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As we reported in our October 22 post, diamond company Lazare Kaplan (LKI) announced in their proxy their intention- subject to shareholder approval- to buy out shareholders owning less than 101 shares in order to save the company an estimated $25000 per year in mailing, printing and other costs. We believed there was more to the story, namely that LKI's ultimate intention was to reduce shareholder roles to below 300, de-list, and in doing so, avoid both SEC filing and the prohibitive costs associated with Sarbanes Oxley compliance, while still trading publicly. That's where the real savings are for small companies such as LKI.


We hoped the company would address this on their recent earnings call. However, LKI's interpretation of the facts did not match ours. When describing the reverse and forward split, Chairman Maurice Templesman stated that once the transaction was complete, the company would have "750 shareholders of record for SEC reporting purposes, which is well above the number of shareholders for the company to continue to qualify as a public company".


Perhaps it's a matter of interpretation, or one of us does not have his facts straight, but we believe that following the reverse/forward split, the company will be well below 300 shareholders of record. This is what the prospectus had to say:


The Company has a stockholder base of approximately 2,500 stockholders, including approximately 1,709 registered stockholders.

As of September 14, 2007, approximately 1,644 registered holders of the Company’s Common Stock owned fewer than 101 shares of stock. On such date, these stockholders represented approximately 96% of the total number of registered holders of the Company’s stock, but owned only approximately 0.045% of the total number of outstanding shares of stock.


By our interpretation, following the split and buyout of small shareholders, there will be 65 registered shareholders. We believe that Templesman's 750 figure was referring to stockholders, not registered holders. If Charles Schwab, for example had 100 clients with positions in LKI, the shares are held in street name, and this represents 1 shareholder of record.


In any event, shareholders did approve the reverse/forward split, and it is set to occur on November 12th.


Disclosure: The author has a position in Lazare Kaplan (LKI).

Source: Making Sense of Lazare Kaplan's Reverse/Forward Split