Exhibit 10.38
KENNAMETAL INC.

PERFORMANCE UNIT AWARD

Grant Date: ____________________
Kennametal Inc. (the “Company”) hereby grants to [NAME] (the “Awardee”), as of
the Grant Date listed above, this Performance Unit Award (the “Award”) for
[TARGET NUMBER OF STOCK UNITS] Stock Units, subject to the terms and conditions
of the Kennametal Inc. Stock and Incentive Plan of 2010, as Amended and Restated
on October 22, 2013 (the “Plan”) and the additional terms listed below.
Capitalized terms used herein, but not otherwise defined, shall have the same
meaning ascribed to them in the Plan.
1.Each Stock Unit represents the right to receive one Share of the Company’s
Capital Stock, par value $1.25 per share, subject to the satisfaction of the
Service Condition described herein and the Performance Conditions attached
hereto as Exhibit A. Stock Units as initially awarded have no independent
economic value, but rather are mere units of measurement used for purposes of
calculating the number of Shares, if any, to be delivered under this Award. The
maximum amount of Stock Units that may be earned under this Award is equal to
two times the target number of Stock Units listed in the preamble above. Subject
to the terms and conditions of this Award, up to one-third of the maximum number
of Stock Units may be earned in each fiscal year of the three-year Performance
Period (as defined in Exhibit A).
2.    Except as otherwise provided in this Award, Awardee must be actively
employed by the Company on the Payment Date (defined below) to be eligible to
receive Shares in payment of any Stock Units earned under this Award (the
“Service Condition”).
3.    In addition to satisfaction of the Service Condition, payment under this
Award is subject to, and contingent upon, achievement of the annual Performance
Conditions during the Performance Period. The amount of this Award payable to
Awardee will be determined by the level of achievement of the annual Performance
Conditions as set forth in Exhibit A. Achievement of the Performance Conditions,
including the level of achievement, if any, for each fiscal year in the
Performance Period shall be determined by the Compensation Committee of the
Board of Directors (the “Compensation Committee”), in its sole discretion, and
Awardee agrees to be bound by such determination; provided, however, the
Compensation Committee shall not use its discretionary authority reserved to it
under Section 6(g) of the Plan to reduce the number of Stock Units earned, if
any, based on the achievement of the Performance Conditions pursuant to the
terms and conditions of this Award. For each fiscal year of the Performance
Period, any Stock Units that are not earned will be cancelled and forfeited at
the end of such fiscal year.
4.    Issuance and Distribution.
a.    At the end of each fiscal year of the Performance Period to which this
Award relates, the Compensation Committee will certify in writing the extent to
which the applicable annual Performance Conditions have been achieved. For
purposes of this provision, and for so long as the Code permits, the approved
minutes of the Committee meeting in which the certification is made may be
treated as written certification.
b.    Subject to the terms and conditions of this Award and unless otherwise
specifically provided herein, Stock Units earned by an Awardee will be settled
and paid in Shares of the Company’s Capital Stock as soon as practicable
following the end of the three-year Performance Period on a date determined in
the Company’s discretion, but in no event later than the last day of the
“applicable 2½ month period” specified in Treas. Reg. §1.409A-1(b)(4) (the
“Payment Date”).

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5.     Change in Awardee’s Status.

a    Death or Disability. In the event an Awardee Separates from Service during
the Performance Period on account of death or Disability, the Service Condition
will be waived. For completed fiscal years, Awardee shall be entitled to receive
payment for any Stock Units that have been earned based on the achievement of
the Performance Conditions applicable to such fiscal year. For fiscal years not
completed, the Performance Conditions will be deemed to have been achieved at
the target level and the Awardee will be deemed to have earned for each such
fiscal year a number of Stock Units that were able to be earned for such fiscal
year.
In the event an Awardee Separates from Service during the period between the end
of the Performance Period and the Payment Date on account of death or
Disability, the Service Condition will be waived and the Awardee shall be
entitled to receive payment for any Stock Units that have been earned based on
the achievement of the Performance Conditions prior to the date of death or
Disability.
Subject to the terms and conditions of this Award and unless otherwise
specifically provided herein, in the event an Awardee Separates from Service on
account of death or Disability during the Performance Period, the Stock Units,
to the extent earned by the Awardee, shall be paid as soon as practicable
following the date of such Separation from Service, but in no event later than
the last day of the “applicable 2½ month period” specified in Treas. Reg.
§1.409A-1(b)(4).
b.    Retirement. In the event a Retirement Eligible Awardee (as defined below)
Separates from Service on account of Retirement during the Performance Period,
the Service Condition will be waived and the amount of this Award to be paid, if
any, will be determined as follows. For completed fiscal years, Awardee shall be
entitled to receive payment for any Stock Units that have been earned based on
the achievement of the Performance Conditions applicable to such fiscal year.
For the fiscal year in which the Separation from Service occurs, the Awardee
will be entitled to receive payment for a number of Stock Units determined by
multiplying (x) the number of Stock Units that are earned based on the
achievement of the Performance Conditions applicable to such fiscal year, times
(y) the fraction equal to the number of completed months starting with July 1st
of the fiscal year in which the Separation from Service occurs and ending with
the month of the Awardee’s Retirement, divided by 12. All other Stock Units
granted under this Award, including Stock Units that could have been earned for
fiscal years after the fiscal year in which the Separation from Service
occurred, shall be cancelled and forfeited without payment by the Company or any
Affiliate.
Notwithstanding any other provision of this Award to the contrary, with respect
to an Awardee who is or becomes eligible to Separate from Service on account of
Retirement during the Performance Period (a “Retirement Eligible Awardee”), any
payment made to such Retirement Eligible Awardee under this Award by reason of
(i) a Separation from Service on account of death shall be paid in the month
following the month containing the date of such Separation from Service; (ii) a
Separation from Service on account of Disability shall be paid in the month
following the month containing the 6-month anniversary of the date of such
Separation from Service; or (iii) achievement of the annual Performance
Conditions during the Performance Period as specified herein (and regardless of
whether Retirement Eligible Awardee Separates from Service on account of
Retirement) shall be paid in [August 20XX]; or (iv) a Change in Control shall be
paid in accordance with Section 5.c below only to the extent such event
qualifies as a change in the ownership or effective control of the Company, or a
change in the ownership of a substantial portion of the assets of the Company,
as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5).

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c.    Change in Control. In the event of a Change in Control, the Awardee shall
be entitled to receive payment for any Stock Units that have already been deemed
earned by the Compensation Committee based on the achievement of the Performance
Conditions applicable to such fiscal year. For any portion of the Award that has
not yet been deemed earned by the Compensation Committee, the Service Condition
will be waived and the Performance Conditions will be deemed to have been
achieved at the target level immediately prior to the Change in Control and the
Awardee will be deemed to have earned for each such fiscal year a number of
Stock Units that were able to be earned at target for such fiscal year.

All Stock Units deemed earned by the Awardee in the event of a Change in Control
shall be paid immediately prior to the closing of the Change in Control
transaction; provided, that in the event of a Change in Control, Stock Units
may, in the Committee’s discretion, be settled in cash and/or securities or
other property.

d.    All Other Separations from Service. In the event an Awardee Separates from
Service for any other reason (other than death, Disability, or Retirement),
including, but not limited to, voluntarily by the Awardee or involuntarily by
the Company with or without cause, prior to the Payment Date, all Stock Units
granted to the Awardee shall be cancelled and forfeited, whether payable or not,
without payment by the Company or any Affiliate.

6.The Stock Units will be entitled to receive Dividend Equivalents, which will
be subject to all conditions and restrictions applicable to the underlying Stock
Units to which they relate. Dividend Equivalents will accrue during the
Performance Period. At the end of each fiscal year, Dividend Equivalents will be
earned only for Stock Units that are earned or deemed earned under this Award
for that fiscal year. With respect to Stock Units that are not earned for a
fiscal year (because the applicable Performance Conditions are not satisfied or
otherwise), Dividend Equivalents that were accrued for those Stock Units will be
cancelled and forfeited along with the Stock Units and underlying Shares,
without payment by the Company or any Affiliate. Dividend Equivalents will be
paid in cash at such time as the underlying Stock Units to which they relate are
paid.
7.The Stock Units may not be sold, assigned, pledged, exchanged, hypothecated,
gifted or otherwise transferred, encumbered or disposed of prior to the Payment
Date, except as described herein or in the Plan.
8.The Shares underlying the Stock Units shall not be sold or otherwise disposed
of in any manner that would constitute a violation of any applicable federal or
state securities laws. The Company may refuse to register a transfer of the
Shares on the stock transfer records of the Company if the transfer constitutes
a violation of any applicable securities law and the Company may give related
instructions to its transfer agent, if any, to stop registration of the transfer
of the Shares.
9.This Performance Unit Award is intended to comply with Section 409A of the
Internal Revenue Code (which deals with nonqualified deferred compensation) or
an exception thereto and the regulations promulgated thereunder and will be
construed accordingly. To the extent a payment is subject to Section 409A and
not excepted therefrom, such payment shall be treated as made on the specified
date of payment if such payment is made at such date or a later date in the same
calendar year or, if later, by the 15th day of the third calendar month
following the specified date of payment, as provided and in accordance with
Treas. Reg. § 1.409A-3(d). An Awardee shall have no right to designate the date
of any payment under this Award. The Company reserves the right to administer,
amend or modify the Award or to take any other action necessary or desirable to
enable the Award to be interpreted and construed accordingly. Notwithstanding
the foregoing, the Awardee acknowledges and agrees that Section 409A may impose
upon the Awardee certain taxes or interest charges for which the Awardee is and
shall remain solely responsible.
10.Notwithstanding anything to the contrary in this Award or the Plan, in the
event that this Award is not accepted by the Awardee on or before the date that
is 180 days from the grant date noted herein (the “Forfeiture Date”), then this
Award shall become null and void and all Stock Units subject to this Award shall
be forfeited by the Awardee as of the Forfeiture Date. For acceptance to be
valid, the Awardee must accept this Award in the manner specified by the
Company. Any Shares underlying the Stock Units covered by this Award that are
forfeited by the Awardee shall be returned to the Plan and resume the status of
shares available for grant.

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11.All other terms and conditions applicable to this Award are contained in the
Plan. A copy of the Plan and related Prospectus is available on your accounts
page at netbenefits.fidelity.com under Plan Information and Documents, as well
as on The Hub under Human Resources.

KENNAMETAL INC.

By:     Kevin G. Nowe
Title:     Vice President, Secretary and General Counsel

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Exhibit A

Performance Conditions for FY15 LTIP Performance Unit Awards
I. ADJUSTED RETURN ON INVESTED CAPITAL (ADJ. ROIC) COMPONENT: WEIGHTED AT 60%
ADJ. ROIC
 
FY15
FY16
FY17
Maximum
14%
14%
14%
Target
10%
10%
10%
Threshold
7%
7%
7%

Note: The table sets forth the three year period beginning July 1, 2014 and
ending June 30, 2017 (“Performance Period”) referenced in the Performance Unit
Award Agreement to which this Exhibit A is attached.
Performance Conditions Payout Table for ROIC Component
 
Threshold
Target
Maximum
Performance Goal
7%
10%
14%
Payout Range
50%
100%
200%

Note: Interpolation between values shown in the above table will be made on a
straight line basis. There will be no payment for performance below Threshold,
and no additional payment for performance above Maximum.
II. RELATIVE TOTAL SHAREHOLDER RETURN (RELATIVE TSR) COMPONENT: WEIGHTED AT 40%
(a)     The Stock Units that may be earned by the Participant will be based on
(i) the Corporation’s Total Shareholder Return, as described below, relative to
the Peer Group’s (as set forth in Attachment) Total Shareholder Return for each
specified period of time (“Performance Period”) and (ii) satisfaction of the
condition of employment, as set forth below.

(i) “Total Shareholder Return” (or “TSR”) over each specified period shall be
calculated in accordance with the following formula: ((Final Price + all cash
dividends paid during the specified period, included as of the applicable
ex-dividend date)/Initial Price) – 1, expressed as a percentage.

(ii) “Final Price” shall mean the average of the closing prices of the Common
Stock of each peer company and the Company for the final thirty trading days of
the specified period plus all cash dividends paid during the final thirty (30)
trading days. For purposes of this Agreement, this shall mean the final thirty
(30) trading days in fiscal 2015, 2016 and 2017, as applicable.
(iii) “Initial Price” shall mean the average of the closing prices of the Common
Stock of each peer company and the Company for the last thirty (30) trading days
preceding the

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beginning of the specified period plus all cash dividends paid during the last
thirty (30) trading days. For purposes of this Agreement, the Initial Price
shall be calculated based on the average of the closing stock prices over the
thirty days ending on June 30, 2014 and the final thirty trading days ending on
June 30, 2015 and June 30, 2016, as applicable.

(iv) The Company’s Total Shareholder Return for each specified period shall be
measured as a percentile ranking in comparison with the index of the Peer Group
Total Shareholder Return (the “Index”).

(b)     The total number of shares of Common Stock to be received pursuant to
this agreement shall be the “Award Shares” and shall be calculated as
follows:    

(i) 25% of the Target Stock Units shall be earned if the Company’s Total
Shareholder Return for July 1, 2014 – June 30, 2015 (“Period 1”) is equal to the
55th percentile Total Shareholder Return of the Index for Period 1;

(ii) 25% of the Target Stock Units shall be earned if the Company’s Total
Shareholder Return for July 1, 2015 – June 30, 2016 (“Period 2”) is equal to the
55th percentile Total Shareholder Return of the Index for Period 2;
        
(iii) 25% of the Target Stock Units shall be earned if the Company’s Total
Shareholder Return for July 1, 2016 – June 30, 2017 (“Period 3”) is equal to the
55th percentile Total Shareholder Return of the Index for Period 3; and

(iv) 25% of the Target Stock Units shall be earned if the Company’s Total
Shareholder Return for July 1, 2014 – June 30, 2017 (“Period 4”) is equal to the
55th percentile Total Shareholder Return of the Index for Period 4 (each of
Period 1, Period 2, Period 3 and Period 4 is an “Applicable Period”);

The percentile rank calculation shall be calculated without including the
Company.

Each of the share amounts set forth in (i), (ii), (iii) and (iv) above shall be
subject to adjustment based on the following formula: shares earned = TSR Payout
Factor x 0.25 x Target Stock Units. The “TSR Payout Factor” is based on the
Company’s Total Shareholder Return for the Applicable Period relative to the
Index, determined in accordance with the following table:

If the Company’s TSR rank
against the Peer Group is:
TSR Payout Factor
(% of Target TSR tock Units)

at the 30th percentile (Threshold)

50%
at the 55th percentile (Target)
100%
at the 80th percentile or more (Maximum)
200%

The TSR Payout Factor shall be interpolated on a straight-line basis between the
percentile levels in the above table, but no amounts will be payable if the
Company’s TSR rank against the Peer Group is below the Threshold level and no
amounts over 200% will be paid out if the Company’s TSR rank against the Peer
Group is above the 80th percentile.
By way of example to illustrate the calculation of the number of Award Shares
earned if the Target Award Share amount is 1,200 shares. If the Company’s TSR
rank in Period 1 was the 25th percentile, Period 2

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was the 65th percentile, Period 3 was the 55th percentile and Period 4 was the
80th percentile, the number of Award Shares would be 1,320 shares
(0+420+300+600) as shown in the table below:
 
TSR Rank
Payout Factor
Weighting
Award Shares (1,200 Target)
Period 1
25th percentile
0%
25%
0
Period 2
65th percentile
140%
25%
420
Period 3
55th percentile
100%
25%
300
Period 4
80th percentile
200%
25%
600
 
 
Total Award Shares Earned
1,320

The Index group companies shall consist of those companies that comprise the S&P
400 Capital Goods Index on the date of grant. A detailed list of the companies
that comprise the Index as of July 21, 2014 is attached. Peer Group companies
will be adjusted as follows for activity during the Performance Period:
•
If the Company or a member of the Peer Group splits its stock, such company’s
TSR will be adjusted for the stock split

•
If a member of the Peer Group is acquired by another company, the acquired Peer
Group company will be removed from the Peer Group for the entire Performance
Period

•
If a member of the Peer Group sells, spins‐off, or disposes of a portion of its
business representing more than 50% of such Company’s total assets during the
Performance Period, such Company will be removed from the Peer Group

•
If a member of the Peer Group acquires another company, the acquiring Peer Group
company will remain in the Peer Group for the Performance Period

•
If a member of the Peer Group is delisted on all major stock exchanges, such
delisted company will be removed from the Peer Group for the entire Performance
Period

•
Members of the Peer Group that file for bankruptcy, liquidation or similar
reorganization during the Performance Period will remain in the Peer Group,
positioned below the lowest performing nonbankrupt member of the Peer Group

Any adjustments resulting in the removal of a peer company will not impact
completed measurement periods during an outstanding performance period.
The Compensation Committee shall have the authority to make adjustments in
response to a change in circumstances that results in a member of the peer group
no longer satisfying the criteria for which such member was originally selected.

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INDEX PEER GROUP COMPANIES
(as of July 21, 2014)

S&P 400 Capital Goods Index
Company Name
Exchange:Ticker

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Acuity Brands, Inc.
NYSE:AYI

AECOM Technology Corporation
NYSE:ACM

AGCO Corporation
NYSE:AGCO

Alliant Techsystems Inc.
NYSE:ATK

AO Smith Corp.
NYSE:AOS

B/E Aerospace Inc.
NasdaqGS:BEAV

Carlisle Companies Incorporated
NYSE:CSL

CLARCOR Inc.
NYSE:CLC

Crane Co.
NYSE:CR

Donaldson Company, Inc.
NYSE:DCI

Esterline Technologies Corp.
NYSE:ESL

Exelis Inc.
NYSE:XLS

Fortune Brands Home & Security, Inc.
NYSE:FBHS

GATX Corp.
NYSE:GMT

Graco Inc.
NYSE:GGG

Granite Construction Incorporated
NYSE:GVA

Harsco Corporation
NYSE:HSC

Hubbell Inc.
NYSE:HUB.B

Huntington Ingalls Industries, Inc.
NYSE:HII

IDEX Corporation
NYSE:IEX

ITT Corporation
NYSE:ITT

KBR, Inc.
NYSE:KBR

Lennox International, Inc.
NYSE:LII

Lincoln Electric Holdings Inc.
NasdaqGS:LECO

MSC Industrial Direct Co. Inc.
NYSE:MSM

Nordson Corporation
NasdaqGS:NDSN

NOW Inc.
NYSE:DNOW

Oshkosh Corporation
NYSE:OSK

Regal Beloit Corporation
NYSE:RBC

SPX Corporation
NYSE:SPW

Terex Corp.
NYSE:TEX

Timken Co.
NYSE:TKR

Trinity Industries Inc.
NYSE:TRN

Triumph Group, Inc.
NYSE:TGI

United Rentals, Inc.
NYSE:URI

URS Corporation
NYSE:URS

Valmont Industries, Inc.
NYSE:VMI

Watsco Inc.
NYSE:WSO

Westinghouse Air Brake Technologies Corporation
NYSE:WAB

Woodward, Inc.
NasdaqGS:WWD

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