sky Fees and Expenses........................................................ 5,000
Miscellaneous..................................................................... 112,077
--------
Total................................................................... $435,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following states the general effect of all statutes, charter
provisions, by-laws, contracts or other arrangements under which any controlling
person, director or officer of the Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such:
Section 145 of the Delaware General Corporation Law provides:
145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS:
INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery
II-1
<PAGE>
<PAGE>
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (l) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or, if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to 'the corporation' shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to 'other enterprises' shall
include employee benefit plans; references to 'fines' shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to 'serving at the request of the corporation' shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner 'not
opposed to the best interests of the corporation' as referred to in this
section.
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(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person, who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Certificate of Incorporation of the Company provides:
SEVENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person.
The Certificate of Incorporation further provides:
EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of his
fiduciary duty as a director, provided that nothing contained herein shall
eliminate or limit the liability of a director (i) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law or any amendment thereto of any successor thereto,
or (iv) for any transaction from which the director derived an improper
personal benefit. Neither the amendment nor repeal of this Article EIGHTH
nor the adoption of any provision of the certificate of incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect
of this Article EIGHTH in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article EIGHTH would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
The By-Laws of the Company provide:
ARTICLE VI
INDEMNIFICATION
1. EXECUTIVE OFFICERS. The corporation shall indemnify its executive
officers and those of its subsidiaries to the same extent as they would have
been insured under the terms of an insurance policy issued to the corporation by
National Union Fire Insurance Company of Pittsburgh, Pennsylvania for the policy
year beginning September 26, 1984 and ending September 26, 1985 had such policy
been in effect at the time a claim is made against any such executive officers.
The executive officers of the corporation and its subsidiaries entitled to
indemnification pursuant to this Article VI, Section l, shall include such
persons who may hold the offices, either currently or in the future, as were
covered under the aforementioned policy in the policy year indicated.
Any indemnification pursuant to this Article VI, Section l shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section l provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under this Article VI,
Section l shall continue after any person has ceased to serve in the capacity
which would have entitled him to such indemnification. Any subsequent repeal or
amendment of this Article VI, Section l or any provision hereof, which shall
have the effect of limiting, qualifying or restricting the powers or rights of
indemnification provided or permitted hereunder shall not, solely by reason of
such repeal or
II-3
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<PAGE>
amendment, eliminate, restrict or otherwise affect the right or power of the
corporation to indemnify any person or affect any right of indemnification of
such person with respect to claims made prior to such repeal or amendment.
The indemnification provided under this Article VI, Section l shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise.
The corporation shall have the right to impose, as conditions to any
indemnification provided or permitted pursuant to this Article VI, Section l,
such reasonable requirements and conditions as the Board of Directors or
stockholders may deem appropriate in each specific case and circumstance,
including but not limited to (i) that any counsel representing the person to be
indemnified in connection with the defense or settlement of any action shall be
selected by the corporation, subject to the approval of the person to be
indemnified, which consent shall not be unreasonably withheld, (ii) that the
corporation shall have the right, at its option, to assume and control the
defense or settlement of any claim or proceeding made, initiated or threatened
against the person to be indemnified, and (iii) that the corporation shall be
subrogated, to the extent of any payments made by way of indemnification, to all
of the indemnified person's right of recovery, and that the person to be
indemnified shall execute all writings and do everything necessary to assure
such rights of subrogations to the corporation.
2. OUTSIDE DIRECTORS. The corporation shall indemnify its outside (i.e.
non-officer) directors and those of its subsidiaries to the same extent as they
would have been insured under the terms of an insurance policy issued to the
corporation by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania, for the policy year beginning September 26, 1984 and ending
September 26, 1985 had such policy been in effect at the time a claim is made
against any such outside director. The outside directors of the corporation and
its subsidiaries entitled to indemnification pursuant to this Article VI,
Section 2 shall include such persons who may hold the offices, either currently
or in the future, as were covered under the aforementioned policy in the policy
year indicated.
Any indemnification pursuant to this Article VI, Section 2 shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section 2 provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under Article VI, Section 2
shall continue after any person has ceased to serve in the capacity which would
have entitled him to such indemnification. Any subsequent repeal or amendment of
this Article VI, Section 2 or any provision hereof, which shall have the effect
of limiting, qualifying or restricting the powers or rights of indemnification
provided or permitted hereunder shall not, solely by reason of such repeal or
amendment, eliminate, restrict or otherwise affect the right or power of the
corporation to indemnify any person or affect any right of indemnification of
such person with respect to claims made prior to such repeal or amendment.
The indemnification provided under this Article VI, Section 2 shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise.
The corporation shall have the right to impose, as conditions to any
indemnification provided or permitted pursuant to Article VI, Section 2, such
reasonable requirements and conditions as the Board of Directors or stockholders
may deem appropriate in each specific case and circumstance, including but not
limited to (i) that any counsel representing the person to be indemnified in
connection with the defense or settlement of any action shall be selected by the
corporation, subject to the approval of the person to be indemnified, which
consent shall not be unreasonably withheld, (ii) that the corporation shall have
the right, at its option, to assume and control the defense or settlement of any
claim or proceeding made, initiated or threatened against the person to be
indemnified, and (iii) that the corporation shall be subrogated, to the extent
of any payments made by way of indemnification, to all of the indemnified
person's right of recovery, and that the person to be indemnified shall execute
all writings and do everything necessary to assure such rights of subrogation to
the corporation.
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3. EXECUTIVE OFFICERS AND DIRECTORS PRIOR TO APRIL 9, 1984. The corporation
shall indemnify its directors and executive officers and those of its
subsidiaries who were in office prior to April 9, 1984 to the same extent as
they would have been insured under the terms of an insurance policy issued to
the corporation by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania for the policy year beginning September 26, 1984 and ending
September 26, 1985 had such policy been in effect at the time a claim is made
against any such director or officer. The directors and officers of the
corporation and its subsidiaries entitled to indemnification pursuant to this
Article VI, Section 3 shall include such persons who held the offices as were
covered under the aforementioned policy in the policy year indicated.
Any indemnification pursuant to this Article VI, Section 3 shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section 3, provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under this Article VI,
Section 3 shall continue after any person has ceased to serve in the capacity
which would have entitled him to such indemnification hereunder. Any subsequent
repeal or amendment of this Article VI, Section 3 or any provision hereof, which
shall have the effect of limiting, qualifying or restricting the powers or
rights of indemnification provided or permitted hereunder shall not, solely by
reason of such repeal or amendment, eliminate, restrict or otherwise affect the
right or power of the corporation to indemnify any person or affect any right of
indemnification of such person with respect to claims made prior to such repeal
or amendment.
The indemnification provided under this Article VI, Section 3 shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise. The corporation shall
have the right to impose, as conditions to any indemnification provided or
permitted pursuant to this Article VI, Section 3, such reasonable requirements
and conditions as the Board of Directors or stockholders may deem appropriate in
each specific case and circumstance, including but not limited to (i) that any
counsel representing the person to be indemnified in connection with the defense
or settlement of any action shall be selected by the corporation, subject to the
approval of the person to be indemnified, which consent shall not be
unreasonably withheld, (ii) that the corporation shall have the right, at its
option, to assume and control the defense or settlement of any claim or
proceeding made, initiated or threatened against the person to be indemnified,
and (iii) that the corporation shall be subrogated, to the extent of any
payments made by way of indemnification, to all of the indemnified person's
right of recovery, and that the person to be indemnified shall execute all
writings and do everything necessary to assure such rights of subrogation to the
corporation.
4. DIRECTORS. The corporation shall indemnify its existing directors and
those of its subsidiaries to the same extent as they would have been insured
under the terms of an insurance policy issued to the corporation by National
Union Fire Insurance Company of Pittsburgh, Pennsylvania for the policy year
beginning September 26, 1984 and ending September 26, 1985 had such policy been
in effect at the time a claim is made against any such director. The directors
of the corporation and its subsidiaries entitled to indemnification pursuant to
this Article VI, Section 4 shall include such persons who may hold the offices,
either currently or in the future, as were covered under the aforementioned
policy in the policy year indicated.
Any indemnification pursuant to this Article VI, Section 4 shall be
applicable to acts or omissions that occurred prior to the adoption of this
Article VI, Section 4 provided they would have been covered under the insurance
policy mentioned above. The right to indemnification under this Article VI,
Section 4 shall continue after any person has ceased to serve in the capacity
which would have entitled him to such indemnification hereunder. Any subsequent
repeal or amendment of this Article VI, Section 4 or any provision hereof, which
shall have the effect of limiting, qualifying or restricting the powers or
rights of indemnification provided or permitted hereunder shall not, solely by
reason of such repeal or amendment, eliminate, restrict or otherwise affect the
right or power of the corporation to indemnify any person or affect any right of
indemnification of such person with respect to claims made prior to such repeal
or amendment.
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The indemnification provided under this Article VI, Section 4 shall not be
deemed exclusive of any other rights to which directors, officers, agents or
employees of the corporation may be entitled under Article SEVENTH of the
Certificate of Incorporation of the corporation, or any agreement, vote of the
stockholders or disinterested directors, or otherwise.
The corporation shall have the right to impose, as conditions to any
indemnification provided or permitted pursuant to this Article VI, Section 4,
such reasonable requirements and conditions as the Board of Directors or
stockholders may deem appropriate in each specific case and circumstance,
including but not limited to (i) that any counsel representing the person to be
indemnified in connection with the defense or settlement of any action shall be
selected by the corporation, subject to the approval of the person to be
indemnified, which consent shall not be unreasonably withheld, (ii) that the
corporation shall have the right, at its option, to assume and control the
defense or settlement of any claim or proceeding made, initiated or threatened
against the person to be indemnified, and (iii) that the corporation shall be
subrogated, to the extent of any payments made by way of indemnification, to all
of the indemnified person's right of recovery, and that the person to be
indemnified shall execute all writings and do everything necessary to assure
such rights of subrogation to the corporation.
5. SEVERABILITY. If any of the provisions of this Article VI, or any part
hereof, is hereafter construed to be invalid or unenforceable, the same shall
not affect the remaining provisions of this Article VI, which shall remain in
full effect without regard to the invalid portion or portions.
In addition, the By-Laws provide that the Company has the authority to
obtain liability insurance.
ITEM 16. (A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBITS
- -------- ---------------------------------------------------------------------------------------------------------
<C> <S>
(1)** -- Form of Underwriting Agreement
(4) -- Specimen of Certificate of Common Stock -- incorporated herein by reference to Exhibit 4(a) to
Amendment No. 1 to Registration Statement on Form S-2 of the Registrant filed with the Commission on
October 4, 1990
(5)** -- Opinion of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (including consent)
(10) -- Material Contracts
(a) -- Lazare Kaplan International Inc. Amended and Restated 1988 Stock Option Incentive Plan -- incorporated
herein by reference to Exhibit 4.1 to Registration Statement on Form S-8 of the Registrant filed with
the Commission on November 5, 1990.
(b) -- Note Agreement dated as of May 15, 1991 by and between the Registrant, Allstate Life Insurance
Company, Monumental Insurance Company and PFL Life Insurance Company -- incorporated herein by
reference to Exhibit 28 to Report on Form 8-K dated May 23, 1991 filed with the Commission on June 4,
1991.
(c) -- First Amendment to Note Agreement, dated as of February 28, 1992, by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(d) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(d) -- Second Amendment to Note Agreement, dated as of March 25, 1992 by and between the Registrant, Allstate
Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(e) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(e) -- Third Amendment to the Note Agreement, dated as of December 1, 1992 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(f) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1993 filed with the Commission on August 30, 1993.
(f) -- Fourth Amendment to the Note Agreement, dated as of August 25, 1995 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10 to Report on Form 10-Q of the Registrant for
the quarterly period ended August 31, 1995 filed with the Commission on October 13, 1995.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBITS
- -------- ---------------------------------------------------------------------------------------------------------
<C> <S>
(g) -- Agreement, dated December 5, 1990, by and between the Registrant and the Government of the Republic of
Botswana -- incorporated herein by reference to Exhibit 10(f) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(h) -- Subscription Agreement, dated August 24, 1994 among the Registrant and the Botswana Development
Corporation -incorporated herein by reference to Exhibit 10(h) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1994 filed with the Commission on August 31, 1994.
(i) -- Loan Agreement, dated May 14, 1996 among the Registrant, Fleet Bank, N.A. and Bank Leumi Trust Company
of New York -- incorporated herein by reference to Exhibit 10(i) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1996 filed with the Commission on August 28, 1996.
(j) -- Cooperation Agreement, dated July 5, 1996, among the Registrant, Empresa Nacional de Diamantes de
Angola and Sociedade Angolana de Exploracao, Lapidacao e Comercializacao de Diamantes -- incorporated
herein by reference to Exhibit (1) to Current Report on Form 8-K of the Registrant filed with the
Commission on October 31, 1996 (certain portions of this agreement are subject to a request for
confidential treatment).
(k) -- Cooperation Agreement, dated July 15, 1996, between the Registrant and AK Almazi Rossii
Sakha -- incorporated herein by reference to Exhibit (2) to Current Report on Form 8-K/A of the
Registrant filed with the Commission on November 18, 1996 (certain portions of this agreement are
subject to a request for confidential treatment).
(l)* -- Amendment No. 1, dated as of November 29, 1996, to Loan Agreement, dated May 14, 1996, among the
Registrant, Fleet Bank, N.A. and Bank Leumi Trust Company of New York.
(23)(a)* -- Consent of Deloitte & Touche LLP (included on page S-2 as part of Independent Auditors' Consent and
Report as to Schedules)
(23)(b)* -- Consent of Ernst & Young LLP
(23)(c) -- Consent of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (included as part of Exhibit 5 of the
Registration Statement)
(25)** -- Power of Attorney
</TABLE>
(B) FINANCIAL STATEMENTS AND SCHEDULES.
(1) The Financial Statements are included in the Prospectus; see 'Index to
Financial Statements' in the Prospectus.
(2) The following financial statement schedule of the Company included
herein should be read in conjunction with audited financial statements included
in the Prospectus.
<TABLE>
<CAPTION>
SCHEDULE NUMBER DESCRIPTION OF SCHEDULE
--------------- -----------------------------------------------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules for the Company are omitted because either they are not
applicable or the required information is shown in the financial statements or
notes thereto.
- ------------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer
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or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing of Form S-2 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York, State of New York, on
November 19, 1996.
LAZARE KAPLAN INTERNATIONAL INC.
By /S/ SHELDON L. GINSBERG
...................................
SHELDON L. GINSBERG
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
* Chairman of the Board of Directors December 11, 1996
.........................................
(MAURICE TEMPELSMAN)
* Vice Chairman of the Board of Directors and December 11, 1996
......................................... President (principal executive officer)
(LEON TEMPELSMAN)
* Director December 11, 1996
.........................................
(GEORGE R. KAPLAN)
* Director December 11, 1996
.........................................
(LUCIEN BURSTEIN)
* Director December 11, 1996
.........................................
(MICHAEL W. BUTTERWICK)
* Director December 11, 1996
.........................................
(MYER FELDMAN)
SHELDON L. GINSBERG Director, Executive Vice President and Chief December 11, 1996
......................................... Financial Officer (principal financial and
(SHELDON L. GINSBERG) accounting officer)
* Director December 11, 1996
.........................................
(ROBERT SPEISMAN)
*By: /s/ SHELDON L. GINSBERG
.........................................
(SHELDON L. GINSBERG)
ATTORNEY-IN-FACT
</TABLE>
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To the Board of Directors and Stockholders
LAZARE KAPLAN INTERNATIONAL INC.
We have audited the consolidated financial statements of Lazare Kaplan
International Inc. and subsidiaries as of May 31, 1996 and 1995 and for the
years then ended and have issued our report thereon dated July 9, 1996 (included
elsewhere within the Registration Statement). Our audits also included the
financial statement schedule listed in Item 16(b) of this Registration Statement
for the years ended May 31, 1996 and 1995. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the years ended May 31, 1996 and 1995.
ERNST & YOUNG LLP
New York, New York
July 9, 1996
S-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement of Lazare Kaplan
International Inc. and subsidiaries on Form S-2 of our report dated July 13,
1994 (August 31, 1994 as to Note 11), appearing in the Prospectus, which is part
of this Registration Statement, and to the reference to us under the headings
'Selected Financial Information' and 'Experts' in such Prospectus.
Our audit of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Lazare Kaplan
International Inc. and subsidiaries, listed in Item 16(b). This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
December 11, 1996
S-2
<PAGE>
<PAGE>
SCHEDULE II
LAZARE KAPLAN INTERNATIONAL INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
-----------------------------
COLUMN B ADDITIONS
-------- ----------------------------- COLUMN E
BALANCE (1) --------
AT CHARGED (2) COLUMN D BALANCE
COLUMN A BEGINNING TO COSTS CHARGED TO -------- AT END
- --------------------------------------------------- OF AND OTHER ACCOUNTS DEDUCTIONS OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------------------- -------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1996:
Allowance for doubtful accounts............... $220,046 $ 70,000 $-- $ 8,781 (B) $281,265
-------- --------- -------------- -------- --------
Sales returns and allowances.................. $ -- $ -- $-- $ -- $ --
-------- --------- -------------- -------- --------
YEAR ENDED MAY 31, 1995:
Allowance for doubtful accounts............... $165,169 $ 70,000 $-- $15,123 (B) $220,046
-------- --------- -------------- -------- --------
Sales returns and allowances.................. $ -- $ -- $-- $ -- $ --
-------- --------- -------------- -------- --------
YEAR ENDED MAY 31, 1994:
Allowance for doubtful accounts............... $403,837 $ 10,000 $-- $248,668(B) $165,169
-------- --------- -------------- -------- --------
Sales returns and allowances.................. $268,632 $(268,632)(A) $-- $ -- $ --
-------- --------- -------------- -------- --------
</TABLE>
- ------------
(A) Adjustments to reserve balance
(B) Amounts written off
S-3
STATEMENT OF DIFFERENCES
-------------------------
The registered trademark shall be expressed as.......................... 'r'
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBITS
- -------- ----------------------------------------------------------------------------------------------------------
<C> <S>
(1)** -- Form of Underwriting Agreement
(4) -- Specimen of Certificate of Common Stock -- incorporated herein by reference to Exhibit 4(a) to
Amendment No. 1 to Registration Statement on Form S-2 of the Registrant filed with the Commission on
October 4, 1990
(5)** -- Opinion of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (including consent)
(10) -- Material Contracts
(a) -- Lazare Kaplan International Inc. Amended and Restated 1988 Stock Option Incentive Plan -- incorporated
herein by reference to Exhibit 4.1 to Registration Statement on Form S-8 of the Registrant filed with
the Commission on November 5, 1990.
(b) -- Note Agreement dated as of May 15, 1991 by and between the Registrant, Allstate Life Insurance Company,
Monumental Insurance Company and PFL Life Insurance Company -- incorporated herein by reference to
Exhibit 28 to Report on Form 8-K dated May 23, 1991 filed with the Commission on June 4, 1991.
(c) -- First Amendment to Note Agreement, dated as of February 28, 1992, by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(d) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(d) -- Second Amendment to Note Agreement, dated as of March 25, 1992 by and between the Registrant, Allstate
Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance Company --incorporated
herein by reference to Exhibit 10(e) to Report on Form 10-K of the Registrant for the fiscal year ended
May 31, 1992 filed with the Commission on August 28, 1992.
(e) -- Third Amendment to the Note Agreement, dated as of December 1, 1992 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10(f) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1993 filed with the Commission on August 30, 1993.
(f) -- Fourth Amendment to the Note Agreement, dated as of August 25, 1995 by and between the Registrant,
Allstate Life Insurance Company, Monumental Life Insurance Company and PFL Life Insurance
Company -- incorporated herein by reference to Exhibit 10 to Report on Form 10-Q of the Registrant for
the quarterly period ended August 31, 1995 filed with the Commission on October 13, 1995.
(g) -- Agreement, dated December 5, 1990, by and between the Registrant and the Government of the Republic of
Botswana -- incorporated herein by reference to Exhibit 10(f) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1992 filed with the Commission on August 28, 1992.
(h) -- Subscription Agreement, dated August 24, 1994 among the Registrant and the Botswana Development
Corporation -incorporated herein by reference to Exhibit 10(h) to Report on Form 10-K of the Registrant
for the fiscal year ended May 31, 1994 filed with the Commission on August 31, 1994.
(i) -- Loan Agreement, dated May 14, 1996 among the Registrant, Fleet Bank, N.A. and Bank Leumi Trust Company
of New York -- incorporated herein by reference to Exhibit 10(i) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1996 filed with the Commission on August 28, 1996.
(j) -- Cooperation Agreement, dated July 5, 1996, among the Registrant, Empresa Nacional de Diamantes de
Angola and Sociedade Angolana de Exploracao, Lapidacao e Comercializacao de Diamantes -- incorporated
herein by reference to Exhibit (1) to Current Report on Form 8-K of the Registrant filed with the
Commission on October 31, 1996 (certain portions of this agreement are subject to a request for
confidential treatment).
(k) -- Cooperation Agreement, dated July 15, 1996, between the Registrant and AK Almazi Rossii
Sakha -- incorporated herein by reference to Exhibit (2) to Current Report on Form 8-K/A of the
Registrant filed with the Commission on November 18, 1996 (certain portions of this agreement are
subject to a request for confidential treatment).
(l)* -- Amendment No. 1, dated as of November 29, 1996, to Loan Agreement dated May 14, 1996, among the
Registrant, Fleet Bank, N.A. and Bank Leumi Trust Company of New York.
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBERS NUMBERING SYSTEM
- -------- -------------------
<C> <C>
(23)(a)* -- Consent of Deloitte & Touche LLP (included on page S-2 as part of Independent Auditors' Consent and
Report as to Schedules)
(23)(b)* -- Consent of Ernst & Young LLP
(23)(c) -- Consent of Warshaw Burstein Cohen Schlesinger & Kuh, LLP (included as part of Exhibit 5 of the
Registration Statement)
(25)** -- Power of Attorney
<PAGE>
</TABLE>
<PAGE>
AMENDMENT NO. 1 TO LOAN AGREEMENT
AMENDMENT NO. 1 TO LOAN AGREEMENT (this "First Amendment"), made and
executed as of November 29, 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:
(A) The Borrower has entered into a certain Loan Agreement dated May
14, 1996 (together with all Exhibits and Schedules thereto, hereinafter referred
to as the "Loan Agreement") with the Banks pursuant to which the Banks have
agreed to make Loans to the Borrower in the aggregate principal amount of up to
Twenty-Seven Million Five Hundred Thousand ($27,500,000) Dollars on the terms
and conditions set forth in the Loan Agreement;
(B) All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed thereto in the Loan Agreement;
(C) The Borrower has requested that the Banks increase the amount of
the Total Commitment from Twenty-Seven Million Five Hundred Thousand
($27,500,000) Dollars to Thirty-Five Million Five Hundred Thousand ($35,500,000)
Dollars; and
(D) The Banks are willing to increase the Total Commitment as
aforesaid, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Article 1. Construction; Changes in Commitments;
Amendments to Loan Agreement; Allonges to Notes.
1.1 Construction. All of the terms and provisions of this
First Amendment are hereby incorporated by reference into the Loan Agreement as
if such terms and provisions were set forth therein.
<PAGE>
<PAGE>
1.2 Change in Commitments.
1.2.1 From and after the date hereof, the Commitment
of each Bank shall be the amount set forth opposite such Bank's name under the
heading "Commitment" on the signature pages hereto, and such amount shall
supersede and be deemed to amend the amount of such Bank's respective Commitment
as set forth opposite its name under the heading "Commitment" on the signature
pages to the Loan Agreement as in effect immediately prior to the effectiveness
of this First Amendment.
1.2.2 The phrase "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", appearing
in the definition of "Commitment" in Article 1 of the Loan Agreement, shall be
deemed to refer to the amounts set forth opposite each Bank's name on the
signature pages to this First Amendment.
1.3 Amendments. The Loan Agreement is hereby amended,
effective upon the consummation of the conditions precedent set forth in Article
5 hereof, as follows:
1.3.1 The Recital appearing on page 1 of the Loan
Agreement is amended by deleting the dollar amount "Twenty-Seven Million Five
Hundred Thousand ($27,500,000) Dollars" and substituting therefor the dollar
amount "Thirty-Five Million Five Hundred Thousand ($35,500,000) Dollars".
1.3.2 Article 1 of the Loan Agreement (Definitions)
is amended as follows:
(a) The following definition is added in its
appropriate alphabetic location:
"Amendment No. 1: Amendment No. 1 to Loan Agreement
dated as of November 29, 1996, by and among the Borrower and the Banks."
(b) The definitions of "Cash Flow", and "Total
Commitment" are deleted in their entirety and the following definitions are
substituted therefor, respectively:
"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; as to
all of the foregoing, as determined in accordance with GAAP, consistently
applied.
-2-
<PAGE>
<PAGE>
Total Commitment: the aggregate obligation of the
Banks to make Loans hereunder not exceeding Thirty-Five Million Five
Hundred Thousand ($35,500,000) Dollars, as the same shall and/or may be
reduced from time to time pursuant to Article 2 hereof."
1.3.3 Article 2 of the Loan Agreement (Commitment;
Loans; Guaranties) is amended in the following respects:
(a) Subsection 2.4(a) of the Loan Agreement (Notes)
is deleted in its entirety and the following is substituted therefor:
"Section 2.4 Notes.
(a) The Loans made by each Bank shall be evidenced by
a single promissory note of the Borrower in substantially the form of
Exhibit A hereto as amended by an allonge to note in the form of Exhibit A
to Amendment No. 1 (each, as so amended, 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 in effect on the
effective date of Amendment No. 1, and shall otherwise be duly completed.
The Notes shall be payable as provided in Sections 2.1 and 2.5 hereof."
(b) Section 2.7(a) of the Loan Agreement (Fees) is
deleted in its entirety and the following is substituted therefor:
"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') as follows:
(i) simultaneously with the execution and delivery of
Amendment No. 1, an amount equal to the product of: (A) $83.33
[representing 3/8 of 1% of $8,000,000, divided by 360], multiplied by (B)
the number of days during the period commencing on the effective date of
Amendment No. 1 and ending on May 14, 1997; and
(ii) on each of May 14, 1997 and May 14, 1998 or, if
earlier, on the date the Commitments are terminated, $133,125.
1.3.4 Article 6 of the Loan Agreement
(Affirmative Covenants) is amended by adding a new Section 6.13 thereto as
follows:
-3-
<PAGE>
<PAGE>
"Section 6.13 Notice of Additional Indebtedness.
Subject to compliance with Section 7.1
hereof, use its best efforts to notify the Banks in writing, not less than
fifteen (15) days prior to the incurrence thereof (but in any event, shall
notify the Banks in writing not less than five (5) days prior to the incurrence
thereof), of any Indebtedness for borrowed money from an institutional lender
proposed to be incurred by the Borrower (including, without limitation any
extension or renewal of any Debt Instrument to which the Borrower was or is then
a party)."
1.3.5 Schedule 3 (Cash Flow) to Exhibit C (No
Default Certificate) to the Loan Agreement is deleted in its entirety and a new
schedule, in the form attached hereto as Schedule 3, is substituted therefor.
1.4 Allonges to Notes. In order to evidence the increase in
the Commitments, the Borrower shall, simultaneously with the execution and
delivery of this First Amendment, execute and deliver to each Bank an allonge to
such Bank's Note in the form of Exhibit A annexed hereto (each, an "Allonge" and
together, the "Allonges").
Article 2. Confirmation.
In order to induce the Banks to enter into this First Amendment and to
increase the Commitments, each of the Guarantors hereby acknowledges and
confirms that: (a) the guarantee by each of them of the due payment and
performance by the Borrower of all the indebtedness, liabilities and obligations
of the Borrower to the Banks shall be deemed to include all of the indebtedness,
liabilities and obligations of the Borrower to the Banks arising under this
First Amendment and the Notes as amended by the Allonges, and (b) the term
"Guaranteed Obligations", as used in the Guaranties (or any other term used
therein to describe or refer to the indebtedness, liabilities, and obligations
of the Borrower to the Banks) includes, without limitation, all of the
indebtedness, liabilities and obligations of the Borrower to the Banks arising
under this First Amendment and the Notes as amended by the Allonges.
Article 3. References in the Loan Documents.
The Borrower hereby acknowledges and confirms to, and agrees
with, the Banks that all references in the Loan Agreement as amended hereby, the
Notes as amended by the Allonges, the Guaranties, and all other documents
executed and delivered in connection therewith, including all amendments,
modifications and supplements thereto, to:
-4-
<PAGE>
<PAGE>
(a) the "Loan Agreement" or "this Agreement" (to the extent
such term refers to the Loan Agreement) shall be deemed to refer to the Loan
Agreement as amended hereby and as hereafter amended, modified and/or
supplemented;
(b) the "Loan Documents" shall be deemed to refer to this
First Amendment, the Loan Agreement as amended hereby, the Allonges, the Notes
as amended by the Allonges, the Guaranties as acknowledged and confirmed hereby,
and all other agreements, instruments and documents relating to the transactions
covered by the Loan Agreement as amended hereby;
(c) the "Commitments" shall be deemed to refer to the
Commitments as increased by this First Amendment;
(d) a "Note" or the "Notes" shall be deemed to refer
to a Note or the Notes, each as amended by its respective
Allonge; and
(g) the "Guaranties" shall be deemed to refer to the
Guaranties as acknowledged and confirmed hereby.
Article 4. Representation and Warranties.
The Borrower hereby represents and warrants to the Banks that:
4.1 Article 3 of Loan Agreement; No Defaults.
4.1.1 Each and every one of the representations
and warranties set forth in Article 3 of the Loan Agreement is true in all
respects as of the date hereof, except for changes which, either singly or in
the aggregate, are not materially adverse to the business or financial condition
of the Borrower and the Corporate Guarantors, taken as a whole.
4.1.2 As of the date hereof, there exists no
Event of Default under the Loan Agreement, and no event which, with the giving
of notice or lapse of time or both, would constitute such an Event of Default.
4.2 Power, Authority, Consents. The Borrower and each
Guarantor has the power to execute, deliver and perform this First Amendment and
the Borrower has the power to execute, deliver and perform the Allonges. The
Borrower has the power to borrow under the Loan Agreement as amended hereby and
has taken all necessary corporate action to authorize the borrowing under the
Loan Agreement as amended hereby on the terms and conditions thereof. The
Borrower and each Guarantor has taken all necessary action, corporate or
otherwise, to authorize the execution, delivery and performance of this First
Amendment and the Allonges, as applicable. Other than due authorization by the
-5-
<PAGE>
<PAGE>
Board of Directors of the Borrower and of each corporate Guarantor, each of
which has been duly obtained, no consent or approval of any Person (including,
without limitation, any stockholder of the Borrower or any 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, 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
this First Amendment and the Allonges, as applicable.
4.3 No Violation of Law or Agreements. The execution and
delivery by the Borrower and each Guarantor of this First Amendment and the
Allonges, as applicable, and performance by each of them hereunder and
thereunder, will not violate any provision of law and will not 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 Guarantor, 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.
4.4 Due Execution, Validity, Enforceability. Each of
this First Amendment and the Allonges has been duly executed and
delivered by the Borrower and/or each Guarantor, as applicable,
and each constitutes the valid and legally binding obligation of
the Borrower or such Guarantor, as applicable, 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 specific performance and
other equitable remedies are subject to judicial discretion.
Article 5. Conditions Precedent to the
Effectiveness of this First Amendment.
The effectiveness of this First Amendment and the obligation
of the Banks to increase the Commitments shall be subject to the fulfillment (to
the satisfaction of the Banks) of the following conditions precedent:
-6-
<PAGE>
<PAGE>
5.1 First Amendment. The Borrower shall have
executed and delivered to the Banks this First Amendment.
5.2 Allonges. The Borrower shall have executed and
delivered to each Bank its Allonge.
5.3 Guarantors. Each of the Guarantors shall have executed and
delivered to the Banks this First Amendment and shall have duly complied with
all of the terms and conditions hereof.
5.4 Commitment Fee. The Banks shall have received the
Commitment Fee referred to in Subsection 2.7(a)(i) of the Loan
Agreement as amended hereby.
5.5 Corporate Action. The Banks shall have received true and
complete copies of all action, corporate or otherwise, taken by the Borrower and
each Guarantor to authorize the execution, delivery and performance of this
First Amendment and the Allonges, as applicable, certified by its respective
secretary.
5.6 Compliance.
5.6.1 The Borrower shall have complied and shall
then be in compliance with all of the terms, covenants and
conditions of this First Amendment and the Loan Agreement as
amended hereby;
5.6.2 There shall exist no Default or Event of
Default under the Loan Agreement as amended hereby; and
5.6.3 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 Section 5.6 are
satisfied on such date.
5.7 Legal Matters. All legal matters incident hereto
shall be satisfactory to counsel to the Banks.
Article 6. Miscellaneous.
6.1 Full Force and Effect. Except as specifically
amended herein, the Loan Agreement and each of the other Loan
Documents shall remain in full force and effect in accordance
with its terms.
6.2 Miscellaneous. The miscellaneous provisions
under Article 9 of the Loan Agreement as amended hereby, together
-7-
<PAGE>
<PAGE>
with the definitions of all terms used therein, and all other sections of the
Loan Agreement as amended hereby to which Article 9 refers are hereby
incorporated herein by reference as if the provisions thereof were set forth in
full herein, except that: (i) the term "Loan Agreement" shall be deemed to refer
to the Loan Agreement as amended hereby; (ii) the term "Notes" shall be deemed
to refer to the Notes as amended by the Allonges; (iii) the term "this Loan
Agreement" shall be deemed to refer to this First Amendment; and (iv) the terms
"hereunder" and "hereto" shall be deemed to refer to this First Amendment. This
First Amendment together with the Loan Agreement and the other Loan Documents
embody the entire agreement and understanding among the Banks, the Borrower, and
each of the Guarantors and supersedes all prior agreements and understandings
relating to the subject matter hereof.
6.3 Counterparts. This First Amendment may be signed in any
number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
[SIGNATURE PAGES TO FOLLOW]
-8-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed on the date first above written.
LAZARE KAPLAN INTERNATIONAL INC.
By_____________________________
Title
Agreed to and Accepted
and Acknowledged as
to Article 3 hereof:
LAZARE KAPLAN EUROPE INC.
By__________________________
Title
LAZARE KAPLAN GHANA LTD.
By__________________________
Title
LAZARE KAPLAN BELGIUM, N.V.
By__________________________
Title
SUPREME GEMS N.V.
By__________________________
Title
-9-
<PAGE>
<PAGE>
Commitment:
$21,300,000 FLEET BANK, N.A.
By_______________________________
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 Purelis
Vice President
Telex: 232369
Answer-Back Code: NBNA UR
Telecopier: (212) 703-1824
-10-
<PAGE>
<PAGE>
Commitment:
$ 14,200,000 BANK LEUMI TRUST COMPANY OF
NEW YORK
By_____________________________
Jeff Pfeffer
Senior Vice President
By_____________________________
Title
Lending Office for Prime Rate
Loans; LIBOR Loans and Designated
Rate Loans:
579 Fifth Avenue
New York, New York 10017
Attention: Jeff Pfeffer
Senior Vice President
Address for Notices:
579 Fifth Avenue
New York, New York 10017
Attention: Jeff Pfeffer
Senior Vice President
Telecopier: (212) 407-4482
-11-
<PAGE>
<PAGE>
EXHIBIT A TO
AMENDMENT NO. 1 TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
FORM OF ALLONGE
The undersigned, LAZARE KAPLAN INTERNATIONAL INC. (the "Borrower") and
______________________ (the "Bank"), hereby amend the Note dated May 14, 1996
made by the Borrower payable to the order of the Bank in the original principal
amount of $_____________ (the "Original Note") by deleting the heading thereof
and the first paragraph set forth therein and substituting the following
therefor:
"$____________ New York, New York
May 14, 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."
The Original Note shall be deemed amended by this Allonge and a copy of
this Allonge shall be attached to the Original Note. The amendment evidenced by
this Allonge shall be effective November 29, 1996.
Except as expressly amended by this Allonge, all terms and conditions
of the Original Note shall continue in full force and effect.
LAZARE KAPLAN INTERNATIONAL INC.
By______________________________
Title
<PAGE>
<PAGE>
Accepted and Agreed to:
[BANK]
By_________________________
Title
[By________________________
Title]
-2-
<PAGE>
<PAGE>
SCHEDULE 3 TO
AMENDMENT NO. 1 TO LOAN AGREEMENT
BY AND AMONG
LAZARE KAPLAN INTERNATIONAL INC.,
FLEET BANK, N.A. AND
BANK LEUMI TRUST COMPANY OF NEW YORK
SCHEDULE 3
TO FORM OF NO DEFAULT CERTIFICATE
ANNUAL CASH FLOW
Date: _____________
Period: Four consecutive fiscal quarters ending ___________
Net Income $__________________
(ADD) + Depreciation $__________________
+ Amortization $__________________
(SUBTRACT) - Capital Expenditures $__________________
Incurred
(EQUALS) = Annual Cash Flow $__________________
Required Amount $__________________
Compliance (Y/N): _____________
<PAGE>
<PAGE>
EXHIBIT (23)(b)
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Selected Financial
Information" and "Experts" and to the use of our report dated July 9, 1996, in
the Registration Statement (Form S-2, No. 333-14227) and related Prospectus of
Lazare Kaplan International Inc. for the registration of 2,200,000 shares of its
common stock.
We also consent to the use of our report dated July 9, 1996 with respect to the
financial statement schedule of Lazare Kaplan International Inc. for the years
ended May 31, 1996 and 1995 included in the Registration Statement.
Ernst & Young LLP
New York, New York
December 11, 1996
<PAGE>
