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, 1994
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 Number)
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, 1994
------------------- -------------------------------
Capital Stock, par value $1.25 per share 13,168,435
KENNAMETAL INC.
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1994
--------------------------------
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1994 and June 30, 1993
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended March 31, 1994 and 1993
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended March 31, 1994 and 1993
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KENNAMETAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------
(Dollars in thousands)
March 31, June 30,
1994 1993
------------- ----------
ASSETS
- ------
Current Assets:
Cash and equivalents $ 13,429 $ 4,149
Accounts receivable, less allowance for
doubtful accounts of $9,235 and $2,062 142,179 89,496
Inventories 156,896 115,230
Other current assets 12,252 -
---------- ----------
Total current assets 324,756 208,875
---------- ----------
Property, plant and equipment 475,891 402,428
Less: accumulated depreciation (220,874) (210,123)
---------- ----------
Net property, plant and equipment 255,017 192,305
---------- ----------
Other Assets:
Investments in affiliated companies 4,962 4,819
Intangible assets, less accumulated
amortization of $15,472 and $12,368 57,598 29,766
Other 27,937 12,498
---------- ----------
Total other assets 90,497 47,083
Total assets $ 670,270 $ 448,263
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of term debt
and capital leases $ 4,530 $ 2,184
Notes payable to banks 49,977 20,553
Accounts payable 44,877 32,492
Accrued vacation pay 15,887 12,233
Other 80,822 20,536
---------- ----------
Total current liabilities 196,093 87,998
---------- ----------
Term Debt and Capital Leases
Less Current Maturities 89,530 87,891
Deferred Income Taxes 18,641 10,744
Other Liabilities 52,055 6,489
---------- ----------
Total liabilities 356,319 193,122
---------- ----------
Minority Interest 4,690 -
Shareholders' Equity:
Capital stock, $1.25 par value;
30,000,000 shares authorized;
14,684,829 and 12,712,579 shares issued 18,356 15,891
Preferred stock, 5,000,000 shares authorized
and none issued - -
Additional paid-in capital 102,042 28,135
Retained earnings 235,461 263,531
Treasury shares, at cost (1,518,976 and
1,754,744 shares) (39,529) (44,974)
Cumulative translation adjustments (7,069) (7,442)
---------- ----------
Total shareholders' equity 309,261 255,141
---------- ----------
Total liabilities and shareholders' equity $ 670,270 $ 448,263
========== ==========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- -------------------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31,
1994 1993 1994 1993
---------- ---------- ---------- ----------
NET SALES $211,809 $153,691 $582,641 $443,218
COSTS AND EXPENSES:
Cost of goods sold 123,380 88,748 347,281 264,725
Research and development 3,080 3,698 10,670 11,255
Marketing 49,183 36,348 139,397 107,804
General and administrative 14,249 10,082 43,921 31,617
Interest expense 3,099 2,420 10,786 7,238
Amortization of intangibles 1,012 949 2,971 2,606
Restructuring charge - - 24,749 -
Patent Settlement - - - (1,738)
--------- --------- --------- ---------
Total costs and expenses 194,003 142,245 579,775 423,507
--------- --------- --------- ---------
OTHER INCOME 673 287 1,633 525
INCOME BEFORE TAXES ON INCOME,
MINORITY INTEREST AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 18,479 11,733 4,499 20,236
PROVISION FOR INCOME TAXES 7,500 4,400 7,997 7,800
MINORITY INTEREST IN LOSSES OF
HERTEL AG 111 - 626 -
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 11,090 7,333 (2,872) 12,436
CUMULATIVE EFFECT OF ACCOUNTING CHANGES,
NET OF INCOME TAXES:
POSTRETIREMENT BENEFITS - - (20,060) -
INCOME TAXES - - 5,057 -
--------- --------- --------- ---------
NET INCOME (LOSS) $ 11,090 $ 7,333 $(17,875) $ 12,436
========= ========= ========= =========
PER SHARE DATA:
Earnings (loss) before cumulative
effect of accounting changes $ 0.85 $ 0.68 $ (0.25) $ 1.15
Cumulative effect of accounting changes:
Postretirement benefits - - (1.69) -
Income taxes - - 0.43 -
--------- --------- --------- ---------
Earnings (loss) per share $ 0.85 $ 0.68 $ (1.51) $ 1.15
========= ========= ========= =========
Dividends per share $ 0.29 $ 0.29 $ 0.87 $ 0.87
========= ========= ========= =========
Average shares outstanding
(in thousands) 13,111 10,858 11,846 10,835
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
KENNAMETAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -----------------------------------------------------------
(Dollars in thousands)
Nine Months Ended
-----------------
March 31,
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(17,875) $ 12,436
Adjustments for non-cash items 48,877 23,884
Changes in certain assets and liabilities (12,640) (12,697)
---------- ----------
Net cash flow from operating activities 18,362 23,623
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (21,111) (17,784)
Purchase of Hertel AG, net of cash (19,226) -
Other 4,949 (1,866)
---------- ----------
Net cash flow used for investing activities (35,388) (19,650)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 11,636 1,126
Increase in term debt 3,938 1,000
Reduction in term debt (62,144) (4,201)
Net proceeds from issuance of common stock 73,692 -
Dividend reinvestment and employee stock plans 8,126 1,800
Cash dividends paid to shareholders (10,196) (9,421)
Other 210 750
---------- ----------
Net cash flow from (used for) financing activities 25,262 (8,946)
---------- ----------
Effect of exchange rate changes on cash 1,044 (85)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 9,280 (5,058)
Cash and equivalents, beginning 4,149 9,007
---------- ----------
Cash and equivalents, ending $ 13,429 $ 3,949
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 8,440 $ 6,363
Income taxes paid $ 7,752 $ 11,902
See accompanying notes to condensed consolidated financial statements.
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 1993 Annual Report. The condensed
consolidated balance sheet as of June 30, 1993 has been derived from
the audited balance sheet included in the company's 1993 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, 1994 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 60 percent of total
inventories at March 31, 1994. 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 (dollars in thousands):
March 31, June 30,
1994 1993
------------- ---------
Finished goods $108,579 $ 97,365
Work in process and powder blends 53,967 38,177
Raw materials and supplies 21,041 8,803
---------- ----------
Inventory at current cost 183,587 144,345
Less LIFO valuation (26,691) (29,115)
---------- ----------
Total inventories $156,896 $115,230
========== ==========
4. In the ordinary course of business, there have been various legal
proceedings brought against the company, including certain product
liability cases. Since 1984, the company, along with varying numbers
of other parties, has been named as a codefendant in numerous
complaints which allege that former or existing employees of
competitors and customers suffered personal injury as a result of
exposure to certain metallurgical substances or other materials during
their employment. The involvement of many of the defendants,
including the company, is based on assertions that these defendants
sold metallurgical materials or other products to the plaintiffs'
former or existing employers. Unspecified damages are sought jointly
and severally from all defendants, with certain of the complaints
seeking both compensatory and punitive damages and others seeking
compensatory damages only. The company is vigorously defending these
cases and, to date, a significant number of these cases have been
either dismissed or settled for a nominal amount. All such dismissed
or settled cases have been resolved without a finding of liability of
the company. It is management's opinion, based on its evaluation and
discussions with outside counsel, that the company has viable defenses
to the remaining complaints and that, in any event, this litigation
will not have a material adverse effect on the results of operations
or financial position of the company.
The company has been involved in various environmental clean-up 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 or financial position of
the company.
The company maintains a Corporate Environmental, Health and Safety
(EH&S) Department to effect compliance with all 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. On August 4, 1993, the company completed the acquisition of an 81
percent interest in Hertel AG (Hertel) for $43 million in cash and $55
million of assumed debt. Hertel is a manufacturer of cemented carbide
tools and tooling systems based in Furth, Germany.
The Hertel acquisition was recorded under the purchase method of
accounting and, accordingly, the results of operations of Hertel for
the period beginning as of August 4, 1993 forward are included in the
accompanying financial statements. The purchase price has been
allocated to assets acquired and liabilities assumed based on fair
market values at the date of acquisition. The excess of the purchase
price over the fair market value of the net assets acquired has been
recorded as goodwill and is being amortized over forty years. The
fair values of assets acquired and liabilities assumed are summarized
below (in thousands):
Current assets $117,500
Property, plant and equipment 73,700
Intangible assets (goodwill) 30,900
Other noncurrent assets 10,700
Current liabilities 102,400
Long-term liabilities 83,200
As presented above, current liabilities includes a reserve of
approximately $34.1 million (pretax) for the restructuring of Hertel.
The restructuring costs primarily include amounts for severance, phase-
out, relocation and provisions for the disposal of surplus inventory
and machinery and equipment. It is expected that the restructuring,
which began on August 4, 1993, will be substantially completed during
fiscal year 1995.
The effect of the purchase on the company's operations, assuming the
transaction had occurred on July 1, 1992, would be as follows:
PRO FORMA (UNAUDITED)
- ---------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, March 31,
1994 1993 1994 1993
-------- -------- --------- --------
Net sales $211,809 $218,933 $595,323 $572,124
======== ======== ========= ========
Income (loss) before cumulative
effect of accounting changes $ 11,090 $ 5,715 $ (4,651) $ 5,971
======== ======== ========= ========
Net income (loss) $ 11,090 $ 5,715 $(19,654) $ 5,971
======== ======== ========= ========
Per share data:
Earnings (loss) before cumulative
effect of accounting changes $ 0.85 $ 0.53 $ (0.40) $ 0.55
Cumulative effect of accounting changes:
Postretirement benefits - - (1.69) -
Income taxes - - 0.43 -
-------- -------- --------- --------
Earnings (loss) per share $ 0.85 $ 0.53 $ (1.66) $ 0.55
======== ======== ========= ========
The pro forma financial information presented above does not purport
to present what the company's results of operations would actually
have been if the acquisition of Hertel had occurred on July 1, 1992,
or to project the company's results of operations for any future
period.
6. In connection with the acquisition of Hertel, the company announced on
September 3, 1993 that it intends to close its manufacturing facility
in Neunkirchen, Germany. During the September 1993 quarter, the
company recognized a special charge of approximately $20.4 million
after taxes in connection with the Neunkirchen closure and other
integration related actions.
7. Effective July 1, 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The
change did not significantly affect earnings before cumulative effect
of changes in methods of accounting in the three and nine month
periods ended March 31, 1994.
The company provides varying levels of postretirement health care and
life insurance benefits to most U.S. employees who retire from active
service after having attained age 55 and 10 years of service. This
plan remains in effect for all current retirees and employees that
will retire prior to January 1, 1997. However, for those employees
retiring on or after January 1, 1997, the following plan amendments
will be effective. The retirees' health care payments will be capped
at 1996 levels. To qualify for medical benefits at normal retirement
(age 65 or later), employees must have a minimum of 5 years of service
after age 40. Medical benefits will be available for only those
retirements that begin on or after the normal retirement age of 65.
The following table presents the components of the company's liability
for future retiree health care and life insurance benefits as of
July 1, 1993:
(Dollars in thousands)
July 1,
1993
-------------
Accumulated postretirement benefit obligation:
Retirees $(15,100)
Fully eligible active participants (7,600)
Other active participants (11,300)
---------
Total $(34,000)
Assets at fair value -
---------
Accrued postretirement benefit cost $(34,000)
=========
As of March 31, 1994, the company's accrued postretirement benefit
liability was $35.3 million.
The components of retiree health care cost for the three and nine month
periods ended March 31, 1994 were as follows:
(Dollars in thousands)
Three Months Nine Months
Ended March 31, Ended March 31,
1994 1994
----------------- -----------------
Service cost $ 300 $ 900
Interest cost 700 2,100
------ ------
Total cost $1,000 $3,000
====== ======
The discount rate used in calculating the accumulated postretirement
benefit obligation is 8.5 percent. For fiscal year 1994, the assumed
rates of increase in health care costs used to calculate the
accumulated postretirement benefit obligation are 15.0 percent for
retirees under age 65 and 10.0 percent for persons age 65 and older.
These rates are assumed to decrease to varying degrees annually to 6.0
percent for years 2002 and thereafter. A one percent increase in the
trend rate would increase both the accumulated postretirement benefit
obligation at July 1, 1993 and the total cost of the plan for the
third quarter of fiscal year 1994 by approximately eight percent. The
accumulated postretirement benefit obligation is unfunded.
8. Effective July 1, 1993, the company adopted SFAS No. 109, "Accounting
for Income Taxes." The company previously accounted for income taxes
pursuant to the provisions of APB No. 11. The new standard requires
the use of the liability method to recognize deferred income tax
assets and liabilities using expected future tax rates. As a result
of implementing the change in accounting principle, a net deferred tax
liability of $5.6 million was recognized relating to net operating
loss carryforwards and other tax attributes existing as of July 1,
1993. In addition, the income tax effect of the new method of
accounting related to the company's adoption of SFAS No. 106 as of
July 1, 1993 was the recognition of additional deferred tax assets of
$13.9 million. The combined effect of these items resulted in the
recognition of an $8.3 million net deferred tax asset and a net income
tax benefit of $5.1 million. The components of the company's deferred
income tax assets and liabilities arising under SFAS No. 109 were as
follows:
(Dollars in thousands)
As of
July 1, 1993
---------------------
Deferred tax assets:
Net operating loss carryforwards $ 1,086
Deductible temporary differences:
Inventories 6,375
Property, plant and equipment 1,902
Vacation pay 3,287
Pensions and other long-term liabilities 2,288
Postretirement benefits other than pensions 13,940
Other deductible temporary differences 2,424
Valuation allowance (1,086)
--------
30,216
Deferred tax liabilities:
Accumulated depreciation (21,953)
--------
Net deferred tax asset $ 8,263
========
As of July 1, 1993, the company had available foreign net operating
loss carryforwards of approximately $3.2 million expiring in 1996
through 2001.
As a component of its cumulative adjustment from implementing
SFAS No. 109, the company recognized a charge of $1.1 million to
establish a valuation reserve related to certain tax attributes
comprising its net deferred tax asset. As of July 1, 1993, deferred
tax liabilities associated with existing taxable temporary differences
exceeded deferred tax assets from future deductible temporary
differences, excluding those attributable to SFAS No. 106, by
approximately $5.7 million. The recognition by the company as of
July 1, 1993 of the entire transition obligation related to adopting
the provisions of SFAS No. 106 resulted in the recognition of a $13.9
million deferred tax asset. Future operating costs under SFAS No. 106
are expected to exceed deductible amounts for income tax purposes for
many years. In addition, under current Federal tax regulations,
should the company incur tax losses in future periods, such losses may
be carried forward to offset taxable income for a period of up to 15
years. Based upon the length of the period during which the SFAS No.
106-generated deferred tax asset can be utilized, the company believes
that it is more likely than not that future taxable income will be
sufficient to fully offset these future deductions and a valuation
allowance for this deferred tax asset is not necessary. The length of
time associated with the carryforward period available to utilize
existing net operating losses is more definite. The company has
adopted a conservative approach with respect to these attributes and
provided a valuation allowance as of July 1, 1993 equal to 100% of the
value of its net operating loss carryforwards.
9. In July 1993, in connection with the acquisition of Hertel, the
company entered into a new $130 million credit agreement. The credit
agreement provided a $40 million bridge loan facility and $90 million
of revolving credit lines. The new revolving credit lines replaced
previous facilities totaling $80 million. These revolving credit
lines, of which $3.0 million were utilized at March 31, 1994, allows
borrowings through July 1996 and requires a facility fee of .15
percent per annum on the total revolving credit commitment. In
addition, there is a commitment fee of .10 percent per annum on
unborrowed amounts under one-half of the revolving credit lines.
The new credit agreement requires compliance with certain financial
covenants related to, among others, tangible net worth, fixed charge
coverage and debt leverage. The company has remained in compliance
with these covenants since the inception of this agreement.
The company also arranged DM113.5 million ($69 million) of credit
lines for Hertel which are guaranteed by the company. These
facilities, of which DM48.2 million ($28.9 million) were utilized at
March 31, 1994, allow borrowings through August 1996 and require
either a facility fee of .25 percent to .375 percent per annum on the
total facility or a commitment fee of .25 percent per annum on
unborrowed amounts.
10. On December 23, 1993, the company completed the sale of 1,715,000
shares of common stock to underwriters, at a price of $37.605 per
share, who resold these shares to the public at a price of $39.375 per
share. The net proceeds to the company were $64,018,500. In
addition, the underwriters exercised the over-allotment option for an
additional 257,250 shares of common stock at the same price per share
resulting in additional proceeds of $9,673,900. The total proceeds to
the company were $73,692,400.
The company used $38,700,000 of the proceeds from the offering to
repay the bridge loan, which has expired, and $34,992,400 to reduce
borrowings under the revolving credit lines.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
On August 4, 1993, the company completed the previously announced
acquisition of an 81 percent interest in Hertel. In connection with the
acquisition, the company obtained a new $130 million credit agreement dated
as of July 29, 1993 (the "credit agreement"). The credit agreement
provided a $40 million bridge loan facility dedicated to purchasing Hertel
shares ($38.7 million of which was borrowed) and $90 million of revolving
credit lines in two equal tranches. The bridge loan was repaid and
therefore expired. Any Tranche A loans mature on July 27, 1994 while any
Tranche B loans mature on July 27, 1996.
On December 23, 1993, the company completed the sale of 1,972,250 shares of
common stock resulting in net proceeds of $73,692,400. The company used
$38,700,000 of the proceeds from the offering to repay the bridge loan and
$34,992,400 to reduce borrowings under the revolving credit lines.
In the first quarter of fiscal year 1994, the company recorded cumulative
effect charges aggregating $15 million after taxes for the adoption of
SFAS No. 106 and SFAS No. 109. While these charges did not involve the use
of cash, they had a significant effect on various components of the
company's consolidated financial position at March 31, 1994.
The ratio of current assets to current liabilities decreased from 2.4 at
June 30, 1993 to 1.7 at March 31, 1994. The debt to capital ratio (i.e.,
total debt divided by the sum of total debt, minority interest and
shareholders' equity) increased to 31.4 percent as of March 31, 1994, as
compared with 30.2 percent as of June 30, 1993. The increase is due to
borrowings assumed to finance the acquisition of Hertel, the cumulative
effect charges related to SFAS No. 106 and SFAS No. 109 and the
restructuring charge relating to the closure of the company's Neunkirchen
manufacturing facility and other actions related to the integration of the
operations of Hertel with those of the company.
Capital expenditures are estimated to be $30-35 million in fiscal year
1994. Expenditures are being made to upgrade machinery and equipment and
to modernize facilities. Capital expenditures are being financed with cash
from operations and borrowings under existing revolving credit agreements.
RESULTS OF OPERATIONS
SALES AND EARNINGS
During the quarter ended March 31, 1994, consolidated sales were $212
million, up 38 percent from $154 million in the same quarter last year.
The increase in sales during the quarter resulted primarily from the
acquisition of an 81 percent interest in Hertel. Excluding Hertel, sales
were up 11 percent from the prior year.
Net income for the quarter was $11.1 million, or $0.85 per share, as
compared with $7.3 million, or $0.68 per share last year.
During the nine month period ended March 31, 1994, consolidated sales were
$583 million, up 31 percent from $443 million last year. The increase in
sales during the nine month period resulted primarily from the acquisition
of an 81 percent interest in Hertel. Excluding Hertel, sales were up seven
percent from the prior year.
For the nine month period, the company recorded a net loss of $17.9
million, or $1.51 per share, as compared with net income of $12.4 million,
or $1.15 per share, in the same period last year. The net loss for the
nine months ended March 31, 1994, includes the unfavorable cumulative
noncash effect of adopting SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ($20.1 million net of income
tax effect), and the favorable cumulative noncash effect of adopting SFAS
No. 109, "Accounting for Income Taxes" ($5.1 million). In addition, the
results include a restructuring charge ($20.4 million after taxes) and the
impact of additional operating costs resulting from the adoption of SFAS
No. 106 ($0.9 million).
The Hertel acquisition decreased net income and increased the net loss for
the three and nine month periods ended March 31, 1994, respectively, by
approximately $0.2 million and $3.3 million, respectively. Excluding the
cumulative effect of accounting changes, the restructuring charge and the
acquisition impacts, the company had net income of $11.3 million and $20.8
million for the three and nine month periods ended March 31, 1994,
respectively, as compared with $7.3 million and $12.4 million last year.
The following table presents the company's sales by product class and
geographic area (dollars in thousands):
Quarter Ended March 31, Nine Months Ended March 31,
1994 1993 % Change 1994 1993 % Change
-------- -------- -------- -------- -------- --------
Sales by Product Class:
Metalworking $180,412 $125,922 43 $491,524 $355,180 38
Mining and construction 25,293 22,415 13 73,865 72,519 2
Metallurgical 6,104 5,354 14 17,252 15,519 11
-------- -------- -------- --------
Net sales $211,809 $153,691 38 $582,641 $443,218 31
======== ======== ======== ========
Sales by Geographic Area:
Within the U.S. $134,777 $114,211 18 $377,112 $323,359 17
Foreign and export 77,032 39,480 95 205,529 119,859 71
-------- -------- -------- --------
Net sales $211,809 $153,691 $582,641 $443,218 31
======== ======== 38 ======== ========
METALWORKING PRODUCTS
During the March 1994 quarter, excluding the effects of the acquisition of
Hertel, worldwide sales of metalworking products increased 11 percent from
those of the prior year.
In the United States, sales of metalcutting inserts and toolholding devices
increased eight percent from the previous year. Total sales of industrial
supply products increased 23 percent as a result of increased sales through
mail order catalogs and full service supply programs.
International sales of metalworking products, excluding the effects of the
acquisition of Hertel, increased three percent from the previous year
primarily because of improved sales in Canada and the Asia-Pacific markets.
Excluding currency translation effects, international sales increased eight
percent from last year.
For the nine month period, excluding the effects of the acquisition of
Hertel, worldwide sales of metalworking products increased eight percent
from the prior year primarily because of increased sales of metalworking
products in the United States. Excluding foreign currency translation
effects, international sales of metalworking products increased one percent
from last year.
MINING AND CONSTRUCTION PRODUCTS
During the March 1994 quarter, sales of mining and construction tools,
excluding the effects of the acquisition of Hertel, increased 13 percent
from the previous year as a result of strong domestic demand for highway
construction and mining tools.
For the nine month period, sales of mining and construction tools,
excluding the effects of the acquisition of Hertel, increased two percent
from the prior year.
METALLURGICAL PRODUCTS
During the March 1994 quarter, sales of metallurgical products increased 14
percent from the previous year due to increased demand for hardfacing
products.
For the nine month period, sales of metallurgical products rose 11 percent
because of strong demand for hardfacing products.
GROSS PROFIT MARGIN
As a percentage of sales, the gross profit margin for the March 1994
quarter was 41.7 percent. The gross profit margin was unfavorably affected
by the inclusion of Hertel's financial results. Excluding the effects of
the acquisition, the gross margin was 42.5 percent, as compared with 42.3
percent in the same period last year.
For the nine month period, the gross profit margin was 40.4 percent, as
compared with 40.3 percent last year. The gross profit margin was
unfavorably affected by the inclusion of Hertel's financial results.
Excluding the effects of the acquisition, the gross profit was 41.1
percent.
OPERATING EXPENSES
For the quarter ended March 31, 1994, research and development, marketing,
and general and administrative expenses increased 33 percent. Excluding
the effects of the Hertel acquisition, operating expenses increased two
percent.
As a percentage of sales, operating expenses were 31.4 percent for the
quarter ended March 31, 1994, as compared with 32.6 percent for the same
period last year.
For the nine month period, as a percentage of sales, operating expenses
were 33.3 percent, as compared with 34.0 percent in the same period last
year.
INTEREST EXPENSE
Interest expense was $3.1 million and $10.8 million for the quarter and
nine months ended March 31, 1994, respectively, as compared with $2.4
million and $7.2 million, respectively, for the same periods last year.
The increase in both periods was primarily due to the debt incurred and
assumed in connection with the Hertel acquisition. As of March 31, 1994,
approximately 35 percent of the company's total debt was subject to
variable interest rates.
INCOME TAXES
For the quarter ended March 31, 1994, the effective tax rate was 40.6
percent, as compared with 37.5 percent in the same period last year.
Excluding the effects of the accounting changes and the restructuring
charge, the effective tax rate for the nine month period ended March 31,
1994 was 42.2 percent, as compared with 38.5 percent in the same period
last year.
OUTLOOK
In looking to the fourth quarter ending June 30, 1994, management expects
domestic demand for the company's products to remain strong. In addition,
international sales in Europe are expected to improve as the German economy
begins to emerge from the recession.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in footnote 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(a) of the company's Form 10-K for the year ended
June 30, 1993, which is also incorporated by reference herein.
On August 13, 1993 Kennametal was served with a Notice of Violation dated
August 9, 1993, issued by the United States Environmental Protection Agency
("EPA"). The EPA alleges violations concerning visible emissions from the
company's Fallon, Nevada facility. The EPA on October 6, 1993 issued an
interim compliance order with respect to this matter. On April 26, 1994,
Kennametal was served with a second Notice of Violation dated April 19,
1994 which relates to the first Notice of Violation. The EPA alleges in
the second but related notice the violation of a regulation concerning the
allowable particulate emission rate. Kennametal anticipates that the EPA
will impose a penalty in excess of $100,000 with respect to these
violations; however, it is management's opinion, based on its evaluation
and discussions with outside counsel, that the ultimate resolution of this
matter will not have a material adverse effect on the results of operations
or financial position of the company.
At the annual meeting of shareholders of Hertel held on December 6, 1993,
two minority shareholders of Hertel (Dr. Bernard Appel and Christa Gotz),
one of whom purported to own or control 2,500 shares and the other of whom
purported to own 5 shares, filed protests with respect to the resolution
adopted by the Hertel shareholders which authorized and approved Hertel
entering into the Domination Contract with Kennametal which permits
Kennametal to direct Hertel's operations. Under German law, Kennametal is
required to offer to minority shareholders to purchase their shares for a
reasonable compensation and to guarantee dividends during the term of the
Domination Contract (ending June 30, 1996 subject to annual renewals) and
to pay to Hertel any net cumulative losses it sustains during the term and
has liability to Hertel creditors as if Hertel merged with Kennametal. The
filing of a protest is a prerequisite to a shareholder's filing a formal
complaint which must be filed within an applicable time period. Mrs. Gotz
filed a formal complaint within the applicable time period in the District
Court at Nuremberg, Bavaria, Germany that seeks to declare null and void
the resolution by arguing that it should not have been considered at the
annual meeting because the requisite prior notice period for presenting a
resolution to approve a domination contract (30 days) had not expired, even
though Hertel had published notice of the proposed Domination Contract more
than 30 days prior to the date of the annual meeting, due to Hertel's
having also subsequently published a clarification of certain terms of the
Domination Contract relating to German taxes within 30 days prior to the
date of the annual meeting. Since Kennametal holds sufficient shares of
Hertel to approve a domination contract, Kennametal could cure any
defective notice by having the Domination Contract presented again to
Hertel's shareholders for approval at a subsequent annual or special
meeting of Hertel's shareholders. The complaint also asserts that the tax
treatment specified in the clarification is improper under German law which
renders the resolution void. Apart from the complaint challenging the
validity of the resolution approving and authorizing the Domination
Contract, minority shareholders are contesting the reasonableness of the
purchase price for minority shares and the minimum dividend on minority
shares offered by Kennametal in connection with the Domination Contract.
It is management's opinion that Hertel has viable defenses to all of the
challenges raised to the validity of the adoption of the resolution
approving and authorizing the Domination Contract and to the contest of the
reasonableness of the minority share purchase price and minimum dividend
and, in any event, that the ultimate outcome of this matter will not have a
material adverse effect on the results of operations or financial position
of the company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Reference
-------- ---------
(1) Underwriting Agreement
(1.1) Underwriting Agreement Filed herewith
(U.S. Version)
(1.2) Underwriting Agreement Filed herewith
(International Version)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March
31, 1994.
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, 1994 By: /s/RICHARD J. ORWIG
--------------------------------
Richard J. Orwig
Vice President, Chief Financial
and Administrative Officer
EXHIBIT INDEX
Exhibit No.
- -----------
1.1 Underwriting Agreement
(U.S. Version)
1.2 Underwriting Agreement
(International Version)
EXHIBIT 1.1
Kennametal Inc.
Common Stock
(par value $1.25 per share)
------------------------
Underwriting Agreement
(U.S. Version)
December 16, 1993
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Dear Sirs:
Kennametal Inc., a Pennsylvania corporation (the
"Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the Underwriters named
in Schedule I hereto (the "Underwriters") an aggregate of
1,372,000 shares (the "Firm Shares") and, at the election of
the Underwriters, up to 205,800 additional shares (the
"Optional Shares") of Capital Stock (par value $1.25 per
share) ("Stock") of the Company (the Firm Shares and the
Optional Shares which the Underwriters elect to purchase
pursuant to Section 2 hereof being collectively called the
"Shares").
It is understood and agreed to by all parties that the
Company is concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the
sale by the Company of up to a total of 394,450 shares of
Stock (the "International Shares"), including the
overallotment option thereunder, through arrangements with
certain underwriters outside the United States (the
"International Underwriters"), for whom Goldman Sachs
International Limited and Merrill Lynch International
Limited are acting as lead managers. Anything herein or
therein to the contrary notwithstanding, the respective
closings under this Agreement and the International
Agreement are hereby expressly made conditional on one
another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement
between U.S. and International Underwriting Syndicates (the
"Agreement between Syndicates") which provides, among other
things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in
connection with the offering and sale of shares of Stock
contemplated by the foregoing, one relating to the Shares
hereunder and the other relating to the International
Shares. The latter form of prospectus will be identical to
the former except for certain substitute pages as included
in the registration statement and amendments thereto as
mentioned below. Except as used in Sections 2, 3, 4, 9 and
11 herein, and except as the context may otherwise require,
references hereinafter to the Shares shall include all the
shares of Stock which may be sold pursuant to either this
Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary
or final form, and whether as amended or supplemented, shall
include both the U.S. and the international versions
thereof.
1. The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(a) A registration statement in respect of the Firm
Shares and Optional Shares has been filed with the
Securities and Exchange Commission (the "Commission");
such registration statement and any post-effective
amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto but including all
documents incorporated by reference in the prospectus
contained therein, to you for each of the other
Underwriters, have been declared effective by the
Commission in such form; no other document with respect
to such registration statement or document incorporated
by reference therein has heretofore been filed with the
Commission; and no stop orders suspending the
effectiveness of such registration statement has been
issued and no proceeding for that purpose has been
initiated or threatened by the Commission (any
preliminary prospectus included in such registration
statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the
Commission under the Securities Act of 1933, as amended
(the "Act"), being hereinafter called a "Preliminary
Prospectus"; the various parts of such registration
statement, including all exhibits thereto and including
(i) the information contained in the form of final
prospectus filed with the Commission pursuant to
Rule 424(b) under the Act in accordance with Section 5(a)
hereof and deemed by virtue of Rule 430A under the Act to
be part of the registration statement at the time it was
declared effective and (ii) the documents incorporated by
reference in the prospectus contained in the registration
statement at the time such part of the registration
statement became effective, each as amended at the time
such part of the registration statement became effective,
being hereinafter called the "Registration Statement";
such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, being hereinafter called
the "Prospectus"; and any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under
the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any
amendment or supplement to any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include
any documents filed after the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such
Preliminary Prospectus or Prospectus, as the case may be;
and any reference to any amendment to the Registration
Statement shall be deemed to refer to and include any
annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective
date of the Registration Statement that is incorporated
by reference in the Registration Statement;
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission,
and each Preliminary Prospectus, at the time of filing
thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances
under which they were made, not misleading; provided,
however, that this representation and warranty shall not
apply to any statements or omissions made in reliance
upon and in conformity with information furnished in
writing to the Company by an Underwriter through you
expressly for use therein;
(c) The documents incorporated by reference in the
Prospectus, when they (or if such document has been
amended, such document as most recently amended) became
effective or were filed with the Commission, as the case
may be, conformed in all material respects to the
requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the
Commission thereunder, and none of such documents
contained an untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and any further documents so filed and
incorporated by reference in the Prospectus or any
further amendment or supplement thereto, when such
documents become effective or are filed with the
Commission, as the case may be, will conform in all
material respects to the requirements of the Act or the
Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that this representation and warranty
shall not apply to any statements or omissions made in
reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter
through you expressly for use therein;
(d) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to
the Registration Statement or the Prospectus will
conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as
to the Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact
or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, however, that this representation
and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an
Underwriter through you expressly for use therein;
(e) Neither the Company nor any of its subsidiaries
has sustained since the date of the latest audited
financial statements included or incorporated by
reference in the Prospectus any material loss or
interference with its business from fire, explosion,
flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has
not been any change in the capital stock (other than
shares of Stock issued pursuant to the Company's employee
Stock Option plans, dividend reinvestment and stock
purchase plan and directors stock plan, in each case
existing on the date of this Agreement) or any increase
in the long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any
development involving a prospective material adverse
change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus;
(f) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and
good and marketable title to all personal property owned
by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in
the Prospectus or such as in the aggregate are not
material to the Company and its subsidiaries taken as a
whole, and any real property and buildings held under
lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with
such exceptions such as in the aggregate are not material
to the Company and its subsidiaries taken as a whole;
(g) The Company has been duly incorporated and is
validly existing as a corporation in good standing under
the laws of the Commonwealth of Pennsylvania, with power
and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus,
and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to
require such qualification, or is subject to no liability
or disability that is material to the Company and its
subsidiaries taken as a whole by reason of the failure to
be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and
is validly existing as a corporation and is in good
standing under the laws of its jurisdiction of
incorporation;
(h) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares
of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description of the
Stock contained in the Prospectus; and all of the issued
shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are
fully paid and non-assessable and as to each U.S. and
European subsidiary of the Company (except for directors'
qualifying shares and except as set forth in the
Prospectus) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances,
equities or claims;
(i) The unissued Shares to be issued and sold by the
Company to the Underwriters hereunder and under the
International Underwriting Agreement have been duly and
validly authorized and, when issued and delivered against
payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and
validly issued and fully paid and nonassessable and will
conform to the description of the Stock contained in the
Prospectus;
(j) The issue and sale of the Firm Shares and
Optional Shares by the Company and the compliance by the
Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the
consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach
or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument
to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of
the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation
of any court or governmental agency or body having juris
diction over the Company or any of its subsidiaries or
any of their properties; and no consent, approval,
authorization, order, registration or qualification of or
with any such court or governmental agency or body is
required for the issue and sale of the Firm Shares and
Optional Shares or the consummation by the Company of the
transactions contemplated by this Agreement and the
International Underwriting Agreement, except the
registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign
securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(k) Other than as set forth or contemplated in the
Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which,
it determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have
a material adverse effect on the consolidated financial
position, stockholders' equity or results of operations
of the Company and its subsidiaries; and, to the best of
the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(l) Arthur Andersen & Co., who have certified certain
financial statements of the Company and its subsidiaries
and Hertel Aktiengesellschaft Werkzeuge + Hartstoffe
("Hertel AG"), are independent public accountants as
required by the Act and the rules and regulations of the
Commission thereunder; and
(m) The Company has complied with all provisions of
Florida Statutes, Section 157.075 relating to issuers
doing business with Cuba.
2. Subject to the terms and conditions herein set forth,
(a) the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally
and not jointly, to purchase from the Company, at a purchase
price per share of $37.605 the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I
hereto and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase
from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been
exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such
Underwriter In Schedule I hereto and the denominator of
which is the maximum number of the Optional Shares which all
of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right
to purchase at their election up to 205,800 Optional Shares,
at the purchase price per share set forth in the paragraph
above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from
you to the Company, given within a period of 30 calendar
days after the date of this Agreement, setting forth the
aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless
you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such
notice.
3. Upon the authorization by you of the release of the
Firm Shares, the several Underwriters propose to offer the
Firm Shares for sale upon the terms and conditions set forth
in the Prospectus.
4. Certificates in definitive form for the Shares to be
purchased by each Underwriter hereunder, and in such
denominations and registered in such names as Goldman, Sachs
& Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of
the Company to you for the account of such Underwriter,
against payment by such Underwriter or on its behalf of the
purchase price therefor by certified or official bank check
or checks, payable to the order of the Company in New York
Clearing House funds, all at the office of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004. The time
and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m. New York City time, on
December 23, 1993, or at such other time and date as you and
the Company may agree upon in writing, and, with respect to
the Optional Shares, 9:30 a.m., New York City time, on the
date required to be specified by you in the written notice
given by you of the Underwriters' election to purchase such
Optional Shares, or at such other time and date as you and
the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First
Time of Delivery," such time and date for delivery of the
Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery," and each such
time and date for delivery is herein called a "Time of
Delivery." Such certificates will be made available for
checking and packaging at least twenty-four hours prior to
each Time of Delivery at the office of Goldman, Sachs & Co.,
85 Broad Street, New York, New York 10004.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by
you and to file such Prospectus pursuant to Rule 424(b)
under the Act not later than the Commission's close of
business on the second business day following the
execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Act; to make no further amendment or
any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall
be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice
thereof, of the time when the Registration Statement, or
any amendment thereto, has been filed or becomes
effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with
copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be
filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long
as the delivery of a prospectus is required in connection
with the offering or sale of the Shares; to advise you,
promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary
Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any
stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to use promptly its
best efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as
you may reasonably request to qualify the Shares for
offering and sale under the securities laws of such
jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may
be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to
file a general consent to service of process in any
jurisdiction;
(c) To furnish the Underwriters with copies of the
Prospectus in such quantities as you may from time to
time reasonably request, and, if the delivery of a
prospectus is required at any time prior to the
expiration of nine months after the effective date of the
Registration Statement (or the most recent post-effective
amendment thereto) and if at such time any event shall
have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such
period to amend or supplement the Prospectus or to file
under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the
Act or the Exchange Act, to notify you and upon your
request to file such document and to prepare and furnish
without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus
in connection with sales of any of the Shares at any time
nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3)
of the Act;
(d) To make generally available to its security
holders as soon as practicable, but in any event not
later than eighteen months after the effective date of
the Registration Statement (as defined in Rule 158(c)),
an earning statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations thereunder
(including at the option of the Company Rule 158);
(e) During the period beginning from the date hereof
and continuing to and including the date 180 days after
the last Time of Delivery, not to offer, sell, contract
to sell or otherwise dispose of any securities of the
Company (other than pursuant to the Company's employee
stock option plans, dividend reinvestment and stock
purchase plan and directors stock plan, in each case
existing on the date of this Agreement) which are substan
tially similar to the Stock, without your prior written
consent;
(f) To furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual
report (including a balance sheet and statements of
income, stockholders' equity and cash flow of the Company
and its consolidated subsidiaries certified by
independent public accountants) and, as soon as
practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the
Registration Statement), consolidated summary financial
information of the Company and its subsidiaries for such
quarter in reasonable detail; and
(g) During a period of five years from the effective
date of the Registration Statement, to furnish to you
copies of all reports or other communications (financial
or other) furnished to stockholders, and deliver to you
(i) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the
Commission or any national securities exchange on which
any class of securities of the Company is listed; and
(ii) such additional information concerning the business
and financial condition of the Company as you may from
time to time reasonably request (such financial
statements to be on a consolidated basis to the extent
the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders
generally or to the Commission).
6. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid
the following: (i) the fees, disbursements and expenses of
the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to
the Underwriters and dealers; (ii) the cost of printing or
producing any Agreement among Underwriters, this Agreement,
the International Underwriting Agreement, the Agreement
between Syndicates, the Selling Agreement, the Blue Sky
Memorandum and any other documents in connection with the
offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as
provided in Section 5(b) hereof, including the reasonable
fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with
the Blue Sky and legal investment surveys; (iv) the filing
fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (v) the cost of preparing
stock certificates; (vi) the cost and charges of any
transfer agent or registrar; and (vii) all other costs and
expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for
in this Section. It is understood, however, that, except as
provided in this Section, Section 8 and Section 11 hereof,
the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may
make.
7. The obligations of the Underwriters hereunder, as to
the Shares to be delivered at each Time of Delivery, shall
be subject, in their discretion, to the condition that all
representations and warranties and other statements of the
Company herein are, at and as of such Time of Delivery, true
and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable
time period prescribed for such filing by the rules and
regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and
all requests for additional information on the part of
the Commission shall have been complied with to your
reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the
Underwriters, shall have furnished to you such opinion or
opinions, dated such Time of Delivery, with respect to
the incorporation of the Company, the validity of the
Shares being delivered at such Time of Delivery, the
Registration Statement, the Prospectus, and other related
matters as you may reasonably request, and such counsel
shall have received such papers and information as they
may reasonably request to enable them to pass upon such
matters;
(c) Buchanan Ingersoll Professional Corporation,
counsel for the Company, shall have furnished to you
their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect
that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of the Commonwealth of Pennsylvania,
with all corporate power and authority to own its
properties and conduct its business as described in
the Prospectus;
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued
shares of capital stock of the Company (including the
Shares being delivered at such Time of Delivery) have
been duly and validly authorized and issued and are
fully paid and nonassessable; and the Shares conform
to the description of the Stock contained in the
Prospectus;
(iii) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its
subsidiaries is the subject which reasonably would be
expected individually or in the aggregate to have a
material adverse effect on the consolidated financial
position, stockholders' equity or results of
operations of the Company and its subsidiaries taken
as a whole; and, to the best of such counsel's
knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened
by others;
(iv) This Agreement and the International
Underwriting Agreement have been duly authorized,
executed and delivered by the Company;
(v) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the
compliance by the Company with all of the provisions
of this Agreement and the International Underwriting
Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a
party or by which the Company or any of its
subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is
subject other than conflicts, breaches, violations or
defaults which would not, individually or in the
aggregate, reasonably be expected to have a material
adverse effect on the financial condition or results
of operations of the Company and its subsidiaries
taken as a whole, nor will such action result in any
violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute
or any order, rule or regulation known to such counsel
of any court or governmental agency or body having
jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(vi) No consent, approval, authorization, order,
registration or qualification of or with any such
court or governmental agency or body is required for
the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by
this Agreement and the International Underwriting
Agreement, except the registration under the Act of
the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may
be required under state or foreign securities or Blue
Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the
International Underwriters;
(vii) The documents incorporated by reference in the
Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of
Delivery (other than the financial statements, pro
forma financial information and related schedules
therein, as to which such counsel need express no
opinion), when (or if such document has been amended,
such document as most recently amended) they became
effective or were filed with the Commission, as the
case may be, complied as to form in all material
respects with the requirements of the Act or the
Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder; and they
have no reason to believe that any of such documents,
when such documents became effective or were so filed,
as the case may be, contained, in the case of a
registration statement which became effective under
the Act, an untrue statement of a material fact, or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading, or, in the case of other documents
which were filed under the Exchange Act with the
Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made when such
documents were so filed, not misleading; and
(viii) The Registration Statement and the Prospectus
and any further amendments and supplements thereto
made by the Company prior to such Time of Delivery
(other than the financial statements, pro forma
financial information and related schedules therein,
as to which such counsel need express no opinion)
comply as to form in all material respects with the
requirements of the Act and the rules and regulations
thereunder; they have no reason to believe that, as of
its effective date, the Registration Statement or any
further amendment thereto made by the Company prior to
such Time of Delivery (other than the financial
statements, pro forma financial information and
related statements and related schedules therein, as
to which such counsel need express no opinion)
contained an untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus
or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than
the financial statements, pro forma financial
information and related schedules therein, as to which
such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to
state a material fact necessary to make the statements
therein, in light of the circumstances in which they
were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of
Delivery (other than the financial statements, pro
forma financial information and related schedules
therein, as to which such counsel need express no
opinion) contains an untrue statement of a material
fact or omits to state a material fact necessary to
make the statements therein, in light of the
circumstances in which they were made, not misleading;
and they do not know of any amendment to the
Registration Statement required to be filed or of any
contracts or other documents of a character required
to be filed as an exhibit to the Registration
Statement or required to be incorporated by reference
into the Prospectus or required to be described in the
Registration Statement or the Prospectus which are not
filed or incorporated by reference or described as
required.
(d) David T. Cofer, Vice President and General
Counsel of the Company, shall have furnished to you his
written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in
good standing under the laws of each other
jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such
qualification, or is subject to no material liability
or disability by reason of failure to be so qualified
in any such jurisdiction;
(ii) Each U.S. subsidiary of the Company has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have
been duly and validly authorized and issued, are fully
paid and non-assessable, and (except for directors'
qualifying shares and except as otherwise set forth in
the Prospectus) are owned directly or indirectly by
the Company, free and clear of all liens,
encumbrances, equities or claims;
(iii) The Company and its subsidiaries have good and
marketable title in fee simple to all real property
and good and marketable title to all personal property
owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are
described in the Prospectus or such as in the
aggregate are not material to the Company and its
subsidiaries taken as a whole, and any real property
and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions such as in
the aggregate are not material to the Company and its
subsidiaries taken as a whole;
(e) German counsel for Hertel AG shall have furnished
to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to
the effect that:
(i) Hertel AG has been duly established and is
validly existing as a stock corporation
("Aktiengesellschaft") in good standing under German
laws, with all corporate power and authority to own
its properties and conduct its business;
(ii) Hertel AG has an authorized capitalization and
all of the issued shares of capital stock of Hertel
have been duly and validly authorized and issued and
are fully paid and nonassessable;
(iii) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which
Hertel or any of its subsidiaries is a party or of
which any property of Hertel AG or any of its
subsidiaries is the subject which reasonably would be
expected individually or in the aggregate to have a
material adverse effect on the consolidated financial
position, stockholders' equity or results of
operations of Hertel AG and its subsidiaries taken as
a whole; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(f) At 10:00 a.m., New York City time, on the
effective date of the Registration Statement and the most
recently filed post-effective amendment to the
Registration Statement and also at each Time of Delivery,
Arthur Andersen & Co., the Company's and Hertel AG's
independent public accountants, shall have furnished to
you a letter or letters, dated the respective date of
delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I and Annex II,
respectively, hereto;
(g)(i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the
latest audited financial statements included or
incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion,
flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus, and (ii)
since the respective dates as of which information is
given in the Prospectus there shall not have been any
change in the capital stock (other than shares of Stock
issued pursuant to employee stock option plans, the
dividend reinvestment and stock purchase plan and the
directors stock plan existing on the date of this
Agreement) or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving
a prospective change, in or affecting the general
affairs, management, financial position, stockholders'
equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in your judgment so
material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in
the Prospectus;
(h) On or after the date hereof (i) no downgrading
shall have occurred in the rating accorded the Company's
debt securities or preferred stock by any "nationally
recognized statistical rating organization," as that term
is defined by the Commission for purposes of Rule 436(g)
(2) under the Act and (ii) no such organization shall
have publicly announced that it has under surveillance or
review, with possible negative implications, its rating
of any of the Company's debt securities or preferred
stock;
(i) On or after the date hereof there shall not
have occurred any of the following: (i) a suspension or
material limitation in trading in securities generally on
the New York Stock Exchange; (ii) a general moratorium on
commercial banking activities in New York declared by
either Federal or New York State authorities; or (iii)
the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of
a national emergency or war, if the effect of any such
event specified in this clause (iii) in your judgment
makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in
the manner contemplated by the Prospectus;
(j) The Shares to be sold by the Company at
such Time of Delivery shall have been duly listed,
subject to notice of issuance, on the New York Stock
Exchange;
(k) The Company shall have furnished or caused to
be furnished to you at such Time of Delivery certificates
of officers of the Company satisfactory to you as to the
accuracy of the representations and warranties of the
Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations
hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a)
and (g) of this Section and as to such other matters as
you may reasonably request; and
(l) The sale of the International Shares pursuant
to the International Underwriting Agreement shall have
occurred simultaneously.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred;
provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by any
Underwriter through you expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless
the Company against any losses, claims, damages or
liabilities to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or
any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company
by such Underwriter through you expressly for use therein;
and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as
such expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of
any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party
under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to
notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party
otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel
to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof
other than reasonable costs of investigation.
Notwithstanding the foregoing, if the indemnified party has
reasonably concluded that there may be one or more defenses
available to the indemnified party which may be different
from or additional to those available to the indemnifying
party, then the indemnified party shall have the right to
employ separate counsel and in that event the reasonable
fees and expenses of such separate counsel for the
indemnified party shall be paid by the indemnifying party;
provided, however, that the indemnifying party shall only be
obligated to pay the reasonable fees and expenses of a
single law firm (and any reasonably necessary local counsel)
employed by all of the indemnified parties unless the
indemnified parties have been advised by counsel in writing
that there may be one or more defenses available to one or
more indemnified parties which are different from or
additional to those available to another indemnified party,
in which case the indemnifying party shall be obligated to
pay the reasonable fees and expenses of a separate single
law firm (and any reasonable necessary local counsel)
employed by each indemnified party to which such additional
or other defenses are available.
(d) If the indemnification provided for in this Section
8 is unavailable to or insufficient to hold harmless an
indemnified party under subsection (a) or (b) above in
respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give
the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the
statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable
considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Shares purchased under
this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and
commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribu
tions pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of
allocation which does not take account of the equitable
considerations referred to above in this subsection (d).
The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this sub
section (d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price
at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may
otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall
be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of
the Company and to each person, if any, who controls the
Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to
purchase hereunder at a Time of Delivery, you may in your
discretion arrange for you or another party or other parties
to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any
Underwriter you do not arrange for the purchase of such
Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that
you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not
more than seven days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement
or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus
which in your opinion may thereby be made necessary. The
term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect
as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or
Underwriters by you and the Company as provided in
subsection (a) above, the aggregate number of such Shares
which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at
such Time of Delivery, then the Company shall have the right
to require each non-defaulting Underwriter to purchase the
number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to
require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall
relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or
Underwriters by you and the Company as provided in
subsection (a) above, the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the
aggregate number of all the Shares to be purchased at such
Time of Delivery, or if the Company shall not exercise the
right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a
defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the
Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any
nondefaulting Underwriter or the Company, except for the
expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements,
representations, warranties and other statements of the
Company and the several Underwriters, as set forth in this
Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any
Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling
person of the Company, and shall survive delivery of and
payment for the Shares.
11. If this Agreement shall be terminated pursuant to
Section 9 hereof, the Company shall not then be under any
liability to any Underwriter except as provided in Section 6
and Section 8 hereof; but, if for any other reason, any
Shares are not delivered by or on behalf of the Company as
provided herein, the Company will reimburse the Underwriters
through you for all out-of-pocket expenses approved in
writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company shall then be under
no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Section 6 and
Section 8 hereof.
12. In all dealings hereunder, you shall act on behalf of
each of the Underwriters, and the parties hereto shall be
entitled to act and rely upon any statement, request, notice
or agreement on behalf of any Underwriter made or given by
you jointly or by Goldman, Sachs & Co. on behalf of you as
the representatives.
All statements, requests, notices and agreements
hereunder shall be in writing, and if to the Underwriters
shall be delivered or sent by mail, telex or facsimile
transmission to you as the representatives in care of
Goldman, Sachs & Co., at 85 Broad Street, New York, N.Y.
10004, Attention: Registration Department; and if to the
Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: Secretary;
provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent
by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire,
or telex constituting such Questionnaire, which address will
be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take
effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and,
to the extent provided in Sections 8 and 10 hereof, the
officers and directors of the Company and each person who
controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and
assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of
the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As
used herein, the term "business day" shall mean any day when
the Commission's office in Washington, D.C. is open for
business.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of
which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your
understanding, please sign and return to us five
counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement
between each of the Underwriters and the Company. It is
understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters (U.S.
Version), the form of which shall be submitted to the
Company for examination upon request, but without warranty
on your part as to the authority of the signers thereof.
Very truly yours,
Kennametal Inc.
By: /s/ David T. Cofer
-----------------------------
Name: David T. Cofer
Title: Vice President,Secretary
and General Counsel
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: /s/ Goldman, Sachs & Co.
--------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
- ----------- --------------- ---------------
Goldman, Sachs & Co. 411,000 61,650
Merrill Lynch, Pierce, Fenner &
Smith Incorporated 411,000 61,650
Dain Bosworth Incorporated 50,000 7,500
Donaldson, Lufkin & Jenrette
Securities Corporation 90,000 13,500
C.J. Lawrence/Deutsche Bank
Securities Corporation 50,000 7,500
Lehman Brothers Inc. 90,000 13,500
Morgan Stanley & Co. Incorporated 90,000 13,500
Oppenheimer & Co., Inc. 90,000 13,500
Wertheim Schroder & Co. Incorporated 90,000 13,500
Total 1,372,000 205,800
EXHIBIT 1.2
Kennametal Inc.
Common Stock
(par value $1.25 per share)
Underwriting Agreement
(International Version)
December 16, 1993
Goldman Sachs International Limited,
Merrill Lynch International Limited,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International Limited,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Dear Sirs:
Kennametal Inc., a Pennsylvania corporation (the
"Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the Underwriters named
in Schedule I hereto (the "Underwriters") an aggregate of
343,000 shares (the "Firm Shares") and, at the election of
the Underwriters, up to 51,450 additional shares (the
"Optional Shares") of Capital Stock (par value $1.25 per
share) (the "Stock") of the Company (the Firm Shares and the
Optional Shares which the Underwriters elect to purchase
pursuant to Section 2 hereof being collectively called the
"Shares").
It is understood and agreed to by all parties that the
Company is concurrently entering into an agreement, a copy
of which is attached hereto (the "U.S. Underwriting
Agreement"), providing for the offering by the Company of up
to a total of 1,577,800 shares of Stock (the "U.S. Shares")
including the overallotment option thereunder through
arrangements with certain underwriters in the United States
(the "U.S. Underwriters"), for whom Goldman, Sachs & Co. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated are
acting as representatives. Anything herein and therein to
the contrary notwithstanding, the respective closings under
this Agreement and the U.S. Underwriting Agreement are
hereby expressly made conditional on one another. The
Underwriters hereunder and the U.S. Underwriters are
simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement
between Syndicates"), which provides, among other things,
for the transfer of shares of Stock between the two
syndicates and for consultation by the Lead Managers
hereunder with Goldman, Sachs & Co. prior to exercising the
rights of the Underwriters under Section 7 hereof. Two forms
of prospectus are to be used in connection with the offering
and sale of shares of Stock contemplated by the foregoing,
one relating to the Shares hereunder and the other relating
to the U.S. Shares. The latter form of prospectus will be
identical to the former except for certain substitute pages
as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 2, 3,
4, 9 and 11 herein, and except as the context may otherwise
require, references hereinafter to the Shares shall include
all the shares of Stock which may be sold pursuant to either
this Agreement or the U.S. Underwriting Agreement, and
references herein to any prospectus whether in preliminary
or final form, and whether as amended or supplemented shall
include both of the U.S and the international versions
thereof.
In addition, this Agreement incorporates by reference
certain provisions from the U.S. Underwriting Agreement
(including the related definitions of terms, which are also
used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their
equivalent) in the incorporated provisions to the
"Underwriters" shall be to the Underwriters hereunder, to
the "Shares" shall be to the Shares hereunder as just
defined, to "this Agreement" (meaning therein the
U.S. Underwriting Agreement) shall be to this Agreement
(except where this Agreement is already referred to or as
the context may otherwise require) and to the
representatives of the Underwriters or to Goldman, Sachs &
Co. shall be to the addressees of this Agreement and to
Goldman Sachs International Limited ("GSIL"), and, in
general, all such provisions and defined terms shall be
applied mutatis mutandis as if the incorporated provisions
were set forth in full herein having regard to their context
in this Agreement, as opposed to the U.S. Underwriting
Agreement.
1. The Company hereby makes with the Underwriters the
same representations, warranties and agreements as are set
forth in Section 1 of the U.S. Underwriting Agreement, which
Section is incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth,
(a) the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally
and not jointly, to purchase from the Company, at a purchase
price per share of $37.605, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I
hereto and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase
from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been
exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the
maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of
which is the maximum number of the Optional Shares which all
of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right
to purchase at their election up to 51,450 Optional Shares,
at the purchase price per share set forth in the paragraph
above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from
you to the Company, given within a period of 30 calendar
days after the date of this Agreement, setting forth the
aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless
you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such
notice.
3. Upon the authorization by GSIL of the release of the
Firm Shares, the several Underwriters propose to offer the
Firm Shares for sale upon the terms and conditions set forth
in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements,
which have been previously submitted to the Company by you.
Each Underwriter hereby makes to and with the Company the
representations and agreements of such Underwriter as a
member of the selling group contained in Sections 3(d) and
3(e) of the form of Selling Agreements.
4. Certificates in definitive form for the Shares to be
purchased by each Underwriter hereunder, and in such
denominations and registered in such names as GSIL may
request upon at least forty-eight hours prior notice to the
Company, shall be delivered by or on behalf of the Company
to GSIL for the account of such Underwriter, against payment
by such Underwriter or on its behalf of the purchase price
therefor by certified or official bank check or checks,
payable to the order of the Company in New York Clearing
House funds, all at the office of Goldman, Sachs & Co., 85
Broad Street, New York, New York 10004. The time and date of
such delivery and payment shall be, with respect to the Firm
Shares, 9:30 a.m. New York City time, on December 23, 1993,
or at such other time and date as you and the Company may
agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York City time, on the date specified
in the written notice of the Underwriters' election to
purchase such Optional Shares, or at such other time and
date as you and the Company may agree upon in writing. Such
time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery," such time and date for
delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery,"
and each such time and date for delivery is herein called a
"Time of Delivery". Such certificates will be made available
for checking and packaging at least twenty-four hours prior
to each Time of Delivery at the office of Goldman, Sachs &
Co.
5. The Company hereby makes to the Underwriters the same
agreements as are set forth in Section 5 of the U.S.
Underwriting Agreement, which Section is incorporated herein
by this reference.
6. The Company and the Underwriters hereby agree with
respect to certain expenses on the same terms as are set
forth in Section 6 of the U.S. Underwriting Agreement, which
Section is incorporated herein by this reference.
7. Subject to the provisions of the Agreement between
Syndicates, the obligations of the Underwriters hereunder
shall be subject, in their discretion, at each Time of
Delivery, to the condition that all representations and
warranties and other statements of the Company herein are,
at and as of such Time of Delivery, true and correct, the
condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and
additional conditions identical to those set forth in
Section 7 of the U.S. Underwriting Agreement which Section
is incorporated herein by this reference.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred:
provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by any
Underwriter through GSIL expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless
the Company against any losses, claims, damages or
liabilities to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any
such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company
by such Underwriter through GSIL expressly for use therein;
and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as
such expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of
any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party
under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to
notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party
otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel
to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof
other than reasonable costs of investigation. Notwithstand
ing the foregoing, if the indemnified party has reasonably
concluded that there may be one or more defenses available
to the indemnified party which may be different from or
additional to those available to the indemnifying party,
then the indemnified party shall have the right to employ
separate counsel and in that event the reasonable fees and
expenses of such separate counsel for the indemnified party
shall be paid by the indemnifying party; provided, however,
that the indemnifying party shall only be obligated to pay
the reasonable fees and expenses of a single law firm (and
any reasonably necessary local counsel) employed by all of
the indemnified parties unless the indemnified parties have
been advised by counsel in writing that there may be one or
more defenses available to one or more indemnified parties
which are different from or additional to those available to
another indemnified party, in which case the indemnifying
party shall be obligated to pay the reasonable fees and
expenses of a separate single law firm (and any reasonable
necessary local counsel) employed by each indemnified party
to which such additional or other defenses are available.
(d) If the indemnification provided for in this Section
8 is unavailable to or insufficient to hold harmless an
indemnified party under subsection (a) or (b) above in
respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give
the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the
statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable
considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Shares purchased under
this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and
commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus
relating to such Shares. The relative fault shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact
relates to information supplied by the Company on the one
hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it
would not be just and equitable if contributions pursuant to
this subsection (d) were determined by pro rata allocation
(even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which
does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may
otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall
be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of
the Company [(including any person who, with his consent, is
named in the Registration Statement as about to become a
director of the Company)] and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to
purchase hereunder at a Time of Delivery, you may in your
discretion arrange for you or another party or other parties
to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any
Underwriter you do not arrange for the purchase of such
Shares, then the Company shall be entitled to a further
period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that
you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not
more than seven days in order to effect whatever changes may
thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements,
and the Company agrees to file promptly any amendments to
the Registration Statement or the Prospectus which in your
opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if
such person had originally been a party to this Agreement
with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or
Underwriters by you and the Company as provided in
subsection (a) above, the aggregate number of such Shares
which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at
such Time of Delivery, then the Company shall have the right
to require each non-defaulting Underwriter to purchase the
number of shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to
require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall
relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or
Underwriters by you and the Company as provided in
subsection (a) above, the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the
aggregate number of all the Shares to be purchased at such
Time of Delivery, or if the Company shall not exercise the
right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a
defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the
obligation of the Underwriters to purchase and of the
Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non
defaulting Underwriter or the Company, except for the
expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements,
representations, warranties and other statements of the
Company and the several Underwriters, as set forth in this
Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any
Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling
person of the Company, and shall survive delivery of and
payment for the Shares.
11. If this Agreement shall be terminated pursuant to
Section 9 hereof, the Company shall not then be under any
liability to any Underwriter except as provided in Section 6
and Section 8 hereof, but, if for any other reason any
Shares are not delivered by or on behalf of the Company as
provided herein, the Company will reimburse the Underwriters
through GSIL for all out-of-pocket expenses approved in
writing by GSIL, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company shall then be under
no further liability to any Underwriter in respect of the
Shares not so delivered, except as provided in Section 6 and
Section 8 hereof.
12. In all dealings hereunder, you shall act on behalf
of each of the Underwriters, and the parties hereto shall be
entitled to act and rely upon any statement, request, notice
or agreement on behalf of any Underwriter made or given by
you jointly or by GSIL on behalf of you as the
representatives of the Underwriters.
All statements, requests, notices and agreements
hereunder shall be in writing, and if to the Underwriters
shall be delivered or sent by mail, telex or facsimile
transmission to the Underwriters in care of GSIL,
Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission
no. (071) 774-1550; and if to the Company shall be delivered
or sent by registered mail, telex or facsimile transmission
to the address of the Company set forth in the Registration
Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(c) hereof
shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in
its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company
by GSIL upon request. Any such statements, requests, notices
or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and,
to the extent provided in Section 8 and Section 10 hereof,
the officers and directors of the Company and each person
who controls the Company or any Underwriter, and their
respective heirs, executors, administrators, successors and
assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of
the Shares from any Underwriter shall be deemed a successor
or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, United
States of America.
16. This Agreement may be executed by any one or more
of the parties hereto in any number of counterparts, each of
which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your
understanding, please sign and return to us six counterparts
hereof, and upon the acceptance hereof by you, on behalf of
each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of
the Underwriters and the Company. It is understood that your
acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a
form of Agreement among Underwriters (International
Version), the form of which shall be furnished to the
Company for examination upon request, but without warranty
on your part as to the authority of the signers thereof.
Very truly yours,
Kennametal Inc.
By: /s/ David T. Cofer
---------------------------
Name: David T. Cofer
Title: Vice President, Secretary
and General Counsel
Accepted as of the date hereof:
Goldman Sachs International Limited
Merrill Lynch International Limited
By: Goldman Sachs International Limited
By: /s/ A. David Miller, Jr.
-------------------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
SCHEDULE I
Number of
Optional
Total Number Shares to be
of Purchased if
Firm Shares Maximum
to be Option
Underwriter Purchased Exercised
----------- ----------- -----------
Goldman Sachs International Limited 109,000 16,350
Merrill Lynch International Limited 109,000 16,350
Bayerische Vereinsbank Aktiengesellschaft 25,000 3,750
James Capel & Co. Limited 25,000 3,750
Deutsche Bank Aktiengesellschaft 25,000 3,750
B. Metzler seel. Sohn & Co.
Kommanditgesellschaft auf Aktien 25,000 3,750
Swiss Bank Corporation 25,000 3,750
Total 343,000 51,450
