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 MARCH 31, 1997
Commission file number 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0900168
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
ROUTE 981 AT WESTMORELAND COUNTY AIRPORT
P.O. BOX 231
LATROBE, PENNSYLVANIA 15650
(Address of registrant's principal executive offices)
Registrant's telephone number, including area code: (412) 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 APRIL 30, 1997
- ---------------------------------------- -----------------------------
Capital Stock, par value $1.25 per share 26,081,259
<PAGE>
KENNAMETAL INC.
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
Item No.
PART I. FINANCIAL INFORMATION
1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1997 and June 30, 1996
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended March 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
1. Legal Proceedings
5. Other Information
6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -----------------------------------------------------------------------------
(in thousands)
March 31, June 30,
1997 1996
--------- --------
ASSETS
Current Assets:
Cash and equivalents $ 18,698 $ 17,090
Accounts receivable, less allowance for
doubtful accounts of $7,678 and $9,296 187,719 189,820
Inventories 203,902 204,934
Deferred income taxes 23,827 24,620
-------- --------
Total current assets 434,146 436,464
-------- --------
Property, Plant and Equipment:
Land and buildings 156,279 156,064
Machinery and equipment 461,566 415,443
Less accumulated depreciation (325,361) (304,400)
-------- --------
Net property, plant and equipment 292,484 267,107
-------- --------
Other Assets:
Investments in affiliated companies 11,151 8,742
Intangible assets, less accumulated
amortization of $23,010 and $20,795 42,980 33,756
Deferred income taxes 35,812 41,757
Other 15,819 11,665
-------- --------
Total other assets 105,762 95,920
-------- --------
Total assets $832,392 $799,491
======== ========
LIABILITIES
Current Liabilities:
Current maturities of term debt and capital leases $ 12,799 $ 17,543
Notes payable to banks 77,930 57,549
Accounts payable 58,625 64,663
Accrued vacation pay 21,272 19,228
Other 71,617 59,830
-------- --------
Total current liabilities 242,243 218,813
-------- --------
Term Debt and Capital Leases, Less Current Maturities 52,442 56,059
Deferred Income Taxes 20,745 20,611
Other Liabilities 54,106 52,559
-------- --------
Total liabilities 369,536 348,042
-------- --------
Minority Interest in Consolidated Subsidiaries 8,796 12,500
-------- --------
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Preferred stock, 5,000 shares authorized; none issued - -
Capital stock, $1.25 par value; 70,000 shares
authorized; 29,370 shares issued 36,712 36,712
Additional paid-in capital 90,437 87,417
Retained earnings 388,183 351,594
Treasury shares, at cost; 2,972 and 2,667 shares held (51,411) (35,734)
Cumulative translation adjustments (9,861) (1,040)
-------- --------
Total shareholders' equity 454,060 438,949
-------- --------
Total liabilities and shareholders' equity $832,392 $799,491
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -----------------------------------------------------------------------------------
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATIONS:
Net sales $295,365 $286,095 $844,003 $800,172
Cost of goods sold 168,799 162,129 489,381 461,960
-------- -------- -------- --------
Gross profit 126,566 123,966 354,622 338,212
Research and development expenses 6,154 5,346 17,587 15,287
Selling, marketing and distribution
expenses 67,150 61,037 194,940 181,044
General and administrative expenses 17,351 16,810 51,356 48,484
Amortization of intangibles 735 417 2,029 1,199
-------- -------- -------- --------
Operating income 35,176 40,356 88,710 92,198
Interest expense 2,744 2,896 8,159 9,008
Other income (expense) ( 304) 204 547 889
-------- -------- -------- --------
Income before taxes 32,128 37,664 81,098 84,079
Provision for income taxes 12,200 14,300 31,400 33,200
-------- -------- -------- --------
Net income $ 19,928 $ 23,364 $ 49,698 $ 50,879
======== ======== ======== ========
PER SHARE DATA:
Earnings per share $ 0.75 $ 0.88 $ 1.86 $ 1.91
======== ======== ======== ========
Dividends per share $ 0.17 $ 0.15 $ 0.49 $ 0.45
======== ======== ======== ========
Weighted average shares outstanding 26,691 26,644 26,719 26,622
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
(in thousands)
<CAPTION>
Nine Months Ended
March 31,
-----------------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $49,698 $50,879
Adjustments for noncash items:
Depreciation and amortization 31,117 29,889
Other 6,911 11,950
Changes in certain assets and liabilities,
net of effects of acquisitions:
Accounts receivable (653) (21,042)
Inventories 1,405 (15,091)
Accounts payable and accrued liabilities (2,658) (3,880)
Other, net (16,669) (4,147)
------- -------
Net cash flow from operating activities 69,151 48,558
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (57,024) (40,537)
Disposals of property, plant and equipment 348 5,131
Acquisitions, net of cash (17,665) (1,441)
Other 4,637 1,745
------- -------
Net cash flow used for investing activities (69,704) (35,102)
------- -------
FINANCING ACTIVITIES:
Increase in short-term debt 21,390 4,993
Increase in term debt 943 7,734
Reduction in term debt (8,427) (13,713)
Purchase of treasury stock (2,631) -
Dividend reinvestment and employee stock plans 4,762 1,583
Cash dividends paid to shareholders (13,109) (11,978)
------- -------
Net cash flow from (used for) financing activities 2,928 (11,381)
------- -------
Effect of exchange rate changes on cash (767) (278)
------- -------
CASH AND EQUIVALENTS:
Net increase in cash and equivalents 1,608 1,797
Cash and equivalents, beginning 17,090 10,827
------- -------
Cash and equivalents, ending $18,698 $12,624
======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 6,421 $ 7,753
Income taxes paid 35,445 31,378
Purchase of treasury stock included in
current liabilities 14,788 -
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
KENNAMETAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
1. The condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included
in the Company's 1996 Annual Report. The condensed consolidated balance
sheet as of June 30, 1996 has been derived from the audited balance sheet
included in the Company's 1996 Annual Report. These 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 nine months ended
March 31, 1997 are not necessarily indicative of the results to be
expected for the full fiscal year.
2. Inventories are stated at lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for a significant portion of
domestic inventories and the first-in, first-out (FIFO) method or average
cost for other inventories. The Company used the LIFO method of valuing
its inventories for approximately 55 percent of total inventories at
March 31, 1997. Because inventory valuations under the LIFO method are
based on an annual determination of quantities and costs as of June 30 of
each year, the interim LIFO valuations are based on management's
projections of expected year-end inventory levels and costs. Therefore,
the interim financial results are subject to any final year-end LIFO
inventory adjustments.
3. The major classes of inventory as of the balance sheet dates were as
follows (in thousands):
March 31, June 30,
1997 1996
-------- --------
Finished goods $174,625 $169,108
Work in process and powder blends 49,093 59,326
Raw materials and supplies 21,097 16,514
-------- --------
Inventory at current cost 244,815 244,948
Less LIFO valuation (40,913) (40,014)
-------- --------
Total inventories $203,902 $204,934
======== ========
4. The Company has been involved in various environmental cleanup and
remediation activities at several of its manufacturing facilities. In
addition, the Company has been named as a potentially responsible party at
four Superfund sites in the United States. However, it is management's
opinion, based on its evaluations and discussions with outside counsel and
independent consultants, that the ultimate resolution of these
environmental matters will not have a material adverse effect on the
results of operations, financial position or cash flows of the Company.
The Company maintains a Corporate Environmental, Health and Safety (EH&S)
Department to facilitate compliance with environmental regulations and to
monitor and oversee remediation activities. In addition, the Company has
established an EH&S administrator at each of its domestic manufacturing
facilities. The Company's financial management team periodically meets
with members of the Corporate EH&S Department and the Corporate Legal
Department to review and evaluate the status of environmental projects and
contingencies. On a quarterly and annual basis, management establishes or
adjusts financial provisions and reserves for environmental contingencies
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 5, "Accounting for Contingencies."
5. Effective July 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." The adoption of SFAS No. 121 did not have an impact on the
consolidated financial statements, as the statement is consistent with
existing Company policy.
6. During the nine-month period ended March 31, 1997, the Company acquired
three companies with annual sales totaling approximately $22 million for a
total consideration of approximately $19 million. The acquisitions were
accounted for using the purchase method of accounting. The consolidated
financial statements include the operating results of each business from
the date of acquisition. Pro forma results of operations have not been
presented because the effects of these acquisitions were not significant.
7. On April 25, 1997, the Company's J&L America, Inc. subsidiary
("J&L") obtained a $25.0 million line of credit with a bank and shortly
thereafter borrowed $20.0 million under the line of credit to fund a
dividend to Kennametal. Interest payable under the line of credit is
based on the LIBOR rate plus 25 basis points and is required to be repaid
in full within six months. Kennametal has guaranteed repayment of the
line of credit in the event of default by J&L.
8. On April 28, 1997, the Company's board of directors approved a proposal
for the sale, by a newly formed subsidiary, JLK Direct Distribution Inc.
("JLK"), of up to 20 percent of its common stock in an initial public
offering ("IPO"). It is expected that, following the IPO, Kennametal will
own approximately 80 percent of the outstanding common stock of JLK and
will retain a majority of both the economic and voting interests of JLK.
JLK filed a registration statement with the Securities and Exchange
Commission covering this IPO. JLK will operate the industrial supply
business consisting of the Company's wholly owned J&L subsidiary and its
Full Service Supply organization. JLK will meet the needs of small- and
medium-sized customers through its direct marketing catalog and showroom
programs and will serve large industrial manufacturers through integrated
industrial supply programs.
Additionally, on April 30, 1997, Kennametal, through its J&L subsidiary,
acquired all the outstanding stock of the Strelinger Company (Strelinger).
Strelinger is based in Troy, Michigan, and is engaged in the distribution
of metalcutting tools and industrial supplies. Strelinger had sales of
$30 million in its latest fiscal year and employed approximately 85
people. J&L paid approximately $4 million in cash and assumed certain
liabilities totaling $7 million.
9. The Financial Accounting Standards Board ("FASB") recently issued SFAS
No. 128, "Earnings Per Share" ("SFAS No. 128") and SFAS No. 129, "Disclosure
of Information about Capital Structures" ("SFAS No. 129"). SFAS No. 128
was issued in February 1997 and is effective for periods ending after
December 15, 1997. This statement, upon adoption, will require all prior
ending earnings per share ("EPS") data to be restated to conform to the
provisions of the statement. This statement's objective is to simplify
the computations of EPS and to make the U.S. standard for EPS computations
more compatible with that of the International Accounting Standards
Committee. The Company will adopt SFAS No. 128 in fiscal 1998 and does
not anticipate that the statement will have a significant impact on its
reported EPS.
SFAS No. 129 was issued in February 1997 and is effective for periods
ending after December 15, 1997. This statement, upon adoption, will
require all companies to provide specific disclosure regarding their
capital structure. SFAS No. 129 will specify the disclosure for all
companies, including descriptions of their capital structure and the
contractual rights of the holders of such securities. The Company will
adopt SFAS No. 129 in fiscal 1998 and does not anticipate that the
statement will have a significant impact on its disclosure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
There were no material changes in financial position, liquidity or capital
resources between June 30, 1996 and March 31, 1997. The ratio of current
assets to current liabilities was 1.8 as of March 31, 1997, compared to 2.0 as
of June 30, 1996. The debt-to-capital ratio (i.e., total debt divided by the
sum of total debt and shareholders' equity) was 24 percent as of
March 31, 1997, and 23 percent as of June 30, 1996.
On January 31, 1997, the Company announced the adoption of a program to
repurchase from time to time up to a total of 1.6 million shares of its
outstanding capital stock. The repurchases were made in the open market or in
negotiated or other permissible transactions. During the period ended
March 31, 1997, the Company repurchased approximately 465,000 shares of its
common stock at a total cost of approximately $17.4 million. Furthermore,
through April 30, 1997, the Company purchased an additional 316,000 shares of
its common stock at a total cost of approximately $11.2 million.
On April 25, 1997, the Company's J&L subsidiary obtained a $25.0 million line
of credit with a bank and shortly thereafter borrowed $20.0 million under the
line or credit to fund a dividend to Kennametal. Interest payable under the
line of credit is based on the LIBOR rate plus 25 basis points and is required
to be repaid in full within six months. Kennametal has guaranteed repayment
of the line of credit in the event of default by J&L.
Capital expenditures are estimated to be $70-80 million in fiscal year 1997.
Expenditures are being made to construct a new corporate headquarters and a
manufacturing facility in China to acquire additional client-server
information systems and to upgrade machinery and equipment. Capital
expenditures are being financed with cash from operations and borrowings under
existing revolving credit agreements with banks.
RESULTS OF OPERATIONS
SALES AND EARNINGS
During the quarter ended March 31, 1997, consolidated sales were $295 million,
up 3 percent from $286 million in the same quarter last year. Net income was
$19.9 million, or $0.75 per share, as compared with net income of
$23.4 million, or $0.88 per share in the same quarter last year.
During the nine-month period ended March 31, 1997, consolidated sales were
$844 million, up 5 percent from $800 million last year. Net income was
$49.7 million, or $1.86 per share, compared to $50.9 million, or $1.91 per
share last year.
For the quarter ended March 31, 1997, the overall increase in sales was
attributed to higher sales of metalworking products and industrial supplies
sold to the Industrial Supply market through J&L Industrial Supply and through
Full Service Supply programs. The increase in sales was offset in part by
lower sales of metalworking products in Europe, primarily in Germany, as a
result of weak economic conditions in Germany and negative currency
translation effects.
The following table presents the Company's sales by market and geographic area
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- -------- -------- --------
1997 1996 % Change 1997 1996 % Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
By Market:
Metalworking:
North America $ 95,992 $ 97,524 (2)% $277,835 $274,600 1%
Europe 65,116 73,417 (11) 187,525 206,548 (9)
Asia-Pacific 9,721 9,144 6 30,480 25,715 19
Industrial Supply 86,693 69,677 24 234,061 185,354 26
Mining and Construction 37,843 36,333 4 114,102 107,955 6
-------- -------- --- -------- -------- ---
Net sales $295,365 $286,095 3% $844,003 $800,172 5%
======== ======== === ======== ======== ===
By Geographic Area:
Within the United States $192,173 $175,813 9% $545,843 $488,173 12%
International 103,192 110,282 (6) 298,160 311,999 (4)
-------- -------- --- -------- -------- ---
Net sales $295,365 $286,095 3% $844,003 $800,172 5%
======== ======== === ======== ======== ===
</TABLE>
METALWORKING MARKETS
During the March 1997 quarter, sales of traditional metalcutting products sold
through all sales channels in North America, including sales through the
Industrial Supply market, increased 4 percent due to modest but steadily
improving economic conditions in the United States and due to continued
emphasis on milling and drilling products. Sales, as reflected in the North
America Metalworking market, decreased 2 percent during the quarter.
Sales in the Europe Metalworking market decreased 11 percent. Demand for
metalworking products continued to be slow due to weak economic conditions in
Europe, principally in Germany. However, sales grew in the United Kingdom and
France. Excluding the impact of unfavorable foreign currency translation
effects, sales in the Europe Metalworking market decreased 6 percent.
In the Asia-Pacific Metalworking market, sales rose 6 percent as a result of
increased demand in Australia, Singapore and Japan, although sales were again
impacted by soft economic conditions in Korea and Thailand. Excluding
unfavorable foreign currency translation effects, sales in the Asia-Pacific
Metalworking market increased 11 percent.
For the nine-month period, sales in the North America Metalworking market
increased 1 percent because of stable economic conditions in the United States
and due to continued emphasis on milling and drilling products. In the Europe
Metalworking market, sales decreased 9 percent because of weak economic
conditions in Europe, primarily in Germany, and from the impact of unfavorable
foreign currency translation effects. In the Asia-Pacific Metalworking
market, sales increased 19 percent because of increased demand.
INDUSTRIAL SUPPLY MARKET
During the March 1997 quarter, sales in the Industrial Supply market increased
24 percent as a result of increased sales through mail order and Full Service
Supply programs. Sales increased primarily because of the expanded product
offering of over 20,000 new stock keeping units (SKUs) in J&L's 1997 master
catalog and from the addition of new showrooms and innovative marketing
programs. During the third quarter, J&L opened a new location in Houston,
Texas, and now operates a total of 23 locations in the United States and one
location in the United Kingdom. The Industrial Supply market now represents
29 percent of total sales.
For the nine-month period, sales in the Industrial Supply market increased
26 percent due to an expanded product offering in the 1997 master catalog, new
showrooms and innovative marketing programs and due to new and existing Full
Service Supply programs with large customers.
MINING AND CONSTRUCTION MARKET
During the March 1997 quarter, sales in the Mining and Construction market
increased 4 percent from the previous year as a result of increased domestic
demand for mining tools offset by slightly lower demand for highway
construction tools. International sales of mining and highway construction
tools declined slightly as a result of weak economic conditions in Europe.
For the nine-month period, sales of mining and construction tools increased
6 percent from the prior year primarily because of increased sales of domestic
mining tools.
GROSS PROFIT MARGIN
As a percentage of sales, gross profit margin for the March 1997 quarter was
42.9 percent compared to 43.3 percent last year. The gross profit margin
declined as a result of lower production volumes, unfavorable foreign currency
translation effects coupled with a less favorable sales mix. This decrease
was partially offset by productivity improvements related to the Focused
Factory initiative.
For the nine-month period, the gross profit margin was 42.0 percent, compared
with 42.3 percent last year. The gross profit margin declined slightly as a
result of lower production volumes, unfavorable foreign currency translation
effects and from a less favorable sales mix. This decline was partially
offset by productivity improvements related to the Focused Factory initiative.
OPERATING EXPENSES
For the quarter ended March 31, 1997, operating expenses as a percentage of
sales were 30.7 percent compared to 29.1 percent last year. Operating
expenses increased 9 percent primarily because of higher costs related to the
J&L showroom expansion program, including higher direct mail costs and
increased direct marketing costs in new territories in the United States and
in Europe. Operating expenses also increased from higher costs necessary to
support new and existing Full Service Supply programs and from higher research
and development costs. Also included in operating expenses are relocation and
related costs incurred in connection with the construction of the new
corporate headquarters which amounted to $1.7 million during the third
quarter.
For the nine-month period, operating expenses as a percentage of sales were
31.3 percent compared to 30.6 percent last year. Operating expenses increased
primarily because of higher costs related to the J&L showroom expansion
program, including higher direct mail costs and increased direct marketing in
new territories in the United States and in Europe. Operating expenses also
increased from higher costs to support new and existing Full Service Supply
programs, higher research and development costs and from earlier than
anticipated relocation and related costs of $2.6 million related to the new
corporate headquarters.
INCOME TAXES
The effective tax rate was 38 percent, the same as in the third quarter of a
year ago. For the nine-month period, the effective tax rate was 39 percent
compared to 40 percent in the prior year.
OUTLOOK
In looking to the fourth quarter ending June 30, 1997, management expects
consolidated sales to increase over the fourth quarter of fiscal 1996. Sales
to the North America Metalworking market should benefit from slowly improving
economic conditions in the United States. Sales in the Europe Metalworking
market are expected to remain weak. Sales in the Asia-Pacific Metalworking
market are expected to continue to be slow.
Sales in the Industrial Supply market should continue to benefit from
expansion of locations, increased mail order sales as a result of the expanded
product offering in the new J&L Industrial Supply master catalog and new Full
Service Supply programs. Sales in the Mining and Construction market should
increase from additional domestic demand.
This Form 10-Q, including the prior two paragraphs, contains "forward-looking
statements" as defined in Section 21E of the Securities Exchange Act of 1934.
Actual results can differ from those in the forward-looking statements to the
extent that the anticipated economic conditions in the United States, Europe
and Asia-Pacific are not realized.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ----------------------------------------------------------------------------
The information set forth in Note 4 to the condensed consolidated financial
statements, contained in Part I, Item 1 of this Form 10-Q, is incorporated by
reference herein and supplements the information previously reported in Part
I, Item 3 of the Company's Form 10-K for the year ended June 30, 1996, which
is also incorporated by reference herein.
It is management's opinion, based on its evaluation and discussions with
outside counsel, that the Company has viable defenses to these cases and that,
in any event, the ultimate resolutions of these matters will not have a
materially adverse effect on the results of operations, financial position or
cash flows of the Company.
ITEM 5. OTHER INFORMATION
- ------------------------------------------------------------------------------
On April 28, 1997, the Company's board of directors approved a proposal for
the sale, by a newly formed subsidiary, JLK Direct Distribution Inc. ("JLK"),
of up to 20 percent of its common stock in an initial public offering ("IPO").
It is expected that, following the offering, Kennametal will own approximately
80 percent of the outstanding common stock of JLK and will retain a majority
of both the economic and voting interests of JLK. The Company also filed a
registration statement with the Securities and Exchange Commission covering
this offering.
On April 28, 1997, the Company issued a press release announcing the IPO.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------------------
(a) Exhibits
(10) Material Contracts
10.1 Form of Employment Agreement with
certain executive officers Filed herewith
10.2 Supplemental Executive Retirement Plan Filed herewith
10.3 Amendment to Credit Agreement
dated April 19, 1996 Filed herewith
(27) Financial Data Schedule for the nine months ended
March 31, 1997, submitted to the Securities
and Exchange Commission in electronic format Filed herewith
(99) Additional Exhibits
Press Release Dated April 28, 1997 Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
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.
KENNAMETAL INC.
Date: May 13, 1997 By: /s/ RICHARD J. ORWIG
--------------------
Richard J. Orwig
Vice President
Chief Financial and Administrative Officer
EXHIBIT 10.1
Form of
Officer's Employment Agreement
Amended and Restated
THIS AGREEMENT, is made and entered into this __________ day of ___________,
__________, by and between KENNAMETAL INC., a corporation organized under the
laws of the Commonwealth of Pennsylvania, for and on behalf of itself and on
behalf of its subsidiary companies (hereinafter referred to as "Kennametal"),
and (Robert L. McGeehan) (David B. Arnold) (James R. Breisinger) (David T.
Cofer) (Derwin R. Gilbreath) (James W. Heaton) (Richard C. Hendricks) (Timothy
D. Hudson) (H. Patrick Mahanes, Jr.) (Richard V. Minns) (James E. Morrison)
(Richard J. Orwig) (Michael W. Ruprich) (P. Mark Schiller) (Larry L. Shrum),
an individual (hereinafter referred to as "Employee"). The company has
entered into identical contracts with the previous officers.
WITNESSETH:
WHEREAS, Employee acknowledges that by reason of employment by
Kennametal, it is anticipated that Employee will work with, add to, create,
have access to and be entrusted with trade secrets and confidential
information belonging to Kennametal which are of a technical nature or
business nature or pertain to future developments, the disclosure of which
trade secrets or confidential information would be highly detrimental to the
interests of Kennametal; and
WHEREAS, in order to have the benefit of Employee's assistance,
Kennametal is desirous of employing or continuing the employment of Employee;
and
WHEREAS, Kennametal and Employee have heretofore entered into and
executed an Officer Employment Agreement, as amended (the "Employment
Agreement"); and
WHEREAS, Kennametal and Employee desire to amend and restate the
Employment Agreement on the terms and conditions hereinafter expressed.
NOW, THEREFORE, Kennametal and Employee, each intending to be legally
bound hereby, do mutually covenant and agree as follows:
1. (a) Subject to the terms and conditions set forth herein, Kennametal
hereby agrees to employ Employee as of the date hereof, and Employee
hereby accepts such employment and agrees to devote his full time and
attention to the business and affairs of Kennametal, in such capacity or
capacities and to perform to the best of his ability such services as
shall be determined from time to time by the Chief Executive Officer and
the Board of Directors of Kennametal until the termination of his
employment hereunder.
(b) Employee's base salary, the size of bonus awards, if any, granted
to him and other emoluments for his services, if any, shall be
determined by the Board of Directors or its Committee on Executive
Compensation, as appropriate, from time to time in their sole
discretion.
2. In addition to the compensation set forth or contemplated elsewhere
herein, Employee, subject to the terms and conditions of this agreement, shall
be entitled to participate in all group insurance programs, retirement income
(pension) plans, thrift plans and vacation and holiday programs normally
provided for other executives of Kennametal. Nothing herein contained shall
be deemed to limit or prevent Employee, during his employment hereunder, from
being reimbursed by Kennametal for out-of- pocket expenditures incurred for
travel, lodging, meals, entertainment expenses or any other expenses in
accordance with the policies of Kennametal applicable to the executives of
Kennametal.
3. Employee's employment may be terminated with or without any reason for
termination by either party hereto at any time by giving the other party prior
written notice thereof, provided, however, that any termination on the part of
Kennametal shall occur only if specifically authorized by its Board of
Directors; provided, further, that termination by Kennametal for Cause (as
hereinafter defined) shall be made by written notice which states that it is a
termination for Cause; and provided, further, that termination by Employee,
other than termination for Good Reason (as hereafter defined) following a
Change-in-Control (as hereafter defined), shall be on not less than 30 days
prior written notice to Kennametal.
4. (a) In the event that Employee's employment is terminated by
Kennametal prior to a Change-in-Control (as hereinafter defined) and
other than for Cause, Employee will receive as severance pay, in
addition to all amounts due him at the Date of Termination (as
hereinafter defined), an amount, payable promptly after the Date of
Termination, equal to three months' base salary at the annual
rate in effect on the Date of termination.
(b) In the event that Employee's employment is terminated by Employee
following a Change-in-Control (as hereafter defined) without good reason
(as such term in defined in paragraph 4(h)) or prior to a Change-in-
Control (as hereinafter defined), Employee will not be entitled to
receive any severance pay in addition to the amounts, if any, due him at
the Date of Termination (as hereinafter defined).
(c) In the event at or after a Change-in-Control and prior to the
third anniversary of the date of the Change-in-Control that Employee's
employment is terminated by Employee for Good Reason or by Kennametal
other than for Cause or Disability pursuant to paragraph 5, Employee
will receive as severance pay (in addition to all other amounts due him
at the Date of Termination) an amount equal to the product of:
(i) the lesser of
(x) two and eight tenths (2.8),
(y) a number equal to the number of calendar months
remaining from the Date of Termination to the Employee's
Retirement Date (as such term is hereafter defined) divided
by twelve (12), or
(z) a number equal to the product obtained by multiplying
thirty-six (36) less the number of completed months after
the date of the Change in-Control during which the Employee
was employed and did not have Good Reason for termination
times one-twelfth (1/12);
times
(ii) the sum of
(x) Employee's base salary at the annual rate in effect on
the Date of Termination (or, at Employee's election, at the
annual rate in effect on the first day of the calendar month
immediately prior to the Change-in-Control), plus
(y) the average of any bonuses which Employee was entitled
to or paid during the three most recent fiscal years ending
prior to the Date of Termination.
Such severance pay shall be paid by delivery of a cashier's or certified
check to the Employee at Kennametal's executive offices on a date which
is no later than five business days following the Date of Termination.
In addition to the severance payments provided for in this paragraph
4(c), Employee also will receive the same or equivalent medical, dental,
disability and group insurance benefits as were provided to the Employee
at the Date of Termination, which benefits shall be provided to Employee
for a three year period commencing on the Date of Termination. The
Employee shall also be deemed and shall be credited for computing
benefits, for vesting and for all other purposes under any pension or
retirement income plan of Kennametal and under the Supplemental
Executive Retirement Plan to have continuously remained in the
employment of Kennametal for the three year period (or, if clause (i)(y)
or clause (i)(z) above of this paragraph 4(c) is applicable to determine
the severance payments to be made, the lesser period measured in years
equal to clause (i)(y) or clause (i)(z) above, whichever is applicable)
following the Date of Termination at an annual compensation equal to the
sum of the base salary and bonus which were used to compute the payment
due the Employee under the first paragraph of this Paragraph 4(c).
(d) If for any reason, whether by law or provisions of Kennametal's
employee medical, dental or group insurance, pension or retirement plan
or other benefit plans, any benefits which the Employee would be
entitled to under the foregoing subparagraph (c) of this Paragraph 4
cannot be paid pursuant to such employee benefit plans, then Kennametal
hereby contractually agrees to pay to the Employee the difference
between the benefits which the Employee would have received in
accordance with the foregoing subparagraphs of this paragraph 4 if the
relevant employee medical, dental or group insurance or pension or
retirement plan or other benefit plan could have paid such benefit and
the amount of benefits, if any, actually paid by such employee medical,
dental or group insurance or pension or retirement plan or other benefit
plan. Kennametal shall not be required to fund its obligation to pay the
foregoing difference.
(e) In the event of a termination of employment under the
circumstances above described in Paragraph 4(c), Employee shall have no
duty to seek any other employment after termination of Employee's
employment with Kennametal and Kennametal hereby waives and agrees not
to raise or use any defense based on the position that Employee had a
duty to mitigate or reduce the amounts due him hereunder by seeking
other employment whether suitable or unsuitable and should Employee
obtain other employment, then the only effect of such on the obligations
of Kennametal hereunder shall be that Kennametal shall be entitled to
credit against any payments which would otherwise be made for medical,
dental or group insurance or similar benefits (excluding, however, any
credit against Kennametal payments relating to pension or retirement
benefits or the Supplemental Executive Retirement Plan) pursuant to the
benefit provisions set forth in the second paragraph of Paragraph 4(c)
hereof, any comparable payments to which Employee is entitled under the
employee benefit plans maintained by Employee's other employer or
employers in connection with services to such employer or employers
after termination of his employment with Kennametal.
(f) The term "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934 as in
effect on the date hereof ("1934 Act"), or if Item 6(e) is no longer in
effect, any regulations issued by the Securities and Exchange Commission
pursuant to the 1934 Act which serve similar purposes; provided that,
without limitation, such a change in control shall be deemed to have
occurred if (A) Kennametal shall be merged or consolidated with any
corporation or other entity other than a merger or consolidation with a
corporation or other entity all of whose equity interests are owned by
Kennametal immediately prior to the merger or consolidation, or(B)
Kennametal shall sell all or substantially all of its operating
properties and assets to another person, group of associated persons or
corporation, or (C) any "person" (as such term is used in Sections 13(d)
and 14(d) of the 1934 Act), is or becomes a beneficial owner, directly
or indirectly, of securities of Kennametal representing 25% or more of
the combined voting power of Kennametal's then outstanding securities
coupled with or followed by the existence of a majority of the board of
directors of Kennametal consisting of persons other than persons who
either were directors of Kennametal immediately prior to or were
nominated by those persons who were directors of Kennametal immediately
prior to such person becoming a beneficial owner, directly or
indirectly, of securities of Kennametal representing 25% or more of the
combined voting power of Kennametal's then outstanding securities.
(g) For purposes of this agreement "Date of Termination" shall mean:
(i) if Employee's employment is terminated due to his death or
retirement, the date of death or retirement, respectively; or
(ii) if Employee's employment is terminated for any other reason,
the date on which the termination becomes effective as stated in
the written notice of termination given to or by the Employee.
(h) The term "Good Reason" for termination by the Employee shall mean
the occurrence of any of the following at or after a Change-in-Control:
(i) without the Employee's express written consent, the
assignment to the Employee of any duties materially and
substantially inconsistent with his positions, duties,
responsibilities and status with Kennametal immediately prior to a
Change-in-Control, or a material change in his reporting
responsibilities, titles or offices as in effect immediately prior
to a Change-in-Control, or any removal of the Employee from or any
failure to re-elect the Employee to any of such positions, except
in connection with the termination of the Employee's employment
due to Cause (as hereinafter defined) or as a result of the
Employee's death;
(ii) a reduction by Kennametal in the Employee's base salary as
in effect immediately prior to any Change-in-Control;
(iii) a failure by Kennametal to continue to provide incentive
compensation, under the rules by which incentives are provided,
comparable to that provided by Kennametal immediately prior to any
Change-in-Control;
(iv) the failure by Kennametal to continue in effect any benefit
or compensation plan, stock option plan, pension plan, life
insurance plan, health and accident plan or disability plan in
which Employee is participating immediately prior to a Change-in-
Control (provided, however, that there shall not be deemed to be
any such failure if Kennametal substitutes for the discontinued
plan, a plan providing Employee with substantially similar
benefits) or the taking of any action by Kennametal which would
adversely affect Employee's participation in or materially reduce
Employee's benefits under any of such plans or deprive Employee of
any material fringe benefit enjoyed by Employee immediately prior
to a Change-in-Control;
(v) the failure of Kennametal to obtain the assumption of this
Agreement by any successor as contemplated in paragraph 11 hereof;
(vi) the relocation of the Executive to a facility or a location
more than 50 miles from the Executives then present location,
without the Executives prior written consent; or
(vii) any purported termination of the employment of Employee by
Kennametal which is not for Cause as provided in paragraph 5.
5. In the event that Employee (a) shall be guilty of malfeasance, willful
misconduct or gross negligence in the performance of the services contemplated
by this Agreement, or (b) shall not make his services available to Kennametal
on a full time basis in accordance with paragraph I hereof for any reason
(including Disability) other than arising from Employee's incapacity due to
physical or mental illness or injury which does not constitute Disability and
other than by reason of the fact Employee's employment has been terminated
under the circumstances described in paragraph 4(a), or (c) shall breach the
provisions of paragraph 8 hereof (the matters described in subparagraphs (a),
(b) and (c) are collectively referred to as "Cause"), Kennametal shall have
the right, exercised by resolution adopted by a majority of its Board of
Directors, to terminate Employee's employment for Cause by giving prior
written notice to Employee of its election so to do. In that event,
Employee's employment shall be deemed terminated for Cause, Employee shall not
be entitled to the benefits set forth in paragraph 4 which shall not be paid
or payable and Kennametal only shall have the obligation to pay Employee the
unpaid portion of Employee's base salary for the period from the last period
from which Employee was paid to the Date of Termination; provided, however,
that if Employee's employment is terminated as a result of the Disability of
Employee, the benefits set forth in paragraph 4 shall not be paid or payable
but Employee shall be entitled to receive the annual supplement under the
Supplemental Executive Retirement Plan and Employee's employment by Kennametal
shall not be deemed terminated for purposes of the Long-Term Disability Plan,
Retirement Income Plan for US Salaried Employees or any other benefit plan
which so provides. For purposes of this agreement "Disability" shall mean
such incapacity due to physical or mental illness or injury which results in
the Employee's being absent from his principal office at Kennametal's offices
for the entire portion of 180 consecutive business days. Prior to a Change-
in-Control, a decision by the Board of Directors of Kennametal that "Cause"
exists shall be in the discretion of the Board of Directors and shall be final
and binding upon the Employee and his rights hereunder. After a Change-in-
Control, "Cause" shall not be deemed to include opposition by Employee to such
a Change-in-Control or any matter incidental thereto and any determination by
the Board of Directors that "Cause" existed shall not be final or binding upon
the Employee or his rights hereunder or entitled to any deference in any court
or other tribunal.
6. Employee understands and agrees that, except to the extent Employee is
entitled to the benefits provided in paragraph 4(c) hereof, in the event
Employee resigns or his employment is terminated for any reason other than
death or Disability prior to his "Retirement Date" (as hereinafter defined),
he will forfeit any interest he may have in any Kennametal retirement income
plan (except to the extent vested by actual service to date of separation as
per the plan provisions), and all other benefits dependent upon continuing
service. The term "Retirement Date" shall mean the first day of the month
following the day on which Employee attains his sixty-fifth birthday, or at
Employee's request, any other day that Kennametal's Board of Directors may
approve in writing.
7. Nothing herein contained shall affect the right of Employee to
participate in and receive benefits under and in accordance with the then
current provisions of any retirement income, profit-sharing, additional year-
end or periodic remuneration or bonus, incentive compensation, insurance or
any other employee welfare plan or program of Kennametal and all payments
hereunder shall be in addition to any benefits received thereunder (including
long term disability payments).
8. During the period of employment of Employee by Kennametal and for three
years thereafter, (provided, however, that this paragraph 8 shall not apply to
the Employee following a termination of Employee's employment (x) if a Change-
in-Control, shall have occurred prior to the Date of Termination or (y) if
Employee's employment is terminated by Kennametal other than for Cause), he
will not, in any geographic area in which Kennametal is offering its services
and products, without the prior written
consent of Kennametal:
(a) directly or indirectly engage in, or
(b) assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of
principal whatsoever), or
(c) enter the employ of, or act as agent for, or advisor or consultant
to, any person, firm, partnership, association, corporation or business
organization, entity or enterprise which is or is about to become
directly or indirectly engage in, any business which is competitive with
any business of Kennametal or any subsidiary or affiliate thereof in
which Employee is or was engaged; provided, however, that the foregoing
provisions of this paragraph 8 are not intended to prohibit and shall
not prohibit Employee from purchasing, for investment, not in excess of
1% of any class of stock or other corporate security of any company
which is registered pursuant to Section 12 of the Securities Exchange
Act of 1934.
Employee acknowledges that the breach by him of the provisions of this
paragraph 8 would cause irreparable injury to Kennametal, acknowledges and
agrees that remedies at law for any such breach will be inadequate and
consents and agrees that Kennametal shall be entitled, without the necessity
of proof of actual damage, to injunctive relief in any proceedings which may
be brought to enforce the provisions of this paragraph 8. Employee
acknowledges and warrants that he will be fully able to earn an adequate
livelihood for himself and his dependents if this paragraph 8 should be
specifically enforced against him and that such enforcement will not impair
his ability to obtain employment commensurate with his abilities and fully
acceptable to him.
If the scope of any restriction contained in this paragraph 8 is too
broad to permit enforcement of such restriction to its full extent, then such
restriction shall be enforced to the maximum extent permitted by law and
Employee and Kennametal hereby consent and agree that such scope may be
judicially modified in any proceeding brought to enforce such restriction.
9. (a) Employee acknowledges and agrees that in the course of his
employment by Kennametal, Employee may work with, add to, create or
acquire trade secrets and confidential information ("Confidential
Information") which could include, in whole or in part, information:
(i) of a technical nature such as, but not limited to,
Kennametal's manuals, methods, know-how, formulae, shapes,
designs, compositions, processes, applications, ideas,
improvements, discoveries, inventions, research and development
projects, equipment, apparatus, appliances, computer programs,
software, systems documentation, special hardware, software
development and similar items; or
(ii) of a business nature such as, but not limited to,
information about business plans, sources of supply, cost,
purchasing, profits, markets, sales, sales volume, sales methods,
sales proposals, identity of customers and prospective customers,
identity of customers' key purchasing personnel, amount or kind of
customers' purchases and other information about customers; or
(iii) pertaining to future developments such as, but not limited
to, research and development or future marketing or merchandising.
Employee further acknowledges and agrees that (i) all Confidential
Information is the property of Kennametal; (ii) the unauthorized use,
misappropriation or disclosure of any Confidential Information would
constitute a breach of trust and could cause irreparable injury to
Kennametal; and (iii) it is essential to the protection of Kennametal's
goodwill and to the maintenance of its competitive position that all
Confidential Information be kept secret and that Employee not disclose
any Confidential Information to others or use any Confidential
Information to the detriment of Kennametal.
Employee agrees to hold and safeguard all Confidential Information
in trust for Kennametal, its successors and assigns and Employee shall
not (except as required in the performance of Employee's duties), use or
disclose or make available to anyone for use outside Kennametal's
organization at any time, either during employment with Kennametal or
subsequent thereto, any of the Confidential Information, whether or not
developed by Employee, without the prior written consent of Kennametal.
(b) Employee agrees that:
(i) he will promptly and fully disclose to Kennametal or such
officer or other agent as may be designated by Kennametal any and
all inventions made or conceived by Employee (whether made solely
by Employee or jointly with others) during employment with
Kennametal (1) which are along the line of the business, work or
investigations of Kennametal, or (2) which result from or are
suggested by any work which Employee may do for or on behalf of
Kennametal; and
(ii) he will assist Kennametal and its nominees during and
subsequent to such employment in every proper way (entirely at its
or their expense) to obtain for its or their own benefit patents
for such inventions in any and all countries; the said inventions,
without further consideration other than such salary as from time
to time may be paid to him by Kennametal as compensation for his
services in any capacity, shall be and remain the sole and
exclusive property of Kennametal or its nominee whether patented
or not; and
(iii) he will keep and maintain adequate and current written
records of all such inventions, in the form of but not necessarily
limited to notes, sketches, drawings, or reports relating thereto,
which records shall be and remain the property of and available to
Kennametal at all times.
(c) Employee agrees that, promptly upon termination of his employment,
he will disclose to Kennametal, or to such officer or other agent as may
be designated by Kennametal, all inventions which have been partly or
wholly conceived, invented or developed by him for which applications
for patents have not been made and shall thereafter execute all such
instruments of the character herein before referred to, and will take
such steps as may be necessary to secure and assign to Kennametal the
exclusive rights in and to such inventions and any patents that may be
issued thereon any expense therefor to be borne by Kennametal.
(d) Employee agrees that he will not at any time aid in attacking the
patentability, scope, or validity of any invention to which the
provisions of subparagraphs (b) and (c), above, apply.
10. In the event that (a) Employee institutes any legal action to enforce
his rights under, or to recover damages for breach of this agreement, or (b)
Kennametal institutes any action to avoid making any payments due to Employee
under this agreement, Employee, if he is the prevailing party, shall be
entitled to recover from Kennametal any actual expenses for attorney's fees
and other disbursements incurred by him in relation thereto.
11. The terms and provision of this agreement shall be binding upon, and
shall inure to the benefit of, Employee and Kennametal, it subsidiaries and
affiliates and their respective successors and assigns.
12. This agreement constitutes the entire agreement between the parties
hereto and supersedes all prior agreements and understandings, whether oral or
written, among the parties with respect to the subject matter hereof. This
agreement may not be amended orally, but only by an instrument in writing
signed by each of the parties to
this agreement.
13. The invalidity or unenforceability of any provision of this agreement
shall not affect the other provisions hereof, and this agreement shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.
14. Any pronoun and any variation thereof used in this agreement shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the parties hereto may require.
15. Kennametal shall be entitled as a condition to paying any severance pay
or providing any benefits hereunder upon a termination of the Employee's
employment to require the Employee to deliver on or before the making of any
severance payment or providing of any benefit a release in the form of Exhibit
A attached hereto.
16. Notwithstanding any other provision of this Agreement, in the event that
any payment or benefit received, or to be received, by Employee in connection
with a change in control of the Corporation, or the termination of the
Employees' employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Corporation, any person whose
actions result in a change in control or any person affiliated with the
Corporation or such person) (collectively, the "Total Payments") would not be
deductible, in whole or in part, as a result of section 28OG of the Internal
Revenue Code of 1986 (the "Code") by the Corporation, an affiliate or other
person making such payment or providing such benefit, the payments due under
this Agreement (the "Contract Payments") shall be reduced until no portion of
the Total Payments is not deductible, or the Contract Payments are reduced to
zero. In the event that the Corporation determines that the Total Payments
would not be deductible, in whole or part, as a result of section 28OG of the
Code, the Corporation shall immediately notify Employee of this determination
and the amount which would not be so deductible as well as a computation of
Total Payments. Employee shall have five (5) business days after receipt of
the foregoing notice and computation to waive in writing all or any portion of
any of the Total Payments and any portion of the Total Payments the receipt or
enjoyment of which Employee shall have effectively waived in writing shall not
be taken into account. If the Corporation had already withheld any Contract
Payments prior to receipt of such waiver, the Corporation upon receipt of such
waiver shall immediately pay to Employee any withheld Contract Payments which
would have been paid had the Corporation had the Employee's written waiver
prior to the date the Corporation withheld any such payments.
For purposes of this limitation:
(a) no portion of the Total Payments shall be taken into account which
in the opinion of tax counsel selected by the Corporation's independent
auditors and acceptable to Employee does not constitute a "parachute
payment" within the meaning of section 28OG(b)(2) of the Code,
(b) the Contract Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those Contract Payments
which are waived in writing by the Employee or referred to in clause
(a)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of section 28OG(b)(4) of the Code
or are otherwise not subject to disallowance as deductions, in the
opinion of the tax counsel referred to in clause (a); and
(c) the value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the
Corporation's independent auditors in accordance with the principles of
section 28OG(d)(3) and (4) of the Code.
17. This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
WITNESS the due execution hereto the day and year first above written.
ATTEST: KENNAMETAL INC.
____________________________________ By: _______________________________
WITNESS: Employee:
____________________________________ _____________________________(Seal)
Exhibit A
RELEASE
KNOW ALL MEN BY THESE PRESENTS that the undersigned for good and valuable
consideration, the receipt of which is hereby acknowledged, and intending to
be legally bound, hereby releases, remises, quitclaims and discharges
completely and forever Kennametal Inc. and its directors, officers, employees,
subsidiaries and affiliates from any and all claims, causes of action or
rights which the undersigned has or may have, whether arising by virtue of
contract or of applicable state laws or federal laws, and whether such claims,
causes of action or rights are known or unknown; provided, however, that this
Release shall not release, raise, quitclaim or discharge any claims, causes of
action or rights which the undersigned may have (i) under that certain Amended
and Restated Employment Agreement dated __________________, ________ between
the undersigned and Kennametal, Inc., (ii) to any unreimbursed expense account
or similar out-of-pocket reimbursement amounts owing the undersigned, or (iii)
under the bylaws of Kennametal, Inc. or the applicable state corporate
statutes to indemnification for having served as an officer and/or employee of
Kennametal, Inc. and/or its subsidiaries.
DATE: _________________ ___________________________________
EXHIBIT 10.2
KENNAMETAL INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Section 1. Purpose and Effective Date.
1.1 The purpose of this Supplemental Executive Retirement Plan is to ensure
the payment of a competitive level of retirement income, in order to
attract, retain, and motivate selected executives. The Plan is also
intended to provide eligible executives with retirement benefits that
cannot be paid from the Company's qualified Retirement Income Plan, due
to various limitations of the United States Internal Revenue Code.
1.2 This Plan was amended and adopted, effective April 21, 1995, and will be
effective for each participant on the date he or she is designated as a
Participant, provided he or she promptly executes an Employment
Agreement.
1.3 The terms of this Plan are applicable only to eligible executives who are
employed by the Company on or after April 21, 1995. Any executive who
retired or otherwise terminated employment prior to such date, shall not
be eligible to be designated a Participant under this Plan unless he or
she returns to service with the Company on or after April 21, 1995.
Section II. Definitions.
2.1 Board of Directors means the Directors of the Company.
2.2 Change in Control shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the
date hereof ("1934 Act"), or if Item 6(e) is no longer in effect, any
regulations issued by the Securities and Exchange Commission pursuant to
the 1934 Act which serve similar purposes; provided that, without
limitation, such a change in control shall be deemed to have occurred if
(i) Kennametal shall be merged or consolidated with any corporation or
other entity other than a merger or consolidation with a corporation or
other entity all of whose equity interests are owned by Kennametal
immediately prior to the merger or consolidation, or (ii) Kennametal
shall sell all or substantially all of its operating properties and
assets to "another person, group of associated persons, or corporation;
or (iii) any person" (as such term is used in Sections 13(d) and 14(d) of
the 1934 Act), is or becomes a beneficial owner, directly or indirectly,
of securities of Kennametal representing 25% or more of the combined
voting power of Kennametal's then outstanding securities coupled with or
followed by the existence of a majority of the board of directors of
Kennametal consisting of persons other than persons who either were
directors of Kennametal immediately prior to or were nominated by those
persons who were directors of Kennametal immediately prior to such person
becoming a beneficial owner, directly or indirectly, of securities of
Kennametal representing 25% or more of the combined voting power of
Kennametal's then outstanding securities.
2.3 Code means the Internal Revenue Code of 1986, as amended from time to
time. References in the Plan to a Code Section shall be deemed to refer
to any successor provision of the Code, as appropriate.
2.4 Committee means the Board of Directors Committee on Executive
Compensation, designated by the Board of Directors to administer the
plan, pursuant to Section 7 of the Code.
2.5 Company means Kennametal Inc., a Pennsylvania corporation, or any
successor bound by this Plan pursuant to Section 8.5.
2.6 Disability means such incapacity due to physical or metal illness or
injury, as causes the Employee to be absent from his principal office at
Kennametal's offices for the entire portion of 180 consecutive business
days.
2.7 Employee means an employee of the Employer.
2.8 Employer means the Company and any subsidiary or affiliate of the Company
whose employees participate in the Plan.
2.9 Employment Agreement means an agreement between an Employer and an
Employee which sets forth terms and conditions of employment and
specifically refers to this Plan.
2.10 Final Base Salary means the Participant's monthly base salary rate,
before any pre-tax reductions pursuant to the Participant's elections
under IRC Section 125 or 402(e)(3), for the calendar month in which
Participant's
Termination of Employment occurs, without regard to any limitations on
compensation under the Code, including those under IRC Section 401(a)
(17), multiplied by twelve (12).
2.11 IRC means the Code.
2.12 Normal Retirement means the first day of the month following the day on
which the Employee reaches the age of sixty-five (65).
2.13 Participant means any Employee of an Employer who is entitled to
participate in the Plan in accordance with Section III. Where the
context so indicates, "Participant" shall also include a retired or
deceased Participant with respect to whom a SERP Benefit is payable.
2.14 Plan means the Company's Supplemental Executive Retirement Plan (SERP),
as set forth herein and as amended and restated from time to time.
2.15 Retirement Income Plan means the Company's qualified Retirement Income
Plan, as it may be amended and restated, from time to time.
2.16 SERP Benefit means the benefit, calculated pursuant to Section V, that is
payable to a Participant under the Plan.
2.17 Target Retirement Income means the total of estimated benefit under the
Company's qualified Retirement Income Plan, plus estimated benefit under
Social Security, plus the amount of SERP Benefit, under Section V of the
Plan.
2.18 Year of Service means each full twelve-month period beyond Employee's
adjusted hire date, as determined pursuant to the Company's regular
personnel records and policies.
Section III. Eligibility.
3.1 Each officer or key executive Employee of the Company approved by the
Committee, in its sole discretion, shall be eligible to participate in
the Plan, upon prompt execution of an Employment Agreement
3.2 Any officer or key executive who becomes a Participant shall continue to
be a Participant until his or her termination of employment, or until a
date prior to such time, as determined by the Committee, in its sole
discretion.
Section IV. Vesting.
4.1 A Participant shall become vested and entitled to receive a benefit under
the Plan, determined in accordance with Section V, only in accordance
with the following schedule:
Age of Participant at Termination Cumulative Vested Plan Benefit
--------------------------------- ------------------------------
Less than age 56 0%
56 20%
57 40%
58 60%
59 80%
60 or older 100%
Notwithstanding the foregoing, a Participant who voluntarily leaves
employment, without Employer's permission, or is involuntarily
terminated, with cause, prior to entitlement to receive benefits pursuant
to Section 6.1, shall forfeit any entitlement to benefits under the Plan.
In the event that Employee shall voluntarily or involuntarily leave the
employ of the Company before his or her retirement date, and the Employee
is not vested as to any portion of the SERP benefit, the obligations of
the Company under Section 6 and 7 of the Plan shall be null and void, and
neither the Employee nor any other person shall in any way be entitled to
any payments hereunder.
4.2 Notwithstanding Section 4.1, each Participant's Plan benefit
automatically shall become 100% vested upon a Change in Control of the
Company.
Section V. Amount of Benefit
5.1 The amount of each Participant's SERP Benefit shall initially be
calculated as the excess of the Target Retirement Income amount over the
sum of the monthly benefit that would be payable as a single life annuity
under the Company's Retirement Income Plan commencing upon a retirement
at age 65, based on credited service and average earnings under the
Retirement Income Plan as of the Participant's termination of employment,
plus the Participant's Social Security benefit, as defined under the
Retirement Income Plan, that would be payable commencing at age 65
assuming the Participant had no further FICA wages or SECA earnings after
termination of employment. This formula calculation shall serve the
Committee as a guideline, but the amount of SERP Benefit of any
Participant shall be determined annually by the Committee, which may
adjust, or depart from, the formula amount, in the Committee's sole
discretion.
5.2 The Target Retirement Income amount, Retirement Income Plan benefit
estimate, and Social Security benefit estimate shall be calculated
according to the methodology described in Appendix A, as approved and
amended, from time to time, by the Committee, in its sole discretion.
5.3 The Committee shall cause the formula calculation described in Sections
5.1 and 5.2 to be done annually, or as otherwise required, for each
Participant. The Committee shall then determine the SERP Benefit amount
for each Participant, which may differ from the amount determined under
the formula, and shall prepare an official list of Participants and their
accrued SERP Benefits, which shall govern the payment of benefits under
the Plan until the next annual review and predetermination of SERP
Benefit amounts.
Section VI. Payment of Benefits.
6.1 Payment of the Participant's SERP Benefit shall commence on the first day
of the month following the month in which the Participant's employment
with the Company terminates due to (1) Normal Retirement from employment
with the Company, (2) retirement from employment with the Company on any
date prior to Normal Retirement that has the prior approval of the
Company's Board of Directors, (3) termination of employment prior to
Normal Retirement as a result of Disability, or (4) retirement from
employment with the Company following a Change In Control, unless the
Participant requests a later payment commencement date.
6.2 A Participant's Plan benefits shall be paid in equal monthly
installments, in the form of a single life annuity with no death or other
survivor benefits other than those described in Section VII.
Section VII. Surviving Spouse and other Death Benefits.
7.1 In the event of the death of a Participant prior to the commencement of
payment of Plan Benefits to the Participant, an amount equal to 50% of
the amount of benefits calculated in accordance with the vesting
provisions of Section IV and the amount of benefit of Section V which
would be otherwise have been payable to the Participant, will instead be
payable to the Participant's surviving spouse. Payments to such spouse
shall be made from the month following the month in which the death of
the Participant occurred until the death of the surviving spouse.
7.2 In the event of the death of a Participant after the commencement of
payment of Plan benefits to the Participant, an amount equal to 50% of
the amount of Plan benefit then being paid to the Participant will
instead be payable to the Participant's surviving spouse. Payments to
such spouse shall be made from the month following the month in which the
death of the Participant occurred, until the death of the surviving
spouse.
7.3 If the surviving spouse is five (5) or more years younger than the
Employee, the monthly payment to the surviving spouse pursuant to
paragraphs 7.1 and 7.2 shall be actuarially adjusted, so that it has the
same present actuarial value as the full 50% payment to a spouse less
than five (5) years younger than the Participant. For this purpose, the
Committee shall use a life expectancy factor derived from the most recent
group annuity mortality tables published by the Society of Actuaries, as
shown in Appendix B of the Plan.
7.4 In the event that the Employee and/or his or her surviving spouse shall
have been entitled to payments under Sections 6 and 7 of the Plan, and
upon the death of the surviving spouse, the aggregate amount of the
cumulative payments of the SERP Benefit shall have been less than
$50,000, the Company shall pay to the estate of the Employee or to such
other person as the Employee shall designate by written notice, an amount
equal to $50,000 less the aggregate amount of the cumulative payments of
the SERP Benefit already made.
Section VIII. Miscellaneous Provisions.
8.1 Administration. The Committee shall be responsible for all facets of
interpretation and administration of the Plan. The Committee may adopt
rules and regulations to assist it in the administration of the Plan.
The Board of Directors has also delegated to the Committee the right to
modify provisions of the Plan in individual cases.
8.2 Non-Competition. Receipt of the SERP Benefits is expressly conditioned
upon the non-competition of the retired Participant with the Company, for
so long as any payments are being made hereunder. Accordingly, unless
the Participant first secures the written consent of the Board of
Directors or the Committee, he shall not directly or indirectly, as an
officer, director, employee, consultant, agent, partner, joint venturer,
proprietor, or other, engage in or assist any business which is or may
become in direct or indirect competition with the Company or any of its
subsidiaries, other than as a mere investor holding not more than 5% of
the equity interest of any such competing enterprise. In the event that
the Committee makes a good-faith determination that a Participant
receiving a SERP Benefit is or may be violating the non-competition
provisions hereof, it shall immediately notify him or her of such finding
in writing and afford him or her a reasonable opportunity (a period of
not less than sixty days) to rebut such finding, or to desist from such
competitive activity. In the event that the Committee believes that a
violation of the non-competition provision continues uncorrected
following the sixty-day period, it may then cease making SERP Benefits
payments, and the retired Participant (and any Spouse or other
beneficiary claiming through the Participant) shall forfeit any right to
future payment of a SERP Benefit under the Plan.
8.3 Source of Benefit Payments. This Plan is intended to be an unfunded plan
of deferred compensation for a select group of management or highly
compensated individuals, and it is intended that SERP Benefits payable
hereunder will be paid from the general assets of the Company. However,
in the event of a Change in Control, amounts payable to Employee or the
surviving spouse or estate, under Sections 6 and 7 of the Plan, may be
provided for in accordance with an Executive Deferred Compensation Trust
(a so-called "Rabbi" trust) between the Company and a trustee. The
Company shall inform the Employee of the identity of the trustee upon the
Employee's request.
8.4 Non-Assignment, Alienation. Nothing in this Plan gives a Participant or
any person claiming payments for or through him or her, any right, title,
or interest in any asset held in the Company, prior to the payment
thereof, and that the right of a Participant to any payment hereunder is
strictly contractual and unsecured, unless a Change in Control causes the
funding of the Plan in the Company's Executive Deferred Compensation
Trust. In addition, the benefits to be paid hereunder may not be
voluntarily or involuntarily sold, transferred, assigned, alienated, or
encumbered, and any such attempt shall be void.
8.5 Obligation of Successors. This Plan shall be binding upon the Company or
any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise), to all or substantially all of the business
and/or assets of the Company, or to any assignee thereof. To the extent
that the Company must take additional contractual or other steps to make
the Plan an enforceable contractual obligation of a successor (e.g., a
purchaser of assets), the Company shall take such steps. This Plan and
all rights of the Participant hereunder shall inure to the benefit of and
be enforceable by the Participant or the Participant's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.
8.6 Amendment, Termination. This Plan may be amended or terminated at any
time, provided that no such amendment or termination shall reduce or
eliminate the right of a Participant to the payment of Plan Benefits
earned prior to such amendment or termination.
8.7 Withholding. The Company may provide for the withholding, from any
benefits payable under this Plan, all Federal, state, city, or other
taxes as shall be appropriate pursuant to any law or governmental
regulation or ruling, and may delay the payment of any benefit until the
Participant or beneficiary provides payment to the Company of all
applicable withholding taxes.
8.8 Miscellaneous. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, to the
extent not governed by federal law. Section headings are for convenience
of reference only, and shall not affect the construction or
interpretation of any of the provisions hereof.
<PAGE>
APPENDIX A, SERP BENEFIT CALCULATION METHOD
Calculation begins with current base salary and years of service, up to the
present date.
Target Retirement Income equals 60% of base salary for 30 years of service,
plus or minus 1% for each year of service greater than or less than thirty.
Therefore:
Years of Service Retirement Target
---------------- -----------------
10 40%
15 45%
20 50%
25 55%
30 60%
35 65%
40 70%
45 75%
Calculate income from Kennametal Retirement Income Plan, based on current
years of service and pensionable earnings, to date, and including current
statutory limitations (IRC Sections 415 and 401(17)), but not actuarially
reduced for age less than 65.
Calculate income from Social Security, based on earnings to date, but not
reduced for age less than 65.
Retirement Income Plan plus Social Security equals Total Funded Retirement
Income from qualified plans.
SERP Benefit equals Target Retirement Income (above) minus Total Funded
Retirement Income from qualified plans.
However, minimum SERP Benefit is 10% of current base salary.
If prior SERP Benefit (as last calculated under the above described method and
determined and approved by the Committee in its annual review of the same) is
greater than new SERP Benefit, use prior SERP Benefit.
Therefore, SERP Benefit is the greatest of:
Target Retirement minus Total Funded Retirement Income,
10% of Current Base Salary, or
Prior SERP Benefit.
<PAGE>
APPENDIX B
LIFE EXPECTANCIES FROM THE 1994 UP MORTALITY TABLE
Age Male Female Age Male Female
- --- --------- --------- --- --------- ---------
20 58.689676 63.439521 65 17.301673 20.733104
21 57.721384 62.458711 66 16.567774 19.922360
22 56.753995 61.477787 67 15.852596 19.126492
23 55.787630 60.496744 68 15.155361 18.344112
24 54.822623 59.515516 69 14.474231 17.572161
25 53.859070 58.533981 70 13.807539 16.808107
26 52.897006 57.552138 71 13.154894 16.051847
27 51.936249 56.570159 72 12.516970 15.305311
28 50.976471 55.588318 70 11.895300 14.572070
29 50.017407 54.606930 74 11.289425 13.854374
30 49.058903 53.626184 75 10.697900 13.152659
31 48.100761 52.646205 76 10.121208 12.467970
32 47.142792 51.667107 77 9.561406 11.801827
33 46.184865 50.688947 78 9.021858 11.156078
34 45.226529 49.711724 79 8.505843 10.530978
35 44.267364 48.735436 80 8.014790 9.925826
36 43.307409 47.760220 81 7-548836 9.340932
37 42.347090 46.786204 82 7.107007 8.777414
38 41.387178 45.813644 83 6.687359 8.236987
39 40.428474 44.842772 84 6.285696 7.719357
40 39.471398 43.873849 85 5.898198 7.223015
41 38.516336 42.906937 86 5.523671 6.747887
42 37.563597 41.941959 87 5.163141 6.295031
43 36.613496 40.978756 88 4.819594 5.866464
44 35.666021 40.016924 89 4.496051 5.463912
45 34.721182 39.056122 90 4.193604 5.087653
46 33.779283 38.096450 91 3.912324 4.737174
47 32.840954 37.138220 92 3.651468 4.411342
48 31.907044 36.182042 93 3.409583 4.108517
49 30.978090 35.228328 94 3.0187285 3.827037
50 30.054402 34.277235 95 2.986195 3.565508
51 29.136469 33.329133 96 2.806213 3.322551
52 28.225043 32.384506 97 2.645659 3.096798
53 27.321021 31.443972 98 2.501069 2.886902
54 26.424628 30.507483 99 2.368067 2.692192
55 25.535831 29.574787 100 2.243346 2.512150
56 24.655321 28.646560 101 2.124336 2.345559
57 23.784341 27.724202 102 2.009036 2.190383
58 22.924662 26.809797 103 1.895858 2.043361
59 22.077319 25.905022 104 1.786991 1.904998
60 21.242746 25.010822 105 1.684548 1.776622
61 20.421814 24.128172 106 1.584660 1.653351
62 19.615791 23.258043 107 1.473289 1.520196
63 18.826204 22.401396 108 1.316861 1.343162
64 18.054561 21.559462 109 1.048860 1.058194
110 .541667 .541667
EXHIBIT 10.3
AMENDMENT
TO CREDIT AGREEMENT
This AMENDMENT NO. 1 to Credit Agreement (this "Amendment") dated
and effective as of April 29, 1997 by and among KENNAMETAL INC., a
Pennsylvania corporation (the "Borrower"), and DEUTSCHE BANK AG, New York
Branch and/or Cayman Islands Branch, MELLON BANK, N.A., and PNC BANK, NATIONAL
ASSOCIATION (the "Lenders"):
RECITALS:
---------
A. The Borrower and the Lenders entered into a Credit Agreement
dated as of April 19, 1996, (the "Credit Agreement").
B. The Borrower has requested the Lenders to amend the Credit
Agreement in certain respects and the Lenders have agreed to such amendments
as are set forth herein.
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, covenant and agree, as follows:
SECTION 1. Definitions. In addition to other words and terms
defined in this Amendment, capitalized terms not otherwise defined herein
shall have the meanings given to them in the Credit Agreement.
SECTION 2. Amendments to Credit Agreement. The Credit Agreement
is amended in the following respects:
(a) Additions and Amendments to Definitions.
( i) The following new definitions are added in
alphabetical order to Section 1.01:
"Amendment" shall mean Amendment No. 1 to Credit
Agreement dated as of April 29, 1997 among the
Borrower and the Lenders.
"Commitment Reduction Date" shall mean
April 28, 1998.
(ii) The definition of Bid Loan Notes in Section 1.01 shall
be deleted and replaced with the following: "Bid Loan Notes"
shall mean the promissory notes of the Borrower executed and
delivered under Section 2.02(k) and/or pursuant to the
Amendment, and any promissory note issued in substitution
therefor pursuant to Section 8.14(c), together with all
extensions, renewals, refinancings or refundings thereof in
whole or in part.
(iii) The definition of Revolving Credit Note in Section
shall be deleted and replaced with the following:
"Revolving Credit Note" shall mean the promissory notes of the
Borrower executed and delivered under Section 2.01(c) hereof
and/or pursuant to the Amendment, any promissory note issued
in substitution therefor pursuant to Sections 2.13(b) or
8.14(c) hereof, together with all extensions, renewals,
refinancings or refundings thereof in whole or in part.
(b) The following shall be added as a new Section 2.06(d):
"(d) Mandatory Repayments - Commitment Reduction. If
the amount of Loans outstanding at any time exceeds
the Total Committed Amounts for any reason, including
by reason of the reduction in the Total Committed
Amounts on the Commitment Reduction Date, then
Borrower shall repay an aggregate principal amount of
Loans so that after such repayment, the outstanding
principal amount of Loans shall not exceed the Total
Committed Amounts."
(c) The last sentence of Section 2.01(A) shall be deleted and
replaced with the following: "Each Lender's Revolving Credit Committed Amount
shall be equal to (i) a tranche in an amount equal to $20,000,000 for the
period from and after the effective date of the Amendment to but excluding the
Commitment Reduction Date and (ii) an additional tranche in an amount equal to
$30,000,000 from and after the Closing Date to but excluding the Maturity
Date, in each case as such amount may have been reduced under Section 2.01(e)
hereof at such time, and subject to transfer to another Lender as provided in
Section 8.14 hereof and termination in accordance with Section 7.02 hereof."
(d) Section 6.01(a) is deleted and replaced with the following:
"Section 6.01(a). (a) Consolidated Tangible Net Worth.
Consolidated Tangible Net Worth shall not at any time be less than
for the period from the effective date of the Amendment to
October 31, 1997, $300,000,000 plus 40% of Consolidated Net
Income for Borrower's 1997 fiscal year ending June 30,
1997 (with no downward adjustment if such Consolidated Net Income
is negative) (such sum is hereafter referred to as the "1997 Net
Worth Covenant Amount") and (ii) for periods from and after
October 31, 1997, the greater of (x) 75% of Consolidated Tangible
Net Worth on September 30, 1997, or (y) the 1997 Net Worth
Covenant Amount. The applicable amount referred to in clause (ii)
above shall be increased by 40% of Consolidated Net Income for
each fiscal year of Borrower from and after (and including)1998,
with no downward adjustment for any fiscal year in which
Consolidated Net Income is negative."
(e) Section 2.02(j) and Section 2.04 (b) (iii) shall each be
amended by replacing the period at the end thereof with a comma and inserting
the following after such comma: "including, without limitation, by reason of
the reduction in each Lender's Revolving Credit Committed Amount on the
Commitment Reduction Date."
(f) The date "June 30, 1995" in each of Sections 3.06, 3.08 and
3.09 is deleted and replaced in each case with "June 30, 1996."
(g) The date "July 1, 1995" in Section 3.07 is deleted and
replaced with "July 1, 1996."
(h) Schedule 3.10 is deleted and is replaced with Schedule 3.10
attached hereto.
SECTION 3. Representations and Warranties. The Borrower
represents and warrants to the Lenders that:
(a) Power and Authority. The Borrower has power and authority
to execute, deliver and carry out the provisions of this Amendment and the
Loan Documents, as amended hereby (collectively, the "Amended Credit
Documents") including the Notes referred to in Section 4(b) hereof (for
purposes of this Amendment, the "Notes") and to borrow the Total Committed
Amounts thereunder. The execution and delivery of this Amendment and the
Notes have been duly authorized by all necessary action on the part of the
Borrower. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required in
connection with the execution and delivery of this Amendment or the Notes.
(b) Enforceability. This Amendment and the Notes have been duly
and validly executed and delivered by the Borrower and the Amended Credit
Documents constitute legal, valid and binding agreements of the Borrower
enforceable in accordance with their respective terms, except as
enforceability of the foregoing may be limited by bankruptcy, insolvency or
other laws of general application relating to or affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies.
(c) Conflict with Other Instruments. Neither the execution and
delivery of this Amendment or the Notes nor consummation of the transactions
contemplated herein or in the Amended Credit Documents or compliance with the
terms and provisions hereof or thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the articles of
incorporation or by-laws (or other constituent documents) of the Borrower or
any of its Subsidiaries, any Law or any agreement or instrument which is
material to the Borrower and its Subsidiaries taken as a whole or constitute a
default thereunder.
(d) Representations and Warranties under the Credit Agreement.
The representations and warranties contained in the Amended Credit Documents
are true on and as of the date hereof with the same effect as though such
representations and warranties had been made on and as of the date hereof.
(e) Events of Default. No Event of Default and no Potential
Default has occurred and is continuing or exists under the Credit Documents or
will occur or exist after giving effect to this Amendment.
For purposes of Section 7.01(c) of the Credit Agreement, the
foregoing representations and warranties shall be deemed to have been made in
connection with the Credit Agreement.
SECTION 4. Conditions of Amendment. Subject to the following
conditions, the provisions of Section 2 of this Amendment shall become
effective:
(a) Corporate Action. The Borrower shall have furnished to each
Lender a certificate certifying as to (i) the corporate action referred to in
Section 3 (a) hereof, (ii) any amendments to the Borrower's articles of
incorporation or by-laws since April 19, 1996 (or a statement that there have
been no such amendments), and (iii) the incumbency of the officers authorized
to sign this Amendment, the Notes and any other documents, instruments or
certificates required under this Amendment, together with true signatures of
such officers. The Lenders may conclusively rely on such certificate.
(b) Notes. The Borrower shall have furnished duly executed Notes
to each Lender, in the forms attached hereto as Exhibit A and Exhibit B.
(c) Opinion of Counsel. Each Lender shall have received an
opinion to each Lender dated the date hereof, of David Cofer, Esquire, General
Counsel of Borrower in substantially the same form originally delivered in
connection with the Credit Agreement, but taking into account the execution
and delivery hereof and the Notes in connection herewith.
(d) Additional Matters. Each Lender shall have received such
other certificates, opinions, documents and instruments as may be requested by
any Lender. All corporate and other proceedings, and all documents,
instruments and other matters in connection with the transactions contemplated
by this Agreement and the other Loan Documents shall be satisfactory in form
and substances to each Lender.
SECTION 5. Miscellaneous. The Borrower agrees to reimburse the
Lenders for their reasonable out-of-pocket expenses arising in connection with
the negotiation, preparation and execution of this Amendment, including the
reasonable fees and expenses of internal counsel for Mellon Bank, N.A..
Except as amended or waived hereby, the provisions of the Loan
Documents shall remain in full force and effect.
This Amendment shall be deemed to be a contract under the laws of
the Commonwealth of Pennsylvania and for all purposes shall be construed in
accordance with and governed by the laws of such Commonwealth.
This Amendment may be executed in as many counterparts as may be
deemed necessary and convenient and by the separate parties hereto on separate
counterparts, each of which when so executed and delivered shall be deemed to
constitute an original, but all such separate counterparts shall constitute
but one and the same instrument.
If any provision of this Amendment, or the application thereof to
any party thereto, shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions or applications of this
Amendment which can be given effect without the invalid and unenforceable
provision or application, and to this end the parties hereto agree that the
provisions of this Amendment are and shall be severable.
IN WITNESS WHEREOF, the parties hereto by their officers thereunto
duly authorized have executed this Amendment as of the date and year first
above written.
[Corporate Seal]
Attest: KENNAMETAL INC.
_____________________________ By_______________________________
Title________________________ Title____________________________
DEUTSCHE BANK AG, MELLON BANK, N.A.
New York Branch and/or
Cayman Islands Branch
By_______________________ By_______________________________
Title________________________ Title____________________________
PNC BANK, NATIONAL ASSOCIATION
By___________________________
Title________________________
<PAGE>
EXHIBIT A
KENNAMETAL INC.
REVOLVING CREDIT NOTE
$50,000,000 Pittsburgh, Pennsylvania
April 29, 1997
FOR VALUE RECEIVED, the undersigned, KENNAMETAL INC., a
Pennsylvania corporation (the "Borrower"), promises to pay to the order of
[NAME OF LENDER], (the "Lender") on or before the Maturity Date, and at such
earlier dates as may be required by the Agreement (as defined below), the
aggregate unpaid principal amount of all Revolving Credit Loans made by the
Lender to the Borrower from time to time pursuant to the Agreement. The
Borrower further promises to pay to the order of the Lender interest on the
unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to the Agreement, payable on the dates set
forth in the Agreement.
This Note is one of the "Revolving Credit Notes" as referred to
in, and is entitled to the benefits of, the Credit Agreement, dated as of the
date hereof, by and among the Borrower and the Lenders (as the same may be
amended, modified or supplemented from time to time, the "Agreement") which
among other things provides for the acceleration of the maturity hereof upon
the occurrence of certain events and for repayments in certain circumstances
and upon certain terms and conditions. Terms defined in the Agreement have
the same meanings herein.
The Borrower hereby expressly waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the
Agreement, and an action for amounts due hereunder or thereunder shall
immediately accrue.
This Note shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, without regard
to principles of choice of law.
KENNAMETAL INC.
By:_______________________
Title:
<PAGE>
EXHIBIT B
KENNAMETAL INC.
BID LOAN NOTE
$150,000,000 Pittsburgh, Pennsylvania
April 29, 1997
FOR VALUE RECEIVED, the undersigned, KENNAMETAL INC., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of [NAME OF LENDER]
(the "Lender") (i) on the last day of the Funding Period, the aggregate unpaid
principal amount of all Bid Loans made by the Lender to the Borrower pursuant
to Section 2.02 of the Agreement to which such Funding Period applies and (ii)
on the Maturity Date, the lesser of the principal sum of ONE HUNDRED FIFTY
MILLION DOLLARS ($150,000,000) or the aggregate unpaid principal amount of all
Bid Loans made by the Lender to the Borrower pursuant to Section 2.02 of the
Agreement. The Borrower further promises to pay to the order of the Lender
interest on the unpaid principal amount hereof from time to time outstanding
at the rate or rates per annum determined pursuant to the Agreement, payable
on the dates set forth in the Agreement.
This Note is one of the "Bid Loan Notes" as referred to in, and is
entitled to the benefits of, the Credit Agreement, dated as of the date
hereof, by and among the Borrower and the Lenders parties thereto from time to
time (as the same may be amended, modified or supplemented from time to time,
the "Agreement"), which among other things provides for the acceleration of
the maturity hereof upon the occurrence of certain events and for repayments
in certain circumstances and upon certain terms and conditions. Terms defined
in the Agreement have the same meanings herein.
The Borrower hereby expressly waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the
Agreement, and an action for amounts due hereunder or thereunder shall
immediately accrue.
This Note shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to
principles of choice of law.
KENNAMETAL INC.
By: ________________________________
Title ________________________________
EXHIBIT 99
April 28, 1997
Immediate
KENNAMETAL ANNOUNCES INITIAL PUBLIC OFFERING OF JLK DIRECT DISTRIBUTION INC.
Latrobe, Pa., April 28, 1997 - Kennametal Inc. (KMT/NYSE) announced today that
the Board of Directors approved a proposal to sell, through an initial public
offering (IPO), up to 20 percent of common stock by its newly formed
subsidiary, JLK Direct Distribution Inc. (JLK). Following the offering,
Kennametal will own approximately 80 percent of the outstanding common stock
of JLK and will retain a majority of both the economic and voting interests of
JLK. The Company also announced the filing of a registration statement with
the Securities and Exchange Commission (SEC) covering this offering.
President and Chief Executive Officer Robert L. McGeehan said, "We are taking
this action to increase visibility to investors of our fast-growing
metalworking industrial supply distribution business, to enhance the
implementation of our strategic business plan and to further increase the
value of Kennametal stock. This should have a positive effect on Kennametal's
continued growth by providing focused leadership and entrepreneurial
incentives to the metalworking industrial supply distribution business." Mr.
McGeehan added, "Mike Ruprich will become the chief executive officer of JLK.
Mike previously served as Kennametal's director of global marketing and sales
for the past year and before that as president of J&L America, Inc."
JLK, the newly formed subsidiary of Kennametal, will operate the industrial
supply business consisting of its wholly owned J&L America, Inc. (J&L)
subsidiary and its Full Service Supply program. JLK will market the full
Kennametal line of metalcutting products, a broad range of metalworking
tooling and related products, including a full line of cutting tools, carbide
and other metalworking inserts, abrasives, drills, machine tool accessories
and other industrial supplies. The Company will meet the needs of small and
medium-sized customers through its direct marketing catalog and showroom
programs and will serve large industrial manufacturers through integrated
industrial supply programs.
Additionally, on April 25, 1997, Kennametal, through its J&L subsidiary,
entered into an agreement to acquire all the outstanding stock of the
Strelinger Company (Strelinger). Strelinger is based in Troy, Michigan, and
is engaged in the distribution of metalcutting tools and industrial supplies.
Strelinger had sales of $30 million in its latest fiscal year and employed
approximately 85 people. J&L will pay approximately $4 million in cash and
will assume certain liabilities totaling $7 million. The transaction is
expected to close on April 30, 1997.
Michael W. Ruprich, newly appointed chief executive officer of JLK, stated,
"This acquisition meets our strategic requirements and will allow us to
increase our influence in the Midwest, which is one of the largest markets for
consumable industrial supplies." Ruprich added, "Strelinger has very positive
brand name recognition, experienced management and excellent existing
locations coupled with a strong metalworking focus. This acquisition will
give us greater access to customers' tool crib management programs and will
accelerate our penetration of medium-sized accounts."
Merrill Lynch & Co. and Goldman, Sachs & Co. have been selected as the
managing underwriters of the offering. The proposed public offering is
expected to occur in the second quarter of calendar 1997, subject to market
conditions. In addition, JLK will grant to the underwriters a 30-day over-
allotment option to purchase shares of common stock.
A registration statement relating to these securities has been filed with the
SEC, but has not yet become effective. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This news release shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sales of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the March 31, 1997 Consolidated Financial Statements
(unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> MAR-31-1997
<CASH> 18,698
<SECURITIES> 0
<RECEIVABLES> 195,397
<ALLOWANCES> 7,678
<INVENTORY> 203,902
<CURRENT-ASSETS> 434,146
<PP&E> 617,845
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 832,392
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<OTHER-EXPENSES> 19,616
<LOSS-PROVISION> 1,447
<INTEREST-EXPENSE> 8,159
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