KMT 6.30.2014 10K Ex 10.38










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 21⁄2 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 21⁄2 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




		
	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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