Item 1. The Company
Lazare Kaplan International Inc., which began its business in 1903, is principally engaged in the cutting, polishing and selling of ideally proportioned diamonds which it markets internationally under the brand name 'Lazare Diamonds'r''. Ideally proportioned diamonds are distinguished from commercial cut diamonds by the symmetrical relationship of their facets, which maximizes brilliance, sparkle and fire. Due to these characteristics, Lazare Diamonds command a premium in the marketplace. The Company believes there are only a few other companies worldwide engaged solely in the production of ideally proportioned diamonds and that it is the largest producer in this segment of the diamond industry. Additionally, the Company is engaged in the buying and selling of rough uncut diamonds.
The Company's sales strategy is directed primarily toward quality conscious consumers throughout the United States, the Far East and Europe. The Company generally sells to select retail jewelers in each geographic market in order to maintain an image of selectivity and prestige consistent with its overall marketing strategy. The Company has developed a comprehensive grading system for its ideal cut diamonds which allows jewelers to order inventory by category rather than through the more cumbersome process of visual selection. In addition, the Company designs, manufactures and sells a line of high quality jewelry which features Lazare Diamonds.
An important element of the Company's strategy is the promotion of the Lazare Diamonds brand name. Every Lazare Diamond bears a laser inscription on its outer perimeter containing the Lazare Kaplan logo and an identification number unique to the stone. This patented laser 'signature', which is invisible to the naked eye but visible when magnified at least ten times, serves as the purchaser's assurance that he is buying an authentic Lazare Diamond. This laser signature also allows consumers to register their Lazare Diamonds with the Company under its unique program, The Lazare Diamond Registry'r', thereby providing proof of ownership in case of loss or theft.
Each rough diamond purchased by the Company and considered for sale as a polished diamond is evaluated against strict management standards designed to maximize its potential economic contribution to the Company's profitability. Expert technicians, assisted by proprietary computer software, determine whether to cut the stone to ideal proportions, cut the stone as a commercial diamond for sale through alternative distribution channels, or resell the stone as rough. The shape of the rough stone, its color, clarity and overall potential economic contribution, are among the criteria used in making such a determination.
The Company's involvement in the purchase and sale of rough diamonds, through its Antwerp, Belgium office, provides it with the ability to dispose of those diamonds not selected for cutting and polishing, as well as access to supplemental sources of supply. This activity allows the Company to maintain quantities and qualities of inventory which best meet its customers' needs.
The Company's principal stockholder is Maurice Tempelsman, the Chairman of the Board. Mr. Tempelsman and his son, Leon Tempelsman, are the sole general partners of Leon Tempelsman & Son ('LTS'), a New York limited partnership. LTS is the holder of 1,528,416 shares of common stock, all of which
are deemed to be owned indirectly by each of Leon Tempelsman and Maurice Tempelsman. In addition, Maurice Tempelsman is the direct beneficial holder of 2,385,014 shares of common stock. The aggregate number of common shares held by Maurice Tempelsman, directly and indirectly, is 3,913,430 constituting 63.7% of the Company's issued and outstanding common stock.
Lazare Kaplan International Inc. was incorporated in 1972 under the laws of the State of Delaware as the successor to a business which originated in 1903.
Diamond Supply
Rough Diamonds
The Company's business is dependent upon the availability of rough diamonds, the world's known sources of which are highly concentrated. Angola, Australia, Botswana, Brazil, Ghana, Guinea, Namibia, Sierra Leone, South Africa, Russia and Zaire account for more than 90% of present world rough gem diamond production. The Central Selling Organization (the 'CSO'), which is affiliated with De Beers Centenary AG, a Swiss company, is the primary world-wide marketing mechanism of the diamond industry. The CSO seeks to maintain an orderly and stable market for diamonds by regulating the quantity and selection of diamonds that reach the market. Sales for the CSO are made in London by the Diamond Trading Company (the 'DTC') to a select group of clients, including the Company. Based upon published reports, the Company believes that approximately 80% of the world diamond output is purchased for resale by the DTC and its affiliated companies. In order to maintain their purchasing relationship, the DTC's clients have traditionally been expected to purchase all of the diamonds offered to them by the DTC. Non-clients of the DTC must either purchase their requirements from clients of the DTC or seek access to that limited portion of the world supply not marketed by the DTC.
Historically, the Company's principal supplier of rough diamonds has been the DTC, which periodically invites its clients to submit their requirements as to the amount and type of stones they wish to purchase. Employees of the Company attend offerings ('sights') held by the DTC periodically during the year in London. At sights, the Company purchases, at the DTC's stated price, an assortment of stones known as a 'series', the composition of which attempts to take into account the market in which the Company operates and the Company's quantity requirements. The Company has been a client of the DTC for more than 50 years.
In order to diversify its sources of supply, the Company has entered into arrangements with other primary source suppliers, and has established an office in Antwerp to supplement its rough diamond needs by making purchases in the secondary market. For each of the past three years ended May 31, the Company purchased not more than 60% of its diamond purchases from the DTC.
In November 1993, the Company reached an agreement with the Ghanaian Government, Ghana Consolidated Diamonds Limited and De Beers Centenary pursuant to which, the parties would, subject to a feasibility study, form a new company to acquire, expand and operate the Akwatia/Birim Diamond and Gold Concessions now owned by Ghana Consolidated Diamonds. In June, 1995 DeBeers Centenary announced that
its feasibility study was complete. During the feasibility period, output at the mine increased significantly as a result of changes made to operations and revenue increased. The improved performance suggests that the project has the potential to generate positive cash flows subject to further cost reductions and the maintenance of current production levels. However, DeBeers has informed the Company and the Ghanaian Government that it will be withdrawing from the project later this year stating its belief that the cost of its participation will likely outweigh the economic potential it may realize. The Company anticipates maintaining its position as marketing agent and plans to seek another mining company to replace DeBeers in this project, however, should the Company not be able to maintain its position as marketing agent its ability to recoup certain pre-operating costs may not be assured.
In 1990, the Company and the Government of the Republic of Botswana, through its Ministry of Mineral Resources and Water Affairs, reached a long term agreement for the establishment of a diamond cutting and polishing factory in Botswana. In 1992, the Government issued to the Company a long term license for the construction and operation of the facility. On August 31, 1994, the Botswana Development Corporation ('BDC') made an investment in Lazare Kaplan Botswana (Pty) Limited. As a result of that investment, Lazare Kaplan Botswana (Pty) Limited is owned by the Company (60%), the Government of Botswana (5.1%) and the Botswana Development Corporation (34.9%). Lazare Kaplan Botswana moved into its new permanent manufacturing facility in January 1993, which it owns and operates in Molepolole, Botswana. The factory is a state-of-the-art facility using both automated and manual equipment, and will ultimately employ 500 skilled employees. The facility currently operates with approximately 463 local employee/trainees and 14 expatriates. Lazare Kaplan Botswana has been given its own sight allocation from the DTC from which it selects rough diamonds for manufacture in its facility. Botswana is widely regarded today as the most important rough gem diamond producing country in the world.
In December 1994 the Company reached an agreement with the National Diamond Company of Angola, Endiama, U.E.E., pursuant to which the Company may purchase rough diamonds from local Angolan suppliers and export such diamonds for resale. The agreement entitles the Company to establish buying offices in Angola, the first of which has been set up in Luanda, the capital of Angola. The Company intends to establish additional buying offices in the future. The agreement will run for a renewable term of 5 years.
Polished Diamonds
In addition to its purchase of rough diamonds, the Company also purchases polished diamonds from a number of sources. These diamonds are purchased with the intention either to resell them or to recut them to ideal proportions at the Company's manufacturing facility in Puerto Rico.
Availability of Sources of Supply
The Company believes that it has good relations with its suppliers, that its trade reputation and established customer base will continue to assure access to primary sources of diamonds and that its sources of supply are sufficient to enable the Company to meet its present and foreseeable needs. However, the
Company's sources of supply could be affected by political and economic developments over which the Company has no control. While the Company believes that alternative sources of supply may be available, any significant disruption of the Company's access to its primary source suppliers could have a material adverse effect on its ability to purchase rough diamonds.
Cutting and Polishing
The Company has two primary cutting and polishing operations: Lazare Kaplan Puerto Rico, located in Puerto Rico and Lazare Kaplan Botswana (Pty) Ltd., located in Botswana. In addition, the Company recently began a diamond polishing effort in cooperation with Roskomdragmet, the Russian Government organization responsible for diamond policy. Under this arrangement, rough diamonds supplied by Roskomdragmet are polished by Russian technicians in Moscow, supervised by Company technical personnel and marketed by the Company. The diamonds, which are non-ideal cut, commercial quality diamonds, are sold through the Company's worldwide distribution network.
The Company's factory in Puerto Rico is believed to be the largest cutting facility in the United States. Each stone received in Puerto Rico is evaluated against strict management standards designed to maximize its potential economic contribution to the Company. Expert technicians, assisted by proprietary computer software, determine whether to cut the stone to ideal proportions, cut the stone as a commercial diamond or resell the stone as rough. The shape of the rough stone, its color and clarity and overall potential economic contribution, are among the criteria used in making such determinations. The Company has an incentive program that rewards its factory managers and supervisors based on maximizing the manufactured results of the following criteria: gross margin, yield (rough weight to polished weight conversion) and efficiency.
Rough stones selected for cutting are analyzed and where desirable are sorted for sawing or cleaving to achieve the desired shape and to eliminate imperfections. They are then cut and polished into finished gems. Each finished ideal cut gemstone (weighing .18 carats and larger) which is marketed as a Lazare Diamond is then inscribed with the Lazare Kaplan logo and its own identification number by the Company's patented laser inscription process. All of these operations are performed by the Company's employees. The Company believes its work force in Puerto Rico is the most highly skilled in the diamond industry. The Company has undertaken a worker training program at its facility in Puerto Rico to ensure a constant flow of skilled labor to satisfy its needs for further growth.
The Lazare Kaplan Botswana diamond cutting and polishing factory in Molepolole, Botswana began operations in its newly constructed facility in early 1993. The factory, which is a state-of-the-art facility, uses both automated and manual equipment and is committed to train and employ Batswana workers. The Company expects to employ up to 500 skilled technicians at the facility. As of July 31, 1995, there were 477 employees, of which 116 were trainees.
This new factory cuts and polishes rough diamonds to ideal proportions in sizes which are presently not processed by the Company's facility in Puerto Rico. The factory, which is still in the beginning stages, is concentrating on the manufacture of rough stones of somewhat smaller size. The size range manufactured will be expanded as the skills of its employees are developed. Lazare Kaplan Botswana purchases rough on its own account directly from the DTC for manufacture in the Botswana factory.
The Company believes that it is recognized in the diamond industry for the high quality and brilliance of the gems it cuts and that it also enjoys a reputation as an imaginative and innovative cutter of large and difficult stones.
Pricing
Rough Diamond Prices
Through its control of approximately 80% of the world diamond output, the DTC can exert significant control over the pricing of rough and polished diamonds to maintain an orderly market by adjusting supplies in the marketplace. Rough diamond prices established by the DTC have been characterized historically by steady increases over the long term; however, prices in the secondary market have experienced a greater degree of volatility, particularly during the late 1970's. Traditionally, the Company has been able to pass along such price increases to its customers. From time to time, however, the Company has absorbed these price increases in the short term to maintain an orderly pricing relationship with its customers. This has, in the past, caused temporary adverse effects on the Company's earnings. However, a large rapid increase in rough diamond prices could adversely affect the Company's revenue and operating margins if the increased cost of rough diamonds could not be passed along to its customers in a timely manner.
Polished Diamond Prices
Over the past 60 years, increases in the price of rough diamonds have generally resulted in a corresponding increase in the price of polished diamonds. During the period of high inflation in the late 1970's, investors speculated in hard assets, driving polished diamond prices to exceptionally high levels which in turn caused significant increases in the cost of rough diamonds. However, the moderation of inflation during the 1980's resulted in a sudden and massive shift of investments from hard assets to financial instruments, resulting in dramatic price declines for polished diamonds which caused a market liquidity crisis as prices of some categories of polished diamonds fell below the inventory costs of such diamonds. Since this period in the early 1980's, the Company believes the pricing of polished diamonds has returned to its historical pattern of responding to increases in the pricing of rough diamonds. However, there can be no assurance that volatility in the price of polished diamonds could not occur again. Any rapid decrease in the price of polished diamonds could have a material adverse effect on the Company in terms of inventory losses, lower sales and lower margins.
The Company has implemented strict inventory, pricing and purchasing controls which it believes could lessen the impact of fluctuations in the price of rough and polished diamonds. These include computerized rough stone evaluation programs, automatic economic order quantity models and inventory utilization programs.
Marketing, Sales and Distribution
Marketing Strategy
The Company's sales strategy is directed primarily toward quality conscious consumers throughout the United States, the Pacific Rim and Europe. The Company generally sells to select retail jewelers in each geographic market in order to maintain an image of selectivity and prestige consistent with its overall marketing strategy. The Company also sells to certain jewelry and diamond manufacturers and wholesalers. The Company has developed a comprehensive grading system for its diamonds which allows jewelers to order inventory by category rather than through the more cumbersome process of visual selection. In addition, the Company designs, manufactures and sells a line of high quality jewelry which features Lazare Diamonds.
A key element of the Company's strategy is the promotion of the Lazare Diamonds brand name directly to consumers. The Company believes that ideal cutting presents a clear competitive advantage over other diamonds in the marketplace by providing the Company with the opportunity to establish a brand name and to market its diamonds under this name through retailers. The Company's decision to pursue the brand name strategy is reinforced by two factors - a rising trend among informed consumers to purchase quality, brand name products, and the need among upscale jewelers to set themselves apart in an increasingly competitive market by carrying and promoting a highly differentiated product. Each Lazare Diamond is inscribed with the Company's logo and identification number using the Company's unique laser inscription process, thus authenticating the diamond as a Lazare Diamond. This 'labelling' enables the Company to pursue the brand name diamond strategy. The Company holds various domestic and international patents for this process.
Building awareness and acceptance of Lazare Diamonds is accomplished through a comprehensive marketing program which includes co-op advertising, sales promotion and public relations. The advertising includes a toll-free number which consumers may call to receive additional information about the product and to be referred to jewelers carrying Lazare Diamonds and Lazare Diamond jewelry in their geographic area. A wide assortment of sales promotion materials has been designed to facilitate jewelers' sales of the Company's diamonds and fine jewelry line to consumers. Public relations events are offered which help build traffic in retail stores. The Company believes these marketing programs have been and will continue to be instrumental in increasing sales. The Company does not intend to sell its diamonds directly to consumers and plans to continue concentrating its marketing efforts towards the quality retail jeweler.
The Lazare Diamond Registry program has been established by the Company to enable consumers to register their Lazare Diamonds with the Company using the laser inscribed identification number, thereby providing proof of ownership in case of loss or theft.
While the purchase and sale of rough diamonds is concentrated among relatively few parties, industry wide retailing of polished diamonds occurs through over 39,000 jewelry stores in the United States, over 26,000 retailers in Japan and over 48,000 retail stores in Europe. The Company's efforts for its polished diamonds are directed primarily toward the fine quality segment of these retailers (the majority of which are independently owned and operated) and, to a lesser extent, to jewelry manufacturers and wholesalers. Full time regional sales representatives located throughout the United States and in Hong Kong and Antwerp, who are compensated on a commission basis, handle sales throughout the United States, the Pacific Rim and Europe.
The Company's sales force is supported by a New York based telemarketing department. Sales to certain of the Company's largest accounts are handled by headquarters personnel. Most of the Company's major accounts are customers of long standing.
The Company has been expanding its activities abroad, particularly in the Pacific Rim countries of Japan, Hong Kong, Singapore, Taiwan, Thailand, Korea, Malaysia, Indonesia and Brunei. In Japan, the Company has had a marketing relationship since 1972 with Aiwa Co., Ltd., the Japanese importer-marketer of Lazare Diamonds. Aiwa Co., with a distribution network of over 200 retailers and wholesalers, is an important customer of the Company's polished diamonds. Additionally, the Company continues to believe there is significant growth opportunity in the European market and has expanded in this area.
The Company uses a comprehensive sorting and inventory classification system for grading color and clarity of its ideal cut polished diamonds. This system, combined with the fact that the Company's stones are uniformly cut to ideal proportions, reduces and in some cases eliminates the need for customers to view stones before placing orders. The system enables customers to standardize their inventories, order by mail or telephone and minimize their inventory investment.
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:
The domestic sales increase in 1995 as compared to the prior two years was a result of the decrease in rough diamond sales in 1995 as compared to 1994 and 1993. Historically, the majority of the Company's rough diamond sales have been 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. A portion of all foreign polished sales are accompanied by bank guarantees or are shipped on a C.O.D. basis. The profitability of foreign sales of either polished or rough diamonds is consistent with that of domestic sales of similar merchandise.
Competition
The polished and rough diamond business is highly competitive. While the Company believes that it has achieved a reputation as a leading cutter and distributor of high quality diamonds, it faces competition in sales to its customers in the United States and abroad from many other suppliers. A substantial number of cutters and merchants, some of which the Company believes to be larger or to have greater financial resources than the Company, sell diamonds of all qualities to the Company's customers. The Company also sells rough diamonds, primarily through its Antwerp office, in the competitive world market.
The Company believes there are significant barriers to entry by potential competitors into the business of manufacturing ideally proportioned diamonds. Among the most important of these barriers are the need for significant capital, the limited number of persons with the skills necessary to cut ideally proportioned diamonds, the difficulty in obtaining access to upscale channels of distribution, the importance of public recognition of an established brand name and the establishment of computer systems to gauge and monitor the manufacturing and distribution network.
Employees
At July 31, 1995, the Company had 658 full-time employees, which includes 116 trainees in Botswana. The Company also has 7 regional sales representatives. The Company maintains an apprenticeship program at its facilities in Caguas, Puerto Rico, through which it trains its cutters, who are highly skilled workmen. The Company also has a program in Botswana through which it trains cutters and polishers to work at the Company's new facility. The Company provides paid vacations, sick leave, group life, disability, hospitalization and medical insurance for its employees. The Company has a 401(k) 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.

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 $53,000 (1,500,000 Belgian francs).
The Company also has a 40% ownership interest in a 330 square meter office in Antwerp, Belgium, a portion of which is devoted to sales rooms.
The Company leases office space in Hong Kong for a term expiring April 30, 1997 at an annual rental rate of approximately $67,000 (514,800 Hong Kong dollars).
The Company leases land in Botswana for a nominal amount for a term of fifty years with the right to renew for an additional fifty years. The Company has constructed its cutting and polishing factory on such land. The facility is approximately 4,300 square meters.
The Company believes that its facilities are fully equipped and adequate to fulfill its operating and manufacturing needs.
Item 3.

Item 3. Legal Proceedings
The Company is not involved in any significant legal proceedings.
Item 4.

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.
All officers were elected at the Annual Meeting of the Board of Directors held in November 1994, and hold office until the next Annual Meeting of the Board of Directors and until their respective successors have been duly elected and qualified.
Maurice Tempelsman, Chairman of the Board and a director of the Company, is a general partner of Leon Tempelsman & Son, a partnership with interests in the international diamond and mining industries, positions he has held since 1984. Maurice Tempelsman is the father of Leon Tempelsman and the father-in-law of Robert Speisman.
Leon Tempelsman, Vice Chairman of the Board, President and a director of the Company, is a general partner of Leon Tempelsman & Son, positions he has held since 1984. Leon Tempelsman is the son of Maurice Tempelsman and the brother-in-law of Robert Speisman.
The Company believes that neither the Tempelsmans nor LTS currently engages directly or indirectly in any activities competitive with those of the Company.
George R. Kaplan has been Vice Chairman of the Board since 1984 and a director of the Company since 1972.
Sheldon L. Ginsberg has been Vice President and Chief Financial Officer since April 1991. He was the Vice President-Finance from January 1986 until April 1991. Mr. Ginsberg has been a director of the Company since 1989.
Robert Speisman has been the Vice President - Sales of the Company since 1986. 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.

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.

Item 6. Selected Financial Data
Selected financial data are hereby incorporated by reference from page 4 of the Registrant's Annual Report.
Item 7.

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 7 of the Registrant's Annual Report.
Item 8.

Item 8. Financial Statements and Supplementary Data
(a) The following financial statements and supplementary data are hereby incorporated by reference from pages 8 to 18 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, 1995.
(iii) Consolidated Statements of Stockholders' Equity for each of the three years in the period ended May 31, 1995.
(iv) Consolidated Balance Sheets as at May 31, 1995 and May 31, 1994.
(v) Consolidated Statements of Cash Flows for each of the three years in the period ended May 31, 1995.
(vi) Notes to Consolidated Financial Statements.
(b) Report on Financial Statements and Financial Statement Schedule of Deloitte & Touche LLP for each of the two years in the period ended May 31, 1994.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders Lazare Kaplan International Inc.
We have audited the accompanying consolidated balance sheet of Lazare Kaplan International Inc. and subsidiaries as of May 31, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended May 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our 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, such consolidated financial statements present fairly, in all material respects, the financial position of Lazare Kaplan International Inc. and subsidiaries at May 31, 1994, and the results of their operations and their cash flows for each of the two years in the period ended May 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York July 13, 1994 (August 31, 1994 as to note 11)
Item 9.

Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
During the fiscal year ended May 31, 1994, the Board of Directors of the Company considered changing the Company's independent certified public accountants and, effective September 16, 1994, Ernst & Young LLP was appointed in replacement of Deloitte & Touche LLP to serve as the Company's independent certified public accountants for the Company's fiscal year ending May 31, 1995. In connection with the audits of the two most recent fiscal years of the Company and all subsequent interim periods preceding such dismissal, there was no disagreement between the Company and Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP would have caused them to make reference thereto in their report on the financial statements for such period. The reports of Deloitte & Touche LLP for such period did not contain an adverse opinion or disclaimer of opinion nor were they qualified as to uncertainty, audit scope, or accounting principles. The decision to replace Deloitte & Touche LLP with Ernst & Young LLP as the Company's independent certified accountants was unanimously approved by the Audit Committee of the Board of Directors of the Company and ratified by the stockholders of the Company at the 1994 Annual Meeting of Stockholders.
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, 1995.
Part IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The response to this portion of Item 14 is set forth in Item 8 of Part II hereof.
2. Financial Statement Schedules
Report on Financial Statement Schedule and Consent of Ernst & Young LLP for the year ended May 31, 1995
Report on Financial Statements and Financial Statement Schedule of Deloitte & Touche LLP for each of the two years in the period ended May 31, 1994 (included in their report filed under Item 8(b) of this Report on Form 10-K).
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.
REPORT AND CONSENT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Lazare Kaplan International Inc. and subsidiaries as of May 31, 1995, and for the year then ended, and have issued our report thereon dated July 12, 1995 (August 25, 1995 as to Note 6); such consolidated financial statements and report are included in the Company's 1995 Annual Report to Stockholders and are incorporated herein by reference. Our audit also included the consolidated financial statement schedule of Lazare Kaplan International Inc. and subsidiaries for the year ended May 31, 1995, listed in the accompanying index at Item 14(a)(2). This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, this 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 consent to the incorporation by reference in Registration Statement No. 33-20528 of Lazare Kaplan International Inc. on Form S-8, of our reports dated July 12, 1995 (August 25, 1995 as to Note 6), with respect to the consolidated financial statements and schedule of Lazare Kaplan International Inc. included and incorporated by reference in the Annual Report on Form 10-K for the year ended May 31, 1995.
Ernst & Young LLP New York, New York August 25, 1995
LAZARE KAPLAN INTERNATIONAL INC.
AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
(A) Recoveries of previously written off accounts
(B) Adjustments to reserve balance
(C) Amounts written off
(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, 1995.
(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.
(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) 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.
(g) 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.
(13) 1995 Annual Report to Security Holders - incorporated herein by reference to the 1995 Annual Report to Stockholders of the Registrant to be filed with the Commission. (21) Subsidiaries
(24)(a) Consent of Deloitte & Touche LLP
(24)(b) Consent of Ernst & Young LLP (Included in their report filed under Item (14)(a)(2) of this Report on Form 10-K)
SIGNATURES
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, Vice President and Chief Financial Officer (principal financial officer)
Dated: August 29, 1995
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.
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, 1995
EXHIBIT INDEX
Exhibit Page No. ------- -------- (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.
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.
Exhibit Page No. ------- --------
(f) 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.
(g) 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.
(13) 1995 Annual Report to Security Holders - incorporated herein by reference to the 1995 Annual Report to Stock holders of the Registrant to be filed with the Commission. 26
(21) Subsidiaries 46
(24)(a) Consent of Deloitte & Touche LLP. 47
(24)(b) Consent of Ernst & Young LLP (included in their report filed under Item (14)(a)(2) of this Report on Form 10-K).