Limited Liability Company Agreement

Exhibit 10am


AMENDED AND RESTATED


LIMITED LIABILITY COMPANY AGREEMENT


OF


BELLATAIRE LLC
A Delaware Limited Liability Company


Dated: As of November 30, 2005*


- --------------------------- * Certain portions of this agreement have been omitted pursuant to a request for confidential treatment.


TABLE OF CONTENTS


Page
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ARTICLE 1 DEFINITIONS..................................................................................1


1.01 Definitions..................................................................................1
1.02 Construction................................................................................11


ARTICLE 2 ORGANIZATION................................................................................11


2.01 Formation...................................................................................11
2.02 Name........................................................................................11
2.03 Registered Office; Registered Agent; Principal Office in the United States;
Other Offices...............................................................................11
2.04 Business of the Company.....................................................................11
2.05 Foreign Qualification.......................................................................12
2.06 Term........................................................................................12
2.07 Title to Property...........................................................................12
2.08 Maintenance of Separate Existence...........................................................12
2.09 Compliance with Laws........................................................................12


ARTICLE 3 MEMBERSHIP; DISPOSITIONS OF INTERESTS.......................................................13


3.01 Members; Membership Interests...............................................................13
3.02 Representations, Warranties and Covenants...................................................13
3.03 Dispositions and Encumbrances of Membership Interests and Member Equity.....................14
3.04 Creation of Additional Membership Interest..................................................16
3.05 Withdrawal..................................................................................16
3.06 Disclaimer of Duties and Liabilities........................................................16


ARTICLE 4 CAPITAL CONTRIBUTIONS.......................................................................17


4.01 Capital Contributions.......................................................................17
4.02 Return of Contributions.....................................................................17
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4.04 Capital Accounts............................................................................17
4.05 Maintenance of Capital Accounts.............................................................17
4.06 Revaluations of Property....................................................................18
4.07 Adjustments to Gross Asset Values of Distributed Assets.....................................18
4.08 Certain Other Adjustments to Gross Asset Values of Property.................................18
4.09 Compliance with Applicable Treasury Regulations.............................................18
4.10 Transfers of Interests......................................................................19


ARTICLE 5 DISTRIBUTIONS AND ALLOCATIONS.........................................................................19


5.01 Computation of Profit and Loss..............................................................19
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5.04 Special Limitation..........................................................................20
5.05 Special Allocations.........................................................................20
5.06 Curative Allocations........................................................................22
5.07 Other Allocation Rules......................................................................22
5.08 Allocation of Tax Items.....................................................................23
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5.10 Amounts Withheld............................................................................23
5.11 Liability for Distributions.................................................................24
5.12 Distributions in Kind.......................................................................24


ARTICLE 6 MANAGEMENT..................................................................................24


6.01 Board of Directors..........................................................................24
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6.03 Special Board Consents......................................................................26
6.04 Indemnification.............................................................................26
6.05 Arbitration.................................................................................27


ARTICLE 7 TAXES.......................................................................................27


7.01 Tax Returns.................................................................................27
7.02 Tax Elections...............................................................................27
7.03 Tax Matters Member..........................................................................28


ARTICLE 8 BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS..................................................28


8.01 Maintenance of Books........................................................................28
8.02 Reports.....................................................................................28
8.03 Access to Information.......................................................................29
8.04 Confidential Information....................................................................30
8.05 Bank Accounts...............................................................................31


ARTICLE 9 DISSOLUTION, WINDING-UP AND TERMINATION.....................................................31


9.01 Default.....................................................................................31
9.02 Dissolution.................................................................................31
9.03 Winding-Up and Termination..................................................................31
9.04 Deficit Capital Accounts....................................................................31
9.05 Certificate of Cancellation.................................................................32


ARTICLE 10 GENERAL PROVISIONS..........................................................................32


10.01 Offset......................................................................................32


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10.02 Expenses....................................................................................32
10.03 Notices.....................................................................................32
10.04 Counterparts................................................................................32
10.05 Entire Agreement; Superseding Effect........................................................32
10.06 Publicity...................................................................................33
10.07 Effect of Waiver or Consent.................................................................33
10.08 Amendment or Restatement....................................................................33
10.09 Binding Effect..............................................................................33
10.10 Governing Law; Severability.................................................................33
10.11 Further Assurances..........................................................................33
10.12 Creditors and Other Third Parties...........................................................34
10.13 Relationship of this Agreement and the Certificate of Formation.............................34
10.14 Relationship of this Agreement to the Default Rules.........................................34
10.15 Headings and Captions.......................................................................34


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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
BELLATAIRE LLC
A Delaware Limited Liability Company


This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of BELLATAIRE LLC (the "Company"), dated and effective as of November 30, 2005 (the "Effective Date"), is adopted, executed and agreed to, for good and valuable consideration, by Diamond Innovations, Inc., a Delaware corporation ("DI") and Lazare Kaplan International Inc., a Delaware corporation ("LKI").


RECITALS


WHEREAS, DI and LKI have decided to form the Company for the purpose of conducting directly or indirectly through its Affiliates the business of selling and marketing natural gem diamonds with the intention of improving their color by a high pressure high temperature process developed by the Members or their Affiliates, and currently sold under the Bellataire'TM' brand name [*]; and


WHEREAS, the Members have agreed to make certain contributions to the Company as set forth herein;


NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:


ARTICLE 1
DEFINITIONS


1.01 Definitions. As used in this Agreement, the following terms have the respective meanings set forth below or set forth in the Sections referred to below:


Act - the Delaware Limited Liability Company Act, as amended.


Additional Contribution - as defined in Section 4.01(b).


Adjusted Capital Account Deficit - with respect to the Capital Account maintained for a Member at the close of any Fiscal Year, the deficit balance in such Capital Account at such time (determined by (i) crediting to such Capital Account the amount of such Member's Deficit Restoration Obligation at that time; and (ii) charging to such Capital Account (x) any adjustments described in Section 1.7041(b)(2)(ii)(d)(4) of the Treasury Regulations that, at such time, are reasonably expected to be made to such Account, (y) any allocations described in Section 1.704-1(b)(2)(ii)(d)(5) of the Treasury Regulations that, at such time, are reasonably


expected to be made to such Member, and (z) any distributions described in Section 1.7041(b)(2)(ii)(d)(6) of the Treasury Regulations that, at such time, are reasonably expected to be made to such Member.


Affiliate - with respect to any Person, (a) each entity that such Person Controls; (b) each Person that Controls such Person; and (c) each entity that is under common Control with such Person; provided, however, that DI (or its Affiliates) shall not be considered an Affiliate of LKI (or its Affiliates) nor LKI (or its Affiliates) an Affiliate of DI (or its Affiliates) for the purposes of this Agreement. Affiliation shall have a corresponding meaning.


Affiliate Agreements - as defined in Section 6.03(a).


Agreement - this Limited Liability Agreement of the Company, as amended, modified, supplemented or restated from time to time in accordance with the provisions of this Agreement.


[*]


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Assignee - any Person that acquires a Membership Interest or any portion thereof through a Disposition; provided, however, that an Assignee shall have no right to be admitted to the Company as a Member except in accordance with Section 3.03(c).


Beneficial Ownership - with respect to any security, the power to vote, or direct the vote of, such security and the power to dispose, or direct the disposition of, such security.


Board of Directors - as defined in Section 6.01.


Business Day - any day other than a Saturday, a Sunday, or a holiday on which national banking associations are closed in New York, New York.


BVBA - Bellataire BVBA, a corporation organized under the laws of Belgium.


Capital Account - the account to be maintained by the Company for each Member in accordance with Section 4.04.


Capital Contribution - with respect to any Member, the amount of money and the Fair Market Value of property contributed by that Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Section 752 of the Code) contributed to the Company by the Member. Any reference in this Agreement to the Capital Contribution of a Member shall include a Capital Contribution of its predecessors in interest.


CEO - as defined in Section 6.01(i).


Certified Public Accountants - a firm of independent public accountants selected from time to time by the Board of Directors, who initially shall be BDO Seidman, LLP.


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Claim - any and all judgments, claims, causes of action, demands, lawsuits, suits, proceedings, Governmental investigations or audits, losses, assessments, fines, penalties, administrative orders, obligations, costs, expenses, liabilities and damages (whether actual, consequential or punitive), including interest, penalties, reasonable attorney's fees, disbursements and costs of investigations, deficiencies, levies, duties and imposts.


Code - the Internal Revenue Code of 1986, as amended.


Company - Bellataire LLC.


Company Business - as defined in Section 2.04(a).


Company Minimum Gain - the aggregate amount of gain (of whatever character), determined for each Nonrecourse Liability of the Company, that would be realized by the Company if it disposed of the Company property subject to such liability in a taxable transaction in full satisfaction thereof (and for no other consideration) and by aggregating the amounts so computed, determined in accordance with Regulation sections 1.704-2(b)(2), -2(d) and -2(k).


Complete Control - the possession, directly or indirectly, through one or more intermediaries, of both of the following:


(a) (i) in the case of a corporation, all of the outstanding
voting securities thereof; (ii) in the case of a limited liability
company, partnership, limited partnership or venture, the right to all
of the distributions therefrom (including liquidating distributions);
(iii) in the case of a trust or estate, including a business trust, all
of the beneficial interest therein; and (iv) in the case of any other
entity, all of the economic or beneficial interest therein; and


(b) in the case of any entity, the power and authority to
completely control the management of the entity.


Confidential Information - all information and data (including all copies thereof) related to the business or activities of the Company, including, without limitation, all information and data that is furnished or submitted by any of the Members or their Affiliates, whether oral, written, or electronic, on a confidential basis to the other Members or their Affiliates in connection with the Company, and any and all of the activities and studies relating to the economics or performance of the Company performed pursuant to this Agreement, and the resulting information and data obtained from those studies shall be deemed to be confidential and shall be maintained by each Member and their respective Affiliates in confidence, using the same degree of care to preserve the confidentiality of such Confidential Information that the party to whom such Confidential Information is disclosed would use to preserve the confidentiality of its own information of a similar nature. Notwithstanding the foregoing, the term "Confidential Information" shall not include any information that (a) is in the public domain at the time of its disclosure or thereafter (other than as a result of a disclosure directly or indirectly by a Member or its Affiliates in contravention of this Agreement); [*]


Control - the Beneficial Ownership, directly or indirectly, through one or more intermediaries, of either of the following:


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(a) (i) in the case of a corporation, in excess of 50% of the
outstanding voting securities thereof; (ii) in the case of a limited
liability company, partnership, or venture, the right to in excess 50%
of the distributions therefrom (including liquidating distributions);
provided, however, neither LKI nor DI shall be deemed to be in Control
of the Company, including, without limitation, at any time a Member is
deemed a Non-Delinquent Member; (iii) in the case of a limited
partnership, the right to in excess of 50% of the distributions
therefrom (including liquidating distributions) or the general
partnership interest; (iv) in the case of a trust or estate, including
a business trust, in excess of 50% of the beneficial interest therein;
and (v) in the case of any other entity, in excess of 50% of the
economic or beneficial interest therein; provided, however, that for
the purposes of Section 2.04(c), the applicable threshold, in each of
(i) through (v) hereof shall be deemed reduced from "in excess of 50%"
to "5% or more"; or


(b) in the case of any entity, the power or authority, through
ownership of voting securities, by contract or otherwise, to direct or
cause the direction of the management and policies of the Company;
provided, however, neither LKI nor DI shall be deemed to be in Control
of the Company, including, without limitation, at any time a Member is
deemed a Non-Delinquent Member.


Debt - of any Person means without duplication, (a) all indebtedness of such Person for borrowed money, (b) all indebtedness of such Person evidenced by notes, bonds, debentures or other similar instruments, (c) all obligations of such Person for the deferred purchase price of property or services that in accordance with GAAP would be shown as a liability on the balance sheet of such Person (other than accounts payable that are payable not more than one (1) year after the date of incurrence), (d) all capitalized lease obligations of such Person, (e) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities (other than any such obligations that relate to the purchase of raw materials or other materials used in the Company Business in the ordinary course), (f) all Debt of others referred to in clauses (a) through (e) above guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell service (which agreement, in the case of clauses (i) and (ii), is entered into primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss), or (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered), and (g) all Debt referred to in clauses (a) through (f) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. Notwithstanding the foregoing, Capital Contributions made pursuant to Article IV shall not be considered Debt of any Person.


Debt Instruments - as defined in Section 3.03(f).


Default - the failure of (a) a Member to (i) pay its Initial Contribution, as set forth in Section 4.01(a) hereof, within ten (10) Business Days after the same is due; (ii) pay any Additional Contributions after having agreed to make such contribution in accordance with the


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terms and conditions set forth in Section 4.01(b) hereof, and such non-payment remains outstanding for ten (10) Business Days; (iii) comply in any material respect with any of its material agreements, covenants or obligations under this Agreement and, to the extent curable, such failure shall have continued uncured for thirty (30) days after written notice by the Company or another Member or (iv) comply in any material respect with any of its material agreements, covenants or obligations under the Affiliate Agreements and, to the extent curable, such failure shall have continued uncured for thirty (30) days after written notice by the Company or another Member; or (b) the failure of any representation or warranty made by a Member in this Agreement to have been true and correct in all material respects at the time it was made, and, to the extent curable, such failure shall continue uncured for thirty (30) days after written notice by the Company or another Member.


Default Rule - a rule provided by the Act that (i) structures, defines or regulates the finances, governance, operations or other aspect of a limited liability company formed under the Act, and (ii) applies except to the extent it is negated or modified through the provisions of a limited liability company's certificate of formation or operating agreement.


Defaulting Party - as defined in Section 9.01.


Deficit Restoration Obligation - with respect to any Member at the end of any Fiscal Year, the amount such Member is obligated to restore under applicable law or pursuant to any provision of this Agreement on account of a deficit balance in such Member's Capital Account or is deemed obligated to restore under Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations (determined after taking into account any changes in the Minimum Gain and the Member Minimum Gain during such Fiscal Year).


Delaware Certificate - as defined in Section 2.01.


Delinquent Member - as defined in Section 4.01(c).


Depreciation - for each Fiscal Year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such Fiscal Year or part thereof, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes, the depreciation, amortization or other cost recovery deduction for such Fiscal Year or part thereof shall be an amount which bears the same ratio to such Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such Fiscal Year or part thereof bears to such adjusted tax basis. If such asset has a zero adjusted tax basis, the depreciation, amortization or other cost recovery deduction for each Fiscal Year shall be determined under a method reasonably selected by the Board of Directors. Notwithstanding the preceding, if the remedial allocation method is used, Depreciation shall be computed as required under Treasury Regulation Section 1.704-3(d)(2).


DI - as defined in the Introductory paragraph.


DI BA - DI Bahamas Inc., an international business company organized under the laws of the Bahamas.


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Director - as defined in Section 6.01(a)(i).


Dispose, Disposing or Disposition - with respect to any asset (including a Membership Interest or any portion thereof), a direct or indirect sale, assignment, transfer, conveyance, gift, exchange or other disposition of such asset, whether such disposition be voluntary, involuntary or by operation of Law, including the following: (a) in the case of an asset owned by a natural person, a transfer of such asset upon the death of its owner, whether by will, interstate succession or otherwise; (b) in the case of an asset owned by an entity, (i) a merger or consolidation of such entity (other than where such entity is the survivor thereof), (ii) a conversion of such entity into another type of entity, or (iii) a distribution of such asset, including in connection with the dissolution, liquidation, winding-up or termination of such entity (unless, in the case of dissolution, such entity's business is continued without the commencement of liquidation or winding-up); and (c) a disposition in connection with, or in lieu of, a foreclosure of an Encumbrance; but such terms shall not include the creation of an Encumbrance.


Disposing Member - a Member making a Disposition.


Dissolution Event - as defined in Section 9.02(a).


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Domestic - Bellataire Domestic LLC, a Delaware limited liability company.


Effective Date - as defined in the introductory paragraph.


Encumber, Encumbering, or Encumbrance - the creation of a security interest, lien, pledge, mortgage or other encumbrance, whether such encumbrance be voluntary, involuntary or by operation of Law.


Excess Nonrecourse Liabilities - at any time, means the nonrecourse liabilities of the Company not allocated under paragraphs (a)(1) and (a)(2) of Section 1.752-3 of the Treasury Regulations.


Fair Market Value - of Membership Interests or other property, as the case may be, means the cash price that an unaffiliated third party would pay to acquire such Membership Interests or other property in an arm's-length transaction as reasonably determined by the Board of Directors or by a valuation expert as spec ...