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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
/X/ DEFINITIVE PROXY STATEMENT
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
COMMISSION FILE NUMBER: 1-5318
KENNAMETAL INC.
(Exact name of registrant as specified in its charter)
Name of Persons Filing Proxy Statement:
KENNAMETAL INC.
Route 981 at Westmoreland County Airport
P.O. Box 231
Latrobe, Pennsylvania 15650
Payment of Filing Fee (check the appropriate box)
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
/ / 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 filing.
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KENNAMETAL INC.
LATROBE, PENNSYLVANIA 15650
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 31, 1994
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. 31, 1994 at 2:00 p.m., to consider and act
upon the following matters:
1. The election of three directors for terms to expire in 1997;
2. A proposed amendment to Article Fifth of the Amended and Restated
Articles of Incorporation increasing the authorized capital (common)
stock from 30,000,000 to 70,000,000 shares;
3. The election of auditors for the fiscal year ending June 30, 1995; and
4. Such other business as may properly come before the meeting.
The Board of Directors has fixed Tuesday, September 6, 1994 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 23, 1994
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 31, 1994
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 31, 1994. 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 6, 1994, will be entitled to
vote at the meeting. On that date there were 26,378,648 shares of Capital Stock
outstanding and entitled to one vote per share (share numbers throughout this
Proxy Statement reflect the two-for-one stock split effected by the Corporation
on August 22, 1994 (the "Stock Split")). 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 and
the Articles of Incorporation amended 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 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
23, 1994.
ELECTION OF DIRECTORS
Three 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 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, Quentin C. McKenna and William R. Newlin who have served
as directors since 1982, 1971, and 1982, respectively.
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.
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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.
PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
- - ----------------------------- ---------------------------------------------------------------
Nominees For Directors of the Second Class Whose Terms Expire in 1997
Richard C. Alberding Retired, having served as Executive Vice President, Marketing
Age: 63 and International, of Hewlett-Packard Company (a designer and
Director since 1982 manufacturer of electronic products for measurement and
computation). Director of Walker Interactive Systems, Sybase,
Inc., E.P. Technologies, Inc., Digital Microwave Corp., Destiny
Technologies Corp. and SciMed Life Systems.
Quentin C. McKenna Chairman of the Board of Directors of the Corporation. Also
Age: 68 served as President until July 1989 and as Chief Executive
Director since 1971 Officer until October 1991. Director of Interlake Corporation.
William R. Newlin (3) Managing Director of Buchanan Ingersoll Professional
Age: 53 Corporation (attorneys at law). General Partner of CEO Venture
Director since 1982 Fund (a private venture capital fund).
Directors of the Third Class Whose Terms Expire in 1995
Robert N. Eslyn Retired, having served as Senior Vice President of the
Age: 71 Corporation from 1986 to 1988 and as Vice President and Group
Director since 1988 General Manager of the Metalworking Products Group until 1986.
Aloysius T. McLaughlin, Jr. Vice Chairman of Dick Corporation (a general contractor),
Age: 59 having served as President and Chief Operating Officer from
Director since 1986 1985 until May 1993.
Larry Yost Senior Vice President of the Operations Group of Allen-Bradley
Age: 56 Company (a manufacturer and marketer of industrial automation
Director since 1987 controls, communications systems and electronic products).
Directors of the First Class Whose Terms Expire in 1996
Peter B. Bartlett General Partner of Brown Brothers Harriman & Co. (private
Age: 60 bankers). Director of Erie Indemnity Company.
Director since 1975
Warren H. Hollinshead Retired effective September 1, 1994, as Executive Vice
Age: 58 President of Westinghouse Electric Corporation (a
Director since 1990 technology-based manufacturing and services company) a position
he held since March 1, 1994, having previously served as
Executive Vice President-Chief Financial Officer from January
1991 until March 1994, Vice President, Deputy Finance from July
1990 until January 1991, Vice President, Treasurer from
February until July 1990, and Vice President, Corporate
Development from January 1988 until February 1990.
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PRINCIPAL OCCUPATION
NAME, AGE AND YEAR AND DIRECTORSHIPS OF OTHER
FIRST ELECTED (1) PUBLICLY-TRADED CORPORATIONS (2)
- - ----------------------------- ---------------------------------------------------------------
Robert L. McGeehan President of the Corporation since July 1989 and Chief
Age: 57 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.
Eugene R. Yost (4) Retired, having served as Chairman of the Board of Directors of
Age: 66 Black Box Corporation until March 1991 (a catalog distributor
Director since 1990 of data communications devices), and as Chief Executive Officer
and President from 1976 to 1991.
- - ---------
(1) Each current director has served continuously since he was first elected.
Alex G. McKenna, who is not named in the table, is Director Emeritus.
(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 1994 and 1995.
(4) Until March 1, 1991, Mr. Yost was an executive officer of MB Holdings, Inc.,
which on December 10, 1991 filed a voluntary "pre-packaged" bankruptcy
petition in the United States Bankruptcy Court for the Southern District of
New York. On January 28, 1992, the plan of reorganization became effective.
BOARD OF DIRECTORS AND BOARD COMMITTEES
The Corporation's Board of Directors held six meetings during the year
ended June 30, 1994. 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), Peter B. Bartlett,
Aloysius T. McLaughlin, Jr. and Richard C. Alberding.
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 ethics and the independence of the public accountants. The Committee
also reviews compliance with legal and 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 and the Stock Option and Incentive Plan of
1992. The following directors currently comprise the Committee: Aloysius T.
McLaughlin, Jr. (Chairman), Warren H. Hollinshead and Eugene R. Yost. The report
of the Committee on Executive Compensation appears elsewhere in this Proxy
Statement.
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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 14 of this Proxy Statement. The
following directors currently comprise the Committee: Robert L. McGeehan
(Chairman), Robert N. Eslyn and Larry Yost.
Directors who are not employees of the Corporation each receive
compensation from the Corporation for services as a director at an annual rate
of $16,000. 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 $3,200. Nonemployee directors who are members
of the Executive Committee receive a fee of $1,000 per Executive Committee
meeting. A director receives no additional compensation for service as a member
of the Nominating Committee. 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 Deferred Fee Plan.
Directors who are not employees of the Corporation also receive $50,000 of life
insurance coverage which 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.
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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 August 25, 1994, including the effect of the
Stock Split, by each director, each nominee for director, each Named Executive
Officer (as hereinafter defined) and all directors and executive officers as a
group.
AMOUNT OF
BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER (1)(2)
------------------------ ------
Richard C. Alberding............................... 234(3)
Peter B. Bartlett.................................. 2,805
Robert N. Eslyn.................................... 17,528
Warren H. Hollinshead.............................. 1,532(4)
Robert L. McGeehan................................. 44,490(5)
Quentin C. McKenna................................. 20,438
Aloysius T. McLaughlin, Jr......................... 24,140
William R. Newlin.................................. 6,176(6)
Eugene R. Yost..................................... 3,561
Larry Yost......................................... 1,120
H. Patrick Mahanes, Jr............................. 37,000
Richard J. Orwig................................... 34,000
David B. Arnold.................................... 47,820
Richard C. Hendricks............................... 50,042(7)
Directors and Executive Officers
as a Group (17 persons).......................... 316,948
- - ---------
(1) The figures shown include 11,634, 34,000, 23,370, 30,000, 18,000, and
139,004 shares over which Messrs. McGeehan, Mahanes, Orwig, Arnold and
Hendricks and all directors and executive officers as a group, respectively,
have the right to acquire within 60 days of August 25, 1994 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 own 1.2% 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 shown includes 600 shares owned by Mr. Newlin's wife, of which
shares he has disclaimed beneficial ownership.
(7) The figure shown includes 4,000 shares owned jointly by Mr. Hendricks and
his wife.
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 four most highly compensated executive officers of the Corporation (the
"Named Executive Officers") whose aggregate direct remuneration exceeded
$100,000 during the fiscal year ended June 30, 1994.
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SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
------------------------------- ------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(1)(#) (2)(3)($)
- - ----------------------------- ---- --------- -------- ------------ ------------
Robert L. McGeehan, 1994 383,541 290,000 100,000 16,349
President and 1993 363,039 124,119 -0- 15,707
Chief Executive Officer 1992 324,544 -0- 30,000 16,784
H. Patrick Mahanes, Jr., 1994 217,711 100,000 -0- 8,436
Vice President, 1993 196,027 50,000 -0- 7,682
Director of Operations 1992 168,379 15,000 14,000 7,180
Richard J. Orwig, 1994 177,728 100,000 -0- 7,443
Vice President, 1993 158,614 35,000 -0- 6,227
Chief Financial and 1992 135,934 -0- 14,000 6,124
Administrative Officer
David B. Arnold, 1994 201,835 60,000 -0- 7,691
Vice President and 1993 193,277 30,000 -0- 8,405
Chief Technical Officer 1992 184,823 -0- 14,000 8,768
Richard C. Hendricks, 1994 169,722 60,000 -0- 7,292
Vice President, 1993 160,558 19,997 -0- 6,540
Director of Corporate 1992 153,038 -0- 8,000 7,515
Business Development
- - ---------
(1) Adjusted for the effect of the Stock Split.
(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 attainment of
age 65.
(3) This figure includes amounts contributed by the Corporation under its Thrift
Plan for the fiscal year ended June 30, 1994. Eligible employees may elect
to contribute 2% to 12% of their monthly compensation (salary and, if
applicable, bonus) to the Plan. The Corporation contributes to each
participant's account an amount equal to one-half of that portion of the
employee's contribution which does not exceed 6% of the employee's
compensation. Contributed sums are invested in proportions as directed by
the employee in an Equity Fund, a Fixed Income Fund and a Balanced Fund
(consisting of both equity and fixed income securities), each managed by
investment management companies, and can be withdrawn by the employee only
upon the 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.
EMPLOYMENT AGREEMENTS
The Corporation has agreements with the Named Executive Officers and three
(3) 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, 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. Change in control is
defined to include a business combination involving the Corporation or the
acquisition of more than 25% of the Corporation's outstanding
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Capital Stock by persons not then affiliates of the Corporation, coupled with a
change in membership of at least a majority of the directors, not approved by at
least two-thirds ( 2/3) of the Corporation's directors immediately prior to the
change in control.
In the event of termination of his employment by the Corporation 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 either party at or after a change in control of the
Corporation, each officer would receive as severance pay during the four
consecutive years following such termination 85%, 70%, 60% and 50%,
respectively, of 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) his
bonus for the fiscal year ended immediately prior to the date of termination or,
at the officer's election, his bonus for the next prior fiscal year. During such
severance payment period, the officer would receive the same medical and group
insurance benefits that he received at the date of termination. Severance
payments following a change in control of the Corporation would cease to any
officer who enters the employment of a competitor, or upon the expiration of
nine months of employment with any other employer, or in any event when the
officer attains the age of sixty-five.
In addition to the severance payments, the agreements provide for the
annual payment of supplemental retirement benefits for life following
termination of active employment by retirement or disability which vest in equal
annual increments over a term of five years commencing on the officer's 56th
birthday or which vest completely upon the occurrence of a change in control of
the Corporation whether or not the transaction or election causing the change in
control is approved by at least two-thirds ( 2/3) of the directors. If the
officer dies while actively employed or receiving such payments, his spouse or
other designated beneficiary will receive annually up to 50% of the vested
amount for life. The severance payments and the accrued supplemental retirement
benefits could be actually funded by the transfer of cash into an executive
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).
The Corporation agreed to provide severance payments to Henry L. Dykema,
who resigned as Vice President and Chief Financial Officer of the Corporation
effective August 20, 1993. Under this arrangement, Mr. Dykema received payments
equal to his monthly base salary at resignation and certain benefits following
his resignation through August 20, 1994. In addition, the Corporation has made
available to Mr. Dykema executive placement services. Mr. Dykema agreed to be
available for periodic consultation to the Corporation while receiving severance
payments.
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 covering the lesser of 1,500,000 shares (gross) and 1,000,000 shares
(net) 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. The foregoing numbers of shares
reflect the effect of the Stock Split.
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,
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
6 months.
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The following table sets forth information concerning options granted to
the Named Executive Officers during the fiscal year ended June 30, 1994:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANT
----------------------------------------------------------- GRANT DATE
% OF TOTAL VALUE(2)
OPTIONS ----------
GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1)(#) FISCAL YEAR ($/SHARE) DATE VALUE ($)
---- ------------- ------------ ----------- ---------- ----------
Robert L. McGeehan...... 100,000 100% $20.53125 11/4/03 636,500
- - ---------
(1) This figure reflects the effect of the Stock Split. These options are not
exercisable until November 4, 1994, one year from grant. The option
agreement requires that one-half of the shares received upon any exercise of
these options must be held for a period of two years from the exercise date
or until Mr. McGeehan's earlier termination of employment.
(2) Based on the Black-Scholes Option Valuation model adjusted for dividends to
determine grant date present value of the options. Kennametal 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
include the following: a risk-free interest rate of 5.72% (the rate
applicable to a ten-year treasury security at the time of the award); a
dividend yield of 2.82% (the annualized yield at the date of grant);
volatility of 25.000% (calculated using daily stock returns for the twelve
month period preceding the option award); a stock price at date of grant of
$20.53125, adjusted for the effect of the Stock Split; the price at which
the option can be exercised is fair market value ($20.53125); and a ten-year
term. No adjustments were made for forfeitures or vesting restrictions on
exercise. The value of these options under the Black-Scholes model of option
valuation applying the preceding assumptions is $6.365 per share. The
ultimate values of the options will depend on the future market price of the
Corporation's stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an option
will depend on the excess of the market value of the Corporation's stock
over the exercise price on the date the option is exercised.
The following table sets forth information concerning options to purchase
the Corporation's Capital Stock held by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
VALUE YEAR END (#) YEAR END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- -------------- ---------------
Robert L. McGeehan........ 32,856 148,343 11,634/145,510 95,253/754,804
H. Patrick Mahanes, Jr.... 6,000 56,905 36,000/0 301,188/0
Richard J. Orwig.......... 10,630 57,303 23,370/0 183,029/0
David B. Arnold........... 24,600 152,725 30,000/0 248,375/0
Richard C. Hendricks...... 10,000 72,812 18,000/0 142,625/0
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.
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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.
ANNUAL BENEFIT UPON RETIREMENT WITH YEARS OF CREDITED
SERVICE INDICATED
------------------------------------------------------------
ANNUALIZED COVERED
COMPENSATION 15 20 25 30 35
------------------ -------- -------- -------- -------- --------
$ 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
300,000 90,000 120,000 150,000 165,000 180,000
350,000 105,000 140,000 175,000 192,500 210,000
400,000 120,000 160,000 200,000 220,000 240,000
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 the 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, 1994, the credited years of service under the Retirement
Income Plan for the Named Executive Officers were approximately: Robert L.
McGeehan, 21 years; H. Patrick Mahanes, Jr., 9 years; Richard J. Orwig, 10
years; David B. Arnold, 15 years; and Richard C. Hendricks; 15 years.
Annualized Covered Compensation as of June 30, 1994 for purposes of the
retirement benefits table set forth above for the Named Executive Officers is as
follows: Robert L. McGeehan, $191,969; H. Patrick Mahanes, Jr., $169,615;
Richard J. Orwig, $128,526; David B. Arnold, $181,424; and Richard C. Hendricks,
$160,452.
REPORT OF THE BOARD OF DIRECTORS
COMMITTEE ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
Executive and managerial compensation programs at Kennametal 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.
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- 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, and (3) basic compensation.
- The Primary vehicle for providing long-term incentives is 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 increase
the value of the firm and, thereby, increase the value of the company and
its performance. 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 maintain management compensation at a competitive level and
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 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.
- For Fiscal Year 1994 only, a special one-time Hertel Integration Bonus
Plan was designed and implemented to reward employees for extraordinary
contributions to progress toward the integration of Kennametal Inc. and
Hertel AG.
- 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.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
- The Chief Executive Officer, Mr. Robert L. McGeehan, received a stock
option award of 100,000 shares (giving effect to the Stock Split) on
November 4, 1993. This was considered to be a sufficient number of option
shares to provide an incentive for leadership in the initial phases of the
integration of Kennametal Inc. and Hertel AG. The option price was the
average stock price on the date of the award. The option may not be
exercised prior to one year after the award date and 50% of shares
exercised must be held in ownership for a period of two years following
the exercise date. Additional options were awarded July 31, 1994, for the
purpose of providing an incentive for managing the continuing performance
and value of the company.
- Under the plan design of the Management Performance Bonus Plan for Fiscal
Year 1994, 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 1994 and on
specific personal achievements, the Committee recommended a bonus award of
$200,000 for the Chief Executive Officer. On August 1, 1994, Mr.
McGeehan's bonus award was approved by the Board of Directors.
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- As the result of the successful integration of Kennametal Inc. and Hertel
AG, as measured by the achievement of integration goals, the Committee
recommended a one-time Hertel Integration Bonus Plan award of $90,000 for
Mr. McGeehan. On August 1, 1994, Mr. McGeehan's Hertel Integration 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 October 1993. In recognition of Mr.
McGeehan's leadership and performance as Chief Executive Officer to the
Corporation, and in consideration of competitive salary survey data, the
Committee recommended a base salary increase to $395,000 for Mr. McGeehan.
The increase was effective January 1, 1994, twelve months following his
previous increase. On October 25, 1993, the Board of Directors approved
Mr. McGeehan's base salary and the effective date. The base salary
increase, the two aforementioned bonus awards, and the aforementioned
stock option award, constituted a coordinated compensation program for Mr.
McGeehan's leadership in the acquisition of Hertel AG and its integration
with Kennametal, in the achievement of corporate value creation goals, and
in the general performance of the company.
COMPENSATION OF EXECUTIVE OFFICERS
- No stock options or stock grants were awarded, in Fiscal Year 1994, to
the executive officers of the Corporation, other than the stock option
award to the Chief Executive Officer, as discussed above. However, options
were awarded to the executive officers and others, on July 31, 1994, for
the purpose of providing an incentive for managing the continuing
performance and value of the company.
- Individual executive officer bonus awards were determined by Corporate
performance (value creation vs. plan), by unit performance, and by
individual performance. The awards were approved by the Board of Directors
Committee on Executive Compensation on July 31, 1994.
- Those executive officers contributing significantly to the integration of
Kennametal Inc. and Hertel AG received special one-time awards from the
Hertel Integration Bonus Plan. The awards were approved by the Board of
Directors Committee on Executive Compensation on July 31, 1994.
- Base salary performance increases for corporate officers, excluding Mr.
McGeehan, were approved by the Board of Directors Committee on Executive
Compensation, on January 24, 1994. 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
Eugene R. Yost
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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, 1989 to June 30, 1994. The Peer
Group consists of the following companies: Acme-Cleveland Corp.; Binks
Manufacturing Co. Inc.; Boston Digital Corp.; 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.; Starrett L S Co. Inc.; and
Timken Co. Inc.
Measurement Period KENNAMETAL
(Fiscal Year Covered) INC PEER GROUP S&P MID-CAP
1989 100 100 100
1990 112.67 93.55 115.43
1991 120.63 82.24 130.25
1992 120.23 89.76 154.42
1993 122.25 116.05 189.46
1994 184.61 116.63 189.35
The above graph assumes a $100 investment on July 1, 1989 in each of the
Kennametal Capital Stock, the S & P Mid-Cap and the Peer Group, and further
assumes the reinvestment of all dividends.
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 furnished to the Corporation.
PERCENT OF
NUMBER OF OUTSTANDING
NAME AND ADDRESS SHARES CAPITAL STOCK(1)
- - ------------------------- ------------ ----------------
First Union Corporation 1,542,702(2) 5.85%
401 South Tryon Street
Charlotte, NC 28288
- - ---------
(1) Based on the number of shares outstanding as of September 6, 1994. All share
numbers have been adjusted for the effect of the Stock Split.
(2) According to a Schedule 13G filed in February 1994, First Union Corporation
has or shares voting or investment authority as follows: sole voting power
1,537,202 shares; shared voting power 4,000 shares; sole dispositive power
1,386,566 shares; shared dispositive power 117,136 shares.
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CERTAIN TRANSACTIONS
In connection with the acquisition by the Corporation of all of the stock
of J&L America, Inc. ("J&L") on January 4, 1990, the Corporation entered into
certain transactions with Joel H. Shapiro and Irwin L. Elson, the selling
shareholders, each of whom was an officer and director of J&L and became a Vice
President of the Corporation. Effective August 1, 1994, Joel H. Shapiro and
Irwin L. Elson retired from their positions as Vice Presidents of the
Corporation and as officers of J&L, but both will remain directors of J&L.
Real Estate: J&L leases its Corporate Headquarters office and warehouse
space in Livonia, Michigan, from a partnership consisting of Joel H. Shapiro,
Irwin L. Elson, and other unrelated partners. The initial term of the lease
commenced on January 1, 1991, and continues to December 31, 2000. During the
fiscal year ended June 30, 1994, J&L made aggregate lease payments under this
lease to that partnership of $546,480.
J&L also leases office and warehouse space in Mt. Prospect, Illinois, from
a general partnership comprised of Joel H. Shapiro, Irwin L. Elson, and an
unrelated individual. The initial lease term commenced on August 1, 1988, and
terminates on December 31, 1998. During the fiscal year ended June 30, 1994, J&L
made aggregate lease payments under that lease to that partnership of $272,405.
J&L also leased office and warehouse space in Charlotte, North Carolina,
from a general partnership consisting of Joel H. Shapiro, Irwin L. Elson, and
their spouses. The lease term commenced on January 1, 1990, and terminated on
September 30, 1993 after J&L occupied a new substitute facility in North
Carolina. During the fiscal year ended June 30, 1994, J&L made aggregate lease
payments under that lease to that partnership of $22,500.
Noncompetition Agreements: As part of their employment agreements with the
Corporation, Joel H. Shapiro and Irwin L. Elson each agreed not to compete with
the Corporation in the business conducted by J&L, or any related business, for a
period of five (5) years from the date of the acquisition in exchange for annual
payments that equal, when aggregated over the five-year period, $5 million for
each individual.
PROPOSED AMENDMENT TO THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION
On August 1, 1994, the Board of Directors adopted a resolution proposing
that Article Fifth of the Amended and Restated Articles of Incorporation of the
Corporation be amended to increase the authorized number of shares of the
capital stock of the Corporation from 30,000,000 shares to 70,000,000 shares.
The Board directed that the proposed amendment be submitted to a vote of the
stockholders at the Annual Meeting.
Proposed Article Fifth would increase the authorized capital stock of the
Corporation to 70,000,000 shares of capital stock of the par value of $1.25 per
share. At present, the Corporation has authority to issue 30,000,000 shares of
capital stock of the par value of $1.25 per share. On September 6, 1994,
26,378,648 shares were issued and outstanding and 3,621,352 shares were
authorized but not outstanding (although 2,271,918 of such shares were reserved
for future issuance). After approval of the proposed amendment by the
stockholders, the Corporation will have authority to issue 70,000,000 shares of
capital stock of the par value of $1.25 per share, of which 48,621,352 shares
will be authorized but not outstanding.
The Board of Directors is not negotiating nor does it have any present
plans for the issuance of additional shares, but in the judgment of the Board
and in light of the Stock Split and the December 1993 public offering of
1,972,250 shares, the additional shares should be authorized so that they will
be available for issuance from time to time by action of the Board if need
therefor should arise; for example, if it should become desirable to effect a
further stock split by way of a stock dividend or distribution, implement
financing through the sale of additional shares of stock, or make an acquisition
by the issuance of stock. The Board believes that increasing the authorized
shares of capital stock would enable it, if it so chooses, to take actions
promptly on behalf of the Corporation that may involve the issuance of
additional shares of capital stock without the delay necessarily incident to the
convening of a stockholders' meeting. After adoption of the proposed amendment,
the Board of Directors, without further action by the stockholders, would have
authority to issue additional authorized and unissued shares of capital stock at
such times, for a consideration of such character and value (not less than
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par), and upon such terms, as it may deem advisable and in accordance with the
Pennsylvania Business Corporation Law. In certain circumstances, a vote of the
stockholders on the issuance of additional shares will be required under the
rules of the New York Stock Exchange.
ELECTION OF AUDITORS
Unless otherwise directed by the stockholders, proxies will be voted for
the election of Arthur Andersen & Co. as the Corporation's independent auditors
for the fiscal year ending June 30, 1995. The affirmative vote of the holders of
at least a majority of the shares voting at the meeting is required to elect
such firm as auditors. Representatives of Arthur Andersen & Co. 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.
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, 1994 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE AVAILABLE TO STOCKHOLDERS AFTER SEPTEMBER 30, 1994. 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
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,
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 1995 Proxy Statement for consideration at the Annual Meeting of
the Stockholders of the Corporation to be held in October 1995 must submit such
proposal to the attention of the Secretary of the Corporation at the address of
its executive offices no later than May 26, 1995. 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, 1995, 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 1995 Annual Meeting, other than
those made by the Board, be submitted to the Secretary of the Corporation no
earlier than May 1, 1995 and prior to July 1, 1995. 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.
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PROXY PROXY
KENNAMETAL INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
The undersigned hereby appoints Quentin C. McKenna, William R. Newlin 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 31, 1994 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 I,
FOR THE AMENDMENT OF THE ARTICLES OF INCORPORATION AND FOR THE ELECTION OF
AUDITORS.
(over)
18
I. ELECTION OF DIRECTORS FOR TERMS TO EXPIRE IN 1997
Vote FOR ALL WITHHOLD
NOMINEES listed AUTHORITY to Nominees: Richard C. Alberding, Quentin C. McKenna and William R. Newlin
(except as shown Vote FOR ALL (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES, WRITE
to the contrary) NOMINEES listed NOMINEE'S NAME ON THE LINE PROVIDED BELOW):
0 0 _______________________________________________________________________________
II. AMENDMENT OF III. ELECTION
ARTICLES OF OF AUDITORS
INCORPORATION
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
0 0 0 0 0 0
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, FOR THE AMENDMENT OF
THE ARTICLES OF INCORPORATION 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: ____________________ , 1994
___________________________________
___________________________________
Sign exactly as addressed, but if
executed for a corporation, minor,
etc., sign that name and add
signature and capacity of
authorized signer.
