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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended MAY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2728690
(State or other jurisdiction of (IRS Employer
incorporation or organization) (Identification No.)
529 FIFTH AVENUE, NEW YORK, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 972-9700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK ($1 PAR VALUE) AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of July 31, 1997, 8,473,156 shares of the registrant's common stock
were outstanding, and the aggregate market value of common stock held by
non-affiliates of the registrant, computed by reference to the closing price for
the registrant's stock on the American Stock Exchange at that date was
$77,097,219.
DOCUMENTS INCORPORATED BY REFERENCE
1997 definitive proxy statement to be filed with the Commission--
incorporated by reference into Part III.
1997 Annual Report to Stockholders for the fiscal year ended May 31,
1997 to be filed with the Commission--incorporated by reference into Parts II
and IV.
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Item 1
The Company
Lazare Kaplan International Inc., which began its business in
1903, is engaged in the cutting, polishing and selling of ideally proportioned
diamonds which it markets internationally under the brand name "Lazare
Diamonds'r'". Ideally proportioned diamonds are distinguished from 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 worldwide engaged primarily 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.
The Company's marketing strategy in the selling of Lazare
Diamonds is directed primarily toward quality conscious consumers throughout the
United States, the Far East and Europe. The Company 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 ideal cut diamonds which allows jewelers to order inventory by category
rather than through the more cumbersome process of visual selection. In
addition, the Company designs, manufactures (through independent contractors)
and sells a line of high quality jewelry which features Lazare Diamonds.
An important element of the Company's strategy is the
promotion of the Lazare Diamonds brand name. Every Lazare Diamond bears a laser
inscription on its outer perimeter, invisible to the naked eye, containing the
Lazare Kaplan logo and an identification number unique to the stone. The laser
signature also 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.
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.
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The Company currently has four 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 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. The fourth manufacturing facility is conducted pursuant to an
agreement with AK Almazi Rossii Sakha (ARS) of Russia. The factory, which was
equipped and staffed during fiscal year 1997, has recently completed the
production of its first polished stones. At full capacity, the Company and ARS
expect that the factory will process in excess of $45 million per year of large
rough gem diamonds.
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, Maurice Tempelsman is the direct beneficial holder of 1,910,409 shares
of common stock and Leon Tempelsman is the direct beneficial holder of 55,000
shares of common stock. The aggregate number of common shares held by Maurice
Tempelsman and Leon Tempelsman, directly and indirectly, is 3,625,788
constituting 42.8% of the Company's issued and outstanding common stock.
Diamond Supply
Rough Diamonds
The Company's business is dependent upon the availability of
rough diamonds, the world's known sources of which are highly concentrated.
Based upon published reports, the Company believes that Angola, Australia,
Botswana, Brazil, Ghana, Guinea, Ivory Coast, Namibia, Russia, Sierra Leone,
South Africa and the Republic of the Congo (formerly Zaire) account for more
than 90% of present world rough gem diamond production. The Central Selling
Organization (the "CSO"), which is affiliated with De Beers Centenary AG, a
Swiss company, is the primary world-wide marketing mechanism of the diamond
industry. The CSO seeks to maintain an orderly and stable market for diamonds by
regulating the quantity and selection of diamonds that reach the market. 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, including the Company.
Based upon published reports, the Company believes that approximately 70-75% of
the world diamond output is purchased for resale by the DTC and its affiliated
companies. In order to maintain their purchasing relationship, the DTC's
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clients have traditionally been expected to purchase all of the diamonds offered
to them by the DTC. Companies that are not sightholders 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 stones 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 has been a sightholder for more than 50 years.
The Company's subsidiary in Botswana is also a sightholder.
In order to diversify its sources of supply, the Company has
entered into arrangements with other primary source suppliers, has expanded its
rough diamond purchasing capabilities throughout Africa, and has established an
office in Antwerp to supplement its rough diamond needs by making purchases in
the secondary market. For the three years ended May 31, 1997, 1996 and 1995,
approximately 40%, 50% and 47%, respectively, of the Company's rough diamond
purchases were from the DTC.
In December 1994 the Company reached an agreement with the
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 Commercializacao 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.
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In November 1993, the Company reached an agreement with the
Ghanaian Government, Ghana Consolidated Diamonds Limited and De Beers Centenary
pursuant to which, the parties would, subject to a feasibility study, form a new
company to acquire, expand and operate the Akwatia/Birim Diamond and Gold
Concessions now owned by Ghana Consolidated Diamonds. In June, 1995 DeBeers
Centenary announced that its feasibility study was complete, and although during
the feasibility period output at the mine increased significantly as a result of
changes made to operations and revenue increased, DeBeers informed the Company
and the Ghanaian Government that it had withdrawn from the project stating its
belief that the cost of its participation will likely outweigh the economic
potential it may realize. During the fourth quarter of fiscal 1997 the Company
decided to discontinue its efforts to organize and participate in the
privatization of the Ghanaian diamond deposits. The nature of these deposits,
consisting of small size low quality stones which continued to be in oversupply
and under price pressure in the marketplace, the continued decline in monthly
mine production, and the inability towards the end of the fiscal year to reach
agreement with the Ghanaian Government on the terms of future marketing rights
were the primary reasons for this decision.
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.
Cutting and Polishing
The Company and its subsidiaries currently have four primary
cutting and polishing operations, one located in Puerto Rico, one located in
Botswana, and two located in Moscow, Russia, the first of which is conducted in
cooperation with the Russian Government organization responsible for diamond
policy and the Russian national stockpile. Under this 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 June 1996, the Company renewed its five year contract
calling for the continuation and expansion of this joint cutting facility.
However, due to internal Russian Government delays, there have been no diamonds
officially exported from Russia since the beginning of calendar year 1997. Based
upon statements made by Russian Government officials, the Company believes that
the issuance of a new Presidential Decree and government procedures, which will
facilitate trade and export of finished diamonds, are imminent. In line with the
overall delay of diamond exports from Russia, the Company has not received any
shipment of polished diamonds produced from this facility during the 1997
calendar year. The Company believes that it will recapture lost sales once these
polished diamonds are exported.
The second factory in Russia was first announced in July 1996
when the Company announced that it had reached an agreement, for a term of ten
years, with AK Almazi Rossii Sakha (ARS) of Russia for the cutting, polishing
and marketing of large rough gem diamonds. According to published reports, ARS
is the largest producer of rough diamonds in Russia with annual production in
excess of $1.3 billion,
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accounting for over 20% of the world's supply of diamonds. Under the terms of
the agreement, the Company has equipped a diamond cutting factory which was
completed in February 1997 within the ARS facility in Moscow. This new facility
is 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. In May 1997, the facility completed production of its first
polished stones. 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 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 in December 1993.
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 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 carats and larger) which is marketed as
a Lazare Diamond is then inscribed with the Lazare Kaplan logo and its own
identification number by the Company's patented laser inscription process. All
of these operations are performed by the Company's employees. The Company
believes its work force in Puerto Rico is the most highly skilled in the diamond
industry. The Company has undertaken a worker training program at its facility
in Puerto Rico to ensure a constant flow of skilled labor to satisfy its needs
for further growth.
Through its subsidiary, Lazare Kaplan Botswana (Pty) Limited,
the Company, pursuant to a long term license issued by the Government of
Botswana, owns and operates a manufacturing facility in Molepolole, Botswana.
Lazare Kaplan Botswana began operations in this facility in early 1993. The
factory, which is a state-of-the-art facility, uses both automated and manual
equipment and is committed to train and employ Batswana workers. As of July 31,
1997, there were 522 employees at this facility, of whom 25 were trainees. This
factory cuts and polishes rough diamonds to ideal proportions in sizes that
currently are not processed at the Company's facility in Puerto Rico. The
factory 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
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be expanded as the skills of its employees are developed. During August 1994,
the Company completed its transaction with the Botswana Development Corporation
("BDC") whereby the BDC invested 21.8 pula (approximately $8.0 million) for an
equity position in Lazare Kaplan Botswana (Pty) Ltd. The investment is in the
form of common shares and cumulative, redeemable, non-voting participating
preference shares. As a result of this transaction, the Company owns 60% of
Lazare Kaplan Botswana (Pty) Ltd., the BDC owns 34.9% and the Government of
Botswana owns 5.1%. Lazare Kaplan Botswana purchases rough diamonds on its own
account directly from the DTC, as well as from third party sources, for
manufacture in the Botswana factory. Botswana is widely regarded today as the
most important rough gem diamond producing country in the world.
The Company believes that it is recognized in the diamond
industry for the high quality and brilliance of the gems it cuts and that it
also enjoys a reputation as an imaginative and innovative cutter of large and
difficult diamonds.
Pricing
Rough Diamond Prices
Through its control of approximately 70-75% 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
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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 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 sales strategy is directed primarily toward
quality conscious consumers throughout the United States, the Far East and
Europe. The Company focuses its distribution efforts for Lazare Diamonds on
selectivity with a view to helping retailers who carry the product maintain a
competitive advantage. Lazare Diamonds can be found at some of the most
prestigious jewelry stores around the world, including both those with
international reputations and those known only in their communities as being the
highest quality retail jewelers. This strategy helps ensure that the Company's
product is presented in an environment consistent with its superior quality and
image.
The Company also sells to certain jewelry manufacturers and
diamond wholesalers. The Company has developed a comprehensive grading system
for its diamonds, which allows jewelers to order inventory by category rather
than through the more cumbersome process of visual selection. In addition, the
Company designs, manufactures (through independent contractors) and sells a line
of high quality jewelry that features Lazare Diamonds.
A key element of the Company's strategy is the promotion of
the Lazare Diamonds brand name directly to consumers. The Company is able to
market its diamonds under a brand name to retailers because (a) the ideal cut
differentiates the Company's diamonds from commercial diamonds in the
marketplace and (b) each Lazare Diamond is inscribed with the Company's logo and
identification number using the Company's unique laser inscription process, thus
authenticating the diamonds. The Company holds a domestic patent, which expires
in 2000, and various international patents for this process. In addition, the
Company has a domestic patent-pending for a new and improved laser inscription
process.
The Company's decision to pursue the brand name strategy is
reinforced by two factors - a rising trend among informed consumers to purchase
quality, brand name products, and the need among upscale jewelers to set
themselves apart in an increasingly competitive market by carrying and promoting
a highly differentiated product.
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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 which help build traffic in
retail stores. The Company believes these marketing programs have been and will
continue to be instrumental in increasing sales. The Company has no current
plans to sell its diamonds directly to consumers and intends to continue
concentrating its marketing efforts towards the quality retail jeweler.
The Lazare Diamond Registry program has been established by
the Company to enable consumers to register their Lazare Diamonds with the
Company using the laser inscribed identification number, thereby providing proof
of ownership in case of loss or theft.
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 40,000 jewelry stores in the United States, over 25,000
retailers in Japan and over 60,000 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 know 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. It is anticipated that Seiko will
ultimately supply Lazare Diamonds to 300-400 retailers 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 150 retailers and wholesalers, will continue to be an important customer
of the Company's non-branded polished diamonds.
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The Company uses a comprehensive sorting and inventory
classification system for grading color and clarity of its ideal cut polished
diamonds. This system, combined with the fact that the Company's stones are
uniformly cut to ideal proportions, reduces and in some cases eliminates the
need for customers to view 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 are
set forth below:
Years ended May 31,
1995 1996 1997
--- --- ---
Percentage of Net Sales to Customers
United States 25% 23% 22%
Far East 13% 8% 9%
Europe, Israel & other 62% 69% 69%
--- --- ---
100% 100% 100%
=== === ===
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 in 1995
reflects lower rough diamond sales in 1995 as compared to 1996. 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.
The Company believes that due to the possible international
resale of diamonds by its customers, the above percentages may not represent the
final location of retail sales of its product. As all foreign sales are
denominated in United States dollars, the Company does not experience any
foreign currency exposure on its foreign revenue. The profitability of foreign
sales of either polished or rough diamonds is consistent with that of domestic
sales of similar merchandise.
Competition
The polished and rough diamond business is highly competitive.
While the Company believes that it has achieved a reputation as a leading cutter
and distributor of high quality diamonds, it faces competition in sales to its
customers in the United States and abroad from many other suppliers. 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.
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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 July 31, 1997, the Company had 682 full-time employees. The
Company also has 6 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.
Item 2. Properties
The Company leases office space, a portion of which is devoted
to sales rooms, at 529 Fifth Avenue, New York City, for a term expiring
September 30, 2003 at an annual rental rate of approximately $278,000 (subject
to escalations). The Company also subleases space at the same address to LTS for
a like term at a rental rate per square foot which is the same as the Company is
paying to the landlord.
The Company also owns a manufacturing facility in Caguas,
Puerto Rico. The Caguas facility consists of approximately 7,500 square feet.
The Company leases office space in Antwerp, Belgium for a term
expiring May 31, 2003 at an annual rental rate of approximately $43,000
(1,500,000 Belgian francs).
The Company also has a 40% ownership interest in a 330 square
meter office in Antwerp, Belgium, a portion of which is devoted to sales rooms.
The Company leases office space in Hong Kong for a term
expiring April 30, 1998 at an annual rental rate of approximately $50,000
(384,800 Hong Kong dollars).
The Company leases land in Botswana for a nominal amount for a
term of 50 years with the right to renew for an additional 50 years. The Company
has constructed its cutting and polishing factory on such land. The facility is
approximately 4,300 square meters.
The Company believes that its facilities are fully equipped
and adequate to fulfill its operating and manufacturing needs.
11
<PAGE>
<PAGE>
Item 3. Legal Proceedings
The Company is not involved in any significant legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
The following table sets forth information regarding executive
officers of the Company.
NAME POSITION AGE
Maurice Tempelsman Chairman of the Board 68
Leon Tempelsman Vice Chairman of the 41
Board and President
George R. Kaplan Vice Chairman of the 79
Board
Sheldon L. Ginsberg Executive Vice President and 43
Chief Financial Officer
Robert Speisman Vice President - Sales 44
All officers 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.
Maurice Tempelsman is the Chairman of the Board and a director of the
Company and a general partner of Leon Tempelsman & Son, a partnership with
interests in the international diamond and mining industries. He has held these
positions since 1984. 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. Leon Tempelsman is the son of Maurice
Tempelsman and the brother-in-law of Robert Speisman.
The Company believes that neither the Tempelsmans nor LTS currently
engages directly or indirectly in any activities competitive with those of the
Company.
12
<PAGE>
<PAGE>
George R. Kaplan has been Vice Chairman of the Board since
1984 and a director of the Company since 1972.
Sheldon L. Ginsberg has been Executive Vice President and
Chief Financial Officer since February 1996. He was the Vice President and Chief
Financial Officer from April 1991 until February 1996. Mr. Ginsberg has been a
director of the Company since 1989.
Robert Speisman has been the Vice President - Sales of the
Company since 1986. Mr. Speisman has been a director of the Company since 1989.
Mr. Speisman is the son-in-law of Maurice Tempelsman and the brother-in-law of
Leon Tempelsman.
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
The Registrant's common stock (par value $1 per share) is
traded on the American Stock Exchange.
Market prices and other information with respect to the
Registrant's common stock are hereby incorporated by reference from page 1 of
the Registrant's Annual Report.
Item 6. Selected Financial Data
Selected financial data are hereby incorporated by reference
from page 4 of the Registrant's Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion and analysis of financial condition
and results of operations is hereby incorporated by reference from pages 5 to
9 of the Registrant's Annual Report.
13
<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
(a) The following financial statements and supplementary data
are hereby incorporated by reference from pages 10 to 24 of the Registrant's
Annual Report.
(i) Report of Ernst & Young LLP
(ii) Consolidated Statements of Operations for each of the
three years in the period ended May 31, 1997.
(iii) Consolidated Statements of Stockholder's Equity for
each of the three years in the period ended May 31,
1997.
(iv) Consolidated Balance Sheets as at May 31, 1997 and
May 31, 1996.
(v) Consolidated Statements of Cash Flows for each of the
three years in the period ended May 31, 1997.
(vi) Notes to Consolidated Financial Statements.
14
<PAGE>
<PAGE>
Part III
Except for information regarding Executive Officers of the
Registrant, which, in accordance with Instruction G to Form 10-K, is included in
Part I hereof, the information called for by Part III (Items 10, 11, 12 and 13)
is incorporated by reference herein from the Registrant's definitive proxy
statement to be filed with the Commission within 120 days after the close of its
fiscal year ended May 31, 1997.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. The response to this portion of Item 14 is set forth
in Item 8 of Part II hereof.
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for
each of the three years in the period ended May 31,
1997.
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
15
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC
AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- -------- -------- ----------
Additions
---------------------------
Balance at Charged to Charged to Balance at
beginning costs and other accounts Deductions end
Description of period expenses describe describe of period
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1997:
Allowance for doubtful accounts $281,265 $(25,000) $ -- $ 93,778(A) $162,487
-------- -------- ----------- -------- --------
YEAR ENDED MAY 31, 1996:
Allowance for doubtful accounts $220,046 $ 70,000 $ -- $ 8,781(A) $281,265
-------- -------- ----------- -------- --------
YEAR ENDED MAY 31, 1995:
Allowance for doubtful accounts $165,169 $ 70,000 $ -- $ 15,123(A) $220,046
-------- -------- ----------- -------- --------
</TABLE>
(A) Amounts written off
16
<PAGE>
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the fourth quarter of the fiscal year ended May 31, 1997.
(c) Exhibits
(3) (a) Certificate of Incorporation, as amended - incorporated herein
by reference to Exhibit 3(a) to Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1987 filed with the Commission on August 26, 1987, as
amended on January 14, 1988.
(b) Certificate of Amendment of Certificate of Incorporation filed
with the Secretary of State of the State of Delaware on November 1, 1990 -
incorporated herein by reference to Exhibit (3)(b) to Report on Form 10-K of the
Registrant for the fiscal year ended May 31, 1992 filed with the Commission on
August 28, 1992.
(c) By-laws, as amended - incorporated herein by reference to
Exhibit 3(b) to Report on Form 10-K of the Registrant for the fiscal year ended
May 31, 1987 filed with the Commission on August 26, 1987, as amended on January
14, 1988.
(10) Material Contracts
(a) Lazare Kaplan International Inc. Amended and Restated 1988
Stock Option Incentive Plan - incorporated herein by
reference to Exhibit 4.1 to Registration Statement on Form
S-8 of the Registrant filed with the Commission on
November 5, 1990.
(b) Note Agreement dated as of May 15, 1991 by and between the
Registrant, Allstate Life Insurance Company, Monumental
Insurance Company and PFL Life Insurance Company -
incorporated herein by reference to Exhibit 28 to Report
on Form 8-K dated May 23, 1991 filed with the Commission
on June 4, 1991.
(c) First Amendment to Note Agreement, dated as of February
28, 1992, by and between the Registrant, Allstate Life
Insurance Company, Monumental Life Insurance Company and
PFL Life 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.
17
<PAGE>
<PAGE>
(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.
18
<PAGE>
<PAGE>
(j) Cooperation Agreement, dated July 5, 1996, among the
Registrant, Empresa Nacional de Diamantes de Angola and
Sociedade Angolana de Exploracao, Lapidacao e
Commercializacao 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
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 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 -
incorporated herein by reference to Exhibit 10(1) to
Amendment No. 2 to Registration Statement on Form S-2 of
the Registrant filed with the Commission on December 11,
1996.
(m) Rights Agreement, dated as of July 31, 1997, between the
Registrant and ChaseMellon Shareholder Services, LLC -
incorporated herein by reference to Exhibit 99.1 to Form
8-A of the Registrant filed with the Commission on August
26, 1997.
(n) Amendment No. 2, dated as of May 30, 1997, to Loan
Agreement, dated May 14, 1996, among the Registrant, Fleet
Bank, N.A. and Bank Leumi Trust Company of New York.
(o) Leon Tempelsman Retirement Benefit Plan of Lazare Kaplan
International Inc.
(p) Sheldon L. Ginsberg Retirement Benefit Plan of Lazare
Kaplan International Inc.
(q) Robert Speisman Retirement Benefit Plan of Lazare Kaplan
International Inc.
(13) 1997 Annual Report to Security Holders - incorporated herein by reference
to the 1997 Annual Report to Stockholders of the Registrant to be filed with the
Commission.
(21) Subsidiaries
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule
19
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
LAZARE KAPLAN INTERNATIONAL INC.
By /s/ Leon Tempelsman
___________________________________________________
Leon Tempelsman, Vice Chairman and President
(principal executive officer)
By /s/ Sheldon L. Ginsberg
___________________________________________________
Sheldon L. Ginsberg, Executive Vice President and
Chief Financial Officer (principal financial
officer)
Dated: August 28, 1997
20
<PAGE>
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
(s) Maurice Tempelsman Chairman of the August 28, 1997
- --------------------------------- Board of Directors
Maurice Tempelsman)
(s) Leon Tempelsman Vice Chairman of the August 28, 1997
- --------------------------------- Board of Directors
(Leon Tempelsman)
(s) George R. Kaplan Vice Chairman of the August 28, 1997
- --------------------------------- Board of Directors
(George R. Kaplan)
(s) Lucien Burstein Director August 28, 1997
- ---------------------------------
(Lucien Burstein)
(s) Myer Feldman Director August 28, 1997
- ---------------------------------
(Myer Feldman)
(s) Michael W. Butterwick Director August 28, 1997
- ---------------------------------
(Michael W. Butterwick)
(s) Sheldon L. Ginsberg Director August 28, 1997
- ---------------------------------
(Sheldon L. Ginsberg)
(s) Robert Speisman Director August 28, 1997
- ---------------------------------
(Robert Speisman)
</TABLE>
21
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 1-7848
May 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page No.
<S> <C> <C>
(3) (a) Certificate of Incorporation, as amended - incorporated
herein by reference to Exhibit 3(a) to Report on Form 10-K of
the Registrant for the fiscal year ended May 31, 1987 filed
with the Commission on August 26, 1987, as amended on January
14, 1988.
(b) Certificate of Amendment of Certificate of Incorporation filed
with the Secretary of State of the State of Delaware on
November 1, 1990 - incorporated herein by reference to Exhibit
(3)(b) to Report on Form 10-K of the Registrant for the fiscal
year ended May 31, 1992 filed with the Commission on August
28, 1992.
(c) By-laws, as amended - incorporated herein by reference to
Exhibit 3(b) to Report on Form 10-K of the Registrant for the
fiscal year ended May 31, 1987 filed with the Commission on
August 26, 1987, as amended on January 14, 1988.
(10) Material Contracts
(a) Lazare Kaplan International Inc. Amended and Restated 1988
Stock Option Incentive Plan - incorporated herein by reference
to Exhibit 4.1 to Registration Statement on Form S-8 of the
Registrant filed with the Commission on November 5, 1990.
22
<PAGE>
<PAGE>
Exhibit Page No.
(b) Note Agreement dated as of May 15, 1991 by and between the
Registrant, Allstate Life Insurance Company, Monumental
Insurance Company and PFL Life Insurance Company -
incorporated herein by reference to Exhibit 28 to Report on
Form 8-K dated May 23, 1991 filed with the Commission on June
4, 1991.
(c) First Amendment to Note Agreement, dated as of
February 28, 1992, by and between the Registrant,
Allstate Life Insurance Company, Monumental Life
Insurance Company and PFL Life Insurance
Company incorporated herein by reference to Exhibit
10(d) to Report on Form 10-K of the Registrant for
the fiscal year ended May 31, 1992 filed with the
Commission on August 28, 1992.
(d) Second Amendment to Note Agreement, dated as of March 25, 1992
by and between the Registrant, Allstate Life Insurance
Company, Monumental Life Insurance Company and PFL Life
Insurance Company incorporated herein by reference to Exhibit
10(e) to Report on Form 10-K of the Registrant for the fiscal
year ended May 31, 1992 filed with the Commission on August
28, 1992.
(e) Third Amendment to the Note Agreement, dated
as of December 1, 1992 by and between the
Registrant, Allstate Life Insurance Company,
Monumental Life Insurance Company and PFL
Life Insurance Company incorporated herein by
reference to Exhibit 10(f) to Report of Form 10-K
of the Registrant for the fiscal year ended May 31,
1993 filed with the Commission on August 30,
1993.
23
<PAGE>
<PAGE>
Exhibit Page No.
(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
Commercializacao 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 confidential treatment).
24
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
(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
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 - incorporated herein by reference to Exhibit 10(1)
to Amendment No. 2 to Registration Statement on Form S-2
of the Registrant filed with the Commission on
December 11, 1996.
(m) Rights Agreement, dated as of July 31, 1997, between the
Registrant and ChaseMellon Shareholder Services, LLC --
incorporated herein by reference to Exhibit 99.1 to Form 8-A
of the Registrant filed with the Commission on August 26,
1997.
(n) Amendment No. 2, dated as of May 30, 1997, to Loan
Agreement, dated May 14, 1996, among the Registrant,
Fleet Bank, N.A. and Bank Leumi Trust Company of New York. 26
(o) Leon Tempelsman Retirement Benefit Plan of Lazare Kaplan
International Inc. 41
(p) Sheldon L. Ginsberg Retirement Benefit Plan of Lazare Kaplan
International Inc. 80
(q) Robert Speisman Retirement Benefit Plan of Lazare Kaplan
International Inc. 119
(13) 1997 Annual Report to Security Holders - incorporated
herein by reference to the 1997 Annual Report to Stock
holders of the Registrant to be filed with the Commission. 158
(21) Subsidiaries 184
(23) Consent of Ernst & Young LLP 185
(27) Financial Data Schedule 186
</TABLE>
25
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as .....................'r'
<PAGE>
<PAGE>
AMENDMENT NO. 2 TO LOAN AGREEMENT
AMENDMENT NO. 2 TO LOAN AGREEMENT (this "SECOND AMENDMENT"), made and
executed as of May 30, 1997, 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 entered into a certain Loan Agreement with the Banks
dated May 14, 1996 (together with all Exhibits and Schedules thereto, the "LOAN
AGREEMENT") as amended by a certain Amendment No. 1 to Loan Agreement dated as
of November 29, 1996 (the "FIRST AMENDMENT") pursuant to which the Banks agreed
to make Loans to the Borrower in the aggregate principal amount of up to
Thirty-Five Million Five Hundred Thousand ($35,500,000) Dollars on the terms and
conditions set forth in the Loan Agreement as amended by the First Amendment;
(B) All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed thereto in the Loan Agreement as amended
by the First Amendment;
(C) The Borrower has requested that the Banks extend the Commitment
Termination Date, increase the amount of the Total Commitment from Thirty-Five
Million Five Hundred Thousand ($35,500,000) Dollars to Forty Million
($40,000,000) Dollars, and make certain other amendments; and
(D) The Banks are willing to extend the Commitment Termination Date,
increase the Total Commitment as aforesaid, and make certain other amendments,
all 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 Second
Amendment are hereby incorporated by reference into
<PAGE>
<PAGE>
the Loan Agreement as if such terms and provisions were set forth therein. This
Second Amendment shall be construed as a replacement and substitution for the
First Amendment.
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 amended by the First Amendment, as in effect immediately
prior to the effectiveness of this Second 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 Second 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 as
amended by the First Amendment is amended by deleting the dollar amount
"Thirty-Five Million Five Hundred Thousand ($35,500,000) Dollars" and
substituting therefor the dollar amount "Forty Million ($40,000,000) 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. 2: Amendment No. 2 to Loan Agreement dated as of
May 30, 1996, by and among the Borrower and the Banks."
(b) The definitions of "Applicable Margin", "Cash Flow",
"Commitment Termination Date", "Maturity Date" and "Total Commitment" are
deleted in their entirety and the following definitions are substituted
therefor, respectively:
"APPLICABLE MARGIN:
(i) with respect to any Prime Rate Loan, one-eighth of one
(1/8%) percent;
-2-
<PAGE>
<PAGE>
(ii) with respect to any LIBOR Loan, one and six-tenths (1.6%)
percent; and
(iii) with respect to any Designated Rate Loan, one and
six-tenths (1.6%) percent.
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.
COMMITMENT TERMINATION DATE: August 31, 2002.
MATURITY DATE: September 1, 2002.
TOTAL COMMITMENT: the aggregate obligation of the Banks to make
Loans hereunder not exceeding Forty Million ($40,000,000) 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. 2 (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. 2, and shall otherwise be duly completed. The Notes shall be payable as
provided in Sections 2.1 and 2.5 hereof."
(b) Section 2.5 of the Loan Agreement (Low Points; Mandatory
Commitment Reductions; Repayment of Loans) is amended by deleting subsections
(a)(i) and (a)(ii) thereof in their entirety and substituting therefor the
following:
-3-
<PAGE>
<PAGE>
"(i) for a period comprised of any thirty (30) consecutive
days as selected by the Borrower during each of the periods set forth below
(each such thirty (30) day period is hereinafter referred to as a "COMMITMENT
REDUCTION PERIOD"), the maximum aggregate amount of the Total Commitment
(subject to any voluntary reductions thereof as provided in Section 2.8 hereof)
during each such period shall equal the amount set forth opposite the applicable
period:
MAXIMUM
PERIOD TOTAL COMMITMENT
November, 1996 through
March, 1997 $12,800,000
November through
March of each year
thereafter $30,000,000;
(ii) [Intentionally Omitted]; and".
(b) Subsections 2.7(a) and 2.7(b) of the Loan Agreement (Fees)
are deleted in their entirety and the following is substituted therefor:
"SECTION 2.7 FEES.
(a) The Borrower shall pay to each Bank, a commitment fee (the
"COMMITMENT FEE") on the daily average amount of such Bank's Unused Commitment,
for the period from the date of Amendment No. 2 to and including the earlier of
the date such Bank's Commitment is terminated or the Commitment Termination
Date, at the rate of 3/16% per annum on the total Unused Commitment for such
Bank. The accrued Commitment Fee shall be payable monthly on the Monthly Dates
and on the earlier of the date the Commitments are terminated or the Commitment
Termination Date, and, in the event the Borrower reduces the Commitments as
provided in subsection 2.8 hereof, on the effective date of such reduction.
(b) [Intentionally Omitted]"
1.3.4 Article 6 of the Loan Agreement (Affirmative Covenants)
is amended by adding a new Section 6.13 thereto as follows:
"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,
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<PAGE>
<PAGE>
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 Second 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 Second 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
Second 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 Second 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:
(a) the "Loan Agreement" or "this Agreement" (to the extent
such term refers to the Loan Agreement) shall be deemed to
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<PAGE>
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
Second 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 Second 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 Second 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 Second
Amendment and the Allonges, as applicable. Other than due authorization by the
Board of Directors of the Borrower and of each corporate Guarantor, each of
which has been duly obtained, no consent or
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<PAGE>
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 Second 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 Second 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
Second 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 SECOND AMENDMENT.
The effectiveness of this Second 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:
5.1 SECOND AMENDMENT. The Borrower shall have executed and
delivered to the Banks this Second Amendment.
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<PAGE>
<PAGE>
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 Second Amendment and shall have duly complied with
all of the terms and conditions hereof.
5.4 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
Second Amendment and the Allonges, as applicable, certified by its respective
secretary.
5.5 COMPLIANCE.
5.5.1 The Borrower shall have complied and shall then be in
compliance with all of the terms, covenants and conditions of this Second
Amendment and the Loan Agreement as amended hereby;
5.5.2 There shall exist no Default or Event of Default
under the Loan Agreement as amended hereby; and
5.5.3 The representations and warranties contained in
Article 4 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 5.5 are
satisfied on such date.
5.6 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 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
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<PAGE>
Second Amendment; and (iv) the terms "hereunder" and "hereto" shall be deemed to
refer to this Second Amendment. This Second 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 ENTIRE AGREEMENT. This Second Amendment together with the
Loan Agreement and the documents referenced herein and therein embodies the
entire agreement and understanding among the Banks and the Borrower and
supersedes all prior agreements and understandings relating to the subject
matter hereof including, without limitation, the First Amendment.
6.4 COUNTERPARTS. This Second 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]
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<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
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 4 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
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<PAGE>
<PAGE>
COMMITMENT:
$24,000,000 FLEET BANK, N.A.
BY______________________________
Macy Yu, 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: Macy Yu, Vice President
Address for Notices:
Fleet Bank, N.A.
1133 Avenue of the Americas
New York, New York 10036
Attention: Macy Yu, Vice President
Telex: 232369
Answer-Back Code: NBNA UR
Telecopier: (212) 703-1824
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<PAGE>
COMMITMENT:
$ 16,000,000 BANK LEUMI TRUST COMPANY OF NEW YORK
BY_____________________________
Jeff Pfeffer
Senior Vice President
BY_____________________________
Ken Lipke
Vice President
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:
562 Fifth Avenue
New York, New York 10036
Attention: Jeff Pfeffer
Senior Vice President
Telecopier: (212) 626-1311
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<PAGE>
<PAGE>
EXHIBIT A TO
AMENDMENT NO. 2 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,
as amended by a certain Allonge effective November 22, 1996 (the "FIRST
ALLONGE"), 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 May 30, 1997. The First Allonge shall be deemed
superseded by this Allonge.
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]
<PAGE>
<PAGE>
SCHEDULE 3 TO
AMENDMENT NO. 2 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>
LEON TEMPELSMAN RETIREMENT BENEFIT PLAN
OF
LAZARE KAPLAN INTERNATIONAL INC.
EFFECTIVE AS OF JUNE 1, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PRELIMINARY STATEMENT........................................................... 1
ARTICLE I DEFINITIONS.......................................... 1
Section 1.1 Definitions.......................................... 1
Section 1.2 Rules of Construction................................ 14
ARTICLE II ORGANIZATIONAL MATTERS............................... 15
Section 2.1 Nature of Plan....................................... 15
Section 2.2 Name of Plan......................................... 15
ARTICLE III THE POLICY........................................... 15
Section 3.1 Purchase............................................. 15
Section 3.2 Ownership............................................ 16
Section 3.3 Payment of Premiums.................................. 16
Section 3.4 Payment of Tax-Related Bonuses....................... 16
Section 3.5 Endorsement.......................................... 17
Section 3.6 Collection of Death Proceeds......................... 17
ARTICLE IV ALLOCATION OF DEATH BENEFIT.......................... 17
Section 4.1 Death Prior to Cessation
of Employment........................................17
Section 4.2 Death Subsequent to Retirement....................... 18
Section 4.3 Death Subsequent to Noncausal
Termination........................................ 18
Section 4.4 Death Subsequent to Casual
Termination........................................ 19
Section 4.5 Death Subsequent to Termination
on Account of Disability........................... 19
ARTICLE V RETIREMENT BENEFITS.................................. 20
Section 5.1 Normal Retirement.................................... 20
Section 5.2 Noncausal Termination................................ 22
Section 5.3 Cessation of Employment Within
Change in Control Period........................... 22
</TABLE>
(i)
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI DISABILITY BENEFITS.................................. 23
Section 6.1 Disability Benefit Payments.......................... 23
Section 6.2 Disability on or after Normal
Retirement Date.................................... 25
ARTICLE VII INSURER INSOLVENCY................................... 26
Section 7.1 Retirement Benefits.................................. 26
Section 7.2 Disability Benefits.................................. 27
Section 7.3 Curative Adjustments................................. 28
ARTICLE VIII AMENDMENT............................................ 28
ARTICLE IX ADMINISTRATION....................................... 29
Section 9.1 Administrative Committee............................. 29
Section 9.2 Administration Costs................................. 29
Section 9.3 Legal Limitation..................................... 29
Section 9.4 Records.............................................. 29
Section 9.5 Claims Procedure..................................... 30
ARTICLE X MISCELLANEOUS........................................ 31
Section 10.1 No Transfers......................................... 31
Section 10.2 Nature of Plan; Remedies............................. 31
Section 10.3 Headings and Captions................................ 31
Section 10.4 Construction......................................... 32
Section 10.5 Late Payments........................................ 32
Section 10.6 Assignment........................................... 32
Section 10.7 Severability......................................... 32
Section 10.8 Applicable Law....................................... 32
Section 10.9 Jurisdiction; Counsel Fees........................... 32
Section 10.10 Notices; Etc......................................... 33
ERISA RIGHTS ................................................. APPENDIX A
OTHER INFORMATION ............................................ APPENDIX B
SPECIMEN POLICY .............................................. EXHIBIT A
SPLIT DOLLAR ENDORSEMENT...................................... EXHIBIT B
PROCEDURE FOR DETERMINING PRIMARY
BENEFIT TAX AMOUNT ........................................... EXHIBIT C
PROCEDURE FOR DETERMINING PLAN TAX SAVINGS ................... EXHIBIT D
</TABLE>
(ii)
<PAGE>
<PAGE>
PRELIMINARY STATEMENT
In recognition of the contribution Mr. Leon Tempelsman has made to its
overall success and to encourage Mr. Tempelsman to remain in its employ, Lazare
Kaplan International Inc. wishes to provide Mr. Tempelsman with certain
benefits. To accomplish the foregoing, a retirement benefit plan has been
adopted that reads in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this instrument, the
following terms have the respective meanings set forth in this Section 1.1.
"Administrative Committee" means the committee appointed pursuant to
Section 9.1 to manage and administer this Plan.
"Affiliate" means any entity that, directly or indirectly through one
or more intermediaries, controls, is controlled by or is under common control
with the Company.
"Aggregate Premium Amount" means the greater of (x) the aggregate
amount of Premiums paid by the Company on or before the Date of Death or due and
owing on such Date, or (y) the cash surrender value of the Policy on such the
Date.
"Assumed Cash Value" means, for any day of any Plan Year, the cash
surrender value the Policy would have on such day if (i) any dividend declared
on the Policy for any prior Plan Year was applied as a net single premium to
purchase paid-up whole life insurance or to fund a Permitted Payment; (ii) the
Policy has not lapsed on account of nonpayment of Premiums; (iii) the Policy has
not been surrendered in whole or in part (unless any amount obtained upon such
surrender has been applied to fund a Permitted Payment); (iv) no loan has been
taken from the Insurer with respect to the Policy (unless the proceeds from such
loan have been applied to fund a Permitted Payment); and (v) the Company funded
all Permitted Payments made on or before such day with amounts obtained from the
Insurer upon partial surrender of the Policy to the extent the amounts so
obtained could be excluded from its gross income for federal income tax purposes
pursuant to Section 72(e) of the Code, funded the balance of such Payments with
loans taken from the Insurer with respect to the Policy and paid any interest on
such loans when due.
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"Beneficiary" means the person or persons the Company has designated as
the beneficiary or beneficiaries under the Policy.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day on which banks within the State of New
York are required to be opened for business.
"Causal Termination Month" means the month in which the Participant's
employment was terminated for Cause by action on the part of the Company.
"Cause" means, with respect to the Participant, conduct that is
demonstrably and materially injurious to the Company that a majority of the
entire membership of the Board of Directors determines constituted (i) fraud,
misappropriation or embezzlement; (ii) a breach of fiduciary duty involving
personal profit; (iii) a willful failure (after written notice thereof and an
adequate opportunity to correct) to perform stated a task within the scope of
his duties, including a willful failure to comply with a lawful resolution of
the Board of Directors; or (iv) a willful violation of any law (other than a
misdemeanor) of which the Participant was aware.
"Change in Control" means, with respect to the Company, (i) the
acquisition by one person or entity, or more than one person or entity acting as
a group, within any twelve- (12-) month period, of ownership of Voting Shares
possessing more than thirty percent (30%) of the total voting power for the
election of the Board of Directors (excluding, however, acquisitions by (A) the
Company or its Affiliates, (B) any employee benefit plan sponsored by the
Company or its Affiliates or (C) a Tempelsman Family Member or any entity
controlled by one or more such Members; (ii) the consummation of a consolidation
or merger of the Company with and into, or a transfer of all or substantially
all the assets of the Company to, another entity, other than an entity in which
those persons holding Voting Shares immediately prior to such transaction, have
substantially the same proportionate voting rights in respect of such entity,
immediately after such transaction, as they had in respect of the Company
immediately prior to such transaction; (iii) the approval by the shareholders of
the Company and/or the Board of Directors of a plan for the liquidation or
dissolution of the Company; or (iv) the appointment of any person to the Board
of Directors if, by such appointment, a majority of the members of such Board
ceases to consist of individuals who are Continuing Directors.
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<PAGE>
"Change in Control Period" means, with respect to any day on which a
Change in Control occurs, the two- (2-) year period beginning with such day.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provisions of any subsequent federal revenue law.
"Company" means Lazare Kaplan International Inc, a Delaware
corporation, its successors and assigns.
"Continuing Director" means a member of the Board of Directors who
either (i) was a member of such Board on the Effective Date, or (ii) was
nominated or appointed (before his initial election) to serve as a member by a
majority of the members of such Board who were persons described in clause (i)
hereof at the time of such nomination or appointment.
"Date of Death" means the date on which the Participant dies.
"Date of Death Month" means the month that includes the Date of Death.
"Death Benefit Date" means the date on which the death benefit payable
under the Policy is paid.
"Death Benefit Payment" means a payment of an amount equal to the
amount by which (x) the sum of the death benefit paid to the Company under the
Policy, the amount of any Unanticipated Indebtedness existing on the Date of
Death and the amount of Unanticipated Withdrawals made prior to such Date,
exceeds (y) the aggregate amount of Premiums paid by the Company on or before
such Date (or due and owing on such Date).
"Disability" means, with respect to the Participant, any medically
determinable physical or mental impairment that the Administrative Committee, on
the basis of competent medical evidence, reasonably expects to result in death,
or to be of long-continued and indefinite duration of not less than twelve
months, and considers to have rendered the Participant substantially unable to
perform his stated duties on a full-time basis.
"Disability Adjustment Payment" means, for any Disability Benefit
Carryover Year, a payment of an amount equal to the amount, if any, by which (x)
the sum of the Plan Tax Savings at the close of such Year and the aggregate
amount of Disability Adjustment Reimbursement Payments received by the Company
pri-
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or to the close of such Year, exceeds (y) the sum of the aggregate amount of
Disability Primary Benefit Tax Payments paid prior to the close of such Year and
the aggregate amount of Disability Adjustment Payments paid prior to such time.
"Disability Adjustment Reimbursement Payment " means, for any
Disability Benefit Carryover Year, the amount, if any, by which (x) the sum of
the aggregate amount of Disability Primary Benefit Tax Payments and Disability
Adjustment Reimbursement Payments paid prior to the close of such Year, exceeds
(y) the sum of the Plan Tax Savings at the close of such Year and the aggregate
amount of Disability Adjustment Reimbursement Payments paid prior to the close
of such Year.
"Disability Benefit Carryover Year" means any Plan Year to which any
tax attribute that arose in a Disability Benefit Year can be carried for
purposes of determining the Company's Income Tax Liability for such Plan Year.
"Disability Benefit Commencement Date" means the first day of the first
Plan Year beginning on or after the latest of (i) the Disability Termination
Date; (ii) the date on which the Participant attains the age of sixty (60); or
(iii) such later day to which the commencement of Disability Benefit Payments
has been postponed pursuant to Section 6.1.2.
"Disability Benefit Payment" means any payment to which the Participant
is entitled pursuant to Section 6.1.
"Disability Benefit Period" means the period commencing with the
Disability Benefit Commencement Date and ending with the Disability Benefit
Termination Date.
"Disability Benefit Termination Date" means the last day of the
earliest of the Date of Death Month or the Disability Full Payout Month.
"Disability Benefit Year" means any Plan Year within
which a Disability Benefit Payment becomes due.
"Disability Dividend Payment" means, for any Disability Benefit Year, a
payment of an amount equal to the amount, if any, by which (x) the sum of the
Assumed Cash Value at the earlier of the Disability Benefit Termination Date or
the close of such Year (determined as if the amount declared as a dividend on
the Policy for such Year had been determined by reference to the Insurer's
actual investment, expense and mortality experience), exceeds (y) the Assumed
Cash Value at such time (determined as if no amount was declared as a divi-
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dend on the Policy for such Year and there was no guaranteed interest rate with
respect to the Policy for such Year).
"Disability First Stage Primary Benefit Amount" means, for any
Disability Benefit Year, an amount equal to ten percent (10%) of the amount by
which (x) the Assumed Cash Value on the Disability Benefit Commencement Date,
exceeds (y) the Disability Minimum Post-Payout Amount.
"Disability First Stage Primary Benefit Payment" means, for any month
within a Disability Benefit Year, a payment of an amount sufficient to amortize
the Disability First Stage Primary Benefit Amount for such Year in twelve (12)
equal installments.
"Disability Full Payout Date" means the date on which one hundred
twenty (120) consecutive Disability Primary Benefit Payments have become
payable.
"Disability Full Payout Month" means the month that includes the
Disability Full Payout Date.
"Disability Interim Valuation Date" means the opening of the first
Disability Benefit Year beginning on or after the Normal Retirement Date.
"Disability Minimum Post-Payout Amount" means an amount equal to the
premium amount, determined pursuant to Section 6.1.4, to be necessary to
purchase a paid-up policy from the Insurer on the Disability Full Payout Date
equal in face amount to the aggregate amount of Premiums paid by the Company on
or before such Date or due and owing on such Date.
"Disability Primary Benefit Payment" means a Disability First Stage
Primary Benefit Payment or a Disability Second Stage Primary Benefit Payment.
"Disability Second Stage Primary Benefit Amount" means, for any
Disability Benefit Year, an amount equal to ten percent (10%) of the amount by
which (x) the Assumed Cash Value on the Disability Interim Valuation Date,
exceeds (y) the Disability Minimum Post-Payout Amount.
"Disability Second Stage Primary Benefit Payment" means, for any month
within a Disability Benefit Year, a payment of an amount sufficient to amortize
the Disability Second Stage Primary Benefit Amount for such Year in twelve (12)
equal installments.
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<PAGE>
"Disability Termination Date" means the date on which the Participant's
employment ceases on account of Disability.
"Domestic Entity" means any business entity that formed under the laws of
the United States, one of the fifty states or the District of Columbia.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any corresponding provisions of any subsequent federal law relating
to the regulation of employee benefit plans.
"Effective Date" means June 1, 1997.
"Estimated Marginal Income Tax Rate" means, for any Plan Year, the rate
for such Year described in Section 5.1.5(i)
"Event of Insolvency" means any failure by the Insurer, due to
financial incapacity or distress, to pay or lend the Company any amount to which
it may be entitled under the Policy.
"Final Determination" means any decision or agreement of a kind
described in Section 1313(a) of the Code that effects the Income Tax Liability
for any Plan Year.
"Foreign Entity" means any business entity that is not a
Domestic Entity.
"Full Payout Date" means the date on which one hundred twenty (120)
consecutive Primary Benefit Payments have become payable.
"Full Payout Month" means the month that includes the Full Payout Date.
"Guaranteed Cash Value" means, for the first day of any Plan Year, the
cash surrender value the Policy would have on such day if (i) every dividend
declared on the Policy for any prior Plan Year had been applied as a net single
premium to purchase paid-up whole life insurance or to fund a Permitted Payment;
(ii) the Policy has not lapsed on account of nonpayment of Premiums; (iii) the
Policy has not been surrendered in whole or in part (unless any amount obtained
upon such surrender has not been applied to fund a Permitted Payment); (iv) no
loan has been taken from the Insurer with respect to the Policy (unless the
proceeds from such loan have been applied to fund a Permitted Payment); (v) the
Company funded all Permitted Payments made on or before such day with amounts
obtained
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from the Insurer upon partial surrender of the Policy to the extent the amounts
so obtained could be excluded from its gross income for federal income tax
purposes pursuant to Section 72(e) of the Code, funded the balance of such
Payments with loans taken from the Insurer with respect to the Policy and paid
any interest on such loans when due; (vi) no dividends were payable for any
prior Plan Year; and (vii) such cash surrender value is calculated using a
guaranteed interest rate of four and five/tenths percent (4.5%).
"Guaranteed Adjustment Reimbursement Payment" means, for the first
month beginning after the Tax Filing Date for any Plan Year, a payment of an
amount equal to the amount, if any, by which (x) the aggregate amount of
Insolvency Retirement Payments payable for months ending with or before the
close of such Year, exceeds (y) the sum of the Insolvency Retirement Benefit
Amount at the close of such Year and the aggregate amount of Guaranteed
Adjustment Reimbursement Payments payable for months ending with or before the
close of such Year.
"Guaranteed Adjustment Disability Reimbursement Payment" means, for the
first month beginning after the Tax Filing Date for any Plan Year, a payment of
an amount equal to the amount, if any, by which (x) the aggregate amount of
Insolvency Disability Payments payable for months ending with or before the
close of such Year, exceeds (y) the sum of the Insolvency Disability Benefit
Amount at the close of such Year and the aggregate amount of Guaranteed
Adjustment Disability Reimbursement Payments payable for months ending with or
before the close of such Year.
"Guaranteed Benefit Payment" means any Guaranteed Disability Primary
Benefit Payment and any Insolvency Retirement Benefit Payment.
"Guaranteed Disability Benefit Payment" means any Guaranteed Primary
Benefit Payments and any Insolvency Disability Benefit Payment.
"Guaranteed Disability Full Payout Date" means the date on which one
hundred twenty (120) Primary Disability Benefit Payments and/or Guaranteed
Primary Disability Benefit Payments have become payable.
"Guaranteed Full Payout Date" means the first date by which one hundred
twenty (120) Primary Benefit Payments and/or Guaranteed Primary Retirement
Benefit Payments have become payable.
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"Guaranteed Permitted Payment" means a Guaranteed Primary Benefit
Payment or a Guaranteed Disability Primary Benefit Payment.
"Guaranteed Disability Primary Benefit Amount" means, for any
Disability Benefit Plan Year, an amount equal to ten percent (10%) of the
Guaranteed Cash Value on the Disability Benefit Commencement Date.
"Guaranteed Disability Primary Benefit Payment " means, for any
Disability Benefit Plan Year, a payment of an amount sufficient to amortize the
Guaranteed Primary Benefit Amount for such Year in twelve (12) equal
installments.
"Guaranteed Primary Benefit Amount" means, for any Plan Year, an amount
equal to ten percent (10%) of the Guaranteed Cash Value at the opening of the
first Plan Year beginning after the Normal Retirement Date.
"Guaranteed Primary Benefit Payment" means for any month within a
Guaranteed Primary Benefit Plan Year, a payment of an amount sufficient to
amortize the Guaranteed Primary Benefit Amount for such Year in twelve (12)
equal installments.
"Guaranteed Primary Benefit Plan Year" means any Plan Year beginning
after the Insolvency Year and before the earlier of the Causal Termination Date
or the Guaranteed Full Retirement Payout Date.
"Income Tax" means, whether or not capitalized, any tax based on net
income or excess profits (or any tax in lieu of such a tax) imposed by any
foreign country or possession of the United states or by the United States, any
state or territory of the United States or any political subdivision thereof.
"Income Tax Liability" means, with respect to any Plan Year, the total
amount of Income Taxes payable by the Company for such Year (determined as if
every Foreign Entity in which the Company owned a beneficial interest on any day
during such Year was taxable as a partnership for federal income tax purposes).
"Insurer" means Security Mutual Life Insurance Company of New York.
"Insolvency Date" means, the first date on which an Event of Insolvency
occurs.
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"Insolvency Disability Benefit Amount" means, for any Plan Year, the
amount, if any, by which (x) the sum of (A) the aggregate amount received in
respect of the Policy (whether from the Insurer; any successor to the Insurer;
or any receiver, liquidator, conservator, trustee, custodian, or other similar
official of the Insurer or of the whole or any substantial part of the
properties or assets of the Insurer; or from any fund or other arrangement
created for the purpose of guaranteeing, assuming or reinsuring, in whole or in
part, any or all of the policies issued by any insurance company or group of
insurance companies) after an Event of Insolvency, and (B) the Plan Tax Savings
at the close of such Year, exceeds (y) the sum of (A) the aggregate amount of
Guaranteed Permitted Payments which the Participant has received or is scheduled
to receive under the Plan for all Plan Years and the aggregate amount of
Premiums paid by the Company for all prior Plan Years, (B) the aggregate amount
assessed against the Company for all prior Plan Years with respect to the Policy
in connection with any rehabilitation, liquidation or similar proceeding
involving the Insurer, and (C) the aggregate amount of Insolvency Disability
Benefit Payments received in prior Years.
"Insolvency Disability Benefit Payment" means, for the first month
beginning after the close of any Plan Year, a payment of a sum equal to the
Insolvency Disability Amount at the close of such Year.
"Insolvency Retirement Benefit Amount" means, for any Plan Year, the
amount, if any, by which (x) the sum of (A) the aggregate amount received in
respect of the Policy (whether from the Insurer; any successor to the Insurer;
or any receiver, liquidator, conservator, trustee, custodian, or other similar
official of the Insurer or of the whole or any substantial part of the
properties or assets of the Insurer; or from any fund or other arrangement
created for the purpose of guaranteeing, assuming or reinsuring, in whole or in
part, any or all of the policies issued by any insurance company or group of
insurance companies) after an Event of Insolvency, and (B) the Plan Tax Savings
at the close of such Year, exceeds (y) the sum of (A) the aggregate amount of
Guaranteed Permitted Payments which the Participant has received or is scheduled
to receive under the Plan for all Plan Years and the aggregate amount of
Premiums paid by the Company for all prior Plan Years, (B) the aggregate amount
assessed against the Company for all prior Plan Years with respect to the Policy
in connection with any rehabilitation, liquidation or similar proceeding
involving the Insurer, and (C) the aggregate amount of
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Insolvency Retirement Benefit Payments received in prior Years.
"Insolvency Retirement Benefit Payment" means, for the first month
beginning after the close of any Plan Year, a payment of a sum equal to the
Insolvency Retirement Amount at the close of such Year.
"Insolvency Year" means, the first Plan Year within which an Event of
Insolvency occurs.
"Marginal Income Tax Rate" means, with respect to any Retirement
Benefit Year, the combined rate of federal state and local income tax to which
the last dollar earned by the Company for such Year will be subject (determined
taking into account any reduction in the applicable federal income rate on
account of any state or local income tax to which such last dollar is subject
that is allowed as a deduction for federal income tax purposes).
"Maturity Payment" means a payment of an amount equal to the amount by
which (x) the sum of the amount payable to the Company under the Policy upon
maturity thereof, the amount of any Unanticipated Indebtedness existing on at
such time and the amount of Unanticipated Withdrawals made prior to such time,
exceeds (y) the aggregate amount of Premiums paid by the Company on or before
such time (or due and owing on at such time).
"Minimum Post-Payout Amount" means an amount equal to the premium
amount necessary to purchase a paid-up policy from the Insurer on the Full
Payout Date equal in face amount to the aggregate amount of Premiums paid by the
Company on or before such Date or due and owing on such Date.
"Normal Retirement Date" means the day on which the Participant attains
age sixty-five (65).
"Normal Retirement Year" means the Plan Year within which
the Normal Retirement Date occurs.
"Other SERPs" means, collectively, the Robert Speisman Benefit Plan of
Lazare Kaplan International Inc. and the Sheldon L. Ginsberg Benefit Plan of
Lazare Kaplan International Inc.
"Participant" means Mr. Leon Tempelsman.
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"Participating Company" means the Company or any Affiliate thereof.
"Permitted Payment" means any Primary Benefit Payment, Retirement
Dividend Payment, Disability Benefit Payment or Disability Dividend Payment.
"Permitted Retirement Payment" means any Permitted Payment, other than
a Disability Benefit payment.
"Person" means, whether or not capitalized, any individual or trust,
estate, partnership, limited liability company, corporation or other entity.
"Plan" means the retirement benefit plan set forth herein, as amended
from time to time.
"Plan Tax Savings" means, at the end of any Plan Year, the portion of
the SERP Tax Savings at the close of such Year that is attributable to items
associated with this Plan (as determined in accordance with the procedure set
forth on the schedule annexed hereto as Exhibit D).
"Plan Year" means the annual period beginning June 1 and ending May 31.
"Policy" means the life insurance contract insuring the life of the
Participant that will be issued by the Insurer as of June 1, 1997, having terms
identical to the specimen life insurance contract policy annexed hereto as
Exhibit A.
"Premium" means any amount required to be paid as consi-
deration for the Policy.
"Primary Benefit Amount" means, for any Retirement Benefit Year, an
amount equal to ten percent (10%) of the amount by which (x) the Assumed Cash
Value on the Retirement Benefit Commencement Date, exceeds (y) the Minimum
Post-Payout Amount.
"Primary Benefit Payment" means, for any month within a Retirement
Benefit Year, a payment of an amount sufficient to amortize the Primary Benefit
Amount for such Year in twelve (12) equal installments.
"Primary Benefit Tax Amount" means, for any Retirement Benefit Plan
Year, such amount, if any, as may be determined by the Administrative Committee
for such Year pursuant to Section 5.1.5(ii).
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"Primary Benefit Tax Payment" means, for any month within a Retirement
Benefit Plan Year, a payment to the Participant in an amount sufficient to
amortize the Primary Benefit Tax Amount for such Year in twelve (12) equal
installments.
"Retirement Adjustment Payment" means, for any Retirement Benefit
Carryover Year, a payment of an amount equal to the excess, if any, of (x) the
sum of the Plan Tax Savings at the close of such Year and the aggregate amount
of Retirement Adjustment Reimbursement Payments payable to the Company for
months ending with or before the close of such Year, exceeds (y) the sum of the
aggregate amount of Primary Benefit Tax Payments and Retirement Adjustment
Payments payable for months ending with or before the close of such Year.
"Retirement Adjustment Reimbursement Payment " means, for any
Retirement Benefit Carryover Year, a payment of an amount equal to the amount,
if any, by which (x) the sum of the aggregate amount of Primary Benefit Tax
Payments and Retirement Adjustment Payments payable for months ending with or
before the close of such Year, exceeds (y) the sum of the Plan Tax Savings at
the close of such Year and the aggregate amount of Retirement Adjustment
Reimbursement Payments payable for months ending with or before the close of
such Year.
"Retirement Benefit Carryover Year" means any Plan Year to which any
tax attribute that arose in a Retirement Benefit Year can be carried for
purposes of determining the Company's Income Tax Liability for such Plan Year.
"Retirement Benefit Commencement Date" means the first day of the first
Plan Year beginning after the Normal Retirement Date or such later day to which
the commencement of Retirement Benefit Payments has been postponed pursuant to
Section 5.1.2.
"Retirement Benefit Payment" means any payment to which the Participant
is entitled pursuant to Section 5.1.
"Retirement Benefit Period" means the period commencing with the
Retirement Benefit Commencement Date and ending with the Retirement Benefit
Termination Date.
"Retirement Benefit Termination Date" means the last day of the
earliest of the Date of Death Month, the Causal Termination Month or the Full
Payout Month.
"Retirement Benefit Year" means any Plan Year within
which a Retirement Benefit Payment becomes due.
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"Retirement Date" means the date as of which the Participant
voluntarily ceases his employment with the Company.
"Retirement Dividend Payment" means, for any Retirement Benefit Year, a
payment of an amount equal to the amount, if any, by which (x) the Assumed Cash
Value at the earlier of the Retirement Benefit Termination Date or the close of
such Year (determined as if the amount declared as a dividend on the Policy for
such Year had been determined by reference to the Insurer's actual investment,
expense and mortality experience), exceeds (y) the Assumed Cash Value at such
time (determined as if no amount was declared as a dividend on the Policy for
such Year and there was no guaranteed interest rate with respect to the Policy
for such Year).
"SERP" means, this Plan, the Robert Speisman Benefit Plan
of Lazare Kaplan International Inc. and the Sheldon L.
Ginsberg Benefit Plan of Lazare Kaplan International Inc.
"SERP Participant" means, the Participant, Mr. Robert
Speisman or Mr. Sheldon L. Ginsberg.
"SERP Tax Savings" means, at the close of any Plan Year, the amount, if
any, by which (x) the aggregate Income Tax Liability the Company would have
incurred for all Plan Years beginning on or after the Effective Date and ending
on or before the last day of such Year (determined without taking into account
any Retirement Benefit Payment, Payment, Retirement Adjustment Reimbursement
Payment, Disability Benefit Payment, Disability Adjustment Reimbursement
Payment, Guaranteed Benefit Payment, Guaranteed Adjustment Reimbursement
Payment, Guaranteed Disability Benefit Payment or Guaranteed Disability
Adjustment Reimbursement Payment, paid or accrued on or before such day),
exceeds (y) the aggregate Income Tax Liability for such Plan Years (determined
taking into account any change in such aggregate Liability resulting from any
Final Determination made on or before such day).
"Service" means the Internal Revenue Service.
"Tax Filing Date" means, for any Plan Year, the day on which the
Company has filed the federal income tax return for such Year.
"Tempelsman Family Member" means. (i) Mr. Maurice Tempelsman; (ii)
any descendant (whether biological or adopted) of Mr. Maurice Tempelsman; (iii)
the spouse of any person described in clause (i) or (ii) hereof; (iv) the
estate of any person described in clause (i), (ii), or (iii) hereof; or (v)
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any trust created by or arising under the will of any person described in clause
(i), (ii), or (iii) hereof.
"Termination Date" means the date on which the Participant's employment
is terminated by action on the part of the Company.
"Unanticipated Indebtedness" means, at the Date of Death, the amount of
the indebtedness against the Policy existing at that time (including any
interest payable thereon but excluding the amount of any indebtedness against
the Policy the proceeds of which were used to make Permitted Payments).
"Unanticipated Withdrawal" means, at the earlier of the Date of Death
or the date on which the Policy is scheduled to mature, the aggregate amounts
obtained by the Company prior to such date upon surrender of all or a portion of
the Policy (excluding any such amount which was used make a Permitted Payment).
"Voting Share" means an outstanding security of the Company possessing
the right to vote for the election of directors of the Company.
Section 1.2 Rules of Construction. Unless the context otherwise
requires, (i) a term shall have the meaning assigned to it in Section 1.1; (ii)
references to the Participant's "employment" shall be to his full-time
employment by one or more Participating Companies and reference to him as
"employed" shall be to his being employed full time by one or more such; (iii)
if the Participant's employment ceases on account of disability, such cessation
will be deemed to have resulted from action on the part of the Company on
account of Disability; (iv) an insurance term not otherwise defined herein shall
have the meaning assigned to it in the Policy; (v) the Policy will be deemed to
be perpetual (i.e., will be deemed never to mature) if the Date of Death occurs
prior to the date on which the Policy is scheduled to mature; (vi) "or" shall
not be exclusive; (vii) words in the singular shall include the plural, and vice
versa; (viii) all references to "Section" or "Article" shall be to sections and
articles of this instrument; and (viii) words in the masculine gender shall
include the feminine and neuter, and vice versa.
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ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Nature of Plan. The Plan, together with two other
retirement benefit plans adopted by the Company as of the Effective Date, is
intended to qualify as unfunded for tax purposes and to qualify, for purposes of
title I of ERISA, as an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees of the Company . Consequently, the Participant shall be an
unsecured general creditor of the Company with respect to benefits to which he
is entitled hereunder and the Plan shall constitute a mere promise by the
Company to pay such benefits in the future. The benefits provided to the
Participant by the Plan are not part of any salary reduction plan and are not
provided in lieu of a bonus or salary increase. The Plan is not intended to
confer any legal rights upon the Participant for a continuation of employment,
nor shall its existence limit the Company's right to discharge the Participant
or otherwise deal with the Participant without regard to the effect its action
might have upon the Participant under the Plan. Any provision hereof to the
contrary notwithstanding, if a court of competent jurisdiction determines that
the Plan does not satisfy the definitional requirements of Section 201(2) of
ERISA and such determination becomes final, (i) the Plan shall be terminated ab
initio and neither the Participant nor the Beneficiary shall have any right to
receive any benefit under the Plan or under the Policy; and (ii) the Company
shall be entitled to a payment from the Participant of a sum equal to the
aggregate amount paid to him under the Plan and to a payment from the
Beneficiary in an amount equal to the portion of the death benefit paid to it
under the Policy.
Section 2.2 Name of Plan. The Plan shall be known as
the "Leon Tempelsman Benefit Plan of Lazare Kaplan Inter-
national Inc."
ARTICLE III
THE POLICY
Section 3.1 Purchase. Promptly following the Effective Date, the
Company shall purchase the Policy from the Insurer. The Company and the
Participant shall use their best efforts and shall otherwise take all necessary
action within their control to cause the Insurer to issue the Policy as of the
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earliest possible day beginning after May 31, 1997, and shall take any further
action within their control which may be necessary to cause the Policy to
conform to the terms and conditions of the Plan.
Section 3.2 Ownership. The Company shall be the sole and absolute owner
of the Policy, and except as otherwise provided by Section 3.5, shall have all
of the rights with respect thereto, including the right to (i) select the
settlement option under the Policy and the beneficiary or beneficiaries to
receive the portion of the Policy proceeds to which the Company is not entitled
under the Plan; (ii) assign or surrender the Policy; (iii) take or repay a
policy loan from the Insurer with respect to the Policy; (iv) pledge or assign
the policy for purposes of securing a loan from any person; (v) amend or modify
the Policy with the written consent of the Insurer, and (vi) exercise any right,
receive any benefit or enjoy any privilege provided by the Policy.
Notwithstanding the foregoing, once the Company has exercised its right to
designate the Beneficiary pursuant to clause (i) of the preceding sentence, it
shall not have the right to revoke or otherwise modify such designation.
Section 3.3 Payment of Premiums. On or before the due date of any
Premium, or within the grace period provided in the Policy, the Company shall
pay the full amount of the Premium to the Insurer, and shall promptly furnish
the Participant evidence of timely payment of such Premium. The Company shall
use its best efforts to furnish the Participant, within ninety (90) days after
the close of each calendar year, with a statement of the amount includible in
gross income by him for federal, state and local income tax purposes as a result
of having cost-free insurance protection provided under the Policy during the
calendar year.
Section 3.4 Payment of Tax-Related Bonuses. At the time it furnishes
the statement described in Section 3.3 for any calendar year beginning prior to
the Retirement Date, the Company shall pay the Participant, as compensation, an
amount equal to the aggregate amount of federal, state and local income taxes he
would be required to pay for the related calendar year if (i) the amount shown
on such statement constituted his entire gross income for such year; (ii) such
gross income was wholly allocable to New York City for state and local income
tax purposes; (iii) the state and local taxes payable on such gross income for
such calendar year were allowed as a deduction for such year in determining his
taxable income for federal income tax purposes; (iv) he was not allowed any
other deductions or any personal exemptions for such
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year in determining his taxable income for federal, state or local income tax
purposes; and (vi) he was subject to the highest marginal federal, New York
State and New York City income tax rates for such year applicable to individuals
having his marital and filing status. Notwithstanding the foregoing, (i) if the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause, the Company shall not be obligated to make any
payment pursuant to this Section 3.4 for any calendar year beginning after the
Normal Retirement Date; and (ii) if the Participant's employment is terminated
by action on the part of the Company for Cause, the Company shall not be
obligated to make any payment pursuant to this Section 3.4 for any calendar year
ending after the Termination Date.
Section 3.5 Endorsement. Promptly following the Effective Date, the
Company shall execute an endorsement to the Policy substantially in the form
annexed hereto as Exhibit B in order to secure the Company's recovery of the
greater of the cash value of the Policy or the aggregate amount of Premiums paid
by the Company. Such endorsement shall not be terminated or modified by the
Company without the express written consent of the Participant.
Section 3.6 Collection of Death Proceeds. Upon the death of the
Participant, the Company shall cooperate with the Beneficiary to take whatever
action is necessary to collect the death benefit payable under the Policy.
ARTICLE IV
ALLOCATION OF DEATH BENEFIT
Section 4.1 Death Prior to Cessation of Employment. If the Participant
is employed at the time of his death and has not yet attained the age of
seventy-five (75), the Company shall have the unqualified right to receive a
portion of the death benefit payable under the Policy equal to the Aggregate
Premium Amount, and the balance of such death benefit, if any, shall be paid
directly to the Beneficiary in the manner and in the amount or amounts provided
in the beneficiary designation provision of the Policy. In no event shall the
amount payable to the Company under this Section 4.1 exceed the amount of the
death benefit payable under the Policy. No amount shall be paid to the
Beneficiary from such death benefit until the amount due the Company under this
Section 4.1 has been paid in full. Notwithstanding the foregoing, if the
Participant has attained the age of seventy-five (75), the Company shall have
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the unqualified right to receive the entire death benefit then payable under the
Policy and no portion of such death benefit shall be paid to the Beneficiary.
Section 4.2 Death Subsequent to Retirement. If the Participant's death
occurs after Retirement, any death benefit payable under the Policy shall be
allocated as follows:
(i) If the Participant has attained age sixty-five (65) by the
Retirement Date and has not attained the age of seventy-five (75) by
the Date of Death, the Company shall have the unqualified right to
receive a portion of the death benefit payable under the Policy equal
to the Aggregate Premium Amount, and the balance of such death benefit,
if any, shall be paid directly to the Beneficiary in the manner and in
the amount or amounts provided in the beneficiary designation provision
of the Policy. In no event shall the amount payable to the Company
under this Section 4.2(i) exceed the amount of the death benefit
payable under the Policy. No amount shall be paid to the Beneficiary
from such death benefit until the amount due the Company under this
Section 4.2(i) has been paid in full.
(ii) If the Participant has attained the age of sixty-five
(65) by the Retirement Date and has attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right
to receive the death benefit payable under the Policy and no portion of
such death benefit shall be paid to the Beneficiary.
(iii) If the Participant has not attained the age of
sixty-five (65) by the Retirement Date, the Company shall have the
unqualified right to receive the death benefit payable under the Policy
and no portion of such death benefit shall be paid to the Beneficiary.
Section 4.3 Death Subsequent to Noncausal Termination. If the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability, any death benefit payable under the
Policy shall be allocated as follows:
(i) If the Participant has not attained the age of
seventy-five (75) by the Date of Death, the Company shall have the
unqualified right to receive
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a portion of the death benefit payable under the Policy equal to the
Aggregate Premium Amount prior to the Date of Death, and the balance of
such death benefit, if any, shall be paid directly to the Beneficiary
in the manner and in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the amount
payable to the Company under this Section 4.3(i) exceed the amount of
the death benefit payable under the Policy. No amount shall be paid to
the Beneficiary from such death benefit until the amount due the
Company under this Section 4.3(i) has been paid in full.
(ii) If the Participant has attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right
to receive the death benefit payable under the Policy and no portion of
such death benefit shall be paid to the Beneficiary.
Section 4.4. Death Subsequent to Causal Termination. If the
Participant's employment is terminated by action on the part of the Company for
Cause, the Company shall have the unqualified right to receive the death benefit
payable under the Policy and no portion of the death benefit payable under the
Policy shall be paid to the Beneficiary.
Section 4.5. Death Subsequent to Termination on Account of Disability.
If the Participant's employment is terminated by action on the part of the
Company on account of Disability and he has not attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right to
receive a portion of the death benefit payable under the Policy equal to the
Aggregate Premium Amount, and the balance of such death benefit, if any, shall
be paid directly to the Beneficiary in the manner and in the amount or amounts
provided in the beneficiary designation provision of the Policy. In no event
shall the amount payable to the Company under this Section 4.5 exceed the amount
of the death benefit payable under the Policy. No amount shall be paid to the
Beneficiary from such death benefit until the amount due the Company under this
Section 4.5 has been paid in full. If the Participant's employment terminates on
account of Disability and he has attained the age of seventy-five (75) by the
Date of Death, the Company shall have the unqualified right to receive the
entire death benefit payable under the Policy and no portion of such death
benefit shall be paid to the Beneficiary.
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ARTICLE V
RETIREMENT BENEFITS
Section 5.1 Normal Retirement.
Section 5.1.1 Payment of Retirement Benefits. If the
Participant has attained the age of sixty-five (65) and has been employed at all
times between the Effective Date and the Normal Retirement Date, he shall be
entitled to (i) a Primary Benefit Payment and a Primary Benefit Tax Payment for
each month within the Retirement Benefit Period; (ii) a Retirement Dividend
Payment for the first month beginning after the close of each Retirement Benefit
Year; (iii) a Death Benefit Payment for the earlier of the sixth month beginning
after the Date of Death or the first month beginning after the Death Benefit
Date; (iv) a Maturity Payment for the third month beginning after the date on
which the Policy is scheduled to mature; and (v) a Retirement Adjustment Payment
for the first month beginning after the Tax Filing Date for each Retirement
Benefit Carryover Year. Any payment to which the Participant shall be entitled
under this Section 5.1.1 for any month shall be made on or before the fifth
Business Day of such month.
Section 5.1.2 Postponement of Retirement Benefit Commencement
Date. The Administrative Committee, upon application by the Participant, shall
grant him one or more successive one- (1-) year postponements of the date on
which payment of Retirement Benefit Payments will commence. To satisfy the
requirements of this Section 5.1.2, (i) an application to the Administrative
Committee for any one- (1-) year postponement must be submitted (on a form
provided by the Committee) not more than three hundred (300) days and not less
than one hundred eighty (180) days before the date prescribed for the payment of
Retirement Benefit Payments to commence (as such date may have previously been
extended pursuant to this Section 5.- 1.2); (ii) no such Payments shall have
previously become due and payable. Regardless of whether any postponement
granted under this Section 5.1.2 is then in effect, the payment of Retirement
Benefit Payments shall in all events commence with the first month of the first
Plan Year beginning after the Retirement Date.
Section 5.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Retirement Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any
Retirement Benefit
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Carryover Year. Any payment to which the Company shall be entitled under this
Section 5.1.3 for any month shall be made on or before the fifth Business Day of
such month; provided, however, that the Company shall have the right to set off
amounts due and owing to it pursuant to this Section 5.1.3 against amounts
payable to the Participant under this Plan as such amounts become due.
Section 5.1.4 Determination of the Minimum PostPayout Amount.
On or before the first Business Day of the first Retirement Benefit Year, the
Administrative Committee, after due consultation with the Insurer's In Force
Reprojection Unit, shall make a good faith determination of the amount, if any,
of the Minimum Post-Payout Amount.
Section 5.1.5 Determination of Primary Benefit Tax Amount. On
or before the fifth Business Day of each Retirement Benefit Year, the
Administrative Committee shall (i) make a good faith estimation of what the
Marginal Income Tax Rate for such Year would be if every Foreign Entity in which
the Company owned a beneficial interest on any day during such Year were taxable
as a partnership for federal income tax purposes; and (ii) shall determine (in
accordance with the procedure set forth on the schedule annexed hereto as
Exhibit C) what the Primary Benefit Tax Amount for such year would be if (A) the
Marginal Income Tax Rate for such year were equal to the Estimated Marginal
Income Tax Rate for such Year, and (B) the only Retirement Benefit Payments paid
or accrued in such Year were the Primary Benefit Payments and the Primary
Benefit Tax Payments that are scheduled to be paid for such Year.
Section 5.1.6 Determination of Retirement Adjustment Amounts.
On or before the fifth Business Day following the Tax Filing Date for any
Retirement Benefit Carryover Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Retirement Adjustment Payment or the
Retirement Adjustment Reimbursement Payment that is payable for the first month
beginning after such Date.
Section 5.1.7 Determination of Death Benefit Payment. On or
before the fifth Business Day of following the Death Benefit Date, the
Administrative Committee, after due consultation with the Company's accountants,
shall make a good faith determination of the Death Benefit Payment that is
payable for the first month beginning after such Date.
Section 5.1.8 Determination of Maturity Payment. On
or before the fifth Business Day of the second month beginning
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after the date on which the Policy is scheduled to mature, the Administrative
Committee, after due consultation with the Company's accountants, shall make a
good faith determination of the Maturity Payment that is payable for the first
month beginning after such Date.
Section 5.2 Noncausal Termination.
Section 5.2.1 Noncausal Termination Prior to the Normal
Retirement Date. If at any time prior to the Normal Retirement Date, the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability and he has been employed at all times
between the Effective Date and the Termination Date, then upon attaining the age
of sixty-five (65) he shall be deemed, for purposes of Section 5.1 to have been
employed at all times between the Effective Date and the Normal Retirement Date
and to have voluntarily ceased his employment on such latter Date.
Section 5.2.2 Noncausal Termination on or after the Normal
Retirement Date. If at any time on or after the Normal Retirement Date, the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability and he has been employed at all times
since the Effective Date, then he shall be deemed, for purposes of Section 5.1,
to have voluntarily ceased his employment on the Termination Date.
Section 5.3 Cessation of Employment Within Change in Control Period.
Section 5.3.1 Retirement. If the Participant voluntarily
ceases his employment at any time within the Change in Control Period he shall
be entitled to a payment for the first month of the first Plan Year beginning
after the Retirement Date in an amount equal to the Assumed Cash Value of the
Policy at the opening of such month. The payment to which the Participant shall
be entitled under this Section 5.3.1 shall be made on or before the fifth
Business Day of such first month and shall be in lieu of any benefit to which he
may otherwise be entitled pursuant to this Agreement.
Section 5.3.2 Noncausal Termination. If at any time within the
Change in Control Period the Participant's employment is terminated by action on
the part of the Company for any reason other than Cause or Disability, he shall
be entitled to a payment for the first month of the first Plan Year beginning
after the Termination Date in an amount equal to the Assumed Cash Value of the
Policy at the opening of such month.
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The payment to which the Participant shall be entitled under this Section 5.3.2
shall be made on or before the fifth Business Day of such first month and shall
be in lieu of any benefit to which he may otherwise be entitled pursuant to this
Agreement.
Section 5.3.3 Noncausal Election. The Administrative
Committee, upon application by the Participant, shall grant him the right, in
lieu of any rights to which he would otherwise be entitled pursuant to Section
5.3.2, to be deemed, for purposes of Section 5.1, to have been employed at all
times between the Effective Date and the Normal Retirement Date and to have
voluntarily ceased his employment on such latter Date. To satisfy the
requirements of this Section 5.3.3, an application to the Administrative
Committee must be submitted (on a form provided by the Committee) on or before
the first anniversary of the day on which the related Change in Control occurs.
The Participant shall not be entitled to any amount pursuant to Section 5.1 on
account of an election made pursuant to this Section 5.3.3 unless the
Participant in fact attains the age of sixty-five (65).
ARTICLE VI
DISABILITY BENEFITS
Section 6.1. Disability Prior to Normal Retirement Date.
Section 6.1.1 Disability Benefit Payments. If the
Participant's employment ceases on account of Disability and he has been
employed at all times between the Effective Date and the Disability Termination
Date, he shall be entitled to (i) a Disability First Stage Primary Benefit
Payment and a Disability Primary Tax Payment for each month beginning on or
after the Disability Benefit Commencement Date and before the Disability Interim
Valuation Date; (ii) a Disability Second Stage Primary Benefit Payment and a
Disability Primary Tax Payment for each month beginning on or after the
Disability Interim Valuation Date and before the Disability Benefit Ter-
mination Date; (iii) a Disability Dividend Payment for the first month beginning
after the close of each Disability Benefit Year; (iv) a Death Benefit Payment
for the earlier of the sixth month beginning after the Date of Death or the
first month beginning after the Death Benefit Date; (v) a Maturity Payment for
the third month beginning after the date on which the Policy is scheduled to
mature; and (vi) a Disability Adjustment Payment for the first month beginning
after the Tax Filing Date for each Disability Benefit Carryover Year. Any
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payment to which the Participant shall be entitled under this Section 6.1 for
any month shall be made on or before the fifth Business Day of such month.
Section 6.1.2 Postponement of Disability Benefit Commencement
Date. The Administrative Committee, upon application by the Participant, shall
grant him one or more successive one- (1-) year postponements of the date on
which payment of Disability Benefit Payments will commence. To satisfy the
requirements of this Section 6.1.2, (i) an application to the Administrative
Committee for any one- (1-) year postponement must be submitted (on a form
provided by the Committee) not more than two hundred seventy (270) days and not
less than one hundred eighty (180) days before the date prescribed for the
payment of Disability Benefit Payments to commence (as such date may have
previously been extended pursuant to this Section 6.1.2); (ii) no such Payments
shall have previously become due and payable. Regardless of whether any
postponement granted under this Section 6.1.2 is then in effect, the payment of
Disability Benefit Payments shall in all events commence with the first month of
the first Plan Year beginning after the date on which the Participant attains
the age of sixty-five (65).
Section 6.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Disability Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any
Disability Benefit Carryover Year. Any payment to which the Company shall be
entitled under this Section 6.1.3 for any month shall be made on or before the
fifth Business Day of such month; provided, however, that the Company shall have
the right to set off amounts due and owing to it pursuant to this Section 6.1.3
against amounts payable to the Participant under this Plan as such amounts
become due.
Section 6.1.4 Determination of Disability Minimum Post-Payout
Amount. On or before the first Business Day of the first Disability Benefit Year
and on or before the Disability Interim Valuation Date, the Administrative
Committee, after due consultation with the Insurer's In Force Reprojection Unit,
shall make a good faith determination of the amount of the Disability Minimum
Post-Payout Amount
Section 6.1.5 Determination of Disability Primary Benefit Tax
Amount. On or before the fifth Business Day of each Disability Benefit Year, the
Administrative Committee shall (i) make a good faith estimation of the Marginal
Income Tax Rate for such Year; and (ii) shall determine (in accor-
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dance with the procedure analogous to those set forth on the schedule annexed
hereto as Exhibit C) what the Disability Primary Benefit Tax Amount for such
Year would be if (i) the Marginal Income Tax Rate for such Year were equal to
the Estimated Marginal Income Tax Rate for such Year, and (ii) the only
Disability Benefit Payments paid or accrued in such Year were the Disability
Primary Benefit Payments and the Disability Primary Benefit Tax Payments that
are scheduled to be paid for such Year.
Section 6.1.6 Determination of Disability Adjustment Amounts.
On or before the fifth Business Day following the Tax Filing Date for any
Disability Benefit Carryover Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Disability Adjustment Payment or the
Disability Adjustment Reimbursement Payment that is payable for the first month
beginning after such Date.
Section 6.1.7 Determination of Death Benefit Payment. On or
before the fifth Business Day following the Death Benefit Date, the
Administrative Committee, after due consultation with the Company's accountants,
shall make a good faith determination of the Death Benefit Payment that is
payable for the first month beginning after such Date.
Section 6.1.8 Determination of Maturity Payment. On or before
the fifth Business Day of the second month beginning after the date on which the
Policy is scheduled to mature, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the Maturity that is payable for the first month beginning
after such Date.
Section 6.2. Disability on or after Normal Retirement Date. If at any
time on or after the Normal Retirement Date, the Participant's employment ceases
on account of Disability and he has been employed at all times since the
Effective Date, then he shall be deemed, for purposes of Section 5.1, to have
voluntarily ceased his employment on the Disability Termination Date.
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ARTICLE VII
INSURER INSOLVENCY
Section 7.1 Retirement Benefits.
Section 7.1.1 Insolvency Prior to the Retirement Benefit
Commencement Date. If an Event of Insolvency occurs on or before the Retirement
Benefit Commencement Date and the Participant would be entitled, except that he
has filed or has the right to file an application pursuant to Section 5.1.2, to
commence receiving Retirement Benefit Payments for the first month of the first
Plan Year beginning after the later of the Normal Retirement Date or the
Insolvency Date; then in lieu of any Retirement Benefit Payments, the
Participant shall be entitled to (i) a Guaranteed Primary Benefit Payment for
each month beginning after the close of the later of the Normal Retirement Year
or the Insolvency Year and beginning on or before the earlier of the Causal
Termination Date or the Guaranteed Full Payout Date; and (ii) an Insolvency
Retirement Benefit Payment for the first month beginning after the close of each
Plan Year. Any payment to which the Participant shall be entitled under this
Section 7.1.1 for any month shall be made on or before the fifth Business Day of
such month.
Section 7.1.2 Insolvency Subsequent to the Retirement Benefit
Commencement Date. If an Event of Insolvency occurs after the Retirement Benefit
Commencement Date, then in lieu of any Retirement Benefit Payments due on, or
payable after such Date, the Participant shall be entitled to (i) a Guaranteed
Primary Benefit Payment for each month beginning on or after such Date and
beginning on or before the earlier of the Causal Termination Date or the
Guaranteed Full Payout Date; and (ii) an Insolvency Retirement Benefit Payment
for the first month beginning after the close of each Plan Year. Any payment to
which the Participant shall be entitled under this Section 7.1.2 for any month
shall be made on or before the fifth Business Day of such month.
Section 7.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Guaranteed Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any Plan
Year. Any payment to which the Company shall be entitled under this Section
7.1.3 for any month shall be made on or before the fifth Business Day of such
month; provided, however, that the Company shall have the right to set off
amounts due and owing to it
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pursuant to this Section 7.1.3 against amounts payable to the Participant under
this Plan as such amounts become due.
Section 7.1.4 Determination of Guaranteed Adjustment
Reimbursement Amounts. On or before the fifth Business Day following the Tax
Filing Date for any Plan Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Guaranteed Adjustment Reimbursement
Payment that is payable for the first month beginning after such Date.
Section 7.2 Disability Benefits.
Section 7.2.1 Insolvency Prior to the Disability Benefit
Commencement Date. If an Event of Insolvency occurs on or before the Disability
Benefit Commencement Date, and the Participant would be entitled, except that he
has filed or has the right to file an application pursuant to Section 6.1.2, to
commence receiving Disability Benefit Payments for the first month of the first
Plan Year beginning after the latest of the Disability Termination Date, the
date on which the Participant attains the age of sixty (60) or the Insolvency
Date, then in lieu of any Disability Benefit Payment, the Participant shall be
entitled to (i) a Guaranteed Disability Primary Benefit Payment for each month
beginning after the close of the latest of the Plan Year in which the Disability
Termination Date occurs, the Plan Year in which the Participant attains the age
of sixty (60) or the Insolvency Year and beginning on or before the earlier of
the Causal Termination Date or the Guaranteed Full Disability Payout Date; and
(ii) an Insolvency Disability Benefit Payment for the first month beginning
after the close of each Plan Year. Any payment to which the Participant shall be
entitled under this Section 7.2.1 for any month shall be made on or before the
fifth Business Day of such month.
Section 7.2.2 Insolvency After the Disability Benefit
Commencement Date. If at the time an Event of Insolvency occurs a Primary
Disability Benefit Payment has become payable, then in lieu of any future
Disability Benefit Payments, the Participant shall be entitled to (i) a
Guaranteed Primary Disability Benefit Payment for each month beginning on or
after the Insolvency Date and beginning on or before the earlier of the Causal
Termination Date or the Guaranteed Full Disability Payout Date; and (ii) an
Insolvency Disability Benefit Payment for the first month beginning after the
close of each Plan Year. Any payment to which the Participant shall be
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entitled under this Section 7.2.2 for any month shall be made on or before the
fifth Business Day of such month.
Section 7.2.3 Certain Reimbursement Payments. The Company
shall be entitled to a Guaranteed Disability Adjustment Reimbursement Payment
from the Participant for the first month beginning after the Tax Filing Date for
any Plan Year. Any payment to which the Company shall be entitled under this
Section 7.2.3 for any month shall be made on or before the fifth Business Day of
such month; provided, however, that the Company shall have the right to set off
amounts due and owing to it pursuant to this Section 7.1.3 against amounts
payable to the Participant under this Plan as such amounts become due.
Section 7.2.4 Determination of Guaranteed Disability
Adjustment Reimbursement Amounts. On or before the fifth Business Day following
the Tax Filing Date for any Plan Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Guaranteed Adjustment Reimbursement
Payment that is payable for the first month beginning after such Date.
Section 7.3 Curative Adjustments. If at any time following the
occurrence of an Event of Insolvency the Policy has been restored to its full
cash value, the death benefit payable under the Policy has either been
unaffected by such Event or has been fully reinstated and all other rights and
benefits that the Company or the Beneficiary possessed under the Policy prior to
such Event and that were adversely affected by such Event have been fully
reinstated; the Administrative Committee shall, to the extent possible, make one
or more payments to the Participant so that, immediately following the last such
payment, the net amount paid to the Participant under the Plan equals the net
amount that would have been payable to him if such Event had not occurred.
ARTICLE VIII
AMENDMENT
This Plan may be amended by action of the Board of Directors; provided,
however, that it may not be amended so as to adversely affect the rights of the
Participant or the Beneficiary unless the affected party consents to such
amendment in writing. Notwithstanding the foregoing, this Plan may be amended,
without the consent of the Participant or the Benefi-
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ciary, so as to (i) change the meaning of the term "Plan Year" whenever the
Company changes its taxable year for federal income tax purposes so that each
Plan Year is coterminous with the taxable year of the Company with which it
commenced; and (ii) provide that once the Primary Benefit Amount or the
Disability Primary Benefit Amount for any Plan Year has been determined, the
Primary Benefit Amount or Disability Primary Benefit Amount for any subsequent
Plan Year will not be affected by any intervening change in the meaning of the
term "Plan Year."
ARTICLE IX
ADMINISTRATION
Section 9.1 Administrative Committee. This Plan shall be administered
by an Administrative Committee appointed by the Board of Directors. In addition
to such powers as may be delegated to it by the Board of Directors, the
Administrative Committee shall have the power to (i) interpret this Plan, (ii)
establish such rules (not inconsistent with the terms of this Plan) as it may
deem necessary for the administration of this Plan, (iii) make such
determinations as are necessary for the administration of this Plan, (iv) employ
agents, attorneys, actuaries, auditors, and accountants to furnish services in
connection with this Plan, and (v) calculate benefits due under this Plan. The
Administrative Committee shall have authority to delegate responsibility for
performance of ministerial functions necessary for administration of this Plan
to such officers of the Participating Companies, including Participants, as it
shall, in its sole discretion, deem appropriate.
Section 9.2 Administration Costs. All expenses incurred in connection
with the administration of this Plan shall be borne by the Company.
Section 9.3 Legal Limitation. No member of the Administrative Committee
shall be required to authorize or engage in any transaction which he determines,
in his sole discretion, to be unlawful or might subject him, any Participating
Company, the Participant or any Beneficiary to liability (other than liability
for taxes) under federal, state or local law.
Section 9.4 Records. The records of the Administrative Committee with
respect to this Plan shall, absent manifest error, be conclusive and binding on
all concerned parties.
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Section 9.5 Claims Procedure.
Section 9.5.1 Filing of Claims. Any person who believes that
he or she is being denied a benefit to which he or she is entitled under this
Plan may file a written request for such benefit with the Administrative
Committee setting forth his or her claim. The request must be addressed to the
Administrative Committee at the Company's then principal place of business.
Section 9.5.2 Claim Decision. Upon receipt of a claim, the
Administrative Committee shall advise the claimant that a reply will be
forthcoming within ninety (90) days and shall, in fact, deliver such reply
within such period. The Administrative Committee may, however, extend the reply
period for an additional ninety (90) days for reasonable cause. To deny a claim
in whole or in part, the Administrative Committee shall render a written
opinion, using language calculated to be understood by the claimant, setting
forth (i) the specific reason or reasons for such denial; (ii) the specific
reference to pertinent provisions of this Plan on which such denial is based;
(iii) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation why such material or such
information is necessary; and (iv) appropriate information as to the steps to be
taken if the claimant wishes to submit the claim for review. If such a written
opinion is not furnished to the claimant within the reply period (as it may be
extended for reasonable cause by the Administrative Committee), the claim shall
be deemed to have been denied.
Section 9.5.3 Request for Review. Within sixty (60) days after
the receipt by the claimant of a written or a deemed denial, the claimant may
request in writing that the Administrative Committee review the determination.
Such request must be addressed to Administrative Committee, at its the Company's
then principal place of business. The claimant or his or her duly authorized
representative may, but need not, review the pertinent documents and submit
issues and comments in writing for consideration by the Administrative
Committee. If the claimant does not request a review of the determination by the
Administrative Committee within such sixty- (60-) day period, he or she shall be
barred and estopped from challenging the determination.
Section 9.5.4 Review of Decision. Within sixty (60) days after
the Administrative Committee's receipt of a request for review, it shall review
its determination. After considering all materials presented by the claimant,
the Administra-
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tive Committee shall render a written opinion, written in a manner calculated to
be understood by the claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Plan on which the decision is based. If special circumstances require that the
sixty- (60-) day time period be extended, the Administrative Committee will so
notify the claimant and will render the decision as soon as possible, but no
later than one hundred twenty (120) days after receipt of the request for
review. If the Administrative Committee's decision on review is not furnished to
the claimant within the time limitations described above, the claim will be
deemed denied on review.
Section 9.5.5 Binding Effect. All claim decisions made by the
Administrative Committee pursuant to this Section 9.6 shall, in the absence of a
showing of bad faith, be deemed final and non-appealable to the extent they
pertain to prior determinations made by the Administrative Committee under
Section 5.1 or Section 6.1.
ARTICLE X
MISCELLANEOUS
Section 10.1 No Transfers. The Participant shall not have, during his
lifetime, any right to assign or alienate in any other manner any rights he may
have under the Plan, nor shall any such rights be subject to garnishment or any
similar procedure.
Section 10.2 Nature of Plan; Remedies. This Plan is in the nature of a
contract between the Company and the Participant. If the Company shall commit or
threaten to commit a breach of any of its obligations hereunder, any person
adversely affected thereby shall be entitled, in addition to any other remedy to
which he may be entitled at law or in equity, to an injunction or injunctions to
prevent breaches of the provisions of this Plan and to have the right to have
the provisions of this instrument specifically enforced, it being acknowledged
and agreed that any such breach would cause irreparable damage to such person
for which money damages could not provide an adequate remedy.
Section 10.3 Headings and Captions. The headings and captions contained
in this Plan are inserted for convenience only and shall not in any way affect
the meaning or interpretation hereof.
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Section 10.4 Construction. No strict rule of construction shall be
applied against the Company.
Section 10.5 Late Payments. If all or any portion of any amount payable
to the Participant or the Company pursuant to this agreement is made more than
ten (10) days after such payment is due, such past due payment shall bear simple
interest (on the basis of a 360-day year) from the due date thereof at a rate
equal to four percentage points over the rate of interest publicly announced by
Citibank, N.A. as its prime rate in effect at its principal office in New York
City, as such rate may fluctuate from time to time.
Section 10.6 Assignment. No amount distributable or to become
distributable to any person under this Plan shall be transferable, assignable or
subject to interference or control by any creditors of such person, or subject
to any claim for alimony or for the support of a spouse pursuant to a decree of
divorce or legal separation, or to being taken or reached by any legal or
equitable process in satisfaction of any debt or obligation of such person prior
to his receipt of such amount.
Section 10.7 Severability. If any particular provision of this Plan
shall be found to be illegal, invalid or unenforceable in any situation or
jurisdiction, such provision shall not affect the validity or enforceability of
the remaining provisions hereof or the validity or enforceability of the
offending provision in any other situation or jurisdiction. If the final
judgment of a court of competent jurisdiction declares any provision of this
Plan illegal, invalid or unenforceable, such court shall have the power to
reduce the scope, duration or area of such provision, to delete specific words
or phrases, or to replace any illegal, invalid or unenforceable provision with a
provision that is legal, valid and enforceable and that comes closest to
expressing the intention of the offending provision
Section 10.8 Applicable Law. This Plan shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of New York.
Section 10.9 Jurisdiction; Counsel Fees. Any legal proceedings arising
under or relating to this Plan shall be brought in any federal or state court of
general jurisdiction that is situated within the county and state of New York.
The reasonable attorneys' fees, court costs, expert witness fees and other
expenses of the prevailing party or parties in any such proceeding shall be paid
by the other party or parties to such proceeding, in such proportions as the
court shall deter-
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mine, unless the court determines, on the basis of all the facts and
circumstances, that the position of such other party or parties was
substantially justified or that other circumstances made an award of litigation
expenses unjust. For purposes of this Section 10.9, a party shall be deemed to
have prevailed in a legal proceeding if he substantially prevailed with respect
to the amount in controversy or the most significant issue or set of issues
actually litigated and decided.
Section 10.10 Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Participant: Mr. Leon Tempelsman
140 Riverside Drive
New York, New York 10024
With a copy to: Leon Tempelsman & Son
529 Fifth Avenue
New York, New York 10022
Attn: Mr. Dan Morson
If to the Company: Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10022
Attn: Administrative Committee
of the Board of Directors
With a copy to: Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attn: Frederick R. Cummings, Esq.
Executed as of the 1st day of June, 1997.
LAZARE KAPLAN INTERNATIONAL INC.
By:___________________________
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APPENDIX A
ERISA RIGHTS
The Regulations of the Department of Labor require that the following
information with respect to your rights under ERISA be annexed to this
instrument.
As the sole participant in the Leon Tempelsman Retirement Benefit Plan
of Lazare Kaplan International Inc., you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 ("ERISA").
ERISA provides that you shall be entitled to:
(i) Examine, without charge, at the Plan administrator's
office and at other specified locations, all Plan documents, including
any insurance contracts, and copies of all documents filed by the Plan
with the U.S. Department of Labor, such as detailed annual reports and
Plan descriptions.
(ii) Obtain copies of all Plan documents and other Plan
information upon written request to the Plan administrator. The Plan
administrator may make a reasonable charge for the copies.
(iii) Receive a summary of the Plan's annual financial report.
The plan administrator is required by law to furnish you with a copy of
this summary annual report.
(iv) Obtain a statement telling you whether you have a right
to receive a retirement benefit at your normal retirement age (age 65)
and, if so, what your benefits would be at normal retirement age if you
stop working under the Plan now. If you do not have a right to a
retirement benefit, the statement will tell you how many more years you
have to work to get a right to a retirement benefit. This statement
must be requested in writing and is not required to be given more than
once a year. The Plan must provide the statement free of charge.
(v) File suit in a federal court, if any ma-
terials requested are not received within 30 days
<PAGE>
<PAGE>
of your request, unless the materials were not sent because of matters
upon the control of the administrator. The court may require the Plan
administrator to pay up to $100 for each day's delay until the
materials are received.
In addition to creating rights for you, ERISA imposes obligations upon
the people who are responsible for the operation of the Plan.
The people who operate your Plan, called "fiduciaries;" of the Plan,
have a duty to act prudently and in the interest of you and your beneficiaries.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
retirement benefit or exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part,
you must receive a written explanation of the reason for the denial. You have
the right to have the Plan review and reconsider your claim.
If you have a claim for benefits which is denied or ignored, in whole
or in part, you may file suit in a state or federal court. If it should happen
that Plan fiduciaries misuse the Plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in a federal court. The court will
decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these
costs and fees, for example, if it finds your claim is frivolous.
If you have any questions about your Plan, you should contract the Plan
administrator.
If you have any questions about this statement or about your rights
under ERISA, you should contact the nearest area office of the United States
Labor - Management Services Administration, Department of Labor.
<PAGE>
<PAGE>
APPENDIX B
OTHER INFORMATION
PLAN NAME: Leon Tempelsman Retirement Benefit
Plan of Lazare Kaplan International
Inc.
PLAN SPONSOR: Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10022
EMPLOYER IDENTIFICATION
NUMBER:
TYPE OF PLAN: Pension Plan
PLAN IDENTIFICATION
NUMBER:
PLAN ADMINISTRATOR: The Plan is administered by the
Administrative Committee of the
Board of Directors which maintains
an office at:
Lazare Kaplan International Inc.
529 Fifth Avenue
New York, NY 10022
AGENT FOR SERVICE
OF LEGAL PROCESS:
<PAGE>
<PAGE>
SHELDON L. GINSBERG RETIREMENT BENEFIT PLAN
OF
LAZARE KAPLAN INTERNATIONAL INC.
EFFECTIVE AS OF JUNE 1, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PRELIMINARY STATEMENT........................................................... 1
ARTICLE I DEFINITIONS............................................ 1
Section 1.1 Definitions............................................ 1
Section 1.2 Rules of Construction.................................. 14
ARTICLE II ORGANIZATIONAL MATTERS................................. 15
Section 2.1 Nature of Plan......................................... 15
Section 2.2 Name of Plan........................................... 15
ARTICLE III THE POLICY............................................. 15
Section 3.1 Purchase............................................... 15
Section 3.2 Ownership.............................................. 16
Section 3.3 Payment of Premiums.................................... 16
Section 3.4 Payment of Tax-Related Bonuses......................... 16
Section 3.5 Endorsement............................................ 17
Section 3.6 Collection of Death Proceeds........................... 17
ARTICLE IV ALLOCATION OF DEATH BENEFIT............................ 17
Section 4.1 Death Prior to Cessation
of Employment........................................ 17
Section 4.2 Death Subsequent to Retirement......................... 18
Section 4.3 Death Subsequent to Noncausal
Termination.......................................... 18
Section 4.4 Death Subsequent to Casual
Termination.......................................... 19
Section 4.5 Death Subsequent to Termination
on Account of Disability............................. 19
ARTICLE V RETIREMENT BENEFITS.................................... 20
Section 5.1 Normal Retirement...................................... 20
Section 5.2 Noncausal Termination.................................. 22
Section 5.3 Cessation of Employment Within
Change in Control Period............................. 22
</TABLE>
(i)
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI DISABILITY BENEFITS.................................... 23
Section 6.1 Disability Benefit Payments............................ 23
Section 6.2 Disability on or after Normal
Retirement Date...................................... 25
ARTICLE VII INSURER INSOLVENCY..................................... 26
Section 7.1 Retirement Benefits.................................... 26
Section 7.2 Disability Benefits.................................... 27
Section 7.3 Curative Adjustments................................... 28
ARTICLE VIII AMENDMENT.............................................. 28
ARTICLE IX ADMINISTRATION......................................... 29
Section 9.1 Administrative Committee............................... 29
Section 9.2 Administration Costs................................... 29
Section 9.3 Legal Limitation....................................... 29
Section 9.4 Records................................................ 29
Section 9.5 Claims Procedure....................................... 30
ARTICLE X MISCELLANEOUS.......................................... 31
Section 10.1 No Transfers........................................... 31
Section 10.2 Nature of Plan; Remedies............................... 31
Section 10.3 Headings and Captions.................................. 31
Section 10.4 Construction........................................... 32
Section 10.5 Late Payments.......................................... 32
Section 10.6 Assignment............................................. 32
Section 10.7 Severability........................................... 32
Section 10.8 Applicable Law......................................... 32
Section 10.9 Jurisdiction; Counsel Fees............................. 32
Section 10.10 Notices; Etc........................................... 33
</TABLE>
ERISA RIGHTS............................................. APPENDIX A
OTHER INFORMATION........................................ APPENDIX B
SPECIMEN POLICY.......................................... EXHIBIT A
SPLIT DOLLAR ENDORSEMENT................................ EXHIBIT B
PROCEDURE FOR DETERMINING PRIMARY
BENEFIT TAX AMOUNT.................................... EXHIBIT C
PROCEDURE FOR DETERMINING PLAN TAX SAVINGS.............. EXHIBIT D
(ii)
<PAGE>
<PAGE>
PRELIMINARY STATEMENT
In recognition of the contribution Mr. Sheldon L. Ginsberg has made
to its overall success and to encourage Mr. Ginsberg to remain in its employ,
Lazare Kaplan International Inc. wishes to provide Mr. Ginsberg with certain
benefits. To accomplish the foregoing, a retirement benefit plan has been
adopted that reads in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this instrument, the
following terms have the respective meanings set forth in this Section 1.1.
"Administrative Committee" means the committee appointed pursuant to
Section 9.1 to manage and administer this Plan.
"Affiliate" means any entity that, directly or indirectly through one
or more intermediaries, controls, is controlled by or is under common control
with the Company.
"Aggregate Premium Amount" means the greater of (x) the aggregate
amount of Premiums paid by the Company on or before the Date of Death or due and
owing on such Date, or (y) the cash surrender value of the Policy on such the
Date.
Assumed Cash Value" means, for any day of any Plan Year, the cash
surrender value the Policy would have on such day if (i) any dividend declared
on the Policy for any prior Plan Year was applied as a net single premium to
purchase paid-up whole life insurance or to fund a Permitted Payment; (ii) the
Policy has not lapsed on account of nonpayment of Premiums; (iii) the Policy has
not been surrendered in whole or in part (unless any amount obtained upon such
surrender has been applied to fund a Permitted Payment); (iv) no loan has been
taken from the Insurer with respect to the Policy (unless the proceeds from such
loan have been applied to fund a Permitted Payment); and (v) the Company funded
all Permitted Payments made on or before such day with amounts obtained from the
Insurer upon partial surrender of the Policy to the extent the amounts so
obtained could be excluded from its gross income for federal income tax purposes
pursuant to Section 72(e) of the Code, funded the balance of such Payments with
loans taken from the Insurer with respect to the Policy and paid any interest on
such loans when due.
-1-
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<PAGE>
"Beneficiary" means the person or persons the Company has designated as
the beneficiary or beneficiaries under the Policy.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day on which banks within the State of New
York are required to be opened for business.
"Causal Termination Month" means the month in which the Participant's
employment was terminated for Cause by action on the part of the Company.
"Cause" means, with respect to the Participant, conduct that is
demonstrably and materially injurious to the Company that a majority of the
entire membership of the Board of Directors determines constituted (i) fraud,
misappropriation or embezzlement; (ii) a breach of fiduciary duty involving
personal profit; (iii) a willful failure (after written notice thereof and an
adequate opportunity to correct) to perform stated a task within the scope of
his duties, including a willful failure to comply with a lawful resolution of
the Board of Directors; or (iv) a willful violation of any law (other than a
misdemeanor) of which the Participant was aware.
"Change in Control" means, with respect to the Company, (i) the
acquisition by one person or entity, or more than one person or entity acting as
a group, within any twelve- (12-) month period, of ownership of Voting Shares
possessing more than thirty percent (30%) of the total voting power for the
election of the Board of Directors (excluding, however, acquisitions by (A) the
Company or its Affiliates, (B) any employee benefit plan sponsored by the
Company or its Affiliates or (C) a Tempelsman Family Member or any entity
controlled by one or more such Members; (ii) the consummation of a consolidation
or merger of the Company with and into, or a transfer of all or substantially
all the assets of the Company to, another entity, other than an entity in which
those persons holding Voting Shares immediately prior to such transaction, have
substantially the same proportionate voting rights in respect of such entity,
immediately after such transaction, as they had in respect of the Company
immediately prior to such transaction; (iii) the approval by the shareholders of
the Company and/or the Board of Directors of a plan for the liquidation or
dissolution of the Company; or (iv) the appointment of any person to the Board
of Directors if, by such appointment, a majority of the members of such Board
ceases to consist of individuals who are Continuing Directors.
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<PAGE>
"Change in Control Period" means, with respect to any day on which a
Change in Control occurs, the two- (2-) year period beginning with such day.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provisions of any subsequent federal revenue law.
"Company" means Lazare Kaplan International Inc, a Delaware
corporation, its successors and assigns.
"Continuing Director" means a member of the Board of Directors who
either (i) was a member of such Board on the Effective Date, or (ii) was
nominated or appointed (before his initial election) to serve as a member by a
majority of the members of such Board who were persons described in clause (i)
hereof at the time of such nomination or appointment.
"Date of Death" means the date on which the Participant dies.
"Date of Death Month" means the month that includes the Date of Death.
"Death Benefit Date" means the date on which the death benefit payable
under the Policy is paid.
"Death Benefit Payment" means a payment of an amount equal to the
amount by which (x) the sum of the death benefit paid to the Company under the
Policy, the amount of any Unanticipated Indebtedness existing on the Date of
Death and the amount of Unanticipated Withdrawals made prior to such Date,
exceeds (y) the aggregate amount of Premiums paid by the Company on or before
such Date (or due and owing on such Date).
"Disability" means, with respect to the Participant, any medically
determinable physical or mental impairment that the Administrative Committee, on
the basis of competent medical evidence, reasonably expects to result in death,
or to be of long-continued and indefinite duration of not less than twelve
months, and considers to have rendered the Participant substantially unable to
perform his stated duties on a full-time basis.
"Disability Adjustment Payment" means, for any Disability Benefit
Carryover Year, a payment of an amount equal to the amount, if any, by which (x)
the sum of the Plan Tax Savings at the close of such Year and the aggregate
amount of Disability Adjustment Reimbursement Payments received by the Company
pri-
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<PAGE>
<PAGE>
or to the close of such Year, exceeds (y) the sum of the aggregate amount of
Disability Primary Benefit Tax Payments paid prior to the close of such Year and
the aggregate amount of Disability Adjustment Payments paid prior to such time.
"Disability Adjustment Reimbursement Payment " means, for any
Disability Benefit Carryover Year, the amount, if any, by which (x) the sum of
the aggregate amount of Disability Primary Benefit Tax Payments and Disability
Adjustment Reimbursement Payments paid prior to the close of such Year, exceeds
(y) the sum of the Plan Tax Savings at the close of such Year and the aggregate
amount of Disability Adjustment Reimbursement Payments paid prior to the close
of such Year.
"Disability Benefit Carryover Year" means any Plan Year to which any
tax attribute that arose in a Disability Benefit Year can be carried for
purposes of determining the Company's Income Tax Liability for such Plan Year.
"Disability Benefit Commencement Date" means the first day of the first
Plan Year beginning on or after the latest of (i) the Disability Termination
Date; (ii) the date on which the Participant attains the age of sixty (60); or
(iii) such later day to which the commencement of Disability Benefit Payments
has been postponed pursuant to Section 6.1.2.
"Disability Benefit Payment" means any payment to which the Participant
is entitled pursuant to Section 6.1.
"Disability Benefit Period" means the period commencing with the
Disability Benefit Commencement Date and ending with the Disability Benefit
Termination Date.
"Disability Benefit Termination Date" means the last day of the
earliest of the Date of Death Month or the Disability Full Payout Month.
"Disability Benefit Year" means any Plan Year within which a Disability
Benefit Payment becomes due.
"Disability Dividend Payment" means, for any Disability Benefit Year, a
payment of an amount equal to the amount, if any, by which (x) the sum of the
Assumed Cash Value at the earlier of the Disability Benefit Termination Date or
the close of such Year (determined as if the amount declared as a dividend on
the Policy for such Year had been determined by reference to the Insurer's
actual investment, expense and mortality experience), exceeds (y) the Assumed
Cash Value at such time (determined as if no amount was declared as a divi-
-4-
<PAGE>
<PAGE>
dend on the Policy for such Year and there was no guaranteed interest rate with
respect to the Policy for such Year).
"Disability First Stage Primary Benefit Amount" means, for any
Disability Benefit Year, an amount equal to ten percent (10%) of the amount by
which (x) the Assumed Cash Value on the Disability Benefit Commencement Date,
exceeds (y) the Disability Minimum Post-Payout Amount.
"Disability First Stage Primary Benefit Payment" means, for any month
within a Disability Benefit Year, a payment of an amount sufficient to amortize
the Disability First Stage Primary Benefit Amount for such Year in twelve (12)
equal installments.
"Disability Full Payout Date" means the date on which one hundred
twenty (120) consecutive Disability Primary Benefit Payments have become
payable.
"Disability Full Payout Month" means the month that includes the
Disability Full Payout Date.
"Disability Interim Valuation Date" means the opening of the first
Disability Benefit Year beginning on or after the Normal Retirement Date.
"Disability Minimum Post-Payout Amount" means an amount equal to the
premium amount, determined pursuant to Section 6.1.4, to be necessary to
purchase a paid-up policy from the Insurer on the Disability Full Payout Date
equal in face amount to the aggregate amount of Premiums paid by the Company on
or before such Date or due and owing on such Date.
"Disability Primary Benefit Payment" means a Disability First Stage
Primary Benefit Payment or a Disability Second Stage Primary Benefit Payment.
"Disability Second Stage Primary Benefit Amount" means, for any
Disability Benefit Year, an amount equal to ten percent (10%) of the amount by
which (x) the Assumed Cash Value on the Disability Interim Valuation Date,
exceeds (y) the Disability Minimum Post-Payout Amount.
"Disability Second Stage Primary Benefit Payment" means, for any month
within a Disability Benefit Year, a payment of an amount sufficient to amortize
the Disability Second Stage Primary Benefit Amount for such Year in twelve (12)
equal installments.
-5-
<PAGE>
<PAGE>
"Disability Termination Date" means the date on which the Participant's
employment ceases on account of Disability.
"Domestic Entity" means any business entity that formed under the laws of
the United States, one of the fifty states or the District of Columbia.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any corresponding provisions of any subsequent federal law relating
to the regulation of employee benefit plans.
"Effective Date" means June 1, 1997.
"Estimated Marginal Income Tax Rate" means, for any Plan Year, the rate
for such Year described in Section 5.1.5(i)
"Event of Insolvency" means any failure by the Insurer, due to
financial incapacity or distress, to pay or lend the Company any amount to which
it may be entitled under the Policy.
"Final Determination" means any decision or agreement of a kind
described in Section 1313(a) of the Code that effects the Income Tax Liability
for any Plan Year.
"Foreign Entity" means any business entity that is not a Domestic
Entity.
"Full Payout Date" means the date on which one hundred twenty (120)
consecutive Primary Benefit Payments have become payable.
"Full Payout Month" means the month that includes the Full Payout Date.
"Guaranteed Cash Value" means, for the first day of any Plan Year, the
cash surrender value the Policy would have on such day if (i) every dividend
declared on the Policy for any prior Plan Year had been applied as a net single
premium to purchase paid-up whole life insurance or to fund a Permitted Payment;
(ii) the Policy has not lapsed on account of nonpayment of Premiums; (iii) the
Policy has not been surrendered in whole or in part (unless any amount obtained
upon such surrender has not been applied to fund a Permitted Payment); (iv) no
loan has been taken from the Insurer with respect to the Policy (unless the
proceeds from such loan have been applied to fund a Permitted Payment); (v) the
Company funded all Permitted Payments made on or before such day with amounts
obtained
-6-
<PAGE>
<PAGE>
from the Insurer upon partial surrender of the Policy to the extent the amounts
so obtained could be excluded from its gross income for federal income tax
purposes pursuant to Section 72(e) of the Code, funded the balance of such
Payments with loans taken from the Insurer with respect to the Policy and paid
any interest on such loans when due; (vi) no dividends were payable for any
prior Plan Year; and (vii) such cash surrender value is calculated using a
guaranteed interest rate of four and five/tenths percent (4.5%).
"Guaranteed Adjustment Reimbursement Payment" means, for the first
month beginning after the Tax Filing Date for any Plan Year, a payment of an
amount equal to the amount, if any, by which (x) the aggregate amount of
Insolvency Retirement Payments payable for months ending with or before the
close of such Year, exceeds (y) the sum of the Insolvency Retirement Benefit
Amount at the close of such Year and the aggregate amount of Guaranteed
Adjustment Reimbursement Payments payable for months ending with or before the
close of such Year.
"Guaranteed Adjustment Disability Reimbursement Payment" means, for the
first month beginning after the Tax Filing Date for any Plan Year, a payment of
an amount equal to the amount, if any, by which (x) the aggregate amount of
Insolvency Disability Payments payable for months ending with or before the
close of such Year, exceeds (y) the sum of the Insolvency Disability Benefit
Amount at the close of such Year and the aggregate amount of Guaranteed
Adjustment Disability Reimbursement Payments payable for months ending with or
before the close of such Year.
"Guaranteed Benefit Payment" means any Guaranteed Disability Primary
Benefit Payment and any Insolvency Retirement Benefit Payment.
"Guaranteed Disability Benefit Payment" means any Guaranteed Primary
Benefit Payments and any Insolvency Disability Benefit Payment.
"Guaranteed Disability Full Payout Date" means the date on which one
hundred twenty (120) Primary Disability Benefit Payments and/or Guaranteed
Primary Disability Benefit Payments have become payable.
"Guaranteed Full Payout Date" means the first date by which one hundred
twenty (120) Primary Benefit Payments and/or Guaranteed Primary Retirement
Benefit Payments have become payable.
-7-
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<PAGE>
"Guaranteed Permitted Payment" means a Guaranteed Primary Benefit
Payment or a Guaranteed Disability Primary Benefit Payment.
"Guaranteed Disability Primary Benefit Amount" means, for any
Disability Benefit Plan Year, an amount equal to ten percent (10%) of the
Guaranteed Cash Value on the Disability Benefit Commencement Date.
"Guaranteed Disability Primary Benefit Payment " means, for any
Disability Benefit Plan Year, a payment of an amount sufficient to amortize the
Guaranteed Primary Benefit Amount for such Year in twelve (12) equal
installments.
"Guaranteed Primary Benefit Amount" means, for any Plan Year, an amount
equal to ten percent (10%) of the Guaranteed Cash Value at the opening of the
first Plan Year beginning after the Normal Retirement Date.
"Guaranteed Primary Benefit Payment" means for any month within a
Guaranteed Primary Benefit Plan Year, a payment of an amount sufficient to
amortize the Guaranteed Primary Benefit Amount for such Year in twelve (12)
equal installments.
"Guaranteed Primary Benefit Plan Year" means any Plan Year beginning
after the Insolvency Year and before the earlier of the Causal Termination Date
or the Guaranteed Full Retirement Payout Date.
"Income Tax" means, whether or not capitalized, any tax based on net
income or excess profits (or any tax in lieu of such a tax) imposed by any
foreign country or possession of the United states or by the United States, any
state or territory of the United States or any political subdivision thereof.
"Income Tax Liability" means, with respect to any Plan Year, the total
amount of Income Taxes payable by the Company for such Year (determined as if
every Foreign Entity in which the Company owned a beneficial interest on any day
during such Year was taxable as a partnership for federal income tax purposes).
"Insurer" means Security Mutual Life Insurance Company of New York.
"Insolvency Date" means, the first date on which an Event of Insolvency
occurs.
-8-
<PAGE>
<PAGE>
"Insolvency Disability Benefit Amount" means, for any Plan Year, the
amount, if any, by which (x) the sum of (A) the aggregate amount received in
respect of the Policy (whether from the Insurer; any successor to the Insurer;
or any receiver, liquidator, conservator, trustee, custodian, or other similar
official of the Insurer or of the whole or any substantial part of the
properties or assets of the Insurer; or from any fund or other arrangement
created for the purpose of guaranteeing, assuming or reinsuring, in whole or in
part, any or all of the policies issued by any insurance company or group of
insurance companies) after an Event of Insolvency, and (B) the Plan Tax Savings
at the close of such Year, exceeds (y) the sum of (A) the aggregate amount of
Guaranteed Permitted Payments which the Participant has received or is scheduled
to receive under the Plan for all Plan Years and the aggregate amount of
Premiums paid by the Company for all prior Plan Years, (B) the aggregate amount
assessed against the Company for all prior Plan Years with respect to the Policy
in connection with any rehabilitation, liquidation or similar proceeding
involving the Insurer, and (C) the aggregate amount of Insolvency Disability
Benefit Payments received in prior Years.
"Insolvency Disability Benefit Payment" means, for the first month
beginning after the close of any Plan Year, a payment of a sum equal to the
Insolvency Disability Amount at the close of such Year.
"Insolvency Retirement Benefit Amount" means, for any Plan Year, the
amount, if any, by which (x) the sum of (A) the aggregate amount received in
respect of the Policy (whether from the Insurer; any successor to the Insurer;
or any receiver, liquidator, conservator, trustee, custodian, or other similar
official of the Insurer or of the whole or any substantial part of the
properties or assets of the Insurer; or from any fund or other arrangement
created for the purpose of guaranteeing, assuming or reinsuring, in whole or in
part, any or all of the policies issued by any insurance company or group of
insurance companies) after an Event of Insolvency, and (B) the Plan Tax Savings
at the close of such Year, exceeds (y) the sum of (A) the aggregate amount of
Guaranteed Permitted Payments which the Participant has received or is scheduled
to receive under the Plan for all Plan Years and the aggregate amount of
Premiums paid by the Company for all prior Plan Years, (B) the aggregate amount
assessed against the Company for all prior Plan Years with respect to the Policy
in connection with any rehabilitation, liquidation or similar proceeding
involving the Insurer, and (C) the aggregate amount of
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<PAGE>
Insolvency Retirement Benefit Payments received in prior Years.
"Insolvency Retirement Benefit Payment" means, for the first month
beginning after the close of any Plan Year, a payment of a sum equal to the
Insolvency Retirement Amount at the close of such Year.
"Insolvency Year" means, the first Plan Year within which an Event of
Insolvency occurs.
"Marginal Income Tax Rate" means, with respect to any Retirement
Benefit Year, the combined rate of federal state and local income tax to which
the last dollar earned by the Company for such Year will be subject (determined
taking into account any reduction in the applicable federal income rate on
account of any state or local income tax to which such last dollar is subject
that is allowed as a deduction for federal income tax purposes).
"Maturity Payment" means a payment of an amount equal to the amount by
which (x) the sum of the amount payable to the Company under the Policy upon
maturity thereof, the amount of any Unanticipated Indebtedness existing on at
such time and the amount of Unanticipated Withdrawals made prior to such time,
exceeds (y) the aggregate amount of Premiums paid by the Company on or before
such time (or due and owing on at such time).
"Minimum Post-Payout Amount" means an amount equal to the premium
amount necessary to purchase a paid-up policy from the Insurer on the Full
Payout Date equal in face amount to the aggregate amount of Premiums paid by the
Company on or before such Date or due and owing on such Date.
"Normal Retirement Date" means the day on which the Participant attains
age sixty-five (65).
"Normal Retirement Year" means the Plan Year within which the Normal
Retirement Date occurs.
"Other SERPs" means, collectively, the Leon Tempelsman Benefit Plan of
Lazare Kaplan International Inc. and the Robert Speisman Benefit Plan of
Lazare Kaplan International Inc.
"Participant" means Mr. Sheldon L. Ginsberg.
"Participating Company" means the Company or any Affiliate thereof.
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<PAGE>
"Permitted Payment" means any Primary Benefit Payment, Retirement
Dividend Payment, Disability Benefit Payment or Disability Dividend Payment.
"Permitted Retirement Payment" means any Permitted Payment, other than
a Disability Benefit payment.
"Person" means, whether or not capitalized, any individual or trust,
estate, partnership, limited liability company, corporation or other entity.
"Plan" means the retirement benefit plan set forth herein, as amended
from time to time.
"Plan Tax Savings" means, at the end of any Plan Year, the portion of
the SERP Tax Savings at the close of such Year that is attributable to items
associated with this Plan (as determined in accordance with the procedure set
forth on the schedule annexed hereto as Exhibit D).
"Plan Year" means the annual period beginning June 1 and ending May 31.
"Policy" means the life insurance contract insuring the life of the
Participant that will be issued by the Insurer as of June 1, 1997, having terms
identical to the specimen life insurance contract policy annexed hereto as
Exhibit A.
"Premium" means any amount required to be paid as consi-
deration for the Policy.
"Primary Benefit Amount" means, for any Retirement Benefit Year, an
amount equal to ten percent (10%) of the amount by which (x) the Assumed Cash
Value on the Retirement Benefit Commencement Date, exceeds (y) the Minimum
Post-Payout Amount.
"Primary Benefit Payment" means, for any month within a Retirement
Benefit Year, a payment of an amount sufficient to amortize the Primary Benefit
Amount for such Year in twelve (12) equal installments.
"Primary Benefit Tax Amount" means, for any Retirement Benefit Plan
Year, such amount, if any, as may be determined by the Administrative Committee
for such Year pursuant to Section 5.1.5(ii).
"Primary Benefit Tax Payment" means, for any month within
a Retirement Benefit Plan Year, a payment to the Participant
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in an amount sufficient to amortize the Primary Benefit Tax Amount for such Year
in twelve (12) equal installments.
"Retirement Adjustment Payment" means, for any Retirement Benefit
Carryover Year, a payment of an amount equal to the excess, if any, of (x) the
sum of the Plan Tax Savings at the close of such Year and the aggregate amount
of Retirement Adjustment Reimbursement Payments payable to the Company for
months ending with or before the close of such Year, exceeds (y) the sum of the
aggregate amount of Primary Benefit Tax Payments and Retirement Adjustment
Payments payable for months ending with or before the close of such Year.
"Retirement Adjustment Reimbursement Payment " means, for any
Retirement Benefit Carryover Year, a payment of an amount equal to the amount,
if any, by which (x) the sum of the aggregate amount of Primary Benefit Tax
Payments and Retirement Adjustment Payments payable for months ending with or
before the close of such Year, exceeds (y) the sum of the Plan Tax Savings at
the close of such Year and the aggregate amount of Retirement Adjustment
Reimbursement Payments payable for months ending with or before the close of
such Year.
"Retirement Benefit Carryover Year" means any Plan Year to which any
tax attribute that arose in a Retirement Benefit Year can be carried for
purposes of determining the Company's Income Tax Liability for such Plan Year.
"Retirement Benefit Commencement Date" means the first day of the first
Plan Year beginning after the Normal Retirement Date or such later day to which
the commencement of Retirement Benefit Payments has been postponed pursuant to
Section 5.1.2.
"Retirement Benefit Payment" means any payment to which the Participant
is entitled pursuant to Section 5.1.
"Retirement Benefit Period" means the period commencing with the
Retirement Benefit Commencement Date and ending with the Retirement Benefit
Termination Date.
"Retirement Benefit Termination Date" means the last day of the
earliest of the Date of Death Month, the Causal Termination Month or the Full
Payout Month.
"Retirement Benefit Year" means any Plan Year within which a Retirement
Benefit Payment becomes due.
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"Retirement Date" means the date as of which the Participant
voluntarily ceases his employment with the Company.
"Retirement Dividend Payment" means, for any Retirement Benefit Year, a
payment of an amount equal to the amount, if any, by which (x) the Assumed Cash
Value at the earlier of the Retirement Benefit Termination Date or the close of
such Year (determined as if the amount declared as a dividend on the Policy for
such Year had been determined by reference to the Insurer's actual investment,
expense and mortality experience), exceeds (y) the Assumed Cash Value at such
time (determined as if no amount was declared as a dividend on the Policy for
such Year and there was no guaranteed interest rate with respect to the Policy
for such Year).
"SERP" means, this Plan, the Leon Tempelsman Benefit Plan of Lazare
Kaplan International Inc. and the Robert Speisman Benefit Plan of Lazare Kaplan
International Inc.
"SERP Participant" means, the Participant, Mr. Leon Tempelsman or Mr.
Robert Speisman.
"SERP Tax Savings" means, at the close of any Plan Year, the amount, if
any, by which (x) the aggregate Income Tax Liability the Company would have
incurred for all Plan Years beginning on or after the Effective Date and ending
on or before the last day of such Year (determined without taking into account
any Retirement Benefit Payment, Payment, Retirement Adjustment Reimbursement
Payment, Disability Benefit Payment, Disability Adjustment Reimbursement
Payment, Guaranteed Benefit Payment, Guaranteed Adjustment Reimbursement
Payment, Guaranteed Disability Benefit Payment or Guaranteed Disability
Adjustment Reimbursement Payment, paid or accrued on or before such day),
exceeds (y) the aggregate Income Tax Liability for such Plan Years (determined
taking into account any change in such aggregate Liability resulting from any
Final Determination made on or before such day).
"Service" means the Internal Revenue Service.
"Tax Filing Date" means, for any Plan Year, the day on which the
Company has filed the federal income tax return for such Year.
"Tempelsman Family Member" means. (i) Mr. Maurice Tempelsman; (ii)
any descendant (whether biological or adopted) of Mr. Maurice Tempelsman; (iii)
the spouse of any person described in clause (i) or (ii) hereof; (iv) the
estate of any person described in clause (i), (ii), or (iii) hereof; or (v)
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any trust created by or arising under the will of any person described in clause
(i), (ii), or (iii) hereof.
"Termination Date" means the date on which the Participant's employment
is terminated by action on the part of the Company.
"Unanticipated Indebtedness" means, at the Date of Death, the amount of
the indebtedness against the Policy existing at that time (including any
interest payable thereon but excluding the amount of any indebtedness against
the Policy the proceeds of which were used to make Permitted Payments).
"Unanticipated Withdrawal" means, at the earlier of the Date of Death
or the date on which the Policy is scheduled to mature, the aggregate amounts
obtained by the Company prior to such date upon surrender of all or a portion of
the Policy (excluding any such amount which was used make a Permitted Payment).
"Voting Share" means an outstanding security of the Company possessing
the right to vote for the election of directors of the Company.
Section 1.2 Rules of Construction. Unless the context otherwise
requires, (i) a term shall have the meaning assigned to it in Section 1.1; (ii)
references to the Participant's "employment" shall be to his full-time
employment by one or more Participating Companies and reference to him as
"employed" shall be to his being employed full time by one or more such; (iii)
if the Participant's employment ceases on account of disability, such cessation
will be deemed to have resulted from action on the part of the Company on
account of Disability; (iv) an insurance term not otherwise defined herein shall
have the meaning assigned to it in the Policy; (v) the Policy will be deemed to
be perpetual (i.e., will be deemed never to mature) if the Date of Death occurs
prior to the date on which the Policy is scheduled to mature; (vi) "or" shall
not be exclusive; (vii) words in the singular shall include the plural, and vice
versa; (viii) all references to "Section" or "Article" shall be to sections and
articles of this instrument; and (viii) words in the masculine gender shall
include the feminine and neuter, and vice versa.
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ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Nature of Plan. The Plan, together with two other
retirement benefit plans adopted by the Company as of the Effective Date, is
intended to qualify as unfunded for tax purposes and to qualify, for purposes of
title I of ERISA, as an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees of the Company . Consequently, the Participant shall be an
unsecured general creditor of the Company with respect to benefits to which he
is entitled hereunder and the Plan shall constitute a mere promise by the
Company to pay such benefits in the future. The benefits provided to the
Participant by the Plan are not part of any salary reduction plan and are not
provided in lieu of a bonus or salary increase. The Plan is not intended to
confer any legal rights upon the Participant for a continuation of employment,
nor shall its existence limit the Company's right to discharge the Participant
or otherwise deal with the Participant without regard to the effect its action
might have upon the Participant under the Plan. Any provision hereof to the
contrary notwithstanding, if a court of competent jurisdiction determines that
the Plan does not satisfy the definitional requirements of Section 201(2) of
ERISA and such determination becomes final, (i) the Plan shall be terminated ab
initio and neither the Participant nor the Beneficiary shall have any right to
receive any benefit under the Plan or under the Policy; and (ii) the Company
shall be entitled to a payment from the Participant of a sum equal to the
aggregate amount paid to him under the Plan and to a payment from the
Beneficiary in an amount equal to the portion of the death benefit paid to it
under the Policy.
Section 2.2 Name of Plan. The Plan shall be known as the "Sheldon L.
Ginsberg Benefit Plan of Lazare Kaplan International Inc."
ARTICLE III
THE POLICY
Section 3.1 Purchase. Promptly following the Effective Date, the
Company shall purchase the Policy from the Insurer. The Company and the
Participant shall use their best efforts and shall otherwise take all necessary
action within their control to cause the Insurer to issue the Policy as of the
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earliest possible day beginning after May 31, 1997, and shall take any further
action within their control which may be necessary to cause the Policy to
conform to the terms and conditions of the Plan.
Section 3.2 Ownership. The Company shall be the sole and absolute owner
of the Policy, and except as otherwise provided by Section 3.5, shall have all
of the rights with respect thereto, including the right to (i) select the
settlement option under the Policy and the beneficiary or beneficiaries to
receive the portion of the Policy proceeds to which the Company is not entitled
under the Plan; (ii) assign or surrender the Policy; (iii) take or repay a
policy loan from the Insurer with respect to the Policy; (iv) pledge or assign
the policy for purposes of securing a loan from any person; (v) amend or modify
the Policy with the written consent of the Insurer, and (vi) exercise any right,
receive any benefit or enjoy any privilege provided by the Policy.
Notwithstanding the foregoing, once the Company has exercised its right to
designate the Beneficiary pursuant to clause (i) of the preceding sentence, it
shall not have the right to revoke or otherwise modify such designation.
Section 3.3 Payment of Premiums. On or before the due date of any
Premium, or within the grace period provided in the Policy, the Company shall
pay the full amount of the Premium to the Insurer, and shall promptly furnish
the Participant evidence of timely payment of such Premium. The Company shall
use its best efforts to furnish the Participant, within ninety (90) days after
the close of each calendar year, with a statement of the amount includible in
gross income by him for federal, state and local income tax purposes as a result
of having cost-free insurance protection provided under the Policy during the
calendar year.
Section 3.4 Payment of Tax-Related Bonuses. At the time it furnishes
the statement described in Section 3.3 for any calendar year beginning prior to
the Retirement Date, the Company shall pay the Participant, as compensation, an
amount equal to the aggregate amount of federal, state and local income taxes he
would be required to pay for the related calendar year if (i) the amount shown
on such statement constituted his entire gross income for such year; (ii) such
gross income was wholly allocable to New York City for state and local income
tax purposes; (iii) the state and local taxes payable on such gross income for
such calendar year were allowed as a deduction for such year in determining his
taxable income for federal income tax purposes; (iv) he was not allowed any
other deductions or any personal exemptions for such
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year in determining his taxable income for federal, state or local income tax
purposes; and (vi) he was subject to the highest marginal federal, New York
State and New York City income tax rates for such year applicable to individuals
having his marital and filing status. Notwithstanding the foregoing, (i) if the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause, the Company shall not be obligated to make any
payment pursuant to this Section 3.4 for any calendar year beginning after the
Normal Retirement Date; and (ii) if the Participant's employment is terminated
by action on the part of the Company for Cause, the Company shall not be
obligated to make any payment pursuant to this Section 3.4 for any calendar year
ending after the Termination Date.
Section 3.5 Endorsement. Promptly following the Effective Date, the
Company shall execute an endorsement to the Policy substantially in the form
annexed hereto as Exhibit B in order to secure the Company's recovery of the
greater of the cash value of the Policy or the aggregate amount of Premiums paid
by the Company. Such endorsement shall not be terminated or modified by the
Company without the express written consent of the Participant.
Section 3.6 Collection of Death Proceeds. Upon the death of the
Participant, the Company shall cooperate with the Beneficiary to take whatever
action is necessary to collect the death benefit payable under the Policy.
ARTICLE IV
ALLOCATION OF DEATH BENEFIT
Section 4.1 Death Prior to Cessation of Employment. If the Participant
is employed at the time of his death and has not yet attained the age of
seventy-five (75), the Company shall have the unqualified right to receive a
portion of the death benefit payable under the Policy equal to the Aggregate
Premium Amount, and the balance of such death benefit, if any, shall be paid
directly to the Beneficiary in the manner and in the amount or amounts provided
in the beneficiary designation provision of the Policy. In no event shall the
amount payable to the Company under this Section 4.1 exceed the amount of the
death benefit payable under the Policy. No amount shall be paid to the
Beneficiary from such death benefit until the amount due the Company under this
Section 4.1 has been paid in full. Notwithstanding the foregoing, if the
Participant has attained the age of seventy-five (75), the Company shall have
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the unqualified right to receive the entire death benefit then payable under the
Policy and no portion of such death benefit shall be paid to the Beneficiary.
Section 4.2 Death Subsequent to Retirement. If the Participant's
death occurs after Retirement, any death benefit payable under the Policy shall
be allocated as follows:
(i) If the Participant has attained age sixty-five (65) by the
Retirement Date and has not attained the age of seventy-five (75) by
the Date of Death, the Company shall have the unqualified right to
receive a portion of the death benefit payable under the Policy equal
to the Aggregate Premium Amount, and the balance of such death benefit,
if any, shall be paid directly to the Beneficiary in the manner and in
the amount or amounts provided in the beneficiary designation provision
of the Policy. In no event shall the amount payable to the Company
under this Section 4.2(i) exceed the amount of the death benefit
payable under the Policy. No amount shall be paid to the Beneficiary
from such death benefit until the amount due the Company under this
Section 4.2(i) has been paid in full.
(ii) If the Participant has attained the age of sixty-five
(65) by the Retirement Date and has attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right
to receive the death benefit payable under the Policy and no portion of
such death benefit shall be paid to the Beneficiary.
(iii) If the Participant has not attained the age of
sixty-five (65) by the Retirement Date, the Company shall have the
unqualified right to receive the death benefit payable under the Policy
and no portion of such death benefit shall be paid to the Beneficiary.
Section 4.3 Death Subsequent to Noncausal Termination. If the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability, any death benefit payable under the
Policy shall be allocated as follows:
(i) If the Participant has not attained the age of
seventy-five (75) by the Date of Death, the Company shall have the
unqualified right to receive
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a portion of the death benefit payable under the Policy equal to the
Aggregate Premium Amount prior to the Date of Death, and the balance of
such death benefit, if any, shall be paid directly to the Beneficiary
in the manner and in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the amount
payable to the Company under this Section 4.3(i) exceed the amount of
the death benefit payable under the Policy. No amount shall be paid to
the Beneficiary from such death benefit until the amount due the
Company under this Section 4.3(i) has been paid in full.
(ii) If the Participant has attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right
to receive the death benefit payable under the Policy and no portion of
such death benefit shall be paid to the Beneficiary.
Section 4.4. Death Subsequent to Causal Termination. If the
Participant's employment is terminated by action on the part of the Company for
Cause, the Company shall have the unqualified right to receive the death benefit
payable under the Policy and no portion of the death benefit payable under the
Policy shall be paid to the Beneficiary.
Section 4.5. Death Subsequent to Termination on Account of Disability.
If the Participant's employment is terminated by action on the part of the
Company on account of Disability and he has not attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right to
receive a portion of the death benefit payable under the Policy equal to the
Aggregate Premium Amount, and the balance of such death benefit, if any, shall
be paid directly to the Beneficiary in the manner and in the amount or amounts
provided in the beneficiary designation provision of the Policy. In no event
shall the amount payable to the Company under this Section 4.5 exceed the amount
of the death benefit payable under the Policy. No amount shall be paid to the
Beneficiary from such death benefit until the amount due the Company under this
Section 4.5 has been paid in full. If the Participant's employment terminates on
account of Disability and he has attained the age of seventy-five (75) by the
Date of Death, the Company shall have the unqualified right to receive the
entire death benefit payable under the Policy and no portion of such death
benefit shall be paid to the Beneficiary.
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ARTICLE V
RETIREMENT BENEFITS
Section 5.1 Normal Retirement.
Section 5.1.1 Payment of Retirement Benefits. If the
Participant has attained the age of sixty-five (65) and has been employed at all
times between the Effective Date and the Normal Retirement Date, he shall be
entitled to (i) a Primary Benefit Payment and a Primary Benefit Tax Payment for
each month within the Retirement Benefit Period; (ii) a Retirement Dividend
Payment for the first month beginning after the close of each Retirement Benefit
Year; (iii) a Death Benefit Payment for the earlier of the sixth month beginning
after the Date of Death or the first month beginning after the Death Benefit
Date; (iv) a Maturity Payment for the third month beginning after the date on
which the Policy is scheduled to mature; and (v) a Retirement Adjustment Payment
for the first month beginning after the Tax Filing Date for each Retirement
Benefit Carryover Year. Any payment to which the Participant shall be entitled
under this Section 5.1.1 for any month shall be made on or before the fifth
Business Day of such month.
Section 5.1.2 Postponement of Retirement Benefit Commencement
Date. The Administrative Committee, upon application by the Participant, shall
grant him one or more successive one- (1-) year postponements of the date on
which payment of Retirement Benefit Payments will commence. To satisfy the
requirements of this Section 5.1.2, (i) an application to the Administrative
Committee for any one- (1-) year postponement must be submitted (on a form
provided by the Committee) not more than three hundred (300) days and not less
than one hundred eighty (180) days before the date prescribed for the payment of
Retirement Benefit Payments to commence (as such date may have previously been
extended pursuant to this Section 5.- 1.2); (ii) no such Payments shall have
previously become due and payable. Regardless of whether any postponement
granted under this Section 5.1.2 is then in effect, the payment of Retirement
Benefit Payments shall in all events commence with the first month of the first
Plan Year beginning after the Retirement Date.
Section 5.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Retirement Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any
Retirement Benefit
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Carryover Year. Any payment to which the Company shall be entitled under this
Section 5.1.3 for any month shall be made on or before the fifth Business Day of
such month; provided, however, that the Company shall have the right to set off
amounts due and owing to it pursuant to this Section 5.1.3 against amounts
payable to the Participant under this Plan as such amounts become due.
Section 5.1.4 Determination of the Minimum Post-Payout
Amount. On or before the first Business Day of the first Retirement Benefit
Year, the Administrative Committee, after due consultation with the Insurer's In
Force Reprojection Unit, shall make a good faith determination of the amount,
if any, of the Minimum Post-Payout Amount.
Section 5.1.5 Determination of Primary Benefit Tax Amount. On
or before the fifth Business Day of each Retirement Benefit Year, the
Administrative Committee shall (i) make a good faith estimation of what the
Marginal Income Tax Rate for such Year would be if every Foreign Entity in which
the Company owned a beneficial interest on any day during such Year were taxable
as a partnership for federal income tax purposes; and (ii) shall determine (in
accordance with the procedure set forth on the schedule annexed hereto as
Exhibit C) what the Primary Benefit Tax Amount for such year would be if (A) the
Marginal Income Tax Rate for such year were equal to the Estimated Marginal
Income Tax Rate for such Year, and (B) the only Retirement Benefit Payments paid
or accrued in such Year were the Primary Benefit Payments and the Primary
Benefit Tax Payments that are scheduled to be paid for such Year.
Section 5.1.6 Determination of Retirement Adjustment Amounts.
On or before the fifth Business Day following the Tax Filing Date for any
Retirement Benefit Carryover Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Retirement Adjustment Payment or the
Retirement Adjustment Reimbursement Payment that is payable for the first month
beginning after such Date.
Section 5.1.7 Determination of Death Benefit Payment. On or
before the fifth Business Day of following the Death Benefit Date, the
Administrative Committee, after due consultation with the Company's accountants,
shall make a good faith determination of the Death Benefit Payment that is
payable for the first month beginning after such Date.
Section 5.1.8 Determination of Maturity Payment. On or before
the fifth Business Day of the second month beginning
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after the date on which the Policy is scheduled to mature, the Administrative
Committee, after due consultation with the Company's accountants, shall make a
good faith determination of the Maturity Payment that is payable for the first
month beginning after such Date.
Section 5.2 Noncausal Termination.
Section 5.2.1 Noncausal Termination Prior to the Normal
Retirement Date. If at any time prior to the Normal Retirement Date, the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability and he has been employed at all times
between the Effective Date and the Termination Date, then upon attaining the age
of sixty-five (65) he shall be deemed, for purposes of Section 5.1 to have been
employed at all times between the Effective Date and the Normal Retirement Date
and to have voluntarily ceased his employment on such latter Date.
Section 5.2.2 Noncausal Termination on or after the Normal
Retirement Date. If at any time on or after the Normal Retirement Date, the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability and he has been employed at all times
since the Effective Date, then he shall be deemed, for purposes of Section 5.1,
to have voluntarily ceased his employment on the Termination Date.
Section 5.3 Cessation of Employment Within Change in Control
Period.
Section 5.3.1 Retirement. If the Participant voluntarily
ceases his employment at any time within the Change in Control Period he shall
be entitled to a payment for the first month of the first Plan Year beginning
after the Retirement Date in an amount equal to the Assumed Cash Value of the
Policy at the opening of such month. The payment to which the Participant shall
be entitled under this Section 5.3.1 shall be made on or before the fifth
Business Day of such first month and shall be in lieu of any benefit to which he
may otherwise be entitled pursuant to this Agreement.
Section 5.3.2 Noncausal Termination. If at any time within the
Change in Control Period the Participant's employment is terminated by action on
the part of the Company for any reason other than Cause or Disability, he shall
be entitled to a payment for the first month of the first Plan Year beginning
after the Termination Date in an amount equal to the Assumed Cash Value of the
Policy at the opening of such month.
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The payment to which the Participant shall be entitled under this Section 5.3.2
shall be made on or before the fifth Business Day of such first month and shall
be in lieu of any benefit to which he may otherwise be entitled pursuant to this
Agreement.
Section 5.3.3 Noncausal Election. The Administrative
Committee, upon application by the Participant, shall grant him the right, in
lieu of any rights to which he would otherwise be entitled pursuant to Section
5.3.2, to be deemed, for purposes of Section 5.1, to have been employed at all
times between the Effective Date and the Normal Retirement Date and to have
voluntarily ceased his employment on such latter Date. To satisfy the
requirements of this Section 5.3.3, an application to the Administrative
Committee must be submitted (on a form provided by the Committee) on or before
the first anniversary of the day on which the related Change in Control occurs.
The Participant shall not be entitled to any amount pursuant to Section 5.1 on
account of an election made pursuant to this Section 5.3.3 unless the
Participant in fact attains the age of sixty-five (65).
ARTICLE VI
DISABILITY BENEFITS
Section 6.1. Disability Prior to Normal Retirement Date.
Section 6.1.1 Disability Benefit Payments. If the
Participant's employment ceases on account of Disability and he has been
employed at all times between the Effective Date and the Disability Termination
Date, he shall be entitled to (i) a Disability First Stage Primary Benefit
Payment and a Disability Primary Tax Payment for each month beginning on or
after the Disability Benefit Commencement Date and before the Disability Interim
Valuation Date; (ii) a Disability Second Stage Primary Benefit Payment and a
Disability Primary Tax Payment for each month beginning on or after the
Disability Interim Valuation Date and before the Disability Benefit Ter-
mination Date; (iii) a Disability Dividend Payment for the first month beginning
after the close of each Disability Benefit Year; (iv) a Death Benefit Payment
for the earlier of the sixth month beginning after the Date of Death or the
first month beginning after the Death Benefit Date; (v) a Maturity Payment for
the third month beginning after the date on which the Policy is scheduled to
mature; and (vi) a Disability Adjustment Payment for the first month beginning
after the Tax Filing Date for each Disability Benefit Carryover Year. Any
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payment to which the Participant shall be entitled under this Section 6.1 for
any month shall be made on or before the fifth Business Day of such month.
Section 6.1.2 Postponement of Disability Benefit Commencement
Date. The Administrative Committee, upon application by the Participant, shall
grant him one or more successive one- (1-) year postponements of the date on
which payment of Disability Benefit Payments will commence. To satisfy the
requirements of this Section 6.1.2, (i) an application to the Administrative
Committee for any one- (1-) year postponement must be submitted (on a form
provided by the Committee) not more than two hundred seventy (270) days and not
less than one hundred eighty (180) days before the date prescribed for the
payment of Disability Benefit Payments to commence (as such date may have
previously been extended pursuant to this Section 6.1.2); (ii) no such Payments
shall have previously become due and payable. Regardless of whether any
postponement granted under this Section 6.1.2 is then in effect, the payment of
Disability Benefit Payments shall in all events commence with the first month of
the first Plan Year beginning after the date on which the Participant attains
the age of sixty-five (65).
Section 6.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Disability Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any
Disability Benefit Carryover Year. Any payment to which the Company shall be
entitled under this Section 6.1.3 for any month shall be made on or before the
fifth Business Day of such month; provided, however, that the Company shall have
the right to set off amounts due and owing to it pursuant to this Section 6.1.3
against amounts payable to the Participant under this Plan as such amounts
become due.
Section 6.1.4 Determination of Disability Minimum Post-Payout
Amount. On or before the first Business Day of the first Disability Benefit Year
and on or before the Disability Interim Valuation Date, the Administrative
Committee, after due consultation with the Insurer's In Force Reprojection
Unit, shall make a good faith determination of the amount of the Disability
Minimum Post-Payout Amount
Section 6.1.5 Determination of Disability Primary Benefit Tax
Amount. On or before the fifth Business Day of each Disability Benefit Year, the
Administrative Committee shall (i) make a good faith estimation of the Marginal
Income Tax Rate for such Year; and (ii) shall determine (in accor-
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dance with the procedure analogous to those set forth on the schedule annexed
hereto as Exhibit C) what the Disability Primary Benefit Tax Amount for such
Year would be if (i) the Marginal Income Tax Rate for such Year were equal to
the Estimated Marginal Income Tax Rate for such Year, and (ii) the only
Disability Benefit Payments paid or accrued in such Year were the Disability
Primary Benefit Payments and the Disability Primary Benefit Tax Payments that
are scheduled to be paid for such Year.
Section 6.1.6 Determination of Disability Adjustment Amounts.
On or before the fifth Business Day following the Tax Filing Date for any
Disability Benefit Carryover Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Disability Adjustment Payment or the
Disability Adjustment Reimbursement Payment that is payable for the first month
beginning after such Date.
Section 6.1.7 Determination of Death Benefit Payment. On or
before the fifth Business Day following the Death Benefit Date, the
Administrative Committee, after due consultation with the Company's accountants,
shall make a good faith determination of the Death Benefit Payment that is
payable for the first month beginning after such Date.
Section 6.1.8 Determination of Maturity Payment. On or before
the fifth Business Day of the second month beginning after the date on which the
Policy is scheduled to mature, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the Maturity that is payable for the first month beginning
after such Date.
Section 6.2. Disability on or after Normal Retirement Date. If at any
time on or after the Normal Retirement Date, the Participant's employment ceases
on account of Disability and he has been employed at all times since the
Effective Date, then he shall be deemed, for purposes of Section 5.1, to have
voluntarily ceased his employment on the Disability Termination Date.
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ARTICLE VII
INSURER INSOLVENCY
Section 7.1 Retirement Benefits.
Section 7.1.1 Insolvency Prior to the Retirement Benefit
Commencement Date. If an Event of Insolvency occurs on or before the Retirement
Benefit Commencement Date and the Participant would be entitled, except that he
has filed or has the right to file an application pursuant to Section 5.1.2, to
commence receiving Retirement Benefit Payments for the first month of the first
Plan Year beginning after the later of the Normal Retirement Date or the
Insolvency Date; then in lieu of any Retirement Benefit Payments, the
Participant shall be entitled to (i) a Guaranteed Primary Benefit Payment for
each month beginning after the close of the later of the Normal Retirement Year
or the Insolvency Year and beginning on or before the earlier of the Causal
Termination Date or the Guaranteed Full Payout Date; and (ii) an Insolvency
Retirement Benefit Payment for the first month beginning after the close of each
Plan Year. Any payment to which the Participant shall be entitled under this
Section 7.1.1 for any month shall be made on or before the fifth Business Day of
such month.
Section 7.1.2 Insolvency Subsequent to the Retirement Benefit
Commencement Date. If an Event of Insolvency occurs after the Retirement Benefit
Commencement Date, then in lieu of any Retirement Benefit Payments due on, or
payable after such Date, the Participant shall be entitled to (i) a Guaranteed
Primary Benefit Payment for each month beginning on or after such Date and
beginning on or before the earlier of the Causal Termination Date or the
Guaranteed Full Payout Date; and (ii) an Insolvency Retirement Benefit Payment
for the first month beginning after the close of each Plan Year. Any payment to
which the Participant shall be entitled under this Section 7.1.2 for any month
shall be made on or before the fifth Business Day of such month.
Section 7.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Guaranteed Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any Plan
Year. Any payment to which the Company shall be entitled under this Section
7.1.3 for any month shall be made on or before the fifth Business Day of such
month; provided, however, that the Company shall have the right to set off
amounts due and owing to it
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pursuant to this Section 7.1.3 against amounts payable to the Participant under
this Plan as such amounts become due.
Section 7.1.4 Determination of Guaranteed Adjustment
Reimbursement Amounts. On or before the fifth Business Day following the Tax
Filing Date for any Plan Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Guaranteed Adjustment Reimbursement
Payment that is payable for the first month beginning after such Date.
Section 7.2 Disability Benefits.
Section 7.2.1 Insolvency Prior to the Disability Benefit
Commencement Date. If an Event of Insolvency occurs on or before the Disability
Benefit Commencement Date, and the Participant would be entitled, except that he
has filed or has the right to file an application pursuant to Section 6.1.2, to
commence receiving Disability Benefit Payments for the first month of the first
Plan Year beginning after the latest of the Disability Termination Date, the
date on which the Participant attains the age of sixty (60) or the Insolvency
Date, then in lieu of any Disability Benefit Payment, the Participant shall be
entitled to (i) a Guaranteed Disability Primary Benefit Payment for each month
beginning after the close of the latest of the Plan Year in which the Disability
Termination Date occurs, the Plan Year in which the Participant attains the age
of sixty (60) or the Insolvency Year and beginning on or before the earlier of
the Causal Termination Date or the Guaranteed Full Disability Payout Date; and
(ii) an Insolvency Disability Benefit Payment for the first month beginning
after the close of each Plan Year. Any payment to which the Participant shall be
entitled under this Section 7.2.1 for any month shall be made on or before the
fifth Business Day of such month.
Section 7.2.2 Insolvency After the Disability Benefit
Commencement Date. If at the time an Event of Insolvency occurs a Primary
Disability Benefit Payment has become payable, then in lieu of any future
Disability Benefit Payments, the Participant shall be entitled to (i) a
Guaranteed Primary Disability Benefit Payment for each month beginning on or
after the Insolvency Date and beginning on or before the earlier of the Causal
Termination Date or the Guaranteed Full Disability Payout Date; and (ii) an
Insolvency Disability Benefit Payment for the first month beginning after the
close of each Plan Year. Any payment to which the Participant shall be
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<PAGE>
entitled under this Section 7.2.2 for any month shall be made on or before the
fifth Business Day of such month.
Section 7.2.3 Certain Reimbursement Payments. The Company
shall be entitled to a Guaranteed Disability Adjustment Reimbursement Payment
from the Participant for the first month beginning after the Tax Filing Date for
any Plan Year. Any payment to which the Company shall be entitled under this
Section 7.2.3 for any month shall be made on or before the fifth Business Day of
such month; provided, however, that the Company shall have the right to set off
amounts due and owing to it pursuant to this Section 7.1.3 against amounts
payable to the Participant under this Plan as such amounts become due.
Section 7.2.4 Determination of Guaranteed Disability
Adjustment Reimbursement Amounts. On or before the fifth Business Day following
the Tax Filing Date for any Plan Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Guaranteed Adjustment Reimbursement
Payment that is payable for the first month beginning after such Date.
Section 7.3 Curative Adjustments. If at any time following the
occurrence of an Event of Insolvency the Policy has been restored to its full
cash value, the death benefit payable under the Policy has either been
unaffected by such Event or has been fully reinstated and all other rights and
benefits that the Company or the Beneficiary possessed under the Policy prior to
such Event and that were adversely affected by such Event have been fully
reinstated; the Administrative Committee shall, to the extent possible, make one
or more payments to the Participant so that, immediately following the last such
payment, the net amount paid to the Participant under the Plan equals the net
amount that would have been payable to him if such Event had not occurred.
ARTICLE VIII
AMENDMENT
This Plan may be amended by action of the Board of Directors; provided,
however, that it may not be amended so as to adversely affect the rights of the
Participant or the Beneficiary unless the affected party consents to such
amendment in writing. Notwithstanding the foregoing, this Plan may be amended,
without the consent of the Participant or the Benefi-
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<PAGE>
ciary, so as to (i) change the meaning of the term "Plan Year" whenever the
Company changes its taxable year for federal income tax purposes so that each
Plan Year is coterminous with the taxable year of the Company with which it
commenced; and (ii) provide that once the Primary Benefit Amount or the
Disability Primary Benefit Amount for any Plan Year has been determined, the
Primary Benefit Amount or Disability Primary Benefit Amount for any subsequent
Plan Year will not be affected by any intervening change in the meaning of the
term "Plan Year."
ARTICLE IX
ADMINISTRATION
Section 9.1 Administrative Committee. This Plan shall be administered
by an Administrative Committee appointed by the Board of Directors. In addition
to such powers as may be delegated to it by the Board of Directors, the
Administrative Committee shall have the power to (i) interpret this Plan, (ii)
establish such rules (not inconsistent with the terms of this Plan) as it may
deem necessary for the administration of this Plan, (iii) make such
determinations as are necessary for the administration of this Plan, (iv) employ
agents, attorneys, actuaries, auditors, and accountants to furnish services in
connection with this Plan, and (v) calculate benefits due under this Plan. The
Administrative Committee shall have authority to delegate responsibility for
performance of ministerial functions necessary for administration of this Plan
to such officers of the Participating Companies, including Participants, as it
shall, in its sole discretion, deem appropriate.
Section 9.2 Administration Costs. All expenses incurred in
connection with the administration of this Plan shall be borne by the Company.
Section 9.3 Legal Limitation. No member of the Administrative Committee
shall be required to authorize or engage in any transaction which he determines,
in his sole discretion, to be unlawful or might subject him, any Participating
Company, the Participant or any Beneficiary to liability (other than liability
for taxes) under federal, state or local law.
Section 9.4 Records. The records of the Administrative Committee with
respect to this Plan shall, absent manifest error, be conclusive and binding on
all concerned parties.
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<PAGE>
Section 9.5 Claims Procedure.
Section 9.5.1 Filing of Claims. Any person who believes that
he or she is being denied a benefit to which he or she is entitled under this
Plan may file a written request for such benefit with the Administrative
Committee setting forth his or her claim. The request must be addressed to the
Administrative Committee at the Company's then principal place of business.
Section 9.5.2 Claim Decision. Upon receipt of a claim, the
Administrative Committee shall advise the claimant that a reply will be
forthcoming within ninety (90) days and shall, in fact, deliver such reply
within such period. The Administrative Committee may, however, extend the reply
period for an additional ninety (90) days for reasonable cause. To deny a claim
in whole or in part, the Administrative Committee shall render a written
opinion, using language calculated to be understood by the claimant, setting
forth (i) the specific reason or reasons for such denial; (ii) the specific
reference to pertinent provisions of this Plan on which such denial is based;
(iii) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation why such material or such
information is necessary; and (iv) appropriate information as to the steps to be
taken if the claimant wishes to submit the claim for review. If such a written
opinion is not furnished to the claimant within the reply period (as it may be
extended for reasonable cause by the Administrative Committee), the claim shall
be deemed to have been denied.
Section 9.5.3 Request for Review. Within sixty (60) days after
the receipt by the claimant of a written or a deemed denial, the claimant may
request in writing that the Administrative Committee review the determination.
Such request must be addressed to Administrative Committee, at its the Company's
then principal place of business. The claimant or his or her duly authorized
representative may, but need not, review the pertinent documents and submit
issues and comments in writing for consideration by the Administrative
Committee. If the claimant does not request a review of the determination by the
Administrative Committee within such sixty- (60-) day period, he or she shall be
barred and estopped from challenging the determination.
Section 9.5.4 Review of Decision. Within sixty (60) days after
the Administrative Committee's receipt of a request for review, it shall review
its determination. After considering all materials presented by the claimant,
the Administra-
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<PAGE>
tive Committee shall render a written opinion, written in a manner calculated to
be understood by the claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Plan on which the decision is based. If special circumstances require that the
sixty- (60-) day time period be extended, the Administrative Committee will so
notify the claimant and will render the decision as soon as possible, but no
later than one hundred twenty (120) days after receipt of the request for
review. If the Administrative Committee's decision on review is not furnished to
the claimant within the time limitations described above, the claim will be
deemed denied on review.
Section 9.5.5 Binding Effect. All claim decisions made by the
Administrative Committee pursuant to this Section 9.6 shall, in the absence of a
showing of bad faith, be deemed final and non-appealable to the extent they
pertain to prior determinations made by the Administrative Committee under
Section 5.1 or Section 6.1.
ARTICLE X
MISCELLANEOUS
Section 10.1 No Transfers. The Participant shall not have, during his
lifetime, any right to assign or alienate in any other manner any rights he may
have under the Plan, nor shall any such rights be subject to garnishment or any
similar procedure.
Section 10.2 Nature of Plan; Remedies. This Plan is in the nature of a
contract between the Company and the Participant. If the Company shall commit or
threaten to commit a breach of any of its obligations hereunder, any person
adversely affected thereby shall be entitled, in addition to any other remedy to
which he may be entitled at law or in equity, to an injunction or injunctions to
prevent breaches of the provisions of this Plan and to have the right to have
the provisions of this instrument specifically enforced, it being acknowledged
and agreed that any such breach would cause irreparable damage to such person
for which money damages could not provide an adequate remedy.
Section 10.3 Headings and Captions. The headings and captions contained
in this Plan are inserted for convenience only and shall not in any way affect
the meaning or interpretation hereof.
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Section 10.4 Construction. No strict rule of construction
shall be applied against the Company.
Section 10.5 Late Payments. If all or any portion of any amount payable
to the Participant or the Company pursuant to this agreement is made more than
ten (10) days after such payment is due, such past due payment shall bear simple
interest (on the basis of a 360-day year) from the due date thereof at a rate
equal to four percentage points over the rate of interest publicly announced by
Citibank, N.A. as its prime rate in effect at its principal office in New York
City, as such rate may fluctuate from time to time.
Section 10.6 Assignment. No amount distributable or to become
distributable to any person under this Plan shall be transferable, assignable or
subject to interference or control by any creditors of such person, or subject
to any claim for alimony or for the support of a spouse pursuant to a decree of
divorce or legal separation, or to being taken or reached by any legal or
equitable process in satisfaction of any debt or obligation of such person prior
to his receipt of such amount.
Section 10.7 Severability. If any particular provision of this Plan
shall be found to be illegal, invalid or unenforceable in any situation or
jurisdiction, such provision shall not affect the validity or enforceability of
the remaining provisions hereof or the validity or enforceability of the
offending provision in any other situation or jurisdiction. If the final
judgment of a court of competent jurisdiction declares any provision of this
Plan illegal, invalid or unenforceable, such court shall have the power to
reduce the scope, duration or area of such provision, to delete specific words
or phrases, or to replace any illegal, invalid or unenforceable provision with
a provision that is legal, valid and enforceable and that comes closest to
expressing the intention of the offending provision
Section 10.8 Applicable Law. This Plan shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of New York.
Section 10.9 Jurisdiction; Counsel Fees. Any legal proceedings arising
under or relating to this Plan shall be brought in any federal or state court of
general jurisdiction that is situated within the county and state of New York.
The reasonable attorneys' fees, court costs, expert witness fees and other
expenses of the prevailing party or parties in any such proceeding shall be paid
by the other party or parties to such proceeding, in such proportions as the
court shall deter-
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<PAGE>
mine, unless the court determines, on the basis of all the facts and
circumstances, that the position of such other party or parties was
substantially justified or that other circumstances made an award of litigation
expenses unjust. For purposes of this Section 10.9, a party shall be deemed to
have prevailed in a legal proceeding if he substantially prevailed with respect
to the amount in controversy or the most significant issue or set of issues
actually litigated and decided.
Section 10.10 Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Participant: Mr. Sheldon L. Ginsberg
969 East Broadway
Woodmere, New York 11598
With a copy to: Mr. Steven Ginsberg
162 Candlewick Lane
Bridgewater, New Jersey 08807
If to the Company: Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10022
Attn: Administrative Committee
of the Board of Directors
With a copy to: Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attn: Frederick R. Cummings, Esq.
Executed as of the 1st day of June, 1997.
LAZARE KAPLAN INTERNATIONAL INC.
By:___________________________
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<PAGE>
APPENDIX A
ERISA RIGHTS
The Regulations of the Department of Labor require that the following
information with respect to your rights under ERISA be annexed to this
instrument.
As the sole participant in the Sheldon L. Ginsberg Retirement Benefit
Plan of Lazare Kaplan International Inc., you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 ("ERISA").
ERISA provides that you shall be entitled to:
(i) Examine, without charge, at the Plan administrator's
office and at other specified locations, all Plan documents, including
any insurance contracts, and copies of all documents filed by the Plan
with the U.S. Department of Labor, such as detailed annual reports and
Plan descriptions.
(ii) Obtain copies of all Plan documents and other Plan
information upon written request to the Plan administrator. The Plan
administrator may make a reasonable charge for the copies.
(iii) Receive a summary of the Plan's annual financial report.
The plan administrator is required by law to furnish you with a copy of
this summary annual report.
(iv) Obtain a statement telling you whether you have a right
to receive a retirement benefit at your normal retirement age (age 65)
and, if so, what your benefits would be at normal retirement age if you
stop working under the Plan now. If you do not have a right to a
retirement benefit, the statement will tell you how many more years you
have to work to get a right to a retirement benefit. This statement
must be requested in writing and is not required to be given more than
once a year. The Plan must provide the statement free of charge.
(v) File suit in a federal court, if any materials requested
are not received within 30 days of your request, unless the materials
were not sent
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<PAGE>
because of matters upon the control of the administrator. The court may
require the Plan administrator to pay up to $100 for each day's delay
until the materials are received.
In addition to creating rights for you, ERISA imposes obligations upon
the people who are responsible for the operation of the Plan.
The people who operate your Plan, called "fiduciaries;" of the Plan,
have a duty to act prudently and in the interest of you and your beneficiaries.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
retirement benefit or exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part,
you must receive a written explanation of the reason for the denial. You have
the right to have the Plan review and reconsider your claim.
If you have a claim for benefits which is denied or ignored, in whole
or in part, you may file suit in a state or federal court. If it should happen
that Plan fiduciaries misuse the Plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in a federal court. The court will
decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these
costs and fees, for example, if it finds your claim is frivolous.
If you have any questions about your Plan, you should contract the Plan
administrator.
If you have any questions about this statement or about your rights
under ERISA, you should contact the nearest area office of the United States
Labor - Management Services Administration, Department of Labor.
<PAGE>
<PAGE>
APPENDIX B
OTHER INFORMATION
PLAN NAME: Sheldon L. Ginsberg Retirement
Benefit Plan of Lazare Kaplan
International Inc.
PLAN SPONSOR: Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10022
EMPLOYER IDENTIFICATION
NUMBER:
TYPE OF PLAN: Pension Plan
PLAN IDENTIFICATION
NUMBER:
PLAN ADMINISTRATOR: The Plan is administered by the
Administrative Committee of the
Board of Directors which maintains
an office at:
Lazare Kaplan International Inc.
529 Fifth Avenue
New York, NY 10022
AGENT FOR SERVICE
OF LEGAL PROCESS:
<PAGE>
<PAGE>
ROBERT SPEISMAN RETIREMENT BENEFIT PLAN
OF
LAZARE KAPLAN INTERNATIONAL INC.
EFFECTIVE AS OF JUNE 1, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PRELIMINARY STATEMENT........................................................... 1
ARTICLE I DEFINITIONS............................................ 1
Section 1.1 Definitions............................................ 1
Section 1.2 Rules of Construction.................................. 14
ARTICLE II ORGANIZATIONAL MATTERS................................. 15
Section 2.1 Nature of Plan......................................... 15
Section 2.2 Name of Plan........................................... 15
ARTICLE III THE POLICY............................................. 15
Section 3.1 Purchase............................................... 15
Section 3.2 Ownership.............................................. 16
Section 3.3 Payment of Premiums.................................... 16
Section 3.4 Payment of Tax-Related Bonuses......................... 16
Section 3.5 Endorsement............................................ 17
Section 3.6 Collection of Death Proceeds........................... 17
ARTICLE IV ALLOCATION OF DEATH BENEFIT............................ 17
Section 4.1 Death Prior to Cessation
of Employment........................................ 17
Section 4.2 Death Subsequent to Retirement......................... 18
Section 4.3 Death Subsequent to Noncausal
Termination.......................................... 18
Section 4.4 Death Subsequent to Casual
Termination.......................................... 19
Section 4.5 Death Subsequent to Termination
on Account of Disability............................. 19
ARTICLE V RETIREMENT BENEFITS.................................... 20
Section 5.1 Normal Retirement...................................... 20
Section 5.2 Noncausal Termination.................................. 22
Section 5.3 Cessation of Employment Within
Change in Control Period............................. 22
</TABLE>
(i)
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI DISABILITY BENEFITS.................................... 23
Section 6.1 Disability Benefit Payments............................ 23
Section 6.2 Disability on or after Normal
Retirement Date...................................... 25
ARTICLE VII INSURER INSOLVENCY..................................... 26
Section 7.1 Retirement Benefits.................................... 26
Section 7.2 Disability Benefits.................................... 27
Section 7.3 Curative Adjustments................................... 28
ARTICLE VIII AMENDMENT.............................................. 28
ARTICLE IX ADMINISTRATION......................................... 29
Section 9.1 Administrative Committee............................... 29
Section 9.2 Administration Costs................................... 29
Section 9.3 Legal Limitation....................................... 29
Section 9.4 Records................................................ 29
Section 9.5 Claims Procedure....................................... 30
ARTICLE X MISCELLANEOUS.......................................... 31
Section 10.1 No Transfers........................................... 31
Section 10.2 Nature of Plan; Remedies............................... 31
Section 10.3 Headings and Captions.................................. 31
Section 10.4 Construction........................................... 32
Section 10.5 Late Payments.......................................... 32
Section 10.6 Assignment............................................. 32
Section 10.7 Severability........................................... 32
Section 10.8 Applicable Law......................................... 32
Section 10.9 Jurisdiction; Counsel Fees............................. 32
Section 10.10 Notices; Etc........................................... 33
ERISA RIGHTS............................................. APPENDIX A
OTHER INFORMATION........................................ APPENDIX B
SPECIMEN POLICY.......................................... EXHIBIT A
SPLIT DOLLAR ENDORSEMENT................................. EXHIBIT B
PROCEDURE FOR DETERMINING PRIMARY
BENEFIT TAX AMOUNT........................................ EXHIBIT C
PROCEDURE FOR DETERMINING PLAN TAX SAVINGS................ EXHIBIT D
</TABLE>
(ii)
<PAGE>
<PAGE>
PRELIMINARY STATEMENT
In recognition of the contribution Mr. Robert S. Speisman has made to
its overall success and to encourage Mr. Speisman to remain in its employ,
Lazare Kaplan International Inc. wishes to provide Mr. Speisman with certain
benefits. To accomplish the foregoing, a retirement benefit plan has been
adopted that reads in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this instrument, the
following terms have the respective meanings set forth in this Section 1.1.
"Administrative Committee" means the committee appointed pursuant to
Section 9.1 to manage and administer this Plan.
"Affiliate" means any entity that, directly or indirectly through one
or more intermediaries, controls, is controlled by or is under common control
with the Company.
"Aggregate Premium Amount" means the greater of (x) the aggregate
amount of Premiums paid by the Company on or before the Date of Death or due and
owing on such Date, or (y) the cash surrender value of the Policy on such the
Date.
Assumed Cash Value" means, for any day of any Plan Year, the cash
surrender value the Policy would have on such day if (i) any dividend declared
on the Policy for any prior Plan Year was applied as a net single premium to
purchase paid-up whole life insurance or to fund a Permitted Payment; (ii) the
Policy has not lapsed on account of nonpayment of Premiums; (iii) the Policy has
not been surrendered in whole or in part (unless any amount obtained upon such
surrender has been applied to fund a Permitted Payment); (iv) no loan has been
taken from the Insurer with respect to the Policy (unless the proceeds from such
loan have been applied to fund a Permitted Payment); and (v) the Company funded
all Permitted Payments made on or before such day with amounts obtained from the
Insurer upon partial surrender of the Policy to the extent the amounts so
obtained could be excluded from its gross income for federal income tax purposes
pursuant to Section 72(e) of the Code, funded the balance of such Payments with
loans taken from the Insurer with respect to the Policy and paid any interest on
such loans when due.
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"Beneficiary" means the person or persons the Company has designated as
the beneficiary or beneficiaries under the Policy.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day on which banks within the State of New
York are required to be opened for business.
"Causal Termination Month" means the month in which the Participant's
employment was terminated for Cause by action on the part of the Company.
"Cause" means, with respect to the Participant, conduct that is
demonstrably and materially injurious to the Company that a majority of the
entire membership of the Board of Directors determines constituted (i) fraud,
misappropriation or embezzlement; (ii) a breach of fiduciary duty involving
personal profit; (iii) a willful failure (after written notice thereof and an
adequate opportunity to correct) to perform stated a task within the scope of
his duties, including a willful failure to comply with a lawful resolution of
the Board of Directors; or (iv) a willful violation of any law (other than a
misdemeanor) of which the Participant was aware.
"Change in Control" means, with respect to the Company, (i) the
acquisition by one person or entity, or more than one person or entity acting as
a group, within any twelve- (12-) month period, of ownership of Voting Shares
possessing more than thirty percent (30%) of the total voting power for the
election of the Board of Directors (excluding, however, acquisitions by (A) the
Company or its Affiliates, (B) any employee benefit plan sponsored by the
Company or its Affiliates or (C) a Tempelsman Family Member or any entity
controlled by one or more such Members; (ii) the consummation of a consolidation
or merger of the Company with and into, or a transfer of all or substantially
all the assets of the Company to, another entity, other than an entity in which
those persons holding Voting Shares immediately prior to such transaction, have
substantially the same proportionate voting rights in respect of such entity,
immediately after such transaction, as they had in respect of the Company
immediately prior to such transaction; (iii) the approval by the shareholders of
the Company and/or the Board of Directors of a plan for the liquidation or
dissolution of the Company; or (iv) the appointment of any person to the Board
of Directors if, by such appointment, a majority of the members of such Board
ceases to consist of individuals who are Continuing Directors.
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<PAGE>
"Change in Control Period" means, with respect to any day on which a
Change in Control occurs, the two- (2-) year period beginning with such day.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provisions of any subsequent federal revenue law.
"Company" means Lazare Kaplan International Inc, a Delaware
corporation, its successors and assigns.
"Continuing Director" means a member of the Board of Directors who
either (i) was a member of such Board on the Effective Date, or (ii) was
nominated or appointed (before his initial election) to serve as a member by a
majority of the members of such Board who were persons described in clause (i)
hereof at the time of such nomination or appointment.
"Date of Death" means the date on which the Participant
dies.
"Date of Death Month" means the month that includes the Date of Death.
"Death Benefit Date" means the date on which the death benefit payable
under the Policy is paid.
"Death Benefit Payment" means a payment of an amount equal to the
amount by which (x) the sum of the death benefit paid to the Company under the
Policy, the amount of any Unanticipated Indebtedness existing on the Date of
Death and the amount of Unanticipated Withdrawals made prior to such Date,
exceeds (y) the aggregate amount of Premiums paid by the Company on or before
such Date (or due and owing on such Date).
"Disability" means, with respect to the Participant, any medically
determinable physical or mental impairment that the Administrative Committee, on
the basis of competent medical evidence, reasonably expects to result in death,
or to be of long-continued and indefinite duration of not less than twelve
months, and considers to have rendered the Participant substantially unable to
perform his stated duties on a full-time basis.
"Disability Adjustment Payment" means, for any Disability Benefit
Carryover Year, a payment of an amount equal to the amount, if any, by which (x)
the sum of the Plan Tax Savings at the close of such Year and the aggregate
amount of Disability Adjustment Reimbursement Payments received by the Company
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or to the close of such Year, exceeds (y) the sum of the aggregate amount of
Disability Primary Benefit Tax Payments paid prior to the close of such Year and
the aggregate amount of Disability Adjustment Payments paid prior to such time.
"Disability Adjustment Reimbursement Payment " means, for any
Disability Benefit Carryover Year, the amount, if any, by which (x) the sum of
the aggregate amount of Disability Primary Benefit Tax Payments and Disability
Adjustment Reimbursement Payments paid prior to the close of such Year, exceeds
(y) the sum of the Plan Tax Savings at the close of such Year and the aggregate
amount of Disability Adjustment Reimbursement Payments paid prior to the close
of such Year.
"Disability Benefit Carryover Year" means any Plan Year to which any
tax attribute that arose in a Disability Benefit Year can be carried for
purposes of determining the Company's Income Tax Liability for such Plan Year.
"Disability Benefit Commencement Date" means the first day of the first
Plan Year beginning on or after the latest of (i) the Disability Termination
Date; (ii) the date on which the Participant attains the age of sixty (60); or
(iii) such later day to which the commencement of Disability Benefit Payments
has been postponed pursuant to Section 6.1.2.
"Disability Benefit Payment" means any payment to which the Participant
is entitled pursuant to Section 6.1.
"Disability Benefit Period" means the period commencing with the
Disability Benefit Commencement Date and ending with the Disability Benefit
Termination Date.
"Disability Benefit Termination Date" means the last day of the
earliest of the Date of Death Month or the Disability Full Payout Month.
"Disability Benefit Year" means any Plan Year within
which a Disability Benefit Payment becomes due.
"Disability Dividend Payment" means, for any Disability Benefit Year, a
payment of an amount equal to the amount, if any, by which (x) the sum of the
Assumed Cash Value at the earlier of the Disability Benefit Termination Date or
the close of such Year (determined as if the amount declared as a dividend on
the Policy for such Year had been determined by reference to the Insurer's
actual investment, expense and mortality experience), exceeds (y) the Assumed
Cash Value at such time (determined as if no amount was declared as a divi-
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dend on the Policy for such Year and there was no guaranteed interest rate with
respect to the Policy for such Year).
"Disability First Stage Primary Benefit Amount" means, for any
Disability Benefit Year, an amount equal to ten percent (10%) of the amount by
which (x) the Assumed Cash Value on the Disability Benefit Commencement Date,
exceeds (y) the Disability Minimum Post-Payout Amount.
"Disability First Stage Primary Benefit Payment" means, for any month
within a Disability Benefit Year, a payment of an amount sufficient to amortize
the Disability First Stage Primary Benefit Amount for such Year in twelve (12)
equal installments.
"Disability Full Payout Date" means the date on which one hundred
twenty (120) consecutive Disability Primary Benefit Payments have become
payable.
"Disability Full Payout Month" means the month that includes the
Disability Full Payout Date.
"Disability Interim Valuation Date" means the opening of the first
Disability Benefit Year beginning on or after the Normal Retirement Date.
"Disability Minimum Post-Payout Amount" means an amount equal to the
premium amount, determined pursuant to Section 6.1.4, to be necessary to
purchase a paid-up policy from the Insurer on the Disability Full Payout Date
equal in face amount to the aggregate amount of Premiums paid by the Company on
or before such Date or due and owing on such Date.
"Disability Primary Benefit Payment" means a Disability First Stage
Primary Benefit Payment or a Disability Second Stage Primary Benefit Payment.
"Disability Second Stage Primary Benefit Amount" means, for any
Disability Benefit Year, an amount equal to ten percent (10%) of the amount by
which (x) the Assumed Cash Value on the Disability Interim Valuation Date,
exceeds (y) the Disability Minimum Post-Payout Amount.
"Disability Second Stage Primary Benefit Payment" means, for any month
within a Disability Benefit Year, a payment of an amount sufficient to amortize
the Disability Second Stage Primary Benefit Amount for such Year in twelve (12)
equal installments.
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"Disability Termination Date" means the date on which the Participant's
employment ceases on account of Disability.
"Domestic Entity" means any business entity that formed under the laws of
the United States, one of the fifty states or the District of Columbia.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any corresponding provisions of any subsequent federal law relating
to the regulation of employee benefit plans.
"Effective Date" means June 1, 1997.
"Estimated Marginal Income Tax Rate" means, for any Plan Year, the rate
for such Year described in Section 5.1.5(i)
"Event of Insolvency" means any failure by the Insurer, due to
financial incapacity or distress, to pay or lend the Company any amount to which
it may be entitled under the Policy.
"Final Determination" means any decision or agreement of a kind
described in Section 1313(a) of the Code that effects the Income Tax Liability
for any Plan Year.
"Foreign Entity" means any business entity that is not a Domestic
Entity.
"Full Payout Date" means the date on which one hundred twenty (120)
consecutive Primary Benefit Payments have become payable.
"Full Payout Month" means the month that includes the Full Payout Date.
"Guaranteed Cash Value" means, for the first day of any Plan Year, the
cash surrender value the Policy would have on such day if (i) every dividend
declared on the Policy for any prior Plan Year had been applied as a net single
premium to purchase paid-up whole life insurance or to fund a Permitted Payment;
(ii) the Policy has not lapsed on account of nonpayment of Premiums; (iii) the
Policy has not been surrendered in whole or in part (unless any amount obtained
upon such surrender has not been applied to fund a Permitted Payment); (iv) no
loan has been taken from the Insurer with respect to the Policy (unless the
proceeds from such loan have been applied to fund a Permitted Payment); (v) the
Company funded all Permitted Payments made on or before such day with amounts
obtained
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from the Insurer upon partial surrender of the Policy to the extent the amounts
so obtained could be excluded from its gross income for federal income tax
purposes pursuant to Section 72(e) of the Code, funded the balance of such
Payments with loans taken from the Insurer with respect to the Policy and paid
any interest on such loans when due; (vi) no dividends were payable for any
prior Plan Year; and (vii) such cash surrender value is calculated using a
guaranteed interest rate of four and five/tenths percent (4.5%).
"Guaranteed Adjustment Reimbursement Payment" means, for the first
month beginning after the Tax Filing Date for any Plan Year, a payment of an
amount equal to the amount, if any, by which (x) the aggregate amount of
Insolvency Retirement Payments payable for months ending with or before the
close of such Year, exceeds (y) the sum of the Insolvency Retirement Benefit
Amount at the close of such Year and the aggregate amount of Guaranteed
Adjustment Reimbursement Payments payable for months ending with or before the
close of such Year.
"Guaranteed Adjustment Disability Reimbursement Payment" means, for the
first month beginning after the Tax Filing Date for any Plan Year, a payment of
an amount equal to the amount, if any, by which (x) the aggregate amount of
Insolvency Disability Payments payable for months ending with or before the
close of such Year, exceeds (y) the sum of the Insolvency Disability Benefit
Amount at the close of such Year and the aggregate amount of Guaranteed
Adjustment Disability Reimbursement Payments payable for months ending with or
before the close of such Year.
"Guaranteed Benefit Payment" means any Guaranteed Disability Primary
Benefit Payment and any Insolvency Retirement Benefit Payment.
"Guaranteed Disability Benefit Payment" means any Guaranteed Primary
Benefit Payments and any Insolvency Disability Benefit Payment.
"Guaranteed Disability Full Payout Date" means the date on which one
hundred twenty (120) Primary Disability Benefit Payments and/or Guaranteed
Primary Disability Benefit Payments have become payable.
"Guaranteed Full Payout Date" means the first date by which one hundred
twenty (120) Primary Benefit Payments and/or Guaranteed Primary Retirement
Benefit Payments have become payable.
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"Guaranteed Permitted Payment" means a Guaranteed Primary Benefit
Payment or a Guaranteed Disability Primary Benefit Payment.
"Guaranteed Disability Primary Benefit Amount" means, for any
Disability Benefit Plan Year, an amount equal to ten percent (10%) of the
Guaranteed Cash Value on the Disability Benefit Commencement Date.
"Guaranteed Disability Primary Benefit Payment " means, for any
Disability Benefit Plan Year, a payment of an amount sufficient to amortize the
Guaranteed Primary Benefit Amount for such Year in twelve (12) equal
installments.
"Guaranteed Primary Benefit Amount" means, for any Plan Year, an amount
equal to ten percent (10%) of the Guaranteed Cash Value at the opening of the
first Plan Year beginning after the Normal Retirement Date.
"Guaranteed Primary Benefit Payment" means for any month within a
Guaranteed Primary Benefit Plan Year, a payment of an amount sufficient to
amortize the Guaranteed Primary Benefit Amount for such Year in twelve (12)
equal installments.
"Guaranteed Primary Benefit Plan Year" means any Plan Year beginning
after the Insolvency Year and before the earlier of the Causal Termination Date
or the Guaranteed Full Retirement Payout Date.
"Income Tax" means, whether or not capitalized, any tax based on net
income or excess profits (or any tax in lieu of such a tax) imposed by any
foreign country or possession of the United states or by the United States, any
state or territory of the United States or any political subdivision thereof.
"Income Tax Liability" means, with respect to any Plan Year, the total
amount of Income Taxes payable by the Company for such Year (determined as if
every Foreign Entity in which the Company owned a beneficial interest on any day
during such Year was taxable as a partnership for federal income tax purposes).
"Insurer" means Security Mutual Life Insurance Company of New York.
"Insolvency Date" means, the first date on which an Event of Insolvency
occurs.
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"Insolvency Disability Benefit Amount" means, for any Plan Year, the
amount, if any, by which (x) the sum of (A) the aggregate amount received in
respect of the Policy (whether from the Insurer; any successor to the Insurer;
or any receiver, liquidator, conservator, trustee, custodian, or other similar
official of the Insurer or of the whole or any substantial part of the
properties or assets of the Insurer; or from any fund or other arrangement
created for the purpose of guaranteeing, assuming or reinsuring, in whole or in
part, any or all of the policies issued by any insurance company or group of
insurance companies) after an Event of Insolvency, and (B) the Plan Tax Savings
at the close of such Year, exceeds (y) the sum of (A) the aggregate amount of
Guaranteed Permitted Payments which the Participant has received or is scheduled
to receive under the Plan for all Plan Years and the aggregate amount of
Premiums paid by the Company for all prior Plan Years, (B) the aggregate amount
assessed against the Company for all prior Plan Years with respect to the Policy
in connection with any rehabilitation, liquidation or similar proceeding
involving the Insurer, and (C) the aggregate amount of Insolvency Disability
Benefit Payments received in prior Years.
"Insolvency Disability Benefit Payment" means, for the first month
beginning after the close of any Plan Year, a payment of a sum equal to the
Insolvency Disability Amount at the close of such Year.
"Insolvency Retirement Benefit Amount" means, for any Plan Year, the
amount, if any, by which (x) the sum of (A) the aggregate amount received in
respect of the Policy (whether from the Insurer; any successor to the Insurer;
or any receiver, liquidator, conservator, trustee, custodian, or other similar
official of the Insurer or of the whole or any substantial part of the
properties or assets of the Insurer; or from any fund or other arrangement
created for the purpose of guaranteeing, assuming or reinsuring, in whole or in
part, any or all of the policies issued by any insurance company or group of
insurance companies) after an Event of Insolvency, and (B) the Plan Tax Savings
at the close of such Year, exceeds (y) the sum of (A) the aggregate amount of
Guaranteed Permitted Payments which the Participant has received or is scheduled
to receive under the Plan for all Plan Years and the aggregate amount of
Premiums paid by the Company for all prior Plan Years, (B) the aggregate amount
assessed against the Company for all prior Plan Years with respect to the Policy
in connection with any rehabilitation, liquidation or similar proceeding
involving the Insurer, and (C) the aggregate amount of
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Insolvency Retirement Benefit Payments received in prior Years.
"Insolvency Retirement Benefit Payment" means, for the first month
beginning after the close of any Plan Year, a payment of a sum equal to the
Insolvency Retirement Amount at the close of such Year.
"Insolvency Year" means, the first Plan Year within which an Event of
Insolvency occurs.
"Marginal Income Tax Rate" means, with respect to any Retirement
Benefit Year, the combined rate of federal state and local income tax to which
the last dollar earned by the Company for such Year will be subject (determined
taking into account any reduction in the applicable federal income rate on
account of any state or local income tax to which such last dollar is subject
that is allowed as a deduction for federal income tax purposes).
"Maturity Payment" means a payment of an amount equal to the amount by
which (x) the sum of the amount payable to the Company under the Policy upon
maturity thereof, the amount of any Unanticipated Indebtedness existing on at
such time and the amount of Unanticipated Withdrawals made prior to such time,
exceeds (y) the aggregate amount of Premiums paid by the Company on or before
such time (or due and owing on at such time).
"Minimum Post-Payout Amount" means an amount equal to the premium
amount necessary to purchase a paid-up policy from the Insurer on the Full
Payout Date equal in face amount to the aggregate amount of Premiums paid by the
Company on or before such Date or due and owing on such Date.
"Normal Retirement Date" means the day on which the Participant attains
age sixty-five (65).
"Normal Retirement Year" means the Plan Year within which the Normal
Retirement Date occurs.
"Other SERPs" means, collectively, the Leon Tempelsman Benefit Plan of
Lazare Kaplan International Inc. and the Sheldon L. Ginsberg Benefit Plan of
Lazare Kaplan International Inc.
"Participant" means Mr. Robert Speisman.
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"Participating Company" means the Company or any Affiliate thereof.
"Permitted Payment" means any Primary Benefit Payment, Retirement
Dividend Payment, Disability Benefit Payment or Disability Dividend Payment.
"Permitted Retirement Payment" means any Permitted Payment, other than
a Disability Benefit payment.
"Person" means, whether or not capitalized, any individual or trust,
estate, partnership, limited liability company, corporation or other entity.
"Plan" means the retirement benefit plan set forth herein, as amended
from time to time.
"Plan Tax Savings" means, at the end of any Plan Year, the portion of
the SERP Tax Savings at the close of such Year that is attributable to items
associated with this Plan (as determined in accordance with the procedure set
forth on the schedule annexed hereto as Exhibit D).
"Plan Year" means the annual period beginning June 1 and ending May 31.
"Policy" means the life insurance contract insuring the life of the
Participant that will be issued by the Insurer as of June 1, 1997, having terms
identical to the specimen life insurance contract policy annexed hereto as
Exhibit A.
"Premium" means any amount required to be paid as consideration for the
Policy.
"Primary Benefit Amount" means, for any Retirement Benefit Year, an
amount equal to ten percent (10%) of the amount by which (x) the Assumed Cash
Value on the Retirement Benefit Commencement Date, exceeds (y) the Minimum
Post-Payout Amount.
"Primary Benefit Payment" means, for any month within a Retirement
Benefit Year, a payment of an amount sufficient to amortize the Primary Benefit
Amount for such Year in twelve (12) equal installments.
"Primary Benefit Tax Amount" means, for any Retirement Benefit Plan
Year, such amount, if any, as may be determined by the Administrative Committee
for such Year pursuant to Section 5.1.5(ii).
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"Primary Benefit Tax Payment" means, for any month within a Retirement
Benefit Plan Year, a payment to the Participant in an amount sufficient to
amortize the Primary Benefit Tax Amount for such Year in twelve (12) equal
installments.
"Retirement Adjustment Payment" means, for any Retirement Benefit
Carryover Year, a payment of an amount equal to the excess, if any, of (x) the
sum of the Plan Tax Savings at the close of such Year and the aggregate amount
of Retirement Adjustment Reimbursement Payments payable to the Company for
months ending with or before the close of such Year, exceeds (y) the sum of the
aggregate amount of Primary Benefit Tax Payments and Retirement Adjustment
Payments payable for months ending with or before the close of such Year.
"Retirement Adjustment Reimbursement Payment " means, for any
Retirement Benefit Carryover Year, a payment of an amount equal to the amount,
if any, by which (x) the sum of the aggregate amount of Primary Benefit Tax
Payments and Retirement Adjustment Payments payable for months ending with or
before the close of such Year, exceeds (y) the sum of the Plan Tax Savings at
the close of such Year and the aggregate amount of Retirement Adjustment
Reimbursement Payments payable for months ending with or before the close of
such Year.
"Retirement Benefit Carryover Year" means any Plan Year to which any
tax attribute that arose in a Retirement Benefit Year can be carried for
purposes of determining the Company's Income Tax Liability for such Plan Year.
"Retirement Benefit Commencement Date" means the first day of the first
Plan Year beginning after the Normal Retirement Date or such later day to which
the commencement of Retirement Benefit Payments has been postponed pursuant to
Section 5.1.2.
"Retirement Benefit Payment" means any payment to which the Participant
is entitled pursuant to Section 5.1.
"Retirement Benefit Period" means the period commencing with the
Retirement Benefit Commencement Date and ending with the Retirement Benefit
Termination Date.
"Retirement Benefit Termination Date" means the last day of the
earliest of the Date of Death Month, the Causal Termination Month or the Full
Payout Month.
"Retirement Benefit Year" means any Plan Year within which a Retirement
Benefit Payment becomes due.
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"Retirement Date" means the date as of which the Participant
voluntarily ceases his employment with the Company.
"Retirement Dividend Payment" means, for any Retirement Benefit Year, a
payment of an amount equal to the amount, if any, by which (x) the Assumed Cash
Value at the earlier of the Retirement Benefit Termination Date or the close of
such Year (determined as if the amount declared as a dividend on the Policy for
such Year had been determined by reference to the Insurer's actual investment,
expense and mortality experience), exceeds (y) the Assumed Cash Value at such
time (determined as if no amount was declared as a dividend on the Policy for
such Year and there was no guaranteed interest rate with respect to the Policy
for such Year).
"SERP" means, this Plan, the Leon Tempelsman Benefit Plan of Lazare
Kaplan International Inc. and the Sheldon L. Ginsberg Benefit Plan of Lazare
Kaplan International Inc.
"SERP Participant" means, the Participant, Mr. Leon Tempelsman or Mr.
Sheldon L. Ginsberg.
"SERP Tax Savings" means, at the close of any Plan Year, the amount, if
any, by which (x) the aggregate Income Tax Liability the Company would have
incurred for all Plan Years beginning on or after the Effective Date and ending
on or before the last day of such Year (determined without taking into account
any Retirement Benefit Payment, Payment, Retirement Adjustment Reimbursement
Payment, Disability Benefit Payment, Disability Adjustment Reimbursement
Payment, Guaranteed Benefit Payment, Guaranteed Adjustment Reimbursement
Payment, Guaranteed Disability Benefit Payment or Guaranteed Disability
Adjustment Reimbursement Payment, paid or accrued on or before such day),
exceeds (y) the aggregate Income Tax Liability for such Plan Years (determined
taking into account any change in such aggregate Liability resulting from any
Final Determination made on or before such day).
"Service" means the Internal Revenue Service.
"Tax Filing Date" means, for any Plan Year, the day on which the
Company has filed the federal income tax return for such Year.
"Tempelsman Family Member" means. (i) Mr. Maurice Tempelsman; (ii)
any descendant (whether biological or adopted) of Mr. Maurice Tempelsman; (iii)
the spouse of any person described in clause (i) or (ii) hereof; (iv) the
estate of any person described in clause (i), (ii), or (iii) hereof; or (v)
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any trust created by or arising under the will of any person described in clause
(i), (ii), or (iii) hereof.
"Termination Date" means the date on which the Participant's employment
is terminated by action on the part of the Company.
"Unanticipated Indebtedness" means, at the Date of Death, the amount of
the indebtedness against the Policy existing at that time (including any
interest payable thereon but excluding the amount of any indebtedness against
the Policy the proceeds of which were used to make Permitted Payments).
"Unanticipated Withdrawal" means, at the earlier of the Date of Death
or the date on which the Policy is scheduled to mature, the aggregate amounts
obtained by the Company prior to such date upon surrender of all or a portion of
the Policy (excluding any such amount which was used make a Permitted Payment).
"Voting Share" means an outstanding security of the Company possessing
the right to vote for the election of directors of the Company.
Section 1.2 Rules of Construction. Unless the context otherwise
requires, (i) a term shall have the meaning assigned to it in Section 1.1; (ii)
references to the Participant's "employment" shall be to his full-time
employment by one or more Participating Companies and reference to him as
"employed" shall be to his being employed full time by one or more such; (iii)
if the Participant's employment ceases on account of disability, such cessation
will be deemed to have resulted from action on the part of the Company on
account of Disability; (iv) an insurance term not otherwise defined herein shall
have the meaning assigned to it in the Policy; (v) the Policy will be deemed to
be perpetual (i.e., will be deemed never to mature) if the Date of Death occurs
prior to the date on which the Policy is scheduled to mature; (vi) "or" shall
not be exclusive; (vii) words in the singular shall include the plural, and vice
versa; (viii) all references to "Section" or "Article" shall be to sections and
articles of this instrument; and (viii) words in the masculine gender shall
include the feminine and neuter, and vice versa.
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ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Nature of Plan. The Plan, together with two other
retirement benefit plans adopted by the Company as of the Effective Date, is
intended to qualify as unfunded for tax purposes and to qualify, for purposes of
title I of ERISA, as an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees of the Company . Consequently, the Participant shall be an
unsecured general creditor of the Company with respect to benefits to which he
is entitled hereunder and the Plan shall constitute a mere promise by the
Company to pay such benefits in the future. The benefits provided to the
Participant by the Plan are not part of any salary reduction plan and are not
provided in lieu of a bonus or salary increase. The Plan is not intended to
confer any legal rights upon the Participant for a continuation of employment,
nor shall its existence limit the Company's right to discharge the Participant
or otherwise deal with the Participant without regard to the effect its action
might have upon the Participant under the Plan. Any provision hereof to the
contrary notwithstanding, if a court of competent jurisdiction determines that
the Plan does not satisfy the definitional requirements of Section 201(2) of
ERISA and such determination becomes final, (i) the Plan shall be terminated ab
initio and neither the Participant nor the Beneficiary shall have any right to
receive any benefit under the Plan or under the Policy; and (ii) the Company
shall be entitled to a payment from the Participant of a sum equal to the
aggregate amount paid to him under the Plan and to a payment from the
Beneficiary in an amount equal to the portion of the death benefit paid to it
under the Policy.
Section 2.2 Name of Plan. The Plan shall be known as
the "Robert Speisman Benefit Plan of Lazare Kaplan Inter-
national Inc."
ARTICLE III
THE POLICY
Section 3.1 Purchase. Promptly following the Effective Date, the
Company shall purchase the Policy from the Insurer. The Company and the
Participant shall use their best efforts and shall otherwise take all necessary
action within their control to cause the Insurer to issue the Policy as of the
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earliest possible day beginning after May 31, 1997, and shall take any further
action within their control which may be necessary to cause the Policy to
conform to the terms and conditions of the Plan.
Section 3.2 Ownership. The Company shall be the sole and absolute owner
of the Policy, and except as otherwise provided by Section 3.5, shall have all
of the rights with respect thereto, including the right to (i) select the
settlement option under the Policy and the beneficiary or beneficiaries to
receive the portion of the Policy proceeds to which the Company is not entitled
under the Plan; (ii) assign or surrender the Policy; (iii) take or repay a
policy loan from the Insurer with respect to the Policy; (iv) pledge or assign
the policy for purposes of securing a loan from any person; (v) amend or modify
the Policy with the written consent of the Insurer, and (vi) exercise any right,
receive any benefit or enjoy any privilege provided by the Policy.
Notwithstanding the foregoing, once the Company has exercised its right to
designate the Beneficiary pursuant to clause (i) of the preceding sentence, it
shall not have the right to revoke or otherwise modify such designation.
Section 3.3 Payment of Premiums. On or before the due date of any
Premium, or within the grace period provided in the Policy, the Company shall
pay the full amount of the Premium to the Insurer, and shall promptly furnish
the Participant evidence of timely payment of such Premium. The Company shall
use its best efforts to furnish the Participant, within ninety (90) days after
the close of each calendar year, with a statement of the amount includible in
gross income by him for federal, state and local income tax purposes as a result
of having cost-free insurance protection provided under the Policy during the
calendar year.
Section 3.4 Payment of Tax-Related Bonuses. At the time it furnishes
the statement described in Section 3.3 for any calendar year beginning prior to
the Retirement Date, the Company shall pay the Participant, as compensation, an
amount equal to the aggregate amount of federal, state and local income taxes he
would be required to pay for the related calendar year if (i) the amount shown
on such statement constituted his entire gross income for such year; (ii) such
gross income was wholly allocable to New York City for state and local income
tax purposes; (iii) the state and local taxes payable on such gross income for
such calendar year were allowed as a deduction for such year in determining his
taxable income for federal income tax purposes; (iv) he was not allowed any
other deductions or any personal exemptions for such
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year in determining his taxable income for federal, state or local income tax
purposes; and (vi) he was subject to the highest marginal federal, New York
State and New York City income tax rates for such year applicable to individuals
having his marital and filing status. Notwithstanding the foregoing, (i) if the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause, the Company shall not be obligated to make any
payment pursuant to this Section 3.4 for any calendar year beginning after the
Normal Retirement Date; and (ii) if the Participant's employment is terminated
by action on the part of the Company for Cause, the Company shall not be
obligated to make any payment pursuant to this Section 3.4 for any calendar year
ending after the Termination Date.
Section 3.5 Endorsement. Promptly following the Effective Date, the
Company shall execute an endorsement to the Policy substantially in the form
annexed hereto as Exhibit B in order to secure the Company's recovery of the
greater of the cash value of the Policy or the aggregate amount of Premiums paid
by the Company. Such endorsement shall not be terminated or modified by the
Company without the express written consent of the Participant.
Section 3.6 Collection of Death Proceeds. Upon the death of the
Participant, the Company shall cooperate with the Beneficiary to take whatever
action is necessary to collect the death benefit payable under the Policy.
ARTICLE IV
ALLOCATION OF DEATH BENEFIT
Section 4.1 Death Prior to Cessation of Employment. If the Participant
is employed at the time of his death and has not yet attained the age of
seventy-five (75), the Company shall have the unqualified right to receive a
portion of the death benefit payable under the Policy equal to the Aggregate
Premium Amount, and the balance of such death benefit, if any, shall be paid
directly to the Beneficiary in the manner and in the amount or amounts provided
in the beneficiary designation provision of the Policy. In no event shall the
amount payable to the Company under this Section 4.1 exceed the amount of the
death benefit payable under the Policy. No amount shall be paid to the
Beneficiary from such death benefit until the amount due the Company under this
Section 4.1 has been paid in full. Notwithstanding the foregoing, if the
Participant has attained the age of seventy-five (75), the Company shall have
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the unqualified right to receive the entire death benefit then payable under the
Policy and no portion of such death benefit shall be paid to the Beneficiary.
Section 4.2 Death Subsequent to Retirement. If the Participant's
death occurs after Retirement, any death benefit payable under the Policy shall
be allocated as follows:
(i) If the Participant has attained age sixty-five (65) by the
Retirement Date and has not attained the age of seventy-five (75) by
the Date of Death, the Company shall have the unqualified right to
receive a portion of the death benefit payable under the Policy equal
to the Aggregate Premium Amount, and the balance of such death benefit,
if any, shall be paid directly to the Beneficiary in the manner and in
the amount or amounts provided in the beneficiary designation provision
of the Policy. In no event shall the amount payable to the Company
under this Section 4.2(i) exceed the amount of the death benefit
payable under the Policy. No amount shall be paid to the Beneficiary
from such death benefit until the amount due the Company under this
Section 4.2(i) has been paid in full.
(ii) If the Participant has attained the age of sixty-five
(65) by the Retirement Date and has attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right
to receive the death benefit payable under the Policy and no portion of
such death benefit shall be paid to the Beneficiary.
(iii) If the Participant has not attained the age of
sixty-five (65) by the Retirement Date, the Company shall have the
unqualified right to receive the death benefit payable under the Policy
and no portion of such death benefit shall be paid to the Beneficiary.
Section 4.3 Death Subsequent to Noncausal Termination. If the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability, any death benefit payable under the
Policy shall be allocated as follows:
(i) If the Participant has not attained the age of
seventy-five (75) by the Date of Death, the Company shall have the
unqualified right to receive
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a portion of the death benefit payable under the Policy equal to the
Aggregate Premium Amount prior to the Date of Death, and the balance of
such death benefit, if any, shall be paid directly to the Beneficiary
in the manner and in the amount or amounts provided in the beneficiary
designation provision of the Policy. In no event shall the amount
payable to the Company under this Section 4.3(i) exceed the amount of
the death benefit payable under the Policy. No amount shall be paid to
the Beneficiary from such death benefit until the amount due the
Company under this Section 4.3(i) has been paid in full.
(ii) If the Participant has attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right
to receive the death benefit payable under the Policy and no portion of
such death benefit shall be paid to the Beneficiary.
Section 4.4. Death Subsequent to Causal Termination. If the
Participant's employment is terminated by action on the part of the Company for
Cause, the Company shall have the unqualified right to receive the death benefit
payable under the Policy and no portion of the death benefit payable under the
Policy shall be paid to the Beneficiary.
Section 4.5. Death Subsequent to Termination on Account of Disability.
If the Participant's employment is terminated by action on the part of the
Company on account of Disability and he has not attained the age of seventy-five
(75) by the Date of Death, the Company shall have the unqualified right to
receive a portion of the death benefit payable under the Policy equal to the
Aggregate Premium Amount, and the balance of such death benefit, if any, shall
be paid directly to the Beneficiary in the manner and in the amount or amounts
provided in the beneficiary designation provision of the Policy. In no event
shall the amount payable to the Company under this Section 4.5 exceed the amount
of the death benefit payable under the Policy. No amount shall be paid to the
Beneficiary from such death benefit until the amount due the Company under this
Section 4.5 has been paid in full. If the Participant's employment terminates on
account of Disability and he has attained the age of seventy-five (75) by the
Date of Death, the Company shall have the unqualified right to receive the
entire death benefit payable under the Policy and no portion of such death
benefit shall be paid to the Beneficiary.
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ARTICLE V
RETIREMENT BENEFITS
Section 5.1 Normal Retirement.
Section 5.1.1 Payment of Retirement Benefits. If the
Participant has attained the age of sixty-five (65) and has been employed at all
times between the Effective Date and the Normal Retirement Date, he shall be
entitled to (i) a Primary Benefit Payment and a Primary Benefit Tax Payment for
each month within the Retirement Benefit Period; (ii) a Retirement Dividend
Payment for the first month beginning after the close of each Retirement Benefit
Year; (iii) a Death Benefit Payment for the earlier of the sixth month beginning
after the Date of Death or the first month beginning after the Death Benefit
Date; (iv) a Maturity Payment for the third month beginning after the date on
which the Policy is scheduled to mature; and (v) a Retirement Adjustment Payment
for the first month beginning after the Tax Filing Date for each Retirement
Benefit Carryover Year. Any payment to which the Participant shall be entitled
under this Section 5.1.1 for any month shall be made on or before the fifth
Business Day of such month.
Section 5.1.2 Postponement of Retirement Benefit Commencement
Date. The Administrative Committee, upon application by the Participant, shall
grant him one or more successive one- (1-) year postponements of the date on
which payment of Retirement Benefit Payments will commence. To satisfy the
requirements of this Section 5.1.2, (i) an application to the Administrative
Committee for any one- (1-) year postponement must be submitted (on a form
provided by the Committee) not more than three hundred (300) days and not less
than one hundred eighty (180) days before the date prescribed for the payment of
Retirement Benefit Payments to commence (as such date may have previously been
extended pursuant to this Section 5.- 1.2); (ii) no such Payments shall have
previously become due and payable. Regardless of whether any postponement
granted under this Section 5.1.2 is then in effect, the payment of Retirement
Benefit Payments shall in all events commence with the first month of the first
Plan Year beginning after the Retirement Date.
Section 5.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Retirement Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any
Retirement Benefit
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Carryover Year. Any payment to which the Company shall be entitled under this
Section 5.1.3 for any month shall be made on or before the fifth Business Day of
such month; provided, however, that the Company shall have the right to set off
amounts due and owing to it pursuant to this Section 5.1.3 against amounts
payable to the Participant under this Plan as such amounts become due.
Section 5.1.4 Determination of the Minimum Post-Payout
Amount. On or before the first Business Day of the first Retirement Benefit
Year, the Administrative Committee, after due consultation with the Insurer's In
Force Reprojection Unit, shall make a good faith determination of the amount,
if any, of the Minimum Post-Payout Amount.
Section 5.1.5 Determination of Primary Benefit Tax Amount. On
or before the fifth Business Day of each Retirement Benefit Year, the
Administrative Committee shall (i) make a good faith estimation of what the
Marginal Income Tax Rate for such Year would be if every Foreign Entity in which
the Company owned a beneficial interest on any day during such Year were taxable
as a partnership for federal income tax purposes; and (ii) shall determine (in
accordance with the procedure set forth on the schedule annexed hereto as
Exhibit C) what the Primary Benefit Tax Amount for such year would be if (A) the
Marginal Income Tax Rate for such year were equal to the Estimated Marginal
Income Tax Rate for such Year, and (B) the only Retirement Benefit Payments paid
or accrued in such Year were the Primary Benefit Payments and the Primary
Benefit Tax Payments that are scheduled to be paid for such Year.
Section 5.1.6 Determination of Retirement Adjustment Amounts.
On or before the fifth Business Day following the Tax Filing Date for any
Retirement Benefit Carryover Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Retirement Adjustment Payment or the
Retirement Adjustment Reimbursement Payment that is payable for the first month
beginning after such Date.
Section 5.1.7 Determination of Death Benefit Payment. On or
before the fifth Business Day of following the Death Benefit Date, the
Administrative Committee, after due consultation with the Company's accountants,
shall make a good faith determination of the Death Benefit Payment that is
payable for the first month beginning after such Date.
Section 5.1.8 Determination of Maturity Payment. On
or before the fifth Business Day of the second month beginning
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after the date on which the Policy is scheduled to mature, the Administrative
Committee, after due consultation with the Company's accountants, shall make a
good faith determination of the Maturity Payment that is payable for the first
month beginning after such Date.
Section 5.2 Noncausal Termination.
Section 5.2.1 Noncausal Termination Prior to the Normal
Retirement Date. If at any time prior to the Normal Retirement Date, the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability and he has been employed at all times
between the Effective Date and the Termination Date, then upon attaining the age
of sixty-five (65) he shall be deemed, for purposes of Section 5.1 to have been
employed at all times between the Effective Date and the Normal Retirement Date
and to have voluntarily ceased his employment on such latter Date.
Section 5.2.2 Noncausal Termination on or after the Normal
Retirement Date. If at any time on or after the Normal Retirement Date, the
Participant's employment is terminated by action on the part of the Company for
any reason other than Cause or Disability and he has been employed at all times
since the Effective Date, then he shall be deemed, for purposes of Section 5.1,
to have voluntarily ceased his employment on the Termination Date.
Section 5.3 Cessation of Employment Within Change in Control Period.
Section 5.3.1 Retirement. If the Participant voluntarily
ceases his employment at any time within the Change in Control Period he shall
be entitled to a payment for the first month of the first Plan Year beginning
after the Retirement Date in an amount equal to the Assumed Cash Value of the
Policy at the opening of such month. The payment to which the Participant shall
be entitled under this Section 5.3.1 shall be made on or before the fifth
Business Day of such first month and shall be in lieu of any benefit to which he
may otherwise be entitled pursuant to this Agreement.
Section 5.3.2 Noncausal Termination. If at any time within the
Change in Control Period the Participant's employment is terminated by action on
the part of the Company for any reason other than Cause or Disability, he shall
be entitled to a payment for the first month of the first Plan Year beginning
after the Termination Date in an amount equal to the Assumed Cash Value of the
Policy at the opening of such month.
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The payment to which the Participant shall be entitled under this Section 5.3.2
shall be made on or before the fifth Business Day of such first month and shall
be in lieu of any benefit to which he may otherwise be entitled pursuant to this
Agreement.
Section 5.3.3 Noncausal Election. The Administrative
Committee, upon application by the Participant, shall grant him the right, in
lieu of any rights to which he would otherwise be entitled pursuant to Section
5.3.2, to be deemed, for purposes of Section 5.1, to have been employed at all
times between the Effective Date and the Normal Retirement Date and to have
voluntarily ceased his employment on such latter Date. To satisfy the
requirements of this Section 5.3.3, an application to the Administrative
Committee must be submitted (on a form provided by the Committee) on or before
the first anniversary of the day on which the related Change in Control occurs.
The Participant shall not be entitled to any amount pursuant to Section 5.1 on
account of an election made pursuant to this Section 5.3.3 unless the
Participant in fact attains the age of sixty-five (65).
ARTICLE VI
DISABILITY BENEFITS
Section 6.1. Disability Prior to Normal Retirement Date.
Section 6.1.1 Disability Benefit Payments. If the
Participant's employment ceases on account of Disability and he has been
employed at all times between the Effective Date and the Disability Termination
Date, he shall be entitled to (i) a Disability First Stage Primary Benefit
Payment and a Disability Primary Tax Payment for each month beginning on or
after the Disability Benefit Commencement Date and before the Disability Interim
Valuation Date; (ii) a Disability Second Stage Primary Benefit Payment and a
Disability Primary Tax Payment for each month beginning on or after the
Disability Interim Valuation Date and before the Disability Benefit Ter-
mination Date; (iii) a Disability Dividend Payment for the first month beginning
after the close of each Disability Benefit Year; (iv) a Death Benefit Payment
for the earlier of the sixth month beginning after the Date of Death or the
first month beginning after the Death Benefit Date; (v) a Maturity Payment for
the third month beginning after the date on which the Policy is scheduled to
mature; and (vi) a Disability Adjustment Payment for the first month beginning
after the Tax Filing Date for each Disability Benefit Carryover Year. Any
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payment to which the Participant shall be entitled under this Section 6.1 for
any month shall be made on or before the fifth Business Day of such month.
Section 6.1.2 Postponement of Disability Benefit Commencement
Date. The Administrative Committee, upon application by the Participant, shall
grant him one or more successive one- (1-) year postponements of the date on
which payment of Disability Benefit Payments will commence. To satisfy the
requirements of this Section 6.1.2, (i) an application to the Administrative
Committee for any one- (1-) year postponement must be submitted (on a form
provided by the Committee) not more than two hundred seventy (270) days and not
less than one hundred eighty (180) days before the date prescribed for the
payment of Disability Benefit Payments to commence (as such date may have
previously been extended pursuant to this Section 6.1.2); (ii) no such Payments
shall have previously become due and payable. Regardless of whether any
postponement granted under this Section 6.1.2 is then in effect, the payment of
Disability Benefit Payments shall in all events commence with the first month of
the first Plan Year beginning after the date on which the Participant attains
the age of sixty-five (65).
Section 6.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Disability Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any
Disability Benefit Carryover Year. Any payment to which the Company shall be
entitled under this Section 6.1.3 for any month shall be made on or before the
fifth Business Day of such month; provided, however, that the Company shall have
the right to set off amounts due and owing to it pursuant to this Section 6.1.3
against amounts payable to the Participant under this Plan as such amounts
become due.
Section 6.1.4 Determination of Disability Minimum Post-Payout
Amount. On or before the first Business Day of the first Disability Benefit Year
and on or before the Disability Interim Valuation Date, the Administrative
Committee, after due consultation with the Insurer's In Force Reprojection
Unit, shall make a good faith determination of the amount of the Disability
Minimum Post-Payout Amount
Section 6.1.5 Determination of Disability Primary Benefit Tax
Amount. On or before the fifth Business Day of each Disability Benefit Year, the
Administrative Committee shall (i) make a good faith estimation of the Marginal
Income Tax Rate for such Year; and (ii) shall determine (in accor-
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dance with the procedure analogous to those set forth on the schedule annexed
hereto as Exhibit C) what the Disability Primary Benefit Tax Amount for such
Year would be if (i) the Marginal Income Tax Rate for such Year were equal to
the Estimated Marginal Income Tax Rate for such Year, and (ii) the only
Disability Benefit Payments paid or accrued in such Year were the Disability
Primary Benefit Payments and the Disability Primary Benefit Tax Payments that
are scheduled to be paid for such Year.
Section 6.1.6 Determination of Disability Adjustment Amounts.
On or before the fifth Business Day following the Tax Filing Date for any
Disability Benefit Carryover Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Disability Adjustment Payment or the
Disability Adjustment Reimbursement Payment that is payable for the first month
beginning after such Date.
Section 6.1.7 Determination of Death Benefit Payment. On or
before the fifth Business Day following the Death Benefit Date, the
Administrative Committee, after due consultation with the Company's accountants,
shall make a good faith determination of the Death Benefit Payment that is
payable for the first month beginning after such Date.
Section 6.1.8 Determination of Maturity Payment. On or before
the fifth Business Day of the second month beginning after the date on which the
Policy is scheduled to mature, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the Maturity that is payable for the first month beginning
after such Date.
Section 6.2. Disability on or after Normal Retirement Date. If
at any time on or after the Normal Retirement Date, the Participant's employment
ceases on account of Disability and he has been employed at all times since the
Effective Date, then he shall be deemed, for purposes of Section 5.1, to have
voluntarily ceased his employment on the Disability Termination Date.
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ARTICLE VII
INSURER INSOLVENCY
Section 7.1 Retirement Benefits.
Section 7.1.1 Insolvency Prior to the Retirement Benefit
Commencement Date. If an Event of Insolvency occurs on or before the Retirement
Benefit Commencement Date and the Participant would be entitled, except that he
has filed or has the right to file an application pursuant to Section 5.1.2, to
commence receiving Retirement Benefit Payments for the first month of the first
Plan Year beginning after the later of the Normal Retirement Date or the
Insolvency Date; then in lieu of any Retirement Benefit Payments, the
Participant shall be entitled to (i) a Guaranteed Primary Benefit Payment for
each month beginning after the close of the later of the Normal Retirement Year
or the Insolvency Year and beginning on or before the earlier of the Causal
Termination Date or the Guaranteed Full Payout Date; and (ii) an Insolvency
Retirement Benefit Payment for the first month beginning after the close of each
Plan Year. Any payment to which the Participant shall be entitled under this
Section 7.1.1 for any month shall be made on or before the fifth Business Day of
such month.
Section 7.1.2 Insolvency Subsequent to the Retirement Benefit
Commencement Date. If an Event of Insolvency occurs after the Retirement Benefit
Commencement Date, then in lieu of any Retirement Benefit Payments due on, or
payable after such Date, the Participant shall be entitled to (i) a Guaranteed
Primary Benefit Payment for each month beginning on or after such Date and
beginning on or before the earlier of the Causal Termination Date or the
Guaranteed Full Payout Date; and (ii) an Insolvency Retirement Benefit Payment
for the first month beginning after the close of each Plan Year. Any payment to
which the Participant shall be entitled under this Section 7.1.2 for any month
shall be made on or before the fifth Business Day of such month.
Section 7.1.3 Certain Reimbursement Payments. The Company
shall be entitled to a Guaranteed Adjustment Reimbursement Payment from the
Participant for the first month beginning after the Tax Filing Date for any Plan
Year. Any payment to which the Company shall be entitled under this Section
7.1.3 for any month shall be made on or before the fifth Business Day of such
month; provided, however, that the Company shall have the right to set off
amounts due and owing to it
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pursuant to this Section 7.1.3 against amounts payable to the Participant under
this Plan as such amounts become due.
Section 7.1.4 Determination of Guaranteed Adjustment
Reimbursement Amounts. On or before the fifth Business Day following the Tax
Filing Date for any Plan Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Guaranteed Adjustment Reimbursement
Payment that is payable for the first month beginning after such Date.
Section 7.2 Disability Benefits.
Section 7.2.1 Insolvency Prior to the Disability Benefit
Commencement Date. If an Event of Insolvency occurs on or before the Disability
Benefit Commencement Date, and the Participant would be entitled, except that he
has filed or has the right to file an application pursuant to Section 6.1.2, to
commence receiving Disability Benefit Payments for the first month of the first
Plan Year beginning after the latest of the Disability Termination Date, the
date on which the Participant attains the age of sixty (60) or the Insolvency
Date, then in lieu of any Disability Benefit Payment, the Participant shall be
entitled to (i) a Guaranteed Disability Primary Benefit Payment for each month
beginning after the close of the latest of the Plan Year in which the Disability
Termination Date occurs, the Plan Year in which the Participant attains the age
of sixty (60) or the Insolvency Year and beginning on or before the earlier of
the Causal Termination Date or the Guaranteed Full Disability Payout Date; and
(ii) an Insolvency Disability Benefit Payment for the first month beginning
after the close of each Plan Year. Any payment to which the Participant shall be
entitled under this Section 7.2.1 for any month shall be made on or before the
fifth Business Day of such month.
Section 7.2.2 Insolvency After the Disability Benefit
Commencement Date. If at the time an Event of Insolvency occurs a Primary
Disability Benefit Payment has become payable, then in lieu of any future
Disability Benefit Payments, the Participant shall be entitled to (i) a
Guaranteed Primary Disability Benefit Payment for each month beginning on or
after the Insolvency Date and beginning on or before the earlier of the Causal
Termination Date or the Guaranteed Full Disability Payout Date; and (ii) an
Insolvency Disability Benefit Payment for the first month beginning after the
close of each Plan Year. Any payment to which the Participant shall be
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entitled under this Section 7.2.2 for any month shall be made on or before the
fifth Business Day of such month.
Section 7.2.3 Certain Reimbursement Payments. The Company
shall be entitled to a Guaranteed Disability Adjustment Reimbursement Payment
from the Participant for the first month beginning after the Tax Filing Date for
any Plan Year. Any payment to which the Company shall be entitled under this
Section 7.2.3 for any month shall be made on or before the fifth Business Day of
such month; provided, however, that the Company shall have the right to set off
amounts due and owing to it pursuant to this Section 7.1.3 against amounts
payable to the Participant under this Plan as such amounts become due.
Section 7.2.4 Determination of Guaranteed Disability
Adjustment Reimbursement Amounts. On or before the fifth Business Day following
the Tax Filing Date for any Plan Year, the Administrative Committee, after due
consultation with the Company's accountants, shall make a good faith
determination of the amount, if any, of the Guaranteed Adjustment Reimbursement
Payment that is payable for the first month beginning after such Date.
Section 7.3 Curative Adjustments. If at any time following the
occurrence of an Event of Insolvency the Policy has been restored to its full
cash value, the death benefit payable under the Policy has either been
unaffected by such Event or has been fully reinstated and all other rights and
benefits that the Company or the Beneficiary possessed under the Policy prior to
such Event and that were adversely affected by such Event have been fully
reinstated; the Administrative Committee shall, to the extent possible, make one
or more payments to the Participant so that, immediately following the last such
payment, the net amount paid to the Participant under the Plan equals the net
amount that would have been payable to him if such Event had not occurred.
ARTICLE VIII
AMENDMENT
This Plan may be amended by action of the Board of Directors; provided,
however, that it may not be amended so as to adversely affect the rights of the
Participant or the Beneficiary unless the affected party consents to such
amendment in writing. Notwithstanding the foregoing, this Plan may be amended,
without the consent of the Participant or the Benefi-
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ciary, so as to (i) change the meaning of the term "Plan Year" whenever the
Company changes its taxable year for federal income tax purposes so that each
Plan Year is coterminous with the taxable year of the Company with which it
commenced; and (ii) provide that once the Primary Benefit Amount or the
Disability Primary Benefit Amount for any Plan Year has been determined, the
Primary Benefit Amount or Disability Primary Benefit Amount for any subsequent
Plan Year will not be affected by any intervening change in the meaning of the
term "Plan Year."
ARTICLE IX
ADMINISTRATION
Section 9.1 Administrative Committee. This Plan shall be administered
by an Administrative Committee appointed by the Board of Directors. In addition
to such powers as may be delegated to it by the Board of Directors, the
Administrative Committee shall have the power to (i) interpret this Plan, (ii)
establish such rules (not inconsistent with the terms of this Plan) as it may
deem necessary for the administration of this Plan, (iii) make such
determinations as are necessary for the administration of this Plan, (iv) employ
agents, attorneys, actuaries, auditors, and accountants to furnish services in
connection with this Plan, and (v) calculate benefits due under this Plan. The
Administrative Committee shall have authority to delegate responsibility for
performance of ministerial functions necessary for administration of this Plan
to such officers of the Participating Companies, including Participants, as it
shall, in its sole discretion, deem appropriate.
Section 9.2 Administration Costs. All expenses incurred in connection
with the administration of this Plan shall be borne by the Company.
Section 9.3 Legal Limitation. No member of the Administrative Committee
shall be required to authorize or engage in any transaction which he determines,
in his sole discretion, to be unlawful or might subject him, any Participating
Company, the Participant or any Beneficiary to liability (other than liability
for taxes) under federal, state or local law.
Section 9.4 Records. The records of the Administrative Committee with
respect to this Plan shall, absent manifest error, be conclusive and binding on
all concerned parties.
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Section 9.5 Claims Procedure.
Section 9.5.1 Filing of Claims. Any person who believes that
he or she is being denied a benefit to which he or she is entitled under this
Plan may file a written request for such benefit with the Administrative
Committee setting forth his or her claim. The request must be addressed to the
Administrative Committee at the Company's then principal place of business.
Section 9.5.2 Claim Decision. Upon receipt of a claim, the
Administrative Committee shall advise the claimant that a reply will be
forthcoming within ninety (90) days and shall, in fact, deliver such reply
within such period. The Administrative Committee may, however, extend the reply
period for an additional ninety (90) days for reasonable cause. To deny a claim
in whole or in part, the Administrative Committee shall render a written
opinion, using language calculated to be understood by the claimant, setting
forth (i) the specific reason or reasons for such denial; (ii) the specific
reference to pertinent provisions of this Plan on which such denial is based;
(iii) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation why such material or such
information is necessary; and (iv) appropriate information as to the steps to be
taken if the claimant wishes to submit the claim for review. If such a written
opinion is not furnished to the claimant within the reply period (as it may be
extended for reasonable cause by the Administrative Committee), the claim shall
be deemed to have been denied.
Section 9.5.3 Request for Review. Within sixty (60) days after
the receipt by the claimant of a written or a deemed denial, the claimant may
request in writing that the Administrative Committee review the determination.
Such request must be addressed to Administrative Committee, at its the Company's
then principal place of business. The claimant or his or her duly authorized
representative may, but need not, review the pertinent documents and submit
issues and comments in writing for consideration by the Administrative
Committee. If the claimant does not request a review of the determination by the
Administrative Committee within such sixty- (60-) day period, he or she shall be
barred and estopped from challenging the determination.
Section 9.5.4 Review of Decision. Within sixty (60) days after
the Administrative Committee's receipt of a request for review, it shall review
its determination. After considering all materials presented by the claimant,
the Administra-
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tive Committee shall render a written opinion, written in a manner calculated to
be understood by the claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Plan on which the decision is based. If special circumstances require that the
sixty- (60-) day time period be extended, the Administrative Committee will so
notify the claimant and will render the decision as soon as possible, but no
later than one hundred twenty (120) days after receipt of the request for
review. If the Administrative Committee's decision on review is not furnished to
the claimant within the time limitations described above, the claim will be
deemed denied on review.
Section 9.5.5 Binding Effect. All claim decisions made by the
Administrative Committee pursuant to this Section 9.6 shall, in the absence of a
showing of bad faith, be deemed final and non-appealable to the extent they
pertain to prior determinations made by the Administrative Committee under
Section 5.1 or Section 6.1.
ARTICLE X
MISCELLANEOUS
Section 10.1 No Transfers. The Participant shall not have, during his
lifetime, any right to assign or alienate in any other manner any rights he may
have under the Plan, nor shall any such rights be subject to garnishment or any
similar procedure.
Section 10.2 Nature of Plan; Remedies. This Plan is in the nature of a
contract between the Company and the Participant. If the Company shall commit or
threaten to commit a breach of any of its obligations hereunder, any person
adversely affected thereby shall be entitled, in addition to any other remedy to
which he may be entitled at law or in equity, to an injunction or injunctions to
prevent breaches of the provisions of this Plan and to have the right to have
the provisions of this instrument specifically enforced, it being acknowledged
and agreed that any such breach would cause irreparable damage to such person
for which money damages could not provide an adequate remedy.
Section 10.3 Headings and Captions. The headings and captions contained
in this Plan are inserted for convenience only and shall not in any way affect
the meaning or interpretation hereof.
-31-
<PAGE>
<PAGE>
Section 10.4 Construction. No strict rule of construction shall be
applied against the Company.
Section 10.5 Late Payments. If all or any portion of any amount payable
to the Participant or the Company pursuant to this agreement is made more than
ten (10) days after such payment is due, such past due payment shall bear simple
interest (on the basis of a 360-day year) from the due date thereof at a rate
equal to four percentage points over the rate of interest publicly announced by
Citibank, N.A. as its prime rate in effect at its principal office in New York
City, as such rate may fluctuate from time to time.
Section 10.6 Assignment. No amount distributable or to become
distributable to any person under this Plan shall be transferable, assignable or
subject to interference or control by any creditors of such person, or subject
to any claim for alimony or for the support of a spouse pursuant to a decree of
divorce or legal separation, or to being taken or reached by any legal or
equitable process in satisfaction of any debt or obligation of such person prior
to his receipt of such amount.
Section 10.7 Severability. If any particular provision of this Plan
shall be found to be illegal, invalid or unenforceable in any situation or
jurisdiction, such provision shall not affect the validity or enforceability of
the remaining provisions hereof or the validity or enforceability of the
offending provision in any other situation or jurisdiction. If the final
judgment of a court of competent jurisdiction declares any provision of this
Plan illegal, invalid or unenforceable, such court shall have the power to
reduce the scope, duration or area of such provision, to delete specific words
or phrases, or to replace any illegal, invalid or unenforceable provision with
a provision that is legal, valid and enforceable and that comes closest to
expressing the intention of the offending provision
Section 10.8 Applicable Law. This Plan shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of New York.
Section 10.9 Jurisdiction; Counsel Fees. Any legal proceedings arising
under or relating to this Plan shall be brought in any federal or state court of
general jurisdiction that is situated within the county and state of New York.
The reasonable attorneys' fees, court costs, expert witness fees and other
expenses of the prevailing party or parties in any such proceeding shall be paid
by the other party or parties to such proceeding, in such proportions as the
court shall deter-
-32-
<PAGE>
<PAGE>
mine, unless the court determines, on the basis of all the facts and
circumstances, that the position of such other party or parties was
substantially justified or that other circumstances made an award of litigation
expenses unjust. For purposes of this Section 10.9, a party shall be deemed to
have prevailed in a legal proceeding if he substantially prevailed with respect
to the amount in controversy or the most significant issue or set of issues
actually litigated and decided.
Section 10.10 Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Participant: Mr. Robert Speisman
12 West Sunnyside Lane
Irvington, New York 10533
With a copy to: Mr. Leon Tempelsman
140 Riverside Drive
New York, New York 10024
If to the Company: Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10022
Attn: Administrative Committee
of the Board of Directors
With a copy to: Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attn: Frederick R. Cummings, Esq.
Executed as of the 1st day of June, 1997.
LAZARE KAPLAN INTERNATIONAL INC.
By:___________________________
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<PAGE>
<PAGE>
APPENDIX A
ERISA RIGHTS
The Regulations of the Department of Labor require that the following
information with respect to your rights under ERISA be annexed to this
instrument.
As the sole participant in the Robert Speisman Retirement Benefit Plan
of Lazare Kaplan International Inc., you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 ("ERISA").
ERISA provides that you shall be entitled to:
(i) Examine, without charge, at the Plan administrator's
office and at other specified locations, all Plan documents, including
any insurance contracts, and copies of all documents filed by the Plan
with the U.S. Department of Labor, such as detailed annual reports and
Plan descriptions.
(ii) Obtain copies of all Plan documents and other Plan
information upon written request to the Plan administrator. The Plan
administrator may make a reasonable charge for the copies.
(iii) Receive a summary of the Plan's annual financial report.
The plan administrator is required by law to furnish you with a copy of
this summary annual report.
(iv) Obtain a statement telling you whether you have a right
to receive a retirement benefit at your normal retirement age (age 65)
and, if so, what your benefits would be at normal retirement age if you
stop working under the Plan now. If you do not have a right to a
retirement benefit, the statement will tell you how many more years you
have to work to get a right to a retirement benefit. This statement
must be requested in writing and is not required to be given more than
once a year. The Plan must provide the statement free of charge.
(v) File suit in a federal court, if any materials requested
are not received within 30 days of your request, unless the materials
were not sent
<PAGE>
<PAGE>
because of matters upon the control of the administrator. The court may
require the Plan administrator to pay up to $100 for each day's delay
until the materials are received.
In addition to creating rights for you, ERISA imposes obligations upon
the people who are responsible for the operation of the Plan.
The people who operate your Plan, called "fiduciaries;" of the Plan,
have a duty to act prudently and in the interest of you and your beneficiaries.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
retirement benefit or exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part,
you must receive a written explanation of the reason for the denial. You have
the right to have the Plan review and reconsider your claim.
If you have a claim for benefits which is denied or ignored, in whole
or in part, you may file suit in a state or federal court. If it should happen
that Plan fiduciaries misuse the Plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in a federal court. The court will
decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to
pay these costs and fees. If you lose, the court may order you to pay these
costs and fees, for example, if it finds your claim is frivolous.
If you have any questions about your Plan, you should contract the Plan
administrator.
If you have any questions about this statement or about your rights
under ERISA, you should contact the nearest area office of the United States
Labor - Management Services Administration, Department of Labor.
<PAGE>
<PAGE>
APPENDIX B
OTHER INFORMATION
PLAN NAME: Robert Speisman Retirement Benefit
Plan of Lazare Kaplan International
Inc.
PLAN SPONSOR: Lazare Kaplan International Inc.
529 Fifth Avenue
New York, New York 10022
EMPLOYER IDENTIFICATION
NUMBER:
TYPE OF PLAN: Pension Plan
PLAN IDENTIFICATION
NUMBER:
PLAN ADMINISTRATOR: The Plan is administered by the
Administrative Committee of the
Board of Directors which maintains
an office at:
Lazare Kaplan International Inc.
529 Fifth Avenue
New York, NY 10022
AGENT FOR SERVICE
OF LEGAL PROCESS:
<PAGE>
<PAGE>
LAZARE KAPLAN INTERNATIONAL INC.
[Front cover contains a photograph of the side view of an ideal cut diamond
containing a circle in the center which depicts a magnified portion of the outer
perimeter (i.e. girdle) of the diamond. Within the circle is the Lazare Kaplan
logo and a six-digit identification number.]
[LOGO]
The leader in ideal cut diamonds for over 90 years.
1997 ANNUAL REPORT
<PAGE>
<PAGE>
Cover photo: Each Lazare Diamond'r' 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. The Company holds a domestic
patent and several international patents for this process.
<PAGE>
<PAGE>
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
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LAZARE KAPLAN INTERNATIONAL INC. 1997 ANNUAL REPORT
Lazare Kaplan International Inc. is engaged in the cutting and polishing of
ideal cut diamonds, which it laser inscribes and distributes to quality retail
jewelers internationally under the brand name 'Lazare Diamonds'r''. Diamonds,
whatever their size, cut and polished by Lazare Kaplan craftsmen are finished to
precise proportions, bringing out all of the diamond's natural brilliance, fire
and luster. In addition, Lazare Kaplan also cuts and polishes non-ideal cut
(commercial) diamonds. These stones are sold through wholesalers and
distributors and, to a growing extent, through Lazare Kaplan's traditional
channels of distribution. Lazare Kaplan is also engaged in the trading of uncut
rough diamonds.
AMERICAN STOCK EXCHANGE
The Company's common stock is traded on the American Stock Exchange under the
ticker symbol LKI.
FORM 10-K
Upon written request, a copy of the Company's Form 10-K Annual Report without
exhibits for the year ended May 31, 1997 as filed with the Securities and
Exchange Commission, will be made available to stockholders without charge.
Requests should be directed to the Controller, Ms. James, Lazare Kaplan
International Inc., 529 Fifth Avenue, New York, New York 10017.
ANNUAL MEETING
November 5, 1997
10 A.M.
The Cornell Club
Six East 44th Street
Fifth Floor, Room AB
New York, New York 10017
MARKET PRICES OF COMMON
STOCK BY FISCAL QUARTER
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<TABLE>
<CAPTION>
FISCAL 1997
---------------
HIGH LOW
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<S> <C> <C>
FIRST 16 1/2 12 1/2
SECOND 21 7/8 16 1/2
THIRD 19 3/8 16 5/8
FOURTH 18 3/8 13 1/4
- -------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996
-----------------
High Low
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<S> <C> <C>
First 7 7/8 6 1/2
Second 7 9/16 6 1/8
Third 9 6 3/4
Fourth 14 3/4 7 5/8
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</TABLE>
As of July 31, 1997 there were 219 stockholders of record of the 8,407,121
issued and outstanding shares of the common stock of the Company, including CEDE
& Co. and other institutional holders who held a aggregate of 4,622,101 shares
of common stock as nominees for an undisclosed number of beneficial holders. The
Company estimates that it has in excess of 600 beneficial holders.
1
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[LOGO]
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TO OUR SHAREHOLDERS:
Fiscal year 1997 was an encouraging year for the Company. Record earnings,
continued growth in its core business, and a stronger balance sheet are some of
the highlights of last year's outstanding performance. Management is heartened
by the Company's growth in profitability and the strategic deployment of its
human and material resources, that enable it to benefit from the many
opportunities presented by the growing momentum of the structural changes taking
place in the diamond industry.
Net revenue in fiscal year 1997 was $259,797,000 compared to $266,321,000
in fiscal year 1996. Net profit was $11,482,000 compared to $7,013,000 in 1996.
The net revenue reflected a decline in rough trading and an increase in sales of
polished stones.
Demand for polished diamonds continued to grow in the United States market,
driven by a robust economy and the consumer's ability and willingness to spend
discretionary funds. The trend towards quality awareness is a healthy
development for consumers who seek value over price, as well as for the Company,
as it continues its tradition of striving to achieve leadership in the quality
segment of the market. Recent industry publications have described the
remarkable growth in demand for ideal cut diamonds. Lazare Diamonds'r' are the
preeminent product in this field, and the Company is receiving recognition for
its advocacy of quality in product, service and integrity in consumer education
and product presentation. The Company expects and welcomes more competition, as
it deploys its unique resources to increase its share of a growing market
sector.
The Japanese economy, slow to recover from its long recession, appears to
have stabilized. In February 1997, the Company and Seiko Corporation, the
largest watch and jewelry manufacturer in Japan, launched the exclusive
distribution campaign to market Lazare Diamonds through Seiko's extensive
nationwide select jewelry outlets. Our distributor of long-standing, Aiwa Co.,
Ltd., greatly assisted in implementing this important new relationship that
should lead to greater market share in the quality conscious Japanese market. At
the same time we are strengthening our relationship with Aiwa Co., Ltd. to meet
the challenge and opportunities of the changing Japanese diamond market.
We continue to explore new opportunities in the Pacific Rim region as we
build on our well established distribution channels. The region is quality
diamond oriented, and the growing economies of the different nations create
discretionary spending availability that opens new markets for diamonds in
general, and for quality diamonds in particular. Our marketing department is
alert to new opportunities for the distribution of Lazare Diamonds in the
Pacific Rim region as well as in other parts of the world. We intend to pursue
these with active marketing programs and new distribution outlets when the
circumstances warrant.
Our Puerto Rico manufacturing facility continues to be the premier producer
of ideal cut diamonds in the world. The decades of craftsmanship inculcated in
our talented work force, enhanced by the latest state of the art technology,
enables the Company to meet its demanding quality control and service
requirements and to maintain its leadership position.
The Government of Botswana continues to be very supportive of our state of
the art manufacturing facility, in which the Botswana Development Corporation
and the Government of Botswana hold a 40% shareholding. The 500 local employees'
performance continues to be outstanding, showing steady improvement in skill and
productivity. The line of ideal cut melees produced has been well received by
the market and we have been successful in opening new users on a global basis.
The plant is now ready to cut and polish large sizes. The Government of Botswana
has indicated that it is ready to find a resolution to the rough supply problem.
The Government of the Russian Federation has undertaken an exhaustive
review of the entire Russian diamond industry, ranging from an examination of
profit and product sharing between the regional and the central government, the
relationship of the producing Company and the stockpile authority, and an
evaluation of the domestic cutting industry and its potential. The review was
started at the end of last year, and since that time no export of rough or
polished diamonds has been authorized. President Yeltsin recently issued a
Presidential Decree and the
2
<PAGE>
<PAGE>
[LOGO]
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- --------------------------------------------------------------------------------
Russian Government is promulgating regulations that will govern the Russian
diamond industry in the coming years to enable Russia, as a major producer, to
achieve its full potential in the global diamond industry. The new legislation
sets Russia's future course as one of the major rough diamond producers,
attaches high priority to the growth and well being of the domestic cutting
industry, and presents new opportunities for the Company in conjunction with the
two important organizations with whom it has existing cooperation agreements. We
are in the process of jointly examining the implementation and expansion of
these areas of opportunity. Shipments of polished diamonds from the factory
operated in Moscow under our cooperation agreement with Roskomdragmet (now
called Gokhran, the successor agency) have been delayed during the Russian
Government's extensive review of the industry. Our second cutting facility in
Moscow under the cooperation agreement with the major Russian mining company,
Almazi Rossii Sakha, is now operational. The equipment is in place, workers have
been hired, rough supply has been secured, and some large polished diamonds have
been produced. Production is being increased to reach the $45 million per annum
level called for under the terms of our agreement. We expect exports to begin
shortly under the terms of the Export-Import Bank loan facility to Almazi Rossii
Sakha. The Company provides the off-take of the finished large diamonds and will
market them through its global distribution network.
Rough diamond trading continues to be an important profit center for the
Company as well as a source of raw material for the Company's polishing
operations. Although our rough trading volume fell by 7% which was caused by
decreased supplies of better quality, larger stones from DeBeers, our Belgian
trading center completed another successful year of operation and is expanding
its capacity to market an increased volume of rough stones in an orderly and
profitable fashion.
The joint venture with Trans Hex International Limited to explore and mine
diamonds in Namibia shows early promising results. Trans Hex, which has
considerable experience in developing alluvial deposits along the Orange River,
will shortly begin a bulk sampling program. Trans Hex, a public company listed
on the Toronto and Johannesburg Stock Exchanges, recently announced higher
estimates of potentially diamondiferous gravel on the concession area.
Our rough buying operation in Angola, operating with Endiama (the
Government Diamond Corporation) under one of the three officially sanctioned
buying and export licenses, completed another successful year. New buying
offices, staffed by technically skilled, market oriented technicians, enabled us
to increase the volume of diamonds purchased and sold. The first deliveries of
diamonds under the cutting and polishing agreement signed in July 1996 have
begun and we expect increased momentum in the coming months. Angola is one of
the largest producers of fine quality rough diamonds and the Company is actively
exploring new opportunities, as peace returns to Angola and attention is devoted
to much needed economic development.
In order to pursue with persistence and realism the many opportunities that
the Company sees in this period of structural change in all phases of the
diamond industry, management, in consultation with the Company's investment
advisors, UBS Securities LLC, successfully placed a secondary public offering of
2,130,000 shares of common stock. The offering, co-managed by UBS Securities LLC
and Furman Selz, was fully subscribed. In addition, the Company negotiated a new
$40 million five year revolving credit facility with its commercial bankers at a
more competitive rate of interest.
We congratulate our dedicated and committed staff all over the world for a
great performance during the fiscal year just ended. There are new challenges
and opportunities ahead and we feel confident that the Company is well
positioned to meet them and to translate them into profitable growth.
<TABLE>
<S> <C>
/s/ Maurice Tempelsman /s/ Leon Tempelsman
Maurice Tempelsman Leon Tempelsman
Chairman of the Board Vice Chairman and President
</TABLE>
3
<PAGE>
<PAGE>
[LOGO]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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(In thousands, except per share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $259,797 $266,321 $178,143 $204,047 $158,075
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income
tax provision and minority interest $ 8,248 $ 7,149 $ (1,418) $ 2,803 $ (728)
- -----------------------------------------------------------------------------------------------------------------
Income/(loss) from continuing operations $ 12,100 $ 7,013 $ (1,153) $ 3,024 $ (903)
- -----------------------------------------------------------------------------------------------------------------
Net income/(loss) $ 11,482 $ 7,013 $ (1,153) $ 3,024 $ (903)
- -----------------------------------------------------------------------------------------------------------------
Income/(loss) per share from continuing
operations (based on the weighted average
number of shares) $ 1.61* $ 1.12 $ (0.18) $ 0.49 $ (0.15)
- -----------------------------------------------------------------------------------------------------------------
Net income/(loss) per share (based on the
weighted average number of shares) $ 1.53* $ 1.12 $ (0.18) $ 0.49 $ (0.15)
- -----------------------------------------------------------------------------------------------------------------
At May 31:
Total assets $130,079 $105,066 $ 99,163 $ 93,178 $ 86,452
- -----------------------------------------------------------------------------------------------------------------
Long-term debt $ 17,145 $ 34,155 $ 26,430 $ 25,715 $ 30,000
- -----------------------------------------------------------------------------------------------------------------
Working capital $105,291 $ 74,069 $ 59,290 $ 52,333 $ 53,011
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 90,544 $ 44,870 $ 37,695 $ 38,751 $ 35,671
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: No cash dividends were declared or paid by the Company during the past
five fiscal years.
* Reflects the impact of the issuance of 2,130,000 additional shares of common
stock during 1997.
4
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<PAGE>
[Logo]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
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- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET SALES
($MILLIONS)
[GRAPHIC]
NET INCOME (LOSS)
($MILLIONS)
[GRAPHIC]
This Annual Report contains, in addition to historical information, certain
forward-looking statements that involve significant risks and uncertainties.
Such forward-looking statements are based on management's belief as well as
assumptions made by, and information currently available to, management pursuant
to the 'safe harbor' provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results could differ materially from those
expressed in or implied by the forward-looking statements contained herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in 'Liquidity - Capital Resources' and in Item
1 -- 'Description of Business' and elsewhere in the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997. The Company undertakes no
obligation to release publicly the result of any revisions to these forward-
looking statements that may be made to reflect events or circumstances after the
date of this Annual Report or to reflect the occurrence of other unanticipated
events.
This discussion and analysis should be read in conjunction with the
Selected Financial Data on page 4 and the audited consolidated financial
statements and related notes of the Company commencing on page 10 of this
report. In this discussion, the years '1997', '1996' and '1995' refer to the
fiscal years ended May 31, 1997, 1996 and 1995, respectively.
RESULTS OF OPERATIONS
Net Sales
Net sales in 1997 of $259,797,000 were $6,524,000 or 2% lower than net
sales of $266,321,000 in 1996.
The Company's net revenue from the sale of polished diamonds of $95,154,000
in 1997 was 6% greater than 1996 polished sales. The increase was due to
continued growth in the United States market as well as increased volume in
Southeast Asia. The increase in 1997 was partially offset by a decrease in sales
of polished stones produced at the Company's facility in Russia. Due to internal
Russian Government delays, there have been no diamonds officially exported from
Russia since the beginning of calendar 1997, therefore the Company has not
received any shipment of polished diamonds produced at its facility since
November 1996. The Company believes that once the new Presidential Decree and
government procedures are issued, which will facilitate trade and export of
polished diamonds, it will recapture lost sales once these polished diamonds are
exported.
5
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[LOGO]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
Rough diamond sales decreased 7% to $164,643,000 in 1997. This decrease was
attributable to lower overall sales of better quality rough diamonds to the
marketplace by the Company's primary rough diamond supplier during the second
half of the year thereby reducing the volume of rough stones available for
trading. Additionally, due to the unstable current political situation, the
Company stopped its rough diamond buying operation in the Republic of the Congo
(formerly Zaire).
Net sales in 1996 of $266,321,000 were $88,178,000 or 50% greater than the
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 increased 23% compared to 1995 polished sales of $73,097,000. 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 in
Russia with the Russian Government organization responsible for diamond policy.
Rough diamond sales increased 68% in 1996. This increase was attributable
to continued expansion of the Company's rough buying operations, primarily in
Angola, as well as increases in the supply of rough diamonds from the Company's
primary supplier during 1996.
Gross Profit
The Company's gross margin on net sales of polished diamonds includes all
overhead costs associated with the purchase, sale and manufacture of rough
stones (the 'Polished Diamond Gross Margin'). Polished Diamond Gross Margin for
1997 was 17%, an increase of one percentage point from the 1996 level of 16%.
The gross margin on sales of rough stones not selected for manufacturing
and sales of rough stones from the rough trading operation, including an
allocation of overhead costs estimated to be associated with the purchase and
sale of rough stones, has traditionally been approximately 3%.
During 1997, the combined gross margin on net sales of both polished
diamonds and rough diamonds was 9.1%. This compares to 8.5% in 1996 and 7.0% in
1995.
Polished Diamond Gross Margin for 1996 was 16%, an increase of 3 percentage
points from the 1995 level of 13%. The increase was due to an improvement in the
quality of stones sold as well as an increase in sales of larger stones, which
traditionally carry higher margins, as compared to the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 1997 of $12,366,000 (4.8%
of net sales) increased 8% or $927,000 compared with expenses of $11,439,000
(4.3% of net sales) in 1996. The increase was attributable to increases in legal
and consulting services associated with the evaluation of expansion
opportunities in the current year.
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 the current year as well
as additional rent, depreciation and office expenses associated with the overall
expansion of the Company's business.
Interest Expense
Net interest expense was $3,112,000, $4,048,000 and $3,489,000 in 1997,
1996 and 1995, respectively. The decrease in 1997 was primarily due to a
decrease in interest expense of $750,000 related to both the reduction in the
interest rate charged and the reduction of the outstanding balance of the
Company's Senior Notes combined with an increase in interest income earned
during the year. During 1997, the Company completed a secondary offering of its
common stock and used a portion of the proceeds from
6
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<PAGE>
[Logo]
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MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
the offering to repay its revolving bank loan and invested the balance of the
proceeds in a money market fund. The increase in interest expense in 1996 was
due primarily to higher average short-term borrowings of $13,196,000 as compared
to $9,186,000 in 1995 and a full year of the higher interest rate charged on the
Senior Notes (See Note 6 to the Financial Statements and Liquidity -- Capital
Resources below).
Income Taxes
During the fourth quarter of 1997, and in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes,' the
Company recorded a tax benefit of $3,375,000 related to the reversal of the
valuation allowance that had been provided against the Company's deferred tax
assets that arose primarily from net operating loss carryforwards.
Discontinued Operation
During the fourth quarter of 1997 the Company decided to discontinue its
efforts to organize and participate in the privatization of the mining of the
Akwatia and Birim deposits owned and operated by Ghana Consolidated Diamonds
Ltd., in Ghana. The nature of these deposits, consisting of small size low
quality stones which continued to be in oversupply and under price pressure in
the marketplace, the continued decline in monthly production, and the inability
towards the end of the fiscal year to reach agreement with the Ghanaian
Government on the terms of future marketing rights were the primary reasons for
this decision. The write-off of unamortized costs (net of tax benefit of
$13,000) was $618,000.
Earnings/(Loss) Per Share
During 1997, 1996 and 1995 earnings/(loss) per share was computed based on
the weighted average number of shares outstanding including in 1997 the impact
of 2,130,000 shares issued in a secondary offering and including the impact of
dilutive stock options during each of the periods. Income/(loss) per share from
continuing operations was $1.61, $1.12 and ($.18) in 1997, 1996 and 1995,
respectively. Net income/(loss) per share, including a loss of $.08 per share in
1997 from a discontinued operation, was $1.53, $1.12 and ($0.18) in 1997, 1996
and 1995, respectively.
FOREIGN OPERATIONS
International business represents a major portion of the Company's revenues
and profits. All foreign sales are denominated in U.S. dollars and all purchases
of rough diamonds worldwide are denominated in U.S. dollars. Therefore, the
Company does not experience any foreign currency exposure in connection with
these activities. In addition, the functional currency for Lazare Kaplan
Botswana (Pty) Ltd. is the U.S. dollar and this subsidiary was not materially
affected by foreign currency fluctuations during the year.
LIQUIDITY -- CAPITAL RESOURCES
In the third quarter of 1997, the Company completed an offering of
2,130,000 shares of its common stock at a price of $17.00 per share. The net
proceeds, after offering expenses, were $33,572,000. The Company used a portion
of the net proceeds to repay its outstanding revolving bank loans.
The Company's working capital at May 31, 1997 was $105,291,000, an increase
of $31,222,000 from 1996. This increase was primarily related to the completion
of the secondary offering of the Company's common stock.
The Company's working capital at May 31, 1996 was $74,069,000, an increase
of $14,779,000 from 1995. This increase was primarily due to the refinancing by
the Company of its short-term lines of credit into long-term obligations.
Net fixed asset additions totaled $805,000, $1,797,000 and $1,578,000 in
1997, 1996 and 1995, respectively. In 1997 and 1996, the fixed asset additions
related primarily to machinery and equipment to be used in the Company's
manufacturing facilities and buying offices. The fixed asset additions in 1995
were primarily attributable to the purchase of
7
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
machinery and equipment to be used in the Company's cutting and polishing
factory and training facility in Botswana. The factory, completed during 1993,
is a state-of-the-art facility, using both automated and manual equipment, and
currently employs in excess of 500 skilled workers. During 1997, 1996 and 1995,
$95,000, $479,000 and $543,000 of fixed assets were placed in service in
Botswana, respectively.
In May 1996 the Company entered into a long-term unsecured, revolving loan
agreement with two banks. The agreement provided that the Company could 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) 250 basis points above the London
Interbank Offered Rate (LIBOR), or c) 250 basis points above the bank's cost of
funds rate. The applicable interest rate is contingent upon the method of
borrowing selected by the Company. In November 1996 and May 1997 this agreement
was amended to provide for a) an increase in the total commitment from
$27,500,000 to $40,000,000, b) a decrease from 250 basis points above the LIBOR
and cost of funds borrowing rates to 160 basis points above the applicable rate,
and c) an extension of the term of the loan from June 1, 1999 to September 1,
2002. As of May 31, 1997, there were no balances outstanding under this
agreement. The proceeds of this facility are available for the Company's working
capital needs and to fund its future annual installments due under the Senior
Note Agreement.
Through May 14, 1996 the Company had short-term lines of credit with three
banks. These loan agreements provided that the Company could borrow up to $19.0
million, in the aggregate. Two of the facilities, in the amounts of $3.0 million
and $8.0 million, respectively, carried an interest rate equal to the respective
bank's prime rate or one and one-half percent above LIBOR, depending upon the
method of borrowing utilized by the Company. The third facility, in the amount
of $8.0 million, carried an interest rate of one-eighth of a percent above the
bank's prime rate or one and five-eighths percent above LIBOR, depending upon
the method of borrowing utilized by the Company. The outstanding balances due
under these facilities were repaid in full with the proceeds of the long-term
loan described above.
The Company entered into a long-term promissory note with a bank in the
amount of $5,000,000 as of May 31, 1995. The note, which bore interest at the
bank's prime rate and had a maturity date of December 2, 1996, was repaid in
full with the proceeds of the long-term loan described above.
The Company has a $3.0 million credit facility, payable on demand, at a
rate of one-half of one percent above the six-month LIBOR. At May 31, 1997,
$1,343,000 was outstanding under this facility.
In May 1991, the Company, through a private placement, issued $30,000,000
of 9.97% Senior Notes, due May 15, 2001. These Senior Notes were amended on
December 1, 1992 to revise the consolidated fixed charge ratio and increase the
interest rate to 10.47% through August 31, 1994. On August 25, 1995, these
Senior Notes were again amended to eliminate the requirements of the
consolidated fixed charge ratio retroactively for the fiscal quarters ended
February 28, 1995 and May 31, 1995, to revise the consolidated fixed charge
ratio for all subsequent measurement periods through the quarter ending May 31,
1996, and to increase the interest rate to 10.97% retroactively from March 1,
1995 through May 31, 1996. Beginning June 1, 1996 the interest rate on the
Senior Notes reverted to the original lower rate of 9.97%.
Management believes the Company has the ability to meet its current and
anticipated financing needs with the facilities in place and the use of proceeds
from its secondary offering.
In July 1996, the Company announced that it had reached an agreement, for a
term of ten years, with AK Almazi Rossii Sakha (ARS) of Russia for the cutting,
polishing and marketing of large rough gem diamonds. According to published
reports, ARS is the largest
8
<PAGE>
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[Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
producer of rough diamonds in Russia with annual production in excess of $1.3
billion, accounting for over 20% of the world's supply of diamonds. Under the
terms of the agreement, the Company has equipped a diamond cutting factory which
was completed in February 1997 within the ARS facility in Moscow. This new
facility is 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. In May 1997, the facility completed the production of its first
polished stones. The Company has agreed to sell the resulting polished gem
stones 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. 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 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.
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 Commercializacao 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.
Stockholders' equity was $90,544,000 at May 31, 1997, $44,870,000 at May
31, 1996 and $37,695,000 at May 31, 1995. The increase in 1997 was attributable
to the completion of an offering of 2,130,000 shares of common stock at a price
of $17.00 per share, as well as the net income earned during the year. The
increase in 1996 was attributable to the net income earned during the year. The
decrease in 1995 was attributable to the net loss incurred. Stockholders
received no dividends in 1997, 1996 or 1995.
9
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended May 31,
- ------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
<S> <C> <C> <C>
Net sales (Note 1) $ 259,797 $ 266,321 $ 178,143
Cost of sales (Note 1) 236,071 243,685 165,686
- ------------------------------------------------------------------------------------------------------------------
23,726 22,636 12,457
- ------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 12,366 11,439 10,386
Interest expense, net of interest income 3,112 4,048 3,489
- ------------------------------------------------------------------------------------------------------------------
15,478 15,487 13,875
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) from continuing operations before income tax
provision/(benefit) and minority interest 8,248 7,149 (1,418)
Income tax provision/(benefit) (Notes 1 and 3) (2,970) 459 214
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) before minority interest 11,218 6,690 (1,632)
Minority interest in loss of consolidated subsidiary 882 323 479
- ------------------------------------------------------------------------------------------------------------------
Income/(loss) from continuing operations 12,100 7,013 (1,153)
Loss from discontinued operation, net of income tax benefit
(Note 13) 618 - -
- ------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) $ 11,482 $ 7,013 $ (1,153)
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
EARNINGS/(LOSS) PER SHARE (NOTE 1)
Income/(loss) from continuing operations $ 1.61 $ 1.12 $ (0.18)
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
Net income/(loss) $ 1.53 $ 1.12 $ (0.18)
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
Weighted average number of shares 7,494,058 6,288,157 6,309,071
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------
</TABLE>
See notes to consolidated financial statements.
10
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except share data) 1997 1996
- --------------------------------------------------------------------------------------------------------------------
--------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,338 $ 905
Accounts receivable, less allowance for doubtful accounts ($162 and $281 in 1997 and 1996,
respectively) 29,632 25,493
Inventories (Note 1):
Rough stones 11,395 9,320
Polished stones 54,803 46,979
--------------------
Total inventories 66,198 56,299
--------------------
Prepaid expenses and other current assets 11,149 10,142
Deferred tax assets (Note 3) 3,675 -
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 120,992 92,839
PROPERTY, PLANT AND EQUIPMENT, net (Notes 1 and 2) 6,726 7,198
OTHER ASSETS 2,361 5,029
- --------------------------------------------------------------------------------------------------------------------
$130,079 $105,066
- --------------------------------------------------------------------------------------------------------------------
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other current liabilities (Notes 1 and 4) $ 14,358 $ 15,770
Notes payable -- other (Note 5) 1,343 3,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 15,701 18,770
SENIOR NOTES AND OTHER LONG-TERM DEBT (Notes 5 and 6) 17,145 34,155
DEFERRED TAX LIABILITIES (Note 3) 300 -
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 33,146 52,925
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST (Notes 1 and 7) 6,389 7,271
STOCKHOLDERS' EQUITY (Notes 8 and 12)
Common stock, par value $1 per share:
Authorized, 10,000,000 shares
Outstanding, 8,407,121 and 6,176,425 shares 8,407 6,176
Additional paid-in capital 58,059 26,098
Retained earnings 24,078 12,596
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 90,544 44,870
- --------------------------------------------------------------------------------------------------------------------
$130,079 $105,066
- --------------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>
See notes to consolidated financial statements.
11
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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, 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
Net Income - - 11,482 11,482
Exercise of Stock Options, 100,696 shares issued 101 519 - 620
Sale of common stock, net 2,130 31,442 - 33,572
- ---------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1997 $8,407 $ 58,059 $24,078 $90,544
- ---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
12
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended May 31,
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 11,482 $ 7,013 $(1,153)
Adjustments to reconcile net income/(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,376 2,234 1,924
Provision for uncollectible accounts (25) 70 70
Minority interest in loss of consolidated subsidiary (882) (323) (479)
Gain on sale of fixed assets - (54) (43)
Benefit from deferred income taxes (3,375) - -
Loss from discontinued operation 618 - -
(Increase)/decrease in assets and increase/(decrease) in liabilities:
Accounts receivable (4,114) (3,261) 828
Inventories (9,899) (565) (2,248)
Prepaid expenses and other current assets (1,625) (3,976) (2,911)
Other assets 1,544 (403) (488)
Accounts payable and other current liabilities (1,412) (264) 4,697
------------------------------
Net cash provided by/(used in) operating activities (5,312) 471 197
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 25 222 79
Capital expenditures (805) (1,797) (1,578)
------------------------------
Net cash used in investing activities (780) (1,575) (1,499)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term borrowings (1,657) (8,410) (5,775)
(Decrease)/increase in long-term borrowings (17,010) 7,725 715
Proceeds from exercise of stock options 620 162 97
Proceeds from issuance of common stock, net 33,572 - -
Increase in minority interest - - 7,883
------------------------------
Net cash provided by/(used in) financing activities 15,525 (523) 2,920
- ---------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 9,433 (1,627) 1,618
Cash and cash equivalents at beginning of year 905 2,532 914
------------------------------
Cash and cash equivalents at end of year $ 10,338 $ 905 $ 2,532
- ---------------------------------------------------------------------------------------------------------------------
------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,573 $ 4,183 $ 3,737
Income taxes 458 407 314
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
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, 1997, 1996 and 1995. 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. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that could affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.
c. Sales and accounts receivable
The Company's net sales to customers in each of the following regions for
the years ended May 31, 1997, 1996 and 1995 are set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------
--------------------
<S> <C> <C> <C>
United States 22% 23% 25%
Far East 9% 8% 13%
Europe, Israel & other 69% 69% 62%
- ---------------------------------------------------
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, 1997, 1996 and 1995. The
Company generally does not require collateral on its receivables.
d. Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
f. 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.
g. 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.
h. Asset Impairments
The Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by the
related assets are less than the carrying amounts of those assets.
i. 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.
14
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[Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
j. Advertising
Advertising costs are expensed as incurred and were $1,054,000, $980,000,
and $934,000 in 1997, 1996, and 1995, respectively.
k. 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 1997.
l. Earnings/(loss) per share
Earnings/(loss) per share is computed based on the weighted average number
of shares outstanding including the impact of dilutive stock options during each
period.
m. Risks and Uncertainties
The Company's business is dependent upon the availability of rough
diamonds. Based upon published reports, the Company believes that approximately
70-75% of the world's diamond output is purchased for resale 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 in producing
countries over which it 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.
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 materially 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 have a
material adverse affect on the Company in terms of inventory losses and lower
margins.
n. Stock Option Incentive Plan
The Company adopted Statement of Financial Accounting Standards No. 123
'Accounting for Stock-Based Compensation' (SFAS 123) in 1997. Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair value based method or continue measuring
compensation expense for those plans using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25 'Accounting for Stock Issued to
Employees' (APB 25) and related interpretations. The Company has elected to
continue using the intrinsic value method to account for stock-based
compensation plans. SFAS 123 requires companies electing to continue using the
intrinsic value method to make certain pro forma disclosures (see Note 8).
o. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 'Earnings
15
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[Logo]
LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
per Share,' which is required to be adopted by the Company on February 28, 1998.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the years ended May 31, 1997 and 1996 of $0.07
and $0.02, respectively. The impact of Statement 128 on the calculation of fully
diluted earnings per share is not expected to be material.
2. PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------------------------
Property, plant and equipment consists of (in thousands):
<TABLE>
<CAPTION>
May 31,
- -----------------------------------------------------
1997 1996
- -----------------------------------------------------
-----------------
<S> <C> <C>
Land and buildings $ 4,750 $4,710
Leasehold improvements 1,876 1,812
Machinery, tools and equipment 5,201 5,322
Furniture and fixtures 1,308 1,242
Computer hardware and equipment 2,209 2,311
Construction in progress 406 364
- -----------------------------------------------------
15,750 15,761
Less accumulated depreciation and
amortization 9,024 8,563
- -----------------------------------------------------
$ 6,726 $7,198
- -----------------------------------------------------
-----------------
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 hardware and equipment 10 TO 33%
- -----------------------------------------------------
</TABLE>
Depreciation expense for 1997, 1996 and 1995 was $1,252,000, $1,135,000 and
$1,088,000, respectively.
3. INCOME TAXES
- ---------------------------------------------------------
The items comprising the Company's net deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
May 31,
- -------------------------------------------------------
1997 1996
- -------------------------------------------------------
------------------
<S> <C> <C>
Deferred tax assets:
Operating loss and other
carryforwards $ 6,200 $ 9,500
Other 400 500
Deferred tax liabilities:
Depreciation 300 600
- -------------------------------------------------------
6,300 9,400
Less: Valuation allowance (2,925) (9,400)
- -------------------------------------------------------
Net deferred tax assets $ 3,375 $ 0
- -------------------------------------------------------
------------------
</TABLE>
During the fourth quarter of 1997, and in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes,' the
Company recorded a tax benefit of $3,375,000 related to the reversal of the
valuation allowance that had been provided against the Company's deferred tax
assets that arose primarily from net operating loss carryforwards.
The income tax provision/(benefit) is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Year ended May 31,
- -------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------
-----------------------
<S> <C> <C> <C>
Current:
Federal $ 192 $158 $-
State and local 88 143 40
Foreign 125 158 174
- -------------------------------------------------------
405 459 214
- -------------------------------------------------------
Deferred:
Federal (3,375) - -
State and local - - -
- -------------------------------------------------------
(3,375) - -
- -------------------------------------------------------
$(2,970) $459 $214
- -------------------------------------------------------
-----------------------
</TABLE>
16
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[Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
Income/(loss) before income taxes from the Company's domestic and foreign
operations was $9,224,000 and ($976,000), respectively for the year ended May
31, 1997, $7,742,000 and ($593,000), respectively for the year ended May 31,
1996 and ($494,000) and ($924,000), respectively for the year ended May 31,
1995.
The tax provision/(benefit) is different from amounts computed by applying
the Federal income tax rate to the income before taxes as follows (in
thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------
---------------------------
<S> <C> <C> <C>
Tax provision/(benefit)
at statutory rate $ 2,594 $ 2,430 $(482)
(Decrease)/increase in
taxes resulting from:
Differential
attributable to
foreign operations 698 374 502
State and local taxes,
net of Federal
benefit 58 94 26
Net operating loss
carryforward arising
in current year not
resulting in current
benefit - - 168
Utilization of net
operating loss
carryforwards (2,945) (2,439) -
Reversal of valuation
allowance for deferred
tax asset (3,375) - -
- -------------------------------------------------------
Actual tax
provision/(benefit) $(2,970) $ 459 $ 214
- -------------------------------------------------------
---------------------------
</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>
2000 $ 3,300
2001 3,500
2002 500
2007 1,000
2008 1,500
2010 400
- --------------------------------------------------------
$10,200
- --------------------------------------------------------
---------
</TABLE>
In addition, the Company has New York State and New York City net operating
loss carryforwards of approximately $16,300,000 each, expiring from 1998 to
2008. The Company has Puerto Rico net operating loss carryforwards of
approximately $3,000,000 expiring from 1998 through 2002 and Botswana net
operating loss carryforwards of approximately $3,500,000 expiring from 1998
through 2002.
4. ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES
- ---------------------------------------------------------
Accounts payable and other current liabilities consist of (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------
-----------------
<S> <C> <C>
Accounts payable $ 8,842 $7,861
Accrued expenses and income taxes 5,516 7,909
- -----------------------------------------------------
$14,358 $15,770
- -----------------------------------------------------
-----------------
</TABLE>
17
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
5. LINES OF CREDIT
- ---------------------------------------------------------
On May 14, 1996 the Company entered into a long-term unsecured, revolving
loan agreement with two banks. The agreement provided that the Company could
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 8.50% on May
31, 1997), b) 250 basis points above the London Interbank Offered Rate (LIBOR),
or c) 250 basis points above the bank's cost of funds rate. The applicable
interest rate is contingent upon the method of borrowing selected by the
Company. In November 1996 and May 1997 this agreement was amended to provide for
a) an increase in the total commitment from $27,500,000 to $40,000,000, b) a
decrease from 250 basis points above the LIBOR and cost of funds borrowing rates
to 160 basis points above the applicable rate, and c) an extension of the term
of the loan from June 1, 1999 to September 1, 2002. The proceeds of this
facility are available for the Company's 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. As of May 31, 1997, there were no balances outstanding under this
agreement. As of May 31, 1996 there was an aggregate balance outstanding of
$12,725,000 under this agreement.
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. The weighted average interest rate during 1997 and 1996 on the
Company's revolving loan and lines of credit was 8.14% and 7.83%, 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 6.0% on May
31). At May 31, 1997, there was $1,343,000 outstanding under this facility. The
weighted average interest rate during 1997 and 1996 on this facility was 6.30%
and 6.47%, 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. 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
18
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
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 '1988 Plan'). The 1988 Plan has reserved 650,000 shares of
the common stock of the Company for issuance to key employees of the Company and
its subsidiaries.
A Long-term Stock Incentive Plan was approved, subject to stockholder
approval at the 1997 Annual Meeting, by the Board of Directors on April 10, 1997
(the '1997 Plan'). The 1997 Plan has reserved 400,000 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 each of the plans 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 Stock Option 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.
Under APB Opinion No. 25, the Company does not recognize compensation
expense when the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of the grant. Under Statement of
Financial Accounting Standards No. 123, pro forma information regarding net
income and earnings per share is required as if the Company had accounted for
its employee stock options under the fair value method of the Statement. For
purposes of pro forma disclosures, the Company estimated the fair value of stock
options granted in 1997 and 1996 at the date of the grant using the
Black-Scholes option pricing model. The estimated fair value of the options is
amortized to expense over the options' vesting period.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
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- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
The following summarizes the assumptions used to estimate the fair value of
stock options granted in each year and certain pro forma information:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------
------------------
<S> <C> <C>
Risk-free interest rate 6.00% 6.00%
Expected option life 5 YEARS 5 years
Expected volatility 35.90% 38.20%
Expected dividends per share $ 0.00 $ 0.00
Weighted average estimated fair
value per share of options
granted at market price $ 6.13 $ 2.75
Weighted average estimated fair
value per share of options
granted above market price $ 5.62 $ 2.53
Pro forma net income (000's) $11,312 $6,961
Pro forma net income per share $ 1.51 $ 1.11
- -----------------------------------------------------
------------------
</TABLE>
As any options granted in the future will also be subject to the fair value
pro forma calculations, the pro forma adjustments for 1997 and 1996 may not be
indicative of future years.
A summary of the Plans' activity for each of the three years in the period
ended May 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
average
price
Number per
of shares Option price share
- -------------------------------------------------------------------
----------------------------------------
<S> <C> <C> <C>
Outstanding -- June 1,
1994 600,248 $ 5.000-$ 8.387 $ 6.259
Options issued 28,750 $ 8.500-$ 9.350 $ 8.796
Options exercised (34,231) $ 5.000-$ 7.625 $ 6.063
Options canceled (4,618) $ 6.000-$ 7.625 $ 6.158
- -------------------------------------------------------------------
Outstanding -- May 31,
1995 590,149 $ 5.000-$ 9.350 $ 6.395
Options surrendered (115,300) $ 7.625-$ 9.350 $ 8.172
Options re-issued 115,300 $ 6.375-$7.0125 $ 6.643
Options exercised (39,751) $ 5.000-$ 7.625 $ 5.685
- -------------------------------------------------------------------
Outstanding -- May 31,
1996 550,398 $ 5.000-$ 7.625 $ 6.126
Options issued 224,250 $14.750-$16.225 $ 14.882
Options exercised (116,141) $ 5.000-$ 7.625 $ 6.130
- -------------------------------------------------------------------
Outstanding -- May 31,
1997 658,507 $ 5.000-$16.225 $ 9.107
- -------------------------------------------------------------------
----------------------------------------
Exercisable options 357,390
- -------------------------------------------------------------------
---------
</TABLE>
The following table summarizes information about stock options at May 31,
1997:
<TABLE>
<CAPTION>
Exercisable stock
Outstanding stock options options
- ------------------------------------------- --------------------
Weighted
average Weighted
remaining average
contractual exercise
Range of prices Shares life Shares price
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5.00-$ 6.60 359,314 4.09 years 314,780 $5.826
$7.0125-$ 7.625 74,943 8.52 years 42,610 $7.393
$14.750-$16.225 224,250 9.43 years - -
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</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, 1997 (in thousands):
<TABLE>
<CAPTION>
Operating
Year leases
- --------------------------------------------------------
---------
<S> <C>
1998 $ 516
1999 388
2000 333
2001 321
2002 321
Thereafter 414
- --------------------------------------------------------
$2,293
- --------------------------------------------------------
---------
</TABLE>
Rental expense, including additional charges paid for increases in real
estate taxes and other escalation charges and credits for the years ended May
31, 1997, 1996 and 1995, was approximately $425,000, $584,000 and $549,000,
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
20
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
$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. During 1997 the Company contributed approximately
$40,100 for calendar year 1996. The Company did not make matching contributions
for calendar years 1995 or 1994.
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, 1997
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):
<TABLE>
<CAPTION>
UNITED ELIMI- CONSOLI-
STATES EUROPE AFRICA NATIONS DATED
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1997
Net sales to unaffiliated customers $164,109 $54,144 $41,544 $ - $259,797
Transfers between geographic areas 19,483 12,674 20,213 (52,370) -
------------------------------------------------------
Total revenue $183,592 $66,818 $61,757 $(52,370) $259,797
------------------------------------------------------
Gross profit $ 20,159 $ 767 $ 6,019 $ (3,219) $ 23,726
------------------------------------------------------
Income from continuing operations before income tax
provision and minority interest $ 6,750 $ 246 $ 820 $ 432 $ 8,248
------------------------------------------------------
Identifiable assets at May 31, 1997 $122,351 $10,422 $26,653 $(29,347) $130,079
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
</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.
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1997, 1996 and 1995
12. COMMON STOCK OFFERING
- ---------------------------------------------------------
On December 12, 1996, the Company completed an offering of 1,800,000 shares
of its common stock. In addition, on January 15, 1997 the underwriters of the
public offering exercised in full their over-allotment option, purchasing an
additional 330,000 shares of common stock from the Company. The public offering
price of all shares of common stock sold in connection with the public offering,
including the option shares, was $17.00 per share. The total net proceeds to the
Company, after offering expenses, was $33,572,000. The Company used a portion of
the net proceeds to repay its outstanding revolving bank loans and invested the
balance of the proceeds in a money market fund.
13. DISCONTINUED OPERATION
- ---------------------------------------------------------
During the fourth quarter of 1997 the Company decided to discontinue its
efforts to organize and participate in the privatization of the mining of the
Akwatia and Birim deposits owned and operated by Ghana Consolidated Diamonds
Ltd., in Ghana. The nature of these deposits, consisting of small size
low quality stones which continued to be in oversupply and under price pressure
in the marketplace, the continued decline in monthly production, and the
inability towards the end of the fiscal year to reach agreement with the
Ghanaian Government on the terms of future marketing rights were the primary
reasons for this decision. The write-off of unamortized costs (net of tax
benefit of $13,000) was $618,000.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Lazare Kaplan International Inc.
We have audited the accompanying consolidated balance sheets of Lazare
Kaplan International Inc. and subsidiaries as of May 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended May 31, 1997. 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 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, 1997 and 1996 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended May 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
July 8, 1997
New York, New York
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LAZARE KAPLAN INTERNATIONAL INC. AND SUBSIDIARIES
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CORPORATE INFORMATION
<TABLE>
<S> <C> <C>
CORPORATE HEADQUARTERS DIRECTORS AND OFFICERS REGISTRAR AND TRANSFER AGENT
529 Fifth Avenue Maurice Tempelsman Chase Mellon Transfer Services, LLC
New York, New York 10017 Director; P.O. Box 444
Telephone (212) 972-9700 Chairman of the Board Pittsburgh, PA 15230
SUBSIDIARIES Leon Tempelsman
Director;
Lazare Kaplan (Sierra Leone) Limited Vice Chairman of the Board COUNSEL
and President
Lazare Kaplan Japan Inc. Warshaw Burstein Cohen
George R. Kaplan Schlesinger & Kuh, LLP
Lazare Kaplan Belgium, N.V. Director; 555 Fifth Avenue
Vice Chairman of the Board New York, New York 10017
Lazare Kaplan Europe Inc.
Michael W. Butterwick INDEPENDENT AUDITORS
Lazare Kaplan Africa Inc. Director;
Business Consultant Ernst & Young LLP
Lazare Kaplan Botswana (Pty) Limited 787 Seventh Avenue
Lucien Burstein New York, New York 10019
Lazare Kaplan Ghana Ltd. Director;
Secretary
Lazare Kaplan (Bermuda) Ltd. Partner
Warshaw Burstein Cohen
Kaplan Offshore Trading Limited Schlesinger & Kuh, LLP
(attorneys)
Supreme Gems N.V.
Myer Feldman
Lazare Kaplan Belgium Jewelry N.V. Director;
Partner
LK Enterprises Inc. Ginsburg, Feldman and Bress,
Chartered (attorneys)
RCS, Inc.
Sheldon L. Ginsberg
Lazare Kaplan (Russia) Inc. Director;
Executive Vice President and
Chief Financial Officer
Robert Speisman
Director;
Vice President - Sales
</TABLE>
24
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<TABLE>
<S> <C>
LAZARE KAPLAN INTERNATIONAL INC., 529 FIFTH AVENUE, NEW YORK, NY 10017 (212) 972-9700
</TABLE>
<PAGE>
<PAGE>
LIST OF SUBSIDIARIES OF
LAZARE KAPLAN INTERNATIONAL INC.
NAME ORGANIZED UNDER LAWS OF
Lazare Kaplan (Sierra Leone)
Limited Sierra Leone
Lazare Kaplan Japan Inc. Delaware
Lazare Kaplan Europe Inc. Delaware
Lazare Kaplan Belgium, N.V Belgium
Lazare Kaplan Africa Inc. Delaware
Lazare Kaplan Botswana
(Pty) Limited Botswana
Lazare Kaplan Ghana Ltd Bermuda
Lazare Kaplan (Bermuda) Bermuda
Kaplan Offshore Trading Company Bermuda
Supreme Gems N.V. Belgium
Lazare Kaplan Belgium Jewelry N.V. Belgium
LK Enterprises Inc. Delaware
RCS, Inc. Delaware
Lazare Kaplan (Russia) Inc. Delaware
<PAGE>
<PAGE>
REPORT AND CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Lazare Kaplan International Inc. and subsidiaries of our
report dated July 8, 1997 included in the 1997 Annual Report to Stockholders of
Lazare Kaplan International Inc. and subsidiaries.
Our audits also included the consolidated financial statement
schedule of Lazare Kaplan International Inc. and subsidiaries listed in Item
14(a)2. 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
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.
We also consent to the incorporation by reference in the
Registration Statements No. 33-20528, No. 33-37617 and No. 33-57560 of Lazare
Kaplan International Inc. on Form S-8 pertaining to the 1988 Stock Option
Incentive Plan, of our report dated July 8, 1997 with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Lazare Kaplan
International Inc.
Ernst & Young LLP
New York, New York
August 26, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted
from the balance sheet and income statement and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 10,338
<SECURITIES> 0
<RECEIVABLES> 29,794
<ALLOWANCES> 162
<INVENTORY> 66,198
<CURRENT-ASSETS> 120,992
<PP&E> 15,750
<DEPRECIATION> 9,024
<TOTAL-ASSETS> 130,079
<CURRENT-LIABILITIES> 15,701
<BONDS> 17,145
<COMMON> 8,407
0
0
<OTHER-SE> 82,137
<TOTAL-LIABILITY-AND-EQUITY> 130,079
<SALES> 259,797
<TOTAL-REVENUES> 259,797
<CGS> 236,071
<TOTAL-COSTS> 236,071
<OTHER-EXPENSES> 12,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,112
<INCOME-PRETAX> 8,248
<INCOME-TAX> (2,970)
<INCOME-CONTINUING> 12,100
<DISCONTINUED> 618
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,482
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
