<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of Commission Only (as
/X/ Definitive Proxy Statement permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
JLK DIRECT DISTRIBUTION INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------
(2) Form, Schedule or Registration No.:
------------------------------
(3) Filing Party:
------------------------------
(4) Date Filed:
------------------------------
<PAGE> 2
JLK DIRECT DISTRIBUTION INC.
LATROBE, PENNSYLVANIA 15650
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1998
To the Stockholders of JLK Direct Distribution Inc.:
The Annual Meeting of Stockholders of JLK Direct Distribution Inc. will be
held at the Kennametal Inc. Technology Center, located on Route 981 South
(recently designated "Technology Way"), approximately 1/4 mile south of its
intersection with U.S. Route 30 near Latrobe, Unity Township, Pennsylvania, on
Tuesday, October 27, 1998, at 2:00 p.m., to consider and act upon the following
matters:
1. The election of eight directors for terms to expire in 1999;
2. The election of auditors for the fiscal year ending June 30, 1999; and
3. Such other business as may properly come before the meeting.
The Board of Directors has fixed Wednesday, September 9, 1998, as the
record date for the determination of stockholders entitled to notice of and to
vote at the Annual Meeting.
IF YOU ARE UNABLE TO ATTEND THE MEETING, IT IS REQUESTED THAT YOU COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
Kevin G. Nowe
Assistant Secretary
September 23, 1998
<PAGE> 3
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 27, 1998
This Proxy Statement is being furnished to the stockholders of JLK Direct
Distribution Inc. (the "Corporation") in connection with the solicitation by the
Board of Directors of the Corporation of proxies to be voted at the Annual
Meeting of Stockholders which is scheduled to be held on October 27, 1998.
Holders of shares of the Corporation's Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and the 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") of record at the close of business on September 9,
1998 will be entitled to vote at the meeting. On that date there were 4,273,300
shares of the Class A Common Stock outstanding and entitled to vote one vote per
share, and 20,237,000 shares of the Class B Common Stock outstanding and
entitled to vote 10 votes per share. All shares of the Class B Common Stock,
representing approximately 97.9 % of the voting power of the Corporation, are
held by Kennametal Inc. ("Kennametal"), the parent of the Corporation. The Class
A Common Stock and the Class B Common Stock will vote together as a single class
with respect to all matters submitted to the stockholders for approval at the
Annual Meeting.
Any stockholder who executes and returns the proxy may revoke it at will at
any time prior to the voting of the proxy, but revocation of the proxy will not
be effective until written notice thereof has been received by the Assistant
Secretary of the Corporation. The proxy may also be revoked by voting in person
at the meeting or by delivering a later dated, signed proxy. The shares
represented by all properly executed proxies received by the Assistant Secretary
in the accompanying form of proxy prior to the meeting and not so revoked will
be voted. Where a choice is specified on the form of proxy, the shares will be
voted in accordance with the choice made therein. If no such choice is made, the
shares will be voted in accordance with the recommendation of the Board of
Directors. Under Pennsylvania law and the Corporation's Articles of
Incorporation and By-Laws, abstentions and broker non-votes will have no effect
on matters to be voted on at the Annual Meeting since directors and auditors are
to be elected by the affirmative vote of at least a majority of the votes cast
by stockholders present, in person or by proxy, at the meeting. A majority of
the named proxies who shall be present and shall act at the meeting (or if only
one shall be present and act, then that one) may exercise all powers granted to
them by the proxies solicited hereunder. The address of the principal executive
offices of the Corporation is 1600 Technology Way, P.O. Box 231, Latrobe,
Pennsylvania 15650, and the date this Proxy Statement was mailed to stockholders
was on or about September 30, 1998.
ELECTION OF DIRECTORS
Eight persons will be elected to hold office as Directors of the
Corporation for a term of one year, and until their successors are elected and
qualified.
The persons named in the enclosed form of proxy were selected by the Board
of Directors and have advised the Board of Directors that, unless authority is
withheld, they intend to vote the shares represented by them at the meeting for
the election of the following nominees named to serve as directors. The nominees
for election for a term of one year are Richard C. Alberding, Jeffery M.
Boetticher, Irwin L. Elson, Robert L. McGeehan, Aloysius T. McLaughlin, Jr. and
William R. Newlin, who have each served as a director since June 24, 1997, H.
Patrick Mahanes, Jr., who has served as director since April 23, 1998 and
Richard J. Orwig, who has served as a director since September 16, 1998. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THESE NOMINEES.
If at the time of the meeting any of the foregoing nominees is not
available to serve as a director, an event which the Corporation has no reason
to anticipate, the Corporation has been informed that the persons named in the
enclosed form of proxy intend to vote the shares represented by them at the
meeting for such other person or persons, if any, as may be nominated by the
Board of Directors.
<PAGE> 4
The following table provides certain information concerning each nominee
for election as a director.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
----------------- --------------------------------
<S> <C>
Richard C. Alberding Retired, having served as Executive Vice President,
Age: 67 Marketing and International, of Hewlett-Packard Company (a
Director since 1997 designer and manufacturer of electronic products for
measurement and computation). Director of Walker
Interactive Systems, Inc., Sybase, Inc., Digital Microwave
Corp., Paging Network, Inc., Quickturn Design Systems Inc.,
Digital Link Corporation and Kennametal.
Jeffery M. Boetticher Retired, having served as Chief Executive Officer of Black
Age: 47 Box Corporation (a leading worldwide direct marketer of
Director since 1997 computer communications and technical service provider of
networking solutions) from June 1997 through July 1998,
having also served as President of Black Box Corporation
from June 1994 through May 1997. From March 1991 through
May 1994, he served as 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 Retired, a co-founder of J&L America, Inc. ("J&L") having
Age: 59 served as President of J&L from July 1996 until June 1997
Director since 1997 and as a Vice President of Kennametal from 1990, when it
acquired J&L, to August 1994.
H. Patrick Mahanes, Jr. Chief Operating Officer of Kennametal since 1995. A Vice
Age: 55 President of Kennametal since 1987, he was Director of
Director since 1998 Operations of Kennametal from 1991 to 1995.
Robert L. McGeehan President of Kennametal since July 1989 and Chief Executive
Age: 61 Officer since October 1991. Director of Kennametal.
Director since 1997
Aloysius T. McLaughlin, Jr. Retired, having served as Vice Chairman of Dick Corporation
Age: 63 (a general contractor) from 1993 to 1995 and as President
Director since 1997 and Chief Operating Officer from 1985 until 1993. Director
of Kennametal.
William R. Newlin (3) Managing Director of Buchanan Ingersoll Professional
Age: 57 Corporation (attorneys at law). Managing General Partner of
Director since 1997 CEO Venture Funds (private venture capital funds). Director
of Black Box Corporation, National City Bank of
Pennsylvania, Parker/Hunter Incorporated and the Pittsburgh
High Technology Council. Chairman of the Board of Directors
of the Corporation and of Kennametal.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
----------------- --------------------------------
<S> <C>
Richard J. Orwig President and Chief Executive Officer of the Corporation
Age: 57 since September 17, 1998. Served as Vice President and
Director since 1998 Chief Financial and Administrative Officer of Kennametal
from 1994 until September 17, 1998, and as Vice President
and Director of Administration of Kennametal from 1991 to
1994.
</TABLE>
- ---------------
(1) Each current director has served continuously since he was first elected.
(2) Unless otherwise shown in the table, each person named has served in his
principal occupation during the past five years.
(3) The law firm of which William R. Newlin is a member performed services for
the Corporation during fiscal years 1998 and 1999.
BOARD OF DIRECTORS AND BOARD COMMITTEES
The Corporation's Board of Directors held seven meetings during the fiscal
year ended June 30, 1998. The committees of the Board of Directors include an
Audit Committee and a Compensation Committee. Each director attended at least
75% of the meetings of the Board of Directors and any committee of which he is a
member.
Audit Committee: The Audit Committee met three times during the past fiscal
year. The Committee's primary function is to evaluate management's performance
of its financial reporting responsibilities including the annual report and
proxy materials. The Committee also reviews the internal financial and
operational controls of the Corporation, monitors the fees, results and
effectiveness of the annual audit and compliance with Kennametal's code of
business conduct and the independence of the public accountants. The Committee
also reviews compliance with intercompany agreements with Kennametal and
monitors critical management information systems. The following directors
currently comprise the Committee: Aloysius T. McLaughlin, Jr. and Jeffery M.
Boetticher.
Compensation Committee: The Compensation Committee met once during the past
fiscal year. The Committee's duties include the establishment of salaries,
bonuses and other compensation for the Corporation's executive officers
(excluding the President whose compensation is recommended by the Committee but
determined by the Board of Directors) and the administration of the
Corporation's compensation plans, including the 1997 JLK Direct Distribution
Inc. Stock Option and Incentive Plan and the JLK Direct Distribution Inc.
Management Bonus Plan (the "JLK Bonus Plan"). The following directors currently
comprise the Committee: Robert L. McGeehan and Richard C. Alberding. The report
of the Compensation Committee appears elsewhere in this Proxy Statement.
Directors who are not employees of the Corporation or Kennametal each
receive compensation from the Corporation for services as a director at an
annual rate of $20,000. Members of the Audit Committee and members of the
Compensation Committee who are not employees of the Corporation each receive
additional compensation of $1,000 per meeting. Directors who are employees of
the Corporation or Kennametal do not receive any compensation for services as a
director or as a member of any committee of the Board of Directors. Under the
Corporation's Deferred Fee Plan for Outside Directors (the "Deferred Fee Plan"),
directors are permitted annually to request that the payment of any compensation
that may be payable to them for services as a director or committee member be
deferred for payment, with interest, at a later time. Such deferred payments may
be invested at a stated interest rate or in stock credits ("Stock Credits")
representing the Corporation's Class A Common Stock or the Capital Stock, par
value $1.25 per share, of Kennametal (the "Kennametal Capital Stock").
3
<PAGE> 6
OWNERSHIP OF CORPORATION COMMON STOCK AND KENNAMETAL CAPITAL STOCK
BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of the
Corporation's Class A Common Stock and the Kennametal Capital Stock as of July
30, 1998, by the Corporation's current President and Chief Executive Officer,
each nominee for director of the Corporation, each Named Executive Officer (as
hereinafter defined) and all directors and executive officers of the Corporation
as a group. Options with respect to an aggregate of 513,500 shares of Class A
Common Stock were awarded by the Corporation to its executive officers,
directors and employees and employees of Kennametal upon consummation of the
Corporation's initial public offering of its Class A Common Stock which was
consummated in July 1997 (the "Offering").
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF AMOUNT AND
BENEFICIAL NATURE OF TOTAL
OWNERSHIP OF TOTAL BENEFICIAL KENNAMETAL
CORPORATION CORPORATION OWNERSHIP OF KENNAMETAL BENEFICIAL
CLASS A CORPORATION BENEFICIAL KENNAMETAL STOCK OWNERSHIP
COMMON STOCK STOCK OWNERSHIP AND CAPITAL STOCK CREDITS AND STOCK
NAME OF BENEFICIAL OWNER (1)(2) CREDITS (8) STOCK CREDITS (9)(10) (14) CREDITS
------------------------ ------ ----------- ------------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Alberding.............. 16,000 0 16,000 6,336(11) 119 6,455
Jeffery M. Boetticher............. 16,000 984 16,984 0 0 0
Irwin L. Elson.................... 25,100 890 25,990 13,000 0 13,000
H. Patrick Mahanes, Jr............ 10,000(3) 0 10,000 105,173 5,525 110,698
Robert L. McGeehan................ 26,426(4) 0 26,426 328,986(12) 5,983 334,969
Aloysius T. McLaughlin, Jr........ 17,500 2,693 20,193 25,695 7,103 32,798
William R. Newlin................. 38,600 0 38,600 79,215(13) 11,317 90,532
Richard J. Orwig.................. 10,000 0 10,000 113,527 6,683 120,210
Michael W. Ruprich(5)............. 107,500(6) 0 107,500 38,272 0 38,272
Kenneth M. McHenry(7)............. 50,400 0 50,400 6,011 0 6,011
Roland E. Lazzaro................. 52,000 0 52,000 5,011 0 5,011
Michael J. Mussog................. 51,000 0 51,000 4,011 0 4,011
Directors and Executive Officers
as a Group (12 persons)......... 420,526 4,567 425,093 725,237 36,730 761,967
</TABLE>
- ---------------
(1) The figures shown include 0, 100,000, 50,000, 50,000, 50,000, and 340,000
shares of the Corporation's Class A Common Stock over which Messrs. Orwig,
Ruprich, McHenry, Lazzaro, Mussog and all directors and executive officers
of the Corporation as a group, respectively, have the right to acquire
within 60 days of July 30, 1998, pursuant to an award by the Corporation to
its executive officers, directors and employees upon consummation of the
Offering. The figures shown include 15,000 shares of the Corporation's Class
A Common Stock over which each of Messrs. Alberding, Boetticher, Elson,
McGeehan, McLaughlin and Newlin have the right to acquire within 60 days of
July 30, 1998, pursuant to an award by the Corporation upon consummation of
the Offering.
(2) As of July 30, 1998, Messrs. Orwig, Ruprich, McHenry, Lazzaro and Mussog
beneficially owned 0.2%, 2.5%, 1.1%, 1.2% and 1.2%, respectively, of the
Corporation's Class A Common Stock. As of such date, no other individual
beneficially owned in excess of one percent of any class of the
Corporation's stock. Directors and executive officers as a group
beneficially own 9.8% of the outstanding Class A Common Stock of the
Corporation. Unless otherwise noted, the shares shown are subject to the
sole voting and investment power of the person named.
(3) The figure includes 10,000 shares owned by Mr. Mahanes' wife. Mr. Mahanes
disclaims beneficial ownership of shares owned by his wife.
(4) The figure includes 1,426 shares owned by Mr. McGeehan's mother-in-law. Mr.
McGeehan disclaims beneficial ownership of shares owned by his
mother-in-law.
(5) Mr. Ruprich ceased to serve as a director of the Corporation on September
16, 1998, and as President effective September 17, 1998.
4
<PAGE> 7
(6) The figure includes 7,500 shares owned by Mr. Ruprich and his wife.
(7) Mr. McHenry tendered his resignation from his position as an executive
officer of the Corporation on June 25, 1998, effective July 31, 1998.
(8) These amounts represent the Corporation's Stock Credits to which
non-employee directors of the Corporation or Kennametal are entitled
pursuant to the Corporation's Directors Deferred Fee Plan.
(9) The figures shown include 94,393, 34,834, 6,000, 5,000, 4,000 and 491,638
shares of Kennametal Capital Stock over which Messrs. Orwig, Ruprich,
McHenry, Lazzaro, Mussog and all directors and executive officers of the
Corporation as a group, respectively, have the right to acquire within 60
days of July 30, 1998, pursuant to Kennametal's stock option plans. The
figures shown include 6,000, 0, 10,000, 92,400, 271,404, 6,000 and 56,000
shares of Kennametal Capital Stock over which Messrs. Alberding,
Boetticher, Elson, Mahanes, McGeehan, McLaughlin and Newlin have the right
to acquire within 60 days of July 30, 1998, pursuant to Kennametal's stock
option plans.
(10) Other than Mr. McGeehan, who beneficially owns 1.1% of Kennametal Capital
Stock, no individual beneficially owns in excess of one percent of the
Kennametal Capital Stock. Directors and executive officers as a group
beneficially own 2.4% of the total outstanding shares of Kennametal
Capital Stock. Unless otherwise noted, the shares shown are subject to the
sole voting and investment power of the person named.
(11) The figure shown includes 336 shares owned jointly by Mr. Alberding and
his wife.
(12) The figure shown includes 8,214 shares owned jointly by Mr. McGeehan and
his wife.
(13) The figure shown includes 2,309 shares owned jointly by Mr. Newlin and his
wife, and 6,254 shares owned by Mr. Newlin's wife. Mr. Newlin disclaims
beneficial ownership of shares owned by his wife.
(14) These amounts represent Kennametal Stock Credits to which non-employee
directors and executive officers of Kennametal and the Corporation are
entitled pursuant to various benefit plans.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Corporation to
its former President, Mr. Ruprich, and to each of the other three most highly
compensated executive officers of the Corporation including the former Vice
President--Sales and Marketing (the "Named Executive Officers"), during the last
completed fiscal year and the compensation paid by Kennametal to Mr. Ruprich
during the fiscal years ended 1997 and 1996, and to each of the other Named
Executive Officers during the fiscal year ended 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
------------------------- AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($)(2) OPTIONS (#) (3)($)
- --------------------------- ------- --------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
Michael W. Ruprich, 1998 380,765 220,000 0 7,745
President (4)(5) 1997 264,508 120,000 100,000(6) 5,045
12,500(7)
1996 197,968 103,696 11,000(7) 5,045
Kenneth M. McHenry, 1998 186,887 0 0 5,205
Vice President--Sales 1997 120,045 35,308 50,000(6) 4,500
and Marketing (8) 3,000(7)
Roland E. Lazzaro, 1998 163,711 67,500 0 4,875
Vice President--Operations 1997 113,049 36,873 50,000(6) 4,400
2,000(7)
Michael J. Mussog, 1998 177,207 80,000 0 6,065
Vice President and Chief Financial 1997 105,044 25,000 50,000(6) 3,900
and Accounting Officer 2,000(7)
</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 Mr. Ruprich, bonuses paid in 1996 and 1997, and for each of
the other Named Executive Officers, bonuses paid in 1997, in shares of
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 in a fixed income fund and various
equity funds (including Kennametal Capital Stock) and 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
Corporation, 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 Corporation upon its formation. Mr. Ruprich ceased to
serve as a director of the Corporation on September 16, 1998, and as
President effective September 17, 1998.
(5) The amounts in the column entitled "All Other Compensation" for Mr. Ruprich
in each year include 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.
(6) Represents options to purchase shares of the Corporation's Class A Common
Stock.
(7) Represents options to purchase shares of Kennametal's Capital Stock.
(8) Mr. McHenry tendered his resignation from his position as an executive
officer of the Corporation on June 25, 1998, effective July 31, 1998.
6
<PAGE> 9
KENNAMETAL MANAGEMENT PERFORMANCE BONUS PLAN
Bonus amounts set forth in the Summary Compensation Table for 1996 and 1997
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. Bonuses to the
Corporation's employees in 1998, including the Named Executive Officers, were
paid pursuant to the Corporation's 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 were
permitted to elect to receive, in lieu of cash, Kennametal Capital Stock or
Kennametal Stock Credits.
KENNAMETAL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Each officer who has an employment agreement with the Corporation 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
deferred compensation trust (a so-called "Rabbi Trust") upon the occurrence of a
threatened or actual change in control of Kennametal. For employees of the
Corporation who participated in such plan prior to the Offering as employees of
Kennametal, the Offering did 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 1,107,555 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. Corporation employees are eligible to
receive grants and awards under these plans.
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-statutory 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 the 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. For the fiscal year ended June 30, 1998, no employees of the
Corporation were granted options under any of the Kennametal stock option plans.
7
<PAGE> 10
JLK DIRECT DISTRIBUTION INC. MANAGEMENT BONUS PLAN
The Corporation's Board of Directors has adopted the JLK Management Bonus
Plan for executives and managers which is designed to tie bonus awards to
Corporation performance, unit performance and individual contribution, relative
to the Corporation'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 "--Compensation of Executive Officers."
JLK DIRECT DISTRIBUTION INC. 1997 STOCK OPTION AND INCENTIVE PLAN
The JLK Direct Distribution Inc. 1997 Stock Option and Incentive Plan (the
"1997 Plan") provides for the granting of nonstatutory and incentive stock
options or share awards covering 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.
Under the 1997 Plan, the price at which each share covered by an option may
be purchased will be determined in each case by the Plan Administrator, but must
not be less than the fair market value of such shares at the time the option is
granted. The purchase price must be paid in full at the time of exercise, either
in cash or, in the discretion of the Plan Administrator, by delivering shares of
the Corporation's Class A Common Stock or a combination of shares and cash
having an aggregate fair market value equal to the purchase price. Under the
1997 Plan, any shares of the Corporation's Class A Common Stock delivered as
payment, in whole or in part, must have been held for at least six months. For
fiscal year ended June 30, 1998, no employees of the Corporation were granted
options under the 1997 Plan.
The following tables sets forth information concerning options to purchase
the Corporation's Class A Common Stock held by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS 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 0 100,000/0 187,500/0
Kenneth M. McHenry................ 0 0 50,000/0 93,750/0
Roland E. Lazzaro................. 0 0 50,000/0 93,750/0
Michael J. Mussog................. 0 0 50,000/0 93,750/0
</TABLE>
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<PAGE> 11
RETIREMENT BENEFITS
The Named Executive Officers and certain other Corporation 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 offset.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFIT UPON RETIREMENT WITH YEARS OF CREDITED SERVICE
INDICATED
ANNUALIZED -------------------------------------------------------------
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
300,000 90,000 120,000 150,000 165,000 180,000
</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 twenty-five (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, however, the
Corporation is required to reimburse Kennametal for the incremental cost of
providing the benefit to employees of the Corporation. Under the Internal
Revenue 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 Corporation would be paid pursuant to the Supplemental Executive Retirement
Plan as more fully described above. The Corporation will reimburse Kennametal
for any supplemental retirement benefit amounts paid by Kennametal to former
employees of the Corporation under these plans.
As of June 30, 1998, the credited years of service under the Kennametal
Inc. Retirement Income Plan for the Named Executive Officers were approximately:
Michael W. Ruprich, 9 years; Kenneth M. McHenry, 4 years; Roland E. Lazzaro, 13
years; and Michael J. Mussog, 5 years.
Annualized Covered Compensation as of June 30, 1998, for purposes of the
retirement benefits under the Retirement Income Plan for the Named Executive
Officers is as follows: Michael W. Ruprich, $139,701; Kenneth M. McHenry,
$128,555; Roland E. Lazzaro, $103,867; and Michael J. Mussog, $98,979.
EMPLOYMENT AGREEMENTS
The Corporation has entered 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 Corporation.
The agreements generally provide that the officers will devote their full time
and attention to the business and affairs of the Corporation 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 Corporation
(unless employment is terminated by the Corporation without cause or following a
change in control), and will not disclose confidential or trade secret
information belonging to the Corporation. The agreements provide for
9
<PAGE> 12
severance payments upon termination of employment occurring either before or
after a change in control of the Corporation.
In the event of termination of employment by the Corporation 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 by the officer 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
Corporation (other than for cause or disability or by the officer with good
reason at or after a change in control of the Corporation 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert L. McGeehan, who serves on the Compensation Committee, is President
and Chief Executive Officer of Kennametal.
The Corporation engages in business transactions with Kennametal and its
subsidiaries. Products purchased for resale from Kennametal and its subsidiaries
totaled $40.7 million in 1998, $30.9 million in 1997 and $18.7 million in 1996.
Sales to these entities totaled $10.6 million in 1998, $12.4 million in 1997 and
$11.4 million in 1996.
The Corporation receives from Kennametal certain warehouse, management
information systems, financial and administrative services. All amounts incurred
by Kennametal on behalf of the Corporation are reflected in operating expenses
in the Corporation's statements of income. Such costs charged to the Corporation
by Kennametal, totaled $12.1 million in 1998, $9.3 million in 1997 and $7.3
million in 1996. The Corporation received approximately $2.9 million in interest
income from Kennametal during 1998 under the Cash Management Agreement.
Kennametal intends to continue to provide services to the Corporation in the
future in accordance with the terms of the intercompany agreements described in
"Certain Relationships and Related Transactions -- 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH KENNAMETAL
Kennametal currently holds 100% of the outstanding Class B Common Stock of
the Corporation. As of September 9, 1998, 4,917,000 shares of Class A Common
Stock were issued, of which 4,273,300 were outstanding, and 643,700 were held as
treasury shares. Accordingly, as of such date Kennametal owned Common Stock
representing approximately 82.5% of the economic interest in the Corporation and
representing approximately 97.9% of the combined voting power of the
Corporation's outstanding Common Stock.
For so long as Kennametal continues to own shares of Class B Common Stock
representing more than 50% of the combined voting power of the Common Stock of
the Corporation, Kennametal will be able, among other things, to determine any
corporate action requiring the 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 Corporation, certain amendments
to the Articles of Incorporation and By-Laws of the Corporation and approval of
certain mergers and other control transactions, without the consent of the other
shareholders of the Corporation.
10
<PAGE> 13
In addition, through its control of the Board of Directors and beneficial
ownership of Class B Common Stock, Kennametal will be able to control certain
decisions, including decisions with respect to the Corporation's dividend
policy, the Corporation's access to capital (including borrowing from
third-party lenders and the issuance of additional equity securities), mergers
or other business combinations involving the Corporation, the acquisition or
disposition of assets by the Corporation and any change in control of the
Corporation. Kennametal has advised the Corporation 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 Corporation not to sell or distribute such
shares. There can be no assurance concerning the period of time during which
Kennametal will maintain its beneficial ownership of Class B 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 Corporation 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.
INTERCOMPANY AGREEMENTS
The Corporation's relationship with Kennametal is also governed by
agreements 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, a 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 corporate agreement, the material terms of which are described
below.
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
which are incorporated herein by reference to the exhibits to Amendment No. 1 to
the Corporation's Registration Statement on Form S-1, filed with the Commission
on June 4, 1997. The Articles of Incorporation also contain provisions relating
to the allocation of business opportunities that may be suitable for either
Kennametal or the Corporation and to the approval of transactions between the
Corporation and Kennametal.
Administrative Services Agreement
The Corporation and Kennametal have entered into an intercompany
Administrative Services Agreement (the "Services Agreement") with respect to
services provided by Kennametal to the Corporation. The Services Agreement
provides that such services are provided in exchange for fees which, generally,
(i) in the case of services purchased by Kennametal from third parties for the
Corporation, are based upon the incremental cost charged by such third parties
to Kennametal for such services provided to the Corporation and (ii) in the case
of services directly provided by Kennametal, are 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 Corporation.
Such fees are paid monthly in arrears. The Corporation may request an expansion
or termination of services, in which case the parties 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 Corporation
the range of services that Kennametal provided to the Corporation prior to the
Offering. With respect to matters covered by the Services Agreement, the
relationship between Kennametal and the Corporation is intended to continue in a
manner generally consistent with prior practices. The services initially
provided by Kennametal to the Corporation 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
Corporation under Kennametal's insurance policies and will allow eligible
employees of the Corporation to participate in all of Kennametal's benefit
plans. In addition,
11
<PAGE> 14
under the Services Agreement, the Corporation will reimburse Kennametal for the
portion of Kennametal's premium cost with respect to such insurance that is
attributable to coverage of the Corporation 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 Corporation's employees in any of Kennametal's benefit
plans.
The Services Agreement has 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 is subject 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 Corporation or (iii) a majority of the directors
of the Corporation were neither nominated by Kennametal or by the Corporation'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
agrees 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. Under the
Services Agreement, the fees for services provided by Kennametal to the
Corporation during 1998 were approximately $6.3 million.
Lease Agreement
The Corporation and Kennametal have entered into a Lease Agreement (the
"Lease Agreement") pursuant to which Kennametal leases to the Corporation space
within buildings located on Kennametal's premises. The Corporation uses such
space for the display and retail sale of metalworking consumables and related
products, as well as for ancillary office and storage use. The Corporation may
not use the premises for any other purpose or business without the prior consent
of Kennametal. The Corporation 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 Corporation upon written notice to Kennametal. Kennametal
may terminate the Lease Agreement if (i) the Corporation 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 Corporation or (iv) a
majority of the directors of the Corporation were neither nominated by
Kennametal or by the Corporation'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. The Corporation paid
approximately $106,000 in lease payments during 1998 under the Lease Agreement.
Shared Facilities Agreements
The Corporation and Kennametal have entered into Shared Facilities
Agreements (the "Shared Facilities Agreements") pursuant to which each company
subleases 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
market 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
Shared Facilities Agreements provide for a term, with respect to each subleased
facility, equal to the term of the underlying lease. Under the Shared Facilities
Agreement, the Corporation paid Kennametal approximately $497,000 for the
portion of the costs and expenses attributable to it under the relevant leases.
Kennametal paid the Corporation approximately $168,000 for the portion of the
costs and expenses attributable to it under the relevant leases.
12
<PAGE> 15
Product Supply Agreement
The Corporation and Kennametal have entered into a Product Supply Agreement
(the "Supply Agreement") which has a term of 10 years pursuant to which
Kennametal agrees to supply and the Corporation agrees to purchase from
Kennametal all of the Corporation's requirements for metalworking consumables
and related products direct-marketed by the Corporation, 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 Corporation and Kennametal. The Corporation is 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 Corporation. The gross margin realized by the
Corporation from the sale of products purchased from Kennametal and resold in
the Corporation's direct-marketing program slightly exceeds the gross margin
which the Corporation realizes on all products resold in the direct-marketing
program. The Corporation's Articles of Incorporation contain similar provisions
regarding product supply. Pursuant to the Corporate Opportunities Agreement (see
below), 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 Corporation. 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 Supply Agreement or the Corporate
Opportunities Agreement. Under the Supply Agreement, the Corporation paid
Kennametal approximately $40.7 million for products supplied during fiscal 1998.
Tax-Sharing Agreement
The Corporation is included in Kennametal's federal consolidated income tax
group, and the Corporation's tax liability is included in the consolidated
federal income tax liability of Kennametal and its subsidiaries. In certain
circumstances, certain of the Corporation's subsidiaries may be included with
certain subsidiaries of Kennametal in combined, consolidated or unitary income
tax groups for state and local tax purposes. Pursuant to the Tax-Sharing
Agreement, the Corporation makes payments to Kennametal such that, with respect
to any period, the amount of taxes to be paid by the Corporation, subject to
certain adjustments, are determined as though the Corporation 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 Corporation is reimbursed, however,
for tax attributes that it generates, such as net operating losses, if and when
they are used on a consolidated basis.
Kennametal has 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), is the sole and exclusive
agent for the Corporation in any and all matters relating to the income,
franchise and similar tax liabilities of the Corporation, has sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns (or amended returns), and has
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 Corporation. In addition, Kennametal has agreed to
undertake to provide the aforementioned services with respect to the
Corporation's separate state and local income tax returns and the Corporation's
foreign income tax returns. Under the Services Agreement, the Corporation pays
Kennametal a fee intended to reimburse Kennametal for all direct and indirect
costs and expenses incurred with respect to the Corporation's share of the
overall costs and expenses incurred by Kennametal with respect to tax related
services.
In general, the Corporation 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-
13
<PAGE> 16
Sharing Agreement allocates tax liabilities between the Corporation and
Kennametal, during the period in which the Corporation is included in
Kennametal's consolidated group, the Corporation 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 Corporation and Kennametal have entered into a Trademark License
Agreement (the "License Agreement"). The License Agreement provides, among other
things, for the grant to the Corporation by Kennametal 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 Corporation's business and for the grant to Kennametal by
the Corporation of a non-exclusive license to use the Corporation's Marks on
similar terms. Under the terms of the License Agreement, each party shall
indemnify the other and its affiliates against certain liabilities in respect of
the use of the Marks. The License Agreement shall 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 Corporation.
Indemnification Agreement
The Corporation and Kennametal have entered into an Indemnification
Agreement (the "Indemnification Agreement"). Under the Indemnification
Agreement, subject to limited exceptions, the Corporation 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 Corporation's Rule 424(b)
Prospectus, filed with the Commission on June 27, 1997. 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 Corporation 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 Corporation 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") entered into between
Kennametal and the Corporation: (i) Kennametal has agreed for as long as the
other intercompany agreements remain in effect (whose current term is 10 years)
(A) not to compete with the Corporation 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 Corporation 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 Corporation's Board of Directors
has determined, for whatever reason, that the Corporation 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 Corporation's
direct-marketing program, except with respect to those contracts, arrange-
14
<PAGE> 17
ments or relationships in existence on the date of the Corporate Opportunities
Agreement or with the prior written consent of the Corporation; and (ii) the
Corporation has agreed 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.
The Corporate Opportunities Agreement provides that Kennametal has the
right to any future business opportunities outside the scope of the Base
Business and has 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 Corporation materially
breaches the Corporate Opportunities Agreement or the Product Supply Agreement.
The Articles of Incorporation also restrict the Corporation's ability to pursue
future business opportunities.
Intercompany Debt/Investment and Cash Management Agreement
The Corporation and Kennametal have entered into an Intercompany
Debt/Investment and Cash Management Agreement (the "Cash Management Agreement")
under which the Corporation participates in Kennametal's centralized cash
management system. The Cash Management Agreement provides for a daily transfer
from the Corporation's cash accounts to Kennametal's centralized cash accounts
and daily funding of the disbursements of the Corporation from such Kennametal
cash account. The Corporation receives interest on net cash flows to
Kennametal's centralized cash accounts and is charged interest on net borrowings
from the Kennametal centralized cash accounts at a rate equal to the 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 Corporation pays for this service pursuant to the Services
Agreement and reimburses 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. The Corporation received
approximately $2.9 million in interest income from Kennametal during 1998 under
the Cash Management Agreement.
Warehousing Agreements
The Corporation and Kennametal have entered into separate Warehousing
Agreements ("Warehousing Agreements") with respect to (i) Kennametal
distribution centers and warehouses that store products for the Corporation and
(ii) Corporation 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
pays 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 shall 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 Corporation 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. Under
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<PAGE> 18
the Warehousing Agreement, the Corporation paid Kennametal approximately $5.4
million for its allocation of costs during 1998.
Corporate Agreement
The Corporation and Kennametal have entered into a Corporate Agreement (the
"Corporate Agreement") under which the Corporation granted 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 Corporation 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 Corporation 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, shall be based on the market price of the Class A Common Stock. The
Stock Option expires on the Control Termination Date. The Corporation 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 Corporation is subject.
The Corporate Agreement further provides that, upon the request of
Kennametal, the Corporation shall 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
hereof, Kennametal has no current plan or intention other than to hold its
shares of Class B Common Stock for the foreseeable future, Kennametal also has
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 Corporation initiated by the Corporation on its
own behalf or on behalf of its other shareholders. The Corporation agrees 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 Corporation and related persons and (ii) by the Corporation 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 Corporation may not take any action or enter into any
commitment or agreement that 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 provided that if the Underwriters exercised
their over-allotment option to acquire additional shares of Class A Common Stock
(as the Underwriters in fact did), Kennametal would surrender a number of its
shares of Class B Common Stock that equals the number of additional shares of
Class A Common Stock purchased by the Underwriters from the Corporation.
Kennametal surrendered 640,000 shares of Class B Common Stock in connection with
the Offering.
16
<PAGE> 19
CONFLICTS OF INTEREST
Conflicts of interest may arise between the Corporation 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
Corporation, 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 Corporation. The Corporation 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 Corporation and Kennametal would engage in
activities in competition with one another.
The Corporation 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 Corporation 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 eight current directors of the Corporation are also directors
of Kennametal, including Kennametal's Chairman, William R. Newlin, and
Kennametal's Chief Executive Officer, Robert L. McGeehan. Directors of the
Corporation who are also directors of Kennametal will have conflicts of interest
with respect to matters potentially or actually involving or affecting the
Corporation and Kennametal, such as acquisitions, financing and other corporate
opportunities that may be suitable for the Corporation 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 Corporation, whether such opportunity is
within the Corporation's line of business or consistent with its strategic
objectives and whether the Corporation 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 Corporation.
So long as the Corporation remains a subsidiary of Kennametal, the
directors and officers of the Corporation 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 Corporation, including actions or
omissions that may be alleged to constitute breaches of the fiduciary duties
owed by such persons to the Corporation and its shareholders. This insurance may
not be applicable to certain of the claims that Kennametal may have against the
Corporation 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 Corporation will obtain
its own insurance coverage for its directors and officers in respect of such
matters comparable to that currently provided by Kennametal.
17
<PAGE> 20
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION PHILOSOPHY
Executive and managerial compensation programs at the Corporation are designed
and implemented with certain guiding principles in mind:
- To link the interests of executives and managers to the interests of
stockholders and other potential investors.
- To provide incentives for working toward increasing the market value of
the stock and to increase stockholder value through value management.
- To provide incentives for strategic vision and decision making that will
promote the longer-term health and viability of the Corporation.
- To provide incentives for innovation, quality management, responsiveness
to customer needs, value-added products and services, and an
action-oriented approach to opportunities in the marketplace.
- To attract and retain individuals with the leadership and technical
skills required to carry the Corporation forward into the future, given
the belief that the Corporation's human resources can provide a
competitive advantage in the marketplace.
GENERAL COMPENSATION PLAN DESIGN
Executive and management compensation plans consist of: (1) a long-term element,
(2) annual performance rewards, and (3) basic compensation.
- The primary vehicle for providing long-term incentives is the
Corporation's stock option plan. The belief is that key executives and
certain managers should hold stock options in such quantities as to
provide an incentive to make decisions and take actions that will enhance
the performance of the Corporation and increase its value. The interests
of stockholders and executives are tied together by the market value of
the stock.
- Annual performance rewards include a management performance bonus plan
and annual base salary merit increases.
-- The Management Performance Bonus Plan for executives and managers, is
designed to closely tie bonus awards to corporate performance, unit
performance, and individual contribution, relative to the Corporation's
business plans, strategies, and stockholder value creation. The Bonus
Plan is also intended to maintain management compensation at a
competitive level, as indicated by published compensation surveys.
-- The annual Base Salary Merit Increase Review for executives and
managers provides rewards for more qualitative achievements in
innovation, quality, service to the customer, and leadership.
Consideration is given to competitive salary increases that are being
awarded by similar firms, as indicated by published salary surveys.
- Basic compensation for executives and managers, is intended to be
competitive in the employment market and is designed to attract, retain,
and motivate high-quality individuals. Basic compensation includes base
salary, flexible and fixed benefit plans, and minor executive
perquisites.
18
<PAGE> 21
COMPENSATION OF THE FORMER PRESIDENT
- Under the plan design of the Management Bonus Plan for fiscal year 1998,
a bonus pool was calculated by management and approved by the Board of
Directors. Based on specific business and personal achievements, Mr.
Ruprich received a bonus award of $220,000.
- Mr. Ruprich's base salary was reviewed by the Board of Directors
Committee on Executive Compensation in May 1998. In consideration of
competitive salary survey data, the Committee recommended no change to
the base salary of $350,000 established May 1, 1997. However, a lump sum
merit payment of $17,500 was awarded in lieu of a base salary increase.
COMPENSATION OF EXECUTIVE OFFICERS
- Individual executive officer bonus awards were determined by corporate
performance, by unit performance, and by individual performance. The
awards, as recommended by the President, were approved by the Board of
Directors Committee on Executive Compensation on July 28, 1998.
Compensation Committee:
Robert L. McGeehan
Richard C. Alberding
19
<PAGE> 22
COMPARISON OF CUMULATIVE TOTAL RETURN
The following paragraph compares cumulative total stockholder return on the
Corporation's Class A Common Stock with the cumulative total stockholder return
on the common equity of the companies in the Standard & Poor's Small Cap 600
Market Index (the "S&P Small Cap") and a peer group of companies determined by
the Corporation (the "Peer Group") for the period from June 27, 1997 (when the
Corporation listed the Class A Common Stock on the NYSE) to June 30, 1998. The
Peer Group consists of the following companies: Airgas, Inc., Barnett Inc.,
Fastenal Company, MSC Industrial Direct Co., Inc., Strategic Distribution, Inc.
and Wilmar Industries, Inc. The Corporation intends to add Industrial
Distribution Group, Inc. to the Peer Group in future years, but cannot add this
company this year because it became publicly traded subsequent to the date the
Corporation became publicly traded.
<TABLE>
<CAPTION>
JLK
Measurement Period DIRECT PEER
(Fiscal Year Covered) DIST S&P 600 GROUP
--------------------- ---- ------- -----
<S> <C> <C> <C>
6/27/97 100.00 100.00 100.00
6/30/97 128.13 104.42 110.34
6/30/98 109.38 124.74 112.28
</TABLE>
The above graph assumes a $100 investment on June 27, 1997 in each of JLK
Direct Distribution Inc. Class A Common Stock, the S&P Small Cap and the Peer
Group, and further assumes the reinvestment of all dividends.
20
<PAGE> 23
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information with respect to the beneficial
ownership of the Corporation's Class B Common Stock as of September 9, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) PERCENT OF CLASS
- ---------------------- ------------------------ ----------------
<S> <C> <C>
Kennametal Inc. (3) 20,237,000 100
</TABLE>
- ---------------
(1) The address of Kennametal is 1600 Technology Way, 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 approximately 82.5% of the Class A Common Stock.
(3) See "Relationship with Kennametal" for a description of transactions and
arrangements between Kennametal and the Corporation.
The following table sets forth each person or entity who may be deemed to
have beneficial ownership of more than 5% of the outstanding Class A Common
Stock of the Corporation based upon information available to the Corporation as
of August 25, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- ------------------------ ----------------
<S> <C> <C>
First Pacific Advisors, Inc. 551,100 (1) 13
11400 West Olympic Blvd.
Suite 1200
Los Angeles, CA 90064
Dresdner Bank AG 419,800 (2) 10
Jurgen-Ponto-Platz 1
60301 Frankfurt, Germany
Capital Research and Management Company 404,400 (3) 9
333 South Hope Street
Los Angeles, CA 90071
Investment Advisers, Inc. 480,900 (4) 11
601 2nd Ave. South
Suite 3600
Minneapolis, MN 55402
</TABLE>
- ---------------
(1) First Pacific Advisors, Inc. has shared dispositive power over all shares
and shared voting power over 21,700 shares.
(2) Dresdner Bank AG ("Dresdner Bank") has beneficial ownership of the
securities listed above to the extent that Dresdner Bank may be deemed to
have beneficial ownership of securities deemed to be beneficially owned by
Dresdner RCM Global Investors LLC ("Dresdner RCM"), a wholly-owned
subsidiary of Dresdner Bank and a registered investment advisor. Dresdner
Bank has no voting or dispositive power over the shares. RCM Limited L.P.
("RCM Limited") is the Managing Agent of Dresdner RCM, and RCM General
Corporation ("RCM General") is the General Partner of RCM Limited. RCM
Limited and RCM General have beneficial ownership of the securities reported
only to the extent RCM Limited and RCM General may be deemed to have
beneficial ownership of securities beneficially owned by Dresdner RCM. Each
of Dresdner RCM, RCM Limited and RCM General has sole voting power over
361,500 shares and sole dispositive power over 419,800 shares. Of these
shares, each of Dresdner RCM Capital Funds, Inc. and Dresdner RCM Small Cap
Fund (investment companies), owns 266,700 shares and has sole dispositive
power with respect to all such shares.
21
<PAGE> 24
(3) Based upon information provided by the holder and the Schedule 13G for the
period ended December 31, 1997, Capital Research and Management Company, a
registered investment advisor, has sole voting power over none of the
shares, and sole dispositive power over all of the shares.
(4) Based upon information provided by the holder, Investment Advisers, Inc. is
a registered investment advisor and has sole voting power over 269,900
shares, and sole dispositive power over 211,000 shares.
ELECTION OF AUDITORS
Unless otherwise directed by the stockholders, proxies will be voted for
the election of Arthur Andersen LLP as the Corporation's independent auditors
for the fiscal year ending June 30, 1999. The affirmative vote of the holders of
at least a majority of the shares cast at the meeting is required to elect such
firm as auditors. Representatives of Arthur Andersen LLP are expected to be
present at the meeting to respond to appropriate questions and will have the
opportunity to make a statement if they desire to do so. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF ARTHUR ANDERSEN LLP AS THE
CORPORATION'S AUDITORS.
FORM 10-K ANNUAL REPORT TO THE SECURITIES
AND EXCHANGE COMMISSION
COPIES OF THE ANNUAL REPORT (FORM 10-K) OF THE CORPORATION FOR THE FISCAL
YEAR ENDED JUNE 30, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE AVAILABLE TO STOCKHOLDERS AFTER SEPTEMBER 30, 1998. A STOCKHOLDER MAY
OBTAIN ONE WITHOUT CHARGE BY WRITING TO: CHIEF FINANCIAL OFFICER, JLK DIRECT
DISTRIBUTION INC., 1600 TECHNOLOGY WAY, P.O. BOX 231, LATROBE, PENNSYLVANIA
15650.
OTHER MATTERS
The Corporation knows of no other matters to be presented for action at the
Annual Meeting. However, if any other matters should properly come before the
meeting, it is intended that votes will be cast pursuant to the proxy in respect
thereto in accordance with the best judgment of the persons acting as proxies.
The Corporation will pay the expense in connection with the printing,
assembling and mailing of the notice of meeting, this Proxy Statement and the
accompanying form of proxy to the holders of Capital Stock of the Corporation.
In addition to the use of the mails, proxies may be solicited by directors,
officers or employees of the Corporation personally or by telephone or telex or
facsimile. The Corporation may request the persons holding stock in their names,
or in the names of their nominees, to send proxy material to and obtain proxies
from their principals and will reimburse such persons for their expense in so
doing. In addition, the Corporation has retained the services of Georgeson &
Company Inc., a professional soliciting organization, to assist in soliciting
proxies from brokerage houses, custodians, nominees, other fiduciaries and other
stockholders of the Corporation. The fees and expenses of that firm in
connection with such solicitation are not expected to exceed $25,000.
STOCKHOLDER PROPOSALS AND NOMINATING PROCEDURES
Stockholders who intend to submit a proposal for inclusion in the
Corporation's 1999 Proxy Statement for consideration at the Annual Meeting of
the Stockholders of the Corporation to be held in October 1999 must submit such
proposal to the attention of the Assistant Secretary of the Corporation at the
address of its executive offices no later than August 27, 1999. Any such
proposal must comply with Rule 14a-8 of Regulation 14A of the proxy rules of the
Securities and Exchange Commission and must contain certain information
specified in the By-Laws of the Corporation.
The By-Laws of the Corporation require that all stockholder proposals to be
submitted at the Annual Meeting but not included in the Corporation's Proxy
Statement be submitted to the Assistant Secretary of the
22
<PAGE> 25
Corporation at the address of its executive offices prior to August 27, 1999,
together with certain information specified in the By-Laws. The By-Laws of the
Corporation also require that nominations for directors to be elected at the
1999 Annual Meeting, other than those made by the Board of Directors, be
submitted to the Assistant Secretary of the Corporation no later than August 27,
1999. The By-Laws require that notice of such nominations contain certain
information regarding the nominee and certain information regarding the
nominating stockholder. Any stockholder may obtain a copy of the applicable
By-Law from the Assistant Secretary of the Corporation upon written request.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's directors, executive officers and persons who beneficially own
more than ten percent of a class of the Corporation's registered equity
securities to file with the Securities and Exchange Commission and deliver to
the Corporation initial reports of ownership and reports of changes in ownership
of such registered equity securities.
To the Corporation's knowledge, based solely on a review of the copies of
such reports furnished to the Corporation and written representations that no
other reports were required, each of Messrs. Ruprich, McHenry, Lazzaro, Mussog,
Alberding, Boetticher, Elson, McGeehan, McLaughlin and Newlin failed to timely
file one report due under Section 16(a) for the period from July 1, 1997,
through June 30, 1998, with respect to options granted in connection with the
Corporation's Offering.
23
<PAGE> 26
PROXY PROXY
JLK DIRECT DISTRIBUTION INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
The undersigned hereby appoints William R. Newlin, Robert L. McGeehan and
Richard C. Alberding, and each of them with power of substitution in each, as
proxies to represent the undersigned at the annual meeting of the stockholders
of JLK Direct Distribution Inc. to be held at the Kennametal Inc. Technology
Center, located on Route 981 South (recently designated "Technology Way")
approximately 1/4 mile south of its intersection with U.S. Route 30 near
Latrobe, Unity Township, Pennsylvania, on Tuesday, October 27, 1998 at 2:00
p.m., and at any adjournments thereof, to vote the same number of shares and as
fully as the undersigned would be entitled to vote if then personally present
(including the power to vote cumulatively in the election of directors as
explained in the Proxy Statement) in the manner directed by the undersigned as
follows:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED IN ITEM 1
AND FOR THE ELECTION OF AUDITORS.
(over)
FOLD AND DETACH HERE
<PAGE> 27
Please mark
your votes as [ X ]
indicated in
this example
I. ELECTION OF DIRECTORS FOR TERMS TO EXPIRE IN 1999
<TABLE>
<C> <C> <S>
Vote FOR ALL WITHHOLD Nominees; Richard C. Alberding, Jeffery M. Boetticher, Irwin L. Elson, H. Patrick
NOMINEES listed AUTHORITY Mahanes, Jr., Robert L. McGeehan, Aloysius T. McLaughlin, Jr., William R. Newlin and
(except as shown to vote FOR ALL Richard J. Orwig
to the contrary) NOMINEES listed. (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, WRITE NOMINEE'S
NAME ON THE LINE PROVIDED BELOW):
[ ] [ ] ----------------------------------------------------------------------------------
II. ELECTION OF AUDITORS This Proxy when properly executed will be voted in
the manner directed herein. If no direction is made,
FOR AGAINST ABSTAIN this Proxy will be voted FOR the election of the
nominees in Item I above and FOR the election of
[ ] [ ] [ ] auditors. The proxies are authorized, in accordance
with their judgment, to vote upon such other matters
as may properly come before the meeting and any
adjournment thereof.
Dated: , 1998
--------------------------------------
--------------------------------------------------
--------------------------------------------------
Sign exactly as addressed, but if executed for a
corporation, minor, etc., sign that name and
signature and capacity of authorized signer.
</TABLE>
FOLD AND DETACH HERE
JLK DIRECT DISTRIBUTION INC.
September 23, 1998
Dear JLK Direct Distribution Inc. Stockholders:
The 1998 Annual Meeting of the Stockholders of JLK Direct Distribution Inc.
will be held at 2:00 p.m. on Tuesday, October 27, 1998, at the Kennametal Inc.
Technology Center, located on Route 981 South (recently designated "Technology
Way") approximately 1/4 mile south of its intersection with U.S. Route 30 near
Latrobe, Unity Township, Pennsylvania. I cordially invite you to attend.
Whether or not you plan to attend the meeting, please detach the proxy above,
complete it, and return it in the enclosed envelope. Your vote is important to
us.
Sincerely,
William R. Newlin
Chairman of the Board
JLK Direct Distribution Inc.
