<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or 14a-12
KENNAMETAL, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount previously paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE> 2
KENNAMETAL INC.
LATROBE, PENNSYLVANIA 15650
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1997
To the Stockholders of Kennametal Inc.:
The Annual Meeting of Stockholders of Kennametal Inc. will be held at the
Corporate Technology Center, located on Route 981 South, approximately 1/4 mile
south of its intersection with U.S. Route 30 near Latrobe, Unity Township,
Pennsylvania, on Monday, October 27, 1997, at 2:00 p.m., to consider and act
upon the following matters:
1. The election of two directors for terms to expire in 2000;
2. The election of auditors for the fiscal year ending June 30, 1998; and
3. Such other business as may properly come before the meeting.
The Board of Directors has fixed Monday, September 8, 1997, as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting.
IF YOU ARE UNABLE TO ATTEND THE MEETING, IT IS REQUESTED THAT YOU COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
David T. Cofer
Secretary
September 12, 1997
<PAGE> 3
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 27, 1997
This Proxy Statement is being furnished to the stockholders of Kennametal
Inc. (the "Corporation") in connection with the solicitation by the Board of
Directors of the Corporation of proxies to be voted at the Annual Meeting of
Stockholders which is scheduled to be held on October 27, 1997. Only holders of
capital stock, par value $1.25 per share, of the Corporation ("Capital Stock")
of record at the close of business on September 8, 1997, will be entitled to
vote at the meeting. On that date there were 26,207,991 shares of Capital Stock
outstanding and entitled to one vote per share. Any stockholder who executes and
returns the proxy may revoke it at will at any time prior to the voting of the
proxy, but revocation of the proxy will not be effective until written notice
thereof has been received by the Secretary of the Corporation. The proxy may
also be revoked by voting in person at the meeting or by delivering a later
dated, signed proxy. The shares represented by all properly executed proxies
received by the Secretary in the accompanying form of proxy prior to the meeting
and not so revoked will be voted. Where a choice is specified on the form of
proxy, the shares will be voted in accordance with the choice made therein. If
no such choice is made, the shares will be voted in accordance with the
recommendation of the Board of Directors. Under Pennsylvania law and the
Corporation's Articles of Incorporation and By-Laws, abstentions and broker
non-votes will have no effect on matters to be voted on at the Annual Meeting
since directors are elected by plurality vote and auditors are to be elected by
the affirmative vote of at least a majority of the votes cast by stockholders
present, in person or by proxy, at the meeting. A majority of the named proxies
who shall be present and shall act at the meeting (or if only one shall be
present and act, then that one) may exercise all powers granted to them by the
proxies solicited hereunder. The address of the principal executive offices of
the Corporation is Route 981 South at Westmoreland County Airport, P.O. Box 231,
Latrobe, Pennsylvania 15650, and the date this Proxy Statement was mailed to
stockholders was on or about September 19, 1997.
ELECTION OF DIRECTORS
Two directors are to be elected to hold office as Directors of the Second
Class for terms of three years, and until their successors are elected and
qualified.
The holders of Capital Stock have cumulative voting rights in the election
of directors. In voting for directors, a stockholder has the right to multiply
the total number of shares, which the stockholder is entitled to vote, by the
number of directors to be elected in each class, and to cast the whole number of
votes so determined for one nominee in the class or to distribute them among the
nominees if more than one nominee is named in such class. Proxies who vote at
the meeting on behalf of a stockholder will have the discretion to and may
exercise such cumulative voting rights. The two individuals who receive the
largest number of votes cast will be elected as Directors of the Second Class.
The persons named in the enclosed form of proxy were selected by the Board
of Directors and have advised the Board of Directors that, unless authority is
withheld, they intend to vote the shares represented by them at the meeting for
the election of the following nominees named to serve as directors. The nominees
for election for terms of three years in the Second Class of Directors are
Richard C. Alberding and William R. Newlin, who have each served as a director
since 1982. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
ELECTION OF EACH OF THESE NOMINEES. Quentin C. McKenna, age 71, who has served
as a director since 1971, will retire from the Board of Directors effective
October 27, 1997. Therefore, the Second Class of Directors shall be reduced from
three to two members effective October 27, 1997.
If at the time of the meeting any of the foregoing nominees is not
available to serve as a director, an event which the Corporation has no reason
to anticipate, the Corporation has been informed that the persons named in the
enclosed form of proxy intend to vote the shares represented by them at the
meeting for such other person or persons, if any, as may be nominated by the
Board of Directors.
<PAGE> 4
The following table provides certain information concerning each nominee
for election as a director and each director whose term of office will continue
after the meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
- ----------------------------- -----------------------------------------------------------
<S> <C>
Nominees for Directors of the Second Class Whose Terms Expire in 2000
Richard C. Alberding Retired, having served as Executive Vice President,
Age: 66 Marketing and International, of Hewlett-Packard Company (a
Director since 1982 designer and manufacturer of electronic products for
measurement and computation). Director of Walker
Interactive Systems, Inc., Sybase, Inc., Digital Microwave
Corp., Paging Network, Inc., Quickturn Design Systems Inc.,
Digital Link Corporation, Storm Technology Inc. and JLK
Direct Distribution Inc.
William R. Newlin (3) Managing Director of Buchanan Ingersoll Professional
Age: 56 Corporation (attorneys at law). Managing General Partner of
Director since 1982 CEO Venture Funds (private venture capital funds). Director
of Black Box Corporation, National City Bank of
Pennsylvania, Parker/Hunter Incorporated, the Pittsburgh
High Technology Council and CME Information Services, Inc.
Chairman of the Board of Directors of the Corporation and
of JLK Direct Distribution Inc.
Directors of the Third Class Whose Terms Expire in 1998
A. Peter Held President of Cooper Power Tools Division of Cooper
Age: 53 Industries, Inc. (a manufacturer and marketer of industrial
Director since 1995 power tools), having served as Vice President and General
Manager International of its Champion Spark Plug Division
from 1992 to 1994, and as Vice President International
Operations of its Cooper Hand Tools Division until 1992.
Aloysius T. McLaughlin, Jr. Retired, having served as Vice Chairman of Dick Corporation
Age: 62 (a general contractor) from 1993 to 1995 and as President
Director since 1986 and Chief Operating Officer from 1985 until 1993. Director
of JLK Direct Distribution Inc.
Larry Yost Senior Vice President, President, Automotive, and Acting
Age: 59 President, Heavy Vehicle Systems, Rockwell International
Director since 1987 Corporation (a provider of components for heavy vehicles),
having previously served as President, Heavy Vehicle
Systems, Rockwell International Corporation from November
1994 until March 1997 and as Senior Vice President of the
Operations Group of Allen-Bradley Company until November
1994.
Directors of the First Class Whose Terms Expire in 1999
Peter B. Bartlett General Partner of Brown Brothers Harriman & Co. (private
Age: 63 bankers). Director of Erie Indemnity Company, Erie Family
Director since 1975 Life Insurance Company and Erie Insurance Company.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
- ----------------------------- -----------------------------------------------------------
<S> <C>
Warren H. Hollinshead Retired having served as Executive Vice President of
Age: 61 Westinghouse Electric Corporation (a technology-based
Director since 1990 manufacturing, communications and services company) during
1994, having previously served as Executive Vice
President--Chief Financial Officer from January 1991 until
March 1994.
Robert L. McGeehan President of the Corporation since July 1989 and Chief
Age: 60 Executive Officer since October 1991. Served as Director of
Director since 1989 Metalworking Systems Division from 1988 to 1989, and as
General Manager of Machining Systems Division from 1985 to
1988. Director of JLK Direct Distribution Inc.
</TABLE>
- ---------
(1) Each current director has served continuously since he was first elected.
(2) Unless otherwise shown in the table, each person named has served in his
principal occupation during the past five years.
(3) The law firm of which William R. Newlin is a member performed services for
the Corporation during fiscal years 1997 and 1998.
BOARD OF DIRECTORS AND BOARD COMMITTEES
The Corporation's Board of Directors held seven meetings during the year
ended June 30, 1997. The committees of the Board of Directors include an
Executive Committee, an Audit Committee, a Committee on Executive Compensation
and a Nominating Committee. Each director attended at least 75% of the meetings
of the Board of Directors and any committee of which he is a member.
Executive Committee: The Executive Committee met five times during the past
fiscal year. The Committee's duties include monitoring performance of the
Corporation's business plan, reviewing certain business strategies and reviewing
management performance and succession. The following directors currently
comprise the Committee: William R. Newlin (Chairman), Richard C. Alberding,
Peter B. Bartlett and Aloysius T. McLaughlin, Jr.
Audit Committee: The Audit Committee met four times during the past fiscal
year. The Committee's primary function is to evaluate management's performance
of its financial reporting responsibilities including the annual report and
proxy materials. The Committee also reviews the internal financial and
operational controls of the Corporation, monitors the fees, results and
effectiveness of the annual audit and compliance with the Corporation's code of
business conduct and the independence of the public accountants. The Committee
also reviews compliance with legal, regulatory and employee benefit plan
reporting requirements and monitors critical management information systems. The
Committee recommends to the Board of Directors, for approval by the Board of
Directors and the stockholders, the election of the independent public
accountants. The following directors currently comprise the Committee: Richard
C. Alberding (Chairman), Peter B. Bartlett and Larry Yost.
Committee on Executive Compensation: The Committee on Executive
Compensation met six times during the past fiscal year. The Committee's duties
include the setting of compensation rates of the Corporation's officers, the
determination of additional compensation, if any, to be awarded to such
officers, and the administration of the Stock Option Plan of 1982, the Stock
Option and Incentive Plan of 1988, the Stock Option and Incentive Plan of 1992
and the Stock Option and Incentive Plan of 1996. The following directors
currently comprise the Committee: Aloysius T. McLaughlin, Jr. (Chairman),
3
<PAGE> 6
Warren H. Hollinshead and A. Peter Held. The report of the Committee on
Executive Compensation appears elsewhere in this Proxy Statement.
Nominating Committee: The Nominating Committee met once during the past
fiscal year. The Committee's duties include recommending to the Board of
Directors nominees for directors to be elected at the Annual Meeting of
Stockholders or to be elected to fill any vacancies in the Board of Directors
which may occur. The Committee considers nominees recommended by stockholders.
Pursuant to the By-Laws of the Corporation, stockholder recommendations of
nominees for the Board must be submitted in advance of any meeting and must
comply with certain requirements set forth in the By-Laws. See "Stockholder
Proposals and Nominating Procedures" on page 15 of this Proxy Statement. The
following directors currently comprise the Committee: Robert L. McGeehan
(Chairman), Larry Yost and A. Peter Held.
Directors who are not employees of the Corporation each receive
compensation from the Corporation for services as a director at an annual rate
of $30,000. Members of the Audit Committee and members of the Committee on
Executive Compensation who are not employees of the Corporation each receive
additional annual compensation of $4,000. Nonemployee directors who are members
of the Executive Committee receive a fee of $1,100 per Executive Committee
meeting. Nonemployee directors who are members of the Nominating Committee
receive a fee of $1,000 per meeting. Under the Deferred Fee Plan for Outside
Directors (the "Deferred Fee Plan"), directors are permitted annually to request
that the payment of any compensation that may be payable to them for services as
a director or committee member be deferred for payment, with interest, at a
later time. The deferred payments would be actually funded by a transfer of cash
into a deferred compensation trust (a so-called "Rabbi Trust"), administered by
an independent trustee, upon the occurrence of a threatened or actual change in
control of the Corporation (as defined in the deferred compensation trust
agreement). Under the Corporation's Directors Stock Incentive Plan, any director
who is not an employee may elect to receive shares of the Corporation's Capital
Stock in lieu of all or a portion of any consideration payable for services as a
director that is not deferred pursuant to the Deferred Fee Plan. In addition,
any director who is not an employee may elect to receive credits, representing
shares of the Corporation's Capital Stock ("Stock Credits"), with respect to all
or a portion of any consideration deferred pursuant to the Directors Stock
Incentive Plan. Directors who are not employees of the Corporation also receive
$50,000 of life insurance coverage that is paid for by the Corporation.
Directors who are employees of the Corporation do not receive any compensation
for services as a director or as a member of any committee of the Board of
Directors.
4
<PAGE> 7
OWNERSHIP OF CAPITAL STOCK BY
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of the
Corporation's Capital Stock as of July 30, 1997, by each director, each nominee
for director, each Named Executive Officer (as hereinafter defined) and all
directors and executive officers as a group.
<TABLE>
<CAPTION>
TOTAL
BENEFICIAL
AMOUNT OF OWNERSHIP
BENEFICIAL OWNERSHIP STOCK AND STOCK
NAME OF BENEFICIAL OWNER (1)(2) CREDITS(8) CREDITS
- ------------------------------------------------ ----------------------- -------- ---------
<S> <C> <C> <C>
Richard C. Alberding............................ 1,734(3) 0 1,734
Peter B. Bartlett............................... 2,300 5,289 7,589
A. Peter Held................................... 1,700 283 1,983
Warren H. Hollinshead........................... 3,505(4) 477 3,982
Robert L. McGeehan.............................. 263,049(5) 6,747 269,796
Quentin C. McKenna.............................. 22,038(6) 0 22,038
Aloysius T. McLaughlin, Jr...................... 20,901 5,291 26,192
William R. Newlin............................... 24,385(7) 9,260 33,645
Larry Yost...................................... 1,500 4,457 5,957
H. Patrick Mahanes, Jr.......................... 81,748 3,036 84,784
Richard J. Orwig................................ 81,927 3,374 85,301
Michael W. Ruprich.............................. 38,723 0 38,723
David B. Arnold................................. 65,241 1,771 67,012
Directors and Executive Officers as a Group (16
persons)...................................... 697,156 41,501 738,657
</TABLE>
- ---------
(1) The figures shown include 216,507, 69,800, 62,793, 34,834, 37,756 and
479,423 shares over which Messrs. McGeehan, Mahanes, Orwig, Ruprich and
Arnold and all directors and executive officers as a group, respectively,
have the right to acquire within 60 days of July 30, 1997, pursuant to the
Corporation's stock option plans.
(2) No individual beneficially owns in excess of one percent of the total shares
outstanding. Directors and executive officers as a group beneficially own
2.7% of the total shares outstanding. Unless otherwise noted, the shares
shown are subject to the sole voting and investment power of the person
named.
(3) All such shares are owned jointly by Mr. Alberding and his wife.
(4) All such shares are owned jointly by Mr. Hollinshead and his wife.
(5) The figure shown includes 8,214 shares owned jointly by Mr. McGeehan and his
wife.
(6) The figure includes 100 shares owned by Mr. McKenna's wife of which he
disclaims beneficial ownership.
(7) The figure shown includes 2,276 shares owned jointly by Mr. Newlin and his
wife and 1,236 shares owned by Mr. Newlin's wife. Mr. Newlin disclaims
beneficial ownership of shares owned by his wife.
(8) These amounts represent Stock Credits to which non-employee directors are
entitled pursuant to the Directors Stock Incentive Plan described on page 4
and to which executive officers are entitled pursuant to the Corporation's
Management Performance Bonus Plan described on page 11.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Corporation
during its last three fiscal years to its Chief Executive Officer and each of
the other four most highly compensated executive officers of the Corporation
(the "Named Executive Officers") whose aggregate direct remuneration exceeded
$100,000 during the fiscal year ended June 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
------------------------ AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS (#) (2)(3)(4)($)
- ---------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert L. McGeehan, 1997 550,045 330,000 15,629
President and 45,000(4)
Chief Executive Officer 1996 513,025 240,000 25,793
1995 463,662 375,000 15,000(5) 11,827
20,000
45,000
H. Patrick Mahanes, Jr., 1997 306,295 122,500 5,750
Vice President, 1996 285,765 98,000 15,000(4) 5,750
Chief Operating Officer 1995 265,345 160,000 15,000 6,241
25,800
Richard J. Orwig, 1997 284,880 150,000 5,970
Vice President, 1996 248,665 100,000 15,000(4) 5,970
Chief Financial and 1995 215,072 140,000 13,000 6,461
Administrative Officer 20,793
Michael W. Ruprich, 1997 264,508 120,000 5,045
President, 12,500(4)
JLK Direct Distribution 1996 197,968 103,696 5,045
Inc.(6) 1995 178,384 123,270 100,000(5) 4,500
11,000
11,334
David B. Arnold, 1997 232,045 62,500 7,167
Vice President and 1996 221,577 52,500 10,000(4) 7,151
Chief Technical Officer 1995 211,504 100,000 11,000 6,716
20,756
</TABLE>
- ---------
(1) Includes, for Messrs. McGeehan, Mahanes, Orwig and Arnold bonuses paid
partially in shares of Capital Stock or in Stock Credits as elected by the
individual under the Corporation's Management Performance Bonus Plan. Under
the Management Performance Bonus Plan, any portion of a bonus paid in shares
of Capital Stock or in Stock Credits was increased by 25% of that value.
(2) This figure includes imputed income based upon premiums paid by the
Corporation to secure and maintain for certain officers, including all
executive officers of the Corporation who elect to participate, a $500,000
term life insurance policy on the life of such officer until he or she
reaches age 65. For Mr. McGeehan and Mr. Arnold, this figure also includes
amounts paid for Medicare tax and income tax gross-up on supplemental
pension benefit accrual.
(3) This figure includes amounts contributed by the Corporation under its Thrift
Plan. Eligible employees may elect to contribute 2% to 12% of their monthly
compensation (salary and, if applicable, bonus) to this plan. The
Corporation contributes to each participant's account an amount equal to
one-half of that portion of the employee's contribution that does not exceed
6% of the employee's compensation. Contributed sums are invested in
proportions as directed by the employee in a fixed income fund, various
equity funds (including the Corporation's Capital Stock) and balanced funds
(consisting of both equity and fixed income securities), each managed by
investment management companies, and can be withdrawn by the employee only
upon the
6
<PAGE> 9
occurrence of certain events. Certain terms of the plan are designed to make
available to participants the provisions of section 401(k) of the Internal
Revenue Code, which permit elective employee contributions on a pre-tax
basis.
(4) Represents options to purchase shares of the Corporation's Capital Stock.
(5) Represents options to purchase shares of the common stock of JLK Direct
Distribution Inc.
(6) Mr. Ruprich was a Vice President of the Corporation from August 1, 1994
until July 2, 1997. He served as President of J&L America, Inc. ("J&L"),
then a wholly owned subsidiary of the Corporation, from August 1, 1994 to
September 1, 1996, and currently holds that office, having been reelected on
May 1, 1997. In April 1997, the Corporation formed JLK Direct Distribution
Inc. ("JLK") to hold J&L and the Corporation's Full Service Supply programs.
In July 1997, JLK effected an initial public offering of its common stock as
a result of which the Corporation now owns approximately 80.5% of the
aggregate shares of outstanding common stock of JLK. Mr. Ruprich has been
President of JLK since its formation.
EMPLOYMENT AGREEMENTS
The Corporation has agreements with four (4) of the Named Executive
Officers and four (4) other executive officers whereby, subject to review by the
Board of Directors and a provision for termination without cause by either party
upon written notice, they will be employed by the Corporation. The agreements
generally provide that the officers will devote their entire time and attention
to the business of the Corporation, will refrain during employment and for three
years thereafter from competing with the Corporation (unless employment is
terminated by the Corporation without cause or following a change in control),
and will not disclose confidential or trade secret information belonging to the
Corporation. These agreements also require the officers to assign to the
Corporation all inventions conceived or made during their employment by the
Corporation. The agreements provide for severance payments upon termination of
employment occurring either before or after a change in control of the
Corporation, and, in the case of Mr. Ruprich, occurring either before or after a
change in control of the Corporation or JLK.
In the event of termination of his employment by the officer's employer
prior to a change in control, each officer would receive as severance pay an
amount equal to three months' base salary at the time of such termination. In
the event of termination of employment by the officer prior to a change in
control, or without good reason following a change in control, no severance
payments will be made. In general, in the event of termination of employment
after a change in control by the officer for good reason or by the employer
other than for cause or disability, each officer would receive as severance pay
2.8 times the sum of (i) his respective annual base salary at the date of
termination or, at the officer's election, his salary as of the beginning of the
month preceding the month in which the change in control occurs, and (ii) the
average of any bonuses which he was entitled to or paid during the three most
recent fiscal years ending prior to the date of termination or, at the officer's
election, the average of any bonuses that the officer was entitled to or paid
for the three fiscal years preceding the fiscal year in which the change in
control occurred. In addition, for a three year period the officer would receive
the same medical and group insurance benefits that he received at the date of
termination. The officer would also receive three years of additional credit for
purposes of computing benefits under the Corporation's retirement and
supplemental retirement plans.
STOCK OPTIONS
The Kennametal Inc. Stock Option and Incentive Plan of 1988 (the "1988
Plan") provides for the granting of nonstatutory and incentive stock options and
share awards covering 1,000,000 shares of the Capital Stock of the Corporation.
The Kennametal Inc. Stock Option and Incentive Plan of 1992 (the "1992 Plan")
provides for the granting of nonstatutory and incentive stock options and share
awards
7
<PAGE> 10
covering the lesser of 1,650,000 shares (gross) and 1,107,555 shares (net) of
the Corporation's Capital Stock. The Kennametal Inc. Stock Option and Incentive
Plan of 1996 (the "1996 Plan") provides for the granting of nonstatutory and
incentive stock options and share awards covering 1,500,000 shares of the
Corporation's Capital Stock. Although options are still outstanding under the
Kennametal Inc. Stock Option Plan of 1982, as amended, no further grants of
options may be made under that plan.
Under each of the plans, the price at which shares covered by an option may
be purchased must not be less than the fair market value of such shares at the
time the option is granted or, in the case of the non-qualified stock options
granted under the 1992 Plan, at not less than 75% of the fair market value. The
purchase price must be paid in full at the time of exercise either in cash or,
in the discretion of the Committee administering the plan, by delivering shares
of the Corporation's Capital Stock or a combination of shares and cash having an
aggregate fair market value equal to the purchase price. Under the 1988 Plan,
the 1992 Plan and 1996 Plan, any shares of the Corporation's Capital Stock
delivered as payment, in whole or in part, of the purchase price must have been
held by the optionee for at least six months.
The following table sets forth information concerning options granted to
the Named Executive Officers during the fiscal year ended June 30, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
----------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS EXERCISE OR GRANT DATE
OPTIONS GRANTED IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1)(#) FISCAL YEAR ($/SHARE) DATE VALUE(2)($)
- ------------------------ ------------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Robert L. McGeehan...... 45,000(3) 14.3 34.0625 10/31/06 617,850
15,000(4) 2.9 20.0000 07/02/07 171,600
H. Patrick Mahanes,
Jr.................... 15,000(3) 4.8 30.8125 08/01/06 189,750
Richard J. Orwig........ 15,000(3) 4.8 30.8125 08/01/06 189,750
Michael W. Ruprich...... 12,500(3) 4.0 30.8125 08/01/06 158,125
100,000(4) 19.6 20.0000 07/02/07 1,144,000
David B. Arnold......... 10,000(3) 3.2 30.8125 08/01/06 126,500
</TABLE>
- ---------
(1) Options with respect to the Corporation's Capital Stock were granted with an
exercise price equal to the fair market value of the Capital Stock on the
date of grant and require the optionee to hold ten percent of the shares
received from any exercise for a one-year period from the date of exercise.
Options with respect to the JLK common stock were granted in connection with
JLK's initial public offering and with an exercise price equal to the
initial public offering price of the JLK common stock. Such options vest
after one year.
(2) Based on the Black-Scholes Option Valuation model adjusted for dividends to
determine grant date present value of the options. The Corporation does not
advocate or necessarily agree that the Black-Scholes model properly reflects
the value of an option. The assumptions used in calculating the option value
with respect to the Corporation's Capital Stock include the following: a
risk-free interest rate of 6.53% for Mr. McGeehan's grant and 6.64% for all
others (the rate applicable to a ten-year treasury security at the time of
the award); a dividend yield of 2.0% (the annualized yield at the date of
grant); volatility of 27.7% for Mr. McGeehan's grant and 27.9% for all
others (calculated using daily stock returns for the twelve-month period
preceding the option award); and a stock price at date of grant of $34.0625
for Mr. McGeehan's grant and $30.8125 for all others (the exercise price at
which these options were granted was equal to the fair market value on the
date of grant). The value of these options under the Black-Scholes model of
option valuation applying the
8
<PAGE> 11
preceding assumptions is $13.73 per share for Mr. McGeehan's grant and
$12.65 per share for all others. The assumptions used in calculating the
option value of JLK's common stock include the following: a risk-free
interest rate of 6.49% for all optionees (the rate applicable to a ten-year
treasury security at the time of the award); no dividend yield (JLK does not
presently intend to pay cash dividends to the holders of its common stock);
volatility of 30.0% for all optionees (calculated using the average of the
Corporation's volatility based on daily stock returns for the six months
ended June 30, 1997 and JLK's volatility from June 27, 1997 through August
18, 1997); and a stock price at date of grant of $20.00 for all optionees
(the exercise price at which these options were granted was equal to the
initial public offering price of the JLK common stock). The value of these
options under the Black-Scholes model of option valuation applying the
preceding assumptions is $11.44 per share for all optionees. The ultimate
values of the options will depend on the future market price of the stock of
the Corporation or JLK, as the case may be, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize upon
exercise of an option will depend on the excess of the market value of the
relevant stock over the exercise price on the date the option is exercised.
No adjustments were made for forfeitures or vesting restrictions on
exercise.
(3) Represents options to purchase shares of the Corporation's Capital Stock.
(4) Represents options to purchase shares of the common stock of JLK.
The following table sets forth information concerning options to purchase
the Corporation's Capital Stock held by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
VALUE YEAR END (#) YEAR END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- -------------- -----------------
<S> <C> <C> <C> <C>
Robert L. McGeehan........ -0- -0- 216,507/27,256 3,880,885/710,360
H. Patrick Mahanes, Jr.... -0- -0- 69,800/0 1,107,600/0
Richard J. Orwig.......... 6,145 88,910 62,793/0 1,004,347/0
Michael W. Ruprich........ -0- -0- 34,834/0 424,502/0
David B. Arnold........... 5,000 117,812 50,756/0 800,549/0
</TABLE>
RETIREMENT BENEFITS
The following table indicates, for purposes of illustration, the
approximate annual retirement benefits that would be payable at the present time
on a straight life annuity basis pursuant to the Kennametal Inc. Retirement
Income Plan and agreements providing supplemental retirement benefits under
various assumptions as to salary and years of service to employees in higher
salary classifications. The amounts shown have not been adjusted for Social
Security offset.
9
<PAGE> 12
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFIT UPON RETIREMENT WITH YEARS OF CREDITED
SERVICE INDICATED
-----------------------------------------------------------
ANNUALIZED COVERED
COMPENSATION 15 20 25 30 35
- ------------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 75,000 $22,500 $ 30,000 $ 37,500 $ 41,250 $ 45,000
100,000 30,000 40,000 50,000 55,000 60,000
150,000 45,000 60,000 75,000 82,500 90,000
200,000 60,000 80,000 100,000 110,000 120,000
250,000 75,000 100,000 125,000 137,500 150,000
</TABLE>
Pursuant to the Kennametal Inc. Retirement Income Plan, annual benefits
payable upon retirement to eligible salaried employees are calculated based upon
a monthly benefit equal to 2% of Covered Compensation for each year of credited
service up to a maximum of twenty-five years, plus 1% of Covered Compensation
for each year of credited service over twenty-five years, less 1.5% of the
primary monthly Social Security benefit payable for each year of credited
service up to a maximum of 33 1/3 years (50% of the monthly Social Security
benefit). Covered Compensation is based on average monthly earnings, consisting
solely of base salary and bonus (which amounts for the past three fiscal years
are included in the Salary and Bonus columns of the Summary Compensation Table),
for the nine years out of the last twelve years of service immediately preceding
retirement during which the highest compensation was received. The entire cost
of the plan is paid by the Corporation. Under the Internal Revenue Code, certain
limits are imposed on payments under the plan. Payments in excess of the maximum
annual pension benefits payable under this plan to the Named Executive Officers
and certain other executive officers would be paid pursuant to agreements with
such individuals providing for the annual payment of supplemental retirement
benefits, as more fully described under the section "Employment Agreements"
above.
As of June 30, 1997, the credited years of service under the Retirement
Income Plan for the Named Executive Officers were approximately: Robert L.
McGeehan, 24 years; H. Patrick Mahanes, Jr., 12 years; Richard J. Orwig, 13
years; Michael W. Ruprich, 8 years; and David B. Arnold, 18 years.
Annualized Covered Compensation as of June 30, 1997, for purposes of the
retirement benefits table set forth above for the Named Executive Officers is as
follows: Robert L. McGeehan, $150,000; H. Patrick Mahanes, Jr., $150,000;
Richard J. Orwig, $145,878; Michael W. Ruprich, $138,532; and David B. Arnold,
$150,000.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
In connection with the initial public offering of approximately 20 percent
of the common stock of JLK, the Corporation's industrial supply subsidiary, the
Corporation offered to its directors, officers and certain employees and others
the ability to purchase and such persons purchased in the aggregate
approximately 270,000 shares (one percent) of the common stock of JLK at the
initial public offering price ($20 per share) of JLK's common stock. The
purchasers included the following executive officers and directors of the
Corporation: Robert L. McGeehan--10,000 shares; Michael W. Ruprich--7,500
shares; six other executive officers--41,900 shares; William R. Newlin--20,000
shares; Richard C. Alberding--1,000 shares; Aloysius T. McLaughlin, Jr.--2,500
shares; A. Peter Held--1,000 shares and Warren H. Hollinshead -1,100 shares. In
addition, JLK granted options to purchase its common stock at the initial public
offering price to its executive officers, certain of its employees, its
directors and certain employees of the Corporation. Mr. Ruprich, as President of
JLK, received an option to purchase 100,000 shares of common stock of JLK.
Messrs. McGeehan, Newlin, Alberding and McLaughlin, as directors of JLK, each
received options to purchase 15,000 shares of common stock of JLK.
10
<PAGE> 13
REPORT OF THE BOARD OF DIRECTORS
COMMITTEE ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
Executive and managerial compensation programs at the Corporation are designed
and implemented with certain guiding principles in mind:
- To link the interests of executives and managers to the interests of the
stockholders and other potential investors.
- To provide incentives for working toward increasing the market value of
the stock and to increase stockholder value through value management.
- To provide incentives for strategic vision and decision-making that will
promote the longer-term health and viability of the Corporation.
- To provide incentives for innovation, quality management, responsiveness
to customer needs, value-added products and services, and an
action-oriented approach to opportunities in the marketplace.
- To attract and retain individuals with the leadership and technical
skills required to carry the Corporation forward into the future, given
the belief that the Corporation's human resources can provide a
competitive advantage in the marketplace.
GENERAL COMPENSATION PLAN DESIGN
Executive and management compensation plans consist of (1) a long-term element,
(2) annual performance rewards, (3) basic compensation, and (4) executive
ownership goals.
- The primary vehicles for providing long-term incentives are the
Corporation's stock option plans. The belief is that key executives and
certain managers should hold stock options in such quantities as to
provide an incentive to make decisions and take actions that will enhance
the performance of the Corporation and increase its value. The interests
of stockholders and executives are tied together by the market value of
the stock.
- Annual performance rewards include a management performance bonus plan
and annual base salary merit increases.
-- The Management Performance Bonus Plan for executives and managers, is
designed to closely tie bonus awards to corporate performance, unit
performance, and individual contribution, relative to the Corporation's
business plans, strategies, and stockholder value creation. The Bonus
Plan is also intended to maintain management compensation at a
competitive level, as indicated by published compensation surveys.
-- The annual Base Salary Merit Increase Review for executives provides
rewards for more qualitative achievements in innovation, quality,
service to the customer, and leadership. Consideration is given to
competitive salary increases that are being awarded by other industrial
firms, as indicated by published salary surveys.
- Basic compensation, for executives, is intended to be competitive in the
employment market and is designed to attract, retain, and motivate
high-quality individuals. Basic compensation includes base salary,
flexible and fixed benefit plans, minor executive perquisites, and the
Supplemental Executive Retirement Plan.
11
<PAGE> 14
- In 1995, executive stock ownership goals were established by the Chief
Executive Officer, ratified by the Board of Directors Committee on
Executive Compensation, and presented to the Board of Directors. The
ownership goals are voluntary but very much encouraged.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
- The Chief Executive Officer, Mr. Robert L. McGeehan, received a stock
option grant of 45,000 shares on October 31, 1996. The option price was
the average of the high and low market prices on the date of the grant.
Ten percent of shares exercised must be held in ownership for a period of
one year following the exercise date. On October 28, 1996, the option
grant was approved by the Board of Directors.
- Under the plan design of the Management Performance Bonus Plan for Fiscal
Year 1997, a stockholder value creation target and a bonus pool were
calculated by management and approved by the Board of Directors. Based on
the actual level of stockholder value creation in Fiscal Year 1997 and on
specific personal achievements, the Committee recommended a bonus award of
$275,000 for the Chief Executive Officer. On July 28, 1997, Mr. McGeehan's
bonus award was approved by the Board of Directors.
- Mr. McGeehan's base salary was reviewed by the Board of Directors
Committee on Executive Compensation in January 1997. In recognition of Mr.
McGeehan's leadership and performance as Chief Executive Officer of the
Corporation, and in consideration of competitive salary survey data, the
Committee recommended a base salary increase to $564,000, effective
February 1, 1997. The increase was approved by the Board of Directors on
January 27, 1997. The base salary increase, the aforementioned bonus
award, and the aforementioned stock option grant, constituted a
coordinated compensation program for Mr. McGeehan's leadership in
performance of certain corporate value creation goals, and in the general
growth and performance of the Corporation.
COMPENSATION OF EXECUTIVE OFFICERS
- Stock options were granted to certain executive officers and others, on
August 1, 1996, for the purpose of providing an incentive for managing the
continuing performance and value of the Corporation. The grants, as
recommended by the Chief Executive Officer, were approved by the Board of
Directors Committee on Executive Compensation on July 28, 1996.
- Individual executive officer bonus awards were determined by corporate
performance (actual value creation vs. planned value creation), by unit
performance, and by individual performance. The awards, as recommended by
the Chief Executive Officer, were approved by the Board of Directors
Committee on Executive Compensation on July 27, 1997.
- Base salary performance increases for certain executive officers were
approved by the Board of Directors Committee on Executive Compensation on
January 17, 1997. The individual increases, as recommended by the Chief
Executive Officer and approved by the Committee, were based on individual
performance and competitive salary survey data.
Committee on Executive Compensation:
Aloysius T. McLaughlin, Jr.,
Chairman
Warren H. Hollinshead
A. Peter Held
12
<PAGE> 15
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares cumulative total stockholder return on the
Corporation's Capital Stock with the cumulative total stockholder return on the
common equity of the companies in the Standard & Poor's Mid-Cap 400 Market Index
(the "S&P Mid-Cap") and a peer group of companies determined by the Corporation
(the "Peer Group") for the period from July 1, 1992 to June 30, 1997. The Peer
Group consists of the following companies: Binks Manufacturing Co. Inc.; Brown &
Sharpe Manufacturing Co.; Cincinnati Milacron Inc.; Federal Screw Works Inc.;
Federal-Mogul Corp.; Gleason Corp.; Kaydon Corp.; Monarch Machine Tool Co. Inc.;
Newcor Inc.; Regal-Beloit Corp.; Snap-On Tools Corp.; SPS Technologies Inc.; L S
Starrett Co. Inc.; and Timken Co. Inc.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) KENNAMETAL INC S&P MID-CAP PEER GROUP
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 101.68 122.69 128.69
1994 153.55 122.62 129.40
1995 219.96 150.01 147.49
1996 220.59 182.39 147.49
1997 284.00 224.94 167.24
</TABLE>
The above graph assumes a $100 investment on July 1, 1992, in each of
Kennametal Inc. Capital Stock, the S & P Mid-Cap and the Peer Group, and further
assumes the reinvestment of all dividends.
13
<PAGE> 16
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth each person or entity who may be deemed to
have beneficial ownership of more than 5% of the outstanding Capital Stock of
the Corporation based upon information available to the Corporation as of
September 3, 1997.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF OUTSTANDING
NAME AND ADDRESS SHARES CAPITAL STOCK(1)
- ---------------------------- ----------- ----------------
<S> <C> <C>
Morgan Stanley Dean Witter
Discover & Co. 1,787,451(2) 6.8%
1585 Broadway
New York, NY 10036
PRIMECAP Management Company 1,612,600(3) 6.2%
225 South Lake Avenue #400
Pasadena, CA 91101-3005
</TABLE>
- ---------
(1) Based on the number of shares outstanding as of September 8, 1997.
(2) Of these shares, 1,681,540 shares are held by Miller, Anderson & Sherrerd,
L.L.P., a registered investment advisor with sole voting power and sole
dispositive power.
(3) According to a Schedule 13G dated May 6, 1996, PRIMECAP Management Company
is a registered investment advisor. All shares are held with sole voting
power and sole dispositive power.
ELECTION OF AUDITORS
Unless otherwise directed by the stockholders, proxies will be voted for
the election of Arthur Andersen LLP as the Corporation's independent auditors
for the fiscal year ending June 30, 1998. The affirmative vote of the holders of
at least a majority of the shares cast at the meeting is required to elect such
firm as auditors. Representatives of Arthur Andersen LLP are expected to be
present at the meeting to respond to appropriate questions and will have the
opportunity to make a statement if they desire to do so. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF ARTHUR ANDERSEN LLP AS THE
CORPORATION'S AUDITORS.
FORM 10-K ANNUAL REPORT TO THE SECURITIES
AND EXCHANGE COMMISSION
COPIES OF THE ANNUAL REPORT (FORM 10-K) OF THE CORPORATION FOR THE FISCAL
YEAR ENDED JUNE 30, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE AVAILABLE TO STOCKHOLDERS AFTER SEPTEMBER 30, 1997. A STOCKHOLDER MAY
OBTAIN ONE WITHOUT CHARGE BY WRITING TO: CHIEF FINANCIAL OFFICER, KENNAMETAL
INC., P.O. BOX 231, LATROBE, PENNSYLVANIA 15650.
OTHER MATTERS
The Corporation knows of no other matters to be presented for action at the
Annual Meeting. However, if any other matters should properly come before the
meeting, it is intended that votes will be cast pursuant to the proxy in respect
thereto in accordance with the best judgment of the persons acting as proxies.
The Corporation will pay the expense in connection with the printing,
assembling and mailing of the notice of meeting, this Proxy Statement and the
accompanying form of proxy to the holders of Capital Stock of the Corporation.
In addition to the use of the mails, proxies may be solicited by directors,
14
<PAGE> 17
officers or employees of the Corporation personally or by telephone or telex or
facsimile. The Corporation may request the persons holding stock in their names,
or in the names of their nominees, to send proxy material to and obtain proxies
from their principals and will reimburse such persons for their expense in so
doing. In addition, the Corporation has retained the services of Georgeson &
Company Inc., a professional soliciting organization, to assist in soliciting
proxies from brokerage houses, custodians, nominees, other fiduciaries and other
stockholders of the Corporation. The fees and expenses of that firm in
connection with such solicitation are not expected to exceed $20,000.
STOCKHOLDER PROPOSALS AND NOMINATING PROCEDURES
Stockholders who intend to submit a proposal for inclusion in the
Corporation's 1998 Proxy Statement for consideration at the Annual Meeting of
the Stockholders of the Corporation to be held in October 1998 must submit such
proposal to the attention of the Secretary of the Corporation at the address of
its executive offices no later than May 22, 1998. Any such proposal must comply
with Rule 14a-8 of Regulation 14A of the proxy rules of the Securities and
Exchange Commission and must contain certain information specified in the
By-Laws of the Corporation.
The By-Laws of the Corporation require that all stockholder proposals to be
submitted at the Annual Meeting but not included in the Corporation's Proxy
Statement be submitted to the Secretary of the Corporation at the address of its
executive offices prior to July 1, 1998, together with certain information
specified in the By-Laws. The By-Laws of the Corporation also require that
nominations for directors to be elected at the 1998 Annual Meeting, other than
those made by the Board of Directors, be submitted to the Secretary of the
Corporation no earlier than May 1, 1998 and prior to July 1, 1998. The By-Laws
require that notice of such nominations contain certain information regarding
the nominee and certain information regarding the nominating stockholder. Any
stockholder may obtain a copy of the applicable By-Law from the Secretary of the
Corporation upon written request.
15
<PAGE> 18
<TABLE>
<C> <S> <C>
I. ELECTION OF DIRECTORS FOR TERMS TO EXPIRE IN 2000
VOTE FOR ALL WITHHOLD Nominees: Richard C. Alberding and William R. Newlin
NOMINEES AUTHORITY (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, WRITE
LISTED (EXCEPT TO VOTE FOR NOMINEE'S NAME ON THE LINE PROVIDED BELOW:)
AS SHOWN TO ALL NOMINEES
THE CONTRARY) LISTED.
0 0 ______________________________________________________________________________________
II. ELECTION OF AUDITORS
FOR AGAINST ABSTAIN
0 0 0
</TABLE>
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
above and FOR the election of auditors. The proxies are
authorized, in accordance with their judgment, to vote upon
such other matters as may properly come before the meeting
and any adjournments thereof.
Dated: ____________________________, 1997
_________________________________________
_________________________________________
Sign exactly as addressed, but if executed for a
corporation, minor, etc., sign that name and signature and
capacity of authorized signer.
FOLD AND DETACH HERE
KENNAMETAL INC.
September 19, 1997
Dear Kennametal Inc. Stockholder:
The 1997 Annual Meeting of the Stockholders of Kennametal Inc. will be held at
2:00 p.m. on Monday, October 27, 1997, at the Corporate Technology Center,
located on Route 981 South, approximately 1/4 mile south of its intersection
with U.S. Route 30 near Latrobe, Unity Township, Pennsylvania. I cordially
invite you to attend. Whether or not you plan to attend the meeting, please
detach the proxy above, complete it, and return it in the enclosed envelope.
Your vote is important to us.
Sincerely,
William R. Newlin
Chairman of the Board
Kennametal Inc.
<PAGE> 19
PROXY PROXY
KENNAMETAL INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
The undersigned hereby appoints Robert L. McGeehan, Peter B. Bartlett
and Aloysius T. McLaughlin, Jr., and each of them with power of substitution in
each, as proxies to represent the undersigned at the annual meeting of the
stockholders of Kennametal Inc. to be held at the Corporate Technology Center,
located on Route 981 South, approximately 1/4 mile south of its intersection
with U.S. Route 30 near Latrobe, Unity Township, Pennsylvania, on Monday,
October 27, 1997 at 2:00 p.m., and at any adjournments thereof, to vote the
same number of shares and as fully as the undersigned would be entitled to vote
if then personally present (including the power to vote cumulatively in the
election of directors as explained in the Proxy Statement) in the manner
directed by the undersigned as follows:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED IN
ITEM 1 AND FOR THE ELECTION OF AUDITORS.
(over)
FOLD AND DETACH HERE
