Exhibit 10.3

KENNAMETAL INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended, January 1, 2004)

Section 1. Purpose and Effective Date.

1.1   The purpose of this Supplemental Executive Retirement Plan is to ensure
the payment of a competitive level of retirement income, in order to attract,
retain, and motivate selected executives. The Plan is also intended to provide
eligible executives with a retirement benefit that cannot be paid from the
Company’s qualified Retirement Income Plan, due to various limitations of the
United States Internal Revenue Code.   1.2   This Plan was previously amended
and adopted, effective April 21, 1995; was later amended and adopted, effective
July 26, 1999; and was most recently amended and adopted, effective as of
January 1, 2004. It will be effective for each participant on the date he or she
is designated as a Participant and executes an Employment Agreement.   1.3   The
terms of this Plan are applicable only to eligible executives who are employed
by the Company on or after April 21, 1995. Any executive who retired or
otherwise terminated employment prior to such date, shall not be eligible to be
designated a Participant under this Plan unless he or she returns to service
with the Company on or after April 21, 1995.

Section II. Definitions.

2.1   Board of Directors means the Directors of the Company.   2.2   Bonus Award
means the annual cash award, if any, received by a Participant under the
provisions of the Kennametal Inc. Management Performance Bonus Plan of any given
fiscal year. Only an award generated by successful attainment of the Bonus
Plan’s business objectives shall be considered a “Bonus Award” for the purposes
of this Plan, provided that a Bonus Plan award of $0.00 to the Participant for a
given fiscal year shall be taken into account for purposes of this Plan. No
other kind of bonus award or grant will qualify as a “Bonus Award” for purposes
of this Plan.   2.3   Change in Control shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934 as in effect
on the date hereof (“1934 Act”), or if Item 6(e) is no longer in effect, any
regulations issued by the Securities and Exchange Commission pursuant to the
1934 Act which serve similar purposes; provided that, without limitation, such a
change in control shall be deemed to have occurred if (i) Kennametal shall be
merged or consolidated with any corporation or other entity other than a merger
or consolidation with a corporation or other entity all of whose equity
interests are owned by

 

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    Kennametal immediately prior to the merger or consolidation, or (ii)
Kennametal shall sell all or substantially all of its operating properties and
assets to another person, group of associated persons, or corporation; or
(iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the 1934
Act), is or becomes a beneficial owner, directly or indirectly, of securities of
Kennametal representing 25% or more of the combined voting power of Kennametal’s
then outstanding securities coupled with or followed by the existence of a
majority of the board of directors of Kennametal consisting of persons other
than persons who either were directors of Kennametal immediately prior to or
were nominated by those persons who were directors of Kennametal immediately
prior to such person becoming a beneficial owner, directly or indirectly, of
securities of Kennametal representing 25% or more of the combined voting power
of Kennametal’s then outstanding securities.   2.4   Code means the Internal
Revenue Code of 1986, as amended from time to time. References in the Plan to a
Code Section shall be deemed to refer to any successor provision of the Code, as
appropriate.   2.5   Committee means the Board of Directors Committee on
Executive Compensation, designated by the Board of Directors to administer the
plan.   2.6   Company means Kennametal Inc., a Pennsylvania corporation, or any
successor bound by this Plan pursuant to Section 8.5.   2.7   Disability means
such incapacity due to physical or mental illness or injury, as causes the
Participant to be absent from his principal office at Kennametal’s offices for
the entire portion of 180 consecutive business days.   2.8   Employee means an
employee of the Employer.   2.9   Employer means the Company and any subsidiary
or affiliate of the Company whose employees participate in the Plan.   2.10  
Employment Agreement means an agreement between an Employer and an Employee,
which sets forth terms and conditions of employment and specifically refers to
this Plan.   2.11   Final Base Salary means the Participant’s monthly base
salary rate, before any pre-tax reductions pursuant to the Participant’s
elections under IRC § § 125 or 402(e)(3), for the calendar month in which
Participant’s Termination of Employment occurs, without regard to any
limitations on compensation under the Code, including those under IRC §
401(a)(17).   2.12   IRC means the Code.   2.13   Normal Retirement means the
first day of the month following the day on which the Employee reaches the age
of sixty-five (65).

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2.14   Participant means any Employee of an Employer who is entitled to
participate in the Plan in accordance with Section III. Where the context so
indicates, “Participant” shall also include a retired or deceased Participant
with respect to whom a SERP Benefit is payable.   2.15   Plan means the
Company’s Supplemental Executive Retirement Plan (SERP), as set forth herein and
as amended and restated from time to time.   2.16   Primary Social Security
Benefit means the monthly benefit, as provided by the Federal Social Security
Act, to which the Participant would be entitled at age 65, based upon the
assumption that such Participant will continue to receive until reaching age
65 monthly earnings at the same rate as he or she received such monthly earnings
at the time of retirement, termination of employment or death. (Note: This
definition is identical to that used under the Retirement Income Plan.)   2.17  
Retirement Income Plan means the funded, tax-qualified Kennametal Inc.
Retirement Income Plan, as it may be amended and restated, from time to time.  
2.18   Retirement Income Plan Benefit means either (a) the monthly benefit that
would be payable as a single life annuity under the Retirement Income Plan
commencing upon a retirement at age 65, based on credited service and average
earnings as of the Participant’s termination of service, calculated pursuant to
the terms and provisions of the Retirement Income Plan as such terms and
provisions literally apply to the Participant because the Participant is an
active participant (accruing additional benefits) in the Retirement Income Plan
up to his or her termination of service and will in fact be eligible to receive
benefits reflecting credited service and average earnings determined to his or
her termination of service; or (b) but for the amendment to the Retirement
Income Plan effective December 31, 2003 that excluded such Participant from
further active participation in such plan after such date, or in the case of a
Participant first hired after December 31, 2003, excluded such Participant from
any active participation in such plan, the monthly benefit that would be payable
as a single life annuity under the Retirement Income Plan commencing upon a
retirement at age 65, based on credited service and average earnings as of the
Participant’s termination of service calculated pursuant to the terms and
provisions of the Retirement Income Plan (other than vesting provisions) as such
terms and provisions theoretically would have applied to the Participant if the
Participant had not been excluded from active participation, or from further
active participation, in the plan, but had instead been an active participant
(accruing benefits) in the Retirement Income Plan up to his or her termination
of service, based on his or her credited service and average earnings to such
termination of service. That is, the Retirement Income Plan Benefit determined
hereunder is either (a) the actual benefit that a Participant is eligible to
receive under such plan because he or she is active participant in the
Retirement Income Plan at termination of service, or (b) the theoretical benefit
the Participant would have been eligible to receive had he or she been eligible
to be an active participant in the Retirement

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    Income Plan up to termination of service (determined without regard to the
vesting provisions of the Retirement Income Plan).   2.19   SERP Benefit means
the benefit, calculated pursuant to Section V and Appendix A, that is payable to
a Participant under the Plan.   2.20   Surviving Spouse means the individual to
whom the Participant is legally married at the time of his or her death.   2.21
  Target Retirement Income means the monthly amount determined as the
“applicable percentage” of the total of (a) the Participant’s Final Base Salary
plus (b) 1/36th of the sum of the Participant’s last three Bonus Awards. For
this purpose, the applicable percentage is 60% at 30 Years of Service, plus or
minus 1% for each Year of Service greater than or less than thirty.   2.22  
Year of Service means each full twelve-month period beyond Employee’s most
recent hire date, as determined pursuant to the Company’s regular personnel
records and policies. (Note: This definition is not intended to be coextensive
with the definition of “Credited Service” as used in the Retirement Income
Plan.)

Section III. Eligibility.

3.1   Each officer or key executive Employee of the Company approved by the
Committee, in its sole discretion, shall be eligible to participate in the Plan.
In the case of an officer, such participation shall be effective upon the
officer’s prompt execution of an Employment Agreement.   3.2   Any officer or
key executive who becomes a Participant shall continue to be a Participant until
his or her termination of employment, or until a date prior to such time, as
determined by the Committee, in its sole discretion.

Section IV. Vesting.

4.1   A Participant shall become vested and entitled to receive a benefit under
the Plan, determined in accordance with Section V, only in accordance with the
following schedule:

          Age of Participant at Termination

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  Cumulative Vested Plan Benefit

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Less than age 56
    0 %
56
    20 %
57
    40 %
58
    60 %
59
    80 %
60 or older
    100 %

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    Notwithstanding the foregoing, a Participant who voluntarily leaves
employment, without Employer’s permission, or is involuntarily terminated, with
cause, prior to entitlement to receive a benefit pursuant to Section 6.1, shall
forfeit any entitlement to a benefit under the Plan. In the event that
Participant shall voluntarily or involuntarily leave the employ of the Company
before his or her retirement date, including involuntary termination of
employment because of death or disability, and the Participant is not vested as
to any portion of the SERP Benefit, the obligations of the Company under
Section 6 and 7 of the Plan shall be null and void, and neither the Participant
nor any other person shall in any way be entitled to any payments hereunder.  
4.2   Notwithstanding Section 4.1, each Participant’s Plan benefit automatically
shall become 100% vested upon a Change in Control of the Company.

Section V. Amount of Benefit

5.1   The amount of each Participant’s SERP Benefit shall initially be
calculated as the excess of the Target Retirement Income over the sum of the
Participant’s Retirement Income Plan Benefit plus the Participant’s Primary
Social Security Benefit.   5.2   The Target Retirement Income, the Retirement
Income Plan Benefit, and the Social Security Benefit, shall be calculated
according to the methodology described in Appendix A.   5.3   The Committee
shall cause the formula calculation described in Section 5.1 to be done
annually, or as otherwise required, for each Participant. The Committee shall
then be advised of the SERP Benefit amount for each Participant, and shall
direct that an official list of Participants and their accrued SERP Benefit be
prepared, which shall govern the payment of a benefit under the Plan, pursuant
to Section VI, until the next annual review and redetermination of a SERP
Benefit amount.

Section VI. Payment of Benefit.

6.1   Payment of the Participant’s SERP Benefit shall commence on the first day
of the month following the month in which the Participant’s employment with the
Company terminates due to (1) Normal Retirement from employment with the
Company, (2) retirement from employment with the Company on any date prior to
Normal Retirement that has the prior approval of the Company’s Board of
Directors, (3) termination of employment prior to Normal Retirement as a result
of Disability, or (4) retirement from employment with the Company following a
Change In Control, unless the Participant requests a later payment commencement
date.

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6.2   A Participant’s Plan benefit shall be paid in equal monthly installments,
in the form of a single life annuity with no death or other survivor benefit
other than those described in Section VII.

Section VII. Surviving Spouse and other Death Benefit.

7.1.   In the event of the death of a Participant prior to the commencement of
payment of a Plan benefit to the Participant, an amount equal to 50% of the
amount of the benefit calculated in accordance with the vesting provisions of
Section IV and the amount of the benefit of Section V which would otherwise have
been payable to the Participant, will instead be payable to the Participant’s
Surviving Spouse. Payments to such Surviving Spouse shall be made from the month
following the month in which the death of the Participant occurred until the
death of the Surviving Spouse.   7.2.   In the event of the death of a
Participant after the commencement of payment of a Plan benefit to the
Participant, an amount equal to 50% of the amount of the Plan benefit then being
paid to the Participant will instead be payable to the Participant’s Surviving
Spouse. Payments to such Surviving Spouse shall be made from the month following
the month in which the death of the Participant occurred, until the death of the
Surviving Spouse.   7.3.   If the Surviving Spouse is five (5) or more years
younger than the Participant, the monthly payment to the Surviving Spouse
pursuant to paragraphs 7.1 and 7.2 shall be actuarially adjusted, so that it has
the same present actuarial value as the full 50% payment to a hypothetical
Surviving Spouse who is less than five (5) years younger than the Participant.
For this purpose, the Committee shall use a life expectancy factor derived from
the definition of “Actuarial Equivalent” under the Retirement Income Plan as in
effect as of the date of the calculation. Effective as of January 1, 2004, the
basis of Actuarial Equivalence under the Retirement Income Plan is the 1983
Group Annuity Mortality Table for Males, using 0%, with the Participant’s age
set back two years and the Surviving Spouse’s age set back four years. The life
expectancy factors derived therefrom are set forth in Appendix B of the Plan.
The foregoing actuarial adjustment shall be effected by dividing the life
expectancy factor for the hypothetical Surviving Spouse by the life expectancy
for the Surviving Spouse (calculated to four decimals). The quotient obtained
shall be multiplied by the Surviving Spouse’s 50% benefit pursuant to paragraphs
7.1 and 7.2. An example of the method of actuarial adjustment is shown in
Appendix C of the Plan.   7.4.   In the event that the Participant and/or his or
her Surviving Spouse shall have been entitled to payments under Sections 6 and 7
of the Plan, and upon the death of the Surviving Spouse, the aggregate amount of
the cumulative payments of the SERP Benefit shall have been less than $50,000,
the Company shall pay a lump sum amount, equal to $50,000 less the aggregate
amount of the cumulative payments of the SERP Benefit already made, in the
following order of preference: (1) to the person designated by the Participant
in a written notice filed with the Committee, or, if the Participant has no such
notice on file, or the person(s) designated in such notice do(es) not exist at
the relevant time, then (2) to the executor or administrator of the
Participant’s estate.

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Section VIII. Miscellaneous Provisions.

8.1   Administration. The Committee shall be responsible for all facets of
interpretation and administration of the Plan. The Committee may adopt rules and
regulations to assist it in the administration of the Plan. The Board of
Directors has also delegated to the Committee the right to modify provisions of
the Plan in individual cases.   8.2   Non-Competition. Receipt of the SERP
Benefit is expressly conditioned upon the non-competition of the retired
Participant with the Company, for so long as any payments are being made
hereunder. Accordingly, unless the Participant first secures the written consent
of the Board of Directors or the Committee, he shall not directly or indirectly,
as an officer, director, employee, consultant, agent, partner, joint venturer,
proprietor, or other, engage in or assist any business which is or may become in
direct or indirect competition with the Company or any of its subsidiaries,
other than as a mere investor holding not more than one percent of the equity
interest of any such competing enterprise. In the event that the Committee makes
a good-faith determination that a Participant receiving a SERP Benefit is or may
be violating the non-competition provisions hereof, it shall immediately notify
him or her of such finding in writing and afford him or her a reasonable
opportunity (a period of not less than sixty days) to rebut such finding, or to
desist from such competitive activity. In the event that the Committee believes
that a violation of the non-competition provision continues uncorrected
following the sixty-day period, it may then cease making SERP Benefit payments,
and the retired Participant (and any Spouse or other beneficiary claiming
through the Participant) shall forfeit any right to future payment of a SERP
Benefit under the Plan.   8.3   Source of Benefit Payments. This Plan is
intended to be an unfunded plan of deferred compensation for a select group of
management or highly compensated individuals, and it is intended that a SERP
Benefit payable hereunder will be paid from the general assets of the Company.
However, in the event of a Change in Control, amounts payable to a Participant
or the Surviving Spouse or estate, under Sections 6 and 7 of the Plan, may be
provided for in accordance with an Executive Deferred Compensation Trust (a
so-called “Rabbi” trust) between the Company and a trustee. The Company shall
inform the Participant of the identity of the trustee upon the Participant’s
request.   8.4   Non-Assignment, Alienation. Nothing in this Plan gives a
Participant or any person claiming payments for or through him or her, any
right, title, or interest in any asset held in the Company, prior to the payment
thereof, and that the right of a Participant to any payment hereunder is
strictly contractual and unsecured, unless a Change in Control causes the
funding of the Plan in the Company’s Executive Deferred Compensation Trust. In
addition, the benefit to be paid hereunder may not be voluntarily or
involuntarily sold, transferred, assigned, alienated, or encumbered, and any
such attempt shall be void.   8.5   Obligation of Successors. This Plan shall be
binding upon the Company or any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise), to all or substantially all of
the business and/or assets of the Company, or to any assignee

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    thereof. To the extent that the Company must take additional contractual or
other steps to make the Plan an enforceable contractual obligation of a
successor (e.g., a purchaser of assets), the Company shall take such steps. This
Plan and all rights of the Participant hereunder shall inure to the benefit of
and be enforceable by the Participant or the Participant’s personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees.   8.6   Amendment, Termination. This Plan may be amended
or terminated at any time by action of the Board of Directors, provided that no
such amendment or termination shall reduce or eliminate the right of a
Participant to the payment of a Plan benefit earned prior to such amendment or
termination.   8.7   Withholding. The Company may provide for the withholding,
from any benefit payable under this Plan, all Federal, state, city, or other
taxes as shall be appropriate pursuant to any law or governmental regulation or
ruling, and may delay the payment of any benefit until the Participant or
beneficiary provides payment to the Company of all applicable withholding taxes.
  8.8   Miscellaneous. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, to the extent not
governed by federal law. Section headings are for convenience of reference only,
and shall not affect the construction or interpretation of any of the provisions
hereof.

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APPENDIX A

w   Calculation begins with current monthly base salary and years of service, up
to the present date.   w   Target Retirement Income equals a percent of
(a) Final Base Salary plus (b) the monthly average (i.e., 1/36) of the sum of
the last three Bonus Awards. The percentage is calculated as 60% for 30 years of
service, plus or minus 1% for each year of service greater than or less than
thirty. For example:

          Years of Service

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  Retirement Target

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Newly hired
    30 %
5
    35 %
10
    40 %
15
    45 %
20
    50 %
25
    55 %
30
    60 %
35
    65 %
40
    70 %
45
    75 %

w   Calculate the Retirement Income Plan Benefit, based on current years of
service and pensionable earnings, to date, and including current statutory
limitations (IRC §§ 415 and 401A(17)), but not actuarially reduced for age less
than 65. This calculation is made on the assumption (whether or not true) that
the Participant is an active participant in the RIP and is currently eligible to
accrue additional benefits thereunder. (Thus, the calculation is made even if
the Participant is excluded from active participation under the terms of the
RIP, as amended effective December 31, 2003.)   w   Calculate the Primary Social
Security Benefit, based on earnings to date and assuming that current level of
earnings will continue through age 65.   w   The SERP Benefit equals the Target
Retirement Income (above) minus the sum of (a) the Retirement Income Plan
Benefit plus (b) the Primary Social Security Benefit.   w   The SERP Benefit is
then adjusted, if applicable, under the vesting schedule in Section 4.1.

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w   However, the minimum SERP Benefit is 10% of current Base Salary.   w   If
the prior SERP benefit (as last calculated under the above described method and
posted to the official list of Participants and their SERP Benefit) is greater
than the new SERP Benefit, use the prior SERP Benefit.   w   Therefore, SERP
Benefit is the greatest of:

  •   Target Retirement Income minus sum of (a) Retirement Income Plan Benefit
plus (b) the Primary Social Security Benefit.     •   10% of Current Base
Salary, or     •   Prior SERP Benefit.

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APPENDIX B

LIFE EXPECTANCIES FROM THE 1983 GROUP ANNUITY TABLE FOR MALES
(Set back 2 years for Participants and 4 years for Joint Annuitants)

                          Age

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  Joint Annuitant

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  Age

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  Joint Annuitant

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20
    61.8209       65       20.733104  
21
    60.8413       66       19.922360  
22
    59.8620       67       19.126492  
23
    58.8830       68       18.344112  
24
    57.9043       69       17.572161  
25
    56.9259       70       16.808107  
26
    55.9480       71       16.051847  
27
    54.9706       72       15.305311  
28
    53.9937       70       14.572070  
29
    53.0174       74       13.854374  
30
    52.0418       75       13.152659  
31
    51.0670       76       12.467970  
32
    50.0929       77       11.801827  
33
    49.1198       78       11.156078  
34
    48.1476       79       10.530978  
35
    47.1765       80       9.925826  
36
    46.2066       81       9.340932  
37
    45.2380       82       8.777414  
38
    44.2708       83       8.236987  
39
    43.3052       84       7.719357  
40
    42.3420       85       7.223015  
41
    41.3799       86       6.747887  
42
    40.4194       87       6.295031  
43
    39.4609       88       5.866464  
44
    38.5048       89       5.463912  
45
    37.5519       90       5.087653  
46
    36.6027       91       4.737174  
47
    35.6578       92       4.411342  
48
    34.7181       93       4.108517  
49
    33.7843       94       3.827037  
50
    32.8570       95       3.565508  
51
    31.9371       96       3.322551  
52
    31.0249       97       3.096798  
53
    30.1209       98       2.886902  
54
    29.2251       99       2.692192  
55
    28.3377       100       2.512150  
56
    27.4584       101       2.345559  
57
    26.5870       102       2.190383  
58
    25.7232       103       2.043361  
59
    24.8665       104       1.904998  
60
    24.0165       105       1.776622  
61
    23.1729       106       1.653351  
62
    22.3357       107       1.520196  
63
    21.5052       108       1.343162  
64
    20.6824       109       1.058194  

Assumptions:   Mortality Table = gam83m
Interest = 0.00%   Participant -2 setback
Continuation Percentage = 50%   Joint Annuitant -4 setback

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APPENDIX C

Example:

A Participant receiving a SERP Benefit in the amount of $10,000 dies at age 74.
His or her Surviving Spouse is age 65. The benefit payable to the Surviving
Spouse would be calculated as follows.

1.   Life expectancy set forth on the Group Annuity Mortality Table of a
hypothetical Surviving Spouse who is age 69 =16.7345   2.   Life expectancy set
forth on the Group Annuity Mortality Table of the Surviving Spouse who is age 65
= 19.8686   3.   Quotient obtained by dividing 1 above by 2 above (16.7345 ÷
19.8686) = 0.8423   4.   Yearly benefit payable to Surviving Spouse = $10,000 x
50% x 0.8423 = $4,211.50

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