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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
Commission file number 1-13059
JLK DIRECT DISTRIBUTION INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2896928
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1600 TECHNOLOGY WAY
P.O. BOX 231
LATROBE, PENNSYLVANIA 15650-0231
(Address of registrant's principal executive offices)
Registrant's telephone number, including area code: (724) 539-5000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Title Of Each Class Outstanding at February 1, 2000
- ------------------------------------ -------------------------------
Class A Common Stock, par value $.01 4,273,390
Class B Common Stock, par value $.01 20,237,000
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JLK DIRECT DISTRIBUTION INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I. FINANCIAL INFORMATION
1. Financial Statements:
Condensed Consolidated Statements of Income (Unaudited)
Three and six months ended December 31, 1999 and 1998......... 1
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 1999 and June 30, 1999........................... 2
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended December 31, 1999 and 1998................... 3
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................... 4
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 7
PART II. OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders........... 12
6. Exhibits and Reports on Form 8-K.............................. 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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JLK DIRECT DISTRIBUTION INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS
Net sales $119,729 $133,735 $238,044 $265,497
Cost of goods sold 81,715 90,738 161,452 179,710
-------- -------- -------- --------
Gross profit 38,014 42,997 76,592 85,787
Operating expenses 30,925 34,060 62,524 70,436
-------- -------- -------- --------
Operating income 7,089 8,937 14,068 15,351
Interest (income) expense and other (42) 325 75 615
-------- -------- -------- --------
Income before provision for income taxes 7,131 8,612 13,993 14,736
Provision for income taxes 2,819 3,400 5,527 5,800
-------- -------- -------- --------
Net income $ 4,312 $ 5,212 $ 8,466 $ 8,936
======== ======== ======== ========
PER SHARE DATA
Basic earnings per share $ 0.18 $ 0.21 $ 0.35 $ 0.36
======== ======== ======== ========
Diluted earnings per share $ 0.18 $ 0.21 $ 0.35 $ 0.36
======== ======== ======== ========
Basis weighted average shares outstanding 24,510 24,510 24,510 24,510
======== ======== ======== ========
Diluted weighted average shares outstanding 24,510 24,510 24,510 24,510
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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JLK DIRECT DISTRIBUTION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,807 $ 2,807
Notes receivable from Kennametal 14,078 11,611
Accounts receivable, less allowance for doubtful
accounts of $1,022 and $981 48,402 53,680
Inventories 117,507 101,770
Deferred income taxes 6,818 6,818
Other current assets 3,028 52
--------- ---------
Total current assets 194,640 176,738
--------- ---------
Property, plant and equipment:
Land and buildings 6,429 6,318
Machinery and equipment 31,302 27,419
Less accumulated depreciation (10,442) (8,400)
--------- ---------
Net property, plant and equipment 27,289 25,337
--------- ---------
Other assets:
Intangible assets, less accumulated
amortization of $15,882 and $13,592 61,456 64,383
Deferred tax assets 7,095 7,377
Other 813 1,154
--------- ---------
Total other assets 69,364 72,914
--------- ---------
Total assets $ 291,293 $ 274,989
========= =========
LIABILITIES
Current liabilities:
Notes payable to banks $ 131 $ 7,737
Accounts payable 31,986 21,025
Due to Kennametal and affiliates 11,030 4,609
Income taxes payable 3,979 4,903
Accrued payroll and vacation pay 2,895 3,220
Other 6,787 6,927
--------- ---------
Total current liabilities 56,808 48,421
--------- ---------
Deferred income taxes 5,515 5,519
Other liabilities 4,819 5,175
--------- ---------
Total liabilities 67,142 59,115
--------- ---------
SHAREOWNERS' EQUITY
Preferred stock, $.01 par value; 25,000 shares authorized; none issued -- --
Class A Common Stock, $.01 par value; 75,000 shares authorized;
4,917 shares issued, 4,273 shares outstanding 49 49
Class B Common Stock, $.01 par value; 50,000 shares authorized;
20,237 shares issued and outstanding 202 202
Additional paid-in capital 182,822 182,822
Retained earnings 55,902 47,436
Treasury stock, at cost; 644 shares of Class A Common Stock held (14,529) (14,529)
Accumulated other comprehensive loss (295) (106)
--------- ---------
Total shareowners' equity 224,151 215,874
--------- ---------
Total liabilities and shareowners' equity $ 291,293 $ 274,989
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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JLK DIRECT DISTRIBUTION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,466 $ 8,936
Adjustments for noncash items:
Depreciation and amortization 4,470 4,175
Loss (gain) on sale of assets 584 (6)
Changes in certain assets and liabilities:
Accounts receivable (10,411) (3,766)
Proceeds from the sale of accounts receivable 15,227 --
Inventories (16,064) (7,553)
Accounts payable and accrued liabilities 16,174 (16,712)
Other (2,580) 2,566
-------- --------
Net cash flow from (used for) operating activities 15,866 (12,360)
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,778) (5,546)
Notes Receivable from Kennametal (2,467) 1,169
Other 64 31
-------- --------
Net cash flow used for investing activities (6,181) (4,346)
-------- --------
FINANCING ACTIVITIES
Borrowings under (repayments of) notes payable to banks (7,606) 7,454
Notes payable to Kennametal -- 5,835
Purchase of treasury stock -- (332)
-------- --------
Net cash flow from (used for) financing activities (7,606) 12,957
-------- --------
Effect of exchange rate changes on cash (79) (23)
-------- --------
CASH AND EQUIVALENTS
Net increase (decrease) in cash and equivalents 2,000 (3,772)
Cash and equivalents, beginning 2,807 4,715
-------- --------
Cash and equivalents, ending $ 4,807 $ 943
======== ========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 6,335 $ 934
Interest paid 199 198
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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JLK DIRECT DISTRIBUTION INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. The condensed consolidated financial statements should be read in
conjunction with the Notes to the Consolidated Financial Statements
included in the company's 1999 Annual Report on Form 10-K. The condensed
consolidated balance sheet as of June 30, 1999 has been derived from the
audited balance sheet included in the company's 1999 Annual Report on Form
10-K. These accompanying interim statements are unaudited; however,
management believes that all adjustments necessary for a fair presentation
have been made and all adjustments are normal, recurring adjustments. The
results for the three and six months ended December 31, 1999 are not
necessarily indicative of the results to be expected for the full fiscal
year.
2. The accompanying condensed consolidated financial statements of JLK Direct
Distribution Inc. include the operations of J&L America, Inc. (J&L), a
previously wholly-owned subsidiary of Kennametal Inc. (Kennametal), and
Full Service Supply (FSS), which previously had been operated as a program
of Kennametal. Prior to April 1, 1997, the company had no separate legal
status or existence. Kennametal incorporated the company as a Pennsylvania
corporation under the name "JLK Direct Distribution Inc." in April 1997.
Kennametal currently owns 83 percent of the outstanding stock of the
company.
3. During the December 1999 quarter, Kennametal announced that it engaged an
investment bank to explore strategic alternatives regarding its ownership
in the company, including a possible divestiture. Kennametal management
believes a divestiture may enhance growth prospects for both Kennametal and
the company by allowing each company to focus on its core competencies.
Kennametal management intends to conclude the evaluation of its
alternatives by June 30, 2000. Kennametal is currently not a party to any
written or oral agreement regarding the divestiture of the company.
4. Comprehensive income for the three and six months ended December 31, 1999
and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $4,312 $5,212 $8,466 $8,936
Foreign currency translation adjustments (55) (14) (189) (22)
------ ------ ------ ------
Comprehensive income $4,257 $5,198 $8,277 $8,914
====== ====== ====== ======
</TABLE>
Accumulated other comprehensive loss consists solely of cumulative foreign
currency translation adjustments.
5. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. The company must adopt the standard by the
beginning of the first quarter of fiscal 2001. SFAS No. 133 establishes
accounting and reporting standards requiring all derivative instruments
(including certain derivative instruments imbedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
their fair value. SFAS No. 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item
in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge
4
<PAGE> 7
JLK DIRECT DISTRIBUTION INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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accounting. The company currently is evaluating the effects of SFAS No. 133
and does not believe that the adoption will have a material effect on the
financial statements or results of operations of the company.
6. In connection with fiscal 1998 and 1997 acquisitions, the company entered
into employee retention and non-compete agreements. The remaining liability
for these agreements, and other similar agreements from previous
acquisitions, recorded in other current liabilities at December 31, 1999
and June 30, 1999 was $2.0 million and $2.5 million, respectively, and in
other liabilities was $2.0 million and $2.9 million, respectively.
7. The company engages in business transactions with Kennametal and its
subsidiaries. Products purchased for resale from Kennametal and its
subsidiaries and sales to these entities were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Purchases from Kennametal and subsidiaries $17,310 $14,069 $44,968 $26,178
Sales to Kennametal and subsidiaries 2,187 3,444 4,523 6,215
</TABLE>
The company receives from Kennametal certain warehouse, management
information systems, financial and administrative services pursuant to
certain agreements between the company and Kennametal. Other agreements
between the company and Kennametal include a non-competition and corporate
opportunities allocation agreement, tax-sharing agreement, trademark
license agreement, product supply agreement and others, as more fully
described in the company's 1999 Annual Report on Form 10-K. All amounts
incurred by Kennametal on behalf of the company are reflected in operating
expenses in the accompanying statements of income. Net costs charged to the
company by Kennametal under these agreements were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Administrative services agreement $1,251 $1,979 $2,660 $3,242
Warehousing agreement 132 1,057 252 2,024
Shared facilities agreement (178) 101 (194) 260
Lease agreement 27 27 53 53
------ ------ ------ ------
Total costs charged by Kennametal $1,232 $3,164 $2,771 $5,579
====== ====== ====== ======
</TABLE>
Under the Intercompany Debt/Investment and Cash Management Agreement with
Kennametal, the company earned interest income of $0.3 million and $0.6
million for the three and six months ended December 31, 1999. The company
incurred interest expense of $0.2 million and $0.4 million for the three
and six months ended December 31, 1998.
8. On March 31, 1999, the company sold the assets of the steel mill business
of its subsidiary, Strong Tool Company, for approximately $1.6 million.
There was no significant impact on earnings as a result of this sale. The
steel mill business had annual sales of approximately $18.0 million. As
this business was marginally profitable, the effect on net income and
diluted earnings per share as a result of this sale is not material.
5
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JLK DIRECT DISTRIBUTION INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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9. On June 18, 1999, Kennametal entered into an agreement with a financial
institution whereby Kennametal securitizes, on a continuous basis, an
undivided interest in a pool of Kennametal's domestic trade accounts
receivable. Pursuant to this agreement, at December 31, 1999, the company
sold $34.3 million of its domestic accounts receivable to Kennametal, in
exchange for a note receivable from Kennametal consistent with the
Intercompany Debt/Investment and Cash Management Agreement. The costs
incurred by the company under this program were $0.3 million and $0.6
million for the three and six months ended December 31, 1999, respectively,
as a result of the discount on the sale of the accounts receivable. These
costs are accounted for as a component of Interest Expense and Other.
10. The company reports two segments consisting of J&L and FSS. The company's
corporate level expenses are included entirely in the J&L segment. The
company's external sales, intersegment sales and operating income by
segment for the three and six months ended December 31, 1999 and 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
External sales:
J&L $ 87,375 $100,992 $175,082 $202,238
FSS 32,354 32,743 62,962 63,259
-------- -------- -------- --------
Total external sales $119,729 $133,735 $238,044 $265,497
======== ======== ======== ========
Intersegment sales:
J&L $ 781 $ 604 $ 1,361 $ 1,133
FSS -- -- -- --
-------- -------- -------- --------
Total intersegment sales $ 781 $ 604 $ 1,361 $ 1,133
======== ======== ======== ========
Total sales:
J&L $ 88,156 $101,596 $176,443 $203,371
FSS 32,354 32,743 62,962 63,259
-------- -------- -------- --------
Total sales $120,510 $134,339 $239,405 $266,630
======== ======== ======== ========
Operating income:
J&L $ 4,486 $ 6,267 $ 9,419 $ 9,895
FSS 2,603 2,670 4,649 5,456
-------- -------- -------- --------
Total operating income $ 7,089 $ 8,937 $ 14,068 $ 15,351
======== ======== ======== ========
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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RESULTS OF OPERATIONS
NET SALES
Net sales for the December 1999 quarter were $119.7 million, a decrease of ten
percent from $133.7 million last year, reflecting the continuing weakness in
industrial demand. For the six months ended December 31, 1999, sales were $238.0
million, a decline of ten percent from $265.5 million in the same period a year
ago. Excluding the sales of the Strong Tool steel mill business, which was
divested in the March 1999 quarter, sales were down seven percent for both the
quarter and the six months.
J&L sales totaled $87.4 million for the December quarter, a decrease of 13
percent from the same quarter in prior year. In North America, the J&L catalog
business continues to be affected by weak conditions in the markets served and
from a competitive price environment, while in Europe, J&L continued to grow.
Excluding the divestiture of the Strong Tool steel mill business, sales were
down nine percent from last year. For the six months ended December 31, 1999,
sales were $175.1 million, a decline of 13 percent from $202.2 million in the
same period a year ago due to the factors mentioned above.
Sales for FSS were $32.4 million for the December quarter and declined one
percent when compared to the same quarter in prior year. FSS growth continued to
be curtailed by the implementation of its new business system and from weakness
in some accounts. Management has delayed the implementation of new programs in
order to focus attention on keeping existing customers serviced. For the six
months ended December 31, 1999, sales of $63.0 million were flat compared to
sales of $63.3 million in the same period a year ago due to the factors
mentioned above. The company provided FSS programs to 154 customers covering 247
different facilities at December 31, 1999, compared to 135 customers covering
210 different facilities at December 31, 1998.
GROSS PROFIT
Gross profit for the December 1999 quarter was $38.0 million, a decrease of 12
percent from $43.0 million in the prior year due to the sales decline and the
competitive price environment. The gross profit margin for the December 1999
quarter was 31.8 percent compared to 32.2 percent in the prior year due to a
decline in the higher-margin J&L catalog sales. This was partially offset by the
elimination of lower margin sales from the Strong Tool steel mill business. The
gross profit margin in the FSS business was relatively flat compared to a year
ago. For the six months ended December 31, 1999, gross profit was $76.6 million,
a decline of 11 percent from $85.8 million in the same period a year ago due to
the factors mentioned above.
OPERATING EXPENSES
Operating expenses declined nine percent to $30.9 million for the December 1999
quarter from $34.1 million in the same period a year ago. Operating expenses
decreased primarily as a result of cost-reduction actions implemented in both
September 1999 and November 1998. These cost-reduction actions involved selected
workforce reductions, facility consolidations and closings, and other measures.
As a percentage of sales, operating expenses were 25.8 percent compared to 25.5
percent in the prior year due to the decline in sales levels. For the six months
ended December 31, 1999, operating expenses were $62.5 million, a decline of 11
percent from $70.4 million in the same period a year ago due to the factors
mentioned above.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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Also included in operating expenses were charges from Kennametal for
warehousing, administrative, financial and management information systems
services provided to the company. Net charges from Kennametal were $1.2 million
in the December 1999 quarter, a decrease of 61 percent from $3.2 million in the
prior year due to a reduction in warehouse and administrative charges. The
decline in warehouse charges from Kennametal is due to the company taking over
the operation of several warehouses previously operated by Kennametal and the
closure of a commonly-operated facility in the September 1999 quarter. The
decline in the administrative charges is due to the assumption of more
administrative functions by the company in fiscal 2000. For the six months ended
December 31, 1999, net charges from Kennametal were $2.8 million, a decrease of
50 percent from $5.6 million in the same period a year ago due to the factors
mentioned above.
INTEREST (INCOME) EXPENSE AND OTHER
Included in interest (income) expense and other is net interest income from
Kennametal of $0.3 million and $0.6 million for the three and six months ended
December 31, 1999, respectively. The company generated other net interest income
of $0.1 million during the three months ended December 31, 1998 and incurred
other net interest expense of $0.1 million during the six months ended December
31, 1998. Also included in interest expense and other is the loss on the sale of
accounts receivable to Kennametal of $0.3 million and $0.6 million for the three
and six months ended December 31, 1999, respectively, in connection with
Kennametal's accounts receivable securitization program.
INCOME TAXES
The effective tax rate for the three and six months ended December 31, 1999 was
39.5 percent, which remained constant when compared to the same periods in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary capital needs have been to fund working capital
requirements, add new products and FSS programs, and implement the new business
system. The company's primary sources of financing have been cash from
operations and the Intercompany Debt/Investment and Cash Management Agreement
with Kennametal. The company anticipates that cash flows from operations and the
Intercompany Debt/Investment and Cash Management Agreement with Kennametal will
be adequate to support its operations for the foreseeable future.
Compared to the prior year, the increase in net cash from operations was
realized due to the sale of accounts receivable to Kennametal and improved
working capital requirements, despite a $12.7 million investment in inventory
purchased from Kennametal during the first quarter of fiscal 2000. This purchase
was necessary in order for JLK to have access to Kennametal's branded inventory
for sale to FSS customers subsequent to the implementation of the new business
system for FSS.
Net cash used for investing activities was $6.2 million for the six months ended
December 31, 1999. The change in net cash used for investing activities resulted
from an increase in a note receivable from Kennametal as a result of the
accounts receivable securitization program, partially offset by decreased
capital expenditures.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
Net cash flow used for financing activities was $7.6 million for the six months
ended December 31, 1999 and reflected the repayment of amounts borrowed under
notes payable to banks. Financing activities in the prior year include amounts
borrowed under notes payable to banks and a note payable to Kennametal, which
were used to fund working capital needs.
In June 1998, the company initiated a stock repurchase program to repurchase,
from time-to-time, up to a total of 20 percent, or approximately 1.0 million
shares, of its outstanding Class A Common Stock. During the six months ended
December 31, 1998, the company repurchased 15,000 Class A shares at a total cost
of approximately $0.3 million. The repurchases were made in the open market or
in negotiated or other permissible transactions. The repurchase of common stock
was financed principally by available funds and short-term borrowings.
FINANCIAL CONDITION
The company's financial condition continues to remain strong. Total assets were
$291.3 million at December 31, 1999, up six percent from $275.0 million at June
30, 1999. Net working capital increased to $137.8 million at December 31, 1999,
up seven percent from $128.3 million at June 30, 1999. The company decreased its
debt levels to $0.1 million at December 31, 1999 due to increased cash from
operations.
YEAR 2000
Management believes that the company substantially mitigated its exposure
relative to year 2000 issues for both information and non-information technology
systems. The transition into the year 2000 resulted in no significant impact to
the financial position or operations of the company. A committee actively
monitored the status of the readiness program of the company and its
subsidiaries.
The company completed an assessment regarding the impact of this issue on its
existing information systems and determined that while not all systems were year
2000 compliant, those non-compliant systems could be modified to become year
2000 compliant. Due to the fact that the company was operating on several
different information systems, the company decided to implement a new business
system, HK System's Enterprise Information System (Enterprise System), in order
to have all existing operations on one integrated system. The Enterprise System
also is year 2000 compliant. The company is implementing the Enterprise System
in two phases and, in August 1999, completed all of the tasks identified to
remediate the year 2000 exposure in the FSS business.
The second phase is expected to be initiated in early 2000, and tested and
completed thereafter. Due to the timing of the completion of this phase, the
company modified the existing non-compliant business systems to ensure the
catalog operations are supported by a year 2000 compliant information system.
Successful testing of these modifications was performed in September 1999.
The company also completed an assessment of the impact of this issue on its
non-information technology systems, including the company's personal computers,
embedded technology in equipment used in operations, and other non-information
technology items. Any non-compliant systems were identified and remediated,
either through replacement of or modification to the existing systems.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
The company estimates the total year 2000 expenditures were approximately $11.5
million, with the majority being spent on the implementation of the company's
new business system. Of the total costs, $9.6 million related to software
licenses and hardware. Included in the total costs are expenditures to rectify
non-compliant personal computers, embedded technology in equipment used in
operations, and various non-information technology items, which were
approximately $0.2 million. These costs included both internal and external
personnel costs related to the assessment, remediation and implementation
processes, as well as the cost of purchasing certain hardware and software.
Cash flows from operating and financing activities have provided funding for
these expenditures. Expenditures incurred to date in fiscal 2000 approximate
$2.2 million. The company does not anticipate incurring additional expenditures
related to year 2000 issues.
Management believed the most significant risk of the year 2000 issue would have
been an interrupted supply of goods and services from the company's vendors. The
company had an ongoing effort to gain assurances and certifications of
suppliers' readiness programs. To date, the company's suppliers continue to
provide the company with sufficient goods and services in the year 2000. There
were no failures by major third-party businesses and public and private
providers of infrastructure services, such as utilities, communications services
and transportation that affected the company during the transition to the year
2000.
The company had developed contingency plans and actions for the year 2000 issues
related to both internal and external systems. Contingency plans involved
consideration of a number of possible actions, including, to the extent
necessary or justified, the selection of alternative service providers,
purchasing inventory from alternative certified vendors, the increase of safety
stock of major product lines and adjustment to staffing strategies. The company
was not required to employ these contingency plans.
There can be no guarantee that the efforts of the company or of third parties,
whose systems the company relies upon, will completely mitigate any year 2000
problem that could have a material adverse affect on the company's operations or
financial results. While such problems could affect important operations of the
company and its subsidiaries, either directly or indirectly, in a significant
manner, the company cannot at present estimate either the likelihood or the
potential cost of such failures. However, the company will continue to
aggressively pursue remediation of any newly discovered year 2000 problem.
STRATEGIC ALTERNATIVES
During the December 1999 quarter, Kennametal announced that it engaged an
investment bank to explore strategic alternatives regarding its ownership in the
company, including a possible divestiture. Kennametal management believes a
divestiture may enhance growth prospects for both Kennametal and the company by
allowing each company to focus on its core competencies. Kennametal management
intends to conclude the evaluation of its alternatives by June 30, 2000.
Kennametal is currently not a party to any written or oral agreement regarding
the divestiture of the company.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements," as defined in Section 21E
of the Securities Exchange Act of 1934. Actual results may differ materially
from those expressed or implied in the forward-looking statements. Factors that
could cause actual results to differ materially include, but are
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- -------------------------------------------------------------------------------
not limited to, the extent that the economic conditions in the United States
and, to a lesser extent, Europe, are not sustained, risks associated with
integrating businesses, demands on management resources, risks associated with
international markets such as currency exchange rates, competition and the
effect of third party or company failures to achieve timely remediation of year
2000 issues. The company undertakes no obligation to publicly release any
revisions to forward-looking statements to reflect events or circumstances
occurring after the date hereof.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The information set forth in Part II, Item 4 of the company's September 30, 1999
Form 10-Q is incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
(10) Material Contracts
10.1 Employment Agreement with Richard J. Orwig dated January
21, 2000. Filed herewith.
10.2 Employment Agreement with John M. Beaudoin dated January
21, 2000. Filed herewith.
10.3 Employment Agreement with Charles G. Lendvoyi dated
January 21, 2000. Filed herewith.
10.4 Employment Agreement with Paul E. Fuller dated
January 21, 2000. Filed herewith.
10.5 Employment Agreement with Diana L. Scott dated
January 21, 2000. Filed herewith.
10.6 Deferred Fee Plan for Outside Directors. Filed herewith.
10.7 Directors Stock Incentive Plan. Filed herewith.
(27) Financial Data Schedule for the six months ended
December 31, 1999, submitted to the Securities and Exchange
Commission in electronic format. Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JLK DIRECT DISTRIBUTION INC.
Date: February 11, 2000 By: /s/ DIANA L. SCOTT
-------------------
Diana L. Scott
Vice President,
Chief Financial Officer,
and Treasurer
13
<PAGE> 1
Exhibit 10.1
AGREEMENT
THIS AGREEMENT, is made and entered into this 21st day of January,
2000, by and between JLK DIRECT DISTRIBUTION INC., a corporation organized under
the laws of the Commonwealth of Pennsylvania (hereinafter referred to as "JLK"
or the "Corporation"), and RICHARD J. ORWIG, an individual (hereinafter referred
to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal Inc. ("Kennametal") which are of a technical nature or business
nature or pertain to future developments, the disclosure of which trade secrets
or confidential information would be highly detrimental to the interests of JLK
and Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of continuing to employ Employee.
NOW, THEREFORE, JLK and Employee, each intending to be legally bound
hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, JLK hereby
agrees to continue to employ Employee and Employee hereby accepts such
continued employment and agrees to devote his full time and attention
to the business and affairs of JLK, in such capacity or capacities and
to perform to the best of his ability such services as shall be
determined from time to time by the Board of Directors of JLK until the
termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere herein,
Employee, subject to the terms and conditions of this Agreement, shall be
entitled to continue to participate in all group insurance programs, retirement
income (pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal and its subsidiaries for so long as
JLK remains a subsidiary of Kennametal. Nothing herein contained shall be deemed
to limit or prevent Employee, during his employment hereunder, from being
reimbursed
<PAGE> 2
by JLK for out-of-pocket expenditures incurred for travel, lodging, meals,
entertainment expenses or any other expenses in accordance with the policies
of JLK applicable to the executives of JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party prior
written notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of Directors;
provided, further, that termination by JLK for Cause (as hereinafter defined)
shall be made by written notice which states that it is a termination for Cause;
and provided, further, that termination by Employee, other than termination for
Good Reason (as hereafter defined) following a Change-in-Control (as hereafter
defined), shall be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay from JLK, in addition to all amounts due him at the
Date of Termination (as hereinafter defined), an amount, payable
promptly after the Date of Termination, equal to three months' base
salary at the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated (i) due to
the death of the Employee or (ii) by Employee following a
Change-in-Control without Good Reason or (iii) by Employee prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event that at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) from JLK an amount equal to the product of
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months
remaining from the Date of Termination to the
Employee's Retirement Date (as such term is hereafter
defined) divided by twelve (12), or
(z) a number equal to the product, if positive,
obtained by multiplying (AA) thirty-six (36) less the
number of completed months after the date of the
Change-in-Control during which the Employee was
employed and did not have Good Reason for termination
times (BB) one-twelfth (1/12);
times
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<PAGE> 3
(ii) the sum of
(x) Employee's base salary at the annual rate in
effect on the Date of Termination (or, at Employee's
election, at the annual rate in effect on the first
day of the calendar month immediately prior to the
Change-in-Control), plus
(y) the average of any bonuses which Employee was
entitled to or paid during the three most recent
fiscal years ending prior to the Date of Termination
(or, at Employee's election, the average of any
bonuses which Employee was entitled to or paid for
the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
(d) If Employee is entitled to receive the severance payment set forth
in paragraph 4(c), Employee also will receive from JLK the same or
equivalent medical, dental, disability and group insurance benefits as
were provided to the Employee by JLK at the Date of Termination, which
benefits shall be provided by JLK to Employee for a three year period
commencing on the Date of Termination. Pursuant to the terms of
Kennametal's various benefit plans, Employee will not following a
Change-in-Control have any rights to receive from Kennametal or from
any medical, dental, disability, group insurance, retirement or pension
plan or other benefit plan maintained or sponsored by Kennametal any
benefits or other sums other than (i) to receive from the Kennametal
Inc. Retirement Income Plan and Kennametal's Supplemental Executive
Retirement Plan any vested benefits to the extent and at the times
payable under the terms of the Kennametal Inc. Retirement Income Plan
and Kennametal's Supplemental Executive Retirement Plan, (ii) to
receive from the Kennametal Inc. Thrift Plan any vested benefits to the
extent and at the times payable under the terms of the Kennametal Inc.
Thrift Plan and (iii) to exercise any stock options held under
Kennametal's stock option plans to the extent, if any, exerciseable and
in accordance with the terms of Kennametal's stock option plans.
If for any reason, whether by law or provisions of any
employee medical, dental or group insurance, or other benefit plan of
JLK in which the Employee is eligible to participate, any benefits
which the Employee would be entitled to under the foregoing paragraph
of this subparagraph (d) cannot be paid pursuant to such employee
benefit plans, then JLK hereby contractually agrees to pay to the
Employee the difference between the benefits which the Employee would
have received in accordance with the foregoing paragraph of this
subparagraph (d) if the relevant employee medical, dental or group
insurance or pension or retirement plan or other benefit plan could
have paid such benefit and the amount of benefits, if any, actually
paid by such employee medical, dental or group insurance or pension or
retirement plan or other benefit plan. JLK shall not be required to
fund its obligation to pay the foregoing difference.
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<PAGE> 4
If Employee is entitled to receive the severance payment set
forth in paragraph 4(c), JLK shall also make supplemental pension
payments to Employee equal in amount to the difference between the
pension payable to Employee pursuant to the terms of the Kennametal
Inc. Retirement Income Plan and Kennametal's Supplemental Executive
Retirement Plan (as both plans are in existence on the date of the
Change-in-Control) and any increased pension which would have been
payable to Employee under the terms of the Kennametal Inc. Retirement
Income Plan and Kennametal's Supplemental Executive Retirement Plan (as
both plans are in existence on the date of the Change-in-Control)
assuming (i) JLK had remained a subsidiary of Kennametal and (ii)
Employee had remained continuously in the employment of JLK for the
three year period (or, if clause (i)(y) or clause (i)(z) of paragraph
4(c) is applicable to determine the severance payment to be made, the
lesser period measured in years and fractions thereof rounded to the
nearest one-twelfth which equals the number determined by clause (i)(y)
or clause (i)(z) above, whichever is applicable) following the Date of
Termination at an annual compensation equal to the sum of the base
salary and bonus which were used to compute the severance payment due
the Employee under the first paragraph of paragraph 4(c) and had
attained the age of 60 at the end of such period. Such supplemental
pension payments shall be paid by JLK to Employee ratably at the times
when pension payments are made under the Kennametal Inc. Retirement
Income Plan and Kennametal's Supplemental Executive Retirement Plan.
JLK shall not be required to fund its obligation to pay the foregoing
difference.
(e) In the event of a termination of employment under the circumstances
above described in paragraph 4(c), Employee shall have no duty to seek
any other employment after termination of Employee's employment with
JLK and JLK hereby waives and agrees not to raise or use any defense
based on the position that Employee had a duty to mitigate or reduce
the amounts due him hereunder by seeking other employment whether
suitable or unsuitable and should Employee obtain other employment,
then the only effect of such on the obligations of shall be that JLK
shall be entitled to credit against any payments which would otherwise
be made for medical, dental or group insurance or similar benefits
(excluding, however, any credit against payments relating to pension or
retirement benefits) pursuant to the benefit provisions set forth in
paragraph 4(e) hereof, any comparable payments to which Employee is
entitled under the employee benefit plans maintained by Employee's
other employer or employers in connection with services to such
employer or employers after termination of his employment with JLK.
(f) The term "Change-in-Control" shall mean that all of the following
conditions shall have occurred: (i) JLK is no longer a direct or
indirect subsidiary of Kennametal, (ii) Kennametal and its affiliates
no longer own any shares of Class B Common Stock of JLK and (iii) one
or more persons (other than Kennametal or its subsidiaries) have
acquired control of a nature that would be required to be reported by
JLK in response to Item 6(e) of Schedule 14A promulgated under the
Securities Exchange Act of 1934 as in effect on the date hereof (the
"1934 Act"), or if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the 1934
Act
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<PAGE> 5
which serve similar purposes; provided that, without limitation, the
third condition set forth in subclause (iii) of this sentence shall be
deemed to have occurred if (A) JLK shall be merged or consolidated with
any corporation or other entity other than a merger or consolidation
with a corporation or other entity all of whose equity interests are
owned (1) by JLK immediately prior to the merger or consolidation or
(2) by Kennametal and/or its subsidiaries if JLK is at the time of such
merger or consolidation a direct or indirect subsidiary of Kennametal
or if Kennametal and its affiliates at the time of such merger or
consolidation own shares of Class B Common Stock of JLK, or (B) JLK
shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons or corporation
other than Kennametal or its subsidiaries.
(g) For purposes of this Agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other
reason, the date on which the termination becomes effective as
stated in the written notice of termination given to or by the
Employee.
(h) The term "Good Reason" for termination by the Employee shall mean
the occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the
assignment to the Employee of any duties materially and
substantially inconsistent with his positions, duties,
responsibilities and status with JLK immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately
prior to a Change-in-Control, or any removal of the Employee
from or any failure to re-elect the Employee to any of such
positions, except in connection with the termination of the
Employee`s employment due to Cause or as a result of the
Employee's death;
(ii) a reduction by JLK in the Employee's base salary as in
effect immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately
prior to any Change-in-Control;
(iv) in the event of a Change-in-Control, the failure to
continue in effect any benefit or compensation plan, stock
option plan, pension plan, life insurance plan, health and
accident plan or disability plan of JLK in which Employee is
participating immediately prior to a Change-in-Control
(provided, however, that there shall not be deemed to be any
such failure (x) due to Employee's no longer participating in
any plan of Kennametal or (y) if JLK substitutes for the
discontinued plan, a plan providing Employee with
substantially similar benefits)
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<PAGE> 6
or the taking of any action by JLK which would adversely
affect Employee's participation in or materially reduce
Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee
immediately prior to a Change-in-Control;
(v) the failure of JLK to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11
hereof;
(vi) the relocation of the Employee to a facility or a
location more than 50 miles from the Employee's then present
location, without the Employee's prior written consent; or
(vii) any purported termination of the employment of Employee
by JLK which is not for Cause as provided in paragraph 5.
(i) Employee shall not be entitled to receive any severance payment
from Kennametal and Kennametal shall have no obligation to pay any
severance to Employee upon a termination of Employee's employment.
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement; or (b) shall not make his services available to JLK on a full
time basis in accordance with paragraph 1 hereof for any reason (including
Disability) other than arising from Employee's incapacity due to physical or
mental illness or injury which does not constitute Disability and other than by
reason of the fact Employee's employment has been terminated under the
circumstances described in paragraph 4(a); or (c) shall breach the provisions of
paragraph 8 hereof (each of the matters described in subparagraphs (a), (b) and
(c) shall be "Cause"), JLK shall have the right, exercised by resolution adopted
by a majority of its Board of Directors, to terminate Employee's employment for
Cause by giving written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause, Employee
shall not be entitled to the benefits set forth in paragraph 4 which shall not
be paid or payable and JLK only shall have the obligation to pay Employee the
unpaid portion of Employee's base salary for the period from the last period
from which Employee was paid to the Date of Termination; provided, however, that
if Employee's employment is terminated as a result of the Disability of
Employee, the benefits set forth in paragraph 4 shall not be paid or payable but
Employee's employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this Agreement "Disability" shall mean such
incapacity due to physical or mental illness or injury which results in the
Employee's being absent from his principal office at JLK's offices for the
entire portion of 180 consecutive business days. Prior to a Change-in-Control, a
decision by the Board of Directors of JLK that "Cause" exists shall be in the
discretion of the Board of Directors and shall be final and binding upon the
Employee and his rights hereunder. After a Change-in-Control, "Cause" shall not
be deemed to include opposition by Employee to such a Change-in-Control or any
matter incidental thereto and any determination by the Board of Directors that
"Cause" existed shall not be final or binding upon the Employee or his rights
hereunder or entitled to any deference in any court or other tribunal.
-6-
<PAGE> 7
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(d) hereof, in the event
Employee resigns or his employment is terminated for any reason other than death
or Disability prior to his "Retirement Date" (as hereinafter defined), he will
forfeit any interest he may have in any retirement income plan (except to the
extent vested by actual service to date of separation as per the plan
provisions), and all other benefits dependent upon continuing service. The term
"Retirement Date" shall mean the first day of the month following the day on
which Employee attains his sixty-fifth birthday, or at Employee's request, any
other day that JLK's Board of Directors may approve in writing.
7. Nothing herein contained shall affect the right of Employee to participate in
and receive benefits under and in accordance with and to the extent provided for
in the then current terms and provisions of any retirement income,
profit-sharing, additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program of JLK
applicable to Employee and all payments hereunder shall be in addition to any
benefits received thereunder (including long term disability payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply to the
Employee following a termination of Employee's employment (x) after a
Change-in-Control shall have occurred or (y) if Employee's employment is
terminated by JLK other than for Cause), he will not, in any geographic area in
which JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior written
consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engaged in, any business which is competitive
with any business of JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) or any subsidiary or
affiliate thereof in which Employee is or was engaged; provided,
however, that the foregoing provisions of this paragraph 8 are not
intended to prohibit and shall not prohibit Employee from purchasing,
for investment, not in excess of 1% of any class of stock or other
corporate security of any company which is registered pursuant to
Section 12 of the 1934 Act.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees that
remedies at law for any such breach will be inadequate and consents and agrees
that JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) shall be entitled, without the necessity of proof of
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<PAGE> 8
actual damage, to injunctive relief in any proceedings which may be brought to
enforce the provisions of this paragraph 8. Employee acknowledges and warrants
that he will be fully able to earn an adequate livelihood for himself and his
dependents if this paragraph 8 should be specifically enforced against him and
that such enforcement will not impair his ability to obtain employment
commensurate with his abilities and fully acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his employment by
JLK, Employee may work with, add to, create or acquire trade secrets and
confidential information of JLK or Kennametal ("Confidential Information") which
could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's or
Kennametal's manuals, methods, know-how, formulae, shapes, designs,
compositions, processes, applications, ideas, improvements,
discoveries, inventions, research and development projects, equipment,
apparatus, appliances, computer programs, software, systems
documentation, special hardware, software development and similar
items; or
(ii) of a business nature such as, but not limited to, information
about JLK's or Kennametal's business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales methods, sales
proposals, identity of customers and prospective customers, identity of
customers' key purchasing personnel, amount or kind of customers'
purchases and other information about customers; or
(iii) pertaining to future developments of JLK or Kennametal such as,
but not limited to, research and development or future marketing or
merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of JLK and/or Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would constitute
a breach of trust and could cause irreparable injury to JLK and/or Kennametal;
and (iii) it is essential to the protection of JLK's and/or Kennametal's good
will and to the maintenance of its competitive position that all Confidential
Information be kept secret and that Employee not disclose any Confidential
Information to others or use any Confidential Information to the detriment of
JLK or Kennametal.
Employee agrees to hold and safeguard all Confidential Information in
trust for JLK and Kennametal, each of their successors and assigns and Employee
shall not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use
-8-
<PAGE> 9
outside JLK's or Kennametal's organization at any time, either during employment
with JLK or subsequent thereto, any of the Confidential Information, whether or
not developed by Employee, without the prior written consent of JLK and
Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its or their expense) to obtain for its or their
own benefit patents for such inventions in any and all
countries; the said inventions, without further consideration
other than such salary as from time to time may be paid to him
by JLK as compensation for his services in any capacity, shall
be and remain the sole and exclusive property of JLK (and
Kennametal, if JLK on the Date of Termination is a subsidiary
of Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
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<PAGE> 10
10. In the event that (a) Employee institutes any legal action to enforce his
rights under, or to recover damages for breach of this Agreement, or (b) JLK
institutes any action to avoid making any payments due to Employee under this
Agreement, Employee, if he is the prevailing party, shall be entitled to recover
from JLK any actual expenses for attorney's fees and other disbursements
incurred by him in relation thereto.
11. The terms and provisions of this Agreement shall be binding upon Employee
and JLK, and shall inure to the benefit of, Employee, JLK and Kennametal (which
shall be deemed an express third party beneficiary of this Agreement) and their
subsidiaries and affiliates, and the parties respective successors and assigns.
The Employee's employment shall not be deemed terminated for purposes of this
Agreement if the Employee is employed by a successor to JLK, which successor
shall be deemed to be JLK for purposes of this Agreement.
12. This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, whether oral or written,
among the parties with respect to the subject matter hereof. Any prior
employment agreement between the Employee and Kennametal is hereby terminated
and Employee shall not be entitled to any severance or other benefits under any
prior employment agreement with Kennametal. This Agreement may not be amended
orally, but only by an instrument in writing signed by each of the parties to
this Agreement and consented to in writing by Kennametal. This Agreement does
not create any right to continued employment by JLK and the Employee shall
remain an "at will" employee of JLK.
13. The invalidity or enforceability of any provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
14. Any pronoun and any variation thereof used in this Agreement shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the parties hereto may require.
15. A condition to Employee's right to receive or receipt of any severance pay
or any benefits hereunder upon a termination of the Employee's employment shall
be for the Employee to execute and to deliver to JLK and Kennametal on or before
the making of any severance payment or providing of any benefit a release in the
form of Exhibit A attached hereto.
16. Not withstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by Employee in connection with
a change in control of the Corporation or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, or any person whose actions
result in a change in control or any person affiliated with the Corporation or
such person) (collectively, the "Total Payments") would not be deductible, in
whole or part, as a result of section 280G of the Internal Revenue Code of 1986
(the "Code") by the
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<PAGE> 11
Corporation, an affiliate or other person making such payment or providing such
benefit, the payments due under this Agreement (the "Contract Payments") shall
be reduced until no portion of the Total Payments is not deductible, or the
Contract Payments are reduced to zero. In the event that the Corporation or the
affiliate or other person making such payment or providing such benefit
determines that the Total Payments would not be deductible, in whole or part, as
a result of section 280G of the Code, the Corporation or the affiliate or other
person making such payment or providing such benefit shall immediately notify
Employee of this determination and the amount which would not be so deductible
as well as a computation of Total Payments. Employee shall have five (5)
business days after receipt of the foregoing notice and computation to waive in
writing all or any portion of any of the Total Payments and any portion of the
Total Payments the receipt or enjoyment of which Employee shall have effectively
waived in writing shall not be taken into account (and, if the Corporation had
already withheld any Contract Payments prior to receipt of such waiver, the
Corporation upon receipt of such waiver shall immediately pay to Employee any
withheld Contract Payments which would have been paid had the Corporation had
the Employee's written waiver prior to the date the Corporation withheld any
such payments). For purposes of this limitation (i) no portion of the Total
Payments shall be taken into account which in the opinion of tax counsel
selected by the Corporation's independent auditors and acceptable to Employee
does not constitute a "parachute payment" within the meaning of section
280G(b)(2) of the Code, (ii) the Contract Payments shall be reduced only to the
extent necessary so that the Total Payments (other than those Contract Payments
which are waived in writing by the Employee or referred to in clause (i)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of section 280G(b)(4) of the Code or are otherwise not
subject to disallowance as deductions, in the opinion of the tax counsel
referred to in clause (i); and (iii) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Corporation's independent auditors in accordance with the principles of
section 280G(d)(3) and (4) of the Code.
17. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to its conflicts or choice of law provisions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
/s/ Kevin G. Nowe By: /s/ Diana L. Scott
- ---------------------- ------------------
Name: Diana L. Scott
Title: Vice President and
Chief Financial Officer
WITNESS: RICHARD J. ORWIG, EMPLOYEE:
/s/ John Beaudoin /s/ Richard J. Orwig (SEAL)
- ---------------------- -----------------------------------
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<PAGE> 13
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of action
or rights are known or unknown; provided, however, that this Release shall not
release, remise, quitclaim or discharge any claims, causes of action or rights
which the undersigned may have (i) under that certain Employment Agreement dated
January 21, 2000 between the undersigned and JLK Direct Distribution Inc., (ii)
to any unreimbursed expense account or similar out-of-pocket reimbursement
amounts owing the undersigned, or (iii) under the bylaws of JLK Direct
Distribution Inc. or Kennametal Inc. or the applicable state corporate statutes
to indemnification for having served as an officer and/or employee of Kennametal
Inc. and/or its subsidiaries or JLK Direct Distribution Inc., and/or its
subsidiaries.
DATE: January 21, 2000 /s/ Richard J. Orwig
------------------------ --------------------
<PAGE> 1
Exhibit 10.2
AGREEMENT
THIS AGREEMENT, is made and entered into this 21st day of January,
2000, by and between JLK DIRECT DISTRIBUTION INC., a corporation organized under
the laws of the Commonwealth of Pennsylvania (hereinafter referred to as "JLK"
or the "Corporation"), and JOHN M. BEAUDOIN, an individual (hereinafter referred
to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal Inc. ("Kennametal") which are of a technical nature or business
nature or pertain to future developments, the disclosure of which trade secrets
or confidential information would be highly detrimental to the interests of JLK
and Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of continuing to employ Employee.
NOW, THEREFORE, JLK and Employee, each intending to be legally bound
hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, JLK hereby
agrees to continue to employ Employee and Employee hereby accepts such
continued employment and agrees to devote his full time and attention
to the business and affairs of JLK, in such capacity or capacities and
to perform to the best of his ability such services as shall be
determined from time to time by the President and the Board of
Directors of JLK until the termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere herein,
Employee, subject to the terms and conditions of this Agreement, shall be
entitled to continue to participate in all group insurance programs, retirement
income (pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal and its subsidiaries for so long as
JLK remains a subsidiary of Kennametal. Nothing herein contained shall be deemed
to limit or prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel, lodging,
meals, entertainment
<PAGE> 2
expenses or any other expenses in accordance with the policies of JLK
applicable to the executives of JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party prior
written notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of Directors;
provided, further, that termination by JLK for Cause (as hereinafter defined)
shall be made by written notice which states that it is a termination for Cause;
and provided, further, that termination by Employee, other than termination for
Good Reason (as hereafter defined) following a Change-in-Control (as hereafter
defined), shall be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK
prior to a Change-in-Control and other than for Cause, Employee will
receive as severance pay from JLK, in addition to all amounts due him
at the Date of Termination (as hereinafter defined), an amount, payable
promptly after the Date of Termination, equal to three months' base
salary at the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated (i) due to
the death of the Employee or (ii) by Employee following a
Change-in-Control without Good Reason or (iii) by Employee prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event that at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) from JLK an amount equal to the product of
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months
remaining from the Date of Termination to the
Employee's Retirement Date (as such term is hereafter
defined) divided by twelve (12), or
(z) a number equal to the product, if positive,
obtained by multiplying (AA) thirty-six (36) less the
number of completed months after the date of the
Change-in-Control during which the Employee was
employed and did not have Good Reason for termination
times (BB) one-twelfth (1/12);
times
(ii) the sum of
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<PAGE> 3
(x) Employee's base salary at the annual rate in
effect on the Date of Termination (or, at Employee's
election, at the annual rate in effect on the first
day of the calendar month immediately prior to the
Change-in-Control), plus
(y) the average of any bonuses which Employee was
entitled to or paid during the three most recent
fiscal years ending prior to the Date of Termination
(or, at Employee's election, the average of any
bonuses which Employee was entitled to or paid for
the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
(d) If Employee is entitled to receive the severance payment set forth
in paragraph 4(c), Employee also will receive from JLK the same or
equivalent medical, dental, disability and group insurance benefits as
were provided to the Employee by JLK at the Date of Termination, which
benefits shall be provided by JLK to Employee for a three year period
commencing on the Date of Termination. Pursuant to the terms of
Kennametal's various benefit plans, Employee will not following a
Change-in-Control have any rights to receive from Kennametal or from
any medical, dental, disability, group insurance, retirement or pension
plan or other benefit plan maintained or sponsored by Kennametal any
benefits or other sums other than (i) to receive from the Kennametal
Inc. Retirement Income Plan any vested benefits to the extent and at
the times payable under the terms of the Kennametal Inc. Retirement
Income Plan, (ii) to receive from the Kennametal Inc. Thrift Plan any
vested benefits to the extent and at the times payable under the terms
of the Kennametal Inc. Thrift Plan and (iii) to exercise any stock
options held under Kennametal's stock option plans to the extent, if
any, exerciseable and in accordance with the terms of Kennametal's
stock option plans.
If for any reason, whether by law or provisions of any
employee medical, dental or group insurance, or other benefit plan of
JLK in which the Employee is eligible to participate, any benefits
which the Employee would be entitled to under the foregoing paragraph
of this subparagraph (d) cannot be paid pursuant to such employee
benefit plans, then JLK hereby contractually agrees to pay to the
Employee the difference between the benefits which the Employee would
have received in accordance with the foregoing paragraph of this
subparagraph (d) if the relevant employee medical, dental or group
insurance or pension or retirement plan or other benefit plan could
have paid such benefit and the amount of benefits, if any, actually
paid by such employee medical, dental or group insurance or pension or
retirement plan or other benefit plan. JLK shall not be required to
fund its obligation to pay the foregoing difference.
If Employee is entitled to receive the severance payment set
forth in paragraph 4(c), JLK shall also make supplemental pension
payments to Employee equal in amount to the difference between the
pension payable to Employee pursuant to the terms of the
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<PAGE> 4
Kennametal Inc. Retirement Income Plan (as in existence on the date of
the Change-in-Control) and any increased pension which would have been
payable to Employee under the terms of the Kennametal Inc. Retirement
Income Plan (as in existence on the date of the Change-in-Control)
assuming (i) JLK had remained a subsidiary of Kennametal and (ii)
Employee had remained continuously in the employment of JLK for the
three year period (or, if clause (i)(y) or clause (i)(z) of paragraph
4(c) is applicable to determine the severance payment to be made, the
lesser period measured in years and fractions thereof rounded to the
nearest one-twelfth which equals the number determined by clause (i)(y)
or clause (i)(z) above, whichever is applicable) following the Date of
Termination at an annual compensation equal to the sum of the base
salary and bonus which were used to compute the severance payment due
the Employee under the first paragraph of paragraph 4(c). Such
supplemental pension payments shall be paid by JLK to Employee ratably
at the times when pension payments are made under the Kennametal Inc.
Retirement Income Plan. JLK shall not be required to fund its
obligation to pay the foregoing difference.
(e) In the event of a termination of employment under the circumstances
above described in paragraph 4(c), Employee shall have no duty to seek
any other employment after termination of Employee's employment with
JLK and JLK hereby waives and agrees not to raise or use any defense
based on the position that Employee had a duty to mitigate or reduce
the amounts due him hereunder by seeking other employment whether
suitable or unsuitable and should Employee obtain other employment,
then the only effect of such on the obligations of shall be that JLK
shall be entitled to credit against any payments which would otherwise
be made for medical, dental or group insurance or similar benefits
(excluding, however, any credit against payments relating to pension or
retirement benefits) pursuant to the benefit provisions set forth in
paragraph 4(e) hereof, any comparable payments to which Employee is
entitled under the employee benefit plans maintained by Employee's
other employer or employers in connection with services to such
employer or employers after termination of his employment with JLK.
(f) The term "Change-in-Control" shall mean that all of the following
conditions shall have occurred: (i) JLK is no longer a direct or
indirect subsidiary of Kennametal, (ii) Kennametal and its affiliates
no longer own any shares of Class B Common Stock of JLK and (iii) one
or more persons (other than Kennametal or its subsidiaries) have
acquired control of a nature that would be required to be reported by
JLK in response to Item 6(e) of Schedule 14A promulgated under the
Securities Exchange Act of 1934 as in effect on the date hereof (the
"1934 Act"), or if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the 1934
Act which serve similar purposes; provided that, without limitation,
the third condition set forth in subclause (iii) of this sentence shall
be deemed to have occurred if (A) JLK shall be merged or consolidated
with any corporation or other entity other than a merger or
consolidation with a corporation or other entity all of whose equity
interests are owned (1) by JLK immediately prior to the merger or
consolidation or (2) by Kennametal and/or its subsidiaries if JLK is at
the time of such merger or consolidation a direct or
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<PAGE> 5
indirect subsidiary of Kennametal or if Kennametal and its affiliates
at the time of such merger or consolidation own shares of Class B
Common Stock of JLK, or (B) JLK shall sell all or substantially all of
its operating properties and assets to another person, group of
associated persons or corporation other than Kennametal or its
subsidiaries.
(g) For purposes of this Agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other
reason, the date on which the termination becomes effective as
stated in the written notice of termination given to or by the
Employee.
(h) The term "Good Reason" for termination by the Employee shall mean
the occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the
assignment to the Employee of any duties materially and
substantially inconsistent with his positions, duties,
responsibilities and status with JLK immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately
prior to a Change-in-Control, or any removal of the Employee
from or any failure to re-elect the Employee to any of such
positions, except in connection with the termination of the
Employee`s employment due to Cause or as a result of the
Employee's death;
(ii) a reduction by JLK in the Employee's base salary as in
effect immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately
prior to any Change-in-Control;
(iv) in the event of a Change-in-Control, the failure to
continue in effect any benefit or compensation plan, stock
option plan, pension plan, life insurance plan, health and
accident plan or disability plan of JLK in which Employee is
participating immediately prior to a Change-in-Control
(provided, however, that there shall not be deemed to be any
such failure (x) due to Employee's no longer participating in
any plan of Kennametal or (y) if JLK substitutes for the
discontinued plan, a plan providing Employee with
substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in
or materially reduce Employee's benefits under any of such
plans or deprive Employee of any material fringe benefit
enjoyed by Employee immediately prior to a Change-in-Control;
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<PAGE> 6
(v) the failure of JLK to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11
hereof;
(vi) the relocation of the Employee to a facility or a
location more than 50 miles from the Employee's then present
location, without the Employee's prior written consent; or
(vii) any purported termination of the employment of Employee
by JLK which is not for Cause as provided in paragraph 5.
(i) Employee shall not be entitled to receive any severance payment
from Kennametal and Kennametal shall have no obligation to pay any
severance to Employee upon a termination of Employee's employment.
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement; or (b) shall not make his services available to JLK on a full
time basis in accordance with paragraph 1 hereof for any reason (including
Disability) other than arising from Employee's incapacity due to physical or
mental illness or injury which does not constitute Disability and other than by
reason of the fact Employee's employment has been terminated under the
circumstances described in paragraph 4(a); or (c) shall breach the provisions of
paragraph 8 hereof (each of the matters described in subparagraphs (a), (b) and
(c) shall be "Cause"), JLK shall have the right, exercised by resolution adopted
by a majority of its Board of Directors, to terminate Employee's employment for
Cause by giving written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause, Employee
shall not be entitled to the benefits set forth in paragraph 4 which shall not
be paid or payable and JLK only shall have the obligation to pay Employee the
unpaid portion of Employee's base salary for the period from the last period
from which Employee was paid to the Date of Termination; provided, however, that
if Employee's employment is terminated as a result of the Disability of
Employee, the benefits set forth in paragraph 4 shall not be paid or payable but
Employee's employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this Agreement "Disability" shall mean such
incapacity due to physical or mental illness or injury which results in the
Employee's being absent from his principal office at JLK's offices for the
entire portion of 180 consecutive business days. Prior to a Change-in-Control, a
decision by the Board of Directors of JLK that "Cause" exists shall be in the
discretion of the Board of Directors and shall be final and binding upon the
Employee and his rights hereunder. After a Change-in-Control, "Cause" shall not
be deemed to include opposition by Employee to such a Change-in-Control or any
matter incidental thereto and any determination by the Board of Directors that
"Cause" existed shall not be final or binding upon the Employee or his rights
hereunder or entitled to any deference in any court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(d) hereof, in the event
Employee resigns or his employment is terminated for any reason other than death
or Disability prior to his "Retirement Date" (as hereinafter defined), he will
forfeit any interest he may have in any retirement income plan
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<PAGE> 7
(except to the extent vested by actual service to date of separation as per the
plan provisions), and all other benefits dependent upon continuing service. The
term "Retirement Date" shall mean the first day of the month following the day
on which Employee attains his sixty-fifth birthday, or at Employee's request,
any other day that JLK's Board of Directors may approve in writing.
7. Nothing herein contained shall affect the right of Employee to participate in
and receive benefits under and in accordance with and to the extent provided for
in the then current terms and provisions of any retirement income,
profit-sharing, additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program of JLK
applicable to Employee and all payments hereunder shall be in addition to any
benefits received thereunder (including long term disability payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply to the
Employee following a termination of Employee's employment (x) after a
Change-in-Control shall have occurred or (y) if Employee's employment is
terminated by JLK other than for Cause), he will not, in any geographic area in
which JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior written
consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engaged in, any business which is competitive
with any business of JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) or any subsidiary or
affiliate thereof in which Employee is or was engaged; provided,
however, that the foregoing provisions of this paragraph 8 are not
intended to prohibit and shall not prohibit Employee from purchasing,
for investment, not in excess of 1% of any class of stock or other
corporate security of any company which is registered pursuant to
Section 12 of the 1934 Act.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees that
remedies at law for any such breach will be inadequate and consents and agrees
that JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) shall be entitled, without the necessity of proof of actual damage,
to injunctive relief in any proceedings which may be brought to enforce the
provisions of this paragraph 8. Employee acknowledges and warrants that he will
be fully able to earn an adequate livelihood for himself and his dependents if
this paragraph 8 should be
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<PAGE> 8
specifically enforced against him and that such enforcement will not impair his
ability to obtain employment commensurate with his abilities and fully
acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his employment by
JLK, Employee may work with, add to, create or acquire trade secrets and
confidential information of JLK or Kennametal ("Confidential Information") which
could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's or
Kennametal's manuals, methods, know-how, formulae, shapes, designs,
compositions, processes, applications, ideas, improvements,
discoveries, inventions, research and development projects, equipment,
apparatus, appliances, computer programs, software, systems
documentation, special hardware, software development and similar
items; or
(ii) of a business nature such as, but not limited to, information
about JLK's or Kennametal's business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales methods, sales
proposals, identity of customers and prospective customers, identity of
customers' key purchasing personnel, amount or kind of customers'
purchases and other information about customers; or
(iii) pertaining to future developments of JLK or Kennametal such as,
but not limited to, research and development or future marketing or
merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of JLK and/or Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would constitute
a breach of trust and could cause irreparable injury to JLK and/or Kennametal;
and (iii) it is essential to the protection of JLK's and/or Kennametal's good
will and to the maintenance of its competitive position that all Confidential
Information be kept secret and that Employee not disclose any Confidential
Information to others or use any Confidential Information to the detriment of
JLK or Kennametal.
Employee agrees to hold and safeguard all Confidential Information in
trust for JLK and Kennametal, each of their successors and assigns and Employee
shall not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use outside JLK's or Kennametal's
organization at any time, either during employment with JLK or subsequent
thereto, any of the Confidential Information, whether or not developed by
Employee, without the prior written consent of JLK and Kennametal.
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<PAGE> 9
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its or their expense) to obtain for its or their
own benefit patents for such inventions in any and all
countries; the said inventions, without further consideration
other than such salary as from time to time may be paid to him
by JLK as compensation for his services in any capacity, shall
be and remain the sole and exclusive property of JLK (and
Kennametal, if JLK on the Date of Termination is a subsidiary
of Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce his
rights under, or to recover damages for breach of this Agreement, or (b) JLK
institutes any action to avoid making any payments due to Employee under this
Agreement, Employee, if he is the prevailing
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<PAGE> 10
party, shall be entitled to recover from JLK any actual expenses for attorney's
fees and other disbursements incurred by him in relation thereto.
11. The terms and provisions of this Agreement shall be binding upon Employee
and JLK, and shall inure to the benefit of, Employee, JLK and Kennametal (which
shall be deemed an express third party beneficiary of this Agreement) and their
subsidiaries and affiliates, and the parties respective successors and assigns.
The Employee's employment shall not be deemed terminated for purposes of this
Agreement if the Employee is employed by a successor to JLK, which successor
shall be deemed to be JLK for purposes of this Agreement.
12. This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, whether oral or written,
among the parties with respect to the subject matter hereof. Any prior
employment agreement between the Employee and Kennametal is hereby terminated
and Employee shall not be entitled to any severance or other benefits under any
prior employment agreement with Kennametal. This Agreement may not be amended
orally, but only by an instrument in writing signed by each of the parties to
this Agreement and consented to in writing by Kennametal. This Agreement does
not create any right to continued employment by JLK and the Employee shall
remain an "at will" employee of JLK.
13. The invalidity or enforceability of any provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
14. Any pronoun and any variation thereof used in this Agreement shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the parties hereto may require.
15. A condition to Employee's right to receive or receipt of any severance pay
or any benefits hereunder upon a termination of the Employee's employment shall
be for the Employee to execute and to deliver to JLK and Kennametal on or before
the making of any severance payment or providing of any benefit a release in the
form of Exhibit A attached hereto.
16. Not withstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by Employee in connection with
a change in control of the Corporation or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, or any person whose actions
result in a change in control or any person affiliated with the Corporation or
such person) (collectively, the "Total Payments") would not be deductible, in
whole or part, as a result of section 280G of the Internal Revenue Code of 1986
(the "Code") by the Corporation, an affiliate or other person making such
payment or providing such benefit, the payments due under this Agreement (the
"Contract Payments") shall be reduced until no portion of the Total Payments is
not deductible, or the Contract Payments are reduced to zero. In the
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<PAGE> 11
event that the Corporation or the affiliate or other person making such payment
or providing such benefit determines that the Total Payments would not be
deductible, in whole or part, as a result of section 280G of the Code, the
Corporation or the affiliate or other person making such payment or providing
such benefit shall immediately notify Employee of this determination and the
amount which would not be so deductible as well as a computation of Total
Payments. Employee shall have five (5) business days after receipt of the
foregoing notice and computation to waive in writing all or any portion of any
of the Total Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing shall not
be taken into account (and, if the Corporation had already withheld any Contract
Payments prior to receipt of such waiver, the Corporation upon receipt of such
waiver shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation had the Employee's written waiver prior
to the date the Corporation withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Employee does not constitute a "parachute payment"
within the meaning of section 280G(b)(2) of the Code, (ii) the Contract Payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the Employee or
referred to in clause (i)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of section 280G(b)(4) of the
Code or are otherwise not subject to disallowance as deductions, in the opinion
of the tax counsel referred to in clause (i); and (iii) the value of any
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of section 280G(d)(3) and (4) of the Code.
17. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to its conflicts or choice of law provisions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
/s/ Kevin G. Nowe By: /s/ Richard J. Orwig
- --------------------- --------------------
Name: Richard J. Orwig
Title: President and Chief
Executive Officer
WITNESS: JOHN M. BEAUDOIN, EMPLOYEE:
/s/ Diana L. Scott /s/ John Beaudoin (SEAL)
- --------------------- -----------------------------------
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<PAGE> 13
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of action
or rights are known or unknown; provided, however, that this Release shall not
release, remise, quitclaim or discharge any claims, causes of action or rights
which the undersigned may have (i) under that certain Employment Agreement dated
January 21, 2000 between the undersigned and JLK Direct Distribution Inc., (ii)
to any unreimbursed expense account or similar out-of-pocket reimbursement
amounts owing the undersigned, or (iii) under the bylaws of JLK Direct
Distribution Inc. or Kennametal Inc. or the applicable state corporate statutes
to indemnification for having served as an officer and/or employee of Kennametal
Inc. and/or its subsidiaries or JLK Direct Distribution Inc., and/or its
subsidiaries.
DATE: January 21, 2000 /s/ John Beaudoin
------------------ ------------------
<PAGE> 1
Exhibit 10.3
AGREEMENT
THIS AGREEMENT, is made and entered into this 21st day of January,
2000, by and between JLK DIRECT DISTRIBUTION INC., a corporation organized under
the laws of the Commonwealth of Pennsylvania (hereinafter referred to as "JLK"
or the "Corporation"), and CHARLES G. LENDVOYI, an individual (hereinafter
referred to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal Inc. ("Kennametal") which are of a technical nature or business
nature or pertain to future developments, the disclosure of which trade secrets
or confidential information would be highly detrimental to the interests of JLK
and Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of continuing to employ Employee.
NOW, THEREFORE, JLK and Employee, each intending to be legally bound
hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, JLK hereby
agrees to continue to employ Employee and Employee hereby accepts such
continued employment and agrees to devote his full time and attention
to the business and affairs of JLK, in such capacity or capacities and
to perform to the best of his ability such services as shall be
determined from time to time by the President and the Board of
Directors of JLK until the termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere herein,
Employee, subject to the terms and conditions of this Agreement, shall be
entitled to continue to participate in all group insurance programs, retirement
income (pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal and its subsidiaries for so long as
JLK remains a subsidiary of Kennametal. Nothing herein contained shall be deemed
to limit or prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel, lodging,
meals, entertainment
<PAGE> 2
expenses or any other expenses in accordance with the policies of JLK
applicable to the executives of JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party prior
written notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of Directors;
provided, further, that termination by JLK for Cause (as hereinafter defined)
shall be made by written notice which states that it is a termination for Cause;
and provided, further, that termination by Employee, other than termination for
Good Reason (as hereafter defined) following a Change-in-Control (as hereafter
defined), shall be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay from JLK, in addition to all amounts due him at the
Date of Termination (as hereinafter defined), an amount, payable
promptly after the Date of Termination, equal to three months' base
salary at the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated (i) due to
the death of the Employee or (ii) by Employee following a
Change-in-Control without Good Reason or (iii) by Employee prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event that at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) from JLK an amount equal to the product of
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months
remaining from the Date of Termination to the
Employee's Retirement Date (as such term is hereafter
defined) divided by twelve (12), or
(z) a number equal to the product, if positive,
obtained by multiplying (AA) thirty-six (36) less the
number of completed months after the date of the
Change-in-Control during which the Employee was
employed and did not have Good Reason for termination
times (BB) one-twelfth (1/12);
times
(ii) the sum of
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<PAGE> 3
(x) Employee's base salary at the annual rate in
effect on the Date of Termination (or, at Employee's
election, at the annual rate in effect on the first
day of the calendar month immediately prior to the
Change-in-Control), plus
(y) the average of any bonuses which Employee was
entitled to or paid during the three most recent
fiscal years ending prior to the Date of Termination
(or, at Employee's election, the average of any
bonuses which Employee was entitled to or paid for
the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
(d) If Employee is entitled to receive the severance payment set forth
in paragraph 4(c), Employee also will receive from JLK the same or
equivalent medical, dental, disability and group insurance benefits as
were provided to the Employee by JLK at the Date of Termination, which
benefits shall be provided by JLK to Employee for a three year period
commencing on the Date of Termination. Pursuant to the terms of
Kennametal's various benefit plans, Employee will not following a
Change-in-Control have any rights to receive from Kennametal or from
any medical, dental, disability, group insurance, retirement or pension
plan or other benefit plan maintained or sponsored by Kennametal any
benefits or other sums other than (i) to receive from the Kennametal
Inc. Retirement Income Plan any vested benefits to the extent and at
the times payable under the terms of the Kennametal Inc. Retirement
Income Plan, (ii) to receive from the Kennametal Inc. Thrift Plan any
vested benefits to the extent and at the times payable under the terms
of the Kennametal Inc. Thrift Plan and (iii) to exercise any stock
options held under Kennametal's stock option plans to the extent, if
any, exerciseable and in accordance with the terms of Kennametal's
stock option plans.
If for any reason, whether by law or provisions of any
employee medical, dental or group insurance, or other benefit plan of
JLK in which the Employee is eligible to participate, any benefits
which the Employee would be entitled to under the foregoing paragraph
of this subparagraph (d) cannot be paid pursuant to such employee
benefit plans, then JLK hereby contractually agrees to pay to the
Employee the difference between the benefits which the Employee would
have received in accordance with the foregoing paragraph of this
subparagraph (d) if the relevant employee medical, dental or group
insurance or pension or retirement plan or other benefit plan could
have paid such benefit and the amount of benefits, if any, actually
paid by such employee medical, dental or group insurance or pension or
retirement plan or other benefit plan. JLK shall not be required to
fund its obligation to pay the foregoing difference.
If Employee is entitled to receive the severance payment set
forth in paragraph 4(c), JLK shall also make supplemental pension
payments to Employee equal in amount to the difference between the
pension payable to Employee pursuant to the terms of the
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<PAGE> 4
Kennametal Inc. Retirement Income Plan (as in existence on the date of
the Change-in-Control) and any increased pension which would have been
payable to Employee under the terms of the Kennametal Inc. Retirement
Income Plan (as in existence on the date of the Change-in-Control)
assuming (i) JLK had remained a subsidiary of Kennametal and (ii)
Employee had remained continuously in the employment of JLK for the
three year period (or, if clause (i)(y) or clause (i)(z) of paragraph
4(c) is applicable to determine the severance payment to be made, the
lesser period measured in years and fractions thereof rounded to the
nearest one-twelfth which equals the number determined by clause (i)(y)
or clause (i)(z) above, whichever is applicable) following the Date of
Termination at an annual compensation equal to the sum of the base
salary and bonus which were used to compute the severance payment due
the Employee under the first paragraph of paragraph 4(c) and had
attained 10 (ten) years of service at the end of such period. Such
supplemental pension payments shall be paid by JLK to Employee ratably
at the times when pension payments are made under the Kennametal Inc.
Retirement Income Plan. JLK shall not be required to fund its
obligation to pay the foregoing difference.
(e) In the event of a termination of employment under the circumstances
above described in paragraph 4(c), Employee shall have no duty to seek
any other employment after termination of Employee's employment with
JLK and JLK hereby waives and agrees not to raise or use any defense
based on the position that Employee had a duty to mitigate or reduce
the amounts due him hereunder by seeking other employment whether
suitable or unsuitable and should Employee obtain other employment,
then the only effect of such on the obligations of shall be that JLK
shall be entitled to credit against any payments which would otherwise
be made for medical, dental or group insurance or similar benefits
(excluding, however, any credit against payments relating to pension or
retirement benefits) pursuant to the benefit provisions set forth in
paragraph 4(e) hereof, any comparable payments to which Employee is
entitled under the employee benefit plans maintained by Employee's
other employer or employers in connection with services to such
employer or employers after termination of his employment with JLK.
(f) The term "Change-in-Control" shall mean that all of the following
conditions shall have occurred: (i) JLK is no longer a direct or
indirect subsidiary of Kennametal, (ii) Kennametal and its affiliates
no longer own any shares of Class B Common Stock of JLK and (iii) one
or more persons (other than Kennametal or its subsidiaries) have
acquired control of a nature that would be required to be reported by
JLK in response to Item 6(e) of Schedule 14A promulgated under the
Securities Exchange Act of 1934 as in effect on the date hereof (the
"1934 Act"), or if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the 1934
Act which serve similar purposes; provided that, without limitation,
the third condition set forth in subclause (iii) of this sentence shall
be deemed to have occurred if (A) JLK shall be merged or consolidated
with any corporation or other entity other than a merger or
consolidation with a corporation or other entity all of whose equity
interests are owned (1) by JLK immediately prior to the merger or
consolidation or (2) by Kennametal and/or its subsidiaries if JLK is at
the time of such merger or consolidation a direct or
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<PAGE> 5
indirect subsidiary of Kennametal or if Kennametal and its affiliates
at the time of such merger or consolidation own shares of Class B
Common Stock of JLK, or (B) JLK shall sell all or substantially all of
its operating properties and assets to another person, group of
associated persons or corporation other than Kennametal or its
subsidiaries.
(g) For purposes of this Agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other
reason, the date on which the termination becomes effective as
stated in the written notice of termination given to or by the
Employee.
(h) The term "Good Reason" for termination by the Employee shall mean
the occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the
assignment to the Employee of any duties materially and
substantially inconsistent with his positions, duties,
responsibilities and status with JLK immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately
prior to a Change-in-Control, or any removal of the Employee
from or any failure to re-elect the Employee to any of such
positions, except in connection with the termination of the
Employee`s employment due to Cause or as a result of the
Employee's death;
(ii) a reduction by JLK in the Employee's base salary as in
effect immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately
prior to any Change-in-Control;
(iv) in the event of a Change-in-Control, the failure to
continue in effect any benefit or compensation plan, stock
option plan, pension plan, life insurance plan, health and
accident plan or disability plan of JLK in which Employee is
participating immediately prior to a Change-in-Control
(provided, however, that there shall not be deemed to be any
such failure (x) due to Employee's no longer participating in
any plan of Kennametal or (y) if JLK substitutes for the
discontinued plan, a plan providing Employee with
substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in
or materially reduce Employee's benefits under any of such
plans or deprive Employee of any material fringe benefit
enjoyed by Employee immediately prior to a Change-in-Control;
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<PAGE> 6
(v) the failure of JLK to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11
hereof;
(vi) the relocation of the Employee to a facility or a
location more than 50 miles from the Employee's then present
location, without the Employee's prior written consent; or
(vii) any purported termination of the employment of Employee
by JLK which is not for Cause as provided in paragraph 5.
(i) Employee shall not be entitled to receive any severance payment
from Kennametal and Kennametal shall have no obligation to pay any
severance to Employee upon a termination of Employee's employment.
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement; or (b) shall not make his services available to JLK on a full
time basis in accordance with paragraph 1 hereof for any reason (including
Disability) other than arising from Employee's incapacity due to physical or
mental illness or injury which does not constitute Disability and other than by
reason of the fact Employee's employment has been terminated under the
circumstances described in paragraph 4(a); or (c) shall breach the provisions of
paragraph 8 hereof (each of the matters described in subparagraphs (a), (b) and
(c) shall be "Cause"), JLK shall have the right, exercised by resolution adopted
by a majority of its Board of Directors, to terminate Employee's employment for
Cause by giving written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause, Employee
shall not be entitled to the benefits set forth in paragraph 4 which shall not
be paid or payable and JLK only shall have the obligation to pay Employee the
unpaid portion of Employee's base salary for the period from the last period
from which Employee was paid to the Date of Termination; provided, however, that
if Employee's employment is terminated as a result of the Disability of
Employee, the benefits set forth in paragraph 4 shall not be paid or payable but
Employee's employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this Agreement "Disability" shall mean such
incapacity due to physical or mental illness or injury which results in the
Employee's being absent from his principal office at JLK's offices for the
entire portion of 180 consecutive business days. Prior to a Change-in-Control, a
decision by the Board of Directors of JLK that "Cause" exists shall be in the
discretion of the Board of Directors and shall be final and binding upon the
Employee and his rights hereunder. After a Change-in-Control, "Cause" shall not
be deemed to include opposition by Employee to such a Change-in-Control or any
matter incidental thereto and any determination by the Board of Directors that
"Cause" existed shall not be final or binding upon the Employee or his rights
hereunder or entitled to any deference in any court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(d) hereof, in the event
Employee resigns or his employment is terminated for any reason other than death
or Disability prior to his "Retirement Date" (as hereinafter defined), he will
forfeit any interest he may have in any retirement income plan
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<PAGE> 7
(except to the extent vested by actual service to date of separation as per the
plan provisions), and all other benefits dependent upon continuing service. The
term "Retirement Date" shall mean the first day of the month following the day
on which Employee attains his sixty-fifth birthday, or at Employee's request,
any other day that JLK's Board of Directors may approve in writing.
7. Nothing herein contained shall affect the right of Employee to participate in
and receive benefits under and in accordance with and to the extent provided for
in the then current terms and provisions of any retirement income,
profit-sharing, additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program of JLK
applicable to Employee and all payments hereunder shall be in addition to any
benefits received thereunder (including long term disability payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply to the
Employee following a termination of Employee's employment (x) after a
Change-in-Control shall have occurred or (y) if Employee's employment is
terminated by JLK other than for Cause), he will not, in any geographic area in
which JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior written
consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engaged in, any business which is competitive
with any business of JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) or any subsidiary or
affiliate thereof in which Employee is or was engaged; provided,
however, that the foregoing provisions of this paragraph 8 are not
intended to prohibit and shall not prohibit Employee from purchasing,
for investment, not in excess of 1% of any class of stock or other
corporate security of any company which is registered pursuant to
Section 12 of the 1934 Act.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees that
remedies at law for any such breach will be inadequate and consents and agrees
that JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) shall be entitled, without the necessity of proof of actual damage,
to injunctive relief in any proceedings which may be brought to enforce the
provisions of this paragraph 8. Employee acknowledges and warrants that he will
be fully able to earn an adequate livelihood for himself and his dependents if
this paragraph 8 should be
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<PAGE> 8
specifically enforced against him and that such enforcement will not impair his
ability to obtain employment commensurate with his abilities and fully
acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his employment by
JLK, Employee may work with, add to, create or acquire trade secrets and
confidential information of JLK or Kennametal ("Confidential Information") which
could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about JLK's or Kennametal's business plans,
sources of supply, cost, purchasing, profits, markets, sales,
sales volume, sales methods, sales proposals, identity of
customers and prospective customers, identity of customers'
key purchasing personnel, amount or kind of customers'
purchases and other information about customers; or
(iii) pertaining to future developments of JLK or Kennametal
such as, but not limited to, research and development or
future marketing or merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of JLK and/or Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would constitute
a breach of trust and could cause irreparable injury to JLK and/or Kennametal;
and (iii) it is essential to the protection of JLK's and/or Kennametal's good
will and to the maintenance of its competitive position that all Confidential
Information be kept secret and that Employee not disclose any Confidential
Information to others or use any Confidential Information to the detriment of
JLK or Kennametal.
Employee agrees to hold and safeguard all Confidential Information in
trust for JLK and Kennametal, each of their successors and assigns and Employee
shall not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use outside JLK's or Kennametal's
organization at any time, either during employment with JLK or subsequent
thereto, any of the Confidential Information, whether or not developed by
Employee, without the prior written consent of JLK and Kennametal.
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<PAGE> 9
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its or their expense) to obtain for its or their
own benefit patents for such inventions in any and all
countries; the said inventions, without further consideration
other than such salary as from time to time may be paid to him
by JLK as compensation for his services in any capacity, shall
be and remain the sole and exclusive property of JLK (and
Kennametal, if JLK on the Date of Termination is a subsidiary
of Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce his
rights under, or to recover damages for breach of this Agreement, or (b) JLK
institutes any action to avoid making any payments due to Employee under this
Agreement, Employee, if he is the prevailing
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<PAGE> 10
party, shall be entitled to recover from JLK any actual expenses for attorney's
fees and other disbursements incurred by him in relation thereto.
11. The terms and provisions of this Agreement shall be binding upon Employee
and JLK, and shall inure to the benefit of, Employee, JLK and Kennametal (which
shall be deemed an express third party beneficiary of this Agreement) and their
subsidiaries and affiliates, and the parties respective successors and assigns.
The Employee's employment shall not be deemed terminated for purposes of this
Agreement if the Employee is employed by a successor to JLK, which successor
shall be deemed to be JLK for purposes of this Agreement.
12. This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, whether oral or written,
among the parties with respect to the subject matter hereof. Any prior
employment agreement between the Employee and Kennametal is hereby terminated
and Employee shall not be entitled to any severance or other benefits under any
prior employment agreement with Kennametal. This Agreement may not be amended
orally, but only by an instrument in writing signed by each of the parties to
this Agreement and consented to in writing by Kennametal. This Agreement does
not create any right to continued employment by JLK and the Employee shall
remain an "at will" employee of JLK.
13. The invalidity or enforceability of any provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
14. Any pronoun and any variation thereof used in this Agreement shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the parties hereto may require.
15. A condition to Employee's right to receive or receipt of any severance pay
or any benefits hereunder upon a termination of the Employee's employment shall
be for the Employee to execute and to deliver to JLK and Kennametal on or before
the making of any severance payment or providing of any benefit a release in the
form of Exhibit A attached hereto.
16. Not withstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by Employee in connection with
a change in control of the Corporation or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, or any person whose actions
result in a change in control or any person affiliated with the Corporation or
such person) (collectively, the "Total Payments") would not be deductible, in
whole or part, as a result of section 280G of the Internal Revenue Code of 1986
(the "Code") by the Corporation, an affiliate or other person making such
payment or providing such benefit, the payments due under this Agreement (the
"Contract Payments") shall be reduced until no portion of the Total Payments is
not deductible, or the Contract Payments are reduced to zero. In the
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<PAGE> 11
event that the Corporation or the affiliate or other person making such payment
or providing such benefit determines that the Total Payments would not be
deductible, in whole or part, as a result of section 280G of the Code, the
Corporation or the affiliate or other person making such payment or providing
such benefit shall immediately notify Employee of this determination and the
amount which would not be so deductible as well as a computation of Total
Payments. Employee shall have five (5) business days after receipt of the
foregoing notice and computation to waive in writing all or any portion of any
of the Total Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing shall not
be taken into account (and, if the Corporation had already withheld any Contract
Payments prior to receipt of such waiver, the Corporation upon receipt of such
waiver shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation had the Employee's written waiver prior
to the date the Corporation withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Employee does not constitute a "parachute payment"
within the meaning of section 280G(b)(2) of the Code, (ii) the Contract Payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the Employee or
referred to in clause (i)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of section 280G(b)(4) of the
Code or are otherwise not subject to disallowance as deductions, in the opinion
of the tax counsel referred to in clause (i); and (iii) the value of any
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of section 280G(d)(3) and (4) of the Code.
17. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to its conflicts or choice of law provisions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
/s/ Kevin G. Nowe By: /s/ Richard J. Orwig
- --------------------------- --------------------
Name: Richard J. Orwig
Title: President and Chief
Executive Officer
WITNESS: CHARLES G. LENDVOYI, EMPLOYEE:
/s/ Charles G. Lendvoyi (SEAL)
- --------------------------- -----------------------------------
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<PAGE> 13
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of action
or rights are known or unknown; provided, however, that this Release shall not
release, remise, quitclaim or discharge any claims, causes of action or rights
which the undersigned may have (i) under that certain Employment Agreement dated
January 21, 2000 between the undersigned and JLK Direct Distribution Inc., (ii)
to any unreimbursed expense account or similar out-of-pocket reimbursement
amounts owing the undersigned, or (iii) under the bylaws of JLK Direct
Distribution Inc. or Kennametal Inc. or the applicable state corporate statutes
to indemnification for having served as an officer and/or employee of Kennametal
Inc. and/or its subsidiaries or JLK Direct Distribution Inc., and/or its
subsidiaries.
DATE: January 21, 2000 /s/ Charles G. Lendvoyi
---------------- -----------------------
<PAGE> 1
Exhibit 10.4
AGREEMENT
THIS AGREEMENT, is made and entered into this 21st day of January,
2000, by and between JLK DIRECT DISTRIBUTION INC., a corporation organized under
the laws of the Commonwealth of Pennsylvania (hereinafter referred to as "JLK"
or the "Corporation"), and PAUL E. FULLER, an individual (hereinafter referred
to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal Inc. ("Kennametal") which are of a technical nature or business
nature or pertain to future developments, the disclosure of which trade secrets
or confidential information would be highly detrimental to the interests of JLK
and Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of continuing to employ Employee.
NOW, THEREFORE, JLK and Employee, each intending to be legally bound
hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, JLK hereby
agrees to continue to employ Employee and Employee hereby accepts such
continued employment and agrees to devote his full time and attention
to the business and affairs of JLK, in such capacity or capacities and
to perform to the best of his ability such services as shall be
determined from time to time by the President and the Board of
Directors of JLK until the termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere herein,
Employee, subject to the terms and conditions of this Agreement, shall be
entitled to continue to participate in all group insurance programs, retirement
income (pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal and its subsidiaries for so long as
JLK remains a subsidiary of Kennametal. Nothing herein contained shall be deemed
to limit or prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel, lodging,
meals, entertainment
<PAGE> 2
expenses or any other expenses in accordance with the policies of JLK
applicable to the executives of JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party prior
written notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of Directors;
provided, further, that termination by JLK for Cause (as hereinafter defined)
shall be made by written notice which states that it is a termination for Cause;
and provided, further, that termination by Employee, other than termination for
Good Reason (as hereafter defined) following a Change-in-Control (as hereafter
defined), shall be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay from JLK, in addition to all amounts due him at the
Date of Termination (as hereinafter defined), an amount, payable
promptly after the Date of Termination, equal to three months' base
salary at the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated (i) due to
the death of the Employee or (ii) by Employee following a
Change-in-Control without Good Reason or (iii) by Employee prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event that at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) from JLK an amount equal to the product of
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months
remaining from the Date of Termination to the
Employee's Retirement Date (as such term is hereafter
defined) divided by twelve (12), or
(z) a number equal to the product, if positive,
obtained by multiplying (AA) thirty-six (36) less the
number of completed months after the date of the
Change-in-Control during which the Employee was
employed and did not have Good Reason for termination
times (BB) one-twelfth (1/12);
times
(ii) the sum of
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<PAGE> 3
(x) Employee's base salary at the annual rate in
effect on the Date of Termination (or, at Employee's
election, at the annual rate in effect on the first
day of the calendar month immediately prior to the
Change-in-Control), plus
(y) the average of any bonuses which Employee was
entitled to or paid during the three most recent
fiscal years ending prior to the Date of Termination
(or, at Employee's election, the average of any
bonuses which Employee was entitled to or paid for
the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
(d) If Employee is entitled to receive the severance payment set forth
in paragraph 4(c), Employee also will receive from JLK the same or
equivalent medical, dental, disability and group insurance benefits as
were provided to the Employee by JLK at the Date of Termination, which
benefits shall be provided by JLK to Employee for a three year period
commencing on the Date of Termination. Pursuant to the terms of
Kennametal's various benefit plans, Employee will not following a
Change-in-Control have any rights to receive from Kennametal or from
any medical, dental, disability, group insurance, retirement or pension
plan or other benefit plan maintained or sponsored by Kennametal any
benefits or other sums other than (i) to receive from the Kennametal
Inc. Retirement Income Plan any vested benefits to the extent and at
the times payable under the terms of the Kennametal Inc. Retirement
Income Plan, (ii) to receive from the Kennametal Inc. Thrift Plan any
vested benefits to the extent and at the times payable under the terms
of the Kennametal Inc. Thrift Plan and (iii) to exercise any stock
options held under Kennametal's stock option plans to the extent, if
any, exerciseable and in accordance with the terms of Kennametal's
stock option plans.
If for any reason, whether by law or provisions of any
employee medical, dental or group insurance, or other benefit plan of
JLK in which the Employee is eligible to participate, any benefits
which the Employee would be entitled to under the foregoing paragraph
of this subparagraph (d) cannot be paid pursuant to such employee
benefit plans, then JLK hereby contractually agrees to pay to the
Employee the difference between the benefits which the Employee would
have received in accordance with the foregoing paragraph of this
subparagraph (d) if the relevant employee medical, dental or group
insurance or pension or retirement plan or other benefit plan could
have paid such benefit and the amount of benefits, if any, actually
paid by such employee medical, dental or group insurance or pension or
retirement plan or other benefit plan. JLK shall not be required to
fund its obligation to pay the foregoing difference.
If Employee is entitled to receive the severance payment set
forth in paragraph 4(c), JLK shall also make supplemental pension
payments to Employee equal in amount to the difference between the
pension payable to Employee pursuant to the terms of the
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<PAGE> 4
Kennametal Inc. Retirement Income Plan (as in existence on the date of
the Change-in-Control) and any increased pension which would have been
payable to Employee under the terms of the Kennametal Inc. Retirement
Income Plan (as in existence on the date of the Change-in-Control)
assuming (i) JLK had remained a subsidiary of Kennametal and (ii)
Employee had remained continuously in the employment of JLK for the
three year period (or, if clause (i)(y) or clause (i)(z) of paragraph
4(c) is applicable to determine the severance payment to be made, the
lesser period measured in years and fractions thereof rounded to the
nearest one-twelfth which equals the number determined by clause (i)(y)
or clause (i)(z) above, whichever is applicable) following the Date of
Termination at an annual compensation equal to the sum of the base
salary and bonus which were used to compute the severance payment due
the Employee under the first paragraph of paragraph 4(c) and had
attained the age of 60 at the end of such period. Such supplemental
pension payments shall be paid by JLK to Employee ratably at the times
when pension payments are made under the Kennametal Inc. Retirement
Income Plan. JLK shall not be required to fund its obligation to pay
the foregoing difference.
(e) In the event of a termination of employment under the circumstances
above described in paragraph 4(c), Employee shall have no duty to seek
any other employment after termination of Employee's employment with
JLK and JLK hereby waives and agrees not to raise or use any defense
based on the position that Employee had a duty to mitigate or reduce
the amounts due him hereunder by seeking other employment whether
suitable or unsuitable and should Employee obtain other employment,
then the only effect of such on the obligations of shall be that JLK
shall be entitled to credit against any payments which would otherwise
be made for medical, dental or group insurance or similar benefits
(excluding, however, any credit against payments relating to pension or
retirement benefits) pursuant to the benefit provisions set forth in
paragraph 4(e) hereof, any comparable payments to which Employee is
entitled under the employee benefit plans maintained by Employee's
other employer or employers in connection with services to such
employer or employers after termination of his employment with JLK.
(f) The term "Change-in-Control" shall mean that all of the following
conditions shall have occurred: (i) JLK is no longer a direct or
indirect subsidiary of Kennametal, (ii) Kennametal and its affiliates
no longer own any shares of Class B Common Stock of JLK and (iii) one
or more persons (other than Kennametal or its subsidiaries) have
acquired control of a nature that would be required to be reported by
JLK in response to Item 6(e) of Schedule 14A promulgated under the
Securities Exchange Act of 1934 as in effect on the date hereof (the
"1934 Act"), or if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the 1934
Act which serve similar purposes; provided that, without limitation,
the third condition set forth in subclause (iii) of this sentence shall
be deemed to have occurred if (A) JLK shall be merged or consolidated
with any corporation or other entity other than a merger or
consolidation with a corporation or other entity all of whose equity
interests are owned (1) by JLK immediately prior to the merger or
consolidation or (2) by Kennametal and/or its subsidiaries if JLK is at
the time of such merger or consolidation a direct or
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<PAGE> 5
indirect subsidiary of Kennametal or if Kennametal and its affiliates
at the time of such merger or consolidation own shares of Class B
Common Stock of JLK, or (B) JLK shall sell all or substantially all of
its operating properties and assets to another person, group of
associated persons or corporation other than Kennametal or its
subsidiaries.
(g) For purposes of this Agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other
reason, the date on which the termination becomes effective as
stated in the written notice of termination given to or by the
Employee.
(h) The term "Good Reason" for termination by the Employee shall mean
the occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the
assignment to the Employee of any duties materially and
substantially inconsistent with his positions, duties,
responsibilities and status with JLK immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately
prior to a Change-in-Control, or any removal of the Employee
from or any failure to re-elect the Employee to any of such
positions, except in connection with the termination of the
Employee`s employment due to Cause or as a result of the
Employee's death;
(ii) a reduction by JLK in the Employee's base salary as in
effect immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately
prior to any Change-in-Control;
(iv) in the event of a Change-in-Control, the failure to
continue in effect any benefit or compensation plan, stock
option plan, pension plan, life insurance plan, health and
accident plan or disability plan of JLK in which Employee is
participating immediately prior to a Change-in-Control
(provided, however, that there shall not be deemed to be any
such failure (x) due to Employee's no longer participating in
any plan of Kennametal or (y) if JLK substitutes for the
discontinued plan, a plan providing Employee with
substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in
or materially reduce Employee's benefits under any of such
plans or deprive Employee of any material fringe benefit
enjoyed by Employee immediately prior to a Change-in-Control;
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<PAGE> 6
(v) the failure of JLK to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11
hereof;
(vi) the relocation of the Employee to a facility or a
location more than 50 miles from the Employee's then present
location, without the Employee's prior written consent; or
(vii) any purported termination of the employment of Employee
by JLK which is not for Cause as provided in paragraph 5.
(i) Employee shall not be entitled to receive any severance payment
from Kennametal and Kennametal shall have no obligation to pay any
severance to Employee upon a termination of Employee's employment.
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement; or (b) shall not make his services available to JLK on a full
time basis in accordance with paragraph 1 hereof for any reason (including
Disability) other than arising from Employee's incapacity due to physical or
mental illness or injury which does not constitute Disability and other than by
reason of the fact Employee's employment has been terminated under the
circumstances described in paragraph 4(a); or (c) shall breach the provisions of
paragraph 8 hereof (each of the matters described in subparagraphs (a), (b) and
(c) shall be "Cause"), JLK shall have the right, exercised by resolution adopted
by a majority of its Board of Directors, to terminate Employee's employment for
Cause by giving written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause, Employee
shall not be entitled to the benefits set forth in paragraph 4 which shall not
be paid or payable and JLK only shall have the obligation to pay Employee the
unpaid portion of Employee's base salary for the period from the last period
from which Employee was paid to the Date of Termination; provided, however, that
if Employee's employment is terminated as a result of the Disability of
Employee, the benefits set forth in paragraph 4 shall not be paid or payable but
Employee's employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this Agreement "Disability" shall mean such
incapacity due to physical or mental illness or injury which results in the
Employee's being absent from his principal office at JLK's offices for the
entire portion of 180 consecutive business days. Prior to a Change-in-Control, a
decision by the Board of Directors of JLK that "Cause" exists shall be in the
discretion of the Board of Directors and shall be final and binding upon the
Employee and his rights hereunder. After a Change-in-Control, "Cause" shall not
be deemed to include opposition by Employee to such a Change-in-Control or any
matter incidental thereto and any determination by the Board of Directors that
"Cause" existed shall not be final or binding upon the Employee or his rights
hereunder or entitled to any deference in any court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(d) hereof, in the event
Employee resigns or his employment is terminated for any reason other than death
or Disability prior to his "Retirement Date" (as hereinafter defined), he will
forfeit any interest he may have in any retirement income plan
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<PAGE> 7
(except to the extent vested by actual service to date of separation as per the
plan provisions), and all other benefits dependent upon continuing service. The
term "Retirement Date" shall mean the first day of the month following the day
on which Employee attains his sixty-fifth birthday, or at Employee's request,
any other day that JLK's Board of Directors may approve in writing.
7. Nothing herein contained shall affect the right of Employee to participate in
and receive benefits under and in accordance with and to the extent provided for
in the then current terms and provisions of any retirement income,
profit-sharing, additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program of JLK
applicable to Employee and all payments hereunder shall be in addition to any
benefits received thereunder (including long term disability payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply to the
Employee following a termination of Employee's employment (x) after a
Change-in-Control shall have occurred or (y) if Employee's employment is
terminated by JLK other than for Cause), he will not, in any geographic area in
which JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior written
consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engaged in, any business which is competitive
with any business of JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) or any subsidiary or
affiliate thereof in which Employee is or was engaged; provided,
however, that the foregoing provisions of this paragraph 8 are not
intended to prohibit and shall not prohibit Employee from purchasing,
for investment, not in excess of 1% of any class of stock or other
corporate security of any company which is registered pursuant to
Section 12 of the 1934 Act.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees that
remedies at law for any such breach will be inadequate and consents and agrees
that JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) shall be entitled, without the necessity of proof of actual damage,
to injunctive relief in any proceedings which may be brought to enforce the
provisions of this paragraph 8. Employee acknowledges and warrants that he will
be fully able to earn an adequate livelihood for himself and his dependents if
this paragraph 8 should be
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<PAGE> 8
specifically enforced against him and that such enforcement will not impair his
ability to obtain employment commensurate with his abilities and fully
acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his employment by
JLK, Employee may work with, add to, create or acquire trade secrets and
confidential information of JLK or Kennametal ("Confidential Information") which
could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about JLK's or Kennametal's business plans,
sources of supply, cost, purchasing, profits, markets, sales,
sales volume, sales methods, sales proposals, identity of
customers and prospective customers, identity of customers'
key purchasing personnel, amount or kind of customers'
purchases and other information about customers; or
(iii) pertaining to future developments of JLK or Kennametal
such as, but not limited to, research and development or
future marketing or merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of JLK and/or Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would constitute
a breach of trust and could cause irreparable injury to JLK and/or Kennametal;
and (iii) it is essential to the protection of JLK's and/or Kennametal's good
will and to the maintenance of its competitive position that all Confidential
Information be kept secret and that Employee not disclose any Confidential
Information to others or use any Confidential Information to the detriment of
JLK or Kennametal.
Employee agrees to hold and safeguard all Confidential Information in
trust for JLK and Kennametal, each of their successors and assigns and Employee
shall not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use outside JLK's or Kennametal's
organization at any time, either during employment with JLK or subsequent
thereto, any of the Confidential Information, whether or not developed by
Employee, without the prior written consent of JLK and Kennametal.
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<PAGE> 9
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its or their expense) to obtain for its or their
own benefit patents for such inventions in any and all
countries; the said inventions, without further consideration
other than such salary as from time to time may be paid to him
by JLK as compensation for his services in any capacity, shall
be and remain the sole and exclusive property of JLK (and
Kennametal, if JLK on the Date of Termination is a subsidiary
of Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce his
rights under, or to recover damages for breach of this Agreement, or (b) JLK
institutes any action to avoid making any payments due to Employee under this
Agreement, Employee, if he is the prevailing
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<PAGE> 10
party, shall be entitled to recover from JLK any actual expenses for attorney's
fees and other disbursements incurred by him in relation thereto.
11. The terms and provisions of this Agreement shall be binding upon Employee
and JLK, and shall inure to the benefit of, Employee, JLK and Kennametal (which
shall be deemed an express third party beneficiary of this Agreement) and their
subsidiaries and affiliates, and the parties respective successors and assigns.
The Employee's employment shall not be deemed terminated for purposes of this
Agreement if the Employee is employed by a successor to JLK, which successor
shall be deemed to be JLK for purposes of this Agreement.
12. This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, whether oral or written,
among the parties with respect to the subject matter hereof. Any prior
employment agreement between the Employee and Kennametal is hereby terminated
and Employee shall not be entitled to any severance or other benefits under any
prior employment agreement with Kennametal. This Agreement may not be amended
orally, but only by an instrument in writing signed by each of the parties to
this Agreement and consented to in writing by Kennametal. This Agreement does
not create any right to continued employment by JLK and the Employee shall
remain an "at will" employee of JLK.
13. The invalidity or enforceability of any provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
14. Any pronoun and any variation thereof used in this Agreement shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the parties hereto may require.
15. A condition to Employee's right to receive or receipt of any severance pay
or any benefits hereunder upon a termination of the Employee's employment shall
be for the Employee to execute and to deliver to JLK and Kennametal on or before
the making of any severance payment or providing of any benefit a release in the
form of Exhibit A attached hereto.
16. Not withstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by Employee in connection with
a change in control of the Corporation or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, or any person whose actions
result in a change in control or any person affiliated with the Corporation or
such person) (collectively, the "Total Payments") would not be deductible, in
whole or part, as a result of section 280G of the Internal Revenue Code of 1986
(the "Code") by the Corporation, an affiliate or other person making such
payment or providing such benefit, the payments due under this Agreement (the
"Contract Payments") shall be reduced until no portion of the Total Payments is
not deductible, or the Contract Payments are reduced to zero. In the
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<PAGE> 11
event that the Corporation or the affiliate or other person making such payment
or providing such benefit determines that the Total Payments would not be
deductible, in whole or part, as a result of section 280G of the Code, the
Corporation or the affiliate or other person making such payment or providing
such benefit shall immediately notify Employee of this determination and the
amount which would not be so deductible as well as a computation of Total
Payments. Employee shall have five (5) business days after receipt of the
foregoing notice and computation to waive in writing all or any portion of any
of the Total Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing shall not
be taken into account (and, if the Corporation had already withheld any Contract
Payments prior to receipt of such waiver, the Corporation upon receipt of such
waiver shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation had the Employee's written waiver prior
to the date the Corporation withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Employee does not constitute a "parachute payment"
within the meaning of section 280G(b)(2) of the Code, (ii) the Contract Payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the Employee or
referred to in clause (i)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of section 280G(b)(4) of the
Code or are otherwise not subject to disallowance as deductions, in the opinion
of the tax counsel referred to in clause (i); and (iii) the value of any
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of section 280G(d)(3) and (4) of the Code.
17. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to its conflicts or choice of law provisions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
/s/ Kevin G. Nowe By: /s/ Richard J. Orwig
- ----------------------- --------------------
Name: Richard J. Orwig
Title: President and Chief
Executive Officer
WITNESS: PAUL E. FULLER, EMPLOYEE:
/s/ John Beaudoin /s/ Paul E. Fuller (SEAL)
- ----------------------- -------------------------------------
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<PAGE> 13
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of action
or rights are known or unknown; provided, however, that this Release shall not
release, remise, quitclaim or discharge any claims, causes of action or rights
which the undersigned may have (i) under that certain Employment Agreement dated
January 21, 2000 between the undersigned and JLK Direct Distribution Inc., (ii)
to any unreimbursed expense account or similar out-of-pocket reimbursement
amounts owing the undersigned, or (iii) under the bylaws of JLK Direct
Distribution Inc. or Kennametal Inc. or the applicable state corporate statutes
to indemnification for having served as an officer and/or employee of Kennametal
Inc. and/or its subsidiaries or JLK Direct Distribution Inc., and/or its
subsidiaries.
DATE: January 21, 2000 /s/ Paul E. Fuller
---------------- ------------------
<PAGE> 1
Exhibit 10.5
AGREEMENT
THIS AGREEMENT, is made and entered into this 21st day of January,
2000, by and between JLK DIRECT DISTRIBUTION INC., a corporation organized under
the laws of the Commonwealth of Pennsylvania (hereinafter referred to as "JLK"
or the "Corporation"), and DIANA L. SCOTT, an individual (hereinafter referred
to as "Employee").
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by JLK, it
is anticipated that Employee will work with, add to, create, have access to and
be entrusted with trade secrets and confidential information belonging to JLK
and Kennametal Inc. ("Kennametal") which are of a technical nature or business
nature or pertain to future developments, the disclosure of which trade secrets
or confidential information would be highly detrimental to the interests of JLK
and Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance, JLK is
desirous of continuing to employ Employee.
NOW, THEREFORE, JLK and Employee, each intending to be legally bound
hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, JLK hereby
agrees to continue to employ Employee and Employee hereby accepts such
continued employment and agrees to devote his full time and attention
to the business and affairs of JLK, in such capacity or capacities and
to perform to the best of his ability such services as shall be
determined from time to time by the President and the Board of
Directors of JLK until the termination of his employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors of JLK or its Executive
Compensation Committee, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere herein,
Employee, subject to the terms and conditions of this Agreement, shall be
entitled to continue to participate in all group insurance programs, retirement
income (pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal and its subsidiaries for so long as
JLK remains a subsidiary of Kennametal. Nothing herein contained shall be deemed
to limit or prevent Employee, during his employment hereunder, from being
reimbursed by JLK for out-of-pocket expenditures incurred for travel, lodging,
meals, entertainment
<PAGE> 2
expenses or any other expenses in accordance with the policies of JLK
applicable to the executives of JLK.
3. Employee's employment may be terminated with or without any reason for
termination by JLK or Employee at any time by giving the other party prior
written notice thereof; provided, however, that any termination on the part of
JLK shall occur only if specifically authorized by its Board of Directors;
provided, further, that termination by JLK for Cause (as hereinafter defined)
shall be made by written notice which states that it is a termination for Cause;
and provided, further, that termination by Employee, other than termination for
Good Reason (as hereafter defined) following a Change-in-Control (as hereafter
defined), shall be on not less than 30 days prior written notice to JLK.
4. (a) In the event that Employee's employment is terminated by JLK prior
to a Change-in-Control and other than for Cause, Employee will receive
as severance pay from JLK, in addition to all amounts due him at the
Date of Termination (as hereinafter defined), an amount, payable
promptly after the Date of Termination, equal to three months' base
salary at the annual rate in effect on the Date of Termination.
(b) In the event that Employee's employment is terminated (i) due to
the death of the Employee or (ii) by Employee following a
Change-in-Control without Good Reason or (iii) by Employee prior to a
Change-in-Control, Employee will not be entitled to receive any
severance pay in addition to the amounts, if any, due him at the Date
of Termination.
(c) In the event that at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control Employee's
employment is terminated by Employee for Good Reason or by JLK other
than for Cause or Disability pursuant to paragraph 5, Employee will
receive as severance pay (in addition to all other amounts due him at
the Date of Termination) from JLK an amount equal to the product of
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months
remaining from the Date of Termination to the
Employee's Retirement Date (as such term is hereafter
defined) divided by twelve (12), or
(z) a number equal to the product, if positive,
obtained by multiplying (AA) thirty-six (36) less the
number of completed months after the date of the
Change-in-Control during which the Employee was
employed and did not have Good Reason for termination
times (BB) one-twelfth (1/12);
times
(ii) the sum of
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<PAGE> 3
(x) Employee's base salary at the annual rate in
effect on the Date of Termination (or, at Employee's
election, at the annual rate in effect on the first
day of the calendar month immediately prior to the
Change-in-Control), plus
(y) the average of any bonuses which Employee was
entitled to or paid during the three most recent
fiscal years ending prior to the Date of Termination
(or, at Employee's election, the average of any
bonuses which Employee was entitled to or paid for
the three fiscal years preceding the fiscal year in
which the Change-in-Control occurred).
Such severance pay shall be paid by delivery of a cashier's or
certified check to the Employee at JLK's executive offices on a date
which is no later than five business days following the Date of
Termination.
(d) If Employee is entitled to receive the severance payment set forth
in paragraph 4(c), Employee also will receive from JLK the same or
equivalent medical, dental, disability and group insurance benefits as
were provided to the Employee by JLK at the Date of Termination, which
benefits shall be provided by JLK to Employee for a three year period
commencing on the Date of Termination. Pursuant to the terms of
Kennametal's various benefit plans, Employee will not following a
Change-in-Control have any rights to receive from Kennametal or from
any medical, dental, disability, group insurance, retirement or pension
plan or other benefit plan maintained or sponsored by Kennametal any
benefits or other sums other than (i) to receive from the Kennametal
Inc. Retirement Income Plan any vested benefits to the extent and at
the times payable under the terms of the Kennametal Inc. Retirement
Income Plan, (ii) to receive from the Kennametal Inc. Thrift Plan any
vested benefits to the extent and at the times payable under the terms
of the Kennametal Inc. Thrift Plan and (iii) to exercise any stock
options held under Kennametal's stock option plans to the extent, if
any, exerciseable and in accordance with the terms of Kennametal's
stock option plans.
If for any reason, whether by law or provisions of any
employee medical, dental or group insurance, or other benefit plan of
JLK in which the Employee is eligible to participate, any benefits
which the Employee would be entitled to under the foregoing paragraph
of this subparagraph (d) cannot be paid pursuant to such employee
benefit plans, then JLK hereby contractually agrees to pay to the
Employee the difference between the benefits which the Employee would
have received in accordance with the foregoing paragraph of this
subparagraph (d) if the relevant employee medical, dental or group
insurance or pension or retirement plan or other benefit plan could
have paid such benefit and the amount of benefits, if any, actually
paid by such employee medical, dental or group insurance or pension or
retirement plan or other benefit plan. JLK shall not be required to
fund its obligation to pay the foregoing difference.
If Employee is entitled to receive the severance payment set
forth in paragraph 4(c), JLK shall also make supplemental pension
payments to Employee equal in amount to the difference between the
pension payable to Employee pursuant to the terms of the
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<PAGE> 4
Kennametal Inc. Retirement Income Plan (as in existence on the date of
the Change-in-Control) and any increased pension which would have been
payable to Employee under the terms of the Kennametal Inc. Retirement
Income Plan (as in existence on the date of the Change-in-Control)
assuming (i) JLK had remained a subsidiary of Kennametal and (ii)
Employee had remained continuously in the employment of JLK for the
three year period (or, if clause (i)(y) or clause (i)(z) of paragraph
4(c) is applicable to determine the severance payment to be made, the
lesser period measured in years and fractions thereof rounded to the
nearest one-twelfth which equals the number determined by clause (i)(y)
or clause (i)(z) above, whichever is applicable) following the Date of
Termination at an annual compensation equal to the sum of the base
salary and bonus which were used to compute the severance payment due
the Employee under the first paragraph of paragraph 4(c). Such
supplemental pension payments shall be paid by JLK to Employee ratably
at the times when pension payments are made under the Kennametal Inc.
Retirement Income Plan. JLK shall not be required to fund its
obligation to pay the foregoing difference.
(e) In the event of a termination of employment under the circumstances
above described in paragraph 4(c), Employee shall have no duty to seek
any other employment after termination of Employee's employment with
JLK and JLK hereby waives and agrees not to raise or use any defense
based on the position that Employee had a duty to mitigate or reduce
the amounts due him hereunder by seeking other employment whether
suitable or unsuitable and should Employee obtain other employment,
then the only effect of such on the obligations of shall be that JLK
shall be entitled to credit against any payments which would otherwise
be made for medical, dental or group insurance or similar benefits
(excluding, however, any credit against payments relating to pension or
retirement benefits) pursuant to the benefit provisions set forth in
paragraph 4(e) hereof, any comparable payments to which Employee is
entitled under the employee benefit plans maintained by Employee's
other employer or employers in connection with services to such
employer or employers after termination of his employment with JLK.
(f) The term "Change-in-Control" shall mean that all of the following
conditions shall have occurred: (i) JLK is no longer a direct or
indirect subsidiary of Kennametal, (ii) Kennametal and its affiliates
no longer own any shares of Class B Common Stock of JLK and (iii) one
or more persons (other than Kennametal or its subsidiaries) have
acquired control of a nature that would be required to be reported by
JLK in response to Item 6(e) of Schedule 14A promulgated under the
Securities Exchange Act of 1934 as in effect on the date hereof (the
"1934 Act"), or if Item 6(e) is no longer in effect, any regulations
issued by the Securities and Exchange Commission pursuant to the 1934
Act which serve similar purposes; provided that, without limitation,
the third condition set forth in subclause (iii) of this sentence shall
be deemed to have occurred if (A) JLK shall be merged or consolidated
with any corporation or other entity other than a merger or
consolidation with a corporation or other entity all of whose equity
interests are owned (1) by JLK immediately prior to the merger or
consolidation or (2) by Kennametal and/or its subsidiaries if JLK is at
the time of such merger or consolidation a direct or
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<PAGE> 5
indirect subsidiary of Kennametal or if Kennametal and its affiliates
at the time of such merger or consolidation own shares of Class B
Common Stock of JLK, or (B) JLK shall sell all or substantially all of
its operating properties and assets to another person, group of
associated persons or corporation other than Kennametal or its
subsidiaries.
(g) For purposes of this Agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other
reason, the date on which the termination becomes effective as
stated in the written notice of termination given to or by the
Employee.
(h) The term "Good Reason" for termination by the Employee shall mean
the occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the
assignment to the Employee of any duties materially and
substantially inconsistent with his positions, duties,
responsibilities and status with JLK immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately
prior to a Change-in-Control, or any removal of the Employee
from or any failure to re-elect the Employee to any of such
positions, except in connection with the termination of the
Employee`s employment due to Cause or as a result of the
Employee's death;
(ii) a reduction by JLK in the Employee's base salary as in
effect immediately prior to any Change-in-Control;
(iii) a failure by JLK to continue to provide incentive
compensation comparable to that provided by JLK immediately
prior to any Change-in-Control;
(iv) in the event of a Change-in-Control, the failure to
continue in effect any benefit or compensation plan, stock
option plan, pension plan, life insurance plan, health and
accident plan or disability plan of JLK in which Employee is
participating immediately prior to a Change-in-Control
(provided, however, that there shall not be deemed to be any
such failure (x) due to Employee's no longer participating in
any plan of Kennametal or (y) if JLK substitutes for the
discontinued plan, a plan providing Employee with
substantially similar benefits) or the taking of any action by
JLK which would adversely affect Employee's participation in
or materially reduce Employee's benefits under any of such
plans or deprive Employee of any material fringe benefit
enjoyed by Employee immediately prior to a Change-in-Control;
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<PAGE> 6
(v) the failure of JLK to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11
hereof;
(vi) the relocation of the Employee to a facility or a
location more than 50 miles from the Employee's then present
location, without the Employee's prior written consent; or
(vii) any purported termination of the employment of Employee
by JLK which is not for Cause as provided in paragraph 5.
(i) Employee shall not be entitled to receive any severance payment
from Kennametal and Kennametal shall have no obligation to pay any
severance to Employee upon a termination of Employee's employment.
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement; or (b) shall not make his services available to JLK on a full
time basis in accordance with paragraph 1 hereof for any reason (including
Disability) other than arising from Employee's incapacity due to physical or
mental illness or injury which does not constitute Disability and other than by
reason of the fact Employee's employment has been terminated under the
circumstances described in paragraph 4(a); or (c) shall breach the provisions of
paragraph 8 hereof (each of the matters described in subparagraphs (a), (b) and
(c) shall be "Cause"), JLK shall have the right, exercised by resolution adopted
by a majority of its Board of Directors, to terminate Employee's employment for
Cause by giving written notice to Employee of its election so to do. In that
event, Employee's employment shall be deemed terminated for Cause, Employee
shall not be entitled to the benefits set forth in paragraph 4 which shall not
be paid or payable and JLK only shall have the obligation to pay Employee the
unpaid portion of Employee's base salary for the period from the last period
from which Employee was paid to the Date of Termination; provided, however, that
if Employee's employment is terminated as a result of the Disability of
Employee, the benefits set forth in paragraph 4 shall not be paid or payable but
Employee's employment by JLK shall not be deemed terminated for purposes of any
benefit plan of JLK. For purposes of this Agreement "Disability" shall mean such
incapacity due to physical or mental illness or injury which results in the
Employee's being absent from his principal office at JLK's offices for the
entire portion of 180 consecutive business days. Prior to a Change-in-Control, a
decision by the Board of Directors of JLK that "Cause" exists shall be in the
discretion of the Board of Directors and shall be final and binding upon the
Employee and his rights hereunder. After a Change-in-Control, "Cause" shall not
be deemed to include opposition by Employee to such a Change-in-Control or any
matter incidental thereto and any determination by the Board of Directors that
"Cause" existed shall not be final or binding upon the Employee or his rights
hereunder or entitled to any deference in any court or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(d) hereof, in the event
Employee resigns or his employment is terminated for any reason other than death
or Disability prior to his "Retirement Date" (as hereinafter defined), he will
forfeit any interest he may have in any retirement income plan
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<PAGE> 7
(except to the extent vested by actual service to date of separation as per the
plan provisions), and all other benefits dependent upon continuing service. The
term "Retirement Date" shall mean the first day of the month following the day
on which Employee attains his sixty-fifth birthday, or at Employee's request,
any other day that JLK's Board of Directors may approve in writing.
7. Nothing herein contained shall affect the right of Employee to participate in
and receive benefits under and in accordance with and to the extent provided for
in the then current terms and provisions of any retirement income,
profit-sharing, additional year-end or periodic remuneration or bonus, incentive
compensation, insurance or any other employee welfare plan or program of JLK
applicable to Employee and all payments hereunder shall be in addition to any
benefits received thereunder (including long term disability payments).
8. During the period of employment of Employee by JLK and for three years
thereafter, (provided, however, that this paragraph 8 shall not apply to the
Employee following a termination of Employee's employment (x) after a
Change-in-Control shall have occurred or (y) if Employee's employment is
terminated by JLK other than for Cause), he will not, in any geographic area in
which JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) is offering its services and products, without the prior written
consent of JLK:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engaged in, any business which is competitive
with any business of JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) or any subsidiary or
affiliate thereof in which Employee is or was engaged; provided,
however, that the foregoing provisions of this paragraph 8 are not
intended to prohibit and shall not prohibit Employee from purchasing,
for investment, not in excess of 1% of any class of stock or other
corporate security of any company which is registered pursuant to
Section 12 of the 1934 Act.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to JLK (or Kennametal, if JLK on the
Date of Termination is a subsidiary of Kennametal), acknowledges and agrees that
remedies at law for any such breach will be inadequate and consents and agrees
that JLK (or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) shall be entitled, without the necessity of proof of actual damage,
to injunctive relief in any proceedings which may be brought to enforce the
provisions of this paragraph 8. Employee acknowledges and warrants that he will
be fully able to earn an adequate livelihood for himself and his dependents if
this paragraph 8 should be
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<PAGE> 8
specifically enforced against him and that such enforcement will not impair his
ability to obtain employment commensurate with his abilities and fully
acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and JLK (and Kennametal, if JLK on the Date of Termination is a
subsidiary of Kennametal) hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his employment by
JLK, Employee may work with, add to, create or acquire trade secrets and
confidential information of JLK or Kennametal ("Confidential Information") which
could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to, JLK's
or Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and
development projects, equipment, apparatus, appliances,
computer programs, software, systems documentation, special
hardware, software development and similar items; or
(ii) of a business nature such as, but not limited to,
information about JLK's or Kennametal's business plans,
sources of supply, cost, purchasing, profits, markets, sales,
sales volume, sales methods, sales proposals, identity of
customers and prospective customers, identity of customers'
key purchasing personnel, amount or kind of customers'
purchases and other information about customers; or
(iii) pertaining to future developments of JLK or Kennametal
such as, but not limited to, research and development or
future marketing or merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of JLK and/or Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would constitute
a breach of trust and could cause irreparable injury to JLK and/or Kennametal;
and (iii) it is essential to the protection of JLK's and/or Kennametal's good
will and to the maintenance of its competitive position that all Confidential
Information be kept secret and that Employee not disclose any Confidential
Information to others or use any Confidential Information to the detriment of
JLK or Kennametal.
Employee agrees to hold and safeguard all Confidential Information in
trust for JLK and Kennametal, each of their successors and assigns and Employee
shall not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use outside JLK's or Kennametal's
organization at any time, either during employment with JLK or subsequent
thereto, any of the Confidential Information, whether or not developed by
Employee, without the prior written consent of JLK and Kennametal.
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<PAGE> 9
(b) Employee agrees that:
(i) he will promptly and fully disclose to JLK or such officer
or other agent as may be designated by JLK any and all
inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with JLK
(1) which are along the line of the business, work or
investigations of JLK or Kennametal, or (2) which result from
or are suggested by any work which Employee may do for or on
behalf of JLK or Kennametal; and
(ii) he will assist JLK (and Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal) and its nominees
during and subsequent to such employment in every proper way
(entirely at its or their expense) to obtain for its or their
own benefit patents for such inventions in any and all
countries; the said inventions, without further consideration
other than such salary as from time to time may be paid to him
by JLK as compensation for his services in any capacity, shall
be and remain the sole and exclusive property of JLK (and
Kennametal, if JLK on the Date of Termination is a subsidiary
of Kennametal) or its nominee whether patented or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not
necessarily limited to notes, sketches, drawings, or reports
relating thereto, which records shall be and remain the
property of and available to JLK (and Kennametal, if JLK on
the Date of Termination is a subsidiary of Kennametal) at all
times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), or to such officer or other
agent as may be designated by JLK (or Kennametal, if JLK on the Date of
Termination is a subsidiary of Kennametal), all inventions which have
been partly or wholly conceived, invented or developed by him for which
applications for patents have not been made and will thereafter execute
all such instruments of the character hereinbefore referred to, and
will take such steps as may be necessary to secure and assign to JLK
(or Kennametal, if JLK on the Date of Termination is a subsidiary of
Kennametal) the exclusive rights in and to such inventions and any
patents that may be issued thereon any expense therefor to be borne by
JLK.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce his
rights under, or to recover damages for breach of this Agreement, or (b) JLK
institutes any action to avoid making any payments due to Employee under this
Agreement, Employee, if he is the prevailing
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<PAGE> 10
party, shall be entitled to recover from JLK any actual expenses for attorney's
fees and other disbursements incurred by him in relation thereto.
11. The terms and provisions of this Agreement shall be binding upon Employee
and JLK, and shall inure to the benefit of, Employee, JLK and Kennametal (which
shall be deemed an express third party beneficiary of this Agreement) and their
subsidiaries and affiliates, and the parties respective successors and assigns.
The Employee's employment shall not be deemed terminated for purposes of this
Agreement if the Employee is employed by a successor to JLK, which successor
shall be deemed to be JLK for purposes of this Agreement.
12. This Agreement constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, whether oral or written,
among the parties with respect to the subject matter hereof. Any prior
employment agreement between the Employee and Kennametal is hereby terminated
and Employee shall not be entitled to any severance or other benefits under any
prior employment agreement with Kennametal. This Agreement may not be amended
orally, but only by an instrument in writing signed by each of the parties to
this Agreement and consented to in writing by Kennametal. This Agreement does
not create any right to continued employment by JLK and the Employee shall
remain an "at will" employee of JLK.
13. The invalidity or enforceability of any provision of this Agreement shall
not affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision were omitted.
14. Any pronoun and any variation thereof used in this Agreement shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the parties hereto may require.
15. A condition to Employee's right to receive or receipt of any severance pay
or any benefits hereunder upon a termination of the Employee's employment shall
be for the Employee to execute and to deliver to JLK and Kennametal on or before
the making of any severance payment or providing of any benefit a release in the
form of Exhibit A attached hereto.
16. Not withstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by Employee in connection with
a change in control of the Corporation or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, or any person whose actions
result in a change in control or any person affiliated with the Corporation or
such person) (collectively, the "Total Payments") would not be deductible, in
whole or part, as a result of section 280G of the Internal Revenue Code of 1986
(the "Code") by the Corporation, an affiliate or other person making such
payment or providing such benefit, the payments due under this Agreement (the
"Contract Payments") shall be reduced until no portion of the Total Payments is
not deductible, or the Contract Payments are reduced to zero. In the
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<PAGE> 11
event that the Corporation or the affiliate or other person making such payment
or providing such benefit determines that the Total Payments would not be
deductible, in whole or part, as a result of section 280G of the Code, the
Corporation or the affiliate or other person making such payment or providing
such benefit shall immediately notify Employee of this determination and the
amount which would not be so deductible as well as a computation of Total
Payments. Employee shall have five (5) business days after receipt of the
foregoing notice and computation to waive in writing all or any portion of any
of the Total Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing shall not
be taken into account (and, if the Corporation had already withheld any Contract
Payments prior to receipt of such waiver, the Corporation upon receipt of such
waiver shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation had the Employee's written waiver prior
to the date the Corporation withheld any such payments). For purposes of this
limitation (i) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Employee does not constitute a "parachute payment"
within the meaning of section 280G(b)(2) of the Code, (ii) the Contract Payments
shall be reduced only to the extent necessary so that the Total Payments (other
than those Contract Payments which are waived in writing by the Employee or
referred to in clause (i)) in their entirety constitute reasonable compensation
for services actually rendered within the meaning of section 280G(b)(4) of the
Code or are otherwise not subject to disallowance as deductions, in the opinion
of the tax counsel referred to in clause (i); and (iii) the value of any
non-cash benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Corporation's independent auditors in
accordance with the principles of section 280G(d)(3) and (4) of the Code.
17. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to its conflicts or choice of law provisions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
WITNESS the due execution hereto the day and year first above written.
ATTEST: JLK DIRECT DISTRIBUTION INC.
/s/ Kevin G. Nowe By: /s/ Richard J. Orwig
- -------------------- --------------------
Name: Richard J. Orwig
Title: President and Chief
Executive Officer
WITNESS: DIANA L. SCOTT, EMPLOYEE:
/s/ John Beaudoin /s/ Diana L. Scott (SEAL)
- -------------------- ---------------------------------------
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<PAGE> 13
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound, hereby releases, remises, quitclaims and
discharges completely and forever JLK Direct Distribution Inc. and Kennametal
Inc. and each of their respective directors, officers, employees, subsidiaries
and affiliates from any and all claims, causes of action or rights which the
undersigned has or may have, whether arising by virtue of contract or of
applicable state laws or federal laws, and whether such claims, causes of action
or rights are known or unknown; provided, however, that this Release shall not
release, remise, quitclaim or discharge any claims, causes of action or rights
which the undersigned may have (i) under that certain Employment Agreement dated
January 21, 2000 between the undersigned and JLK Direct Distribution Inc., (ii)
to any unreimbursed expense account or similar out-of-pocket reimbursement
amounts owing the undersigned, or (iii) under the bylaws of JLK Direct
Distribution Inc. or Kennametal Inc. or the applicable state corporate statutes
to indemnification for having served as an officer and/or employee of Kennametal
Inc. and/or its subsidiaries or JLK Direct Distribution Inc., and/or its
subsidiaries.
DATE: January 21, 2000 /s/ Diana L. Scott
--------------------- ------------------
<PAGE> 1
Exhibit 10.6
JLK DIRECT DISTRIBUTION INC.
DEFERRED FEE PLAN FOR OUTSIDE DIRECTORS
WHEREAS Directors of JLK Direct Distribution Inc. (herein referred to
as the "Company"), who are not otherwise employed by the Company (herein
referred to as "Outside Directors"), are paid an annual fee by the Company for
services as an Outside Director, and an additional amount for services on
certain committees of the Board of Directors; and,
WHEREAS it is appropriate to permit an Outside Director to request that
the Company defer payment to the Director of all or a portion of the aforesaid
Director fee and committee service fees,
NOW, THEREFORE, this Plan is adopted.
1. Name and Effective Date
This plan shall be known as the JLK Direct Distribution Inc. Deferred
Fee Plan for Outside Directors and shall be effective in accordance with a
resolution of the full Board of Directors. It shall continue in force thereafter
until terminated by resolution of the full Board of Directors.
2. Eligibility
Only those members of the Board of Directors of the Company who are not
otherwise employed by the Company or any corporation subsidiary to, or
affiliated with, the Company, in an executive or any other capacity, shall be
eligible to participate in this Plan. These eligible persons are generally
referred to by the Company as "Outside Directors."
3. Administration of the Plan
This Plan shall be administered by an officer of the Company' Director
of Human Resources or other individual designated by the Board of Directors
(hereinafter referred to as the "Administrator"), and the Administrator's
interpretation of this Plan shall be final and conclusive on all persons,
subject to any further interpretation by the Board of Directors.
4. Election to Defer Fees
Any outside Director eligible to participate in the Plan may elect to
defer all or a portion of the fees such person is entitled to receive from the
Company for services as a Director (including service on any committee of the
Board of Directors for which committee fees are
<PAGE> 2
specifically authorized) performed during any full calendar year in which the
Plan is in effect. An election to defer receipt of fees with respect to any
calendar year shall be irrevocable and shall be made in writing, on a form
prescribed by the Administrator, on or before the 30th day of June prior to the
beginning of such calendar year. An election to defer fees by a nominee to the
Board of Directors may be made prior to the nominee's election and be effective
for the balance of the calendar year in which the nominee is elected as
Director. A Director electing to defer receipt of fees shall, as part of the
election, select the time and manner of payment of deferred fees, within the
limits described herein, below. Special provisions for retirement accounts are
described herein, below.
5. Continuation and Termination of Deferral
An election to defer fees shall continue in force with respect to all
succeeding calendar years and terms of the Director's service, unless the
Director advises the Company in writing that he or she has elected to terminate
such deferment. Termination of deferments shall be effective with respect to all
fees payable for and after the calendar year next following the year in which
such election to terminate deferments occurs. Amounts earned will continue to be
deferred in accordance with the prior election until the beginning of the
calendar year in which the termination of deferral becomes effective, i.e., the
calendar year immediately following notification.
6. Plan Account
Deferred fees shall be maintained by the Company, at the specific and
irrevocable direction of the Director, in an "Interest Account" or in such other
account(s) as may then be available for the retention of deferred fees ("Other
Account(s)"). The Plan shall be unfunded and payments of deferred fees shall be
made out of the general corporate funds of the Company. The designation of a
deferred fee account to an account is for bookkeeping purposes of the Plan only,
and shall not be interpreted as establishing an independent, separately
identified account of the Company.
7. Interest Account
Deferred fees retained monthly in the Interest Account shall earn
interest monthly at an annual rate of interest equal to a rate of two interest
percentage points below average prime interest per annum for the previous month.
Interest rate shall be calculated and interest amount credited to the Interest
Account on the first business day of each month, for the previous month.
Interest shall accrue on deferred fees in the Interest Account from the date
such fees would have been paid without deferral, until the date of payment.
Deferred fees retained in Other Account(s) shall be valued in accordance with
the terms and conditions applicable to such Other Account(s).
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<PAGE> 3
8. Payment of Deferred Fees
At the time of election to participate in the Plan, a Director shall
select one of the following methods of payment of the deferred fees and interest
or accumulations thereon:
a. In full on a specified date.
b. In full or in installments beginning on the Director's
retirement date from the Board. Rules governing installment
payments shall be determined by the Administrator. Any
termination from the Board for any reason, voluntary or
involuntary, will be treated the same as "retirement" from the
Board, for purposes of administering this Plan.
c. Notwithstanding the payment instructions of the Director, at
the death of a Director, deferred fees remaining unpaid at
death will be paid to the Director's selected beneficiary (if
any), or to the Director's estate, in full.
9. Special Retirement Options
Directors selecting payment commencing upon retirement may change the
method of payment, i.e., in full or in installments, by submitting a revised
election form no fewer than twelve (12) months prior to retirement from the
Board. Under no circumstances, however, may the beginning payment be changed
from retirement to any other date. As indicated in Paragraph 8(b), above, any
termination of service from the Board for any reason, voluntary or involuntary,
will be treated the same as "retirement" from the Board, for purposes of
administering the plan.
10. Amendment or Termination
This Plan may be amended from time to time or may be terminated at any
time by resolution of the Board of Directors of the Company, provided that no
amendment or termination shall affect the rights of any person, for amounts
which had been deferred under the Plan prior to amendment or termination.
11. Nonassignability
No Director, beneficiary, or any other person or entity shall have any
power to commute, encumber, sell, or otherwise dispose of the rights provided
herein, and such rights shall be nonassignable and nontransferable.
12. Noncompetition
During the period of a Director's tenure on the Board of Directors and
the deferral any payment of any fees hereunder, the Director will not, without
the prior written consent of the Company, (a) directly or indirectly engage in,
(b) assist or have an active interest in (whether as proprietary, partner,
investor, shareholder, officer, director, or any type of principle whatever), or
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<PAGE> 4
(c) enter into the employ of, or act as an agent for, or advisor or consultant
to: any person, firm, partnership, association, corporation, or other business
organization, entity, or enterprise which is, or is about to become, directly or
indirectly engaged in the provision of any service with competes with any
service provided by or under development by the Company, or any subsidiary or
affiliate thereof, or in the provision of any product which competes with any
product which is made, manufactured, is under development, or is sold by the
Company or any subsidiary or affiliate thereof (provided, however, that this
provision is not intended to prohibit a Director's purchasing, for investment,
not in excess of five percent of any class of stock or other corporate security
of any company which is registered pursuant to Section 12 of the Securities and
Exchange Act of 1934).
Notwithstanding any other provision of this Plan, the Director acknowledges that
a breach of this Paragraph 12 shall entitle the Company to immediately terminate
deferral of fees and pay out to the Director all fees previously deferred,
without any interest or accumulations thereon.
July 1, 1997
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<PAGE> 1
Exhibit 10.7
JLK DIRECT DISTRIBUTION INC.
DIRECTORS STOCK INCENTIVE PLAN
ARTICLE I
GENERAL PROVISIONS
SECTION 1.1. ESTABLISHMENT AND PURPOSE. There is hereby established the
JLK Direct Distribution Inc. Directors Stock Incentive Plan (the "Plan")
pursuant to which each director of JLK Direct Distribution Inc. (the "Company")
who is not an employee of the Company or any of its subsidiaries (a
"Non-Employee Director") shall be eligible, through an election to defer receipt
of any compensation to be earned by such Non-Employee Director made under the
JLK Direct Distribution Inc. Deferred Fee Plan for Outside Directors (the
"Deferred Compensation Plan"), to have Stock Credits (as hereinafter defined)
credited to an account established for such Non-Employee Director by the
Company. The purpose of the Plan is to assist the Company in attracting,
retaining and motivating highly qualified Non-Employee Directors and to promote
identification of, and align Non-Employee Directors' interests more closely
with, the interests of the stockholders of the Company.
SECTION 1.2. DEFINITIONS. In addition to the terms previously or
hereafter defined herein, the following terms when used herein shall have the
meanings set forth below:
"Board" shall mean the Board of Directors of the Company.
"Committee" shall mean the committee of the Board appointed by the
Board to administer the Plan. Unless otherwise determined by the Board, the
Committee shall be the Committee on Executive Compensation of the Board.
"Common Stock" shall mean the Company's Common Stock, par value $.01
per share.
"Company Stock Credit" shall mean a credit that is equivalent to one
share of Common Stock.
"Compensation" shall mean all remuneration paid to a Non-Employee
Director for service as such that is not deferred pursuant to the Deferred
Compensation Plan.
"Deferred Compensation" shall mean all remuneration paid to a
Non-Employee Director for service as such that is deferred pursuant to the
Deferred Compensation Plan.
"Fair Market Value" shall mean: (a) with respect to Common Stock, as of
any date, the mean of the highest and lowest sales prices for the Common Stock
as reported in the New York Stock Exchange--Composite Transactions reporting
system for the date in question or, if no sales were effected on such date, on
the next preceding date on which sales were effected; and (b)
<PAGE> 2
with respect to Capital Stock of Kennametal Inc. ("Kennametal"), as of any date,
the mean of the highest and lowest sales prices for the Capital Stock of
Kennametal as reported in the New York Stock Exchange--Composite Transactions
reporting system for the date in question or, if no sales were effected on such
date, on the next preceding date on which sales were effected.
"Kennametal Stock Credit" shall mean a credit that is equivalent to one
share of Class A Common Stock of JLK.
"Plan Year" shall mean the twelve-month period beginning January 1 and
ending December 31 in any particular year.
"Stock Credit" shall mean either a Company Stock Credit or a Kennametal
Stock Credit, as the case may be.
SECTION 1.3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall serve at the pleasure of the Board of Directors.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members of the Committee present at any meeting at which a
quorum is present, or acts approved in writing by a majority of the members of
the Committee, shall be deemed the acts of the Committee. The Committee is
authorized to interpret and construe the Plan, to make all determinations and
take all other actions necessary or advisable for the administration of the
Plan, and to delegate to employees of the Company or any subsidiary the
authority to perform administrative functions under the Plan; provided, however,
that the Committee shall have no authority to determine the persons entitled to
receive Common Stock or Stock Credits under the Plan nor the timing, amount or
price of Common Stock or Stock Credits issued under the Plan.
SECTION 1.4. ELIGIBILITY. An individual who is a Non-Employee Director
shall be eligible to participate in the Plan.
ARTICLE II
ELECTIONS AND DISTRIBUTIONS
SECTION 2.1. ELECTIONS TO RECEIVE COMPANY STOCK CREDITS FROM DEFERRED
COMPENSATION. Any Non-Employee Director may elect to receive Company Stock
Credits under this Plan in any Plan Year with respect to all or a portion of the
Deferred Compensation credited to the Non-Employee Director in that Plan Year (a
"Company Stock Credit Election"). If a Non-Employee Director makes a Company
Stock Credit Election, an account established for the Non-Employee Director and
maintained by the Company shall be credited with that number of Company Stock
Credits equal to the number of shares of Common Stock (including fractions of a
share to four decimal places) that could have been purchased with the amount of
Deferred Compensation subject to a Company Stock Credit Election based on the
Fair Market Value of the Common Stock on the day that the Deferred Compensation
is credited under the Deferred Compensation Plan. A Company Stock Credit
Election shall be valid in any period only if the Non-Employee Director has
elected to participate in the Deferred Compensation Plan for such period.
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<PAGE> 3
SECTION 2.2. ELECTIONS TO RECEIVE KENNAMETAL STOCK CREDITS FROM
DEFERRED COMPENSATION. Any Non-Employee Director may elect to receive Kennametal
Stock Credits under this Plan in any Plan Year with respect to all or a portion
of the Deferred Compensation credited to the Non-Employee Director in that Plan
Year (a "Kennametal Stock Credit Election"). If a Non-Employee Director makes a
Kennametal Stock Credit Election, an account established for the Non-Employee
Director and maintained by the Company shall be credited with that number of
Kennametal Stock Credits equal to the number of shares of Capital Stock of
Kennametal (including fractions of a share to four decimal places) that could
have been purchased with the amount of Deferred Compensation subject to a
Kennametal Stock Credit Election based on the Fair Market Value of the Capital
Stock of Kennametal on the day that the Deferred Compensation is credited under
the Deferred Compensation Plan. A Kennametal Stock Credit Election shall be
valid in any period only if the Non-Employee Director has elected to participate
in the Deferred Compensation Plan for such period.
SECTION 2.3. TERMS AND CONDITIONS OF ELECTIONS. A Company Stock Credit
Election or Kennametal Stock Credit Election (an "Election") shall be subject to
the following terms and conditions:
(a) An Election shall be in writing and shall be irrevocable; and
(b) An Election shall be effective for any Plan Year only if made on or
prior to the June 30 immediately preceding the commencement of such
Plan Year.
(c) An Election shall remain in effect for all future Plan Years unless
terminated or changed pursuant to an Election made on or prior to June
30 to take effect for the next Plan Year.
SECTION 2.4. ADJUSTMENT OF STOCK CREDIT ACCOUNTS.
(a) Cash Dividends--As of the date that any cash dividend is
paid to stockholders of the Company or Kennametal, the applicable Stock
Credit account of the Non-Employee Director shall be credited with
additional Stock Credits equal to the number of shares of stock
underlying such Stock Credit (including fractions of a share to four
decimal places) that could have been purchased on that date with the
dividends paid on the underlying shares based on the Fair Market Value
of the Common Stock or Kennametal Capital Stock, as the case may be, on
that date.
(b) Stock Dividends--In the event that a stock dividend shall
be paid upon the stock underlying the Stock Credit Account, the number
of Stock Credits in the Non-Employee Director's applicable Stock Credit
account shall be adjusted by adding thereto additional Stock Credits
equal to the number of shares of the underlying stock which would have
been distributable on such stock represented by Stock Credits if such
shares had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend.
(c) Other Adjustments--In the event that the outstanding
shares of Common Stock or Capital Stock of Kennametal, as the case may
be, shall be changed into or
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<PAGE> 4
exchanged for a different number or kind of shares of stock or
other securities whether through reorganization, recapitalization,
stock split-up, combination of shares, merger or consolidation, then
there shall be substituted, for the shares of stock underlying the
Stock Credits, the number and kind of shares of stock or other
securities which would have been substituted therefor if the underlying
shares had been outstanding on the date fixed for determining the
stockholders entitled to receive such changed or substituted stock or
other securities.
In the event there shall be any change, other than specified
in this Section 2.4, in the number or kind of outstanding shares of stock
underlying the Stock Credits or of any stock or other securities into which such
underlying Common Stock shall be changed or for which it shall have been
exchanged, then, if the Board of Directors shall determine, in its discretion,
that such change equitably requires an adjustment in the number of Stock
Credits, such adjustment shall be made by the Board of Directors and shall be
effective and binding for all purposes of the Plan and on each outstanding Stock
Credit account.
SECTION 2.5. CHANGE IN CONTROL. In the event of any threatened or
actual change in control of the Company (as defined by the Committee), the value
of the Stock Credits in each Non-Employee Director's Stock Credit account shall
be paid to such Non-Employee Director in cash.
SECTION 2.6. DISTRIBUTION OF COMPANY STOCK CREDITS. Unless a
Non-Employee Director has selected a different payment option as set forth
below, as soon as practicable following the date that such Non-Employee Director
ceases (other than by reason of such Non-Employee Director's death) to be a
Non-Employee Director (hereinafter, "retirement"), the Company shall pay the
Non-Employee director a cash amount equal to the value of the Company Stock
Credits in such Director's account. A Non-Employee Director may elect to receive
the cash payment for the Company Stock Credits in such Non-Employee Director's
Company Stock Credit account in monthly or annual installments beginning after
retirement from the Board by written notification to the Company of such elected
payment option and may modify any such election by a subsequent written
notification to the Company; provided, however, that the Company shall be
required to effect any such written notification only if submitted to the
Company no fewer than twelve months prior to such Non-Employee Director's
retirement from the Board.
SECTION 2.7. DISTRIBUTION OF KENNAMETAL STOCK CREDITS. Unless a
Non-Employee Director has selected a different payment option as set forth
below, as soon as practicable following the retirement of such Non-Employee
Director, the Company shall deliver to such Non-Employee Director or cause
Kennametal to issue pursuant to the Kennametal Directors Stock Incentive Plan
that number of shares of Capital Stock of Kennametal equal to the Fair Market
Value of shares of Capital Stock of Kennametal underlying the Kennametal Stock
Credits in such Non-Employee Director's Kennametal Stock Credit account as of
the date of retirement with any fractional shares being paid in cash. A
Non-Employee Director may elect to receive the Common Stock represented by the
Kennametal Stock Credits in such Non-Employee Director's Kennametal Stock Credit
account in monthly or
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<PAGE> 5
annual installments beginning after retirement from the Board by written
notification to the Company of such elected payment option and may modify any
such election by a subsequent written notification to the Company; provided,
however, that the Company shall be required to effect any such written
notification only if submitted to the Company no fewer than twelve months prior
to such Non-Employee Director's retirement from the Board. Notwithstanding the
foregoing, the Committee, in its sole discretion, shall have the right to pay a
Non-Employee Director a cash amount equal to the value of Kennametal Stock
Credits, in lieu of delivering Kennametal Capital Stock.
SECTION 2.8. DISTRIBUTIONS ON DEATH. In the event of the death of a
Non-Employee Director, whether before or after cessation of service as a
Non-Employee Director, the Stock Credit account to which he or she was entitled
shall be converted to cash and distributed in a lump sum to such person or
persons or the survivors thereof, including corporations, unincorporated
associates or trusts, as the Non-Employee Director may have designated. All such
designations shall be made in writing, signed by the Non-Employee Director and
delivered to the Company. A Non-Employee Director may from time to time revoke
or change any such designation by written notice to the Company. If there is no
unrevoked designation on file with the Company at the time of the Non-Employee
Director's death, or if the person or persons designated therein shall have all
predeceased the Non-Employee Director or otherwise ceased to exist, such
distributions shall be made to the Non-Employee Director's estate. Any
distribution under this Section 2.8 shall be made as soon as practicable
following notification to the Company of the Non-Employee Director's death. In
any case in which the Non-Employee Director's Stock Credit account is to be
converted to cash pursuant to this Section 2.8, such cash amount shall be
determined by multiplying the number of whole and fractional shares of Common
Stock or Kennametal Capital Stock, as the case may be, to which the Non-Employee
Director's Stock Credit account is equivalent by the Fair Market Value of the
shares underlying such account on the date of death.
SECTION 2.9. CONVERSION OF DEFERRED COMPENSATION TO STOCK CREDITS. The
Committee may, in its discretion, permit a Non-Employee Director to convert
Deferred Compensation already credited to such Non-Employee Director's cash
account to Stock Credits (a "Conversion Election"). Any such election and the
related conversion shall occur only during specified periods designated by the
Committee and shall become effective on the date such election is delivered to
the Company. If a Non-Employee Director makes a Conversion Election, such
Non-Employee Director's Stock Credit account will be credited with that number
of Stock Credits equal to the number of shares of Common Stock or Kennametal
Capital Stock, as the case may be, underlying the Stock Credit Account
(including fractions of a share to four decimal places) that could have been
purchased with the amount of Deferred Compensation subject to the Conversion
Election based on the Fair Market Value of the underlying stock on the day that
the Conversion Election is made.
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<PAGE> 6
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1. AMENDMENT AND DISCONTINUANCE. The Board of Directors may
alter, amend, suspend or discontinue the Plan, provided that no such action
shall deprive any person without such person's consent of any rights theretofore
granted pursuant hereto. The Board of Directors may, in its discretion, submit
any proposed amendment to the Plan to the stockholders of the Company for
approval and shall submit proposed amendments to the Plan to the stockholders of
the Company for approval if such approval is required in order for the Plan to
comply with Rule 16b-3 of the Exchange Act (or any successor rule).
SECTION 3.2. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding
any provision of the Plan or the terms of any agreement entered into pursuant to
the Plan, the Company shall not be required to issue any shares hereunder prior
to registration of the shares subject to the Plan under the Securities Act of
1933 or the Exchange Act, if such registration shall be necessary, or before
compliance by the Company or any participant with any other provisions of either
of those acts or of regulations or rulings of the Securities and Exchange
Commission thereunder, or before compliance with other federal and state laws
and regulations and rulings thereunder, including the rules of the New York
Stock Exchange, Inc. The Company shall use its best efforts to effect such
registrations and to comply with such laws, regulations and rulings forthwith
upon advice by its counsel that any such registration or compliance is
necessary.
SECTION 3.3. COMPLIANCE WITH SECTION 16. With respect to persons
subject to Section 16 of the Exchange Act in relation to the Company,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 (or its successor rule). To the extent that any
provision of the Plan or any action by the Board of Directors or the Committee
fails to so comply, it shall be deemed null and void to the extent permitted by
law and to the extent deemed advisable by the Committee.
SECTION 3.4. NON-ALIENATION OF BENEFITS. No right or interest of a
Non-Employee Director in a Stock Credit account under the Plan may be sold,
assigned, transferred, pledged, encumbered or otherwise disposed of except as
expressly provided in the Plan; and no interest or benefit of any Non-Employee
Director under the Plan shall be subject to the claims of creditors of the
Non-Employee Director.
SECTION 3.5. WITHHOLDING TAXES. To the extent required by applicable
law or regulation, each Non-Employee Director must arrange with the Company for
the payment of any federal, state or local income or other tax applicable to the
receipt of stock or Stock Credits under the Plan before the Company shall be
required to deliver payment to the Non-Employee Director.
SECTION 3.6. FUNDING. Except as provided in Section 2.5 hereof, no
obligation of the Company under the Plan shall be secured by any specific assets
of the Company, nor shall any assets of the Company be designated as
attributable or allocated to the satisfaction of any such obligation. To the
extent that any person acquires a right to receive payments from the Company
-6-
<PAGE> 7
under the Plan, such right shall be no greater than the right of any unsecured
creditor of the Company.
SECTION 3.7. GOVERNING LAW. The Plan shall be governed by and construed
and interpreted in accordance with the internal laws of the Commonwealth of
Pennsylvania.
SECTION 3.8. EFFECTIVE DATE OF PLAN. The Plan became effective upon
approval and adoption of the Plan by the Board of Directors of the Company as of
July 1, 1997.
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,807
<SECURITIES> 0
<RECEIVABLES> 49,424
<ALLOWANCES> 1,022
<INVENTORY> 117,507
<CURRENT-ASSETS> 194,640
<PP&E> 37,731
<DEPRECIATION> 10,442
<TOTAL-ASSETS> 291,293
<CURRENT-LIABILITIES> 56,808
<BONDS> 0
0
0
<COMMON> 251
<OTHER-SE> 223,900
<TOTAL-LIABILITY-AND-EQUITY> 291,293
<SALES> 238,044
<TOTAL-REVENUES> 238,044
<CGS> 161,452
<TOTAL-COSTS> 161,452
<OTHER-EXPENSES> 1,079
<LOSS-PROVISION> 136
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,993
<INCOME-TAX> 5,527
<INCOME-CONTINUING> 8,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,466
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
</TABLE>
