<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 the Commission Only
[ X ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 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), 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 Statement No.:
-------------------
(3) Filing Party:
---------------------------------------------------
(4) Date Filed:
-----------------------------------------------------
<PAGE> 2
JLK DIRECT DISTRIBUTION INC.
LATROBE, PENNSYLVANIA 15650
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO BE HELD OCTOBER 26, 1999
To the Shareowners of JLK Direct Distribution Inc.:
The Annual Meeting of Shareowners of JLK Direct Distribution Inc. will be
held at the Kennametal Inc. Technology Center, located at 1600 Technology Way
(on Route 981 South), approximately 1/4 mile south of its intersection with U.S.
Route 30 near Latrobe, Unity Township, Pennsylvania, on Tuesday, October 26,
1999, at 2:00 p.m., to consider and act upon the following matters:
1. The election of eight directors for terms to expire in 2000; and
2. The election of auditors for the fiscal year ending June 30, 2000.
Shareowners also will be asked to consider such other business as may
properly come before the meeting. The Board of Directors has fixed Wednesday,
September 8, 1999, as the record date for the determination of shareowners
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
Secretary
September 14, 1999
<PAGE> 3
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREOWNERS
OCTOBER 26, 1999
This Proxy Statement is being furnished to the shareowners 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 Shareowners which is scheduled to be held on October 26, 1999.
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 8,
1999 will be entitled to vote at the meeting. On that date there were 4,273,390
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 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 shareowners for approval at the
Annual Meeting.
Any shareowner 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 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 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. Unless otherwise
indicated by the shareowner, the proxy card also confers discretionary authority
on the persons named on the proxy card to vote the shares represented by the
proxy on any matter that is properly presented for action at the Annual Meeting
of Shareowners. 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 plurality of the votes cast
by shareowners 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, Latrobe, Pennsylvania 15650,
and the date this Proxy Statement was mailed to shareowners was on or about
September 24, 1999.
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, 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 a director since April 23, 1998, Richard J. Orwig, who has
served as a director since September 16, 1998, and Markos I. Tambakeras, who has
served as a director since July 1, 1999. 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: 68 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., Digital Link Corporation and
Kennametal. Former director of Quickturn Design Systems
Inc. and Storm Technology, Inc.
Jeffery M. Boetticher Chief Executive Officer of Frances Meyer Inc. (a specialty
Age: 48 paper company) since January 1999. Served as Chief
Director since 1997 Executive Officer of Black Box Corporation (a leading
worldwide direct marketer of 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 Technology Council.
Irwin L. Elson Retired, a co-founder of J&L America, Inc. ("J&L") having
Age: 60 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: 56 President of Kennametal since 1987, he was Director of
Director since 1998 Operations of Kennametal from 1991 to 1995.
Aloysius T. McLaughlin, Jr. Retired, having served as Vice Chairman of Dick Corporation
Age: 64 (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 Partner of Buchanan Ingersoll Professional
Age: 58 Corporation (attorneys at law) since 1980. Managing General
Director since 1997 Partner of CEO Venture Funds (private venture capital
funds). Director of Black Box Corporation, National City
Bank of Pennsylvania, Parker/Hunter Incorporated and the
Pittsburgh Technology Council. Chairman of the Board of
Directors of the Corporation and of Kennametal.
Richard J. Orwig President and Chief Executive Officer of the Corporation
Age: 58 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>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
----------------- --------------------------------
<S> <C>
Markos I. Tambakeras President and Chief Executive Officer of Kennametal since
Age: 48 July 1999. From 1997 to June 1999, served as President,
Director since 1999 Industrial Controls Business of Honeywell Incorporated
(provider of control technologies), having previously
served as President, Industrial Automation and Control,
Honeywell Incorporated from 1995 to 1996 and as President,
Honeywell Asia Pacific in Hong Kong from 1992 to 1994.
Director of Kennametal.
</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 Corporation engaged Buchanan Ingersoll Professional Corporation, the law
firm of which William R. Newlin is Managing Partner, to perform services for
the Corporation during fiscal 1999 and fiscal 2000.
BOARD OF DIRECTORS AND BOARD COMMITTEES
The Corporation's Board of Directors held eight meetings during the year
ended June 30, 1999. 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 four 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, legal and
regulatory and employee benefit plan reporting requirements and monitors
critical management information systems. The Committee recommends to the Board
of Directors for approval by the Board of Directors and shareowners the election
of the independent public accountant. The following directors currently comprise
the Committee: Aloysius T. McLaughlin, Jr. and Jeffery M. Boetticher (Chairman).
Compensation Committee: The Compensation Committee met three times 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: Markos I. Tambakeras and Richard C. Alberding
(Chairman). 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 or Kennametal
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.
3
<PAGE> 6
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").
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information pertaining to executive
officers of the Corporation:
<TABLE>
<CAPTION>
NAME, AGE, AND POSITION EXPERIENCE DURING PAST FIVE YEARS
----------------------- ---------------------------------
<S> <C>
Richard J. Orwig Named President and Chief Executive Officer in 1998.
Age: 58 Elected a Vice President of Kennametal in 1987 and was
President and Chief Executive Chief Financial and Administrative Officer of Kennametal
Officer from 1994 to 1998.
John M. Beaudoin Elected Vice President -- Marketing in 1997. Formerly,
Age: 36 Director of Product Management for J&L from 1992 to 1997.
Vice President --
Marketing
Paul E. Fuller Elected Vice President -- Sales in 1998. Formerly, Eastern
Age: 56 U.S. Regional Business Manager for Kennametal from 1994 to
Vice President -- 1998.
Sales
Charles G. Lendvoyi Elected Vice President -- Full Service Supply in 1998.
Age: 57 Director of Full Service Supply since 1997. Formerly,
Vice President -- Director of Full Service Supply with Kennametal from 1993
Full Service Supply to 1997.
Diana L. Scott Named Chief Financial Officer in 1999. Elected Vice
Age: 45 President in 1998 and Treasurer in 1997. Secretary and
Vice President, Director of Finance from 1997 to 1998. Controller for J&L
Chief Financial Officer and from 1996 to 1997. Formerly, Director of Finance for
Treasurer Kennametal Hertel Europe from 1993 to 1996.
</TABLE>
4
<PAGE> 7
OWNERSHIP OF COMMON STOCK
BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of the
Corporation's Class A Common Stock as of July 30, 1999, by each director, each
nominee for director, each Named Executive Officer (as hereinafter defined) and
all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND TOTAL
NATURE OF BENEFICIAL
BENEFICIAL OWNERSHIP
OWNERSHIP STOCK AND STOCK
NAME OF BENEFICIAL OWNER (1)(2) CREDITS (9) CREDITS
- ------------------------ ------ ----------- -------
<S> <C> <C> <C>
Richard C. Alberding...................................... 16,000 0 16,000
Jeffery M. Boetticher..................................... 16,000 3,322 19,322
Irwin L. Elson............................................ 25,100 2,881 27,981
H. Patrick Mahanes, Jr. .................................. 10,000(3) 0 10,000
Aloysius T. McLaughlin, Jr. .............................. 17,500 2,693 20,193
William R. Newlin......................................... 68,900(4) 12,963 81,863
Richard J. Orwig.......................................... 10,000 0 10,000
Markos I. Tambakeras...................................... 0 0 0
Diana L. Scott............................................ 22,000 0 22,000
Paul E. Fuller............................................ 250 0 250
Charles G. Lendvoyi....................................... 11,000(5) 0 11,000
John M. Beaudoin.......................................... 52,200(6) 0 52,200
Michael W. Ruprich(7)..................................... 107,500(8) 0 107,500
Directors and Executive Officers as a Group (13
persons)................................................ 356,450 21,859 378,309
</TABLE>
- ---------------
(1) The figures shown include 0, 100,000, 0, 10,000, 50,000, 20,000 and 285,000
shares of the Corporation's Class A Common Stock over which Messrs. Orwig,
Ruprich, Fuller, Lendvoyi, Beaudoin and Ms. Scott, and all directors and
executive officers of the Corporation as a group, respectively, have the
right to acquire as of July 30, 1999 or the right to acquire within 60 days
thereafter. The figures shown include 15,000 shares of the Corporation's
Class A Common Stock over which each of Messrs. Alberding, Boetticher, Elson
and McLaughlin have the right to acquire as of July 30, 1999 or the right to
acquire within 60 days thereafter and 45,000 shares of the Corporation's
Class A Common Stock over which Mr. Newlin has the right to acquire as of
July 30, 1999 or the right to acquire within 60 days thereafter.
(2) Except for Mr. Newlin (1.6%), Mr. Beaudoin (1.2%) and Mr. Ruprich (2.5%), no
other director or executive officer beneficially owned in excess of one
percent of any class of the Corporation's stock. Directors and executive
officers as a group beneficially own 8.1% 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 300 shares owned by Mr. Newlin's son. Mr. Newlin
disclaims beneficial ownership of shares owned by his son.
(5) The figure includes 1,000 shares owned by Mr. Lendvoyi and his wife.
(6) The figure includes 2,200 shares owned by Mr. Beaudoin and his wife.
(7) Mr. Ruprich ceased to serve as a director of the Corporation on September
16, 1998, and as President effective September 17, 1998.
(8) The figure shown includes 7,500 shares owned by Mr. Ruprich and his wife.
(9) These amounts represent Stock Credits to which non-employee directors of the
Corporation or Kennametal are entitled pursuant to the Deferred Fee Plan.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Corporation to
its former President, Mr. Ruprich, to its current President and Chief Executive
Officer, Mr. Orwig, and to each of the other four most highly compensated
executive officers of the Corporation (the "Named Executive Officers"), during
the last completed fiscal year; the compensation paid by the Corporation to Ms.
Scott and Messrs. Lendvoyi, Beaudoin and Ruprich in the fiscal year ended 1998;
the compensation paid by the Corporation to Mr. Beaudoin and Ms. Scott in the
fiscal year ended 1997; and the compensation paid by Kennametal to Messrs.
Ruprich and Lendvoyi in the fiscal year ended 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
FISCAL ------------------------- AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(5) OPTIONS(#) ($)(6)(7)
- --------------------------- ---- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Richard J. Orwig, 1999 264,584(2) 50,000 50,000 8,964
President and Chief
Executive Officer
John M. Beaudoin, 1999 159,996 15,000 7,500 4,960
Vice President--Marketing 1998 170,039 72,000 0 3,640
1997 100,053 34,924 50,000 3,958
Charles G. Lendvoyi, 1999 136,104 15,000 5,000 4,916
Vice President--Full Service 1998 128,443 30,000 0 3,049
1997 123,166 17,276 10,000 3,946
Diana L. Scott, 1999 136,000 15,000 2,500 5,160
Vice President, 1998 123,619 48,000 0 2,803
Chief Financial Officer and Treasurer 1997 66,904(3) 20,000 20,000 3,430
Paul E. Fuller, 1999 117,981(4) 15,000 12,500 5,090
Vice President--Sales
Michael W. Ruprich, 1999 364,587 0 0 1,858
Former President (1) 1998 380,765 220,000 0 7,745
1997 264,508 120,000 100,000 5,045
</TABLE>
- ---------------
(1) Mr. Ruprich was President of J&L, then a wholly owned subsidiary of
Kennametal and, after the initial public offering of its Class A Common
Stock which was consummated in July 1997 (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.
(2) Represents salary paid from October 1998 through June 30, 1999.
(3) Represents salary paid from November 1996 through June 30, 1997.
(4) Represents salary paid from November 1998 until June 30, 1999.
(5) Includes bonuses paid to certain of the Named Executive Officers 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, as
amended, described below.
(6) 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;
however, the Corporation is required to reimburse Kennametal for the amounts
contributed. 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.
6
<PAGE> 9
(7) This figure includes imputed income based upon premiums paid by the
Corporation to secure and maintain for certain executive officers of the
Corporation, who are eligible and elect to participate, a $500,000 term life
insurance policy on the life of such officer until he or she reaches age 65.
For Mr. Orwig, this figure also includes amounts paid for Medicare tax and
income gross-up on supplemental pension benefit accrual.
KENNAMETAL MANAGEMENT PERFORMANCE BONUS PLAN
Bonus amounts set forth in the Summary Compensation Table for 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 shareowner 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 and 1999, including the Named Executive Officers, were paid
pursuant to the JLK 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
Mr. Orwig, who has an employment agreement with Kennametal, 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 ("SERP"). These supplemental retirement
benefits vest in equal annual increments over a term of five years commencing on
his 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 Mr. Orwig 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.
KENNAMETAL STOCK OPTION PLANS
The Kennametal Inc. Stock Option and Incentive Plan of 1992, as amended
(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
1,109,255 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. The Kennametal Inc. 1999 Stock Plan provides
for the granting of nonstatutory stock options and share awards covering 600,000
shares. Corporation employees are eligible to receive grants and awards under
these plans. Although options are still outstanding under the Kennametal Inc.
Stock Option and Incentive Plan of 1988, no further grants of options may be
made under that plan.
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. For the fiscal year ended June
30, 1999, 35 employees of the Corporation were granted options under 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 Bonus Plan for
executives, managers and other employees which is designed to tie bonus awards
to Corporation performance, unit performance and individual contribution,
relative to the Corporation's business plans, strategies and shareowner 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 awarded to each of the Named Executive Officers under this plan for
1998 and 1999 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, 1999, 35 employees of the Corporation were granted
options under the 1997 Plan.
The following table sets forth information concerning options granted to
the Named Executive Officers during the fiscal year ended June 30, 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS EXERCISE OR
SECURITIES GRANTED IN BASE
UNDERLYING OPTIONS FISCAL PRICE GRANT DATE PRESENT
NAME GRANTED (1)(#) YEAR ($/SHARE) EXPIRATION DATE VALUE (2)($)
- ---- ------------------ ---------- ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Richard J. Orwig................. 50,000 34.71 11.53125 10/29/2008 240,180
John M. Beaudoin................. 7,500 5.21 11.53125 10/29/2008 36,027
Charles G. Lendvoyi.............. 5,000 3.47 11.53125 10/29/2008 24,018
Diana L. Scott................... 2,500 1.73 11.53125 10/29/2008 12,009
Paul E. Fuller................... 12,500 8.68 11.53125 10/29/2008 60,045
Michael W. Ruprich............... 0 0 0 0 0
</TABLE>
- ---------------
(1) Options with respect to the Corporation's Class A Common Stock were granted
with an exercise price equal to the fair market value of the Corporation's
Class A Common Stock on the date of grant. The options granted have a three
year vesting schedule so that 1/3 of the options vest in October 1999,
October 2000 and October 2001, respectively.
(2) Based on the Black-Scholes Option Valuation model adjusted for dividends to
determine grant date present value of the options. The Corporation 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
with respect to the Corporation's Class A Common Stock include the
following: a risk-free interest rate of 4.37% (the rate applicable to a
five-year treasury security at the time of the award); no dividend yield;
volatility of 40.0% (calculated using daily stock returns for the
twelve-month period preceding the option award); and a stock price at date
of grant of $11.53125 (the exercise price at which these options were
granted was equal to the fair market value of the Corporation's Class A
Common Stock on the date
8
<PAGE> 11
of grant). The value of these options under the Black-Scholes model of
option valuation applying the preceding assumptions is $4.8036 per share.
The ultimate value of the options will depend on the future market price of
the stock of the Corporation which cannot be forecast with reasonable accuracy.
The actual value, if any, an optionee will realize upon exercise of an option
will depend on the excess of the market value of the relevant stock over the
exercise price on the date the option is exercised. No adjustments were made for
forfeitures or vesting restrictions on exercise.
The following table sets forth information concerning options to purchase
the Corporation's Class A Common Stock held by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END(#) YEAR-END($)
ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE) UNEXERCISABLE)
- ---- --------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Richard J. Orwig........................ 0 -- 0/50,000 --/0
John M. Beaudoin........................ 0 -- 50,000/7,500 0/0
Charles G. Lendvoyi..................... 0 -- 10,000/5,000 0/0
Diana L. Scott.......................... 0 -- 20,000/2,500 0/0
Paul E. Fuller.......................... 0 -- 0/12,500 --/0
Michael W. Ruprich...................... 0 -- 100,000/0 0/--
</TABLE>
9
<PAGE> 12
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. The amounts shown below have not been adjusted for Social Security
offset.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUALIZED ANNUAL BENEFIT UPON RETIREMENT WITH YEARS OF CREDITED SERVICE INDICATED
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
300,000 90,000 120,000 150,000 165,000 180,000
400,000 120,000 160,000 200,000 240,000 280,000
500,000 150,000 200,000 250,000 300,000 350,000
</TABLE>
Annualized 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 this 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 Code, certain
limits are imposed on payments under the plan. Payments in excess of the maximum
annual pension benefits payable under this plan to certain executive officers of
Kennametal would be paid pursuant to the Kennametal SERP. The Corporation will
reimburse Kennametal for any supplemental retirement benefit amounts paid by
Kennametal to former employees of the Corporation under the SERP.
As of June 30, 1999, the credited years of service under the Kennametal
Inc. Retirement Income Plan for the Named Executive Officers were approximately:
Richard J. Orwig, 15 years; John M. Beaudoin, 19 years; Charles G. Lendvoyi, 6
years; Diana L. Scott, 12 years; and Paul E. Fuller, 28 years.
Annualized Covered Compensation as of June 30, 1999, for purposes of the
retirement benefits under the Kennametal Inc. Retirement Income Plan for the
Named Executive Officers (and, for Mr. Orwig under the SERP) is as follows:
Richard J. Orwig, $421,700; John M. Beaudoin, $101,737; Charles G. Lendvoyi,
$135,590; Diana L. Scott, $113,248; and Paul E. Fuller, $96,077. Due to the SERP
and assuming full vesting, Mr. Orwig's annual benefit based on the above
Annualized Covered Compensation and his credited years of service would
approximate $190,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Markos I. Tambakeras, who serves on the Compensation Committee, effective
July 1, 1999 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 $38.6 million in 1999, $40.7 million in 1998, and $30.9 million in 1997.
Sales to these entities totaled $13.1 million in 1999, $10.6 million in 1998,
and $12.4 million in 1997.
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
10
<PAGE> 13
reflected in operating expenses in the Corporation's statements of income. In
addition, costs charged to the Corporation by Kennametal, totaled $9.5 million
in 1999, $12.1 million in 1998, and $9.3 million in 1997. The Corporation paid
approximately $0.3 million in interest expense to Kennametal during 1999 and
charged approximately $2.9 million in interest expense to Kennametal in 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 charged pursuant to
these intercompany agreements reflect the actual costs incurred by Kennametal in
providing these services.
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 8, 1999, 4,917,000 shares of Class A Common
Stock were issued, of which 4,273,390 were outstanding, and 643,610 were held as
treasury shares. Accordingly, as of such date Kennametal owned Common Stock
representing approximately 82.6% 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 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
shareowners of the Corporation.
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 Corporation's initial public
offering of its Class A Common Stock which was consummated in July 1997 (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
11
<PAGE> 14
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 of
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, 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 1999 were approximately $5.6 million.
12
<PAGE> 15
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 1999 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
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 $311,000 for the
portion of the costs and expenses attributable to it under the relevant leases.
Kennametal paid the Corporation approximately $202,000 for the portion of the
costs and expenses attributable to it under the relevant leases.
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 $38.6 million for products supplied during fiscal 1999.
13
<PAGE> 16
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-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.
14
<PAGE> 17
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 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, arrangements
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.
15
<PAGE> 18
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 accounts. 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 paid
approximately $0.3 million in interest to Kennametal during 1999 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 the
Warehousing Agreement, the Corporation paid Kennametal approximately $3.7
million for its allocation of costs during 1999.
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
16
<PAGE> 19
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 shareowners. 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.
Receivables Sale Agreement
In June 1999, the Corporation and Kennametal entered into a Receivables
Sale Agreement under which the Corporation sells a portion of its accounts
receivables to Kennametal as part of a receivables sale program that Kennametal
has entered into with third parties. Kennametal purchased approximately $18.5
million of receivables from the Corporation at June 30, 1999. The proceeds from
collection of these receivables are used to purchase additional receivables. The
receivables are sold by the Corporation at a price equal to their face value
less a discount factor (presently 1%) determined by Kennametal and the
Corporation from time to time. Cash received by the Corporation from the sale is
returned to Kennametal under the Cash Management Agreement.
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 metal cutting 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
17
<PAGE> 20
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 President and Chief Executive Officer, Markos I. Tambakeras.
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
shareowners. 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.
RELOCATION LOAN
On September 17, 1998, Mr. Orwig became President and Chief Executive
Officer of the Corporation and ceased to serve as the Vice President and Chief
Financial and Administrative Officer of Kennametal. In connection with Mr.
Orwig's new position, Mr. Orwig received a loan from the Corporation, for
relocation purposes, in the amount of $175,000 which was interest-free until
September 10, 1999. The entire amount of the loan was outstanding as of
September 14, 1999.
18
<PAGE> 21
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
shareowners and other potential investors.
- To provide incentives for working toward increasing the market value of
the stock and to increase shareowner 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 shareowners 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 JLK 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 earnings performance. The JLK 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 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, 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.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
- The President and Chief Executive Officer, Mr. Richard J. Orwig, received
a stock option grant of 50,000 shares on October 30, 1998. The option
price was the average of the high and low market prices on the date of
the grant. One-third of the shares vest on October 30, 1999, 2000 and
2001, respectively. On October 27, 1998, the option grant was approved by
the Board of Directors.
19
<PAGE> 22
- Under the plan design of the JLK Bonus Plan for fiscal year 1999, a bonus
pool was calculated by management and approved by the Board of Directors.
Based on specific business and personal achievements, Mr. Orwig received
a bonus award of $50,000.
- Mr. Orwig's base salary was reviewed by the Board of Directors'
Compensation Committee in April 1999. In consideration of competitive
salary survey data, the Committee recommended the base salary be
increased to $350,000, effective May 1, 1999.
COMPENSATION OF EXECUTIVE OFFICERS
- Stock options were granted to certain executive officers and others on
October 30, 1998, for the purpose of providing an incentive for managing
the continuing performance and value of the Corporation. These options
have a three-year vesting schedule so that 1/3 of the shares vest in
October 1999, October 2000 and October 2001, respectively. The grants, as
recommended by the President and Chief Executive Officer, were approved
by the Board of Directors Compensation Committee on October 27, 1998.
- Individual executive officer bonus awards were determined by corporate
performance, by unit performance, and by individual performance. The
awards, as recommended by the President and Chief Executive Officer, were
approved by the Board of Directors Compensation Committee on July 27,
1999.
COMPENSATION COMMITTEE FOR
FISCAL YEAR ENDED 1999:
Robert L. McGeehan
Richard C. Alberding
20
<PAGE> 23
COMPARISON OF CUMULATIVE TOTAL RETURN
The following paragraph compares cumulative total shareowners return on the
Corporation's Class A Common Stock with the cumulative total shareowner 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, 1999. The
Peer Group consists of the following companies: Airgas, Inc., Barnett Inc.,
Fastenal Company, MSC Industrial Direct Co., Inc., Strategic Distribution, Inc.,
Wilmar Industries, Inc. and Industrial Distribution Group, Inc. subsequent to
the date it became publicly traded (September 1997).
[COMPARISON OF CUMULATIVE TOTAL RETURNS GRAPH]
<TABLE>
<CAPTION>
JLK DIRECT DIST S&P SMALLCAP 600 PEER GROUP
--------------- ---------------- ----------
<S> <C> <C> <C>
6/27/97 100.00 100.00 100.00
6/30/97 128.13 104.42 110.34
6/30/98 109.38 124.74 111.43
6/30/99 46.57 126.84 77.75
</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.
21
<PAGE> 24
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 14, 1999:
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
NAME AND ADDRESS AMOUNT AND NATURE OF CLASS B
OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) COMMON STOCK
- ---------------------- ------------------------ ----------------
<S> <C> <C>
Kennametal Inc.(3) 20,237,000 100
</TABLE>
- ---------------
(1) The address of Kennametal is 1600 Technology Way, 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.
(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 September 8, 1999.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
CLASS A
NAME AND ADDRESS AMOUNT AND NATURE OF COMMON
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP STOCK
- ------------------- ----------------------- -------------
<S> <C> <C>
First Pacific Advisors, Inc. 876,100(1) 20.5
11400 West Olympic Boulevard
Suite 1200
Los Angeles, CA 90064
Putnam Investments, Inc. 502,954(2) 11.76
One Post Office Square
Boston, MA 02109
Investment Advisers Inc. 426,900(3) 10.0
3700 First Bank Place
P.O. Box 357
Minneapolis, MN 55440
Atlantic Investment Management, Inc. 320,700(4) 7.5
750 Lexington Avenue, 6th Floor
New York, NY 10022
Dimensional Fund Advisors, Inc. 281,500(5) 6.6
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
- ---------------
(1) According to a 13G filed by First Pacific Advisors, Inc., the company has
shared voting power over 35,500 shares and shared dispositive power over all
shares.
(2) According to a 13G filed by Putnam Investments, Inc., the Company has shared
voting power over 255,812 shares and shared dispositive power over all
shares.
(3) According to Investment Advisers Inc., the company has sole voting power
over 290,100 shares and shared voting power over 136,800 shares.
(4) According to a 13D filed by Atlantic Investment Management, Inc., the
company has sole voting and sole dispositive power over all shares by reason
of serving as the investment advisor to: (i) AJR International Inc., a
British Virgin Islands company; (ii) Quest Capital Partners, L.P., a
Delaware limited partnership; and (iii) the Managed Accounts.
(5) According to a 13F filed by Dimensional Fund Advisors Inc., the company has
sole voting power over all of the shares.
22
<PAGE> 25
ELECTION OF AUDITORS
Unless otherwise directed by the shareowners, proxies will be voted for the
election of Arthur Andersen LLP as the Corporation's independent auditors for
the fiscal year ending June 30, 2000. The affirmative vote of the holders of at
least a plurality 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, 1999 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE AVAILABLE TO SHAREOWNERS AFTER SEPTEMBER 30, 1999. A SHAREOWNER MAY
OBTAIN ONE WITHOUT CHARGE BY WRITING TO: CHIEF FINANCIAL OFFICER, JLK DIRECT
DISTRIBUTION INC., 1600 TECHNOLOGY WAY, LATROBE, PENNSYLVANIA 15650.
OTHER MATTERS
The Corporation knows of no other matters to be presented for action at the
Annual Meeting. The enclosed proxy, however, confers discretionary authority
with respect to the transaction of any other business that may properly come
before the meeting. 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 their best judgment.
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 Common 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
for their principals and will reimburse such persons for their expense in so
doing. In addition, the Corporation has retained the services of Georgeson
Shareholder Communications, Inc., a professional soliciting organization, to
assist in soliciting proxies from brokerage houses, custodians, nominees, other
fiduciaries and other shareowners of the Corporation. The fees and expenses of
that firm in connection with such solicitation are not expected to exceed
$25,000.
SHAREOWNER PROPOSALS AND NOMINATING PROCEDURES
Shareowners who intend to submit a proposal for inclusion in the
Corporation's 2000 Proxy Statement for consideration at the Annual Meeting of
the Shareowners of the Corporation to be held in October 2000 must submit such
proposal to the attention of the Secretary of the Corporation at the address of
its executive offices no later than August 25, 2000. 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 shareowner proposals to be
submitted at the Annual Meeting but not included in the Corporation's Proxy
Statement be submitted to the Secretary of the Corporation at the address of its
executive offices prior to August 25, 2000, 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 2000 Annual Meeting, other than
those made by the Board of Directors, be submitted to the Secretary of the
Corporation no later than August 25, 1999. The By-Laws require that notice of
such nominations contain certain information regarding the nominee and certain
information regarding the nominating shareowner. Any shareowner may obtain a
copy of the applicable By-Law from the Secretary of the Corporation upon written
request.
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 Richard C. Alberding, Richard J. Orwig and
Markos I. Tambakeras and each of them with power of substitution in each, as
proxies to represent the undersigned at the annual meeting of the shareowners 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 26, 1999 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 I,
AND FOR THE ELECTION OF AUDITORS.
(over)
FOLD AND DETACH HERE
<PAGE> 27
<TABLE>
<S> <C>
Please mark
your votes
as indicated
in this example [X]
I. ELECTION OF DIRECTORS FOR TERMS TO EXPIRE IN 2000
VOTE FOR ALL WITHHOLD Nominees: Richard C. Alberding, Jeffery M. Boetticher, Irwin L. Elson,
NOMINEES LISTED AUTHORITY H. Patrick Mahanes, Jr., Aloysius T. McLaughlin, Jr., William R. Newlin, Richard J.
(EXCEPT AS SHOWN TO VOTE FOR ALL Orwig and Markos I. Tambakeras (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
TO THE CONTRARY) NOMINEES LISTED 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, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
FOR AGAINST ABSTAIN 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 ADJOURNMENTS THEREOF.
Dated: _____________________________________ , 1999
___________________________________________________
___________________________________________________
Sign exactly as addressed, but if executed for a
corporation, minor, etc., sign that name and
signature and capacity of authorized signer.
FOLD AND DETACH HERE
</TABLE>
JLK DIRECT DISTRIBUTION INC.
September 16, 1999
Dear JLK Direct Distribution Inc. Shareowner:
The 1999 Annual Meeting of the Shareowners of JLK Direct Distribution Inc. will
be held at 2:00 p.m. on Tuesday, October 26, 1999, 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.
