<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997
REGISTRATION NO. 333-25989
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JLK DIRECT DISTRIBUTION INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 5084 23-2896928
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
STATE ROUTE 981 SOUTH
P.O. BOX 231
LATROBE, PA 15650-0231
(412) 539-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
MICHAEL W. RUPRICH
JLK DIRECT DISTRIBUTION INC.
STATE ROUTE 981 SOUTH
P.O. BOX 231
LATROBE, PA 15650-0231
(412) 539-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
LEWIS U. DAVIS, JR., ESQ.
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
20TH FLOOR, ONE OXFORD CENTRE
301 GRANT STREET
PITTSBURGH, PA 15219
(412) 562-8800
VINCENT PAGANO, JR., ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 455-2000
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 4, 1997
PROSPECTUS
4,257,000 SHARES
JLKDIRECT LOGO
CLASS A COMMON STOCK
------------------------
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), offered hereby (the "Offering") are being offered by
JLK Direct Distribution Inc. (the "Company"), a wholly owned subsidiary of
Kennametal Inc. ("Kennametal").
Each share of Class A Common Stock entitles its holder to one vote, and
each share of Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common Stock"),
entitles its holder to 10 votes. Upon completion of the Offering, Kennametal
will continue to own all of the shares of Class B Common Stock, which will
represent approximately 83.1% of the aggregate shares of Common Stock (80.5% if
the Underwriters' over-allotment option is exercised in full) and will entitle
Kennametal to cast approximately 98.0% of the votes (97.6% if the Underwriters'
over-allotment option is exercised in full) which may be cast at any meeting of
the shareholders of the Company. Accordingly, Kennametal will continue to
control the Company. See "Risk Factors--Control by Kennametal" and "--Conflicts
of Interest."
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
will be between $16.00 and $18.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Shares of Class A Common Stock are being reserved for sale to
certain employees and directors of the Company and Kennametal and to certain
outside parties, largely product vendors of the Company, at the initial public
offering price. Such employees, directors and other persons are expected to
purchase, in the aggregate, not more than 5% of the Class A Common Stock offered
in the Offering. See "Underwriting."
Application will be made for listing of the Class A Common Stock on the New
York Stock Exchange under the symbol "JLK."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
======================================================================================================
</TABLE>
(1) The Company and Kennametal have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,400,000.
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to 640,000 additional
shares of Class A Common Stock solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Class A Common Stock offered hereby are offered by the
several Underwriters, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the shares of Class A Common Stock will
be made in New York, New York on or about , 1997.
------------------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
[PHOTOGRAPHS OF CATALOGS, A SHOWROOM, PERSONNEL AND PRODUCTS OF THE COMPANY.]
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Class A Common
Stock. Such transactions may include stabilizing, the purchase of Class A Common
Stock to cover syndicate short positions and the imposition of penalty bids. For
a description of these activities, see "Underwriting."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. JLK Direct Distribution Inc., a recently
formed wholly owned subsidiary of Kennametal Inc. ("Kennametal"), will own,
operate and distribute the industrial supply products previously marketed, sold
and distributed by Kennametal through its integrated industrial supply programs
("Full Service Supply Programs") and its wholly owned J&L America, Inc.
subsidiary, which has and will continue to do business as "J&L Industrial
Supply" (together, the "Industrial Supply Business"). Except as otherwise noted
or unless the context otherwise requires, (i) the information in this Prospectus
gives effect to the contribution (the "Contribution") to the Company of the
Industrial Supply Business, (ii) the "Company" refers, with respect to any date
prior to the effective date of the Contribution, to the Industrial Supply
Business and, with respect to any date on or subsequent to the effective date of
the Contribution, to JLK Direct Distribution Inc. and its subsidiaries,
including J&L America, Inc., (iii) "Kennametal" refers to Kennametal and its
subsidiaries other than the Company, J&L America, Inc. and Kennametal's Full
Service Supply Programs, (iv) "fiscal" in connection with a year means the 12
months ended June 30 of the calendar year specified, (v) "active customers"
refers to direct-marketing customers which have purchased products from the
Company within the 12 months preceding the relevant period end and (vi) the
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option (if the Underwriters' over-allotment option is exercised, the
Underwriters may purchase up to an additional 640,000 shares of Class A Common
Stock from the Company and Kennametal's shares of Class B Common Stock will be
correspondingly reduced at that time).
This Prospectus contains certain forward-looking statements (as such term
is defined in the Securities Act) concerning the Company's operations,
performance and financial condition, including, in particular, the likelihood of
the Company's success in developing and expanding its business. These statements
are based upon a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Company. Actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
set forth in "Risk Factors." Forward-looking statements contained in this
Prospectus are not subject to the "safe harbor" provisions for forward-looking
statements contained in the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
THE COMPANY
The Company is one of the largest suppliers of a broad range of
metalworking consumables and related products to customers in the United States,
offering a full line of cutting tools, carbide and other tool inserts,
abrasives, drills, machine tool accessories, hand tools and other industrial
supplies. To meet the varying supply needs of small, medium and large-sized
customers, the Company offers: (i) a direct-marketing program, whereby the
Company supplies predominantly small and medium-sized customers through catalog
and showroom sales and (ii) integrated industrial supply programs, by which
large industrial manufacturers engage the Company to carry out all aspects of
complex metalworking supply processes, including needs assessment, cost
analysis, procurement planning, supplier selection, "just-in-time" restocking of
supplies and ongoing technical support. The Company also conducts its
direct-marketing program for small and medium-sized customers in the United
Kingdom.
The Company estimates the size of the United States market for metalworking
consumables and other related products in which the Company participates at
approximately $50.0 billion. The Company believes it has and will continue to
enjoy strong growth from two important trends now impacting the industrial
supply industry. First, the industrial supply industry is experiencing
consolidation of currently fragmented distribution channels, as customers seek
and technology makes possible the convenience, cost savings and economies of
scale associated with single sources of supplies. Second, to achieve even
greater cost savings and efficiencies, manufacturers are outsourcing complex
procurement and possession processes needed to supply metalworking products that
are critical to their manufacturing operations. As a market leader with a broad
range of products and services and proven capabilities, the Company is
well-positioned to continue to take advantage of these industry trends.
3
<PAGE> 5
The direct-marketing program serves the needs of predominantly small and
medium-sized metalworking customers by offering 100,000 stock keeping units
("SKUs") through the Company's 1,465 page master catalog, monthly promotional
sales flyer (the "Advantage"), additional mailings and advertisements,
telemarketing efforts, direct sales efforts and 24 showrooms. The Company offers
customers the advantages of (i) a single source of supply for all metalworking
consumables and related products, (ii) a tiered product offering (such as
"good," "better" and "best"), (iii) same-day pick-up for the most popular
products stocked at showrooms, (iv) same-day direct shipping and (v) a
state-of-the-art order entry system that tracks product availability and
pricing, provides technical product information and results in an order being
completed in an average time of three minutes. In addition, the Company has a
dedicated sales force based in each showroom that actively calls on targeted
customers.
Full Service Supply Programs allow customers to achieve substantial cost
savings in metalworking consumables and overall manufacturing processes by
outsourcing the entire process of acquiring and possessing metalworking and
related products at manufacturing facilities. Customers, such as General Motors
Corporation, Allied Signal and Emerson Electric, use Full Service Supply
Programs at designated manufacturing facilities to (i) consolidate all of their
metalworking consumables and related product purchases with one vendor, (ii)
eliminate a significant portion of the administrative overhead burden associated
with the internal purchasing function, (iii) ensure appropriate technical
expertise in the selection and use of supplies for complex metalworking
processes and (iv) minimize the level of investment in tooling inventory,
thereby reducing inventory carrying costs. The Company's technical experts
customize and manage a comprehensive computerized product identification,
tracking and purchasing system that analyzes and optimizes supply usage, helps
select appropriate products and allows for "just-in-time" replacement of
inventory. To increase efficiency and maximize cost savings for its customers,
the Company also provides ongoing application assistance in the usage of
metalworking tools. The Company believes that its Full Service Supply Programs
typically reduce customers' costs of acquiring, possessing and using
metalworking products by approximately 5% to 20% per year.
The Company has grown rapidly due to geographic expansion, expanded product
offerings, increased direct mailings and an increased demand for both
single-source supply and integrated industrial supply programs such as its Full
Service Supply Programs. From fiscal 1993 through fiscal 1996, the Company's net
sales increased from $109.4 million to $244.0 million, representing a compound
annual growth rate ("CAGR") of 30.7%. Operating income during this period
increased from $5.0 million to $24.9 million, representing a CAGR of 70.4%.
During this same period, the Company's number of active direct-marketing
customers increased from 47,000 to 71,000 and the number of such customers who
purchased annually over $10,000 of products increased from 800 to 2,300.
Specific drivers of growth include:
- STRONG GROWTH IN EXISTING MARKETS. The Company has grown its net sales
84% from fiscal 1993 through fiscal 1996 in areas where it has had an
existing showroom as of the beginning of fiscal 1993 or which have been
served only through catalog sales. The Company did not add a showroom in
these areas during that period. The primary source of this growth has been
from areas where a showroom existed. In these areas, the Company gained
marketshare through targeted marketing to existing and prospective
customers.
- PENETRATION OF NEW MARKETS. From fiscal 1993 through fiscal 1996, net
sales have grown 233% in areas in which new showrooms have been added,
with 12 new showrooms in the United States and one in the United Kingdom
added during the period. Along with these showrooms, the Company uses a
focused sales call process to build sales.
- EXPANDED PRODUCT OFFERINGS. From the beginning of fiscal 1993 through
fiscal 1996, the Company added over 600 pages, including 40,000 new SKUs
and 165 product brand names and private labels, to its annual master
catalog.
- EXPANSION OF FULL SERVICE SUPPLY PROGRAMS. From the beginning of fiscal
1993 through fiscal 1996, the number of customers in Full Service Supply
Programs increased from nine to 42, with site locations increasing from 32
to 86.
4
<PAGE> 6
The Company believes that a significant factor contributing to its growth
has been its ability to identify itself as an affiliate of Kennametal, the
largest North American provider of metalcutting tools and tooling systems. The
Company also relies upon and markets its access to Kennametal's research and
technical expertise in tooling products and supplies. See "Risk Factors--Control
by Kennametal." The Company was incorporated in Pennsylvania on April 28, 1997
to be a holding company for the Industrial Supply Business.
BUSINESS STRATEGY
The Company's business strategy is to become the preferred supplier of
metalworking consumables and related products to the metalworking industry by
being a "one-stop shop" for metalworking products for small and medium-sized
customers and by offering managed solutions for large customers. The Company
believes its market-leadership position results from the successful
implementation of its business strategy, the major elements of which include:
- BREADTH OF METALWORKING PRODUCTS AND METALWORKING FOCUS. As its
customers continue to consolidate their suppliers, the Company
differentiates itself through its breadth of metalworking products and
metalworking focus. The Company believes its ability to offer a broad
spectrum of metalworking products and a tiered product selection
alternative through which similar product offerings with varying degrees
of name recognition, quality and price are categorized, such as "good,"
"better" and "best," has been an important component in expanding
direct-marketing sales to small and medium-sized customers. The Company's
metalworking focus also enables the Company to understand complex
industrial metalworking processes so as to provide valuable technical
advice that reduces costs to its Full Service Supply Program customers.
- EXCEPTIONAL CUSTOMER SERVICE. The Company emphasizes exceptional
customer service supported by sophisticated information systems and
ongoing employee training. The Company's telemarketing representatives,
utilizing sophisticated customer support software, inform catalog
customers on a real-time basis of the Company's product availability and
pricing, verify credit information, update customer information and
provide technical product information in calls lasting on average only
three minutes. For customers participating in its Full Service Supply
Programs, the Company provides continuous improvement specialists to
ensure quality service and low costs by assisting such customers in the
acquisition, possession and use of metalworking consumables and related
products.
- RAPID FULFILLMENT AND JUST-IN-TIME PRODUCT DELIVERY. The Company
believes that its ability to fulfill rapidly the orders of
convenience-driven customers and manage complex procurement processes for
large clients has been critical to its growth. The Company has developed
highly efficient inventory management and order fulfillment systems that
allow more than 99% of domestic orders received by 5:00 p.m. to be shipped
on the same day and delivered by low-cost ground carriers. In addition, in
its Full Service Supply Programs, the Company uses sophisticated systems
that permit "just-in-time" purchasing and delivery of products resulting
in low costs to its customers.
- COMMITMENT TO TECHNOLOGICAL INNOVATION. The Company uses technology to
benefit customers and to improve the Company's productivity and
efficiency. The Company's sophisticated customer support software tracks
all 100,000 SKUs, enabling its telemarketing representatives to inform
catalog customers on a real-time basis of the Company's product
availability and pricing, verify credit information, update customer
information and provide technical product information. The software for
Full Service Supply Programs allows the Company to manage and automate a
large customer's entire processes related to the acquisition, possession
and use of metalworking consumables and related products.
5
<PAGE> 7
GROWTH STRATEGY
The Company's objective is to expand its leadership position as a preferred
supplier to small, medium and large customers for metalworking consumables and
related products. The major elements of the Company's growth strategy include:
- INCREASED PENETRATION OF EXISTING MARKETS. The Company intends to
increase sales to small and medium-sized consumers by (i) expanding
targeted direct-mail and related campaigns, (ii) increasing the number of
products, product lines, product brand names and private labels offered in
its master catalog and (iii) focusing the Company's sales force on
marketing to these consumers. The Company plans to build on its
comprehensive marketing approach, which includes special showroom events
and targeted direct-mail and ongoing product promotions. In markets in
which the Company has had showrooms for at least three years, such as the
Detroit metropolitan area, the Company intends to increase its market
share by adding showrooms and expanding the services it offers to its
customers. The Company also plans to build on its reputation with Full
Service Supply Program customers to expand into other facilities of such
customers, while seeking new customers.
- FURTHER EXPANSION INTO NORTH AMERICAN MARKETS. To continue expanding its
North American presence, the Company plans to increase distribution
capacity and operational efficiency, add new showrooms and increase the
customer base for its Full Service Supply Programs. The Company plans to
construct a new midwest distribution center with a portion of the proceeds
from the Offering. New showrooms have historically resulted in substantial
growth in sales in the surrounding territory. For example, when the
Company opened its showroom in Atlanta in September 1995, sales in that
market increased by over 200% in the following nine months. The Company
has showrooms in 19 of the top 50 industrial markets in the United States
and intends to have showrooms in 40 of such 50 markets over the next
several years. In connection with this expansion, the Company will
continue to consider strategic acquisitions of metalworking distributors,
such as its acquisition in April 1997 of the Strelinger Company
("Strelinger"), based in Troy, Michigan (the "Strelinger Acquisition"),
and its acquisition in May 1997 of Mill & Abrasive Supply, Inc. ("M&A"),
based in Roseville, Michigan (the "M&A Acquisition"). The Company intends
to continue to leverage its relationship with Kennametal to market its
Full Service Supply Programs to large industrial metalworking customers of
Kennametal. The Company also intends to customize versions of its Full
Service Supply Programs to meet the needs of medium-sized industrial
facilities. The Company estimates that the market for Full Service Supply
Programs consists of 12,000 to 15,000 industrial manufacturing facilities
in the United States.
- EXPANSION INTO INTERNATIONAL MARKETS. The Company believes that the
consolidation and outsourcing trends which provide growth opportunities in
the United States also offer comparable opportunities in international
markets. The Company entered the United Kingdom market in fiscal 1995 with
a 256-page catalog which included over 20,000 products. In April 1997, the
Company released an 800-page catalog which includes over 60,000 products.
The Company now has over 13,000 active customers in such market. Over the
next five years, the Company anticipates launching additional
direct-marketing efforts and opening showrooms in the United Kingdom,
Germany and certain other European countries and is considering direct
marketing in certain other countries. The Company is also planning to
introduce its Full Service Supply Programs into international markets,
such as the United Kingdom and Germany, by offering this service to
foreign manufacturing facilities of the Company's domestic Full Service
Supply Program customers and to Kennametal's foreign customers.
The address of the Company's principal executive offices is State Route 981
South, P.O. Box 231, Latrobe, Pennsylvania 15650 and its telephone number is
(412) 539-5000.
6
<PAGE> 8
THE OFFERING
Class A Common Stock
offered....................... 4,257,000 shares
Common Stock outstanding after
the Offering:
Class A Common
Stock(1)(2)................... 4,257,000 shares
Class B Common
Stock(1)...................... 20,897,000 shares
Total Common
Stock(2)...................... 25,154,000 shares
Use of proceeds............... The net proceeds from the Offering, after
deducting estimated underwriting discounts and
expenses, are estimated to be approximately
$66.1 million and will be used (i) to repay
$20.0 million of indebtedness related to a
dividend paid to Kennametal on April 28, 1997,
(ii) to repay amounts due to Kennametal
totaling approximately $19.0 million relating
to acquisitions, income taxes and employee
benefit obligations, (iii) to acquire or
construct a new Midwest distribution center,
(iv) to provide working capital for new
showrooms and Full Service Supply Programs and
(v) to fund acquisitions. See "Use of
Proceeds."
Voting rights................. The holders of Class A Common Stock generally
have rights, including as to dividends,
identical to those of holders of Class B Common
Stock, except that holders of Class A Common
Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to
10 votes per share. Holders of Class A Common
Stock and Class B Common Stock generally vote
together as a single class, except as otherwise
required by Pennsylvania law. See "Description
of Capital Stock--Common Stock--Voting Rights."
Under certain circumstances, Class B Common
Stock converts to Class A Common Stock. See
"Description of Capital Stock--Common
Stock--Conversion."
New York Stock Exchange
symbol........................ "JLK"
- ---------
(1) The shares of Class B Common Stock are convertible at any time into shares
of Class A Common Stock. See "Description of Capital Stock--Common
Stock--Conversion."
(2) Does not include 450,000 shares of Class A Common Stock issuable upon
exercise of stock options that will be granted to executive officers and
directors of the Company upon consummation of the Offering. Such options
will be subject to a one-year vesting period. See "Management--Executive
Compensation" and "--JLK Direct Distribution Inc. 1997 Stock Option and
Incentive Plan."
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered in connection with an investment in the Class A Common Stock offered
hereby.
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated income statement and balance sheet data for the
Company presented below are derived from the Company's Consolidated Financial
Statements. The Company's Consolidated Financial Statements as of and for the
fiscal years ended June 30, 1994, 1995 and 1996 have been audited by Arthur
Andersen LLP. The Consolidated Financial Statements as of and for the nine
months ended March 31, 1996 and 1997 are derived from the Company's unaudited
interim financial statements appearing elsewhere in this Prospectus, which in
the opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary to state fairly the data included therein in
accordance with generally accepted accounting principles for interim financial
information. Results for the nine months ended March 31, 1997 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year. The financial information for the fiscal years ended 1992 and 1993
is derived from the Company's unaudited Consolidated Financial Statements. The
summary financial information presented below should be read in conjunction
with, and is qualified by reference to, the more detailed information in the
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus, Management's Discussion and Analysis of Financial Condition and
Results of Operations and other financial information set forth herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........... $88,560 $109,364 $144,933 $188,202 $243,969 $175,989 $ 225,195
Cost of goods
sold............. 60,833 75,823 100,672 127,917 166,326 120,017 152,339
------- -------- -------- -------- -------- -------- ---------
Gross profit........ 27,727 33,541 44,261 60,285 77,643 55,972 72,856
Operating
expenses......... 25,064 28,511 33,026 40,658 52,761 38,217 50,425
------- -------- -------- -------- -------- -------- ---------
Operating income.... 2,663 5,030 11,235 19,627 24,882 17,755 22,431
Interest and
other............ -- -- -- -- -- -- --
------- -------- -------- -------- -------- -------- ---------
Income before income
taxes............ 2,663 5,030 11,235 19,627 24,882 17,755 22,431
Provision for income
taxes............ 1,235 2,114 4,522 7,799 9,819 7,019 8,812
------- -------- -------- -------- -------- -------- ---------
Net income.......... $ 1,428 $ 2,916 $ 6,713 $ 11,828 $ 15,063 $ 10,736 $ 13,619
======= ======== ======== ======== ======== ======== =========
Pro forma net income
per share(1)..... $0.71 $0.64
======== =========
Pro forma weighted
average shares
outstanding(1)... 21,272 21,272
======== =========
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<CAPTION>
MARCH 31, 1997
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................. $ 85,640
Total assets................................................................ 138,132
Shareholders' equity(2)..................................................... 111,378
</TABLE>
8
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FISCAL YEAR ENDED JUNE 30, NINE MONTHS
------------------------------------------------------------------ ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
---------- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Active direct
marketing
customers(3)(4)..... 41,000 47,000 48,000 59,000 71,000 81,000
Number of SKUs(4)..... 40,000 50,000 60,000 70,000 80,000 100,000
Number of publications
per year............ 5 6 6 9 13 11
Total number of
publications
mailed.............. 542,000 1,416,000 1,403,000 2,285,000 3,048,000 2,724,000
Direct-mail
costs(5)............ $1,354,000 $1,551,000 $1,401,000 $2,261,000 $3,622,000 $3,175,000
Showroom and
distribution
facilities(4)....... 5 6 7 12 19 24
Full Service Supply
Programs:
Customers(3)(4)..... 9 16 21 29 42 51
Site locations(4)... 32 46 54 69 86 104
</TABLE>
- ---------
(1) Gives effect to (i) the issuance after March 31, 1997 of 20,897,000 shares
of Class B Common Stock to Kennametal for all periods presented and (ii) the
assumed issuance for fiscal 1996 and the nine months ended March 31, 1997 of
375,353 shares of Class A Common Stock to fund the excess of dividends over
net income for the nine months ended March 31, 1997.
(2) During the periods presented, the Company paid no cash dividends.
(3) Number of customers that have purchased products from the Company within the
12 months preceding the relevant period end.
(4) Represents data at period end.
(5) Direct-mail costs include production and mailing costs.
9
<PAGE> 11
RISK FACTORS
Prospective investors should consider, in addition to the other information
set forth elsewhere in this Prospectus, the following matters in evaluating the
Company and the Class A Common Stock offered hereby.
CONTROL BY KENNAMETAL
Kennametal is currently the only shareholder of the Company. Upon
completion of the Offering, Kennametal will own 100% of the outstanding Class B
Common Stock of the Company (which Class B Common Stock entitles its holders to
10 votes per share on any matter submitted to a vote of the Company's
shareholders). The Class B Common Stock will represent approximately 98.0% of
the combined voting power of all classes of voting stock of the Company (97.6%
if the Underwriters' over-allotment option is exercised in full) and thus will
be able to direct the election of all of the members of the Company's Board of
Directors and exercise a controlling influence over the business and affairs of
the Company, including any determinations with respect to mergers or other
business combinations, the acquisition or disposition of assets, the incurrence
of indebtedness, the issuance of any additional Common Stock or other equity
securities and the payment of dividends with respect to the Common Stock.
Similarly, Kennametal will have the power to determine matters submitted to a
vote of the Company's shareholders without the consent of the Company's other
shareholders, will have the power to prevent a change of control of the Company
and could take other actions that might be favorable to Kennametal. Kennametal
has advised the Company that its current intent is to continue to hold all of
its Class B Common Stock. There can be no assurance, however, concerning the
period of time during which Kennametal will maintain its beneficial ownership of
Common Stock. Pursuant to the Purchase Agreement (as defined herein), Kennametal
will agree, subject to certain exceptions, not to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock owned by it for a period of
180 days after the date of this Prospectus without the prior written consent of
the representatives of the Underwriters. For so long as Kennametal maintains
beneficial ownership of at least 40% of the number of outstanding shares of
Common Stock, the Company may not act in a way which may reasonably be
anticipated to result in a contravention by Kennametal of Kennametal's Articles
of Incorporation or credit or other material agreement. Kennametal will have the
right upon any issuance of shares of Class A Common Stock to purchase additional
shares of Common Stock in order to maintain its ownership percentage. See
"Relationship with Kennametal--Corporate Agreement."
The Company's Board of Directors consists of seven members, four of whom
serve concurrently as members of the Board of Directors of Kennametal, including
Robert L. McGeehan, President and Chief Executive Officer of Kennametal. In
light of its ownership of the Company's Class B Common Stock, Kennametal will
have the ability to change the size and composition of the Company's Board of
Directors and committees of the Board of Directors. See "Relationship with
Kennametal--General."
As of the date of this Prospectus, Kennametal has no current plan or
intention other than to hold its shares of Class B Common Stock for the
foreseeable future. After the date of the Offering, options which may be
considered by Kennametal regarding its interest in the Company include whether
to sell all or a portion of its shares of Common Stock to the public in a
subsequent public offering or to a strategic investor or to distribute pro rata
to Kennametal's shareholders its remaining shares of Common Stock by a dividend
intended to be tax-free for federal income tax purposes to Kennametal and
Kennametal's shareholders. See "Description of Capital Stock--Common
Stock--Conversion." Kennametal also has the right to require the Company to
register for sale under applicable securities laws all of the shares of Common
Stock (including any shares of Class A Common Stock acquired by Kennametal upon
conversion of the Class B Common Stock) which Kennametal or its subsidiaries
hold. See "Relationship with Kennametal--Corporate Agreement."
NO ASSURANCE THAT GROWTH MAY BE SUSTAINED
The Company has grown rapidly over the past several years as a result of
the addition of distribution centers, warehouses and showrooms, expanded
metalworking product offerings in its master catalog, more effective marketing
campaigns and new customers and site locations for its Full Service Supply
Programs. The
10
<PAGE> 12
Company believes that part of its success has been due to the metalworking focus
of its catalog, which the Company intends to maintain. This focus, however,
could limit the ability of the Company to continue expanding its product
offerings, because there are a limited number of SKUs or metalworking products
remaining that the Company does not already offer to its customers.
Additionally, the Company believes that there are numerous suitable locations
for development of distribution centers, warehouses and showrooms, although
there can be no assurance that any new facilities will result in increased
sales. Similarly, no assurance can be given that the Company's marketing
campaigns will continue to result in increased sales. The Company's growth has
and will continue to place increasing demands on the Company's management
resources and on its need to attract and retain skilled employees. The Company's
future growth prospects are dependent upon a number of these factors, many of
which are not in the control of the Company. As a result, there can be no
assurance that the Company will be able to continue to grow profitably.
LARGE CUSTOMERS
The Full Service Supply Programs are targeted at the needs of large
industrial customers who purchase large amounts of metalworking consumables and
related products for their manufacturing facilities. Consequently, a small
number of customers, utilizing Full Service Supply Programs at several or all of
their manufacturing facilities, could generate a substantial portion of the
Company's net sales. The Company's Full Service Supply Programs generally are
pursuant to arrangements without a stated term and, therefore, can be terminated
by either the Company or the customer on reasonable notice, subject to
negotiation of disengagement terms. As a result, although a majority of the
Company's Full Service Supply Programs have remained in effect from year to
year, there can be no assurance that the Company or the customer will not
terminate these agreements, which could have a material adverse effect on the
Company's financial condition and results of operations. For example, following
extensive negotiations in early 1997 with General Electric Corporation ("GE"),
during which the Company determined that it was not in its best interest to
accede to certain price concessions requested by GE, GE gave notice of
termination of its agreement with the Company under which the Company had net
sales of $39.6 million during the nine months ended March 31, 1997. No other
customer accounted for more than 6% of the Company's net sales during that
period. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Termination of Large Contract."
CONFLICTS OF INTEREST
Common Directors. Various conflicts of interest between the Company and
Kennametal may arise in the future in a number of areas relating to their past
and ongoing relationships, including potential acquisitions of businesses or
properties, potential competitive business activities, the election of new or
additional directors, payment of dividends, incurrence of indebtedness, tax
matters, financial commitments, marketing functions, indemnity arrangements,
registration rights, administration of benefit plans, service arrangements,
issuances of capital stock of the Company, sales or distribution by Kennametal
of its remaining shares of Common Stock and the exercise by Kennametal of its
ability to control the management and affairs of the Company. In addition, there
are overlapping directors between the Company and Kennametal. Robert L.
McGeehan, a director of the Company, is a director and the Chief Executive
Officer of Kennametal, the Company's Chairman of the Board, William R. Newlin,
is also the Chairman of the Board of Kennametal and Richard C. Alberding and
Aloysius T. McLaughlin, Jr., who are directors of the Company, are also
directors of Kennametal. See "Management." The Company has not instituted any
formal plan or arrangement to address potential conflicts of interest that may
arise between the Company and Kennametal. The Company's directors intend to
exercise reasonable judgment and take such steps as they deem necessary under
all of the circumstances in resolving any specific conflict of interest that may
occur and will determine what, if any, specific measures may be necessary or
appropriate in light of their fiduciary duties under state law, including
whether to have any specific matter approved by a majority vote of the
disinterested directors. There can be no assurance that any conflicts will be
resolved in favor of the Company.
Future Arrangements; Joint Liabilities. The Company and Kennametal have
entered into a number of agreements for the purpose of defining the ongoing
relationship between them. Pursuant to these arrange-
11
<PAGE> 13
ments, Kennametal will provide benefits to the Company that it might not provide
to a third party, and there is no assurance that the terms and conditions of any
future arrangements between Kennametal and the Company will be as favorable to
the Company as in effect now. In addition, notwithstanding the Tax Sharing
Agreement (as defined herein), under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and federal income tax law, each member of a
consolidated group (for federal income tax and ERISA purposes) is also jointly
and severally liable for the federal income tax liability, benefit plan funding
and termination liabilities, certain benefit plan taxes and certain other
liabilities of each other member of the consolidated group. Similar rules may
apply under state income tax laws. See "Relationship with Kennametal."
Competition; Product Supply; Corporate Opportunities. In addition, to
address the potential for conflicts between the Company and Kennametal, the
Company's articles of incorporation (the "Articles of Incorporation" or
"Articles") contain detailed provisions concerning the business activities in
which the Company is permitted to engage and prohibiting the Company from
competing with Kennametal until the day after the third annual shareholder
meeting held following the date upon which Kennametal and its affiliates (other
than the Company or its subsidiaries) no longer beneficially own in the
aggregate 40% or more of the Common Stock (such date upon which Kennametal and
such affiliates cease to own such percentage of Common Stock, the "Control
Termination Date"). The relevant provisions are intended to permit the Company
to continue all activities in which it currently engages, and to expand into
certain related distribution products and markets. The pertinent provisions of
the Articles of Incorporation are set forth under "Description of Capital
Stock-- Limitations on the Company's Business Activities." These provisions
generally permit the Company to continue distributing metalworking consumables
and related products to industrial customers through direct marketing and
integrated supply programs and to continue to provide integrated supply
services. The Company may also engage in any other business with Kennametal's
consent or as authorized by a majority vote of Kennametal's shareholders. The
Articles further require the Company to purchase from Kennametal, unless
Kennametal otherwise consents, all of its direct marketing requirements for
metalworking tools, inserts and related products available from Kennametal. The
Company's Articles of Incorporation also provide that no opportunity,
transaction, agreement or other arrangement to which Kennametal, or an entity in
which Kennametal has an interest, is a party, may be a corporate opportunity of
the Company unless such opportunity, transaction, agreement or other arrangement
was initially offered to the Company before it is offered to Kennametal or such
other entity, and either (i) the Company has an enforceable contractual interest
in such opportunity, transaction, agreement or other arrangement or (ii) the
subject matter of such opportunity, transaction, agreement or other arrangement
is a constituent element of an activity in which the Company is then actively
engaged. Even if the foregoing conditions were met, such fact alone would not
conclusively render such opportunity the property of the Company.
Tax-Sharing. Because of its controlling interest in the Company and the
terms of the tax-sharing agreement to be entered into between the Company and
Kennametal (the "Tax-Sharing Agreement"), Kennametal will effectively control
all of the Company's tax decisions. Under the Tax-Sharing Agreement, Kennametal
will have sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company and to file all returns on behalf
of the Company. The amount of the Company's liability to (or entitlement to
payment from) Kennametal under the Tax-Sharing Agreement will equal the amount
of taxes that the Company would owe (or refund that it would receive) had it
prepared tax returns on a stand-alone basis. See "Relationship with
Kennametal--Tax-Sharing Agreement." This arrangement may result in conflicts of
interest between the Company and Kennametal. For example, under the Tax-Sharing
Agreement, Kennametal may choose to contest, compromise or settle any adjustment
or deficiency proposed by the relevant taxing authority in a manner that may be
beneficial to Kennametal and detrimental to the Company. Each member of a
consolidated group is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. Accordingly, although
the Tax-Sharing Agreement allocates tax liabilities between the Company and
Kennametal, during the period in which the Company is included in Kennametal's
consolidated group, the Company could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of
Kennametal's consolidated group.
12
<PAGE> 14
INTERCOMPANY AGREEMENTS NOT SUBJECT TO ARM'S LENGTH NEGOTIATION
Kennametal and the Company have entered and intend to enter into certain
intercompany agreements relating to services that are material to the Company's
business. These agreements include the provision by Kennametal of various
services to the Company and the sale of Kennametal products, as well as the Tax-
Sharing Agreement. Pursuant to the Services Agreement (as defined herein), the
relationship between Kennametal and the Company will continue in a manner
generally consistent with past practices. See "Relationship with Kennametal."
Because the Company is a wholly owned subsidiary of Kennametal, none of these
agreements will result from arm's length negotiations and, therefore, the prices
charged to the Company for services provided thereunder may be higher or lower
than prices that may be charged by third parties.
DEPENDENCE ON KENNAMETAL AND KENNAMETAL INFORMATION SYSTEMS
The Company believes that a significant factor contributing to its growth
has been its affiliation with Kennametal, the largest North American provider of
metalcutting tools and tooling systems. The Company also relies upon and markets
its access to Kennametal's research and technical expertise in tooling products
and supplies. In addition, the proprietary computer software programs of
Kennametal which the Company uses are an integral part of the Company's business
and growth strategies. The Company depends upon Kennametal's information systems
generally to process orders, to manage inventory and accounts receivable
collections, to purchase, sell and ship products efficiently and on a timely
basis, to maintain cost-effective "just-in-time" operations and to provide
reliable service to its customers. Although the Company has entered into various
service agreements with Kennametal, there can be no assurance of its continued
relationship with Kennametal or that a disruption will not occur in Kennametal's
information systems. Any such disruption could have a material adverse effect on
the Company's financial condition and results of operations, including as a
result of Kennametal's implementation of SAP/R3, a new client-server information
system. See "Relationship with Kennametal" and "Business--Information Systems."
INTERNATIONAL EXPANSION
The Company began its direct marketing operations in the United Kingdom in
fiscal 1995. The Company anticipates that it will launch additional
direct-marketing efforts and open showrooms in the United Kingdom, Germany and
certain other European countries over the next five years and is considering
direct marketing in certain other countries. Additionally, the Company is
planning to introduce its Full Service Supply Programs in the United Kingdom and
Germany. Expansion into international markets will involve risks relating to
currency exchange rates, new and different legal, tax, accounting and regulatory
requirements, difficulties in staffing and managing foreign operations,
operating difficulties and other factors.
COMPETITION
The metalworking supply industry is a large, fragmented industry that is
highly competitive. The Company faces competition (i) in the small and
medium-sized metalworking markets from traditional channels of distribution such
as retail outlets, small dealers, regional or national distributors utilizing
direct sales forces, and manufacturers' representatives and (ii) in the large
industrial metalworking market from large distributors and other companies which
offer varying degrees and types of integrated industrial supply programs. The
Company believes that sales of metalworking industrial supplies will become more
concentrated over the next few years, which may increase opportunities for the
Company to use its market leadership position to grow through expansion.
Consolidation, however, could increase the competitiveness of the industry in
ways that could harm the Company's profitability and growth prospects. Certain
of the Company's competitors offer a greater variety of products (including
nonmetalworking products) and have substantially greater financial and other
resources than the Company. See "Business--Competition."
INDUSTRY CYCLICALITY
Some of the primary markets for the products sold by the Company are
subject to cyclical fluctuations. Consequently, the demand for products has been
and may be influenced by many of the same national and
13
<PAGE> 15
regional factors which affect demand for industrial and consumer durable goods,
including consumer confidence, interest rates and general economic conditions.
Changes in economic conditions resulting in a change in the current business
cycle could have a material adverse effect on the Company's results of
operations and financial condition.
INTEGRATION OF ACQUISITIONS
In April and May, 1997, the Company completed the Strelinger Acquisition
and the M&A Acquisition, respectively. An element of the Company's strategy is
to make selected, strategic acquisitions which complement its existing
operations. The Company does not have a history of completing and integrating
acquisitions, including the Strelinger Acquisition and the M&A Acquisition.
There can be no assurance that the Company will be able to locate suitable
acquisition candidates successfully or complete and integrate such acquisitions.
In addition, acquisitions involve a number of special risks, including adverse
short-term effects on reported operating results, the diversion of management's
attention, the dependence on retention, hiring and training of key personnel,
the amortization of acquired intangible assets and risks associated with
unanticipated problems or legal liabilities, some or all of which could have a
material adverse effect on the Company's results of operations and financial
condition.
DEPENDENCE ON KEY MANAGEMENT
The Company's success will continue to depend to a significant extent on
its executive officers and other key members of management. There can be no
assurance that the Company will be able to retain its executive officers and key
personnel or attract additional qualified members of management in the future.
The loss of the services of any of the key managers could have a material
adverse effect upon the Company's business. The Company currently does not have
"key man" insurance on any of these individuals.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 4,257,000 shares
of Class A Common Stock issued and outstanding (4,897,000 if the Underwriters'
over-allotment option is exercised in full) and 20,897,000 shares of Class B
Common Stock issued and outstanding (20,257,000 if the Underwriters' over-
allotment option is exercised in full). The shares of Class A Common Stock being
offered hereby will be freely tradable (other than by an "affiliate" of the
Company, as such term is defined in the Securities Act) without restriction
under the Securities Act. Upon consummation of the Offering, Kennametal will own
all of the shares of Class B Common Stock outstanding, each of which is
convertible, under certain circumstances, into one share of Class A Common
Stock. See "Description of Capital Stock--Common Stock--Conversion." The shares
held by Kennametal will be eligible for public sale if registered under the
Securities Act or otherwise sold in accordance with applicable securities laws,
including Rule 144. For a description of the requirements of Rule 144, including
volume and method of sale restrictions contained therein, see "Shares Eligible
for Future Sale." In connection with the Offering, the Company and Kennametal
have entered into certain "lockup" agreements for 180 days with the
Underwriters. See "Underwriting." In addition, the Company has granted, upon
consummation of the Offering, stock options to purchase an aggregate of 450,000
shares of Class A Common Stock which generally are exercisable one year from the
date of grant. The issuances of the shares of Class A Common Stock underlying
such options are expected to be registered and, therefore, such shares will be
freely tradable upon receipt. No predictions can be made as to the effect, if
any, that future sales of Common Stock or the availability of such shares for
sale will have on the prevailing market prices of the Class A Common Stock
following the Offering. Sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect prevailing market prices for Class A Common Stock. See "Shares Eligible
for Future Sale." In addition, the Company has agreed to use its best efforts to
effect the registration under applicable federal and state securities laws of
any of the Common Stock held by Kennametal. See "Relationship with
Kennametal--Corporate Agreement."
14
<PAGE> 16
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance that an active trading market for the
Class A Common Stock will develop or be sustained. The initial public offering
price of the Class A Common Stock offered hereby will be determined by
negotiations between the Company and the Underwriters and may not be indicative
of the market price for the Class A Common Stock following the Offering. No
predictions can be made as to the effect, if any, that future market sales of
Class A Common Stock or the availability of Class A Common Stock for sale will
have on the prevailing market prices of the Class A Common Stock following the
Offering. For a discussion of the factors considered in determining the initial
public offering price, see "Underwriting."
The market price for shares of the Class A Common Stock may be volatile and
may fluctuate based upon a number of factors including, without limitation, the
Company's operating performance, news announcements or changes in general
economic and market conditions. In addition, the stock market in recent years
has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations may adversely affect the market price of the Class A Common Stock.
ABSENCE OF DIVIDENDS
The Company intends to retain its future earnings to finance the
development, expansion and growth of its business and does not presently intend
to pay cash dividends to the holders of Class A Common Stock in the foreseeable
future. The payment of future dividends on the Class A Common Stock, if any,
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company, general business conditions and
limitations imposed by Pennsylvania law. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offering will experience
immediate dilution of $11.56 per share of Class A Common Stock in the net
tangible book value of their Class A Common Stock from the initial public
offering price (assuming an initial public offering price of $17.00 per share,
the midpoint of the range set forth on the cover page of this Prospectus). Prior
to consummation of the Offering, the Company's net tangible book value per share
of Common Stock will be $3.33, whereas upon consummation of the Offering, it
will be $5.44. This will result in an increase in net tangible book value of
$2.11 per share of Class B Common Stock that will be received by Kennametal
attributable to the Offering. See "Dilution."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Articles and the By-Laws of the Company (the
"By-Laws") may have the effect of delaying, deferring or preventing a change of
control of the Company that would be operative with respect to an extraordinary
corporate transaction involving the Company, such as a merger, reorganization,
tender offer, sale or transfer of substantially all of its assets or
liquidation. These provisions might discourage a potentially interested
purchaser from attempting a unilateral takeover bid for the Company on terms
which some shareholders might favor. Although the Company does not believe that,
by discouraging potential takeover bids, these provisions will depress the price
of the Common Stock, these provisions might diminish the opportunity for the
shareholders of the Company to sell their shares at a premium over then
prevailing market prices. Such provisions include (i) a classified board of
directors following a Control Termination Date as defined herein, (ii) advance
notice requirements for shareholder proposals and nominations (other than by
Kennametal), (iii) limitation on the ability of shareholders (other than
Kennametal) to call special shareholder meetings and (iv) limitation on the
ability of shareholders (other than Kennametal) to remove directors. For
discussion of such provisions, see "Description of Capital Stock."
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds from the Offering, after deducting estimated underwriting
discounts and expenses, are estimated to be approximately $66.1 million (or
approximately $76.2 million if the Underwriters' over-allotment option is
exercised in full) and will be used: (i) to repay $20.0 million of indebtedness
related to a dividend paid to Kennametal on April 28, 1997, (ii) to repay
amounts due to Kennametal totaling approximately $19.0 million, of which
approximately $14 million relates to acquisitions, $3 million relates to income
taxes and $2 million relates to employee benefit obligations, (iii) to spend $15
to $20 million to acquire or construct a new Midwest distribution center in the
Detroit, Michigan metropolitan area, which is expected to be approximately
200,000 to 250,000 square feet in size and should be in operation by June 30,
1999, (iv) to provide working capital for new showrooms and Full Service Supply
Programs and (v) to fund acquisitions. Pending such uses, the net proceeds will
be loaned to Kennametal in exchange for a note bearing interest at a fluctuating
rate equal to Kennametal's short term borrowing costs which provides for the
repayment of amounts due thereunder upon demand by the Company. Kennametal's
short term borrowing rate during April 1997 was approximately 5.8%. Kennametal
will maintain unused lines of credit to enable it to repay any portion or all of
such loans upon demand by the Company. See "Relationship with Kennametal--
Intercompany Debt/Investment and Cash Management Agreement."
DIVIDEND POLICY
The Company intends to retain its future earnings to finance the
development, expansion and growth of its business and does not presently intend
to pay cash dividends to the holders of Class A Common Stock in the foreseeable
future. The payment of future dividends on the Class A Common Stock, if any,
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company, general business conditions and
limitations imposed by Pennsylvania law.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 and as adjusted to reflect the sale of the shares of Class A
Common Stock offered hereby at an assumed initial public offering price of
$17.00 per share (the midpoint of the range set forth on the cover page of this
Prospectus) and the application of the net proceeds therefrom (assuming that the
Underwriters' over-allotment option is not exercised). See "Use of Proceeds."
The information set forth in this table should be read in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------
ACTUAL AS ADJUSTED(1)
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term note receivable from Kennametal(2)................ $ -- $ 27,073
Capitalization:
Long-term debt(3)............................................ -- --
Shareholders' equity:
Preferred Stock, $.01 par value; 25,000,000 shares
authorized; no shares issued and outstanding............ -- --
Class A Common Stock, $.01 par value; 75,000,000 shares
authorized; 4,257,000 shares issued and
outstanding(4).......................................... -- 43
Class B Common Stock, $.01 par value; 50,000,000 shares
authorized; 20,897,000 shares issued and
outstanding(5).......................................... -- 209
Additional paid-in capital(5)(6)........................... -- 157,065
Investments by and advances from Kennametal(5)............. 111,244 --
Translation adjustment..................................... 134 134
-------------- --------------
Total shareholders' equity(4)......................... 111,378 157,451
-------------- --------------
Total capitalization............................. $111,378 $157,451
=========== ===========
</TABLE>
- ---------
(1) The net proceeds from the Offering, after deducting estimated underwriting
discounts and expenses, are estimated to be approximately $66.1 million (or
approximately $76.2 million if the Underwriters' over-allotment option is
exercised in full) and will be used: (i) to repay $20.0 million of
indebtedness related to a dividend paid to Kennametal on April 28, 1997,
(ii) to repay amounts due to Kennametal totaling approximately $19.0 million
relating to acquisitions, income taxes and employee benefit obligations,
(iii) to acquire or construct a new Midwest distribution center, (iv) to
provide working capital for new showrooms and Full Service Supply Programs
and (v) to fund acquisitions. Pending such uses, the net proceeds will be
loaned to Kennametal. See "Use of Proceeds."
(2) Pending the use of proceeds described above, the net proceeds will be loaned
to Kennametal in exchange for a note bearing interest at a fluctuating rate
equal to Kennametal's short-term borrowing costs which provides for the
repayment of amounts due thereunder upon demand by the Company. Kennametal's
short-term borrowing rate during April 1997 was approximately 5.8%.
Kennametal will maintain unused lines of credit to enable it to repay any
portion or all of such loans upon demand by the Company. See "Use of
Proceeds."
(3) Does not include amounts borrowed on April 25, 1997 under J&L's line of
credit of $20.0 million to fund a dividend to Kennametal. Upon completion of
this Offering, a portion of the net proceeds will be used to repay the
borrowings under the line of credit.
(4) Does not include 450,000 shares of Class A Common Stock issuable upon
exercise of stock options that will be granted to executive officers and
directors of the Company upon consummation of the Offering. Such options
will be subject to a one-year vesting period. See "Management--Executive
Compensation" and "-- JLK Direct Distribution Inc. 1997 Stock Option and
Incentive Plan."
(5) Reflects the exchange of investments by and advances from Kennametal for
20,897,000 shares of Class B Common Stock.
(6) Reflects a reduction of $20.0 million for the dividend to Kennametal on
April 28, 1997.
17
<PAGE> 19
DILUTION
The net tangible book value of the Company as of March 31, 1997 would have
been $70.9 million, or $3.33 per share of Common Stock, based upon 20,897,000
shares of Class B Common Stock outstanding and giving effect to the $20.0
million dividend to Kennametal on April 28, 1997 and the assumed issuance of
375,353 shares of Class A Common Stock to fund the excess of such dividend over
net income for the nine months ended March 31, 1997. Net tangible book value per
share is equal to the Company's total tangible assets less total liabilities,
divided by the number of shares of Common Stock deemed outstanding. After giving
effect to the Offering (at an assumed initial public offering price of $17.00
per share, the midpoint of the range set forth on the cover page of this
Prospectus and less estimated underwriting discounts and expenses of $6.3
million payable by the Company in connection with the Offering), the net
tangible book value of the Company as of March 31, 1997 would have been $136.9
million, or $5.44 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.11 per share of Common Stock and an
immediate dilution of $11.56 per share to purchasers of the shares of Class A
Common Stock in the Offering ("New Investors"). "Dilution per share" represents
the difference between the price per share to be paid by New Investors for the
shares of Class A Common Stock issued in the Offering and the net tangible book
value per share as of March 31, 1997. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)................ $17.00
Net tangible book value per share of Common Stock before the
Offering(2).................................................. $ 3.33
Increase per share attributable to New Investors................ 2.11
------
Net tangible book value per share after the Offering(2)........... 5.44
------
Dilution per share to New Investors............................... $11.56
======
</TABLE>
The following table summarizes as of March 31, 1997 the differences between
Kennametal and the New Investors with respect to the number of shares held by,
the voting rights of the total investment in the Company of, and the average
cost per share paid by Kennametal and the New Investors purchasing shares of
Class A Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES HELD TOTAL INVESTMENT
-------------------------------------- --------------------------------------
PERCENTAGE VOTING PERCENTAGE AVERAGE
OF THE RIGHTS OF COST PER
NUMBER COMPANY PERCENTAGE AMOUNT INVESTMENT SHARE
---------- ---------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Kennametal.............. 20,897,000 83.1% 98% $ 70,866,000 49.5% $ 3.39
New Investors........... 4,257,000 16.9 2 72,369,000 50.5 17.00
---------- ----- --- ------------ -----
Total(2).............. 25,154,000 100.0% 100% $143,235,000 100.0%
========== ===== ============ =====
</TABLE>
- ---------
(1) Before deducting estimated underwriting discounts and expenses of the
Offering payable by the Company.
(2) Does not include 450,000 shares of Class A Common Stock issuable upon
exercise of stock options that will be granted to executive officers and
directors of the Company upon consummation of the Offering. Such options
will be subject to a one-year vesting period. See "Management--Executive
Compensation" and "--JLK Direct Distribution Inc. 1997 Stock Option and
Incentive Plan."
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated income statement and balance sheet data for the
Company presented below are derived from the Company's Consolidated Financial
Statements. The Company's Consolidated Financial Statements as of and for the
fiscal years ended June 30, 1994, 1995 and 1996 have been audited by Arthur
Andersen LLP. The Consolidated Financial Statements as of and for the nine
months ended March 31, 1996 and 1997 are derived from the Company's unaudited
interim financial statements appearing elsewhere in this Prospectus, which in
the opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary to state fairly the data included therein in
accordance with generally accepted accounting principles for interim financial
information. Results for the nine months ended March 31, 1997 are not
necessarily indicative of the results of operations to be expected for the full
fiscal year. The financial information for the fiscal years ended 1992 and 1993
is derived from the Company's unaudited Consolidated Financial Statements. The
selected financial information presented below should be read in conjunction
with, and is qualified by reference to, the more detailed information in the
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus, Management's Discussion and Analysis of Financial Condition and
Results of Operations and other financial information set forth herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $88,560 $109,364 $144,933 $188,202 $243,969 $175,989 $225,195
Cost of goods sold........ 60,833 75,823 100,672 127,917 166,326 120,017 152,339
------- -------- -------- -------- -------- -------- --------
Gross profit.............. 27,727 33,541 44,261 60,285 77,643 55,972 72,856
Operating expenses........ 25,064 28,511 33,026 40,658 52,761 38,217 50,425
------- -------- -------- -------- -------- -------- --------
Operating income.......... 2,663 5,030 11,235 19,627 24,882 17,755 22,431
Interest and other........ -- -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 2,663 5,030 11,235 19,627 24,882 17,755 22,431
Provision for income
taxes.................. 1,235 2,114 4,522 7,799 9,819 7,019 8,812
------- -------- -------- -------- -------- -------- --------
Net income................ $ 1,428 $ 2,916 $ 6,713 $ 11,828 $ 15,063 $ 10,736 $ 13,619
======= ======== ======== ======== ======== ======== ========
Pro forma net income per
share(1)............... $ 0.71 $ 0.64
======== ========
Pro forma weighted average
shares
outstanding(1)......... 21,272 21,272
======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $41,135 $44,394 $50,670 $51,945 $ 73,263 $ 85,640
Total assets...................... 83,050 85,835 92,059 98,893 121,045 138,132
Shareholders' equity(2)........... 73,283 73,815 76,807 76,722 97,991 111,378
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, NINE MONTHS
---------------------------------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
---------- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Active direct marketing
customers(3)(4).......... 41,000 47,000 48,000 59,000 71,000 81,000
Number of SKUs(4).......... 40,000 50,000 60,000 70,000 80,000 100,000
Number of publications per
year..................... 5 6 6 9 13 11
Total number of
publications mailed.... 542,000 1,416,000 1,403,000 2,285,000 3,048,000 2,724,000
Direct-mail costs(5)....... $1,354,000 $1,551,000 $1,401,000 $2,261,000 $3,622,000 $3,175,000
Showroom and distribution
facilities(4)............ 5 6 7 12 19 24
Full Service Supply
Programs:
Customers(3)(4).......... 9 16 21 29 42 51
Site locations(4)........ 32 46 54 69 86 104
</TABLE>
- ---------
(1) Gives effect to (i) the issuance after March 31, 1997 of 20,897,000 shares
of Class B Common Stock to Kennametal for all periods presented and (ii) the
assumed issuance for fiscal 1996 and the nine months ended March 31, 1997 of
375,353 shares of Class A Common Stock to fund the excess of dividends over
net income for the nine months ended March 31, 1997.
(2) During the periods presented, the Company paid no cash dividends.
(3) Number of customers that have purchased products from the Company within the
12 months preceding the relevant period end.
(4) Represents data at period end.
(5) Direct-mail costs include production and mailing costs.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The accompanying financial information of the Company includes the
operations of the direct-marketing industrial supply business, namely J&L
America, Inc. ("J&L"), a wholly owned subsidiary of Kennametal, and the
integrated industrial supply programs ("Full Service Supply Programs") business
of Kennametal prior to the Contribution. Prior to April 1, 1997, the Company had
no separate legal status or existence. Kennametal incorporated the Company as a
Pennsylvania corporation on April 28, 1997. Immediately prior to the Offering,
20,897,000 shares of Class B Common Stock will be issued to Kennametal in
exchange for its investment in the Company. The Company and Kennametal will
operate as separate companies.
The following discussion should be read in connection with the Consolidated
Financial Statements of the Company and the related notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------
NINE MONTHS
FISCAL YEAR ENDED JUNE ENDED
30, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................. 69.5 68.0 68.2 68.2 67.6
----- ----- ----- ----- -----
Gross margin................................... 30.5 32.0 31.8 31.8 32.4
Operating expenses............................. 22.8 21.6 21.6 21.7 22.4
----- ----- ----- ----- -----
Operating income............................... 7.7 10.4 10.2 10.1 10.0
Interest and other............................. -- -- -- -- --
----- ----- ----- ----- -----
Income before income taxes..................... 7.7 10.4 10.2 10.1 10.0
Provision for income taxes..................... 3.1 4.1 4.0 4.0 3.9
----- ----- ----- ----- -----
Net income..................................... 4.6% 6.3% 6.2% 6.1% 6.1%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales for the nine month period ended March 31, 1997 were
$225.2 million, an increase of 28% from $176.0 million for the nine month period
ended March 31, 1996. Net sales increased primarily because of the addition of
seven new showrooms, including a new distribution center, the addition of over
20,000 SKUs to the 1997 master catalog, which expanded the product offering to
100,000 SKUs and from the implementation of Full Service Supply Programs for 12
new customers covering 22 different facilities. Net sales also rose to a lesser
extent because of increased sales to new customers in the United Kingdom and the
continued ramp-up of existing Full Service Supply Programs. At March 31, 1997,
the Company operated a total of 24 showrooms, including six distribution centers
in the United States and one in the United Kingdom, and provided Full Service
Supply Programs to 51 customers covering 104 different facilities, as compared
to 17 showrooms, including five distribution centers, in the United States and
one in the United Kingdom, and Full Service Supply Programs for 39 customers
covering 82 facilities at March 31, 1996.
Gross Profit. Gross profit for the nine month period ended March 31, 1997
was $72.9 million, an increase of 30.2% from $56.0 million for the nine month
period ended March 31, 1996. Gross margin for the nine month period ended March
31, 1997 was 32.4% compared to 31.8% for the nine month period ended March 31,
1996. The gross margin improved due to a higher percentage of metalworking
products rather than related products sold to Full Service Supply Program
customers. This was partly offset by more frequent product promotions and
limited introductory pricing on products related to the opening of seven new
showrooms.
21
<PAGE> 23
Operating Expenses. Operating expenses for the nine month period ended
March 31, 1997 were $50.4 million, an increase of 31.9% from $38.2 million for
the nine month period ended March 31, 1996. Operating expenses as a percentage
of net sales were 22.4% for the nine month period ended March 31, 1997, compared
to 21.7% in the same period in fiscal 1996. Operating expenses as a percentage
of net sales increased as a result of higher costs associated with the start-up
of seven new showrooms, including a new distribution center, and new Full
Service Supply Programs for customers covering 22 different facilities. Such
start-up costs included those for additional product promotions, increased
direct mail costs and new customer marketing campaigns. Total costs for these
items also rose due to increased sales volume. Also included in operating
expenses were charges from Kennametal for warehousing, administrative, financial
and management information systems services provided to the Company. Charges
from Kennametal were $4.7 million for the nine month period ended March 31,
1997, an increase of 15.9% from $4.1 million for the nine month period ended
March 31, 1996. Charges from Kennametal as a percentage of net sales were 2.1%
for the nine month period ended March 31, 1997 compared to 2.3% in the same
period in fiscal 1996. The increase in total charges from Kennametal resulted
partly from higher start-up costs associated with a new client-server
information system needed to support higher sales volume. Such charges are
expected to decline slightly as a percentage of net sales in coming years.
Charges from Kennametal could increase in the future due to the additional costs
associated with operating as a public company. However, any such future
increases are not expected to be material.
Income Taxes and Net Income. The effective tax rate was 39.3% for the nine
month period ended March 31, 1997 compared to 39.5% in the same period in fiscal
1996. Net income increased 26.9% to $13.6 million for the nine month period
ended March 31, 1997, as a result of higher sales and an improved gross margin,
offset by higher operating expenses.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Net Sales. Net sales for fiscal 1996 were $244.0 million, an increase of
29.6% from $188.2 million in fiscal 1995. Net sales primarily increased due to
the addition of seven new showrooms, the addition of over 10,000 SKUs to the
1996 master catalog, bringing the total number of SKUs therein to 80,000 and
from the implementation of Full Service Supply Programs for 13 new customers
covering 17 different facilities. Net sales also increased to a lesser extent
because of additional direct marketing campaigns, from increased sales to new
customers in the United Kingdom and the continued ramp-up of existing Full
Service Supply Programs. At June 30, 1996, the Company operated a total of 19
showrooms, including five distribution centers in the United States and one in
the United Kingdom, and provided Full Service Supply Programs to 42 customers
covering 86 different facilities, as compared to 12 showrooms, including five
distribution centers, in the United States and one in the United Kingdom, and
Full Service Supply Programs for 29 customers covering 69 facilities at June 30,
1995.
Gross Profit. Gross profit for fiscal 1996 was $77.6 million, an increase
of 28.8% from $60.3 million in fiscal 1995. Gross margin for fiscal 1996 was
31.8% compared to 32.0% in fiscal 1995. The gross margin declined slightly as a
result of more frequent product promotions and limited introductory pricing on
products related to the opening of seven new showrooms. This decline was offset
in part by improved gross margins on Full Service Supply Programs due to a
higher percentage of sales of metalworking products rather than related products
sold to Full Service Supply Program customers in fiscal 1995.
Operating Expenses. Operating expenses for fiscal 1996 were $52.8 million,
an increase of 29.8%, from $40.7 million in fiscal 1995. Operating expenses as a
percentage of net sales were 21.6% in fiscal 1996, the same as in fiscal 1995.
Operating expenses increased partly as a result of higher costs associated with
the start-up of seven new showrooms and new Full Service Supply Programs for
customers covering 17 different facilities. Such start-up costs included those
for increased direct mail costs and new customer marketing campaigns. Costs for
these items also rose due to increased sales volume. Operating costs also
increased due to higher costs for more frequently issued catalogs in the United
Kingdom than in fiscal 1995. Operating expenses, however, benefited from the
elimination of amortization of a non-compete agreement related to the
acquisition of J&L which became fully amortized in fiscal 1995. Charges from
Kennametal were $5.7 million in fiscal 1996, an increase of 62.6% from $3.5
million in fiscal 1995. Charges from Kennametal as a percentage
22
<PAGE> 24
of net sales were 2.3%, compared to 1.8% in fiscal 1995. The increase in these
charges as a percentage of net sales was attributable to the implementation of a
new client-server information system which commenced in fiscal 1995 and other
costs necessary to support higher sales volumes.
Income Taxes and Net Income. The effective tax rate was 39.5% in fiscal
1996 compared to 39.7% in fiscal 1995. Net income increased 27.4% to $15.1
million in fiscal 1996 as a result of higher sales, offset by a slightly lower
gross margin.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Net Sales. Net sales for fiscal 1995 were $188.2 million, an increase of
29.9% from $144.9 million in fiscal 1994. Net sales primarily increased due to
the addition of five new showrooms, the addition of 10,000 SKUs to the 1995
master catalog, bringing the total number of SKUs therein to 70,000. Also,
during fiscal 1995, the Company launched its first catalog in the United Kingdom
which resulted in an increase in sales in that region. Net sales also rose to a
lesser extent because of the implementation of Full Service Supply Programs for
eight new customers covering 15 different facilities and from the continued
ramp-up of existing Full Service Supply Programs. At June 30, 1995, the Company
operated a total of 12 showrooms, including five distribution centers in the
United States and one in the United Kingdom, and provided Full Service Supply
Programs to 29 customers covering 69 different facilities, as compared to seven
showrooms, including five distribution centers in the United States, and Full
Service Supply Programs for 21 customers covering 54 facilities at June 30,
1994.
Gross Profit. Gross profit for fiscal 1995 was $60.3 million, an increase
of 36.2%, from $44.3 million in fiscal 1994. Gross margin for fiscal 1995 was
32.0% compared to 30.5% in fiscal 1994. The gross margin improved due to a
higher percentage of sales of metalworking products rather than related products
sold in conjunction with Full Service Supply Programs in fiscal 1994 and from
increased sales to existing mail order customers.
Operating Expenses. Operating expenses for fiscal 1995 were $40.7 million,
an increase of 23.1% from $33.0 million in fiscal 1994. Operating expenses as a
percentage of net sales were 21.6% in fiscal 1995, compared to 22.8% in fiscal
1994. Operating expenses increased as a result of higher costs associated with
the start-up of five new showrooms, and new Full Service Supply Programs for
customers covering 15 different facilities. Such start-up costs included those
for increased direct mail costs. Costs for these items also rose due to
increased sales volume. Operating expenses also increased due to expenditures
necessary to begin direct marketing operations in the United Kingdom. Operating
expenses benefited from lower amortization expense of a non-compete agreement
related to the acquisition of J&L as compared to fiscal 1994. Charges from
Kennametal were $3.5 million in fiscal 1995, an increase of 1.3% from $3.4
million in fiscal 1994. Charges from Kennametal as a percentage of net sales
were 1.8% in fiscal 1995, compared to 2.4% in fiscal 1994. The decrease in these
costs as a percentage of net sales was attributable to lower management
information systems costs.
Income Taxes and Net Income. The effective tax rate was 39.7% in fiscal
1995 compared to 40.2% in fiscal 1994. Net income increased 76.2% to $11.8
million in fiscal 1995 as a result of higher sales and an improved gross margin,
offset by higher operating expenses.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table sets forth summary unaudited quarterly financial
information for fiscal 1995 and 1996 and the first three quarters of fiscal
1997. In the opinion of management, such information has been prepared on the
same basis as the Consolidated Financial Statements appearing elsewhere in this
Prospectus and reflects all necessary adjustments (consisting of only normal
recurring adjustments) for a fair presentation of such unaudited quarterly
results when read in conjunction with the Consolidated Financial Statements and
23
<PAGE> 25
notes thereto. The operating results are not necessarily indicative of results
for any future period as there can be no assurance that any trends reflected in
such results will continue in the future.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1995:
Net sales................................... $ 40,771 $42,349 $53,358 $51,724
Gross profit................................ 12,892 13,482 17,246 16,665
Net income.................................. 2,511 2,480 3,887 2,950
FISCAL 1996:
Net sales................................... $ 52,853 $56,520 $66,616 $67,980
Gross profit................................ 16,586 18,018 21,368 21,671
Net income.................................. 2,784 3,090 4,862 4,327
Pro forma net income per share.............. $ 0.13 $ 0.15 $ 0.23 $ 0.20
FISCAL 1997:
Net sales................................... $ 70,018 $70,744 $84,433
Gross profit................................ 21,945 23,110 27,801
Net income.................................. 3,970 3,947 5,702
Pro forma net income per share.............. $ 0.19 $ 0.18 $ 0.27
</TABLE>
Seasonal variations do not have a major effect on the Company's business.
However, to varying degrees, traditional summer vacations and holidays often
affect the Company's sales levels during the first and second quarters of its
fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the working capital
requirements necessitated by its sales growth, its showroom expansion program in
the United States, the addition of new products and Full Service Supply Programs
and its direct marketing activities in the United Kingdom. The Company's primary
sources of financing have been cash from operations and borrowings from
Kennametal. After completion of the Offering, the Company anticipates that its
cash flows from operations, coupled with available net proceeds from the
Offering, will be adequate to support its operations for the foreseeable future.
Net cash provided by (used in) operating activities was $12.8 million for
the nine month period ended March 31, 1997, $(3.3) million for the nine month
period ended March 31, 1996, and $(5.0) million, $18.2 million and $9.6 million
in fiscal 1996, 1995 and 1994, respectively. The increase in cash from
operations for the nine month period ended March 31, 1997 from the nine month
period ended March 31, 1996 resulted from higher net income and noncash
transactions for services provided by and paid for by Kennametal and from
improved utilization of working capital. The decrease in cash from operations
from fiscal 1995 to fiscal 1996 resulted from an increase in accounts receivable
and inventory related to additional SKUs, seven new showrooms and 13 new Full
Service Supply Programs, offset in part by higher net income and noncash
transactions for services provided by and paid for by Kennametal. The increase
in cash from operations from fiscal 1994 to fiscal 1995 was primarily due to
higher net income and noncash transactions for services provided by and paid for
by Kennametal, offset by increased working capital requirements due to increased
SKUs and the opening of five new showrooms and eight new Full Service Supply
Programs.
Net cash used in investing activities was $1.9 million for the nine month
period ended March 31, 1997 compared to $1.4 million for the nine month period
ended March 31, 1996 and $1.7 million, $0.9 million and $0.1 million in fiscal
1996, 1995 and 1994, respectively. These investments related primarily to
capital expenditures for improved information systems and office and computer
equipment to accommodate new product offerings and showroom openings.
Net cash provided by (used in) financing activities was $(5.1) million for
the nine month period ended March 31, 1997 compared to $(1.5) million for the
nine month period ended March 31, 1996 and
24
<PAGE> 26
$0.6 million, $(15.4) million and $(7.2) million in fiscal 1996, 1995 and 1994,
respectively. The increase in net cash payments to Kennametal for the nine month
period ended March 31, 1997 from the nine month period ended March 31, 1996 was
due to repayments to Kennametal for amounts previously advanced to the Company
for working capital needs. The decrease in net cash payments to Kennametal from
fiscal 1995 to fiscal 1996 was due to increased advances from Kennametal to the
Company to fund its working capital needs. The increase in net cash payments to
Kennametal from fiscal 1994 to fiscal 1995 was due to repayments to Kennametal
for amounts previously advanced to the Company for working capital needs.
The net proceeds from the Offering, after deducting estimated underwriting
discounts and expenses are estimated to be approximately $66.1 million (or
approximately $76.2 million if the Underwriters' over-allotment option is
exercised in full) and will be used: (i) to repay $20.0 million of indebtedness
related to a dividend paid to Kennametal on April 28, 1997, (ii) to repay
amounts due to Kennametal totaling approximately $19.0 million, of which
approximately $14 million relates to acquisitions, $3 million relates to income
taxes and $2 million relates to employee benefit obligations, (iii) to spend $15
to $20 million to acquire or construct a new Midwest distribution center in the
Detroit, Michigan metropolitan area, which is expected to be approximately
200,000 to 250,000 square feet in size and should be in operation by June 30,
1999, (iv) to provide working capital for new showrooms and Full Service Supply
Programs and (v) to fund acquisitions. Pending such uses, the net proceeds will
be loaned to Kennametal in exchange for a note bearing interest at a fluctuating
rate equal to Kennametal's short term borrowing costs which provides for the
repayment of amounts due thereunder upon demand by the Company. Kennametal's
short term borrowing rate during April 1997 was approximately 5.8%. Kennametal
will maintain unused lines of credit to enable it to repay any portion or all of
such loans upon demand by the Company.
The Company anticipates that its accounts receivable will continue to
increase due to increased sales levels and that inventory levels will also
increase due to the addition of new products, showrooms and Full Service Supply
Programs. Full Service Supply Program sales will experience a gradual reduction
in fiscal 1998 due to the termination of the GE contract. The Company, however,
believes that by redeploying its resources to existing Full Service Supply
Program customers and by offering Full Service Supply Programs to new customers,
it will be able to offset in part by fiscal 1997 and completely by fiscal 1998
the reduction in net sales. The Company believes that cash flows from operations
will be sufficient to fund future growth coupled with the net proceeds to be
received from the Offering.
The Company also believes it will have adequate funds to meet planned
capital expenditure needs. However, if the Company were to make any material
acquisitions, the Company may be required to obtain debt or equity financing.
The Company is not currently engaged in any material acquisition negotiations.
However, no assurance can be given that the Company will not negotiate or
consummate acquisitions in the near future.
On April 25, 1997, the Company, through J&L, obtained a $25.0 million line
of credit with a bank and shortly thereafter borrowed $20.0 million under the
line of credit to fund a dividend to Kennametal. Upon completion of the
Offering, a portion of the net proceeds will be used to repay the borrowings
under the line of credit. Interest payable under the line of credit is based on
the LIBOR rate plus 25 basis points and is required to be repaid in full within
six months. Kennametal has guaranteed repayment of the line of credit in the
event of default by the Company. In addition, J&L has a separate credit facility
aggregating $2.0 million used to support letters of credit with foreign vendors.
No amounts were outstanding under the credit facility as of March 31, 1997.
In April 1997, the Company acquired all of the outstanding stock of
Strelinger. Strelinger, with annualized sales of approximately $30.0 million in
1996, is based in Troy, Michigan and is engaged in the distribution of
metalcutting tools and industrial supplies. The Company paid approximately $4.0
million in cash and assumed certain liabilities totaling approximately $7.0
million. In May 1997, the Company acquired all of the outstanding stock of M&A.
M&A, with sales of approximately $6.0 million in 1996, is based in Roseville,
Michigan, and is engaged in the distribution of metalcutting tools and
industrial supplies. The Company paid approximately $1.2 million in cash and
assumed certain liabilities totaling $1.5 million. The Company borrowed the
necessary funds from Kennametal to pay for these acquisitions and will use a
portion
25
<PAGE> 27
of the net proceeds of the Offering to repay Kennametal. The Company does not
expect that these acquisitions will have a material adverse effect on the
results of operations in either the fourth quarter of fiscal 1997 or fiscal
1998.
TERMINATION OF LARGE CONTRACT
For the nine month period ended March 31, 1997, the Company had $225.2
million in net sales of which $39.6 million of net sales were related to a Full
Service Supply Program contract with GE for services provided at certain
metalworking manufacturing facilities within GE's Aircraft Engine Group (the "GE
Contract"). The operating margin related to the GE Contract was lower than the
Company's other Full Service Supply Program contracts. Many of the products
provided by the Company to GE under the GE Contract fell outside of the
Company's core focus on metalworking consumables and related products.
In April 1997, the Company conducted extensive negotiations with GE
relating to the continuation of the GE Contract. After careful evaluation, the
Company concluded that it was not in its best interest to accede to certain
price concessions requested by GE. As a result, GE served notice to the Company
that the GE Contract would not be renewed for a significant portion of the
manufacturing facilities served by the Company.
The Company is currently developing a plan of disengagement from those
manufacturing sites that are not being continued. Although such plan has not yet
been fully developed and reviewed with GE, the Company expects that it will
result in a gradual reduction in future sales to GE until the implementation of
this disengagement plan is completed, which is expected to occur by June 1998.
In fiscal 1998 in conjunction with such disengagement, the Company expects sales
to GE to amount to approximately 30% of the total amounts to be received by the
Company in fiscal 1997 under the GE Contract. After fiscal 1998, estimated sales
to GE for those manufacturing sites that will continue to be served by the Full
Service Supply Programs are expected to amount to approximately 10% of the total
amounts to be received by the Company in fiscal 1997 under the GE Contract.
The Company is currently redeploying its resources related to the GE
Contract to take advantage of requests by certain current Full Service Supply
Program customers to ramp-up their existing programs at an increased rate as
well as to offer Full Service Supply Programs to new customers. However, there
can be no assurance that the Company will be able to replace the revenues
received from the GE Contract within the foreseeable future period or at all. No
other customer accounted for more than 6% of the Company's net sales or for the
nine months ended March 31, 1997. The Company does not expect that the loss of
the GE Contract will have a material effect on the results of operations in
either the fourth quarter of fiscal 1997 or in fiscal 1998.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The Company adopted SFAS No. 121 on July 1, 1996 and the adoption of SFAS
No. 121 did not have an impact on the Consolidated Financial Statements as the
statement is consistent with existing Company policy.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Under the provisions of SFAS No. 123, companies may elect to
account for stock-based compensation plans using a fair-value-based method or
may continue measuring compensation expense for those plans using the intrinsic-
value-based method. Companies electing to continue using the
intrinsic-value-based method must provide pro forma disclosure of net income and
earnings per share as if the fair-value-based method had been applied.
Management intends to account for stock-based compensation using the
intrinsic-value-based method and, as such, SFAS No. 123 will not have an impact
on the Company's results of operations or financial position. The required
disclosure will be provided in the Company's fiscal 1997 consolidated financial
statements.
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The FASB also recently issued SFAS No. 128, "Earnings Per Share" and SFAS
No. 129, "Disclosure of Information about Capital Structures." SFAS No. 128 was
issued in February 1997 and is effective for periods ending after December 15,
1997. This statement, upon adoption, will require all prior period earnings per
share ("EPS") data to be restated to conform to the provisions of the statement.
This statement's objective is to simplify the computations of EPS and to make
the U.S. standard for EPS computations more compatible with that of the
International Accounting Standards Committee. The Company will adopt SFAS No.
128 in fiscal 1998 and does not anticipate that the statement will have a
significant impact on its reported EPS.
SFAS No. 129 was issued in February 1997 and is effective for periods
ending after December 15, 1997. This statement, upon adoption, will require all
companies to provide specific disclosure regarding their capital structure. SFAS
No. 129 will specify the disclosure for all companies, including descriptions of
their capital structure and the contractual rights of the holders of such
securities. The Company will adopt SFAS No. 129 in fiscal 1998 and does not
anticipate that the statement will have a significant impact on its disclosure.
EFFECTS OF INFLATION
Despite modest inflation in recent years, rising costs continue to affect
the Company's business. However, the Company does not believe that inflation has
had a material effect on its results of operations in recent years. The Company
strives to minimize the effects of inflation through cost containment and price
increases under highly competitive conditions.
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BUSINESS
THE COMPANY
The Company is one of the largest suppliers of a broad range of
metalworking consumables and related products to customers in the United States,
offering a full line of cutting tools, carbide and other tool inserts,
abrasives, drills, machine tool accessories, hand tools and other industrial
supplies. To meet the varying supply needs of small, medium and large-sized
customers, the Company offers: (i) a direct-marketing program, whereby the
Company supplies predominantly small and medium-sized customers through catalog
and showroom sales and (ii) integrated industrial supply programs, by which
large industrial manufacturers engage the Company to carry out all aspects of
complex metalworking supply processes, including needs assessment, cost
analysis, procurement planning, supplier selection, "just-in-time" restocking of
supplies and ongoing technical support. The Company also conducts its
direct-marketing program for small and medium-sized customers in the United
Kingdom.
The Company estimates the size of the United States market for metalworking
consumables and other related products in which the Company participates at
approximately $50.0 billion. The Company believes it has and will continue to
enjoy strong growth from two important trends now impacting the industrial
supply industry. First, the industrial supply industry is experiencing
consolidation of currently fragmented distribution channels, as customers seek
and technology makes possible, the convenience, cost savings and economies of
scale associated with single sources of supplies. Second, to achieve even
greater cost savings and efficiencies, manufacturers are outsourcing complex
procurement and possession processes needed to supply metalworking products that
are critical to their manufacturing operations. As a market leader with a broad
range of products and services and proven capabilities, the Company is
well-positioned to continue to take advantage of these industry trends.
The direct-marketing program serves the needs of predominantly small and
medium-sized metalworking customers by offering 100,000 SKUs through the
Company's 1,465 page master catalog, the Advantage, additional mailings and
advertisements, telemarketing efforts, direct sales efforts and 24 showrooms.
The Company offers customers the advantages of (i) a single source of supply for
all metalworking consumables and related products, (ii) a tiered product
offering (such as "good," "better" and "best"), (iii) same-day pick-up for the
most popular products stocked at showrooms, (iv) same-day direct shipping and
(v) a state-of-the-art order entry system that tracks product availability and
pricing, provides technical product information and results in an order being
completed in an average time of three minutes. In addition, the Company has a
dedicated sales force based in each showroom that actively calls on targeted
customers.
Full Service Supply Programs allow customers to achieve substantial cost
savings in metalworking consumables and overall manufacturing processes by
outsourcing the entire process of acquiring and possessing metalworking and
related products at manufacturing facilities. Customers, such as General Motors
Corporation, Allied Signal and Emerson Electric, use Full Service Supply
Programs at designated manufacturing facilities to (i) consolidate all of their
metalworking consumables and related product purchases with one vendor, (ii)
eliminate a significant portion of the administrative overhead burden associated
with the internal purchasing function, (iii) ensure appropriate technical
expertise in the selection and use of supplies for complex metalworking
processes and (iv) minimize the level of investment in tooling inventory,
thereby reducing inventory carrying costs. The Company's technical experts
customize and manage a comprehensive computerized product identification,
tracking and purchasing system that analyzes and optimizes supply usage, helps
select appropriate products and allows for "just-in-time" replacement of
inventory. To increase efficiency and maximize cost savings for its customers,
the Company also provides ongoing application assistance in the usage of
metalworking tools. The Company believes that its Full Service Supply Programs
typically reduce customers' costs of acquiring, possessing and using
metalworking products by approximately 5% to 20% per year.
The Company has grown rapidly due to geographic expansion, expanded product
offerings, increased direct mailings and an increased demand for both
single-source supply and integrated industrial supply programs such as its Full
Service Supply Programs. From fiscal 1993 through fiscal 1996, the Company's net
sales increased from $109.4 million to $244.0 million, representing a CAGR of
30.7%. Operating income during this period increased from $5.0 million to $24.9
million, representing a CAGR of 70.4%. During this
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same period, the Company's number of active direct-marketing customers increased
from 47,000 to 71,000 and the number of such customers who purchase annually
over $10,000 of products increased from 800 to 2,300. Specific drivers of growth
include:
- STRONG GROWTH IN EXISTING MARKETS. The Company has grown its net sales
84% from fiscal 1993 through fiscal 1996 in areas where it has had an
existing showroom as of the beginning of fiscal 1993 or which have been
served only through catalog sales. The Company did not add a showroom in
these areas during that period. The primary source of this growth has been
from areas where a showroom existed. In these areas, the Company gained
marketshare through targeted marketing to existing and prospective
customers.
- PENETRATION OF NEW MARKETS. From fiscal 1993 through fiscal 1996, sales
have grown 233% in areas in which new showrooms have been added, with 12
new showrooms in the United States and one in the United Kingdom added
during the period. Along with these showrooms, the Company uses a focused
sales call process to build sales.
- EXPANDED PRODUCT OFFERINGS. From the beginning of fiscal 1993 through
fiscal 1996, the Company added over 600 pages, including 40,000 new SKUs
and 165 product brand names and private labels, to its annual master
catalog.
- EXPANSION OF FULL SERVICE SUPPLY PROGRAMS. From the beginning of fiscal
1993 through fiscal 1996, the number of customers in Full Service Supply
Programs increased from nine to 42, with site locations increasing from 32
to 86.
The Company believes that a significant factor contributing to its growth
has been its ability to identify itself as an affiliate of Kennametal, the
largest North American provider of metalcutting tools and tooling systems. The
Company also relies upon and markets its access to Kennametal's research and
technical expertise in tooling products and supplies. See "Risk Factors--Control
by Kennametal." The Company was incorporated in Pennsylvania on April 28, 1997
to be a holding company for the Industrial Supply Business.
The address of the Company's principal executive offices is State Route 981
South, P.O. Box 231, Latrobe, Pennsylvania 15650 and its telephone number is
(412) 539-5000.
INDUSTRY OVERVIEW
The Company operates in a large, fragmented industry characterized by
multiple channels of distribution. The Company estimates the size of the United
States market for metalworking consumables and related products in which the
Company participates at approximately $50.0 billion. The Company believes that
there are numerous small retailers, dealers and distributors, substantially all
of which have annual sales of less than $10 million, which supply a majority of
this market. The distribution channels in the metalworking consumables and
related products market include retail outlets, small dealers, regional and
national distributors, utilizing direct sales forces, and manufacturers'
representatives.
The Company believes that increasing numbers of industrial manufacturers
are searching for ways to reduce costs by eliminating the inefficiencies of
traditional industrial supply distribution. This growing recognition by
customers of the high costs and operational inefficiencies associated with
purchasing industrial supplies from traditional distributors has increased
demand for alternative methods of distribution, leading to the development of
programs which are generally referred to as "integrated supply." These programs
vary widely, but include such concepts as corporate purchasing cards, industrial
supply consortiums and direct-mail supply.
The traditional model for the distribution of industrial supplies is
burdened by both the duplication and the inefficient performance of multiple
functions. In the traditional model, the industrial distributor must (i) source
and absorb the freight costs for the item, (ii) receive, warehouse and account
for the item, (iii) invest in inventory and incur the associated carrying costs
and (iv) market and sell the item to the end user. Once the need for the item
arises, the manufacturing facility requiring the item must repeat many of these
steps, including (i) sourcing and absorbing the freight costs for the item, (ii)
receiving, warehousing and
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accounting for the item, (iii) investing in inventory and incurring the
associated carrying costs and (iv) issuing the item to the user in the
manufacturing facility. Through the Company's integrated Full Service Supply
Programs, which focus on the acquisition, possession and use of metalworking
consumables and related products, each activity is performed only once. The
procurement of industrial supplies is generally outside the core activity of
most manufacturers. For example, industrial supplies are generally purchased by
personnel whose expertise in purchasing these items is limited. In addition,
supplies are typically stored in a number of locations within an industrial
facility, resulting in excess inventories and duplicate purchase orders.
Finally, the Company believes that industrial supplies are frequently purchased
by multiple personnel in uneconomic quantities, and a substantial portion of
most facilities' industrial supplies are one-time purchases which entail higher
per item prices and time-consuming administrative efforts. As a result, the
Company believes that there is often potential to manage the industrial supply
procurement process more efficiently and with greater cost savings. The Company
believes its Full Service Supply Programs eliminate the duplication and waste
inherent in the traditional industrial distribution model. The Company
streamlines the procurement process and generates system-wide savings generally
ranging from 5% to 20% of customers' annual acquisition, possession and usage
costs for such products.
In addition to the cost savings inherent in eliminating several steps in
the distribution process, the Company believes its expertise in the use of
metalworking products that it procures and delivers in its Full Service Supply
Programs also leads to ongoing operational improvements at the customers'
manufacturing facilities.
Despite the apparent inefficiencies of the traditional industrial supply
purchasing process, long-standing relationships with local retailers and
distributors have generally perpetuated the status quo. Due to limited capital
availability, high operating cost structures and smaller sales volumes,
suppliers to the industrial market are experiencing increasing pressure to
consolidate and curtail services and certain product lines in order to remain
competitive. Even large suppliers with extensive field sales forces are finding
it increasingly difficult to visit all buyers cost-effectively and to provide
the support necessary to satisfy their demands for cost containment and improved
efficiency. The Company believes that the relative inability of traditional
distribution channels to respond to these changing industry dynamics has created
a continuing opportunity for the growth of direct marketing and integrated
supply organizations such as the Company. As a result of these dynamics,
non-traditional distributors, such as the Company, have captured an increasing
share of sales by providing lower total purchasing costs, better product
selection and a higher level of service. As a leading non-traditional supplier
with proven capabilities both in direct marketing and integrated supply, the
Company believes it is well-positioned to continue to take advantage of present
market dynamics and enjoy continued growth in market share.
BUSINESS STRATEGY
The Company's business strategy is to become the preferred supplier of
metalworking consumables and related products to the metalworking industry by
being a "one-stop shop" for metalworking products for small and medium-sized
customers and by offering managed solutions for large customers. The Company
believes its market-leadership position results from the successful
implementation of its business strategy, the major elements of which include:
- BREADTH OF METALWORKING PRODUCTS AND METALWORKING FOCUS. As its
customers continue to consolidate their suppliers, the Company
differentiates itself through its breadth of metalworking products and
metalworking focus. The Company believes its ability to offer a broad
spectrum of metalworking products and a tiered product selection
alternative through which similar product offerings with varying degrees
of name recognition, quality and price are categorized, such as "good,"
"better" and "best," has been an important component in expanding direct
marketing sales to small and medium-sized customers. The Company's
metalworking focus also enables the Company to understand complex
industrial metalworking processes so as to provide valuable technical
advice that reduces costs to its Full Service Supply Program customers.
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- EXCEPTIONAL CUSTOMER SERVICE. The Company emphasizes exceptional
customer service supported by sophisticated information systems and
ongoing employee training. The Company's telemarketing representatives,
utilizing sophisticated customer support software, inform catalog
customers on a real-time basis of the Company's product availability and
pricing, verify credit information, update customer information and
provide technical product information in calls lasting on average only
three minutes. For customers participating in its Full Service Supply
Programs, the Company provides continuous improvement specialists to
ensure quality service and low costs by assisting such customers in the
acquisition, possession and use of metalworking consumables and related
products.
- RAPID FULFILLMENT AND JUST-IN-TIME PRODUCT DELIVERY. The Company
believes that its ability to fulfill rapidly the orders of
convenience-driven customers and manage complex procurement processes for
large clients has been critical to its growth. The Company has developed
highly efficient inventory management and order fulfillment systems that
allow more than 99% of domestic orders received by 5:00 p.m. to be shipped
on the same day and delivered by low-cost ground carriers. In addition, in
its Full Service Supply Programs, the Company uses sophisticated systems
that permit "just-in-time" purchasing and delivery of products resulting
in low costs to its customers.
- COMMITMENT TO TECHNOLOGICAL INNOVATION. The Company uses technology to
benefit customers and to improve the Company's productivity and
efficiency. The Company's sophisticated customer support software tracks
all 100,000 SKUs, enabling its telemarketing representatives to inform
catalog customers on a real-time basis of the Company's product
availability and pricing, verify credit information, update customer
information and provide technical product information. The software for
Full Service Supply Programs allows the Company to manage and automate a
large customer's entire processes related to the acquisition, possession
and use of metalworking consumables and related products.
GROWTH STRATEGY
The Company's objective is to expand its leadership position as a preferred
supplier to small, medium and large customers for metalworking consumables and
related products. The major elements of the Company's growth strategy include:
- INCREASED PENETRATION OF EXISTING MARKETS. The Company intends to
increase sales to small and medium-sized consumers by (i) expanding
targeted direct-mail and related campaigns, (ii) increasing the number of
products, product lines, product brand names and private labels offered in
its master catalog and (iii) focusing the Company's sales force on
marketing to these consumers. The Company plans to build on its
comprehensive marketing approach, which includes special showroom events
and targeted direct-mail and ongoing product promotions. In markets in
which the Company has had showrooms for at least three years, such as the
Detroit metropolitan area, the Company intends to increase its market
share by adding showrooms and expanding the services it offers to its
customers. The Company also plans to build on its reputation with Full
Service Supply Program customers to expand into other facilities of such
customers, while seeking new customers.
- FURTHER EXPANSION INTO NORTH AMERICAN MARKETS. To continue expanding its
North American presence, the Company plans to increase distribution
capacity and operational efficiency, add new showrooms and increase the
customer base for its Full Service Supply Programs. The Company plans to
construct a new midwest distribution center with a portion of the proceeds
from the Offering. New showrooms have historically resulted in substantial
growth in sales in the surrounding territory. For example, when the
Company opened its showroom in Atlanta in September 1995, sales in that
market increased by over 200% in the following nine months. The Company
has showrooms in 19 of the top 50 industrial markets in the United States
and intends to have showrooms in 40 of such 50 markets over the next
several years. In connection with this expansion, the Company will
continue to consider strategic acquisitions of metalworking distributors,
such as the Strelinger Acquisition in April 1997 and the M&A Acquisition
in May 1997. The Company intends to continue to leverage its relationship
with Kennametal to market its Full Service Supply Programs to large
industrial metalworking customers of
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Kennametal. The Company also intends to customize versions of its Full
Service Supply Programs to meet the needs of medium-sized industrial
facilities. The Company estimates that the market for Full Service Supply
Programs consists of 12,000 to 15,000 industrial manufacturing facilities
in the United States.
- EXPANSION INTO INTERNATIONAL MARKETS. The Company believes that the
consolidation and outsourcing trends which provide growth opportunities in
the United States also offer comparable opportunities in international
markets. The Company entered the United Kingdom market in fiscal 1995 with
a 256-page catalog which included over 20,000 products. In April 1997, the
Company released an 800-page catalog which includes over 60,000 products.
The Company now has over 13,000 active customers in such market. Over the
next five years, the Company anticipates launching additional
direct-marketing efforts and opening showrooms in the United Kingdom,
Germany and certain other European countries and is considering direct
marketing in certain other countries. The Company is also planning to
introduce its Full Service Supply Programs into international markets,
such as the United Kingdom and Germany, by offering this service to
foreign manufacturing facilities of the Company's domestic Full Service
Supply Program customers and to Kennametal's foreign customers.
PRODUCTS AND MARKETING
The Company sells a full line of cutting tools, carbide and other tool
inserts, abrasives, drills, machine tool accessories, hand tools and other
industrial supplies through direct marketing and Full Service Supply Programs.
The Company had in excess of 81,000 active customers as of March 31, 1997,
ranging from small one-person machine shops to Fortune 500 companies. To serve
this market, the Company focuses its direct-marketing efforts on small and
medium-sized metalworking customers, while its Full Service Supply Programs are
targeted to large industrial manufacturers.
The Company intends to become the preferred supplier of metalworking
consumables and related products to the metalworking industry. The Company's
catalogs, flyers and other direct-marketing efforts are focused on small to
medium-sized metalworking customers, although catalog purchasers may include
large metalworking facilities that have an immediate need for a particular
metalworking product. These customers include machine shops, dealers,
institutions, such as vocational and technical schools, and home hobbyists.
The Company's direct-marketing efforts are multi-faceted, creating sales
growth in four ways, including through: (i) a dedicated sales force based in
each showroom that actively calls on targeted customers, (ii) showrooms which
have various promotional events, display high volume products, and provide the
ease of local pickup, (iii) a master catalog which facilitates sales through the
Company's highly efficient telemarketing sales process and (iv) direct mailings
of brochures and flyers, which provide a constant flow of promotional materials
to existing and prospective customers.
Each market that is served by a showroom has a sales representative
dedicated to calling on a specific, focused list of customers. These sales
representatives help build customer relationships to facilitate showroom and
catalog sales.
The showrooms serve several functions by providing promotional
opportunities, convenience of local pickup and personal service to its
customers. Each showroom has periodic promotional events, such as grand opening
events and customer appreciation days (barbecue luncheons and other such events)
that can attract as many as 900 customers. If a customer has an immediate need
for the Company's products, the showroom enables the customer to pick up any of
the Company's 12,000 to 15,000 most popular products. The showrooms provide the
Company another point of access to customers to build relationships and provide
personal service.
The Company utilizes an annual master catalog which currently offers
100,000 SKUs, a 100% increase in SKUs since fiscal 1993. The number of active
customers placing catalog orders during such period increased from 41,000 to
81,000. The average size of a catalog order received by the Company in fiscal
1996 was $130, and the number of customers who purchase annually over $10,000 of
products increased from 800 to 2,300 from fiscal 1993 through fiscal 1996. The
Company attributes a portion of this sales growth to the increased
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number of SKUs offered in its catalogs. In this regard, the Company intends to
continue to add new metalworking product categories and increase the number of
metalworking products offered within existing categories in its efforts to gain
new customers and increase sales from existing customers.
The Company's master catalog and other mailings offer specific products
from over 600 vendors at different prices and quality levels which permits the
Company to offer a tiered product selection alternative. This alternative
provides the customer a choice among similar product offerings with varying
degrees of name recognition, quality and price, such as "good," "better" and
"best," thus permitting the customer to choose the appropriate product for a
specific task at the lowest cost. For example, if a customer requires a drill
bit to drill 10 holes, it would be inefficient to purchase the top-of-the-line
name brand drill bit which is capable of drilling 1,000 holes. The number of
publications mailed by the Company to customers has significantly increased from
approximately 1.4 million mailed in fiscal 1993 and is expected to reach
approximately 3.2 million in fiscal 1997. The Company's in-house staff designs
and produces the content of all of its catalogs, brochures and flyers. Each
publication is printed with photographs, contains detailed product descriptions
and includes a toll-free telephone number to be used by customers to place a
product order. In-house production of these marketing materials helps reduce
overall expense and shorten production time, allowing the Company the
flexibility to alter its product offerings and pricing and refine its catalog,
brochure and other formats more quickly.
The Company believes that its product alternative offerings and
knowledgeable customer service and support personnel result in significant
amounts of repeat business. On average, the Company annually has retained
approximately 97% of its customers who purchase over $2,000 of products.
The Company procures and delivers a broad range of metalworking consumables
and related products to large metalworking facilities through its Full Service
Supply Programs. These customers include automotive manufacturers such as
General Motors Corporation's Saturn division, suppliers to the automotive
industry such as Dana Corporation, aerospace industry manufacturers such as
Pratt & Whitney and Allied Signal, oil equipment suppliers such as Baker Hughes
and other major industrial suppliers and manufacturers who cut, form, shape,
grind, drill or machine metal or other hard materials. Large metalworking
facilities traditionally purchase substantial quantities of industrial supply
products from numerous vendors. In an effort to lower costs, managers of many of
these large facilities have been attempting to curtail the number of vendors
used and the administrative overhead costs devoted to the purchasing process as
well as to pursue inventory reduction programs. The Company believes that large
metalworking facilities often incur excess costs for the acquisition, possession
and use of industrial supply products because these items are frequently stored
in and ordered by multiple locations, resulting in excess inventories,
obsolescence, duplicative purchase orders and time-consuming administrative
efforts by multiple plant personnel who lack product knowledge.
To address the needs of such large metalworking customers, the Company
offers various tiers of integrated supply services ranging from programs that
supply only metalworking cutting tools and inserts to those which supply all
metalworking and other related products. In a Full Service Supply Program, the
Company replaces a customer's product purchasing system at a manufacturing
facility with the Company's comprehensive proprietary computerized
identification, product tracking and purchasing systems. The Company creates for
each type of metalworking product used by the customer a proprietary
identification of the type and manufacturer of such product. At the customer's
facility, the Company organizes the customer's storage of metalworking products
into one or more tool cribs and places into compartments in each tool crib
sealed boxes containing a specified quantity or lot of each type of product. A
proprietary inventory control card (a "Kanban" card) is attached to each box
which contains in barcoding the product identification information, the quantity
of products within the box, the relevant tool crib and other information. When a
customer's employee needs a product, the employee removes the relevant box from
the tool crib, detaches the Kanban card and places it in a separate container
and uses the needed product. The detached Kanban cards are collected daily from
all of the tool cribs and transmitted either electronically or by facsimile to
the Company which enters the information contained on the Kanban card into the
Company's computerized product tracking and purchasing systems. The Company's
systems use this information to manage on a "just-in-time" basis the timing of
the sale and delivery to the customer's tool cribs of all of the metalworking
consumables and other products which the customer needs in its manufacturing
processes at that facility.
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The Company believes that its Full Service Supply Programs typically reduce
customers' costs of acquiring, possessing and using metalworking products by
approximately 5% to 20% per year. Such programs reduce the quantity of such
consumables which the customer must maintain in its tool cribs through the
Company's "just-in-time" system, assure delivery to the correct location within
the customer's facility of the proper metalworking products, perform the quality
assurance function for the customer and furnish technical assistance to the
customer. The Company also provides various levels of electronic data
interchange ("EDI") with Full Service Supply Program customers to enhance their
cost reduction efforts. The Company can use EDI with a customer for invoicing,
funds transfer, ordering, shipping and acknowledgment. The Company also provides
independent testing and evaluation of competing manufacturer's products.
The Company intends to continue to leverage its relationship with
Kennametal to market its Full Service Supply Programs to large industrial
metalworking customers of Kennametal, which include a significant portion of all
metalworking manufacturers in North America, and to leverage its relationship
with existing Full Service Supply Program customers in order to introduce its
integrated supply programs in multiple facilities of such customers. The Company
also intends to customize versions of its Full Service Supply Programs to meet
the needs of medium-sized industrial facilities.
A significant number of the Company's products are carried in stock at the
Company's 13 distribution centers and warehouses, seven of which are shared with
Kennametal. See "Relationship with Kennametal-- Shared Facilities Agreements."
Most orders are filled from these distribution centers and warehouses. The
distribution centers range in size from 1,500 to 100,000 square feet and
typically include a showroom. The Company currently has six distribution centers
in the United States located in Charlotte, North Carolina; Chicago, Illinois;
Dallas, Texas; Detroit, Michigan; Hartford, Connecticut; and Los Angeles,
California.
CUSTOMER SERVICE
The Company believes that customer service and support are critical
components of its success. For small and medium-sized customers, one of the
Company's goals is to make purchasing its products as convenient as possible.
Since a majority of these orders are placed by telephone, the efficient handling
of calls is an extremely important aspect of the Company's business. Order entry
and fulfillment occurs at each of the Company's distribution centers and
warehouses. Calls are received by one of the Company's 85 inbound telemarketing
representatives who utilize on-line terminals to enter customer orders into
computerized order processing systems. The Company's telephone ordering system
is flexible and, in the event of a local or regional breakdown, can be rerouted
to alternative locations. These inside sales representatives are highly trained
individuals who respond to customer inquiries and process and update customer
account profiles in the Company's information system databases in a call which
usually lasts an average of three minutes. While taking an order, these sales
representatives are able to inform catalog customers on a real-time basis of the
Company's product availability and pricing, verify credit information, update
customer information and provide technical product information. The Company also
maintains a separate technical support group available to all customers by
telephone dedicated to answering specific customer inquiries and assisting
customers with the operation of products and finding low-cost solutions to
manufacturing problems. The Company provides several weeks of training to new
sales representatives concerning its extensive product offering, the use of its
sophisticated customer support software and the Company's approach to customer
service. The Company also sponsors the attendance by a number of its employees
at vocational metalworking training programs to familiarize them better with the
selection, application and use of the Company's products.
When a direct-marketed order is entered into the system, a credit check is
performed and, if the credit is approved, the order is electronically
transmitted to the distribution center, warehouse or showroom closest to the
customer and a packing slip is printed for order fulfillment. Most of the orders
placed with the Company are shipped by United Parcel Service ("UPS") and, to a
limited extent, by various other freight lines and local carriers. Air freight
is also used when appropriate. The Company is not dependent on any one carrier
and believes that alternative shipping arrangements can be made with minimal
disruption to operations in the event of the loss of UPS as the Company's
primary carrier. The Company believes that its relationships with all of its
carriers are excellent. The Company guarantees same-day shipping if the order is
received prior to
34
<PAGE> 36
5:00 p.m. local time, with most customers receiving orders (other than custom
items and large industrial items shipped directly by the manufacturer) within
one or two business days of the order date. Customers are invoiced for
merchandise, shipping and handling charges promptly after shipment. Back order
levels are immaterial.
The Company currently operates 23 domestic showrooms at which customers may
purchase products or pick-up products which have been ordered. Showrooms serve
as beacons in geographic areas in which the Company attempts to establish
relationships with and provide personal service to customers in those areas.
Each showroom has approximately 6,000 to 10,000 square feet of space and
consists of a small area in which the Company stocks the most frequently ordered
products and kiosks at which products are ordered and customer information is
obtained or updated. The Company selects showroom location sites based upon its
assessment of potential customers in a geographic area and their proximity to a
distribution center.
For customers participating in its Full Service Supply Programs, the
Company provides continuous improvement specialists to assist such customers,
assume responsibility for quality certification programs for vendors' tooling
products, provide independent test results of competing tooling vendors'
products, negotiate discounts with tooling vendors and implement EDI ordering,
billing and payment. In addition, the Company's continuous improvement
specialists assist Full Service Supply Program customers in the acquisition,
possession and use of industrial supplies.
INFORMATION SYSTEMS
The sophisticated information systems used by the Company allow centralized
management of key functions, including communication links between distribution
centers, inventory and accounts receivable management, purchasing, pricing,
sales and distribution, and the preparation of daily operating control reports
that provide concise and timely information regarding key aspects of its
business. These information systems enable the Company to ship to customers on a
same-day basis, respond quickly to order changes and provide a high level of
customer service. These systems enable the Company to achieve cost savings,
deliver exceptional customer service, manage its operations centrally and manage
its Full Service Supply Programs. Certain of the Company's information systems
operate over a wide area network and represent real-time information systems
that allow each distribution center to share information and monitor daily
progress relating to sales activity, credit approval, inventory levels, stock
balancing, vendor returns, order fulfillment and other performance measures. The
Company also maintains a sophisticated buying and inventory management system
that monitors substantially all of its SKUs and automatically purchases
inventory from vendors for replenishment based on projected customer ordering
models. The Company has invested significant resources in developing an
extensive customer and prospect database which includes detailed information,
including customer size, industry of operation, various demographic and
geographic characteristics and purchase histories of Company products. The
Company also provides EDI invoicing, funds transfer, ordering, shipping and
acknowledgment to large customers. As the Company's growth continues, the
Company expects to continue to improve and upgrade its information systems and
intends to implement Kennametal's SAP R/3, a new client-server information
system.
SUPPLIERS
The Company purchases substantially all of its products for its direct
marketing and Full Service Supply Programs from approximately 600 vendors. In
fiscal 1996 and for the nine months ended March 31, 1997, approximately 7% and
7%, respectively, of the Company's sales were of Kennametal products. Other than
Kennametal, the Company is not materially dependent on any one supplier or small
group of suppliers. If a Full Service Supply Program customer desires to
continue ordering a particular brand of metalworking tool or obtains or has a
contract providing for more favorable pricing than the Company generally
obtains, the Company will assume that contract or enter into a similar contract
for the limited purpose of supplying such product to that customer. Other than
Kennametal, no single supplier accounted for more than 5% of the Company's total
purchases in fiscal 1996. See "Relationship with Kennametal."
35
<PAGE> 37
ACQUISITIONS
In April 1997, the Company acquired all of the outstanding stock of
Strelinger. Strelinger, with annualized sales of approximately $30.0 million in
1996, is based in Troy, Michigan and is engaged in the distribution of
metalcutting tools and industrial supplies. The Company paid approximately $4.0
million in cash and assumed certain liabilities totaling approximately $7.0
million. In May 1997, the Company acquired all of the outstanding stock of M&A.
M&A, with sales of approximately $6.0 million in 1996, is based in Roseville,
Michigan, and is engaged in the distribution of metalcutting tools and
industrial supplies. The Company paid approximately $1.2 million in cash and
assumed certain liabilities totaling $1.5 million. The Company believes that the
customer base of Strelinger and M&A and their service capabilities will enhance
the Company's ability to serve small and medium-sized customers and strengthen
the Company's market presence in southeastern Michigan.
As the industrial supply industry continues to consolidate, the Company is
actively considering acquisitions as part of its growth strategy if
opportunities arise. From time to time, the Company has engaged in and will
continue to engage in preliminary discussions with respect to potential
acquisitions. The Company is not currently a party to any oral or written
acquisition agreement or engaged in any negotiations with respect to any
material acquisition candidate.
COMPETITION
The metalworking supply industry is a large, fragmented industry that is
highly competitive. The Company faces competition (i) in the small and
medium-sized metalworking markets from traditional channels of distribution such
as retail outlets, small dealers, regional or national distributors utilizing
direct sales forces, and manufacturers' representatives and (ii) in the large
industrial metalworking market from large distributors and other companies which
offer varying degrees and types of integrated industrial supply programs. The
Company believes that sales of metalworking products will become more
concentrated over the next few years, which may make the industry more
competitive. Certain of the Company's competitors offer a greater variety of
products (including nonmetalworking products) and have substantially greater
financial and other resources than the Company. The Company believes that
customer purchasing decisions are primarily based on one or more of the
following criteria: product price, product selection, product availability,
superior customer service, total cost of acquisition, possession and use of
products and convenience. The Company seeks to distinguish itself from other
direct marketers and distributors of industrial supplies through its national
presence and metalworking focus, its application of information technology and
its attractive, modern showrooms.
EMPLOYEES
As of March 31, 1997, the Company employed approximately 655 employees,
none of whom is represented by a labor union. The Company considers its
relationships with employees to be good and has experienced no work stoppages.
PROPERTIES
The Company's distribution centers, warehouses, showrooms and executive
offices, all of which are leased, are as follows:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION LEASE EXPIRATION APPROXIMATE SQUARE FEET
- ---------------------- ---------------------- ---------------- -----------------------
<S> <C> <C> <C>
Albuquerque, NM Warehouse 06/31/98 8,000
Alsip, IL Showroom 03/31/98 6,400
Atlanta, GA Showroom 07/31/00 7,900
Charlotte, NC* Distribution Center 04/29/07 10,000
Chicago, IL Showroom 08/31/01 6,200
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
LOCATION DESCRIPTION LEASE EXPIRATION APPROXIMATE SQUARE FEET
- ---------------------- ---------------------- ---------------- -----------------------
<S> <C> <C> <C>
Cincinnati, OH Showroom 10/15/98 7,200
Cleveland, OH Showroom 06/30/00 9,000
Clinton Township, MI Showroom 06/30/99 6,000
Dallas, TX* Distribution Center 03/30/01 5,200
Dayton, OH Showroom 11/30/01 10,000
Grand Rapids, MI Showroom 09/30/00 9,800
Gurnee, IL Warehouse 06/30/00 6,600
Hartford, CT* Distribution Center 06/31/00 1,500
Houston, TX Showroom 12/31/02 7,200
Indianapolis, IN Showroom 04/01/05 6,600
Kingswinford, UK Distribution Center 04/29/07 6,000
Latrobe, PA* Executive Headquarters 04/29/07 1,500
Livonia, MI* Distribution Center 12/31/00 100,000
Livonia, MI Warehouse 08/31/99 46,000
Los Angeles, CA* Distribution Center 04/29/07 7,000
Milwaukee, WI Showroom 09/30/99 6,400
Minneapolis, MN Showroom 11/30/99 10,400
Mount Prospect, IL Distribution Center 12/31/98 40,000
Nashville, TN Warehouse 04/19/00 6,200
Orange County, CA Showroom 08/31/01 6,800
Phoenix, AZ Warehouse 03/31/01 7,700
Salem, NH Warehouse 09/30/98 10,000
San Jose, CA Showroom 08/31/00 9,000
Sterling Heights, MI Showroom 08/31/01 6,700
St. Louis, MO Showroom 04/30/01 7,000
Tempe, AZ Showroom 01/30/01 6,800
</TABLE>
- ---------
* Shared with Kennametal.
LEGAL MATTERS
There are no material legal proceedings pending against the Company.
37
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to the directors
and executive officers of the Company. The directors and executive officers of
the Company were elected to the positions listed on April 28, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ---- ---------------------------------------------
<S> <C> <C>
Michael W. Ruprich............ 41 President and Director
Kenneth M. McHenry............ 41 Vice President--Sales and Marketing
Roland E. Lazzaro............. 38 Vice President--Operations
Michael J. Mussog............. 33 Vice President and Chief Financial Officer
Richard C. Alberding.......... 66 Director
Jeffery M. Boetticher......... 46 Director
Irwin L. Elson................ 58 Director
Aloysius T. McLaughlin, Jr.... 62 Director
Robert L. McGeehan............ 60 Director
William R. Newlin............. 56 Chairman of the Board
</TABLE>
Michael W. Ruprich has served as President of the Company since April 1997
and as Director of Global Marketing and Sales of Kennametal since July 1996. He
was elected a Kennametal Vice President in 1994. He served from 1994 to 1996 as
President of J&L, from 1992 to 1993 as General Manager of J&L and prior thereto,
as General Manager--East Coast Region of J&L. He will resign his positions with
Kennametal upon consummation of the Offering.
Kenneth M. McHenry has served as Vice President--Sales and Marketing since
April 1997. Prior thereto, he served from September 1993 to June 1997 as
National Sales Manager of J&L. From 1990 to September 1993, he was managing
partner of Flow Solutions Company (manufacturer's representative specializing in
industrial instrumentation and process control equipment).
Roland E. Lazzaro has served as Vice President--Operations since April
1997. Prior thereto, he served from May 1994 to June 1997 as Director, Branch
Development of J&L, from June 1992 to May 1994 as General Manager--East Coast
Region of J&L and from November 1990 to June 1992 as Controller of J&L.
Michael J. Mussog has served as Vice President and Chief Financial Officer
since April 1997. Prior thereto, he served from September 1996 to June 1997 as
Manager, Strategic Sales and Marketing Planning of Kennametal, from April 1995
to August 1996 as Chief Financial Officer of J&L and from February 1993 to March
1995 as Manager, External Reporting of Kennametal. Mr. Mussog is a certified
public accountant and prior to joining Kennametal was an Audit Manager for Price
Waterhouse LLP.
Richard C. Alberding is retired, having served as Executive Vice President,
Marketing and International, of Hewlett-Packard Company (a designer and
manufacturer of electronic products for measurement and computation). He is also
a director of Kennametal, Walker Interactive Systems, Inc., Sybase, Inc.,
Digital Microwave Corp., Paging Network, Inc., Quickturn Design Systems Inc. and
Digital Link Corporation.
Jeffery M. Boetticher is the Chief Executive Officer of Black Box
Corporation (a leading worldwide direct marketer of computer communications and
technical service provider of networking solutions), having also served as
President of Black Box Corporation from June 1994 through May 1997. Since March
1991, he has been President and Chief Executive Officer of Black Box Corporation
of Pennsylvania, a wholly-owned subsidiary of Black Box Corporation. He is also
a director of Holden Corporation, CME Information Services, Inc. and the
Pittsburgh High Technology Council.
Irwin L. Elson, a co-founder of J&L, is retired. He served as President of
J&L from July 1996 until shortly prior to the Offering and had been a Vice
President of Kennametal from 1990, when it acquired J&L, to August 1994.
38
<PAGE> 40
Aloysius T. McLaughlin, Jr. is a consultant to Dick Corporation (general
contracting), having served as its Vice Chairman from 1993 to 1995 and as its
President and Chief Operating Officer from 1985 to 1993. Mr. McLaughlin is a
director of Kennametal.
Robert L. McGeehan has been President of Kennametal since July 1989 and its
Chief Executive Officer since October 1991. He served as Director of
Metalworking Systems Division of Kennametal from 1988 to 1989 and as General
Manager of Machining Systems Division from 1985 to 1988. He has been a director
of Kennametal since 1989.
William R. Newlin has been Managing Director of Buchanan Ingersoll
Professional Corporation (attorneys at law) for more than the past five years.
He also serves as a Managing General Partner of CEO Venture Funds (private
venture capital funds). He has been a director of Kennametal since 1982 and its
Chairman of the Board since October 1996. He is also a director of Black Box
Corporation, National City Bank of Pennsylvania, Parker/Hunter Incorporated, the
Pittsburgh High Technology Council and CME Information Services, Inc. The law
firm of which Mr. Newlin is a member performed services for the Company and
Kennametal during fiscal 1997.
At or following the Offering, the existing directors of the Company will
increase the size of the Board to seven persons and will appoint one additional
director not affiliated with the Company or Kennametal to fill this vacancy.
In accordance with the terms of the Articles of Incorporation, prior to the
Control Termination Date, directors will hold office for one-year terms and be
elected at each annual meeting of the shareholders of the Company. After the
Control Termination Date, the Board of Directors will be divided into three
classes, designated as Class I, Class II and Class III, respectively, with
staggered three-year terms of office. At each annual meeting thereafter,
directors who are elected to succeed the class of directors whose terms expire
at that meeting will be elected for three-year terms.
BOARD COMMITTEES AND DIRECTOR COMPENSATION
The Audit Committee of the Board is comprised of Messrs. Alberding and
Boetticher. The Audit Committee's primary function is to evaluate management's
performance of its financial reporting responsibilities. The Committee is also
charged with reviewing the internal financial and operational controls of the
Company and with monitoring the fees, results and effectiveness of annual audits
and the independence of the public accountants.
The Compensation Committee of the Board is comprised of Messrs. McGeehan
and McLaughlin. The Compensation Committee generally, excluding the President,
whose compensation shall be recommended by the Compensation Committee, but
determined by the Board, is responsible for establishing salaries, bonuses and
other compensation for the Company's executive officers and for administering
the Company's compensation plans, including two plans the Company intends to
adopt prior to the Offering--the JLK Direct Distribution Inc. 1997 Stock Option
and Incentive Plan (the "1997 Plan") and the JLK Direct Distribution Inc.
Management Bonus Plan (the "JLK Bonus Plan"), each of which is more fully
described below.
Members of the Board of Directors who are not employees of the Company will
receive an annual retainer of $20,000 for membership on the Board of Directors.
In addition, a fee of $1,000 will be paid for attendance at each committee
meeting.
EXECUTIVE COMPENSATION
The Company was formed in April 1997. Prior to the Offering, the Company
did not have a separate Compensation Committee or other board committee
performing similar functions. These functions were performed by the Board of
Directors, Committee on Executive Compensation and executive officers of
Kennametal.
39
<PAGE> 41
The following table sets forth the compensation paid by Kennametal to the
Company's chief executive officer, Mr. Ruprich, during the last three fiscal
years and during the last completed fiscal year to each of the other three
executive officers of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS(2) OPTIONS (3)
- ------------------------------------- -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael W. Ruprich,.................. 1996 $ 197,968 $103,696 11,000 $5,045
President(4)(5) 1995 178,384 123,270 11,334 4,500
1994 155,044 82,693 -- 4,660
Kenneth M. McHenry,.................. 1996 110,000 30,000 3,000 4,033
Vice President--Sales and Marketing
Roland E. Lazzaro,................... 1996 103,800 31,500 3,000 2,002
Vice President--Operations
Michael J. Mussog,................... 1996 89,000 25,000 2,000 3,237
Vice President and Chief Financial
Officer
</TABLE>
- ---------
(1) In accordance with the rules promulgated by the Securities and Exchange
Commission (the "Commission"), only the information with respect to the most
recently completed fiscal year is required in the Summary Compensation Table
except for information that was previously reported to the Commission.
(2) Includes, for each of the Named Executive Officers, bonuses paid in shares
of Capital Stock, par value $1.25 per share, of Kennametal ("Kennametal
Capital Stock"), or in stock credits representing Kennametal Capital Stock
("Kennametal Stock Credits") as elected by the individual under Kennametal's
Performance Bonus Stock Plan of 1995 described below.
(3) This figure includes amounts contributed by Kennametal under the Kennametal
Inc. Thrift Plan. Eligible employees may elect to contribute 2% to 12% of
their monthly compensation (salary and, if applicable, bonus) to this plan.
Kennametal contributes to each participant's account an amount equal to
one-half of that portion of the employee's contribution which does not
exceed 6% of the employee's compensation. Contributed sums are invested in
proportions as directed by the employee among five different types of equity
funds (including the Kennametal Capital Stock fund), a Fixed Income Fund and
three balanced funds (consisting of both equity and fixed income
securities), each managed by investment management companies, and can be
withdrawn by the employee only upon the occurrence of certain events.
Certain terms of the plan are designed to make available to participants the
provisions of section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"), which permit elective employee contributions on a
pre-tax basis.
(4) Mr. Ruprich was President of J&L, then a wholly owned subsidiary of
Kennametal and, after the Offering, a wholly-owned subsidiary of the
Company, until June 30, 1996. Effective July 1, 1996, Mr. Ruprich was named
Director of Global Marketing and Sales, Kennametal. Mr. Ruprich was named
President of the Company upon its formation.
(5) All other compensation for Mr. Ruprich in each year includes imputed income
based upon premiums paid by Kennametal to secure and maintain for certain
officers, including all executive officers of Kennametal who elect to
participate, a $500,000 term life insurance policy on the life of such
officer until he or she reaches age 65.
Immediately following the Offering, the annual base salaries of the Named
Executive Officers will be as follows: Michael W. Ruprich, $350,000; Kenneth M.
McHenry, $170,000; Roland E. Lazzaro, $150,000; and Michael J. Mussog, $160,000.
In connection with the Offering, it is anticipated that the Company will adopt
the JLK Bonus Plan and the 1997 Plan, each of which is more fully described
below. Annual bonus
40
<PAGE> 42
opportunities for each of the Named Executive Officers under the JLK Bonus Plan
will be set at the following percentage of annual base salary: Michael W.
Ruprich, 66%; Kenneth M. McHenry, 60%; Roland E. Lazzaro, 45%; and Michael J.
Mussog, 50%. In addition, effective upon consummation of the Offering, the
Company will grant, pursuant to the terms of the 1997 Plan, options to purchase
Class A Common Stock at the initial public offering price set forth on the cover
page of this Prospectus to the Named Executive Officers in the following share
amounts: Michael W. Ruprich, 100,000; Kenneth M. McHenry, 50,000; Roland E.
Lazzaro, 50,000; and Michael J. Mussog, 50,000. The Company will also grant to
each non-employee director of the Company options to purchase 15,000 shares of
Class A Common Stock at the initial public offering price set forth on the cover
page of this Prospectus pursuant to the 1997 Plan.
KENNAMETAL MANAGEMENT PERFORMANCE BONUS PLAN
Bonus amounts set forth in the Summary Compensation Table were paid
pursuant to Kennametal's Management Performance Bonus Plan for executives and
managers which is designed to tie bonus awards to Kennametal performance, unit
performance, and individual contribution, relative to Kennametal's business
plans, strategies and shareholder value creation. This bonus plan also is
intended to maintain management compensation at a competitive level, as
indicated by published compensation surveys. After fiscal 1997, bonuses to the
Company's employees, including the Named Executive Officers, will be paid
pursuant to Company plans, including the JLK Bonus Plan. See "--JLK Direct
Distribution Inc. Management Bonus Plan."
KENNAMETAL PERFORMANCE BONUS STOCK PLAN
Pursuant to the Kennametal Inc. Performance Bonus Stock Plan of 1995,
participants in selected cash bonus and deferred compensation plans are
permitted to elect to receive, in lieu of their bonus, Kennametal Capital Stock
or Kennametal Stock Credits.
KENNAMETAL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Each person who has an employment agreement with Kennametal or the Company
is eligible to receive supplemental retirement benefits for life following
termination of active employment by retirement or disability pursuant to the
Kennametal Inc. Supplemental Executive Retirement Plan. These supplemental
retirement benefits vest in equal annual increments over a term of five years
commencing on the officer's 56th birthday or completely upon the occurrence of a
change in control of Kennametal, whether or not the transaction or election
causing the change in control is approved by at least two-thirds of the
directors. If the officer dies while actively employed or receiving such
payments, his spouse or other designated beneficiary will receive annually up to
50% of the vested amount for life. The severance payments and the accrued
supplemental retirement benefits would be funded by the transfer of cash into a
Rabbi Trust upon the occurrence of a threatened or actual change in control of
Kennametal. For Company employees who participated in such plan prior to the
Offering as employees of Kennametal, the Offering will not trigger eligibility
for benefits under the plan, or constitute a change in control under the plan.
KENNAMETAL STOCK OPTION PLANS
The Kennametal Inc. Stock Option and Incentive Plan of 1988 (the "1988
Plan") provides for the granting of nonstatutory and incentive stock options and
share awards covering 1,000,000 shares of Kennametal Capital Stock. The
Kennametal Inc. Stock Option and Incentive Plan of 1992 (the "1992 Plan")
provides for the granting of nonstatutory and incentive stock options and share
awards covering the lesser of 1,650,000 shares (gross) and 1,100,000 shares
(net) of Kennametal Capital Stock. The Kennametal Inc. Stock Option and
Incentive Plan of 1996 (the "1996 Plan") provides for the granting of
nonstatutory and incentive stock options and share awards covering 1,500,000
shares of Kennametal Capital Stock. Although options are still outstanding under
the Kennametal Inc. Stock Option Plan of 1982, as amended, no further grants of
options may be made under that plan. Following the Offering, Company employees
will remain eligible to receive grants and awards under these plans.
41
<PAGE> 43
Under each of the plans, the price at which shares covered by an option may
be purchased must not be less than the fair market value of such shares at the
time the option is granted or, in the case of the non-qualified stock options
granted under the 1992 Plan, at not less than 75% of the fair market value. The
purchase price must be paid in full at the time of exercise either in cash or,
in the discretion of the administrator of the plan, by delivering shares of
Kennametal Capital Stock or a combination of shares and cash having an aggregate
fair market value equal to the purchase price. Under the 1988 Plan and 1996
Plan, any shares of Kennametal Capital Stock delivered as payment, in whole or
in part, of the purchase price must have been held by the optionee for at least
six months.
The following table sets forth information concerning options with respect
to Kennametal Capital Stock granted to the Named Executive Officers during
fiscal 1996:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1996
-------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE VALUE(2)
- ------------------------------------- ---------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Michael W. Ruprich................... 11,000 1.9 $ 37.0625 7/29/05 $ 179,869
Kenneth M. McHenry................... 3,000 * 37.0625 7/29/05 49,055
Roland E. Lazzaro.................... 3,000 * 37.0625 7/29/05 49,055
Michael J. Mussog.................... 2,000 * 37.0625 7/29/05 32,703
</TABLE>
- ---------
* Less than 1%.
(1) These options were granted with an exercise price equal to the fair market
value of Kennametal Capital Stock on the date of grant and require the
optionee to hold 10% of the shares received from any exercise for a one-year
period from the date of exercise.
(2) Based on the Black-Scholes Option Valuation model adjusted for dividends to
determine grant date present value of the options. Kennametal has advised
the Company that it does not advocate or necessarily agree that the
Black-Scholes model properly reflects the value of an option. The
assumptions used in calculating the option value include the following: a
risk-free interest rate of 6.28% (the rate applicable to a ten-year treasury
security at the time of the award); a dividend yield of 1.9% (the annualized
yield at the date of grant); volatility of 30.227% (calculated using daily
stock returns for the 12-month period preceding the option award); and a
stock price at date of grant of $37.0625 (the exercise price at which these
options were granted was equal to the fair market value on the date of
grant). No adjustments were made for forfeitures or vesting restrictions on
exercise. The value of these options under the Black-Scholes model of option
valuation applying the preceding assumptions is $16.35170 per share. The
ultimate values of the options will depend on the future market price of
Kennametal Capital Stock, which cannot be forecast with reasonable accuracy.
The actual value, if any, an optionee will realize upon exercise of an
option will depend on the excess of the market value of Kennametal Capital
Stock over the exercise price on the date the option is exercised.
42
<PAGE> 44
The following table sets forth information concerning options to purchase
Kennametal Capital Stock held by the Named Executive Officers:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
YEAR END(#) YEAR END($)
SHARES ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
- ---------------------------------------------- --------------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Michael W. Ruprich............................ -0- $-0- 34,834/0 $ 144,684/0
Kenneth M. McHenry............................ -0- -0- 3,000/0 0/0
Roland E. Lazzaro............................. -0- -0- 3,000/0 0/0
Michael J. Mussog............................. -0- -0- 2,000/0 0/0
</TABLE>
RETIREMENT BENEFITS
The Named Executive Officers and certain other Company employees are
entitled to receive benefits pursuant to the Kennametal Inc. Retirement Income
Plan. The following table indicates, for purposes of illustration, the
approximate annual retirement benefits that would be payable at the present time
on a straight life annuity basis pursuant to the Kennametal Inc. Retirement
Income Plan, including supplemental retirement benefits under various
assumptions as to salary and years of service to employees in higher salary
classifications. The amounts shown below have not been adjusted for Social
Security benefits which offset the Company's obligation under the plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFIT UPON RETIREMENT WITH INDICATED YEARS OF
ANNUALIZED CREDITED SERVICE
COVERED -----------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 75,000 $22,500 $ 30,000 $ 37,500 $ 41,250 $ 45,000
100,000 30,000 40,000 50,000 55,000 60,000
150,000 45,000 60,000 75,000 82,500 90,000
200,000 60,000 80,000 100,000 110,000 120,000
250,000 75,000 100,000 125,000 137,500 150,000
</TABLE>
Pursuant to the Kennametal Inc. Retirement Income Plan, annual benefits
payable upon retirement to eligible salaried employees are calculated based upon
a monthly benefit equal to 2% of Covered Compensation (as described below) for
each year of credited service up to a maximum of 25 years, plus 1% of Covered
Compensation for each year of credited service over 25 years, less 1.5% of the
primary monthly Social Security benefit payable for each year of credited
service up to a maximum of 33 1/3 years (50% of the monthly Social Security
benefit). Covered Compensation is based on average monthly earnings, consisting
solely of base salary and bonus (which amounts for the past three fiscal years
are included in the Salary and Bonus columns of the Summary Compensation Table),
for the nine years out of the last twelve years of service immediately preceding
retirement during which the highest compensation was received. The entire cost
of the plan is paid by Kennametal although, after the Offering, the Company will
be required to reimburse Kennametal for the incremental cost of providing the
benefit to employees of the Company. Under the Code, certain limits are imposed
on payments under the plan. Payments in excess of the maximum annual pension
benefits payable under this plan to the Named Executive Officers and certain
other executive officers of Kennametal and the Company would be paid pursuant to
the Supplemental Executive Retirement Plan as more fully described above.
Following the Offering, the Company will reimburse Kennametal for any
supplemental retirement benefit amounts paid by Kennametal to former Company
employees under these plans.
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<PAGE> 45
As of June 30, 1996, the credited years of service under the Kennametal
Inc. Retirement Income Plan for the Named Executive Officers were approximately:
Michael W. Ruprich, seven years; Kenneth M. McHenry, three years; Roland E.
Lazzaro, 11 years; and Michael J. Mussog, four years.
Annualized Covered Compensation as of June 30, 1996, for purposes of the
retirement benefits table set forth above for the Named Executive Officers is as
follows: Michael W. Ruprich, $135,752; Kenneth M. McHenry, $101,117; Roland E.
Lazzaro, $77,844; and Michael J. Mussog, $84,724.
JLK DIRECT DISTRIBUTION INC. MANAGEMENT BONUS PLAN
It is anticipated that, prior to the Offering, the Company's Board of
Directors will adopt the JLK Bonus Plan for executives and managers which is
designed to tie bonus awards to Company performance, unit performance and
individual contribution, relative to the Company's business plans, strategies
and stockholder value creation. This bonus plan also is intended to maintain
management compensation at a competitive level, as indicated by published
compensation surveys. Each of the Named Executive Officers is eligible to
receive bonuses under this plan. The annual bonus opportunities for each of the
Named Executive Officers is specified above under "--Executive Compensation."
JLK DIRECT DISTRIBUTION INC. 1997 STOCK OPTION AND INCENTIVE PLAN
It is anticipated that, prior to the Offering, the Company's Board of
Directors will adopt, and Kennametal, as the Company's sole shareholder, will
approve, the 1997 Plan.
In the judgment of the Board of Directors, it is important that the Company
be in a position to be able to grant stock options and, to make certain limited
stock awards in the form of shares, to directors, officers, employees and other
persons who are responsible for the Company's continued growth, development and
future financial success, in order to develop the sense of proprietorship
inherent in stock ownership by such persons, to reward prior performance and to
assist in the Company's efforts to recruit, retain and motivate high quality
persons. Furthermore, the Board believes that it is important to have the
ability to grant stock-based compensation to non-employee directors in order to
recruit and retain highly qualified directors and to further align their
interests with those of shareholders.
The following description is intended to summarize certain provisions of
the 1997 Plan. The full text of the 1997 Plan is set forth in an exhibit to the
Registration Statement of which this Prospectus is a part. The following
description is qualified in its entirety by reference to such exhibit.
Administration. The 1997 Plan provides that it may be administered by the
full Board of Directors or by a committee of the Board (the "Plan
Administrator"). Subject to the terms of the 1997 Plan, the Plan Administrator
will select persons to whom options will be granted and/or shares awarded. The
Plan Administrator will determine the type of option, the number of shares to be
included in each option, the option price and the period in which each option
may be exercised. The Plan Administrator also will determine the number of
shares to be awarded pursuant to the 1997 Plan and the terms and conditions
which must be met in order for such shares to vest.
Shares Available; Eligibility. The 1997 Plan authorizes the issuance of to
2,000,000 shares of Class A Common Stock, although the maximum number of shares
that can take the form of share awards is 100,000, subject to adjustment.
Options and shares may be granted under the 1997 Plan to directors, officers and
employees of the Company and its subsidiaries and of Kennametal and its
subsidiaries who, in the opinion of the Plan Administrator, are mainly
responsible for the continued growth, development and future financial success
of the Company. There currently are approximately 50 directors, officers and
employees of the Company and Kennametal who may be eligible generally under the
1997 Plan, including the Named Executive Officers. Other employees of the
Company or of Kennametal may receive options or shares under the 1997 Plan to
reward superior performance.
Stock Options. The 1997 Plan provides for the Plan Administrator, in its
discretion, to grant options either in the form of incentive stock options
qualified as such under the Code or other options.
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<PAGE> 46
The price at which each share covered by an option granted under the 1997
Plan may be purchased will be determined in each case by the Plan Administrator
but may not be less than the fair market value at the time the option is
granted. For options granted simultaneously with the Offering, the fair market
value will be the price at which the Class A Common Stock is offered to the
public. Thereafter, fair market value will be the mean between the highest and
lowest sales prices for the Class A Common Stock as reported on the New York
Stock Exchange--Composite Transactions reporting system for the date in question
or, if no sales were made on that date, on the next preceding date on which
sales were made.
If the optionee is an employee who ceases to be employed by the Company or
any of its subsidiaries, the option may be exercised only within three months
after the termination of employment and within the option period or, if such
termination was due to disability or retirement, within one year after
termination of employment and within the option period, unless such termination
of employment is for cause or in violation of an agreement by the optionee to
remain in the employ of the Company or the subsidiary, in which case the option
will terminate. In the discretion of the Plan Administrator, the option period
may be extended for up to three years from the date of termination regardless of
the original option period. Further, the option may be exercised only within 450
calendar days after the optionee's death and within the option period and only
by the optionee's personal representatives or persons entitled thereto under the
optionee's will or the laws of descent and distribution.
If an optionee is a non-employee director of the Company who ceases to
serve as a director of the Company and Kennametal, the option may be exercised
only within three months thereafter and within the option period or, if such
cessation was due to disability, within one year after cessation of service and
within the option period, unless such cessation of service was the result of
removal for cause, in which case the option will immediately terminate.
The Plan Administrator, in its discretion, may grant rights authorizing the
automatic issuance, upon exercise of an option granted under the 1997 Plan,
using previously owned shares, of additional stock options under the 1997 Plan
with an exercise price equal to the fair market value on the date of exercise
and for up to the number of shares delivered in payment of the exercise price of
the option. Such additional stock options must have the same option period as
the original option.
In consideration for the granting of each option, the optionee must agree
to remain in the employment of the Company or a subsidiary for at least one year
from the date of the granting of the option or until the first day of the month
coinciding with or next following the optionee's 65th birthday, whichever may be
earlier.
Share Awards. The Plan Administrator may from time to time award shares to
participants pursuant to share award agreements which may contain such terms and
conditions as the Plan Administrator determines. The aggregate maximum number of
shares of Class A Common Stock that may take the form of share awards is
100,000. The Plan Administrator may establish such vesting period, schedule and
criteria as it deems appropriate for each share award, such as vesting in
installments upon the achievement by the Company or grantee of specified periods
of continued employment, specific performance criteria or other goals; provided,
however, that any single award of shares to a participant in an amount greater
than 100 shares will vest only upon the grantee or the Company satisfying
specified performance goals. If the grantee or the Company, as the case may be,
fails to achieve the designated goals or the grantee ceases to be employed by
the Company for any reason prior to the expiration of the vesting period, the
grantee will forfeit all non-vested shares.
Allotment of Shares. Not more than 15% of the aggregate number of shares
subject to the 1997 Plan may be optioned or awarded in the aggregate to any one
individual excluding shares covered by an option previously granted to the
individual to the extent it has expired or terminated without being exercised
and excluding shares to the extent the award has terminated without such shares
having vested.
Change in Control. The 1997 Plan provides that in the event of a change in
control of the Company or Kennametal (as defined in the 1997 Plan), (i) all
options that become exercisable in installments will become immediately
exercisable in full, (ii) an optionee who ceases to be employed by the Company
or Kennametal or any of their respective subsidiaries within one year following
the change in control may in all events exercise
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<PAGE> 47
his or her options for a period of three months after the termination of
employment and within the option period and (iii) all awards of shares which
have not previously vested will become vested.
Amendment or Discontinuance. The Board of Directors may alter, amend,
suspend or discontinue the 1997 Plan, provided that no such action may deprive
any person without such person's consent of any rights granted under the 1997
Plan.
EMPLOYMENT AGREEMENTS
The Company intends to enter into agreements with each of the Named
Executive Officers whereby, subject to a provision for termination without cause
by either party upon written notice, they will be employed by the Company. The
agreements generally provide that the officers will devote their full time and
attention to the business and affairs of the Company and perform such services
as shall be determined by the Board of Directors, will refrain during employment
and for three years thereafter from competing with the Company (unless
employment is terminated by the Company without cause or following a change in
control), and will not disclose confidential or trade secret information
belonging to the Company. The agreements provide for severance payments upon
termination of employment occurring either before or after a change in control
of the Company.
In the event of termination of employment by the Company prior to a change
in control (and without cause), each officer would receive as severance pay an
amount equal to three months' base salary at the time of such termination. In
the event of termination of the employee prior to a change in control, or
without good reason following a change in control, no severance payments will be
made. In the event of termination of employment by the Company (other than for
cause or disability or by the employee with good reason at or after a change in
control of the Company or Kennametal), each officer would receive as severance
pay an amount equal to up to 2.8 (decreasing to zero if employment continues for
36 months following the change in control) times the sum of (i) his respective
annual base salary at the date of termination or, at the officer's election, his
salary as of the beginning of the month preceding the month in which the change
in control occurs, and (ii) the average of any bonuses which the officer was
entitled to be paid during the three most recent fiscal years ending prior to
the date of termination. The officer would receive the same medical and group
insurance benefits that he received at the date of termination for up to 36
months following the date of termination.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition in fiscal 1990 by Kennametal of J&L,
which is a wholly owned subsidiary of Kennametal and will become a wholly owned
subsidiary of the Company upon consummation of the Offering, Kennametal entered
into certain leases with Irwin L. Elson, a director of the Company, and parties
affiliated with Mr. Elson. As a result of these transactions, J&L leases office
and warehouse space in Livonia, Michigan from a general partnership in which Mr.
Elson is a partner. The initial term of the lease commenced on January 1, 1991
and continues to December 31, 2000. During fiscal 1996, J&L made aggregate lease
payments to that partnership under this lease of $613,000. J&L also leases
office and warehouse space in Mt. Prospect, Illinois, from a general partnership
comprised of Mr. Elson and other unrelated individuals. The initial lease term
commenced on August 1, 1988 and terminates on December 31, 1998. During fiscal
1996, J&L made aggregate lease payments to that partnership under this lease of
$311,000.
From July 1, 1996 until April 30, 1997, Mr. Elson was President of J&L. In
such capacity, he received a salary of approximately $175,000 for such period
and participated in Kennametal's benefit plans, including the Kennametal Inc.
Management Performance Bonus Plan. He also received stock options, first
exercisable after July 1, 1997, for 10,000 shares of Kennametal Capital Stock.
During fiscal 1994 and fiscal 1995, Mr. Elson was a consultant to and director
of J&L.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert L. McGeehan, who serves on the Compensation Committee, is president
and Chief Executive Officer of Kennametal.
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<PAGE> 48
The Company engages in business transactions with Kennametal and its
subsidiaries. Products purchased for resale from Kennametal and its subsidiaries
totaled $8.0 million in 1994, $11.4 million in 1995 and $18.0 million in 1996.
Sales to these entities totaled $8.5 million in 1994, $11.4 million in 1995 and
$11.4 million in 1996.
The Company receives from Kennametal certain warehouse, management
information systems, financial and administrative services. All amounts incurred
by Kennametal on behalf of the Company are reflected in operating expenses in
the Company's statements of income. In addition, costs charged to the Company by
Kennametal, totaling $3.4 million in 1994, $3.5 million in 1995 and $5.7 million
in 1996 are included in the Company's statements of income. Kennametal intends
to continue to provide services to the Company in the future in accordance with
the terms of the intercompany agreements described in "Relationship with
Kennametal." The amounts to be charged pursuant to these intercompany agreements
will reflect the actual costs of providing these services which will include the
additional costs associated with operating as a public company. However, the
increase in these charges is not expected to be material in the future.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDER AND MANAGEMENT
OWNERSHIP OF COMPANY COMMON STOCK BY PRINCIPAL SHAREHOLDER
No shares of Class A Common Stock were outstanding or beneficially owned
prior to the Offering. All of the 20,897,000 shares of Class B Common Stock
outstanding are beneficially owned by Kennametal. Accordingly, upon consummation
of the Offering, Kennametal will own Common Stock representing approximately
83.1% of the economic interest in the Company (80.5% if the Underwriters'
over-allotment option is exercised in full) and representing approximately 98.0%
of the combined voting power of the Company's outstanding Common Stock (or 97.6%
if the Underwriters' over-allotment option is exercised in full).
Immediately after the Offering, the only shares of Class A Common Stock
that will be outstanding are those that will be issued in the Offering
(including any shares issued upon exercise of the Underwriters' over-allotment
option).
The following table sets forth information with respect to the beneficial
ownership of the Company's Class B Common Stock as of the date of this
Prospectus:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS
- ---------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Kennametal Inc.(3).............................................. 20,897,000 100
</TABLE>
- ---------
(1) The address of Kennametal is Route 981 at Westmoreland County Airport, P.O.
Box 231, Latrobe, Pennsylvania 15650.
(2) Because the Class B Common Stock is convertible by Kennametal into Class A
Common Stock on a one-for-one basis, such ownership also represents
beneficial ownership of Class A Common Stock. If the Underwriters'
over-allotment option is exercised, Kennametal has agreed to surrender to
the Company a number of its shares of Class B Common Stock which equals the
number of additional shares of Class A Common Stock purchased by the
Underwriters from the Company.
(3) See "Relationship with Kennametal" for a description of transactions and
arrangements between Kennametal and the Company.
OWNERSHIP OF KENNAMETAL AND COMPANY COMMON STOCK BY MANAGEMENT
The following table sets forth the beneficial ownership of the Kennametal
Capital Stock as of March 31, 1997, by each director of the Company, each
nominee for director of the Company, each Named Executive Officer and all
directors and executive officers of the Company as a group. None of such persons
owned any
47
<PAGE> 49
shares of the Company's Class A Common Stock or Class B Common Stock as of such
date. Options with respect to an aggregate of 450,000 shares of Class A Common
Stock will be awarded by the Company to its executive officers, directors and
employees effective upon consummation of the Offering. See "Management-- Board
Committees and Compensation" and "--Executive Compensation."
<TABLE>
<CAPTION>
TOTAL
AMOUNT AND BENEFICIAL
NATURE OF OWNERSHIP
BENEFICIAL PERCENTAGE DEFERRED FEE AND FEE PLAN
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS PLAN SHARES(3) SHARES
- ------------------------------------------- --------------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Richard C. Alberding....................... 1,734(4) * -- 1,734
Jeffery M. Boetticher...................... -- * -- --
Irwin L. Elson............................. 3,000 * -- 3,000
Robert L. McGeehan......................... 263,049(5) 1.0% 6,718 269,767
Aloysius T. McLaughlin, Jr. ............... 24,791 * 4,920 27,870
William R. Newlin.......................... 23,052(6) * 8,322 30,977
Michael W. Ruprich......................... 38,708(7) * -- 38,708
Kenneth M. McHenry......................... 6,139 * -- 6,139
Roland E. Lazzaro.......................... 5,021 * -- 5,021
Michael J. Mussog.......................... 4,095 * -- 4,095
Directors and Executive Officers as a
Group (10 persons)....................... 369,589(1)
</TABLE>
- ---------
* Less than one percent.
(1) The figures shown include 216,507, 34,834, 6,000, 5,000, 4,000 and 270,841
shares of Kennametal Capital Stock over which Messrs. McGeehan, Ruprich,
McHenry, Lazzaro, Mussog and all directors and executive officers of the
Company as a group, respectively, have the right to acquire within 60 days
of March 31, 1997, pursuant to Kennametal's stock option plans.
(2) No individual beneficially owns in excess of one percent of the total shares
outstanding. Directors and executive officers of the Company as a group
beneficially own .01% of the total shares of Kennametal Capital Stock
outstanding. Unless otherwise noted, the shares shown are subject to the
sole voting and investment power of the person named.
(3) In addition to these shares, Messrs. McGeehan, McLaughlin and Newlin hold
Kennametal Stock Credits for an aggregate of 19,960 shares of Kennametal
Capital Stock to which they are entitled at certain dates in the future
pursuant to a Kennametal deferred directors fee plan.
(4) All such shares are owned jointly by Mr. Alberding and his wife.
(5) The figure shown includes 8,214 shares owned jointly by Mr. McGeehan and his
wife.
(6) The figure shown includes 2,265 shares owned jointly by Mr. Newlin and his
wife.
(7) In addition to these shares, Mr. Ruprich holds 3,314 Kennametal Stock
Credits, pursuant to Kennametal's Performance Bonus Stock Plan of 1995.
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<PAGE> 50
RELATIONSHIP WITH KENNAMETAL
GENERAL
Upon completion of the Offering, Kennametal will own 100% of the
outstanding Class B Common Stock of the Company which will represent
approximately 98.0% of the combined voting power of all of the outstanding
Common Stock (or approximately 97.6% if the Underwriters' over-allotment option
is exercised in full). For so long as Kennametal continues to own shares of
Common Stock representing more than 50% of the combined voting power of the
Common Stock of the Company, Kennametal will be able, among other things, to
determine any corporate action requiring approval of holders of Common Stock
representing a majority of the combined voting power of the Common Stock,
including the election of the entire Board of Directors of the Company, certain
amendments to the Articles of Incorporation and By-Laws of the Company and
approval of certain mergers and other control transactions, without the consent
of the other shareholders of the Company. See "Description of Capital Stock."
In addition, through its control of the Board of Directors and beneficial
ownership of Common Stock, Kennametal will be able to control certain decisions,
including decisions with respect to the Company's dividend policy, the Company's
access to capital (including borrowing from third-party lenders and the issuance
of additional equity securities), mergers or other business combinations
involving the Company, the acquisition or disposition of assets by the Company
and any change in control of the Company. Kennametal has advised the Company
that its current intention is to continue to hold all of the Class B Common
Stock beneficially owned by it. Kennametal has no agreement with the Company not
to sell or distribute such shares, other than pursuant to the Purchase Agreement
in which Kennametal has agreed not to (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Class A Common Stock or any
securities convertible into or exercisable or exchangeable for Class A Common
Stock (including Class B Common Stock) or file any registration statement under
the Securities Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the Class
A Common Stock or any securities convertible into or exercisable or exchangeable
for Class A Common Stock (including Class B Common Stock), whether any such swap
or transaction described in clause (i) or (ii) above is to be settled by
delivery of Class A Common Stock or such other securities, in cash or otherwise,
for a period of 180 days from the date of this Prospectus without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf
of the Underwriters, except for any shares of Class A Common Stock issued, or
options to purchase Class A Common Stock granted, pursuant to the Company's
employee benefit plans described herein. There can be no assurance concerning
the period of time during which Kennametal will maintain its beneficial
ownership of Common Stock.
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for Kennametal to continue to
include the Company in its consolidated group for federal income tax purposes
and ownership of at least 80% of the total voting power and 80% of any class of
nonvoting capital stock is required in order for Kennametal to be able to effect
a Tax-Free Spin-Off. The Company's relationship with Kennametal will also be
governed by agreements to be entered into in connection with the Offering with
Kennametal, including an administrative services agreement, a lease agreement,
shared facilities agreements (subleases), a product supply agreement, the
Tax-Sharing Agreement, a trademark license agreement, an indemnification
agreement, a non-competition and corporate opportunities allocation agreement,
an intercompany debt/investment and cash management agreement, warehousing
agreements and a stock option and registration rights agreement, the material
terms of which are described below. It is anticipated that such agreements will
be entered into concurrently with the consummation of the Offering. Management
believes the fees and other amounts paid to Kennametal under such agreements
will not exceed the amounts that would be paid if such services or products were
provided by an independent third party and which are consistent in all material
respects with the allocation of the costs of such services set forth in the
historical financial statements of the Company. See the Consolidated Financial
Statements included elsewhere herein. Management's estimate of the net charge
for service fees and other amounts that would have been payable by the Company
to Kennametal in fiscal 1996 if the Services Agreement had been in effect
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<PAGE> 51
during that period is approximately $5.7 million, which is approximately the
amount included in the fiscal 1996 Consolidated Financial Statements.
With respect to matters covered by the Services Agreement, the relationship
between Kennametal and the Company is intended to continue in a manner generally
consistent with past practices. NOTWITHSTANDING MANAGEMENT'S BELIEF THAT THE
PRICES CHARGED WOULD NOT EXCEED THE PRICES THAT WOULD BE CHARGED BY A THIRD
PARTY, BECAUSE THE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF KENNAMETAL, NONE OF
THESE ARRANGEMENTS WILL RESULT FROM ARM'S LENGTH NEGOTIATIONS, AND THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE PRICES CHARGED TO THE COMPANY AT A PARTICULAR
POINT IN TIME FOR SERVICES PROVIDED THEREUNDER MAY BE HIGHER OR LOWER THAN
PRICES THAT MAY BE CHARGED BY A THIRD PARTY.
The descriptions set forth below are intended to be summaries, and while
material terms of the agreements are set forth herein, the descriptions are
qualified in their entirety by reference to the forms of the relevant agreement
filed as exhibits to the Registration Statement of which this Prospectus is a
part. The Articles of Incorporation also contain provisions relating to the
allocation of business opportunities that may be suitable for either of
Kennametal or the Company and to the approval of transactions between the
Company and Kennametal. For additional information concerning the
above-mentioned provisions of the Articles of Incorporation and circumstances
under which the Class B Common Stock may be converted into Class A Common Stock,
see "Description of Capital Stock."
ADMINISTRATIVE SERVICES AGREEMENT
The Company and Kennametal will enter into an intercompany administrative
services agreement (the "Services Agreement") with respect to services to be
provided by Kennametal to the Company. The Services Agreement provides that such
services will be provided in exchange for fees which, generally, (i) in the case
of services purchased by Kennametal from third parties for the Company, will be
based upon the incremental cost charged by such third parties to Kennametal for
such services provided to the Company and (ii) in the case of services directly
provided by Kennametal, will be based on the estimated costs, including a
reasonable allocation of direct and indirect overhead costs, incurred by
Kennametal for the services it provides directly to the Company. Such fees will
be paid monthly in arrears. The Company may request an expansion or termination
of services, in which case the parties will discuss, without obligation, the
provision or termination of such services and an appropriate charge or reduction
in charges for such services. The purpose of the Services Agreement is to ensure
that Kennametal continues to provide to the Company the range of services that
Kennametal provided to the Company prior to the Offering. With respect to
matters covered by the Services Agreement, the relationship between Kennametal
and the Company is intended to continue in a manner generally consistent with
current practices. The services initially to be provided by Kennametal to the
Company include, among other things, certain treasury, general accounting and
administrative services including, tax, risk management, human resources, legal,
internal audit, marketing, executive time and space, and information systems
services.
The Services Agreement also provides that Kennametal will arrange and
administer all existing insurance arrangements and may continue coverage of the
Company under Kennametal's insurance policies and will allow eligible employees
of the Company to participate in all of Kennametal's benefit plans. In addition,
under the Services Agreement, the Company will reimburse Kennametal for the
portion of Kennametal's premium cost with respect to such insurance that is
attributable to coverage of the Company and reimburse Kennametal for
Kennametal's costs (including any contributions and premium costs and including
certain third-party expenses and allocation of certain personnel expenses of
Kennametal), generally in accordance with past practice, relating to
participation by the Company's employees in any of Kennametal's benefit plans.
The Services Agreement will have an initial term of 10 years and will be
renewed automatically thereafter for successive one-year terms, provided
however, that after the initial 10-year term or any renewal term, the Services
Agreement may be terminated at the end of such initial term or any subsequent
renewal term by either party upon six months' prior written notice. The Services
Agreement also provides that it will be subject
50
<PAGE> 52
to early termination by Kennametal if: (i) Kennametal or its affiliates own
Common Stock representing less than a majority of the voting power of all Common
Stock, (ii) any person or group, other than Kennametal or its affiliates,
directly or indirectly has the power to exercise a controlling influence over
the Company or (iii) a majority of the directors of the Company were neither
nominated by Kennametal or by the Company's Board of Directors nor appointed by
directors so nominated. The Services Agreement also may be terminated by the
non-breaching party if the other party materially breaches its terms.
Pursuant to the Services Agreement, for the term of and for a period of
five years following the termination of the Services Agreement, each party will
agree to indemnify the other, except in certain limited circumstances, against
liabilities that the other may incur by reason of or related to such party's
failure to perform its obligations under the Services Agreement.
LEASE AGREEMENT
The Company and Kennametal will enter into a lease agreement (the "Lease
Agreement") pursuant to which Kennametal will lease to the Company space within
buildings located on Kennametal's premises. The Company will use such space for
the display and retail sale of metalworking consumables and related products, as
well as for ancillary office and storage use. The Company may not use the
premises for any other purpose or business without the prior consent of
Kennametal. The Company is required to indemnify Kennametal against certain
liabilities in respect of the use of the premises. The Lease Agreement will
remain in effect for a term of 10 years, but may be extended for successive
one-year terms by the Company upon written notice to Kennametal. Kennametal may
terminate the Lease Agreement if (i) the Company owns shares representing less
than a majority of the voting power of the outstanding common stock of J&L, (ii)
Kennametal or its affiliates, own Common Stock representing less than a majority
of the voting power of all Common Stock, (iii) any person or group, other than
Kennametal or its affiliates, directly or indirectly has the power to exercise a
controlling influence over the Company or (iv) a majority of the directors of
the Company were neither nominated by Kennametal or by the Company's Board of
Directors nor appointed by directors so nominated. The Lease Agreement also may
be terminated by the non-breaching party if the other party materially breaches
its terms.
SHARED FACILITIES AGREEMENTS
The Company and Kennametal will enter into Shared Facilities Agreements
(the "Shared Facilities Agreements") pursuant to which each company will
sublease to the other company the facilities which are leased by either of the
companies and shared with the other company. See "Business--Properties". The
Shared Facilities Agreements provide that the relevant sublessor will lease
space to the sublessee at a rental rate equal to a pro rata share (based on
square feet occupied) of all costs and expenses (principally fixed rent) under
the relevant lease. The Company's management believes that the rental rates
payable by the Company are commensurate with market rates, although the Company
did not seek bids from third parties. Management estimates that in fiscal 1996
the Company would have owed Kennametal rent, net of the rent that Kennametal
would pay the Company, if the Shared Facilities Agreements had been in effect
during that period, of approximately $0.5 million, which amount is included in
the fiscal 1996 Consolidated Financial Statements. The Shared Facilities
Agreements provide for a term, with respect to each subleased facility, equal to
the term of the underlying lease.
PRODUCT SUPPLY AGREEMENT
The Company and Kennametal will enter into a product supply agreement (the
"Supply Agreement") which has a term of 10 years pursuant to which Kennametal
agrees to supply and the Company agrees to purchase from Kennametal all of the
Company's requirements for metalworking consumables and related products
direct-marketed by the Company and Kennametal further agrees to supply all
metalworking consumables and related products requested pursuant to Full Service
Supply Programs, except as otherwise agreed from time to time between the
Company and Kennametal. The Company will be entitled to purchase products for
its direct-marketing business at prices discounted from Kennametal's published
price for each such product depending upon the volume of each such product
purchased by the Company. The gross margin
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realized by the Company from the sale of products purchased from Kennametal and
resold in the Company's direct-marketing program will slightly exceed the gross
margin which the Company realizes on all products resold in the direct-marketing
program. The Articles of Incorporation contain similar provisions regarding
product supply. See "Description of Capital Stock--Certain Provisions of the
Articles and By-Laws-- Limitations on the Company's Business Activities."
Pursuant to the Corporate Opportunities Agreement, Kennametal has agreed that,
with the exception of existing relationships, Kennametal will not sell,
distribute or otherwise make available Kennametal products to any person that
competes with the Company. The Supply Agreement will remain in effect for a term
of 10 years, but may be earlier terminated by either party if Kennametal or its
affiliates own Common Stock representing less than a majority of the voting
power of all Common Stock or if the other party materially breaches the Product
Supply Agreement or the Non-Competition and Corporate Opportunities Allocation
Agreement.
TAX-SHARING AGREEMENT
The Company is, and after the Offering will continue to be, included in
Kennametal's federal consolidated income tax group and the Company's tax
liability will be included in the consolidated federal income tax liability of
Kennametal and its subsidiaries. In certain circumstances, certain of the
Company's subsidiaries may be included with certain subsidiaries of Kennametal
in combined, consolidated or unitary income tax groups for state and local tax
purposes. The Company and Kennametal intend to enter into the Tax-Sharing
Agreement. Pursuant to the Tax-Sharing Agreement, the Company will make payments
to Kennametal such that, with respect to any period, the amount of taxes to be
paid by the Company, subject to certain adjustments, will be determined as
though the Company were to file separate federal, state and local income tax
returns (including, except as provided below, any amounts determined to be due
as a result of a redetermination of the tax liability of Kennametal arising from
an audit or otherwise) as the common parent of an affiliated group of
corporations filing combined, consolidated or unitary (as applicable) federal,
state and local returns rather than a consolidated subsidiary of Kennametal with
respect to federal, state and local income taxes. The Company will be
reimbursed, however, for tax attributes that it generates, such as net operating
losses, if and when they are used on a consolidated basis.
Kennametal will continue to have all the rights of a parent of a
consolidated group (and similar rights provided for by applicable state and
local law with respect to a parent of a combined, consolidated or unitary
group), will be the sole and exclusive agent for the Company in any and all
matters relating to the income, franchise and similar tax liabilities of the
Company, will have sole and exclusive responsibility for the preparation and
filing of consolidated federal and consolidated or combined state income tax
returns (or amended returns), and will have the power, in its sole discretion,
to contest or compromise any asserted tax adjustment or deficiency and to file,
litigate or compromise any claim for refund on behalf of the Company. In
addition, Kennametal has agreed to undertake to provide the aforementioned
services with respect to the Company's separate state and local income tax
returns and the Company's foreign income tax returns. Under the Services
Agreement, the Company will pay Kennametal a fee intended to reimburse
Kennametal for all direct and indirect costs and expenses incurred with respect
to the Company's share of the overall costs and expenses incurred by Kennametal
with respect to tax related services.
In general, the Company will be included in Kennametal's consolidated group
for federal income tax purposes for so long as Kennametal beneficially owns at
least 80% of the total voting power and value of the outstanding Common Stock.
Each member of a consolidated group is jointly and severally liable for the
federal income tax liability of each other member of the consolidated group.
Accordingly, although the Tax-Sharing Agreement allocates tax liabilities
between the Company and Kennametal, during the period in which the Company is
included in Kennametal's consolidated group, the Company could be liable in the
event that any federal tax liability is incurred, but not discharged, by any
other member of Kennametal's consolidated group.
TRADEMARK LICENSE AGREEMENT
The Company and Kennametal will enter into a trademark license agreement
(the "License Agreement"). The License Agreement provides, among other things,
for the grant to the Company by Kennametal
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of a non-exclusive license to use the trademarks service marks, trade names and
other intellectual property (collectively, the "Marks") of Kennametal identified
therein in connection with the Company's business and for the grant to
Kennametal by the Company of a non-exclusive license to use the Company's Marks
on similar terms. Under the terms of the License Agreement, each party will
indemnify the other and its affiliates against certain liabilities in respect of
the use of the Marks. The License Agreement will remain in effect for a term of
10 years, but may be earlier terminated by Kennametal if Kennametal or its
affiliates own Common Stock representing less than a majority of the voting
power of all Common Stock or by either party if the other party materially
breaches the License Agreement or any of the other intercompany agreements. A
termination of the License Agreement could have a material adverse effect on the
business, financial condition or results of operation of the Company.
INDEMNIFICATION AGREEMENT
The Company and Kennametal will enter into an indemnification agreement
(the "Indemnification Agreement"). Under the Indemnification Agreement, subject
to limited exceptions, the Company is required to indemnify Kennametal and its
directors, officers, employees, agents and representatives for liabilities under
federal or state securities laws as a result of the Offering, including
liabilities arising out of or based upon alleged misrepresentations in or
omissions from the Registration Statement, of which this Prospectus is a part.
The Indemnification Agreement also provides that each party thereto (the
"Indemnifying Party") will indemnify the other party thereto and its directors,
officers, employees, agents and representatives (the "Indemnified Party") for
liabilities that may be incurred by the Indemnified Party relating to, resulting
from or arising out of (i) the businesses and operations conducted or formerly
conducted, or assets owned or formerly owned, by the Indemnifying Party and its
subsidiaries (except, in the case where Kennametal is the Indemnifying Party,
such businesses, operations and assets of the Company and its subsidiaries) or
(ii) the failure by the Indemnifying Party to comply with any other agreements
executed in connection with the Offering, except to the extent caused by the
Indemnified Party.
The Indemnification Agreement also provides that the Company will indemnify
Kennametal for any liabilities incurred under guarantees of leases.
NON-COMPETITION AND CORPORATE OPPORTUNITIES ALLOCATION AGREEMENT
Pursuant to a Non-Competition and Corporate Opportunities Agreement (the
"Corporate Opportunities Agreement") to be entered into between Kennametal and
the Company: (i) Kennametal agrees for as long as the other intercompany
agreements remain in effect (whose current term is 10 years) (A) not to compete
with the Company in the business of direct marketing of a broad range of
metalworking consumables and related products through catalogs, monthly
promotional flyers, additional mailings and advertisements, telemarketing
efforts, direct-sales efforts and showrooms targeted at small and medium-sized
metalworking shops as well as the supply of consumable tooling and related
metalworking products at designated manufacturing plants of large industrial
customers through integrated industrial supply programs (the "Base Business"),
except where the Company has been offered by Kennametal or its affiliates or a
third party the right to acquire a business which falls under the Base Business
at fair market value, and the Company's Board of Directors has determined, for
whatever reason, that the Company shall not acquire such business and (B) not to
sell, offer to sell, distribute or otherwise make available Kennametal
manufactured and branded products to anyone who intends to direct market such
products and therefore competes with the Company's direct-marketing program
except with respect to those contracts, arrangements or relationships in
existence on the date of the Corporate Opportunities Agreement or with the prior
written consent of the Company; and (ii) the Company agrees for as long as the
other intercompany agreements remain in effect not to sell, offer to sell,
distribute or otherwise make available any products which compete directly or
indirectly with Kennametal without the prior written consent of Kennametal,
except in connection with the provision of integrated industrial supply programs
as may be required specifically by customers thereof. Similar provisions are
contained in the Articles of Incorporation. See "Description of Capital
Stock--Certain Provisions of the Articles of By-Laws--Limitation on the
Company's Business Activities."
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The Corporate Opportunities Agreement provides that Kennametal will have
the right to any future business opportunities outside the scope of the Base
Business, and will have the right as to any future business opportunities
outside the scope of the Base Business but which are reasonably related to the
Base Business, to determine the allocation thereof based solely upon
Kennametal's evaluation of what is in the best interests of Kennametal under the
circumstances. Under such agreement, the good faith determination of Kennametal
as to the scope of the Base Business, the applicability of any exceptions
discussed above to its agreement not to compete, or the allocation of any
corporate opportunities outside the scope of the Base Business, will be
conclusive and binding. The Corporate Opportunities Agreement will remain in
effect for a term of 10 years, but may be earlier terminated by Kennametal if
Kennametal or its affiliates own Common Stock representing less than a majority
of the voting power of all Common Stock or if the Company materially breaches
the Corporate Opportunities Agreement or the Product Supply Agreement. The
Articles of Incorporation also restrict the Company's ability to pursue future
business opportunities. See "Description of Capital Stock-- Certain Provisions
of the Articles and By-Laws--Corporate Opportunities."
INTERCOMPANY DEBT/INVESTMENT AND CASH MANAGEMENT AGREEMENT
The Company and Kennametal will enter into an intercompany debt/investment
and cash management agreement (the "Cash Management Agreement") under which the
Company will continue to participate in Kennametal's centralized cash management
system. The Cash Management Agreement provides for a daily transfer from the
Company's cash accounts to Kennametal's centralized cash accounts and daily
funding of the disbursements of the Company from such Kennametal cash account.
The Company will receive interest on net cash flows to Kennametal's centralized
cash accounts and be charged interest on net borrowings from the Kennametal
centralized cash accounts at a rate equal to the all-in interest rate available
to Kennametal from outside sources for short term borrowings or investments,
depending upon the overall position of the centralized cash accounts. The
Company will pay for this service pursuant to the Services Agreement and will
reimburse Kennametal for an allocable portion of Kennametal's facility and/or
commitment fees under its credit lines. The Cash Management Agreement will
remain in effect for a term of 10 years, but may be earlier terminated by
Kennametal if Kennametal or its affiliates own Common Stock representing less
than a majority of the voting power of all Common Stock or by either party if
the other party materially breaches the Cash Management Agreement or any of the
other intercompany agreements.
WAREHOUSING AGREEMENTS
The Company and Kennametal will enter into separate warehousing agreements
("Warehousing Agreements") with respect to (i) Kennametal distribution centers
and warehouses which store products for the Company and (ii) Company
distribution centers and warehouses that store products for Kennametal. The
terms of each Warehousing Agreement provide for the warehouser to store the
warehousee's products in the warehouses segregated and separate from the
warehouser's products and, upon request by the warehousee, to ship its products
from these warehouses to the warehousee's customers. The warehousee will pay to
the warehouser a charge for each of the products picked, packed and shipped
based upon an allocation of costs (including overhead) incurred by the
warehouser at these warehouses. The Warehousing Agreements will remain in effect
for a term of 10 years, but may be earlier terminated by Kennametal if (i)
Kennametal or its affiliates own Common Stock representing less than a majority
of the voting power of all Common Stock or (ii) if the Company owns shares
representing less than a majority of the voting power of the outstanding common
stock of J&L. The Warehousing Agreements may also be terminated by either party
if the other party materially breaches such Warehousing Agreement or any of the
other intercompany agreements.
CORPORATE AGREEMENT
The Company and Kennametal will enter into a corporate agreement (the
"Corporate Agreement") under which the Company grants to Kennametal a continuing
option, transferable, in whole or in part, to any of its affiliates, to
purchase, under certain circumstances, additional shares of Class B Common Stock
or Class A Common Stock (the "Stock Option"). The Stock Option may be exercised
by Kennametal simultaneously with the issuance of any equity security of the
Company (other than in the Offering or upon
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the exercise of the Underwriters' over-allotment option) or immediately prior to
a Tax-Free Spin-Off to the extent necessary to maintain its then existing
percentage of the total voting power and economic value of the Company at 80% of
all outstanding Common Stock or, in connection with a Tax-Free Spin-Off, in
order to acquire stock ownership necessary to effect a Tax-Free Spin-Off. The
purchase price of the shares of Common Stock purchased upon any exercise of the
Stock Option, subject to certain exceptions, will be based on the market price
of the Class A Common Stock. The Stock Option expires on the Control Termination
Date. The Company does not intend to issue additional shares of Class B Common
Stock except pursuant to the exercise of the Stock Option and as permitted by
any law, rule or regulation to which the Company is subject.
The Corporate Agreement further provides that, upon the request of
Kennametal, the Company will use its best efforts to effect the registration
under the applicable federal and state securities laws of any of the shares of
Common Stock (and any other securities issued in respect of or in exchange for
either) held by Kennametal for sale in accordance with Kennametal's intended
method of disposition thereof and will take such other actions necessary to
permit the sale thereof in other jurisdictions, subject to certain limitations
specified in the Corporate Agreement. Although as of the date of this
Prospectus, Kennametal has no current plan or intention other than to hold its
shares of Class B Common Stock for the foreseeable future, Kennametal will also
have the right, which it may exercise at any time and from time to time, to
include the shares of Class A Common Stock (and any other securities issued in
respect of or in exchange for either) held by it in certain other registrations
of common equity securities of the Company initiated by the Company on its own
behalf or on behalf of its other shareholders. The Company will agree to pay all
out-of-pocket costs and expenses (other than underwriting discounts and
commissions) in connection with each such registration that Kennametal requests
or in which Kennametal participates. Subject to certain limitations specified in
the Corporate Agreement, such registration rights will be assignable by
Kennametal and its assigns. The Corporate Agreement contains indemnification and
contribution provisions (i) by Kennametal and its permitted assigns for the
benefit of the Company and related persons and (ii) by the Company for the
benefit of Kennametal and the other persons entitled to effect registrations of
Common Stock and related persons.
The Corporate Agreement provides that for so long as Kennametal maintains
beneficial ownership of at least 40% of the number of outstanding shares of
Common Stock, the Company may not take any action or enter into any commitment
or agreement which may reasonably be anticipated to result, with or without
notice and with or without lapse of time or otherwise, in a contravention or an
event of default by Kennametal of (i) any provision of applicable law or
regulation, including but not limited to provisions pertaining to the Code or
ERISA, (ii) any provision of Kennametal's Articles of Incorporation or
Kennametal's By-Laws, (iii) any credit agreement or other material instrument
binding upon Kennametal or (iv) any judgment, order or decree of any
governmental body, agency or court having jurisdiction over Kennametal or any of
its affiliates or any of their respective assets.
The Corporate Agreement also provides that if the Underwriters exercise
their over-allotment option to acquire additional shares of Class A Common
Stock, Kennametal will surrender a number of its shares of Class B Common Stock
which equals the number of additional shares of Class A Common Stock purchased
by the Underwriters from the Company.
CONFLICTS OF INTEREST
Conflicts of interest may arise between the Company and Kennametal in a
number of areas relating to their past and ongoing relationships, including
potential acquisitions of businesses or properties, potential competitive
business activities, the election of new or additional directors, payment of
dividends, incurrence of indebtedness, tax matters, financial commitments,
marketing functions, indemnity arrangements, registration rights, administration
of benefits plans, service arrangements, issuances of capital stock of the
Company, sales or distributions by Kennametal of its remaining shares of Common
Stock and the exercise by Kennametal of its ability to control the management
and affairs of the Company. The Company cannot engage in the manufacture of
metalcutting tools and inserts and other related products in which Kennametal is
engaged. The Articles of Incorporation and the Corporate Opportunities Agreement
contain certain noncompete provisions. Circumstances could arise, however, in
which the Company and Kennametal would engage in activities in competition with
one another.
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The Company and Kennametal may enter into material transactions and
agreements in the future in addition to those described above. The Board will
utilize such procedures in evaluating the terms and provisions of any material
transactions between the Company and Kennametal or its affiliates as the Board
may deem appropriate in light of its fiduciary duties under state law. Depending
on the nature and size of the particular transaction, in any such evaluation,
the Board may rely on management's statements and opinions and may or may not
utilize outside experts or consultants or obtain independent appraisals or
opinions.
Four of the six current directors of the Company are also directors of
Kennametal, including Kennametal's Chairman, William R. Newlin, and Kennametal's
Chief Executive Officer, Robert L. McGeehan. Directors of the Company who are
also directors of Kennametal will have conflicts of interest with respect to
matters potentially or actually involving or affecting the Company and
Kennametal, such as acquisitions, financing and other corporate opportunities
that may be suitable for the Company and Kennametal. To the extent that such
opportunities arise, such directors may consult with their legal advisors and
make a determination after consideration of a number of factors, including
whether such opportunity is presented to any such director in his capacity as a
director of the Company, whether such opportunity is within the Company's line
of business or consistent with its strategic objectives and whether the Company
will be able to undertake or benefit from such opportunity. In addition,
determinations may be made by the Board, when appropriate, by the vote of the
disinterested directors only. Notwithstanding the foregoing, there can be no
assurance that conflicts will be resolved in favor of the Company.
So long as the Company remains a subsidiary of Kennametal, the directors
and officers of the Company will, subject to certain limitations, be indemnified
by Kennametal and insured under insurance policies maintained by Kennametal
against liability for actions taken or omitted to be taken in their capacities
as directors and officers of the Company, including actions or omissions that
may be alleged to constitute breaches of the fiduciary duties owed by such
persons to the Company and its shareholders. This insurance may not be
applicable to certain of the claims which Kennametal may have against the
Company pursuant to the Indemnification Agreement or otherwise. It is
contemplated that, in the event that Kennametal ceases to own in excess of a
majority of the voting power of the Common Stock, the Company will obtain its
own insurance coverage for its directors and officers in respect of such matters
comparable to that currently provided by Kennametal.
KENNAMETAL'S ALTERNATIVES FOR ITS SHARES OF COMMON STOCK
As of the date of this Prospectus, Kennametal has no current plan or
intention other than to hold its shares of Class B Common Stock for the
foreseeable future. After the date of the Offering, options which may be
considered by Kennametal regarding its interest in the Company include whether
to sell all or a portion of its shares of Common Stock to the public in a
subsequent public offering or to a strategic investor or to distribute pro rata
to its shareholders its remaining shares of Common Stock by a dividend intended
to be tax-free for federal income tax purposes to Kennametal's shareholders and
to Kennametal. See "Description of Capital Stock--Common Stock."
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (a)(i) 75,000,000
shares of Class A Common Stock, par value $.01 per share, of which no shares are
outstanding as of the date hereof and (ii) 50,000,000 shares of Class B Common
Stock, par value $.01 per share, of which one share is outstanding as of the
date hereof, and (b) 25,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of which no shares are outstanding as of the date
hereof. Of the 75,000,000 shares of Class A Common Stock authorized, 4,257,000
are being offered hereby (4,897,000 shares if the Underwriters' over-allotment
option is exercised in full), and 20,897,000 shares are reserved for issuance
upon conversion of Class B Common Stock into Class A Common Stock. Of the
50,000,000 shares of Class B Common Stock authorized, 20,897,000 shares will be
held by Kennametal upon consummation of the Offering (20,257,000 if the
Underwriter's over-allotment option is exercised in full). A description of the
material terms and provisions of the Articles of Incorporation affecting the
relative rights of the Class A Common Stock, the Class B Common Stock and the
Preferred Stock is set forth below. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Articles and the By-Laws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Voting Rights. The holders of Class A Common Stock and Class B Common Stock
generally have identical rights, except that holders of Class A Common Stock are
entitled to one vote per share, while holders of Class B Common Stock are
entitled to 10 votes per share, on all matters to be voted on by the
shareholders. Generally, all matters to be voted on by the shareholders must be
approved by a majority of the votes cast by the holders of all shares of Class A
Common Stock and Class B Common Stock present in person or represented by proxy,
voting together as a single class, subject to any voting rights granted to
holders of any Preferred Stock. Except as otherwise provided by law, and subject
to any voting rights granted to holders of any outstanding Preferred Stock,
amendments to the Articles must be approved by a majority of the combined votes
cast by the holders of all shares of Class A Common Stock and Class B Common
Stock present in person or represented by proxy, voting together as a single
class. However, amendments to the Articles that would alter or change the
powers, preferences or special rights of the Class A Common Stock or the Class B
Common Stock so as to affect them adversely also must be approved by a majority
of the votes cast by the holders of the shares affected by the amendment present
in person or represented by proxy, voting as a separate class. In addition,
approval of certain other transactions with persons other than Kennametal and
its affiliates will require the approval of a majority of certain shareholders.
See "--Certain Provisions of the Articles and By-Laws--Change of Control
Provisions--PBCL Anti-Takeover Provisions."
Board Classification and Cumulative Voting. In accordance with the terms of
the Articles, prior to the Control Termination Date, members of the Board of
Directors of the Company will hold office for one year terms, will be elected at
each annual meeting of the shareholders of the Company and shareholders will not
be entitled to cumulate their votes in the election of directors. On or as
reasonably practicable after the Control Termination Date, the Board will be
divided into three classes designated as Class I, Class II and Class III,
respectively, with staggered three-year terms of office. At each annual meeting
thereafter, directors who are elected to succeed the class of directors whose
terms expire at that meeting will be elected for three-year terms and
shareholders will have cumulative voting rights (i.e., in voting for directors
each shareholder multiplies the total number of votes which its shares represent
by the number of directors to be elected and is entitled to cast the entire
number of votes so determined for one nominee or to distribute them among the
nominees in such proportion as the shareholder may determine). This
classification of the Board and cumulative voting will help to ensure continuity
and stability of corporate leadership and policy of the Company after Kennametal
has divested itself of a controlling interest in the Company. The classification
of the Board will also have the effect, however, of increasing the period of
time before each member of the Board will be re-elected or can be replaced,
which may have the effect of frustrating persons seeking to effect a takeover or
assume control of the Board.
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Dividends. Holders of Class A Common Stock and Class B Common Stock will
share ratably in any dividends declared by the Board, subject to any
preferential rights of any outstanding Preferred Stock. Dividends consisting of
shares of Class A Common Stock and Class B Common Stock may be paid only as
follows: (i) shares of Class A Common Stock may be paid only to holders of
shares of Class A Common Stock, (ii) shares of Class B Common Stock may be paid
only to holders of shares of Class B Common Stock, and (iii) shares shall be
paid proportionally with respect to each outstanding share of Class A Common
Stock and Class B Common Stock.
Dividends may be paid on the Common Stock if, when and as determined by the
Board from time to time out of any funds legally available therefor. Under the
Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL"), a
dividend may not be paid if the Company is at the time insolvent or would be
insolvent after the payment of such dividend.
The Company intends to retain its future earnings to finance the
development, expansion and growth of its business and does not presently intend
to pay cash dividends to the holders of Class A Common Stock in the foreseeable
future. The payment of future dividends on the Class A Common Stock, if any,
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company, general business conditions and
limitations imposed by Pennsylvania law. See "Dividend Policy." By virtue of its
stock ownership, Kennametal will have the ability to change the size and
composition of the Board and thereby control the payments of dividends by the
Company.
Conversion. Each share of Class B Common Stock will convert into one share
of Class A Common Stock (i) while such share of Class B Common Stock is held by
Kennametal, at the option of Kennametal prior to a Tax-Free Spin-Off, (ii)
automatically on the Control Termination Date if it occurs prior to a Tax-Free
Spin-Off, and (iii) automatically upon a transfer by Kennametal to a person
other than an affiliate of Kennametal or upon any Kennametal affiliate holding
such share ceasing to be a Kennametal affiliate, except for a disposition
effected in connection with a transfer of Class B Common Stock to shareholders
of Kennametal as a dividend in a transaction intended to be tax-free under the
Code (a "Tax-Free Spin-Off") to Kennametal and its shareholders. If Kennametal
determines to effect a Tax-Free Spin-Off and in its discretion determines that
it could effect a Tax-Free Spin-Off by distribution of the shares of Class A
Common Stock into which the Class B Common Stock can be converted, Kennametal
will convert its Class B Common Stock into Class A Common Stock immediately
prior to such Tax-Free Spin-Off and distribute such shares of Class A Common
Stock rather than shares of Class B Common Stock to its shareholders. At
present, the Code requires, among other matters, that a company have beneficial
ownership of at least 80% of the voting power of outstanding common stock in
order for a spin-off to be tax-free under the Code.
Following a Tax-Free Spin-Off of the Class B Common Stock, shares of Class
B Common Stock will automatically convert into shares of Class A Common Stock on
the fifth anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free
Spin-Off, Kennametal delivers to the Company written advice of counsel
reasonably satisfactory to the Company (which shall include Kennametal's General
Counsel) to the effect that either (i) such conversion could adversely affect
the ability of Kennametal to obtain a favorable ruling from the Internal Revenue
Service (the "IRS") that the distribution would be a Tax-Free Spin-Off or (ii)
the IRS has adopted a general non-ruling policy on tax-free spin-offs and that
such conversion could adversely affect the status of the distribution as a
Tax-Free Spin-Off. If such written advice is received, approval of such
conversion will be submitted to a vote of the holders of the Company's Common
Stock as soon as practicable after the fifth anniversary of the Tax-Free
Spin-Off unless Kennametal delivers to the Company written advice of counsel
reasonably satisfactory to the Company (which shall include Kennametal's General
Counsel) prior to such anniversary that such vote would adversely affect the
status of the distribution as a Tax-Free Spin-Off, including the ability to
obtain a favorable ruling from the IRS; if such written advice is delivered, the
Company shall call no such meeting, no such meeting shall be held and no such
vote shall be taken. Approval of such conversion will require the affirmative
vote of the holders of a majority of the shares of both the Company's Class A
Common Stock and Class B Common Stock present and voting, voting together as a
single class, with each share entitled to one vote for such purpose. No
assurance can be given that such
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conversion would be consummated. Kennametal has no current plans with respect to
a Tax-Free Spin-Off of the Company.
The foregoing requirements are intended to ensure that tax-free treatment
of the Tax-Free Spin-Off is preserved should the IRS challenge such automatic
conversion as violating the 80% vote requirement currently required by the Code
for a tax-free spin-off. Similarly, the requirement to submit a conversion to a
vote of the holders of Common Stock is intended to preserve such tax treatment
should the IRS challenge such automatic conversion as violating the 80% vote
requirement.
All conversions will be effected on a share-for-share basis. Automatic
conversion of the Class B Common Stock into Class A Common Stock if a Tax-Free
Spin-Off has not occurred on the Control Termination Date is intended to ensure
that Kennametal retains voting control by virtue of its ownership of Class B
Common Stock only if it has a material economic interest in the Company.
In addition, in order to give any holder of the Class A Common Stock or
Class B Common Stock the right to participate in any offer for a significant
amount of the shares of the other class that is not similarly offered for the
shares of such holder's class, shares of Common Stock of each class will be
convertible, at the option of the registered holder thereof, on a
share-for-share basis, into shares of the other class if any person (other than
Kennametal and, in the case of Class A Common Stock, only following a Tax-Free
Spin-Off), or any group of persons agreeing to act together for the purpose of
acquiring, holding, voting or disposing of shares of Common Stock (other than
Kennametal or any one or more of its affiliates), makes an offer, which the
Board deems to be a bona fide offer, to purchase five percent or more of the
other class of Common Stock for cash and/or other securities or property without
making a similar offer for the shares of such class. The shares of Common Stock
of a class may be so converted only during the period in which such bona fide
offer is in effect. Any share of Common Stock so converted and not acquired by
the offeror prior to the termination, rescission or completion of the offer will
automatically reconvert to a share of the class from which it was converted upon
such termination, rescission or completion.
Other Rights. In the event of a voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of shares of Common Stock
will be entitled to share in all assets of the Company remaining after the
payment of its liabilities, subject to prior distribution rights and payment of
any distributions owing to holders of shares of Preferred Stock then
outstanding, if any. No shares of either class of Common Stock are subject to
redemption or have preemptive rights to purchase additional shares of Common
Stock. The Company may issue Common Stock, option rights or securities having
conversion or option rights without first offering them to the holders of the
Common Stock. Upon consummation of the Offering, all the outstanding shares of
Class A Common Stock and Class B Common Stock will be legally issued, fully paid
and nonassessable.
PREFERRED STOCK
The Board is authorized, without further action by the shareholders of the
Company and with the full authority permitted by law, to issue the Preferred
Stock from time to time in one or more classes or series and to determine the
voting rights, designations, preferences, limitations, qualifications,
privileges, options, restrictions and special rights, if any, including, without
limitation, the dividend rights, conversion rights, voting rights, redemption
rights and maturity dates thereof. The Preferred Stock is available for possible
future financing and acquisition transactions, stock dividends or distributions,
employee benefit plans and other general corporate purposes. Under certain
circumstances, the Preferred Stock could be used to create voting impediments or
to frustrate persons seeking to effect a takeover, assume control of the Board
or otherwise gain control of the Company.
CERTAIN PROVISIONS OF THE ARTICLES AND BY-LAWS
CHANGE OF CONTROL PROVISIONS. Certain provisions of the Articles and
By-Laws may have the effect of delaying, deferring or preventing a change of
control of the Company that would be operative with respect to an extraordinary
corporate transaction involving the Company, such as a merger, reorganization,
tender offer, sale or transfer of substantially all of its assets or
liquidation. These provisions might discourage a potentially
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interested purchaser from attempting a unilateral takeover bid for the Company
on terms which some shareholders might favor. Although the Company does not
believe that, by discouraging potential takeover bids, these provisions will
depress the stock price of the Common Stock, these provisions might diminish the
opportunity for the shareholders of the Company to sell their shares at a
premium over then prevailing market prices. Set forth below is a discussion of
such provisions.
Advance Notice of Business to be Brought Before Shareholder
Meetings. Except as otherwise provided with respect to the nomination of
directors, the By-Laws restrict the ability of a shareholder other than
Kennametal to bring business before an annual or special meeting of
shareholders. Specifically, to do so, such shareholder must provide written
notice of the proposed business to the Secretary of the Company at least 60 days
in advance of such annual or special meeting (or if less than 60 days' notice or
prior public disclosure of the date of such annual or special meeting is given,
not later than 10 days after the date of mailing of such notice or the date of
such public disclosure, whichever occurs first). Such shareholder notice is
required to set forth the following information: (i) the name and address of the
shareholder proposing such business; (ii) a brief description of such business;
(iii) the class, series and number of shares of the Company's capital stock
owned by such shareholder; (iv) a description of all arrangements or
understandings between such shareholder and any other person or persons (naming
such person or persons) in connection with such business or any special interest
such shareholder may have in connection with such business; (v) all other
information as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission had proxies been solicited with
respect to such business by the Board; and (vi) a representation that the
shareholder is a shareholder of record of stock of the Company entitled to vote
at such meeting and intends to appear in person or by proxy in order to present
such proposal.
The foregoing provisions may delay the ability of shareholders to bring
matters before annual or special meetings of the shareholders other than matters
which the Company deems desirable and may provide sufficient time for the
Company to institute litigation or take other appropriate steps to respond to
such business or to prevent such business from being acted upon, if such
response or prevention is thought to be necessary or desirable for any reason.
The foregoing provisions do not limit a shareholder's right to provide a
proposal for inclusion in the proxy statement of the Company in accordance with
Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Special Shareholder Meetings. Separately, the PBCL provides that unless
specifically permitted in the corporation's articles, shareholders of a
registered corporation are not entitled to call a special meeting of
shareholders. The Articles only permit Kennametal and its affiliates prior to
the Control Termination Date to call a special meeting.
Advance Notice of Nominees for the Board. The By-Laws restrict the ability
of a shareholder other than Kennametal to nominate individuals for election as
directors. Specifically, in order for such shareholder to make such
nomination(s), such shareholder must provide written notice of such
shareholder's intent to make such nomination(s) to the Secretary of the Company
at least 60 days in advance of the meeting of the shareholders at which such
election is to be held (or if less than 60 days' notice or prior public
disclosure of the date of such annual meeting is given, not later than 10 days
after the date of mailing of such notice or the date of such public disclosure,
whichever occurs first). Such shareholder notice is required to set forth the
following information: (i) the name and address of the shareholder who intends
to make the nomination(s) and of the person(s) to be nominated; (ii) the class,
series and number of shares of the Company's capital stock owned by such
shareholder and a representation that the shareholder is a holder of record of
such stock of the Company and intends to appear in person or by proxy at the
meeting to nominate the person(s) specified in the notice; (iii) a description
of all arrangements or understandings between such shareholder and any other
person(s), naming such person(s), pursuant to which the nomination or
nominations are to be made by the shareholder; (iv) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission had the nominee been nominated by the Board; and (v) the consent of
each nominee to serve as a director of the Company if so elected.
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The foregoing provisions provide the Company sufficient time to assess the
qualifications of any person proposed for election to the Board and provide
sufficient time for the Company to institute litigation or take other
appropriate steps to prevent the nominee from being elected or serving, if such
prevention is thought to be necessary or desirable for any reason. Such
provisions also may inhibit shareholders who do not have any intention of
controlling the Company or the Board from participating in the nomination
process.
Removal of Directors. The Articles provide that prior to the Control
Termination Date, the entire Board of Directors, any class of directors or any
individual director may be removed from office, without cause by a vote of the
shareholders or of the holders of a class or series of shares entitled to elect
such directors or director. On or after the Control Termination Date, directors
may be removed from office by a vote of the shareholders or of the holders of a
class or series of shares entitled to elect such directors or director only for
"Cause," which is defined as (i) a judicial declaration of unsound mind, (ii)
conviction of an offense punishable by imprisonment for a term of more than one
year, (iii) breach of failure to perform statutory duties which constitute self
dealing, willful misconduct or recklessness, or (iv) failure to accept election
as a director within 180 days following notice of such election.
Limitation Of Liability. The Articles provides that, to the fullest extent
permitted by law, directors of the Company will not be personally liable for
monetary damages for any action taken, or any failure to take any action, as a
director.
PBCL Anti-Takeover Provisions. The PBCL contains a number of statutory
"anti-takeover" provisions, including Subchapters E, F, G and H of Chapter 25
and Section 2538 of the PBCL, which apply automatically to a Pennsylvania
registered corporation (usually a public company) unless such corporation elects
to opt-out as provided in such provisions. The Company, as a new Pennsylvania
registered corporation, has elected in its Articles to opt-out of certain of the
anti-takeover provisions entirely, namely Subchapters E and G (and the related
Subchapters I and J as discussed below) and Subchapters F and H, and has elected
in its Articles to exclude Kennametal and its affiliates from Section 2538
(which applies to transactions with interested shareholders). Upon completion of
the Offering, Kennametal will beneficially own approximately 98.0% of the
combined voting power of all classes of voting stock of the Company (97.6% if
the Underwriters' over-allotment option is exercised). The Company believes that
certain of the PBCL "anti-takeover" provisions are less necessary as a result of
such ownership structure and elimination of such provisions alleviates their
being inadvertently triggered by virtue of the Company's ownership structure,
contrary to the intentions of such provisions.
The following descriptions are qualified in their entirety by reference to
such provisions of the PBCL:
Subchapter E (relating to control transactions) generally provides
that if any person or group acquires 20% or more of the voting power of a
covered corporation, the remaining shareholders may demand from such person
or group the fair value of their shares, including a proportionate amount
of any control premium.
Subchapter F (relating to business combinations) generally delays for
five years and imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions between a
corporation and an interested shareholder including mergers, sales or
leases of specified amounts of assets, liquidations, reclassifications and
issuances of specified amounts of additional shares of stock of the
corporation. An "interested shareholder" is defined generally as the
beneficial owner of at least 20% of a corporation's voting shares.
Subchapter G (relating to control-share acquisitions) generally
prevents a person or group who has acquired 20% or more of the voting power
of a covered corporation from voting such shares unless the "disinterested"
shareholders approve such voting rights. Failure to obtain such approval
exposes the owner to the risk of a forced sale of the shares to the issuer.
If shareholder approval is obtained, the corporation is also subject to
Subchapters I and J of Chapter 25 of the PBCL. Subchapter I provides for a
minimum severance payment to certain employees terminated within two years
of the approval. Subchapter J prohibits the abrogation of certain labor
contracts prior to their stated date of expiration.
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Subchapter H (relating to disgorgement) generally applies in the event
that any person or group publicly discloses that the person or group may
acquire control of the corporation or a person or the group acquires (or
publicly discloses an offer or intent to acquire) 20% or more of the voting
power of the corporation and, in either case, sells shares within 18 months
thereafter. Any profits from sales of equity securities of the corporation
by the person or the group during the 18-month period belong to the
corporation if the securities that were sold were acquired during the
18-month period or within the preceding 24 months.
Section 2538 of the PBCL generally establishes certain shareholder
approval requirements with respect to specified transactions with
"interested shareholders."
Also, Subchapters E, F, G and H contain a wide variety of
transactional and status exemptions, exclusions and safe harbors.
LIMITATIONS ON THE COMPANY'S BUSINESS ACTIVITIES. The Articles provide
that, at any time prior to the day after the third annual meeting of
shareholders held after the Control Termination Date, the Company will not,
directly or indirectly (whether through a subsidiary of, or any other person
controlled by, the Company), for its own account or for the account of another,
engage in manufacturing metalworking tools, inserts or related products,
including, but not limited to, cutting tools, carbide and other tool inserts,
abrasives, drills, machine tool accessories, hand tools and other industrial
supplies (collectively, the "Metalworking Products").
The Articles also provide that, at any time prior to the day after the
third annual meeting of shareholders held after the Control Termination Date,
the Company will not, directly or indirectly (whether through a subsidiary of,
or any other person controlled by, the Company), engage in any business or
activity other than the Industrial Supply Business without the consent of
Kennametal or a majority vote of the Company's shareholders and that no person
will be liable for breach of any fiduciary duty as a shareholder or controlling
person of the Company, or otherwise, by reason of such person consenting to or
voting in favor of, or not consenting to or voting against authorization for the
Company to engage in any business or activity other than the Industrial Supply
Business.
The Articles also require that, at any time prior to the day after the
third annual meeting of shareholders held after the Control Termination Date,
unless Kennametal otherwise consents, the Company shall purchase from Kennametal
or its affiliates all of the Company's direct-marketing requirements for
Metalworking Products available from Kennametal or its affiliates.
After the Control Termination Date and before the day after the third
annual meeting of shareholders held after the Control Termination Date, this
provision may be amended, altered or repealed only by the unanimous vote of all
shareholders entitled to vote thereon.
CORPORATE OPPORTUNITIES. The Articles provide that, at any time prior to
the day after the third annual meeting of shareholders held after the Control
Termination Date, no opportunity, transaction, agreement or other arrangement to
which Kennametal or its affiliates is a party shall be a corporate opportunity
of the Company, directly or indirectly (whether through a subsidiary of, or any
other person controlled by, the Company), unless such opportunity, transaction,
agreement or other arrangement was initially offered to the Company or its
subsidiaries before it is offered to Kennametal and either: (i) the Company or
its subsidiaries has an enforceable contractual interest in such opportunity,
transaction, agreement or arrangement or (ii) the subject matter of such
opportunity, transaction, agreement or other arrangement is a constituent
element of an activity in which the Company or its subsidiaries is then actively
engaged. Even if the foregoing conditions were met, the Articles provide that
such fact alone does not conclusively render such opportunity the property of
the Company. After the Control Termination Date and before the day after the
third annual meeting of shareholders held after the Control Termination Date,
this provision may be amended, altered or repealed only by the unanimous vote of
all shareholders entitled to vote thereon.
Kennametal may in the future receive business opportunities which would be
suitable for either the Company or Kennametal (or an affiliate of Kennametal
other than the Company). There can be no assurance that such business
opportunities will be offered to the Company.
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NEW YORK STOCK EXCHANGE LISTING
Prior to the date of this Prospectus, there has been no established public
market for the Common Stock. Application will be made for listing of the Class A
Common Stock on the New York Stock Exchange under the symbol "JLK."
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. will serve as the Transfer Agent
and Registrar for the Class A Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 4,257,000 shares
of Class A Common Stock issued and outstanding (4,897,000 if the Underwriters'
over-allotment option is exercised in full) and 20,897,000 shares of Class B
Common Stock issued and outstanding (20,257,000 if the Underwriter's over-
allotment option is exercised in full). All of the shares of Class A Common
Stock to be sold in the Offering will be freely transferable and tradable
without restrictions under the Securities Act, except for any shares purchased
by an "affiliate" of the Company (as that term is defined in Rule 144 adopted
under the Securities Act ("Rule 144")), which will be subject to the resale
limitations of Rule 144. All of the outstanding shares of Class B Common Stock
are owned by Kennametal and have not been registered under the Securities Act
and may not be sold in the absence of an effective registration statement under
the Securities Act other than in accordance with Rule 144 or another exemption
from registration. Kennametal has certain rights to require the Company to
effect registration of shares of Common Stock owned by Kennametal, which rights
may be assigned. See "Relationship with Kennametal--Corporate Agreement."
In general, under Rule 144 as currently in effect, a person (including an
affiliate) who beneficially owns shares that are "restricted securities" as to
which at least one year has elapsed since the later of the date of acquisition
of such securities from the issuer or from an affiliate of the issuer, and any
affiliate who owns shares that are not "restricted securities", is entitled to
sell within any three-month period, a number of shares that does not exceed
(together with the sales by other persons required to be aggregated) the greater
of one percent of the total number of outstanding shares of the class of stock
being sold or the average weekly reported trading volume of the class of stock
being sold during the four calendar weeks preceding the filing of the required
notice of such sale. A person (or persons whose shares are aggregated) who is
not deemed an "affiliate" of the Company and who has beneficially owned
restricted securities as to which at least two years have elapsed since the
later of the date of the acquisition of such securities from the issuer or from
an affiliate of the issuer is entitled to sell such shares without regard to the
volume limitations described above. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly or indirectly through the use of one or more
intermediaries controls, is controlled by, or is under common control with, such
issuer.
Prior to the Offering, there has been no public market for the Common
Stock. No predictions can be made as to the effect, if any, that future sales of
Common Stock or the availability of such shares for sale will have on the
prevailing market prices of the Class A Common Stock following the Offering.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing market
prices for Class A Common Stock. Although Kennametal in the future may effect or
direct sales or other dispositions of Common Stock that would reduce its
beneficial ownership interest in the Company, Kennametal has advised the Company
that its current intention is to continue to hold all of the Class B Common
Stock beneficially owned by it immediately after the completion of the Offering.
However, Kennametal has no agreement with the Company not to sell or distribute
such shares and, other than pursuant to the Purchase Agreement described below,
there can be no assurance concerning the period of time during which Kennametal
will maintain its beneficial ownership of Common Stock. Beneficial ownership of
at least 80% of the total voting power and value of the outstanding Common Stock
is required in order for Kennametal to continue to include the Company in its
consolidated group for federal tax purposes and ownership of at least 80% of the
total voting power and 80% of each class of nonvoting capital stock is required
in order for Kennametal to be able to effect a Tax-Free Spin-Off of the Company.
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Kennametal has indicated to the Company that any decision by Kennametal to
reduce such beneficial ownership interest would be made in the future on the
basis of all of the circumstances existing at such time, including the effect,
if any, of any such reduction on Kennametal, stock market conditions and other
factors. The Company and Kennametal have agreed not to (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Class A
Common Stock or any securities convertible into or exercisable or exchangeable
for Class A Common Stock (including Class B Common Stock) or file any
registration statement under the Securities Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock
(including Class B Common Stock) whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Class A Common Stock
or such other securities, in cash or otherwise, for a period of 180 days from
the date of this Prospectus without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated on behalf of the Underwriters, except for
any shares of Class A Common Stock issued or options to purchase Class A Common
Stock granted pursuant to the Company's employee benefit plans described herein.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and each of the underwriters named below
(the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase from
the Company, the aggregate number of shares of Class A Common Stock set forth
opposite its name below. The Purchase Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Class A Common
Stock offered hereby if any of such shares are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Goldman, Sachs & Co...................................................
---------
Total.................................................... 4,257,000
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the shares of Class A Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The Company has granted the Underwriters an option exercisable for 30 days
from the date of this Prospectus to purchase up to an aggregate of 640,000
additional shares of Class A Common Stock at the public offering price set forth
on the cover page of this Prospectus, less the underwriting discount. The
Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of the shares of Class A Common Stock offered hereby. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof which the number of shares of Class A Common Stock to be
purchased by it shown in the foregoing table bears to the 4,257,000 shares of
Class A Common Stock initially offered hereby.
The Company and Kennametal have agreed not to (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Class A Common Stock
or any securities convertible into or exercisable or exchangeable for Class A
Common Stock (including Class B Common Stock) or file any registration statement
under the Securities Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership of the
Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock (including Class B Common Stock) whether
any such swap or transaction described in clause (i) or (ii) above is to be
settled by delivery of Class A Common Stock or such other securities, in cash or
otherwise, for a period of 180 days from the date of this Prospectus without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated on
behalf of the Underwriters, except for any shares of Class A Common Stock issued
or options to purchase Class A Common Stock granted pursuant to the Company's
employee benefit plans described herein.
The Company and Kennametal have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the Underwriters may be required to make in respect
thereof.
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Until the distribution of the Class A Common Stock is completed, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Class A Common Stock. As an exception
to these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Class A Common Stock. Such transactions consist
of bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offering (i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of the Prospectus), the Underwriters
may reduce that short position by purchasing Class A Common Stock in the open
market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Class A Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Class A Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Certain of the Underwriters have provided from time to time, and may
provide in the future, investment banking services to Kennametal, the Company
and their affiliates, for which such Underwriters have received and will receive
customary fees and commissions.
Application will be made for listing of the Class A Common Stock on the New
York Stock Exchange under the trading symbol "JLK." In order to meet the
requirements for listing the Class A Common Stock on the New York Stock
Exchange, the Underwriters will undertake to sell lots of 100 or more shares of
Class A Common Stock to a minimum of 2,000 beneficial owners.
The Underwriters have reserved for sale, at the initial public offering
price, shares of the Class A Common Stock for certain employees and directors of
the Company and Kennametal and to certain outside parties, largely product
vendors of the Company, who have expressed an interest in purchasing such shares
of Class A Common Stock. Such employees, directors and other persons are
expected to purchase, in the aggregate, not more than 5% of the Class A Common
Stock offered in the Offering. The number of shares available for sale to the
general public in the Offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as other shares offered hereby.
Prior to the Offering, there has been no established trading market for the
shares of Class A Common Stock. The initial public offering price for the Class
A Common Stock offered hereby has been determined by negotiations between the
Company and the Underwriters. Among the factors considered in making such
determination were the history of and the prospects for the industry in which
the Company competes, an assessment of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company and the trend of its revenues and earnings, the prospects for future
earnings of the Company, the general condition of the securities markets at the
time of the Offering, the prices of similar securities of generally comparable
companies and other relevant factors. There can be no assurance that an active
trading market will develop for the Class A Common Stock or that the Class A
Common Stock will trade in the public market subsequent to the Offering at or
above the initial public offering price.
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The Underwriters have informed the Company that they do not intend to
confirm sales of Class A Common Stock offered hereby to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The validity of the Class A Common Stock being offered hereby will be
passed upon for the Company by Buchanan Ingersoll Professional Corporation,
Pittsburgh, Pennsylvania. William R. Newlin, Chairman of the Board of the
Company and Kennametal, is a shareholder in Buchanan Ingersoll Professional
Corporation. As of April 28, 1997, Mr. Newlin beneficially owned 23,052 shares
of Kennametal Capital Stock and 8,322 Kennametal Stock Credits. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York. Simpson Thacher & Bartlett will rely on
Buchanan Ingersoll Professional Corporation with respect to matters of
Pennsylvania law.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Class A Common Stock offered hereby. This Prospectus, which constitutes part of
the Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement, including exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices at Seven World
Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. In addition, the Registration Statement may
be accessed electronically at the Commission's site on the World Wide Web at
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
Prior to the Offering, the Company has not been required to file reports
under the Exchange Act. However, following the consummation of the Offering, the
Company will be required to file reports proxy statements and other information
with the Commission pursuant to the Exchange Act. Such reports, proxy statements
and other information can be inspected and copied at the addresses, and may be
accessed electronically at the web site, set forth above. The Company intends to
furnish to its shareholders annual reports containing audited financial
statements following the end of each fiscal year and to make available quarterly
reports containing unaudited summary financial information for the first three
fiscal quarters of each fiscal year. Kennametal is subject to the information
requirements of the Exchange Act and in accordance therewith files reports and
other information with the Commission.
67
<PAGE> 69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Statements of Income..................................................... F-3
Consolidated Balance Sheets........................................................... F-4
Consolidated Statements of Cash Flows................................................. F-5
Consolidated Statements of Shareholder's Equity....................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO JLK DIRECT DISTRIBUTION INC.
We have audited the accompanying consolidated balance sheets of JLK Direct
Distribution Inc. as of June 30, 1995 and 1996, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended June 30, 1996. 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 financial position of JLK Direct
Distribution Inc. and subsidiaries as of June 30, 1995 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
April 25, 1997 (except with respect
to the matters discussed in Note 12,
as to which the date is May 30, 1997)
F-2
<PAGE> 71
JLK DIRECT DISTRIBUTION INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $144,933 $188,202 $243,969 $175,989 $225,195
Cost of goods sold........................ 100,672 127,917 166,326 120,017 152,339
-------- -------- -------- -------- --------
Gross profit............................ 44,261 60,285 77,643 55,972 72,856
Operating expenses........................ 33,026 40,658 52,761 38,217 50,425
-------- -------- -------- -------- --------
Operating income........................ 11,235 19,627 24,882 17,755 22,431
Interest and other........................ -- -- -- -- --
-------- -------- -------- -------- --------
Income before income taxes................ 11,235 19,627 24,882 17,755 22,431
Provision for income taxes................ 4,522 7,799 9,819 7,019 8,812
-------- -------- -------- -------- --------
Net income.............................. $ 6,713 $ 11,828 $ 15,063 $ 10,736 $ 13,619
======== ======== ======== ======== ========
Unaudited data, as adjusted:
Pro forma net income per share............ $ 0.71 $ 0.64
======== ========
Pro forma weighted average shares
outstanding............................. 21,272 21,272
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 72
JLK DIRECT DISTRIBUTION INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30 MARCH 31,
-------------------- MARCH 31, 1997
1995 1996 1997 (NOTE 12)
------- -------- -------- -----------
(UNAUDITED (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents........................ $ 6,854 $ 690 $ 6,678 $ 6,678
Accounts receivable, less allowance for
doubtful accounts of $152, $175 and $185,
respectively............................. 20,268 32,520 39,697 39,697
Inventories................................. 44,388 59,302 61,659 61,659
Deferred income taxes....................... 1,948 2,838 3,094 3,094
------- -------- -------- --------
Total current assets..................... 73,458 95,350 111,128 111,128
------- -------- -------- --------
Property, plant and equipment:
Land and buildings.......................... 834 1,073 950 950
Machinery and equipment..................... 4,838 6,090 8,177 8,177
Less accumulated depreciation............... (2,596) (3,191) (3,926) (3,926)
------- -------- -------- --------
Net property, plant and equipment........ 3,076 3,972 5,201 5,201
------- -------- -------- --------
Other assets:
Goodwill, net............................... 21,628 20,990 20,512 20,512
Deferred income taxes....................... -- 79 226 226
Other....................................... 731 654 1,065 1,065
------- -------- -------- --------
Total other assets....................... 22,359 21,723 21,803 21,803
------- -------- -------- --------
TOTAL ASSETS............................. $98,893 $121,045 $138,132 $ 138,132
======= ======== ======== ========
LIABILITIES:
Current liabilities:
Accounts payable............................ $ 9,537 $ 13,519 $ 17,617 $ 17,617
Due to Kennametal and affiliates............ 7,853 4,861 3,476 3,476
Income taxes payable........................ 2,683 1,966 2,460 2,460
Accrued vacation pay........................ 640 777 830 830
Other....................................... 800 964 1,105 1,105
Dividends payable........................... -- -- -- 20,000
------- -------- -------- --------
Total current liabilities................ 21,513 22,087 25,488 45,488
------- -------- -------- --------
Deferred income taxes....................... 87 -- -- --
Other liabilities........................... 571 967 1,266 1,266
------- -------- -------- --------
Total liabilities........................ 22,171 23,054 26,754 46,754
------- -------- -------- --------
SHAREHOLDER'S EQUITY:
Investments by and advances from
Kennametal............................... 76,725 98,038 111,244 91,244
Translation adjustment...................... (3) (47) 134 134
------- -------- -------- --------
Total shareholder's equity............... 76,722 97,991 111,378 91,378
------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY................................. $98,893 $121,045 $138,132 $ 138,132
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 73
JLK DIRECT DISTRIBUTION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------- ------------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................................... $6,713 $11,828 $15,063 $10,736 $13,619
Adjustments for noncash items:
Depreciation and amortization................. 1,240 1,278 1,458 1,073 1,118
Noncash transactions with Kennametal.......... 3,438 3,481 5,660 4,067 4,714
Changes in certain assets and liabilities:
Accounts receivable........................... (5,051) 2,100 (12,252) (9,554) (7,177)
Inventories................................... (1,612) (8,697) (14,914) (8,205) (2,357)
Accounts payable and accrued liabilities...... 3,058 6,815 1,278 (127) 2,907
Other......................................... 1,801 1,378 (1,287) (1,253) (21)
------ ------- ------- ------- -------
Net cash flow from (used in) operating
activities.................................... 9,587 18,183 (4,994) (3,263) 12,803
------ ------- ------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment...... (648) (1,175) (2,053) (1,408) (2,028)
Other........................................... 529 234 337 -- 159
------ ------- ------- ------- -------
Net cash flow used in investing activities...... (119) (941) (1,716) (1,408) (1,869)
------ ------- ------- ------- -------
FINANCING ACTIVITIES:
Net cash advances by (payments to) Kennametal... (7,159) (15,391) 590 (1,450) (5,127)
------ ------- ------- ------- -------
EXCHANGE RATE EFFECT ON CASH.................... -- (3) (44) 10 181
CASH AND EQUIVALENTS:
Net increase (decrease) in cash and
equivalents................................... 2,309 1,848 (6,164) (6,111) 5,988
Cash and equivalents, beginning of period....... 2,697 5,006 6,854 6,854 690
------ ------- ------- ------- -------
Cash and equivalents, end of period............. $5,006 $ 6,854 $ 690 $ 743 $ 6,678
====== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE:
Income taxes paid............................... $4,944 $ 7,575 $10,891 $ 8,168 $ 9,168
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 74
JLK DIRECT DISTRIBUTION INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
----------------------------- MARCH 31,
1994 1995 1996 1997
------- ------- ------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period...................... $73,815 $76,807 $76,722 $ 97,991
Net income.......................................... 6,713 11,828 15,063 13,619
Net cash advances by (payments to) Kennametal....... (7,159) (15,391) 590 (5,127)
Other noncash transactions.......................... 3,438 3,481 5,660 4,714
Translation adjustment.............................. -- (3) (44) 181
------- ------- ------- -----------
Balance at end of period............................ $76,807 $76,722 $97,991 $ 111,378
======= ======= ======= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 75
JLK DIRECT DISTRIBUTION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND NATURE OF BUSINESS
The accompanying consolidated financial statements of JLK Direct
Distribution Inc. (the "Company") include the operations of J&L America, Inc.
("J&L"), a wholly owned subsidiary of Kennametal Inc. ("Kennametal"), and Full
Service Supply ("Full Service Supply"), which had been operated as a program of
Kennametal. Prior to April 1, 1997, the Company had no separate legal status or
existence. Kennametal incorporated the Company as a Pennsylvania corporation
under the name "JLK Direct Distribution Inc." in April 1997. In anticipation of
an initial public offering ("IPO"), (i) Kennametal contributed to the Company
the stock of J&L and the assets and liabilities of Full Service Supply and (ii)
the Company and Kennametal entered into certain contractual arrangements (see
Note 12). The Company and Kennametal will operate as separate companies.
The Company is a global distributor of metalworking consumables and related
products to the metalworking industry utilizing mail order catalogs, showrooms,
and integrated industrial supply programs, which constitutes a single business
segment. The Company's executive offices are located in Latrobe, Pennsylvania
and serve both domestic and international markets through its 18 showrooms and
six distribution centers and numerous integrated industrial supply programs,
with the largest concentration in the midwest.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented below to assist
in evaluating the Company's financial statements.
BASIS OF PRESENTATION. The accompanying consolidated financial statements
consist of the financial statements of the Company as described in Note 1. These
statements are presented as if the Company had existed as a corporation separate
from Kennametal and include the historical assets, liabilities, sales and
expenses directly related to the Company's operations that were either
specifically identifiable or allocable. Shareholder's equity (which represents
Kennametal's 100% interest prior to the IPO) comprises both investments by and
non-interest bearing advances from Kennametal. The Company expects that in
connection with the IPO, such amounts will be included as part of the Company's
permanent equity capitalization. All operating expenses related to the Company
have been appropriately reflected in the Company's consolidated financial
statements. All material transactions between entities included in the
consolidated financial statements have been eliminated. The accompanying
financial statements do not include Kennametal's general corporate debt or an
allocation of interest expense.
For the periods presented, certain operating expenses reflected in the
consolidated financial statements include charges for certain services provided
by Kennametal. These charges are based on personnel, business volume or other
appropriate bases and generally include expenses related to information
management and other administrative services. These charges are estimates based
on Kennametal management's best estimate of actual expenses. It is Kennametal
management's opinion that the expenses charged to the Company are reasonable and
are representative of the expenses the Company would have incurred on a
stand-alone basis.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND EQUIVALENTS. Cash as reflected in the consolidated financial
statements represents the Company's position in Kennametal's centralized cash
management system. Kennametal considers temporary cash investments having
original maturities of three months or less as cash equivalents. Cash
equivalents consist principally of investments in money market funds and
certificates of deposit.
INVENTORIES are carried at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
F-7
<PAGE> 76
PROPERTY, PLANT AND EQUIPMENT are carried at cost. Major improvements are
capitalized, while maintenance and repairs are generally expensed as incurred.
Retirements and disposals are removed from cost and accumulated depreciation
accounts, with the gain or loss reflected in net income. Depreciation for
financial reporting purposes is computed using the straight-line method over the
estimated useful lives of the assets ranging from three to 10 years.
ADVERTISING AND CATALOG COSTS. Advertising costs are expensed as incurred.
The costs of producing and distributing the Company's catalog are deferred and
are included in other assets in the Company's balance sheet. These costs are
amortized over the life of the catalog which typically is one year or less.
PRE-OPENING COSTS related to showrooms, distribution centers and new
integrated supply contracts are expensed as incurred.
GOODWILL represents an allocation from Kennametal for the excess of costs
over the fair value of net assets acquired related to the historical acquisition
costs of the Company. Goodwill is being amortized on a straight-line basis over
the expected period to be benefited, which is estimated to be 40 years. The
Company assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
INCOME TAXES. The provision for Federal and state income taxes has been
calculated as if the Company were a stand-alone corporation filing separate tax
returns. Deferred income taxes are recognized based on the future income tax
effects (using enacted tax laws and rates) of differences in the carrying
amounts of assets and liabilities for financial reporting and tax purposes. A
valuation allowance is recognized if it is "more likely than not" that some or
all of a deferred tax asset will not be realized.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of the Company's
international operation are translated into U.S. dollars using year-end exchange
rates, while sales and expenses are translated at average exchange rates
throughout the year. The resulting net translation adjustments are recorded as a
separate component of shareholder's equity.
EARNINGS PER SHARE is computed using the weighted average number of shares
outstanding during the year.
REVENUE RECOGNITION. The Company recognizes revenue from product sales upon
transfer of title to the customer.
NEW ACCOUNTING STANDARDS. In March 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The Company adopted SFAS No. 121 on July 1, 1996 and
the adoption of SFAS No. 121 did not have an impact on the consolidated
financial statements, as the statement is consistent with existing Company
policy.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Under the provisions of SFAS No. 123, companies may elect to
account for stock-based compensation plans using a fair-value-based method or
may continue measuring compensation expense for those plans using the intrinsic-
value-based method. Companies electing to continue using the
intrinsic-value-based method must provide pro forma disclosures of net income
and earnings per share as if the fair-value-based method had been applied.
Management intends to account for stock-based compensation using the
intrinsic-value-based method and, as such, SFAS No. 123 will not have an impact
on the Company's results of operations or financial position. The required
disclosure will be provided in the Company's fiscal 1997 consolidated financial
statements.
The FASB also recently issued SFAS No. 128, "Earnings Per Share" and SFAS
No. 129, "Disclosure of Information about Capital Structures." SFAS No. 128 was
issued in February 1997 and is effective for periods ending after December 15,
1997. This statement, upon adoption, will require all prior period earnings per
share ("EPS") data to be restated to conform to the provisions of the statement.
This statement's objective is to simplify the computations of EPS and to make
the U.S. standard for EPS computations more compatible with that of the
International Accounting Standards Committee. The Company will adopt SFAS No.
128 in fiscal 1998 and does not anticipate that the statement will have a
significant impact on its reported EPS.
F-8
<PAGE> 77
SFAS No. 129 was issued in February 1997 and is effective for periods
ending after December 15, 1997. This statement, upon adoption, will require all
companies to provide specific disclosure regarding their capital structure. SFAS
No. 129 will specify the disclosure for all companies, including descriptions of
their capital structure and the contractual rights of the holders of such
securities. The Company will adopt SFAS No. 129 in fiscal 1998 and does not
anticipate that the statement will have a significant impact on its disclosure.
INTERIM UNAUDITED FINANCIAL INFORMATION. The consolidated financial
statements as of, and for the nine months ended March 31, 1997 and 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
unaudited consolidated financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
3. GOODWILL
Goodwill is comprised of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill....................................................... $25,167 $25,167
Less: Accumulated amortization................................. 3,539 4,177
------- -------
$21,628 $20,990
======= =======
</TABLE>
4. LEASES
The operations of the Company are conducted on leased premises, primarily
leased from related parties. The leases (most of which provide for the payment
of real estate taxes, insurance and other operating costs) are for varying
periods, the longest extending to the year 2005. At June 30, 1996, approximate
minimum annual rentals on such leases are as follows:
<TABLE>
<CAPTION>
TOTAL
(INCLUDING
RELATED RELATED
PARTY PARTY
COMMITMENTS) COMMITMENTS
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
1997...................................... $2,534 $1,199
1998...................................... 2,603 1,201
1999...................................... 2,360 1,188
2000...................................... 1,907 1,181
2001...................................... 1,133 788
2002 and thereafter....................... 342 11
</TABLE>
Total rental expense (exclusive of real estate taxes, insurance and other
operating costs) for all operating leases for the fiscal years ended June 30,
1994, 1995, and 1996 was approximately $1.8 million, $1.8 million and $2.3
million, respectively, including approximately $0.8 million, $0.8 million, and
$1.1 million, respectively, paid to related parties. In the opinion of the
Company's management, these leases with affiliates are on terms which
approximate fair market value.
5. COMMITMENTS AND CONTINGENCIES
The Company has available a credit facility with a bank aggregating $2.0
million, with interest payable at the prevailing prime interest rate. The credit
facility may be terminated at the option of the bank or the Company. At June 30,
1996 and for the nine months ended March 31, 1997, no amounts were outstanding
under the credit facility.
F-9
<PAGE> 78
6. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 utilizes an asset and liability approach and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statements and tax bases of assets and
liabilities given the provisions of enacted tax laws. The adoption of SFAS No.
109 did not have a material impact on the consolidated financial statements.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income taxes:
Federal........................................................ $4,297 $6,559 $9,454
State.......................................................... 646 987 1,421
------ ------ ------
Total.......................................................... 4,943 7,546 10,875
Deferred income taxes............................................ (421) 253 (1,056)
------ ------ ------
Provision for income taxes....................................... $4,522 $7,799 $9,819
====== ====== ======
Effective tax rate............................................... 40.2% 39.7% 39.5%
====== ====== ======
</TABLE>
The reconciliation of income taxes computed using the statutory U.S. income
tax rate and the provision for income taxes was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at U.S. statutory rate.............................. $3,932 $6,869 $8,709
State income taxes, net of federal tax benefits.................. 386 660 835
Nondeductible goodwill........................................... 223 223 223
Other............................................................ (19) 47 52
------ ------ ------
Provision for income taxes....................................... $4,522 $7,799 $9,819
====== ====== ======
</TABLE>
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets (liabilities):
Inventory valuation and reserves.......................................... $1,742 $2,589
Accrued vacation and workers compensation............................... 161 172
Property, plant and equipment........................................... (306) (291)
Postretirement benefits................................................. 87 120
Pension benefits........................................................ 131 250
Other................................................................... 46 77
------ ------
Net deferred tax assets................................................... $1,861 $2,917
====== ======
</TABLE>
7. PENSION BENEFITS
The Company participates in Kennametal's Retirement Income Plan (the
"Plan") which covers substantially all of the Company's employees. The benefits
provided by the Plan are measured by length of service, compensation and other
factors and are funded by a trust established under the Plan. The Kennametal
Plan is currently overfunded and complies with the funding requirements of
ERISA. Plan assets consist principally of common stocks, corporate bonds and
U.S. government securities.
The following table provides the details of the components of pension
expense for the Company. It is not practicable to determine the funded status of
the portion of the Plan which relates to the Company. On an overall basis, the
funded assets of the Plan were in excess of the projected benefit obligation as
of June 30, 1995 and 1996.
F-10
<PAGE> 79
The components of net pension cost for the Company's portion of the Plan
were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................................... $420 $515 $601
Interest cost........................................................ 366 275 332
Return on plan assets................................................ (529) (422) (551)
Net amortization and deferral........................................ (48) (57) (88)
---- ---- ----
Net pension cost..................................................... $209 $311 $294
==== ==== ====
</TABLE>
The Company also participates in Kennametal's 401(k) Thrift Plan for
employees. The charge to operations incurred by the Company for contributions
totaled $.2 million, $.3 million and $.4 million in fiscal 1994, 1995 and 1996,
respectively.
8. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company participates in Kennametal's sponsored plan whereby certain
health care and life insurance benefits are provided for retired employees.
Substantially all employees may become eligible for these benefits if they reach
normal retirement age while working for the Company. These benefits are
currently unfunded.
Effective July 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Under the standard,
the expected cost of providing such benefits must be accrued during the periods
in which employees render the necessary service. The Company previously expensed
these costs as incurred. The adoption of SFAS No. 106 did not have a material
impact on the consolidated financial statements.
The components of other postretirement benefit costs for the Company's plan
were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................................... $52 $56 $66
Interest cost........................................................ 9 13 19
---- ---- ----
Postretirement benefit costs......................................... $61 $69 $85
==== ==== ====
</TABLE>
In 1995, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." Under this standard, employers must accrue the cost of
separation and other benefits provided to former or inactive employees after
employment but before retirement. The Company's previous practice was to
generally accrue these costs as they arose. The adoption of this standard did
not have a material impact on the consolidated financial statements.
Postemployment benefit costs were not significant in 1995 and 1996.
9. FINANCIAL INSTRUMENTS
FAIR VALUE
The Company had $0.7 million in cash and equivalents at June 30, 1996,
which approximates fair value because of the short maturity of these
investments.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. By policy, the Company makes temporary cash investments
with high credit quality financial institutions. With respect to trade
receivables, concentrations of credit risk are somewhat reduced because the
Company serves numerous customers in many industries and geographic areas. As of
June 30, 1995 and 1996, receivables with the Company's five largest accounts
represented 22% and 35%, respectively, of total accounts receivables (see Note
12).
F-11
<PAGE> 80
10. SIGNIFICANT CUSTOMERS
The Company operates predominantly in one industry segment, that being
distribution of metalworking consumables and related products to the
metalworking industry utilizing mail order catalogs, showrooms, and integrated
industrial supply programs. During fiscal 1994, 1995, and 1996, sales to one
customer amounted to 24%, 22% and 21% of total sales, respectively (see Note
12). Sales outside of the United States were approximately $1.8 million and $5.1
million during fiscal 1995 and 1996, respectively. These sales were principally
to customers in the United Kingdom.
11. RELATED PARTY TRANSACTIONS
The Company engages in business transactions with Kennametal and its
subsidiaries. Products purchased for resale from Kennametal and its subsidiaries
totaled $8.0 million in 1994, $11.4 million in 1995 and $18.0 million in 1996.
Sales to these entities totaled $8.5 million in 1994, $11.4 million in 1995 and
$11.4 million in 1996.
The Company receives from Kennametal certain warehouse, management
information systems, financial and administrative services. All amounts incurred
by Kennametal on behalf of the Company are reflected in operating expenses in
the accompanying statements of income. In addition, costs charged to the Company
by Kennametal, totaling $3.4 million in 1994, $3.5 million in 1995 and $5.7
million in 1996 are included in the accompanying statements of income.
Kennametal intends to continue to provide services to the Company in the future
in accordance with the terms of the intercompany agreements described in Note
12. The amounts to be charged pursuant to these intercompany agreements will
reflect the actual costs of providing these services which will include the
additional costs associated with operating as a public company. However, the
increase in these charges is not expected to be material in the future.
Subsequent to the pending IPO discussed in Note 12, the Company will remit cash
to Kennametal in payment of such operating expense allocations.
12. SUBSEQUENT EVENTS
REORGANIZATION
The Company was incorporated in April 1997. The authorized capital stock of
the Company consists of 75,000,000 shares of Class A Common Stock ("Class A
Common Stock"), par value $.01 per share, 50,000,000 shares of Class B Common
Stock ("Class B Common Stock"), par value $.01 per share, and 25,000,000 shares
of Preferred Stock, par value $.01 per share. The holders of Class A Common
Stock and Class B Common Stock generally have identical rights except that
holders of Class A Common Stock are entitled to one vote per share, while
holders of Class B Common Stock are entitled to ten votes per share on all
matters to be voted on by the Company's shareholders.
Immediately prior to the effective date of the pending IPO described below,
Kennametal will exchange its currently outstanding investment for 20,897,000
shares of Class B Common Stock. Investments by and advances from Kennametal in
the pro forma March 31, 1997 Consolidated Balance Sheet has been reduced to
reflect the dividend of $20.0 million as discussed in the pro forma information
below.
COMMON STOCK OFFERING
In April 1997, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission
("SEC") with respect to an IPO of up to 20% of the Company's Class A Common
Stock (the "Offering"). If the Offering is consummated under the terms presently
anticipated, 4,257,000 shares of Class A Common Stock (4,897,000 inclusive of an
over-allotment option granted to the Company's Underwriters) will be issued. If
the Underwriters' over-allotment option is exercised, Kennametal has agreed to
surrender to the Company a number of its shares of Class B Common Stock which
equals the number of additional shares of Class A Common Stock purchased by the
Underwriters from the Company and, therefore, Kennametal will have 20,257,000
shares of Class B Common Stock if the over-allotment option is exercised in
full.
F-12
<PAGE> 81
The net proceeds from the Offering, after deducting estimated underwriting
discounts and expenses, are estimated to be approximately $66.1 million (or
approximately $76.2 million if the Underwriters' over-allotment option is
exercised in full) and will be used: (i) to repay $20.0 million of indebtedness
related to a dividend paid to Kennametal on April 28, 1997, (ii) to repay
amounts due to Kennametal totaling approximately $19.0 million, of which
approximately $14 million relates to acquisitions, $3 million relates to income
taxes and $2 million relates to employee benefit obligations, (iii) to spend $15
to $20 million to acquire or construct a new Midwest distribution center in the
Detroit, Michigan metropolitan area, which is expected to be approximately
200,000 to 250,000 square feet in size and should be in operation by June 30,
1999, (iv) to provide working capital for new showrooms and Full Service Supply
Programs and (v) to fund acquisitions. Pending such uses, the net proceeds will
be loaned to Kennametal in exchange for a note bearing interest at a fluctuating
rate equal to Kennametal's short term borrowing costs which provides for the
repayment of amounts due thereunder upon demand by the Company. Kennametal's
short term borrowing rate during April 1997 was approximately 5.8%. Kennametal
will maintain unused lines of credit to enable it to repay any portion or all of
such loans upon demand by the Company.
In anticipation of the Offering, the Company and Kennametal have entered
into a number of agreements, which will become effective upon completion of the
Offering, for the purpose of defining certain relationships between them. As a
result of Kennametal's ownership interest in the Company, the terms of such
agreements were not, and the terms of any future amendments to those agreements
may not be, the result of arm's length negotiations. Management believes that
the fees to be charged by Kennametal are reasonable and such fees are
representative of the expenses that the Company would incur on a stand alone
basis. The agreements primarily have initial terms of ten years. The following
summaries of these agreements are qualified in all material respects by the
terms and conditions of such agreements.
Administrative Services Agreement
The Company and Kennametal will enter into an intercompany administrative
services agreement with respect to services to be provided by Kennametal to the
Company. The administrative services agreement provides that such services will
be provided in exchange for fees which, generally, (i) in the case of services
purchased by Kennametal from third parties for the Company, will be based upon
the incremental cost charged by such third parties to Kennametal for such
services provided to the Company and (ii) in the case of services directly
provided by Kennametal, will be based on the estimated costs, including a
reasonable allocation of direct and indirect overhead costs, incurred by
Kennametal for the services it provides directly to the Company. The services
initially to be provided by Kennametal to the Company include, among other
things, certain treasury, general accounting and administrative services
including, tax, risk management, human resources, legal, internal audit,
marketing, executive time and space, and information systems services. The
administrative services agreement also provides that Kennametal will arrange and
administer all existing insurance arrangements and may continue coverage of the
Company under Kennametal's insurance policies and will allow eligible employees
of the Company to participate in all of Kennametal's benefit plans.
Lease Agreement
The Company and Kennametal will enter into a lease agreement pursuant to
which Kennametal will lease to the Company space within buildings located on
Kennametal's premises.
Shared Facilities Agreements
The Company and Kennametal will enter into shared facilities agreements
pursuant to which each company will sublease to the other company the facilities
which are leased by either of the companies and shared with the other company.
The shared facilities agreements provide that the relevant sublessor will lease
space to the sublessee at a rental rate equal to a pro rata share (based on
square feet occupied) of all costs and expenses (principally fixed rent) under
the relevant lease. The Company's management believes that the rental rates
payable by the Company are commensurate with market rates.
F-13
<PAGE> 82
Product Supply Agreement
The Company and Kennametal will enter into a product supply agreement
pursuant to which Kennametal agrees to supply and the Company agrees to purchase
from Kennametal all of the Company's requirements for metalworking consumables
and related products direct-marketed by the Company, and Kennametal further
agrees to supply all metalworking consumables and related products requested
pursuant to Full Service Supply programs, except as otherwise agreed from time
to time between the Company and Kennametal. The Company will be entitled to
purchase products for its direct-marketing business at prices discounted from
Kennametal's published price for each such product depending upon the volume of
each such product purchased by the Company.
Tax-Sharing Agreement
Pursuant to the tax-sharing agreement, the Company will make payments to
Kennametal determined as though the Company were to file separate federal, state
and local income tax returns.
Trademark License Agreement
The Company and Kennametal will enter into a trademark license agreement
which provides, among other things, for the grant to the Company by Kennametal
of a non-exclusive license to use Kennametal trademarks in connection with the
Company's business. The Company has also granted to Kennametal a non-exclusive
license to use the Company's trademarks and tradenames on terms similar to those
granted by Kennametal to the Company.
Indemnification Agreement
Under the indemnification agreement, subject to limited exceptions, the
Company is required to indemnify Kennametal and its directors, officers,
employees, agents and representatives for liabilities under federal or state
securities laws as a result of the Offering, including liabilities arising out
of or based upon alleged misrepresentations in or omissions from the
Registration Statement, of which this Prospectus is a part. The indemnification
agreement also provides that each party thereto (the "Indemnifying Party") will
indemnify the other party thereto and its directors, officers, employees, agents
and representatives (the "Indemnified Party") for liabilities that may be
incurred by the Indemnified Party relating to, resulting from or arising out of:
(i) the businesses and operations conducted or formerly conducted, or assets
owned or formerly owned, by the Indemnifying Party and its subsidiaries (except,
in the case where Kennametal is the Indemnifying Party, such businesses,
operations and assets of the Company and its subsidiaries); or (ii) the failure
by the Indemnifying Party to comply with any other agreements executed in
connection with the Offering, except to the extent caused by the Indemnified
Party. The indemnification agreement also provides that the Company will
indemnify Kennametal for any liabilities incurred under guarantees of leases.
Non-Competition and Corporate Opportunities Allocation Agreement
Pursuant to a non-competition and corporate opportunities allocation
agreement (the "Corporate Opportunities Agreement") to be entered into between
Kennametal and the Company: (i) Kennametal agrees for as long as the other
intercompany agreements remain in effect (whose current term is 10 years) (A)
not to compete with the Company in the business of direct marketing of a broad
range of metalworking consumables and related products through catalogs, monthly
promotional flyers, additional mailings and advertisements, telemarketing
efforts, direct-sales efforts and showrooms targeted at small and medium-sized
metalworking shops as well as the supply of consumable tooling and related
metalworking products at designated manufacturing plants of large industrial
customers through integrated supply programs, (the "Base Business") except where
the Company has been offered by Kennametal or its affiliates or a third party,
the right to acquire a business which falls under the Base Business at fair
market value, and the Company's Board of Directors has determined, for whatever
reason, that the Company shall not acquire such business, and (B) not to sell,
offer to sell, distribute or otherwise make available Kennametal manufactured
and branded products to anyone who intends to direct market such products and
therefore competes with the Company's
F-14
<PAGE> 83
direct-marketing program except, with respect to those contracts, arrangements
or relationships in existence on the date of the Corporate Opportunities
Agreement or with the prior written consent of the Company; and (ii) the Company
agrees for as long as the other intercompany agreements remain in effect not to
sell, offer to sell, distribute or otherwise make available any products which
compete directly or indirectly with Kennametal without the prior written consent
of Kennametal, except in connection with the provision of integrated industrial
supply programs as may be required specifically by customers thereof.
Intercompany Debt/Investment and Cash Management Agreement
The Company and Kennametal will enter into an Intercompany Debt/Investment
and Cash Management Agreement (the "Cash Management Agreement") under which the
Company will continue to participate in Kennametal's centralized cash management
system. The Cash Management Agreement provides for a daily transfer from the
Company's cash accounts to Kennametal's centralized cash accounts and daily
funding of the disbursements of the Company from such Kennametal cash account.
The Company will receive interest on net cash flows to Kennametal's centralized
cash accounts and be charged interest on net borrowings from the Kennametal
centralized cash accounts at a rate equal to the all-in interest rate available
to Kennametal from outside sources for short-term borrowings or investments,
depending upon the overall position of the centralized cash accounts. The
Company will pay for this service pursuant to the Administrative Services
Agreement and will reimburse Kennametal for an allocable portion of Kennametal's
facility and/or commitment fees under its credit lines.
Warehousing Agreements
The Company and Kennametal will enter into separate warehousing agreements
with respect to (i) Kennametal distribution centers and warehouses which store
products for the Company and (ii) Company distribution centers and warehouses
that store products for Kennametal. The terms of each warehousing agreement
provide for the warehouser to store the warehousee's products in the warehouses
segregated and separate from the warehouser's products and upon request by the
warehousee to ship its products from these warehouses to the warehousee's
customers. The warehousee will pay to the warehouser a charge for each of the
products picked, packed and shipped based upon an allocation of costs (including
overhead) incurred by the warehouser at these warehouses.
Corporate Agreement
The Company and Kennametal will enter into a corporate agreement under
which the Company grants to Kennametal a continuing option, transferable, in
whole or in part, to any of its affiliates, to purchase, under certain
circumstances, additional shares of Class B Common Stock or Class A Common Stock
(the "Stock Option"). The Stock Option may be exercised by Kennametal
simultaneously with the issuance of any equity security of the Company or
immediately prior to a Tax-Free Spin-Off to the extent necessary to maintain its
then existing percentage of the total voting power and economic value of the
Company at 80% of all outstanding Common Stock or, in connection with a Tax-Free
Spin Off, in order to acquire stock ownership necessary to effect a Tax-Free
Spin-Off. The purchase price of the shares of Common Stock purchased upon any
exercise of the Stock Option, subject to certain exceptions, will be based on
the market price of the Class A Common Stock.
ACQUISITIONS
On April 30, 1997, the Company acquired all of the outstanding stock of the
Strelinger Company ("Strelinger"). Strelinger, with annualized sales of
approximately $30 million in 1996, is based in Troy, Michigan and is engaged in
the distribution of metalcutting tools and industrial supplies. The Company paid
approximately $4.0 million in cash and assumed certain liabilities totaling
approximately $7.0 million. The acquisition will be accounted for using the
purchase method of accounting and the results of operations of Strelinger will
be included in the consolidated financial statements after the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired was approximately $5.0 million and will be amortized on a straight-line
basis over 20 years.
F-15
<PAGE> 84
On May 30, 1997, the Company acquired all of the outstanding stock of Mill
& Abrasive Supply, Inc. ("M&A"). M&A, with sales of approximately $6.0 million
in 1996, is based in Roseville, Michigan and is engaged in the distribution of
metalcutting tools and industrial supplies. The Company paid approximately $1.2
million and assumed certain liabilities totaling $1.5 million to acquire M&A.
The acquisition will be accounted for using the purchase method of accounting
and the results of operations of M&A will be included in the Consolidated
Financial Statements after the date of acquisition.
The Company borrowed the necessary funds from Kennametal to pay for these
acquisitions and will use a portion of the net proceeds of the Offering to repay
Kennametal.
STOCK OPTION PLAN
The Company will adopt a stock option plan (the "Stock Option Plan") under
which directors, officers and employees may be granted options to purchase
shares of Class A Common Stock. Options are granted at fair market value at the
date of grant. Options are exercisable under specified conditions for up to 10
years from the date of grant. Under provisions of the Stock Option Plan,
participants may deliver to the Company stock in payment of the option price and
receive credit for the fair market value of the shares of Class A Common Stock
delivered on the date of delivery. Upon consummation of the Offering, the
Company intends to grant stock options to executive officers and directors to
acquire 450,000 shares of Class A Common Stock.
TERMINATION OF LARGE CONTRACT
For the nine month period ended March 31, 1997, the Company had $225.2
million in net sales of which $39.6 million of net sales were related to a Full
Service Supply Program contract with General Electric Corporation ("GE") for
services provided at certain metalworking manufacturing facilities within GE's
Aircraft Engine Group (the "GE Contract"). The operating margin related to the
GE Contract was lower than the Company's other Full Service Supply Program
contracts. Many of the products provided by the Company to GE under the GE
Contract fell outside of the Company's core focus on metalworking consumables
and related products.
In April 1997, the Company conducted extensive negotiations with GE
relating to the continuation of the GE Contract. After careful evaluation, the
Company concluded that it was not in its best interest to accede to certain
price concessions requested by GE. As a result, GE served notice to the Company
that the GE Contract would not be renewed for a significant portion of the
manufacturing facilities served by the Company.
The Company is currently developing a plan of disengagement from those
manufacturing sites that are not being continued. Although such plan has not yet
been fully developed and reviewed with GE, the Company expects that it will
result in a gradual reduction in future sales to GE until the implementation of
this disengagement plan is completed, which is expected to occur by June 1998.
In fiscal 1998 in conjunction with such disengagement, the Company expects sales
to GE to amount to approximately 30% of the total amounts to be received by the
Company in fiscal 1997 under the GE Contract. After fiscal 1998, estimated sales
to GE for those manufacturing sites that will continue to be served by the Full
Service Supply programs are expected to amount to approximately 10% of the total
amounts to be received by the Company in fiscal 1997 under the GE Contract.
The Company is currently redeploying its resources related to the GE
Contract to take advantage of requests by certain current Full Service Supply
program customers to ramp-up their existing programs at an increased rate as
well as to offer Full Service Supply programs to new customers. However, there
can be no assurance that the Company will be able to replace the revenues
received from the GE Contract within the foreseeable future period or at all. No
other single customer accounted for more than 6% of the Company's total net
sales for fiscal 1996 or for the nine months ended March 31, 1997.
F-16
<PAGE> 85
LINE OF CREDIT
On April 25, 1997, the Company, through J&L, obtained a $25.0 million line
of credit with a bank and shortly thereafter borrowed $20.0 million under the
line of credit to fund a dividend to Kennametal. Upon completion of the
Offering, a portion of the net proceeds will be used to repay the borrowings
under the line of credit. Interest payable under the line of credit is based on
the LIBOR rate plus 25 basis points and is required to be repaid in full within
six months. Kennametal has guaranteed repayment of the line of credit in the
event of default by the Company.
PRO FORMA INFORMATION
On April 23, 1997, J&L declared a dividend of $20.0 million payable to
Kennametal which was paid on April 28, 1997. The pro forma balance sheet as of
March 31, 1997 reflects this dividend payable at that date. Pro forma weighted
average common shares outstanding have been presented on a basis which gives pro
forma effect to (i) the issuance of the Class B Common Stock for all periods
presented, and (ii) the assumed issuance for fiscal 1996 and the nine months
ended March 31, 1997 of 375,353 shares of Class A Common Stock to fund the
excess of dividends over net income for the nine months ended March 31, 1997.
F-17
<PAGE> 86
[MAP OF COMPANY SHOWROOM AND
DISTRIBUTION CENTER LOCATIONS]
<PAGE> 87
=============================================================================
NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE CLASS
A COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 10
Use of Proceeds...................... 16
Dividend Policy...................... 16
Capitalization....................... 17
Dilution............................. 18
Selected Consolidated Financial and
Operating Data..................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
Business............................. 28
Management........................... 38
Security Ownership of Principal
Shareholder and Management......... 47
Relationship with Kennametal......... 49
Description of Capital Stock......... 57
Shares Eligible for Future Sale...... 63
Underwriting......................... 65
Legal Matters........................ 67
Experts.............................. 67
Additional Information............... 67
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
4,257,000 SHARES
JLK LOGO
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
, 1997
================================================================================
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses incurred in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the
Commission registration fee, the listing fee and the NASD filing fee.
<TABLE>
<S> <C>
Commission Registration Fee............................................ $ 33,304
NASD Filing Fee........................................................ 10,500
NYSE Listing Fee....................................................... 121,300
Blue Sky Fees and Expenses............................................. 7,500
Transfer Agent and Registrar Fees and Expenses......................... 10,000
Accounting Fees and Expenses........................................... 225,000
Legal Fees and Expenses................................................ 475,000
Printing and Engraving Expenses........................................ 300,000
Miscellaneous Expenses................................................. 217,396
-----------
Total............................................................. $ 1,400,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law
(the "PBCL") provides in general that a corporation may indemnify any person,
including its directors, officers and employees who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (including
actions by or in the right of the corporation) by reason of the fact that he or
she is or was a representative of or serving at the request of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
the action or proceedings if he or she is determined by the board of directors,
or in certain circumstances by independent legal counsel to the shareholders, to
have acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal proceeding, had no reason to believe his conduct was unlawful. In
the case of actions by or in the right of the corporation, indemnification is
not permitted in respect of any claim, issue or matter as to which the person
has been adjudged to be liable to the corporation except to the extent a court
determines that the person is fairly and reasonably entitled to indemnification.
In any case, to the extent that the person has been successful on the merits or
otherwise in defense of any claim, issue or matter, he or she shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him or her in connection therewith. Subchapter D also provides that
the indemnification permitted or required by Subchapter D is not exclusive of
any other rights to which a person seeking indemnification may be entitled.
The Company's By-Laws provide that except as prohibited by law, every
director and officer of the Company is entitled to be indemnified by the Company
against reasonable expenses and any liability paid or incurred by such person in
connection with any actual or threatened claim, action, suit or proceeding,
civil, criminal, administrative, investigative or other in which he or she may
be involved by reason of being or having been a Director or Officer of the
Company or by reason that such person is or was serving at the request of the
Company as a director, officer, employee, fiduciary or other representative of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity. Such indemnification includes the right to have expenses incurred
paid in advance by the Company prior to final disposition, subject to such
conditions as may be prescribed by law. Persons who are not directors or
officers of the Company may be similarly indemnified in respect of service to
the Company or to another such entity at the request of the Company, to the
extent the Board of Directors designates. Expenses included fees and expenses of
counsel selected by such person, and liability includes amount of judgments,
excise taxes, fines and penalties, and amounts paid in settlement.
Indemnification pursuant to this provision of the Company's By-laws is not
permitted in any case in which the
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<PAGE> 89
act or failure to act giving rise to the claim for indemnification is determined
by a court to have constituted willful misconduct or recklessness. There may be
other circumstances where indemnification may not be permitted as a matter of
public policy.
The By-Laws of the Company also provide that to the fullest extent that the
laws of the Commonwealth of Pennsylvania, as now in effect or as hereafter
amended, permit elimination of limitation of the liability of directors, no
director of the Company shall be personally liable for monetary damages as such
for any action taken, or any failure to take any action, as a director. Under
Section 1713 of the PBCL, the personal liability of a director may not be
eliminated or limited if: (1) the director has breached or failed to perform the
duties of his office under Subchapter B of Chapter 17 of the PBCL (relating to
the fiduciary duties of directors; and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. Furthermore, this
limitation to the personal liability of directors of the Company does not apply
to (1) the responsibility or liability of a director pursuant to any criminal
statute; or (2) the liability of a director for the payment of taxes pursuant to
local, state or federal law.
The Company purchases director and officer liability insurance covering its
directors and officers with respect to liability which they may incur in
connection with their serving as such. Under the insurance, the Company will
receive reimbursement for amounts as to which the directors and officers are
indemnified under the Company's By-Laws. The insurance may also provide certain
additional coverage for the directors and officers against certain liability
even though such liability is not subject to indemnification under the Company's
By-Laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company issued shares of Class B Common Stock to Kennametal Inc. in
connection with the formation of the Company in a transaction exempt from
registration by virtue of Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ---------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement*
3.a Amended and Restated Articles of Incorporation of the Registrant
3.b By-Laws of the Registrant
5 Opinion of Buchanan Ingersoll Professional Corporation*
10.a Form of Administrative Services Agreement
10.b Form of Corporate Agreement
10.c Form of Indemnification Agreement
10.d Form of Intercompany Debt/Investment and Cash Management Agreement
10.e Form of Non-Competition and Corporate Opportunities Allocation Agreement
10.f Form of Shared Facilities Agreements (Subleases)
10.g Form of Tax Sharing Agreement
10.h Form of Trademark License Agreement
10.i Form of Warehousing Agreements
10.j Form of Lease Agreement
10.k Form of Product Supply Agreement
10.1 Form of JLK Direct Distribution Inc. 1997 Stock Option and Incentive Plan*
10.m Kennametal Inc. Supplemental Executive Retirement Plan
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ---------------------------------------------------------------------------------
<S> <C>
10.n Kennametal Inc. Employment Agreement with Michael W. Ruprich
10.o Form of JLK Direct Distribution Inc. Employment Agreement with Michael W. Ruprich
10.p Form of JLK Direct Distribution Inc. Employment Agreement with Kenneth M. McHenry
10.q Form of JLK Direct Distribution Inc. Employment Agreement with Roland E. Lazzaro
10.r Form of JLK Direct Distribution Inc. Employment Agreement with Michael J. Mussog
10.s Description of JLK Direct Distribution Inc. Management Bonus Plan*
11.1 Calculation of Primary Net Income per Share
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Buchanan Ingersoll Professional Corporation**
24 Powers of Attorney (included as part of the signature page hereof)
27 Financial Data Schedule
</TABLE>
- ---------
* to be filed by amendment
** included in their opinion filed as Exhibit 5
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by a final
adjudication of such issue.
(3) The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(b) For the purpose of determining liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment Number 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Latrobe,
Pennsylvania, on June 4, 1997.
JLK DIRECT DISTRIBUTION INC.
By: /s/ MICHAEL W. RUPRICH
--------------------------------------
Michael W. Ruprich
President
Pursuant to the requirements of the Securities Act of 1933, Amendment
Number 1 to this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William R. Newlin and David T. Cofer, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any and all related Registration
Statements (including amendments thereto) filed pursuant to Rule 462(b)
promulgated under the Securities Act of 1933 , and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATES
<C> <S> <C>
/s/ MICHAEL W. RUPRICH President and Director June 4, 1997
- ------------------------------------------ (Principal Executive Officer)
Michael W. Ruprich
/s/ MICHAEL J. MUSSOG Vice President and Chief June 4, 1997
- ------------------------------------------ Financial Officer (Principal
Michael J. Mussog Financial and Accounting
Officer)
* Director June 4, 1997
- ------------------------------------------
Richard C. Alberding
/s/ JEFFERY M. BOETTICHER Director June 4, 1997
- ------------------------------------------
Jeffery M. Boetticher
/s/ IRWIN L. ELSON Director June 4, 1997
- ------------------------------------------
Irwin L. Elson
* Director June 4, 1997
- ------------------------------------------
Robert L. McGeehan
* Director June 4, 1997
- ------------------------------------------
Aloysius T. McLaughlin, Jr.
* Chairman of the Board of June 4, 1997
- ------------------------------------------ Directors
William R. Newlin
</TABLE>
*By: /s/ DAVID T. COFER
--------------------------------------
David T. Cofer
Attorney-in-Fact
II-4
<PAGE> 92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of JLK Direct Distribution Inc. and have
issued our report thereon dated April 25, 1997. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the accompanying index is presented for purposes
of complying with the Securities and Exchange Commission's rules and regulations
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
April 25, 1997
S-1
<PAGE> 93
SCHEDULE II
JLK DIRECT DISTRIBUTION INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE CHARGED
AT TO BALANCE
BEGINNING COSTS AT
OF AND END OF
PERIOD ENDED DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------ ------------------------------------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
June 30, 1994 Allowance for doubtful accounts $120,524 $176,528 $(148,776) $148,276
June 30, 1995 Allowance for doubtful accounts $148,276 $142,500 $(138,934) $151,842
June 30, 1996 Allowance for doubtful accounts $151,842 $25,713 -- $174,990
</TABLE>
S-2
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement*
3.a Amended and Restated Articles of Incorporation of the Registrant
3.b By-Laws of the Registrant
5 Opinion of Buchanan Ingersoll Professional Corporation*
10.a Form of Administrative Services Agreement
10.b Form of Corporate Agreement
10.c Form of Indemnification Agreement
10.d Form of Intercompany Debt/Investment and Cash Management Agreement
10.e Form of Non-Competition and Corporate Opportunities Allocation Agreement
10.f Form of Shared Facilities Agreements (Subleases)
10.g Form of Tax Sharing Agreement
10.h Form of Trademark License Agreement
10.i Form of Warehousing Agreements
10.j Form of Lease Agreement
10.k Form of Product Supply Agreement
10.1 Form of JLK Direct Distribution Inc. 1997 Stock Option and Incentive Plan*
10.m Kennametal Inc. Supplemental Executive Retirement Plan
10.n Kennametal Inc. Employment Agreement with Michael W. Ruprich
10.o Form of JLK Direct Distribution Inc. Employment Agreement with Michael W. Ruprich
10.p Form of JLK Direct Distribution Inc. Employment Agreement with Kenneth M. McHenry
10.q Form of JLK Direct Distribution Inc. Employment Agreement with Roland E. Lazzaro
10.r Form of JLK Direct Distribution Inc. Employment Agreement with Michael J. Mussog
10.s Description of JLK Direct Distribution Inc. Management Bonus Plan*
11.1 Calculation of Primary Net Income per Share
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Buchanan Ingersoll Professional Corporation**
24 Powers of Attorney (included as part of the signature page hereof)
27 Financial Data Schedule
</TABLE>
- ---------
* to be filed by amendment
** included in their opinion filed as Exhibit 5
<PAGE> 1
Exhibit 3(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
JLK DIRECT DISTRIBUTION INC.
The undersigned, intending to form a corporation under the
Pennsylvania Business Corporation Law of 1988, as amended (15 Pa. C.S. Sections
1101 et seq.), hereby certifies as follows:
FIRST. The name of the Corporation is JLK Direct Distribution Inc.
SECOND. The address of the Corporation's initial registered office in
the Commonwealth of Pennsylvania is State Route 981 South, P.O. Box 231,
Latrobe, PA 15650-0231.
THIRD. The Corporation is incorporated under the provisions of the
Business Corporation Law of 1988, as amended (15 Pa. C.S. Sections 1101 et seq.)
(the "BCL").
FOURTH. The Corporation shall have the power to create and issue a
total of 150,000,000 shares of capital stock.
(i) The shares of capital stock of the Corporation shall be divided
into 75,000,000 shares of Class A Common Stock, par value $.01
per share (the "Class A Common Stock"), 50,000,000 shares of
Class B Common Stock, par value $.01 per share (the "Class B
Common Stock"), and 25,000,000 shares of Preferred Stock, par
value $.01 per share (the "Preferred Stock"). The Preferred
Stock shall be divided into one or more series as the Board of
Directors may determine as hereinafter provided.
(ii) Except as provided in Section (vii)(e) of this Article FOURTH,
the holders of Class A Common Stock shall have one (1) vote per
share on all matters to be voted on by the shareholders, and the
holders of Class B Common Stock shall have ten (10) votes per
share on all matters to be voted on by the shareholders. The
holders of capital stock entitled to vote in the election of
directors shall not be entitled to cumulate their votes in the
election of directors; provided, however, that the holders of
capital stock entitled to vote in the election of directors
shall be entitled to cumulate their votes in the election of
directors beginning on the date (the "Control Termination Date")
on which Kennametal Inc., a Pennsylvania corporation
("Kennametal"), and its affiliates (other than the Corporation
or its subsidiaries) (Kennametal, together with its affiliates
(other than the Corporation and its subsidiaries), being known
as the "Kennametal Group") no longer beneficially own 40% or
more of the then outstanding aggregate number of shares of Class
A Common Stock and Class B Common Stock.
(iii) At each annual meeting of the shareholders, the shareholders
shall elect directors to hold office for a one (1) year term;
provided, however, that on or as promptly as reasonably
practicable after the Control Termination Date:
(a) The then current Board of Directors, by a majority vote,
will divide the then current directors into three (3)
classes which shall be as nearly equal in number as
possible, designated as Class I, Class II or Class III,
with terms that expire at the next, second and third
succeeding annual meeting of the shareholders,
respectively;
(b) The then current directors shall serve as directors of the
Corporation for the respective terms of the class of which
they are members; and
<PAGE> 2
(c) At each annual meeting of the shareholders thereafter, the
shareholders shall elect directors of the class whose term
then expires to hold office until the third (3rd)
succeeding annual meeting.
(iv) Holders of Class A Common Stock and Class B Common Stock shall
be entitled to share in an equal amount per share in any
dividend or distribution declared by the Board of Directors.
Dividends or distributions consisting of shares of Class A
Common Stock and Class B Common Stock may be paid only as
follows:
(a) Shares of Class A Common Stock may be paid only to holders
of Class A Common Stock;
(b) Shares of Class B Common Stock may be paid only to holders
of Class B Common Stock; and
(c) Shares shall be paid proportionately with respect to each
outstanding share of Class A Common Stock and Class B
Common Stock.
(v) In the event of a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, holders of Class A
Common Stock and Class B Common Stock will be entitled to share
in an equal amount per share of such amount as shares of common
stock are entitled to by law.
(vi) After a Tax-Free Spin-Off (as defined below), shares of the
Class A Common Stock shall convert, on a one-for-one basis, into
shares of the Class B Common Stock at the option of the holder
thereof upon any person (other than any member of the Kennametal
Group) or any group of persons agreeing to act together for the
purpose of acquiring, holding, voting or disposing of shares of
the Class B Common Stock (other than a group of any or all
members of the Kennametal Group) making an offer, which the
Board of Directors deems to be a bona fide offer, to purchase
five percent (5%) or more of the Class B Common Stock for cash,
other securities and/or property without making a similar offer
for the shares of the Class A Common Stock; provided, however,
that such conversion shall be effective upon receipt in writing
by the Corporation prior to such termination, recission or
completion of notice from such holder of his/her/its election to
exercise such option; provided further, however, that the shares
of the Class A Common Stock may be so converted only during the
period in which such bona fide offer is in effect and that any
share of Class A Common Stock so converted and not acquired by
such offeror prior to the termination, recission or completion
of such offer will automatically reconvert to a share of the
Class A Common Stock upon such termination, rescission or
completion.
(vii) A Share of the Class B Common Stock shall convert, on a
one-for-one basis, into a share of the Class A Common Stock in
the following circumstances:
(a) While such share is held by any member of the Kennametal
Group, at the option of such holder prior to a Tax-Free
Spin-Off; provided, however, that such conversion shall be
effective upon receipt in writing by the Corporation prior
to the closing of a Tax-Free Spin-Off of notice from such
holder of his/her/its election to exercise such option;
(b) Automatically on the Control Termination Date if it occurs
prior to a Tax-Free Spin-Off;
(c) Automatically upon a transfer of such share to a person
other than any member of the Kennametal Group or upon any
member of the Kennametal Group
- 2 -
<PAGE> 3
holding such share ceasing to be a member of the Kennametal
Group, provided, however, that any shares of Class B Common
Stock transferred to shareholders of Kennametal in a
transaction intended to be on a tax-free basis under the
Internal Revenue Code of 1986, as amended (a "Tax-Free
Spin-Off"), shall not convert to shares of Class A Common
Stock upon or following a Tax-Free Spin-Off unless and
until so converted pursuant to Sections (vii)(d), (e) or
(f) of this Article FOURTH;
(d) Automatically upon the fifth (5th) anniversary of a
Tax-Free Spin-Off, provided, however, that prior to such
Tax-Free Spin-Off, no such conversion shall occur if
Kennametal delivers to the Corporation written advice of
counsel reasonably satisfactory to the Corporation (which
shall include Kennametal's General Counsel) to the effect
that either:
(A) Such conversion could adversely affect the ability of
Kennametal to obtain a favorable ruling from the
Internal Revenue Service (the "IRS") that the
distribution would be a Tax-Free Spin-Off; or
(B) The IRS has adopted a general non-ruling policy on
tax-free spin-offs and that such conversion could
adversely affect the status of the distribution as a
Tax-Free Spin-Off;
(e) In the event the Corporation receives the written advice of
counsel pursuant to Section (d) of this Article FOURTH,
automatically upon the approval by the affirmative vote of
a majority of the votes cast by all shareholders entitled
to vote thereon, voting together as a single class with
each share entitled only to one (1) vote for such purpose,
at a meeting of the shareholders which shall be called by
the Corporation for such purpose as soon as practicable
after the fifth (5th) anniversary of the Tax-Free Spin-Off,
provided, however, that the Corporation shall call no such
meeting, no such meeting shall be held, and no such vote
shall be taken if Kennametal delivers to the Corporation
written advice of counsel reasonably satisfactory to the
Corporation (which shall include Kennametal's General
Counsel) prior to such fifth (5th) anniversary that such
vote could adversely affect the status of the distribution
as a Tax-Free Spin-Off, including the ability to obtain a
favorable ruling from the IRS;
(f) At the option of the holder thereof upon any person (other
than any member of the Kennametal Group) or any group of
persons agreeing to act together for the purpose of
acquiring, holding, voting or disposing shares of the Class
A Common Stock (other than a group of any or all members of
the Kennametal Group) making an offer, which the Board of
Directors deems to be a bona fide offer, to purchase five
percent (5%) or more of the Class A Common Stock for cash,
other securities and/or property without making a similar
offer for the shares of the Class B Common Stock; provided
that such conversion shall be effective upon receipt in
writing by the Corporation of notice prior to such
termination, recission or completion from such holder of
his/her/its election to exercise such option; provided
further, however, that the shares of the Class B Common
Stock may be so converted only during the period in which
such bona fide offer is in effect and that any share of
Class B Common Stock so converted and not acquired by such
offeror prior to the termination, recission or completion
of such offer will automatically reconvert to a share of
the Class B Common Stock upon such termination, rescission
or completion.
(viii) Any issued and outstanding shares of capital stock of the
Corporation which are repurchased by the Corporation shall be
deemed to be issued but not outstanding. The
- 3 -
<PAGE> 4
Board may, by resolution, restore any or all of such issued but
not outstanding shares to the status of authorized but unissued
shares immediately prior to the reissuance thereof and
thereafter reissue such shares.
(ix) Redeemable shares of capital stock that have been called for
redemption (other than those held beneficially by any member of
the Kennametal Group) shall not be entitled to vote on any
matter and shall not be deemed outstanding shares as of the date
specified in the written notice mailed to shareholders thereof
indicating that the shares have been called for redemption.
Redeemable shares of capital stock held beneficially by any
member of the Kennametal Group that have been called for
redemption shall be entitled to vote on any matter and shall be
deemed outstanding shares until such time as they have been
redeemed by the Corporation, notwithstanding that written notice
has been mailed to holders thereof that the shares have been
called for redemption and that a sum sufficient to redeem the
shares has been deposited with a specified financial institution
with irrevocable instruction and authority to pay the redemption
price to the holders of the shares on the redemption date, or
upon surrender of certificates therefor, and the sum has been so
deposited.
(x) Notwithstanding the foregoing Sections (iv) and (v) of this
Article FOURTH, the Class A Common Stock and the Class B Common
Stock shall be subject to the prior rights of holders of any
series of Preferred Stock outstanding according to the
preferences, if any, of such series as the Board of Directors
may determine as hereinafter provided. The Preferred Stock may
be divided into one or more classes or series as determined by
the Board of Directors as hereinafter provided. Each class or
series of Preferred Stock may have full, limited, multiple,
fractional or no voting rights, and such designations,
preferences, limitations, qualifications, privileges, options,
restrictions and special rights as determined by the Board of
Directors as hereinafter provided. The division of the Preferred
Stock into classes or series, the determination of the
designation and the number of shares of any such class or series
and the determination of the voting rights, preferences,
limitations, qualifications, privileges, options, restrictions
and special rights of the shares of any such class or series may
be accomplished by an amendment to this Article FOURTH, which
amendment may be made solely by action of the Board of
Directors, which shall have the full authority permitted by law
to make such divisions and determinations. Unless otherwise
provided in a resolution or resolutions establishing any
particular class or series of Preferred Stock, the aggregate
number of authorized shares of Preferred Stock may be increased
by an amendment to the Articles approved solely by the holders
of the Class A Common Stock and the Class B Common Stock and of
any Preferred Stock which is entitled pursuant to its voting
rights designated by the Board of Directors to vote thereon, if
at all, voting together as a class.
FIFTH. The name and address of the sole incorporator is Lewis U.
Davis, Jr., One Oxford Centre, 301 Grant Street, 21st Floor, Pittsburgh, PA
15219-1410.
SIXTH. The purpose of the Corporation shall be to engage in all lawful
business for which corporations may be incorporated under the BCL, provided,
however, that until the day after the third (3rd) annual meeting of
shareholders held after the Control Termination Date:
(i) The Corporation shall not, directly or indirectly (whether
through a subsidiary of, or any other person controlled by, the
Corporation) for its own account or for the account of another,
engage in manufacturing metalworking tools, inserts or related
products, including, but not limited to, cutting tools, carbide
and other tool inserts, abrasives, drills, machine tool
accessories, hand tools and other industrial supplies (the
"Metalworking Products");
- 4 -
<PAGE> 5
(ii) The Corporation may, directly or indirectly (whether through a
subsidiary of, or any other person controlled by, the
Corporation), only engage in the business of distributing the
Metalworking Products through a direct marketing program
comprised of catalog, telephone, showroom and similar direct
marketing efforts (the "Direct Marketing Business") and through
integrated industrial supply programs in which the Corporation
carries out all aspects of complex metalworking supply processes
for industrial manufacturers, including, but not limited to,
needs assessment, cost analysis, procurement planning, supplier
selection, "just-in-time" restocking of supplies and ongoing
technical support (together with the Direct Marketing Business,
the "Base Business");
(iii) The Corporation shall not, directly or indirectly (whether
through a subsidiary of, or any other person controlled by, the
Corporation), engage in any business or activity other than the
Base Business unless the Corporation receives the consent of
Kennametal or the affirmative vote of a majority of the votes
cast by all shareholders of the Corporation entitled to vote
thereon, provided that no person (including any member of the
Kennametal Group acting in any capacity with respect to the
Corporation) shall be liable for breach of fiduciary duty as a
shareholder or controlling person of the Corporation, or
otherwise, by reason of such person consenting to or voting in
favor of, or not consenting to or voting against, authorization
for the Corporation to engage in any business or activity other
than the Base Business;
(iv) Unless Kennametal consents otherwise, in connection with the
Direct Marketing Business, the Corporation shall purchase all
Metalworking Products required for distribution through such
channel from the Kennametal Group, and shall not purchase
Metalworking Products from any other supplier, excluding,
however, products that are not available to the Direct Marketing
Business from any member of the Kennametal Group; and
(v) No opportunity, transaction, agreement or other arrangement to
which any member of the Kennametal Group is a party shall be a
corporate opportunity of the Corporation, directly or indirectly
(whether through a subsidiary of, or any other person controlled
by, the Corporation), unless such opportunity, transaction,
agreement or other arrangement shall have been initially offered
to the Corporation or its subsidiaries before it is offered to
any member of the Kennametal Group and either:
(a) The Corporation or its subsidiaries has an enforceable
contractual interest in such opportunity, transaction,
agreement or other arrangement; or
(b) The subject matter of such opportunity, transaction,
agreement or other arrangement is a constituent element of
an activity in which the Corporation or its subsidiaries is
then actively engaged;
provided, however, that even if either of the foregoing
conditions is met, such fact alone does not conclusively render
such opportunity the property of the Corporation or its
subsidiaries.
SEVENTH. Any action required or permitted to be taken at a meeting of
the shareholders or of a class of shareholders may be taken without a meeting
upon the written consent of shareholders who would have been entitled to cast
the minimum number of votes that would be necessary to authorize the action at
a meeting at which all shareholders entitled to vote thereon were present and
voting; provided, however, that such shareholders shall not be entitled to take
any action upon such written consent after the Control Termination Date. Such
consents shall be filed with the secretary of the Corporation, and the action
shall become effective immediately upon its authorization, or at such later
time as shall be specified in such consent, but prompt notice of the action
shall be given to those shareholders entitled to vote thereon who have not
consented thereto.
- 5 -
<PAGE> 6
EIGHTH. Prior to the Control Termination Date, special meetings of the
shareholders may be called at any time by any member of the Kennametal Group
holding shares of the capital stock entitled to vote in the election of
directors. No other shareholders shall be entitled to call a special meeting of
shareholders.
NINTH. Prior to the Control Termination Date, the entire Board of
Directors, any class of directors or any individual director may be removed
from office, without assigning any cause, by the vote of the shareholders or of
the holders of a class or series of shares entitled to elect such directors or
director. On and after the Control Termination Date, the entire Board of
Directors, any class of directors or any individual director may be removed
from office by the vote of the shareholders or of the holders of a class or
series of shares entitled to elect such directors or director only for Cause
(as hereinafter defined). In the event that the Board of Directors, a class of
the Board of Directors or any one (1) or more directors is so removed, new
directors may be elected at the same meeting. "Cause" shall mean any one (1) of
the following:
(i) A judicial declaration that a director is of unsound mind;
(ii) A director is convicted of an offense punishable by imprisonment
for a term of more than one year;
(iii) A director breaches or fails to perform the statutory duties of
said director's office and the breach or failure constitutes
self-dealing, willful misconduct or recklessness; or
(iv) Within one hundred eighty (180) days after notice of his or her
election a director does not accept such office either in
writing or by attending a meeting of the Board of Directors.
TENTH. To the fullest extent that the laws of the Commonwealth of
Pennsylvania, as now in effect or as hereinafter amended, permit elimination or
limitation of the liability of directors, no director of the Corporation shall
be personally liable for monetary damages as such for any action taken, or any
failure to take any action, as a director. Any amendment or repeal of this
Article which has the effect of increasing director liability shall operate
prospectively only and shall not affect any action taken, or any failure to
act, prior to its adoption.
ELEVENTH. The control transaction provisions contained in Subchapter
E, the business combination provisions contained in Subchapter F, the control
share acquisition provisions contained in Subchapter G and the disgorgement
provisions contained in Subchapter H, each of the BCL, shall not be applicable
to the Corporation. Section 2538 of the BCL shall not be applicable to any
member of the Kennametal Group for so long as any such member is considered an
"interested shareholder" pursuant to Section 2538.
TWELFTH. Notwithstanding any provision of law or the Articles of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of all
of the holders of the outstanding capital stock of the Corporation entitled to
vote, voting together as a single class, shall be required in order to amend,
alter or repeal, or to adopt any provision inconsistent with, Article SIXTH
after the Control Termination Date and before the day after the third (3rd)
annual meeting of shareholders held after the Control Termination Date.
- 6 -
<PAGE> 1
Exhibit 3(b)
BY-LAWS
OF
JLK DIRECT DISTRIBUTION INC.
DATED: APRIL 28, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
1. SHAREHOLDERS............................................................1
1.1 ANNUAL MEETING................................................1
1.2 SPECIAL MEETINGS..............................................1
1.3 PLACE OF MEETING..............................................1
1.4 NOTICE........................................................1
1.5 QUORUM........................................................1
1.6 ADJOURNMENTS..................................................2
1.7 ACTION BY SHAREHOLDERS........................................2
1.8 VOTING RIGHTS OF SHAREHOLDERS.................................2
1.9 PROXIES.......................................................2
1.10 VOTING LIST..................................................2
1.11 NOMINATING AND PROPOSAL PROCEDURES...........................2
1.12 ORDER OF BUSINESS............................................4
1.13 ELECTION OF DIRECTORS........................................4
1.14 JUDGES OF ELECTION...........................................4
2. BOARD OF DIRECTORS......................................................4
2.1 GENERAL.......................................................4
2.2 NUMBER, QUALIFICATIONS, TERM OF OFFICE........................4
2.3 ELECTION AND CLASSIFICATION...................................4
2.4 VACANCIES.....................................................5
2.5 NOMINATIONS...................................................5
2.6 REMOVAL AND RESIGNATION.......................................5
2.7 REGULAR AND SPECIAL MEETINGS..................................5
2.8 NOTICE OF MEETINGS............................................5
2.9 QUORUM OF AND ACTION BY DIRECTORS.............................5
2.10 OTHER POWERS.................................................6
3. COMMITTEES OF THE BOARD.................................................6
4. OFFICERS................................................................6
4.1 ELECTION OF OFFICERS AND BOARD CHAIRMAN.......................6
4.2 REMOVAL; RESIGNATION; BOND....................................6
4.3 CHAIRMAN OF THE BOARD.........................................7
4.4 PRESIDENT.....................................................7
4.5 VICE PRESIDENTS...............................................7
4.6 SECRETARY.....................................................7
4.7 TREASURER.....................................................7
4.8 DELEGATION OF DUTIES..........................................8
4.9 CONTRACTS.....................................................8
5. SHARE CERTIFICATES AND TRANSFERS........................................8
5.1 SHARE CERTIFICATES............................................8
5.2 TRANSFER OF SHARES............................................8
5.3 REGISTRAR, TRANSFER AGENT, AUTHENTICATING TRUSTEE.............9
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
5.4 LOST, DESTROYED OR STOLEN CERTIFICATES........................9
5.5 DETERMINATION OF SHAREHOLDERS OF RECORD.......................9
6. MANNER OF GIVING NOTICE, WAIVER OF NOTICE, ACTION WITHOUT MEETING,
MEETINGS BY CONFERENCE TELEPHONE AND MODIFICATION OF PROPOSALS....9
6.1 MANNER OF GIVING NOTICE.......................................9
6.2 WAIVER OF NOTICE..............................................9
6.3 ACTION BY CONSENT............................................10
6.4 MEETINGS BY MEANS OF CONFERENCE TELEPHONE....................10
6.5 MODIFICATION OF PROPOSALS....................................10
7. CERTAIN SHAREHOLDER RIGHTS.............................................10
7.1 INSPECTION OF CORPORATE RECORDS..............................10
8. PERSONAL LIABILITY, INDEMNIFICATION AND INSURANCE......................10
8.1 PERSONAL LIABILITY OF DIRECTORS..............................10
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS....................11
9. GENERAL PROVISIONS.....................................................12
9.1 REGISTERED OFFICE............................................12
9.2 OTHER OFFICES................................................12
9.3 CORPORATE SEAL...............................................12
9.4 FISCAL YEAR..................................................12
9.5 AMENDMENT OF BY-LAWS.........................................12
</TABLE>
- ii -
<PAGE> 4
BY-LAWS
OF
JLK DIRECT DISTRIBUTION INC.
1. SHAREHOLDERS
1.1 ANNUAL MEETING.
An annual meeting of the shareholders shall be held in each calendar
year, on such date as may be fixed by the board of directors, for the purpose
of electing directors and for the transaction of such other business as may
properly come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday in the state where the meeting is to be held, such meeting
shall be held on the next succeeding business day.
1.2 SPECIAL MEETINGS.
Special meetings of the shareholders may be called as set forth in
Article Eighth of the articles of incorporation and at any time by the chairman
of the board, the president or by the board of directors. Upon written request
of any person who has duly called a special meeting, the secretary shall fix
the time of the meeting to be held at such time as the secretary may fix. If
the secretary neglects or refuses to fix the time of the meeting, the person or
persons calling the meeting may do so.
1.3 PLACE OF MEETING.
All meetings of the shareholders shall be held at the registered
office of the Corporation or at such other place, within or without the
Commonwealth of Pennsylvania, as may be designated by the board of directors
from time to time.
1.4 NOTICE.
Except as provided in Section 1.6 of these by-laws, written notice of
every meeting of the shareholders shall be given by, or at the direction of,
the secretary or other authorized person or, if he or she neglects or refuses
to do so, may be given by the person or persons calling the meeting, to each
shareholder of record entitled to vote at the meeting, at least five (5) days
prior to the day named for the meeting, unless a greater period of notice is
required by statute in the particular case. The notice of meeting shall specify
the place, day and hour of the meeting and, in the case of a special meeting,
the general nature of the business to be transacted, and, if applicable, the
notice shall state that the purpose, or one of the purposes, of the meeting is
to consider the adoption, amendment or repeal of the by-laws in which case the
notice shall include, or be accompanied by, a copy of the proposed amendment or
a summary of the changes to be effected thereby.
1.5 QUORUM.
A shareholders meeting duly called shall not be organized for the
transaction of business unless a quorum is present. The presence in person or
by proxy of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast on a particular matter to be acted upon
at the meeting shall constitute a quorum for the purposes of consideration and
action on such matter. The shareholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. If a meeting cannot be
organized because a quorum has not attended, those present may adjourn the
meeting to such time and place as they may determine. Those shareholders
entitled
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to vote who attend a meeting called for the election of directors that has
previously been adjourned for lack of a quorum, although less than a quorum as
fixed herein, shall nevertheless constitute a quorum for the purpose of
electing directors. In other cases, those shareholders entitled to vote who
attend a meeting of shareholders that has been previously adjourned for one or
more periods aggregating at least fifteen (15) days because of absence of a
quorum, although less than a quorum as fixed herein, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting, provided that the notice of the meeting states that
those shareholders who attend such adjourned meeting shall nevertheless
constitute a quorum for the purpose of acting upon the matter set forth in the
notice.
1.6 ADJOURNMENTS.
Adjournment or adjournments of any annual or special meeting of
shareholders, including one at which directors are to be elected, shall be
taken for such period or periods as the presiding officer of the meeting or the
shareholders present in person or by proxy and entitled to vote shall direct.
When a meeting of shareholders is adjourned, it shall not be necessary to give
any notice of the adjourned meeting or of the business to be transacted at the
adjourned meeting other than by announcement at the meeting at which the
adjournment is taken.
1.7 ACTION BY SHAREHOLDERS.
Whenever any corporate action is to be taken by vote of the
shareholders, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon and, if
any shareholders are entitled to vote thereon as a class, upon receiving the
affirmative vote of a majority of the votes cast by the shareholders entitled
to vote as a class thereon, except where a different vote is required by law or
the articles or these by-laws.
1.8 VOTING RIGHTS OF SHAREHOLDERS.
The voting rights of the shareholders of the Corporation are set forth
in Article Fourth of the articles of the incorporation.
1.9 PROXIES.
Every proxy shall be executed in writing by the shareholder, or by his
duly authorized attorney in fact, and shall be filed with the secretary of the
Corporation before being voted.
1.10 VOTING LIST.
The officer or agent having charge of the transfer books for shares of
the Corporation shall make a complete list of the shareholders entitled to vote
at any meeting of shareholders, arranged in alphabetical order, with the
address of and the number of shares held by each. The list shall be produced
and kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting for the
purposes thereof except that, if the Corporation has 5,000 or more
shareholders, in lieu of the making of the list the Corporation may make the
information available at the meeting by any other means. Failure to comply with
the requirements of this by-law shall not affect the validity of any action
taken at a meeting prior to a demand at the meeting by any shareholder entitled
to vote there at to examine the list.
1.11 NOMINATING AND PROPOSAL PROCEDURES.
(a) Without limiting any other notice requirements imposed by
law, the articles of incorporation or these by-laws, any nomination for
election to the board of directors by any shareholder (other than Kennametal
Inc. ("Kennametal") prior to the Control Termination Date (as defined in the
articles of
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incorporation)) at an annual or special meeting of the shareholders will be
properly presented only if written notice of such shareholder's intent to make
such nomination (the "Nomination Notice") has been personally delivered to and
otherwise in fact received by the secretary of the Corporation not later than
at least 60 days in advance of the meeting of the shareholders at which such
election is to be held (or if less than 60 days' notice or prior public
disclosure of the date of such meeting is given, not later than ten (10) days
after the date of mailing of notice or the date of such public disclosure,
whichever occurs first).
(b) The Nomination Notice is required to set forth the following
information: (i) the name and address of the shareholder who intends to make
the nominations(s) and of the person(s) to be nominated; (ii) the class, series
and number of shares of the Corporation's capital stock owned by such
shareholder and a representation that the shareholder is a holder of record of
such stock of the Corporation and intends to appear in person or by proxy at
the meeting to nominate the person(s) specified in the notice; (iii) a
description of all arrangements or understandings between such shareholder and
any other person(s) (naming such person(s)) pursuant to which the nomination or
nominations are to be made by the shareholder; (iv) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission (the "SEC") had the nominee been nominated
by the board; and (v) the consent of each nominee to serve as a director of the
Corporation if so elected. Within fifteen (15) days following the receipt by
the Secretary of the Nomination Notice, the Board of Directors or a committee
of the Board of Directors shall advise the shareholder desiring to make such
nomination(s) and the Secretary of the Corporation in writing of any
deficiencies in the Nomination Notice and of any additional information the
Corporation requires in order to determine the eligibility of the proposed
nominee. A shareholder who has been notified of deficiencies in the Nomination
Notice and/or of the need for additional information shall cure such
deficiencies and/or provide such additional information within fifteen (15)
days after receipt of the notice of such deficiencies and/or the need for
additional information. The chairman of the meeting may, in his or her sole
discretion, refuse to acknowledge a nomination presented by any person (other
than Kennametal prior to the Control Termination Date) that does not comply
with the foregoing procedure, and upon his or her instructions, all votes cast
for such nominee or with respect to such proposal may be disregarded.
(c) To bring business before an annual or special meeting of
shareholders, a shareholder (other than Kennametal prior to the Control
Termination Date) must provide written notice of the proposed business (the
"Proposal Notice") to the secretary of the Corporation at least 60 days in
advance of such meeting; provided further, however, that if less than 60 days'
notice or prior public disclosure of the date of such annual or special meeting
is given, a shareholder (other than Kennametal prior to the Control Termination
Date) must provide the Proposal Notice to the secretary of the Corporation not
later than ten (10) days after the date of mailing of such notice or the date
of such public disclosure, whichever occurs first.
(d) Each such notice shall set forth: (i) the name and address of
the shareholder proposing such business; (ii) a brief description of such
business; (iii) the class, series and number of shares of the Corporation's
capital stock owned by such shareholder; (iv) a description of all arrangements
or understandings between such shareholder and any other person or persons
(naming such person or persons) in connection with such business or any special
interest such shareholder may have in connection with such business; (v) all
other information as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the SEC had proxies been solicited with
respect to such business by the board; and (vi) a representation that the
shareholder is a shareholder of record of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy in order to
present such proposal. If the Corporation receives notice from a shareholder
pursuant to this Section 1.11(c) and (d) and such notice, in the judgment of
the board of directors, fails to comply with the requirements set forth in this
Section 1.11(c) and (d) in any respect, then the Corporation shall notify the
shareholder of the deficiencies of such notice within ten (10) days of the
Corporation's receipt of such notice. Commencing on the day of receipt of the
deficiency notification from the Corporation, the shareholder shall have ten
(10) days to cure all deficiencies and provide the Corporation with notice
which conforms to the requirements of this Section 1.11(c) and (d).
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1.12 ORDER OF BUSINESS.
All meetings of the shareholders shall be called to order and presided
over by the chairman of the board or the president, or in their absence, by a
vice president, or in his absence, by the secretary, and if none of these be
present, by a chairman of the meeting elected by the shareholders.
1.13 ELECTION OF DIRECTORS.
The procedures for election of the directors of the Corporation are
set forth in Article Fourth of the articles of the incorporation.
1.14 JUDGES OF ELECTION.
In advance of any meeting of shareholders, the board of directors may
appoint judges of election, who need not be shareholders, to act at such
meeting or any adjournment thereof. If judges of election are not so appointed,
the presiding officer of any such meeting may, and on the request of any
shareholder or of any shareholder's proxy shall, make such appointment at the
meeting. The number of judges shall be one (1) or three (3). No person who is a
candidate for office to be filled at the meeting shall act as a judge. In case
any person appointed as a judge fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the board of directors in advance
of the convening of the meeting or at the meeting by the presiding officer
thereof. The judge or judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect
of proxies, shall receive votes or ballots, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes and determine the result and shall do
such acts as may be proper to conduct the election or vote with fairness to all
shareholders. The judge or judges of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously
as is practical. If there are three (3) judges of election, the decision, act
or certificate of a majority shall be effective in all respects as the
decision, act or certificate of all. On request of the presiding officer of the
meeting, or of any shareholder or proxy of any shareholder, the judge or judges
shall make a report in writing of any challenge or question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated therein.
2. BOARD OF DIRECTORS
2.1 GENERAL.
All powers vested by law in the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of, the board of directors.
2.2 NUMBER, QUALIFICATIONS, TERM OF OFFICE.
The board of directors of the Corporation shall consist of at least
five (5) and not more than twelve (12) directors, the exact number to be set
from time to time by resolution of the board of directors. Each director shall
be a natural person of full age but need not be a resident of Pennsylvania or a
shareholder of the Corporation. Each director shall hold office until the
expiration of the term for which he or she was selected and until said
director's successor has been selected and qualified or until said director's
earlier death, resignation or removal.
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2.3 ELECTION AND CLASSIFICATION.
Except as provided in Section 2.4 hereof, directors of the Corporation
shall be elected only as set forth in the articles of incorporation.
2.4 VACANCIES.
Vacancies in the board of directors, including vacancies resulting
from an increase in the number of directors, may be filled by a majority vote
of the remaining members of the board though less than a quorum, and each
person so selected shall be a director to serve for the balance of the
unexpired term and until his or her successor has been selected and qualified
or until his or her earlier death, resignation or removal. When one or more
directors resign from the board effective at a future date, the directors then
in office, including those who have so resigned, shall have power by the
applicable vote to fill the vacancies, the vote thereon to take effect when the
resignations become effective.
2.5 NOMINATIONS.
Nominations for election to the board of directors may be made by the
board of directors or by any shareholder of the Corporation entitled to notice
of, and to vote at, any meeting called for the election of directors.
Nominations other than those made by or on behalf of the board of directors of
the Corporation shall be made in accordance with Section 1.11(a) and (b).
2.6 REMOVAL AND RESIGNATION.
(a) REMOVAL BY ACTION OF THE SHAREHOLDERS. The entire board of
directors or any individual director may be removed from office by the
shareholders only as set forth in Article Ninth of the articles of
incorporation.
(b) RESIGNATION. Any director may resign at any time from his or
her position as a director of the Corporation upon written notice to the
Corporation. The resignation shall be effective upon receipt thereof by the
Corporation or at such subsequent time as may be specified in the notice of
resignation. The acceptance of a resignation shall not be required to make it
effective.
2.7 REGULAR AND SPECIAL MEETINGS.
The board of directors shall hold a meeting without other notice
immediately after the annual meeting of the shareholders and other meetings at
such times and places as it may determine. Special meetings of the board may be
called by the chairman of the board, the president or any two (2) directors.
Meetings of the board of directors may be held at such places within the
Commonwealth of Pennsylvania or elsewhere as a majority of the directors may
from time to time determine.
2.8 NOTICE OF MEETINGS.
No further notice of any annual or regular meeting of the board of
directors need be given. Written notice, or oral notice with written
confirmation no later than the date of the meeting, of each special meeting of
the board of directors, specifying the place, day and hour of the meeting,
shall be given to each director at least 48 hours before the time set for the
meeting. When a meeting of directors is adjourned, notice need not be given of
the adjourned meeting other than by announcement at the meeting at which the
adjournment is made.
2.9 QUORUM OF AND ACTION BY DIRECTORS.
A majority of the directors in office shall constitute a quorum for
the transaction of business, and the acts of a majority of directors present
and voting at a meeting at which a quorum is present shall be the
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acts of the board of directors. If at any meeting a quorum shall not be
present, the meeting may be adjourned from time to time until a quorum shall be
present.
2.10 OTHER POWERS.
In addition to the powers and authorities expressly conferred by these
by-laws, the board of directors may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute, the articles of
incorporation or these by-laws directed or required to be exercised or done by
the shareholders.
3. COMMITTEES OF THE BOARD
The board of directors may from time to time, by resolution adopted by
a majority of the directors in office, designate one or more committees, each
committee to consist of two (2) or more of the directors of the Corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee to the extent provided in the designating
resolution of the board of directors shall have and exercise the authority of
the board of directors in the management of the business and affairs of the
Corporation, except that a committee shall not have any power or authority as
to: (i) the submission to shareholders of any action requiring the approval of
shareholders pursuant to the Pennsylvania Business Corporation Law of 1988, as
it may hereafter be amended ("PBCL"); (ii) the creation or filling of vacancies
in the board of directors; (iii) the adoption, amendment or repeal of the
by-laws; (iv) the adoption, amendment or repeal of any resolution of the board
that by its terms is amendable or repealable only by the board; or (v) action
on matters committed by the by-laws or resolution of the board to another
committee of the board. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member. Each committee of the board
shall serve at the pleasure of the board. Unless the board of directors
provides otherwise by resolution, each committee shall conduct its business and
take action in the same manner as the board conducts its business pursuant to
the articles of incorporation and these by-laws.
4. OFFICERS
4.1 ELECTION OF OFFICERS AND BOARD CHAIRMAN.
The board of directors shall elect a chairman of the board, a
president, one (1) or more vice presidents, a secretary and a treasurer. The
board shall also from time to time elect such other officers and agents as it
deems necessary or advisable. The chairman of the board must be selected from
among the members of the board of directors, but the president and other
officers may or may not be directors. Unless sooner removed by the board of
directors, all officers shall hold office for the terms fixed by the board and
until their successors are elected and qualified or until their earlier death
or resignation. Any two (2) or more offices may be held by the same person,
except the offices of president and secretary, but in no case shall the same
person act in the same matter in two (2) such official capacities. At the time
of the election of the chairman of the board, the board of directors shall
specify whether or not the individual so elected shall serve in the capacity of
an officer-employee entitled to receive a salary or in the capacity of a
director entitled to receive only director's fees and allowances.
4.2 REMOVAL; RESIGNATION; BOND.
(a) REMOVAL. Any officer or agent of the Corporation may be
removed by the board of directors with or without cause, but such removal shall
be without prejudice to the contract rights, if any, of the
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person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. The board of directors shall have power to fill
any vacancies in any office occurring in any manner.
(b) RESIGNATION. Any officer may resign at any time upon written
notice to the Corporation. The resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as may be specified in
the notice of resignation.
(c) BOND. The Corporation may secure the fidelity of any or all
of its officers by bond or otherwise.
4.3 CHAIRMAN OF THE BOARD.
The chairman of the board shall preside at all meetings of the
shareholders and of the directors at which he or she is present and shall have
such authority and perform such duties as the board of directors may from time
to time designate.
4.4 PRESIDENT.
The president shall be the chief executive officer, shall be
responsible for directing the implementation of the general policies and
procedures of the Corporation, shall have general and active management of the
Corporation's business, and shall perform the usual duties incident to the
office of president or chief executive officer as required by law, the articles
of incorporation or these by-laws, and such other duties as may be assigned to
him or her from time to time by the board of directors. Except when prohibited
by law or regulation, he or she shall be ex-officio a member of all committees
of the board of directors.
4.5 VICE PRESIDENTS.
Any vice president shall perform such duties as shall be assigned to
him or her by the board of directors or the president, and in the absence or
disability of the president, the senior most vice president shall perform the
duties of the president.
4.6 SECRETARY.
The secretary shall: (i) keep or cause to be kept the minutes of all
meetings of the shareholders, the board of directors, and any committees of the
board of directors in one or more books kept for that purpose; (ii) have
custody of the corporate records, stock books and stock ledgers of the
Corporation; (iii) keep or cause to be kept a register of the address of each
shareholder, which address has been furnished to the secretary by such
shareholder; (iv) see that all notices are duly given in accordance with law,
the articles and these by-laws; and (v) in general perform all the usual duties
incident to the office of secretary and such other duties as may be assigned to
him or her by the board of directors or the president. The secretary may
delegate any of his or her duties to any management officer or to any duly
elected or appointed assistant secretary and may delegate custody of the
Corporation's stock books, stock ledgers, shareholder lists and the like to a
duly appointed stock transfer agent and/or registrar or, in the case of records
regarding debt instruments, to an indenture or bond trustee, registrar or
similar entity.
4.7 TREASURER.
The treasurer shall: (i) have custody of all funds and securities of
the Corporation; (ii) keep, or cause to be kept, complete and accurate accounts
of receipts and disbursements in books kept for that purpose; (iii) deposit or
cause to be deposited in the name and to the credit of the Corporation, in such
depositories as the board of directors shall designate, all monies and other
valuable effects of the Corporation not otherwise employed; (iv) as directed by
the board of directors or the president, disburse monies of the Corporation,
taking
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proper vouchers for such disbursements, and render to the president and board
of directors an account of all of his or her transactions as treasurer and of
the financial condition of the Corporation; (v) have charge of the accounting
of the Corporation; and (vi) in general perform all the usual duties incident
to the office of treasurer and such other duties as may be assigned to him or
her by the board of directors or the president. The treasurer shall also be
ex-officio an assistant secretary of the Corporation.
4.8 DELEGATION OF DUTIES.
In case of the absence or disability of any officer of the
Corporation, or if it is deemed expedient and desirable so to do, the board of
directors or the president may delegate the powers or duties of any officer to
any other officer or director for such time or period as may be specified.
4.9 CONTRACTS.
All promissory notes, drafts, bills of exchange or other negotiable
instruments shall be signed by the president or a vice president and the
secretary or the treasurer, or by such officer or officers or such other person
or persons as the board of directors may from time to time designate. All other
written contracts shall be signed by the president or a vice president, or by
such officer or officers or such other person or persons as the board of
directors may from time to time designate.
5. SHARE CERTIFICATES AND TRANSFERS
5.1 SHARE CERTIFICATES.
Share certificates shall be in such form as the board of directors may
from time to time determine or may from time to time authorize the officer(s)
of the Corporation to determine. Every share certificate shall be signed by the
president or a vice president and countersigned by the treasurer or by the
secretary or assistant secretary, and may be sealed with the corporate seal,
which may be a facsimile, engraved or printed, but where such certificate is
signed by a transfer agent or a registrar, the signature of any corporate
officer upon such certificate may be a facsimile, engraved or printed.
5.2 TRANSFER OF SHARES.
Shares of the Corporation shall, upon the surrender and cancellation
of the certificate or certificates representing the same, be transferred upon
the books of the Corporation at the request of the holder thereof named in the
surrendered certificate or certificates, in person or by his legal
representative, or by his attorney duly authorized by written power of attorney
filed with the Corporation or its transfer agent.
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5.3 REGISTRAR, TRANSFER AGENT, AUTHENTICATING TRUSTEE.
The board of directors may appoint a transfer agent or transfer clerk
or a registrar of transfers, or both, and it may require all stock certificates
to bear the signature of either or both. The board of directors may make such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates for shares of the Corporation.
5.4 LOST, DESTROYED OR STOLEN CERTIFICATES.
If the registered owner of a share certificate claims that the
security has been lost, destroyed or wrongfully taken, another may be issued in
lieu thereof in such manner and upon such terms as the board of directors may
authorize and shall be issued in place of the original security, in accordance
with 13 Pa. C.S. Section 8405(2).
5.5 DETERMINATION OF SHAREHOLDERS OF RECORD.
The board of directors may fix a time, not more than seventy (70) days
prior to the date of any meeting of shareholders, or the date fixed for the
payment of any dividend or distribution, or the date for the allotment of
rights, or the date when any change or conversion or exchange of shares will be
made or go into effect, or the date fixed for any other matter, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or distribution, or to receive any such allotment of rights, or to exercise the
rights in respect to any such change, conversion or exchange of shares, or
entitled to receive or take action with respect to any other matter. In such
case, only such shareholders as shall be shareholders of record on the date so
fixed shall be entitled to notice of, or to vote at, such meeting, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to receive or take action with respect to any other
matter, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after any record date fixed as aforesaid.
6. MANNER OF GIVING NOTICE,
WAIVER OF NOTICE, ACTION WITHOUT MEETING,
MEETINGS BY CONFERENCE TELEPHONE AND
MODIFICATION OF PROPOSALS
6.1 MANNER OF GIVING NOTICE.
Whenever written notice is required to be given to any person under
the PBCL, the articles of incorporation or these by-laws, it may be given to
the person either personally or by sending a copy thereof by first class or
express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answerback received) or courier service, charges
prepaid, or by facsimile transmission, to the shareholder's address (or to the
shareholder's telex, TWX, or facsimile number) appearing on the books of the
Corporation or, in the case of directors, supplied by the director to the
Corporation for the purpose of notice. Notice sent by mail, by telegraph or by
courier service shall be deemed to have been given when deposited in the United
States mail or with a telegraph office or courier service for delivery or, in
the case of telex, TWX or facsimile, when dispatched.
6.2 WAIVER OF NOTICE.
Whenever any written notice is required to be given under the PBCL,
the articles of incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to the notice,
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whether before or after the time stated therein, shall be deemed equivalent to
the giving of the notice. Except in the case of a special meeting of
shareholders, neither the business to be transacted at, nor the purpose of, a
meeting need be specified in the waiver of notice of such meeting. Attendance
of a person, either in person or by proxy, at any meeting shall constitute a
waiver of notice of the meeting, except where the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
6.3 ACTION BY CONSENT.
(a) The procedure for action by consent of the shareholders shall
be as set forth in Article Seventh of the articles of incorporation.
(b) Any action which may be taken at a meeting of the directors,
or of any committee of directors, may be taken without a meeting, if a consent
in writing setting forth the action so taken shall be signed by all of the
directors, or by all of the members of such committee, as the case may be, and
shall be filed with the secretary of the Corporation.
6.4 MEETINGS BY MEANS OF CONFERENCE TELEPHONE.
One or more directors may participate in a meeting of the board or of
a committee of the board, and the board of directors may provide by resolution
with respect to a specific meeting or with respect to a class of meetings that
one or more persons may participate in a meeting of the shareholders of the
Corporation, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Such participation shall constitute presence in person at the
meeting.
6.5 MODIFICATION OF PROPOSALS.
Whenever the language of a proposed resolution is included in a
written notice of a meeting required to be given by statute, the articles of
incorporation or these by-laws, the meeting considering the resolution may
without further notice adopt it with such clarifying or other amendments as do
not enlarge its original purpose.
7. CERTAIN SHAREHOLDER RIGHTS
7.1 INSPECTION OF CORPORATE RECORDS.
Every shareholder shall, upon written verified demand stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business for any proper purpose, the share register,
books and records of account, and records of the proceedings of the
incorporators, shareholders and directors and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to the
interest of the person as a shareholder. In every instance where an attorney or
other agent is the person who seeks the right of inspection, the demand shall
be accompanied by a verified power of attorney or other writing that authorizes
the attorney or other agent to so act on behalf of the shareholder. The demand
shall be directed to the Corporation at its registered office in Pennsylvania
or at its principal place of business wherever situated.
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<PAGE> 14
8. PERSONAL LIABILITY, INDEMNIFICATION AND INSURANCE
8.1 PERSONAL LIABILITY OF DIRECTORS.
The personal liability of directors shall be limited as set forth in
Article Tenth of the articles of incorporation.
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) RIGHT TO INDEMNIFICATION.
Except as otherwise provided below, each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding") and whether or not by or in the
right of the Corporation or otherwise, by reason of the fact that he or she, or
a person of whom he or she is the heir, executor or administrator, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer or trustee of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or trustee, or
in any other capacity while serving as a director or officer or trustee, shall
be indemnified and held harmless by the Corporation against all reasonable
expenses, including attorneys' fees, and any liability and loss, including
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement, incurred or paid by such person in connection therewith;
provided, however, that such person shall not be entitled to indemnification
hereunder if the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness; and provided, further, that except with respect to the
enforcement of claims described in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Corporation.
The right to indemnification conferred in this section shall include the right
to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of the final disposition thereof; provided, however, that
to the extent required by law, the payment of such expenses incurred by an
officer or director in advance of the final disposition of a proceeding shall
be made only upon receipt of an undertaking, by or on behalf of such person, to
repay all amounts so advanced if it shall ultimately be determined that he or
she is not entitled to be indemnified under this section or otherwise. The
right to indemnification, including the right to the advancement of expenses,
provided herein shall be a contract right and shall continue as to a person who
has ceased to be a director or officer or trustee, and shall inure to the
benefit of the heirs, executors and administrators of such person.
(b) RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under paragraph (a) of this section is not paid in
full by the Corporation within forty-five (45) days after a written claim has
been received by the Corporation, the claimant may, at any time thereafter,
bring suit against the Corporation to recover the unpaid amount of the claim,
and if successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim.
(c) NON-EXCLUSIVITY OF RIGHTS.
The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of a final disposition conferred by this
Section 8 shall not be exclusive of any other rights to which a person seeking
indemnification or advancement of expenses hereunder may be entitled under any
by-law, agreement, vote of shareholders or directors, applicable law or
otherwise, both as to action in his or her official capacity and as to action
in any other capacity while holding that office, the Corporation having the
express authority to enter into such agreements as the board of directors deems
appropriate for the indemnification and advancement of expenses to present or
future directors and officers of the Corporation.
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<PAGE> 15
(d) FUNDING.
The Corporation may create a fund of any nature, which may, but
need not be, under the control of a trustee, or otherwise secure or insure in
any manner its indemnification obligations, whether arising under or pursuant
to this by-law or otherwise.
9. GENERAL PROVISIONS
9.1 REGISTERED OFFICE.
The initial registered office of the Corporation is set forth in
Article Second of the articles of incorporation. The principal place of
business of the Corporation may be, but need not be, the same as the registered
office. The address of the registered office may be changed from time to time
by the board of directors.
9.2 OTHER OFFICES.
The Corporation may have additional offices and places of business in
such places, within or without the Commonwealth of Pennsylvania, as the board
of directors may designate or as the business of the Corporation may require.
9.3 CORPORATE SEAL.
The Corporation may have a corporate seal which shall have inscribed
thereon the name of the Corporation, the year of organization, and the words
"Corporate Seal - Pennsylvania" or such inscription as the board of directors
may determine. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed, or in any manner reproduced.
9.4 FISCAL YEAR.
The fiscal year of the Corporation shall end on the 30th day of June
in each year.
9.5 AMENDMENT OF BY-LAWS.
These by-laws may be amended or repealed, and new by-laws may be
adopted, by the board of directors, regardless of whether the shareholders have
previously adopted or approved the by-law being amended or repealed, except
where the power to repeal, adopt or amend a by-law on any subject is expressly
committed to the shareholders by the PBCL and subject always to the power of
the shareholders to change any action taken by the board. Any change in the
by-laws shall take effect when adopted unless otherwise provided in the
resolution effecting the change. Any action required or permitted to be taken
with respect to these by-laws by the shareholders shall be taken only by the
affirmative vote of a majority of the outstanding shares of capital stock of
the Corporation entitled to vote thereon, and this provision may itself be
amended, modified or repealed only by said affirmative vote of shareholders.
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<PAGE> 1
Exhibit 10(a)
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made and
entered into as of the ____ day of _______, 1997, by and between Kennametal
Inc., a Pennsylvania corporation ("Kennametal"), and JLK Direct Distribution
Inc., a Pennsylvania corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "Offering")
of shares of the Class A Common Stock, par value $.01 per
share, of JLK (the "Class A Common Stock").
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. Kennametal has performed, and following the Offering, desires
to continue to perform (or cause to be performed) pursuant to
the terms hereof, certain Services (as identified herein) on
behalf of JLK and its subsidiaries (collectively, the
"Company").
E. The Company desires to continue to use such services of
Kennametal pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, and intending to be legally bound hereby, the parties hereby
agree as follows:
I. SERVICES
SECTION 1.1 - Services: During the term of this Agreement, Kennametal
agrees to provide to the Company the services (herein "Services") set forth in
Exhibits 1 through 8 (including any schedules to such exhibits) attached hereto
and incorporated herein by reference (collectively, the "Exhibits" and
individually, an "Exhibit"). Each Exhibit shall be subject to the terms
identified in the Exhibit. In the event any Exhibit is terminated, the
Agreement shall remain in effect unless otherwise terminated as provided
herein. The most recent of each Exhibit shall supersede all earlier dated
Exhibits. In the event of any conflict between the terms of this Agreement and
any Exhibit, the terms of this Agreement shall govern. For purposes of this
Agreement, Services provided by Kennametal shall include services provided by
any of Kennametal's subsidiaries or affiliates (other than the Company). In
addition, the Company may request that Kennametal expand or terminate the
Services provided by Kennametal to the Company, in which case the parties will
discuss, without obligation, such expansion or termination and an appropriate
charge or reduction in charges for such services.
SECTION 1.2 - Performance of Services:
(a) Kennametal shall perform the Services with the same degree of
care, skill and prudence customarily exercised for its own
operations. In the event Kennametal changes the degree of care,
skill and prudence customarily exercised for its own operations,
the Services performed hereunder may be modified by Kennametal to
meet its revised internal performance standards for the Services
hereunder. Except as otherwise provided in this Section 1.2, it
is understood
<PAGE> 2
and agreed that the Services will be substantially identical in
nature and quality to the Services performed by Kennametal for
the Company during the years prior to the execution of this
Agreement, except with respect to any modifications which may be
necessary to the Company becoming a public company.
(b) Each party acknowledges that the Services will be provided only
with respect to the business of the Company and its subsidiaries
as such businesses exist as of the execution of this Agreement or
as otherwise mutually agreed by the parties. The Company agrees
to use the Services in accordance with all applicable federal,
state and local laws, regulations and tariffs and in accordance
with reasonable conditions, rules, regulations and specifications
which are or may be set forth in any manuals, materials,
documents or instructions of Kennametal. Kennametal reserves the
right to take all actions in order to assure that the Services
are provided in accordance with any applicable laws, regulations
and tariffs.
(c) Any input or information needed by Kennametal to perform the
Services pursuant to the provisions of this Agreement shall be
provided by the Company in a manner consistent with the practices
employed by the parties during the year prior to the execution of
this Agreement. Should the failure to provide such input or
information render the performance of the Services impossible or
unreasonably difficult, Kennametal may, upon reasonable notice to
the Company, refuse to provide such Services.
SECTION 1.3 - Compensation: Kennametal shall be compensated for the
Services rendered under this Agreement as set forth in the Exhibits hereto.
Payments shall be made by the thirtieth (30th) day of the month following the
month in which such Services are performed either by check, wire transfer,
intracompany netting or such other method(s) agreed to by the parties. If there
are additional Services or the scope or nature of Services provided at any time
under this Agreement changes materially or to the extent charges are to be
agreed upon in the future in accordance with any Exhibit, the charges will be
determined as follows:
(i) Charges for Services performed by a third party shall be equal to
the incremental costs charged by such third party to Kennametal
to perform those Services for the Company.
(ii) Fees for Services provided by Kennametal shall be based on the
estimated costs of providing such Services to the Company, which
shall include a reasonable allocation of Kennametal's direct and
indirect overhead costs (including, without limitation, employee
salaries, benefits and other costs) which Kennametal expects to
incur in connection therewith.
(iii) Such other charges, fees, or commissions for Services provided
based on the methodology for the same as set forth in the Exhibit
or Exhibits for such Services.
II. CONFIDENTIALITY
SECTION 2.1 - Confidentiality of Information: All Confidential
Information (as hereinafter defined) disclosed by either of the parties to the
other party hereunder is confidential and proprietary to such disclosing party.
Each party, its affiliates, and subsidiaries and its or their officers,
directors, employees, agents, consultants and contractors shall not use any of
the Confidential Information for any purpose other than as expressly permitted
hereunder. Confidential Information furnished by either of the parties to the
other party in connection with this Agreement (or previously disclosed prior to
execution of this Agreement) and the transactions contemplated hereby will be
kept in confidence by such other party, including its affiliates and
subsidiaries and its or their officers, directors, employees, agents,
consultants and contractors, in accordance with the policies of
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<PAGE> 3
Kennametal and the Company, as applicable, for maintaining the confidence of
its own information of similar content. The term "Confidential Information"
shall mean and include:
(i) All trade secrets, other confidential business information and
other confidential information learned in the course of
performance by either party of its obligations hereunder; and
(ii) Any information, data, software or computer programs which are
disclosed by either party to the other party under or in
contemplation of this Agreement.
Confidential Information may be either the property of the disclosing
party or information provided to the disclosing party by a corporate affiliate
of the disclosing party or by a third party.
Notwithstanding the foregoing, the term "Confidential Information"
shall not include information which:
(i) Is publicly available other than as a result of an unauthorized
disclosure; or
(ii) Is required by law, regulation or court order to be disclosed by
such party, in the opinion of its counsel, provided that prior
notice of such disclosure has been given to the other party when
legally permissible, upon sufficient notice in order to permit
the other party to take such legal action to prevent the
disclosure as it deems reasonable, appropriate or necessary.
This Section 2.1 shall survive any termination of this Agreement, in
whole or in part, for five (5) years.
III. CONFLICT RESOLUTION
SECTION 3.1 - Conflict Resolution: Any dispute, controversy or claim
relating to this Agreement (a "Dispute") shall initially be referred to the
executive management of the parties to the Dispute who shall attempt to resolve
such Dispute in good faith. In the event such executive management cannot come
to an agreement to resolve a particular Dispute, then the matter shall be
submitted to final and binding arbitration by three (3) arbitrators selected by
Kennametal and the Company. Kennametal and the Company will each select one (1)
arbitrator and the third arbitrator will be selected by mutual agreement of the
two (2) previously selected arbitrators (the "Board of Arbitration"). The Board
of Arbitration will meet in Pittsburgh, Pennsylvania, or such other place as
the parties may agree upon, and will reach and render a decision in writing
concurred in by a majority of the members of the Board of Arbitration. The
Board of Arbitration will adopt and follow such rules and procedures as a
majority of the members of the Board of Arbitration deems necessary or
appropriate. To the extent practical, the Board of Arbitration will render
decisions no more than thirty (30) days following the commencement of
proceedings. Each party will bear its own costs and expenses in relation
thereto, and the fees and expenses of the members of the Board of Arbitration
shall be shared equally by the parties hereto.
IV. EVENTS OF DEFAULT AND REMEDIES
SECTION 4.1 - Event of Default: An "Event of Default" shall include a
material breach of a material representation, agreement or other obligation of
either of the parties to this Agreement (any such breach is herein referred to
as a "Material Breach"); provided, the non-breaching party provides the
breaching party with written notice of such Material Breach which describes in
reasonable detail the nature of such Material Breach and the breaching party
does not cure such Material Breach within sixty (60) days after receipt of such
notice.
SECITON 4.2 - Remedies: Each of the parties hereto shall be liable to
the other party for damages arising out of or in connection with any breach of
this Agreement, to the extent permitted by law, subject to the duty of the
non-breaching party to take all reasonable actions in order to mitigate such
damages. The parties agree that in
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<PAGE> 4
no event shall either party to this Agreement be liable to the other party for
any punitive, indirect, special or consequential damages arising out of a
breach of this Agreement. It is understood and agreed that monetary damages may
not be a sufficient remedy for an Event of Default. Accordingly, the
non-breaching party shall, to the extent permitted by law or equity, be
entitled to specific performance and injunctive or other equitable relief as a
remedy for any Event of Default. The remedies described in this Section 4.2
shall not be deemed to be the exclusive remedies for any breach of, or Event of
Default under, this Agreement, but shall be in addition to all other remedies
available to the parties at law or in equity, subject to the limitations with
respect to damages set forth above in this Section 4.2.
V. INDEMNIFICATION
SECTION 5.1 - Indemnification Obligations:
(a) By the Company: The Company shall be liable to and shall defend,
indemnify and hold harmless, Kennametal and its affiliates and
subsidiaries and its and their officers, directors, employees and
permitted assigns, from and against any and all Losses (as
hereinafter defined) incurred by any of them by reason of or
related to the Company's failure to perform its obligations
hereunder.
(b) By Kennametal: Kennametal shall be liable to and shall defend,
indemnify and hold harmless, the Company and its affiliates and
subsidiaries and its and their officers, directors, employees and
permitted assigns, from and against any and all Losses (as
hereinafter defined) incurred by reason of or related to
Kennametal's failure to perform its obligations hereunder.
(c) "Losses" Defined: For purposes of this Section 5.1, the term
"Losses" shall mean any losses, liability, claims, damages,
costs, and expenses, including attorney's and accountant's fees,
disbursements and court costs, reasonably incurred by an
indemnified party, judgments, fines and other amounts paid in
settlement, incurred or suffered by an indemnified party in
connection with any threatened, pending or adjudicated claim,
demand, action, suit or proceeding (whether civil, criminal,
administrative or investigative, and whether by an unaffiliated
third party arising out of or in connection with any breach or
alleged breach of this Agreement) without regard to whether or
not such Losses would be deemed material under this Agreement.
SECTION 5.2 - Procedures:
(a) Notice of Claims: The parties agree that in case any third-party
claim is made, or any third-party suit, action or proceeding is
commenced which, if not corrected, may give rise to a right of
indemnification by a party hereunder ("Indemnified Party") from
the other party ("Indemnifying Party"), the Indemnified Party
will give notice to the Indemnifying Party as promptly as
practicable after the receipt by the Indemnified Party of such
notice or knowledge of such claim, suit, action or proceeding.
The Indemnified Party shall make available to the Indemnifying
Party and its counsel and accountants all books and records of
the Indemnified Party relating to any such possible right of
indemnification, and each party will render to the other such
assistance as it may reasonably require of the other in order to
ensure prompt and adequate defense of any suit, claim, action or
proceeding based upon a statement of facts which may give rise to
a right of indemnification hereunder.
(b) Selection of Counsel: The Indemnifying Party shall have the right
to defend, compromise and settle any suit, claim, action or
proceeding in the name of the Indemnified Party; provided,
however, that the Indemnifying Party shall not compromise or
settle a suit, claim, action or
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<PAGE> 5
proceeding unless it assumes the obligation to indemnify for all
Losses related thereto. The Indemnified Party shall have the
right to employ its own counsel to participate in such defense,
compromise or settlement, but the fees and expenses of such
counsel shall be at the Indemnified Party's expense.
(c) Settlement of Claims: The Indemnified Party may at any time
notify the Indemnifying Party of its intention to settle or
compromise any claim, suit, or action against the Indemnified
Party in respect of which indemnification payments may be sought
from the Indemnifying Party hereunder, but shall not settle or
compromise any matter for which indemnification may be sought in
any manner which involves anything other than the payment of
money without the consent of the Indemnifying Party.
(d) Subrogation: The Indemnifying Party shall be subrogated to any
claims or rights of the Indemnified Party as against any other
persons with respect to any amount paid by the Indemnifying Party
under this Section 5. The Indemnified Party shall cooperate with
the Indemnifying Party, at the Indemnifying Party's expense, in
the assertion by the Indemnifying Party of any such claim against
such other persons.
SECTION 5.3 - Survival of Indemnification: The provisions of this
Section 5 shall expressly survive any termination of this Agreement, in whole
or in part, for a period of five (5) years.
VI. TERM AND TERMINATION
SECTION 6.1 - Term and Termination: Unless earlier terminated as
provided below, this Agreement shall take effect upon the date first written
above and shall remain in effect for a period of ten (10) years ("Initial
Term"). Thereafter, unless earlier terminated as provided below, this Agreement
will automatically renew for additional terms of one (1) year each ("Renewal
Term"). This Agreement may be terminated, in whole or in part, upon the
following conditions (but reserving all other remedies and rights hereunder, in
whole or in part, and otherwise available in law or in equity):
(a) At the end of the Initial Term or any Renewal Term if either
party provides written notice to the other party of not less than
six (6) months prior to the end of the Initial Term or any such
Renewal Term of its intent to terminate this Agreement;
(b) Upon the occurrence of an Event of Default which remains uncured
as provided in Section 4.1 hereof, the non-defaulting party may
terminate this Agreement by giving no less than thirty (30) days
prior written notice of its intent to terminate to the other
party; or
(c) Kennametal may terminate this Agreement by written notice to the
Company upon a Change of Control (as defined below) with respect
to the Company; a "Change in Control" shall be deemed to have
occurred if: (i) Kennametal or its affiliates (excluding the
Company and its subsidiaries) shall own shares representing less
than a majority of the voting power of the outstanding common
stock of the Company; (ii) a majority of the seats (other than
vacant seats) on the Board of Directors of the Company shall at
any time be occupied by persons who were neither (1) nominated by
Kennametal or by the Board of Directors of the Company, nor (2)
appointed by directors of the Company so nominated; or (iii) any
person or group other than Kennametal or its affiliates
(excluding the Company or its subsidiaries) shall otherwise
directly or indirectly have the power to exercise a controlling
influence over the Company.
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<PAGE> 6
VII. MISCELLANEOUS
SECTION 7.1 - Additional Actions and Documents: Both parties hereto
agree to take or cause to be taken such further actions, to execute,
acknowledge, deliver and file or cause to be executed, acknowledged, delivered
and filed such further documents and instruments, and to use all reasonable
efforts to obtain such consents, as may be necessary or as may be reasonably
requested in order to fully effectuate the purposes, terms and conditions of
this Agreement.
SECTION 7.2 - Notice: All notices, demands, requests or other
communications which may be or are required to be given pursuant to this
Agreement shall be in writing and shall be personally delivered, mailed by
first class, registered or certified mail postage prepaid, or sent by
electronic or facsimile transmission, addressed as follows:
If to the Company:
JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
If to Kennametal:
Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
Both parties may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice, demand, request or communication which shall be
delivered, mailed or transmitted in the manner described above shall be deemed
sufficiently given, served, sent or received for all purposes at such time as
it is delivered to the addressee or at such time as delivery is refused by the
addressee upon presentation.
SECTION 7.3 - Severability: Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of this Agreement. In the event of such declaration of
invalidity or unenforceability, this Agreement, as so modified, shall be
applied and construed so as to reflect substantially the intent of the parties
and achieve the same economic effect as originally intended by the terms
hereof. In the event that the scope of any provision to this Agreement is
deemed unenforceable by a court of competent jurisdiction, the parties agree to
the reduction of the scope of such provision as such court shall deem
reasonably necessary to make such provision enforceable under the
circumstances.
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<PAGE> 7
SECTION 7.4 - Survival: It is the express intention and agreement of
the parties hereto that all covenants, agreements, statements, representations,
warranties and indemnities made in this Agreement shall survive the execution
and delivery of this Agreement.
SECTION 7.5 - Waivers: Neither the waiver by either party hereto of a
breach of or a default under any of the provisions of this Agreement, nor the
failure of either party hereto, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right, remedy or privilege
hereunder shall thereafter be construed as a waiver of any such provisions. The
provisions, rights, remedies, warranties and conditions of this Agreement may
be waived only by a written instrument executed by the party waiving
compliance.
SECTION 7.6 - Binding Effect: Subject to any provisions hereof
restricting assignment, this Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
SECTION 7.7 - Governing Law: This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the internal laws of the
State of Pennsylvania without giving effect to the principles of conflicts of
laws of any jurisdiction.
SECTION 7.8 - Execution in Counterparts: This Agreement may be
executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf of, each party, or that the
signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement.
SECTION 7.9 - Assignment: Neither party to this Agreement shall have
the right to assign or otherwise transfer its rights or obligations under this
Agreement, except with the prior written consent of the other party hereto.
SECTION 7.10 - No Agency: This Agreement shall not be deemed expressly
or by implication to create an agency, employee, or servant relationship
between or among any of the parties hereto, or any affiliates of the parties
hereto for any purpose whatsoever.
SECTION 7.11 - Force Majeure: Neither party shall be liable for any
failure of or delay in the performance of this Agreement for the period that
such failure or delay is due to acts of God, public enemy, war, strikes or
labor disputes, or any other cause beyond the parties' reasonable control; it
being understood that lack of financial resources is not to be deemed a cause
beyond a party's control. Each party shall notify the other party promptly of
the occurrence of any such cause and carry out this Agreement as promptly as
practicable after such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of this Agreement.
SECTION 7.12 - Time: Time is to be considered of the essence for the
purposes of this Agreement.
SECTION 7.13 - Amendment and Modification: This Agreement or any
Exhibits may only be amended or modified by a subsequent written agreement by
and among the parties hereto.
SECTION 7.14 - Adherence to Applicable Law: In connection with the
performance of their respective obligations and the exercise of their
respective rights hereunder, the parties agree to comply in all material
respects with all applicable state, federal and local laws and regulations.
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<PAGE> 8
SECTION 7.15 - Entire Agreement: This Agreement and the Exhibits
represent the entire undertaking of the parties hereto with respect to the
subject matter hereof. This Agreement and the Exhibits supersede all prior
agreements and all contemporaneous agreements not required or contemplated
hereby, whether oral or written, and all representations, warranties,
undertakings, and understandings by and between the parties with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date and year first written above.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By ________________________________ By ________________________________
Name ______________________________ Name ______________________________
Title _____________________________ Title _____________________________
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<PAGE> 9
EXHIBIT 1
Treasury, Insurance and Risk Management Services
Kennametal agrees that it will on behalf of the Company:
1. Arrange and administer all financing arrangements, including
centralized cash management, banking advisory services, and the
securitization of assets.
2. Arrange and administer all interest rate and similar hedging
transactions.
3. Insurance Services/Risk Management
Kennametal agrees that it will:
Arrange and administer all existing insurance arrangements, including:
workers' compensation insurance, property and casualty insurance,
excess liability insurance, employee blanket bond insurance, director
and officer liability insurance and any other types of insurance
reasonably required by the Company, or its subsidiaries and
affiliates. Kennametal may, subject to notification of the Company,
fulfill its obligation with respect to any of the identified
coverage's by arranging for the Company and its subsidiaries and
affiliates to be included under Kennametal's policies. Kennametal will
permit eligible employees of the Company to participate in all of
Kennametal's benefit plans.
Compensation:
1. Incremental third party expenses including, without limitation,
out-of-pocket costs and expenses for a centralized cash management
system and insurance premiums, and an allocable portion of any
facility fee required to be paid for the maintenance of any credit
facilities or lines; and
2. A pro-rata share of department expenses as agreed to by the parties
for each of the fiscal years this Agreement continues in full force
and effect.
3. Reimburse Kennametal's costs (including any contributions and premium
costs and including certain third party expenses and allocation of
certain personnel expenses of Kennametal), generally in accordance
with past practice, relating to participation by the Company's
employees in any of Kennametal's benefit plans.
Exhibit 1 - 1
<PAGE> 10
EXHIBIT 2
Financial Accounting and Administrative Services
1. Financial Services
Kennametal agrees that it will on behalf of the Company:
(a) Prepare all Federal tax filings, including any extensions
thereof, and any payroll tax filings for the Company, or its
predecessor, and its subsidiaries and affiliates. Prepare and
file any and all estimated tax installments required
hereunder pursuant to any tax sharing agreement between
Kennametal and the Company.
(b) Prepare any and all state tax filings, any extensions
thereof, and any other non-Federal tax filings, including any
payroll tax filings, for the Company, or its predecessor and
subsidiaries and affiliates, and for the states of
___________, __________, and _____________. Any tax filings
for other states where it is determined that the Company or
its predecessor and its subsidiaries and affiliates have
income tax nexus shall require an amendment to this Exhibit.
Prepare and file any and all estimated tax installments
required hereunder pursuant to any tax sharing agreement
between Kennametal and the Company.
(c) Assist in the analysis of any and all securitization,
interest rate hedging and other financing arrangements and
any and all other transactions or arrangements which may have
tax ramifications for the purpose of determining the proper
tax treatment for such transactions or arrangements.
(d) Assist in the analysis of any and all employee compensation
issues from a tax perspective.
(e) Assist with any tax planning and research for the Company
and its subsidiaries or affiliates.
(f) Be the sole and exclusive agent and representative of the
Company, or its predecessor, and subsidiaries and affiliates,
in any matters relating to the tax filings noted above,
including the full right and authority to contest, compromise
and settle all such matters, and subject to examination by
representatives of the Internal Revenue Service or any
similar state agency pursuant to any tax sharing agreement
between Kennametal and the Company.
2. Accounting and Other Administrative Services
Kennametal agrees that it will:
(a) Provide the assistance of its Chief Financial Officer,
Corporate Controller and other accounting staff in the
preparation of the financial statements and other financial
information of the Company for internal and external business
needs, and its subsidiaries and affiliates. Such Kennametal
personnel will also assist such parties by providing
financial advice and guidance, where necessary, in the
conduct of their business, including financial advice
provided in the negotiation of any contractual arrangements
and other financial transactions;
(b) Provide access to and use of Kennametal's general ledger
system for the recording and analyzing of such entities
financial transactions;
Exhibit 2 - 1
<PAGE> 11
(c) Provide accounts payable and other disbursement services;
(d) Provide payroll and other employee compensation accounting
services for the Company and its subsidiaries and affiliates;
(e) Provide accounts receivable and credit and collection
services;
(f) Provide investor relations services, Securities Exchange
Commission compliance and prepare and support the preparation
of the Annual Report and related releases and filings;
(g) Provide the assistance of its Director of Corporate Business
Development and other staff for the assessment, evaluation
and review of proposed mergers, acquisitions, dispositions
and other business combinations; and
(h) Provide facilities management, including assistance with site
selection, and the design and construction of the facilities.
Compensation:
1. Incremental third party expenses; and
2. A pro-rata share of department expenses as agreed to by the parties
for each of the fiscal years this Agreement continues in full force
and effect.
Exhibit 2 - 2
<PAGE> 12
EXHIBIT 3
Human Resource Services
Kennametal agrees that it will on behalf of the Company:
1. Assist in the administration and development of certain human resource
activities, including policies and procedures for the Company and its
subsidiaries and affiliates, employee compensation and benefits and
related benefit plans which such employees may now, have been or
hereafter may be participants in.
2. Assist, as requested, in the review of hiring and termination
decisions of employees of the Company and its subsidiaries, including
the development of policies and procedures therefor; and assist, when
requested, in interviewing, placing ads and hiring search firms for
new employees.
3. Assist in the counseling process for employees, job performance
reviews, the maintenance of personnel records, including those
required by the laws, rules and regulations of the states or the
Federal government.
4. Permit eligible salaried employees to participate in all of the
Kennametal Inc. compensation and benefit plans. In the event a Change
in Control occurs, or the Company's employees cease to actively
participate in such benefit plans, Kennametal further agrees that it
will retain all liabilities with respect to such benefit plans,
including all then-existing defined benefit, SERP, postretirement and
postemployment liabilities with respect to the Company's employees.
Compensation:
1. Incremental third party expenses.
2. A pro-rata share of department expenses and allocable costs associated
with the participation by the Company and its employees in the
compensation and benefit plans, all as agreed to by the parties for
each of the fiscal years this Agreement remains in full force and
effect.
Exhibit 3 - 1
<PAGE> 13
EXHIBIT 4
Legal Services
Kennametal agrees that it will on behalf of the Company:
1. Provide legal services, including the retention and management of
outside counsel.
2. Assist in the preparation and review of all contractual obligations of
the Company.
3. Assist in the assessment of the applicability and subsequent
compliance of the laws, rules and regulations of the various
authorities which have jurisdiction over the Company.
4. Review and recommend changes to the legal structure and organization
of the business of the Company.
5. Provide counsel on all other business issues as appropriate.
6. Assist in the preparation and review of all required filings with the
SEC and any other applicable authority having jurisdiction over the
Company.
Compensation:
1. Incremental third party expenses; and
2. A pro-rata share of department expenses as agreed to by the parties
for each of the fiscal years this Agreement remains in full force and
effect.
Exhibit 4 - 1
<PAGE> 14
EXHIBIT 5
Internal Audit
Kennametal agrees that it will on behalf of the Company:
Conduct periodic audits and reviews of the operations and the level of
compliance by the Company with the Company's policies and procedures and the
rules and regulations of the various authorities having jurisdiction over them.
Assess the adequacy of the internal control structure of the Company and
provide written reports summarizing the conclusions from such audits and
reviews, including recommendations for improvement in the areas audited or
reviewed.
Compensation:
1. Incremental third party expenses; and
2. A pro-rata share of department expenses as agreed to by the parties
for each of the fiscal years this Agreement remains in full force and
effect.
Exhibit 5 - 1
<PAGE> 15
EXHIBIT 6
Marketing and Related Services
Kennametal agrees that it will on behalf of the Company:
1. Provide the personnel and other resources to implement, manage and
support the Company's integrated supply and other programs ("the
Programs") including, but not limited to technical support, product
identification, tracking and purchasing systems and assistance in the
acquisition, possession and use of metalworking and related tool
products.
2. Assist in the preparation of budgets, forecasts and project costs and
related expenses, and provide other reports on the results of the
Programs.
3. Assist in the purchasing, forecasting and inventory planning of
products.
4. Assist in the exportation and importation of products and in complying
with the laws, rules, regulations and tariffs applicable to such
exports and imports.
5. Assist in the development and production of marketing and advertising
campaigns and programs, public relations and printing services.
6. Transition certain designated customer accounts to the Company.
Compensation:
1. Incremental third party expenses;
2. A pro-rata share of Kennametal's Metalworking Systems Division's
expenses as agreed to by the parties for each of the fiscal years this
Agreement remains in full force and effect; and
3. Commissions, as agreed to, for all sales made by the Company to the
designated customer accounts transitioned to the Company by
Kennametal.
Exhibit 6 - 1
<PAGE> 16
EXHIBIT 7
Executive Time & Space
Kennametal agrees that it will on behalf of the Company:
1. Provide executive time and leadership in the development of the
business of the Company.
2. Review business deals, contracts and transactions of the Company.
3. Provide any other assistance normally required of executive talent
where necessary.
Compensation:
1. Incremental third party expenses; and
2. A pro-rata portion of executive time and space agreed to by the
parties for each of the fiscal years this Agreement remains in full
force and effect.
Exhibit 7 - 1
<PAGE> 17
EXHIBIT 8
Information Systems Services
Kennametal agrees that it will on behalf of the Company:
1. Provide certain "Systems," which shall mean certain data processing
hardware and software that the Company does not own or where such
hardware and software is proprietary to Kennametal, but such hardware
and software is integral to the ongoing business operations of the
Company. Such hardware and software shall include but not be limited
to mainframe computers, certain data and voice communication hardware
and software, certain telephone lines, certain telecommunications
equipment and certain local and wide area networking services,
software and equipment.
2. Provide certain "System Resources," which shall mean certain skilled
employees or independent contractors of Kennametal who are
programmers, system analysts, data processing and data communications
technical support staff who support the Systems. Such System Resources
shall not include those personnel who are employees or independent
contractors of the Company.
3. Ensure that the operations, hardware configurations, software and
other facilities and procedures relating to access to, operation and
use of the System Resources and Systems made available by Kennametal
shall, throughout the term of this Agreement, be consistent with the
operating system and procedures in effect immediately prior to the
date hereof.
4. Kennametal agrees to maintain the Company's business data ("Business
Data") on its computers (i.e., data processing equipment and software)
and to maintain (including update) the Business Data with the same
degree of care it uses to maintain its customer database information.
Throughout the term of this Agreement, Kennametal will update the
Business Data with all additions, deletions, and other amendments
("Updates") made or developed by the Company in the ordinary course of
its business, and such Updates shall thereafter become part of the
Business Data for purposes of this Exhibit. Kennametal also agrees
that it has or that it will maintain a backup, archival or disaster
recovery copy ("Back-up Copy") of the Business Data.
5. Maintain hours of operation for the Systems Resources and the Systems
performed and provided by Kennametal hereunder on a basis consistent
with the practice of Kennametal for the periods prior to the date
hereof. If such hours of operations are interrupted for any reasons
whatsoever, the Company shall be notified as soon as reasonably
possible.
6. If for any reason, including without limitation, system failures,
power failures, interruption of data communication lines or otherwise
(but excluding periods of "down time" scheduled in advance for any
purpose consistent with the practice of Kennametal prior to the date
hereof (i.e., systems maintenance or systems modifications),
Kennametal shall not be able to provide the Company the Systems
Resources and the Systems during the hours of operation (in each case,
a "System Failure"), Kennametal shall (i) notify the Company as soon
as reasonably possible thereafter of each such System Failure; (ii)
use its reasonable best efforts to correct each such System Failure;
and (iii) keep the Company informed on a reasonably frequent basis
during each such System Failure as to the status thereof. As a result
of such System Failure and except in the case that any such System
Failure results from or arises out of Kennametal's gross negligence or
willful misconduct, Kennametal shall not be liable to the Company for
any damages (direct or indirect, consequential or otherwise), losses
or other liabilities arising from or caused by any System Failure or
any failure by Kennametal to provide any notice required to be
provided hereby, except for an appropriate credit, as agreed upon by
the parties to this Exhibit 8, equal to the
Exhibit 8 - 1
<PAGE> 18
amount of the Systems Resources and Systems which were not provided or
performed due to such System Failure. Subject also to the provisions
of item #7, below, in consecutive hours, in addition to the Company's
right to receive a credit as noted above, the Company shall have the
right to obtain the provision and/or performance of the System
Resources and Systems from a third-party provider.
7. Exercise and provide back-up procedures and systems consistent with
the practice of Kennametal prior to the execution of this Agreement in
its provision of the System Resources and Systems in the event
circumstances beyond the control of Kennametal prevent Kennametal from
being able to provide the Systems Resources and Systems as provided
for hereunder. Kennametal further agrees that it will continue to use
the same level of care, consistent with the practice of Kennametal for
the periods prior to the execution of this Agreement, to minimize the
likelihood of all damages, losses of data, delays and errors resulting
from uncontrollable events; and should such damages, losses of data,
delays or errors occur, Kennametal will use its reasonable best
efforts, consistent with the practice of Kennametal for the periods
prior to the execution of this Agreement, to mitigate the effects of
such occurrence.
8. Provide SAP R/3 project consulting for application and project
management for analysis and general design of the Sales and
Distribution, Financial Accounting and Purchasing SAP R/3 modules.
Compensation:
1. Incremental third party expenses;
2. A pro-rata share of department expenses as agreed to by the parties
for each of the fiscal years this Agreement remains in full force and
effect; and
Exhibit 8 - 2
<PAGE> 1
Exhibit 10(b)
CORPORATE AGREEMENT
THIS CORPORATE AGREEMENT ("Agreement") is made and entered into this
______ day of ____________, 1997, by and between Kennametal Inc., a
Pennsylvania corporation ("Kennametal"), and JLK Direct Distribution Inc., a
Pennsylvania corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $0.01 per share, of JLK ("Class B
Common Stock"), and JLK is a member of Kennametal's
"affiliated group" of corporations ("Kennametal Group") for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "Initial
Public Offering") of shares of Class A Common Stock, par
value $.01 per share, of JLK ("Class A Common Stock").
C. Upon completion of the Initial Public Offering, JLK will
cease to be a wholly-owned subsidiary of Kennametal.
D. The parties desire to enter into this Agreement to set forth
their agreement regarding: (i) the rights of Kennametal and
its Affiliates (as defined below) to purchase additional
shares of Class B Common Stock or Class A Common Stock to
permit Kennametal and its Affiliates to maintain, in the
aggregate, their then current percentage ownership interest
in JLK so long as Kennametal and its Affiliates, in the
aggregate, maintain beneficial ownership of at least 40% of
the combined number of outstanding shares of Class A Common
Stock and Class B Common Stock; (ii) certain registration
rights with respect to Class A Common Stock and Class B
Common Stock (and any other securities issued in respect
thereof or in exchange therefor); and (iii) certain
representations, warranties, covenants and agreements
applicable to JLK and Kennametal so long as Kennametal and
its Affiliates, in the aggregate, maintain beneficial
ownership of at least 40% of the combined number of
outstanding shares of Class A Common Stock and Class B Common
Stock.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, Kennametal and JLK, for themselves, their successors and assigns,
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms will
have the following meanings, applicable both to the singular and the plural
forms of the terms described:
"AFFILIATE" means, with respect to any Person, any Person controlling,
controlled by or under common control with such Person. For purposes
of this definition, "control" means the possession, directly or
indirectly, of the power to vote a majority of the securities having
voting power for the election of directors of such Person or otherwise
to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that for the purposes of
this Agreement, JLK and its subsidiaries shall not be deemed to be an
<PAGE> 2
Affiliate of Kennametal, and Kennametal and its subsidiaries (other
than JLK and its subsidiaries) shall not be deemed to be an Affiliate
of JLK.
"AGREEMENT" has the meaning ascribed hereto in the preamble, as such
agreement may be amended and supplemented from time to time in
accordance with its terms.
"APPLICABLE STOCK" means at any time the shares of Common Stock owned
by Kennametal or its Affiliates.
"CLASS A COMMON STOCK" has the meaning ascribed thereto in the
recitals to this Agreement.
"CLASS B COMMON STOCK" has the meaning ascribed thereto in the
recitals to this Agreement.
"COMMON STOCK" means the Class B Common Stock, the Class A Common
Stock, any other class of JLK capital stock having the right to vote
generally for the election of directors and, for so long as JLK
continues to be a subsidiary corporation includible in a consolidated
federal income tax return of the Kennametal Group, any other security
of JLK treated as stock for purposes of Section 1504 of the Internal
Revenue Code of 1986, as amended.
"COMPANY SECURITIES" has the meaning ascribed thereto in Section
3.2(b).
"DISADVANTAGEOUS CONDITION" has the meaning ascribed thereto in
Section 3.1(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"HOLDER" means Kennametal and any Transferee.
"HOLDER SECURITIES" has the meaning ascribed thereto in Section 3.2(b).
"INITIAL PUBLIC OFFERING" has the meaning ascribed thereto in the
recitals to this Agreement.
"INITIAL PUBLIC OFFERING DATE" means the date of completion of the
sale of Class A Common Stock in the Initial Public Offering.
"ISSUANCE EVENT" has the meaning ascribed thereto in Section 2.2.
"ISSUANCE EVENT DATE" has the meaning ascribed thereto in Section 2.2.
"JLK" has the meaning ascribed thereto in the preamble hereto.
"KENNAMETAL" has the meaning ascribed thereto in the preamble hereto.
"KENNAMETAL GROUP" has the meaning ascribed thereto in the recitals to
this Agreement.
"KENNAMETAL OWNERSHIP REDUCTION" means any decrease at any time in the
Ownership Percentage to less than 80%.
"KENNAMETAL TRANSFEREE" has the meaning ascribed thereto in Section
3.9.
"MARKET PRICE" of any shares of Class A Common Stock on any date means
(i) the average of the last sale price of such shares on each of the
five (5) trading days immediately preceding such date on the New York
Stock Exchange or such other securities exchange or inter-dealer
automated quotation system on
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<PAGE> 3
which such securities are listed; or (ii) if such sale prices are
unavailable or such shares are not so traded, the value of such shares
on such date determined in accordance with agreed-upon procedures
reasonably satisfactory to JLK and Kennametal.
"OPTION" has the meaning ascribed thereto in Section 2.1(a).
"OPTION NOTICE" has the meaning ascribed thereto in Section 2.2.
"OTHER HOLDERS" has the meaning ascribed thereto in Section 3.2(c).
"OTHER SECURITIES" has the meaning ascribed thereto in Section 3.2.
"OWNERSHIP PERCENTAGE" means, at any time, the fraction, expressed as
a percentage and rounded to the next highest one-thousandth of a
percent, whose numerator is the aggregate Value of the Applicable
Stock and whose denominator is the sum of the aggregate Value of the
then outstanding shares of Common Stock of JLK plus Repurchased
Shares; provided, however, that any shares of Common Stock issued by
JLK in violation of its obligations under Article II of this Agreement
shall not be deemed outstanding for the purpose of determining the
Ownership Percentage.
"PERSON" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"PURCHASE AGREEMENT" means the Purchase Agreement among Kennametal,
JLK, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman, Sachs
& Co. and the other underwriters filed as an exhibit to JLK's
Registration Statement on Form S-1, Registration No. 333-25989.
"REGISTRABLE SECURITIES" means Class A Common Stock, Class B Common
Stock, and any stock or other securities into which or for which such
Class A Common Stock or Class B Common Stock may hereafter be changed,
converted or exchanged and any other shares or securities issued to
Holders of such Class A Common Stock or Class B Common Stock (or such
shares or other securities into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, share exchange,
merger, consolidation or similar transaction or event. As to any
particular Registrable Securities, such Registrable Securities shall
cease to be Registrable Securities when (i) a registration statement
with respect to the sale by the Holder thereof shall have been
declared effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement;
(ii) they shall have been distributed to the public in accordance with
Rule 144; (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further
transfer shall have been delivered by JLK and subsequent disposition
of them shall not require registration or qualification of them under
the Securities Act or any state securities or blue sky law then in
effect; or (iv) they shall have ceased to be outstanding.
"REGISTRATION EXPENSES" means any and all expenses incident to
performance of or compliance with any registration of securities
pursuant to Article III, including, without limitation: (i) the fees,
disbursements and expenses of JLK's counsel and accountants and the
reasonable fees and expenses of counsel selected by the Holders in
accordance with this Agreement in connection with the registration of
the securities to be disposed of; (ii) all expenses, including filing
fees, in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements
thereto and the mailing and delivering of copies thereof to any
underwriters and dealers; (iii) the cost of printing or producing any
agreements among underwriters, underwriting agreements, and blue sky
or legal investment memoranda, any selling agreements and any other
documents in connection with the offering, sale or delivery of the
securities to be disposed of; (iv) all expenses in connection with the
qualification of the securities to be disposed of for offering and
sale under state securities laws, including the fees and disbursements
of counsel for the underwriters or the Holders of securities in
connection with such qualification and in connection with any blue sky
and legal investment surveys; (v) the filing fees incident to securing
any required review of the terms of the sale of the securities to be
disposed of by each securities exchange and automated inter-dealer
quotation system
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<PAGE> 4
which a class of common equity securities of JLK is listed; (vi)
transfer agents' and registrars' fees and expenses and the fees and
expenses of any other agent or trustee appointed in connection with
such offering; (vii) all security engraving and security printing
expenses; (viii) all fees and expenses payable in connection with the
listing of the securities on any securities exchange or automated
inter-dealer quotation system or the rating of such securities; (ix)
any other fees and disbursements of underwriters customarily paid by
the issuers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any; and (x) other reasonable
out-of-pocket expenses of Holders other than legal fees and expenses
referred to in clause (i) and (iv) above.
"REPURCHASED SHARES" mean the aggregate Value of shares of Common
Stock that are, from and after the date hereof, repurchased by JLK
from its shareholders, less the aggregate Value of shares of Common
Stock (up to the aggregate Value so repurchased) that are reissued
from and after the date hereof upon the exercise of stock options or
otherwise.
"RULE 144" means Rule 144 (or any successor rule to similar effect)
promulgated under the Securities Act.
"RULE 415 OFFERING" means an offering on a delayed or continuous basis
pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute.
"SELLING HOLDER" has the meaning ascribed thereto in Section 3.4(e).
"SUBSIDIARY" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than
50% of the voting capital stock or other voting ownership interests is
owned or controlled directly or indirectly by such Person or by one or
more of the Subsidiaries of such Person or by a combination thereof.
"TRANSFEREE" has the meaning ascribed thereto in Section 3.9.
"VALUE" means, with respect to any share of stock, the value of such
share determined by Kennametal under principles applicable for
purposes of Section 1504 of the Internal Revenue Code of 1986, as
amended.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to articles, sections and paragraphs shall refer to the corresponding
articles, sections and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
ARTICLE II
OPTION
2.1 OPTIONS.
(a) JLK hereby grants to Kennametal, on the terms and conditions set
forth herein, a continuing right (the "Tax Consolidation Option")
to purchase from JLK, at the times set forth herein, such number
of shares of Class A Common Stock and Class B Common Stock as is
necessary to allow Kennametal to maintain the then-current
Ownership Percentage.
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<PAGE> 5
(b) JLK hereby also grants to Kennametal, on the terms and conditions
set forth herein, a continuing right (the "Spin-Off Option" and,
collectively with the Tax Consolidation Option, the "Options" or
individually an "Option") to purchase from JLK, such number of
shares of Class B Common Stock and Class A Common Stock as is
necessary to allow Kennametal to effect a distribution of the
stock of JLK to the shareholders of Kennametal in a transaction
intended to be on a tax-free basis under the Internal Revenue
Code of 1986, as amended (a "Tax-Free Spin-Off"). The Spin-Off
Option shall be exercisable at any time prior to and in
conjunction with a Tax-Free Spin-Off.
(c) Each Option shall be assignable, in whole or in part and from
time to time, by Kennametal to any Affiliate of Kennametal. The
exercise price for the shares of Common Stock purchased pursuant
hereto shall be the Market Price of the Class A Common Stock as
of the date of first delivery of notice of exercise of the Option
by Kennametal (or its permitted assignee hereunder) to JLK as set
forth in Section 2.3 hereof.
(d) JLK shall not be required to issue any Class B Common Stock if
issuance would violate any law, rule or regulation to which JLK
is subject.
2.2 NOTICE. At least twenty (20) business days prior to the issuance
of any shares of Common Stock or the first date on which any event could occur
that, in the absence of a full or partial exercise of the Option, would result
in a reduction in the Ownership Percentage, JLK will notify the optionee(s)
(the "Optionee(s)") in writing (the "Option Notice") of any plans it has to
issue such shares or the date on which such event could first occur. The Option
Notice must specify the date on which JLK intends to issue additional shares of
Common Stock or on which such event could first occur (such issuance or event
being referred to herein as an "Issuance Event" and the date of such issuance
or event as an "Issuance Event Date"), the number of shares JLK intends to
issue or may issue and the other terms and conditions of such Issuance Event.
2.3 TAX CONSOLIDATION OPTION EXERCISE AND OPTION PAYMENT.
(a) The Tax Consolidation Option may be exercised by the Optionee(s)
for a number of shares equal to or less than the number of shares
that are necessary for the Optionee(s) to maintain, in the
aggregate, the Ownership Percentage. The Tax Consolidation Option
may be exercised at any time after receipt of an applicable
Option Notice and prior to the applicable Issuance Event Date by
the delivery to JLK of a written notice to such effect
specifying: (i) the number and class of shares of Common Stock to
be purchased by the Optionee(s); and (ii) a calculation of the
exercise price for such shares.
2.4 OPTION PAYMENT. Upon any such exercise of an Option, JLK will
deliver to the Optionee(s), against payment therefor, certificates issued in
the name of the Optionee(s) representing the shares of Common Stock being
purchased upon such exercise. Payment for such shares shall be made by wire
transfer or intrabank transfer to such account as shall be specified by JLK for
the full purchase price for such shares.
2.5 EFFECT OF FAILURE TO EXERCISE. Any failure by the Optionee(s) to
exercise an Option, or any exercise for less than all of the shares purchasable
under the Option, in connection with any particular Issuance Event shall not
affect the Optionee's(s') right to exercise an Option in connection with any
subsequent Issuance Event or in connection with a Tax-Free Spin-Off.
2.6 INITIAL PUBLIC OFFERING. Notwithstanding the foregoing, the
Optionee(s) shall not be entitled to exercise an Option in connection with the
Initial Public Offering of the Class A Common Stock, including the exercise of
the underwriters' over-allotment option.
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<PAGE> 6
2.7 TERMINATION OF TAX CONSOLIDATION OPTION. The Tax Consolidation
Option shall terminate upon the occurrence of the first Issuance Event that
results in the Kennametal Ownership Reduction, excluding any Issuance Event in
violation of this Agreement.
ARTICLE III
REGISTRATION RIGHTS
3.1 DEMAND REGISTRATION/REGISTRABLE SECURITIES.
(a) Upon written notice provided at any time after the Initial Public
Offering Date from any Holder of Registrable Securities
requesting that JLK effect the registration under the Securities
Act of any or all of the Registrable Securities held by such
Holder, which notice shall specify the intended method or methods
of disposition of such Registrable Securities, JLK shall use its
best efforts to effect the registration under the Securities Act
and applicable state securities laws of such Registrable
Securities for disposition in accordance with the intended method
or methods of disposition stated in such request (including in a
Rule 415 Offering, if JLK is then eligible to register such
Registrable Securities on Form S-3 (or a successor form) for such
offering); provided that:
(i) With respect to any registration statement filed, or to be
filed, pursuant to this Section 3.1, if JLK shall furnish to
the Holders of Registrable Securities that have made such
request a certified resolution of the board of directors of
JLK (adopted by the affirmative vote of a majority of the
directors) stating that in the board of directors' good
faith judgment it would, because of the existence of, or in
anticipation of, any acquisition or financing activity, or
the unavailability for reasons beyond JLK's reasonable
control of any required financial statements, or any other
event or condition of similar significance to JLK, be
significantly disadvantageous (a "Disadvantageous
Condition") to JLK for such a registration statement to be
maintained effective, or to be filed and become effective,
and setting forth the general reasons for such judgment, JLK
shall be entitled to cause such registration statement not
to be filed or to be withdrawn and the effectiveness of such
registration statement terminated. In the event no
registration statement has yet been filed, JLK shall be
entitled not to file any such registration statement, until
such Disadvantageous Condition no longer exists (notice of
which JLK shall promptly deliver to such Holders). Upon
receipt of any such notice of a Disadvantageous Condition,
such Holders shall forthwith discontinue use of the
prospectus contained in such registration statement and, if
so directed by JLK, each such Holder will deliver to JLK all
copies, other than permanent file copies then in such
Holder's possession, of the prospectus then covering such
Registrable Securities current at the time of receipt of
such notice; provided, that the filing of any such
registration statement may not be delayed for a period in
excess of six (6) months due to the occurrence of any
particular Disadvantageous Condition;
(ii) After Kennametal ceases to beneficially own (within the
meaning of Rule 13d-3 of the Exchange Act or any successor
provision) less than 40% of the outstanding Common Stock,
the Holders of Registrable Securities may collectively
exercise their rights under this Section 3.1 on not more
than three (3) occasions (it being acknowledged that prior
thereto there shall be no limit to the number of occasions
on which such Holders (other than any of the Kennametal
Transferees and their Affiliates (and any subsequent direct
or indirect Transferees of Registrable Securities from such
Kennametal Transferee and any of its Affiliates)) may
exercise such rights); and
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<PAGE> 7
(iii) The Holders of Registrable Securities shall not have the
right to exercise registration rights pursuant to this
Section 3.1 in any six-month period following the
registration and sale of Registrable Securities effected
pursuant to a prior exercise of the registration rights
provided in this Section 3.1.
(b) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested by a Holder of Registrable
Securities pursuant to this Section 3.1 shall not be deemed to
have been effected (and, therefore, not requested for purposes of
paragraph (a), above): (i) unless it has become effective; (ii)
if after it has become effective such registration is interfered
with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court for any reason
other than a misrepresentation or an omission by such Holder and,
as a result thereof, the Registrable Securities requested to be
registered cannot be completely distributed in accordance with
the plan of distribution set forth in the related registration
statement; or (iii) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied or waived
other than by reason of some act or omission by such Holder of
Registrable Securities.
(c) In the event that any registration pursuant to this Section 3.1
shall involve, in whole or in part, an underwritten offering, the
Holders of a majority of the Registrable Securities to be
registered shall have the right to designate an underwriter or
underwriters, reasonably acceptable to JLK, as the lead or
managing underwriters of such underwritten offering and, in
connection with each registration pursuant to this Section 3.1,
such Holders may select one legal counsel to represent all such
Holders.
(d) JLK shall have the right to cause the registration of additional
equity securities for sale for the account of any Person
(including, without limitation, JLK and any existing or former
directors, officers or employees of JLK) in any registration of
Registrable Securities requested by the Holders pursuant to
paragraph (a), above; provided, that if such Holders are advised
in writing (with a copy to JLK) by a nationally recognized
investment banking firm selected by such Holders reasonably
acceptable to JLK (which shall be the lead underwriter or a
managing underwriter in the case of an underwritten offering)
that, in such firm's good faith view, all or a part of such
additional equity securities cannot be sold and the inclusion of
such additional equity securities in such registration would be
likely to have an adverse effect on the price, timing or
distribution of the offering and sale of the Registrable
Securities then contemplated by any Holder, the registration of
such additional equity securities or part thereof shall not be
permitted. The Holders of the Registrable Securities to be
offered may require that any such additional equity securities be
included in the offering proposed by such Holders on the same
conditions as the Registrable Securities that are included
therein. In the event that the number of Registrable Securities
requested to be included in a registration statement by the
Holders thereof exceeds the number which, in the good faith view
of such investment banking firm, can be sold without adversely
affecting the price, timing, distribution or sale of securities
in the offering, the number shall be allocated pro rata among the
requesting Holders on the basis of the relative number of
Registrable Securities then held by each such Holder (provided
that any number in excess of a Holder's request may be
reallocated among the remaining requesting Holders in a like
manner).
3.2 PIGGYBACK REGISTRATION. In the event that JLK at any time after
the Initial Public Offering Date proposes to register any of its Common Stock,
any other of its equity securities or securities convertible into or
exchangeable for its equity securities (collectively, including Common Stock,
"Other Securities") under the Securities Act, whether or not for sale for its
own account, in a manner that would permit registration of Registrable
Securities for sale for cash to the public under the Securities Act, it shall
at each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under
this Section 3.2. Subject to the terms and conditions hereof, such notice shall
offer each such Holder the
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<PAGE> 8
opportunity to include in such registration statement such number of
Registrable Securities as such Holder may request. Upon the written request of
any such Holder made within 15 days after the receipt of JLK's notice (which
request shall specify the number of Registrable Securities intended to be
disposed of and the intended method of disposition thereof), JLK shall use its
best efforts to effect, in connection with the registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities which JLK has been so requested to register, to the extent required
to permit the disposition (in accordance with such intended methods thereof) of
the Registrable Securities so requested to be registered; provided, that:
(a) If, at any time after giving such written notice of its intention
to register any Other Securities and prior to the effective date
of the registration statement filed in connection with such
registration, JLK shall determine for any reason not to register
the Other Securities, JLK may, at its election, give written
notice of such determination to such Holders and thereupon JLK
shall be relieved of its obligation to register such Registrable
Securities in connection with the registration of such Other
Securities, without prejudice, however, to the rights of the
Holders of Registrable Securities immediately to request that
such registration be effected as a registration under Section 3.1
to the extent permitted thereunder;
(b) If the registration referred to in the first sentence of this
Section 3.2 is to be an underwritten registration on behalf of
JLK, and a nationally recognized investment banking firm selected
by JLK advises JLK in writing that, in such firm's good faith
view, the inclusion of all or a part of such Registrable
Securities in such registration would be likely to have an
adverse effect upon the price, timing or distribution of the
offering and sale of the Other Securities then contemplated, JLK
shall include in such registration:
(i) first, all Other Securities which JLK proposes to sell for
its own account ("Company Securities");
(ii) second, up to the full number of Registrable Securities held
by Kennametal or its Affiliates that are requested to be
included in such registration (Registrable Securities that
are so held being sometimes referred to herein as "Holder
Securities") in excess of the number of Company Securities
to be sold in such offering which, in the good faith view of
such investment banking firm, can be sold without adversely
affecting such offering and the sale of the Other Securities
then contemplated (and (x) if such number is less than the
full number of such Holder Securities, such number shall be
allocated by Kennametal or (y) in the event that such
investment banking firm advises that less than all of such
Holder Securities may be included in such offering,
Kennametal and its Affiliates may withdraw its or their
request for registration of their Registrable Securities
under this Section 3.2 and 90 days subsequent to the
effective date of the registration statement for the
registration of such Other Securities request that such
registration be effected as a registration under Section 3.1
to the extent permitted thereunder);
(iii) third, up to the full number of the Other Securities (other
than Company Securities), if any, in excess of the number of
Company Securities and Registrable Securities to be sold in
such offering which, in the good faith view of such
investment banking firm, can be so sold without so adversely
affecting such offering (and, if such number is less than
the full number of such Other Securities, such number shall
be allocated pro rata among the holders of such Other
Securities (other than Company Securities) on the basis of
the number of securities requested to be included therein by
each such holder);
(c) If the registration referred to in the first sentence of this
Section 3.2 is to be an underwritten secondary registration on
behalf of holders of Other Securities (the "Other Holders"), and
the
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<PAGE> 9
lead underwriter or managing underwriter advises JLK in writing
that in their good faith view, all or a part of such additional
securities cannot be sold and the inclusion of such additional
securities in such registration would be likely to have an
adverse effect on the price, timing or distribution of the
offering and sale of the Other Securities then contemplated, JLK
shall include in such registration the number of securities
(including Registrable Securities) that such underwriters advise
can be so sold without adversely affecting such offering,
allocated pro rata among the Other Holders and the Holders of
Registrable Securities on the basis of the number of securities
(including Registrable Securities) requested to be included
therein by each Other Holder and each Holder of Registrable
Securities; provided, that if such registration statement is to
be filed at any time after Kennametal ceases to beneficially own
less than 40% of the outstanding Common Stock, and if such Other
Holders have requested that such registration statement be filed
pursuant to demand registration rights granted to them by JLK,
JLK shall include in such registration:
(i) first, Other Securities sought to be included therein by the
Other Holders pursuant to the exercise of such demand
registration rights; and
(ii) second, the number of Holder Securities sought to be
included in such registration in excess of the number of
Other Securities sought to be included in such registration
by the Other Holders which in the good faith view of such
investment banking firm, can be so sold without so adversely
affecting such offering (and (x) if such number is less than
the full number of such Holder Securities, such number shall
be allocated by Kennametal or (y) in the event that such
investment banking firm advises that less than all of such
Holder Securities may be included in such offering,
Kennametal and its Affiliates may withdraw its or their
request for registration of their Registrable Securities
under this Section 3.2 and 90 days subsequent to the
effective date of the registration statement for the
registration of such Other Securities request that such
registration be effected as a registration under Section 3.1
to the extent permitted thereunder).
(d) JLK shall not be required to effect any registration of
Registrable Securities under this Section 3.2 incidental to the
registration of any of its securities in connection with mergers,
acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other executive or employee
benefit or compensation plans; and
(e) No registration of Registrable Securities effected under this
Section 3.2 shall relieve JLK of its obligation to effect a
registration of Registrable Securities pursuant to Section 3.1.
3.3 EXPENSES. Except as provided herein, JLK shall pay all
Registration Expenses with respect to a particular offering (or proposed
offering). Notwithstanding the foregoing, each Holder and JLK shall be
responsible for its own internal administrative and similar costs, which shall
not constitute Registration Expenses.
3.4 REGISTRATION AND QUALIFICATION. If and whenever JLK is required
to effect the registration of any Registrable Securities under the Securities
Act as provided in Section 3.1 or 3.2, and subject to Section 3.1(a)(i), as
applicable, JLK shall as promptly as practicable:
(a) Prepare, file and use its best efforts to cause to become
effective a registration statement under the Securities Act
relating to the Registrable Securities to be offered;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act
with respect to the
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<PAGE> 10
disposition of all Registrable Securities until the earlier of:
(A) such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of
disposition set forth in such registration statement; (B) the
expiration of six-months after such registration statement
becomes effective; provided, that such six-month period shall be
extended for such number of days that equals the number of days
elapsing from (x) the date the written notice contemplated by
paragraph (f) below is given by JLK to (y) the date on which JLK
delivers to the Holders of Registrable Securities the supplement
or amendment contemplated by paragraph (f) below;
(c) Furnish to the Holders of Registrable Securities and to any
underwriter of such Registrable Securities such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary
prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, such documents incorporated
by reference in such registration statement or prospectus, and
such other documents, as the Holders of Registrable Securities or
such underwriter may reasonably request, and a copy of any and
all transmittal letters or other correspondence to or received
from, the SEC or any other governmental agency or self-regulatory
body or other body having jurisdiction (including any domestic or
foreign securities exchange) relating to such offering;
(d) Use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Holders
of such Registrable Securities or any underwriter of such
Registrable Securities shall request, and use its best efforts to
obtain all appropriate registrations, permits and consents in
connection therewith, and do any and all other acts and things
which may be necessary or advisable to enable the Holders of
Registrable Securities or any such underwriter to consummate the
disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided, that JLK shall
not for any such purpose be required to qualify generally to do
business as a foreign corporation in any such jurisdiction
wherein it is not so qualified or to consent to general service
of process in any such jurisdiction;
(e) Use its best efforts to: (i) furnish to each Holder of
Registrable Securities included in such registration (each, a
"Selling Holder") and to any underwriter of such Registrable
Securities an opinion of counsel for JLK addressed to each
Selling Holder and dated the date of the closing under the
underwriting agreement (if any) (or if such offering is not
underwritten, dated the effective date of the registration
statement); and (ii) furnish to each Selling Holder a "cold
comfort" letter addressed to each Selling Holder and signed by
the independent public accountants who have audited the financial
statements of JLK included in such registration statement; in
each such case covering substantially the same matters with
respect to such registration statement (and the prospectus
included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and
such other matters as the Selling Holders may reasonably request
and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements;
(f) As promptly as practicable, notify the Selling Holders in
writing: (i) at any time when a prospectus relating to a
registration pursuant to Section 3.1 and 3.2 is required to be
delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading; and (ii) of any request by the SEC or any other
regulatory body or other body
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<PAGE> 11
having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such
offering, and in either such case, at the request of the Selling
Holders prepare and furnish to the Selling Holders a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
(g) If reasonably requested by the lead or managing underwriters, use
its best efforts to list all such Registrable Securities covered
by such registration on each securities exchange and automated
inter-dealer quotation system on which the Common Stock of JLK is
then listed;
(h) To the extent reasonably requested by the lead or managing
underwriters, send appropriate officers of JLK to attend any
"road shows" scheduled in connection with any such registration,
with all out-of-pocket costs and expense incurred by JLK or such
officers in connection with such attendance to be paid by JLK;
(i) Furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration
effected pursuant to Sections 3.1 or 3.2 unlegended certificates
representing ownership of the Registrable Securities being sold
in such denominations as shall be requested by the Selling
Holders or the underwriters; and
(j) JLK may require each Selling Holder of Registrable Securities as
to which any registration is being effected to furnish JLK with
such information regarding such seller and pertinent to the
disclosure requirements relating to the registration and the
distribution of such securities as JLK may from time to time
reasonably request in writing.
3.5 CONVERSION OF OTHER SECURITIES, ETC. In the event that any Holder
offers any options, rights, warrants or other securities issued by it or any
other Person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 3.1 and 3.2.
3.6 UNDERWRITING; DUE DILIGENCE.
(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration requested under
this Article III, JLK shall enter into an underwriting agreement
with such underwriters for such offering, which agreement will
contain such representations and warranties by JLK and such other
terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including,
without limitation, indemnification and contribution provisions
substantially to the effect and to the extent provided in Section
3.7, and agreements as to the provision of opinions of counsel
and accountants' letters to the effect and to the extent provided
in Section 3.4(e). The Selling Holders on whose behalf the
Registrable Securities are to be distributed by such underwriters
shall be parties to any such underwriting agreement and the
representations and warranties by, and the other agreements on
the part of, JLK to and for the benefit of such underwriters,
shall also be made to and for the benefit of such Selling
Holders. Such underwriting agreement shall also contain such
representations and warranties by such Selling Holders and such
other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions,
including, without limitation, indemnification and contribution
provisions substantially to the effect and to the extent provided
in Section 3.7.
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<PAGE> 12
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under
the Securities Act pursuant to this Article III, JLK shall give
the Holders of such Registrable Securities and the underwriters,
if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such
opportunities to discuss the business of JLK with its officers
and the independent public accountants who have certified the
financial statements of JLK as shall be necessary, in the opinion
of such Holders and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning
of the Securities Act; provided, that such Holders and the
underwriters and their respective counsel and accountants shall
use their reasonable best efforts to coordinate any such
investigation of the books and records of JLK and any such
discussions with JLK's officers and accountants so that all such
investigations occur at the same time and all such discussions
occur at the same time.
3.7 INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable Securities made
pursuant to this Article III, JLK agrees to indemnify and hold
harmless, to the extent permitted by law, each Selling Holder,
each underwriter of Registrable Securities so offered and each
Person, if any, who controls any of the foregoing Persons within
the meaning of the Securities Act and the officers, directors,
affiliates, employees and agents of each of the foregoing,
against any and all losses, liabilities, costs (including
reasonable attorney's fees and disbursements), claims and
damages, joint or several, to which they or any of them may
become subject, under the Securities Act or otherwise, including
any amount paid in settlement of any litigation commenced or
threatened, insofar as such losses, liabilities, costs, claims
and damages (or actions or proceedings in respect thereof,
whether or not such indemnified Person is a party thereto) arise
out of or are based upon any untrue statement by JLK or alleged
untrue statement by JLK of a material fact contained in the
registration statement (or in any preliminary or final prospectus
included therein) or in any offering memorandum or other offering
document relating to the offering and sale of such Registrable
Securities prepared by JLK or at its direction, or any amendment
thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission by JLK or alleged omission by
JLK to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that JLK shall not be liable to any Person
in any such case to the extent that any such loss, liability,
cost, claim or damage arises out of or relates to any untrue
statement or alleged untrue statement, or any omission, if such
statement or omission shall have been made in reliance upon and
in conformity with information relating to a Selling Holder or
another holder of securities included in such registration
statement and furnished to JLK by or on behalf of such Selling
Holder, other holder or underwriter, as the case may be,
specifically for use in the registration statement (or in any
preliminary or final prospectus included therein), offering
memorandum or other offering document, or any amendment thereof
or supplement thereto. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf
of any Selling Holder or any other holder and shall survive the
transfer of such securities. The foregoing indemnity agreement is
in addition to any liability that JLK may otherwise have to each
Selling Holder, other holder or underwriter of the Registrable
Securities or any controlling person of the foregoing and the
officers, directors, affiliates, employees and agents of each of
the foregoing; provided, further, that, in the case of an
offering with respect to which a Selling Holder has designated
the lead or managing underwriters (or a Selling Holder is
offering Registrable Securities directly, without an
underwriter), this indemnity does not apply to any loss,
liability, cost, claim or damage arising out of or relating to
any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus or offering
memorandum if a copy of a final prospectus or offering memorandum
was not sent or given by or on behalf of any underwriter (or such
Selling Holder or other holder, as the case may be) to
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such Person asserting such loss, liability, cost, claim or damage
at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such
untrue statement or omission had been corrected in such final
prospectus or offering memorandum.
(b) In the case of each offering made pursuant to this Agreement,
each Selling Holder, by exercising its registration rights
hereunder, agrees to indemnify and hold harmless, and to cause
each underwriter of Registrable Securities included in such
offering (in the same manner and to the same extent as set forth
in Section 3.7(a)) to agree to indemnify and hold harmless as
follows:(i) each Selling Holder agrees to indemnify and hold
harmless JLK, each underwriter who participates in such offering,
each other Selling Holder or other holder with securities
included in such offering; and, , (ii) each underwriter agrees to
indemnify and hold harmless JLK, each Selling Holder or other
holder with securities included in such offering. The foregoing
indemnified parties shall include, and each Selling Holder and
each underwriter shall indemnify and hold harmless, each Person,
if any, who controls any of the foregoing within the meaning of
the Securities Act and the officers, directors, affiliates,
employees and agents of each of the foregoing, against any and
all losses, liabilities, costs (including reasonable attorneys'
fees and disbursements), claims and damages to which they or any
of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any
litigation commenced or threatened, insofar as such losses,
liabilities, costs, claims and damages (or actions or proceedings
in respect thereof, whether or not such indemnified Person is a
party thereto) arise out of or are based upon any untrue
statement or alleged untrue statement by such Selling Holder or
underwriter, as the case may be, of a material fact contained in
the registration statement (or in any preliminary or final
prospectus included therein) or in any offering memorandum or
other offering document relating to the offering and sale of such
Registrable Securities prepared by JLK, or at its direction, or
any amendment thereof or supplement thereto, or any omission by
such Selling Holder or underwriter, as the case may be, or
alleged omission by such Selling Holder or underwriter, as the
case may be, of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but in
each case only to the extent that such untrue statement of a
material fact is contained in, or such material fact is omitted
from, information relating to such Selling Holder or underwriter,
as the case may be, and was furnished to JLK by or on behalf of
such Selling Holder or underwriter, as the case may be,
specifically for use in such registration statement (or in any
preliminary or final prospectus included therein), offering
memorandum or other offering document. The foregoing indemnity
is in addition to any liability which such Selling Holder or
underwriter, as the case may be, may otherwise have to JLK, or
controlling persons or the officers, directors, affiliates,
employees, and agents of each of the foregoing; provided, that,
in the case of an offering made pursuant to the Agreement with
respect to which JLK has designated the lead or managing
underwriters (or JLK is offering securities directly, without an
underwriter), this indemnity does not apply to any loss,
liability, cost, claim, or damage arising out of or based upon
any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus or offering
memorandum if a copy of a final prospectus or offering memorandum
was not sent or given by or on behalf of any underwriter (or JLK,
as the case may be ) to such Person asserting such loss,
liability, cost, claim or damage at or prior to the written
confirmation of the sale of the Registrable Securities as
required by the Securities Act and such untrue statement or
omission had been corrected in such final prospectus or offering
memorandum.
(c) Each party indemnified under paragraph (a) or (b), above, shall,
promptly after receipt of notice of a claim or action against
such indemnified party in respect of which indemnity may be
sought hereunder, notify the indemnifying party in writing of the
claim or action; provided, that the failure to notify the
indemnifying party shall not relieve it from any liability that
it may have to
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an indemnified party on account of the indemnity agreement
contained in paragraph (a) or (b), above, except to the extent
that the indemnifying party was actually prejudiced by such
failure, and in no event shall such failure relieve the
indemnifying party from any other liability that it may have to
such indemnified party. If any such claim or action shall be
brought against an indemnified party, and it shall have notified
the indemnifying party thereof, unless in such indemnified
party's reasonable judgment a conflict of interest between such
indemnified party and indemnifying parties may exist in respect
of such claim, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume
the defense thereof with counsel satisfactory to the indemnified
party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 3.7 for any legal or
other expenses of the defense subsequently incurred by the
indemnified party in connection with the defense thereof other
than (i) if a conflict of interest between the indemnifying party
and an indemnified party exists, in which case, the indemnifying
party shall pay the costs of one legal counsel to the indemnified
party and (ii) the reasonable costs of investigation. Any
indemnifying party against whom indemnity may be sought under
this Section 3.7 shall not be liable to indemnify an indemnified
party if such indemnified party settles such claim or action
without the consent of the indemnifying party. The indemnifying
party may not agree to any settlement of any such claim or
action, other than solely for monetary damages for which the
indemnifying party shall be responsible hereunder, the result of
which any remedy or relief shall be applied to or against the
indemnified party, without the prior written consent of the
indemnified party, which consent shall not be unreasonably
withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel satisfactory
to the indemnified party, the indemnified party shall continue to
be entitled to participate in the defense thereof, with counsel
of its own choice, but the indemnifying party shall not be
obligated hereunder to reimburse the indemnified party for the
costs thereof.
(d) If the indemnification provided for in this Section 3.7 shall for
any reason be unavailable (other than in accordance with its
terms) to an indemnified party in respect of any loss, liability,
cost, claim or damage referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, cost, claim or damage
(i) as between JLK and the Selling Holders on the one hand and
the underwriters on the other, in such proportion as shall be
appropriate to reflect the relative benefits received by JLK and
the Selling Holders on the one hand and the underwriters on the
other hand or, if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of JLK and the
Selling Holders on the one had and the underwriters on the other
with respect to the statements or omissions which resulted in
such loss, liability, cost, claim or damage as well as any other
relevant equitable considerations; and (ii) as between JLK on the
one hand and each Selling Holder on the other, in such proportion
as is appropriate to reflect the relative fault of JLK and of
each Selling Holder in connection with such statements or
omissions as well as any other relevant equitable considerations.
The relative benefits received by JLK and the Selling Holders on
the one hand and the underwriters on the other shall be deemed to
be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before
deducting expenses) received by JLK and the Selling Holders bear
to the total underwriting discounts and commissions received by
the underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of JLK and the
Selling Holders on the one hand and of the underwriters on the
other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information
supplied by JLK and the Selling Holders or by the underwriters.
The relative fault of JLK on the one hand and of each Selling
Holder on
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<PAGE> 15
the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission,
but not by reference to any indemnified party's stock ownership
in JLK. The amount paid or payable by an indemnified party as a
result of the loss, cost, claim, damage or liability, or action
in respect thereof, referred to above in this paragraph (d) shall
be deemed to include, for purposes of this paragraph (d), any
legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such
action or claim. JLK and the Selling Holders agree that it would
not be just and equitable if contribution pursuant to this
Section 3.7 were determined by pro rata allocation (even if the
underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the
equitable considerations referred to in this paragraph.
Notwithstanding any other provision of this Section 3.7, no
Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the
Registrable Securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling
Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged
omission. Each Selling Holder's obligations to contribute
pursuant to this Section 3.7 are several in proportion to the
proceeds of the offering received by such Selling Holder bears to
the total proceeds of the offering received by all the Selling
Holders and not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) Indemnification and contribution similar to that specified in the
preceding paragraphs of this Section 3.7 (with appropriate
modifications) shall be given by JLK, the Selling Holders and
underwriters with respect to any required registration or other
qualification of securities under any state law or regulation or
governmental authority.
(f) The obligations of the parties under this Section 3.7 shall be in
addition to any liability which any party may otherwise have to
any other party.
3.8 RULE 144 AND FORM S-3. Commencing 90 days after the Initial
Public Offering Date, JLK shall use its best efforts to ensure that the
conditions to the availability of Rule 144 set forth in paragraph (c) thereof
shall be satisfied. Upon the request of any Holder of Registrable Securities,
JLK will deliver to such Holder a written statement as to whether it has
complied with such requirements. JLK further agrees to use its reasonable
efforts to cause all conditions to the availability of Form S-3 (or any
successor form) under the Securities Act for the filing of registration
statements under this Agreement to be met as soon as practicable after the
Initial Public Offering Date. Notwithstanding anything contained in this
Section 3.8, JLK may deregister under Section 12 of the Exchange Act, if it
then is permitted to do so pursuant to the Exchange Act and the rules and
regulations thereunder.
3.9 TRANSFER OF REGISTRATION RIGHTS. Any Holder may transfer, sell or
assign all or any portion of its registration rights under Article III to any
transferee of a number of Registrable Securities owned by such Holder exceeding
three percent (3%) of the outstanding class or series of such securities at the
time of transfer (each transferee that receives such minimum number of
Registrable Securities, a "Transferee"); provided, that each Transferee of
Registrable Securities to which Registrable Securities are transferred, sold or
assigned directly by Kennametal or its Affiliates (such Transferee, a
"Kennametal Transferee"), together with any Affiliate of such Kennametal
Transferee (and any subsequent direct or indirect Transferees of Registrable
Securities from such Kennametal Transferee and any of its Affiliates (other
than Kennametal or its Affiliates) thereof), shall be entitled to request the
registration of Registrable Securities pursuant to Section 3.1 only once. Any
transfer of registration rights pursuant to this Section 3.9 shall be effective
upon receipt by JLK of (i) written notice from such Holder
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<PAGE> 16
stating the name and address of any Transferee and identifying the number of
Registrable Securities with respect to which the rights under this Agreement
are being transferred and the nature of the rights so transferred; and (ii) a
written agreement from such Transferee to be bound by the terms of this Article
III and Article V of this Agreement as if an original party hereto. The Holders
may exercise their rights hereunder in such priority as they shall agree upon
among themselves.
3.10 HOLDBACK AGREEMENT. If any registration pursuant to this Article
III shall be in connection with an underwritten public offering of Registrable
Securities, each Selling Holder agrees not to effect any public sale or
distribution, including any sale under rule 144, of any equity security of JLK
(otherwise than through the registered public offering then being made), within
seven (7) days prior to or 180 days (or such lesser period as the lead or
managing underwriters may permit) after the effective date of the registration
statement (or the commencement of the offering to the public of such
Registrable Securities in the case of Rule 415 offerings). JLK hereby also so
agrees and agrees to cause each other holder of equity securities or securities
convertible into or exchangeable or exercisable for such securities (other than
in the case of equity securities, under dividend reinvestment plans or employee
stock plans) purchased from JLK otherwise than in a public offering to so
agree.
ARTICLE IV
CERTAIN COVENANTS AND AGREEMENTS
4.1 NO VIOLATIONS.
(a) Until Kennametal beneficially owns less than 40% of the
outstanding Common Stock, JLK covenants and agrees that it will
not take any action or enter into any commitment or agreement
which may reasonably be anticipated to result, with or without
notice and with or without lapse of time or otherwise, in a
contravention or event of default by Kennametal of: (i) any
provisions of applicable law or regulation, including but not
limited to provisions pertaining to the Internal Revenue Code of
1986, as amended, or the Employee Retirement Income Security Act
of 1974, as amended; (ii) any provision of Kennametal's Articles
of Incorporation or By-Laws; (iii) any credit agreement or other
material instrument binding upon Kennametal; or (iv) any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over Kennametal or any of its
Affiliates or any of their respective assets.
(b) JLK and Kennametal agree to provide to the other any information
and documentation requested by the other for the purpose of
evaluating and ensuring compliance with Section 4.1(a) hereof.
(c) Notwithstanding the foregoing Sections 4.1(a) and 4.1(b), nothing
in this Agreement is intended to limit or restrict in any way the
ability of Kennametal to effect, restrict or limit any action or
proposed action of JLK, including, but not limited to, the
incurrence by JLK of indebtedness, based upon Kennametal's
internal policies or other factors.
ARTICLE V
MISCELLANEOUS
5.1 LIMITATION OF LIABILITY. Neither Kennametal nor JLK shall be
liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement.
5.2 AMENDMENTS. This Agreement may not be amended or terminated
orally, but only by a writing duly executed by or on behalf of the parties
hereto. Any such amendment shall be validly and sufficiently
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<PAGE> 17
authorized for purposes of this Agreement if it is signed on behalf of
Kennametal and JLK by their respective president or any vice presidents.
5.3 TERM. This Agreement shall remain in effect until all Registrable
Securities held by Holders have been transferred by them to Persons other than
Transferees; provided, that the provisions of Section 3.7 shall survive any
such expiration.
5.4 SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
of the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law
and shall not be affected thereby, unless such a construction would be
unreasonable.
5.5 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered: (a) in person; (b) by registered or certified
mail, postage prepaid, return receipt requested; or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of
any notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b)), addressed as follows:
(a) IF TO JLK:
JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax:
(b) IF TO KENNAMETAL:
Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax:
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
5.6 FURTHER ASSURANCES. Kennametal and JLK shall execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
instruments and take such other action as may be necessary or advisable to
carry out their obligations under this Agreement and under any exhibit,
document or other instrument delivered pursuant hereto.
5.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one and the same agreement.
5.8 GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
Commonwealth of Pennsylvania without regard to the conflict of laws provisions
of any jurisdiction.
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<PAGE> 18
5.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
5.10 SUCCESSORS. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors and
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any other person or entity any benefits, rights or remedies.
5.11 SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed that they shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which they may be entitled at law or equity.
5.12 SURRENDER OF CLASS B COMMON STOCK IF IPO OVER-ALLOTMENT OPTION
EXERCISED. Kennametal hereby agrees that to the extent the underwriters option
in the Purchase Agreement to cover over-allotments up to 640,000 shares of
class A Common Stock is exercised, Kennametal will surrender to JLK
simultaneous with each exercise of such option to cover over-allotments,
a number of shares of Class B Common Stock equal to the number of shares
of Class A Common Stock for which such option to cover over-allotments
is exercised.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By: _________________________________ By: ______________________________
Name: _______________________________ Name: ____________________________
Title: ______________________________ Title: ___________________________
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<PAGE> 1
Exhibit 10(c)
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into this ____ day of _______________, 1997, by and between Kennametal Inc., a
Pennsylvania corporation ("Kennametal"), and JLK Direct Distribution Inc., a
Pennsylvania corporation ("JLK")
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "Offering")
of shares of the Class A Common Stock, par value $.01 per
share, of JLK (the "Class A Common Stock").
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. In connection with the Offering, JLK has filed a registration
statement with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the
"1933 Act").
E. Each of Kennametal and JLK desires to indemnify the other,
and to be indemnified by the other, against certain
liabilities relating to, arising out of or resulting from
their respective businesses, operations and assets and the
above-mentioned registration statement, on the terms set
forth in this Agreement.
NOW, THEREFORE, the parties hereto agree, intending to be legally
bound hereby, as follows:
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and Recitals hereof, the following terms shall have the
following meanings, applicable to both the singular and plural forms of the
terms described:
"1933 ACT" shall have the meaning ascribed to it in Recital D.
"1934 ACT" means the Securities and Exchange Act of 1934, as
amended.
"AGREEMENT" shall have the meaning ascribed to it in the
Preamble.
"BUSINESS DAY" means any calendar day which is not a Saturday,
Sunday or public holiday under the laws of the Commonwealth of
Pennsylvania.
"CLASS A COMMON STOCK" shall have the meaning ascribed to it in
Recital B.
"CLOSING" means the consummation of the first purchase and sale
of shares of the Class A Common Stock pursuant to the Offering.
"CLOSING DATE" means the date on which the Closing occurs.
<PAGE> 2
"CODE" means the Internal Revenue Code of 1986, as amended.
"CORPORATE AGREEMENT" means that certain Corporate Agreement by
and between Kennametal and JLK dated as of the date hereof.
"EFFECTIVE DATE" means the date on which the purchase and sale of
shares of Class A Common Stock pursuant to the Offering first
occurs.
"INDEMNIFIABLE LOSSES" shall have the meaning ascribed to it in
Section 2.
"INDEMNIFYING PARTY" shall have the meaning ascribed to it in
Section 5(a).
"INDEMNITEE" shall have the meaning ascribed to it in Section
5(a).
"JLK" shall have the meaning ascribed to it in the Preamble.
"JLK COMPANIES" means JLK and each of its direct and indirect
subsidiaries.
"JLK EMPLOYEES" means all employees or former employees of any of
the JLK Companies other than any person who as of the Closing is
an employee of any of the Kennametal Companies.
"JLK LIABILITIES" means all Liabilities (other than Liabilities
for Taxes that are allocated pursuant to the Tax Agreement)
relating to, resulting from or arising out of the businesses or
operations conducted or formerly conducted or assets owned or
formerly owned by any of the JLK Companies.
"JLK SECURITIES LIABILITIES" means any Liability under the 1933
Act, the 1934 Act, or any other federal or state securities law
or regulation resulting from or arising out of the Offering,
including, without limitation, any such Liability arising out of
or based upon: (i) any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement or in any Prospectus; or (ii) the omission or alleged
omission to state in a Registration Statement or Prospectus a
material fact required to be stated therein or necessary to make
the statements made therein not misleading, but only to the
extent that such Liability arises out of or is based upon any
such untrue statement or alleged untrue statement or any such
omission or alleged omission concerning the businesses and
operations of any of the JLK Companies.
"KENNAMETAL" shall have the meaning ascribed to it in the
Prospectus.
"KENNAMETAL COMPANIES" means (unless otherwise expressly
provided) Kennametal and each of its direct and indirect
subsidiaries other than JLK and its subsidiaries.
"KENNAMETAL EMPLOYEES" means all employees or former employees of
any of the Kennametal Companies other than the current or former
JLK Employees.
"KENNAMETAL GUARANTEE" means any guarantee, surety or performance
bond, letter of credit or other contractual arrangement in effect
as of the Closing pursuant to which any Kennametal Company has
guaranteed or secured, or caused a Third-Party to guarantee or
secure, any liability or obligation of any JLK Company.
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<PAGE> 3
"KENNAMETAL LIABILITIES" means all Liabilities (other than any
Liabilities for Taxes which are allocated pursuant to the Tax
Agreement) relating to, resulting from or arising out of the
businesses or operations conducted or assets owned by any of the
Kennametal Companies.
"KENNAMETAL SECURITIES LIABILITIES" means any Liability under the
1933 Act, the 1934 Act or any other federal or state securities
law or regulation resulting from or arising out of the Offering,
including, without limitation, any such Liabilities arising out
of or based upon: (i) any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement or in any Prospectus; or (ii) the omission or alleged
omission to state in a Registration Statement or Prospectus a
material fact required to be stated therein or necessary to make
the statements made therein not misleading; but only to the
extent that such Liability arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or
alleged omission concerning the business and operations of any of
the Kennametal Companies.
"LIABILITIES" means all liabilities and obligations, actual or
contingent, liquidated or unliquidated, accrued or unaccrued,
known or unknown, whenever and however arising, including all
costs and expenses (including reasonable fees and disbursements
of counsel) relating thereto, and including without limitation
liabilities and obligations arising in connection with any actual
or threatened claim, action, suit or proceeding by or before any
court or regulatory or administrative agency or commission or any
arbitration panel.
"OFFERING" shall have the meaning ascribed to it in Recital B.
"PROSPECTUS" means any prospectus relating to the Offering or any
amendment or supplement thereto.
"PURCHASE AGREEMENT" means that certain Purchase Agreement
between and among Merrill Lynch, Pierce, Fenner & Smith
Incorporation and Goldman, Sachs & Co. (as representatives of the
several underwriters) and Kennametal and JLK dated ___________
___, 1997.
"REGISTRATION STATEMENT" means any registration statement filed
with the SEC in connection with the Offering or any amendment or
supplement thereto.
"SEC" shall have the meaning ascribed to it in Recital D.
"TAX AGREEMENT" means that certain Tax Sharing Agreement between
Kennametal and JLK dated as of the date hereof.
"TAXES" means any and all taxes (including interest, penalties
and additions to tax), fees and charges (including sales, use,
excise, value added, personal property and other taxes) imposed
by any federal, state or local or government tax authority in the
United States of America or by any foreign government or taxing
authority.
"THIRD-PARTY CLAIM" shall have the meaning ascribed to it in
Section 5(a).
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to this Agreement.
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<PAGE> 4
2. INDEMNIFICATION BY JLK. JLK shall indemnify, defend and hold
harmless the Kennametal Companies and the respective past, present and future
directors, officers, employees, agents and representatives thereof (regardless
in each case of whether any such person serves in one or more similar
capacities for the JLK Companies) from and against any and all losses, claims,
damages, liabilities, demands, suits and actions, including all reasonable
attorneys' fees and disbursements and other costs and expenses incurred in
connection therewith (collectively, "Indemnifiable Losses"), relating to,
resulting from or arising out of: (a) any JLK Liabilities; (b) any JLK
Securities Liabilities; or (c) any misrepresentation or material breach by JLK
of any covenant of JLK or any failure by JLK to satisfy any condition required
to be satisfied by JLK, contained in this Agreement, the Purchase Agreement or
any other agreement executed by JLK in connection with the Offering, including,
without limitation, the Corporate Agreement and the Tax Agreement, and in
addition to and notwithstanding any other indemnification between the parties
hereto as provided in any such agreement, except to the extent that such
misrepresentation, breach or failure was caused by or resulted from any
statement, act or omission within the exclusive knowledge or control of
Kennametal.
3. INDEMNIFICATION BY KENNAMETAL. Kennametal shall indemnify, defend
and hold harmless the JLK Companies and the respective past, present and future
directors, officers, employees, agents and representatives thereof (regardless
in each case of whether any such person serves in one or more similar
capacities for the Kennametal Companies) from and against any and all
Indemnifiable Losses relating to, resulting from or arising out of: (a) any
Kennametal Liabilities; (b) any Kennametal Securities Liabilities; or (c) any
misrepresentation or material breach by Kennametal of any covenant of
Kennametal or any failure of Kennametal to satisfy any condition required to be
satisfied by Kennametal, contained in this Agreement, the Purchase Agreement,
or any other agreement executed by Kennametal in connection with the Offering,
including, without limitation, the Corporate Agreement and the Tax Agreement,
and in addition to and notwithstanding any other indemnification between the
parties hereto as provided in any such agreement, except to the extent that
such misrepresentation, breach or failure was caused by or resulted from any
statement, act or omission within the exclusive knowledge or control of JLK.
4. GUARANTEES. JLK shall indemnify, defend and hold harmless the
Kennametal Companies, and their respective directors, officers, employees,
agents and representatives, from and against any Indemnifiable Losses relating
to, resulting from, or arising out of any Kennametal Guarantee. Kennametal
shall not terminate unilaterally or withdraw any Kennametal Guarantee and shall
abide by the terms of the Kennametal Guarantees. JLK shall reimburse each
Kennametal Company for its direct costs (or, in the case of any Kennametal
Guarantee that relates to both liabilities or obligations of one or more JLK
Companies and one or more third parties, a pro rata share of such direct
costs), if any, of maintaining the Kennametal Guarantees.
5. THIRD-PARTY CLAIMS.
(a) If any person entitled to indemnification under this
Agreement (an "Indemnitee") receives notice of the assertion
of any claim or of the commencement of any action or
proceeding by any person that is not a party to this
Agreement or a subsidiary of any such party (a "Third-Party
Claim") against such Indemnitee, the Indemnitee shall
promptly provide written notice thereof (including a
description of the Third-Party Claim and an estimate of any
Indemnifiable Losses (which estimate shall not be conclusive
as to the final amount of such Indemnifiable Losses) to the
party required to provide indemnification under this
Agreement (the "Indemnifying Party") within ten (10)
Business Days after the Indemnitee's receipt of notice of
such Third-Party Claim. Any delay by the Indemnitee in
providing such written notice shall not relieve the
Indemnifying Party of any liability for indemnification
hereunder except to the extent that the rights of the
Indemnifying Party are materially prejudiced by such delay.
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<PAGE> 5
(b) The Indemnifying Party shall have the right to participate
in or, by giving written notice to the Indemnitee, to assume
the defense of any Third-Party Claim at such Indemnifying
Party's expense and by such Indemnifying Party's own counsel
(which shall be reasonably satisfactory to the Indemnitee),
and the Indemnitee will cooperate in good faith in such
defense. The Indemnifying Party shall not be liable for any
legal expenses incurred by the Indemnitee after the
Indemnitee has received notice of the Indemnifying Party's
intent to assume the defense of a Third-Party Claim;
provided, however, that if the Indemnifying Party fails to
take steps reasonably necessary to diligently pursue the
defense of such Third-Party Claim within ten (10) Business
Days of receipt of notice from the Indemnitee that such
steps are not being taken, the Indemnitee may assume its own
defense and the Indemnifying Party shall be liable for the
reasonable costs thereof.
(c) The Indemnifying Party may settle any Third-Party Claim
which it has elected to defend so long as the written
consent of the Indemnitee to such settlement is first
obtained (which consent shall not be unreasonably withheld).
The Indemnified Party shall not settle any Third-Party Claim
without the written consent of the Indemnifying Party (which
consent shall not be unreasonably withheld).
(d) In the event that a Third-Party Claim involves a proceeding
as to which both Kennametal and JLK may be Indemnifying
Parties, the parties hereto agree to cooperate in good faith
in a joint defense of such Third-Party Claim.
6. CONTRIBUTION. If the indemnification provided for in this
Agreement with respect to JLK Securities Liabilities or Kennametal Securities
Liabilities is for any reason held by a court or other tribunal to be
unavailable on policy grounds or otherwise, Kennametal and JLK shall contribute
to any Indemnifiable Losses relating to, resulting from or arising out of the
JLK Securities Liabilities or the Kennametal Securities Liabilities in such
proportion as to reflect each party's relative fault in connection with such
Indemnifiable Losses. The relative fault of the parties shall be determined by
reference to, among other things, whether the conduct or information giving
rise to the Indemnifiable Losses is attributable to Kennametal or JLK and each
party's relative intent, access to information and opportunity to prevent or
correct the Indemnifiable Losses. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who is not guilty of fraudulent
misrepresentation.
7. COOPERATION. So long as any books, records and files retained
after the Closing Date by Kennametal (or any of the other Kennametal
Companies), on the one hand, or JLK (or any of the other JLK Companies), on the
other hand, relating to the businesses, operations or assets of the other party
and its subsidiaries (including any books, records and files retained by the
JLK Companies relating to the conduct of their businesses or operations or the
ownership of their assets prior to the Closing) remain in existence and are
available, such other party shall have the right upon prior written notice to
inspect and copy the same at any time during business hours for any proper
purpose, provided that such right will not extend to any books, records or
files the disclosure of which in accordance herewith would result in a waiver
of the attorney-client, work-product or other privileges which permit
non-disclosure of otherwise relevant material in litigation or other
proceedings, or which are subject on the date hereof and at the time inspection
is requested to a non-disclosure agreement with a Third-Party and a waiver
cannot reasonably be obtained. Kennametal and JLK agree that neither they nor
any of their subsidiaries shall destroy any such books, records or files
without reasonable notice to the other party or if such party receives within
ten (10) Business Days of such notice any reasonable objection from the other
party to such destruction. Except in the case of dispute between the parties
hereto, Kennametal and JLK shall cooperate with one another in a timely manner
in any administrative or judicial proceeding involving any matter affecting the
actual or potential liability of either party hereunder. Such cooperation shall
include, without limitation,
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<PAGE> 6
making available to the other party during normal business hours all books,
records and information, and officers and employees (without substantial
disruption of operations or employment) necessary or useful in connection with
any inquiry, audit, investigation or dispute, any litigation or any other
matter requiring any such books, records, information, officers or employees
for any reasonable business purpose. The party requesting or otherwise entitled
to any books, records, information, officers or employees pursuant to this
Section 7 shall bear all reasonable out-of-pocket costs and expenses (except
for salaries, employee benefits and general overhead) incurred in connection
with providing such books, records, information, officers or employees.
8. EFFECTIVENESS. This Agreement shall become effective at Closing.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto to
any other person without the prior written consent of the other party hereto.
10. NO THIRD-PARTY BENEFICIARIES. Except for the persons entitled to
indemnification pursuant to Section 2 or Section 3 hereof, each of whom is an
intended third-party beneficiary hereunder, nothing expressed or implied in
this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
12. AMENDMENT. This Agreement may not be amended except by an
instrument signed by the parties hereto.
13. WAIVERS. No waiver of any term shall be construed as a subsequent
waiver of the same term, or a waiver of any other term, of this Agreement. The
failure of any party to assert any of its rights hereunder will not constitute
a waiver of any such rights.
14. SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy,
such provision shall be deemed severable and all other provisions of this
Agreement shall nevertheless remain in full force and effect.
15. HEADINGS. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
16. NOTICES. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete: (i) if
hand delivered, on the date of delivery; (ii) if by mail, on the fourth
business day following the day of deposit in the United States mail, by
certified or registered mail, first-class postage prepaid; (iii) if sent by
Federal Express or equivalent courier service, on the next business day; or
(iv) if by telecopier, upon receipt by the sender of confirmation of successful
transmission. Such notices shall be addressed to the parties at the following
addresses or at such other address for a party as shall be specified by like
notice (except that notices of change of address shall be effective upon
receipt):
IF TO KENNAMETAL: Kennametal Inc.
State Route 981 south
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
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<PAGE> 7
IF TO JLK: JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with, the laws of the Commonwealth of Pennsylvania, without
giving effect to the principles of conflict of laws of such Commonwealth or any
other jurisdiction.
18. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Indemnification Agreement as of the date first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By _______________________________ By ______________________________
Name _____________________________ Name ____________________________
Title ____________________________ Title ___________________________
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<PAGE> 1
Exhibit 10(d)
INTERCOMPANY DEBT/INVESTMENT AND
CASH MANAGEMENT AGREEMENT
THIS INTERCOMPANY DEBT/INVESTMENT AND CASH MANAGEMENT AGREEMENT (this
"Agreement") is made and entered into this ____ day of ____________, 1997, by
and between Kennametal Inc., a Pennsylvania corporation ("Kennametal"), and JLK
Direct Distribution Inc., a Pennsylvania corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations
for federal income tax purposes.
B. JLK is effecting an initial public offering (the "Offering")
of shares of Class A Common Stock, par value $.01 per share,
of JLK (the "Class A Common Stock").
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. Kennametal has provided, and following the Offering, desires
to continue to provide (or cause to be provided) pursuant to
the terms hereof, funds to support liquidity and working
capital needs, centralized cash management and related
services to its domestic subsidiaries and divisions,
including JLK and its subsidiaries.
E. Kennametal desires to continue such relationship upon
consummation of the Offering, including but not limited to,
advancing funds to support liquidity and working capital
needs, and providing centralized cash management and related
services, pursuant to the terms hereof.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
A. DEFINITIONS. As used in this Agreement, in addition to the
terms defined in the Preamble and Recitals hereof, the following terms shall
have the following meanings, applicable to both the singular and plural forms of
the terms described (unless the context indicates otherwise, references to
Articles, Sections and paragraphs shall refer to the corresponding articles,
sections and paragraphs in this Agreement, and references to the parties shall
mean the parties to this Agreement):
"ADMINISTRATIVE SERVICES AGREEMENT" shall mean that certain
Administrative Services Agreement by and between Kennametal and JLK
dated the date hereof.
"ALL-IN INTEREST RATE" shall have the meaning ascribed to it in
Section C.
"BASE RATE" shall have the meaning ascribed to it in Section C.
"CASH ACCOUNTS" shall have the meaning ascribed to it in Section B.
<PAGE> 2
"EFFECTIVE DATE" means the date on which the purchase and sale of
shares of Class A Common Stock pursuant to the Offering first occurs.
"EURO-RATE RESERVE PERCENTAGE" shall mean the percentage (expressed
as a decimal, rounded upward to the nearest 1/100 of 1%), as
determined in good faith by a Lender (which determination shall be
conclusive which is in effect on such day as prescribed by the Board
of Governors of the Federal Reserve System representing the maximum
reserve requirement (including, without limitation, supplemental,
marginal and emergency reserve requirements) with respect to
eurocurrency funding of a member bank in such System.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean the rate per annum (rounded
upward to the nearest 1/100 of 1%) announced by the Federal Reserve
Bank of New York (or any successor) on such day as being the weighted
average of the rates on overnight Federal funds transactions arranged
by Federal funds brokers on the previous trading day.
"INTERCOMPANY AGREEMENTS" means collectively, (i) those certain
agreements by and between Kennametal and JLK with respect to
administrative services, product supply, tax-sharing,
indemnification, intercompany debt/investment, non-competition and
corporate opportunities, cash management and corporate matters; and
(ii) those certain agreements by and between Kennametal and J&L
America, Inc. with respect to leasing, shared facilities and
warehousing.
"JLK" shall have the meaning ascribed to it in the Preamble.
"JLK ENTITIES" shall have the meaning ascribed to it in Section B.
"LENDER" shall mean any bank or other financial institution providing
or otherwise making available financing to Kennametal.
"LIBOR" shall mean the rate per annum which is determined by dividing
(the resulting quotient to be rounded upward to the nearest 1/100 of
1%) (a) the rate of interest determined to be the average of the
rates per annum for deposits in dollars offered to major money center
banks in the London Interbank Market; and (b) a number equal to 1.00
minus the Euro-Rate Reserve Percentage.
"PRIME RATE" OR "BASE RATE" shall mean the interest rate per annum
(calculated on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed) announced from time to time by
Mellon Bank, N.A. as its prime or base or similar rate.
"SYSTEM" shall have the meaning ascribed to it in Section B.
B. CASH MANAGEMENT. Kennametal hereby agrees to provide JLK and its
subsidiaries (collectively, "JLK Entities") with a centralized cash
management system (the "System"). Pursuant thereto, cash received from the
JLK Entities' operations shall be transferred to Kennametal's centralized
cash accounts (the "Cash Accounts") on a daily basis. Further, cash
disbursements made by the JLK Entities shall be funded from the Cash
Accounts also on a daily basis.
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<PAGE> 3
C. INTERCOMPANY DEBT. On and after the Effective Date, JLK shall be charged
interest for its net borrowings from the Cash Accounts maintained by
Kennametal and shall receive interest for the net cash flows of JLK into
the Cash Accounts in any period. The interest rate to be paid or received
by JLK shall be equal to the "All-In Interest Rate." "All-In Interest
Rate" shall mean either, at Kennametal's discretion from time to time
depending on the timing and maturity of the funds borrowed and the
maintenance by Kennametal of certain financial ratios: (a) the Base Rate;
or (b) the spread over Libor (currently .15%). "Base Rate" means the
greater of: (a) the Prime Rate; or (b) the Federal Funds Effective Rate
plus .25%. All interest to be paid or received hereunder shall be paid
monthly in arrears.
D. SERVICES.The administrative services provided by Kennametal to JLK in
connection with the System pursuant to this Section B and Section C shall
be rendered pursuant to the Administrative Services Agreement.
E. TERM OF AGREEMENT. The term of this Agreement shall commence on the
Effective Date and shall continue for ten (10) years thereafter, unless
terminated earlier pursuant to Section F, below, or extended by the mutual
agreement of the parties.
F. TERMINATION. (i) Either party shall have the right to terminate this
Agreement upon the occurrence of any of the following events:
(a) A material breach of this Agreement by either party that is not cured
within thirty (30) days after receipt of written notice of such
breach from the other party;
(b) A material breach of any of the Intercompany Agreements by either
party which is not cured within thirty (30) days after receipt of
written notice from the other party; or
(c) Kennametal shall have the right to terminate this Agreement if
Kennametal or its affiliates own shares representing less than a
majority of the voting power of the outstanding common stock of JLK.
G. MISCELLANEOUS.
1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns. This Agreement may not
be assigned by either party hereto to any other person without the
prior written consent of the other party hereto.
2. NO THIRD-PARTY BENEFICIARIES. Nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than
the parties hereto any legal or equitable rights hereunder.
3. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
4. AMENDMENT. This Agreement may not be amended except by an instrument
signed by the parties hereto.
5. WAIVERS. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other
party; or (ii) waive compliance with any of the
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<PAGE> 4
agreements contained herein. No waiver of any term shall be construed
as a waiver of the same term, or a waiver of any other term, of this
Agreement. The failure of any party to assert any of its rights
hereunder will not constitute a waiver of any such rights.
6. SEVERABILITY. If any provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy,
such provision shall be deemed severable and all other provisions of
this Agreement shall nevertheless remain in full force and effect.
7. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8. NOTICES. All notices given in connection with this Agreement shall be
in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery; (ii) if by mail, on the
fourth business day following the day of deposit in the United States
mail, by certified or registered mail, first-class postage prepaid;
(iii) if sent by Federal Express or equivalent courier service, on
the next business day; or (iv) if by telecopier, upon receipt by the
sender of confirmation of successful transmission. Such notices shall
be addressed to the parties at the following addresses or at such
other address for a party as shall be specified by like notice
(except that notices of change of address shall be effective upon
receipt):
IF TO KENNAMETAL:
Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn: Treasurer
Fax No.: 412/539-4668
IF TO JLK:
JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
9. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the law of the Commonwealth of Pennsylvania, without
giving effect to the principles of conflict of laws of any
jurisdiction.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall
constitute but one and the same instrument.
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<PAGE> 5
IN WITNESS WHEREOF, Kennametal and JLK have caused this Agreement to
be executed on the date and year first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By ______________________________ By ______________________________
Name ____________________________ Name ____________________________
Title ___________________________ Title ___________________________
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<PAGE> 1
Exhibit 10(e)
NON-COMPETITION AND CORPORATE OPPORTUNITIES
ALLOCATION AGREEMENT
THIS NON-COMPETITION AND CORPORATE OPPORTUNITIES ALLOCATION AGREEMENT
(this "Agreement") is made as of the ____ day of ______________, 1997, between
Kennametal Inc., a Pennsylvania corporation ("Kennametal"), and JLK Direct
Distribution Inc., a Pennsylvania corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "Offering")
of shares of Class A Common Stock, par value $.01 per share,
of JLK (the "Class A Common Stock").
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. In order to preserve and enhance the goodwill of the assets
and business of each of JLK and Kennametal, each of JLK and
Kennametal desires to enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of their
mutual promises and obligations herein contained and intending to be legally
bound hereby, the parties do hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and Recital, the following terms will have the
following meanings, applicable to both the singular and plural forms of the
terms described.
"AFFILIATE" means any person which directly or indirectly controls, is
controlled by, or is under common control with a person. A person is regarded
in control of another person if it owns, or directly or indirectly controls, at
least 50% of the voting stock or other ownership interest of the other person,
or if it directly or indirectly possesses the power to direct or cause the
direction of the management and policies of the other person by any means
whatsoever; provided, however, that for the purposes of this Agreement, JLK and
its subsidiaries shall not be Affiliates of Kennametal, and Kennametal and its
subsidiaries (other than JLK and its subsidiaries) shall not be Affiliates of
JLK.
"BASE BUSINESS" means the direct marketing of a broad range of
metalworking consumables and related products through catalogs, monthly
promotional flyers, additional mailings and advertisements, telemarketing
efforts, direct sales efforts and showrooms targeted at small and medium sized
metalworking shops as well as the supply of consumable tooling and related
metalworking products at designated manufacturing plants of large industrial
customers through integrated industrial supply programs.
<PAGE> 2
"EFFECTIVE DATE" means the date on which the purchase and sale of
shares of Class A Common Stock pursuant to the Offering first occurs.
"FAIR MARKET VALUE" means the value determined as such by an
independent investment banking firm mutually selected by Kennametal and the JLK
Independent Directors.
"INTERCOMPANY AGREEMENTS" means collectively, (i) those certain
agreements by and between Kennametal and JLK with respect to administrative
services, product supply, tax-sharing, indemnification, intercompany
debt/investment, non-competition and corporate opportunities, cash management
and corporate matters; and (ii) those certain agreements by and between
Kennametal and J&L America, Inc. with respect to leasing, shared facilities and
warehousing.
"JLK INDEPENDENT DIRECTORS" means the directors of JLK who are not
employees of JLK or Kennametal or an Affiliate of Kennametal.
"KENNAMETAL PRODUCTS" means the products manufactured by or for
Kennametal or its Affiliates and branded as such and such other products and
goods to be sold to and distributed by JLK pursuant to the Product Supply
Agreement.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to articles, sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to this Agreement.
ARTICLE 2
COMPETITION AND CORPORATE OPPORTUNITIES
2.1 NONCOMPETITION BY KENNAMETAL OR AFFILIATES. Except as provided in
Section 2.3, below, Kennametal agrees that for as long as any of the
Intercompany Agreements is in effect, neither Kennametal nor any of its
Affiliates will compete with JLK in the Base Business anywhere in the world,
except as set forth in Section 2.2 below. Kennametal further agrees that for so
long as any of the Intercompany Agreements is in effect, it will not sell,
offer to sell, distribute or otherwise make available Kennametal Products to
anyone who intends to direct market such products and therefore competes
directly or indirectly with JLK's direct marketing program, except with respect
to those contracts, arrangements or relationships as set forth in Exhibit 2.1
attached hereto or with the prior written consent of JLK. For purposes of
clarity, Kennametal shall be able to sell, offer to sell, distribute or
otherwise make available Kennametal Products to entities engaged in the
integrated industrial supply programs business which compete with JLK or its
Affiliates.
2.2 NONCOMPETITION BY JLK OR ITS AFFILIATES. JLK agrees that for as
long as any of the Intercompany Agreements is in effect, neither JLK nor any of
its Affiliates will sell, offer to sell, distribute or otherwise make available
any products which compete directly or indirectly with the Kennametal Products,
without the prior written consent of Kennametal, except in connection with the
provision of integrated industrial supply programs as may be required
specifically by customers thereof.
2.3 EXCEPTIONS TO NONCOMPETITION BY KENNAMETAL OR AFFILIATES. The
restrictions contained in Section 2.1 shall not apply to any Base Business
where JLK has been offered by Kennametal, an Affiliate of
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<PAGE> 3
Kennametal or a third party the right to acquire such Base Business at Fair
Market Value and the JLK Board of Directors shall have determined, for whatever
reason, that it shall not acquire such business.
2.4 ALLOCATION OF CORPORATE OPPORTUNITIES. Kennametal will have the
right as to any future business opportunities outside the scope of the Base
Business, and will have the right as to any future business opportunities
outside the scope of the Base Business but which are reasonably related to the
Base Business, to determine the allocation thereof based solely upon
Kennametal's evaluation of what is in the best interests of Kennametal under
the circumstances.
2.5 KENNAMETAL DETERMINATION BINDING. The good faith determination of
Kennametal as to the scope of the Base Business, the applicability of the
exception provided for in Section 2.3 or the allocation of any corporate
opportunities by Kennametal pursuant to Section 2.4, shall be conclusive and
binding for all purposes.
ARTICLE 3
TERM AND TERMINATION
3.1 TERM. The term of this Agreement shall commence on the Effective
Date and shall continue for ten (10) years thereafter, unless terminated
earlier pursuant to Section 3.2 or extended by the mutual agreement of the
parties.
3.2 TERMINATION. Kennametal shall have the right to terminate this
Agreement upon the occurrence of any of the following events:
(a) A material breach of this Agreement by JLK or any of its
Affiliates that is not cured within thirty (30) days after
receipt of written notice of such breach from Kennametal; or
(b) A material breach by JLK of the Product Supply Agreement
which is not cured within thirty (30) days after receipt of
written notice from Kennametal; or
(c) Kennametal and its Affiliates own shares representing less
than a majority of the voting power of the outstanding
common stock of JLK.
ARTICLE 4
RESOLUTION OF DISPUTES
4.1 ARBITRATION. Any dispute, controversy or claim between Kennametal
and JLK arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, will be
resolved by arbitration conducted in Pittsburgh, Pennsylvania under the
auspices and according to the Commercial Arbitration Rules of the American
Arbitration Association. The arbitration shall be conducted in accordance with
the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement.
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<PAGE> 4
ARTICLE 5
MISCELLANEOUS PROVISIONS
5.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Pennsylvania without regard to principles of
conflicts of laws of any jurisdiction.
5.2 NOTICES. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
IF TO KENNAMETAL: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
IF TO JLK: JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
Actual receipt of notice or other communication shall overcome any deficiency
in manner of delivery thereof.
5.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument.
5.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, superseding all prior oral
and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
5.5 AMENDMENTS. This Agreement may be changed, amended, modified, or
rescinded only by an instrument in writing signed by the party against which
enforcement of such change, amendment, modification or rescission is sought.
5.6 WAIVERS. No waiver by any party of any condition, or breach of
any provision of this Agreement, in any one or more instances, shall be deemed
to be or construed as a waiver of any other condition or of the breach of any
other provision of this Agreement.
5.7 RELATIONSHIP. Nothing in this Agreement shall be deemed to create
a partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
5.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the parties and their respective successors and assigns, except
that no obligation under this Agreement may be delegated, nor may any rights
under this Agreement be assigned by either party, without the prior written
consent of the other party,
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<PAGE> 5
except by operation of law. Any such purported assignment of this Agreement by
either party without the prior written consent of the other party shall be void
and without effect. Except as expressly provided in this Agreement, the parties
hereto intend that this Agreement shall not benefit or create any right or
cause of action in or on behalf of any person other than the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By ____________________________________ By _______________________________
Name __________________________________ Name _____________________________
Title _________________________________ Title ____________________________
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<PAGE> 6
EXHIBIT 2.1
(EXISTING CONTRACTS, ARRANGEMENTS OR RELATIONSHIPS)
<PAGE> 1
Exhibit 10(f)
SHARED FACILITIES AGREEMENT
THIS SHARED FACILITIES AGREEMENT is entered into as of ______________,
1997 (this "Agreement"), by and between Kennametal Inc., a Pennsylvania
corporation ("Sublessor"), and J&L America, Inc., a Michigan corporation
("Sublessee").
RECITALS
A. Sublessor is a tenant under each of the lease agreements
described on Schedule 1 attached hereto and made a part
hereof.
B. Sublessee has occupied, and desires to continue to occupy,
all or a portion of the premises leased by Sublessor under
such lease agreements.
C. Sublessor and Sublessee desire to evidence their agreement
relating to such shared occupancy upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, and intending to be legally bound hereby, the parties covenant
and agree as follows:
1. DEFINITIONS. In addition to the definitions set forth in the
Preamble, the following are the defined terms used in this Agreement:
"AFFILIATE" means a corporation, partnership or other business entity
which directly, or indirectly, controls, is controlled by, or is under
common control with another corporation, partnership or other business
entity; provided, however, that for purposes of this Agreement,
Sublessee and its subsidiaries (other than Sublessor and its
subsidiaries) shall not be Affiliates of Sublessor nor shall Sublessor
and its subsidiaries be Affiliates of Sublessee. If more than 50% of
the voting stock of a corporation shall be owned by another
corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled
by the corporation, partnership or business.
"LEASE TERM" means the initial term of a Prime Lease as it may be
extended by Sublessor pursuant to a renewal or extension option
therein.
"LEASED PREMISES" means the premises in which Sublessor has a
leasehold interest under a Prime Lease or all such premises,
collectively, as the context may require.
"LESSOR" means the landlord under a Prime Lease.
"PRIME LEASE" means each of the leases described on Schedule 1; all
such leases are collectively referred to as the "Prime Leases." The
parties may, after the date hereof, designate any other lease as a
Prime Lease subject to the terms of this Agreement, by replacing
Schedule 1 with a new Schedule 1, which describes such other lease and
which is initialed by both parties.
"SPACE SIZE RATIOS" means, (i) withrespect to any Subleased Premises,
the ratio that the size of the Subleased Premises bears to the size of
the entire Leased Premises; and (ii) with respect to any Leased
<PAGE> 2
Premises, the ratio that the size of the Leased Premises, exclusive of
the Subleased Premises, bears to the size of the entire Leased
Premises, with all such sizes being as reflected on Schedule 1.
"SUBLEASED PREMISES" means the portion of the Leased Premises occupied
by Sublessee as described on Schedule 1, individually or collectively,
as the context may require.
"TRANSFER" shall have the meaning ascribed to it in Section 10(a).
2. SUBLEASE. Sublessor does hereby sublease, demise and let unto
Sublessee, and Sublessee does hereby sublease from Sublessor, each of the
Subleased Premises upon the terms and conditions set forth below.
3. PRIORITY OF PRIME LEASE. This Agreement, as it relates to the
Subleased Premises, is expressly subject and subordinate to the applicable
Prime Lease and, subject to the modifications set forth in this Agreement, all
the terms, conditions and covenants therein contained. Except to the extent
otherwise expressly set forth in this Agreement, in which event the terms of
this Agreement shall prevail, all the terms, covenants and conditions of a
Prime Lease shall be applicable to this Agreement with respect to the
corresponding Subleased Premises with the same force and effect as if Sublessor
were the landlord under the Prime Lease and Sublessee were the tenant
thereunder, and the provisions of the Prime Lease are incorporated herein by
reference with the same force and effect as if they were fully set forth herein
(except to the extent that they are modified by the terms of this Agreement).
Sublessee shall assume and fully perform and discharge, with regard to the
Subleased Premises, all the obligations of Sublessor as tenant under the Prime
Lease during the Lease Term. In the event of any breach by Sublessee of any
term, covenant or condition of this Agreement, Sublessor shall have all the
rights against Sublessee as would be available to the Lessor against the
Sublessor as tenant under the applicable Prime Lease if such breach were by
Sublessor thereunder.
4. TERM. The term of the sublease granted herein shall be coextensive
with the Lease Term of the applicable Prime Lease, unless sooner terminated as
provided herein. Sublessee acknowledges that the Lease Term may include renewal
or extension options exercisable by Sublessor and that the exercise of any such
option shall be mutually determined by Sublessor and Sublessee. Sublessor will
notify Sublessee in the event Sublessor has determined not to exercise any
renewal or extension option and will offer to assign the Prime Lease, to the
extent permitted under such Prime Lease or by the Lessor, or otherwise to
cooperate with Sublessee to allow Sublessee, in its discretion, to exercise any
such option with respect to the Leased Premises, so long as Sublessor has no
responsibility or liability under the Prime Lease after expiration of the Lease
Term.
5. UTILITIES/OTHER SERVICES.
(a) Except as otherwise specified herein, the only services,
utilities or rights to which Sublessee is entitled under this
Agreement with respect to the Subleased Premises are those to which
Sublessor is entitled from the Lessor under the applicable Prime
Lease, and Sublessor shall have no liability to Sublessee for the
failure to provide such services, utilities or rights unless such
failure to provide same is the result of some act or omission of
Sublessor under the Prime Lease. In addition, Sublessee shall not be
entitled to utility services greater than that which it was receiving
(if Sublessee was in possession) prior to the date hereof.
(b) If any utility services to the Leased Premises are not
separately metered as between the Subleased Premises and the remainder
of the Leased Premises, the accounts shall be in the name of
Sublessor, or the Lessor if required by the Prime Lease, and the
payments to the utility companies or the Lessor, as the case may be,
shall be shared prorata by Sublessee and Sublessor based on the Space
Size Ratios and without regard to consumption. Sublessee shall pay its
share of same to Sublessor on or before the later of: (i) five (5)
business days after Sublessee receives an invoice (including a copy of
the
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<PAGE> 3
Lessor's invoice, if any) for same (if the obligation is a recurring
one, only one notice that specifies the due dates shall be required);
or (ii) the date such payment is due and payable to the utility
company or the Lessor, as the case may be.
6. MONETARY OBLIGATIONS.
(a) All monetary obligations of Sublessor under a Prime Lease
shall be shared prorata by Sublessee and Sublessor based on the Space
Size Ratios.
(b) Sublessee shall pay its prorata share of such monetary
obligations to Sublessor on or before the later of: (i) five (5)
business days after Sublessee's receipt of written notice of such
obligation and a copy of the Lessor's invoice, if any (if the
obligation is a recurring one, only one notice that specifies the due
dates shall be required); or (ii) the date Sublessor is required to
pay such monetary obligations to the Lessor.
7. NON-MONETARY OBLIGATIONS. In the event any non-monetary obligation
of the tenant under a Prime Lease, other than those for which specific
provision is made in this Agreement, is not attributable to the Subleased
Premises exclusively or the remainder of the Leased Premises exclusively, such
obligation shall be performed by Sublessor and the cost of performing same
shall be shared prorata by Sublessee and Sublessor based on the Space Size
Ratios.
8. TERMINATION RIGHTS. All rights of the tenant to terminate a Prime
Lease shall belong exclusively to Sublessor and may be exercised by Sublessor
in its sole and absolute discretion without liability to Sublessee; provided,
however, Sublessor will notify Sublessee of its intent to terminate a Prime
Lease and will offer to assign the Prime Lease to Sublessee, to the extent
permitted under such Prime Lease or by the Lessor, so long as Sublessor has no
responsibility or liability under the Prime Lease after such assignment.
Sublessee acknowledges that in the event of any such termination, this
Agreement shall terminate with respect to such Prime Lease.
9. ACCESS/ALTERATIONS.
(a) The parties acknowledge that certain of the Leased Premises
may be configured such that Sublessor may need access to the Subleased
Premises and Sublessee may need access to the remainder of the Leased
Premises for purposes of maintaining or making adjustments or repairs
to facilities serving such party's premises or for purposes of using
rest room facilities or stock or storage rooms or for such other
reasonable purposes. The parties hereby grant each other access
through their respective premises for such purposes, provided that the
party exercising such right does not unreasonably interfere with the
business of the other party.
(b) No party may make any alterations to its premises that would
adversely affect the other party's business or use or occupancy of its
premises.
10. ASSIGNMENT AND SUBLETTING.
(a) Sublessee may not assign this Agreement, or allow it to be
assigned, in whole or in part, by operation of law or otherwise or
mortgage or pledge the same, or sublet the Subleased Premises, or any
part thereof (any of the foregoing transactions is herein referred to
as a "Transfer"), without the prior written consent of Sublessor,
which consent may be withheld by Sublessor in its sole and absolute
discretion without regard to standards of reasonableness.
Notwithstanding the foregoing, but subject to the terms of the Prime
Lease, Sublessee may effect a Transfer, without the consent of
Sublessor, to an
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<PAGE> 4
Affiliate of Sublessee or Sublessor, provided that if at any time
after such permitted Transfer the transferee is no longer an Affiliate
of either Sublessor or Sublessee, the event terminating such
affiliation shall be deemed a Transfer subject to Sublessor's consent
pursuant to the preceding sentence.
(b) In the event of any Transfer, whether or not Sublessor grants
its consent to such Transfer or has the right to withhold its consent
to such Transfer, Sublessee shall remain fully liable to perform its
duties under this Agreement following a Transfer.
(c) Any proposed Transfer shall also be subject to the
restrictions and requirements set forth in the Prime Lease. Any
purported Transfer consummated in violation of the provisions of this
Section 10 shall be null and void and of no force or effect.
(d) In the event Sublessor intends to assign a Prime Lease or
further sublet the Leased Premises exclusive of the Subleased Premises
to a person or entity that is not an Affiliate of Sublessor, Sublessor
shall give Sublessee written notice of such proposed assignment or
sublease at least sixty (60) days prior to the effective date of such
assignment or sublease, and Sublessee shall have the right to
terminate this Agreement with respect to such Prime Lease by giving
written notice thereof to Sublessor prior to such effective date.
Sublessee's termination notice shall specify the termination's
effective date, which shall be no later than sixty (60) days after the
effective date of the Sublessor's assignment or sublease. If Sublessee
does not elect to terminate this Agreement with respect to such Prime
Lease or such assignment or sublease is to an Affiliate of Sublessor,
the following shall be conditions precedent to the effectiveness of
such assignment or sublease: (i) in the case of an assignment,
Sublessor shall cause the assignee to assume and be bound by the terms
of this Agreement, but only to the extent such terms apply to such
Prime Lease, and, notwithstanding such assignment, Sublessor shall not
be released from and shall remain fully liable under the terms of this
Agreement with respect to such Prime Lease; and (ii) in the case of a
sublease, Sublessor shall cause the sublessee to acknowledge the
rights of Sublessee under this Agreement with respect to the Subleased
Premises and the remainder of the Leased Premises and agree that its
possession is subject to such rights of Sublessee.
11. NO DEFAULT UNDER PRIME LEASE.
(a) Sublessee shall do nothing nor permit anything to be done
that would cause the Prime Lease to be terminated or forfeited because
of any right of termination or forfeiture reserved or vested in the
Lessor under the Prime Lease or that would cause Sublessor to be in
default under the Prime Lease or to pay damages or any penalty (e.g.,
late charges). Except as may be due to the default by Sublessor under
the Prime Lease or except as may be due to the negligence or willful
misconduct of Sublessor, Sublessee will defend, indemnify and hold
harmless Sublessor from and against all claims, damages, losses,
liabilities, obligations and costs (including, without limitation,
reasonable attorney's fees) of any kind arising from any breach or
default on the part of Sublessee by reason of which the Prime Lease
may be terminated or forfeited or Sublessor found to be in default
thereunder or the Lessor may be entitled to damages or a penalty.
(b) Sublessor shall do nothing nor permit anything to be done
that would cause the Prime Lease to be terminated or forfeited because
of any right of termination or forfeiture reserved or vested in the
Lessor under the Prime Lease or that would cause Sublessor to be in
default under the Prime Lease or to pay damages or any penalty (e.g.,
late charges). Except as may be due to the default by Sublessee under
this Agreement or except as may be due to the negligence or willful
misconduct of Sublessee, Sublessor will defend, indemnify and hold
harmless Sublessee from and against all claims, damages, losses,
liabilities, obligations and costs (including, without limitation,
reasonable attorney's fees) of any
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<PAGE> 5
kind arising from any breach or default on the part of Sublessor by
reason of which the Prime Lease may be terminated or forfeited or the
Lessor may be entitled to damages or a penalty.
12. FAMILIARITY WITH PRIME LEASE. Sublessee represents and
acknowledges that it is familiar with the terms of the Prime Leases, copies of
which have been given by Sublessor to Sublessee.
13. CONSENT/APPROVALS. In the event Sublessee seeks a consent or
approval from Sublessor with respect to any matter to which such consent or
approval is required under this Agreement or the Prime Lease, then: (i) the
time period, if any, in which Sublessor shall be required to respond to
Sublessee shall be extended by ten (10) days after the expiration of any time
period in which the Lessor has to respond under the Prime Lease; and (ii) the
denial of such consent or approval by the Lessor shall be conclusive and
binding on Sublessee; provided, however, that where consent or approval of the
Lessor under a Prime Lease is required, Sublessor shall use good faith efforts,
unless a different standard is specified herein with respect to a particular
matter, to obtain such consent or approval from the Lessor, except that nothing
herein shall require Sublessor to make any payment, or to amend any terms of
such Prime Lease in a way that would have an adverse effect on Sublessor, in
respect of such consent or approval.
14. DEFAULT NOTICE FROM LESSOR.
(a) In the event Sublessor receives a notice of default from the
Lessor with respect to any matter pertaining to the Subleased Premises
or any obligation of Sublessee under this Agreement, Sublessor shall
immediately notify Sublessee of same in writing, and if Sublessee
fails to promptly commence the cure of such default or fails to cure
such default as of a date that is at least 15 days prior to the
expiration of the applicable cure period under the Prime Lease,
Sublessor shall have the right, but no obligation, to immediately cure
such default, and Sublessee shall reimburse Sublessor for the costs
incurred in connection with curing such default within thirty (30)
days after receipt of an invoice therefor from Sublessor.
(b) In the event: (i) Sublessor receives a notice of any monetary
default from the Lessor with respect to any matter pertaining to the
Leased Premises that does not pertain to any obligation of Sublessee
under this Agreement; (ii) Sublessor is not contesting or undertaking
to cure the alleged default; and (iii) the Prime Lease permits a
sublessee to cure such a default, then Sublessor shall immediately
notify Sublessee of same in writing, and Sublessee shall have the
right, but no obligation to immediately cure such default but shall
not be entitled to reimbursement from Sublessor for the costs incurred
in connection with such cure.
15. SIGNAGE. Sublessee shall have the right to maintain any existing
signage it may have in respect of any Subleased Premises. If Sublessee does not
have a sign in respect of any Subleased Premises, Sublessee shall have the
right to install a sign on such Subleased Premises provided it conforms to the
sign criteria set forth in the Prime Lease and does not impair the rights of
Sublessor to maintain its signage.
16. REQUIRED NOTICE UNDER PRIME LEASE. Sublessee shall promptly give
written notice to Sublessor of: (i) all claims, demands or controversies by or
with the Lessor under the Prime Lease; or (ii) any injury, death or property
damage arising on or about the Subleased Premises. Sublessor shall promptly
give written notice to Sublessee of: (a) all claims, demands or controversies
by or with the Lessor under the Prime Lease; or (b) any injury, death or
property damage arising on or about the Leased Premises.
17. ACCEPTING SUBLEASED PREMISES "AS IS". Sublessee acknowledges that
it is familiar with the Subleased Premises and has operated therein prior to
the date hereof. Sublessee accepts and has accepted possession of the Subleased
Premises "AS IS." Sublessee acknowledges that, notwithstanding anything
contrary
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<PAGE> 6
in the Prime Lease, Sublessor has made no representations or warranties with
respect to the Subleased Premises or to the condition thereof.
18. NO WAIVER. No waiver or modification by a party of any covenant,
agreement, term, provision or condition of this Agreement shall be deemed to
have been made unless expressed in writing and signed by such party. No
surrender by Sublessee of possession of the Subleased Premises or of any part
thereof or of any remainder of the term of this Agreement shall release
Sublessee from any of its obligations hereunder.
19. NOTICES. Any notice or demand which either party may or must give
to the other under this Agreement shall be given in the same manner for giving
notices under the Prime Lease, but addressed as follows:
IF TO SUBLESSOR: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn: Corporate Real Estate Department
Fax No.:_________________
IF TO SUBLESSEE: J&L America, Inc.
Livonia Execuive Park
3800 Industrial Road
Livonia, MI 48150
Attn: ___________________
Fax No.:_________________
Either party may, by notice in writing, direct that future notices or demands
be sent to a different address.
20. SUCCESSORS. The covenants and agreements herein contained shall
bind and inure to the benefit of Sublessor and Sublessee and their respective
permitted successors and assigns.
21. SEVERABILITY. If any provisions of this Agreement shall be held to
be invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
22. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Pennsylvania without regard to
the conflicts of laws provisions of any jurisdiction.
23. FURTHER ASSURANCES. Sublessor and Sublessee shall execute,
acknowledge and deliver such instruments and take such other action as may be
necessary or advisable to carry out their rights and obligations under this
Agreement, including the execution of any agreement or instrument required by
the Lessor under the Prime Lease. In addition, if Sublessee or Sublessor
desires to enter into a direct and separate lease with a Lessor for the
Subleased Premises or the remainder of the Leased Premises, respectively, the
other party shall cooperate in good faith and likewise agree to enter into a
direct and separate lease for its premises provided that such other party's new
lease is on terms at least as favorable as the terms of this Agreement, in the
case of Sublessee, or the terms of the Prime Lease, in the case of Sublessor.
24. AMENDMENT TO PRIME LEASE Sublessor may not make any amendment to a
Prime Lease that would impair or reduce the rights or increase the obligations
of Sublessee under this Agreement, without the written consent of Sublessee.
Sublessor shall furnish Sublessee with a copy of any amendment to the Prime
Lease.
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<PAGE> 7
25. ARBITRATION. Except for the non-payment of rental or other charges
due by Sublessee under this Agreement (unless Sublessee first pays under
protest as provided for below), or in the event that any action or inaction
taken by Sublessee would cause Sublessor to be in default under a Prime Lease,
all disputes and disagreements between Sublessor and Sublessee shall be
resolved pursuant to an arbitration proceeding pursuant to the rules of the
American Arbitration Association. The provisions of this Agreement contain the
sole and exclusive method, means and procedure to resolve, as between Sublessor
and Sublessee, any and all disputes or disagreements.
IN WITNESS WHEREOF, the parties hereto have caused these presents to
be executed the day and year first written above.
SUBLESSOR: SUBLESSEE:
KENNAMETAL INC. J&L AMERICA, INC.
By _____________________________ By ___________________________
Name ___________________________ Name _________________________
Title __________________________ Title ________________________
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<PAGE> 8
SCHEDULE 1
<PAGE> 9
SHARED FACILITIES AGREEMENT
THIS SHARED FACILITIES AGREEMENT is entered into as of ______________,
1997 (this "Agreement"), by and between J&L America, Inc., a Michigan
corporation ("Sublessor"), and Kennametal Inc., a Pennsylvania corporation
("Sublessee").
RECITALS
A. Sublessor is a tenant under each of the lease agreements
described on Schedule 1 attached hereto and made a part
hereof.
B. Sublessee has occupied, and desires to continue to occupy,
all or a portion of the premises leased by Sublessor under
such lease agreements.
C. Sublessor and Sublessee desire to evidence their agreement
relating to such shared occupancy upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, and intending to be legally bound hereby, the parties covenant
and agree as follows:
1. DEFINITIONS. In addition to the definitions set forth in the
Preamble, the following are the defined terms used in this Agreement:
"AFFILIATE" means a corporation, partnership or other business entity
which directly, or indirectly, controls, is controlled by, or is under
common control with another corporation, partnership or other business
entity; provided, however, that for purposes of this Agreement,
Sublessee and its subsidiaries (other than Sublessor and its
subsidiaries) shall not be Affiliates of Sublessor nor shall Sublessor
and its subsidiaries be Affiliates of Sublessee. If more than 50% of
the voting stock of a corporation shall be owned by another
corporation or by a partnership or other business entity, the
corporation whose stock is so owned shall be deemed to be controlled
by the corporation, partnership or business.
"LEASE TERM" means the initial term of a Prime Lease as it may be
extended by Sublessor pursuant to a renewal or extension option
therein.
"LEASED PREMISES" means the premises in which Sublessor has a
leasehold interest under a Prime Lease or all such premises,
collectively, as the context may require.
"LESSOR" means the landlord under a Prime Lease.
"PRIME LEASE" means each of the leases described on Schedule 1; all
such leases are collectively referred to as the "Prime Leases." The
parties may, after the date hereof, designate any other lease as a
Prime Lease subject to the terms of this Agreement, by replacing
Schedule 1 with a new Schedule 1, which describes such other lease and
which is initialed by both parties.
"SPACE SIZE RATIOS" means (i) with respect to any Subleased Premises,
the ratio that the size of any Subleased Premises bears to the size of
the entire Leased Premises; and (ii) with respect to any Leased
Premises, the ratio that the size of the Leased Premises, exclusive of
the Subleased Premises, bears to the size of the entire Leased
Premises, with all such sizes being as reflected on Schedule 1.
<PAGE> 10
"SUBLEASED PREMISES" means the portion of the Leased Premises occupied
by Sublessee as described on Schedule 1, individually or collectively,
as the context may require.
"TRANSFER" shall have the meaning ascribed to it in Section 10(a).
2. SUBLEASE. Sublessor does hereby sublease, demise and let unto
Sublessee, and Sublessee does hereby sublease from Sublessor, each of the
Subleased Premises upon the terms and conditions set forth below.
3. PRIORITY OF PRIME LEASE. This Agreement, as it relates to the
Subleased Premises, is expressly subject and subordinate to the applicable
Prime Lease and, subject to the modifications set forth in this Agreement, all
the terms, conditions and covenants therein contained. Except to the extent
otherwise expressly set forth in this Agreement, in which event the terms of
this Agreement shall prevail, all the terms, covenants and conditions of a
Prime Lease shall be applicable to this Agreement with respect to the
corresponding Subleased Premises with the same force and effect as if Sublessor
were the landlord under the Prime Lease and Sublessee were the tenant
thereunder, and the provisions of the Prime Lease are incorporated herein by
reference with the same force and effect as if they were fully set forth herein
(except to the extent that they are modified by the terms of this Agreement).
Sublessee shall assume and fully perform and discharge, with regard to the
Subleased Premises, all the obligations of Sublessor as tenant under the Prime
Lease during the Lease Term. In the event of any breach by Sublessee of any
term, covenant or condition of this Agreement, Sublessor shall have all the
rights against Sublessee as would be available to the Lessor against the
Sublessor as tenant under the applicable Prime Lease if such breach were by
Sublessor thereunder.
4. TERM. The term of the sublease granted herein shall be coextensive
with the Lease Term of the applicable Prime Lease, unless sooner terminated as
provided herein. Sublessee acknowledges that the Lease Term may include renewal
or extension options exercisable by Sublessor and that the exercise of any such
option shall be mutually determined by Sublessor and Sublessee. Sublessor will
notify Sublessee in the event Sublessor has determined not to exercise any
renewal or extension option and will offer to assign the Prime Lease, to the
extent permitted under such Prime Lease or by the Lessor, or otherwise to
cooperate with Sublessee to allow Sublessee, in its discretion, to exercise any
such option with respect to the Leased Premises, so long as Sublessor has no
responsibility or liability under the Prime Lease after expiration of the Lease
Term.
5. UTILITIES/OTHER SERVICES.
(a) Except as otherwise specified herein, the only services,
utilities or rights to which Sublessee is entitled under this
Agreement with respect to the Subleased Premises are those to which
Sublessor is entitled from the Lessor under the applicable Prime
Lease, and Sublessor shall have no liability to Sublessee for the
failure to provide such services, utilities or rights unless such
failure to provide same is the result of some act or omission of
Sublessor under the Prime Lease. In addition, Sublessee shall not be
entitled to utility services greater than that which it was receiving
(if Sublessee was in possession) prior to the date hereof.
(b) If any utility services to the Leased Premises are not
separately metered as between the Subleased Premises and the remainder
of the Leased Premises, the accounts shall be in the name of
Sublessor, or the Lessor if required by the Prime Lease, and the
payments to the utility companies or the Lessor, as the case may be,
shall be shared prorata by Sublessee and Sublessor based on the Space
Size Ratios and without regard to consumption. Sublessee shall pay its
share of same to Sublessor on or before the later of: (i) five (5)
business days after Sublessee receives an invoice (including a copy of
the Lessor's invoice, if any) for same (if the obligation is a
recurring one, only one notice that specifies the due dates shall be
required); or (ii) the date such payment is due and payable to the
utility company or the Lessor, as the case may be.
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<PAGE> 11
6. MONETARY OBLIGATIONS.
(a) All monetary obligations of Sublessor under a Prime Lease
shall be shared prorata by Sublessee and Sublessor based on the Space
Size Ratios.
(b) Sublessee shall pay its prorata share of such monetary
obligations to Sublessor on or before the later of: (i) five (5)
business days after Sublessee's receipt of written notice of such
obligation and a copy of the Lessor's invoice, if any (if the
obligation is a recurring one, only one notice that specifies the due
dates shall be required); or (ii) the date Sublessor is required to
pay such monetary obligations to the Lessor.
7. NON-MONETARY OBLIGATIONS. In the event any non-monetary obligation
of the tenant under a Prime Lease, other than those for which specific
provision is made in this Agreement, is not attributable to the Subleased
Premises exclusively or the remainder of the Leased Premises exclusively, such
obligation shall be performed by Sublessor and the cost of performing same
shall be shared prorata by Sublessee and Sublessor based on the Space Size
Ratios.
8. TERMINATION RIGHTS. All rights of the tenant to terminate a Prime
Lease shall belong exclusively to Sublessor and may be exercised by Sublessor
in its sole and absolute discretion without liability to Sublessee; provided,
however, Sublessor will notify Sublessee of its intent to terminate a Prime
Lease and will offer to assign the Prime Lease to Sublessee, to the extent
permitted under such Prime Lease or by the Lessor, so long as Sublessor has no
responsibility or liability under the Prime Lease after such assignment.
Sublessee acknowledges that in the event of any such termination, this
Agreement shall terminate with respect to such Prime Lease.
9. ACCESS/ALTERATIONS.
(a) The parties acknowledge that certain of the Leased Premises
may be configured such that Sublessor may need access to the Subleased
Premises and Sublessee may need access to the remainder of the Leased
Premises for purposes of maintaining or making adjustments or repairs
to facilities serving such party's premises or for purposes of using
rest room facilities or stock or storage rooms or for such other
reasonable purposes. The parties hereby grant each other access
through their respective premises for such purposes, provided that the
party exercising such right does not unreasonably interfere with the
business of the other party.
(b) No party may make any alterations to its premises that would
adversely affect the other party's business or use or occupancy of its
premises.
10. ASSIGNMENT AND SUBLETTING.
(a) Sublessee may not assign this Agreement, or allow it to be
assigned, in whole or in part, by operation of law or otherwise or
mortgage or pledge the same, or sublet the Subleased Premises, or any
part thereof (any of the foregoing transactions is herein referred to
as a "Transfer"), without the prior written consent of Sublessor,
which consent may be withheld by Sublessor in its sole and absolute
discretion without regard to standards of reasonableness.
Notwithstanding the foregoing, but subject to the terms of the Prime
Lease, Sublessee may effect a Transfer, without the consent of
Sublessor, to an Affiliate of Sublessee or Sublessor, provided that if
at any time after such permitted Transfer the transferee is no longer
an Affiliate of either Sublessor or Sublessee, the event terminating
such affiliation shall be deemed a Transfer subject to Sublessor's
consent pursuant to the preceding sentence.
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<PAGE> 12
(b) In the event of any Transfer, whether or not Sublessor grants
its consent to such Transfer or has the right to withhold its consent
to such Transfer, Sublessee shall remain fully liable to perform its
duties under this Agreement following a Transfer.
(c) Any proposed Transfer shall also be subject to the
restrictions and requirements set forth in the Prime Lease. Any
purported Transfer consummated in violation of the provisions of this
Section 10 shall be null and void and of no force or effect.
(d) In the event Sublessor intends to assign a Prime Lease or
further sublet the Leased Premises exclusive of the Subleased Premises
to a person or entity that is not an Affiliate of Sublessor, Sublessor
shall give Sublessee written notice of such proposed assignment or
sublease at least sixty (60) days prior to the effective date of such
assignment or sublease, and Sublessee shall have the right to
terminate this Agreement with respect to such Prime Lease by giving
written notice thereof to Sublessor prior to such effective date.
Sublessee's termination notice shall specify the termination's
effective date, which shall be no later than sixty (60) days after the
effective date of the Sublessor's assignment or sublease. If Sublessee
does not elect to terminate this Agreement with respect to such Prime
Lease or such assignment or sublease is to an Affiliate of Sublessor,
the following shall be conditions precedent to the effectiveness of
such assignment or sublease: (i) in the case of an assignment,
Sublessor shall cause the assignee to assume and be bound by the terms
of this Agreement, but only to the extent such terms apply to such
Prime Lease, and, notwithstanding such assignment, Sublessor shall not
be released from and shall remain fully liable under the terms of this
Agreement with respect to such Prime Lease; and (ii) in the case of a
sublease, Sublessor shall cause the sublessee to acknowledge the
rights of Sublessee under this Agreement with respect to the Subleased
Premises and the remainder of the Leased Premises and agree that its
possession is subject to such rights of Sublessee.
11. NO DEFAULT UNDER PRIME LEASE.
(a) Sublessee shall do nothing nor permit anything to be done
that would cause the Prime Lease to be terminated or forfeited because
of any right of termination or forfeiture reserved or vested in the
Lessor under the Prime Lease or that would cause Sublessor to be in
default under the Prime Lease or to pay damages or any penalty (e.g.,
late charges). Except as may be due to the default by Sublessor under
the Prime Lease or except as may be due to the negligence or willful
misconduct of Sublessor, Sublessee will defend, indemnify and hold
harmless Sublessor from and against all claims, damages, losses,
liabilities, obligations and costs (including, without limitation,
reasonable attorney's fees) of any kind arising from any breach or
default on the part of Sublessee by reason of which the Prime Lease
may be terminated or forfeited or Sublessor found to be in default
thereunder or the Lessor may be entitled to damages or a penalty.
(b) Sublessor shall do nothing nor permit anything to be done
that would cause the Prime Lease to be terminated or forfeited because
of any right of termination or forfeiture reserved or vested in the
Lessor under the Prime Lease or that would cause Sublessor to be in
default under the Prime Lease or to pay damages or any penalty (e.g.,
late charges). Except as may be due to the default by Sublessee under
this Agreement or except as may be due to the negligence or willful
misconduct of Sublessee, Sublessor will defend, indemnify and hold
harmless Sublessee from and against all claims, damages, losses,
liabilities, obligations and costs (including, without limitation,
reasonable attorney's fees) of any kind arising from any breach or
default on the part of Sublessor by reason of which the Prime Lease
may be terminated or forfeited or the Lessor may be entitled to
damages or a penalty.
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<PAGE> 13
12. FAMILIARITY WITH PRIME LEASE. Sublessee represents and
acknowledges that it is familiar with the terms of the Prime Leases, copies of
which have been given by Sublessor to Sublessee.
13. CONSENT/APPROVALS. In the event Sublessee seeks a consent or
approval from Sublessor with respect to any matter to which such consent or
approval is required under this Agreement or the Prime Lease, then: (i) the
time period, if any, in which Sublessor shall be required to respond to
Sublessee shall be extended by ten (10) days after the expiration of any time
period in which the Lessor has to respond under the Prime Lease; and (ii) the
denial of such consent or approval by the Lessor shall be conclusive and
binding on Sublessee; provided, however, that where consent or approval of the
Lessor under a Prime Lease is required, Sublessor shall use good faith efforts,
unless a different standard is specified herein with respect to a particular
matter, to obtain such consent or approval from the Lessor, except that nothing
herein shall require Sublessor to make any payment, or to amend any terms of
such Prime Lease in a way that would have an adverse effect on Sublessor, in
respect of such consent or approval.
14. DEFAULT NOTICE FROM LESSOR.
(a) In the event Sublessor receives a notice of default from the
Lessor with respect to any matter pertaining to the Subleased Premises
or any obligation of Sublessee under this Agreement, Sublessor shall
immediately notify Sublessee of same in writing, and if Sublessee
fails to promptly commence the cure of such default or fails to cure
such default as of a date that is at least 15 days prior to the
expiration of the applicable cure period under the Prime Lease,
Sublessor shall have the right, but no obligation, to immediately cure
such default, and Sublessee shall reimburse Sublessor for the costs
incurred in connection with curing such default within thirty (30)
days after receipt of an invoice therefor from Sublessor.
(b) In the event: (i) Sublessor receives a notice of any monetary
default from the Lessor with respect to any matter pertaining to the
Leased Premises that does not pertain to any obligation of Sublessee
under this Agreement; (ii) Sublessor is not contesting or undertaking
to cure the alleged default; and (iii) the Prime Lease permits a
sublessee to cure such a default, then Sublessor shall immediately
notify Sublessee of same in writing, and Sublessee shall have the
right, but no obligation to immediately cure such default but shall
not be entitled to reimbursement from Sublessor for the costs incurred
in connection with such cure.
15. SIGNAGE. Sublessee shall have the right to maintain any existing
signage it may have in respect of any Subleased Premises. If Sublessee does not
have a sign in respect of any Subleased Premises, Sublessee shall have the
right to install a sign on such Subleased Premises provided it conforms to the
sign criteria set forth in the Prime Lease and does not impair the rights of
Sublessor to maintain its signage.
16. REQUIRED NOTICE UNDER PRIME LEASE. Sublessee shall promptly give
written notice to Sublessor of: (i) all claims, demands or controversies by or
with the Lessor under the Prime Lease; or (ii) any injury, death or property
damage arising on or about the Subleased Premises. Sublessor shall promptly
give written notice to Sublessee of: (a) all claims, demands or controversies
by or with the Lessor under the Prime Lease; or (b) any injury, death or
property damage arising on or about the Leased Premises.
17. ACCEPTING SUBLEASED PREMISES "AS IS". Sublessee acknowledges that
it is familiar with the Subleased Premises and has operated therein prior to
the date hereof. Sublessee accepts and has accepted possession of the Subleased
Premises "AS IS." Sublessee acknowledges that, notwithstanding anything
contrary in the Prime Lease, Sublessor has made no representations or
warranties with respect to the Subleased Premises or to the condition thereof.
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<PAGE> 14
18. NO WAIVER. No waiver or modification by a party of any covenant,
agreement, term, provision or condition of this Agreement shall be deemed to
have been made unless expressed in writing and signed by such party. No
surrender by Sublessee of possession of the Subleased Premises or of any part
thereof or of any remainder of the term of this Agreement shall release
Sublessee from any of its obligations hereunder.
19. NOTICES. Any notice or demand which either party may or must give
to the other under this Agreement shall be given in the same manner for giving
notices under the Prime Lease, but addressed as follows:
IF TO SUBLESSOR: J&L America, Inc.
Livonia Executive Park
3800 Industrial Road
Livonia, MI 48150
Attn:
Fax No.:_________________
IF TO SUBLESSEE: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn: Corporate Real Estate Department
Fax No.:_________________
Either party may, by notice in writing, direct that future notices or demands
be sent to a different address.
20. SUCCESSORS. The covenants and agreements herein contained shall
bind and inure to the benefit of Sublessor and Sublessee and their respective
permitted successors and assigns.
21. SEVERABILITY. If any provisions of this Agreement shall be held to
be invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
22. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Pennsylvania without regard to
the conflicts of laws provisions of any jurisdiction.
23. FURTHER ASSURANCES. Sublessor and Sublessee shall execute,
acknowledge and deliver such instruments and take such other action as may be
necessary or advisable to carry out their rights and obligations under this
Agreement, including the execution of any agreement or instrument required by
the Lessor under the Prime Lease. In addition, if Sublessee or Sublessor
desires to enter into a direct and separate lease with a Lessor for the
Subleased Premises or the remainder of the Leased Premises, respectively, the
other party shall cooperate in good faith and likewise agree to enter into a
direct and separate lease for its premises provided that such other party's new
lease is on terms at least as favorable as the terms of this Agreement, in the
case of Sublessee, or the terms of the Prime Lease, in the case of Sublessor.
24. AMENDMENT TO PRIME LEASE Sublessor may not make any amendment to a
Prime Lease that would impair or reduce the rights or increase the obligations
of Sublessee under this Agreement, without the written consent of Sublessee.
Sublessor shall furnish Sublessee with a copy of any amendment to the Prime
Lease.
25. ARBITRATION. Except for the non-payment of rental or other charges
due by Sublessee under this Agreement (unless Sublessee first pays under
protest as provided for below), or in the event that any action or inaction
taken by Sublessee would cause Sublessor to be in default under a Prime Lease,
all disputes and disagreements between Sublessor and Sublessee shall be
resolved pursuant to an arbitration proceeding pursuant to the rules of the
American Arbitration Association. The provisions of this Agreement contain the
sole and
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<PAGE> 15
exclusive method, means and procedure to resolve, as between Sublessor and
Sublessee, any and all disputes or disagreements.
IN WITNESS WHEREOF, the parties hereto have caused these presents to
be executed the day and year first written above.
SUBLESSOR: SUBLESSEE:
J&L AMERICA, INC. KENNAMETAL INC.
By ________________________________ By _______________________________
Name ______________________________ Name _____________________________
Title _____________________________ Title ____________________________
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<PAGE> 16
SCHEDULE 1
<PAGE> 1
Exhibit 10(g)
TAX-SHARING AGREEMENT
THIS AGREEMENT is entered into as of the ____ day of ________________,
1997, between Kennametal Inc., a Pennsylvania corporation ("Kennametal"), and
JLK Direct Distribution Inc., a Pennsylvania corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK.
B. JLK is effecting an initial public offering (the "Offering")
of shares of Class A Common Stock, par value $.01 per share,
of JLK (the "Class A Common Stock").
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. For United States federal income tax purposes JLK and its
subsidiaries will continue to be members of the Kennametal
Group, and for state or local franchise or income tax
purposes will continue to be members of certain unified,
combined or consolidated groups which include Kennametal
notwithstanding the results of the Offering.
E. The parties wish to address certain tax matters which may
arise as a result of the Offering.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, and intending to be
legally bound hereby, the parties hereby agree as follows:
1.1 As used in this Agreement, in addition to the terms defined in
the Preamble and Recital, the following terms will have the following meanings,
applicable to both the singular and plural forms of the terms described:
"CONSOLIDATION PERIODS" shall mean, with respect to JLK or any of its
subsidiaries, the taxable periods or portions thereof in which JLK will be a
member of the Kennametal Group.
"EFFECTIVE DATE" means the date of this Agreement.
"KENNAMETAL GROUP" shall mean the affiliated group of corporations for
United States federal income tax purposes of which Kennametal is the common
parent.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to articles, sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to this Agreement.
2. With respect to each of the Consolidation Periods:
(a) JLK shall pay to Kennametal an amount equal to the aggregate
United States federal income taxes, if any, JLK and its
subsidiaries would have been required to pay for such
taxable period if JLK had filed a separate consolidated
United States federal income tax return for such period as
the common parent of an affiliated group of corporations
<PAGE> 2
including only JLK and its subsidiaries, rather than as a
member of the Kennametal Group. JLK will be reimbursed,
however, for tax attributes that it generates, such as net
operating losses, if and when they are used on a Kennametal
consolidated basis.
(b) JLK shall be responsible for any and all liabilities arising
as a result of any United States federal payroll withholding
taxes related to JLK employees.
(c) JLK and its subsidiaries shall be responsible for any and
all liabilities arising as a result of state or local
income, franchise, excise, single business, gross receipts
or withholding tax returns filed by JLK and its subsidiaries
on a separate-return basis. JLK shall pay to Kennametal an
amount equal to the aggregate state or local income or
franchise taxes which JLK or any of its subsidiaries who are
included as a member of a unitary, combined or consolidated
group which includes Kennametal or any of its subsidiaries
would have been required to pay for such period if JLK or
the relevant subsidiaries had filed a separate state or
local income tax return at such time.
(d) JLK and its subsidiaries shall be responsible for any tax
liability due any foreign jurisdiction arising as a result
of their business activities and/or domicile.
(e) Except as set forth below, payments required pursuant to
Paragraphs 2(a), (b), (c) and (d) of this Agreement shall be
billed to JLK by Kennametal based upon estimated payments
made by Kennametal to taxing authorities, with final billing
being made after filing of the returns. If income tax
deficiencies or tax refunds relating to JLK or its
subsidiaries result from a tax audit, amended return, claim,
final determination by any court or otherwise related to the
income tax returns for the Consolidation Period, the amounts
due under Paragraphs 2(a), (b), (c) and (d) of this
Agreement shall be recalculated by Kennametal's Tax
Department in accordance with the terms of such Paragraphs,
and an appropriate adjustment to payments due under those
Paragraphs shall be made.
(f) If JLK has any net operating loss carryover, capital loss
carryover, tax credit or other tax attribute, which is not
used to reduce the amounts due to Kennametal under (a)
above, then Kennametal shall pay to JLK an amount equal to
the reduction in the taxes of the Kennametal Group on
account of the absorption or use of any such tax attribute
if and when used by Kennametal on a consolidated basis.
Further, the benefit of a foreign tax credit, if any,
against the United States federal income tax liability
arising from income upon which such foreign tax was imposed
shall be assigned to JLK at such time as such benefit is
realized in the Kennametal consolidated tax return. The
assignment of such benefit shall be reflected in the net
amounts properly chargeable pursuant to Paragraph 2(a)
above.
3. Notwithstanding anything to the contrary herein, no party shall
be entitled to duplicate payments from the other parties hereunder.
Kennametal's Director of Taxes, in his sole discretion, may net any payments
due to Kennametal from JLK pursuant to this Agreement against any amount due
from Kennametal to JLK pursuant to this Agreement or otherwise.
4. Interest shall accrue on payments due or advances made under this
Agreement at the interest rate then being charged by the Internal Revenue
Service on United States federal income tax deficiencies. Interest shall begin
to accrue on the date payment is due, provided, however, that interest shall
not accrue for any period during which interest is being charged by or paid by
the Internal Revenue Service and such interest is included as
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<PAGE> 3
part of the payment due under this Agreement. Payments under this Agreement
may, in Kennametal's discretion, be evidenced by a demand promissory note
bearing interest as provided in this Paragraph 4.
5. (a) Kennametal agrees that it will indemnify and hold JLK and
its subsidiaries harmless from and against any United States
federal, state or local unitary, combined or consolidated
income or franchise tax liabilities (including interest,
penalties, additions to tax, legal fees, court costs and any
other reasonable costs of defense) with respect to the
portion of the Kennametal Group consolidated federal income
tax liability or state or local unitary, combined or
consolidated income or franchise tax liability which is
allocable to members of the Kennametal Group, other than JLK
or its subsidiaries.
(b) Except as otherwise provided in this Agreement, JLK agrees
that it will indemnify and hold all members of the
Kennametal Group harmless from and against any United States
federal, state or local unitary, combined or consolidated
income or franchise tax liability (including interest,
penalties, additions to tax, legal fees, court costs and any
other reasonable costs of defense) with respect to the
portion of the Kennametal Group consolidated federal income
tax liability or state or local unitary, combined or
consolidated income or franchise tax liability which is
allocable to JLK and its subsidiaries.
6. JLK agrees to: (i) provide Kennametal access to JLK's books and
records; (ii) provide Kennametal with papers, schedules and any other
information or assistance necessary to prepare tax returns or make computations
pursuant to this Agreement; (iii) maintain and preserve books, records and
other information as may be needed by Kennametal pursuant to this Agreement or
pursuant to the preparation of any required tax return or the conduct of any
tax audit by a governmental authority for at least such time as has been
customary; (iv) cooperate in any audit or investigation of tax returns and
execute appropriate powers of attorney in connection therewith in favor of
Kennametal; and (v) sign all documents, including settlement agreements,
relating to the tax returns for Consolidation Periods.
7. With respect to all taxable periods during the Consolidation
Period, Kennametal shall have sole and exclusive authority and responsibility
for: (i) preparing any United States federal income or state and local income,
franchise, excise, single business, gross receipts or withholding tax returns
(including any amended returns or claims for refund) of JLK; (ii) representing
JLK with respect to any United States federal income or state and local income,
franchise, excise, single business, gross receipts or withholding tax audit or
United States federal income or state and local income, franchise, excise,
single business, gross receipts or withholding tax contest (including, without
limitation, any litigation regarding United States federal income or state and
local income, franchise, excise, single business, gross receipts or withholding
taxes or refunds); (iii) engaging outside counsel and accountants with respect
to tax matters regarding JLK; and (iv) performing such other acts and duties
with respect to JLK's' tax returns as he determines is appropriate.
Kennametal's Director of Taxes shall have the discretion to reasonably
determine the intent of, and resolve any ambiguities contained in, this
Agreement.
8. This Agreement is entered into by the parties hereto on their own
behalf as well as on behalf of any subsidiaries such parties may have
respectively. This Agreement shall be deemed to have been joined in and
consented to by all such subsidiaries, without further action of them or the
parties hereto. The parties hereto hereby guarantee the performance by such
subsidiaries of all the terms of this Agreement. This Agreement shall also be
binding upon, and inure to the benefit of, the successors and assigns of the
parties hereto.
9. This Agreement may be executed in several counterparts, each of
which shall be an original, but all of which shall constitute one document.
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<PAGE> 4
10. This Agreement will be governed by, and construed in accordance
with, the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By ____________________________________ By ______________________________
Name __________________________________ Name ____________________________
Title _________________________________ Title ___________________________
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<PAGE> 1
Exhibit 10(h)
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made as of the
____ day of ______________, 1997, between Kennametal Inc., a Pennsylvania
corporation ("Kennametal"), and JLK Direct Distribution Inc., a Pennsylvania
corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "Offering")
of shares of Class A Common Stock, par value $.01 per share,
of JLK.
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. Kennametal owns the Kennametal Trademarks (as defined herein)
and JLK owns the JLK Trademarks (as defined herein).
E. In connection with the consummation of the Offering, JLK
desires to license from Kennametal and Kennametal is willing
to grant to JLK and its Affiliates a nonexclusive license to
use the Kennametal Trademarks, on the terms and provisions
contained herein. Kennametal desires to license from JLK and
JLK is willing to grant to Kennametal and its Affiliates a
nonexclusive license to use the JLK Trademarks, on the terms
and provisions contained herein, on the terms and provisions
contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of their
mutual promises and obligations herein contained, and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and the Recitals, the following terms shall have the
following meanings, applicable to both the singular and plural forms of the
terms described:
"AFFILIATE" means with respect to any person, any other person which
directly or indirectly controls, is controlled by, or is under common control
with, such person. A person is regarded in control of another person if its
owns, or directly or indirectly controls, at least 50% of the voting stock or
other ownership interest of the other person, or if it directly or indirectly
possesses the power to direct or cause the direction of the management and
policies of the other person by any means whatsoever; provided, however, that
for the purposes of this Agreement, JLK and its subsidiaries shall not be
Affiliates of Kennametal, and Kennametal and its subsidiaries (other than JLK
and its subsidiaries) shall not be Affiliates of JLK.
"EFFECTIVE DATE" means the date of this Agreement.
<PAGE> 2
"INTERCOMPANY AGREEMENTS" means collectively, (i) those certain
agreements by and between Kennametal and JLK with respect to administrative
services, product supply, tax-sharing, indemnification, intercompany
debt/investment, non-competition and corporate opportunities, cash management
and corporate matters; and (ii) those certain agreements by and between
Kennametal and J&L America, Inc. with respect to leasing, shared facilities and
warehousing.
"JLK PRODUCTS" means the products and services then provided by JLK
and its Affiliates, as modified from time to time.
"JLK TRADEMARKS" means the trademarks, service marks, trade names and
other intellectual property of JLK identified on Schedule B.
"KENNAMETAL PRODUCTS" means the products and services then provided by
Kennametal and its Affiliates, as modified from time to time.
"KENNAMETAL TRADEMARKS" means the trademarks, service marks, trade
names and other intellectual property of Kennametal identified on Schedule A.
"LICENSEE" means, as the case may be, Kennametal in its capacity as
licensee of the JLK Trademarks hereunder, and JLK in its capacity as licensee
of the Kennametal Trademarks hereunder.
"LICENSOR" means, as the case may be, Kennametal in its capacity as
licensor of the Kennametal Trademarks hereunder, and JLK in its capacity as
licensor of the JLK Trademarks hereunder.
"LICENSOR'S TRADEMARKS" means the Kennametal Trademarks, in the case
of Kennametal, and the JLK Trademarks, in the case of JLK.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
reference to the parties shall mean the parties to this Agreement.
ARTICLE 2
GRANTS OF TRADEMARK LICENSES
2.1 KENNAMETAL GRANT OF LICENSE.
(a) Kennametal grants to JLK and its Affiliates the worldwide,
nonexclusive right and license to use the Kennametal Trademarks
in the marketing, promotion, sale and provision of Kennametal
Products.
(b) The Kennametal Trademarks are initially as established by
Kennametal as of the Effective Date and may be modified from time
to time by Kennametal in its sole discretion and reflected on a
revised Schedule A.
2.2 JLK GRANT OF LICENSE.
(a) JLK grants to Kennametal and its Affiliates the worldwide,
nonexclusive right and license to use the JLK Trademarks in the
marketing, promotion, sale and provision of JLK Products.
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<PAGE> 3
(b) The JLK Trademarks are initially as established by JLK as of the
Effective Date and may be modified from time to time by JLK in
its sole discretion and reflected on a revised Schedule B.
2.3 FEES. In consideration of the rights and licenses granted under
Sections 2.1 and 2.2, each Licensee shall pay to each Licensor royalty fees as
set forth on Schedule C. The net consideration paid by the parties hereto take
into account the benefits and value that Kennametal and JLK each derive from
the Related Agreements. Such royalty fees shall be due on a quarterly
calendar-year basis and shall be payable no later than one month after the
close of the prior quarter (i.e., April 30, July 31, October 31, and January
31). Each royalty payment shall be accompanied by a report setting forth the
number of products sold bearing the respective trademark. Failure to timely
make a royalty payment shall be deemed a material breach of this Agreement and
shall be subject to the remedies provided herein. Each Licensee shall maintain
adequate records of products sold pursuant to this License Agreement, said
records being subject to an annual inspection by the respective Licensor, at
that Licensor's discretion.
2.4 RESTRICTIONS ON SUBLICENSES.
(a) The right and license granted to JLK and its Affiliates under
Section 2.1 shall not include the right to grant sublicenses to
any third party, except with the prior written consent of
Kennametal. Any sublicense consented to by Kennametal shall be at
least as restrictive as this Agreement and shall allow and enable
JLK to ensure compliance with all of the terms and conditions of
this Agreement. JLK or the relevant Affiliate shall guarantee the
full performance and compliance of any such sublicensee with all
of the terms and conditions of this Agreement.
(b) The right and license granted to Kennametal and its Affiliates
under Section 2.2 shall not include the right to grant
sublicenses to any third party, except with the prior written
consent of JLK. Any sublicense consented to by JLK shall be at
least as restrictive as this Agreement and shall allow and enable
Kennametal to ensure compliance with all of the terms and
conditions of this Agreement. Kennametal or the relevant
Affiliate shall guarantee the full performance and compliance of
any such sublicensee with all of the terms and conditions of this
Agreement.
2.5 USE.
(a) JLK undertakes and agrees to use the Kennametal Trademarks only
in the manner currently used or otherwise approved by Kennametal
and only in connection with the marketing, promotion, sale and
provision of Kennametal Products, in strict compliance with
Section 2.1. The quality of all Kennametal Products offered or
sold by JLK and its Affiliates under the Kennametal Trademarks
shall be no less than the quality of Kennametal Products sold by
Kennametal and shall otherwise conform to the standards set by
Kennametal. Kennametal shall have the right at all reasonable
times and upon reasonable written notice provided to JLK by
Kennametal to inspect the Kennametal Products which bear, embody
and utilize the Kennametal Trademarks and to monitor such
Kennametal Products to determine whether they are of acceptable
quality. Failure by JLK to maintain acceptable quality shall be
deemed a material breach of this Agreement and shall afford
Kennametal the right to utilize any remedies provided herein. JLK
shall not use the Kennametal Trademarks in a manner that is
likely to cause confusion, mistake or deception as to the source,
origin, association, affiliation, sponsorship or endorsement
between Kennametal and JLK as separate companies, or their
respective products or services.
(b) Kennametal undertakes and agrees to use the JLK Trademarks only
in the manner currently used or otherwise approved by JLK and
only in connection with the marketing, promotion, sale and
provision of JLK Products, in strict compliance with Section 2.2.
The quality of all JLK
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<PAGE> 4
Products offered or sold by Kennametal under the JLK Trademarks
shall be no less than the quality of JLK Products sold by JLK and
shall otherwise conform to the standards set by JLK. JLK shall
have the right at all reasonable times and upon reasonable
written notice provided to Kennametal by JLK to inspect the JLK
Products which bear, embody and utilize the JLK Trademarks and to
monitor such JLK Products to determine whether they are of
acceptable quality. Failure by Kennametal to maintain acceptable
quality shall be deemed a material breach of this Agreement and
shall afford JLK the right to utilize any remedies provided
herein. Kennametal shall not use the JLK Trademarks in a manner
that is likely to cause confusion, mistake or deception as to the
source, origin, association, affiliation, sponsorship or
endorsement between JLK and Kennametal as separate companies, or
their respective products or services.
2.6 INDEMNIFICATION BY LICENSEES. Each Licensee shall hold harmless
and indemnify each Licensor and its Affiliates and their respective officers,
directors, employees, agents, representatives and attorneys-in-fact from and
against any claims or liabilities which may arise in connection with the
unauthorized use of the Licensor's Trademarks by such Licensee or its
Affiliates.
2.7 INDEMNIFICATION BY LICENSORS. Each Licensor shall hold harmless
and indemnify each Licensee and its Affiliates and their respective officers,
directors, employees, agents, representatives and attorneys-in-fact from and
against any claims or liabilities which may arise in connection with the
authorized use of the Licensee's Trademarks by such Licensor or its Affiliates.
ARTICLE 3
PROTECTION OF TRADEMARKS
3.1 NO REGISTRATION. Each Licensee acknowledges and agrees that
ownership of the Licensor's Trademarks is retained by the Licensor and such
Licensee will not make any filings to register any of the Licensor's Trademarks
in any jurisdiction. Any and all such registrations shall be made by the
Licensor in its sole discretion. Each Licensee agrees not to contest the
respective Licensor's ownership of any trademark or registration therefor.
3.2 MAINTENANCE. Each Licensor shall use its best efforts to maintain
the validity of its trademarks and any registrations therefor.
3.3 COMPLIANCE WITH LAW. Each Licensee shall comply with all laws and
governmental regulations pertaining to the proper use and designation of the
Licensor's Trademarks in the various countries where the Licensor's Trademarks
are used, including, without limitation, the execution of any registered users
agreements, if necessary, and the use of all appropriate notices and legends.
3.4 VALIDITY. Each Licensee agrees not to contest the validity of the
Licensor's Trademarks and agrees that any and all rights and goodwill that
might be acquired by the use of the Licensor's Trademarks by such Licensee
shall inure to the sole benefit of the Licensor. Each Licensee agrees to fully
cooperate as requested with the Licensor in registering and maintaining the
Licensor's Trademarks and recording this Agreement, all at the Licensor's
expense.
3.5 NO SIMILAR REGISTRATIONS. Each Licensee agrees not to use or
register in any country any trademarks identical to, resembling, or confusingly
similar to the Licensor's Trademarks during the term of this Agreement and
thereafter. Whenever the attention of a Licensee is called by a Licensor to any
such uses or
- 4 -
<PAGE> 5
registrations, such Licensee agrees to take appropriate steps immediately to
resolve any issues of confusion by avoiding the use of such trademarks or other
suitable remedy approved by the respective Licensor.
3.6 INFRINGEMENT. Each Licensee shall give the Licensor notice of any
known or presumed infringements of the Licensor's Trademarks, and such Licensee
shall give the Licensor full cooperation in the protection of the Licensor's
Trademarks. Such Licensor shall have the right to determine the appropriate
course of action to be taken to enforce the Licensor's Trademarks or otherwise
abate the infringement, to take or refrain from taking any appropriate action
to enforce the Licensor's Trademarks, to control any litigation or other
enforcement action and to enter into or permit the settlement of any such
litigation or other enforcement action with respect to the Licensor's
Trademarks. If the Licensor decides to enforce the Licensor's Trademarks
against an infringer, all costs incurred and all recoveries made shall be for
the account of the Licensor, unless otherwise agreed to in a separate writing
between the parties. The Licensor shall have the right to name the Licensee as
a party in any litigation involving any such enforcement of rights, provided
the Licensor agrees to indemnify the Licensee for any damages awarded to any
third party as a result of the enforcement of such rights.
ARTICLE 4
TERM AND TERMINATION
4.1 TERM. The term of this Agreement shall commence on the Effective
Date and shall continue for ten (10) years thereafter, unless terminated
earlier pursuant to Section 4.2 or extended by the mutual agreement of the
parties.
4.2 TERMINATION. (i) Either party shall have the right to terminate
this Agreement upon the occurrence of any of the following events:
(a) A material breach of this Agreement by either party or any of
their Affiliates that is not cured within thirty (30) days after
receipt of written notice of such breach from the other party;
(b) A material breach of any of the Intercompany Agreements which is
not cured within thirty (30) days after receipt of written notice
from the other party; or
(ii) Kennametal shall have the right to terminate this Agreement if
Kennametal or its affiliates own shares representing less than a majority of
the voting power of the outstanding common stock of JLK.
4.3 RIGHTS ON TERMINATION. Upon the termination of this Agreement,
neither Licensee shall have any further right or license to use the Licensor's
Trademarks and each Licensee shall promptly, within 10 days, discontinue all
further use of the Licensor's Trademarks in the marketing, promotion, sale or
provision of Kennametal Products or JLK Products. Termination of this Agreement
for any reason shall not terminate the obligations described in Sections 2.6
which shall survive any such termination.
ARTICLE 5
RESOLUTION OF DISPUTES
5.1 ARBITRATION. Any dispute, controversy or claim between Kennametal
and JLK arising out of or relating to this Agreement, the Kennametal
Trademarks, the JLK Trademarks, the licenses or any agreements or instruments
relating hereto or delivered in connection herewith, will be resolved by
arbitration conducted in Pittsburgh, Pennsylvania under the auspices and
according to the Commercial Arbitration Rules of the American
- 5 -
<PAGE> 6
Arbitration Association. The arbitration shall be conducted in accordance with
the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement.
ARTICLE 6
MISCELLANEOUS PROVISIONS
6.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Pennsylvania without regard to principles of
conflicts of laws of any jurisdiction.
6.2 NOTICES. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
IF TO KENNAMETAL: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
IF TO JLK: JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
6.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument.
6.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, superseding all prior oral
and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
6.5 CAPTIONS. The captions used herein are for illustrative purposes
only and shall not be deemed a part of this Agreement.
6.6 SEVERABILITY. If for any reason any clause of this Agreement is
found to be invalid, such findings shall not invalidate any other provision of
this Agreement.
6.7 AMENDMENTS. This Agreement may be changed, amended, modified, or
rescinded only by an instrument in writing signed by the party against which
enforcement of such change, amendment, modification or rescission is sought.
6.8 WAIVERS. No waiver by any party of any condition, or breach of
any provision of this Agreement, in any one or more instances, shall be deemed
to be or construed as a waiver of any other condition or of the breach of any
other provision of this Agreement.
- 6 -
<PAGE> 7
6.9 RELATIONSHIP. Nothing in this Agreement shall be deemed to create
a partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
6.10 ASSIGNS. This Agreement shall bind and inure to the benefit of
the parties and their respective successors and assigns, except that no
obligation under this Agreement may be delegated, nor may this Agreement be
assigned by either party, without the prior written consent of the other party,
except as provided in Section 2.4. Any such purported assignment of this
Agreement by either party without the prior written consent of the other party
shall be void and without effect.
6.11 THIRD PARTY BENEFICIARIES. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than
the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By ____________________________________ By ________________________________
Name __________________________________ Name ______________________________
Title _________________________________ Title _____________________________
<PAGE> 1
Exhibit 10(i)
WAREHOUSING AGREEMENT
THIS WAREHOUSING AGREEMENT ("Agreement") is entered into as of
___________ ____, 1997, by and between Kennametal Inc., a Pennsylvania
corporation ("Kennametal"), and J&L America, Inc., a Michigan corporation
("J&L") and a wholly-owned subsidiary of JLK Direct Distribution Inc., a
Pennsylvania corporation ("JLK") .
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "JLK
Offering") of shares of Class A Common Stock, par value $.01
per share, of JLK.
C. Upon completion of the JLK Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. In connection with the consummation of the JLK Offering, J&L
desires to appoint Kennametal, and Kennametal desires to
become a warehousing agent for J&L, at the Locations (as
defined herein).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of their
mutual promises and obligations herein contained and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and the Recitals, the following terms shall have the
following meanings, applicable to both the singular and plural forms of the
terms described:
"BASE SERVICES" means the receiving, putting away, storing, picking,
packing and shipping of the Products (as defined herein), the record
keeping and cycle counts, the facilities and the costs associated with
the operation and maintenance thereof, and such other expediting
efforts as may be requested or required to effect the transactions
contemplated herein.
"EFFECTIVE DATE" means the date of this Agreement.
"INTERCOMPANY AGREEMENTS" means collectively, (i) those certain
agreements by and between Kennametal and JLK with respect to
administrative services, product supply, tax-sharing, indemnification,
intercompany debt/investment, non-competition and corporate
opportunities, cash management and corporate matters; and (ii) those
certain agreements by and between Kennametal and J&L with respect to
leasing, shared facilities and warehousing.
<PAGE> 2
"LOCATIONS" means the warehouses, distribution centers and/or
showrooms owned or controlled by Warehouser, listed and identified on
Attachment A hereto, as modified in writing from time to time by the
parties hereto.
"PRODUCTS" means those products delivered by Warehousee to Warehouser
for warehousing at the Locations, including, but not limited to,
cutting tools, carbide and other tool inserts, abrasives, drills,
machine tool accessories, hand tools, and other metalworking supplies.
"WAREHOUSEE" means J&L.
"WAREHOUSER" means Kennametal and its direct and indirect subsidiaries
(other than JLK and its subsidiaries, including Warehousee).
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to this Agreement.
ARTICLE 2
TERM
2.1 TERM. The term of this Agreement shall commence on the Effective
Date and shall continue for ten (10) years, unless terminated earlier pursuant
to Section 2.2, below, or extended by the mutual agreement of the parties.
2.2 TERMINATION. (i) Either party shall have the right to terminate
this Agreement upon the occurrence of any of the following events:
(a) A material breach of this Agreement by either party that is
not cured within thirty (30) days after receipt of written
notice of such breach from the other party; or
(b) A material breach of any of the Intercompany Agreements
which is not cured within thirty (30) days after receipt of
written notice of such breach from the other party; or
(ii) Warehouser shall have the right to terminate this Agreement upon
(i) Warehouser or its affiliates owning shares representing less than a
majority of the voting power of the outstanding common stock of JLK; or (ii)
JLK owning shares representing less than a majority of the voting power of the
outstanding common stock of J&L.
ARTICLE 3
APPOINTMENT
3.1 Warehousee hereby appoints Warehouser and Warehouser or its
affiliates accepts such appointment, as warehousing agent for the Locations and
the Products. Warehouser also agrees to perform the Base Services for and on
behalf of Warehousee pursuant to the terms and conditions set forth herein.
3.2 Warehousee shall from time to time deliver to Warehouser such
quantities of the Products as Warehousee shall determine, for storage in the
Warehouser warehouses at the Locations.
- 2 -
<PAGE> 3
3.3 Warehouser shall accept, sign for, and be responsible for the
Products upon delivery to Warehouser by the carrier. Warehouser shall notify
Warehousee that the Products have been received by Warehouser at the Locations.
If requested to do so by Warehousee, Warehouser shall verify the quantity and
types of Products received against the carrier's bill of lading. Warehouser
shall notify Warehousee, after receipt of Products, of any discrepancies
between the quantity received and the carrier's bill of lading. Warehousee
shall be responsible for and file all claims for shortages with the carrier.
ARTICLE 4
SEGREGATION
Warehouser shall store the Products in its warehouses at the Locations
in such a manner as to keep the Products segregated, separate and distinct from
other materials or products stored in the warehouses, including other products
and materials sold by Warehouser. Warehouser shall, through the posting of
signs or otherwise, clearly identify the Products as being the property of
Warehousee.
ARTICLE 5
TITLE
Title to the Products delivered to Warehouser shall remain in
Warehousee until Warehousee transfers the title to said Products to its
customers.
ARTICLE 6
INDEMNIFICATION
6.1 WAREHOUSER. To the fullest extent permitted by law, Warehouser
shall indemnify, defend, and hold harmless Warehousee and Warehousee'
directors, officers, agents, and employees from and against all claims, losses,
liabilities, judgments, damages, and expenses (including reasonable attorney's
fees and court costs) for personal injury to or death of persons (including but
not limited to Warehousee' employees and customers), and damage to Warehousee'
property or facilities or the property of any other person or entity in any
manner arising out of or caused by either the gross negligence or intentional
misconduct of Warehouser or its employees or agents in connection with any of
the Products. If requested by Warehousee, Warehouser shall, at its sole cost
and expense, undertake the defense of Warehousee and its directors, officers,
and employees in connection with any claim or action for which they are
entitled to indemnity under this paragraph.
6.2 WAREHOUSEE. To the fullest extent permitted by law, Warehousee
shall indemnify, defend, and hold harmless Warehouser and Warehouser's
directors, officers, agents, and employees from and against all claims, losses,
liabilities, judgments, damages, and expenses (including reasonable attorney's
fees and court costs) for personal injury to or death of persons (including but
not limited to Warehouser's employees), and damage to Warehouser's property or
facilities or the property of any other person or entity in any manner arising
out of or caused by either the gross negligence or intentional misconduct of
Warehousee or its employees or agents in connection with any of the Products.
If requested by Warehouser, Warehousee shall, at its sole cost and expense,
undertake the defense of Warehouser and its directors, officers, and employees
in connection with any claim or action for which they are entitled to indemnity
under this paragraph.
- 3 -
<PAGE> 4
ARTICLE 7
LIENS
Warehouser shall keep the Products free of liens, mortgages, and
encumbrances of any kind while the Products are in Warehouser's possession.
ARTICLE 8
COSTS
Warehouser shall assume and pay all costs and expenses incurred in the
performance of this Agreement, including but not limited to the costs of
warehousing the Products, plus other costs which are the specific obligation of
Warehouser pursuant to this Agreement.
ARTICLE 9
SHIPMENT
When Warehousee directs, Warehouser shall pick, pack and ship such
quantities of the Products of Warehousee as Warehousee shall direct. Unless
otherwise directed by Warehousee, shipment of the Products shall be by carriers
selected by Warehouser. Warehousee shall bear all expenses of shipping the
Products to the Locations and from the Locations. Warehouser shall forward to
Warehousee reports indicating the quantity of each of the Products shipped from
the Locations daily.
ARTICLE 10
COMPENSATION
As compensation for the performance of the Base Services, Warehousee
shall pay to Warehouser a charge based upon an allocation of costs (including
overhead) to be agreed to by the parties after taking into account the
Location, for each of the Products for which the Base Services were performed.
Warehouser shall provide Warehousee with a monthly invoice indicating the total
of all charges and shipping expenses incurred by Warehouser on behalf of
Warehousee. The invoice will be payable by check, wire transfer, intercompany
netting or by such other method(s) agreed to by the parties, within fifteen
(15) working days after the receipt thereof by Warehousee.
ARTICLE 11
RETURNS
The return of Products accepted by Warehouser shall be in accordance
with the guidelines, policies and procedures of Warehousee, all of which shall
have been given to or otherwise communicated to Warehouser.
ARTICLE 12
CYCLE COUNTS AND RECORDS
12.1 Warehouser shall perform cycle counts in accordance with the
policies, procedures and guidelines of Warehousee. Warehouser shall keep
written records of: (a) the results of said cycle counts; (b) the amount of
Products received by it at the Locations; (c) the amount of Products on hand at
the Locations, from time to time; and (d) the amount of Products shipped from
the Locations. Warehouser shall maintain records in
- 4 -
<PAGE> 5
sufficient detail to record the type and quantity of Products, the date of
receipt and shipment and the carrier, including but not limited to all
receipts, bills of lading or other shipping documents issued to it by carriers
and all written directions for shipment.
12.1 Warehousee shall, upon reasonable notice to Warehouser, have the
right during Warehouser's usual business hours to audit, examine and make
copies of all of Warehouser's records as the same relate to the warehousing of
the Products and the providing of the Base Services. Warehouser shall provide
to Warehousee monthly a written summary of the Products received, on hand and
shipped by Warehouser during the previous month.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Pennsylvania without regard to principles of
conflicts of laws of any jurisdiction.
13.2 NOTICES. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
IF TO WAREHOUSER: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn: ______________________
Fax No.: ___________________
- 5 -
<PAGE> 6
IF TO WAREHOUSEE: J&L America, Inc.
Livonia Executive Park
31800 Industrial Road
Livonia, Michigan 48150
13.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together
shall constitute one and the same instrument.
13.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, superseding all prior oral
and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
13.5 AMENDMENTS. This Agreement (or the Attachments) may be changed,
amended, modified, or rescinded only by an instrument in writing signed by the
party against which enforcement of such change, amendment, modification or
rescission is sought.
13.6 WAIVERS. No waiver by any party of any condition, or breach of
any provision of this Agreement, in any one or more instances, shall be deemed
to be or construed as a waiver of any other condition or of the breach of any
other provision of this Agreement.
13.7 RELATIONSHIP. Nothing in this Agreement shall be deemed to create
a partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
13.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the parties and their respective successors and assigns, except
that no obligation under this Agreement may be delegated, nor may this
Agreement be assigned by either party, without the prior written consent of the
other party. Any such purported assignment of this Agreement by either party
without the prior written consent of the other party shall be void and without
effect.
13.9 THIRD PARTY BENEFICIARIES. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than
the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
KENNAMETAL INC. J&L AMERICA, INC.
By __________________________________ By _______________________________
Name ________________________________ Name _____________________________
Title _______________________________ Title ____________________________
<PAGE> 7
ATTACHMENT A
(THE LOCATIONS)
<PAGE> 8
WAREHOUSING AGREEMENT
THIS WAREHOUSING AGREEMENT ("Agreement") is entered into as of
_____________ ____, 1997, by and between J&L America, Inc., a Michigan
corporation ("J&L"), and a wholly owned subsidiary of JLK Direct Distribution
Inc., a Pennsylvania corporation ("JLK"), and Kennametal Inc., a Pennsylvania
corporation ("Kennametal").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "JLK
Offering") of shares of Class A Common Stock, par value $.01
per share, of JLK.
C. Upon completion of the JLK Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. In connection with the consummation of the JLK Offering,
Kennametal desires to appoint J&L, and J&L desires to become
a warehousing agent for Kennametal, at the Locations (as
defined herein).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of their
mutual promises and obligations herein contained and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and the Recitals, the following terms shall have the
following meanings, applicable to both the singular and plural forms of the
terms described:
"BASE SERVICES" means the receiving, putting away, storing, picking,
packing and shipping of the Products (as defined herein), the record keeping
and cycle counts, the facilities and the costs associated with the operation
and maintenance thereof, and such other expediting efforts as may be requested
or required to effect the transactions contemplated herein.
"EFFECTIVE DATE" means the date of this Agreement.
"INTERCOMPANY AGREEMENTS" means collectively, (i) those certain
agreements by and between Kennametal and JLK with respect to administrative
services, product supply, tax-sharing, indemnification, intercompany
debt/investment, non-competition and corporate opportunities, cash management
and corporate matters; and (ii) those certain agreements by and between
Kennametal and J&L with respect to leasing, shared facilities and warehousing.
<PAGE> 9
"LOCATIONS" means the warehouses, distribution centers and/or
showrooms owned or controlled by Warehouser, listed and identified on
Attachment A hereto, as modified in writing from time to time by the parties
hereto.
"PRODUCTS" means those products delivered by Warehousee to Warehouser
for warehousing at the Locations, including, but not limited to, cutting tools,
carbide and other tool inserts, abrasives, drills, machine tool accessories,
hand tools, and other metalworking supplies.
"WAREHOUSEE" means Kennametal and its direct and indirect subsidiaries
(excluding JLK and its subsidiaries).
"WAREHOUSER" means J&L.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to this Agreement.
ARTICLE 2
TERM
2.1 TERM. The term of this Agreement shall commence on the Effective
Date and shall continue for ten (10) years, unless terminated earlier pursuant
to Section 2.2, below, or extended by the mutual agreement of the parties.
2.2 TERMINATION. (i) Either party shall have the right to terminate
this Agreement upon the occurrence of any of the following events:
(a) A material breach of this Agreement by either party that is
not cured within thirty (30) days after receipt of written
notice of such breach from the other party; or
(b) A material breach of any of the Intercompany Agreements
which is not cured within thirty (30) days after receipt of
written notice of such breach from the other party; or
(ii) Warehousee shall have the right to terminate this Agreement upon
(i) Warehousee or its affiliates owning shares representing less than a
majority of the voting power of the outstanding common stock of JLK; or (ii)
JLK owning shares representing less than a majority of the voting power of the
outstanding common stock of J&L.
ARTICLE 3
APPOINTMENT
3.1 Warehousee hereby appoints Warehouser and Warehouser accepts such
appointment, as warehousing agent for the Locations and the Products.
Warehouser also agrees to perform the Base Services for and on behalf of
Warehousee pursuant to the terms and conditions set forth herein.
3.2 Warehousee shall from time to time deliver to Warehouser such
quantities of the Products as Warehousee shall determine, for storage in the
Warehouser warehouses at the Locations.
- 2 -
<PAGE> 10
3.3 Warehouser shall accept, sign for, and be responsible for the
Products upon delivery to Warehouser by the carrier. Warehouser shall notify
Warehousee that the Products have been received by Warehouser at the Locations.
If requested to do so by Warehousee, Warehouser shall verify the quantity and
types of Products received against the carrier's bill of lading. Warehouser
shall notify Warehousee, after receipt of Products, of any discrepancies
between the quantity received and the carrier's bill of lading. Warehousee
shall be responsible for and file all claims for shortages with the carrier.
ARTICLE 4
SEGREGATION
Warehouser shall store the Products in its warehouses at the Locations
in such a manner as to keep the Products segregated, separate and distinct from
other materials or products stored in the warehouses, including other products
and materials sold by Warehouser. Warehouser shall, through the posting of
signs or otherwise, clearly identify the Products as being the property of
Warehousee.
ARTICLE 5
TITLE
Title to the Products delivered to Warehouser shall remain in
Warehousee until Warehousee transfers the title to said Products to its
customers.
ARTICLE 6
INDEMNIFICATION
6.1 WAREHOUSER. To the fullest extent permitted by law, Warehouser
shall indemnify, defend, and hold harmless Warehousee and Warehousee'
directors, officers, agents, and employees from and against all claims, losses,
liabilities, judgments, damages, and expenses (including reasonable attorney's
fees and court costs) for personal injury to or death of persons (including but
not limited to Warehousee' employees and customers), and damage to Warehousee'
property or facilities or the property of any other person or entity in any
manner arising out of or caused by either the gross negligence or intentional
misconduct of Warehouser or its employees or agents in connection with any of
the Products. If requested by Warehousee, Warehouser shall, at its sole cost
and expense, undertake the defense of Warehousee and its directors, officers,
and employees in connection with any claim or action for which they are
entitled to indemnity under this paragraph.
6.2 WAREHOUSEE. To the fullest extent permitted by law, Warehousee
shall indemnify, defend, and hold harmless Warehouser and Warehouser's
directors, officers, agents, and employees from and against all claims, losses,
liabilities, judgments, damages, and expenses (including reasonable attorney's
fees and court costs) for personal injury to or death of persons (including but
not limited to Warehouser's employees), and damage to Warehouser's property or
facilities or the property of any other person or entity in any manner arising
out of or caused by either the gross negligence or intentional misconduct of
Warehousee or its employees or agents in connection with any of the Products.
If requested by Warehouser, Warehousee shall, at its sole cost and expense,
undertake the defense of Warehouser and its directors, officers, and employees
in connection with any claim or action for which they are entitled to indemnity
under this paragraph.
- 3 -
<PAGE> 11
ARTICLE 7
LIENS
Warehouser shall keep the Products free of liens, mortgages, and
encumbrances of any kind while the Products are in Warehouser's possession.
ARTICLE 8
COSTS
Warehouser shall assume and pay all costs and expenses incurred in the
performance of this Agreement, including but not limited to the costs of
warehousing the Products, plus other costs which are the specific obligation of
Warehouser pursuant to this Agreement.
ARTICLE 9
SHIPMENT
When Warehousee directs, Warehouser shall pick, pack and ship such
quantities of the Products of Warehousee as Warehousee shall direct. Unless
otherwise directed by Warehousee, shipment of the Products shall be by carriers
selected by Warehouser. Warehousee shall bear all expenses of shipping the
Products to the Locations and from the Locations. Warehouser shall forward to
Warehousee reports indicating the quantity of each of the Products shipped from
the Locations daily.
ARTICLE 10
COMPENSATION
As compensation for the performance of the Base Services, Warehousee
shall pay to Warehouser a charge based upon an allocation of costs (including
overhead) to be agreed to by the parties after taking into account the
Location, for each of the Products for which the Base Services were performed.
Warehouser shall provide Warehousee with a monthly invoice indicating the total
of all charges and shipping expenses incurred by Warehouser on behalf of
Warehousee. The invoice will be payable by check, wire transfer, intercompany
netting or by such other method(s) agreed to by the parties, within fifteen
(15) working days after the receipt thereof by Warehousee.
ARTICLE 11
RETURNS
The return of Products accepted by Warehouser shall be in accordance
with the guidelines, policies and procedures of Warehousee, all of which shall
have been given to or otherwise communicated to Warehouser.
ARTICLE 12
CYCLE COUNTS AND RECORDS
12.1 Warehouser shall perform cycle counts in accordance with the
policies, procedures and guidelines of Warehousee. Warehouser shall keep
written records of: (a) the results of said cycle counts; (b) the amount of
Products received by it at the Locations; (c) the amount of Products on hand at
the Locations, from time to time; and (d) the amount of Products shipped from
the Locations. Warehouser shall maintain records in
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<PAGE> 12
sufficient detail to record the type and quantity of Products, the date of
receipt and shipment and the carrier, including but not limited to all
receipts, bills of lading or other shipping documents issued to it by carriers
and all written directions for shipment.
12.2 Warehousee shall, upon reasonable notice to Warehouser, have the
right during Warehouser's usual business hours to audit, examine and make
copies of all of Warehouser's records as the same relate to the warehousing of
the Products and the providing of the Base Services. Warehouser shall provide
to Warehousee monthly a written summary of the Products received, on hand and
shipped by Warehouser during the previous month.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Pennsylvania without regard to principles of
conflicts of laws of any jurisdiction.
13.2 NOTICES. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
IF TO WAREHOUSER: J&L America, Inc.
Livonia Executive Park
31800 Industrial Road
Livonia, MI 48150
IF TO WAREHOUSEE: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
13.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument.
13.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, superseding all prior oral
and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
13.5 AMENDMENTS. This Agreement (or the Attachments) may be changed,
amended, modified, or rescinded only by an instrument in writing signed by the
party against which enforcement of such change, amendment, modification or
rescission is sought.
13.6 WAIVERS. No waiver by any party of any condition, or breach of
any provision of this Agreement, in any one or more instances, shall be deemed
to be or construed as a waiver of any other condition or of the breach of any
other provision of this Agreement.
13.7 RELATIONSHIP. Nothing in this Agreement shall be deemed to create
a partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
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<PAGE> 13
13.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the parties and their respective successors and assigns, except
that no obligation under this Agreement may be delegated, nor may this
Agreement be assigned by either party, without the prior written consent of the
other party. Any such purported assignment of this Agreement by either party
without the prior written consent of the other party shall be void and without
effect.
13.9 THIRD PARTY BENEFICIARIES. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than
the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
KENNAMETAL INC. J&L AMERICA, INC.
By ___________________________________ By __________________________________
Name _________________________________ Name ________________________________
Title ________________________________ Title _______________________________
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<PAGE> 14
ATTACHMENT A
(THE LOCATIONS)
<PAGE> 1
Exhibit 10(j)
LEASE
THIS LEASE ("Lease") is made this ___ day of ________________, 1997,
by and between Kennametal Inc., a Pennsylvania corporation, having its
principal office at State Route 981 South, P. O. Box 231, Latrobe, Pennsylvania
15650-0231 ("Landlord"), and J&L America, Inc., a Michigan corporation and a
wholly-owned subsidiary of JLK Direct Distribution Inc., a Pennsylvania
corporation ("JLK"), having its principal office at Livonia Executive Park,
31800 Industrial Road, Livonia, Michigan 48150 ("Tenant").
In consideration of the mutual covenants hereinafter set forth, and
intending to be legally bound hereby, Landlord and Tenant agree as follows:
1. Leased Premises. Landlord hereby leases to Tenant, and Tenant
accepts and leases from Landlord, those premises ("Leased Premises," singularly
or collectively as the context require) consisting of space within the
buildings (hereinafter "Building" or "Buildings" as the context may require) at
the locations described on Exhibit A attached hereto and made a part hereof.
2. Term of the Lease.
(a) This Lease will have a term (the "Initial Term") of ten (10)
years commencing on the date hereof ("Lease Commencement Date").
(b) Tenant shall have the right to extend this Lease for
successive one-year terms (the "Extension Term") upon written notice to
Landlord no less than ninety (90) days' prior to the expiration of the Initial
Term or the applicable Extension Term (the "Term" shall refer to the Initial
Term or the Extension Term as applicable).
(c) Tenant shall have no right to continue to occupy the Leased
Premises after the expiration of the Term unless this Lease is renewed or
extended as provided, or otherwise by agreement of the parties, and Tenant
shall vacate the Leased Premises on or before the last day of the Term. If
Tenant remains in possession of the Leased Premises with the consent of
Landlord following the expiration of the Term, then unless the parties agree
otherwise in writing, this Lease shall continue as a lease from month to month.
(d) In addition to any other rights, this Lease shall be
terminated upon the expiration of the Term or may be terminated as follows: (i)
by either party upon material breach of a representation, agreement or other
obligation under this Lease (a "Material Breach"), provided the non-breaching
party provides the breaching party with written notice of such Material Breach
and the breaching party fails to cure within 30 days of receipt of such notice;
or (ii) by Kennametal in the event that JLK owns shares representing less than
a majority of the voting power of the outstanding common stock of Tenant; or
(iii) by Kennametal upon a Change in Control (as defined below) with respect to
JLK. A "Change in Control" shall be deemed to have occurred if: (1) Landlord or
its affiliates (excluding JLK and its subsidiaries) shall own shares
representing less than a majority of the voting power of the outstanding common
stock of JLK; (2) a majority of the seats (other than vacant seats) on JLK's
Board of Directors shall at any time be occupied by persons who were neither
(A) nominated by Landlord or by JLK's Board of Directors, nor (B) appointed by
directors of JLK so nominated; or (C) any person or group other than Landlord
or its affiliates (excluding JLK and its subsidiaries) shall otherwise directly
or indirectly have the power to exercise a controlling influence over JLK.
<PAGE> 2
3. Rent.
(a) On or before the first (1st) day of each calendar month
during the Term, commencing ____________, Tenant will pay to Landlord, without
demand, deduction or setoff, rent ("Rent") for each respective Leased Premises
in the amount set forth on Exhibit A with respect to such Leased Premises. All
Rent will be paid in accordance with subparagraph 23(d) of this Lease.
(b) If Tenant does not pay all Rent due for each respective
Leased Premises on or before the thirtieth (30th) day of the calendar month,
Tenant shall pay, together with Rent then due, a late charge to Landlord in the
amount of four percent (4%) of such delinquent rental payment. This sum shall
be payable as Additional Rent (as defined in Paragraph 4) for purposes of this
Lease.
4. Additional Rent.
(a) For purposes of this Lease, any sums identified as
"Additional Rent" pursuant to other provisions of this Lease, together with all
of the following, shall constitute "Additional Rent" and shall be paid when
due:
(i) Tenant's pro-rata share of the real estate taxes and
assessments imposed on the Buildings and the underlying land
with respect to each Leased Premises. For purposes of this
subsection, real estate taxes and assessments shall mean
those taxes and assessments, both general and special,
levied during the calendar year (regardless of whether the
taxing body operates on a calendar or fiscal year basis).
(ii) Tenant's pro-rata share of all Operating Expenses (as
defined below). "Operating Expenses" means all expenses,
costs and disbursements of every kind which Landlord incurs,
pays or becomes obligated to pay in connection with the
ownership, operation, repair and maintenance of the
Buildings, as they may be now or hereafter be constituted.
All Operating Expenses shall be determined in accordance
with generally accepted accounting principles (consistently
applied) and shall include, without limitation:
(A) Wages, salaries, and fees of all personnel or entities
(exclusive of Landlord's executive personnel) engaged in the
operation, repair, maintenance, or security of the
Buildings, including taxes, insurance, and benefits relating
thereto;
(B) All supplies and materials used in the operation,
repair, security, and maintenance of the Buildings;
(C) Cost of all maintenance and service agreements for the
Buildings and the equipment therein, including, without
limitation, alarm service, water treatment services,
janitorial services, security systems service, window
cleaning, service on electrical and mechanical components,
trash removal, elevator maintenance, extermination service,
plumbing service, grounds keeping, and landscaping;
(D) Cost of all insurance relating to the Buildings and,
subject to Paragraph 8, to the Leased Premises, which
Landlord considers reasonably
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<PAGE> 3
necessary for the operation of the Buildings, including
without limitation, the cost of property, casualty and
liability insurance applicable to the Buildings including
the Leased Premises, and Landlord's and Tenant's personal
property used in connection therewith, and the cost of
business interruption or rental insurance in such amounts as
will reimburse Landlord for all losses of earnings and other
income attributable to such perils as are commonly insured
against by prudent landlords or required by Landlord's
mortgagee, if any.
(E) Cost of repairs and maintenance (excluding repairs and
maintenance paid by proceeds of insurance or by Tenant or
other third parties, and alterations attributable solely to
Tenant);
(F) All utility costs of the Buildings, including, without
limitation, water, power, fuel, heating, lighting, air
conditioning, and ventilating;
(G) Amortization of the cost of installation of capital
investment items which are installed primarily to reduce
operating costs for the general benefit of the Buildings,
tenants or to enhance the Buildings or which may be required
by any governmental authority. All costs, shall be amortized
over the reasonable life of the capital investment items,
with the reasonable life and amortization schedule being
determined by Landlord according to generally accepted
accounting principles, but in no event to extend beyond the
reasonable life of the affected Buildings;
(H) Landlord's central accounting costs, the cost of an
annual audit and landlord's legal fees relating to the
operation of the Buildings;
(I) A management fee to the managers of the Buildings, if
any.
(iii) Tenant's pro-rata share of the Operating Expenses shall be
determined by dividing the total gross floor area contained
within the Leased Premises by the total gross floor area
contained within the Buildings and multiplying it by the
Operating Expenses.
(b) Payment of Additional Rent will be made in accordance with
subparagraph 22(d) of this Lease by Tenant within thirty (30) days after
written demand from Landlord, unless otherwise specified in this Lease. The
obligations of Tenant under this subparagraph will be prorated further if this
Lease is in effect for a portion of a calendar year, and these obligations will
survive termination of this Lease.
5. Use of the Leased Premises.
(a) Tenant shall use and occupy each Leased Premises for the
display and retail sale of metalworking consumables and related products, and
ancillary office and storage use. Tenant shall not use or occupy the Leased
Premises for any other purpose or business without the prior consent of
Landlord. In its use and occupancy of each Leased Premises, Tenant shall, at
Tenant's expense, comply with all laws, rules, regulations, requirements and
ordinances existing or hereinafter enacted or imposed by any governmental
authority having jurisdiction over the activities of Tenant at each Leased
Premises, including without limitation those related to health, safety, fire,
employee protection and environmental matters.
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<PAGE> 4
(b) Tenant may install such trade fixtures and equipment at any
Leased Premises as Tenant determines necessary, provided that if any such
equipment or trade fixtures necessitates modifications to the structural, HVAC,
plumbing or electrical systems of the Building in which such Leased Premises
are located, Tenant will obtain the prior written approval of Landlord and will
further pay for the cost of such work. Tenant may also, during the term of this
Lease, make further alterations, at its cost, to any Leased Premises to
accommodate its needs. Any such alterations shall be subject to the prior
written approval of Landlord. Tenant will submit plans and specifications to
Landlord at least thirty (30) days prior to the commencement of work, and all
work will be completed in a timely and diligent manner in accordance with plans
and specifications previously approved by Landlord, and in conformity to all
applicable building, health, fire, electrical, plumbing, safety, energy
conservation and related codes.
(c) At the end of the Term, Tenant will remove its equipment,
furnishings and trade fixtures located at the Leased Premises. Tenant shall
also remove any alterations made by Tenant to the Leased Premises (unless
otherwise approved by Landlord), provided that in all cases Tenant shall
restore the Leased Premises to a condition comparable to that existing as of
the date of commencement of the Term.
(d) Tenant will not commit waste on the Leased Premises, nor
will Tenant make unreasonable use of any utility services furnished by
Landlord, nor will Tenant conduct any activities or operations on the Leased
Premises that will constitute a nuisance, generate excessive dust, smoke or
offensive odors, or cause unreasonable noise, or disrupt the operations of
Landlord or any other tenant of the Buildings, or which could result in
cancellation or increase in the premium of Landlord's fire, casualty or
liability insurance.
6. Services, Maintenance and Repair.
(a) Landlord will furnish electric, gas, water and sewage
service to the Leased Premises; at the discretion of either Landlord or Tenant,
but at the cost of Tenant, separate meters may be installed, and Tenant will
pay for the actual cost and expense of any separately metered utilities for the
Leased Premises, which will constitute Additional Rent for purposes of this
Lease. Tenant will assume responsibility for rubbish removal and cleaning of
the Leased Premises. The obligations of Landlord under this subsection will be
limited to furnishing heat sufficient to maintain office temperatures of not
less than 70 degrees Fahrenheit during winter months, and not more that 78
degrees Fahrenheit during summer months, and storage area temperatures during
winter months of not less than 60 degrees Fahrenheit.
(b) Tenant shall perform at its sole cost and expense all
maintenance and repair required to keep the interior of the Leased Premises,
including plumbing and electrical fixtures, interior walls and carpeting, in
good order and repair, normal wear and tear excepted. If Tenant refuses or
neglects to perform the foregoing, after not less than fifteen (15) days'
written notice, Landlord may perform at the expense of Tenant; that expense
shall be collectible as Additional Rent, and shall be due to Landlord upon
demand.
(c) Landlord will perform necessary maintenance, repairs and
replacements, as determined by Landlord in its sole discretion, on the
structural components of the Buildings, including exterior walls and
foundation, roof, plumbing, electrical and HVAC systems of the Buildings.
7. Indemnification and Liability.
(a) Tenant will hold Landlord harmless, and will indemnify
Landlord, against any claims for damage, suits, actions, fines or penalties,
together with reasonable attorney's fees incurred by Landlord, related in any
manner to any claims made, or actions, suits or proceedings instituted, before
any judicial or administrative tribunal, by any person, including without
limitation employees, agents or servants of Tenant, if such claim, action, suit
or proceeding, either (i) arises in any manner whatsoever from the activities
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<PAGE> 5
and operations of Tenant at the Leased Premises, or (ii) is caused by the
negligence or willful acts of Tenant, or its agents, servants, employees or
contractors, or (iii) results from the failure of Tenant to comply with its
duties and obligations under this Lease.
(b) If any suit or proceeding is instituted against Landlord
before any judicial or administrative tribunal, and Tenant is required to
indemnify and to hold Landlord harmless against that suit or proceeding
pursuant to subpart (a), then Tenant will defend Landlord with legal counsel
acceptable to Landlord, or will reimburse Landlord within ten (10) days after
demand for reasonable attorney's fees incurred by Landlord in the defense of
such action, and all sums payable shall constitute Additional Rent for purposes
of this Lease.
8. Insurance.
(a) Tenant shall maintain with respect to each Leased Premises
commercial general public liability and property damage insurance, with minimum
limits of not less than $2,000,000 on account of bodily injury to or death of
one person and $5,000,000 on account of bodily injuries to or death of more
than one person per occurrence, and not less than $5,000,000 combined single
limit for bodily injury and property damage. Tenant will furnish evidence of
that insurance to Landlord, which shall name Landlord as additional insured,
and which shall further provide that Landlord will receive not less than thirty
(30) days' written notice of cancellation.
(b) Tenant shall maintain such fire, casualty and theft
insurance on its equipment, trade fixtures and other personal property utilized
in connection with its occupancy of the Leased Premises as Tenant determines to
be appropriate.
(c) Notwithstanding anything to the contrary contained in the
foregoing subparagraphs (a) and (b), so long as Tenant is an affiliate of
Landlord, Landlord may elect, in its sole discretion, to maintain Tenant's
insurance under its blanket or umbrella insurance policies, provided that
Tenant shall pay its pro-rata share of the costs and expenses of maintaining
such insurance on the Leased Premises as additional rent. For purposes of this
subparagraph, "affiliate" means a corporation, partnership or other business
entity which directly, or indirectly, controls, is controlled by, or is under
common control with Landlord.
(d) Landlord will maintain fire and casualty insurance, with
extended coverage, on the Buildings in amounts determined appropriate by
Landlord.
(e) All insurance policies maintained by either Landlord or
Tenant will contain a provision denying the insurer any rights of subrogation
against the other party as the result of negligence of such party or its
agents, servants or employees. Each party waives any right to recover against
the other for any losses or damages covered by such insurance policy.
9. Fire or Other Casualty.
(a) If a Building is partially damaged by fire or other
casualty, subject to subsection (b) below, damages shall be repaired from the
proceeds of insurance disbursed for that purpose within ninety (90) days (or as
soon as is reasonably practicable) after the date of the casualty to a
condition comparable to that existing immediately prior to such damage. During
the period that those repairs are being made, unless the casualty was due to
the fault of Tenant, the Rent and Additional Rent shall be abated in part from
the date of the casualty based upon that percentage of the square footage of
the Leased Premises in such partially-damaged Building that remain usable by
Tenant. Any restoration work performed under this Paragraph 9 will be completed
by a contractor (or contractors), and pursuant to plans and specifications,
approved in writing by Landlord.
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<PAGE> 6
(b) If the Leased Premises in a Building are rendered
substantially untenantable by reason of a fire or other casualty, so that they
cannot be restored to the condition previously existing within ninety (90) days
after the date of the casualty, as reasonably determined by Landlord, or if
sufficient insurance proceeds to restore such Leased Premises are not made
available to Landlord, then Landlord will advise Tenant in writing of such
circumstance as soon as is reasonably practicable after the casualty. Landlord
and Tenant will attempt to resolve issues relating to restoration of such
Leased Premises. However, either party may terminate this Lease with respect to
such Leased Premises during a period of thirty (30) days after the date of
Landlord's notice contemplated in this Paragraph. All obligations of either
party with respect to such Leased Premises pursuant to this Lease shall cease
as of the date that notice of termination is given, provided that Rent and
Additional Rent will be abated as of the date of the casualty.
10. Mechanics' Liens. All work performed by, or at the direction of,
Tenant on any portion of the Leased Premises shall be completed free of any
mechanics', materialman's or similar lien, and if any such lien is at any time
entered against the Leased Premises, or against Tenant's leasehold interest,
the Tenant will bond that lien in full, or have it stricken or paid, within
thirty (30) days of having been entered.
11. Environmental Matters. For the purposes of this Lease, a
Hazardous Material is defined as (a) any hazardous or toxic substance, waste or
other such material identified in or pursuant to (i) the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), 42 U.S.C. Sections 9601 et seq., (ii) the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. Sections 6901 et seq., (iii) any other federal,
state or local legislation, regulations or ordinances, whether now existing or
hereafter enacted or promulgated, designed to protect the environment, public
health or welfare or (iv) any judicial or administrative interpretation of such
laws, rules or regulations or (b) any oil or petroleum product or by product.
Tenant covenants and agrees that it will remain in strict compliance
with all applicable federal, state and local laws, decisions of the courts and
regulations, rules, directives, decrees, and orders of federal, state and local
government authorities regarding the protection of the environment and the
protection of the public health and safety. Tenant further covenants and agrees
to indemnify, protect, and save Landlord harmless against and from any and all
damages, losses, liabilities, obligations, penalties, claims, litigation,
demands, judgments, suits, proceedings, costs, disbursements or expenses of any
kind and of any nature whatsoever (including, without limitation, attorneys'
and experts' fees and disbursements) which may at any time be imposed upon,
incurred by, asserted against or awarded against Landlord as a result of the
treatment, storage, disposal, discharge, release, threat of release, or
generation, in any portion of any of the Buildings, of any Hazardous Materials
which are introduced to any of the Buildings by, or on behalf of, the Tenant,
including, without limitation: (i) the cost of removal, restoration,
remediation or other such work done in connection with any Hazardous Materials
released from or threatened to be released from all or any portion of the
Buildings into the air, any ground or surface water, any soil, or any drain or
pipe within such Building, (ii) costs incurred to comply with all applicable
laws, orders, judgments and regulations with respect to Hazardous Materials on
all or any part of any of the Buildings, (iii) costs related to the payment of
environmental consultants to evaluate the risk or potential threat to the
environment or to individuals created by the presence of any Hazardous
Materials on all or any portion of any of the Buildings, and (iv) costs related
to the Landlord being named a potentially responsible party for the violation
of any state, federal or local environmental law or regulation.
12. Condemnation. If any of the Leased Premises are condemned for
public use, upon the filing of proceedings constituting a taking by the public
authority, this Lease shall terminate with respect to such Leased Premises.
Tenant shall not be entitled to a share of such proceeds for the loss of the
value of this Lease with respect to such Leased Premises. In the event of a
partial taking of a Building, or of such portion of the Leased Premises in a
Building as to materially affect the usage of Tenant, Tenant may elect to
terminate this Lease with respect to such Leased Premises, or Tenant may elect
to continue to operate in that portion of such Leased Premises not taken, but
in that event the proceeds of condemnation will be applied first to adapt such
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<PAGE> 7
Leased Premises for Tenant's use. Tenant shall also be entitled to moving
expenses and relocation assistance payments pursuant to applicable law,
provided that such payments do not reduce the damages payable to Landlord. All
Rent paid in advance with respect to such Leased Premises shall be apportioned
as of the date of Lease termination.
13. Default; Notice to Vacate; Remedies.
(a) If Tenant fails to pay any monthly installment of Rent due
to Landlord on or before the thirtieth (30th) day of any calendar month during
the term of this Lease, or if Tenant fails to pay any late charge due pursuant
to Paragraph 3, or if Tenant fails to pay any sum payable as Additional Rent as
required in this Lease, then Tenant shall be in default. In that event and
without terminating this Lease, Landlord may give Tenant a notice to vacate the
Leased Premises, directing Tenant to move from the Leased Premises within ten
(10) days of the date of service of that notice. Landlord may send this notice
to Tenant by certified or registered mail (return receipt requested), may
deliver it by personal service, or may leave it for Tenant at the Leased
Premises. Tenant may cure its default by the payment of all Rent or Additional
Rent then due, including late charges, within that ten (10) day period, but if
Tenant does not pay all such sums, then Tenant shall move from the Leased
Premises within that period. If Tenant does not either pay all sums due, or so
move, by the end of the notice period, then Landlord may without further notice
commence a legal action in any court of competent jurisdiction to compel the
forcible eviction of Tenant, and Landlord may commence such other actions
arising out of Tenant's default as Landlord determines appropriate, but Tenant
may cure its default during the pendency of such action provided that Tenant
reimburses Landlord for all court costs and attorney's fees then incurred,
including reasonable attorney's fees, together with all accrued Rent, late
charges and Additional Rent.
(b) If Tenant commits any other breach of the conditions and
covenants of this Lease, then Landlord may send notice to Tenant directing
Tenant to either (i) vacate the Leased Premises within twenty (20) days of the
date of service of that notice or (ii) cure its default within such period,
provided that if additional time to cure is necessary, Tenant shall be afforded
such time as is reasonably necessary to cure if Tenant commences cure during
the notice period and proceeds diligently to do so. This notice may be served
upon Tenant by either personal delivery, by certified or registered mail
(return receipt requested), or by leaving it at the Leased Premises. If Tenant
does not either cure its Default, as provided in this subsection, or vacate the
Leased Premises as required by such notice, Landlord may without further
notice, and regardless of whether Landlord terminates this Lease, institute a
legal action before any court of competent jurisdiction to compel the forcible
eviction of Tenant.
(c) If Tenant does not vacate the Leased Premises on the
expiration of this Lease, then Landlord may institute legal action before any
court of competent jurisdiction to compel the forcible eviction of Tenant, and
Landlord shall not be required to give notice to Tenant prior to instituting
such action.
(d) Tenant further acknowledges that the giving of a notice to
vacate the Leased Premises by Landlord will not terminate this Lease or any of
Tenant's obligations under this Lease, specifically including Tenant's
obligation to pay Rent and Additional Rent unless Landlord specifically elects
to terminate such obligations in writing, and Tenant's obligation to pay Rent
and Additional Rent, and to perform all other obligations and duties of this
Lease, shall continue to be binding upon Tenant. Notwithstanding anything set
forth in this Paragraph or in Paragraph 14, Landlord may, in its sole
discretion, at any time after default and the expiration of any cure period
provided in this Lease, terminate this Lease, and all rights of the parties
hereunder shall then end.
(e) If Tenant defaults under subparagraph (a) or (b) of this
Paragraph and such default relates to fewer than all of the Leased Premises,
Landlord may elect to exercise any of its rights and remedies under this Lease
with respect only to those Leased Premises to which such default relates.
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<PAGE> 8
(f) Tenant further acknowledges that the notice periods contained
in this Paragraph are shorter in time than the notice periods provided in
Pennsylvania's Landlord and Tenant Act of 1951, 68 Purdon's Status. Section
250.101 et seq., Section 250.501. The notice periods contained in this Lease
shall be binding upon Tenant, and Tenant waives those notice periods provided in
the Landlord and Tenant Act.
14. Additional Rights and Remedies.
(a) If at any time during the term of this Lease, Tenant vacates
the Leased Premises, as the result of a notice to vacate after a default, or
legal action instituted by Landlord, or otherwise, unless Landlord terminates
this Lease, Tenant shall remain obligated to pay Rent and Additional Rent as
established in this Lease for the remainder of the balance of the Term, and all
such Rent and Additional Rent (as reasonably estimated by Landlord) shall, at
the option of Landlord, be immediately due and payable in full. Landlord may
bring a legal action, or a series of legal actions, to collect all such sums
due.
(b) If Tenant so vacates the Leased Premises, Landlord will make
reasonable efforts to obtain another tenant or tenants for the Leased Premises
for the balance of the then current term. In any event, Landlord will have
discretion to negotiate such lease conditions, including rent, term of lease,
and square footage leased, as Landlord determines to be reasonable. However,
Tenant shall be obligated to pay all costs incurred by Landlord, including
advertising, leasing commissions, attorneys' fees, costs incurred in making the
Leased Premises suitable for occupancy by another tenant, and all other
reasonable and necessary costs incurred by Landlord arising out of Tenant's
default.
(c) If Tenant continues to occupy the Leased Premises after the
expiration of this Lease, then in addition to the other rights of Landlord
under this Lease, Landlord may bring a legal action against Tenant (in addition
to an action for forcible eviction) for all damages that result from wrongful
retention of possession, including any damages that Landlord may incur by
reason of its inability to deliver possession of the Leased Premises to a
subsequent tenant.
(d) If Tenant holds over after expiration of this Lease without
the consent of Landlord, then the monthly Rent will be payable in double the
amount fixed in Paragraph 3, but no such payment or acceptance of Rent shall
continue this Lease in force or result in a waiver of any other rights of
Landlord hereunder.
(e) CONFESSION OF JUDGMENT:
(i) MONEY JUDGMENT: FOR VALUE RECEIVED AND UPON THE
OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, TENANT DOES HEREBY EMPOWER ANY
ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA, TO
APPEAR FOR TENANT AND, WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT
AGAINST TENANT AND IN FAVOR OF LANDLORD, ITS SUCCESSORS OR ASSIGNS, IN THE
COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA, FOR THE SUM DUE BY
REASON OF SAID DEFAULT IN THE PAYMENT OF RENT, ADDITIONAL RENT AND ACCELERATED
RENT, AND FOR THE SUM DUE BY REASON OF ANY BREACH OF COVENANT OR CONDITION
BROKEN BY TENANT, WITH COSTS OF SUIT AND ATTORNEY'S COMMISSION OF TEN PERCENT
(10%) FOR COLLECTION, AND FORTHWITH ISSUE A WRIT OR WRITS OF EXECUTION THEREON
WITH RELEASE OF ALL ERRORS AND WITHOUT STAY OF EXECUTION.
(ii) JUDGMENT IN EJECTMENT: FOR VALUE RECEIVED AND UPON THE
OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, OR UPON TERMINATION OF THE TERM OF
THIS LEASE AND THE FAILURE OF TENANT TO DELIVER POSSESSION TO LANDLORD, TENANT
FURTHER, AT THE OPTION OF LANDLORD, AUTHORIZES AND EMPOWERS ANY SUCH ATTORNEY
(EITHER IN ADDITION TO OR WITHOUT SUCH JUDGMENT FOR THE AMOUNT DUE ACCORDING TO
THE TERMS OF THIS LEASE) TO APPEAR FOR TENANT AND ANY OTHER PERSON CLAIMING
UNDER, BY OR THROUGH TENANT, AND CONFESS JUDGMENT FORTHWITH AGAINST TENANT AND
SUCH OTHER PERSONS AND IN FAVOR OF LANDLORD IN
- 8 -
<PAGE> 9
AN ACTION FOR RECOVERY OF POSSESSION OF THE LEASED PREMISES BY CONFESSION OF
JUDGMENT, IN AN ACTION IN EJECTMENT FILED PURSUANT TO THE RULES OF CIVIL
PROCEDURE RELATING TO CONFESSION OF JUDGMENT FOR POSSESSION OF REAL PROPERTY IN
THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, WITH RELEASE OF ALL ERRORS.
LANDLORD MAY FORTHWITH ISSUE A WRIT OR WRITS OF EXECUTION FOR POSSESSION OF THE
LEASED PREMISES AND, AT LANDLORD'S OPTION, FOR THE AMOUNT OF ANY JUDGMENT, AND
ALL COSTS, WITHOUT LEAVE OF COURT, AND LANDLORD MAY, BY LEGAL PROCESS, WITHOUT
NOTICE RE-ENTER AND EXPEL TENANT FROM THE LEASED PREMISES, AND ALSO ANY PERSONS
HOLDING UNDER TENANT.
15. Landlord's Lien. Landlord shall have a lien upon, and Tenant
hereby grants to Landlord a security interest in, all machinery, equipment,
trade fixtures and other personal property of Tenant located at the Leased
Premises, as security for the payment of Rent and Additional Rent and the
performance of all other obligations of Tenant required by this Lease. If
Tenant defaults in the payment of Rent or Additional Rent, Landlord shall have
such rights and remedies as are in any manner permitted by applicable law.
16. Landlord's Right to Inspect the Premises; Right to Enter.
(a) Tenant agrees that Landlord or Landlord's mortgagee, if any,
may enter the Leased Premises at reasonable times after prior notice for the
purposes of inspection. However, no prior notice shall be required in the event
that Landlord reasonably determines that an emergency situation exists, and the
giving of prior notice is not practicable.
(b) Unless Landlord and Tenant have agreed upon a renewal or
extension of this Lease, Landlord or its agent may enter the Leased Premises at
any time during a period of one hundred twenty (120) days prior to its
expiration, for the purpose of showing the Leased Premises to prospective
tenants.
17. Abandonment. If at any time during the Term, Tenant terminates
its operations at the Leased Premises, vacates any or all of the Leased
Premises, and ceases payment of Rent and Additional Rent, then Landlord may
consider such Leased Premises to have been abandoned. In that event, Landlord
may retake control of such Leased Premises without resort to legal process,
remove any of Tenant's property remaining at such Leased Premises, and dispose
of that property in any manner that Landlord considers to be appropriate. No
action taken by Landlord under this Paragraph will be construed to constitute a
termination of this Lease, Tenant will continue to be obligated to pay Rent and
Additional Rent, and the provisions of this Lease relating to Default and
remedies, will be applicable in the event of abandonment of the Leased Premises
by Tenant.
18. Assignment and Subletting. Tenant shall not assign this Lease or
sublet all or any portion of the Leased Premises at any time during the term of
this Lease without the prior written consent of Landlord. A consent in any one
instance shall not be deemed to be a consent to any future assignment or
subletting. No consent by Landlord to any assignment or subletting will be
construed to relieve Tenant of its obligation to pay Rent and Additional Rent
for the balance of the then current term.
19. Landlord's Liability. Anything contained in this Lease to the
contrary notwithstanding, Tenant agrees that Tenant shall look solely to the
estate and property of Landlord in the Leased Premises for the collection of
any judgment or other judicial process requiring the payment of money by
Landlord for any default or breach by Landlord under this Lease, subject,
however, to the prior rights of any mortgagee of the Leased Premises. No other
assets of Landlord or of any principals of Landlord shall be subject to levy,
execution or other judicial process for the satisfaction of Tenant's claim.
20. Subordination and Attornment. This Lease shall be subject and
subordinate to or superior to any existing future mortgage or similar
instrument delivered by Landlord with respect to the Building in the sole
discretion of the holder of such mortgage or similar instrument. This provision
shall be self-operative,
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<PAGE> 10
provided that in confirmation of this provision, Tenant will execute and
deliver within ten (10) days after request by Landlord such certifications or
other assurances as may be required by the holder of such mortgage or similar
instrument. Tenant hereby constitutes and appoints Landlord as Tenant's
attorney in fact to execute and deliver any such certificates or assurances on
behalf of Tenant if Tenant fails to do so in a timely manner. If the Buildings
are sold pursuant to any action taken pursuant to any such mortgage, or any
mortgagee or person or entity assumes title to the Buildings as the result of
foreclosure, deed in lieu of foreclosure or otherwise, then upon the happening
of such event, Tenant will attorn to and recognize the subsequent owner as
landlord under this Lease. Notwithstanding the forgoing, no future mortgage or
similar instrument shall entitle a mortgagee to terminate this Lease and Tenant
shall not be required to execute any instrument that would permit its occupancy
to be disturbed by any mortgagee or successor, owner except by reason of
default by Tenant under this Lease.
21. Common Areas. Landlord hereby grants Tenant, its employees,
customers, invitees and licensees, during the Term of the Lease, the right,
license and easement to use the portions of the Buildings which are not
reserved for the exclusive use of or control by any person or entity,
including, without limitation, associated parking facilities (whether surface
or structure parking), sidewalks, driveways, loading and unloading areas, open
spaces, entrances, exits, corridors, elevators and stairways (the "Common
Areas"). Landlord agrees to maintain the Common Areas in the locations and
configurations thereof existing as of the Lease Commencement Date.
22. Miscellaneous Provisions.
(a) Successors and Assigns Bound: All of the terms and covenants
of this Lease shall be binding upon the parties and upon their respective
successors and assigns.
(b) Governing Law: This Lease shall be interpreted pursuant to
the law of the Commonwealth of Pennsylvania.
(c) Recordation: Neither this Lease nor a memorandum of lease
shall be recorded.
(d) Payments. Payment under this Lease shall be made either by
check, wire transfer, intracompany netting or such other methods agreed to by
the parties at Landlord's address set forth above or at any place designated in
writing by Landlord.
(e) Amendments: This Lease may be amended, modified or
supplemented only by an agreement in writing, executed by both parties, and no
oral modification shall be effective.
(f) Notices: All notices required to be given under this Lease
shall be in writing sent to the addresses set forth at the beginning of this
Lease. Either party may change those addresses by written notice to the other.
(g) Broker: Each party represents to the other that neither
party has used a broker in connection with this Lease, and each party shall
hold the other party harmless from any claims by a broker in connection with
this Lease.
(h) Waiver: A waiver by Landlord of any of its rights and
remedies existing under this Lease at any time during the Term shall not
obligate Landlord to waive any such right or remedy at any other time.
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<PAGE> 11
(i) Severability: Every agreement contained in this Lease is,
and shall be construed as, a separate and independent agreement. If any term of
this Lease or the application thereof to any person or circumstances shall be
invalid and unenforceable, the remainder of this Lease, or the application of
such term to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected.
(j) TRIAL BY JURY: LANDLORD AND TENANT EACH HEREBY WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM
AGAINST THE OTHER IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER,
TENANT'S USE OR OCCUPANCY OF THE LEASED PREMISES, ANY CLAIM OF INJURY OR
DAMAGE, OR ANY RIGHTS OF INDEMNITY.
(k) Captions: The article and section headings contained in this
Lease are for convenience only and shall not enlarge or limit the scope or
meaning of the provisions hereof. Words of any gender used in this Lease shall
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(l) Entire Agreement: This Lease and the attached exhibits
represent the entire agreement between the parties, and no contemporaneous or
prior written or oral understandings between the parties not incorporated into
this Lease are to be considered part of it, or are to be binding on either
party.
IN WITNESS WHEREOF, the parties have executed this Lease on the date
first written above.
ATTEST: LANDLORD:
KENNAMETAL INC.
By: ____________________________ By ___________________________
Name _________________________
Title ________________________
TENANT:
ATTEST: J&L AMERICA, INC.
By: ____________________________ By ___________________________
Name _________________________
Title ________________________
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<PAGE> 12
EXHIBIT A
<TABLE>
<CAPTION>
Premises
Location Area (s.f.) Annual Rent Monthly Rent
- -------- ----------- ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
Exhibit 10(k)
PRODUCT SUPPLY AGREEMENT
THIS PRODUCT SUPPLY AGREEMENT ("Agreement") is made and entered into
this ____ day of ______________, 1997, by and between Kennametal Inc., a
Pennsylvania corporation ("Kennametal"), and JLK Direct Distribution Inc., a
Pennsylvania corporation ("JLK").
RECITALS
A. Kennametal owns all of the issued and outstanding Class B
Common Stock, par value $.01 per share, of JLK, and JLK is a
member of Kennametal's "affiliated group" of corporations for
federal income tax purposes.
B. JLK is effecting an initial public offering (the "Offering")
of shares of Class A Common Stock, par value $.01 per share,
of JLK.
C. Upon completion of the Offering, JLK will cease to be a
wholly-owned subsidiary of Kennametal.
D. In connection with the consummation of the Offering, JLK
desires to purchase from Kennametal, and Kennametal desires
to sell to JLK, the Products (as defined below) on the terms
and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of their
mutual promises and obligations herein contained, and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, in addition to the terms
defined in the Preamble and the Recitals, the following terms shall have the
following meanings, applicable to both the singular and plural forms of the
terms described:
"BUYER" means JLK and each of its direct and indirect subsidiaries.
"EFFECTIVE DATE" means the date of this Agreement.
"FORCE MAJEURE" shall have the meaning ascribed to it in Section 9.1.
"ORDER" means an order placed by Buyer pursuant to Article 4.
"PRICE" means the applicable price payable for each Product purchased
and sold pursuant to Article 6.
"PRODUCTS" means: (i) Kennametal's metalworking consumables and
related products desired by Buyer's integrated industrial supply program
customers; and (ii) all of the Buyer's requirements for metalworking
consumables and related products direct-marketed by the Buyer, except as
otherwise agreed from time to time between the Buyer and Seller.
"SELLER" means Kennametal and its direct and indirect subsidiaries and
affiliates (other than Buyer).
<PAGE> 2
"SHIPMENT" means all Products loaded into one truck (or other shipping
container) for transportation by Seller to Buyer's designated delivery
destination.
1.2 INTERNAL REFERENCES. Unless the context indicates otherwise,
references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement, and
references to the parties shall mean the parties to this Agreement.
ARTICLE 2
TERM
2.1 TERM. The term of this Agreement shall commence on the Effective
Date and shall continue for ten (10) years, unless terminated earlier pursuant
to Section 2.2, below, or extended by the mutual agreement of the parties.
2.2 TERMINATION. Either party shall have the right to terminate this
Agreement upon the occurrence of any of the following events:
(a) A material breach of this Agreement by either party that is
not cured within thirty (30) days after receipt of written
notice of such breach from the other party; or
(b) A material breach of the Non-Competition and Corporate
Opportunities Allocation Agreement by and between Seller and
Buyer which is not cured within thirty (30) days after
receipt of written notice of such breach from the other
party; or
(c) Seller owns shares representing less than a majority of the
voting power of the outstanding common stock of Buyer.
ARTICLE 3
QUANTITY
3.1 BUYER'S REQUIREMENTS. During the term of this Agreement, Seller
shall sell and deliver, and Buyer shall purchase and pay for, the Products.
Buyer shall provide Seller with a twelve (12) month detailed forecast of
customers' expected demands and its direct-marketed requirements for the
Products which forecast will be updated quarterly and delivered to Seller as of
the first day of such quarter or at such other time and for such periods as the
parties may otherwise agree. Seller and Buyer acknowledge that this Agreement
is not a guarantee of any specific volume purchase levels, and is dependent
upon varying purchasing levels, if any, by Buyer's customers.
3.2 SALES TO BUYER'S DIVISIONS, AFFILIATES AND SUBSIDIARIES. Buyer's
divisions, affiliates, and subsidiaries may require Products for their
operations in various locations. Buyer shall be obligated to require that all
of its divisions, affiliates, and wholly-owned subsidiaries purchase their
respective Product requirements from Seller, on the same terms and conditions,
including Price (subject to adjustment for changes in delivery locations), as
are provided herein.
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<PAGE> 3
ARTICLE 4
ORDERS
4.1 GENERAL. Buyer shall place Orders from time to time specifying
the Products to be purchased hereunder. Orders shall be communicated via
Buyer's purchase order forms or by such other means as the parties mutually
agree (e.g., electronic data interchange or fax orders). Each Order shall: (1)
be dated as of the date of issuance by Buyer; (2) incorporate the terms and
conditions of this Agreement by reference (whether or not set forth in such
Order); (3) specify any special terms and conditions applicable to the Order;
(4) specify the quantity of each Product (by Product type) to be delivered by
Seller pursuant to the Order; and (5) specify the delivery schedule.
4.2 USE OF BUYER'S FORMS. The use of Buyer's business forms for
confirming Orders or to accompany Shipments shall be for administrative
convenience only. Any preprinted or special terms and conditions contained on
Seller's order acknowledgment or other forms shall be applicable to such Order.
ARTICLE 5
DELIVERY
5.1 DELIVERY. All Products purchased and sold hereunder shall be
delivered F.O.B. destination to the location stated on the Order, unless
special emergency freight requirement services are requested by Buyer, in which
case Buyer agrees to pay for all such requested services.
5.2 SCHEDULE OF DELIVERIES. All deliveries shall be made in
accordance with the delivery schedule set forth in the Order.
5.3 TRANSPORTATION. Transportation of Products to the point of
delivery shall be Seller's responsibility unless otherwise agreed to in the
Order.
ARTICLE 6
PRICES
6.1 PRODUCT PRICES. The Price for each of the Products purchased and
sold hereunder shall be an amount determined by discounting Seller's published
price for each such product. The amount of discount shall be dependent upon the
volume of each such product purchased by the Buyer. The Price shall be subject
to revision by Seller with prior notice to Buyer.
6.2 PRICE IS FULL COMPENSATION. Total invoice price includes all
labor, supervision, materials, overhead and other costs associated with the
manufacture, sale, and delivery of the Products, including all excise, value
added, privilege or other similar taxes, but exclusive of any sales, use or
value added tax that may be applicable. To the extent Buyer is not exempt from
such sales, use or value added taxes, Buyer shall reimburse Seller for any
sales or use taxes that Seller may be required to collect and pay as a result
of the sale and delivery of the Products hereunder. Buyer shall provide Seller
with a sales or use tax exemption certificate, if applicable.
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<PAGE> 4
ARTICLE 7
INVOICES AND PAYMENT
7.1 INVOICES. Seller shall submit an invoice for each Shipment, or as
otherwise requested. All invoices shall be submitted in accordance with the
terms and conditions stated in the Order.
7.2 PAYMENT. Payment by check, wire transfer, intracompany netting or
by such other method(s) as agreed to by the parties, shall be due upon receipt
of Seller's invoices.
ARTICLE 8
LIMITATION OF LIABILITY
Neither Buyer nor Seller shall be liable to the other for any
incidental or consequential damages arising out of this Agreement or any Order,
whether in contract, tort or otherwise (including strict liability), whether at
law or in equity; provided, however, that nothing herein shall be deemed to
waive any damages or limit the parties' liability to each other with respect
to: (1) claims arising out of the gross negligence or willful misconduct of a
party or its employees; (2) claims of persons or entities not a party to this
Agreement; and (3) the obligations set forth in Articles 9 and 10, below.
ARTICLE 9
FORCE MAJEURE
9.1 EFFECT OF FORCE MAJEURE. Neither Buyer nor Seller shall be
responsible or liable for, or deemed in breach hereof because of, any delay in
the performance of its respective obligations under this Agreement or any Order
due solely to circumstances beyond the reasonable control and without the fault
or negligence of the party experiencing such delay, including but not limited
to: acts of God; unusually severe weather; strikes or other labor difficulties
except those involving either party; war; riots; requirements, actions or
failures to act on the part of governmental authorities preventing performance;
inability despite due diligence to obtain required license; or fire (such
causes hereinafter collectively called "Force Majeure"); provided, however, the
party experiencing the Force Majeure shall exercise due diligence in
endeavoring to overcome any Force Majeure impediment to its performance, but
settlement of its difficulties shall be entirely within its discretion.
9.2 NOTICE AND RESPONSE. The party experiencing the Force Majeure
shall promptly give written notification to the other party. This written
notification shall give a full and complete explanation of the Force Majeure
delay and its cause, the status of the Force Majeure, and the actions such
party is taking and proposes to take to overcome the Force Majeure. If
performance by either party is delayed due to Force Majeure, the time for that
performance shall be extended for a period reasonably necessary to overcome the
effect of the delay. The party experiencing the delay shall undertake
reasonable measures to make up for the time lost through delay without
additional compensation.
ARTICLE 10
INDEMNITY
10.1 SELLER. To the fullest extent permitted by law, Seller shall
indemnify, defend, and hold harmless Buyer and Buyer's directors, officers,
agents, and employees from and against all claims, losses, liabilities,
judgments, damages, and expenses (including reasonable attorney's fees and
court costs) for personal injury to or
- 4 -
<PAGE> 5
death of persons (including but not limited to Buyer's employees and
customers), and damage to Buyer's property or facilities or the property of any
other person or entity in any manner arising out of or caused by either the
gross negligence or willful or intentional misconduct of Seller or its
employees or agents in connection with any of the Products supplied hereunder.
If requested by Buyer, Seller shall, at its sole cost and expense, undertake
the defense of Buyer and its directors, officers, and employees in connection
with any claim or action for which they are entitled to indemnity under this
paragraph.
10.2 BUYER. To the fullest extent permitted by law, Buyer shall
indemnify, defend, and hold harmless Seller and Seller's directors, officers,
agents, and employees from and against all claims, losses, liabilities,
judgments, damages, and expenses (including reasonable attorney's fees and
court costs) for personal injury to or death of persons (including but not
limited to Seller's employees), and damage to Seller's property or facilities
or the property of any other person or entity in any manner arising out of or
caused by either the gross negligence or willful or intentional misconduct of
Buyer or its employees or agents in connection with any of the Products
supplied hereunder. If requested by Seller, Buyer shall, at its sole cost and
expense, undertake the defense of Seller and its directors, officers, and
employees in connection with any claim or action for which they are entitled to
indemnity under this paragraph.
ARTICLE 11
TIME OF THE ESSENCE
11.1 TIME IS OF THE ESSENCE. All Products shall be delivered within
the time or times specified in the Order; provided, however, Seller shall not
be in breach to the extent any delay is due to circumstances beyond the
reasonable control and without the fault or negligence of Seller; and provided
further the Seller shall give Buyer prior written notice of any delay within
ten (10) business days of the occurrence of events or circumstances causing the
delay.
ARTICLE 12
REPORTS AND RECORDS
12.1 PROVIDING REPORTS AND RECORDS. Each party agrees to provide to
the other party such accounting reports, records and analyses at designated
times or as may be requested from time to time so as to allow the requesting
party thereof to properly account, perform financial analyses of, and prepare
financial statements accounting for the sales of the Products and the inventory
transactions therefrom.
12.2 EXAMINATION OF REPORTS AND RECORDS. Either party shall, upon
reasonable notice to the other party, have the right during normal and usual
business hours to audit, examine and make copies of the files, records and
documents as the same relate to the accounting reports, records and analyses.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Pennsylvania without regard to principles of
conflicts of laws of any jurisdiction.
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<PAGE> 6
13.2 NOTICES. Any notice permitted or required by this Agreement shall
be deemed given when sent by personal service, by certified or registered mail
return receipt requested, postage prepaid, by facsimile transmission or by
overnight delivery by a nationally recognized courier and addressed as follows:
IF TO SELLER: Kennametal Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
IF TO BUYER: JLK Direct Distribution Inc.
State Route 981 South
P. O. Box 231
Latrobe, PA 15650
Attn:
Fax No.:
or such other address as given notice of pursuant to the foregoing.
13.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed by both parties to this Agreement,
shall be deemed to be an original, and all of which counterparts together shall
constitute one and the same instrument.
13.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, superseding all prior oral
and written communications, proposals, negotiations, representations,
understandings, courses of dealing, agreements, contracts, and the like between
the parties.
13.5 AMENDMENTS. This Agreement may be changed, amended, modified, or
rescinded only by an instrument in writing signed by the party against whom
enforcement of such change, amendment, modification or rescission is sought.
13.6 WAIVERS. No waiver by any party of any condition, or breach of
any provision of this Agreement, in any one or more instances, shall be deemed
to be or construed as a waiver of any other condition or of the breach of any
other provision of this Agreement.
13.7 RELATIONSHIP. Nothing in this Agreement shall be deemed to create
a partnership, joint venture or agency relationship between the parties. Both
parties are independent contractors and neither party is to be considered the
agent or legal representative of the other for any purpose whatsoever.
13.8 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the parties and their respective successors and assigns, except
that no obligation under this Agreement may be delegated, nor may this
Agreement be assigned by either party, without the prior written consent of the
other party. Any such purported assignment of this Agreement by either party
without the prior written consent of the other party shall be void and without
effect.
13.9 THIRD PARTY BENEFICIARIES. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than
the parties hereto.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
KENNAMETAL INC. JLK DIRECT DISTRIBUTION INC.
By _________________________________ By ________________________________
Name _______________________________ Name ______________________________
Title ______________________________ Title _____________________________
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<PAGE> 1
EXHIBIT 10.m
KENNAMETAL INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Section 1. Purpose and Effective Date.
1.1 The purpose of this Supplemental Executive Retirement Plan is to ensure
the payment of a competitive level of retirement income, in order to
attract, retain, and motivate selected executives. The Plan is also
intended to provide eligible executives with retirement benefits that
cannot be paid from the Company's qualified Retirement Income Plan, due to
various limitations of the United States Internal Revenue Code.
1.2 This Plan was amended and adopted, effective April 21, 1995, and will be
effective for each participant on the date he or she is designated as a
Participant, provided he or she promptly executes an Employment Agreement.
1.3 The terms of this Plan are applicable only to eligible executives who are
employed by the Company on or after April 21, 1995. Any executive who
retired or otherwise terminated employment prior to such date, shall not
be eligible to be designated a Participant under this Plan unless he or
she returns to service with the Company on or after April 21, 1995.
Section II. Definitions.
2.1 Board of Directors means the Directors of the Company.
2.2 Change in Control shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the
date hereof ("1934 Act"), or if Item 6(e) is no longer in effect, any
regulations issued by the Securities and Exchange Commission pursuant to
the 1934 Act which serve similar purposes; provided that, without
limitation, such a change in control shall be deemed to have occurred if
(i) Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation or
other entity all of whose equity interests are owned by Kennametal
immediately prior to the merger or consolidation, or (ii) Kennametal shall
sell all or substantially all of its operating properties and assets to
"another person, group of associated persons, or corporation; or (iii) any
person" (as such term is used in Sections 13(d) and 14(d) of the 1934
Act), is or becomes a beneficial owner, directly or indirectly, of
securities of Kennametal representing 25% or more of the combined voting
power of Kennametal's then outstanding securities coupled with or followed
by the existence of a majority of the board of directors of Kennametal
consisting of persons other than persons who either were directors of
Kennametal immediately prior to or were nominated by those persons who
were directors of Kennametal immediately prior to such person becoming a
beneficial owner, directly or indirectly, of securities of Kennametal
representing 25% or more of the combined voting power of Kennametal's then
outstanding securities.
<PAGE> 2
2.3 Code means the Internal Revenue Code of 1986, as amended from time to
time. References in the Plan to a Code Section shall be deemed to refer
to any successor provision of the Code, as appropriate.
2.4 Committee means the Board of Directors Committee on Executive
Compensation, designated by the Board of Directors to administer the plan,
pursuant to Section 7 of the Code.
2.5 Company means Kennametal Inc., a Pennsylvania corporation, or any
successor bound by this Plan pursuant to Section 8.5.
2.6 Disability means such incapacity due to physical or metal illness or
injury, as causes the Employee to be absent from his principal office at
Kennametal's offices for the entire portion of 180 consecutive business
days.
2.7 Employee means an employee of the Employer.
2.8 Employer means the Company and any subsidiary or affiliate of the Company
whose employees participate in the Plan.
2.9 Employment Agreement means an agreement between an Employer and an
Employee which sets forth terms and conditions of employment and
specifically refers to this Plan.
2.10 Final Base Salary means the Participant's monthly base salary rate, before
any pre-tax reductions pursuant to the Participant's elections under IRC
Section 125 or 402(e)(3), for the calendar month in which Participant's
Termination of Employment occurs, without regard to any limitations on
compensation under the Code, including those under IRC Section 401(a)
(17), multiplied by twelve (12).
2.11 IRC means the Code.
2.12 Normal Retirement means the first day of the month following the day on
which the Employee reaches the age of sixty-five (65).
2.13 Participant means any Employee of an Employer who is entitled to
participate in the Plan in accordance with Section III. Where the context
so indicates, "Participant" shall also include a retired or deceased
Participant with respect to whom a SERP Benefit is payable.
2.14 Plan means the Company's Supplemental Executive Retirement Plan (SERP), as
set forth herein and as amended and restated from time to time.
2.15 Retirement Income Plan means the Company's qualified Retirement Income
Plan, as it may be amended and restated, from time to time.
2.16 SERP Benefit means the benefit, calculated pursuant to Section V, that is
payable to a Participant under the Plan.
<PAGE> 3
2.17 Target Retirement Income means the total of estimated benefit under the
Company's qualified Retirement Income Plan, plus estimated benefit under
Social Security, plus the amount of SERP Benefit, under Section V of the
Plan.
2.18 Year of Service means each full twelve-month period beyond Employee's
adjusted hire date, as determined pursuant to the Company's regular
personnel records and policies.
Section III. Eligibility.
3.1 Each officer or key executive Employee of the Company approved by the
Committee, in its sole discretion, shall be eligible to participate in the
Plan, upon prompt execution of an Employment Agreement
3.2 Any officer or key executive who becomes a Participant shall continue to
be a Participant until his or her termination of employment, or until a
date prior to such time, as determined by the Committee, in its sole
discretion.
Section IV. Vesting.
4.1 A Participant shall become vested and entitled to receive a benefit under
the Plan, determined in accordance with Section V, only in accordance with
the following schedule:
<TABLE>
<CAPTION>
Age of Participant at Termination Cumulative Vested Plan Benefit
--------------------------------- ------------------------------
Less than age 56 0%
<S> <C>
56 20%
57 40%
58 60%
59 80%
60 or older 100%
</TABLE>
Notwithstanding the foregoing, a Participant who voluntarily leaves
employment, without Employer's permission, or is involuntarily terminated,
with cause, prior to entitlement to receive benefits pursuant to Section
6.1, shall forfeit any entitlement to benefits under the Plan. In the
event that Employee shall voluntarily or involuntarily leave the employ of
the Company before his or her retirement date, and the Employee is not
vested as to any portion of the SERP benefit, the obligations of the
Company under Section 6 and 7 of the Plan shall be null and void, and
neither the Employee nor any other person shall in any way be entitled to
any payments hereunder.
4.2 Notwithstanding Section 4.1, each Participant's Plan benefit automatically
shall become 100% vested upon a Change in Control of the Company.
<PAGE> 4
Section V. Amount of Benefit
5.1 The amount of each Participant's SERP Benefit shall initially be
calculated as the excess of the Target Retirement Income amount over the
sum of the monthly benefit that would be payable as a single life annuity
under the Company's Retirement Income Plan commencing upon a retirement at
age 65, based on credited service and average earnings under the
Retirement Income Plan as of the Participant's termination of employment,
plus the Participant's Social Security benefit, as defined under the
Retirement Income Plan, that would be payable commencing at age 65
assuming the Participant had no further FICA wages or SECA earnings after
termination of employment. This formula calculation shall serve the
Committee as a guideline, but the amount of SERP Benefit of any
Participant shall be determined annually by the Committee, which may
adjust, or depart from, the formula amount, in the Committee's sole
discretion.
5.2 The Target Retirement Income amount, Retirement Income Plan benefit
estimate, and Social Security benefit estimate shall be calculated
according to the methodology described in Appendix A, as approved and
amended, from time to time, by the Committee, in its sole discretion.
5.3 The Committee shall cause the formula calculation described in Sections
5.1 and 5.2 to be done annually, or as otherwise required, for each
Participant. The Committee shall then determine the SERP Benefit amount
for each Participant, which may differ from the amount determined under
the formula, and shall prepare an official list of Participants and their
accrued SERP Benefits, which shall govern the payment of benefits under
the Plan until the next annual review and predetermination of SERP Benefit
amounts.
Section VI. Payment of Benefits.
6.1 Payment of the Participant's SERP Benefit shall commence on the first day
of the month following the month in which the Participant's employment
with the Company terminates due to (1) Normal Retirement from employment
with the Company, (2) retirement from employment with the Company on any
date prior to Normal Retirement that has the prior approval of the
Company's Board of Directors, (3) termination of employment prior to
Normal Retirement as a result of Disability, or (4) retirement from
employment with the Company following a Change In Control, unless the
Participant requests a later payment commencement date.
6.2 A Participant's Plan benefits shall be paid in equal monthly installments,
in the form of a single life annuity with no death or other survivor
benefits other than those described in Section VII.
<PAGE> 5
Section VII. Surviving Spouse and other Death Benefits.
7.1 In the event of the death of a Participant prior to the commencement of
payment of Plan Benefits to the Participant, an amount equal to 50% of the
amount of benefits calculated in accordance with the vesting provisions of
Section IV and the amount of benefit of Section V which would be otherwise
have been payable to the Participant, will instead be payable to the
Participant's surviving spouse. Payments to such spouse shall be made from
the month following the month in which the death of the Participant
occurred until the death of the surviving spouse.
7.2 In the event of the death of a Participant after the commencement of
payment of Plan benefits to the Participant, an amount equal to 50% of the
amount of Plan benefit then being paid to the Participant will instead be
payable to the Participant's surviving spouse. Payments to such spouse
shall be made from the month following the month in which the death of the
Participant occurred, until the death of the surviving spouse.
7.3 If the surviving spouse is five (5) or more years younger than the
Employee, the monthly payment to the surviving spouse pursuant to
paragraphs 7.1 and 7.2 shall be actuarially adjusted, so that it has the
same present actuarial value as the full 50% payment to a spouse less than
five (5) years younger than the Participant. For this purpose, the
Committee shall use a life expectancy factor derived from the most recent
group annuity mortality tables published by the Society of Actuaries, as
shown in Appendix B of the Plan.
7.4 In the event that the Employee and/or his or her surviving spouse shall
have been entitled to payments under Sections 6 and 7 of the Plan, and
upon the death of the surviving spouse, the aggregate amount of the
cumulative payments of the SERP Benefit shall have been less than $50,000,
the Company shall pay to the estate of the Employee or to such other
person as the Employee shall designate by written notice, an amount equal
to $50,000 less the aggregate amount of the cumulative payments of the
SERP Benefit already made.
Section VIII. Miscellaneous Provisions.
8.1 Administration. The Committee shall be responsible for all facets of
interpretation and administration of the Plan. The Committee may adopt
rules and regulations to assist it in the administration of the Plan. The
Board of Directors has also delegated to the Committee the right to modify
provisions of the Plan in individual cases.
8.2 Non-Competition. Receipt of the SERP Benefits is expressly conditioned
upon the non-competition of the retired Participant with the Company, for
so long as any payments are being made hereunder. Accordingly, unless the
Participant first secures the written consent of the Board of Directors or
the Committee, he shall not directly or indirectly, as an officer,
director, employee, consultant, agent, partner, joint venturer,
proprietor, or other, engage in or assist any business which is or may
become in direct or indirect competition with the Company or any of its
subsidiaries, other than as a mere investor holding not more than 5% of
<PAGE> 6
the equity interest of any such competing enterprise. In the event that
the Committee makes a good-faith determination that a Participant
receiving a SERP Benefit is or may be violating the non-competition
provisions hereof, it shall immediately notify him or her of such finding
in writing and afford him or her a reasonable opportunity (a period of not
less than sixty days) to rebut such finding, or to desist from such
competitive activity. In the event that the Committee believes that a
violation of the non-competition provision continues uncorrected following
the sixty-day period, it may then cease making SERP Benefits payments, and
the retired Participant (and any Spouse or other beneficiary claiming
through the Participant) shall forfeit any right to future payment of a
SERP Benefit under the Plan.
8.3 Source of Benefit Payments. This Plan is intended to be an unfunded plan
of deferred compensation for a select group of management or highly
compensated individuals, and it is intended that SERP Benefits payable
hereunder will be paid from the general assets of the Company. However, in
the event of a Change in Control, amounts payable to Employee or the
surviving spouse or estate, under Sections 6 and 7 of the Plan, may be
provided for in accordance with an Executive Deferred Compensation Trust
(a so-called "Rabbi" trust) between the Company and a trustee. The Company
shall inform the Employee of the identity of the trustee upon the
Employee's request.
8.4 Non-Assignment, Alienation. Nothing in this Plan gives a Participant or
any person claiming payments for or through him or her, any right, title,
or interest in any asset held in the Company, prior to the payment
thereof, and that the right of a Participant to any payment hereunder is
strictly contractual and unsecured, unless a Change in Control causes the
funding of the Plan in the Company's Executive Deferred Compensation
Trust. In addition, the benefits to be paid hereunder may not be
voluntarily or involuntarily sold, transferred, assigned, alienated, or
encumbered, and any such attempt shall be void.
8.5 Obligation of Successors. This Plan shall be binding upon the Company or
any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise), to all or substantially all of the business
and/or assets of the Company, or to any assignee thereof. To the extent
that the Company must take additional contractual or other steps to make
the Plan an enforceable contractual obligation of a successor (e.g., a
purchaser of assets), the Company shall take such steps. This Plan and all
rights of the Participant hereunder shall inure to the benefit of and be
enforceable by the Participant or the Participant's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.
8.6 Amendment, Termination. This Plan may be amended or terminated at any
time, provided that no such amendment or termination shall reduce or
eliminate the right of a Participant to the payment of Plan Benefits
earned prior to such amendment or termination.
8.7 Withholding. The Company may provide for the withholding, from any
benefits payable under this Plan, all Federal, state, city, or other
<PAGE> 7
taxes as shall be appropriate pursuant to any law or governmental
regulation or ruling, and may delay the payment of any benefit until the
Participant or beneficiary provides payment to the Company of all
applicable withholding taxes.
8.8 Miscellaneous. This Plan shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania, to the extent not
governed by federal law. Section headings are for convenience of reference
only, and shall not affect the construction or interpretation of any of
the provisions hereof.
<PAGE> 8
APPENDIX A, SERP BENEFIT CALCULATION METHOD
Calculation begins with current base salary and years of service, up to the
present date.
Target Retirement Income equals 60% of base salary for 30 years of service,
plus or minus 1% for each year of service greater than or less than thirty.
Therefore:
<TABLE>
<CAPTION>
Years of Service Retirement Target
---------------- -----------------
<S> <C>
10 40%
15 45%
20 50%
25 55%
30 60%
35 65%
40 70%
45 75%
</TABLE>
Calculate income from Kennametal Retirement Income Plan, based on current years
of service and pensionable earnings, to date, and including current statutory
limitations (IRC Sections 415 and 401(17)), but not actuarially reduced for age
less than 65.
Calculate income from Social Security, based on earnings to date, but not
reduced for age less than 65.
Retirement Income Plan plus Social Security equals Total Funded Retirement
Income from qualified plans.
SERP Benefit equals Target Retirement Income (above) minus Total Funded
Retirement Income from qualified plans.
However, minimum SERP Benefit is 10% of current base salary.
If prior SERP Benefit (as last calculated under the above described method and
determined and approved by the Committee in its annual review of the same) is
greater than new SERP Benefit, use prior SERP Benefit.
Therefore, SERP Benefit is the greatest of:
Target Retirement minus Total Funded Retirement Income, 10% of Current
Base Salary, or Prior SERP Benefit.
<PAGE> 9
APPENDIX B
LIFE EXPECTANCIES FROM THE 1994 UP MORTALITY TABLE
<TABLE>
<CAPTION>
Age Male Female Age Male Female
- --- --------- --------- --- --------- ---------
<S> <C> <C> <C> <C> <C>
20 58.689676 63.439521 65 17.301673 20.733104
21 57.721384 62.458711 66 16.567774 19.922360
22 56.753995 61.477787 67 15.852596 19.126492
23 55.787630 60.496744 68 15.155361 18.344112
24 54.822623 59.515516 69 14.474231 17.572161
25 53.859070 58.533981 70 13.807539 16.808107
26 52.897006 57.552138 71 13.154894 16.051847
27 51.936249 56.570159 72 12.516970 15.305311
28 50.976471 55.588318 70 11.895300 14.572070
29 50.017407 54.606930 74 11.289425 13.854374
30 49.058903 53.626184 75 10.697900 13.152659
31 48.100761 52.646205 76 10.121208 12.467970
32 47.142792 51.667107 77 9.561406 11.801827
33 46.184865 50.688947 78 9.021858 11.156078
34 45.226529 49.711724 79 8.505843 10.530978
35 44.267364 48.735436 80 8.014790 9.925826
36 43.307409 47.760220 81 7-548836 9.340932
37 42.347090 46.786204 82 7.107007 8.777414
38 41.387178 45.813644 83 6.687359 8.236987
39 40.428474 44.842772 84 6.285696 7.719357
40 39.471398 43.873849 85 5.898198 7.223015
41 38.516336 42.906937 86 5.523671 6.747887
42 37.563597 41.941959 87 5.163141 6.295031
43 36.613496 40.978756 88 4.819594 5.866464
44 35.666021 40.016924 89 4.496051 5.463912
45 34.721182 39.056122 90 4.193604 5.087653
46 33.779283 38.096450 91 3.912324 4.737174
47 32.840954 37.138220 92 3.651468 4.411342
48 31.907044 36.182042 93 3.409583 4.108517
49 30.978090 35.228328 94 3.0187285 3.827037
50 30.054402 34.277235 95 2.986195 3.565508
51 29.136469 33.329133 96 2.806213 3.322551
52 28.225043 32.384506 97 2.645659 3.096798
53 27.321021 31.443972 98 2.501069 2.886902
54 26.424628 30.507483 99 2.368067 2.692192
55 25.535831 29.574787 100 2.243346 2.512150
56 24.655321 28.646560 101 2.124336 2.345559
57 23.784341 27.724202 102 2.009036 2.190383
58 22.924662 26.809797 103 1.895858 2.043361
59 22.077319 25.905022 104 1.786991 1.904998
60 21.242746 25.010822 105 1.684548 1.776622
61 20.421814 24.128172 106 1.584660 1.653351
62 19.615791 23.258043 107 1.473289 1.520196
63 18.826204 22.401396 108 1.316861 1.343162
64 18.054561 21.559462 109 1.048860 1.058194
110 .541667 .541667
</TABLE>
<PAGE> 1
EXHIBIT 10.n
THIS AGREEMENT, is made and entered into this 11th day of March, 1997, by and
between KENNAMETAL INC., a corporation organized under the laws of the
Commonwealth of Pennsylvania, for and on behalf of itself and on behalf of its
subsidiary companies (hereinafter referred to as "Kennametal"), and Michael W.
Ruprich, an individual (hereinafter referred to as "Employee"). The company has
entered into identical contracts with the previous officers.
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by
Kennametal, it is anticipated that Employee will work with, add to, create,
have access to and be entrusted with trade secrets and confidential information
belonging to Kennametal which are of a technical nature or business nature or
pertain to future developments, the disclosure of which trade secrets or
confidential information would be highly detrimental to the interests of
Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance,
Kennametal is desirous of employing or continuing the employment of Employee;
and
WHEREAS, Kennametal and Employee have heretofore entered into and
executed an Officer Employment Agreement, as amended (the "Employment
Agreement"); and
WHEREAS, Kennametal and Employee desire to amend and restate the
Employment Agreement on the terms and conditions hereinafter expressed.
NOW, THEREFORE, Kennametal and Employee, each intending to be legally
bound hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, Kennametal hereby
agrees to employ Employee as of the date hereof, and Employee hereby accepts
such employment and agrees to devote his full time and attention to the
business and affairs of Kennametal, in such capacity or capacities and to
perform to the best of his ability such services as shall be determined from
time to time by the Chief Executive Officer and the Board of Directors of
Kennametal until the termination of his employment hereunder.
<PAGE> 2
(b) Employee's base salary, the size of bonus awards, if any, granted to
him and other emoluments for his services, if any, shall be determined by
the Board of Directors or its Committee on Executive Compensation, as
appropriate, from time to time in their sole discretion.
2. In addition to the compensation set forth or contemplated elsewhere herein,
Employee, subject to the terms and conditions of this agreement, shall be
entitled to participate in all group insurance programs, retirement income
(pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal. Nothing herein contained shall be
deemed to limit or prevent Employee, during his employment hereunder, from
being reimbursed by Kennametal for out-of- pocket expenditures incurred for
travel, lodging, meals, entertainment expenses or any other expenses in
accordance with the policies of Kennametal applicable to the executives of
Kennametal.
3. Employee's employment may be terminated with or without any reason for
termination by either party hereto at any time by giving the other party prior
written notice thereof, provided, however, that any termination on the part of
Kennametal shall occur only if specifically authorized by its Board of
Directors; provided, further, that termination by Kennametal for Cause (as
hereinafter defined) shall be made by written notice which states that it is a
termination for Cause; and provided, further, that termination by Employee,
other than termination for Good Reason (as hereafter defined) following a
Change-in-Control (as hereafter defined), shall be on not less than 30 days
prior written notice to Kennametal.
4. (a) In the event that Employee's employment is terminated by Kennametal
prior to a Change-in-Control (as hereinafter defined) and other than for Cause,
Employee will receive as severance pay, in addition to all amounts due him at
the Date of Termination (as hereinafter defined), an amount, payable promptly
after the Date of Termination, equal to three months' base salary at the annual
rate in effect on the Date of termination.
(b) In the event that Employee's employment is terminated by Employee
following a Change-in-Control (as hereafter defined) without good reason
(as such term in defined in paragraph 4(h)) or prior to a Change-in-
Control (as hereinafter defined), Employee will not be entitled to
receive any severance pay in addition to the amounts, if any, due him at
the Date of Termination (as hereinafter defined).
(c) In the event at or after a Change-in-Control and prior to the third
anniversary of the date of the Change-in-Control that Employee's
employment is terminated by Employee for Good Reason or by Kennametal
other than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at the
Date of Termination) an amount equal to the product of:
<PAGE> 3
(i) the lesser of
(x) two and eight tenths (2.8), (y) a number equal to the
number of calendar months remaining from the Date of
Termination to the Employee's Retirement Date (as such term
is hereafter defined) divided by twelve (12), or (z) a number
equal to the product obtained by multiplying thirty-six (36)
less the number of completed months after the date of the
Change in-Control during which the Employee was employed and
did not have Good Reason for termination times one-twelfth
(1/12);
times
(ii) the sum of
(x) Employee's base salary at the annual rate in effect on
the Date of Termination (or, at Employee's election, at the
annual rate in effect on the first day of the calendar month
immediately prior to the Change-in-Control), plus (y) the
average of any bonuses which Employee was entitled to or paid
during the three most recent fiscal years ending prior to the
Date of Termination.
Such severance pay shall be paid by delivery of a cashier's or certified
check to the Employee at Kennametal's executive offices on a date which
is no later than five business days following the Date of Termination.
In addition to the severance payments provided for in this paragraph
4(c), Employee also will receive the same or equivalent medical, dental,
disability and group insurance benefits as were provided to the Employee
at the Date of Termination, which benefits shall be provided to Employee
for a three year period commencing on the Date of Termination. The
Employee shall also be deemed and shall be credited for computing
benefits, for vesting and for all other purposes under any pension or
retirement income plan of Kennametal and under the Supplemental Executive
Retirement Plan to have continuously remained in the employment of
Kennametal for the three year period (or, if clause (i)(y) or clause
(i)(z) above of this paragraph 4(c) is applicable to determine the
severance payments to be made, the lesser period measured in years equal
to clause (i)(y) or clause (i)(z) above, whichever is applicable)
following the Date of Termination at an annual compensation equal to the
sum of the base salary and bonus which were used to compute the payment
due the Employee under the first paragraph of this Paragraph 4(c).
(d) If for any reason, whether by law or provisions of Kennametal's
employee medical, dental or group insurance, pension or retirement plan
or other benefit plans, any benefits which the Employee would be entitled
to under the foregoing subparagraph (c) of this Paragraph 4 cannot be
paid pursuant to such employee benefit plans, then Kennametal hereby
contractually agrees to pay to the Employee the difference between the
benefits which the Employee would have received in accordance with the
foregoing subparagraphs of this paragraph 4 if the
<PAGE> 4
relevant employee medical, dental or group insurance or pension or
retirement plan or other benefit plan could have paid such benefit and
the amount of benefits, if any, actually paid by such employee medical,
dental or group insurance or pension or retirement plan or other benefit
plan. Kennametal shall not be required to fund its obligation to pay the
foregoing difference.
(e) In the event of a termination of employment under the circumstances
above described in Paragraph 4(c), Employee shall have no duty to seek
any other employment after termination of Employee's employment with
Kennametal and Kennametal hereby waives and agrees not to raise or use
any defense based on the position that Employee had a duty to mitigate or
reduce the amounts due him hereunder by seeking other employment whether
suitable or unsuitable and should Employee obtain other employment, then
the only effect of such on the obligations of Kennametal hereunder shall
be that Kennametal shall be entitled to credit against any payments which
would otherwise be made for medical, dental or group insurance or similar
benefits (excluding, however, any credit against Kennametal payments
relating to pension or retirement benefits or the Supplemental Executive
Retirement Plan) pursuant to the benefit provisions set forth in the
second paragraph of Paragraph 4(c) hereof, any comparable payments to
which Employee is entitled under the employee benefit plans maintained by
Employee's other employer or employers in connection with services to
such employer or employers after termination of his employment with
Kennametal.
(f) The term "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934 as in
effect on the date hereof ("1934 Act"), or if Item 6(e) is no longer in
effect, any regulations issued by the Securities and Exchange Commission
pursuant to the 1934 Act which serve similar purposes; provided that,
without limitation, such a change in control shall be deemed to have
occurred if (A) Kennametal shall be merged or consolidated with any
corporation or other entity other than a merger or consolidation with a
corporation or other entity all of whose equity interests are owned by
Kennametal immediately prior to the merger or consolidation, or(B)
Kennametal shall sell all or substantially all of its operating
properties and assets to another person, group of associated persons or
corporation, or (C) any "person" (as such term is used in Sections 13(d)
and 14(d) of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of Kennametal representing 25% or more of the
combined voting power of Kennametal's then outstanding securities coupled
with or followed by the existence of a majority of the board of directors
of Kennametal consisting of persons other than persons who either were
directors of Kennametal immediately prior to or were nominated by those
persons who were directors of Kennametal immediately prior to such person
becoming a beneficial owner, directly or indirectly, of securities of
Kennametal representing 25% or more of the combined voting power of
Kennametal's then outstanding securities.
<PAGE> 5
(g) For purposes of this agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other reason,
the date on which the termination becomes effective as stated in
the written notice of termination given to or by the Employee.
(h) The term "Good Reason" for termination by the Employee shall mean the
occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the assignment
to the Employee of any duties materially and substantially
inconsistent with his positions, duties, responsibilities and
status with Kennametal immediately prior to a Change-in-Control, or
a material change in his reporting responsibilities, titles or
offices as in effect immediately prior to a Change-in-Control, or
any removal of the Employee from or any failure to re-elect the
Employee to any of such positions, except in connection with the
termination of the Employee's employment due to Cause (as
hereinafter defined) or as a result of the Employee's death;
(ii) a reduction by Kennametal in the Employee's base salary as in
effect immediately prior to any Change-in-Control;
(iii) a failure by Kennametal to continue to provide incentive
compensation, under the rules by which incentives are provided,
comparable to that provided by Kennametal immediately prior to any
Change-in-Control;
(iv) the failure by Kennametal to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan in which Employee
is participating immediately prior to a Change-in- Control
(provided, however, that there shall not be deemed to be any such
failure if Kennametal substitutes for the discontinued plan, a plan
providing Employee with substantially similar benefits) or the
taking of any action by Kennametal which would adversely affect
Employee's participation in or materially reduce Employee's
benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee immediately prior to a
Change-in-Control;
(v) the failure of Kennametal to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11 hereof;
(vi) the relocation of the Executive to a facility or a location
more than 50 miles from the Executives then present location,
without the Executives prior written consent; or
(vii) any purported termination of the employment of Employee by
Kennametal which is not for Cause as provided in paragraph 5.
<PAGE> 6
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement, or (b) shall not make his services available to Kennametal
on a full time basis in accordance with paragraph I hereof for any reason
(including Disability) other than arising from Employee's incapacity due to
physical or mental illness or injury which does not constitute Disability and
other than by reason of the fact Employee's employment has been terminated
under the circumstances described in paragraph 4(a), or (c) shall breach the
provisions of paragraph 8 hereof (the matters described in subparagraphs (a),
(b) and (c) are collectively referred to as "Cause"), Kennametal shall have the
right, exercised by resolution adopted by a majority of its Board of Directors,
to terminate Employee's employment for Cause by giving prior written notice to
Employee of its election so to do. In that event, Employee's employment shall
be deemed terminated for Cause, Employee shall not be entitled to the benefits
set forth in paragraph 4 which shall not be paid or payable and Kennametal only
shall have the obligation to pay Employee the unpaid portion of Employee's base
salary for the period from the last period from which Employee was paid to the
Date of Termination; provided, however, that if Employee's employment is
terminated as a result of the Disability of Employee, the benefits set forth in
paragraph 4 shall not be paid or payable but Employee shall be entitled to
receive the annual supplement under the Supplemental Executive Retirement Plan
and Employee's employment by Kennametal shall not be deemed terminated for
purposes of the Long-Term Disability Plan, Retirement Income Plan for US
Salaried Employees or any other benefit plan which so provides. For purposes of
this agreement "Disability" shall mean such incapacity due to physical or
mental illness or injury which results in the Employee's being absent from his
principal office at Kennametal's offices for the entire portion of 180
consecutive business days. Prior to a Change-in-Control, a decision by the
Board of Directors of Kennametal that "Cause" exists shall be in the discretion
of the Board of Directors and shall be final and binding upon the Employee and
his rights hereunder. After a Change-in-Control, "Cause" shall not be deemed to
include opposition by Employee to such a Change-in-Control or any matter
incidental thereto and any determination by the Board of Directors that "Cause"
existed shall not be final or binding upon the Employee or his rights hereunder
or entitled to any deference in any court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(c) hereof, in the event
Employee resigns or his employment is terminated for any reason other than
death or Disability prior to his "Retirement Date" (as hereinafter defined), he
will forfeit any interest he may have in any Kennametal retirement income plan
(except to the extent vested by actual service to date of separation as per the
plan provisions), and all other benefits dependent upon continuing service. The
term "Retirement Date" shall mean the first day of the month following the day
on which Employee attains his sixty-fifth birthday, or at Employee's request,
any other day that Kennametal's Board of Directors may approve in writing.
7. Nothing herein contained shall affect the right of Employee to participate
in and receive benefits under and in accordance with the then
<PAGE> 7
current provisions of any retirement income, profit-sharing, additional
year-end or periodic remuneration or bonus, incentive compensation, insurance
or any other employee welfare plan or program of Kennametal and all payments
hereunder shall be in addition to any benefits received thereunder (including
long term disability payments).
8. During the period of employment of Employee by Kennametal and for three
years thereafter, (provided, however, that this paragraph 8 shall not apply to
the Employee following a termination of Employee's employment (x) if a
Change-in-Control, shall have occurred prior to the Date of Termination or (y)
if Employee's employment is terminated by Kennametal other than for Cause), he
will not, in any geographic area in which Kennametal is offering its services
and products, without the prior written consent of Kennametal:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor, partner,
investor, shareholder, officer, director or any type of principal
whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engage in, any business which is competitive with
any business of Kennametal or any subsidiary or affiliate thereof in
which Employee is or was engaged; provided, however, that the foregoing
provisions of this paragraph 8 are not intended to prohibit and shall not
prohibit Employee from purchasing, for investment, not in excess of 1% of
any class of stock or other corporate security of any company which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to Kennametal, acknowledges and
agrees that remedies at law for any such breach will be inadequate and consents
and agrees that Kennametal shall be entitled, without the necessity of proof of
actual damage, to injunctive relief in any proceedings which may be brought to
enforce the provisions of this paragraph 8. Employee acknowledges and warrants
that he will be fully able to earn an adequate livelihood for himself and his
dependents if this paragraph 8 should be specifically enforced against him and
that such enforcement will not impair his ability to obtain employment
commensurate with his abilities and fully acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and Kennametal hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his employment by
Kennametal, Employee may work with, add to, create or
<PAGE> 8
acquire trade secrets and confidential information ("Confidential Information")
which could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, Kennametal's
manuals, methods, know-how, formulae, shapes, designs,
compositions, processes, applications, ideas, improvements,
discoveries, inventions, research and development projects,
equipment, apparatus, appliances, computer programs, software,
systems documentation, special hardware, software development and
similar items; or
(ii) of a business nature such as, but not limited to, information
about business plans, sources of supply, cost, purchasing, profits,
markets, sales, sales volume, sales methods, sales proposals,
identity of customers and prospective customers, identity of
customers' key purchasing personnel, amount or kind of customers'
purchases and other information about customers; or
(iii) pertaining to future developments such as, but not limited
to, research and development or future marketing or merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would
constitute a breach of trust and could cause irreparable injury to
Kennametal; and (iii) it is essential to the protection of Kennametal's
goodwill and to the maintenance of its competitive position that all
Confidential Information be kept secret and that Employee not disclose
any Confidential Information to others or use any Confidential
Information to the detriment of Kennametal.
Employee agrees to hold and safeguard all Confidential Information
in trust for Kennametal, its successors and assigns and Employee shall
not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use outside Kennametal's
organization at any time, either during employment with Kennametal or
subsequent thereto, any of the Confidential Information, whether or not
developed by Employee, without the prior written consent of Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to Kennametal or such
officer or other agent as may be designated by Kennametal any and
all inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with
Kennametal (1) which are along the line of the business, work or
investigations of Kennametal, or (2) which result from or are
suggested by any work which Employee may do for or on behalf of
Kennametal; and
(ii) he will assist Kennametal and its nominees during and
subsequent to such employment in every proper way (entirely at its
or their expense) to obtain for its or their own benefit patents
<PAGE> 9
for such inventions in any and all countries; the said inventions,
without further consideration other than such salary as from time
to time may be paid to him by Kennametal as compensation for his
services in any capacity, shall be and remain the sole and
exclusive property of Kennametal or its nominee whether patented or
not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not necessarily
limited to notes, sketches, drawings, or reports relating thereto,
which records shall be and remain the property of and available to
Kennametal at all times.
(c) Employee agrees that, promptly upon termination of his employment, he
will disclose to Kennametal, or to such officer or other agent as may be
designated by Kennametal, all inventions which have been partly or wholly
conceived, invented or developed by him for which applications for
patents have not been made and shall thereafter execute all such
instruments of the character herein before referred to, and will take
such steps as may be necessary to secure and assign to Kennametal the
exclusive rights in and to such inventions and any patents that may be
issued thereon any expense therefor to be borne by Kennametal.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce his
rights under, or to recover damages for breach of this agreement, or (b)
Kennametal institutes any action to avoid making any payments due to Employee
under this agreement, Employee, if he is the prevailing party, shall be
entitled to recover from Kennametal any actual expenses for attorney's fees and
other disbursements incurred by him in relation thereto.
11. The terms and provision of this agreement shall be binding upon, and shall
inure to the benefit of, Employee and Kennametal, it subsidiaries and
affiliates and their respective successors and assigns.
12. This agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, whether oral or
written, among the parties with respect to the subject matter hereof. This
agreement may not be amended orally, but only by an instrument in writing
signed by each of the parties to this agreement.
13. The invalidity or unenforceability of any provision of this agreement shall
not affect the other provisions hereof, and this agreement shall be construed
in all respects as if such invalid or unenforceable provision were omitted.
14. Any pronoun and any variation thereof used in this agreement shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the parties hereto may require.
<PAGE> 10
15. Kennametal shall be entitled as a condition to paying any severance pay or
providing any benefits hereunder upon a termination of the Employee's
employment to require the Employee to deliver on or before the making of any
severance payment or providing of any benefit a release in the form of Exhibit
A attached hereto.
16. Notwithstanding any other provision of this Agreement, in the event that
any payment or benefit received, or to be received, by Employee in connection
with a change in control of the Corporation, or the termination of the
Employees' employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Corporation, any person whose
actions result in a change in control or any person affiliated with the
Corporation or such person) (collectively, the "Total Payments") would not be
deductible, in whole or in part, as a result of section 28OG of the Internal
Revenue Code of 1986 (the "Code") by the Corporation, an affiliate or other
person making such payment or providing such benefit, the payments due under
this Agreement (the "Contract Payments") shall be reduced until no portion of
the Total Payments is not deductible, or the Contract Payments are reduced to
zero. In the event that the Corporation determines that the Total Payments
would not be deductible, in whole or part, as a result of section 28OG of the
Code, the Corporation shall immediately notify Employee of this determination
and the amount which would not be so deductible as well as a computation of
Total Payments. Employee shall have five (5) business days after receipt of the
foregoing notice and computation to waive in writing all or any portion of any
of the Total Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing shall not
be taken into account. If the Corporation had already withheld any Contract
Payments prior to receipt of such waiver, the Corporation upon receipt of such
waiver shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation had the Employee's written waiver
prior to the date the Corporation withheld any such payments.
For purposes of this limitation:
(a) no portion of the Total Payments shall be taken into account which in
the opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Employee does not constitute a "parachute
payment" within the meaning of section 28OG(b)(2) of the Code,
(b) the Contract Payments shall be reduced only to the extent necessary
so that the Total Payments (other than those Contract Payments which are
waived in writing by the Employee or referred to in clause (a)) in their
entirety constitute reasonable compensation for services actually
rendered within the meaning of section 28OG(b)(4) of the Code or are
otherwise not subject to disallowance as deductions, in the opinion of
the tax counsel referred to in clause (a); and
(c) the value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the Corporation's
independent auditors in accordance with the principles of section
28OG(d)(3) and (4) of the Code.
<PAGE> 11
17. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
WITNESS the due execution hereto the day and year first above written.
ATTEST: KENNAMETAL INC.
/s/ DAVID T. COFER By: /s/ ROBERT L. MCGEEHAN
- ---------------------------------- -------------------------------
WITNESS: Employee:
/s NANCY TORBA /s/ MICHAEL W. RUPRICH (Seal)
- ---------------------------------- --------------------------
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and valuable
consideration, the receipt of which is hereby acknowledged, and intending to be
legally bound, hereby releases, remises, quitclaims and discharges completely
and forever Kennametal Inc. and its directors, officers, employees,
subsidiaries and affiliates from any and all claims, causes of action or rights
which the undersigned has or may have, whether arising by virtue of contract or
of applicable state laws or federal laws, and whether such claims, causes of
action or rights are known or unknown; provided, however, that this Release
shall not release, raise, quitclaim or discharge any claims, causes of action
or rights which the undersigned may have (i) under that certain Amended and
Restated Employment Agreement dated __________________, ________ between the
undersigned and Kennametal, Inc., (ii) to any unreimbursed expense account or
similar out-of-pocket reimbursement amounts owing the undersigned, or (iii)
under the bylaws of Kennametal, Inc. or the applicable state corporate statutes
to indemnification for having served as an officer and/or employee of
Kennametal, Inc. and/or its subsidiaries.
DATE: _________________ ___________________________________
<PAGE> 1
Exhibit 10.o
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into this _____ day of
________________________, 1997, by and between JLK DIRECT DISTRIBUTION INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania which
is a subsidiary of Kennametal Inc. ("Kennametal"), for and on behalf of itself
and on behalf of its subsidiary companies (hereinafter referred to as "JLK" or
the "Corporation"), KENNAMETAL and Michael W. Ruprich, an individual
(hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal which are of a technical nature or business nature or pertain to
future developments, the disclosure of which trade secrets or confidential
information would be highly detrimental to the interests of JLK and Kennametal;
and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of employing; and WHEREAS, Kennametal and Employee may have
heretofore entered into and executed an employment agreement,
as amended (the "Kennametal Employment Agreement").
NOW, THEREFORE, JLK, Kennametal and Employee, each intending to be
legally bound hereby, do mutually covenant and agree as follows:
<PAGE> 2
1. (a) Subject to the terms and conditions set forth herein, JLK
hereby agrees to employ Employee as of the Effective Date, as such term
is hereinafter defined, and Employee hereby accepts such employment and
agrees to devote his full time and attention to the business and
affairs of JLK, in such capacity or capacities and to perform to the
best of his ability such services as shall be determined from time to
time by the Board of Directors of JLK until the termination of his
employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere
herein, Employee, subject to the terms and conditions of this
agreement, shall be entitled to participate in all group insurance
programs, retirement income (pension) plans, thrift plans and vacation
and holiday programs normally provided for other executives of
Kennametal. Nothing herein contained shall be deemed to limit or
prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel,
lodging, meals, entertainment expenses or any other expenses in
accordance with the policies of JLK applicable to the executives of
JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party
prior written
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<PAGE> 3
notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of
Directors; provided, further, that termination by JLK for Cause (as
hereinafter defined) shall be made by written notice which states that
it is a termination for Cause; and provided, further, that termination
by Employee, other than termination for Good Reason (as hereafter
defined) following a Change-in-Control (as hereafter defined), shall
be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay, in addition to all amounts due him at the Date of
Termination (as hereinafter defined), an amount, payable promptly
after the Date of Termination, equal to three months' base salary at
the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated by Employee
following a Change-in-Control without Good or prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control that Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) an amount equal to the product of
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<PAGE> 4
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months remaining
from the Date of Termination to the Employee's Retirement
Date (as such term is hereafter defined) divided by twelve
(12), or
(z) a number equal to the product, if positive, obtained by
multiplying (AA) thirty-six (36) less the number of completed
months after the date of the Change-in-Control during which
the Employee was employed and did not have Good Reason for
termination times (BB) one-twelfth (1/12);
times
(ii) the sum of
(x) Employee's base salary at the annual rate in effect on
the Date of Termination (or, at Employee's election, at the
annual rate in effect on the first day of the calendar month
immediately prior to the Change-in-Control), plus
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<PAGE> 5
(y) the average of any bonuses which Employee was entitled to
or paid during the three most recent fiscal years ending
prior to the Date of Termination (or, at Employee's election,
the average of any bonuses which Employee was entitled to or
paid for the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
In addition to the severance payments provided for in this paragraph
4(c), Employee also will receive the same or equivalent medical,
dental, disability and group insurance benefits as were provided to
the Employee at the Date of Termination, which benefits shall be
provided by JLK (or by Kennametal if it had been providing such
benefits prior to the Date of Termination) to Employee for a three
year period commencing on the Date of Termination. The Employee shall
also be deemed and shall be credited for computing benefits, for
vesting and for all other purposes under any pension or retirement
income plan applicable to employees of JLK (including, if applicable,
Kennametal's Supplemental Executive Retirement Plan) to have
continuously remained in the employment of JLK for the three year
period (or, if clause (i)(y) or clause (i)(z) above of this paragraph
4(c) is applicable to determine the
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<PAGE> 6
severance payments to be made, the lesser period measured in years
equal to clause (i)(y) or clause (i)(z) above, whichever is
applicable) following the Date of Termination at an annual
compensation equal to the sum of the base salary and bonus which were
used to compute the payment due the Employee under the first paragraph
of this Paragraph 4(c).
(d) If for any reason, whether by law or provisions of any employee
medical, dental or group insurance, pension or retirement plan or
other benefit plan in which the Employee is eligible to participate,
any benefits which the Employee would be entitled to under the
foregoing subparagraph (c) of this Paragraph 4 cannot be paid pursuant
to such employee benefit plans, then JLK (or Kennametal if it had been
providing such benefits prior to the Date of Termination) hereby
contractually agrees to pay to the Employee the difference between the
benefits which the Employee would have received in accordance with the
foregoing subparagraphs of this paragraph 4 if the relevant employee
medical, dental or group insurance or pension or retirement plan or
other benefit plan could have paid such benefit and the amount of
benefits, if any, actually paid by such employee medical, dental or
group insurance or pension or retirement plan or other benefit plan.
Neither JLK nor Kennametal shall be required to fund its obligation to
pay the foregoing difference.
(c) In the event of a termination of employment under the
circumstances above described in Paragraph 4(c), Employee shall have
no duty to seek any other employment after termination of Employee's
employment with JLK and
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<PAGE> 7
JLK and Kennametal hereby waive and agree not to raise or use any
defense based on the position that Employee had a duty to mitigate or
reduce the amounts due him hereunder by seeking other employment
whether suitable or unsuitable and should Employee obtain other
employment, then the only effect of such on the obligations of JLK or
Kennametal hereunder shall be that JLK and Kennametal shall be
entitled to credit against any payments which would otherwise be made
for medical, dental or group insurance or similar benefits (excluding,
however, any credit against payments relating to pension or retirement
benefits or, if applicable, Kennametal's Supplemental Executive
Retirement Plan) pursuant to the benefit provisions set forth in the
second paragraph of Paragraph 4(c) hereof, any comparable payments to
which Employee is entitled under the employee benefit plans maintained
by Employee's other employer or employers in connection with services
to such employer or employers after termination of his employment with
JLK.
(f) The term "Change-in-Control" shall mean either (i) a Kennametal
Change-in-Control, if such occurs when JLK is a direct or indirect
subsidiary of Kennametal or when Kennametal and its affiliates own
shares of Class B Common Stock of JLK or (ii) a JLK Change-in-Control.
A Kennametal Change-in-Control shall mean a change in control of a
nature that would be required to be reported by Kennametal in response
to Item 6(e) of Schedule 14A promulgated under the Securities Exchange
Act of 1934 as in effect on the date hereof ("1934 Act"), or if Item
6(e) is no longer in effect, any regulations issued by the
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<PAGE> 8
Securities and Exchange Commission pursuant to the 1934 Act which
serve similar purposes; provided that, without limitation, such a
Kennametal Change-in-Control shall be deemed to have occurred if (A)
Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation
or other entity all of whose equity interests are owned by Kennametal
immediately prior to the merger or consolidation, or (B) Kennametal
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of Kennametal representing 25% or more of
the combined voting power of Kennametal's then outstanding securities
coupled with or followed by a majority of the board of directors of
Kennametal consisting of persons other than persons who either were
directors of Kennametal immediately prior to or were nominated by
those persons who were directors of Kennametal immediately prior to
such person becoming a beneficial owner, directly or indirectly, of
securities of Kennametal representing 25% or more of the combined
voting power of Kennametal's then outstanding securities. A JLK
Change-in-Control shall mean that both of the following conditions
shall have occurred: (i) either JLK is no longer a direct or indirect
subsidiary of Kennametal or Kennametal and its affiliates no longer
own any shares of Class B Common Stock of JLK and (ii) a change in
control of a nature that would be required to be reported by JLK in
response to Item 6(e) of
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<PAGE> 9
Schedule 14A promulgated under the Securities Exchange Act of 1934 as
in effect on the date hereof ("1934 Act"), or if Item 6(e) is no
longer in effect, any regulations issued by the Securities and
Exchange Commission pursuant to the 1934 Act which serve similar
purposes; provided that, without limitation, the second condition set
forth in subclause (ii) of this sentence shall be deemed to have
occurred if (A) JLK shall be merged or consolidated with any
corporation or other entity other than a merger or consolidation with
a corporation or other entity all of whose equity interests are owned
(1) by JLK immediately prior to the merger or consolidation or (2) by
Kennametal and/or its subsidiaries if JLK is at the time of such
merger or consolidation a direct or indirect subsidiary of Kennametal
or if Kennametal and its affiliates at the time of such merger or
consolidation own shares of Class B Common Stock of JLK, or (B) JLK
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of JLK representing 25% or more of the
combined voting power of JLK's then outstanding securities coupled
with or followed by a majority of the board of directors of JLK
consisting of persons other than persons who either were directors of
JLK immediately prior to or were nominated by those persons who were
directors of JLK immediately prior to such person becoming a
beneficial owner, directly or indirectly, of securities of JLK
representing 25% or more of the combined voting power of JLK's then
outstanding securities.
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<PAGE> 10
(g) For purposes of this agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other reason,
the date on which the termination becomes effective as stated in
the written notice of termination given to or by the Employee.
(h) The term "Good Reason" for termination by the Employee shall
mean he occurrence of any of the following at or after a
Change-in-Control:
(i) without the Employee's express written consent, the assignment
to the Employee of any duties materially and substantially
inconsistent with his positions, duties, responsibilities and
status with JLK immediately prior to a Change-in-Control, or a
material change in his reporting responsibilities, titles or
offices as in effect immediately prior to a Change-in-Control, or
any removal of the Employee from or any failure to re-elect the
Employee to any of such positions, except in connection with the
termination of the Employee`s employment due to Cause or as a
result of the Employee's death;
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<PAGE> 11
(ii) a reduction by JLK in the Employee's base salary as in effect
immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately prior
to any Change-in-Control;
(iv) in the event of a Change-in-Control which is a Kennametal
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of Kennametal in
which Employee is participating immediately prior to a Kennametal
Change-in-Control (provided, however, that there shall not be
deemed to be any such failure if Kennametal substitutes for the
discontinued plan, a plan providing Employee with substantially
similar benefits) or the taking of any action by Kennametal which
would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(v) in the event of a Change-in-Control which is a JLK
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of JLK in which
Employee is participating
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<PAGE> 12
immediately prior to a JLK Change-in-Control (provided, however,
that there shall not be deemed to be any such failure if JLK
substitutes for the discontinued plan, a plan providing Employee
with substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans or
deprive Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(vi) if the Employee is eligible to participate in any Kennametal
benefit or compensation plan, stock option plan, pension plan, life
insurance plan, health and accident plan or disability plan, the
failure of Kennametal to obtain the assumption of this Agreement by
any successor as contemplated in paragraph 11 hereof;
(vii) the failure of JLK to obtain the assumption of this Agreement
by any successor as contemplated in paragraph 11 hereof
(viii) the relocation of the Employee to a facility or a location
more than 50 miles from the Employee's then present location,
without the Employee's prior written consent; or
(ix) any purported termination of the employment of Employee by JLK
which is not for Cause as provided in paragraph 5.
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<PAGE> 13
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services
contemplated by this agreement, or (b) shall not make his services
available to JLK on a full time basis in accordance with paragraph 1
hereof for any reason (including Disability) other than arising from
Employee's incapacity due to physical or mental illness or injury
which does not constitute Disability and other than by reason of the
fact Employee's employment has been terminated under the circumstances
described in paragraph 4(a), or (c) shall breach the provisions of
paragraph 8 hereof (the matters described in subparagraphs (a), (b)
and (c) are collectively referred to as "Cause"), JLK shall have the
right, exercised by resolution adopted by a majority of its Board of
Directors, to terminate Employee's employment for Cause by giving
prior written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause,
Employee shall not be entitled to the benefits set forth in paragraph
4 which shall not be paid or payable and JLK only shall have the
obligation to pay Employee the unpaid portion of Employee's base
salary for the period from the last period from which Employee was
paid to the Date of Termination; provided, however, that if Employee's
employment is terminated as a result of the Disability of Employee,
the benefits set forth in paragraph 4 shall not be paid or payable but
(i) if JLK is then a subsidiary of Kennametal, Employee shall be
entitled to receive, the annual supplement under the Supplemental
Executive Retirement Plan and Employee's employment by JLK shall not
be deemed terminated for purposes of the Kennametal Long-Term
Disability Plan, the Kennametal Retirement Income Plan for U.S.
Salaried Employees or any other
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<PAGE> 14
Kennametal benefit plan which so provides and (ii) Employee's
employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this agreement "Disability" shall
mean such incapacity due to physical or mental illness or injury which
results in the Employee's being absent from his principal office at
JLK's offices (which may be located at Kennametal's offices) for the
entire portion of 180 consecutive business days. Prior to a
Change-in-Control, a decision by the Board of Directors of Kennametal
that "Cause" exists shall be in the discretion of the Board of
Directors and shall be final and binding upon the Employee and his
rights hereunder. After a Change-in-Control, "Cause" shall not be
deemed to include opposition by Employee to such a Change-in-Control
or any matter incidental thereto and any determination by the Board of
Directors that "Cause" existed shall not be final or binding upon the
Employee or his rights hereunder or entitled to any deference in any
court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(c) hereof, in the
event Employee resigns or his employment is terminated for any reason
other than death or Disability prior to his "Retirement Date" (as
hereinafter defined), he will forfeit any interest he may have in any
Kennametal or JLK retirement income plan (except to the extent vested
by actual service to date of separation as per the plan provisions),
and all other benefits dependent upon continuing service. The term
"Retirement Date" shall mean the first day of the month following the
day on which Employee attains his sixty-fifth birthday, or at
Employee's request, any other day that JLK's Board of Directors may
approve in writing.
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<PAGE> 15
7. Nothing herein contained shall affect the right of Employee to
participate in and receive benefits under and in accordance with the
then current provisions of any retirement income, profit-sharing,
additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program
of Kennametal or JLK and all payments hereunder shall be in addition
to any benefits received thereunder (including long term disability
payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply
to the Employee following a termination of Employee's employment (x)
if a Change-in-Control, shall have occurred prior to the Date of
Termination or (y) if Employee's employment is terminated by JLK other
than for Cause), he will not, in any geographic area in which JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior
written consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or
consultant to, any person, firm, partnership, association,
corporation or business organization, entity or enterprise which is
or is about to become directly or indirectly engaged
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<PAGE> 16
in, any business which is competitive with any business of JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) or any subsidiary or affiliate thereof in which
Employee is or was engaged; provided, however, that the foregoing
provisions of this paragraph 8 are not intended to prohibit and
shall not prohibit Employee from purchasing, for investment, not in
excess of 1% of any class of stock or other corporate security of
any company which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees
that remedies at law for any such breach will be inadequate and consents and
agrees that JLK (or Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) shall be entitled, without the necessity of proof of
actual damage, to injunctive relief in any proceedings which may be brought to
enforce the provisions of this paragraph 8. Employee acknowledges and warrants
that he will be fully able to earn an adequate livelihood for himself and his
dependents if this paragraph 8 should be specifically enforced against him and
that such enforcement will not impair his ability to obtain employment
commensurate with his abilities and fully acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date
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<PAGE> 17
of Termination is a subsidiary of Kennametal) hereby consent and agree that
such scope may be judicially modified in any proceeding brought to enforce such
restriction.
9. (a) Employee acknowledges and agrees that in the course of his
employment by JLK, Employee may work with, add to, create or acquire
trade secrets and confidential information ("Confidential Information")
which could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales
methods, sales proposals, identity of customers and
prospective customers, identity of customers' key purchasing
personnel, amount or kind of customers' purchases and other
information about customers; or
(iii) pertaining to future developments such as, but not
limited to, research and development or future marketing or
merchandising.
Employee further acknowledges and agrees that (i) all
Confidential Information is the property of JLK and/or Kennametal; (ii) the
unauthorized use, misappropriation or
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<PAGE> 18
disclosure of any Confidential Information would constitute a breach of trust
and could cause irreparable injury to JLK and/or Kennametal; and (iii) it is
essential to the protection of JLK's and/or Kennametal's good will and to the
maintenance of its competitive position that all Confidential Information be
kept secret and that Employee not disclose any Confidential Information to
others or use any Confidential Information to the detriment of JLK or
Kennametal.
Employee agrees to hold and safeguard all Confidential
Information in trust for JLK and Kennametal, each of their successors and
assigns and Employee shall not (except as required in the performance of
Employee's duties), use or disclose or make available to anyone for use outside
JLK's or Kennametal's organization at any time, either during employment with
JLK or subsequent thereto, any of the Confidential Information, whether or not
developed by Employee, without the prior written consent of JLK and Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its
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<PAGE> 19
or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries; the said
inventions, without further consideration other than such
salary as from time to time may be paid to him by JLK as
compensation for his services in any capacity, shall be and
remain the sole and exclusive property of JLK (and Kennametal,
if JLK on the Date of Termination is a subsidiary of
Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
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<PAGE> 20
(d) Employee agrees that he will not at any time aid in
attacking the patentability, scope, or validity of any
invention to which the provisions of subparagraphs (b) and
(c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce
his rights under, or to recover damages for breach of this agreement,
or (b) JLK or Kennametal institutes any action to avoid making any
payments due to Employee under this agreement, Employee, if he is the
prevailing party, shall be entitled to recover from the party or
parties in breach of this agreement or which sought to avoid making
payments hereunder (JLK and/or Kennametal) any actual expenses for
attorney's fees and other disbursements incurred by him in relation
thereto.
11. The terms and provisions of this agreement shall be binding upon, and
shall inure to the benefit of, Employee, JLK and Kennametal, their
subsidiaries and affiliates and their respective successors and
assigns.
12. This agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements and understandings,
whether oral or written, among the parties with respect to the subject
matter hereof; provided, however, that any prior employment agreement
between the Employee and Kennametal shall only be superseded if the
Effective Date occurs. This agreement may not be amended orally, but
only by an instrument in writing signed by each of the parties to this
agreement.
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<PAGE> 21
13. The invalidity or enforceability of any provision of this agreement
shall not affect the other provisions hereof, and this agreement shall
be construed in all respects as if such invalid or unenforceable
provision were omitted.
14. Any pronoun and any variation thereof used in this agreement shall be
deemed to refer to the masculine, feminine, neuter, singular or
plural, as the identity of the parties hereto may require.
15. JLK and Kennametal shall be entitled as a condition to paying any
severance pay or providing any benefits hereunder upon a termination
of the Employee's employment to require the Employee to deliver on or
before the making of any severance payment or providing of any benefit
a release in the form of Exhibit A attached hereto.
16. Not withstanding any other provision of this agreement, in the event
that any payment or benefit received or to be received by Employee in
connection with a change in control of the Corporation or Kennametal
or the termination of the Employee's employment (whether pursuant to
the terms of this agreement or any other plan, arrangement or
agreement with the Corporation or Kennametal, any person whose actions
result in a change in control or any person affiliated with the
Corporation or Kennametal or such person) (collectively, the "Total
Payments") would not be deductible, in whole or part, as a result of
section 280G of the Internal Revenue Code of 1986 (the "Code") by the
Corporation or Kennametal, an affiliate or other person making such
payment or providing such benefit, the payments due under this
agreement (the "Contract Payments") shall be reduced until no portion
of the Total Payments is not
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<PAGE> 22
deductible, or the Contract Payments are reduced to zero. In the event
that the Corporation or Kennametal determines that the Total Payments
would not be deductible, in whole or part, as a result of section 280G
of the Code, the Corporation or Kennametal shall immediately notify
Employee of this determination and the amount which would not be so
deductible as well as a computation of Total Payments. Employee shall
have five (5) business days after receipt of the foregoing notice and
computation to waive in writing all or any portion of any of the Total
Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing
shall not be taken into account (and, if the Corporation or Kennametal
had already withheld any Contract Payments prior to receipt of such
waiver, the Corporation or Kennametal upon receipt of such waiver
shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation or Kennametal had the
Employee's written waiver prior to the date the Corporation or
Kennametal withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the
Corporation's or Kennametal's independent auditors and acceptable to
Employee does not constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (ii) the Contract Payments shall be
reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the
Employee or referred to in clause (i)) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code or are otherwise not subject
to disallowance as deductions, in the
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<PAGE> 23
opinion of the tax counsel referred to in clause (i); and (iii) the
value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Corporation's or Kennametal's independent auditors in accordance with
the principles of section 280G(d)(3) and (4) of the Code.
17. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
18. This agreement shall become effective (the "Effective Date")
immediately upon the closing of the initial public offering of JLK's
Class A Common Stock pursuant to its Registration Statement on Form
S-1 filed under the Securities Act of 1933, Registration No.
333-25989. Until and unless the Effective Date occurs, this agreement
shall be of no force or effect and shall not be binding upon the
Employee, JLK or Kennametal.
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<PAGE> 24
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
_____________________________ By:________________________________
ATTEST: KENNAMETAL INC.
_____________________________ By:________________________________
WITNESS: Employee:
______________________________ _____________________________(SEAL)
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<PAGE> 25
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of
action or rights are known or unknown; provided, however, that this Release
shall not release, remise, quitclaim or discharge any claims, causes of action
or rights which the undersigned may have (i) under that certain Employment
Agreement dated _________, 199_ between the undersigned, JLK Direct
Distribution Inc. and Kennametal, Inc., (ii) to any unreimbursed expense
account or similar out-of-pocket reimbursement amounts owing the undersigned,
or (iii) under the bylaws of JLK Direct Distribution Inc. or Kennametal, Inc.
or the applicable state corporate statutes to indemnification for having served
as an officer and/or employee of Kennametal, Inc. and/or its subsidiaries.
DATE: __________________ _____________________________
<PAGE> 1
Exhibit 10.p
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into this _____ day of
________________________, 1997, by and between JLK DIRECT DISTRIBUTION INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania which
is a subsidiary of Kennametal Inc. ("Kennametal"), for and on behalf of itself
and on behalf of its subsidiary companies (hereinafter referred to as "JLK" or
the "Corporation"), KENNAMETAL and Kenneth M. McHenry, an individual
(hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal which are of a technical nature or business nature or pertain to
future developments, the disclosure of which trade secrets or confidential
information would be highly detrimental to the interests of JLK and Kennametal;
and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of employing; and WHEREAS, Kennametal and Employee may have
heretofore entered into and executed an employment agreement,
as amended (the "Kennametal Employment Agreement").
NOW, THEREFORE, JLK, Kennametal and Employee, each intending to be
legally bound hereby, do mutually covenant and agree as follows:
<PAGE> 2
1. (a) Subject to the terms and conditions set forth herein, JLK
hereby agrees to employ Employee as of the Effective Date, as such term
is hereinafter defined, and Employee hereby accepts such employment and
agrees to devote his full time and attention to the business and
affairs of JLK, in such capacity or capacities and to perform to the
best of his ability such services as shall be determined from time to
time by the President and the Board of Directors of JLK until the
termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere
herein, Employee, subject to the terms and conditions of this
agreement, shall be entitled to participate in all group insurance
programs, retirement income (pension) plans, thrift plans and vacation
and holiday programs normally provided for other executives of
Kennametal. Nothing herein contained shall be deemed to limit or
prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel,
lodging, meals, entertainment expenses or any other expenses in
accordance with the policies of JLK applicable to the executives of
JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party
prior written
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<PAGE> 3
notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of
Directors; provided, further, that termination by JLK for Cause (as
hereinafter defined) shall be made by written notice which states that
it is a termination for Cause; and provided, further, that termination
by Employee, other than termination for Good Reason (as hereafter
defined) following a Change-in-Control (as hereafter defined), shall
be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay, in addition to all amounts due him at the Date of
Termination (as hereinafter defined), an amount, payable promptly
after the Date of Termination, equal to three months' base salary at
the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated by Employee
following a Change-in-Control without Good or prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control that Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) an amount equal to the product of
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<PAGE> 4
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months remaining
from the Date of Termination to the Employee's Retirement
Date (as such term is hereafter defined) divided by twelve
(12), or
(z) a number equal to the product, if positive, obtained by
multiplying (AA) thirty-six (36) less the number of completed
months after the date of the Change-in-Control during which
the Employee was employed and did not have Good Reason for
termination times (BB) one-twelfth (1/12);
times
(ii) the sum of
(x) Employee's base salary at the annual rate in effect on
the Date of Termination (or, at Employee's election, at the
annual rate in effect on the first day of the calendar month
immediately prior to the Change-in-Control), plus
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<PAGE> 5
(y) the average of any bonuses which Employee was entitled to
or paid during the three most recent fiscal years ending
prior to the Date of Termination (or, at Employee's election,
the average of any bonuses which Employee was entitled to or
paid for the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
In addition to the severance payments provided for in this paragraph
4(c), Employee also will receive the same or equivalent medical,
dental, disability and group insurance benefits as were provided to
the Employee at the Date of Termination, which benefits shall be
provided by JLK (or by Kennametal if it had been providing such
benefits prior to the Date of Termination) to Employee for a three
year period commencing on the Date of Termination. The Employee shall
also be deemed and shall be credited for computing benefits, for
vesting and for all other purposes under any pension or retirement
income plan applicable to employees of JLK (including, if applicable,
Kennametal's Supplemental Executive Retirement Plan) to have
continuously remained in the employment of JLK for the three year
period (or, if clause (i)(y) or clause (i)(z) above of this paragraph
4(c) is applicable to determine the
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<PAGE> 6
severance payments to be made, the lesser period measured in years
equal to clause (i)(y) or clause (i)(z) above, whichever is
applicable) following the Date of Termination at an annual
compensation equal to the sum of the base salary and bonus which were
used to compute the payment due the Employee under the first paragraph
of this Paragraph 4(c).
(d) If for any reason, whether by law or provisions of any employee
medical, dental or group insurance, pension or retirement plan or
other benefit plan in which the Employee is eligible to participate,
any benefits which the Employee would be entitled to under the
foregoing subparagraph (c) of this Paragraph 4 cannot be paid pursuant
to such employee benefit plans, then JLK (or Kennametal if it had been
providing such benefits prior to the Date of Termination) hereby
contractually agrees to pay to the Employee the difference between the
benefits which the Employee would have received in accordance with the
foregoing subparagraphs of this paragraph 4 if the relevant employee
medical, dental or group insurance or pension or retirement plan or
other benefit plan could have paid such benefit and the amount of
benefits, if any, actually paid by such employee medical, dental or
group insurance or pension or retirement plan or other benefit plan.
Neither JLK nor Kennametal shall be required to fund its obligation to
pay the foregoing difference.
(c) In the event of a termination of employment under the
circumstances above described in Paragraph 4(c), Employee shall have
no duty to seek any other employment after termination of Employee's
employment with JLK and
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<PAGE> 7
JLK and Kennametal hereby waive and agree not to raise or use any
defense based on the position that Employee had a duty to mitigate or
reduce the amounts due him hereunder by seeking other employment
whether suitable or unsuitable and should Employee obtain other
employment, then the only effect of such on the obligations of JLK or
Kennametal hereunder shall be that JLK and Kennametal shall be
entitled to credit against any payments which would otherwise be made
for medical, dental or group insurance or similar benefits (excluding,
however, any credit against payments relating to pension or retirement
benefits or, if applicable, Kennametal's Supplemental Executive
Retirement Plan) pursuant to the benefit provisions set forth in the
second paragraph of Paragraph 4(c) hereof, any comparable payments to
which Employee is entitled under the employee benefit plans maintained
by Employee's other employer or employers in connection with services
to such employer or employers after termination of his employment with
JLK.
(f) The term "Change-in-Control" shall mean either (i) a Kennametal
Change-in-Control, if such occurs when JLK is a direct or indirect
subsidiary of Kennametal or when Kennametal and its affiliates own
shares of Class B Common Stock of JLK or (ii) a JLK Change-in-Control.
A Kennametal Change-in-Control shall mean a change in control of a
nature that would be required to be reported by Kennametal in response
to Item 6(e) of Schedule 14A promulgated under the Securities Exchange
Act of 1934 as in effect on the date hereof ("1934 Act"), or if Item
6(e) is no longer in effect, any regulations issued by the
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<PAGE> 8
Securities and Exchange Commission pursuant to the 1934 Act which
serve similar purposes; provided that, without limitation, such a
Kennametal Change-in-Control shall be deemed to have occurred if (A)
Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation
or other entity all of whose equity interests are owned by Kennametal
immediately prior to the merger or consolidation, or (B) Kennametal
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of Kennametal representing 25% or more of
the combined voting power of Kennametal's then outstanding securities
coupled with or followed by a majority of the board of directors of
Kennametal consisting of persons other than persons who either were
directors of Kennametal immediately prior to or were nominated by
those persons who were directors of Kennametal immediately prior to
such person becoming a beneficial owner, directly or indirectly, of
securities of Kennametal representing 25% or more of the combined
voting power of Kennametal's then outstanding securities. A JLK
Change-in-Control shall mean that both of the following conditions
shall have occurred: (i) either JLK is no longer a direct or indirect
subsidiary of Kennametal or Kennametal and its affiliates no longer
own any shares of Class B Common Stock of JLK and (ii) a change in
control of a nature that would be required to be reported by JLK in
response to Item 6(e) of
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<PAGE> 9
Schedule 14A promulgated under the Securities Exchange Act of 1934 as
in effect on the date hereof ("1934 Act"), or if Item 6(e) is no
longer in effect, any regulations issued by the Securities and
Exchange Commission pursuant to the 1934 Act which serve similar
purposes; provided that, without limitation, the second condition set
forth in subclause (ii) of this sentence shall be deemed to have
occurred if (A) JLK shall be merged or consolidated with any
corporation or other entity other than a merger or consolidation with
a corporation or other entity all of whose equity interests are owned
(1) by JLK immediately prior to the merger or consolidation or (2) by
Kennametal and/or its subsidiaries if JLK is at the time of such
merger or consolidation a direct or indirect subsidiary of Kennametal
or if Kennametal and its affiliates at the time of such merger or
consolidation own shares of Class B Common Stock of JLK, or (B) JLK
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of JLK representing 25% or more of the
combined voting power of JLK's then outstanding securities coupled
with or followed by a majority of the board of directors of JLK
consisting of persons other than persons who either were directors of
JLK immediately prior to or were nominated by those persons who were
directors of JLK immediately prior to such person becoming a
beneficial owner, directly or indirectly, of securities of JLK
representing 25% or more of the combined voting power of JLK's then
outstanding securities.
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<PAGE> 10
(g) For purposes of this agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other reason,
the date on which the termination becomes effective as stated in
the written notice of termination given to or by the Employee.
(h) The term "Good Reason" for termination by the Employee shall
mean he occurrence of any of the following at or after a
Change-in-Control:
(i) without the Employee's express written consent, the assignment
to the Employee of any duties materially and substantially
inconsistent with his positions, duties, responsibilities and
status with JLK immediately prior to a Change-in-Control, or a
material change in his reporting responsibilities, titles or
offices as in effect immediately prior to a Change-in-Control, or
any removal of the Employee from or any failure to re-elect the
Employee to any of such positions, except in connection with the
termination of the Employee`s employment due to Cause or as a
result of the Employee's death;
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<PAGE> 11
(ii) a reduction by JLK in the Employee's base salary as in effect
immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately prior
to any Change-in-Control;
(iv) in the event of a Change-in-Control which is a Kennametal
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of Kennametal in
which Employee is participating immediately prior to a Kennametal
Change-in-Control (provided, however, that there shall not be
deemed to be any such failure if Kennametal substitutes for the
discontinued plan, a plan providing Employee with substantially
similar benefits) or the taking of any action by Kennametal which
would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(v) in the event of a Change-in-Control which is a JLK
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of JLK in which
Employee is participating
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<PAGE> 12
immediately prior to a JLK Change-in-Control (provided, however,
that there shall not be deemed to be any such failure if JLK
substitutes for the discontinued plan, a plan providing Employee
with substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans or
deprive Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(vi) if the Employee is eligible to participate in any Kennametal
benefit or compensation plan, stock option plan, pension plan, life
insurance plan, health and accident plan or disability plan, the
failure of Kennametal to obtain the assumption of this Agreement by
any successor as contemplated in paragraph 11 hereof;
(vii) the failure of JLK to obtain the assumption of this Agreement
by any successor as contemplated in paragraph 11 hereof
(viii) the relocation of the Employee to a facility or a location
more than 50 miles from the Employee's then present location,
without the Employee's prior written consent; or
(ix) any purported termination of the employment of Employee by JLK
which is not for Cause as provided in paragraph 5.
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<PAGE> 13
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services
contemplated by this agreement, or (b) shall not make his services
available to JLK on a full time basis in accordance with paragraph 1
hereof for any reason (including Disability) other than arising from
Employee's incapacity due to physical or mental illness or injury
which does not constitute Disability and other than by reason of the
fact Employee's employment has been terminated under the circumstances
described in paragraph 4(a), or (c) shall breach the provisions of
paragraph 8 hereof (the matters described in subparagraphs (a), (b)
and (c) are collectively referred to as "Cause"), JLK shall have the
right, exercised by resolution adopted by a majority of its Board of
Directors, to terminate Employee's employment for Cause by giving
prior written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause,
Employee shall not be entitled to the benefits set forth in paragraph
4 which shall not be paid or payable and JLK only shall have the
obligation to pay Employee the unpaid portion of Employee's base
salary for the period from the last period from which Employee was
paid to the Date of Termination; provided, however, that if Employee's
employment is terminated as a result of the Disability of Employee,
the benefits set forth in paragraph 4 shall not be paid or payable but
(i) if JLK is then a subsidiary of Kennametal, Employee shall be
entitled to receive, the annual supplement under the Supplemental
Executive Retirement Plan and Employee's employment by JLK shall not
be deemed terminated for purposes of the Kennametal Long-Term
Disability Plan, the Kennametal Retirement Income Plan for U.S.
Salaried Employees or any other
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<PAGE> 14
Kennametal benefit plan which so provides and (ii) Employee's
employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this agreement "Disability" shall
mean such incapacity due to physical or mental illness or injury which
results in the Employee's being absent from his principal office at
JLK's offices (which may be located at Kennametal's offices) for the
entire portion of 180 consecutive business days. Prior to a
Change-in-Control, a decision by the Board of Directors of Kennametal
that "Cause" exists shall be in the discretion of the Board of
Directors and shall be final and binding upon the Employee and his
rights hereunder. After a Change-in-Control, "Cause" shall not be
deemed to include opposition by Employee to such a Change-in-Control
or any matter incidental thereto and any determination by the Board of
Directors that "Cause" existed shall not be final or binding upon the
Employee or his rights hereunder or entitled to any deference in any
court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(c) hereof, in the
event Employee resigns or his employment is terminated for any reason
other than death or Disability prior to his "Retirement Date" (as
hereinafter defined), he will forfeit any interest he may have in any
Kennametal or JLK retirement income plan (except to the extent vested
by actual service to date of separation as per the plan provisions),
and all other benefits dependent upon continuing service. The term
"Retirement Date" shall mean the first day of the month following the
day on which Employee attains his sixty-fifth birthday, or at
Employee's request, any other day that JLK's Board of Directors may
approve in writing.
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<PAGE> 15
7. Nothing herein contained shall affect the right of Employee to
participate in and receive benefits under and in accordance with the
then current provisions of any retirement income, profit-sharing,
additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program
of Kennametal or JLK and all payments hereunder shall be in addition
to any benefits received thereunder (including long term disability
payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply
to the Employee following a termination of Employee's employment (x)
if a Change-in-Control, shall have occurred prior to the Date of
Termination or (y) if Employee's employment is terminated by JLK other
than for Cause), he will not, in any geographic area in which JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior
written consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or
consultant to, any person, firm, partnership, association,
corporation or business organization, entity or enterprise which is
or is about to become directly or indirectly engaged
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<PAGE> 16
in, any business which is competitive with any business of JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) or any subsidiary or affiliate thereof in which
Employee is or was engaged; provided, however, that the foregoing
provisions of this paragraph 8 are not intended to prohibit and
shall not prohibit Employee from purchasing, for investment, not in
excess of 1% of any class of stock or other corporate security of
any company which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees
that remedies at law for any such breach will be inadequate and consents and
agrees that JLK (or Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) shall be entitled, without the necessity of proof of
actual damage, to injunctive relief in any proceedings which may be brought to
enforce the provisions of this paragraph 8. Employee acknowledges and warrants
that he will be fully able to earn an adequate livelihood for himself and his
dependents if this paragraph 8 should be specifically enforced against him and
that such enforcement will not impair his ability to obtain employment
commensurate with his abilities and fully acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date
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<PAGE> 17
of Termination is a subsidiary of Kennametal) hereby consent and agree that
such scope may be judicially modified in any proceeding brought to enforce such
restriction.
9. (a) Employee acknowledges and agrees that in the course of his
employment by JLK, Employee may work with, add to, create or acquire
trade secrets and confidential information ("Confidential Information")
which could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales
methods, sales proposals, identity of customers and
prospective customers, identity of customers' key purchasing
personnel, amount or kind of customers' purchases and other
information about customers; or
(iii) pertaining to future developments such as, but not
limited to, research and development or future marketing or
merchandising.
Employee further acknowledges and agrees that (i) all
Confidential Information is the property of JLK and/or Kennametal; (ii) the
unauthorized use, misappropriation or
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<PAGE> 18
disclosure of any Confidential Information would constitute a breach of trust
and could cause irreparable injury to JLK and/or Kennametal; and (iii) it is
essential to the protection of JLK's and/or Kennametal's good will and to the
maintenance of its competitive position that all Confidential Information be
kept secret and that Employee not disclose any Confidential Information to
others or use any Confidential Information to the detriment of JLK or
Kennametal.
Employee agrees to hold and safeguard all Confidential
Information in trust for JLK and Kennametal, each of their successors and
assigns and Employee shall not (except as required in the performance of
Employee's duties), use or disclose or make available to anyone for use outside
JLK's or Kennametal's organization at any time, either during employment with
JLK or subsequent thereto, any of the Confidential Information, whether or not
developed by Employee, without the prior written consent of JLK and Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its
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<PAGE> 19
or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries; the said
inventions, without further consideration other than such
salary as from time to time may be paid to him by JLK as
compensation for his services in any capacity, shall be and
remain the sole and exclusive property of JLK (and Kennametal,
if JLK on the Date of Termination is a subsidiary of
Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
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<PAGE> 20
(d) Employee agrees that he will not at any time aid in
attacking the patentability, scope, or validity of any
invention to which the provisions of subparagraphs (b) and
(c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce
his rights under, or to recover damages for breach of this agreement,
or (b) JLK or Kennametal institutes any action to avoid making any
payments due to Employee under this agreement, Employee, if he is the
prevailing party, shall be entitled to recover from the party or
parties in breach of this agreement or which sought to avoid making
payments hereunder (JLK and/or Kennametal) any actual expenses for
attorney's fees and other disbursements incurred by him in relation
thereto.
11. The terms and provisions of this agreement shall be binding upon, and
shall inure to the benefit of, Employee, JLK and Kennametal, their
subsidiaries and affiliates and their respective successors and
assigns.
12. This agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements and understandings,
whether oral or written, among the parties with respect to the subject
matter hereof; provided, however, that any prior employment agreement
between the Employee and Kennametal shall only be superseded if the
Effective Date occurs. This agreement may not be amended orally, but
only by an instrument in writing signed by each of the parties to this
agreement.
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<PAGE> 21
13. The invalidity or enforceability of any provision of this agreement
shall not affect the other provisions hereof, and this agreement shall
be construed in all respects as if such invalid or unenforceable
provision were omitted.
14. Any pronoun and any variation thereof used in this agreement shall be
deemed to refer to the masculine, feminine, neuter, singular or
plural, as the identity of the parties hereto may require.
15. JLK and Kennametal shall be entitled as a condition to paying any
severance pay or providing any benefits hereunder upon a termination
of the Employee's employment to require the Employee to deliver on or
before the making of any severance payment or providing of any benefit
a release in the form of Exhibit A attached hereto.
16. Not withstanding any other provision of this agreement, in the event
that any payment or benefit received or to be received by Employee in
connection with a change in control of the Corporation or Kennametal
or the termination of the Employee's employment (whether pursuant to
the terms of this agreement or any other plan, arrangement or
agreement with the Corporation or Kennametal, any person whose actions
result in a change in control or any person affiliated with the
Corporation or Kennametal or such person) (collectively, the "Total
Payments") would not be deductible, in whole or part, as a result of
section 280G of the Internal Revenue Code of 1986 (the "Code") by the
Corporation or Kennametal, an affiliate or other person making such
payment or providing such benefit, the payments due under this
agreement (the "Contract Payments") shall be reduced until no portion
of the Total Payments is not
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<PAGE> 22
deductible, or the Contract Payments are reduced to zero. In the event
that the Corporation or Kennametal determines that the Total Payments
would not be deductible, in whole or part, as a result of section 280G
of the Code, the Corporation or Kennametal shall immediately notify
Employee of this determination and the amount which would not be so
deductible as well as a computation of Total Payments. Employee shall
have five (5) business days after receipt of the foregoing notice and
computation to waive in writing all or any portion of any of the Total
Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing
shall not be taken into account (and, if the Corporation or Kennametal
had already withheld any Contract Payments prior to receipt of such
waiver, the Corporation or Kennametal upon receipt of such waiver
shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation or Kennametal had the
Employee's written waiver prior to the date the Corporation or
Kennametal withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the
Corporation's or Kennametal's independent auditors and acceptable to
Employee does not constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (ii) the Contract Payments shall be
reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the
Employee or referred to in clause (i)) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code or are otherwise not subject
to disallowance as deductions, in the
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<PAGE> 23
opinion of the tax counsel referred to in clause (i); and (iii) the
value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Corporation's or Kennametal's independent auditors in accordance with
the principles of section 280G(d)(3) and (4) of the Code.
17. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
18. This agreement shall become effective (the "Effective Date")
immediately upon the closing of the initial public offering of JLK's
Class A Common Stock pursuant to its Registration Statement on Form
S-1 filed under the Securities Act of 1933, Registration No.
333-25989. Until and unless the Effective Date occurs, this agreement
shall be of no force or effect and shall not be binding upon the
Employee, JLK or Kennametal.
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<PAGE> 24
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
_____________________________ By:________________________________
ATTEST: KENNAMETAL INC.
_____________________________ By:________________________________
WITNESS: Employee:
______________________________ _____________________________(SEAL)
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<PAGE> 25
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of
action or rights are known or unknown; provided, however, that this Release
shall not release, remise, quitclaim or discharge any claims, causes of action
or rights which the undersigned may have (i) under that certain Employment
Agreement dated _________, 199_ between the undersigned, JLK Direct
Distribution Inc. and Kennametal, Inc., (ii) to any unreimbursed expense
account or similar out-of-pocket reimbursement amounts owing the undersigned,
or (iii) under the bylaws of JLK Direct Distribution Inc. or Kennametal, Inc.
or the applicable state corporate statutes to indemnification for having served
as an officer and/or employee of Kennametal, Inc. and/or its subsidiaries.
DATE: __________________ _____________________________
<PAGE> 1
Exhibit 10.q
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into this _____ day of
________________________, 1997, by and between JLK DIRECT DISTRIBUTION INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania which
is a subsidiary of Kennametal Inc. ("Kennametal"), for and on behalf of itself
and on behalf of its subsidiary companies (hereinafter referred to as "JLK" or
the "Corporation"), KENNAMETAL and Roland E. Lazzaro, an individual (hereinafter
referred to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal which are of a technical nature or business nature or pertain to
future developments, the disclosure of which trade secrets or confidential
information would be highly detrimental to the interests of JLK and Kennametal;
and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of employing; and WHEREAS, Kennametal and Employee may have
heretofore entered into and executed an employment agreement,
as amended (the "Kennametal Employment Agreement").
NOW, THEREFORE, JLK, Kennametal and Employee, each intending to be
legally bound hereby, do mutually covenant and agree as follows:
<PAGE> 2
1. (a) Subject to the terms and conditions set forth herein, JLK
hereby agrees to employ Employee as of the Effective Date, as such term
is hereinafter defined, and Employee hereby accepts such employment and
agrees to devote his full time and attention to the business and
affairs of JLK, in such capacity or capacities and to perform to the
best of his ability such services as shall be determined from time to
time by the President and the Board of Directors of JLK until the
termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere
herein, Employee, subject to the terms and conditions of this
agreement, shall be entitled to participate in all group insurance
programs, retirement income (pension) plans, thrift plans and vacation
and holiday programs normally provided for other executives of
Kennametal. Nothing herein contained shall be deemed to limit or
prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel,
lodging, meals, entertainment expenses or any other expenses in
accordance with the policies of JLK applicable to the executives of
JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party
prior written
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<PAGE> 3
notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of
Directors; provided, further, that termination by JLK for Cause (as
hereinafter defined) shall be made by written notice which states that
it is a termination for Cause; and provided, further, that termination
by Employee, other than termination for Good Reason (as hereafter
defined) following a Change-in-Control (as hereafter defined), shall
be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay, in addition to all amounts due him at the Date of
Termination (as hereinafter defined), an amount, payable promptly
after the Date of Termination, equal to three months' base salary at
the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated by Employee
following a Change-in-Control without Good or prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control that Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) an amount equal to the product of
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<PAGE> 4
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months remaining
from the Date of Termination to the Employee's Retirement
Date (as such term is hereafter defined) divided by twelve
(12), or
(z) a number equal to the product, if positive, obtained by
multiplying (AA) thirty-six (36) less the number of completed
months after the date of the Change-in-Control during which
the Employee was employed and did not have Good Reason for
termination times (BB) one-twelfth (1/12);
times
(ii) the sum of
(x) Employee's base salary at the annual rate in effect on
the Date of Termination (or, at Employee's election, at the
annual rate in effect on the first day of the calendar month
immediately prior to the Change-in-Control), plus
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<PAGE> 5
(y) the average of any bonuses which Employee was entitled to
or paid during the three most recent fiscal years ending
prior to the Date of Termination (or, at Employee's election,
the average of any bonuses which Employee was entitled to or
paid for the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
In addition to the severance payments provided for in this paragraph
4(c), Employee also will receive the same or equivalent medical,
dental, disability and group insurance benefits as were provided to
the Employee at the Date of Termination, which benefits shall be
provided by JLK (or by Kennametal if it had been providing such
benefits prior to the Date of Termination) to Employee for a three
year period commencing on the Date of Termination. The Employee shall
also be deemed and shall be credited for computing benefits, for
vesting and for all other purposes under any pension or retirement
income plan applicable to employees of JLK (including, if applicable,
Kennametal's Supplemental Executive Retirement Plan) to have
continuously remained in the employment of JLK for the three year
period (or, if clause (i)(y) or clause (i)(z) above of this paragraph
4(c) is applicable to determine the
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<PAGE> 6
severance payments to be made, the lesser period measured in years
equal to clause (i)(y) or clause (i)(z) above, whichever is
applicable) following the Date of Termination at an annual
compensation equal to the sum of the base salary and bonus which were
used to compute the payment due the Employee under the first paragraph
of this Paragraph 4(c).
(d) If for any reason, whether by law or provisions of any employee
medical, dental or group insurance, pension or retirement plan or
other benefit plan in which the Employee is eligible to participate,
any benefits which the Employee would be entitled to under the
foregoing subparagraph (c) of this Paragraph 4 cannot be paid pursuant
to such employee benefit plans, then JLK (or Kennametal if it had been
providing such benefits prior to the Date of Termination) hereby
contractually agrees to pay to the Employee the difference between the
benefits which the Employee would have received in accordance with the
foregoing subparagraphs of this paragraph 4 if the relevant employee
medical, dental or group insurance or pension or retirement plan or
other benefit plan could have paid such benefit and the amount of
benefits, if any, actually paid by such employee medical, dental or
group insurance or pension or retirement plan or other benefit plan.
Neither JLK nor Kennametal shall be required to fund its obligation to
pay the foregoing difference.
(c) In the event of a termination of employment under the
circumstances above described in Paragraph 4(c), Employee shall have
no duty to seek any other employment after termination of Employee's
employment with JLK and
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<PAGE> 7
JLK and Kennametal hereby waive and agree not to raise or use any
defense based on the position that Employee had a duty to mitigate or
reduce the amounts due him hereunder by seeking other employment
whether suitable or unsuitable and should Employee obtain other
employment, then the only effect of such on the obligations of JLK or
Kennametal hereunder shall be that JLK and Kennametal shall be
entitled to credit against any payments which would otherwise be made
for medical, dental or group insurance or similar benefits (excluding,
however, any credit against payments relating to pension or retirement
benefits or, if applicable, Kennametal's Supplemental Executive
Retirement Plan) pursuant to the benefit provisions set forth in the
second paragraph of Paragraph 4(c) hereof, any comparable payments to
which Employee is entitled under the employee benefit plans maintained
by Employee's other employer or employers in connection with services
to such employer or employers after termination of his employment with
JLK.
(f) The term "Change-in-Control" shall mean either (i) a Kennametal
Change-in-Control, if such occurs when JLK is a direct or indirect
subsidiary of Kennametal or when Kennametal and its affiliates own
shares of Class B Common Stock of JLK or (ii) a JLK Change-in-Control.
A Kennametal Change-in-Control shall mean a change in control of a
nature that would be required to be reported by Kennametal in response
to Item 6(e) of Schedule 14A promulgated under the Securities Exchange
Act of 1934 as in effect on the date hereof ("1934 Act"), or if Item
6(e) is no longer in effect, any regulations issued by the
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<PAGE> 8
Securities and Exchange Commission pursuant to the 1934 Act which
serve similar purposes; provided that, without limitation, such a
Kennametal Change-in-Control shall be deemed to have occurred if (A)
Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation
or other entity all of whose equity interests are owned by Kennametal
immediately prior to the merger or consolidation, or (B) Kennametal
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of Kennametal representing 25% or more of
the combined voting power of Kennametal's then outstanding securities
coupled with or followed by a majority of the board of directors of
Kennametal consisting of persons other than persons who either were
directors of Kennametal immediately prior to or were nominated by
those persons who were directors of Kennametal immediately prior to
such person becoming a beneficial owner, directly or indirectly, of
securities of Kennametal representing 25% or more of the combined
voting power of Kennametal's then outstanding securities. A JLK
Change-in-Control shall mean that both of the following conditions
shall have occurred: (i) either JLK is no longer a direct or indirect
subsidiary of Kennametal or Kennametal and its affiliates no longer
own any shares of Class B Common Stock of JLK and (ii) a change in
control of a nature that would be required to be reported by JLK in
response to Item 6(e) of
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<PAGE> 9
Schedule 14A promulgated under the Securities Exchange Act of 1934 as
in effect on the date hereof ("1934 Act"), or if Item 6(e) is no
longer in effect, any regulations issued by the Securities and
Exchange Commission pursuant to the 1934 Act which serve similar
purposes; provided that, without limitation, the second condition set
forth in subclause (ii) of this sentence shall be deemed to have
occurred if (A) JLK shall be merged or consolidated with any
corporation or other entity other than a merger or consolidation with
a corporation or other entity all of whose equity interests are owned
(1) by JLK immediately prior to the merger or consolidation or (2) by
Kennametal and/or its subsidiaries if JLK is at the time of such
merger or consolidation a direct or indirect subsidiary of Kennametal
or if Kennametal and its affiliates at the time of such merger or
consolidation own shares of Class B Common Stock of JLK, or (B) JLK
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of JLK representing 25% or more of the
combined voting power of JLK's then outstanding securities coupled
with or followed by a majority of the board of directors of JLK
consisting of persons other than persons who either were directors of
JLK immediately prior to or were nominated by those persons who were
directors of JLK immediately prior to such person becoming a
beneficial owner, directly or indirectly, of securities of JLK
representing 25% or more of the combined voting power of JLK's then
outstanding securities.
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<PAGE> 10
(g) For purposes of this agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other reason,
the date on which the termination becomes effective as stated in
the written notice of termination given to or by the Employee.
(h) The term "Good Reason" for termination by the Employee shall
mean he occurrence of any of the following at or after a
Change-in-Control:
(i) without the Employee's express written consent, the assignment
to the Employee of any duties materially and substantially
inconsistent with his positions, duties, responsibilities and
status with JLK immediately prior to a Change-in-Control, or a
material change in his reporting responsibilities, titles or
offices as in effect immediately prior to a Change-in-Control, or
any removal of the Employee from or any failure to re-elect the
Employee to any of such positions, except in connection with the
termination of the Employee`s employment due to Cause or as a
result of the Employee's death;
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<PAGE> 11
(ii) a reduction by JLK in the Employee's base salary as in effect
immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately prior
to any Change-in-Control;
(iv) in the event of a Change-in-Control which is a Kennametal
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of Kennametal in
which Employee is participating immediately prior to a Kennametal
Change-in-Control (provided, however, that there shall not be
deemed to be any such failure if Kennametal substitutes for the
discontinued plan, a plan providing Employee with substantially
similar benefits) or the taking of any action by Kennametal which
would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(v) in the event of a Change-in-Control which is a JLK
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of JLK in which
Employee is participating
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<PAGE> 12
immediately prior to a JLK Change-in-Control (provided, however,
that there shall not be deemed to be any such failure if JLK
substitutes for the discontinued plan, a plan providing Employee
with substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans or
deprive Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(vi) if the Employee is eligible to participate in any Kennametal
benefit or compensation plan, stock option plan, pension plan, life
insurance plan, health and accident plan or disability plan, the
failure of Kennametal to obtain the assumption of this Agreement by
any successor as contemplated in paragraph 11 hereof;
(vii) the failure of JLK to obtain the assumption of this Agreement
by any successor as contemplated in paragraph 11 hereof
(viii) the relocation of the Employee to a facility or a location
more than 50 miles from the Employee's then present location,
without the Employee's prior written consent; or
(ix) any purported termination of the employment of Employee by JLK
which is not for Cause as provided in paragraph 5.
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<PAGE> 13
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services
contemplated by this agreement, or (b) shall not make his services
available to JLK on a full time basis in accordance with paragraph 1
hereof for any reason (including Disability) other than arising from
Employee's incapacity due to physical or mental illness or injury
which does not constitute Disability and other than by reason of the
fact Employee's employment has been terminated under the circumstances
described in paragraph 4(a), or (c) shall breach the provisions of
paragraph 8 hereof (the matters described in subparagraphs (a), (b)
and (c) are collectively referred to as "Cause"), JLK shall have the
right, exercised by resolution adopted by a majority of its Board of
Directors, to terminate Employee's employment for Cause by giving
prior written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause,
Employee shall not be entitled to the benefits set forth in paragraph
4 which shall not be paid or payable and JLK only shall have the
obligation to pay Employee the unpaid portion of Employee's base
salary for the period from the last period from which Employee was
paid to the Date of Termination; provided, however, that if Employee's
employment is terminated as a result of the Disability of Employee,
the benefits set forth in paragraph 4 shall not be paid or payable but
(i) if JLK is then a subsidiary of Kennametal, Employee shall be
entitled to receive, the annual supplement under the Supplemental
Executive Retirement Plan and Employee's employment by JLK shall not
be deemed terminated for purposes of the Kennametal Long-Term
Disability Plan, the Kennametal Retirement Income Plan for U.S.
Salaried Employees or any other
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<PAGE> 14
Kennametal benefit plan which so provides and (ii) Employee's
employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this agreement "Disability" shall
mean such incapacity due to physical or mental illness or injury which
results in the Employee's being absent from his principal office at
JLK's offices (which may be located at Kennametal's offices) for the
entire portion of 180 consecutive business days. Prior to a
Change-in-Control, a decision by the Board of Directors of Kennametal
that "Cause" exists shall be in the discretion of the Board of
Directors and shall be final and binding upon the Employee and his
rights hereunder. After a Change-in-Control, "Cause" shall not be
deemed to include opposition by Employee to such a Change-in-Control
or any matter incidental thereto and any determination by the Board of
Directors that "Cause" existed shall not be final or binding upon the
Employee or his rights hereunder or entitled to any deference in any
court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(c) hereof, in the
event Employee resigns or his employment is terminated for any reason
other than death or Disability prior to his "Retirement Date" (as
hereinafter defined), he will forfeit any interest he may have in any
Kennametal or JLK retirement income plan (except to the extent vested
by actual service to date of separation as per the plan provisions),
and all other benefits dependent upon continuing service. The term
"Retirement Date" shall mean the first day of the month following the
day on which Employee attains his sixty-fifth birthday, or at
Employee's request, any other day that JLK's Board of Directors may
approve in writing.
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<PAGE> 15
7. Nothing herein contained shall affect the right of Employee to
participate in and receive benefits under and in accordance with the
then current provisions of any retirement income, profit-sharing,
additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program
of Kennametal or JLK and all payments hereunder shall be in addition
to any benefits received thereunder (including long term disability
payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply
to the Employee following a termination of Employee's employment (x)
if a Change-in-Control, shall have occurred prior to the Date of
Termination or (y) if Employee's employment is terminated by JLK other
than for Cause), he will not, in any geographic area in which JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior
written consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or
consultant to, any person, firm, partnership, association,
corporation or business organization, entity or enterprise which is
or is about to become directly or indirectly engaged
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<PAGE> 16
in, any business which is competitive with any business of JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) or any subsidiary or affiliate thereof in which
Employee is or was engaged; provided, however, that the foregoing
provisions of this paragraph 8 are not intended to prohibit and
shall not prohibit Employee from purchasing, for investment, not in
excess of 1% of any class of stock or other corporate security of
any company which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees
that remedies at law for any such breach will be inadequate and consents and
agrees that JLK (or Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) shall be entitled, without the necessity of proof of
actual damage, to injunctive relief in any proceedings which may be brought to
enforce the provisions of this paragraph 8. Employee acknowledges and warrants
that he will be fully able to earn an adequate livelihood for himself and his
dependents if this paragraph 8 should be specifically enforced against him and
that such enforcement will not impair his ability to obtain employment
commensurate with his abilities and fully acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date
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<PAGE> 17
of Termination is a subsidiary of Kennametal) hereby consent and agree that
such scope may be judicially modified in any proceeding brought to enforce such
restriction.
9. (a) Employee acknowledges and agrees that in the course of his
employment by JLK, Employee may work with, add to, create or acquire
trade secrets and confidential information ("Confidential Information")
which could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales
methods, sales proposals, identity of customers and
prospective customers, identity of customers' key purchasing
personnel, amount or kind of customers' purchases and other
information about customers; or
(iii) pertaining to future developments such as, but not
limited to, research and development or future marketing or
merchandising.
Employee further acknowledges and agrees that (i) all
Confidential Information is the property of JLK and/or Kennametal; (ii) the
unauthorized use, misappropriation or
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<PAGE> 18
disclosure of any Confidential Information would constitute a breach of trust
and could cause irreparable injury to JLK and/or Kennametal; and (iii) it is
essential to the protection of JLK's and/or Kennametal's good will and to the
maintenance of its competitive position that all Confidential Information be
kept secret and that Employee not disclose any Confidential Information to
others or use any Confidential Information to the detriment of JLK or
Kennametal.
Employee agrees to hold and safeguard all Confidential
Information in trust for JLK and Kennametal, each of their successors and
assigns and Employee shall not (except as required in the performance of
Employee's duties), use or disclose or make available to anyone for use outside
JLK's or Kennametal's organization at any time, either during employment with
JLK or subsequent thereto, any of the Confidential Information, whether or not
developed by Employee, without the prior written consent of JLK and Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its
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<PAGE> 19
or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries; the said
inventions, without further consideration other than such
salary as from time to time may be paid to him by JLK as
compensation for his services in any capacity, shall be and
remain the sole and exclusive property of JLK (and Kennametal,
if JLK on the Date of Termination is a subsidiary of
Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
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<PAGE> 20
(d) Employee agrees that he will not at any time aid in
attacking the patentability, scope, or validity of any
invention to which the provisions of subparagraphs (b) and
(c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce
his rights under, or to recover damages for breach of this agreement,
or (b) JLK or Kennametal institutes any action to avoid making any
payments due to Employee under this agreement, Employee, if he is the
prevailing party, shall be entitled to recover from the party or
parties in breach of this agreement or which sought to avoid making
payments hereunder (JLK and/or Kennametal) any actual expenses for
attorney's fees and other disbursements incurred by him in relation
thereto.
11. The terms and provisions of this agreement shall be binding upon, and
shall inure to the benefit of, Employee, JLK and Kennametal, their
subsidiaries and affiliates and their respective successors and
assigns.
12. This agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements and understandings,
whether oral or written, among the parties with respect to the subject
matter hereof; provided, however, that any prior employment agreement
between the Employee and Kennametal shall only be superseded if the
Effective Date occurs. This agreement may not be amended orally, but
only by an instrument in writing signed by each of the parties to this
agreement.
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<PAGE> 21
13. The invalidity or enforceability of any provision of this agreement
shall not affect the other provisions hereof, and this agreement shall
be construed in all respects as if such invalid or unenforceable
provision were omitted.
14. Any pronoun and any variation thereof used in this agreement shall be
deemed to refer to the masculine, feminine, neuter, singular or
plural, as the identity of the parties hereto may require.
15. JLK and Kennametal shall be entitled as a condition to paying any
severance pay or providing any benefits hereunder upon a termination
of the Employee's employment to require the Employee to deliver on or
before the making of any severance payment or providing of any benefit
a release in the form of Exhibit A attached hereto.
16. Not withstanding any other provision of this agreement, in the event
that any payment or benefit received or to be received by Employee in
connection with a change in control of the Corporation or Kennametal
or the termination of the Employee's employment (whether pursuant to
the terms of this agreement or any other plan, arrangement or
agreement with the Corporation or Kennametal, any person whose actions
result in a change in control or any person affiliated with the
Corporation or Kennametal or such person) (collectively, the "Total
Payments") would not be deductible, in whole or part, as a result of
section 280G of the Internal Revenue Code of 1986 (the "Code") by the
Corporation or Kennametal, an affiliate or other person making such
payment or providing such benefit, the payments due under this
agreement (the "Contract Payments") shall be reduced until no portion
of the Total Payments is not
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<PAGE> 22
deductible, or the Contract Payments are reduced to zero. In the event
that the Corporation or Kennametal determines that the Total Payments
would not be deductible, in whole or part, as a result of section 280G
of the Code, the Corporation or Kennametal shall immediately notify
Employee of this determination and the amount which would not be so
deductible as well as a computation of Total Payments. Employee shall
have five (5) business days after receipt of the foregoing notice and
computation to waive in writing all or any portion of any of the Total
Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing
shall not be taken into account (and, if the Corporation or Kennametal
had already withheld any Contract Payments prior to receipt of such
waiver, the Corporation or Kennametal upon receipt of such waiver
shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation or Kennametal had the
Employee's written waiver prior to the date the Corporation or
Kennametal withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the
Corporation's or Kennametal's independent auditors and acceptable to
Employee does not constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (ii) the Contract Payments shall be
reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the
Employee or referred to in clause (i)) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code or are otherwise not subject
to disallowance as deductions, in the
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<PAGE> 23
opinion of the tax counsel referred to in clause (i); and (iii) the
value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Corporation's or Kennametal's independent auditors in accordance with
the principles of section 280G(d)(3) and (4) of the Code.
17. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
18. This agreement shall become effective (the "Effective Date")
immediately upon the closing of the initial public offering of JLK's
Class A Common Stock pursuant to its Registration Statement on Form
S-1 filed under the Securities Act of 1933, Registration No.
333-25989. Until and unless the Effective Date occurs, this agreement
shall be of no force or effect and shall not be binding upon the
Employee, JLK or Kennametal.
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<PAGE> 24
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
_____________________________ By:________________________________
ATTEST: KENNAMETAL INC.
_____________________________ By:________________________________
WITNESS: Employee:
______________________________ _____________________________(SEAL)
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<PAGE> 25
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of
action or rights are known or unknown; provided, however, that this Release
shall not release, remise, quitclaim or discharge any claims, causes of action
or rights which the undersigned may have (i) under that certain Employment
Agreement dated _________, 199_ between the undersigned, JLK Direct
Distribution Inc. and Kennametal, Inc., (ii) to any unreimbursed expense
account or similar out-of-pocket reimbursement amounts owing the undersigned,
or (iii) under the bylaws of JLK Direct Distribution Inc. or Kennametal, Inc.
or the applicable state corporate statutes to indemnification for having served
as an officer and/or employee of Kennametal, Inc. and/or its subsidiaries.
DATE: __________________ _____________________________
<PAGE> 1
Exhibit 10.r
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into this _____ day of
________________________, 1997, by and between JLK DIRECT DISTRIBUTION INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania which
is a subsidiary of Kennametal Inc. ("Kennametal"), for and on behalf of itself
and on behalf of its subsidiary companies (hereinafter referred to as "JLK" or
the "Corporation"), KENNAMETAL and Michael J. Mussog, an individual (hereinafter
referred to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal which are of a technical nature or business nature or pertain to
future developments, the disclosure of which trade secrets or confidential
information would be highly detrimental to the interests of JLK and Kennametal;
and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of employing; and WHEREAS, Kennametal and Employee may have
heretofore entered into and executed an employment agreement,
as amended (the "Kennametal Employment Agreement").
NOW, THEREFORE, JLK, Kennametal and Employee, each intending to be
legally bound hereby, do mutually covenant and agree as follows:
<PAGE> 2
1. (a) Subject to the terms and conditions set forth herein, JLK
hereby agrees to employ Employee as of the Effective Date, as such term
is hereinafter defined, and Employee hereby accepts such employment and
agrees to devote his full time and attention to the business and
affairs of JLK, in such capacity or capacities and to perform to the
best of his ability such services as shall be determined from time to
time by the President and the Board of Directors of JLK until the
termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere
herein, Employee, subject to the terms and conditions of this
agreement, shall be entitled to participate in all group insurance
programs, retirement income (pension) plans, thrift plans and vacation
and holiday programs normally provided for other executives of
Kennametal. Nothing herein contained shall be deemed to limit or
prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel,
lodging, meals, entertainment expenses or any other expenses in
accordance with the policies of JLK applicable to the executives of
JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party
prior written
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<PAGE> 3
notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of
Directors; provided, further, that termination by JLK for Cause (as
hereinafter defined) shall be made by written notice which states that
it is a termination for Cause; and provided, further, that termination
by Employee, other than termination for Good Reason (as hereafter
defined) following a Change-in-Control (as hereafter defined), shall
be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay, in addition to all amounts due him at the Date of
Termination (as hereinafter defined), an amount, payable promptly
after the Date of Termination, equal to three months' base salary at
the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated by Employee
following a Change-in-Control without Good or prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control that Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) an amount equal to the product of
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<PAGE> 4
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months remaining
from the Date of Termination to the Employee's Retirement
Date (as such term is hereafter defined) divided by twelve
(12), or
(z) a number equal to the product, if positive, obtained by
multiplying (AA) thirty-six (36) less the number of completed
months after the date of the Change-in-Control during which
the Employee was employed and did not have Good Reason for
termination times (BB) one-twelfth (1/12);
times
(ii) the sum of
(x) Employee's base salary at the annual rate in effect on
the Date of Termination (or, at Employee's election, at the
annual rate in effect on the first day of the calendar month
immediately prior to the Change-in-Control), plus
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<PAGE> 5
(y) the average of any bonuses which Employee was entitled to
or paid during the three most recent fiscal years ending
prior to the Date of Termination (or, at Employee's election,
the average of any bonuses which Employee was entitled to or
paid for the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
In addition to the severance payments provided for in this paragraph
4(c), Employee also will receive the same or equivalent medical,
dental, disability and group insurance benefits as were provided to
the Employee at the Date of Termination, which benefits shall be
provided by JLK (or by Kennametal if it had been providing such
benefits prior to the Date of Termination) to Employee for a three
year period commencing on the Date of Termination. The Employee shall
also be deemed and shall be credited for computing benefits, for
vesting and for all other purposes under any pension or retirement
income plan applicable to employees of JLK (including, if applicable,
Kennametal's Supplemental Executive Retirement Plan) to have
continuously remained in the employment of JLK for the three year
period (or, if clause (i)(y) or clause (i)(z) above of this paragraph
4(c) is applicable to determine the
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<PAGE> 6
severance payments to be made, the lesser period measured in years
equal to clause (i)(y) or clause (i)(z) above, whichever is
applicable) following the Date of Termination at an annual
compensation equal to the sum of the base salary and bonus which were
used to compute the payment due the Employee under the first paragraph
of this Paragraph 4(c).
(d) If for any reason, whether by law or provisions of any employee
medical, dental or group insurance, pension or retirement plan or
other benefit plan in which the Employee is eligible to participate,
any benefits which the Employee would be entitled to under the
foregoing subparagraph (c) of this Paragraph 4 cannot be paid pursuant
to such employee benefit plans, then JLK (or Kennametal if it had been
providing such benefits prior to the Date of Termination) hereby
contractually agrees to pay to the Employee the difference between the
benefits which the Employee would have received in accordance with the
foregoing subparagraphs of this paragraph 4 if the relevant employee
medical, dental or group insurance or pension or retirement plan or
other benefit plan could have paid such benefit and the amount of
benefits, if any, actually paid by such employee medical, dental or
group insurance or pension or retirement plan or other benefit plan.
Neither JLK nor Kennametal shall be required to fund its obligation to
pay the foregoing difference.
(c) In the event of a termination of employment under the
circumstances above described in Paragraph 4(c), Employee shall have
no duty to seek any other employment after termination of Employee's
employment with JLK and
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<PAGE> 7
JLK and Kennametal hereby waive and agree not to raise or use any
defense based on the position that Employee had a duty to mitigate or
reduce the amounts due him hereunder by seeking other employment
whether suitable or unsuitable and should Employee obtain other
employment, then the only effect of such on the obligations of JLK or
Kennametal hereunder shall be that JLK and Kennametal shall be
entitled to credit against any payments which would otherwise be made
for medical, dental or group insurance or similar benefits (excluding,
however, any credit against payments relating to pension or retirement
benefits or, if applicable, Kennametal's Supplemental Executive
Retirement Plan) pursuant to the benefit provisions set forth in the
second paragraph of Paragraph 4(c) hereof, any comparable payments to
which Employee is entitled under the employee benefit plans maintained
by Employee's other employer or employers in connection with services
to such employer or employers after termination of his employment with
JLK.
(f) The term "Change-in-Control" shall mean either (i) a Kennametal
Change-in-Control, if such occurs when JLK is a direct or indirect
subsidiary of Kennametal or when Kennametal and its affiliates own
shares of Class B Common Stock of JLK or (ii) a JLK Change-in-Control.
A Kennametal Change-in-Control shall mean a change in control of a
nature that would be required to be reported by Kennametal in response
to Item 6(e) of Schedule 14A promulgated under the Securities Exchange
Act of 1934 as in effect on the date hereof ("1934 Act"), or if Item
6(e) is no longer in effect, any regulations issued by the
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<PAGE> 8
Securities and Exchange Commission pursuant to the 1934 Act which
serve similar purposes; provided that, without limitation, such a
Kennametal Change-in-Control shall be deemed to have occurred if (A)
Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation
or other entity all of whose equity interests are owned by Kennametal
immediately prior to the merger or consolidation, or (B) Kennametal
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of Kennametal representing 25% or more of
the combined voting power of Kennametal's then outstanding securities
coupled with or followed by a majority of the board of directors of
Kennametal consisting of persons other than persons who either were
directors of Kennametal immediately prior to or were nominated by
those persons who were directors of Kennametal immediately prior to
such person becoming a beneficial owner, directly or indirectly, of
securities of Kennametal representing 25% or more of the combined
voting power of Kennametal's then outstanding securities. A JLK
Change-in-Control shall mean that both of the following conditions
shall have occurred: (i) either JLK is no longer a direct or indirect
subsidiary of Kennametal or Kennametal and its affiliates no longer
own any shares of Class B Common Stock of JLK and (ii) a change in
control of a nature that would be required to be reported by JLK in
response to Item 6(e) of
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<PAGE> 9
Schedule 14A promulgated under the Securities Exchange Act of 1934 as
in effect on the date hereof ("1934 Act"), or if Item 6(e) is no
longer in effect, any regulations issued by the Securities and
Exchange Commission pursuant to the 1934 Act which serve similar
purposes; provided that, without limitation, the second condition set
forth in subclause (ii) of this sentence shall be deemed to have
occurred if (A) JLK shall be merged or consolidated with any
corporation or other entity other than a merger or consolidation with
a corporation or other entity all of whose equity interests are owned
(1) by JLK immediately prior to the merger or consolidation or (2) by
Kennametal and/or its subsidiaries if JLK is at the time of such
merger or consolidation a direct or indirect subsidiary of Kennametal
or if Kennametal and its affiliates at the time of such merger or
consolidation own shares of Class B Common Stock of JLK, or (B) JLK
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation,
or (C) any "person" (as such term is used in Sections 13(d) and 14(d)
of the 1934 Act), is or becomes a beneficial owner, directly or
indirectly, of securities of JLK representing 25% or more of the
combined voting power of JLK's then outstanding securities coupled
with or followed by a majority of the board of directors of JLK
consisting of persons other than persons who either were directors of
JLK immediately prior to or were nominated by those persons who were
directors of JLK immediately prior to such person becoming a
beneficial owner, directly or indirectly, of securities of JLK
representing 25% or more of the combined voting power of JLK's then
outstanding securities.
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<PAGE> 10
(g) For purposes of this agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other reason,
the date on which the termination becomes effective as stated in
the written notice of termination given to or by the Employee.
(h) The term "Good Reason" for termination by the Employee shall
mean he occurrence of any of the following at or after a
Change-in-Control:
(i) without the Employee's express written consent, the assignment
to the Employee of any duties materially and substantially
inconsistent with his positions, duties, responsibilities and
status with JLK immediately prior to a Change-in-Control, or a
material change in his reporting responsibilities, titles or
offices as in effect immediately prior to a Change-in-Control, or
any removal of the Employee from or any failure to re-elect the
Employee to any of such positions, except in connection with the
termination of the Employee`s employment due to Cause or as a
result of the Employee's death;
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<PAGE> 11
(ii) a reduction by JLK in the Employee's base salary as in effect
immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately prior
to any Change-in-Control;
(iv) in the event of a Change-in-Control which is a Kennametal
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of Kennametal in
which Employee is participating immediately prior to a Kennametal
Change-in-Control (provided, however, that there shall not be
deemed to be any such failure if Kennametal substitutes for the
discontinued plan, a plan providing Employee with substantially
similar benefits) or the taking of any action by Kennametal which
would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(v) in the event of a Change-in-Control which is a JLK
Change-in-Control, the failure to continue in effect any benefit or
compensation plan, stock option plan, pension plan, life insurance
plan, health and accident plan or disability plan of JLK in which
Employee is participating
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<PAGE> 12
immediately prior to a JLK Change-in-Control (provided, however,
that there shall not be deemed to be any such failure if JLK
substitutes for the discontinued plan, a plan providing Employee
with substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in or
materially reduce Employee's benefits under any of such plans or
deprive Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(vi) if the Employee is eligible to participate in any Kennametal
benefit or compensation plan, stock option plan, pension plan, life
insurance plan, health and accident plan or disability plan, the
failure of Kennametal to obtain the assumption of this Agreement by
any successor as contemplated in paragraph 11 hereof;
(vii) the failure of JLK to obtain the assumption of this Agreement
by any successor as contemplated in paragraph 11 hereof
(viii) the relocation of the Employee to a facility or a location
more than 50 miles from the Employee's then present location,
without the Employee's prior written consent; or
(ix) any purported termination of the employment of Employee by JLK
which is not for Cause as provided in paragraph 5.
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<PAGE> 13
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services
contemplated by this agreement, or (b) shall not make his services
available to JLK on a full time basis in accordance with paragraph 1
hereof for any reason (including Disability) other than arising from
Employee's incapacity due to physical or mental illness or injury
which does not constitute Disability and other than by reason of the
fact Employee's employment has been terminated under the circumstances
described in paragraph 4(a), or (c) shall breach the provisions of
paragraph 8 hereof (the matters described in subparagraphs (a), (b)
and (c) are collectively referred to as "Cause"), JLK shall have the
right, exercised by resolution adopted by a majority of its Board of
Directors, to terminate Employee's employment for Cause by giving
prior written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause,
Employee shall not be entitled to the benefits set forth in paragraph
4 which shall not be paid or payable and JLK only shall have the
obligation to pay Employee the unpaid portion of Employee's base
salary for the period from the last period from which Employee was
paid to the Date of Termination; provided, however, that if Employee's
employment is terminated as a result of the Disability of Employee,
the benefits set forth in paragraph 4 shall not be paid or payable but
(i) if JLK is then a subsidiary of Kennametal, Employee shall be
entitled to receive, the annual supplement under the Supplemental
Executive Retirement Plan and Employee's employment by JLK shall not
be deemed terminated for purposes of the Kennametal Long-Term
Disability Plan, the Kennametal Retirement Income Plan for U.S.
Salaried Employees or any other
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<PAGE> 14
Kennametal benefit plan which so provides and (ii) Employee's
employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this agreement "Disability" shall
mean such incapacity due to physical or mental illness or injury which
results in the Employee's being absent from his principal office at
JLK's offices (which may be located at Kennametal's offices) for the
entire portion of 180 consecutive business days. Prior to a
Change-in-Control, a decision by the Board of Directors of Kennametal
that "Cause" exists shall be in the discretion of the Board of
Directors and shall be final and binding upon the Employee and his
rights hereunder. After a Change-in-Control, "Cause" shall not be
deemed to include opposition by Employee to such a Change-in-Control
or any matter incidental thereto and any determination by the Board of
Directors that "Cause" existed shall not be final or binding upon the
Employee or his rights hereunder or entitled to any deference in any
court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(c) hereof, in the
event Employee resigns or his employment is terminated for any reason
other than death or Disability prior to his "Retirement Date" (as
hereinafter defined), he will forfeit any interest he may have in any
Kennametal or JLK retirement income plan (except to the extent vested
by actual service to date of separation as per the plan provisions),
and all other benefits dependent upon continuing service. The term
"Retirement Date" shall mean the first day of the month following the
day on which Employee attains his sixty-fifth birthday, or at
Employee's request, any other day that JLK's Board of Directors may
approve in writing.
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<PAGE> 15
7. Nothing herein contained shall affect the right of Employee to
participate in and receive benefits under and in accordance with the
then current provisions of any retirement income, profit-sharing,
additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program
of Kennametal or JLK and all payments hereunder shall be in addition
to any benefits received thereunder (including long term disability
payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply
to the Employee following a termination of Employee's employment (x)
if a Change-in-Control, shall have occurred prior to the Date of
Termination or (y) if Employee's employment is terminated by JLK other
than for Cause), he will not, in any geographic area in which JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior
written consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or
consultant to, any person, firm, partnership, association,
corporation or business organization, entity or enterprise which is
or is about to become directly or indirectly engaged
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<PAGE> 16
in, any business which is competitive with any business of JLK (or
Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) or any subsidiary or affiliate thereof in which
Employee is or was engaged; provided, however, that the foregoing
provisions of this paragraph 8 are not intended to prohibit and
shall not prohibit Employee from purchasing, for investment, not in
excess of 1% of any class of stock or other corporate security of
any company which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees
that remedies at law for any such breach will be inadequate and consents and
agrees that JLK (or Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) shall be entitled, without the necessity of proof of
actual damage, to injunctive relief in any proceedings which may be brought to
enforce the provisions of this paragraph 8. Employee acknowledges and warrants
that he will be fully able to earn an adequate livelihood for himself and his
dependents if this paragraph 8 should be specifically enforced against him and
that such enforcement will not impair his ability to obtain employment
commensurate with his abilities and fully acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date
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<PAGE> 17
of Termination is a subsidiary of Kennametal) hereby consent and agree that
such scope may be judicially modified in any proceeding brought to enforce such
restriction.
9. (a) Employee acknowledges and agrees that in the course of his
employment by JLK, Employee may work with, add to, create or acquire
trade secrets and confidential information ("Confidential Information")
which could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales
methods, sales proposals, identity of customers and
prospective customers, identity of customers' key purchasing
personnel, amount or kind of customers' purchases and other
information about customers; or
(iii) pertaining to future developments such as, but not
limited to, research and development or future marketing or
merchandising.
Employee further acknowledges and agrees that (i) all
Confidential Information is the property of JLK and/or Kennametal; (ii) the
unauthorized use, misappropriation or
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<PAGE> 18
disclosure of any Confidential Information would constitute a breach of trust
and could cause irreparable injury to JLK and/or Kennametal; and (iii) it is
essential to the protection of JLK's and/or Kennametal's good will and to the
maintenance of its competitive position that all Confidential Information be
kept secret and that Employee not disclose any Confidential Information to
others or use any Confidential Information to the detriment of JLK or
Kennametal.
Employee agrees to hold and safeguard all Confidential
Information in trust for JLK and Kennametal, each of their successors and
assigns and Employee shall not (except as required in the performance of
Employee's duties), use or disclose or make available to anyone for use outside
JLK's or Kennametal's organization at any time, either during employment with
JLK or subsequent thereto, any of the Confidential Information, whether or not
developed by Employee, without the prior written consent of JLK and Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its
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<PAGE> 19
or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries; the said
inventions, without further consideration other than such
salary as from time to time may be paid to him by JLK as
compensation for his services in any capacity, shall be and
remain the sole and exclusive property of JLK (and Kennametal,
if JLK on the Date of Termination is a subsidiary of
Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
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<PAGE> 20
(d) Employee agrees that he will not at any time aid in
attacking the patentability, scope, or validity of any
invention to which the provisions of subparagraphs (b) and
(c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce
his rights under, or to recover damages for breach of this agreement,
or (b) JLK or Kennametal institutes any action to avoid making any
payments due to Employee under this agreement, Employee, if he is the
prevailing party, shall be entitled to recover from the party or
parties in breach of this agreement or which sought to avoid making
payments hereunder (JLK and/or Kennametal) any actual expenses for
attorney's fees and other disbursements incurred by him in relation
thereto.
11. The terms and provisions of this agreement shall be binding upon, and
shall inure to the benefit of, Employee, JLK and Kennametal, their
subsidiaries and affiliates and their respective successors and
assigns.
12. This agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements and understandings,
whether oral or written, among the parties with respect to the subject
matter hereof; provided, however, that any prior employment agreement
between the Employee and Kennametal shall only be superseded if the
Effective Date occurs. This agreement may not be amended orally, but
only by an instrument in writing signed by each of the parties to this
agreement.
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<PAGE> 21
13. The invalidity or enforceability of any provision of this agreement
shall not affect the other provisions hereof, and this agreement shall
be construed in all respects as if such invalid or unenforceable
provision were omitted.
14. Any pronoun and any variation thereof used in this agreement shall be
deemed to refer to the masculine, feminine, neuter, singular or
plural, as the identity of the parties hereto may require.
15. JLK and Kennametal shall be entitled as a condition to paying any
severance pay or providing any benefits hereunder upon a termination
of the Employee's employment to require the Employee to deliver on or
before the making of any severance payment or providing of any benefit
a release in the form of Exhibit A attached hereto.
16. Not withstanding any other provision of this agreement, in the event
that any payment or benefit received or to be received by Employee in
connection with a change in control of the Corporation or Kennametal
or the termination of the Employee's employment (whether pursuant to
the terms of this agreement or any other plan, arrangement or
agreement with the Corporation or Kennametal, any person whose actions
result in a change in control or any person affiliated with the
Corporation or Kennametal or such person) (collectively, the "Total
Payments") would not be deductible, in whole or part, as a result of
section 280G of the Internal Revenue Code of 1986 (the "Code") by the
Corporation or Kennametal, an affiliate or other person making such
payment or providing such benefit, the payments due under this
agreement (the "Contract Payments") shall be reduced until no portion
of the Total Payments is not
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<PAGE> 22
deductible, or the Contract Payments are reduced to zero. In the event
that the Corporation or Kennametal determines that the Total Payments
would not be deductible, in whole or part, as a result of section 280G
of the Code, the Corporation or Kennametal shall immediately notify
Employee of this determination and the amount which would not be so
deductible as well as a computation of Total Payments. Employee shall
have five (5) business days after receipt of the foregoing notice and
computation to waive in writing all or any portion of any of the Total
Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing
shall not be taken into account (and, if the Corporation or Kennametal
had already withheld any Contract Payments prior to receipt of such
waiver, the Corporation or Kennametal upon receipt of such waiver
shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation or Kennametal had the
Employee's written waiver prior to the date the Corporation or
Kennametal withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel selected by the
Corporation's or Kennametal's independent auditors and acceptable to
Employee does not constitute a "parachute payment" within the meaning
of section 280G(b)(2) of the Code, (ii) the Contract Payments shall be
reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the
Employee or referred to in clause (i)) in their entirety constitute
reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code or are otherwise not subject
to disallowance as deductions, in the
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<PAGE> 23
opinion of the tax counsel referred to in clause (i); and (iii) the
value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the
Corporation's or Kennametal's independent auditors in accordance with
the principles of section 280G(d)(3) and (4) of the Code.
17. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
18. This agreement shall become effective (the "Effective Date")
immediately upon the closing of the initial public offering of JLK's
Class A Common Stock pursuant to its Registration Statement on Form
S-1 filed under the Securities Act of 1933, Registration No.
333-25989. Until and unless the Effective Date occurs, this agreement
shall be of no force or effect and shall not be binding upon the
Employee, JLK or Kennametal.
-23-
<PAGE> 24
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
_____________________________ By:________________________________
ATTEST: KENNAMETAL INC.
_____________________________ By:________________________________
WITNESS: Employee:
______________________________ _____________________________(SEAL)
-24-
<PAGE> 25
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of
action or rights are known or unknown; provided, however, that this Release
shall not release, remise, quitclaim or discharge any claims, causes of action
or rights which the undersigned may have (i) under that certain Employment
Agreement dated _________, 199_ between the undersigned, JLK Direct
Distribution Inc. and Kennametal, Inc., (ii) to any unreimbursed expense
account or similar out-of-pocket reimbursement amounts owing the undersigned,
or (iii) under the bylaws of JLK Direct Distribution Inc. or Kennametal, Inc.
or the applicable state corporate statutes to indemnification for having served
as an officer and/or employee of Kennametal, Inc. and/or its subsidiaries.
DATE: __________________ _____________________________
<PAGE> 1
Exhibit 11.1
Calculation of Primary Net Income per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year ended ended
June 30, 1996 March 31, 1997
------------- --------------
<S> <C> <C>
Net income $15,063 $13,619
Weighted average
shares outstanding
during the period 20,897 20,897
Shares assumed
outstanding to
support dividend
paid to
Kennametal Inc. 1,176 1,176
------- -------
Weighted average common
and common equivalent
shares outstanding
during the period 21,272 21,272
======= =======
Net income per share $ 0.71 $ 0.64
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
J&L America, Inc., a Michigan corporation d/b/a J&L Industrial Supply
Strelinger Company, a Michigan corporation d/b/a J&L Industrial Supply
Mill & Abrasive Supply, Inc., a Michigan corporation d/b/a J&L Industrial
Supply
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
June 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001038243
<NAME> JLK DIRECT DISTRIBUTION INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 690
<SECURITIES> 0
<RECEIVABLES> 32,695
<ALLOWANCES> 175
<INVENTORY> 59,302
<CURRENT-ASSETS> 95,350
<PP&E> 7,163
<DEPRECIATION> 3,191
<TOTAL-ASSETS> 121,045
<CURRENT-LIABILITIES> 22,087
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 97,991
<TOTAL-LIABILITY-AND-EQUITY> 121,045
<SALES> 243,969
<TOTAL-REVENUES> 243,969
<CGS> 166,326
<TOTAL-COSTS> 166,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,882
<INCOME-TAX> 9,819
<INCOME-CONTINUING> 15,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,063
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
