EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation
Compensation Discussion and Analysis
The following is a discussion and analysis of our compensation programs as they apply to our Chief
Executive Officer, Chief Financial Officer, the next three most highly compensated executive officers in Fiscal 2016, and our former Chief Executive Officer and our former Interim Chief Financial Officer (our named executive officers or
our NEOs):
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Ronald M. De Feo: President & Chief Executive Officer (CEO)
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Jan Kees van Gaalen: Chief Financial Officer (CFO)
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Judith L. Bacchus: Vice President and Chief Human Resources Officer and Corporate Relations Officer
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Charles M. Byrnes: Vice President and President Industrial Business Segment
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Peter A. Dragich: Vice President and President Infrastructure Business Segment
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Martha Fusco: Chief Financial Officer (interim), Vice President Finance and Corporate Controller(1)
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Former NEO (who left the Company during Fiscal 2016):
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Donald A. Nolan: Former President & Chief Executive Officer
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In this Compensation Discussion and Analysis (CD&A), we discuss our compensation policies and practices as they relate to our NEOs, compensation decisions made in Fiscal 2016 affecting our
NEOs compensation, highlights of the Companys financial performance for Fiscal 2016 and its effect on compensation paid to our NEOs in that year and recent changes we have made to our executive compensation program.
Fiscal 2016 Summary
The Company achieved the following performance in sales, profitability and returns for Fiscal 2016:
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Sales of $2.1 billion for Fiscal 2016, compared with $2.6 billion in Fiscal 2015.
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Reported (loss) earnings per diluted share (EPS) of ($2.83) (as adjusted to exclude loss on divestiture and related charges, U.S. deferred tax asset
valuation allowance, asset impairment charges, restructuring and related charges and operations of divested businesses: $1.11) for Fiscal 2016 compared with reported (loss) EPS of ($4.71) (as adjusted to exclude asset impairment charges,
restructuring and related charges and tax expense on cash redeployment and operations of divested businesses: $2.00) for Fiscal 2015.
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Adjusted return on invested capital (ROIC) for Fiscal 2016 was 6.0% compared to ROIC of 7.2% in Fiscal 2015.
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Free Operating Cash Flow (FOCF) was at $115 million for Fiscal 2016 compared to $267 million in Fiscal 2015.
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Please see Appendix A to this Proxy Statement for a reconciliation of our Adjusted EPS, FOCF and Adjusted ROIC results to our results reported in
accordance with GAAP.
Compensation Highlights for Fiscal 2016
The following are the highlights of our 2016 compensation program:
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Our Compensation Committee has adopted a strong pay-for-performance
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(1)
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Ms. Fusco served as the interim Chief Financial Officer for the Company from July 1, 2015 through September 2, 2015, when the Board elected Jan Kees van Gaalen as its Chief
Financial Officer.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
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philosophy which is tested on an annual basis through a realizable pay-for-performance alignment assessment conducted by the Committees independent consultant.
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Compensation is paid in a mix of base salary; annual cash-based incentives under our Prime Bonus plan; and equity-based long-term incentive awards
(consisting of stock options, restricted stock units and performance stock units).
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Compensation is tied mainly to Company financial and stock performance, so that a substantial portion of the compensation provided to our executive officers is
at risk.
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Payment of annual cash-based incentives under the Prime Bonus plan is based on achieving critical measures of Company performance, consistent with our
pay-for-performance philosophy. Prime Bonus payments for Fiscal 2016 performance were based on achievement of three corporate performance metrics FOCF, Sales Revenue and EPS.
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Our equity-based long-term incentive program is intended to drive the achievement of critical long-term business objectives, align managements interests
with those of our shareowners and foster retention of key executives. In Fiscal 2016, 50% of the target value of each executives long-term incentive opportunity was granted as performance units, 30% was granted as stock options and 20% was
granted as restricted units (all are settled in stock). This was similar to the prior year awards.
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Vesting of performance units is based on the attainment of two financial performance goals Adjusted ROIC (60% weight) and Relative Total
Shareholder Return (TSR) (40% weight). Performance units are subject to an additional continuous service requirement, which provides that award recipients must remain employed by the Company through the payout date in
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order to receive the payout, generally three years after the grant date. Restricted units and stock options time vest based on continuous service with the Company.
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Our Fiscal 2016 financial performance had the following effects on the performance-based awards held by our NEOs (1):
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Component (1) of Ms. Bacchus and Messrs. De Feo, Byrnes, Dragich and van Gaalen 2016 Target Prime Bonus awards as well as 100% of the 2016 Target Prime Bonus
award for Ms. Fusco were based on achievement of Kennametal FOCF, Sales Revenue and EPS. Based on the Companys Fiscal 2016 performance results, Mr. De Feo was paid a cash incentive equal to 42.2% of his pro-rated targeted award; Ms.
Bacchus and Mr. van Gaalen, were paid cash incentives equal to 33.8% of their targeted awards; Mr. Byrnes was paid a cash incentive equal to 47.2% of his targeted award; and Mr. Dragich a cash incentive equal to 51.9% of his targeted award. Ms.
Fusco was paid a cash incentive equal to 43% of her targeted award.
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Component (2) of Ms. Bacchus and Messrs. De Feo, Byrnes, Dragich and van Gaalen 2016 Target Prime Bonus awards were based on achievement of certain
individual strategic performance goals as determined and approved by the Compensation Committee of the Board of Directors. Based on Mr. De Feos Fiscal 2016 individual performance results, he was paid a 2016 cash incentive of
$350,000. Ms. Bacchus and Messrs. Byrnes, Dragich and van Gaalen did not receive anything for Component 2 as the established threshold EPS was not achieved.
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(1)
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Mr. Donald A. Nolan, our former President and Chief Executive Officer did not receive performance-based awards in Fiscal 2016.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
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Performance stock units were forfeited for the first tranche (1/3) of the 2016 performance stock units, the second tranche (1/3) of the 2015 performance
stock units, and the third tranche (1/3) of the 2014 performance stock units due to the Company failing to achieve the applicable threshold EPS, ROIC and Relative TSR performance goals set for Fiscal 2016.
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Compensation for New Chief Executive Officer
Effective February 4, 2016, Mr. De Feo was elected to serve the Company as President and Chief Executive Officer following Mr. Nolans separation from service. At that time, the Board, based on a
recommendation from the Compensation Committee, approved the following compensation for Mr. De Feo:
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Annual base salary of $1,000,000.
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Cash signing bonus of $200,000, to be repaid in full if Mr. De Feo voluntarily resigns or is terminated for cause from the Company on or before February 3,
2017.
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Participation in the Companys Prime Bonus Plan with a target bonus of 100% of annual base salary. Achievement of 2016 Prime Bonus to be measured based
on achievement of the Companys performance goals for 2016 (this portion will be pro-rated for the five months worked in fiscal 2016).
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An individual cash performance award for fiscal 2016 with a maximum amount of up to $350,000 paid based on achievement of specified strategic performance goals
established by the compensation committee (this portion will not be pro-rated for 2016).
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Following the commencement of each fiscal year during the term of his employment, subject to Board approval, Mr. De Feo will be eligible to receive a long-term
incentive grant consisting of one or more of the following:
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Performance Stock Units (PSUs), Stock Options and Restricted Stock Units (RSUs).
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Participation in all general employee benefit plans and programs as well as participation in the Companys Executive Retirement Program.
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Mr. De Feo also received a special long-term incentive grant on February 4, 2016 under Kennametals Stock and Incentive Plan of 2010 (as amended and
restated on October 22, 2013 as further amendment January 27, 2015) (the LTIP Plan) consisting of 50% stock options and 50% restricted stock units, which will vest in three equal parts on each of the first three anniversary dates of the
grant date. The number of stock options and restricted stock units granted were 128,716 and 29,347, respectively. These awards were granted pursuant to a nonstatutory stock option award agreement and a restricted stock unit award agreement.
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Results of 2015 Shareowner Vote on NEO Compensation
Our shareowners overwhelmingly approved the compensation paid to our NEOs in Fiscal 2015, with over 95% of votes cast in favor of the advisory vote on executive compensation presented at our Annual Meeting held on
October 27, 2015.
The Compensation Committee believes that this high level of support of the compensation paid in Fiscal 2015
illustrates our shareowners support of our pay-for-performance philosophy, which is designed to link the compensation paid to our NEOs to the Companys financial performance and shareowner value. Accordingly, in determining the structure of the
compensation of our NEOs for Fiscal 2016, the Compensation Committee decided to retain our general approach to executive compensation, with an emphasis on performance-based incentive compensation components that reward our executives when they
deliver value to the Company and our shareowners.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
Summary of Compensation Actions for Fiscal 2017
At its July 2016 meeting, the Compensation Committee approved maintaining several of the changes it made in Fiscal 2016. The decision to maintain
these changes was influenced by the Companys current financial and shareowner performance, a desire to maintain strong pay-for-performance alignment, and market insights and advice provided by the Committees independent consultant. Key
compensation decisions made for the Fiscal 2017 compensation program were as follows:
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Changed the Prime Bonus corporate financial goals from (i) Sales Revenues, EPS and FOCF to (ii) EBIT and FOCF and renamed the Prime Plan, the Annual Incentive
Plan (AIP).
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Retained an individual performance component to each of the NEOs Fiscal 2017 AIP weighted at 20%, with the financial measures weighted at 80%.
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Removed Stock Options from the Long Term Incentive opportunity, resulting in a Long Term Incentive opportunity of 60% Performance Stock Units and 40%
Restricted Stock Units with Performance Stock Units being measured 100% on ROIC performance with a Relative Total Shareholder Return vesting multiplier.
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Executive Compensation Philosophy
Kennametals executive compensation philosophy is
based on the following principles, which we believe form the foundation of an effective and responsible compensation program:
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Pay-for-Performance
. Executive compensation should be tied to both individual performance and Company performance (annual and long-term).
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Align the Ratio of Fixed to Variable Components of Compensation with the Executives Level of Responsibility and
Accountability
. As our executives progress to higher levels of responsibility within the Company, a greater proportion of their overall compensation should be variable and linked directly to Company performance and
shareowner returns.
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Promote a Long-Term Perspective
. Our compensation program should promote the long-term focus and strategic vision required for our
future growth and success.
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Offer Competitive Compensation
. We believe that highly-qualified and skilled executives can differentiate us and provide a
competitive advantage in the marketplace. Our objective is to offer compensation that is competitive with that offered by other companies that compete with us for talent.
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Objectives of the Executive Compensation Program
To support our overall compensation
philosophy, we have designed our executive compensation program to:
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Attract and retain exceptional talent;
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Recognize individual contributions to the Company;
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Focus our executives attention on the attainment of significant business objectives and the creation of long-term shareowner value;
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Ensure alignment between managements interests and the interests of our shareowners;
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Share the financial benefits of strong Company performance; and
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Maintain executive compensation at a competitive level.
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Relationship Between Pay and Performance
In January and July
2016, our Compensation Committee reviewed the relationship between our CEOs realizable compensation (defined below) and the Companys performance from Fiscal 2013 through Fiscal 2015 (the Reviewed Period) which was
the period that both compensation and performance data was readily available for our peers. The analysis, which was prepared by the Compensation Committees consultant, Pay Governance, compared our CEOs realizable compensation and the
Companys performance,
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
relative to our peer group, in order to assess whether the Companys performance and the realizable compensation
paid to our CEO were aligned.
Realizable compensation is defined as (i) base salary paid over the Reviewed Period;
(ii) actual bonus earned and paid during the Reviewed Period; (iii) the aggregate current value of restricted stock/restricted unit grants made during the Reviewed Period; (iv) the aggregate in-the-money value of stock option grants
made during the Reviewed Period; (v) the actual payouts of performance-based equity awards with performance periods beginning and ending during the Reviewed Period; and (vi) the estimated payout for performance-based equity awards that
were granted during the Reviewed Period but remained unvested at its conclusion. Realizable compensation was calculated in the same manner for our CEO and the CEOs of our peer group companies. The realizable value of long-term equity-based awards
was calculated using each companys closing stock price on June 30, 2016. The Company believes that realizable compensation is a more relevant measure for analyzing the pay-for-performance alignment than grant date or target compensation.
Realizable compensation focuses on the actual value of earned pay rather than pay opportunity by analyzing current stock prices and actual payouts from short- and long-term incentives to provide an estimate of the actual compensation that executives
realized during the subject period. The required grant date and target compensation amounts are reported in the Executive Compensation Tables beginning on page 60 of this Proxy Statement.
The financial performance of the Company and the peer companies were evaluated over the Reviewed
Period using the following four (4) performance measures: (i) ROIC; (ii) sales growth; (iii) EBIT margin growth; and (iv) TSR. These measures were selected because they are used or have been used in the Companys
short-term and/or long-term incentive plans and were considered by Pay Governance to be reasonable indicators of a companys performance. The Companys percentile ranking for each performance measure relative to the peers was averaged to
form a composite performance ranking.
Over the Reviewed Period, our CEOs realizable compensation ranked
below the median (18
th
percentile) of the peer group while our composite
performance (average ranking of all four performance metrics) ranked below the median (38
th
percentile) of the peer group. The Compensation Committee continues to analyze the alignment of realizable compensation and the Companys performance, in addition to grant value comparisons, in order to
observe such things as:
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Whether the targeted pay levels relative to peers is appropriate;
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Whether the mix of fixed versus variable compensation is appropriate;
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Whether performance goals have been set at an appropriately challenging level over the Reviewed Period; and
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Whether the weighting assigned to each long-term incentive vehicle is weighted appropriately resulting in an acceptable amount of leverage.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
Based on this analysis, the Compensation Committee is satisfied with
the alignment of our CEOs realizable compensation with the performance of the Company during the Reviewed Period. The chart below provides an illustration of this realizable pay-for-performance analysis over the Reviewed Period. The
Compensation Committee expects to continue to review and present the alignment of compensation with the Companys financial performance, including as may be required to comply with regulations issued by the Securities and Exchange Commission,
which are currently in proposed form.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
Design of Our Executive Compensation Program
Overall Design of the Executive Compensation Program
Each of our executives receives a compensation and benefits package comprised of some or all of the five basic components described in the table below which table also provides an explanation of why we provide the
particular compensation component, how we determine the amount and what such compensation component is designed to reward.
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Compensation
Component
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Why We Provide it
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How We Determine the Amount
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What it is Intended
to Reward
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Base
Salary
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Consistent with competitive practice
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Approximately the median of similarly-sized manufacturing
companies
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Individual
performance and level of experience, expertise and responsibility within the Company
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Annual Incentive
Prime Bonus, now referred to as
Annual Incentive Plan AIP
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To link pay and
performance
To drive the achievement of annual business objectives
Consistent with competitive practice
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Awards are performance-based and
calculated as a percentage of base salary:
Target based on median of
market practice for executives position; and
Award opportunities
are determined on an individual basis and range from below median to above median for similar positions in peer group of companies
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Annual Company
performance and individual performance
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Long-term
Incentives
(including stock
options,
restricted units
and
performance
units)
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To link pay and
performance
To drive the achievement of critical long-term business objectives
To align managements interests with those of our shareowners
To foster the long-term retention of key executives
Consistent with
competitive practice
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Total long-term incentive opportunity
is determined on an individual basis based on the executives performance and career potential (internal and individual factors), and taking into account the long-term compensation paid by our competitors for similar positions
For Fiscal 2016, the
total long-term incentive opportunity was allocated between performance stock units (50%), stock options (30%) and restricted units (20%)
Performance stock unit awards are performance based:
Target based on median of market practice for executives position;
and
Award opportunities are determined on an individual basis and
range from below median to above median for similar positions in peer group of companies
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Long-term Company performance and individual performance
Performance
Units - increased shareowner value and overall Company performance over the long-term
Stock Options - increased shareowner value over the long-term
(10 years)
Restricted Stock
Units - increased
shareowner value and long-term commitment to the Company
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Retirement
Benefits
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Consistent with competitive
practice
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Competitive market practices and
Company-specific circumstances
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To provide long-term financial security to executives who have demonstrated a long-term commitment to the
Company
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Executive
Benefits and
Perquisite
Allowance
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Consistent with competitive
practice
Provides a level of protection against the financial catastrophes that can result from illness, disability or death
Program is discontinued for any new executive hired after October 2016
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Approximately the median of peer group of companies
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Executive
contributions to our Companys short-term and long-term success
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
We have designed our executive compensation program to target total compensation for each of our
executives at the median level for executives in similar positions within our industry and peer group with the opportunity to earn actual compensation above or below median compensation depending on Company and individual performance. We believe
that the design of the compensation program allows for actual compensation earned under our incentive plans to be above-median compensation for exceptional performance, as well as below-median compensation when performance falls below our
expectations. Also, we may deviate from targeting the median if, in the judgment of management and/or the Compensation Committee, the value of an executives experience, performance and specific skill set warrants. For individual executives,
compensation may also vary depending on the executives experience, responsibility and expertise, such persons contribution to our business strategy and the markets demand for such skills and talent. The foundation of our program is
based on a system of market pricing. Each executives compensation is benchmarked against those of executives in comparable positions in the competitive market and, in some cases, against a peer group of companies. This benchmarking process as
well as an internal assessment of the particular positions internal value to the Company, scope and complexity of responsibilities generally defines a range of opportunities for base salary, annual incentives and long-term incentives. The pay
ranges give the Compensation Committee flexibility to position individual compensation above or below market median levels depending on the individuals job performance, professional qualifications, business experience, technical expertise and
career potential.
Factors that Influence Compensation
The Compensation Committee believes that an effective compensation program reflects a balance between individual factors (
i.e.
, level of responsibility, skills, experience, expertise and individual
performance), organizational measures (
i.e.
, Company or business unit performance), and external or market factors
(
i.e.
, competitive benchmarking and survey data). We incorporate each of these factors into the design of our executive compensation program. Accordingly, we compensate our executives
based upon an assessment of:
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Individual Performance
. All of our executives are evaluated against an annual, individual performance plan. The performance plan is
based on individual performance objectives that will further the goals of the executives business unit, if applicable, and the strategic goals of the Company as a whole. These objectives are reviewed and assessed every quarter by the executive
and his or her manager. At the end of the fiscal year there is a comprehensive analysis of the executives actual performance vis-à-vis the individuals performance plan, and that analysis is provided to the Compensation Committee
for review.
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Company Performance
. One of the main objectives of our compensation philosophy is to align our executive officers
compensation with the performance of the Company (pay-for-performance). When making compensation decisions related to our executives, the Compensation Committee evaluates the Companys achievement of pre-established internal metrics
(which are predicated on our annual and long-term financial plans and goals, along with other strategic and operational initiatives) and external measures (which are predicated on external factors such as our market valuation and growth in our stock
price).
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Market Intelligence
. Individual and Company performance are weighted most heavily in compensation decisions. However, when
appropriate, the Compensation Committee also considers external factors, such as market and survey data and pay positioning for our executives relative to market data, as explained in further detail below under the subheading
Pay
Positioning Relative to Market Benchmarking.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
Variable Compensation and Promotion of a Long-Term Perspective
We increase the variable component of compensation for our executives as they progress through our management levels and adjust the ratio of
short-term to long-term compensation to promote accountability and a long-term perspective. We structure our executive compensation program so that the proportion of variable versus fixed compensation increases as the role and responsibility of the
executive increases. We believe this is appropriate because the executives are best positioned to be able to affect the Companys performance. Therefore, they should receive a substantial portion of their total compensation value in the form of
long-term incentives that measure and reward Kennametals performance over a period of greater than one year. The table
below illustrates that the actual percentage of variable pay relative to total compensation depends on the executives position within the Company. Generally speaking, the higher an
executives position within the Company, the greater the proportion of variable pay that is linked to Company performance and shareowner return metrics. Similarly, as an executive rises to positions of greater responsibility within our Company,
short-term compensation begins to decrease proportionally relative to long-term compensation which, in most cases, begins to represent a greater proportion of the executives total compensation. In some cases, the variances between
short-term and long-term compensation are caused by length of tenure in the position or initial compensation package provided upon hiring.
The following chart summarizes
the breakout of fixed versus variable compensation and short-term versus long-term compensation as disclosed in the Summary Compensation Table for our NEOs in Fiscal 2016.
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Fixed vs. Variable Breakout
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Variable Breakout
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Title
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% of Annual
Compensation
Fixed
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% of Annual
Compensation
Variable
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% of Short-
Term
Compensation
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% of Long-
Term
Compensation
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President and CEO
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18
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%
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82
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%
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39
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%
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61
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%
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Vice President and CFO
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24
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%
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76
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%
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10
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%
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90
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%
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Vice President CHRO and Corporate Relations Officer
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25
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%
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75
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%
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6
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%
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94
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%
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Vice President and President Industrial Business Segment
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23
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%
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77
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%
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10
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%
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90
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%
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Vice President and President Infrastructure Business Segment
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28
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%
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72
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%
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15
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%
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85
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%
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CFO (interim) and VP Finance
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32
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%
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68
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%
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7
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%
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93
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%
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Former President and CEO
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16
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%
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84
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%
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0
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%
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100
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%
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Competitive Compensation
Pay Positioning Relative to Market Benchmarking.
When we make compensation decisions,
we compare the compensation paid to our executive officers to the compensation paid to similarly-positioned executives at other companies within our industry to gain a general understanding of current market compensation practices for these
positions. Specifically, we benchmark total compensation levels and
certain of the individual elements of our compensation packages (mainly base salary, annual incentives (together, total cash compensation) and long-term incentives (together with
total cash compensation, total direct compensation)) to both published survey data of comparable companies and to a custom peer group of public companies within the manufacturing industry. Benchmark data is part of the external
information we consider when designing and executing our compensation programs.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committees compensation consultant, Pay Governance, assists the Compensation
Committee in its benchmarking efforts. Pay Governance collects compensation data for our peer group companies from available sources, including, in most cases, the executive compensation data included in the most recently available annual proxy
statement for each company. Pay Governance can also provide survey data representing industry-specific and general industry companies included in the Willis Towers Watson executive compensation databases. Pay Governance, in consultation with
management, provides the Compensation Committee with the results of its benchmarking efforts on an annual basis. The benchmarking data helps us assess the competitiveness of our executives compensation compared to that of other executives at
our peer companies and in the broader market. We also use the data to help ensure proper alignment between executive and shareowner interests, and to assess compensation versus Company performance.
When we evaluate our compensation structure, we compare the target range for total direct compensation, the mix of compensation components and the
allocation of those components in our executives individual
compensation packages against benchmark data. Each year we evaluate the total cash compensation and total direct compensation we provide to our executives against the benchmark data to determine
whether our compensation structure accurately reflects our goal of providing compensation at approximately the median level within our peer group and industry. We analyze both target compensation opportunities as well as the actual compensation paid
to our executives. The Compensation Committee considers this information, along with data provided by Pay Governance and the Company and individual performance factors, when it sets compensation levels.
We periodically review our peer group to ensure that the peer companies continue to be appropriate comparisons for performance purposes and for
compensation purposes. Many of the companies in our current peer group are included because they are similar to Kennametal in terms of revenue, market capitalization, operational scope, or organizational complexity. While some of the peers are
smaller than we are, others are larger. Nevertheless, we include these companies to help us understand the effect size and complexity has on compensation levels and designs.
The following companies
comprised our peer group for both performance and compensation purposes for Fiscal 2016(1):
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Actuant
Corporation
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Harsco
Corporation
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Allegheny Technologies
Incorporated
|
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IDEX Corporation
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Ametek Inc.
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ITT Corporation
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Barnes Group Inc.
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Joy Global Inc.
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Carpenter Technology
Corporation
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Lincoln Electric Holdings,
Inc.
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CLARCOR
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Nordson
Corporation
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Crane Co.
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SPX Corporation
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Donaldson Company, Inc.
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The Timken Co.
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Flowserve Corp.
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Woodward Inc.
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Graco
Inc.
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In January 2016, the Compensation Committee approved the peer companies which reflected the following changes from
Fiscal 2015 to better position the Company relative to its peers from a size and performance perspective:
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Eliminated Dresser-Rand and Pall, who were acquired by other companies;
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Eliminated Greif and Telflex due to lack of industry alignment;
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Eliminated Parker-Hannifin due to its annual revenues being significantly larger than the Company; and
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Added ITT Corporation, SPX Corporation, Nordson Corporation, CLARCOR Inc., and Graco Inc., who aligned with the Companys size, industry, and stock price
correlation selection criteria.
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(1)
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The Peer Group used for calculating the Relative TSR portion of the Performance Stock Units is the S&P 400 Capital Goods Index.
|
How Compensation Decisions Are Made
Role of the Compensation Committee and CEO in Determining Executive Compensation
The Compensation Committee designs and implements our executive compensation program, evaluates executive performance, including that of the
President and CEO, and oversees the development of executive succession plans.
The Compensation Committee solicits information from
our management and from the Committees compensation consultant during the compensation-setting process, but it is the Compensation Committee that ultimately sets and approves compensation for our CEO and all other executives.
The Compensation Committee uses substantially the same process for determining CEO compensation as it uses for determining our other executive
officers compensation. Each year, the Compensation Committee reviews all components of compensation for the CEO and for each of our other executives over the course of several regularly-scheduled meetings from April to July. Final compensation
decisions are made in July for the current fiscal year. The Compensation Committee is assisted in its review by members of management, the human resources department, and its compensation consultant.
In keeping with our compensation philosophy, the Compensation Committee considers three main categories of information with respect to each
executive: (i) individual performance; (ii) Company performance; and (iii) market data. The Compensation Committee evaluates each executives current compensation and solicits input from management on the executives future
potential, performance for the year, leadership skills, and contribution to the Companys performance. The
Compensation Committee also considers factors relating to the Company, such as our overall performance and achievement of specific strategic and operational initiatives. Finally, the Compensation
Committee assesses the market competitiveness of each executives total compensation package.
CEO
Compensation
. The Compensation Committee meets with the CEO each year in July (the beginning of our fiscal year) to set the CEOs performance goals (both individual and Company objectives) for the fiscal year. These
goals are then reflected in the CEOs individual performance plan for the year. The CEO periodically reports on his progress with respect to his performance goals at Compensation Committee meetings throughout the year. At the end of the year,
the Compensation Committee evaluates, in consultation with the Chairman and the rest of the non-management directors and the Board generally, as it deems necessary or appropriate, the CEOs performance against the goals included in his
performance plan for the year and determines and approves the CEOs compensation based in part on his achievement of those goals and in part on the Companys performance, while taking into account the overall objectives of our compensation
program. The Compensation Committee also considers the compensation being paid to other chief executive officers at similarly situated companies in making compensation decisions affecting the CEO.
Other Executives Compensation
. Each year in August, each of our non-CEO executives must develop an individual
performance plan for the fiscal year (with goals that align with the CEOs objectives, and include individual and Company objectives). These plans are discussed with and approved by the CEO and the executives report to the CEO on their progress
towards the achievement of the goals set forth in their plans periodically throughout the year. At the end of the year, the CEO and the Compensation Committee together assess the
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performance of our executives. Based upon these evaluations and recommendations from the CEO, the Compensation
Committee determines the executives compensation. The executives do not play a role in the determination of their compensation, other than discussing individual performance objectives and achievements with the CEO.
Role of the Compensation Consultant
Pay Governance has been serving as the Compensation Committees independent compensation consultant since September 2010 and provides no
other services to the Company. The Compensation Committee annually reviews its retention of Pay Governance as its compensation consultant.
Pay Governance provides the Compensation Committee with the objective information and expertise necessary to make informed decisions that are in the best long-term interests of our business and shareowners. Pay
Governance also keeps the Compensation Committee informed as to compensation trends and regulatory developments affecting public companies in general and the manufacturing industry in particular. The Compensation Committee solicits advice and
counsel from Pay Governance on all matters related to executive compensation design and delivery. Specifically, Pay Governance provides the following types of services to the Committee:
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Competitive data and benchmarking analytics for all components of pay for executive officers (including the CEO);
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Equity dilution, value sharing, and performance assessment analyses relative to peers;
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Compensation program analysis, redesign considerations, and recommendations;
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Diagnostic assessments regarding the rigor of performance goals;
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Tax, accounting, regulatory, and other compensation-related education;
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Individual pay considerations for the CEO, as well as executive officer promotions and new hires;
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Review of compensation plan payouts for the CEO and executive officers;
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Assessment of risk regarding compensation policies and practices;
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Assessment of pay-for-performance alignment; and
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CD&A review and recommendations.
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A Pay Governance consultant attends most Compensation Committee meetings and may attend executive sessions at the request of the Committee. Consultants from Pay Governance also collaborate with our management team
for purposes of meeting planning, program design and analysis and other logistics, but all executive compensation-related services performed by Pay Governance are ultimately at the direction of the Compensation Committee.
The Compensation Committee reviews the fees and performance of Pay Governance each year and provides feedback to the Board as necessary. The
Compensation Committee has the authority to terminate the relationship with Pay Governance at any point in time.
Each year, the
Compensation Committee reviews and determines the independence of its adviser, Pay Governance. When gauging the independence of an adviser, the Compensation Committee considered the following six factors, as required by the New York Stock Exchange
and SEC rules and regulations:
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If the advisers firm provides other services to the Company;
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The amount of fees received from the Company as a percentage of the total revenue of the advisers firm;
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Policies and procedures of the advisers firm designed to prevent conflicts of interest;
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Any business or personal relationship of the compensation consultant, counsel or other adviser with members of the compensation committee;
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Company stock owned by the adviser; and
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Any business or personal relationship between the adviser or the advisers firm and an executive officer of the Company.
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Based on the Compensations Committees review of the factors above, it determined that
its adviser, Pay Governance, is independent and free of conflicts of interest.
2016 Executive Compensation Program
Base Salary
Base salary provides a
competitive level of fixed income for our executives. We target base salary levels for each executive position at median pay levels for similar positions in the market. The level of base salary an executive receives is determined based on the
results of an annual evaluation of the executive with respect to certain objective and subjective factors. Objective factors include the executives level of responsibility, skills and training, accomplishment of the goals set forth in such
persons annual individual performance plan, and, for newer executives, prior experience. Subjective factors include the Compensation Committees assessment of the executives future potential and individual contributions. The
Compensation Committee evaluates the CEO with input from the Chairman of the Board and the other non-management Board members as noted above. The CEO evaluates each of the executives who report directly to him. Both objective and subjective factors
are considered, as relevant, and the CEO makes recommendations to the Compensation Committee for changes to base salary (other than his own) during the annual compensation setting process. The Compensation Committee evaluates the CEOs and
other executives base salary on an annual basis, and may make changes in its discretion as part of the broader compensation setting process.
In setting the NEOs base salaries for Fiscal 2016, the Compensation Committee considered all of the factors described above for each executive and conducted an examination of the applicable market data.
In July 2015, the Compensation Committee approved merit increases for Fiscal 2016 for each of our NEOs as follows: Mr.
Dragich: 3% ; Ms. Bacchus: 4%; and Ms. Fusco: 5.2%. Messrs. De Feo, Byrnes and van Gaalen began their employment with the Company later in the Fiscal Year and therefore a merit increase
was not applicable. Mr. Nolan received a 2% merit increase, which was applicable until his departure from the Company on February 3, 2016.
Prime Bonus Plan
Overview
. The Management Performance Bonus Plan, which we refer to as the Prime Bonus Plan, is a
shareowner-approved, formula-based, pay-for-performance annual cash incentive plan. The Prime Bonus Plan is the main vehicle we use to reward participants for their contributions to strong annual business performance. The purpose of the Prime Bonus
Plan is to motivate participants to help the Company to achieve shorter-term financial and strategic goals, which are designed to create sustainable shareowner value, and to reward them to the extent we achieve those goals. All of our executives,
our senior management team members, and certain of our key employees participate in the Prime Bonus Plan.
Prime Bonus Target
Amounts
. Individual Prime Bonus target amounts are established for each participant based on a combination of individual factors and market-competitive data and are established as a percentage of such
participants base salary. Consistent with our executive compensation philosophy, individuals with greater job responsibilities have a greater proportion of their total cash compensation tied to Company performance through the Prime Bonus Plan.
Each year, the Compensation Committee sets Prime Bonus target amounts for our CEO and other executives based on recommendations from our management and the CEO (except with respect to his own target bonus) and its own evaluation of the
competitiveness of each executives compensation package based on input from its compensation consultant.
Prime Bonus
Performance Goals
. We link Prime Bonus opportunities directly with Company performance in an attempt to maximize shareowner value. Each executive is assigned one or more performance goals at the beginning of the fiscal
year, which are based upon the overall performance goals of the Company, which have been approved by the full Board as part of managements overall financial and strategic plans. The Board approves the
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goals for overall Company performance based upon managements financial and strategic plans.
Once the Board has approved the overall performance goals for the Company, the Compensation Committee reviews and approves the Prime Bonus Plan
structure and individual performance goals for the CEO and all other executive officers, which may be based on one or more of the Companys overall corporate performance goals and/or individual achievement goals. To ensure alignment with our
shareowners interests, the Compensation Committee assigns the CEO both quantitative and qualitative performance goals that are aggressive and designed to stretch performance and significantly impact the growth or improvement of the Company or
a particular business unit. For each of the other executives, the Compensation Committee, with the input of the CEO, sets individual performance goals which it considers achievable, but which require personal performance and stewardship above the
plan levels for the coming year. These individual goals are weighted and may vary by executive.
Modifier
. At the outset of each fiscal year, the Compensation Committee may or may not select a key
initiative to use as a modifier in the calculation of Prime Bonus amounts earned for that year. The calculated Prime Bonus amounts are then adjusted upward or downward based upon the level of performance with respect to that key initiative. For the
Fiscal 2016 Prime Bonus Plan awards, the Compensation Committee did not select a key initiative to use as a modifier.
Individual
Performance
. At its July meeting each year, the Compensation Committee reviews each executive officers achievement of his/her performance goals for the previous year and approves any
corresponding amounts to be paid under the Prime Bonus Plan. In connection with Prime Bonus determinations, the Compensation Committee considers the individual performance of the executive and
the recommendations of the CEO (for all executives other than himself). The Compensation Committee has the discretion to adjust an executives calculated Prime Bonus award based on its assessment of the individuals performance, contingent
upon achievement of the minimum EPS threshold.
2016 Prime Bonus Plan.
The general design of the 2016 Prime Bonus Plan remained unchanged from Fiscal 2015. The 2016 Prime Bonus Plan funded at target with the accrual
being adjusted accordingly throughout the year. The payout curve remained the same for participants in Fiscal 2016 as it did in Fiscal 2015, except for EPS where the maximum of target was increased to 130%. The Corporate Performance Goals
adopted for the 2016 Prime Bonus Plan were based on three measures which the Compensation Committee believed would appropriately focus participants on key areas of strategic corporate objectives: (i) Sales Revenue (20% weight); (ii) EPS
(40% weight); and (iii) FOCF (20% weight). The Compensation Committee also determined that an individual performance component was appropriate, with the Corporate Performance Goals weighted at 80% and the individual performance goals weighted
at 20% of each NEOs prime bonus (excluding the CEO). These individual performance goals were set and approved by the Compensation Committee, and conditioned upon achievement of the threshold EPS goal. The CEOs Corporate Performance
Goals were weighted at 100% (pro-rated for the duration of his employment with the Company in Fiscal 2016) and his individual performance goal had a maximum payout amount of $350,000.
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
2016 Target Bonus Amounts
. For
2016, the Compensation Committee approved target bonus amounts for our NEOs at the following levels:
|
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Name
|
|
Target Bonus Amount as a Percentage of Base
Salary(1)
|
Ronald M. De Feo
|
|
100% based upon the Companys Corporate Performance goals (plus a $350,000 opportunity based upon Mr. De Feos
achievement of specified individual strategic performance goals)
|
Jan Kees van Gaalen
|
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80%
|
Judith L. Bacchus
|
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50%
|
Charles M. Byrnes
|
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70%
|
Peter A. Dragich
|
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70%
|
Martha Fusco
|
|
35%
|
Donald A. Nolan
|
|
120% (100% based upon the Companys Corporate Performance goals and 20% based upon Mr.
Nolans achievement of specified individual strategic performance goals)
|
(1)
|
All NEO target bonus amounts, except as noted for Messrs. De Feo and Nolan, are based 80% on the Companys Corporate Performance goals and 20% on individual strategic
objectives with a minimum EPS threshold. Mr. De Feos Target Bonus amount for the corporate performance goals was pro-rated for the time in which he served as President and CEO during Fiscal 2016.
|
The following tables present the possible payouts under the Prime Bonus Plan at different levels of performance relative to the target performance
goals established for the year:
2016 Financial Performance Goals.
Corporate Performance Goals (EPS, FOCF and Sales Revenue)
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Performance Range as a Percentage of Target
|
Metric
|
|
Below Threshold
|
|
Threshold
|
|
Target
|
|
Maximum
|
EPS
|
|
Less than 80%
|
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80%
|
|
100%
|
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130% or Greater
|
FOCF
|
|
Less than 80%
|
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80%
|
|
100%
|
|
120% or Greater
|
Sales Revenue
|
|
Less than 80%
|
|
80%
|
|
100%
|
|
120% of Greater
|
Payout Range
|
|
0%
|
|
50%
|
|
100%
|
|
200%
|
With respect to each financial performance goal, no Prime Bonus is awarded if actual performance is
less than the threshold for the performance goal and no payout is made in excess of 200% of the Prime Bonus target amount, regardless of the performance achieved. Under the terms of the Prime Bonus Plan, the Compensation Committee makes the same
adjustments for non-recurring or unusual items in determining whether performance goals have been met as we make to our financial results as reported to our shareowners.
2016 Corporate Performance Goals
. At its July 2015 meeting, the Board established Corporate Performance Goals for the Company
consisting of: Sales Revenue ($2.4 million), EPS ($1.85), and FOCF ($130.6 million). At the time it set these goals, the Board considered the targets to be challenging for the Company, but
achievable if the financial and strategic plans of the Company were well executed. The Compensation Committees independent consultant then tested the appropriateness and rigor of these goals by considering the general economic environment for
the upcoming year, considering analyst expectations, reviewing growth in the goals over the previous year and conducting probability analyses based on historical results. The consultant found the goals to be challenging. These Corporate Performance
Goals were then adopted by the
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Compensation Committee as the target Corporate Performance Goals under the 2016 Prime Bonus Plan.
2016 Individual Strategic Performance Goals for Mr. De Feo (our CEO).
Performance goals for Mr. De Feo were based on the overall financial and strategic goals adopted for the Company. Mr. De Feos 2016
Prime Bonus opportunity was composed of two components:
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Component (1) related to the Companys financial performance and was based solely upon the achievement of the Corporate Performance Goals (bonus
opportunity of 100% of base salary) described above, which were established in July 2015, prior to Mr. De Feos employment with the Company (this amount would be pro-rated for the time that Mr. De Feo was employed by the Company in the
fiscal year); and
|
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Component (2) related to Mr. De Feos individual strategic performance and was based upon his achievement of certain strategic and operational
goals and initiatives set by the Compensation Committee shortly after he began his
|
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employment with the Company in February 2016 (bonus opportunity of $350,000), including: (i) establishing a mission, vision and three-year plan (50% weight); (ii) reduction of the
complexity of the business (30% weight); and (iii) building and maintain investment community credibility (20% weight). Component 2 was not pro-rated for the time that Mr. De Feo was employed by the Company in the fiscal year.
|
At the time they were put in place, the Compensation Committee considered these individual performance objectives
strategically important and aggressive, but achievable with concentrated effort and focus by Mr. De Feo.
2016 Performance
Goals for other NEOs.
The 2016 Prime Bonus opportunities established for Ms. Bacchus and Messrs. Byrnes,
Dragich and van Gaalen, were based on the Corporate Performance Goals (80% weight) described above as well as the individual performance goals (20% weight) and conditioned upon the achievement of the threshold EPS goal. Ms. Fuscos Prime Bonus
opportunity was based 100% on Corporate Performance Goals.
2016 Performance.
The following tables show the performance achieved (as a percentage of target) and the amount of 2016 Prime Bonus awards paid to
each of our NEOs.
|
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|
|
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Component 1: FY 2016 Prime Bonus Financial Performance Measures Achievements
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
|
|
Financial Performance
Measures
|
|
$
|
|
|
% of
Target
|
|
|
$
|
|
|
% of
Target
|
|
|
$
|
|
|
% of
Target
|
|
|
$
|
|
|
% of
Target
|
|
Earnings Per Share
|
|
$
|
1.48
|
|
|
|
80
|
%
|
|
$
|
1.85
|
|
|
|
100
|
%
|
|
$
|
2.41
|
|
|
|
130
|
%
|
|
$
|
1.19
|
|
|
|
64.3
|
%
|
Free Operating Cash Flow (millions)
|
|
$
|
104.5
|
|
|
|
80
|
%
|
|
$
|
130.60
|
|
|
|
100
|
%
|
|
$
|
156.70
|
|
|
|
120
|
%
|
|
$
|
126.30
|
|
|
|
96.7
|
%
|
Sales Revenue (millions)
|
|
$
|
1,951.9
|
|
|
|
80
|
%
|
|
$
|
2,439.9
|
|
|
|
100
|
%
|
|
$
|
2,927.9
|
|
|
|
120
|
%
|
|
$
|
2,216.5
|
|
|
|
90.8
|
%
|
|
|
|
|
|
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. 2016 Proxy Statement
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Actual FY 2016 Prime Bonus Earned(1)
|
|
|
|
FY 2016 Prime Bonus Opportunities
as a % of Base Salary
|
|
|
Financial Component
|
|
|
Individual
Component
|
|
Name and Principal Position(1)
|
|
Minimum
|
|
|
Target
|
|
|
Maximum
|
|
|
% of
Base
Salary
|
|
|
$
|
|
|
% of
Base
Salary
|
|
|
$
|
|
Ronald M. De Feo(2)
|
|
|
50.0%
|
|
|
|
100.0%
|
|
|
|
200.0%
|
|
|
|
17.1%
|
|
|
$
|
171,035
|
|
|
|
35.0%
|
|
|
$
|
350,000
|
|
Jan Kees van Gaalen
|
|
|
40.0%
|
|
|
|
80.0%
|
|
|
|
160.0%
|
|
|
|
27.0%
|
|
|
$
|
145,950
|
|
|
|
20.0%
|
|
|
|
N/A
|
|
Judith L. Bacchus
|
|
|
25.0%
|
|
|
|
50.0%
|
|
|
|
100.0%
|
|
|
|
16.9%
|
|
|
$
|
55,989
|
|
|
|
20.0%
|
|
|
|
N/A
|
|
Charles M. Byrnes
|
|
|
35.0%
|
|
|
|
70.0%
|
|
|
|
140.0%
|
|
|
|
18.7%
|
|
|
$
|
73,902
|
|
|
|
20.0%
|
|
|
|
N/A
|
|
Peter A. Dragich
|
|
|
35.0%
|
|
|
|
70.0%
|
|
|
|
140.0%
|
|
|
|
36.3%
|
|
|
$
|
152,637
|
|
|
|
20.0%
|
|
|
|
N/A
|
|
Martha Fusco
|
|
|
17.5%
|
|
|
|
35.0%
|
|
|
|
70.0%
|
|
|
|
15.0%
|
|
|
$
|
36,093
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(1)
|
Mr. Donald A. Nolan, our former President and Chief Executive Officer did not receive 2016 performance-based awards for Fiscal 2016.
|
(2)
|
Mr. De Feo earned 42.2% of his base salary for the financial component of the Fiscal 2016 Prime Bonus, but this amount was pro-rated down to 17.1% of his base salary for the time
that he served as our President and Chief Executive Officer in Fiscal 2016.
|
Long-Term Incentives
Overview
. Kennametals long-term incentives are designed to focus our employees on sustainable, long-term performance. We use these incentives because we believe they promote an
ownership culture, align the interests of our employees and shareowners, and foster the long-term perspective necessary to increase shareowner value. They also aid in retention and help advance stock ownership by our employees.
All of our executives, members of senior management, and a significant number of key employees are eligible to receive long-term incentive awards
under our broad-based LTI program. We use a portfolio approach to our LTI program, which includes stock options, restricted unit awards and performance stock unit awards. We provide more information about each of these components below.
The Compensation Committee approves all equity and other long-term incentive awards for our executives. All of our NEOs outstanding
long-term incentive awards, including those under the LTI program have been granted under either
the Kennametal Inc. Stock and Incentive Plan of 2002, as amended
(the 2002 Plan), the
Kennametal Inc. Stock and Incentive Plan of
2010
(the 2010 Plan), or the
Kennametal Inc. Stock and Incentive Plan of 2010 (as Amended
and Restated October
22, 2013 and as further amended by Amendment No.
1 on January
27, 2015)
(the A/R 2010 Plan). We
have not granted any awards under the 2002 Plan since our 2010 annual meeting, when shareowners approved the 2010 Plan, and will not grant any future awards under this plan. The 2002 and 2010 Plans provided, and the current A/R 2010 Plan provides
for the granting of non-statutory and incentive stock options, incentive bonus awards, performance share awards, performance stock unit awards, restricted stock awards, restricted stock unit awards, stock appreciation rights, share awards, stock
unit awards, and other share-based awards.
Target Long-Term Incentive Award Amounts
. Each year
the Compensation Committee establishes target LTI program opportunities for each of our executives based on the executives performance and career potential (individual factors). The Compensation Committee also takes into account the long-term
compensation paid by our competitors for similar positions based on the peer group and survey data provided by its compensation consultant (external factors). LTI program opportunities are determined on an individual basis. The Compensation
Committee sets target LTI program opportunities for our executives for the relevant three-year cycle at its meeting in July of each year.
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Fiscal 2016 LTI Decisions.
The following table shows the target level annual LTI opportunities set for each of our NEOs under our LTI program for Fiscal 2016:
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Name
|
|
Target Long-Term Incentive
Opportunity
as a Percentage of Base Salary
|
|
Ron De Feo
|
|
|
N/A
|
|
Jan Kees van Gaalen
|
|
|
N/A
|
|
Judith L. Bacchus
|
|
|
100%
|
|
Charles M. Byrnes
|
|
|
N/A
|
|
Peter A. Dragich
|
|
|
100%
|
|
Martha Fusco
|
|
|
60%
|
|
Donald A. Nolan
|
|
|
350%
|
|
The LTI opportunity for each NEO changed from a monetary annual target to a percentage of base
salary. Given that Messrs. De Feo, van Gaalen and Byrnes had an employment start date after the beginning of the fiscal year, there was no long term incentive target established, but rather an initial grant of stock provided at or near the start of
their respective employment dates during the fiscal year. These amounts are further described in the 2016 Special Recognition, Attraction and Retention Awards below.
Timing of Equity Grants
. The Compensation Committee grants equity-based awards to our executives on both an
annual and as-desired basis. We do not have any program, plan or practice to time annual or ad hoc grants of equity-based awards in coordination with the release of material non-public information or otherwise.
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Annual Grants
. We generally make LTI grants to our NEOs and other senior management on a once-a-year basis. As part of its standing
agenda, the Compensation Committee makes annual grants of equity-based awards to our executives at its regularly scheduled meeting in July of each year. The dates for these meetings are typically scheduled two years in advance. Since 2007, the grant
date for annual awards has been August 1 of each year.
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Special or One-Time Grants
. The Compensation Committee retains the discretion to make additional awards to
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executives at other times in connection with the initial hiring of a new officer, for recognition or retention purposes or otherwise. Refer to the section 2016 Special Recognition,
Attraction and Retention Awards.
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Stock Option Awards
. We use stock option
awards to align the interests of our employees with those of our shareowners and focus our employees on delivering superior total shareowner return over the long term (10 years). Under the 2002 Plan, the 2010 Plan, and the A/R 2010 Plan, the
exercise price for a stock option award may not be less than the fair market value of our stock at the time the option is granted. Fair market value is determined by taking the closing stock price as quoted on the New York Stock
Exchange Composite Transactions reporting system on the grant date. Stock option grantees can only profit from stock option awards if our stock price increases over time; conversely, grantees receive no value if our stock price
decreases below the fair market value at the time the option was granted. We have typically granted stock option awards to our executives annually as part of our broader LTI program, but occasionally we grant special stock option awards, either
alone or in connection with other awards, to employees for attraction, retention or recognition purposes. Vesting schedules for our stock option awards vary according to the purpose for which they are granted. Awards granted under the LTI previously
time vested at the rate of one-fourth per year over four years, but grants beginning with the Fiscal 2016 award will typically vest at
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the rate of one-third per year over three years. A stock option award granted for attraction purposes, upon hiring,
or for special recognition purposes may have a different vesting schedule (for example, 50% may vest on the second anniversary of the grant date, and 25% each of the following years thereafter). We believe our use of stock option awards helped to
further our retention objective, as any unvested portion of a stock option is forfeited if an executive voluntarily terminates employment prior to the applicable vesting date. Stock option awards expire ten years from the date of grant, which we
believe helps to promote the long-term perspective that is key to our growth and success. Each of the 2002 Plan, the 2010 Plan, and the A/R 2010 Plan prohibit the repricing of stock options and do not contain a full reload feature. For Fiscal
2017, the Company will not be providing Stock Option Awards.
The number of shares underlying the stock options awarded to each NEO in
Fiscal 2016 was determined by dividing 30% of the total LTI opportunity value by one-third of the fair market value of the option on the grant date.
Restricted Stock Unit Awards
. Prior to 2010, we granted restricted stock awards as part of our LTI program, but we have since transitioned to grants of restricted stock unit
awards for ease of administration purposes. We grant restricted stock unit awards because we believe they build ownership in the Company, serve to promote the retention of our employees and address the cyclicality of our business, thereby aligning
the interests of our employees and our shareowners. As is the case with stock option awards, we typically grant restricted stock unit awards annually to our executives as part of our broader LTI program, but we sometimes make these grants for other
purposes. For example, we may grant these awards to attract new talent or to recognize or motivate our employees. Like stock option awards, restricted stock unit awards granted under the LTI previously vested, in most cases, at the rate of
one-fourth per year over four years, but grants beginning with the Fiscal 2016 award will typically vest at the rate of one-third per year over three years. Also similar to our stock option awards, the vesting schedules may differ depending on the
reasons for the grant of restricted stock units. We believe our use of
restricted stock unit awards helps to promote our retention efforts in that any unvested portion of a restricted stock unit award is forfeited if an executive voluntarily terminates employment
prior to the applicable vesting date.
The number of restricted stock units awarded to each NEO in Fiscal 2016 was determined by
dividing 20% of the total LTI opportunity value by the fair market value of our stock on the grant date.
Performance Stock Unit
Awards
. In Fiscal 2011, the Company began awarding annual performance stock unit awards to certain executives, including our NEOs. These awards are performance-based and can only be earned if the Company achieves
certain performance criteria established by the Compensation Committee. At the time of the grant, the Compensation Committee has established specific EPS and ROIC goals for fiscal years 2014, 2015 and 2016 for the performance stock units granted in
Fiscal 2014 (the 2014 PSUs). The Compensation Committee established specific ROIC and relative Total Shareholder Return (TSR) goals for fiscal years 2015, 2016 and 2017 for the performance stock units granted in Fiscal 2015
(the 2015 PSUs); and for fiscal years 2016, 2017 and 2018 for the performance stock units granted in Fiscal 2016 (the 2016 PSUs). The terms of the 2014 PSUs provide that one-third of the performance stock units underlying
such award may be earned each year based on the Companys performance with respect to the EPS and ROIC goals set for that year, and the terms of the 2015 and 2016 PSUs provide that one-third of the performance stock units underlying such award
may be earned each year based on the Companys performance with respect to the ROIC and relative TSR goals for that year. Goals have been established at threshold, target and maximum award levels for each year within the applicable performance
period. Performance stock units that are deemed achieved for any given fiscal year remain subject to an additional service condition that requires the executive to be employed by us through the payment date following the 3-year performance period
(which for the 2014 PSUs means August 2016, for the 2015 PSUs means August 2017, and for the 2016 PSUs means August 2018). The Compensation Committee has established this
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approach to address the cyclicality of our industry and to partially mitigate the risk of
establishing long-term performance goals at either the peak or trough of the business cycle.
The table below presents the EPS
and ROIC goals for the 2014 PSUs for Fiscal 2016 (which was the third year of the 2014 PSUs):
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EPS Performance Level 2014 PSU
payable August 2016
|
|
|
|
Maximum
|
|
$
|
5.24
|
|
Target
|
|
$
|
4.37
|
|
Threshold
|
|
$
|
3.50
|
|
|
|
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|
|
ROIC Performance Level 2014 PSU
payable August 2016
|
|
|
|
Maximum
|
|
|
15.00
|
%
|
Target
|
|
|
12.50
|
%
|
Threshold
|
|
|
10.00
|
%
|
The table below presents the Relative TSR and ROIC goals for the 2015 PSUs for Fiscal 2016 (which was the second
year of the 2015 PSUs):
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Relative TSR Performance Level
2015 PSU payable August 2017
|
|
|
|
Maximum
|
|
|
80.00
|
%
|
Target
|
|
|
55.00
|
%
|
Threshold
|
|
|
30.00
|
%
|
|
|
|
|
|
ROIC Performance Level 2015 PSU
payable August 2017
|
|
|
|
Maximum
|
|
|
14.00
|
%
|
Target
|
|
|
10.00
|
%
|
Threshold
|
|
|
7.00
|
%
|
The table below presents the relative TSR and ROIC goals for the 2016 PSUs for Fiscal 2016 (which was the first year
of the 2016 PSUs):
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|
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|
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Relative TSR Performance Level
2016 PSU payable August 2018
|
|
|
|
Maximum
|
|
|
80.00
|
%
|
Target
|
|
|
55.00
|
%
|
Threshold
|
|
|
30.00
|
%
|
|
|
|
|
|
ROIC Performance Level 2016 PSU
payable August 2018
|
|
|
|
Maximum
|
|
|
14.00
|
%
|
Target
|
|
|
10.00
|
%
|
Threshold
|
|
|
7.00
|
%
|
The following table presents the possible payouts for the third year of the 2014 PSUs at different levels of
performance:
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Below
Threshold
|
|
Threshold
|
|
Target
|
|
Maximum
|
Performance (As a Percentage of Achievement of Target Performance
Goal)
|
|
Less than
80%
|
|
80%
|
|
100%
|
|
120% or Greater
|
Payout (As Percentage of Target Bonus
Amount)
|
|
0%
|
|
50%
|
|
100%
|
|
200%
|
|
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Performance goals at the threshold level have been established for each year of the applicable
performance period underlying the particular award to reflect 80% of the target goal while performance goals at the maximum level have been established for each such year to reflect 120% of the target goal. Performance stock units earned for
achieving the threshold
goal will equal 50% of the target shares for the given year while performance stock units earned for achieving the maximum goal will equal 200% of the target shares designated by the Compensation
Committee for the given year. Performance stock units earned for achievement of the target goal will equal 100% of the target share for the year.
The following table presents the
possible payouts for the second year of the 2015 PSUs and the first year of the 2016 PSUs at different levels of performance:
TSR Metric (40%
weight)
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|
|
|
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Below
Threshold
|
|
Threshold
|
|
Target
|
|
Maximum
|
Performance (As a Percentage of Achievement of Target Performance
Goal)
|
|
Less than
55%
|
|
55%
|
|
100%
|
|
145% or Greater
|
Payout (As Percentage of Target Bonus
Amount)
|
|
0%
|
|
50%
|
|
100%
|
|
200%
|
ROIC Metric (60% weight)
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|
|
|
|
|
|
|
|
|
Below
Threshold
|
|
Threshold
|
|
Target
|
|
Maximum
|
Performance (As a Percentage of Achievement of Target Performance
Goal)
|
|
Less than
70%
|
|
70%
|
|
100%
|
|
140% or Greater
|
Payout (As Percentage of Target Bonus
Amount)
|
|
0%
|
|
50%
|
|
100%
|
|
200%
|
Performance goals at the threshold level have been established for each year of the applicable
performance period underlying the particular award to reflect 55% and 70%, respectively, of the target goal while performance goals at the maximum level have been established for each such year to reflect 145% and 140%, respectively, of the target
goal. Performance stock units earned for achieving the threshold goal will equal 50% of the target shares for the given year while performance stock units earned for achieving the maximum goal will equal 200% of the target shares designated by the
Compensation Committee for the given year. Performance stock units earned for achievement of the target goal will equal 100% of the target share for the year.
Performance Stock Units Earned for Fiscal 2016
.
At its meeting in July of 2016, the Compensation Committee determined that EPS for Fiscal 2016 was $1.19 and ROIC for Fiscal 2016
was 6%, each of which were below the threshold goals set for Fiscal 2014 PSUs. Accordingly, no shares were earned for Fiscal 2016 under the 2014 PSUs. The
Compensation Committee further determined that no shares were earned for Fiscal 2016 under the 2015 PSUs or 2016 PSUs, as both ROIC (at 6%) and Relative TSR (at 7.1%) were below the threshold
goals established.
2016 Special Recognition, Attraction and Retention Award
On a limited and selective basis, we sometimes pay additional compensation to our employees in the form of special recognition, attraction or
retention awards. For example, we may provide a special award to an individual to reimburse him/her for compensation he/she would forfeit by terminating previous employment, or to recognize contributions to a critical strategic initiative.
Employees at all levels of the Company are eligible to receive special awards. We may provide awards in the form of cash bonuses,
equity, or a combination of cash and equity, in each case depending on the reason for the bonus. The amount of any special recognition or retention award depends on the reason it is being granted. The Compensation Committee
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must approve any special awards for our executives. For Fiscal 2016, the Committee approved the special new hire
awards for Messrs. De Feo, Byrnes and van Gaalen in the form of restricted stock units and stock options, and special retention awards of restricted stock
units to Ms. Bacchus and Ms. Fusco. The following table provides the special long-term incentive opportunity as a percentage of base salary for the NEOs listed below. If an NEO is not
listed below, a special award was not provided.
2016 Special LTI Awards
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|
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Name
|
|
Special
Long-Term
Incentive
Opportunity as a
Percentage of Base
Salary
|
Ronald M. De Feo
|
|
100%
|
Jan Kees van Gaalen
|
|
232%
|
Judith L. Bacchus
|
|
75%
|
Charles M. Byrnes
|
|
175%
|
Peter A. Dragich
|
|
N/A
|
Martha Fusco
|
|
70%
|
Retirement Plans
We maintain both qualified and non-qualified defined benefit and qualified defined contribution retirement plans that are designed to work together to provide retirement pay to our executives. We provide certain
pension and retirement benefits as part of our broader executive compensation program to attract and retain our executives.
Qualified Plans
.
We maintain two principal qualified retirement plans for substantially all
U.S. employees, including our executive officers. The Retirement Income Plan (RIP) is a defined benefit pension plan. As of December 31, 2003, the RIP was frozen for non-grandfathered participants and is no longer offered to
new employees. None of our NEOs were grandfathered under the RIP. The Thrift Plus Plan (TPP) is a defined contribution or 401(k) plan in which all of our executives participate.
Non-Qualified Plan
.
All of our NEOs, except for Mr. De Feo, participate in our Executive Retirement Plan
(ERP), a non-qualified retirement plan which provides for a lump sum payment of benefits to a participant upon termination of employment (but only to the extent the executive has vested under the plan).
The amount payable under each retirement plan for each NEO is determined by the plans benefit formula. The amount of benefits varies
based upon the plan, the executives years of service with us, and the executives compensation. Please see the tabular disclosures in 2016 Pension Benefits table below as well as the
narrative discussion following that table for more information on these plans.
Perquisites Allowance
In Fiscal 2016, we continued our practice of providing an annual fixed perquisite allowance of $20,000 to certain of our executive officers (paid
in two installments in June and December of each year) to some executive officers in lieu of individual perquisites. The perquisite allowance may be used by the executive in his or her discretion for financial planning fees, business or country club
memberships, or any other appropriate perquisite, and is not grossed up for tax purposes. Executive officers hired after October 2016 will not be entitled to receive this fixed perquisite allowance of $20,000. To promote our emphasis on the health,
safety and wellness of our employees, we continue to provide for officer life insurance.
The perquisite allowance and other personal
benefits paid to our NEOs (life insurance) for 2016 are included in a supplemental table to the Summary Compensation Table as part of the footnotes to the Summary Compensation Table. Other than
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the perquisite allowance and other personal benefits included therein, our executives receive the same benefits that
are generally provided to other salaried employees, including eligibility to participate in group medical and dental plans, vision, long- and short-term disability, group life insurance, accidental death and dismemberment insurance, business travel
accident insurance, health care and dependent care spending accounts, qualified retirement plans, and other benefits, in accordance with the terms of the programs.
2017 Executive Compensation Program
In July 2016, the
Compensation Committee determined to make the following changes to the executive compensation program:
2017 Base Salary
In July 2016, the Compensation Committee did not approve any merit increases for Fiscal 2016 for any of our NEOs.
Changes for 2017 Annual Incentive Plan (previously named the Prime Bonus Plan) (AIP)
The Compensation Committee determined that the AIP payout curve would change for participants in the AIP for 2017, and that certain target
opportunities will be modified. The Compensation Committee also determined the financial performance goals making up 80% of the bonus opportunity will be changed to include EBIT (45% weight) and FOCF (35% weight) and the individual goals will be
weighted at 20%. The performance curve will be as follows: 30% of the target award is earned if 50% of the financial goal is achieved; 100% of the target award is earned if 100% of the financial goal is achieved; and 200% of the target award is
earned if 140% of the financial goals are achieved. Each metric will be calculated independently with a pro-rata calculation between performance levels. With regard to achieving the Individual Performance goals, a prime bonus opportunity
of 30% to 90% of target is earned for a performance rating of Meets Low Expectations; 91% to 110% of
target award is earned for a performance rating of Meets Expectations; 111% to 160% of target award is earned for a performance rating of Meets High Expectations; and 161%
to 200% of target award is earned for a performance rating of Exceeds Expectations; with pro-rata calculation between performance levels. The individual performance goals are set and approved by the Compensation Committee, and
conditioned upon achievement of positive net income after compensation expense.
Changes for 2017 LTI Program
At its meeting in July of 2016, the Compensation Committee determined that the performance goals underlying the performance stock units to be
granted in Fiscal 2017 would continue to be based on Adjusted ROIC results (100% weight) with Relative Total Shareholder Return (TSR) vesting multiple based on (i) the Corporations TSR relative to the Peer Group TSR for the
cumulative three year performance period of time ending on June 30, 2019 (Performance Period) and (ii) satisfaction of the condition of employment.
The Committee believes the use of ROIC will continue to strengthen the line of sight attributable to working capital and inventory management and that the use of Relative TSR as a vesting multiple will provide a
direct alignment to increases in shareholder value relative to other manufacturing companies. The Committee believes the use of these measures will continue to support the focus on the Companys strategic objectives, leading to greater levels
of shareowner value. Additionally, the Compensation Committee agreed to provide for grants of Restricted Stock Units and to discontinue the use of Stock Options for the 2017 LTI Program. The Compensation Committee agreed to provide the 2017
total LTI target opportunity for NEOs as a percentage of base salary with 60% of the LTI target opportunity granted in the form of PSUs and 40% granted in the form of RSUs (except for Ms. Fusco, who would receive 40% of the LTI target opportunity
granted in the form of PSUs and 60% granted in the form of RSUs).
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The following table shows the aggregate grant date fair value of stock
awards granted for each of our NEOs under our LTI program for 2017:
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|
|
Name
|
|
Target Long-Term
Incentive
Opportunity
as a Percentage of
Base
Salary
|
|
Ronald M. De Feo
|
|
|
350%
|
|
Jan Kees van Gaalen
|
|
|
175%
|
|
Judith L. Bacchus
|
|
|
100%
|
|
Charles M. Byrnes
|
|
|
175%
|
|
Peter A. Dragich
|
|
|
175%
|
|
Martha Fusco
|
|
|
60%
|
|
Stock Ownership Guidelines and Insider Trading Policy
We have adopted Stock Ownership Guidelines for directors, executives and key managers to effectively link the interests of management and our
shareowners and to promote an ownership culture throughout our organization. We believe that stock should be acquired and held in quantities that encourage management to make decisions and take actions that will enhance Company performance and
increase its value. These guidelines were first adopted in 1995 and are reviewed annually by the Compensation Committee at its October meeting as a standing agenda item. Employees have five years from the date they become subject to the guidelines
to acquire the requisite holdings. The current guidelines are:
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FY15
Multiple
of
Base Salary
|
|
Chief Executive Officer
|
|
|
5X
|
|
Top Industrial Segment Executive, Top Infrastructure Segment Executive and
CFO
|
|
|
3X
|
|
Executive Leadership Team, Executive Officers and certain Business Unit
Managers
|
|
|
2X
|
|
Other Key Managers
|
|
|
1X
|
|
Shares owned outright, restricted stock and restricted stock units, deferred stock credits, and shares owned in
benefit plans (such as a 401(k)) count toward fulfilling the ownership guidelines.
We have an insider trading policy that prohibits executives from engaging in
any transaction in our stock unless that transaction has been pre-cleared and approved. Although we generally do not mandate when executives may trade, our policy strongly encourages them to trade only during established window periods, which open
1 day after our quarterly earnings release and remain open for approximately 1
1
/
2
months thereafter.
Our insider trading policy prohibits the hedging of Company stock by directors, executives and other key managers without the prior approval and express authorization of the Companys General Counsel. Further,
this policy also prohibits the pledging of Company stock by directors, executives and other key managers unless the General Counsel has granted an exception to the individual. An exception to this prohibition may be granted where an individual
wishes to pledge Company stock as collateral for a loan (not including margin debt) and clearly demonstrates the financial capacity to repay the loan without resort to the pledged stock.
Employment Agreements
We have employment agreements with all of our executive officers. We
have summarized the material terms of these agreements below.
General
. The agreements require our
executives to devote their entire time and attention to the business and affairs of Kennametal while they are employed.
Term
. There is no predetermined term. Each executive entered into the agreement upon
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commencing duties as an executive officer of our Company.
Compensation
. Except as noted below, the executive officers base salary, size of bonus award, if any, and any
other compensation for services are not specified under the agreements but rather are determined by the Compensation Committee upon the commencement of employment and assignment of the executive to a salary band. Thereafter, the Compensation
Committee makes determinations regarding base salary, incentive awards, and all other components of compensation as described in this CD&A.
Non-competition/non-disclosure
. Unless we provide prior consent in writing, if an executive voluntarily terminates his or her employment or we terminate his or her employment for
cause, then for three years after the date of termination, the executive officer cannot, in any geographic area in which Kennametal is offering its services and products: (a) directly or indirectly engage in; or (b) assist or have an
active interest in; or (c) enter the employ of, or act as agent for, or advisor or consultant to, any entity which is or is about to become directly or indirectly engaged in any business that is competitive with any business of the Company or
any of our subsidiaries or affiliates in which the executive is or was engaged. The non-competition provisions do not apply if we terminate an executive without cause. However, in case of termination for any reason, the executive officer cannot
disclose any of our confidential or trade secret information.
Assignment of Inventions
. Each executive
officer must assign to us all inventions conceived or made during his or her employment with Kennametal.
Termination
. The executive officers employment may be terminated by either party at any time, for any reason
or no reason at all; provided, that the Company may only terminate an executive officers employment with the approval and authorization of the Board.
Severance
. If, with Board authorization, we involuntarily terminate an executive officers employment prior to a change in control and not for cause, the executive is entitled to
12 months of severance in the form of salary continuation.
Our executive officers are not entitled to severance under any other termination scenario outside of a change in control context.
Change in Control
. Under certain circumstances, the agreements provide for payments to an executive officer if his
employment is terminated after a change of control. See
Termination Conditions and Arrangements
below and the
Potential Payments upon Termination or Change in Control
section of this Proxy Statement for a more
detailed discussion.
Termination Conditions and Arrangements
In a non-change in control context, our executive employment agreements provide for severance if the executives employment is terminated by us without cause. Additional details regarding the
severance provisions and potential payments to our NEOs outside of a change in control context can be found in the
Potential Payments upon Termination or Change in Control
section.
Our executive employment agreements, stock and incentive plans and certain of our retirement and post-employment plans contain change in control
provisions. The change in control provisions in the executive employment agreements are applicable only for those executives that have entered into these agreements, which includes each of our NEOs. The provisions of our incentive plans and
retirement plans are applicable to a broader base of our employees and include all those who participate in those plans. We include these provisions because we believe they help to align executive, Company, and shareowner interests. If we evaluate a
possible transaction, we want our management to focus on the potential fit with our corporate goals and strategy and the creation of long-term value for our shareowners. We believe that change in control protections enable our management to consider
corporate transactions objectively and to decide whether they are in the best interests of the Company and its shareowners without undue concern over whether the transactions may jeopardize future employment.
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. 2016 Proxy Statement
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
The change in control protections under our executive employment agreements only provide payments
upon the occurrence of a double trigger. For severance benefits to be triggered, a change in control must take place
and
an executive must be involuntarily terminated by us (other than for cause or
Disability (as defined in the employment agreements)) or must voluntarily leave for good reason within 36 months following the change in control (or, for Mr. Nolan, 24 months). For additional information concerning the change
in control arrangements for our NEOs, see the
Potential Payments upon Termination or Change in Control
section of this Proxy Statement.
Elimination of partial excise tax gross-up in new agreements
. For executives joining the Company prior to May 2011, their employment agreements provide for a payment adjustment if, due
to excise taxes imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the Code), the executives net after-tax benefits are less than intended under the cash severance component described above. Executive
officer employment agreements entered into after May 2011 do not provide for any partial excise tax gross-up provisions.
Recoupment of Awards and
Incentive Payments
In any case where there has been an allegation of fraud or misconduct, the Board of Directors would investigate
and carefully review the facts and circumstances of the alleged misconduct before determining the appropriate course of action. If, after completing its investigation, the Board were to determine that an employee or officer did engage in fraudulent
behavior or misconduct, the Board would take appropriate action, which could include, among other things, termination of employment, institution of legal proceedings against the wrongdoer, or bringing the misconduct to the attention of the proper
authorities. If the misconduct results in a material restatement of the Companys financial results, then the Board, in addition to the above remedies, may also seek repayment of any bonus received for the period restated, seek repayment of
gains realized as a result of exercising stock options awarded for the period restated, or cancel any
outstanding stock options or other equity or incentive compensation.
The Company
also incorporates restrictive covenants (prohibiting working for competitors for a period following separation from employment and disclosure of confidential or proprietary information) into the executive employment agreements, and the ERP. If the
Board of Directors determines that a violation of any one of these covenants has occurred, it may, in its discretion, discontinue any future payments and/or take appropriate legal action to recoup amounts paid under these programs.
Tax, Accounting, and Regulatory Considerations
We consider the effect of tax, accounting and other regulatory requirements in designing and implementing compensation programs, and while these factors may impact plan designs, ultimately decisions reflect the pay
strategy of the Company and the program intent.
Section 162(m) of the Code imposes a $1 million limit on the amount that a
public company may deduct for compensation paid to the Companys Chief Executive Officer or any of the Companys three other most highly compensated executive officers, other than the Chief Financial Officer, who are employed as of the end
of the year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for qualifying performance-based compensation (
i.e.
, compensation paid only if the individuals performance
meets pre-established objective goals based on performance criteria approved by shareowners). For 2016, the payout of annual bonuses under the Prime Bonus Plan, excepting amounts conditioned solely on the performance of individual goals, and LTI
awards, if any, were intended to satisfy the requirements for deductible compensation. However, there can be no assurance that any amounts paid under such compensation programs will be deductible under Section 162(m). Our Compensation Committee
or Board also may design programs and structure and provide incentive compensation that is not performance-based for purposes of Section 162(m) and therefore not deductible for federal income tax purposes
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. 2016 Proxy Statement
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EXECUTIVE COMPENSATION: COMPENSATION DISCUSSION AND ANALYSIS
to the extent that non-deductible compensation is in excess of the $1 million limitation.
Tools and Analytics
The Compensation
Committee utilizes various tools and analytics provided by both Pay Governance and our internal management and human resources personnel to execute its duties. These tools and analyses provide internal and external context and perspective to assist
the Compensation Committee with its decision making process. The Compensation Committee reviews and considers the following information, as appropriate, when making compensation decisions:
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Total compensation tally sheets and pay histories for the CEO and executive officers;
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CEO and executive officer competitive assessments for all elements of pay;
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Realizable pay-for-performance and value sharing assessments versus our peer group;
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Dilution and share utilization assessments, projections and comparisons;
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Equity expense comparisons versus our peer group;
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Incentive design and vehicle prevalence analyses;
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Internal goal setting and achievement analyses;
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Compensation policy and practices risk assessment;
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Executive retention analyses;
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Annual and long-term incentive plan performance and progress updates;
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Executive perquisite prevalence analyses; and
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Other ad hoc analyses performed at the Compensation Committees direction.
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The information above is reviewed either annually or by special request of the Compensation Committee.
Compensation for Non-Employee Directors
The Nominating/Corporate Governance Committee has responsibility for the review and oversight of non-employee director compensation. The role of
the Nominating/Corporate Governance Committee in this context is explained in further detail in the
Ethics and Corporate Governance
section of this Proxy Statement. The compensation of non-employee directors in 2015 is described
more fully in the
Board of Directors Compensation and Benefits
section of this Proxy Statement.
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ENNAMETAL
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. 2016 Proxy Statement
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COMPENSATION COMMITTEE REPORT
Compensation Committee Report
The Compensation Committee (we or the committee) recommends an overall
compensation policy to the Board, has direct responsibility for matters relating to compensation of the executive officers, advises the Board regarding management succession, and administers the Companys equity compensation plans and deferred
compensation plans. Management has the primary responsibility for the Companys financial statements and reporting process, including the disclosure of executive compensation. With this in mind, we have reviewed and discussed with
management the Compensation Discussion and Analysis section of this Proxy Statement. Based on that review and discussion, we have recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.
Compensation Committee
Steven H. Wunning, Chair
Philip A. Dur
William J. Harvey
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ENNAMETAL
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. 2016 Proxy Statement
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ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
Analysis of Risk Inherent in our Compensation Policies
and Practices
During 2016, the Compensation Committee directed our management to work with Pay Governance to
conduct a risk assessment of all of our compensation policies and practices to ensure that they do not foster risk taking above the level of risk associated with our business model. Based upon that review and a review by management of the
Companys internal controls, the Compensation Committee has concluded that the Companys compensation programs do not encourage executives or other employees to take inappropriate risks that are reasonably likely to have a material adverse
effect on the Company. The Compensation Committee based its conclusion on a variety of factors, including the following specific aspects of the Companys compensation practices:
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The Prime Bonus Plan is based on balanced performance metrics that promote disciplined progress towards longer-term Company goals;
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We do not offer significant short-term incentives that might drive high-risk investments at the expense of long-term Company and shareowner value;
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At the senior management and executive levels, our compensation programs are weighted towards offering long-term incentives that reward sustainable long-term
performance, especially when considering our share ownership guidelines and vesting requirements; and
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All of our compensation awards are capped at reasonable and sustainable levels, as determined by a review of our economic position and prospects, as well as the
compensation offered within our peer group and by comparable companies.
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ENNAMETAL
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. 2016 Proxy Statement
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ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
Executive Compensation Tables
The tables and discussion below show the compensation paid to our NEOs for Fiscal 2016.
Summary Compensation Table (2016, 2015, 2014)
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Name and
Principal Position
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Year
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Salary
($)
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Bonus
($)
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Stock
Awards
($)(1)
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Option
Awards
($)(2)
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Non-Equity
Incentive
Plan
Compensation
($)(3)
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Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
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All Other
Compensation
($)(5)
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Total
($)
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Ronald M. De Feo
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2016
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405,303
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200,000
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558,473
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558,627
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521,035
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12,090
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2,255,528
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President and Chief
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2015
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Executive Officer
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2014
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Jan Kees van Gaalen
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2016
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450,000
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|
|
|
|
|
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|
960,919
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|
|
|
316,499
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|
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145,950
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285,120
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41,042
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2,199,530
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|
Vice President and
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|
|
2015
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|
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Chief Financial Officer
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2014
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|
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|
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|
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Judith L. Bacchus
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2016
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|
|
|
330,386
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|
|
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|
715,660
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|
198,868
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|
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55,989
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131,571
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|
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37,998
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1,470,472
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Vice President and Chief
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2015
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|
317,433
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102,000
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649,684
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90,203
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82,065
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|
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127,434
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|
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36,680
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|
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|
1,405,499
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|
Human Resources Officer and
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|
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2014
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Corporate Relations Officer
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Charles M. Byrnes
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2016
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224,432
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|
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|
345,629
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|
|
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345,624
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|
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73,902
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|
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68,104
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17,164
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|
|
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1,074,855
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|
Vice President and President
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|
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2015
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Industrial Business Segment
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2014
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Peter A. Dragich
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2016
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399,956
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600,499
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256,470
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|
|
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152,637
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|
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176,110
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|
|
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25,581
|
|
|
|
1,611,253
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|
Vice President and President
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|
|
2015
|
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Infrastructure Business
|
|
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2014
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Segment
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Martha Fusco
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2016
|
|
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|
239,012
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|
|
|
|
|
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|
316,949
|
|
|
|
150,001
|
|
|
|
36,093
|
|
|
|
43,362
|
|
|
|
38,546
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|
|
|
823,963
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|
Chief Financial Officer (interim)
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|
|
2015
|
|
|
|
227,591
|
|
|
|
76,000
|
|
|
|
307,504
|
|
|
|
58,257
|
|
|
|
41,123
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|
|
|
42,514
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|
|
|
35,581
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|
|
|
788,570
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|
VP Finance and Corporate
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|
|
2014
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|
Controller
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|
Donald A. Nolan
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|
|
2016
|
|
|
|
544,432
|
|
|
|
|
|
|
|
2,001,987
|
|
|
|
854,998
|
|
|
|
|
|
|
|
|
|
|
|
396,684
|
|
|
|
3,798,101
|
|
Former President and
|
|
|
2015
|
|
|
|
562,500
|
|
|
|
400,000
|
|
|
|
999,992
|
|
|
|
724,797
|
|
|
|
360,360
|
|
|
|
234,005
|
|
|
|
37,811
|
|
|
|
3,319,465
|
|
Chief Executive Officer
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Notes and
Supplemental Tables to the Summary Compensation Table
(1)
|
These amounts reflect the aggregate grant date fair value of stock awards granted in the fiscal years noted calculated in accordance with FASB ASC Topic 718 (excluding the effect
of estimated forfeitures). Please refer to Note 17 to the financial statements included in Kennametals Annual Report on Form
10-K
for 2016 for a discussion of additional assumptions used in calculating
grant date fair value. The amounts included in this column for Fiscal 2016 include restricted stock unit and performance stock unit awards. The values included for such performance stock unit awards reflect the payout of such awards at target. If
these awards were to be paid out at the maximum amount, the value of these awards for Mr. van Gaalen, Ms. Bacchus, and Messrs. Dragich and Nolan would be $1,099,804, $666,134, $859,062 and $2,863,959 respectively. Messrs. De Feo and Byrnes
and Ms. Fusco did not receive performance unit awards. For information with respect to the individual restricted stock unit awards and performance stock unit awards made for Fiscal 2016, please see the 2016 Grants of Plan-Based Awards Table. All of
Mr. Nolans 2016 Stock Awards and two-thirds of his 2015 Stock Awards were forfeited due to his cessation from employment with the Company in February 2016. The amounts for Mr. De Feo do not include awards granted to him in his capacity as
an independent director prior to his appointment as President and Chief Executive Officer, which amounts are reflected in the 2016 Non-Employee Director Compensation Table on page 25.
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60 |
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ENNAMETAL
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NC
. 2016 Proxy Statement
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ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
(2)
|
These amounts reflect the aggregate grant date fair value of stock option awards granted in the fiscal years noted calculated in accordance with FASB ASC Topic 718 (excluding the
effect of estimated forfeitures). Please refer to Note 17 to the financial statements included in Kennametals Annual Report on Form 10-K for 2016 for a discussion of additional assumptions used in calculating grant date fair value. All of Mr.
Nolans 2016 Option Awards and two-thirds of his 2015 Option Awards were forfeited due to his cessation from employment with the Company in February 2016. The amounts for Mr. De Feo do not include awards granted to him in the capacity as an
independent director prior to his appointment as President and Chief Executive Officer, which amounts are reflected in the 2016 Non-Employee Director Compensation Table on page 25.
|
(3)
|
These amounts are cash payments earned by the NEOs under the Prime Bonus Program, which is discussed in further detail in the CD&A section of this Proxy Statement. For
Mr. De Feo, the dollar amount reported in this column for 2016 includes $171,035 paid as Component (1) of his award (relating to the Companys performance) and $350,000 paid as Component (2) of his award (relating to his
individual strategic performance goals).
|
(4)
|
These amounts reflect the aggregate increase in the actuarial present value of the NEOs accumulated benefits under all pension plans established by us. The total expressed
for each NEO includes amounts that the NEO may not currently be entitled to receive because those amounts are not vested. The pension plan for which amounts may be included is the ERP, as applicable to the individual. For Mr. Nolan, his ERP
benefit decreased by $234,005 resulting in a zero net total change in the value. Please refer to the discussion following the 2016 Pension Benefits Table for a more detailed description of the ERP. We do not provide preferential or above-market
earnings on deferred compensation.
|
(5)
|
The following table describes each component of the All Other Compensation column:
|
Supplemental Table to the Summary Compensation Table
|
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|
|
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|
|
Name
|
|
Perq./
Other Benefits
($)(a)
|
|
|
Contributions to
Thrift
Plus Plan
($)(b)
|
|
|
Life Insurance
($)(c)
|
|
|
Total ($)
|
|
Ronald M. De Feo
|
|
|
3,120
|
|
|
|
8,970
|
|
|
|
0
|
|
|
|
12,090
|
|
Jan Kees van Gaalen
|
|
|
25,000
|
|
|
|
12,825
|
|
|
|
3,217
|
|
|
|
41,042
|
|
Judith L. Bacchus
|
|
|
20,000
|
|
|
|
16,912
|
|
|
|
1,086
|
|
|
|
37,998
|
|
Charles M. Byrnes
|
|
|
5,000
|
|
|
|
12,164
|
|
|
|
0
|
|
|
|
17,164
|
|
Peter A. Dragich
|
|
|
0
|
|
|
|
20,920
|
|
|
|
4,661
|
|
|
|
25,581
|
|
Martha Fusco
|
|
|
20,000
|
|
|
|
18,246
|
|
|
|
300
|
|
|
|
38,546
|
|
Donald A. Nolan
|
|
|
388,341
|
|
|
|
8,343
|
|
|
|
0
|
|
|
|
396,684
|
|
(a)
|
This column includes the $20,000 perquisite allowance provided by the Company to the NEOs, except Messrs. De Feo, Byrnes and Dragich. The first $10,000 installment was paid
in December 2015 and the second $10,000 installment was paid in June 2016. For Mr. De Feo, $3,120 represents moving expenses as he is not eligible for a perquisite allowance as CEO. For Mr. Byrnes, this amount represents a moving allowance
in the amount of $5,000. For Mr. Nolan, this amount represents severance benefits in the amount of $382,500 for continuation of base salary and $5,841 for continuation of medical benefit coverage.
|
(b)
|
This column includes our contributions on behalf of the NEO under the TPP. Please see the discussion included in the
Retirement Plans
section of the CD&A
for more details about the TPP.
|
(c)
|
This column includes income imputed to the NEOs based upon premiums paid by us to secure and maintain a term life insurance policy for the NEO while such person remains an active
employee of the Company.
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K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
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| 61
|
ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
2016 Grants of Plan-Based Awards
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards(1)
|
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards(3)
|
|
|
All
Other
Stock
Awards:
Number of
Shares of
Stock or
Units(4)
(#)
|
|
|
All Other
Option
Awards:
Number
of
Securities
Underlying
Option(5)
(#)
|
|
|
Exercise
or Base
Price
of
Option
Awards
($/Sh)
|
|
|
Grant
Date
Fair
Value
of
Stock and
Option
Awards(6)
($)
|
|
Name
|
|
Grant
Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
|
|
|
Ronald De Feo
|
|
|
|
|
|
|
202,500
|
|
|
|
405,000
|
|
|
|
810,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/4/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,716
|
|
|
|
19.03
|
|
|
|
558,627
|
|
|
|
|
2/4/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,347
|
|
|
|
|
|
|
|
|
|
|
|
558,473
|
|
Jan Kees Van Gaalen
|
|
|
|
|
|
|
216,600
|
|
|
|
432,000
|
|
|
|
864,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,918
|
|
|
|
29.00
|
|
|
|
316,499
|
|
|
|
|
9/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,276
|
|
|
|
|
|
|
|
|
|
|
|
211,004
|
|
|
|
|
9/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,095
|
|
|
|
18,190
|
|
|
|
36,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549,902
|
|
|
|
|
9/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,897
|
|
|
|
|
|
|
|
|
|
|
|
200,013
|
|
Judith L. Bacchus
|
|
|
|
|
|
|
82,862
|
|
|
|
165,724
|
|
|
|
331,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,506
|
|
|
|
31.69
|
|
|
|
198,868
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,184
|
|
|
|
|
|
|
|
|
|
|
|
132,591
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,226
|
|
|
|
10,459
|
|
|
|
20,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,067
|
|
|
|
|
3/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,979
|
|
|
|
|
|
|
|
|
|
|
|
250,002
|
|
Charles M. Byrnes
|
|
|
|
|
|
|
78,210
|
|
|
|
156,420
|
|
|
|
312,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,970
|
|
|
|
20.71
|
|
|
|
345,624
|
|
|
|
|
12/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,689
|
|
|
|
|
|
|
|
|
|
|
|
345,629
|
|
Peter A. Dragich
|
|
|
|
|
|
|
147,000
|
|
|
|
294,000
|
|
|
|
588,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,473
|
|
|
|
31.69
|
|
|
|
256,470
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,395
|
|
|
|
|
|
|
|
|
|
|
|
170,968
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,744
|
|
|
|
13,488
|
|
|
|
26,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429,531
|
|
Martha Fusco
|
|
|
|
|
|
|
42,000
|
|
|
|
84,000
|
|
|
|
168,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,747
|
|
|
|
31.69
|
|
|
|
150,001
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
149,989
|
|
|
|
|
3/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
166,960
|
|
Donald A. Nolan
|
|
|
|
|
|
|
550,800
|
|
|
|
1,101,600
|
|
|
|
2,203,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,257
|
|
|
|
31.69
|
|
|
|
854,998
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,987
|
|
|
|
|
|
|
|
|
|
|
|
570,008
|
|
|
|
|
8/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,484
|
|
|
|
44,967
|
|
|
|
89,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,431,979
|
|
Notes and
Supplemental Tables to the 2016 Grants of Plan-Based Awards Table
(1)
|
These columns reflect the possible payouts under the Prime Bonus Plan, which is described more fully in the Annual Incentives section of the CD&A. The amounts
presented in these columns reflect the amounts that could have been earned for 2016 based upon the level of achievement of the performance goals underlying such awards. Actual Prime Bonuses earned for 2016 are included in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation Table. For Messrs. De Feo and Byrnes, the amounts have been pro-rated based on their respective hire dates.
|
(2)
|
This row reflects the portion of Mr. De Feos annual cash incentive award granted under the Prime Bonus Plan, which is based on his individual performance, including
achievement of certain strategic and operational goals (as described in the
Annual Incentives
section of the CD&A).
|
(3)
|
These columns reflect the performance stock unit awards granted in August and September 2015 under the 2010 Plan. The amounts presented in these columns reflect
the number of shares of our capital stock which could be earned over the course of the applicable performance period based
|
|
|
|
|
|
62 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
|
upon the level of achievement of the performance goals underlying such awards. A description of our performance stock units is set forth in the
Long-Term
Incentives
section of the CD&A.
|
(4)
|
This column reflects the number of restricted stock units awarded to the NEOs in 2015 and 2016 under the 2010 Plan. A description of our restricted stock units is set forth in
the
Long-Term Incentives
section of the CD&A. The amounts for Mr. De Feo do not include awards granted to him in his capacity as an independent director prior to his appointment as President and Chief Executive Officer,
which amounts are reflected in the Non-Employee Director Compensation Table on page 25.
|
(5)
|
This column reflects the number of shares underlying the stock options awarded to the NEOs in 2015 and 2016 under the 2010 Plan. A description of the stock option awards is set
forth in the
Long-Term Incentives
section of the CD&A. The amounts for Mr. De Feo do not include awards granted to him in his capacity as an independent director prior to his appointment as President and Chief Executive
Officer, which amounts are reflected in the Non-Employee Director Compensation Table on page 25.
|
(6)
|
The amounts reported in this column represent the grant date fair value of each equity-based award as determined pursuant to FASB ASC Topic 718 (disregarding any estimates of
forfeitures). Please refer to Note 17 to the financial statements included in Kennametals Annual Report on Form 10-K for 2016 for a discussion of additional assumptions used in calculating grant date fair value. The values reported
in this column for the performance stock unit awards granted in August 2015 were calculated at target. For Messrs. De Feo and Byrnes, the amounts have been pro-rated based on their respective hire dates.
|
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 63
|
ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
Outstanding Equity Awards at Fiscal Year End 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
|
Stock Awards(1)
|
|
Name
|
|
Grant
Date
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Grant
Date
|
|
|
Number
of
Shares
or Units
of
Stock
That
Have Not
Vested
(#)
|
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)(2)
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or
Other
Rights That
Have Not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(2)
|
|
Ronald De Feo(3)
|
|
|
2/4/2016
|
|
|
|
0
|
|
|
|
128,716
|
|
|
|
19.03
|
|
|
|
2/4/2026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/4/2016
|
|
|
|
29,347
|
|
|
|
648,862
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
0
|
|
|
|
128,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,347
|
|
|
|
648,862
|
|
|
|
|
|
|
|
|
|
Jan Kees Van Gaalen
|
|
|
9/1/2015
|
|
|
|
0
|
|
|
|
48,918
|
|
|
|
29.00
|
|
|
|
9/1/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2015
|
|
|
|
6,897
|
|
|
|
152,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2015
|
(a)
|
|
|
7,276
|
|
|
|
160,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2015
|
(b)
|
|
|
0
|
|
|
|
0
|
|
|
|
18,190
|
|
|
|
402,181
|
|
Totals
|
|
|
|
|
|
|
0
|
|
|
|
48,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,173
|
|
|
|
313,365
|
|
|
|
18,190
|
|
|
|
402,181
|
|
Judith L. Bacchus
|
|
|
8/1/2011
|
|
|
|
5,778
|
|
|
|
0
|
|
|
|
38.95
|
|
|
|
8/1/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2012
|
|
|
|
5,510
|
|
|
|
1,837
|
|
|
|
36.76
|
|
|
|
8/1/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
|
|
|
3,481
|
|
|
|
3,482
|
|
|
|
45.24
|
|
|
|
8/1/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
|
|
|
2,136
|
|
|
|
6,411
|
|
|
|
42.13
|
|
|
|
8/1/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
0
|
|
|
|
27,506
|
|
|
|
31.69
|
|
|
|
8/1/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2012
|
|
|
|
408
|
|
|
|
9,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
(a)
|
|
|
774
|
|
|
|
17,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
(b)
|
|
|
910
|
|
|
|
20,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
(a)
|
|
|
1,425
|
|
|
|
31,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
(b)
|
|
|
506
|
|
|
|
11,188
|
|
|
|
1,900
|
|
|
|
42,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2014
|
|
|
|
6,106
|
|
|
|
135,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
(a)
|
|
|
4,184
|
|
|
|
92,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
(b)
|
|
|
0
|
|
|
|
0
|
|
|
|
7,322
|
|
|
|
161,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2016
|
|
|
|
11,979
|
|
|
|
264,856
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
16,905
|
|
|
|
39,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,292
|
|
|
|
581,317
|
|
|
|
9,222
|
|
|
|
203,898
|
|
Charles Byrnes
|
|
|
12/15/2015
|
|
|
|
0
|
|
|
|
70,970
|
|
|
|
20.71
|
|
|
|
12/15/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/15/2015
|
|
|
|
16,689
|
|
|
|
368,994
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
0
|
|
|
|
70,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,689
|
|
|
|
368,994
|
|
|
|
|
|
|
|
|
|
Peter Dragich
|
|
|
8/1/2013
|
|
|
|
3,979
|
|
|
|
3,979
|
|
|
|
45.24
|
|
|
|
8/1/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
|
|
|
2,136
|
|
|
|
6,411
|
|
|
|
42.13
|
|
|
|
8/1/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
0
|
|
|
|
35,473
|
|
|
|
31.69
|
|
|
|
8/1/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
(a)
|
|
|
884
|
|
|
|
19,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
(b)
|
|
|
1,040
|
|
|
|
22,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
(a)
|
|
|
1,425
|
|
|
|
31,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
(b)
|
|
|
506
|
|
|
|
11,188
|
|
|
|
1,900
|
|
|
|
42,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/2014
|
|
|
|
6,669
|
|
|
|
147,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
(a)
|
|
|
5,395
|
|
|
|
119,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
(b)
|
|
|
0
|
|
|
|
0
|
|
|
|
9,443
|
|
|
|
208,785
|
|
Totals
|
|
|
|
|
|
|
6,115
|
|
|
|
45,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,919
|
|
|
|
351,969
|
|
|
|
11,343
|
|
|
|
250,794
|
|
|
|
|
|
|
64 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
|
Stock Awards(1)
|
|
Name
|
|
Grant
Date
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Grant
Date
|
|
|
Number
of
Shares
or
Units
of Stock
That
Have Not
Vested
(#)
|
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)(2)
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or
Other
Rights That
Have
Not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights That
Have
Not
Vested
($)(2)
|
|
Martha Fusco
|
|
|
8/1/2011
|
|
|
|
5,894
|
|
|
|
0
|
|
|
|
38.95
|
|
|
|
8/1/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2012
|
|
|
|
1,582
|
|
|
|
1,582
|
|
|
|
36.76
|
|
|
|
8/1/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
|
|
|
2,569
|
|
|
|
2,570
|
|
|
|
45.24
|
|
|
|
8/1/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
|
|
|
1,380
|
|
|
|
4,140
|
|
|
|
42.13
|
|
|
|
8/1/2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
|
|
|
0
|
|
|
|
20,747
|
|
|
|
31.69
|
|
|
|
8/1/2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2012
|
|
|
|
527
|
|
|
|
11,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2013
|
(a)
|
|
|
857
|
|
|
|
18,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2014
|
(a)
|
|
|
1,380
|
|
|
|
30,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2015
|
|
|
|
4,929
|
|
|
|
108,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/1/2015
|
(a)
|
|
|
4,733
|
|
|
|
104,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/1/2016
|
|
|
|
8,000
|
|
|
|
176,880
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
11,425
|
|
|
|
29,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,426
|
|
|
|
451,619
|
|
|
|
|
|
|
|
|
|
Donald A. Nolan
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Notes and
Supplemental Tables to Outstanding Equity Awards at Fiscal Year 2016 End Table
|
|
|
Grant Date
|
|
Vesting Schedule
|
8/1/2011
|
|
The restricted stock unit awards and stock option awards granted on this date vest 25% each year over four years beginning on the first anniversary of the grant date.
|
|
|
8/1/2012
|
|
The restricted stock unit awards and stock option awards granted on this date vest 25% each year over four years beginning on the first anniversary of the grant date. The performance
stock unit awards granted on this date are subject to annual performance conditions and may be earned 1/3 each year over a three-year period if the performance conditions for each particular year are satisfied. The threshold performance conditions
underlying Year 1 (Fiscal 2013), Year 2 (Fiscal 2014) and Year 3 (Fiscal 2015) of the performance period for these awards were not achieved and therefore no performance stock units were earned for those years.
|
|
|
8/1/2013
|
|
(a) The restricted stock unit awards and stock option awards granted on this date vest 25% each year over four years beginning on the first anniversary of the grant date.
|
|
|
|
|
(b) The performance stock unit awards granted on this date are subject to annual performance conditions and may be earned 1/3 each year over a three-year period if the performance
conditions for each particular year are satisfied. The performance conditions underlying Year 1 (Fiscal 2014) of the performance period for these awards were deemed earned by the Compensation Committee as of June 30, 2014. The threshold
performance conditions underlying Year 2 (Fiscal 2015) and Year 3 (Fiscal 2016) of the performance period for those awards were not achieved and therefore no performance stock units were earned for those years. Performance stock units that are
deemed earned for any given fiscal year remain subject to an additional service condition that requires the executive to be employed by us through the payment date following the 3-year performance
period. The
|
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 65
|
ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
|
|
|
Grant Date
|
|
Vesting Schedule
|
|
|
number of performance stock units which have been deemed earned under these awards by the Compensation Committee (but remain unvested) are reported in the Number of Shares or Units
of Stock That Have Not Vested column.
|
|
|
8/1/2014
|
|
(a) The restricted stock unit awards and stock option awards granted on this date vest 25% each year over four years beginning on the first anniversary of the grant date.
|
|
|
|
|
(b) The performance stock unit awards granted on this date are subject to annual performance conditions and may be earned 1/3 each year over a three-year period if the performance
conditions for each particular year are satisfied. The performance conditions underlying Year 1 (Fiscal 2015) of the performance period for these awards were deemed earned by the Compensation Committee as of June 30, 2015. The threshold performance
conditions underlying Year 2 (Fiscal 2016) of the performance period for this award were not achieved and therefore no performance stock units were earned for that year. Performance stock units that are deemed earned for any given fiscal year remain
subject to an additional service condition that requires the executive to be employed by us through the payment date following the 3-year performance period. The number of performance stock units which have been deemed earned under these awards by
the Compensation Committee (but remain unvested) are reported in the Number of Shares or Units of Stock That Have Not Vested column. The number of performance stock units which remain subject to performance conditions have been included
in the Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That have Not Vested column based on achieving target performance goals. The number of performance stock units which remain subject to performance
conditions (for Fiscal 2017) have been included in the Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That have Not Vested column based on the threshold amount that may be earned. In the event that the
performance conditions are not met for Fiscal 2017 (similar to Fiscal 2016), then no performance stock units will be earned for Fiscal 2017.
|
|
|
8/1/2015
|
|
(a) The restricted stock unit awards and stock option awards granted on this date vest 1/3 each year over three years beginning on the first anniversary of the grant date.
|
|
|
|
|
(b) The performance stock unit awards granted on this date are subject to annual performance conditions and may be earned 1/3 each year over a three-year period if the performance conditions
for each particular year are satisfied. The threshold performance conditions underlying Year 1 (Fiscal 2016) of the performance period for this award were not achieved and therefore no performance stock units were earned for that year. Performance
stock units that are deemed earned for any given fiscal year remain subject to an additional service condition that requires the executive to be employed by us through the payment date following the 3-year performance period. The number of
performance stock units which remain subject to performance conditions have been included in the Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That have Not Vested column based on achieving target
performance goals.
|
(2)
|
Market value is calculated using the closing price of our common stock on June 30, 2016 ($22.11).
|
(3)
|
The amounts do not include equity awards granted to Mr. De Feo as an independent director prior to his appointment as President and Chief Executive Officer, which amounts are
included in the Supplemental Table to 2016 Non-Employee Director Compensation Table on page 26.
|
|
|
|
|
|
66 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
Option Exercises and Stock Vested In 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares Acquired
on Exercise
(#)
|
|
|
Value
Realized on
Exercise
($)(1)
|
|
|
Number of
Shares Acquired
on Vesting
(#)
|
|
|
Value
Realized
on Vesting
($)(2)(3)
|
|
Ronald M. De Feo(4)
|
|
|
|
|
|
|
|
|
|
|
974
|
|
|
|
30,866
|
|
Jan Kees van Gaalen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judith L. Bacchus
|
|
|
|
|
|
|
|
|
|
|
3,625
|
|
|
|
109,402
|
|
Charles M. Byrnes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter A. Dragich
|
|
|
|
|
|
|
|
|
|
|
5,841
|
|
|
|
169,474
|
|
Martha Fusco
|
|
|
|
|
|
|
|
|
|
|
3,548
|
|
|
|
94,670
|
|
Donald A. Nolan
|
|
|
|
|
|
|
|
|
|
|
7,016
|
|
|
|
202,482
|
|
Notes and
Supplemental Tables to Option Exercises and Stock Vested in 2016 Table
(1)
|
These values represent the difference between the market price of the underlying shares at exercise and the exercise price of the options multiplied by the number of shares
acquired on exercise.
|
(2)
|
These values represent the aggregate dollar amount realized upon vesting. The value is calculated by multiplying the number of shares of stock that vested by the market value of
the shares on the vesting date.
|
(3)
|
In connection with the vesting of restricted stock unit awards, our NEOs surrendered shares to satisfy tax withholding requirements, which reduced the actual value they received
upon vesting. The number of shares surrendered and the corresponding value of those shares is shown below.
|
(4)
|
Reflects amounts granted to Mr. De Feo as an independent director prior to his appointment as President and Chief Executive Officer.
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number
of
Shares
Surrendered
for Tax
Withholding
|
|
|
Value
of
Shares
Surrendered
($)
|
|
Ronald M. De Feo
|
|
|
|
|
|
|
|
|
Jan Kees van Gaalen
|
|
|
|
|
|
|
|
|
Judith L. Bacchus
|
|
|
1,131
|
|
|
|
34,120
|
|
Charles M. Byrnes
|
|
|
|
|
|
|
|
|
Peter A. Dragich
|
|
|
1,834
|
|
|
|
53,201
|
|
Martha Fusco
|
|
|
1,185
|
|
|
|
31,017
|
|
Donald A. Nolan
|
|
|
2,356
|
|
|
|
67,994
|
|
|
|
|
|
|
|
|
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. 2016 Proxy Statement
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| 67
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ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
The following table shows benefits our NEOs are entitled to under our
retirement programs, which are described more fully in the narrative that follows and in the CD&A section of this Proxy Statement.
2016 Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number
of
Years Credited
Service
(#)
|
|
|
Present Value of
Accumulated
Benefit(1)
($)
|
|
|
Payments
During Last
Fiscal
Year
($)
|
|
Ronald M. De Feo
|
|
ERP
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Jan Kees van Gaalen
|
|
ERP
|
|
|
0.8
|
|
|
|
285,120
|
|
|
|
|
|
Judith L. Bacchus
|
|
ERP
|
|
|
5.1
|
|
|
|
545,145
|
|
|
|
|
|
Charles M. Byrnes
|
|
ERP
|
|
|
0.5
|
|
|
|
68,104
|
|
|
|
|
|
Peter A. Dragich
|
|
ERP
|
|
|
3.7
|
|
|
|
456,091
|
|
|
|
|
|
Martha Fusco
|
|
ERP
|
|
|
6.6
|
|
|
|
251,570
|
|
|
|
|
|
Donald A. Nolan
|
|
ERP
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Notes to 2016
Pension Benefits Table
(1)
|
The accumulated benefit is based on the NEOs historical compensation, length of service, the plans provisions, and applicable statutory and regulatory requirements.
The present value has been calculated assuming the NEO will remain in service until age 62 for the ERP. Vesting schedules under the plans are disregarded for purposes of these calculations. Refer to note 13 to the financial statements in
Kennametals 2016 Annual Report for a discussion of additional assumptions used in calculating the present value.
|
2016 Nonqualified Deferred Compensation
As of June 30, 2016, Mr. De Feo had a balance in the Directors Stock Incentive Plan under which he
deferred cash director fees for deferred stock credits, which will entitle him to receive shares of common stock on a deferred
payment date. The aggregate balance reported below for Mr. De Feo represents the value of his deferred stock credits as of June 30, 2016 which is not reported as compensation in the Summary
Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last FY
($)
|
|
|
Registrant
Contributions
in Last FY
($)
|
|
|
Aggregate
Earnings in
Last FY(1)
($)
|
|
|
Aggregate
Withdrawals/
distributions
($)
|
|
|
Aggregate
Balance at
Last FYE
($)
|
|
Ronald M. De Feo
|
|
|
33,360
|
|
|
|
|
|
|
|
10,544
|
|
|
|
|
|
|
|
307,519
|
|
Notes to 2016
Nonqualified Deferred Compensation Table
(1)
|
Represents dividend equivalents which are not reflected as compensation for 2016 in the Summary Compensation Table.
|
Retirement Programs
Qualified Defined Contribution Plan
. The TPP is a defined contribution plan that the Company established to
encourage investment and savings for eligible Kennametal employees and employees of certain subsidiaries. Eligible employees may elect to contribute a portion of
their salary to the plans, and the Company may match 50% of employee contributions up to 6% of base salary. Matching contributions can be in the form of cash or Kennametal stock.
Beginning January 1, 2004, the Company: (a) makes a contribution to the employees TPP account in an amount equal to 3% of the
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|
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ANALYSIS OF RISK INHERENT IN OUR COMPENSATION POLICIES AND PRACTICES
employees eligible compensation (salary and, if applicable, bonus) (this contribution may be in the form of
Kennametal stock or cash); and (b) may make an annual discretionary cash contribution of up to 3% of eligible compensation based on the Companys overall performance for the fiscal year. The employee contributions, Company contributions
and earnings thereon are invested and ultimately paid out in accordance with elections made by the participant. See the Summary Compensation Table and accompanying notes for more information about Company contributions to the NEOs.
Non-Qualified Plans.
Our ERP, a non-qualified retirement plan,
provides a formula-based benefit to our NEOs that is payable on a lump sum basis. The amount of the benefit is based upon an executives accrued benefit percentage (which varies by age) and compensation (base salary together with Prime Bonus
target awards averaged for the three most recent fiscal years). ERP benefits vest once an executives accrued benefit percentage reaches 150%. If an executive terminates employment prior to reaching age 62, then the accrued benefit
percentage is reduced to reflect the accrued benefit percentage that was applicable to the executive two years prior to the date of termination.
|
|
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|
|
|
|
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. 2016 Proxy Statement
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|
| 69
|
EQUITY COMPENSATION PLANS
Equity Compensation Plans
Our equity compensation plans are summarized below. Grant practices and related information are
generally described in the CD&A section of this Proxy Statement.
Kennametal Inc. Stock and Incentive Plan of 2010 (as Amended
and Restated October 22, 2013 and as further amended January 27, 2015)
. The A/R 2010 Plan, a shareowner approved plan, provides for the granting of nonstatutory and incentive stock options, incentive bonus awards,
performance share awards, performance stock unit awards, restricted stock awards, restricted stock unit awards, stock appreciation rights, share awards, stock unit awards and other share-based awards. The aggregate number of shares available for
issuance under the A/R 2010 Plan as of June 30, 2016 was 5,146,559.
The Prior Stock Plans consist of the 2002 Plan, which
was a shareowner approved plan that provided for the granting of nonstatutory and incentive stock options and certain share awards. Although options and restricted stock units are outstanding under the 2002 Plan, no further awards may be made
under this plan.
The Performance Bonus Stock Plan of 1995, as amended and restated on December 30, 2008 (the Bonus Stock
Plan) provided for the issuance of not more than 1,500,000 shares. The Bonus Stock Plan permits certain persons (including management and/or senior executives of the Company or its subsidiaries) who participate in the Kennametal
Inc. Annual Incentive Plan, as amended, and certain other performance-based bonus compensation plans to (i) elect to receive shares of the Companys capital stock in lieu of all or any
portion of cash bonus compensation owed to such person; and/or (ii) elect to have stock credits, in lieu of all or any portion of cash bonus compensation owed to such person, credited to an account established for such person by the Company.
Although the Bonus Stock Plan allows for both options, the Company currently only offers participants the option to elect stock credits. Pursuant to the Bonus Stock Plan, the number of shares or stock credits to be distributed to a participant under
the Bonus Stock Plan is equal to the number of shares of the Companys capital stock that could have otherwise been purchased with the amount of cash bonus compensation that the participant elected to defer based on the fair market value of the
Companys capital stock on the date that the cash bonus compensation would have otherwise been paid to such person.
The Directors
Stock Incentive Plan, which is a non-shareowner approved plan, provides for the issuance of not more than 400,000 shares. The plan allows any non-employee director to elect to receive shares of our capital stock in lieu of all or a portion of
any Board or committee compensation that is otherwise payable to such non-employee director in any plan year or to receive stock credits for any Board or committee compensation that is deferred for any plan year pursuant to the Deferred Fee Plan.
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|
|
|
|
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. 2016 Proxy Statement
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|
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EQUITY COMPENSATION PLANS
The following table sets forth information about our equity
compensation plans as of June 30, 2016.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of Securities to
be Issued Upon Exercise of
Outstanding Options,
Warrants
and Rights
A(1)
|
|
|
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
B(2)
|
|
|
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column A)
C
|
|
Equity compensation plans approved by shareowners(3)
|
|
|
3,699,253
|
|
|
$
|
36.08
|
|
|
|
5,146,559
|
|
Equity compensation plans not approved by shareowners(4)
|
|
|
169,754
|
|
|
|
|
|
|
|
63,070
|
|
TOTAL
|
|
|
3,869,007
|
|
|
$
|
36.08
|
|
|
|
5,209,629
|
|
(1)
|
This column also includes stock credits issued under the Bonus Stock Plan and Directors Stock Incentive Plan, restricted stock units granted under the 2002 Plan and the 2010
Plan, performance stock units granted at target under the 2002 Plan and the 2010 Plan, which are then adjusted from target to units deemed earned based on the results of the annual performance period. For a description of the stock credits issued
under the Bonus Plan see
Equity Compensation Plans
above. For a description of the stock credits issued under the Directors Stock Incentive Plan, see
Equity Compensation Plans
above and
Board of
Directors Compensation and Benefits
Overview of Director Compensation
Directors Stock Incentive Plan.
For a description of the restricted stock units and performance stock units issued
under the 2002 Plan and the 2010 Plan, see the CD&A section of this Proxy Statement.
|
(2)
|
The calculations of the weighted average exercise prices shown in this column do not include stock credits issued under the Bonus Stock Plan or the Directors Stock Incentive
Plan, restricted stock units issued under the 2002 Plan and the 2010 Plan or performance stock units issued under the 2002 Plan and the 2010 Plan.
|
(3)
|
This row includes information related to (i) the 2002 Plan; (ii) the 2010 Plan; (iii) the A/R 2010 Plan; and (iv) the Bonus Stock Plan. As noted above, no
further grants may be made from the 2002 Plan. As of June 30, 2016, the number of securities available for future issuance under the A/R 2010 Plan, other than upon the exercise of options, warrants or rights was 5,016,141, of which 3,402,144
can be granted as full value awards. The number of shares available for future issuance under the Bonus Stock Plan is 130,418.
|
(4)
|
This row includes information related to the Directors Stock Incentive Plan. For a description of the Directors Stock Incentive Plan, see
Equity Compensation
Plans
above.
|
|
|
|
|
|
|
|
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. 2016 Proxy Statement
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|
| 71
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Potential Payments Upon Termination or
Change in
Control
In certain circumstances, our Officers Employment Agreement (the Employment
Agreement) provides for post-termination payments to our NEOs upon termination of employment and/or in the event of a change in control. The material provisions of the Employment Agreement are described in the CD&A section of this Proxy
Statement. Under the Employment Agreement, the amount a NEO would receive upon termination of his employment depends on the reason for his or her termination and whether the termination is in connection with a change in control. Our stock and
incentive plans and programs, and certain of our retirement plans also include change in control provisions. The following discussion explains the effects of termination, both within and outside of the context of a change in control, under the
Employment Agreement, our stock and incentive plans and programs, and our applicable retirement plans.
Termination of Employment Outside
of a Change in Control
Termination Provisions under the Employment Agreement
Select definitions
. The terms set forth below generally have the following meanings under the Employment Agreement
and as used in this discussion:
Change in Control means a change in control transaction 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 amended. Transactions that would be deemed a Change in Control include:
|
|
|
A merger with any other corporation or entity other than one in which we own all of the outstanding equity interests;
|
|
|
|
A sale of all or substantially all of our assets; and
|
|
|
|
The acquisition of 25% or more of the outstanding shares of Kennametal or the voting power of the outstanding voting securities of Kennametal together with or
|
|
|
followed by a change in our Boards composition such that a majority of the Boards members does not include those who were members at the date of the acquisition or members whose
election or nomination was approved by a majority of directors who were on the Board prior to the date of the acquisition.
|
Cause generally means that the executive: (a) is guilty of malfeasance, willful misconduct or gross negligence in the performance of his duties; or (b) has not made his
services available to Kennametal on a full-time basis; or (c) has breached the non-competition provisions of the Employment Agreement.
Date of Termination generally means: (a) if executives employment is terminated due to his death or retirement, the date of death or retirement, respectively; or (b) if
executives employment is terminated for any other reason, the date on which the termination becomes effective as stated in the written notice of termination given to or by the executive.
Good Reason generally means the occurrence of any of the following at or after a Change in Control: (a) a
material diminution of responsibilities or such executives reporting responsibilities, titles or offices, as in effect immediately prior to a Change in Control; (b) a material reduction in base salary as in effect immediately prior to any
Change in Control; (c) failure to provide comparable levels of incentive compensation; (d) a material reduction in benefit programs; (e) failure to obtain the assumption of the Employment Agreement by any successor Company;
(f) the relocation of the executive to a facility more than 50 miles from present location; or (g) any purported termination of the executive by Kennametal, which is not for Cause or as a result of the executives death.
Cash Severance
. We do not pay severance to any executive officer whose employment is terminated by us
for Cause or who voluntarily terminates his employment. If we terminate a NEOs employment prior to a
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|
|
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Change in Control and without Cause, the NEO becomes entitled to a continuation of base salary for
12 months as severance pay, in addition to all amounts due them at the Date of Termination (as defined in their employment agreement). Any severance pay will be paid in substantially equal installments, no less frequently than monthly, in
accordance with the Companys established payroll policies and practices as in effect on the Date of Termination on fixed payment dates following separation from service, and is conditioned upon the effectiveness of a general release of claims
by the executive.
|
|
|
Severance amounts are payable in accordance with our established payroll policies.
|
|
|
|
We may discontinue severance payments if we determine the executive has violated any provision of the Employment Agreement (including the three-year
non-competition provision).
|
|
|
|
Executives are not entitled to severance under any termination scenario other than a termination by us without Cause prior to a Change in Control.
|
Termination Provisions Under Our Equity Compensation Plans and Programs
We provide equity-based (LTI) and, in the past, have provided cash-based (Cash LTIP) long-term incentive awards for executives. (Please see the
discussion in the CD&A section of this Proxy Statement for further details of these programs.) LTI awards are granted under the A/R 2010 Plan; however, certain of our NEOs also have restricted stock or stock option awards that are outstanding
under the 2002 Plan and the 2010 Plan, before the A/R 2010 Plan was adopted.
2002 Plan The 2002 Plan does not
provide for additional benefits in the event of termination of employment except in the case of death, disability and retirement.
|
|
|
Stock Option Awards All options become fully vested and exercisable in full as of the date the awardees employment is terminated, with
such options being exercisable for a period the lesser of three years or the remaining original option term.
|
|
|
|
Restricted Stock Awards and Restricted Stock Unit Awards All unvested restricted shares and restricted stock units become fully vested and all
restrictions lapse as of the date of the awardees employment is terminated.
|
|
|
|
Performance Stock Unit Awards In the event an awardees employment is terminated during the performance period on account of death or
disability, the service condition applicable to such awards will be waived. For completed fiscal years, the awardee will be entitled to receive payment for any performance 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
performance stock units that were able to be earned for such fiscal year at the target level. In the event an awardees employment is terminated during the period between the end of the performance period and the payment date on account of
death or disability, the service condition applicable to the award will be waived and the awardee will be entitled to receive payment for any performance stock units that have been earned based on the achievement of the performance conditions prior
to the date of death or disability (as described in this section).
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|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
|
|
Stock Option Awards Unvested stock options continue to vest in accordance with their original vesting schedule for a two-year period following
termination, with such options being exercisable for a period following termination of the lesser of three years or the remaining original option term. Any remaining unvested stock options are forfeited after the expiration of the two-year period.
|
|
|
|
Restricted Stock Awards and Restricted Unit Awards All unvested restricted shares and restricted stock units become fully vested and all
restrictions lapse as of the date of the awardees employment is terminated.
|
|
|
|
Performance Stock Unit Awards In the event a retirement eligible awardees employment is terminated on account of retirement during the
performance period, the amount of a performance stock unit award to be paid, if any, will be determined as follows. For completed fiscal years, the awardee will be entitled to receive payment for any performance 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 termination occurs, the awardee will be entitled to receive a pro rata portion of the performance stock units that have been
earned based on the ratio of the number of months the awardee was employed during the performance period to the total number of months in the performance period. All other performance stock units granted under the award, including performance stock
units that could have been earned for fiscal years after the fiscal year in which the termination occurred, will be cancelled and forfeited without payment by the Company.
|
|
|
|
Non-Competition Provisions in the 2002 Plan:
Under the 2002 Plan, the right to exercise a stock option or vest in any restricted
shares or restricted stock units is conditioned on compliance with certain non-competition provisions during employment and for two years after employment ends. Further, if the NEO received or is entitled to the delivery or vesting of stock during
the last 12 months of employment or during the 24 months following termination, the Board of Directors may require the executive to forfeit the shares if it deems the executive engaged in Injurious Conduct (as defined in the plan
documents).
|
A/R 2010 Plan The A/R 2010 Plan does not provide for additional benefits in the
event of termination of employment except in the case of death, disability and retirement.
|
|
|
Stock Option Awards all options become fully vested and exercisable in full as of the date the awardees employment is terminated, with
such options being exercisable for a period the lesser of three years or the remaining original option term.
|
|
|
|
Restricted Stock Awards and Restricted Stock Unit Awards all unvested restricted shares and restricted stock units become fully vested and all
restrictions lapse as of the date of the awardees employment is terminated.
|
|
|
|
Performance Stock Unit Awards In the event an awardees employment is terminated during the performance period on account of death or
disability, the service condition applicable to such awards will be waived. For completed fiscal years, the awardee will be entitled to receive payment for any performance 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
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
|
been achieved at the target level and the awardee will be deemed to have earned for each such fiscal year a number of performance stock units that were able to be earned for such fiscal year
at the target level. In the event an awardees employment is terminated during the period between the end of the performance period and the payment date on account of death or disability, the service condition applicable to the award will be
waived and the awardee will be entitled to receive payment for any performance stock units that have been earned based on the achievement of the performance conditions prior to the date of death or disability (as described in this section).
|
|
|
|
Stock Option Awards all options become fully vested and exercisable in full as of the date the awardees employment is terminated, with
such options being exercisable for a period the lesser of three years or the remaining original option term.
|
|
|
|
Restricted Stock Awards and Restricted Stock Unit Awards all unvested restricted shares and restricted stock units become fully vested and all
restrictions lapse as of the date of the awardees employment is terminated.
|
|
|
|
Performance Stock Unit Awards In the event a retirement eligible awardees employment is terminated on account of retirement during the
performance period, the amount of a performance stock unit award to be paid, if any, will be determined as follows. For completed fiscal years, the awardee will be entitled to receive payment for any performance 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 termination occurs, the awardee will be entitled to receive a
|
|
|
pro rata portion of the performance stock units that have been earned based on the ratio of the number of complete months the awardee was employed during the performance period to the total
number of months in the performance period. All other performance units granted under the award, including performance stock units that could have been earned for fiscal years after the fiscal year in which the termination occurred, will be
cancelled and forfeited without payment by the Company.
|
|
|
|
Non-Competition Provisions in the A/R 2010 Plan:
Under the A/R 2010 Plan, the right to exercise a stock option or vest in any
restricted shares, restricted stock units or performance stock units is conditioned on compliance with certain non-competition provisions during employment and for two years after employment ends. Further, if the NEO received or is entitled to the
delivery or vesting of stock during the last 12 months of employment or during the 24 months following termination, the Board of Directors may require the executive to forfeit the shares if it deems the executive engaged in Injurious
Conduct (as defined in the plan documents).
|
Termination Provisions Under Certain of Our Retirement Plans
We maintain various retirement programs including the RIP, the TPP (a 401(k) plan) and the ERP. (Please see the discussion of
Retirement
Plans
in the CD&A section for additional details regarding these retirement programs.) Not all executive officers participate in each plan. There are no additional benefits provided to the NEOs in the event of a termination of
employment prior to a Change in Control. The right to receive benefits under the ERP are conditioned on certain non-competition and non-solicitation provisions applicable during employment and for the three-year period following termination. If the
Compensation Committee determines that a violation of the provisions has occurred and the violation is not corrected within the allotted time, the executive forfeits any right to future payments under the
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
ERP. The Committee is authorized to take legal action to recover benefits that have already been paid.
Termination of Employment In Connection with a Change in Control
Termination Provisions under the Employment Agreement Change in Control
Cash severance pay.
For Mr. De Feo, he does not receive any severance in the event of a Change in
Control. With regard to other NEOs, if an NEO employment is terminated upon a Change in Control or within three years after a Change in Control, either by the executive for Good Reason or by the employer other than for Cause or
disability, the executive will receive in cash as severance pay an amount equal to the product of:
(i)
the lesser of:
(x) 2 and eight tenths (2.8),
(y) a number equal to the number of calendar months remaining from the Date of Termination to the executives
retirement date (defined in the Employment Agreement), divided by twelve (12), or
(z) a number equal to the
product obtained by multiplying thirty-six (36) less the number of completed months after the date of the Change in Control during which the executive was employed and did not have Good Reason for termination, times one-twelfth (1/12)
times
(ii) the sum of (x) and (y) below:
(x) executives base
salary at the annual rate in effect on the Date of Termination (or, if greater, at the annual rate in effect on the first day of the calendar month immediately prior to Change in Control), plus
(y) the average of any bonuses which executive was entitled to or paid during the three most recent fiscal years ending
prior to the Date of Termination or, if the executive is employed for less than one year, the target bonus for the year in which the termination occurred.
Continuation of medical and welfare benefits
. For a three-year period
following the Date of Termination, each NEO other than Mr. De Feo will receive the same or equivalent medical, dental, disability and group insurance benefits that he or she received at the Date of Termination.
|
|
|
To the extent that the benefits cannot be provided by law or plan provision, the Company will make a payment to the executive equal to the difference between the
amounts that would have been paid under the programs and the amount paid, if any, by the executive.
|
Partial
excise tax gross-up
. The Company will provide a payment adjustment if, due to excise taxes imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, the executives net after-tax benefits are less
than intended under the cash severance component described above.
|
|
|
This calculation is determined by assessing the total after-tax value of all benefits provided upon a Change in Control. To the extent that the after-tax benefit
is less than the cash severance payment, an additional payment is made to the executive that will permit the executive to receive the full intended benefit of the cash severance pay, as determined on an after-tax basis.
|
Termination Provisions Under Our Equity Compensation Plans and Programs Change in Control
Equity-based and other cash-based long-term incentive awards.
The following provisions apply to previously granted
and outstanding awards in the event of a Change in Control.
2002 Plan Unless the Board determines otherwise by
resolution prior to a Change in Control, in the event of a Change in Control, all options will become exercisable in full immediately prior to the Change in Control and all restricted shares, restricted stock units, performance stock units and Cash
LTIP awards will become immediately vested and all restrictions on those awards will lapse immediately prior to the Change in Control. In
|
|
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|
76 |
|
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K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
addition, all options held by an employee who is terminated for any reason during the two years following a Change in
Control will immediately vest in full and may be exercised at any time within the three-month period following the date of termination (regardless of the expiration date of the option). Similarly, all restricted shares, restricted stock units,
performance stock units and Cash LTIP awards held by an employee who is terminated for any reason during the two years following a Change in Control will automatically vest and all restrictions will lapse.
2010 Plan and A/R 2010 Plan Unless the Board determines otherwise by resolution, in the event of a Change in Control, all
options will become exercisable in full immediately prior to the Change in Control and all restricted shares, restricted stock units, performance stock units and Cash LTIP awards will become immediately vested and all restrictions on those awards
will lapse immediately prior to the Change in Control. For completed fiscal years, the awardee will be entitled to receive payment for any performance 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 such fiscal year a number of performance stock
units that were able to be earned for such fiscal year at the target level. In addition, all options held by an executive who is terminated for any reason during the two years following a Change in Control will immediately vest in full and may be
exercised at any time within the three-month period following the date of termination (regardless of the expiration date of the option). Similarly, all restricted shares, restricted stock units, performance stock units and Cash LTIP awards held by
an employee who is terminated for any reason during the two years following a Change in Control will automatically vest and all restrictions will lapse.
A/R 2010 Plan, as amended by Amendment No. 1 dated January 27, 2015 The Compensation Committee believed it to be in the best interests of the Company to implement a double-trigger
for LTIP awards made on or after January 27, 2015. Therefore, in order for restricted shares, restricted stock units,
performance stock units and cash LTIP awards held by an employee who is terminated to automatically vest and all restriction to lapse, a change in control must take place
and
an executive
must be involuntarily terminated by us or our successor (other than for cause, death, Disability or a voluntary termination by the employee for good reason) within 6 months prior to a change in control or within 2 years
following a Change in Control. For additional information concerning the change in control arrangements for our NEOs, see the
Potential Payments upon Termination or Change in Control
section of this Proxy Statement.
Termination Provisions Under Our Retirement Plans Change in Control
In the event of a Change in Control, each executive who is an employee at the time of a Change in Control will become 100% vested in the ERP (to
the extent such executives benefits have not already vested); provided, however, that with or without a change in control, such amount would be reduced by a forfeiture of the last 24 months of credited service for a termination of employment
prior to age 62. Receipt of the ERP benefits are conditioned upon compliance with the non-competition and non-solicitation provisions described above. However, under the ERP, if a participants employment is terminated (other than in connection
with death or disability, and regardless of whether a Change in Control has occurred) prior to attainment of age 62, then the ERP provides that the participant will forfeit the last 24 months of credited service under the ERP. Similar to the A/R
Plan amendment made on January 27, 2015, the Compensation Committee also amended the ERP to implement a double-trigger for benefits awarded on or after January 27, 2015. Therefore, in order for ERP benefits to automatically
vest and all restrictions to lapse, a change in control must take place
and
an executive must be involuntarily terminated by us or our successor (other than for cause, death, Disability or a voluntary termination by the employee
for good reason) within 6 months prior to a change in control or within 2 years following a Change in Control.
A
Change in Control will not impact any rights of any executive under the TPP.
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 77
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following tables detail the incremental payments and benefits
(above those already disclosed in this Proxy Statement) to which the NEOs would have been entitled under each termination of employment and change in control scenario, assuming the triggering event occurred on June 30, 2016. In addition, the
actual amounts that may be payable to any other named executive officer on a separation from the Company can only be determined at the time of the actual separation and may differ from the amounts set forth in the tables below based on various
factors. Please also see the footnotes to the tables below for additional information. The relevant information with respect to Mr. Nolans termination of employment is set forth separately in a narrative following the tables, as he was
not employed by us on June 30, 2016. Also, fiscal year 2016 amounts earned by Mr. Nolan prior to his separation from service and amounts paid or payable in connection with his cessation of employment with the Company are included in the Summary
Compensation Table, 2016 Grants of Plan Based Awards Table, 2016 Outstanding Equity Awards Table, 2016 Option Exercises and Stock Vested Table, 2016 Pension Benefits Table, and the related discussion above, including the CD&A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald M. De Feo
|
|
Non-Change in Control
|
|
|
Change in Control
|
|
Named Executive Officer
Payments and Benefits
|
|
Involuntary
Not For Cause
Termination of
Employment
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Involuntary
Not for Cause
Termination of
Employment by
Company or by
Executive for
Good Reason
|
|
|
Without
Termination of
Employment
|
|
Severance(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Stock Options (CEO Grant Unvested)(2)
|
|
$
|
396,445
|
|
|
$
|
396,445
|
|
|
$
|
396,445
|
|
|
$
|
396,445
|
|
|
$
|
396,445
|
|
|
$
|
396,445
|
|
Stock Options (BOD Grant Unvested)(8)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted Units (CEO Grant Unvested)(3)
|
|
$
|
648,862
|
|
|
$
|
648,862
|
|
|
$
|
648,862
|
|
|
$
|
648,862
|
|
|
$
|
648,862
|
|
|
$
|
648,862
|
|
Restricted Units (BOD Grant Unvested)(3)
|
|
$
|
|
|
|
$
|
48,465
|
|
|
$
|
48,465
|
|
|
$
|
|
|
|
$
|
48,465
|
|
|
$
|
48,465
|
|
Performance Units
(Unvested)(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
ERP(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Health & Welfare Benefits Continuation(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Life Insurance Proceeds(6)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subtotals
|
|
$
|
1,045,307
|
|
|
$
|
1,093,772
|
|
|
$
|
1,093,772
|
|
|
$
|
1,045,307
|
|
|
$
|
1,093,772
|
|
|
$
|
1,093,772
|
|
Excise Tax and Gross-up(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Totals
|
|
$
|
1,045,307
|
|
|
$
|
1,093,772
|
|
|
$
|
1,093,772
|
|
|
$
|
1,045,307
|
|
|
$
|
1,093,772
|
|
|
$
|
1,093,772
|
|
|
|
|
|
|
78 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan Kees van Gaalen
|
|
Non-Change in Control
|
|
|
Change in Control
|
|
Named Executive Officer
Payments and Benefits
|
|
Involuntary
Not For Cause
Termination of
Employment
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Involuntary
Not for Cause
Termination of
Employment by
Company or by
Executive for
Good Reason
|
|
|
Without
Termination of
Employment
|
|
Severance(1)
|
|
$
|
540,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,101,711
|
|
|
$
|
|
|
Stock Options (Unvested)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
313,365
|
|
|
$
|
313,365
|
|
|
$
|
|
|
|
$
|
313,365
|
|
|
$
|
|
|
Performance Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
281,527
|
|
|
$
|
281,527
|
|
|
$
|
|
|
|
$
|
281,527
|
|
|
$
|
|
|
ERP(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
285,120
|
|
Health & Welfare Benefits Continuation(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,638
|
|
|
$
|
|
|
Life Insurance Proceeds(6)
|
|
$
|
|
|
|
$
|
1,080,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subtotals
|
|
$
|
540,000
|
|
|
$
|
1,674,892
|
|
|
$
|
594,892
|
|
|
$
|
|
|
|
$
|
2,746,241
|
|
|
$
|
285,120
|
|
Excise Tax and Gross-up(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Totals
|
|
$
|
540,000
|
|
|
$
|
1,674,892
|
|
|
$
|
594,892
|
|
|
$
|
|
|
|
$
|
2,746,241
|
|
|
$
|
285,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judith L. Bacchus
|
|
Non-Change in Control
|
|
|
Change in Control
|
|
Named Executive Officer
Payments and Benefits
|
|
Involuntary
Not For Cause
Termination of
Employment
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Involuntary
Not for Cause
Termination of
Employment by
Company or
by
Executive for
Good Reason
|
|
|
Without
Termination of
Employment
|
|
Severance(1)
|
|
$
|
331,448
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,062,542
|
|
|
$
|
|
|
Stock Options (Unvested)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
550,008
|
|
|
$
|
550,008
|
|
|
$
|
|
|
|
$
|
550,008
|
|
|
$
|
192,644
|
|
Performance Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
235,184
|
|
|
$
|
235,184
|
|
|
$
|
|
|
|
$
|
235,184
|
|
|
$
|
73,317
|
|
ERP(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
310,452
|
|
|
$
|
545,145
|
|
Health & Welfare Benefits Continuation(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,268
|
|
|
$
|
|
|
Life Insurance Proceeds(6)
|
|
$
|
|
|
|
$
|
650,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subtotals
|
|
$
|
331,448
|
|
|
$
|
1,435,192
|
|
|
$
|
785,192
|
|
|
$
|
|
|
|
$
|
2,179,454
|
|
|
$
|
811,106
|
|
Excise Tax and Gross-up(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Totals
|
|
$
|
331,448
|
|
|
$
|
1,435,192
|
|
|
$
|
785,192
|
|
|
$
|
|
|
|
$
|
2,179,454
|
|
|
$
|
811,106
|
|
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 79
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M. Byrnes
|
|
Non-Change in Control
|
|
|
Change in Control
|
|
Named Executive Officer
Payments and Benefits
|
|
Involuntary
Not For Cause
Termination of
Employment
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Involuntary
Not for Cause
Termination of
Employment by
Company or
by
Executive for
Good Reason
|
|
|
Without
Termination of
Employment
|
|
Severance(1)
|
|
$
|
395,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,543,976
|
|
|
$
|
|
|
Stock Options (Unvested)(2)
|
|
$
|
|
|
|
$
|
99,358
|
|
|
$
|
99,358
|
|
|
$
|
|
|
|
$
|
99,358
|
|
|
$
|
|
|
Restricted Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
368,994
|
|
|
$
|
368,994
|
|
|
$
|
|
|
|
$
|
368,994
|
|
|
$
|
|
|
Performance Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
ERP(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
68,104
|
|
Health & Welfare Benefits Continuation(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,729
|
|
|
$
|
|
|
Life Insurance Proceeds(6)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subtotals
|
|
$
|
395,000
|
|
|
$
|
468,352
|
|
|
$
|
468,352
|
|
|
$
|
|
|
|
$
|
2,032,057
|
|
|
$
|
68,104
|
|
Excise Tax and Gross-up(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Totals
|
|
$
|
395,000
|
|
|
$
|
468,352
|
|
|
$
|
468,352
|
|
|
$
|
|
|
|
$
|
2,032,057
|
|
|
$
|
68,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter A. Dragich
|
|
Non-Change in Control
|
|
|
Change in Control
|
|
Named Executive Officer
Payments and Benefits
|
|
Involuntary
Not For Cause
Termination of
Employment
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Involuntary
Not for Cause
Termination of
Employment by
Company or
by
Executive for
Good Reason
|
|
|
Without
Termination of
Employment
|
|
Severance(1)
|
|
$
|
420,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,293,488
|
|
|
$
|
|
|
Stock Options (Unvested)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
317,787
|
|
|
$
|
317,787
|
|
|
$
|
|
|
|
$
|
317,787
|
|
|
$
|
198,504
|
|
Performance Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
284,909
|
|
|
$
|
284,909
|
|
|
$
|
|
|
|
$
|
284,909
|
|
|
$
|
76,191
|
|
ERP(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175,419
|
|
|
$
|
456,091
|
|
Health & Welfare Benefits Continuation(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
62,068
|
|
|
$
|
|
|
Life Insurance Proceeds(6)
|
|
$
|
|
|
|
$
|
650,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subtotals
|
|
$
|
420,000
|
|
|
$
|
1,252,696
|
|
|
$
|
602,696
|
|
|
$
|
|
|
|
$
|
2,133,671
|
|
|
$
|
730,786
|
|
Excise Tax and Gross-up(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Totals
|
|
$
|
420,000
|
|
|
$
|
1,252,696
|
|
|
$
|
602,696
|
|
|
$
|
|
|
|
$
|
2,133,671
|
|
|
$
|
730,786
|
|
|
|
|
|
|
80 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martha Fusco
|
|
Non-Change in Control
|
|
|
Change in Control
|
|
Named Executive Officer
Payments and Benefits
|
|
Involuntary
Not For Cause
Termination of
Employment
|
|
|
Death
|
|
|
Disability
|
|
|
Retirement
|
|
|
Involuntary
Not for Cause
Termination of
Employment by
Company or
by
Executive for
Good Reason
|
|
|
Without
Termination of
Employment
|
|
Severance(1)
|
|
$
|
240,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
740,062
|
|
|
$
|
|
|
Stock Options (Unvested)(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
451,619
|
|
|
$
|
451,619
|
|
|
$
|
|
|
|
$
|
451,619
|
|
|
$
|
61,112
|
|
Performance Units (Unvested)(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
ERP(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175,142
|
|
|
$
|
251,570
|
|
Health & Welfare Benefits Continuation(5)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
49,951
|
|
|
$
|
|
|
Life Insurance Proceeds(6)
|
|
$
|
|
|
|
$
|
500,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subtotals
|
|
$
|
240,000
|
|
|
$
|
951,619
|
|
|
$
|
451,619
|
|
|
$
|
|
|
|
$
|
1,416,774
|
|
|
$
|
312,682
|
|
Excise Tax and Gross-up(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Totals
|
|
$
|
240,000
|
|
|
$
|
951,619
|
|
|
$
|
451,619
|
|
|
$
|
|
|
|
$
|
1,416,774
|
|
|
$
|
312,682
|
|
Footnotes to
Potential Payments upon Termination or Change In Control Tables
(1)
|
Prior to a Change in Control, upon an involuntary, not for Cause termination, each named executive other than Mr. De Feo is assumed to receive the maximum severance
payable under the provisions of his Employment Agreement (base salary for 12 months for each other named executive).
|
For
purposes of these calculations, upon an involuntary termination, other than for Cause or disability, following a Change in Control, or termination by the named executive for Good Reason following a Change in Control, each named executive other than
Mr. De Feo is assumed to receive the maximum severance payable under the provisions of his Employment Agreement calculated by multiplying (i) 2 and eight tenths (2.8), by (ii) the sum of (x) the executives base salary at the annual rate in
effect on the Date of Termination (or, if greater, at the annual rate in effect on the first day of the calendar month immediately prior to Change in Control), plus (y) the average of any bonuses which executive was entitled to or paid during the
three most recent fiscal years ending prior to the Date of Termination.
Other than Mr. De Feo, each named executives Employment
Agreement provides that certain severance payments will be cut back to amounts that do not exceed each named executive officers respective safe harbor limit, as defined under the golden parachute rules of Internal Revenue Code Section 280G.
(2)
|
The amounts shown for each named executive represent for each of their stock options outstanding as of June 30, 2016 (all of which would have become fully vested and
exercisable), the difference between the fair market value of the Companys stock on June 30, 2016 (the last business day of Fiscal 2016) and the exercise price for such option set at the date of grant multiplied by the number of shares
underlying such option.
|
At June 30, 2016, Messrs. van Gaalen, Byrnes and Dragich, and Ms. Fusco and Ms. Bacchus were
not retirement eligible under the 2010 Plan and therefore would not have received accelerated vesting of their stock options upon retirement. Upon a termination of employment other than for cause Mr. De Feos stock options
will continue to vest upon scheduled vesting dates.
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 81
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
(3)
|
The amounts shown for each named executive officer represent for each restricted unit award and each performance unit award that would have been subject to accelerated vesting,
the fair market value of the Companys stock on June 30, 2016 (the last business day of Fiscal 2016) multiplied by the number of shares that would have vested under each such award. With respect to the performance units outstanding (for
which the applicable performance period had not been completed as of June 30, 2016), the number of shares reported represents the full number of performance units that were able to be earned for such fiscal year at the target level.
|
|
At June 30, 2016, Messrs. van Gaalen, Byrnes and Dragich, and Ms. Fusco and Ms. Bacchus were not retirement eligible under the 2010 Plan and therefore would not have received
accelerated vesting of their restricted stock unit awards or their performance stock awards upon retirement. Upon a termination of employment other than for cause Mr. De Feos restricted unit awards will continue to vest upon
scheduled vesting dates.
|
(4)
|
Upon a Change in Control, accrued benefits under the ERP will vest (to the extent not already vested).
|
|
Under the ERP, if a participants employment is terminated (other than in connection with death or disability, and regardless of whether a Change in Control has occurred)
prior to attainment of age 62, then the ERP provides that the participant will forfeit the last 24 months of credited service under the ERP.
|
(5)
|
These benefits consist of continued medical, dental, group term life, long term disability benefits, and accidental death and dismemberment for three (3) years upon involuntary,
not for Cause termination or upon termination by the executive for Good Reason in connection with a change in control, as provided under the terms of the executive employment agreements.
|
(6)
|
The company secures a life insurance policy for executive officers payable to the executives beneficiary upon the executives death.
|
(7)
|
These payments are only payable in the event that payments to the executive following a Change in Control result in excess parachute payments under IRC Section 280G. The
Employment Agreement provides that any excise tax and gross up payments will equal only that amount required to assure that the executive receives payment at least equal to the expected severance payment without the executive incurring golden
parachute excise tax out of pocket. The estimated calculations incorporate the following tax rates: IRC Section 4999 excise tax rate of 20 percent, a statutory 39.6 percent federal income tax rate, a 2.35 percent Medicare tax rate and a 3.07
percent state income tax rate. Due to the variables inherent in the golden parachute excise tax calculation, actual payment amounts may differ.
|
(8)
|
For Mr. De Feo, these amounts reflect Stock Options and Restricted Stock Units received while he was an Independent Director before 2016, which vest in equal annual installments
over three years on the anniversary of the date of grant and which vest if a Directors service is terminated following a Change in Control.
|
Separation Arrangements with Mr. Nolan
On February 3, 2016, Mr. Nolans employment with the Company terminated. The Company entered into a separation agreement with Mr. Nolan
with respect to the terms of his separation from service. The agreement provided that Mr. Nolan would receive the benefits to which he was contractually entitled under the terms of the Officers Employment Agreement on a termination other than for
cause, medical benefit continuation through December 31, 2016 and the cost of additional medical premiums through February 3, 2017. Mr. Nolans contractual arrangements
include a severance payment of $918,000, pursuant to the Officers Employment Agreement, which is paid in installments over a one-year period, continued medical benefits through December 31, 2016
under the Companys group medical coverage, and payment for the costs of additional medical premiums through February 3, 2017. Mr. Nolan retained the rights to stock options, restricted stock units and performance stock units that had
already vested as of the date of his termination of employment, but all unvested stock options, restricted stock units and performance stock units as of the date of his termination of employment were forfeited.
|
|
|
|
|
82 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
PROPOSAL III. NON-BINDING (ADVISORY) VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANYS
NAMED EXECUTIVE OFFICERS
Proposal III.
Non-Binding (Advisory) Vote to Approve the Compensation Paid to the Companys Named Executive Officers
Our shareowners have the opportunity to vote to approve on a non-binding, advisory basis, the
compensation paid to our named executive officers as disclosed in the Compensation Discussion and Analysis and the Executive Compensation section of this Proxy Statement, as required by Section 14A of the Exchange Act. This Say on
Pay vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and our compensation philosophy, policies and practices as disclosed in this Proxy Statement pursuant to the compensation
disclosure rules of the SEC, including the CD&A and the compensation tables and narrative included in the Executive Compensation section of this Proxy Statement.
At our 2011 annual meeting of shareowners, the Company held an advisory (non-binding) vote to determine the frequency of future Say on Pay votes. Based on the voting results for this proposal at the 2011 annual
meeting, the Board determined that the Say on Pay vote will be conducted annually until the next advisory vote is held to determine the frequency of the Say on Pay vote, which will occur no later than our 2017 annual meeting of shareowners.
We believe that our CD&A and other compensation disclosures included in this Proxy Statement evidence a sound and prudent
compensation philosophy and set of policies and practices and that our compensation decisions
are consistent with our Pay for Performance philosophy and related policies and practices. We also believe that the Companys compensation programs effectively align the
interests of our executive officers with those of our shareowners by tying a significant portion of our executives compensation to the Companys performance and by providing a competitive level of compensation needed to recruit, retain
and motivate talented executives critical to the Companys long-term success.
For the foregoing reasons, we are asking our
shareowners to indicate their approval, on an advisory basis, of the compensation paid to our NEOs as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the CD&A and the compensation tables and
narrative following the CD&A. While this vote is non-binding, the Company values the opinions of its shareowners and will consider the outcome of the vote when making future decisions concerning executive compensation.
The compensation paid to our named executive officers, as disclosed in this Proxy Statement, will be approved (on a non-binding advisory basis) if
the proposal receives the affirmative vote of at least a majority of the votes cast by shareowners present, in person or by proxy, at the meeting. Abstentions and broker non-votes will not be counted as votes cast either for or against the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR (ON A NON-BINDING, ADVISORY BASIS) THE COMPENSATION PAID TO THE
COMPANYS NAMED EXECUTIVE OFFICERS.
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 83
|
OWNERSHIP OF CAPITAL STOCK BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Ownership of Capital Stock by Directors, Nominees and
Executive Officers
The following table sets forth beneficial ownership information as of August 15, 2016 for our directors,
nominees, NEOs and all directors and executive officers as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Total Beneficial
Ownership of
Common
Stock(1)(2)
|
|
|
Stock
Credits(3)
|
|
|
Performance
Unit
Awards(4)
|
|
|
Restricted
Units(5)
|
|
|
Total
Ownership
of
Common
Stock(6)
|
|
Cindy L. Davis
|
|
|
33,310
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,967
|
|
|
|
39,277
|
|
Ronald M. De Feo
|
|
|
119,581
|
|
|
|
13,909
|
|
|
|
0
|
|
|
|
30,506
|
|
|
|
163,996
|
|
Philip A. Dur
|
|
|
64,023
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,967
|
|
|
|
69,990
|
|
William J. Harvey
|
|
|
49,595
|
|
|
|
2,315
|
|
|
|
0
|
|
|
|
5,967
|
|
|
|
57,877
|
|
Timothy R. McLevish
|
|
|
126,289
|
|
|
|
18,589
|
|
|
|
0
|
|
|
|
0
|
|
|
|
144,878
|
|
William R. Newlin
|
|
|
84,981
|
(7)
|
|
|
108,615
|
|
|
|
0
|
|
|
|
0
|
|
|
|
193,596
|
|
William M. Lambert
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,808
|
|
|
|
4,808
|
|
Sagar A. Patel
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Lawrence W. Stranghoener
|
|
|
75,467
|
|
|
|
46,181
|
|
|
|
0
|
|
|
|
0
|
|
|
|
121,648
|
|
Steven H. Wunning
|
|
|
82,125
|
|
|
|
12,044
|
|
|
|
0
|
|
|
|
5,967
|
|
|
|
100,136
|
|
Donald A. Nolan
|
|
|
1,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,000
|
|
Martha Fusco
|
|
|
35,511
|
|
|
|
0
|
|
|
|
0
|
|
|
|
17,434
|
|
|
|
52,945
|
|
Judith L. Bacchus
|
|
|
42,722
|
|
|
|
0
|
|
|
|
9,728
|
|
|
|
22,212
|
|
|
|
74,662
|
|
Charles M. Byrnes
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16,689
|
|
|
|
16,689
|
|
Peter A. Dragich
|
|
|
30,459
|
|
|
|
0
|
|
|
|
11,849
|
|
|
|
11,658
|
|
|
|
53,966
|
|
Jan Kees van Gaalen
|
|
|
0
|
|
|
|
0
|
|
|
|
12,733
|
|
|
|
14,173
|
|
|
|
26,906
|
|
Directors and Executive Officers as a Group
(22 persons)
|
|
|
1,048,293
|
|
|
|
201,653
|
|
|
|
63,359
|
|
|
|
197,145
|
|
|
|
1,510,450
|
|
(1)
|
No individual beneficially owns in excess of one percent of the total shares outstanding. Directors and executive officers as a group beneficially owned 3% of the total shares
outstanding as of August 15, 2016. Unless otherwise noted, the shares shown are subject to the sole voting and investment power of the person named.
|
(2)
|
In accordance with SEC rules, this column also includes shares that may be acquired pursuant to stock options that are or will become exercisable within 60 days of
August 15, 2016 as follows: Mr. De Feo, 55,999 shares; Mr. Dur, 48,999 shares; Mr. Harvey, 41,999 shares; Mr. McLevish, 55,999 shares; Mr. Newlin, 67,326 shares; Mr. Stranghoener, 55,999 shares;
Mr. Wunning, 55,999 shares; Ms. Davis, 27,999; Ms. Bacchus, 31,788; Ms. Fusco; 22,587 and Mr. Dragich, 22,065 shares.
|
(3)
|
This column represents shares of common stock to which the individuals are entitled pursuant to their election to defer fees or bonuses as stock credits under the Directors Stock
Incentive Plan, the Prime Bonus Plan or its predecessor, the Performance Bonus Stock Plan, the 2002 Plan, the 2010 Plan, or the A/R 2010 Plan.
|
(4)
|
This column represents FY15/FY16 performance stock units that have been deemed earned by the Compensation Committee, but remain subject to the continued service
condition of such awards. Holders of these performance stock units have neither voting power nor investment power over these units, so they are not included in the Total Beneficial Ownership amounts included in the table. We show them
because we include them in ownership calculations for internal purposes and
|
|
|
|
|
|
84 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
OWNERSHIP OF CAPITAL STOCK BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
|
they count towards the satisfaction of ownership requirements under our Stock Ownership Guidelines.
|
(5)
|
This column represents restricted stock units that were awarded to executives and directors under the 2002 Plan, the 2010 Plan and the A/R 2010 Plan. Holders of restricted stock
units have neither voting power nor investment power over these units, so they are not included in the Total Beneficial Ownership amounts included in the table. We show them because we include them in ownership calculations for internal
purposes and they count towards the satisfaction of ownership requirements under our Stock Ownership Guidelines.
|
(6)
|
This column includes the shares reported in the Total Beneficial Ownership column, as well as the stock credits, performance stock unit awards and the restricted
stock units columns. These numbers (excluding the options that will become exercisable within 60 days which are included in the Total Beneficial Ownership amounts included in the table) are used for purposes of determining compliance
with our Stock Ownership Guidelines.
|
(7)
|
Of this amount, 52,140 shares are pledged as collateral for a loan. These pledged shares are jointly held with Mr. Newlins wife (over which he and his wife exercise
shared voting and investment power).
|
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| 85
|
OTHER MATTERS
Other Matters
Section 16(a) Beneficial Ownership Reporting Compliance
Under Securities and Exchange Commission rules, our directors, executive officers and owners of more than 10% of our stock are required to file
with the SEC reports of holdings and changes in beneficial ownership of Kennametal stock on Forms 3, 4 and 5. SEC regulations also require our directors, executive
officers and greater than ten percent (10%) shareowners to furnish us with copies of all Forms 3, 4 and 5 they file. We routinely provide information and support to our directors and
executive officers to assist with the preparation of Forms 4. We have reviewed copies of reports provided to us, as well as other records and information. Based on that review, we concluded that all reports were timely filed for 2016.
|
|
|
|
|
100 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
Appendix A
Adjusted EPS, FOCF and Adjusted ROIC Reconciliations
Adjusted Diluted Earnings per Share
Diluted (loss) earnings per share have been presented on
an adjusted basis. Detail of these adjustments is included in the reconciliation following these definitions. Management adjusts for these items in measuring and compensating internal performance to more readily compare the Companys financial
performance period-to-period.
Free Operating Cash Flow
Free operating cash flow (FOCF) is a non-GAAP financial measure and is defined by the Company as cash provided by operations (which is the most directly comparable GAAP measure) less capital expenditures, plus
proceeds from disposals of fixed assets. Management considers FOCF to be an important indicator of Kennametals cash generating capability because it better represents cash generated from operations that can be used for dividends, debt
repayment, strategic initiatives, and other investing and financing activities.
Adjusted Return on Invested Capital
Adjusted Return on Invested Capital is a non-GAAP financial measure and is defined by the Company as the previous twelve months net income,
adjusted for interest expense, non-controlling interest and special items, divided by the sum of the previous 5 quarters average balances of debt and total equity. The most directly comparable GAAP measure is return on invested capital
calculated utilizing GAAP net income. Management believes that adjusted return on invested capital provides additional insight into the underlying capital structure and performance of the Company. Management utilizes this non-GAAP measure in
determining compensation and assessing the operations of the Company.
|
|
|
|
|
|
|
|
|
DILUTED (LOSS) EARNINGS PER SHARE (Unaudited)
Year ended June 30
|
|
2016
|
|
|
2015
|
|
Reported Results
|
|
$
|
(2.83
|
)
|
|
$
|
(4.71
|
)
|
Restructuring and related charges
|
|
|
0.50
|
|
|
|
0.56
|
|
Goodwill and other intangible asset impairment charges
|
|
|
0.96
|
|
|
|
6.13
|
|
Operations of divested businesses
|
|
|
0.02
|
|
|
|
(0.02
|
)
|
Fixed asset disposal charges
|
|
|
0.05
|
|
|
|
|
|
U.S. deferred tax valuation allowance
|
|
|
1.02
|
|
|
|
|
|
Loss on divestiture and related charges
|
|
|
1.39
|
|
|
|
|
|
Tax expense on cash redeployment
|
|
|
|
|
|
|
0.04
|
|
Adjusted Results
|
|
$
|
1.11
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
FREE OPERATING CASH FLOW (UNAUDITED)
Year ended June 30 (in thousands)
|
|
2016
|
|
|
2015
|
|
Net cash flow provided by operating activities
|
|
$
|
219,322
|
|
|
$
|
351,437
|
|
Purchases of property, plant and equipment
|
|
|
(110,697
|
)
|
|
|
(100,939
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
5,978
|
|
|
|
16,122
|
|
Free operating cash flow
|
|
$
|
114,603
|
|
|
$
|
266,620
|
|
|
|
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| A-1
|
RETURN ON INVESTED CAPITAL (UNAUDITED)
June 30, 2016 (in thousands, except percents)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested Capital
|
|
6/30/2016
|
|
|
3/31/2016
|
|
|
12/31/2015
|
|
|
9/30/2015
|
|
|
6/30/2015
|
|
|
Average
|
|
Debt
|
|
$
|
701,453
|
|
|
$
|
703,890
|
|
|
$
|
706,653
|
|
|
$
|
750,833
|
|
|
$
|
751,587
|
|
|
$
|
722,883
|
|
Total equity
|
|
|
995,801
|
|
|
|
1,174,811
|
|
|
|
1,154,277
|
|
|
|
1,339,089
|
|
|
|
1,375,435
|
|
|
|
1,207,883
|
|
Total
|
|
$
|
1,697,254
|
|
|
$
|
1,878,701
|
|
|
$
|
1,860,930
|
|
|
$
|
2,089,922
|
|
|
$
|
2,127,022
|
|
|
$
|
1,930,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Interest Expense
|
|
6/30/2016
|
|
|
3/31/2016
|
|
|
12/31/2015
|
|
|
9/30/2015
|
|
|
Total
|
|
Interest expense
|
|
$
|
6,857
|
|
|
$
|
7,113
|
|
|
$
|
6,803
|
|
|
$
|
6,979
|
|
|
$
|
27,752
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income
|
|
6/30/2016
|
|
|
3/31/2016
|
|
|
12/31/2015
|
|
|
9/30/2015
|
|
|
Total
|
|
Net (loss) income attributable to Kennametal, as reported
|
|
$
|
(66,515
|
)
|
|
$
|
16,000
|
|
|
$
|
(169,227
|
)
|
|
$
|
(6,226
|
)
|
|
$
|
(225,968
|
)
|
Restructuring and related charges
|
|
|
8,244
|
|
|
|
14,242
|
|
|
|
6,393
|
|
|
|
11,154
|
|
|
|
40,033
|
|
Goodwill and other intangible asset impairment charges
|
|
|
(4,411
|
)
|
|
|
1,251
|
|
|
|
78,239
|
|
|
|
|
|
|
|
75,079
|
|
Fixed asset disposal charges
|
|
|
3,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,657
|
|
Loss on divestiture and related charges
|
|
|
12,977
|
|
|
|
(1,902
|
)
|
|
|
96,167
|
|
|
|
6,368
|
|
|
|
113,610
|
|
U.S. deferred tax valuation allowance
|
|
|
81,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,206
|
|
Operations of divested businesses
|
|
|
|
|
|
|
|
|
|
|
1,102
|
|
|
|
256
|
|
|
|
1,358
|
|
Noncontrolling interest
|
|
|
451
|
|
|
|
695
|
|
|
|
416
|
|
|
|
522
|
|
|
|
2,084
|
|
Total income, adjusted
|
|
$
|
35,609
|
|
|
$
|
30,286
|
|
|
$
|
13,090
|
|
|
$
|
12,074
|
|
|
$
|
91,059
|
|
|
|
|
|
|
|
Total interest expense, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,323
|
|
Average invested capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,930,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Return on Invested Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on invested capital calculated utilizing net income, as reported is as follows:
|
|
|
|
|
Net income attributable to Kennametal, as reported
|
|
$
|
(225,968
|
)
|
Total interest expense, net of tax
|
|
|
24,264
|
|
|
|
$
|
(201,704
|
)
|
Average invested capital
|
|
$
|
1,930,766
|
|
Return on Invested Capital
|
|
|
-10.4%
|
|
|
|
|
|
|
|
|
|
|
|
A-2 |
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
|
RETURN ON INVESTED CAPITAL (UNAUDITED)
June 30, 2015 (in thousands, except percents)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested Capital
|
|
6/30/2015
|
|
|
3/31/2015
|
|
|
12/31/2014
|
|
|
9/30/2014
|
|
|
6/30/2014
|
|
|
Average
|
|
Debt
|
|
$
|
751,587
|
|
|
$
|
903,758
|
|
|
$
|
962,616
|
|
|
$
|
1,015,863
|
|
|
$
|
1,061,783
|
|
|
$
|
939,121
|
|
Total equity
|
|
|
1,375,435
|
|
|
|
1,401,859
|
|
|
|
1,530,587
|
|
|
|
1,954,254
|
|
|
|
1,961,608
|
|
|
|
1,644,749
|
|
Total
|
|
$
|
2,127,022
|
|
|
$
|
2,305,617
|
|
|
$
|
2,493,203
|
|
|
$
|
2,970,117
|
|
|
$
|
3,023,391
|
|
|
$
|
2,583,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Interest Expense
|
|
6/30/2015
|
|
|
3/31/2015
|
|
|
12/31/2014
|
|
|
9/30/2014
|
|
|
Total
|
|
Interest expense
|
|
$
|
7,537
|
|
|
$
|
7,760
|
|
|
$
|
7,960
|
|
|
$
|
8,209
|
|
|
$
|
31,466
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income
|
|
6/30/2015
|
|
|
3/31/2015
|
|
|
12/31/2014
|
|
|
9/30/2014
|
|
|
Total
|
|
Net income (loss) attributable to Kennametal, as reported
|
|
$
|
21,146
|
|
|
$
|
(46,229
|
)
|
|
$
|
(388,302
|
)
|
|
$
|
39,489
|
|
|
$
|
(373,896
|
)
|
Restructuring and related charges
|
|
|
18,566
|
|
|
|
9,686
|
|
|
|
10,385
|
|
|
|
5,557
|
|
|
|
44,194
|
|
Tax redeployment expense
|
|
|
807
|
|
|
|
2,138
|
|
|
|
|
|
|
|
|
|
|
|
2,945
|
|
Goodwill and other intangible asset impairment charges
|
|
|
(3,651
|
)
|
|
|
71,143
|
|
|
|
419,273
|
|
|
|
|
|
|
|
486,765
|
|
Operations of divested businesses
|
|
|
(1,391
|
)
|
|
|
(419
|
)
|
|
|
941
|
|
|
|
(696
|
)
|
|
|
(1,565
|
)
|
Noncontrolling interest
|
|
|
1,021
|
|
|
|
678
|
|
|
|
597
|
|
|
|
639
|
|
|
|
2,935
|
|
Total income, adjusted
|
|
$
|
36,498
|
|
|
$
|
36,997
|
|
|
$
|
42,894
|
|
|
$
|
44,989
|
|
|
$
|
161,378
|
|
|
|
|
|
|
|
Total interest expense, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
187,109
|
|
Average invested capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,583,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Return on Invested Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on invested capital calculated utilizing net income, as reported is as follows:
|
|
|
|
|
|
Net (loss) income attributable to Kennametal, as reported
|
|
|
$
|
(373,896
|
)
|
Total interest expense, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(349,730
|
)
|
Average invested capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,583,870
|
|
Return on Invested Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.5)%
|
|
|
|
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| A-3
|
Appendix B
KENNAMETAL INC.
ANNUAL
PERFORMANCE INCENTIVE PLAN
The purpose of the Annual Performance Incentive Plan (also known as the AIP, and hereinafter the Plan) is to advance the interests of the Company and its shareholders by providing incentives
to key employees with significant responsibility for achieving performance goals critical to the success and growth of the Company. The Plan is designed to: (i) promote the attainment of the Companys significant business objectives; (ii)
encourage and reward management teamwork across the entire Company; (iii) reward exceptional individual employee performance and (iv) assist in the attraction and retention of employees vital to the Companys long-term success.
For the purpose of the Plan, the following definitions shall apply:
(a) Board means the Board of Directors of the Company.
(b) Code means
the Internal Revenue Code of 1986, as amended, including any successor law thereto.
(c) Committee means the Compensation
Committee of the Board, or such other committee as is appointed or designated by the Board to administer the Plan, in each case which shall be comprised solely of two or more outside directors (as defined under Section 162(m) of the Code
and the regulations promulgated thereunder).
(d) Company means Kennametal Inc. and any subsidiary entity or affiliate
thereof, including subsidiaries or affiliates which become such after adoption of the Plan.
(e) Forfeit,
Forfeiture, Forfeited means the loss by a Participant of any and all rights to an award granted under the Plan, including the loss to any payment of compensation by the Company under the Plan or any award granted thereunder.
(f) Participant means any person: (1) who satisfies the eligibility requirements set forth in Paragraph 4; (2) to whom an
award has been made by the Committee; and (3) whose award remains outstanding under the Plan.
(g) Performance Goal means, in
relation to any Performance Period, the level of performance that must be achieved with respect to a Performance Measure.
(h)
Performance Measures means any one or more of the following performance criteria, either individually, alternatively or in any combination, and subject to such modifications or variations as specified by the Committee, applied to either
the Company as a whole or to a business unit or subsidiary entity thereof, either individually, alternatively or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years,
on an absolute basis or relative to a pre-established target, to previous years or periods results or to a designated comparison group, in each case as specified by the Committee: cash flow; cash flow from operations; earnings
(including, but not limited to, earnings before interest, taxes, depreciation and amortization); earnings per share, diluted or basic; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures; debt;
debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; productivity; delivery performance; safety record; stock
price; return on equity; total stockholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating
profit; gross margin, operating margin or profit margin; and completion of acquisitions, business expansion, product diversification, new or expanded market penetration and other non-financial operating and management performance
objectives.
To the extent consistent with Section 162(m) of the Code and the regulations promulgated thereunder, the Committee may
determine, at the time the Performance Goals are established, in
|
|
|
|
|
|
|
K
ENNAMETAL
I
NC
. 2016 Proxy Statement
|
|
| B-1
|
applying the Performance Goals, the adverse effect of any of the following events that occur during a Performance Period shall be excluded: the impairment of tangible or intangible assets;
litigation or claim judgments or settlements; changes in tax law, accounting principles or other such laws or provisions affecting reported results; business combinations, reorganizations and/or restructuring programs that have been approved by the
Board; reductions in force and early retirement incentives; and any extraordinary, unusual, infrequent or non-recurring items separately identified in the financial statements and/or notes thereto in accordance with generally accepted accounting
principles.
(i) Performance Period means, in relation to any award, the fiscal year or other period for which one or more
Performance Goals have been established, with each such period constituting a separate Performance Period.
3.
|
Administration of the Plan
|
(a) The management of the Plan shall be vested in the Committee; provided, however, that all acts and authority of the Committee pursuant to this Plan shall be subject to the provisions of the Committees
Charter, as amended from time to time, and such other authority as may be delegated to the Committee by the Board. The Committee may, subject to the preceding sentence and with respect to Participants whom the Committee determines are not
covered employees for purposes of Section 162(m) of the Code, delegate such of its powers and authority under the Plan to the Companys officers as it deems necessary or appropriate. In the event of such delegation, all
references to the Committee in this Plan shall be deemed references to such officers as it relates to those aspects of the Plan that have been delegated.
(b) Subject to the terms of the Plan, the Committee shall, among other things, have full authority and discretion to determine eligibility for participation in the Plan, make awards under the Plan, establish
the terms and conditions of such awards (including the Performance Goal(s) and Performance Measure(s) to be utilized) and determine whether the Performance Goals applicable to any Performance Measures for any awards have been achieved. The
Committees determinations under the Plan need not be uniform among all Participants, or classes or categories of Participants, and may be applied to such Participants, or classes or categories of Participants, as the Committee, in its sole and
absolute discretion, considers necessary, appropriate or desirable. The Committee is authorized to interpret the Plan, to adopt administrative rules, regulations, and guidelines for the Plan, and may correct any defect, supply any omission or
reconcile any inconsistency or conflict in the Plan or in any award. All determinations by the Committee shall be final, conclusive and binding on the Company, the Participant and any and all interested parties.
(c) Subject to the provisions of the Plan, the Committee will have the authority and discretion to determine the extent to which awards under
the Plan will be structured to conform to the requirements applicable to performance-based compensation as described in Section 162(m) of the Code, and to take such action, establish such procedures, and impose such restrictions at the time such
awards are granted as the Committee determines to be necessary or appropriate to conform to such requirements. Notwithstanding any provision of the Plan to the contrary, if an award under this Plan is intended to qualify as performance-based
compensation under Section 162(m) of the Code and the regulations issued thereunder and a provision of this Plan would prevent such award from so qualifying, such provision shall be administered, interpreted and construed to carry out such intention
(or disregarded to the extent such provision cannot be so administered, interpreted or construed).
(d) Notwithstanding any
provision of the Plan to the contrary, if any benefit provided under this Plan is subject to the provisions of Section 409A of the Code and the regulations issued thereunder, the provisions of the Plan shall be administered, interpreted and
construed in a manner necessary to comply with Section 409A and the regulations issued thereunder (or disregarded to the extent such provision cannot be so administered, interpreted, or construed.)
4.
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Participation in the Plan
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Officers and key employees of the Company shall be eligible to participate in the Plan. No employee shall have the right to participate in the Plan, and participation in the Plan in any one Performance Period
does not entitle an individual to participate in future Performance Periods.
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5.
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Incentive Compensation Awards
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(a) The Committee may, in its discretion, from time to time make awards to persons eligible for participation in the Plan pursuant to which the Participant will earn cash compensation. The amount of a
Participants award may be based on a percentage of such Participants salary or such other methods as may be established by the Committee. Each award shall be communicated to the Participant, and shall specify, among other things,
the terms and conditions of the award and the Performance Goals to be achieved. The maximum amount of an award that may be earned under the Plan by any Participant for a Performance Period covering one fiscal year or less (hereinafter
Annual Award) shall not exceed USD $4,000,000; provided, however, if more than one Annual Award is outstanding for a Participant under the Plan for a given fiscal year, the foregoing limitation shall apply to the aggregate amount earned
under all such Annual Awards. The maximum amount of an award that may be earned under the Plan by any Participant for each fiscal year (or portion thereof) contained in a Performance Period covering more than one fiscal year (hereinafter
Long-Term Award) shall not exceed USD $4,000,000 (this limitation is separate from the limitation applicable to Annual Awards set forth in the preceding sentence); provided, however, if more than one Long-Term Award is outstanding for a
Participant under the Plan for a given fiscal year, the foregoing limitation shall apply to the aggregate amount earned under all such Long-Term Awards. For purposes of the foregoing limitations, (i) the term earned means satisfying
the applicable Performance Goals so that an amount becomes payable, without regard to whether it is to be paid currently or on a deferred basis or continues to be subject to any service requirement or other condition; and (ii) with respect to
Long-Term Awards, an amount shall be deemed to be earned pro-rata over the applicable Performance Period.
(b) With
respect to awards that are intended to be performance-based compensation under Section 162(m) of the Code, each award shall be conditioned upon the Companys achievement of one or more Performance Goal(s) with respect to the Performance
Measure(s) established by the Committee. No later than ninety (90) days after the beginning of the applicable Performance Period, the Committee shall establish in writing the Performance Goals, Performance Measures and the method(s) for
computing the amount of compensation which will be payable under the Plan to each Participant if the Performance Goals established by the Committee are attained; provided however, that for a Performance Period of less than one year, the Committee
shall take any such actions prior to the lapse of 25% of the Performance Period. In addition to establishing minimum Performance Goals below which no compensation shall be payable pursuant to an award, the Committee, in its discretion, may
create a performance schedule under which an amount less than or more than the target award may be paid in relation to the achievement of the Performance Goals.
(c) The Committee, in its sole discretion, may also establish such additional restrictions or conditions that must be satisfied as a condition precedent to the payment of all or a portion of any awards. Such
additional restrictions or conditions need not be performance-based and may include, among other things, the receipt by a Participant of a specified annual performance rating, the continued employment by the Participant and/or the achievement of
specified performance goals by the Company, business unit or Participant. Furthermore and notwithstanding any provision of this Plan to the contrary, the Committee, in its sole discretion, may reduce the amount of any award to a Participant if
it concludes that such reduction is necessary or appropriate based upon: (i) an evaluation of such Participants performance; (ii) comparisons with compensation received by other similarly situated individuals working within the Companys
industry; (iii) the Companys financial results and conditions; or (iv) such other factors or conditions that the Committee deems relevant. Notwithstanding any provision of this Plan to the contrary, the Committee shall not use its
discretionary authority to increase any award that is intended to be performance-based compensation under Section 162(m) of the Code.
6.
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Payment of Individual Incentive Awards
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(a) Awards shall be paid as promptly as practicable (but in no event later than 2
1
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2
months after the close of the fiscal year in which the Performance Period ends) after the Committee has certified in writing the extent to which the applicable Performance Goals and any other material terms 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.
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(b) Unless otherwise determined by the Committee, Participants who have terminated employment
with the Company prior to the actual payment of an award for any reason, shall Forfeit any and all rights to payment under any awards then outstanding under the terms of the Plan; provided further that no payments of amounts intended to be
performance-based
compensation under Section 162(m) of the Code shall be payable unless and to the extent the underlying Performance Goals were achieved.
(c) The Committee shall determine whether, to what extent, and under what additional circumstances amounts payable with respect to an award
under the Plan shall be deferred either automatically, at the election of the Participant, or by the Committee.
7.
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Amendment or Termination of the Plan
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While the Company intends that the Plan shall continue in force from year to year, the Company reserves the right to amend, modify or terminate the Plan, at any time; provided, however, that no such modification,
amendment or termination shall, without the consent of the Participant, materially adversely affect the rights of such Participant to any payment that has been determined by the Committee to be due and owing to the Participant under the Plan but not
yet paid. Any action authorized under this Section 7 may be taken by the Committee.
Notwithstanding the foregoing or any provision
of the Plan to the contrary, the Committee may at any time (without the consent of the Participant) modify, amend or terminate any or all of the provisions of this Plan to the extent necessary to conform the provisions of the Plan with Section 409A
or Section 162(m) of the Code or the regulations promulgated thereunder regardless of whether such modification, amendment, or termination of the Plan shall adversely affect the rights of a Participant under the Plan.
8.
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Rights Not Transferable
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A Participants rights under the Plan may not be assigned, pledged, or otherwise transferred except, in the event of a Participants death, to the Participants designated beneficiary, or in the
absence of such a designation, by will or by the laws of descent and distribution.
The
Plan is unfunded and all awards payable hereunder shall be paid from the general assets of the Company. No provision contained in this Plan and no action taken pursuant to the provisions of this Plan shall create a trust of any kind or require
the Company to maintain or set aside any specific funds to pay benefits hereunder. To the extent a Participant acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of any unsecured
general creditor of the Company.
The Company shall have the right to withhold from any awards payable under the Plan or other wages payable to a Participant such amounts sufficient
to satisfy federal, state and local tax withholding obligations arising from or in connection with the Participants participation in the Plan and such other deductions as may be authorized by the Participant or as required by applicable law.
11.
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No Employment or Service Rights
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Nothing contained in the Plan shall confer upon any Participant any right with respect to continued employment with the Company (or any of its affiliates) nor shall the Plan interfere in any way with the right of
the Company (or any of its affiliates) to at any time reassign the Participant to a different job, change the compensation of the Participant or terminate the Participants employment for any reason.
12.
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Other Compensation Plans
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Nothing contained in this Plan shall prevent the Corporation from adopting other or additional compensation arrangements for employees of the Corporation, including arrangements that are not intended to comply with
Section 162(m) of the Code.
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The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to its conflict
of law provisions.
The Plan shall become effective immediately upon the approval and adoption thereof by the Board; provided, however, that no award intended to
qualify as performance-based compensation within the meaning of Section 162(m) of the Code shall be payable prior to approval of the Plans material terms by the Companys shareholders.
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Appendix C
Kennametal Inc.
2016 STOCK
AND INCENTIVE PLAN
Amended and Restated through October 25, 2016
Section 1.
Establishment
. The 2016 Kennametal Inc. Stock and Incentive Plan (hereinafter called the Plan) was
established under the name 2010 Stock and Incentive Plan (the 2010 Plan). The 2010 Plan hereby is amended, restated and renamed as set forth herein, effective upon and subject to the approval of the Companys shareowners. The
Plan was established pursuant to which Eligible Individuals who are or will be mainly responsible for the Companys continued growth and development and future financial success may be granted Awards in order to secure to the Company the
advantage of the incentive and sense of proprietorship inherent in stock ownership by such persons, to further align such persons interests with those of other shareowners, to reward such persons for services previously performed and/or as an
added inducement to continue to provide service to the Company.
Section 2.
Certain Definitions. As used herein or, unless
otherwise specified, in any document with respect to an Award, the following definitions shall apply:
(a)
Affiliate
of a person means a person controlling, controlled by, or under common control with such person where control
means the power to direct the policies and practices of such person.
(b)
Award
means any Incentive Bonus Award,
Option, Performance Share Award, Performance Unit Award, Restricted Stock Award, Restricted Unit Award, SAR, Share Award, Stock Unit Award, or Other Share-Based Award granted under the Plan.
(c)
Associated Award
means an Award granted concurrently or subsequently in conjunction with another Award.
(d)
Board
means the Board of Directors of the Company.
(e)
Business Combination
shall mean a merger or consolidation of the Company with another corporation or entity, other than
a corporation or entity which is an Affiliate.
(f)
Capital Stock
means the Capital Stock, par value $1.25 per
share, of the Company as adjusted pursuant to Section 10 of this Plan.
(g)
cause
shall mean (i) with respect to
a Participant who is party to a written agreement with, or, alternatively, participates in a compensation or benefit plan of the Company, which agreement or plan contains a definition of for cause or cause (or words of like
import) for purposes of termination of employment or service as a director thereunder by the Company, for cause or cause as defined in the most recent version of such agreements or plans, or (ii) in all other cases, (a) the
willful commission by a Participant of a criminal or other act that causes substantial economic damage to the Company or substantial injury to the business reputation of the Company; (b) the commission by a Participant of an act of fraud in the
performance of such Participants duties on behalf of the Company; (c) the continuing willful failure of a Participant to perform the duties of such Participant for the Company (other than such failure resulting from the Participants
incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) or (d) the good faith determination by the Board of the Company, in the form of a written resolution, that such
termination was for cause after affording such Participant a reasonable opportunity to be heard. For purposes of the Plan, no act, or failure to act, on the Participants part shall be considered willful unless done
or omitted to be done by the Participant not in good faith and without reasonable belief that the Participants action or omission was in the best interest of the Company.
(h)
Change in
Control shall mean (unless otherwise provided by the Plan Administrator in the applicable Award agreement) a change in control of the Company of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A promulgated under the Exchange Act as in effect on the date thereof or, if Item 6(e) is no longer in effect, any regulations issued which serve similar purposes; provided that, without
limitation, such a Change in Control shall be deemed to have occurred upon the occurrence of any one of the following events:
(i) a Business Combination has been completed, excluding any such Business Combination that constitutes a Merger of Equals;
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(ii) the Company shall sell all or substantially all of its operating properties
and assets to another person, group of associated persons or corporation, excluding any Affiliate of the Company, and excluding any such sale that constitutes a Merger of Equals; or
(iii) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes a beneficial
owner, directly or indirectly, of securities of the Company representing 25% or more of either (A) the then outstanding capital stock of the Company, or (B) the combined voting power of the Companys then outstanding voting securities entitled
to vote generally in the election of directors; provided that, the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate of the Company; or (4) any acquisition by any corporation pursuant to a transaction that constitutes a Merger of Equals.
Notwithstanding the foregoing or any provision of this Plan to the contrary, if and to the extent an Award is subject to Section 409A (and not
excepted therefrom) and a Change of Control is a distribution event for purposes of the Award, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any
such event shall result in a Change of Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable,
within the meaning of Treas. Reg. § 1.409A-3(i)(5).
(i)
Code
means the Internal Revenue Code of
1986, as amended.
(j)
Committee
means a committee of the Board.
(k)
Company
means Kennametal Inc., a Pennsylvania corporation.
(l)
Consultant
means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary or
Affiliate of the Company to render services and is compensated for such services.
(m)
Continuous Status as an
Employee
means the absence of any interruption or termination of the employment relationship by the Employee with the Company or any Parent or Subsidiary or Affiliate of the Company. Continuous Status as an Employee shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Plan Administrator; or (iv) transfers between locations of the Company or between the Company, its Parents, its
Subsidiaries or its successor.
(n)
Designated Administrator
shall mean one or more Company officers or directors
designated by the Plan Administrator to act as a Designated Administrator pursuant to this Plan.
(o)
Disability
means disability as determined by the Companys disability policy as in effect from time to time or as determined by the Plan Administrator consistent therewith. Notwithstanding the foregoing or any provision of this Plan to the contrary,
if and to the extent an Award is subject to Section 409A (and not excepted therefrom) and a Disability is a distribution event for purposes of the Award, such term shall mean the Participant is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of not less than 12 months.
(p)
Dividend Equivalents
shall mean an Associated Award of cash equal to the dividends which would have been paid on the Capital Stock underlying an outstanding Full Value Award had such
Capital Stock been outstanding.
(q)
Eligible Individual
means any Employee, Non-Employee Director or Consultant.
(r)
Employee
means any person, including officers and directors (but excluding Non-Employee Directors), employed
by the Company or any Parent or Subsidiary or Affiliate of the Company or any prospective employee who shall have received an offer of employment from the Company or any Parent or Subsidiary or Affiliate of the Company. The payment of a
directors fee by the Company shall not be sufficient to constitute employment by the Company.
(s)
Exchange Act
means the Securities Exchange Act of 1934, as amended.
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(t)
Fair Market Value
shall mean (i) with respect to the Capital Stock, as of
any date (A) if the Companys Capital Stock is listed on any established stock exchange, system or market, the closing market price of the Capital Stock as quoted in such exchange, system or market on such date or, if the Capital Stock is not
traded on such date, on the closest preceding date on which the Capital Stock was traded or (B) in the absence of an established market for the Capital Stock, as determined in good faith by the Plan Administrator or (ii) with respect to property
other than Capital Stock, the value of such property, as determined by the Plan Administrator, in its sole discretion.
(u)
Full Value Award
means any Award of Shares under this Plan or an Award payable in Shares, other than an Option, a SAR or
other purchase right for which the Participant pays fair market value for the Shares measured as of the date of grant.
(v) Good Reason shall mean the occurrence of any of the following in connection with a Change in Control: (i) without the
Participants express written consent, the material diminution of responsibilities or the assignment to the Participant of any duties materially and substantially inconsistent with his or her positions, duties, responsibilities and status with
Company immediately prior to a Change in Control, or a material change in his or her reporting responsibilities, titles or offices as in effect immediately prior to a Change in Control, or any removal of the Participant from or any failure to
re-elect the Participant to any of such positions, except in connection with the termination of the Participants employment due to cause, as defined in the Plan, or as a result of the Participants death; (ii) a material reduction by
Company in the Participants base salary as in effect immediately prior to any Change in Control; (iii) a failure by Company to continue to provide incentive compensation, under the rules by which incentives are provided, on a basis not
materially less favorable to that provided by Company immediately prior to any Change in Control; (iv) a material reduction in the overall level of employee benefits, including any benefit or compensation plan, stock option plan, retirement plan,
life insurance plan, health and accident plan or disability plan in which Participant is actively participating immediately prior to a Change in Control (provided, however, that there shall not be deemed to be any such failure if Company substitutes
for the discontinued plan, a plan providing Participant with substantially similar benefits) or the taking of any action by Company which would adversely affect Participants participation in or materially reduce Participants overall
level of benefits under such plans or deprive Participant of any material fringe benefits enjoyed by Participant immediately prior to a Change-in-Control; (v) the failure of any successor to assume the obligations of the Awards granted under the
Plan; and (vi) the relocation of the Participant to a facility or a location more than 50 miles from the Participants location immediately prior to the Change in Control, without the Participants prior written consent.
(w)
Grantee
means an Eligible Individual who has been granted an Award.
(x)
Incentive Bonus Award
means the opportunity to earn a future cash payment tied to the level of achievement with respect
to one or more Qualifying Performance Criteria for a performance period as established by the Plan Administrator.
(y)
Incentive Stock Option
means an Option intended to qualify as an incentive stock option within the meaning of Section
422 of the Code.
(z) Merger of Equals means (unless the Committee or Board provides otherwise) a Business Combination
which results in the following conditions:
(i) All or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the outstanding Capital Stock and the outstanding voting securities of the Company entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own,
following the Business Combination, directly or indirectly, more than 50% of, respectively, the then outstanding shares of capital stock and the then outstanding voting securities of the shareowners entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets
either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Capital Stock and the outstanding voting securities of the Company
entitled to vote generally in the election of directors, as the case may be;
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(ii) No person (as such term is used in Section 13(d) and 14(d) of
the Exchange Act) (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding
shares of capital stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business
Combination; and
(iii) At least a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the incumbent board at the time of the execution of the initial agreement, or at the time of the action taken by the incumbent board approving such Business Combination.
(aa)
Non-Employee Director
means a member of the Board who is not an employee of the Company or any Parent or Subsidiary or
Affiliate of the Company.
(bb)
Nonstatutory Stock Option
means an Option not intended to qualify as an Incentive
Stock Option.
(cc)
Option
means a right to purchase Shares granted pursuant to the Plan.
(dd)
Optionee
means a Participant who holds an Option or SAR.
(ee)
Original Option Period
means the initial period or periods for which an Option or SAR may be exercised as determined by
the Plan Administrator at the time the Award is granted or, if no such determination is made, a period of 10 years from the date of grant of the Award; provided that, in no event shall such period exceed 10 years from the date of grant of the Award.
(ff)
Other Share-Based Award
shall have the meaning as set forth in Section 7(f).
(gg)
Parent means a parent corporation
, whether now or hereafter existing, as defined in Section 424(e) of the
Code.
(hh)
Participant
means any person who has an Award under the Plan including any person (including any
estate) to whom an Award has been assigned or transferred in accordance with the Plan.
(ii)
Performance Share
Award
means a grant of Shares, which may be in a number of Shares or a designated dollar value amount, the payout of which is contingent on the achievement of certain performance or other objectives during a specified period, as
established by the Plan Administrator.
(jj)
Performance Unit Award
means a grant of Stock Units, which may be in
a number of Stock Units or a designated dollar value amount, the payout of which is contingent on the achievement of certain performance or other objectives during a specified period, as established by the Plan Administrator.
(kk)
Plan
means this 2016 Stock and Incentive Plan, as the same may be subsequently amended and/or restated from time to
time.
(ll)
Plan Administrator
means the Board and/or any Committee appointed by the Board to administer the
Plan; provided, however, that the Board, in its sole discretion, may, notwithstanding the appointment of any Committee to administer the Plan, exercise any authority under this Plan. The Compensation Committee of the Board shall serve as the
Plan Administrator until the Board otherwise determines. Notwithstanding the foregoing, unless otherwise determined by the Board, the Board shall administer the Plan, and otherwise exercise the same authority as the Committee with respect to
grants to
Non-Employee
Directors. Except as otherwise determined by the Board, the Plan Administrator (i) shall be comprised of not fewer than two (2) directors, (ii) shall meet any applicable requirements
under Rule 16b-3, including any requirement that the Plan Administrator consist of Non-Employee Directors (as defined in Rule 16b-3), (iii) shall meet any applicable requirements under Section 162(m), including any requirement that the
Plan Administrator consist of outside directors (as defined in Treasury Regulation Section 1.162- 27(e)(3)(i) or any successor regulation), and (iv) shall
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meet any applicable requirements of any stock exchange or other market quotation system on which the Capital Stock is listed. The resolutions of the Plan Administrator designating authority
to any Designated Administrator (i) shall specify the total number of shares of Capital Stock subject to Awards that may be granted pursuant to this Plan by the Designated Administrator, (ii) may not authorize the Designated Administrator to
designate him or herself, or any Participant who is subject to reporting pursuant to Section 16 of the Exchange Act, as the recipient of any Awards pursuant to this Plan and (iii) shall otherwise comply with the requirements of the Pennsylvania
Business Corporation Law.
(mm)
Qualifying Performance Criteria
means any one or more of the following
performance criteria, either individually, alternatively or in any combination, and subject to such modifications or variations as specified by the Plan Administrator, applied to either the Company as a whole or to a business unit or Subsidiary or
Affiliate, either individually, alternatively or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target,
to previous years results or to a designated comparison group, in each case as specified in the Award: cash flow; cash flow from operations; earnings (including, but not limited to, earnings before interest, taxes, depreciation and
amortization); earnings per share, diluted or basic; adjusted earnings per share, diluted or basic, as reported publicly by the Company; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures;
debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; productivity; delivery performance; safety record;
stock price; return on equity; total stockholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating
margin or profit margin; and completion of acquisitions, business expansion, product diversification, new or expanded market penetration environmental metrics and other non-financial operating and management performance objectives. The
specificity of any of the foregoing criteria does not restrict the use of any of the variations of the foregoing general criteria. To the extent consistent with Section 162(m) of the Code and the regulations promulgated thereunder the Plan
Administrator may determine, at the time the performance goals are established, to appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude the adverse effect of any of the following events that occurs
during a performance period: (i) the impairment of tangible or intangible assets, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting
reported results, (iv) business combinations, reorganizations and/or restructuring programs that have been approved by the Board, (v) currency fluctuations, (vi) reductions in force and early retirement incentives and (vii) any extraordinary,
unusual, infrequent or non-recurring items that are reported publicly by the Company and/or described in managements discussion and analysis of financial condition and results of operations or the financial statements and notes thereto
appearing in the Companys annual report to shareowners for the applicable year.
(nn)
Restricted Stock
Award
means a grant of Shares subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Grantee, or achievement of performance or other
objectives, or a combination thereof, as determined by the Plan Administrator.
(oo)
Restricted Unit Award
means
a grant of Stock Units subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, or a
combination thereof, as determined by the Plan Administrator.
(pp)
Retirement
means, in the case of an Employee,
the termination of employment with the Company or any Subsidiary, Affiliate or Parent of the Company with the consent of the Company, at a time when the Employee (a) has attained age 55 with ten years of service (attainment of the conditions of
subclause (a) is herein referred to as Early Retirement), (b) has attained age 60 with five years of service, (c) has attained age 65, or (d) is required by law or regulations to terminate employment with the Company or any Subsidiary,
Affiliate or Parent of the Company under a mandatory retirement scheme. In the case of a Non-Employee Director, Retirement means cessation of service on the Board, other than for cause. The Plan Administrator shall have the
sole authority to determine whether
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a termination of employment or cessation of service meets the definition of Retirement under this Plan, including whether the Company has consented to the termination of employment,
and any such determination shall be final.
(qq)
SAR
means a stock appreciation right, which is the right to
receive a payment in cash, Shares or Stock Units equal to the amount of appreciation, if any, in the Fair Market Value of a Share from the date of the grant of the right to the date of its payment.
(rr)
Section 409A
shall mean Section 409A of the Code, the regulations and other binding guidance promulgated thereunder.
(ss)
Separation from Service
and Separate from Service shall mean the Participants death,
retirement or other termination of employment or service with the Company (including all persons treated as a single employer under Section 414(b) and 414(c) of the Code) that constitutes a separation from service (within the meaning of
Section 409A). For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language at least 50 percent shall be used
instead of at least 80 percent in each place it appears in Section 1563(a)(1),(2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of
Treas. Reg. § 1.409A-1(h)(3)), the language at least 20 percent shall be used instead of at least 80 percent in each place it appears.
(tt)
Share
means a share of Capital Stock.
(uu)
Share Award
means a grant of Shares without a risk of forfeiture and without other restrictions.
(vv)
Specified Employee
means a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with Section 409A
and the procedures established by the Company.
(ww)
Stock Unit
means the right to receive a Share at a future
point in time.
(xx)
Stock Unit Award
means the grant of a Stock Unit without a risk of forfeiture and without
other restrictions.
(yy)
Subsidiary
means a subsidiary corporation, whether now or hereafter
existing, as defined in Section 424(f) of the Code.
Section 3. Administration.
(a) The Plan shall be administered by the Plan Administrator. The Plan Administrator may act only by a majority of its members in office,
provided, that, the Plan Administrator may allocate all or any portion of its responsibilities and powers to any one or more of its members and may revoke any such allocation at any time; provided further, that the members thereof may authorize any
one or more officers of the Company to execute and deliver documents or to take any other ministerial action on behalf of the Plan Administrator with respect to Awards made or to be made to Participants. No member of the Board or Plan
Administrator and no officer of the Company shall be liable for anything done or omitted to be done by such member or officer, by any other member of the Board or Plan Administrator or by any other officer of the Company in connection with the
performance of duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute.
(b) Subject to the provisions of this Plan and, in the case of a Committee, the specific duties delegated to or limitations imposed upon such
Committee by the Board, the Plan Administrator shall have the authority, in its discretion:
(i) to establish, amend
and rescind rules and regulations relating to the Plan;
(ii) to select the Eligible Individuals to whom Awards may
from time to time be granted hereunder;
(iii) to determine the amount and type of Awards, including any combination
thereof, to be granted to any Eligible Individual;
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(iv) subject to Section 3(c) hereof, to grant Awards to Eligible Individuals and,
in connection therewith, to determine the terms and conditions, not inconsistent with the terms of this Plan, of any such Award including, but not limited to, the number of Shares or Stock Units that may be issued or amount of cash that may be paid
pursuant to the Award, the exercise or purchase price of any Share or Stock Unit, the circumstances under which Awards or any cash, Shares or Stock Units relating thereto are issued, retained, become exercisable or vested, are no longer subject to
forfeiture or are terminated, forfeited or expire, based in each case on such factors as the Plan Administrator shall determine, in its sole discretion;
(v) to determine the Fair Market Value of the Capital Stock, in accordance with this Plan;
(vi) to establish, verify the extent of satisfaction of, or adjust any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Award;
(vii) to approve forms of agreement for use under the Plan;
(viii) to determine whether and under what circumstances an Award may be settled in cash instead of Shares or Stock Units;
(ix) to determine whether, to what extent and under what circumstances Shares and other amounts payable with
respect to an Award under this Plan shall be deferred either automatically or at the election of the participant (including providing for and determining the amount, if any, of any deemed earnings on any deferred amount during any deferral period);
(x) to determine whether and to what extent an adjustment is required under Section 10 of this Plan;
(xi) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award
granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and
(xii) to make all other determinations deemed necessary or advisable for the administration of this Plan.
(c) Notwithstanding anything contained in this Plan, the Plan Administrator may not:
(i) grant any Option or SAR in substitution for an outstanding Option or SAR except as provided in Section 10(b);
(ii) reduce the exercise price of an outstanding Option or SAR, whether through amendment, cancellation or replacement of such
Option or SAR, unless such reduction is approved by the shareowners of the Company;
(iii) cancel any outstanding
Option or SAR in exchange for cash, except as provided in Section 10, unless such cancellation is approved by the shareowners of the Company;
(iv) grant a Restricted Stock Award or Restricted Unit Award with a risk of forfeiture or restriction that lapses earlier than at the rate of one-third of the Shares subject to the Award on each of the first,
second and third anniversary of the date of grant; provided, however, that the Plan Administer may grant a Restricted Stock Award or Restricted Unit Award with a risk of forfeiture or restriction that lapses upon the later to occur of (x) the date
of achievement of one or more performance criteria and (y) the one year anniversary of the date of grant of the Award;
(v) grant a Performance Share Award or Performance Unit Award that vests earlier than the later to occur of (x) the date of
achievement of one or more performance criteria and (y) the one year anniversary of the date of the Award;
(vi) lapse or waive restrictions applicable to any Restricted Stock Award, Restricted Unit Award, Performance Share Award, or
Performance Unit Award except in the case of death, Disability, Retirement or involuntary termination by the Company without cause; or
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(vii) grant any Share Award or Stock Unit Award to any officer or director of the
Company except in lieu of salary or cash bonus.
(d) The limitations of Sections 3(c)(iv), (v), (vi) and (vii) shall not apply to
Awards for up to five percent of the Shares available under the Plan, as of the effective date of the Plan, granted by a Committee composed entirely of independent directors (under all definitions of independence then applicable to the
Company).
(e) In the event of an involuntary termination of an Employee, other than as a result of cause, where such Employee
satisfies one or more of the conditions set forth in the definition of Retirement, then, unless otherwise set forth in an Award agreement, such Award and this Plan shall be interpreted based on the Retirement of such Employee (rather than based on
an involuntary termination). In the event of an involuntary termination of an Employee for cause, then, notwithstanding the fact that the Employee may satisfy the definition of Retirement, all outstanding Awards and this Plan shall be
interpreted based upon an involuntary termination for cause, and not based upon Retirement.
(f) Except as specifically provided in
this Plan, no action of the Plan Administrator shall deprive any person without such persons consent of any rights theretofore granted pursuant hereto.
(g) All decisions, determinations and interpretations of the Plan Administrator shall be final and binding on all Participants.
Section 4. Shares Subject to the Plan.
(a) The aggregate number of Shares which may be
issued pursuant to the Plan is the sum of (i) the number of Shares available under the Plan immediately prior to shareowner approval of the Plan (as of June 30, 2016, 4,936,266 Shares were available), subject to the counting, adjustment and
substitution provisions of the Plan and (ii) 3,500,000 Shares, all of which may be issued as Incentive Stock Options. The aggregate number of Shares available with respect to Awards under the Plan shall be reduced by (i) one (1) Share for each
Share which relates to an Option Award or a SAR; and (ii) 2.22 Shares for each Share which relates to a Full-Value Award.
(b) The number of Shares which may be issued under the Plan and the individual limitations included in the Plan are subject to adjustment as
provided in Section 10.
(c) To the extent that (i) Options granted under the Plan shall expire or terminate without being exercised
or distributed, or (ii) Shares awarded under the Plan shall be forfeited (or Awards settled in cash in lieu of Shares), such Shares shall remain available or be added to the Plan, as applicable, and shall increase the number of Shares available for
purposes of the Plan. To the extent that Shares awarded under this Plan shall be forfeited, such Shares shall be added back to the Plan on the same basis and subject to the same ratio that applied when they were granted and shall increase the
number of Shares available for purposes of the Plan.
(d) Shares delivered in payment of the purchase price in connection with the
exercise of any Award, Shares repurchased on the open market with proceeds received by the Company from stock exercises, Shares delivered or withheld to pay tax withholding obligations or otherwise under the Plan and Shares not issued upon the net
settlement or net exercise of SARs shall not be added to and shall not increase the number of Shares available for purposes of the Plan. SARs to be settled in Shares shall be counted in full against the number of Shares available for award
under the Plan regardless of the number of Shares issued upon settlement of the SAR.
(e) The limitation with respect to the number
of Shares available for Incentive Stock Options shall be subject to adjustment under Section 10, but only to the extent that such adjustment will not affect the status of any Award intended to qualify as an Incentive Stock Option.
(f) No Participant may receive: (i) Options or SARs under this Plan for more than 1,000,000 Shares in any one fiscal year of the Company;
and (ii) with respect to other Awards granted under Section 6 of the Plan that are intended to qualify as performance-based compensation under Section 162(m) of the Code, Awards denominated in Shares for more than 1,000,000 Shares in any
one fiscal year of the Company. Notwithstanding anything to the contrary in this Plan, the foregoing limitation shall be subject to adjustment under Section 10, but only to the extent that such adjustment will not affect the status of any Award
intended to qualify as performance-based compensation under Section 162(m) of the Code.
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(g) Capital Stock to be issued under the Plan may be either authorized and unissued Shares or
Shares held in treasury by the Company.
(h) In the discretion of the Committee, Shares or other types of Awards authorized under
the Plan may be used in connection with, or to satisfy obligations of the Company or an Affiliate to eligible Participants under, other compensation or incentive plans, programs or arrangements of the Company or an Affiliate. The minimum
vesting provisions contained within the Plan may be satisfied by reference to the vesting or performance period of any such other compensation or incentive plan, program or arrangement the obligations of which are satisfied through the use of Awards
under the Plan.
Section 5. Terms of Options and SARs.
Each Option and SAR granted under the Plan shall be evidenced by a
written document (including an electronic version thereof) and shall be subject to the following terms and conditions:
(a) Subject to adjustment as provided in Section 10 of this Plan, the price at which a Share covered by an Option or a SAR may be purchased (or
deemed purchased in the case of SARs) shall not be less than the Fair Market Value thereof at the time the Option or SAR is granted. If required by the Code, if an Optionee owns (or is deemed to own under applicable provisions of the Code and
rules and regulations promulgated thereunder) more than ten percent (10%) of the combined voting power of all classes of the stock of the Company (or any Parent or Subsidiary of the Company) and an Option granted to such Optionee is intended to
qualify as an Incentive Stock Option, the price at which a Share covered by an Option may be purchased shall be not less than 110% of the Fair Market Value thereof at the time the Option is granted.
(b) The aggregate Fair Market Value of Shares with respect to which Incentive Stock Options are first exercisable by the Optionee in any
calendar year (under all plans of the Company and its Subsidiaries and Parent) shall not exceed the limitations, if any, imposed by the Code, except in the case of an acceleration of vesting following a Change in Control.
(c) If any Option designated as an Incentive Stock Option, either alone or in conjunction with any other Option or Options, exceeds the
foregoing limitation, or does not otherwise qualify for treatment as an Incentive Stock Option, all or the portion of such Option in excess of such limitation shall automatically be reclassified (in whole Share increments and without fractional
Share portions) as a Nonstatutory Stock Option, with later granted Options being so reclassified first.
(d) An Option or SAR may be
exercised during the Original Option Period only at such time or times and in such installments as the Plan Administrator may establish.
(e) During the lifetime of the Optionee the Option or SAR may be exercised only by the Optionee and the Option or SAR shall not be transferable
by the Optionee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. After the death of the Optionee, the Option or SAR may be transferred to the Company upon such terms and conditions, if
any, as the Plan Administrator and the personal representative or other person entitled to the Option may agree within the period specified in this Section 5.
(f) Unless otherwise provided under the Award agreement or by the Plan Administrator:
(i) If the Optionee is an Employee who shall cease to be employed by the Company or any Subsidiary, Affiliate or Parent of the Company by reason of death, Disability or Retirement, the Option or SAR may be
exercised only within three years after termination of employment and within the Original Option Period;
(ii) If
the Optionee is an Employee who shall cease to be employed by the Company or any Subsidiary, Affiliate or Parent of the Company by reason of termination of the Optionee for cause, the Option or SAR shall forthwith terminate and the Optionee shall
not be permitted to exercise the Option or SAR following the Optionees termination of employment;
(iii) If
the Optionee is an Employee who shall cease to be employed by the Company or any Subsidiary, Affiliate or Parent of the Company by reason of the Optionees voluntary termination or a termination of the Optionee other than for cause, the Option
or SAR may be exercised (to the extent exercisable at the time of termination) only within the three months after the termination of employment and within the Original Option Period;
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(iv) If the Optionee is a Non-Employee Director who shall cease to serve on the
Board for any reason other than removal for cause, the Option or SAR may be exercised (to the extent exercisable at the time of termination) only within three years after cessation of Board service and within the Original Option Period; in the event
such cessation of service as a Non-Employee Director was the result of removal for cause, the Option or SAR shall forthwith terminate and the Optionee shall not be permitted to exercise the Option or SAR following such cessation of service;
(v) Notwithstanding anything to the contrary contained in this Plan, each Option or SAR held by an Employee who is
terminated by the Company or any Subsidiary, Affiliate or Parent of the Company other than for cause during the two-year period following a Change in Control or a Non-Employee Director who is removed from the Board other than for cause during the
two-year period following a Change in Control shall immediately vest and may be exercised at any time within the three-month period after the termination of employment or cessation of Board service and within the Original Option Period;
(vi) If the Optionee shall die, the Option or SAR may be exercised by the Optionees personal representative or persons
entitled thereto under the Optionees will or the laws of descent and distribution and in accordance with Section 5(f)(i);
(vii) Except as provided in Sections 5(f)(v), (ix) and (x), the Option or SAR may not be exercised for more Shares (subject to adjustment as provided in Section 10) after the termination of the Optionees
employment, cessation of service as a Non-Employee Director or the Optionees death (as the case may be) than the Optionee was entitled to purchase thereunder at the time of such Optionees termination of employment, cessation of service
as a Non-Employee Director or the Optionees death;
(viii) To the extent provided by the Code, if an Optionee
owns (or is deemed to own under applicable provisions of the Code and rules and regulations promulgated thereunder) more than 10% of the combined voting power of all classes of stock of the Company (or any Parent or Subsidiary, Affiliate of the
Company) at the time an Option is granted to such Optionee and such Option is intended to qualify as an Incentive Stock Option, the Option, if not exercised within five years from the date of grant or any other period proscribed by the Code, will
cease to be an Incentive Stock Option;
(ix) If the Optionee is an Employee who shall cease to be employed by the
Company or any Subsidiary, Affiliate or Parent of the Company, or is a Non-Employee Director who shall cease to serve on the Board, by reason of death or Disability, as the case may be, all Options and SARs held by the Optionee shall automatically
vest and become exercisable in full as of the date that the Optionees employment with the Company or any Subsidiary, Affiliate or Parent of the Company, or service on the Board, ceased; and
(x) In the event that an Optionee ceases to be employed by the Company or any Subsidiary, Affiliate or Parent of the Company or
to serve on the Board (in the case of Non-Employee Directors), as the case may be, as a result of such Optionees Retirement (or in the case of a Non-Employee Director, such Optionee ceasing to serve on the Board for reasons other than removal
for cause), all Options and SARs held by the Optionee which are not vested on the date of Retirement shall immediately vest and become exercisable in full, except in the case of Early Retirement of an employee Optionee, in which case a pro-rata
portion of the Options shall immediately vest and become exercisable based upon the ratio of the number of days of the Optionees employment during the Option vesting period to the total number of days in the Option vesting period, and the
remainder of such Options shall terminate and be forfeited.
(g) Except as otherwise provided by the Plan Administrator, the
purchase price of each Share purchased pursuant to an Option shall be paid in full at the time of each exercise (the
Payment Date
) of the Option (i) in cash; (ii) by delivering to the Company a notice of exercise with an
irrevocable direction to a registered broker-dealer under the Exchange Act to sell a sufficient portion of the Shares and deliver the sale proceeds directly to the Company to pay the exercise price; (iii) by the net
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withholding of Shares through the relinquishment of Options; (iv) through the delivery to the Company (by attestation of Share ownership or as otherwise provided by the Plan Administrator) of
previously-owned Shares having an aggregate fair market value equal to the price of the Shares being purchased pursuant to the Option; provided, however, that Shares delivered in payment of the Option price must meet such conditions as established
by the Plan Administrator; or (iv) through any combination of the payment procedures set forth in subsections (i)-(iv) of this Section 5(g).
(h) Exercise of an Option or SAR in any manner shall result in a decrease in the number of Shares which thereafter may be available under the Option or SAR by the number of Shares as to which the Option or SAR
is exercised. In addition, in the case of an Option granted in tandem with a SAR, the exercise of the Option in any manner shall result in a decrease in the number of Shares which thereafter may be available under the SAR by the number of
Shares as to which the Option is exercised, and the exercise of the SAR in any manner shall result in a decrease in the number of Shares which thereafter may be available under the Option by the number of Shares as to which the SAR is exercised.
(i) The Plan Administrator may include such other terms and conditions of Options or SARs not inconsistent with the foregoing as
the Plan Administrator shall approve. Without limiting the generality of the foregoing sentence, the Plan Administrator shall be authorized to determine that Options or SARs shall be exercisable in one or more installments during the term of
the Option or SAR as determined by the Plan Administrator.
Section 6. Performance Share Awards, Performance Unit Awards, Restricted
Stock Awards, Restricted Unit Awards, Share Awards and Stock Unit Awards.
(a) Subject to the terms of this Plan, including
Section 3(c) hereof, Performance Share Awards, Performance Unit Awards, Restricted Stock Awards, Restricted Unit Awards, Share Awards or Stock Unit Awards may be issued by the Plan Administrator to Eligible Individuals, either alone, in addition to,
or in tandem with other Awards granted under the Plan and/or cash awards made outside of this Plan, except that Awards intended to qualify as
performance-based
compensation under Section 162(m) of the Code may
not be granted in tandem with other Awards. Such Awards shall be evidenced by a written document (including an electronic version thereof) containing any provisions regarding (i) the number of Shares or Stock Units subject to such Award or a
formula for determining such, (ii) the purchase price of the Shares or Stock Units, if any, and the means of payment for the Shares or Stock Units, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall
determine the number of Shares or Stock Units to be granted, issued, retainable and/or vested, (iv) such terms and conditions regarding the grant, issuance, vesting and/or forfeiture of the Shares or Stock Units as may be determined from time to
time by the Plan Administrator, including continued employment or service, (v) restrictions on the transferability of the Shares or Stock Units and (vi) such further terms and conditions in each case not inconsistent with this Plan as may be
determined from time to time by the Plan Administrator.
(b) The grant, issuance, retention and/or vesting of Shares or Stock Units
granted pursuant to any Performance Share Award, Performance Unit Award, Restricted Stock Award or Restricted Unit Award shall occur at such time and in such installments as determined by the Plan Administrator or under criteria established by the
Plan Administrator and consistent with this Plan, including Section 3(c) hereof. The Plan Administrator shall have the right to make the timing of the grant and/or the issuance, ability to retain and/or the vesting of Shares or Stock Units
subject to a Participants continued employment, the passage of time and/or such performance criteria as deemed appropriate by the Plan Administrator and consistent with this Plan, including Section 3(c) hereof. Notwithstanding anything to
the contrary herein, the performance criteria for any Award that is intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance
Criteria selected by the Plan Administrator and specified at the time the Award is granted.
(c) For Awards intended to be
performance-based compensation under Section 162(m) of the Code, performance goals relating to the Qualifying Performance Criteria shall be preestablished in writing by the Committee, and achievement thereof certified in writing prior to payment of
the Award, as required by Section 162(m) and Treasury Regulations promulgated thereunder. All such performance
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goals shall be established in writing no later than ninety (90) days after the beginning of the applicable performance period; provided, however, that for a performance period of less than one
(1) year, the Committee shall take any such actions prior to the lapse of 25% of the performance period. In addition to establishing minimum performance goals below which no compensation shall be payable pursuant to an Award, the Committee, in
its sole discretion, may create a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goals have been achieved.
(d) With respect to any Performance Share Award, Performance Unit Award, Restricted Stock Award or Restricted Unit Award, unless otherwise
provided by the Plan Administrator at the time an Award is granted or in the applicable Award agreement:
(i) If,
prior to a Change in Control, the designated goals or conditions have not been achieved within the designated period or the Grantee (other than a
Non-Employee
Director) ceases to be employed by the Company for
any reason other than death, Disability or Retirement prior to the lapse of any restrictions or vesting of the Award, the Grantee shall forfeit such Award;
(ii) With respect to a Non-Employee Director, if, prior to a Change in Control, the designated goals or conditions have not been achieved within the designated period or the Non-Employee Director ceases to
serve on the Board for cause prior to the lapse of any restrictions or vesting of the Award, the Grantee shall forfeit such Award;
(iii) In the event that a Grantee (other than a Non-Employee Director) ceases to be an Employee as a result of such Grantees death, Disability or Retirement, all outstanding Awards held by such Grantee
shall automatically vest and all restrictions shall lapse as of the date of such Grantees death, Disability or Retirement, except in the case of Early Retirement of a Grantee, in which case a pro-rata portion of the Awards shall automatically
vest and restrictions shall lapse based upon the ratio of the number of days of the Grantees employment during the Award vesting period to the total number of days in the Award vesting period, and the remainder of such Awards shall terminate
and be forfeited;
(iv) With respect to a Non-Employee Director, in the event that a
Non-Employee
Director ceases to serve on the Board for reasons other than for cause, all outstanding Awards held by such Grantee shall automatically vest and all restrictions shall lapse as of the date of such
cessation of service;
(v) Each Award held by an Employee who is terminated by the Company or any Subsidiary,
Affiliate or Parent of the Company other than for cause during the two-year period following a Change in Control or a Non-Employee Director who is removed from the Board other than for cause during the two-year period following a Change in Control
shall automatically vest and all restrictions shall lapse as of the date of such Grantees termination of employment or cessation of Board service; and
(vi) During the lifetime of the Grantee, the Award shall not be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order.
(e) A Grantee who has received a Restricted Stock Award shall have all rights of a shareowner in such Shares including, but not limited to, the
right to vote and receive dividends with respect thereto from and after the date of grant of such Award; provided, however, that Shares awarded pursuant to the Plan which have not vested or which contain restrictions or conditions may not be sold or
otherwise transferred by the Grantee and stock certificates representing such Shares may bear a restrictive legend to that effect. Unless otherwise determined by the Plan Administrator, dividends or other distributions on Restricted Stock
Awards which are paid in capital stock or other securities or property shall be held subject to the same terms, conditions and restrictions as the Restricted Stock Awards on which they are paid.
(f) The Plan Administrator, in its sole discretion, may also establish such additional restrictions or conditions that must be satisfied as a
condition precedent to the payment of all or a portion of any Award intended to be performance-based compensation under Section 162(m) of the Code. Such
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additional restrictions or conditions need not be performance-based and may include, among other things, the receipt by a Participant of a specified annual performance rating, the continued
employment by the Participant and/or the achievement of specified performance goals by the Company, business unit or Participant. Furthermore and notwithstanding any provision of this Plan to the contrary, the Committee, in its sole discretion,
may retain the discretion to reduce the amount of any such Award (which need not be on a uniform basis) intended to be performance-based compensation under Section 162(m) of the Code to a Participant if it concludes that such reduction is necessary
or appropriate based upon: (i) an evaluation of such Participants performance; (ii) comparisons with compensation received by other similarly situated individuals working within the Companys industry; (iii) the Companys
financial results and conditions; or (iv) such other factors or conditions that the Committee deems relevant; provided, however, the Committee shall not use its discretionary authority to increase any Award that is intended to be performance-based
compensation under Section 162(m) of the Code.
(g) The Plan Administrator may grant Associated Awards of Dividend Equivalents to
Participants in connection with Restricted Unit Awards, Performance Unit Awards and other Awards on which dividends are not paid. The Plan Administrator may provide, at the date of grant, that Dividend Equivalents shall be paid or distributed
when accrued or paid upon release or distribution of Shares underlying the Associated Awards; provided that, unless otherwise determined by the Plan Administrator, Dividend Equivalents shall be (i) subject to all conditions and restrictions of the
underlying Performance Share Award, Performance Unit Award or Restricted Unit Award to which they relate, and (ii) paid in cash upon release or distribution of Shares underlying the Associated Awards.
(h) The standard vesting schedule applicable to Restricted Stock Awards and Restricted Unit Awards shall provide for vesting of such Awards, in
one or more increments, over a service period of no less than three (3) years, with no more frequent than annual vesting; provided, however, that this limitation shall not (i) apply to Restricted Stock Awards or Restricted Unit Awards granted under
this Section 6 for up to an aggregate of five percent of the maximum number of Shares that may be issued under this Plan, which may be issued without minimum vesting requirements as provided in Section 3(d), or (ii) adversely affect a
Participants rights under another plan or agreement with the Company.
Section 7. Incentive Bonus Awards and Other Share-Based
Awards.
(a) Each Incentive Bonus Award will confer upon the Employee the opportunity to earn a future payment tied to the level
of achievement with respect to one or more performance criteria established for a performance period established by the Plan Administrator.
(b) Each Incentive Bonus Award shall be evidenced by a document containing provisions regarding (a) the target and maximum amount payable to the Employee, (b) the performance criteria and level of achievement
versus these criteria that shall determine the amount of such payment, (c) the term of the performance period as to which performance shall be measured for determining the amount of any payment, (d) the timing of any payment earned by virtue of
performance, (e) restrictions on the alienation or transfer of the bonus prior to actual payment, (f) forfeiture provisions and (g) such further terms and conditions, in each case not inconsistent with this Plan, as may be determined from time to
time by the Plan Administrator. The maximum amount payable as a bonus may be a multiple of the target amount payable, but the maximum amount payable pursuant to that portion of an Incentive Bonus Award granted under this Plan for any fiscal
year to any Employee that is intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Code shall not exceed $5,000,000.
(c) The Plan Administrator shall establish the performance criteria and level of achievement versus these criteria that shall determine the target and maximum amount payable under an Incentive Bonus Award,
which criteria may be based on financial performance and/or personal performance evaluations. The Plan Administrator may specify the percentage of the target incentive bonus that is intended to satisfy the requirements for
performance-based compensation under Section 162(m) of the Code. Notwithstanding anything to the contrary herein, the performance criteria for any portion of an Incentive Bonus Award that is intended by the Plan Administrator to
satisfy the requirements for performance-based compensation under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance Criteria selected by the Plan Administrator and specified at the
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time the Incentive Bonus Award is granted. The Plan Administrator shall certify the extent to which any Qualifying Performance Criteria has been satisfied, and the amount payable as a result
thereof, prior to payment of any incentive bonus that is intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Code
(d) The Plan Administrator shall determine the timing of payment of any Incentive Bonus Awards. The Plan Administrator may provide for or, subject to such terms and conditions as the Plan Administrator
may specify, may permit an election for the payment of any Incentive Bonus Awards to be deferred to a specified date or event. An Incentive Bonus Award may be payable in Shares, Stock Units or in cash or other property, including any Award
permitted under this Plan.
(e) Notwithstanding satisfaction of any performance goals, the amount paid under an Incentive Bonus
Award on account of either financial performance or personal performance evaluations may be reduced by the Plan Administrator on the basis of such further considerations as the Plan Administrator shall determine.
(f) The Plan Administrator shall have authority to grant to Eligible Individuals Other Share-Based Awards which shall consist of any right that
is (i) not an Award described in Sections 5 through 7(e) above or Section 8 and (ii) an Award of Capital Stock or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Capital Stock
(including, without limitation, securities convertible into Capital Stock), as deemed by the Plan Administrator to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award agreement, the Plan
Administrator shall determine the terms and conditions of any such Other Share-Based Award.
Section 8. Non-Employee Director Awards.
Notwithstanding anything to the contrary contained in this Plan, each Non-Employee Director shall only be entitled to receive the
following types and amounts of Awards under this Plan:
(a) Each Non-Employee Director shall receive an annual Nonstatutory Stock
Option award to purchase up to 40,000 Shares, as determined by the Board, at Fair Market Value, such Option to vest as to exercisability in three (3) equal, annual installments and to have a term of ten (10) years.
(b) Each Non-Employee Director shall receive an annual Restricted Stock Award or Restricted Unit Award for Shares with a Fair Market Value of
up to $500,000, as determined by the Board, rounded to the nearest whole Share. Such Awards shall vest and the restrictions on transfer shall lapse as to one-third of the Shares subject to the Award on each anniversary of the date of grant
provided that the Non-Employee Director continues to serve on the Board.
(c) Each new Non-Employee Director shall receive, as of
the first date of service on the Board, a Nonstatutory Stock Option to purchase twice the number of Shares provided in the Nonstatutory Stock Option most recently granted to the Non-Employee Directors (other than the lead director) and a Restricted
Stock Award or Restricted Unit Award based on the number of Shares provided in the Restricted Stock Award most recently granted to the
Non-Employee
Directors (other than the lead director) but pro rated for
the amount of the fiscal year remaining as of the first date of service.
(d) Each Non-Employee director may receive Performance
Share Awards and Performance Unit Awards annually in the discretion of the Plan Administrator with a Fair Market Value of up to $500,000, as determined by the Board, rounded to the nearest whole Share.
Section 9. Tax Withholding.
(a) Whenever a payment or Shares are to be issued under the Plan or as otherwise required by applicable law, the Company shall have the right
to require the Grantee to remit to the Company an amount sufficient to satisfy federal, state local or foreign tax withholding requirements prior to payment or the delivery of any certificate for such Shares; provided, however, that in the case of a
Grantee who receives an Award of Shares under the Plan which is not fully vested, the Grantee shall remit such amount on the first business day following the Tax Date. The Tax Date for purposes of this Section 9 shall be the date on
which the amount of tax to be withheld is determined. If an Optionee makes a
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disposition of Shares acquired upon the exercise of an Incentive Stock Option within the applicable disqualifying period, the Optionee shall promptly notify the Company and the Company shall have
the right to require the Optionee to pay to the Company an amount sufficient to satisfy federal, state and local tax withholding requirements, if any.
(b) A Participant who is obligated to pay the Company an amount required to be withheld under applicable tax withholding requirements may pay such amount (i) in cash; (ii) in the discretion of the Plan
Administrator, through the withholding by the Company of Shares otherwise deliverable to the Participant or through the delivery by the Participant to the Company of previously-owned Shares in each case having an aggregate Fair Market Value on the
Tax Date equal to the tax obligation; or (iii) in the discretion of the Plan Administrator, through a combination of the foregoing. Notwithstanding the foregoing or any provisions of the Plan to the contrary, any broker-assisted cashless
exercise shall comply with the requirements for equity classification of FASB ASC Topic 718, or its successor.
Section 10. Adjustment
of Number and Price of Shares.
(a) In the event of a corporate transaction involving the Company (including, without
limitation, any stock dividend, stock split, reverse stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the Plan Administrator shall make an
equitable adjustment to the shares to be issued under the Plan and to outstanding Awards to preserve the benefits or potential benefits of the Awards. Action by the Plan Administrator may include: (i) adjustment of the number and kind of
securities which may be delivered under the Plan; (ii) adjustment of the number and kind of securities subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding Options and SARs; (iv) adjustment of the share
limitations contained in this Plan; and (v) any other adjustments that the Plan Administrator determines to be equitable. Any such adjustment shall be effective and binding for all purposes of the Plan and on each outstanding Award.
If the outstanding Shares shall be changed into or exchangeable for a different number or kind of shares of stock or other securities of the Company
or another corporation, or cash or other property, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each Share subject to any then
outstanding Option, SAR, Performance Share or other Award, and for each Share which may be issued under the Plan but which is not then subject to any outstanding Option, SAR, Performance Share or other Award, the number and kind of shares of stock
or other securities (and in the case of outstanding Options, SARs, Performance Shares or other Awards, the cash or other property) into which each outstanding Share shall be so changed or for which each such share shall be exchangeable. Unless
otherwise determined by the Committee in its discretion, any such stock or securities, as well as any cash or other property, into or for which any Restricted Stock held in escrow shall be changed or exchangeable in any such transaction shall also
be held by the Company in escrow and shall be subject to the same restrictions as are applicable to the Restricted Stock in respect of which such stock, securities, cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in this Section 10, the aggregate option price for all Shares subject to each then
outstanding Option, SAR or other Award, prior to such adjustment or substitution shall be the aggregate option price for all shares of stock or other securities (including any fraction), cash or other property to which such Shares shall have been
adjusted or which shall have been substituted for such Shares. Any new option price per share or other unit shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number.
If the outstanding Shares shall be changed in value by reason of any spin off, split off or split up, or dividend in partial liquidation, dividend
in property other than cash, or extraordinary distribution to shareholders of the Capital Stock, (a) the Committee shall make any adjustments to any then outstanding Option, SAR, Performance Share or other Award, which it determines are equitably
required to prevent dilution or enlargement of the rights of optionees and awardees which would otherwise result from any such transaction, and (b) unless otherwise determined by the Committee in its discretion, any stock, securities, cash or other
property distributed with respect to any Restricted Stock held in escrow or for which any Restricted Stock held in escrow shall be exchanged in any such
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transaction shall also be held by the Company in escrow and shall be subject to the same restrictions as are applicable to the Restricted Stock in respect of which such stock, securities, cash or
other property was distributed or exchanged.
(b) Without limiting the foregoing, in the event that, by reason of a corporate
merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board shall authorize the issuance or assumption of an Option in a transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Plan Administrator may grant an Option upon such terms and conditions as it may deem appropriate for the purpose of assumption of the old Option, or substitution of a new Option for the old Option, in conformity
with the provisions of Code Section 424(a) and the rules and regulations thereunder, as they may be amended from time to time.
(c) No adjustment or substitution provided for in this Section 10 shall require the Company to issue or to sell a fractional share and the
total adjustment or substitution with respect to each Award agreement shall be limited accordingly.
(d) Without limiting the
foregoing, and notwithstanding anything to the contrary contained in the Plan or any document with respect to any Award, in the event of a Business Combination under the terms of which the holders of Capital Stock of the Company will receive upon
consummation thereof cash for each share of Capital Stock of the Company surrendered pursuant to such Business Combination (the Cash Purchase Price), the Plan Administrator may provide that all outstanding Awards representing the right
to purchase or receive Shares shall terminate upon consummation of the Business Combination and each such Award, including each Option and SAR, shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (i) the Cash
Purchase Price multiplied by the number of Shares subject to such Award held by such Grantee exceeds (ii) the aggregate purchase or exercise price, if any, thereof.
(e) With respect to any Award subject to Section 162(m) or Section 409A, no such adjustment shall be authorized to the extent that such authority would cause the Plan or an Award to fail to comply with Section
162(m) or Section 409A.
Section 11.
Change in Control
. Notwithstanding any other provision of the Plan to the
contrary, and unless the applicable Award agreement shall otherwise provide, in the event the employment of a Participant is terminated by the Company and its Affiliates without cause or the Participant terminates their employment for
Good Reason, in either case within the six-month period immediately preceding a Change in Control in contemplation of such Change in Control (and the Change in Control actually occurs) or during the two-year period following a Change in Control (i)
all Stock Options and freestanding SARs which are then outstanding hereunder shall become fully vested and exercisable, (ii) all restrictions with respect to Shares of Restricted Stock or Restricted Units which are then outstanding hereunder shall
lapse, and such Shares or Units shall be fully vested and nonforfeitable and (iii) all restrictions with respect to Performance Shares and Performance Units which are then outstanding and for which performance periods are already completed shall
lapse, and such Shares or Units, measured at actual performance achieved, shall be fully vested and nonforfeitable. Notwithstanding any other provision of this Plan to the contrary, and unless the applicable Award Agreement shall otherwise
provide, if a Change in Control occurs prior to the end of any performance period, with respect to all Performance Shares and Performance Units which are then outstanding hereunder, the target level of performance set forth with respect to each
performance criterion under such Performance Shares and Performance Units shall be deemed to have been attained and such Performance Shares or Units shall be converted into and remain outstanding as Restricted Stock Units, subject to forfeiture
unless the Participant continues to be actively employed by the Company through the end of the original performance period, but subject to exception in the case of a termination of employment by the Company without cause or a termination of
employment by the Participant for Good Reason, and such other exceptions as may be provided by the Committee.
Section 12.
Termination of Employment and Forfeiture
. Notwithstanding any other provision of the Plan (other than provisions regarding Change in Control, which shall apply in all events), a Participant shall have no right to exercise any Option or
vest in any Shares awarded under the Plan if following the Participants termination of employment with the Company or any Subsidiary, Affiliate or
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Parent of the Company and within a period of two years thereafter or such longer period as may be provided in an employment or similar agreement between the Participant and the Company, the
Participant engages in any business or enters into any employment which the Board in its sole discretion determines to be either directly or indirectly competitive with the business of the Company or substantially injurious to the Companys
financial interest or violates any post-termination contractual obligations with the Company (the occurrence of an event described above or other events described in the Companys then-effective forfeiture and recoupment policies shall be
referred to herein as Injurious Conduct). Furthermore, notwithstanding any other provision of the Plan to the contrary, in the event that a Participant receives or is entitled to the delivery or vesting of cash or Shares pursuant to
an Award made during the 12-month period prior to the Participants termination of employment with the Company or any Subsidiary, Affiliate or Parent of the Company or during the 24-month period following the Participants termination of
such employment, then the Board, in its sole discretion, may require the Participant to return or forfeit to the Company the cash or Capital Stock received with respect to such Award (or its economic value as of (i) the date of the exercise of the
Option or (ii) the date of grant or payment with respect to any other Award, as the case may be) in the event that the participant engages in Injurious Conduct.
Section 13.
Amendment and Discontinuance
. The Board may alter, amend, suspend or discontinue the Plan, provided that no such action shall deprive any person without such persons consent of
any rights theretofore granted pursuant hereto and, provided further, that the Board may not, without shareowner approval, (a) increase the benefits accrued to participants under the Plan, (b) increase the number of Shares that may be issued
under the Plan, (c) materially modify the requirements for participation under the Plan, (d) amend the Plan to include a provision that would allow the Board to lapse or waive restrictions at its discretion (except as otherwise provided herein or in
the case of death, Disability, Retirement, involuntary termination by the Company without cause, or Change in Control), or (e) otherwise materially amend this Plan. Notwithstanding the foregoing or any provision of the Plan or an Award
agreement to the contrary, the Board may at any time (without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan or an Award Agreement or establish special rules and/or sub-plans to the extent
necessary to: (i) conform the provisions of the Plan and/or Award with Section 162(m), Section 409A or any other provision of the Code or other applicable law, the regulations issued thereunder or an exception thereto, regardless of whether
such modification, amendment or termination of the Plan and/or Award shall adversely affect the rights of a Participant; and (ii) to enable the Plan to achieve its stated purposes in any jurisdiction outside the United States in a tax-efficient
manner and in compliance with local rules and regulations.
Section 14.
Compliance with Governmental
Regulations
. Notwithstanding any provision of the Plan or the terms of any agreement entered into pursuant to the Plan, the Company shall not be required to issue any securities hereunder prior to registration of the Shares subject to the
Plan under the Securities Act of 1933, as amended, or the Exchange Act, if such registration shall be necessary, or before compliance by the Company or any Participant with any other provisions of either of those acts or of regulations or rulings of
the Securities and Exchange Commission thereunder, or before compliance with other federal and state laws and regulations and rulings thereunder, including the rules of the New York Stock Exchange, Inc. and any other exchange or market on which the
Shares are listed or quoted. The Company shall use its reasonable best efforts to effect such registrations and to comply with such laws, regulations and rulings forthwith upon advice by its counsel that any such registration or compliance is
necessary.
Section 15.
Compliance with Section 16
. With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 (or its successor rule). To the extent that any grant of an Award fails to so comply, it shall be deemed null and void to the extent permitted by
law and to the extent deemed advisable by the Plan Administrator.
Section 16.
Participation by Foreign Nationals
. In
order to facilitate the making of any grant or combination of grants under this Plan, the Plan Administrator may provide for such special terms for Awards to Participants who are foreign nationals, or who are employed by or perform services for the
Company or any Subsidiary or Affiliate outside of the United States of America, as the Plan
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Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Plan Administrator may approve such sub-plans for,
supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose, provided that no
such sub-plans, supplements, amendments, restatements or alternative versions shall include any provisions that are inconsistent with the terms of this Plan, as then in effect, unless this Plan could have been amended to eliminate such inconsistency
without further approval by the shareholders of the Company.
Section 17.
No Right to Employment
. The Plan shall not
confer upon any Participant any right with respect to continuation of any employment or consulting relationship with the Company or membership on the Board, nor shall it interfere in any way with the right to terminate such Participants
employment or consulting relationship at any time, with or without cause.
Section 18.
Governing Law
. The validity,
constrictions and effect of this Plan, agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Plan Administrator relating to the Plan or such agreements, and the rights of any and all
persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the Commonwealth of Pennsylvania, without regard to its conflict of laws principles.
Section 19.
Section 409A
. Notwithstanding any provision of the Plan or an Award agreement to the contrary, if any
Award or benefit provided under this Plan is subject to the provisions of Section 409A, the provisions of the Plan and any applicable Agreement shall be administered, interpreted and construed in a manner necessary to comply with Section 409A or an
exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted or construed). The following provisions shall apply, as applicable:
(a) If a Participant is a Specified Employee and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a
period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant). Any payment that would otherwise have been due or owing during such six-month period will be paid immediately
following the end of the six-month period in the month following the month containing the six-month anniversary of the date of termination unless another compliant date is specified in the applicable Award agreement.
(b) For purposes of Section 409A, and to the extent applicable to any Award or benefit under the Plan, it is intended that distribution events
qualify as permissible distribution events for purposes of Section 409A and shall be interpreted and construed accordingly. With respect to payments subject to Section 409A, the Company reserves the right to accelerate and/or defer any payment
to the extent permitted and consistent with Section 409A. Whether a Participant has Separated from Service or employment will be determined based on all of the facts and circumstances and, to the extent applicable to any Award or benefit, in
accordance with the guidance issued under Section 409A. For this purpose, a Participant will be presumed to have experienced a Separation from Service when the level of
bona fide
services performed permanently decreases to a level less
than twenty percent (20%) of the average level of
bona fide
services performed during the immediately preceding thirty-six (36) month period or such other applicable period as provided by Section 409A.
(c) The Plan Administrator, in its discretion, may specify the conditions under which the payment of all or any portion of any Award may be
deferred until a later date. Deferrals shall be for such periods or until the occurrence of such events, and upon such terms and conditions, as the Plan Administrator shall determine in its discretion, in accordance with the provisions of
Section 409A, the regulations and other binding guidance promulgated thereunder; provided, however, that no deferral shall be permitted with respect to Options and other stock rights subject to Section 409A. An election shall be made by filing
an election with the Company (on a form provided by the Company) on or prior to December 31st of the calendar year immediately preceding the beginning of the calendar year (or other applicable service period) to which such election relates (or at
such other date as may be specified by the Plan Administrator to the extent consistent with Section 409A) and shall be irrevocable for such applicable calendar year (or other applicable service period).
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(d) The grant of Nonstatutory Stock Options and other stock rights shall be granted under terms
and conditions consistent with Treas. Reg. § 1.409A-1(b)(5) such that any such Award does not constitute a deferral of compensation under Section 409A. Accordingly, any such Award may be granted to Employees of the Company and its
subsidiaries and affiliates in which the Company has a controlling interest. In determining whether the Company has a controlling interest, the rules of Treas. Reg. § 1.414(c)-2(b)(2)(i) shall apply; provided that the language
at least 50 percent shall be used instead of at least 80 percent in each place it appears; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(b)(5)(iii)(E)(i)),
the language at least 20 percent shall be used instead of at least 80 percent in each place it appears. The rules of Treas. Reg. §§ 1.414(c)-3 and
1.414(c)-4
shall
apply for purposes of determining ownership interests.
(e) In no event shall any member of the Board, the Committee or the Company
(or its employees, officers or directors) or the Plan Administrator have any liability to any Participant (or any other Person) due to the failure of an Award to satisfy the requirements of Section 409A.
Section 20.
Compliance with Age Discrimination Rule Applicable Only to Participants Who Are Subject to the Laws in the European
Union
. The grant of the Option and the terms and conditions governing the Option are intended to comply with the age discrimination provisions of the European Union (EU) Equal Treatment Framework Directive, as implemented into local law
(the
Age Discrimination Rules
), if applicable, for any Participant who is subject to the laws in the EU. To the extent a court or tribunal of competent jurisdiction determines that any provision of the Option is
invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Plan Administrator shall have the power and authority to revise or strike such provision to the minimum extent as the Plan Administrator deems appropriate and/or
necessary to make it valid and enforceable to the full extent permitted under local law.
Section 21.
Designation of
Beneficiary by Participant
. A Participant may name a beneficiary to receive any payment to which such Participant may be entitled with respect to any Award under this Plan in the event of his or her death, on a written form to be provided
by and filed with the Company, and in a manner determined by the Committee in its discretion (a
Beneficiary
). The Plan Administrator reserves the right to review and approve Beneficiary designations. A Participant
may change his or her Beneficiary from time to time in the same manner, unless such Participant has made an irrevocable designation. Any designation of a Beneficiary under this Plan (to the extent it is valid and enforceable under applicable
law) shall be controlling over any other disposition, testamentary or otherwise, as determined by the Committee in its discretion. If no designated Beneficiary survives the Participant and is living on the date on which any amount becomes
payable to such a Participants Beneficiary, such payment will be made to the legal representatives of the Participants estate, and the term
Beneficiary
as used in this Plan shall be deemed to include such Person
or Persons. If there are any questions as to the legal right of any Beneficiary to receive a distribution under this Plan, the Plan Administrator in its discretion may determine that the amount in question be paid to the legal representatives
of the estate of the Participant, in which event the Company, the Board, the Plan Administrator, the Designated Administrator (if any), and the members thereof, will have no further liability to anyone with respect to such amount.
Section 22.
Clawbacks
. To the extent required by applicable law or any applicable securities exchange listing standards,
including but not limited to Section 304 of the Sarbanes-Oxley Act of 2002, Awards and amounts paid or payable pursuant to or with respect to Awards shall be subject to clawback as determined by the Plan Administrator, which clawback may include
forfeitures, repurchase, reimbursement and/or recoupment of Awards and amounts paid or payable pursuant to or with respect to Awards, in each instance in accordance with applicable law or listing standards. All Awards granted under this Plan,
any property, including Shares, received in connection with any exercise or vesting of, or lapse of restriction on, any Awards, and any proceeds received from the disposition of any such property, shall be subject to any clawback policy adopted, and
amended from time to time, by the Plan Administrator. The Plan Administrator shall have discretion with respect to any clawback to determine whether the Company shall effect any such recovery (i) by seeking repayment from the Participant, (ii)
by reducing (subject to applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the
Company or any
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Subsidiary, Affiliate or Parent of the Company, (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amounts) or grants of
compensatory awards that would otherwise have been made in accordance with the Companys otherwise applicable compensation practices, or (iv) by any combination of the foregoing or otherwise.
Section 23.
Effective Date of Plan/Duration
. The amendment, restatement and renaming of the Plan shall be effective on October
25, 2016, subject to its approval by the shareowners of the Company. No Award may be granted under the Plan after October 24, 2026. Awards granted on or prior to October 24, 2026 shall remain outstanding in accordance with this Plan and
their respective terms.
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Kennametal
Inc.
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Electronic Voting Instructions
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Available 24 hours a day, 7 days a week!
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Instead of mailing your proxy, you may choose one of the
voting methods outlined below to vote your proxy.
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VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE
BAR.
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Proxies submitted by the Internet or telephone must be
received by 11:59 PM EST October 24, 2016.
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Vote by Internet
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Go to
www.envisionreports.com/KMT
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Or scan the QR code with your smartphone
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Follow the steps outlined on the secure website
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Vote by telephone
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Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone
telephone
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Using a
black ink
pen, mark your votes with an
X
as shown in this example. Please do not write outside the designated areas.
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x
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Follow the instructions provided by the recorded message
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q
IF YOU HAVE NOT VOTED VIA THE INTERNET
OR
TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
q
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A
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Proposals The Board of Directors recommends a vote
FOR
all the nominees listed and
FOR
Proposals II, III, IV and V.
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I.
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Election of Directors:
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01 -
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Cindy L. Davis
(for a term to expire in 2017)
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02 -
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William J. Harvey
(for a term to expire in 2017)
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03 -
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William M. Lambert
(for a term to expire in 2017)
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04 -
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Sagar A. Patel
(for a term to expire in 2017)
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+
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¨
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Mark here to vote
FOR
all nominees
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¨
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Mark here to
WITHHOLD
vote from all nominees
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¨
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For all
EXCEPT
- To withhold authority to vote for any
nominee(s), write the name(s) of such nominee(s) below.
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For
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Against
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Abstain
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II.
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RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2017.
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¨
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¨
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¨
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IV.
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APPROVAL OF THE KENNAMETAL INC. ANNUAL INCENTIVE PLAN.
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¨
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¨
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¨
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For
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Against
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Abstain
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III.
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NON-BINDING (ADVISORY) VOTE TO APPROVE THE COMPENSATION PAID TO THE COMPANYS NAMED EXECUTIVE OFFICERS.
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¨
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¨
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¨
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V.
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APPROVAL OF THE KENNAMETAL INC. 2016 STOCK AND INCENTIVE PLAN.
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¨
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¨
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¨
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This Proxy, when properly
executed, will be voted in the manner directed herein.
If no direction is made, this Proxy will be voted FOR the election of the nominees in Item I, FOR the ratification of PricewaterhouseCoopers LLP as the Companys independent registered
public accounting firm in Item II and FOR the non-binding (advisory) vote to approve the compensation paid to the Companys Named Executive Officers in Item III. FOR the approval of the Kennametal Inc. Annual Incentive Plan in Item IV, and FOR
the approval of the Kennametal Inc. 2016 Stock and Incentive Plan in Item V.
The proxies are authorized to vote, in accordance with their judgment, upon such other matters as may properly come before the meeting and any adjournments thereof.
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B
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Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below
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NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
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Date (mm/dd/yyyy) Please print date below.
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Signature 1 Please keep signature within the box.
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Signature 2 Please keep signature within the box.
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/ /
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IF VOTING BY MAIL, YOU
MUST
COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
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¢
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+
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02EKOE
Important notice regarding the Internet
availability of proxy materials for the Annual Meeting of Shareowners.
The Proxy Statement and the 2016 Annual Report to Shareowners are available at:
www.envisionreports.com/KMT
q
IF YOU HAVE NOT VOTED VIA THE INTERNET
OR
TELEPHONE, FOLD ALONG
THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
q
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Proxy KENNAMETAL INC.
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+
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2016 MEETING OF SHAREOWNERS OCTOBER 25, 2016