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KENNAMETAL INC.
 
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(KENNAMETAL LOGO)
KENNAMETAL INC.

1600 Technology Way

P.O. Box 231
Latrobe, Pennsylvania15650-0231
Latrobe, Pennsylvania 15650-0231
Notice of Annual Meeting of Shareowners

to be held October 25, 200524, 2006
To the Shareowners of Kennametal Inc.:
 
The Annual Meeting of Shareowners of Kennametal Inc. will be held at the Quentin C. McKenna Technology Center, located at 1600 Technology Way (on Route 981 South), Latrobe, Unity Township, Pennsylvania, on Tuesday, October 25, 2005,24, 2006, at 2:00 p.m. (Eastern Time), to consider and act upon the following matters:
 
1. The election of threefour directors for terms to expire in 2008;2009;
 
2. The approvalA proposed amendment to Article Fifth of the Kennametal Inc. Management Performance Bonus Plan;Amended and Restated Articles of Incorporation increasing the authorized capital (common) stock from 70,000,000 shares to 120,000,000 shares; and
 
3. The ratification of the selection of the independent registered public accounting firm for the fiscal year ending June 30, 2006.2007.
 
Shareowners also will be asked to consider such other business as may properly come before the meeting. The Board of Directors has fixed Tuesday, September 6, 2005,5, 2006, as the record date. Only shareowners of record at the close of business on the record date are entitled to notice of, and to vote at, the Annual Meeting.
 
If you plan to attend the Annual Meeting, please note that each shareowner must present valid picture identification, such as a driver’s license or passport, and shareowners holding stock in brokerage accounts (“street name” holders) will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date, in order to be admitted to the Annual Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.
 
Whether or not you plan to attend the Annual Meeting, please complete, date and sign the enclosed proxy and return it in the enclosed envelope, or vote by telephone or via the Internet as instructed on the enclosed form of proxy, to ensure your shares are voted at the Annual Meeting.
By Order of the Board of Directors
David W. Greenfield
Secretary
By Order of the Board of Directors
David W. Greenfield
Secretary
September 26, 200525, 2006

TABLE OF CONTENTS
     
  Page
 
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREOWNERS
 1
PROPOSAL I. ELECTION OF DIRECTORS
 12
ETHICS AND CORPORATE GOVERNANCE
 34
BOARD OF DIRECTORS AND BOARD COMMITTEES
 7
OWNERSHIP OF CAPITAL STOCK BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
 10
PROPOSAL II. PROPOSED AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
11
COMPENSATION OF EXECUTIVE OFFICERS
 1112
EQUITY COMPENSATION PLANS
 1723
Kennametal Inc. Management Performance Bonus PlanEQUITY COMPENSATION PLAN INFORMATION
 1724
Equity Compensation Plans
19
Equity Compensation Plan Information
21
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
 2225
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
 2629
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
 2831
PRINCIPAL HOLDERS OF VOTING SECURITIES
 2932
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 2932
Ratification of the Selection of the Independent Registered Public Accounting FirmPROPOSAL III. RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 2932
FORM10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
 3134
OTHER MATTERS
 3134
Solicitation of ProxiesSOLICITATION OF PROXIES
 3134
Shareowner Proposals and Nominating ProceduresSHAREOWNER PROPOSALS AND NOMINATING PROCEDURES
 3134
SectionSECTION 16(a) Beneficial Ownership Reporting ComplianceBENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 3235
APPENDIX A KENNAMETAL INC. AUDIT COMMITTEE CHARTER
 A-1

Proxy Statement for Annual Meeting of Shareowners
October 25, 2005
 
October 24, 2006
This Proxy Statement is being furnished to the shareowners of Kennametal Inc. (the(“Kennametal” or the “Corporation”) in connection with the solicitation by the Board of Directors of the Corporation (the “Board of Directors” or “Board”) of proxies to be voted at the Annual Meeting of Shareowners, which is scheduled to be held on October 25, 2005.24, 2006. Only holders of record of capital stock, par value $1.25 per share, of the Corporation (“Capital Stock”) at the close of business on Tuesday, September 6, 2005,5, 2006, will be entitled to notice of and to vote at the meeting and at any adjournment thereof. On that date, there were 38,553,01238,662,167 shares of Capital Stock outstanding and entitled to one vote per share.
 
Shareowners of record may vote: (a) by telephone; (b) via the Internet; (c) by completing, signing, dating and returning the enclosed proxy form in the envelope provided; or (d) in person at the meeting.
• by telephone;
• via the Internet;
• by completing, signing, dating and returning the enclosed proxy form in the envelope provided; or
• in person at the meeting.
Specific instructions for telephone and Internet voting are included on the enclosed form of proxy. If a shareowner votes by telephone or via the Internet, it is not necessary to return a proxy card. If a shareowner properly gives a proxy (including a written proxy or a proxy by telephone or via the Internet), the shareowner’s shares will be voted as the shareowner specifies in the proxy. A shareowner may revoke a proxy prior to its exercise by delivering a written notice of revocation to the Secretaryany one of the Corporation, by giving a valid, later dated proxy or by attending the meeting and voting in person.following methods:
 
• delivering a written notice of revocation to the Secretary of the Corporation;
• giving a valid, later dated proxy; or
• attending the meeting and voting in person.
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 by any method described above will be voted. Where a choice is specified on the form of proxy (or the proxy given by telephone or via the Internet), the shares will be voted in accordance with the choice made therein. If no such choice is made on the form of proxy (or the proxy given by telephone or via the Internet), the shares will be voted in accordance with the recommendation of the Board of Directors. The proxy also confers discretionary authority on the named proxies to vote the shares represented by the proxy on any matter that is properly presented for action at the Annual Meeting of Shareowners. 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.
 
Shareowners who hold their shares in street name should refer to the voting instructions provided by their bank, broker or other nominee.
 
The presence in person or by proxy of the majority of the outstanding shares entitled to vote will constitute a quorum at the Annual Meeting. Abstentions and broker non-votes will be counted for purposes of determining a quorum, but will not be counted as votes cast. A broker non-vote occurs when a bank, broker or other nominee holding shares for a beneficial owner has not received voting instructions from the beneficial owner on a particular matter and the bank, broker or nominee cannot vote the shares on such matter because the matter is not considered routine under NYSE rules. DirectorsWith respect to Proposal  I, directors are to be elected by a plurality of the votes cast by shareowners present, in person or by proxy, at the meeting. Abstentions and broker non-votes will have no effect on the election of directors. Under Pennsylvania law and the Corporation’sKennametal’s Amended and Restated Articles of Incorporation and By-Laws, the approval of Proposal II, the Kennametal Inc. Management Bonus Performance Plan (the “Prime Bonus Plan”)amendment to Kennametal’s Amended and Restated Articles of Incorporation to increase the authorized shares of Capital Stock, and Proposal III, the ratification of the selection of anthe independent registered public accounting firm, requirerequires the affirmative vote of at least a majority of the votes cast by shareowners present, in person or by proxy, at the meeting. Abstention and broker non-votes will have no effect in determining the outcome of any of these proposals under Pennsylvania law and the Corporation’s Articles of Incorporation and By-Laws.matters.


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The address of the principal executive offices of the CorporationKennametal Inc. is 1600 Technology Way, Latrobe, Pennsylvania15650-0231. This Proxy Statement was first mailed to shareowners on or about September 26, 2005.25, 2006.
ELECTION OF DIRECTORS
 Three
Proposal I. Election of Directors
Four directors are to be elected to hold office as Directors of the FirstSecond Class for terms of three years and until their successors are elected and qualified.

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The owners of Capital Stock have cumulative voting rights in the election of directors. In voting for directors, a shareowner has the right to multiply the total number of shares that the shareowner is entitled to vote by the number of directors to be elected in a 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 suchthe class. Proxies who vote at the meeting on behalf of a shareowner will have the discretion to and may exercise such cumulative voting rights, unless otherwise instructed. The threefour individuals who receive the largest number of votes cast will be elected as Directors of the FirstSecond Class.
 
The persons named in the enclosed form of proxy (the “named proxies”) 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 by the Board of Directors to serve as directors. The nominees for election for terms of three years in the First Class of Directors are: TimothyRonald M. DeFeo; Philip A. Dur; William R. McLevish; Markos I. Tambakeras;Newlin and Steven H. Wunning,Lawrence W. Stranghoener, each of whom has served as a director since 2004, 19992001, 2006, 1982 and 2005,2003, respectively.The Board of Directors unanimously recommends a vote FOR the election of each of these nominees.
 
If, at the time of the meeting, any of the foregoing nominees is not available to serve as a director, an event whichthat the Corporation has no reason to anticipate, the Corporation has been informed that the persons named in the enclosed form of proxyproxies 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.
 
The following table provides certain information concerningabout each nominee for election as a director and each director whose term of office will continue after the meeting.Annual Meeting.
   
Name, Age and Year
 Principal Occupation and Directorships of
First Elected(1)
 
Other Publicly Traded Corporations
 
Nominees for Directors of the FirstSecond Class Whose Terms WillWith a Term to Expire in 20082009
Timothy R. McLevish(2)
Age: 50
Director since 2004		Senior Vice President and Chief Financial Officer of Ingersoll-Rand Company Limited (a global provider of industrial and commercial products) since May 2002. Formerly, Executive Vice President of MeadWestvaco Corporation (a consumer and office products company) from January 2002 to March 2002; Vice President and Chief Financial Officer of Mead Corporation (a forest products company) from December 1999 to January 2002.
Markos I. Tambakeras
Age: 55
Director since 1999		Chairman of the Board of Directors of the Corporation since July 1, 2002 and President and Chief Executive Officer since July 1, 1999. Director of ITT Industries, Inc. and Parker Hannifin Corporation. Chairman, Manufacturers Alliance/ MAPI. Member, President’s Manufacturing Council.
Steven H. Wunning (2)
Age: 54
Director since 2005		Group President and Executive Office Member of Caterpillar Inc. (a global manufacturer of construction, mining, and industrial equipment) since January 2004; Corporate Vice President of Caterpillar Inc. from November 1998 to January 2004.
Directors of the Second Class Whose Terms Will Expire in 2006
Ronald M. DeFeo
Age: 5354
Director since 2001		 Chairman of the Board of Terex Corporation (a global manufacturer of equipment for the construction and mining industries) since MayMarch 1998; Chief Executive Officer of Terex Corporation since March 1995; President since October 1993.
Philip A. Dur(2)
Age: 62
Director since 2006		Retired, having served as Corporate Vice President and President, Ship Systems Sector of Northrop Grumman Corporation (a global defense company) from October 2001 to December 2005; Vice President, Program Operations, Electronic Sensors and Systems Sector from December 1999 to September 2000 Vice President, Domestic and International Program Development from September 2000 to September 2001.


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2

   
Name, Age and Year
 Principal Occupation and Directorships of
First Elected(1)
 
Other Publicly Traded Corporations
 
William R. Newlin
Age: 6465
Director since 1982		 Lead Director of the Board of Directors of the Corporation since July 1, 2002; Executive Vice President and Chief Administrative Officer of Dick’s Sporting Goods, Inc. (a sporting goods retailer) since October 2003. Formerly, served as Chairman and Chief Executive Officer of Buchanan Ingersoll & Rooney PC (a law firm) from September 1980 to October 2003. Director of ArvinMeritor, Inc.
and Calgon Carbon Corporation.
Lawrence W. Stranghoener
Age: 5152
Director since 2003		 Executive Vice President and Chief Financial Officer of The Mosaic Company (a crop nutrition company) since September 2004. Formerly, Executive Vice President and Chief Financial Officer of Thrivent Financial for Lutherans (a financial services company) and its predecessor organization from January 2001 to September 2004; Executive Vice President and Chief Financial Officer of Techies.com (an internet-based professional services company) from December 1999 to December 2000.
2004.
Directors of the Third Class Whose Terms Will Expire in 2007
Carlos M. Cardoso
Age: 48
Director since 2006		President and Chief Executive Officer since January 2006; Executive Vice President and Chief Operating Officer from January 2005 to December 2005; Vice President and President, Metalworking Solutions and Services Group, from April 2003 to December 2004. Formerly, President, Pump Division, Flowserve Corporation (a manufacturer/provider of flow management products and services) from August 2001 to March 2003; Vice President and General Manager, Engine Systems and Accessories, of Honeywell International, Inc., (a diversified technology and manufacturing company, formerly Allied Signal, Inc.) from March 1999 to August 2001.
A. Peter Held
Age: 6162
Director since 1995		 Retired, having served as President of Cooper Tools, a division of Cooper Industries, Inc. (a manufacturer and marketer of industrial power tools and systems and services) from 1992 to 2003.
Larry D. Yost
Age: 6768
Director since 1987		 Retired, having served as Chairman and Chief Executive Officer of ArvinMeritor, Inc. (a provider of components for vehicles) from August 2000 to August 2004; Chairman and Chief Executive Officer of Meritor Automotive Inc. from May 1997 to July 2000. Director of Milacron Inc., UNOVA,Intermec, Inc., and Actuant Corporation.
Directors of the First Class Whose Terms Will Expire in 2008
Timothy R. McLevish
Age: 51
Director since 2004		Senior Vice President and Chief Financial Officer of Ingersoll-Rand Company Limited (a global provider of industrial and commercial products) since May 2002. Formerly, Executive Vice President of MeadWestvaco Corporation (a diversified manufacturing company) from January 2002 to March 2002; Vice President and Chief Financial Officer of Mead Corporation (a forest products company) from December 1999 to January 2002.
Markos I. Tambakeras
Age: 56
Director since 1999		Executive Chairman of the Board of Directors of the Corporation since January 2006; Chairman of the Board of Directors from July 2002 to December 2005; President and Chief Executive Officer from July 1999 to December 2005. Director of ITT Industries, Inc. and Parker Hannifin Corporation. Member, President’s Manufacturing Council.
Steven H. Wunning
Age: 55
Director since 2005		Group President and Executive Office member of Caterpillar Inc. (a global manufacturer of construction, mining, and industrial equipment) since January 2004; Corporate Vice President of Caterpillar Inc. from November 1998 to January 2004.
 

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(1)Each current director has served continuously since such director was first elected.
 
(2)Both Mr. McLevish and Mr. Wunning wereDur was identified as a potential director candidatescandidate by a third party search firm, then screened and recommended by the Nominating/Corporate Governance Committee and approved by the full Board in accordance with the Corporation’sKennametal’s Corporate Governance Guidelines.
ETHICS AND CORPORATE GOVERNANCE
Code of Business Ethics and Conduct
 
All directors, officers and employees of the Corporation, including, but not limited to, its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer (theController (collectively, the “Officers”), must strictly adhere to the Corporation’s Code of Business Ethics and Conduct.
 
The Code of Business Ethics and Conduct is designed to proactively promote ethical behavior, to protect the valued reputation of the Corporation and its directors, officers and employees, to assist all employees to act as good corporate citizens around the world and to continue to demonstrate that the Corporation, and the individuals which it employs, can be successful while maintaining the values which have served the Corporation well over the years. Personal consequences for violations of the Code are serious and can include terminationand/or legal action.
 
Directors, officers and employees having knowledge of any activity that is or may be a violation of the Code of Business Ethics and Conduct are required to report such activity promptly by sending correspondence in care of the Vice President, Secretary and General Counsel, Kennametal Inc., 1600 Technology Way, P.O. Box 231, Latrobe, Pennsylvania15650-0231, or by calling the Corporation’s toll-free HELPLINE (1-877-781-7319), which can be utilized, on a confidential and anonymous basis, twenty-four (24) hours a day.

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The full text of the Code of Business Ethics and Conduct is posted on the Corporation’s website at www.kennametal.com, currently available on the “Corporate Governance” page, which is accessible under the “Corporate” or “Investors” tabs.tab. The Corporation intends towill disclose all future amendments to the Code that relate to the Officers, and waivers of the Code that relate to directors and executive officers, including the Officers, on its website.
Corporate Governance Guidelines
 
The Corporation’s Board of Directors adopted the Kennametal Inc. Corporate Governance Guidelines to assist the Board in the exercise of its duties and responsibilities and to serve the best interests of the Corporation. The Corporate Governance Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management level.
 
The full text of the Corporate Governance Guidelines is, and all future changes thereto will be, posted on the Corporation’s website at www.kennametal.com, currently available on the “Corporate Governance” page, which is accessible under the “Corporate��� or “Investors” tabs.“Corporate” tab.
 
Highlights of the Kennametal Inc. Corporate Governance Guidelines and related principles are set forth below:
Selection of New Director Candidates
Selection of New Director Candidates
 • Board nominees are identified, screened and recommended by the Nominating/Corporate Governance Committee and approved by the full Board. Any director candidates nominated by the shareowners will be considered by the Nominating/Corporate Governance Committee for recommendation in accordance with the Corporation’s By-Laws and applicable law. For further information on shareowner nominating procedures, please refer to “Shareowner Proposals and Nominating Procedures” under the “Other Matters” section of this Proxy Statement.
 
 • In fiscal 2005,2006, the Nominating/Corporate Governance Committee engaged the services of a third party search firm to assist the Committee in the identification and evaluation of potential director candidates.


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Board Membership Criteria
Board Membership Criteria
 • Directors are selected on the basis of, among other things, independence, integrity, diversity, experience, sound judgment in areas relevant to the Corporation’s businesses, and willingness to commit sufficient time to the Board.
 
 • Board members are expected to ensure that other existing and planned future commitments do not materially interfere with service as a Director.director.
Board Composition and Independence
Board Composition and Independence
 • A majority of Board members must qualify as independent directors under the listing standards of the New York Stock Exchange (“NYSE”) and the requirements of any other applicable regulatory authority.
 
 • Only those directors who the Board affirmatively determines have no material relationship with the Corporation, either directly or indirectly, will be considered independent directors. The Board’s determination is based on the standards for independence under the rules of the NYSE and those of any other applicable regulatory authority, and also on additional qualifications set forth in the Corporate Governance Guidelines regarding:
 • Indebtedness of the director, or immediate family members or affiliates of the director, to the Corporation;
 
 • Indebtedness of the Corporation to affiliates of the director; and
 
 • A director’s relationships with charitable organizations.

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 • Upon the recommendation of the Nominating/Corporate Governance Committee, the Board affirmatively determined that Messrs. Bartlett, DeFeo, Dur, Held, McLevish, Newlin, Stranghoener, Wunning and Yost are independent under current NYSE independence standards and the independence standards set forth in the Corporate Governance Standards.
Outside Board Membership
Outside Board Membership
 • Management directors must seek and obtain the approval of the Board before accepting outside board memberships.
Retirement Age
Retirement Age
 • No director may be nominated for re-election or re-appointment to the Board if he or she would be age seventy (70) or older at the time of election or appointment.
Conflicts of Interest
Conflicts of Interest
 • Directors must avoid any action, position or interest that conflicts with an interest of the Corporation, or gives the appearance of conflict. The Corporation annually solicits information from directors in order to monitor potential conflicts of interest.
Directors Orientation and Continuing Education
Directors Orientation and Continuing Education
 • Each new director must participate in the Corporation’s orientation program, which should be conducted within two (2) months of the meeting at which the new director is elected.
 
 • Directors are encouraged to participate in continuing education programs.
Board Compensation
Board Compensation
 • In accordance with the Corporation’s Director and Officer Stock Ownership Guidelines, a meaningful portion of director compensation is required to be in Capital Stock or deferred stock credits of the Corporation to further the direct correlation of directors’ and shareowners’ economic interests.


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 • Directors on the Audit Committee do not receive any compensation from the Corporation other than director fees (including fees paid for service on Board committees).
 
 • Directors who are employees do not receive additional compensation for their services as directors.
Lead Director
Lead Director
 • The Board believes that, when the offices of Chairman and Chief Executive Officer are combined,under certain circumstances, it would beis desirable to designate a Lead Director who provides, in conjunction with the Executive Chairman and Chief Executive Officer,of the Board, leadership and guidance to the Board.
• The Board has designated William R. Newlin as the Lead Director.
 
 • The Lead Director presides over the executive sessions of non-management directors and acts as the liaison between the non-management directors and the Chief Executive Officer as to matters emanating from these executive sessions.
Selection of Agenda Items for• The Board Meetingshas designated William R. Newlin as the Lead Director.
Selection of Agenda Items for Board Meetings
 • Agendas for Board and committee meetings are established in consultation with Board members and management. Board members are also encouraged to raise, at any Board meeting, subjects that are not on the agenda for that meeting.

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Distribution of Board Materials
Distribution of Board Materials
 • A preliminary agenda and presentation materials are distributed to Board and committee members in advance of each meeting, to the extent practicable.
Executive Sessions of the Board/ Communications with Directors
Executive Sessions of the Board/Communications with Directors
 • Non-management directors meet privately in regularly scheduled executive sessions without the presence of any management. The Lead Director presides over these executive sessions.
 
 • Any interested parties desiring to communicate with the Lead Director or non-management directors individually or as a group regarding the Corporation may send correspondence in care of the Corporation’s Corporate Secretary, or contact the toll-free HELPLINE (1-877-781-7319), which can be utilized, on a confidential and anonymous basis, twenty-four (24) hours a day. All such communications will be forwarded to the appropriate director or directors specified in such communication as soon as practicable.
Board Access to Management and Independent Advisors
Board Access to Management and Independent Advisors
 • Board members have complete access to management and the Corporation’s outside advisors.
 
 • The Board is authorized to retain, as it deems necessary and appropriate, independent advisors of its choice with respect to any issue relating to its activities.
Assessing the Performance of the Board
Assessing the Performance of the Board
 • The Board’s performance is assessed annually to determine whether the Board and its committees are functioning effectively. The Nominating/Corporate Governance committee oversees this assessment.
Board Committees
Board Committees
 • The Board has the following standing committees: Audit, Compensation and Nominating/Corporate Governance.
 
 • Only independent directors serve on the Audit, Compensation and Nominating/Corporate Governance Committees. Directors serving on the Audit Committee must also meet the additional independence and financial literacy qualifications, as required under the Securities Exchange Act of 1934, as amended (the “Exchange


6

“Exchange Act”), the listing standards of the NYSE and the rules and regulations of any other applicable regulatory authority.
 • Each Board committee’s written charter, which details its duties and responsibilities, is, and all future changes thereto will be, posted on the Corporation’s website at www.kennametal.com, currently available on the “Corporate Governance” page, which is accessible under the “Corporate” or “Investors” tabs.tab.
 
 • Each committee is led by a Chair, who is appointed by the Board annually, based upon the recommendation of the Nominating/Corporate Governance Committee.
 
 • Minutes of each committee meeting are provided to each Board member to assure that the Board remains fully apprised of topics discussed and actions taken. The Chair of each committee also regularly reports at Board meetings on committee matters.
Formal Evaluation of the Chief Executive Officer
Formal Evaluation of the Chief Executive Officer
 • The Compensation Committee, in consultation with the Lead Director and the rest of the non-management directors, annually evaluates the overall performance of the Chief Executive Officer.
 
 • The evaluation is based on objective criteria, including performance of the business, accomplishment of long-term strategic objectives and development of management.

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Succession Planning
Succession Planning
 • The Chief Executive Officer delivers annually a report on succession planning to the Board, which includes an assessment of senior officers and their potential to succeed the Chief Executive Officer and other senior management positions.
Review of the Guidelines and Code of Business Ethics and Conduct
Review of the Guidelines and Code of Business Ethics and Conduct
 • The Nominating/Corporate Governance Committee annually reviews the Corporate Governance Guidelines and the Code of Business Ethics and Conduct and recommends any changes to the Board.
BOARD OF DIRECTORS AND BOARD COMMITTEES
Meeting Information
 
Meeting Information
The Corporation’s Board of Directors held nine10 meetings and acted via unanimous written consent on two occasions during the fiscal year ended June 30, 2005.2006. In addition, the non-management members of the Board of Directors held 5 special meetings in connection with the succession of the Corporation’s former Chief Executive Officer. The standing committees of the Board of Directors include an Audit Committee, a Compensation Committee and a Nominating/Corporate Governance Committee. Each director attended at least 75% of the meetings of the Board of Directors and any committee of which such director is a member. Director’sDirectors are expected to attend the Corporation’s Annual Meeting of Shareowners absent exceptional circumstances. In 2004,2005, all of the current members of the Board of Directors attended the Annual Meeting, with the exception of Mr. McLevishWunning, who had a previous commitment, and Mr. Wunning,Messrs. Cardoso and Dur, who were not directors at that time.


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The table below provides the current membership and fiscal 20052006 meeting information for each of the Board committees.
             
      Nominating/
      Corporate
Name Audit Compensation Governance
       
Peter B. Bartlett(1)      X     
Ronald M. DeFeo  X   X*    
A. Peter Held  X   X     
Timothy R. McLevish(2)  X       X 
William R. Newlin(3)      X   X 
Lawrence W. Stranghoener  X*      X 
Markos I. Tambakeras            
Steven H. Wunning(4)      X   X 
Larry D. Yost  X       X*
No. of Meetings fiscal year 2005  10   7   6 
 
             
        Nominating/
 
        Corporate
 
  Audit  Compensation  Governance 
 
Carlos M. Cardoso            
Ronald M. DeFeo  X   X*    
Philip A. Dur(1)      X   X 
A. Peter Held  X   X     
Timothy R. McLevish  X       X 
William R. Newlin(2)      X   X 
Lawrence W. Stranghoener  X*      X 
Markos I. Tambakeras            
Steven H. Wunning      X   X 
Larry D. Yost  X       X*
No. of Meetings Fiscal Year 2006  11   8   5 
*Chair
 
(1)Mr. Bartlett, a Director since 1975 whose term expires at the Annual Meeting, will not be standing for re-election.
(2) Mr. McLevishDur joined the Board of Directors on December 7, 2004January 24, 2006, and was appointed to the AuditCompensation Committee and the Nominating/Corporate Governance Committee at that time.
 
(3) (2)Mr. Newlin serves as the Lead Director.
(4) Mr. Wunning joined the Board of Directors on July 25, 2005 and was appointed to the Compensation Committee and the Nominating/ Corporate Governance Committee at that time.

7

Committee Functions
 
Audit Committee:  The functions of the Audit Committee are described under “Report of the Audit Committee of the Board of Directors” appearing elsewhere in this Proxy Statement and include assisting the Board in overseeing the Corporation’s financial reporting process. Each member of the Audit Committee is independent under the NYSE’s listing standards, U.S. Securities and Exchange Commission (“SEC”) regulations, and the standards set forth in the Corporation’s Corporate Governance Guidelines. The Board of Directors has determined that Lawrence W. Stranghoener is anand Timothy R. McLevish are “audit committee financial expert,”experts” as defined by SEC regulations.
 
Compensation Committee:  The Compensation Committee’s functions include: recommending an overall compensation policy for the Corporation to the Board; having direct responsibility for matters relating to compensation of the Corporation’s officers and directors; advising the Board regarding management succession; and the administration of the Corporation’s stock plans and deferred compensation plans. For further information, see “Report of the Compensation Committee of the Board of Directors” appearing elsewhere in this Proxy Statement. Each member of the Compensation Committee is independent under the NYSE’s listing standards and the standards set forth in the Corporation’s Corporate Governance Guidelines.
 
Nominating/Corporate Governance Committee:  The Nominating/Corporate Governance Committee’s functions include: ensuring that the Board is properly constituted to meet its fiduciary responsibilities; identifying and recommending qualified candidates for membership to the Board, consistent with criteria approved by the Board; and recommending Directors for Board committee membership. The committee also takes a leadership role in shaping the Corporation’s corporate governance. Please refer to “Selection of New Director Candidates” and “Board Membership Criteria” under the “Corporate Governance Guidelines” section of this Proxy Statement with respect to the committee’s process for selecting nominees. The committee will evaluate shareowner nominees on the same basis as all other nominees. For further information on shareowner nominating procedures, please refer to “Shareowner Proposals and Nominating Procedures” under the “Other Matters” section of this Proxy Statement. Each member of the Nominating/Corporate Governance Committee is independent under the NYSE’s listing standards and the standards set forth in the Corporation’s Corporate Governance Guidelines.


8

Each committee’s written charter, which details its duties and responsibilities, is, and all future changes thereto will be, posted on the Corporation’s website at www.kennametal.com, and currently available on the “Corporate Governance” page, which is accessible under the “Corporate” or “Investors” tabs.tab. In addition, the Audit Committee Charter is attached to this Proxy Statement as Appendix A in accordance with SEC regulations.

8

Board of Directors Compensation and Benefits
 
Directors who are employees of the Corporation do not receive any compensation for services as a director orand do not serve as a member of any committee of the Board of Directors. Our non-employee directors receive compensation from the Corporation for services as a director or committee member comprised of:
        
Annual Retainer(1)
      
 Lead Director(2) $60,400   
 All Other Non-Employee Directors $30,000   
Annual Grant of Restricted Stock or Deferred Stock Credits
      
 Lead Director $10,000   
 All Other Non-Employee Directors $10,000   
Annual Committee Chairman Stipend(1)
      
 Audit Committee $16,500   
 Compensation Committee $11,000   
 Nominating/ Corporate Governance Committee $11,000   
Annual Stipend for Committee Service (other than as Chairman)(1)
      
 Audit Committee $9,900   
 Compensation Committee $6,600   
 Nominating/ Corporate Governance Committee $6,600   
Stock Options(3)
 One-time grant of 9,000 shares upon election to Board of Directors. Annual grant of 4,500 shares thereafter.
 
       
Annual Retainer(1)
      
Lead Director $69,500   
All Other Non-Employee Directors $34,500   
Annual Grant of Restricted Stock or Deferred Stock Credits
      
All Non-Employee Directors $40,000   
Annual Committee Chairman Stipend(1)
      
Audit Committee $16,500   
Compensation Committee $13,500   
Nominating/Corporate Governance Committee $13,500   
Annual Stipend for Committee Service (other than as Chairman)(1)
      
Audit Committee $9,900   
Compensation Committee $8,000   
Nominating/Corporate Governance Committee $8,000   
Stock Options(2)
 One-time grant of 7,000 shares upon election to Board of Directors; annual grant of 3,500 shares thereafter.
(1)Directors’ fees are paid quarterly.
 
(2)William R. Newlin served as the Lead Director during fiscal 2005.
(3) The exercise price for each award is the mean between the highest and lowest sales price of the Corporation’s Capital Stock on the NYSE on the last trading day prior to the date of the grant.
 
Under the Corporation’s Deferred Fee Plan for Outside Directors (the “Deferred Fee Plan”), non-employee 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, to 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 non-employee director 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 non-employee director may elect to receive stock credits, representing shares of the Corporation’s Capital Stock, with respect to all or a portion of any consideration deferred pursuant to the Deferred Fee Plan. All non-employee directors also receive $50,000 of life insurance coverage, which is paid for by the Corporation.
 
As part of the Corporation’s support for charities, directors are eligible to participate in the Corporation’s Matching Gifts Program in which The Kennametal Foundation will match gifts on adollar-for-dollar basis to qualified institutions up to $5,000 per year.


9

9

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 31, 2005,2006, except as noted, 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   Total Beneficial
  Beneficial   Ownership and
Name of Beneficial Owner Ownership(1)(2) Stock Credits(3) Stock Credits
       
Peter B. Bartlett  8,547   24,280   32,827 
Ronald M. DeFeo  22,547   4,486   27,033 
A. Peter Held  33,738   4,773   38,511 
Timothy R. McLevish  0   698   698 
William R. Newlin(4)  184,869   44,607   229,476 
Lawrence W. Stranghoener  13,196   2,651   15,847 
Steven H. Wunning  0   198   198 
Larry D. Yost  34,597   10,733   45,330 
Markos I. Tambakeras  628,067   0   628,067 
James R. Breisinger  137,053   10,103   147,156 
Carlos M. Cardoso  122,286   7,999   130,285 
Stanley B. Duzy  90,034   24,918   114,952 
Michael P. Wessner  77,543   0   77,543 
Directors and Executive Officers as a Group (21 persons)  1,655,946   166,320   1,822,266 
 
             
  Amount of
     Total Beneficial
 
  Beneficial
  Stock
  Ownership and
 
Name of Beneficial Owner
 Ownership(1)(2)  Credits(3)  Stock Credits 
 
Ronald M. DeFeo  27,786   5,069   32,855 
Philip A. Dur  1,082   0   1,082 
A. Peter Held  37,412   5,902   43,314 
Timothy R. McLevish  4,649   2,364   7,013 
William R. Newlin(4)  175,160   45,990   221,150 
Lawrence W. Stranghoener  21,435   3,727   25,162 
Steven H. Wunning  3,000   1,806   4,806 
Larry D. Yost  39,097   11,624   50,721 
Markos I. Tambakeras  383,141   0   383,141 
Carlos M. Cardoso  170,761   8,113   178,873 
Stanley B. Duzy  30,672   25,271   55,943 
David W. Greenfield  18,507   3,309   21,816 
Ronald C. Keating  56,672   0   56,672 
Catherine R. Smith  30,290   0   30,290 
Michael P. Wessner(5)  40,243   0   40,243 
Directors and Executive Officers as a Group (21 persons)(6)  1,239,127   136,944   1,376,071 
(1)No individual beneficially owns in excess of one percent of the total shares outstanding other thanoutstanding. Excluding Mr. Tambakeras, who beneficially owns 1.64%. DirectorsWessner, directors and executive officers as a group beneficially own 4.32%owned 3.20% of the total shares outstanding.outstanding as of July 31, 2006. Unless otherwise noted, the shares shown are subject to the sole voting and investment power of the person named.
 
(2)The figures shown in this column include 393,034, 95,139, 70,734, 70,367, 56,534150,619, 112,134, 7,948, 3,588, 30,184 and 1,148,6353,500 shares over which Messrs. Tambakeras, Breisinger, Cardoso, Duzy, Greenfield, Keating and Wessner and all directors and executive officers as a group,Ms. Smith, respectively, have the right to acquirebeneficially owned as of July 31, 20052006 or have the right to acquire within 60 days thereafter pursuant to the Corporation’s stock option plans. The figures shown also include 101,733, 8,599, 35,255, 11,931, 18,73564,291, 34,776, 3,603, 3,404, 11,860 and 26,225 shares over which Messrs. Tambakeras, Breisinger, Cardoso, Duzy, Greenfield, Keating and Wessner,Ms. Smith, respectively, have sole voting power but no investment power. The figures shown also include 7,500, 22,500, 31,100, 154,500, 12,000,27,000, 34,100, 4,500, 157,500, 19,500, 3,000 and 34,50039,000 shares over which Messrs. Bartlett, DeFeo, Held, McLevish, Newlin, Stranghoener, Wunning and Yost, respectively, have the right to acquirebeneficially own as of July 31, 20052006 or have the right to acquire within 60 days thereafter pursuant to the Corporation’s stock option plans. The figures shown also include 696,1,435, 1,435, 149, 1,082 and 696739 shares over which Messrs. Newlin, Stranghoener, McLevish, Dur and Stranghoener,DeFeo respectively, have sole voting but no investment power.
 
(3)These amounts represent shares of Capital Stock to which such individuals are entitled pursuant to their election to defer fees or bonuses as stock credits under the Directors Stock Incentive Plan, or the Corporation’s Prime Bonus Plan or its predecessor, the Performance Bonus Stock Plan.Plan, or the Stock and Incentive Plan of 2002.
 
(4)The figure shown includes: 6,1465,532 shares owned solely by Mr. Newlin; 11,7983,805 shares owned by Mr. Newlin’s Self-Directed Retirement Account; 1,355 shares owned jointly by Mr. Newlin and his wife; and 11,0708,323 shares owned by Mr. Newlin’s wife.
(5)Effective as of June 8, 2006, Mr. Wessner ceased being an employee of the Corporation in connection with the closing of the sale of 100% of the stock of J&L America, Inc. to MSC Acquisition Corp. IV, a wholly owned subsidiary of MSC Industrial Direct Co. Inc. The figures set forth in the table above reflect shares that Mr. Wessner beneficially owned as of June 7, 2006 or had the right to acquire within 60 days thereafter pursuant to the Corporation’s stock option plans.
(6)Figures shown for all directors and officers as a group do not include shares or stock credits beneficially owned by Mr. Wessner.


10

10

PROPOSED AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
Proposal II. Proposed Amendment to the Corporation’s Amended and Restated Articles of Incorporation.
On July 25, 2006, the Board of Directors adopted a resolution proposing that Article Fifth of Kennametal’s Amended and Restated Articles of Incorporation be amended to increase the authorized shares of the Capital Stock of the Corporation from 70,000,000 shares to 120,000,000 shares (the “Amendment”). The Board directed that the proposed Amendment be submitted to a vote of the shareowners at the 2006 Annual Meeting.
As of July 31, 2006, approximately 38,686,916 shares of Capital Stock were issued and outstanding and approximately 4,456,600 shares were reserved for issuance. The Board believes that the flexibility provided by the Amendment to permit Kennametal to issue or reserve additional Capital Stock, in the discretion of the Board and without the delay or expense of a special meeting of shareowners, is in the best interests of Kennametal and its shareowners. Shares of Capital Stock may be used for general purposes, including stock splits and stock dividends, acquisitions, possible financing activities and other employee, executive and director benefit plans. After approval of the proposed Amendment by the shareowners, the Corporation will have authority to issue 120,000,000 shares of Capital Stock, of which approximately 76,856,484 shares will be authorized but not outstanding or reserved for issuance. The Corporation has no present plans, arrangements, commitments or understanding with respect to the issuance of any of the additional shares of Capital Stock that would be authorized by adoption of the Amendment.
If the Amendment were approved by Kennametal’s shareowners, the first sentence of Article Fifth of Kennametal’s Amended and Restated Articles of Incorporation would be amended and restated in its entirety to read as follows:
FIFTH.  The authorized capital stock of the Corporation shall be 120,000,000 shares of Capital Stock of the par value of $1.25 per share and 5,000,000 shares of Class A Preferred Stock without par value.
The additional authorized shares of Kennametal’s Capital Stock, if and when issued, would be part of the existing class of Capital Stock and would have the same rights and privileges as the shares of Capital Stock presently issued and outstanding. Although the additional shares of Capital Stock would not have any effect on the rights and privileges of Kennametal’s existing shareowners, the issuance of additional shares of Capital Stock, other than in connection with a stock split or stock dividend, may have the effect of diluting the voting power of existing shareowners and decreasing earnings and the book value attributable to shares presently issued and outstanding. If the Amendment is approved, in general, no further approval of Kennametal’s shareowners will be required prior to the issuance of additional shares of Capital Stock. In some circumstances, however, (generally relating to the number of shares to be issued, the manner of offering and the identity of the recipients), the rules of the NYSE may require shareowner authorization in connection with the issuance of additional shares. The Corporation does not expect to seek authorization from shareowners for issuance of additional shares of Capital Stock unless required by applicable laws or the NYSE.
The availability of additional authorized but unissued shares of Capital Stock may have the effect of discouraging attempts to take over control of Kennametal, as additional shares of Capital Stock could be issued to dilute the stock ownership and voting power of, or increase the cost to, a party seeking to obtain control of the Corporation. The Amendment is not being proposed in response to any known effort or threat to acquire control of Kennametal.
If the Amendment is approved, it will become effective upon its filing with the Pennsylvania Secretary of the Commonwealth, which will occur as soon as reasonably practicable after approval.
The Board of Directors unanimously recommends a vote FOR the amendment to Kennametal’s Amended and Restated Articles of Incorporation.


11

COMPENSATION OF EXECUTIVE OFFICERS
 
The following table sets forth the compensation paid by the Corporation during its lastfor each of the past three fiscal years to its(i) all individuals serving as the Chief Executive Officer and toOfficer; (ii) each of the other four most highly compensated executive officers serving in that capacity as of June 30, 2006; and (iii) an individual who served as an executive officer during the fiscal year ended2006 but was no longer serving in that capacity as of June 30, 2005 (the2006 ((i), (ii), and (iii) together, the “Named Executive Officers”).
Summary Compensation Table
                              
          Long-Term  
      Compensation Awards  
    Annual Compensation    
      Restricted Securities  
      Other Annual Stock Underlying All Other
    Salary Bonus Compensation Awards Options Compensation
Name and Principal Position Fiscal Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)(6)
               
Markos I. Tambakeras,  2005   807,500   1,436,940   97,312   340,093   36,100   16,291 
 Chairman, President, and  2004   780,000   1,231,152   14,815   577,200(7)  33,000   14,085 
 Chief Executive Officer  2003   634,500   167,700   18,140   —   —   7,785 
James R. Breisinger,  2005   298,750   360,125   6,325   77,853   8,600   8,250 
 Vice President and President,  2004   285,000   306,862   6,236   76,960(7)  7,500   7,907 
 Advanced Components Group  2003   271,986   12,540   7,848   —   25,000   6,118 
Carlos M. Cardoso,  2005   504,800   750,827   8,451   354,708   12,200   15,485 
 Executive Vice President and  2004   465,000   422,943   45,421   —   —   46,617(9)
 Chief Operating Officer  2003   82,784   46,500   15,788   1,185,400(8)  100,000(8)  15,315(9)
Stanley B. Duzy,  2005   305,500   373,250   9,992   77,853   8,600   15,205 
 Vice President and  2004   300,000   303,806   8,501   116,130(10)  7,500   11,725 
 Chief Administrative Officer  2003   270,004   50,000   7,629   169,775(11)  25,000   5,725 
Michael P. Wessner,  2005   335,174   284,400   6,225   323,703   8,600   15,775 
 Vice President and President,  2004   309,174   213,403   6,225   77,420(12)  5,000   12,015 
 J&L Industrial Supply  2003   294,000   10,560   8,522   —   25,000   8,564 
 
                             
      Long-Term
  
          Compensation Awards  
    Annual Compensation Restricted
 Securities
  
        Other Annual
 Stock
 Underlying
 All Other
    Salary
 Bonus
 Compensation
 Awards
 Options
 Compensation
Name and Principal Position
 Fiscal Year ($) ($) ($) ($) (#) ($) (8)
 
Markos I. Tambakeras(1)  2006   892,500   1,216,800   64,455   617,381   39,000   19,148 
Executive Chairman  2005   807,500   1,436,940   97,312   340,093   36,100   16,291 
   2004   780,000   1,231,152   14,815   577,200   33,000   14,085 
Carlos M. Cardoso(2)  2006   627,917   753,200   6,531   427,865   30,766   18,235 
President and  2005   504,800   750,827   8,451   354,708   12,200   15,485 
Chief Executive Officer  2004   465,000   422,943   45,421   —   —   46,617 
Stanley B. Duzy(3)  2006   314,433   234,383   11,051   101,210   8,700   18,301 
Vice President and  2005   305,500   373,250   9,992   77,853   8,600   15,205 
Chief Administrative Officer  2004   300,000   303,806   8,501   116,130   7,500   11,725 
David W. Greenfield(4)  2006   290,000   256,040   5,392   71,606   6,350   20,910 
Vice President,  2005   280,217   270,079   7,861   53,268   6,000   18,397 
Secretary and General Counsel  2004   261,469   207,841   7,750   106,453   5,000   14,160 
Ronald C. Keating(5)  2006   302,268   289,884   14,196   51,111   5,000   174,490 
Vice President and  2005   272,312   250,040   3,755   726,100   19,400   14,631 
President, Metalworking  2004   233,901   187,788   —   46,452   2,500   9,721 
Solutions and Services Group                            
Catherine R. Smith(6)  2006   400,000   409,480   1,125   151,815   14,000   18,307 
Executive Vice President and  2005   90,909   330,000   7,020   1,014,530   50,000   120,029 
Chief Financial Officer  2004   —   —   —   —   —   — 
Michael P. Wessner(7)  2006   340,246   —   6,646   226,204   16,383   2,509,102 
Vice President and President,  2005   335,174   284,400   6,225   323,703   8,600   15,775 
J&L Industrial Supply  2004   309,174   213,403   6,225   77,420   5,000   12,015 
(1)(1) Includes,General.  Mr. Tambakeras served as the Corporation’s Chairman, President, and Chief Executive Officer until December 31, 2005 and assumed the office of the Executive Chairman of the Board of Directors effective as of January 1, 2006.
Other Annual Compensation.  Figures in this column include taxes paid on behalf of Mr. Tambakeras for Messrs. Breisinger,executive benefit programs for fiscal years 2004, 2005, and 2006. The figure for fiscal year 2005 also includes $82,515 for personal use of an airplane leased by the Corporation pursuant to a fractional lease program; for fiscal year 2006, the figure also includes $18,987 for financial planning services and $30,046 for personal use of an airplane leased by the Corporation pursuant to a fractional lease program.
Restricted Stock Awards.  Fiscal Year 2006 Awards: The figure reflects the market value on the grant date of the following restricted stock awards granted to Mr. Tambakeras: (a) an award of 8,700 shares on July 25, 2005, which originally was scheduled to vest in four equal installments commencing on the first anniversary of the grant date; and (b) an award of 3,500 shares on July 25, 2005, which fully vested on July 25, 2006.
Fiscal Year 2005 Award:  The figure reflects the market value on the grant date of a restricted stock award of 8,300 shares granted to Mr. Tambakeras on July 27, 2004, which vests in three equal installments commencing on the first anniversary of the grant date.


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Fiscal Year 2004 Award:  The figure reflects the market value on the grant date of a restricted stock award of 15,000 shares granted to Mr. Tambakeras on December 11, 2003, which vests on the sixth anniversary of the grant date, but for which vesting may be accelerated if certain corporate performance goals are met.
Dividends are paid on shares subject to these awards. Mr. Tambakeras held an aggregate of 87,233 shares of restricted stock on June 30, 2006 with a market value of $5,430,254. Pursuant to the terms of Mr. Tambakeras’s Amended and Restated Executive Employment Agreement, which is described elsewhere in this Proxy Statement, upon the expiration of the term of such agreement (or earlier in certain circumstances) (the “Termination Date”), and to the extent allowable under the applicable plan, vesting shall be accelerated with respect to all shares of restricted stock held by Mr. Tambakeras that otherwise would have vested subsequent to the Termination Date and on or prior to December 31, 2007; the remainder shall be forfeited. With respect to restricted stock awards granted under the Corporation’s Stock and Incentive Plan of 2002, as amended, for which awards vesting cannot be accelerated, Mr. Tambakeras will forfeit the unvested portion of such awards and receive instead a cash payment equal to the value of the shares that otherwise would have vested subsequent to the Termination Date and on or prior to December 31, 2007. For further explanation of these matters, please refer to the discussion of Mr. Tambakeras’s agreement under the “Employment Agreements and Termination of Employment andChange-in-Control Arrangements” section of this Proxy Statement.
Securities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock.
All Other Compensation.  For Fiscal Year 2006, the figure includes: (a) income imputed to Mr. Tambakeras based upon premiums paid by the Corporation to secure and maintain a $500,000 term life insurance policy for Mr. Tambakeras’s life or until December 31, 2007. The Corporation paid a premium in the amount of $1,785 during fiscal year 2006 on behalf of Mr. Tambakeras; and (b) $17,363 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Mr. Tambakeras. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(2)General.  Mr. Cardoso Duzyassumed the offices of the President and Wessner,Chief Executive Officer of the Corporation effective as of January 1, 2006.
Bonus.  Through fiscal year 2005, these figures include bonuses paid partially or entirely in shares of Capital Stock or in stock credits as elected by the individualMr. Cardoso under the Corporation’s Performance Bonus Stock Plan. Under the plan, an executive maywas permitted to elect to receive stock or stock credits in lieu of all or a portion of a cash bonus. Pursuant to the plan, any portion of a bonus paid in shares of Capital Stock or in stock credits iswas increased by 25% of that value. The 25% premium feature under the plan was discontinued and was no longer applicable for fiscal year 2006.
 
(2) IncludesOther Annual Compensation.  Figures in this column include taxes paid on behalf of the employeeMr. Cardoso for executive benefit programs and/or employee relocation. For Mr. Tambakeras, thefor fiscal years 2004, 2005, figure also includes $82,515 for personal use of an airplane leased by the Corporation pursuant to a fractional lease program.and 2006.
 
(3) This column showsRestricted Stock Awards.  Fiscal Year 2006 Awards: The figure reflects the market value on the grant date of the following restricted stock awards granted to Mr. Cardoso: (a) an award of 3,515 shares on July 25, 2005, which vests in four equal installments commencing with the first anniversary of the grant date; and (b) an award of 4,940 shares on July 25, 2005, with a vesting schedule of one half on July 25, 2007, one fourth on July 25, 2008, and one fourth on July 25, 2009.
Fiscal Year 2005 Awards:  The figure reflects the market value on the grant date of the following restricted stock awards granted to Mr. Cardoso: (a) an award of 2,700 shares on July 27, 2004, which vests in three equal installments commencing on the first anniversary of the grant date; and (b) an award of 5,000 shares on January 6, 2005, which vests in four equal installments commencing on the first anniversary of the grant date.
Dividends are paid on shares subject to these awards. Mr. Cardoso held an aggregate of 24,005 shares of restricted stock on June 30, 2006 with a market value of $1,494,311.
Securities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock.
All Other Compensation.  For Fiscal Year 2006, the figure includes: (a) income imputed to Mr. Cardoso based upon premiums paid by the Corporation to secure and maintain a $500,000 term life insurance policy while


13

Mr. Cardoso remains an active employee of the Corporation. The Corporation paid a premium in the amount of $835 during fiscal year 2006 on behalf of Mr. Cardoso; and (b) $17,400 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Mr. Cardoso. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(3)Bonus.  Through fiscal year 2005, these figures include bonuses paid partially or entirely in shares of Capital Stock or in stock credits as elected by Mr. Duzy under the Corporation’s Performance Bonus Stock Plan. Under the plan, an executive was permitted to elect to receive stock or stock credits in lieu of a all or a portion of a cash bonus. Pursuant to the plan, any portion of a bonus paid in shares of Capital Stock or in stock credits was increased by 25% of that value. The 25% premium feature under the plan was discontinued and was no longer applicable for fiscal year 2006.
Other Annual Compensation.  Figures in this column include taxes paid on behalf of Mr. Duzy for executive benefit programs for fiscal years 2004, 2005, and 2006.
Restricted Stock Awards.  Fiscal Year 2006 Award: The figure reflects the market value on the grant date of a restricted stock award of 2,000 shares granted to Mr. Duzy on July 25, 2005, which vests in four equal installments commencing on the first anniversary of the grant date.
Fiscal Year 2005 Award:  The figure reflects the market value on the grant date of a restricted stock award of 1,900 shares granted to Mr. Duzy on July 27, 2004, which vests in three equal installments commencing on the first anniversary of the grant date.
Fiscal Year 2004 Award:  The figure reflects the market value on the grant date of a restricted stock award of 3,000 shares granted to Mr. Duzy on July 29, 2003, which vests on the sixth anniversary of the grant date, but for which vesting may be accelerated if certain corporate performance goals are met.
Dividends are paid on shares subject to these awards. Mr. Duzy held an aggregate of 6,765 shares of restricted stock on June 30, 2006 with a market value of $421,121.
Securities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock.
All Other Compensation.  For Fiscal Year 2006, the figure includes: (a) income imputed to Mr. Duzy based upon premiums paid by the Corporation to secure and maintain a $500,000 term life insurance policy while Mr. Duzy remains an active employee of the Corporation. The Corporation paid a premium in the amount of $1,225 during fiscal year 2006 on behalf of Mr. Duzy; and (b) $17,076 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Mr. Duzy. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(4)Bonus.  Through fiscal year 2005, these figures include bonuses paid partially or entirely in shares of Capital Stock or in stock credits as elected by Mr. Greenfield under the Corporation’s Performance Bonus Stock Plan. Under the plan, an executive was permitted to elect to receive stock or stock credits in lieu of a all or a portion of a cash bonus. Pursuant to the plan, any portion of a bonus paid in shares of Capital Stock or in stock credits was increased by 25% of that value. The 25% premium feature under the plan was discontinued and was no longer applicable for fiscal year 2006.
Other Annual Compensation.  Figures in this column include taxes paid on behalf of Mr. Greenfield for executive benefit programs for fiscal years 2004, 2005, and 2006.
Restricted Stock Awards.  Fiscal Year 2006 Award: The figure reflects the market value on the grant date of a restricted stock award of 1,415 shares granted to Mr. Greenfield on July 25, 2005, which vests in four equal installments commencing on the first anniversary of the grant date.
Fiscal Year 2005 Award:  The figure reflects the market value on the grant date of a restricted stock award of 1,300 shares granted to Mr. Greenfield on July 27, 2004, which vests in three equal installments commencing on the first anniversary of the grant date.
Fiscal Year 2004 Award:  The figure reflects the market value on the grant date of a restricted stock award of 2,750 shares granted to Mr. Greenfield on July 29, 2003, which vests on the sixth anniversary of the grant date, but for which vesting may be accelerated if certain corporate performance goals are met.


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Dividends are paid on shares subject to these awards. Mr. Greenfield held an aggregate of 4,047 shares of restricted stock on June 30, 2006 with a market value of $251,926.
Securities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock.
All Other Compensation.  For Fiscal Year 2006, the figure includes: (a) income imputed to Mr. Greenfield based upon premiums paid by the Corporation to secure and maintain a $500,000 term life insurance policy while Mr. Greenfield remains an active employee of the Corporation. The Corporation paid a premium in the amount of $4,035 during fiscal year 2006 on behalf of Mr. Greenfield; and (b) $16,875 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Mr. Greenfield. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(5)Bonus.  Through fiscal year 2005, these figures include bonuses paid partially or entirely in shares of Capital Stock or in stock credits as elected by Mr. Keating under the Corporation’s Performance Bonus Stock Plan. Under the plan, an executive was permitted to elect to receive stock or stock credits in lieu of a all or a portion of a cash bonus. Pursuant to the plan, any portion of a bonus paid in shares of Capital Stock or in stock credits was increased by 25% of that value. The 25% premium feature under the plan was discontinued and was no longer applicable for fiscal year 2006.
Other Annual Compensation.  Figures in this column include taxes paid on behalf of Mr. Keating for executive benefit programs for fiscal years 2005 and 2006.
Restricted Stock Awards.  Fiscal Year 2006 Award: The figure reflects the market value on the grant date of a restricted stock award of 1,010 shares granted to Mr. Keating on July 25, 2005, which vests in four equal installments commencing on the first anniversary of the grant date.
Fiscal Year 2005 Awards:  The figure reflects the market value on the grant date of the following restricted stock awards granted to Mr. Keating: (a) an award of 15,000 shares on July 1, 2004 in connection with Mr. Keating’s election as corporate officer, with a vesting schedule of one fourth on July 1, 2005, one fourth on July 1, 2006, and one half on July 1, 2007; and (b) an award of 1,000 shares on July 27, 2004, which vests in three equal installments commencing on the first anniversary of the grant date.
Fiscal Year 2004 Award:  The figure reflects the market value on the grant date of a restricted stock award of 1,200 shares granted to Mr. Keating on July 29, 2003, which vests on the sixth anniversary of the grant date, but for which vesting may be accelerated if certain corporate performance goals are met.
Dividends are paid on shares subject to these awards. Mr. Keating held an aggregate of 13,326 shares of restricted stock on June 30, 2006 with a market value of $829,544.
Securities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock.
All Other Compensation.  For Fiscal Year 2006, the figure includes: (a) income imputed to Mr. Keating based upon premiums paid by the Corporation to secure and maintain a $500,000 term life insurance policy while Mr. Keating remains an active employee of the Corporation. The Corporation paid a premium in the amount of $705 during fiscal year 2006 on behalf of Mr. Keating; (b) $18,196 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Mr. Keating; and (c) moving allowance and related expenses in the aggregate amount of $155,590. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(6)General.  Ms. Smith joined the Corporation as its Executive Vice President and Chief Financial Officer in April 2005.
Other Annual Compensation.  Figures in this column include taxes paid on behalf of Ms. Smith for executive benefit programs for fiscal years 2005 and 2006.
Restricted Stock Awards.  Fiscal Year 2006 Award: The figure reflects the market value on the grant date of a restricted stock award of 3,000 shares granted to Ms. Smith on July 25, 2005, which vests in four equal installments commencing on the first anniversary of the grant date.


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Fiscal Year 2005 Award:  The figure reflects the market value on the grant date of a restricted stock award of 22,000 shares granted to Ms. Smith on April 11, 2005 in connection with her employment agreement, with a vesting schedule of one half on April 11, 2007 and one half April 11, 2009.
Dividends are paid on shares subject to these awards. Ms. Smith held an aggregate of 25,000 shares of restricted stock on June 30, 2006 with a market value of $1,556,250.
Securities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock.
All Other Compensation.  For Fiscal Year 2006, the figure includes: (a) income imputed to Ms. Smith based upon premiums paid by the Corporation to secure and maintain a $500,000 term life insurance policy while Ms. Smith remains an active employee of the Corporation. The Corporation paid a premium in the amount of $2,130 during fiscal year 2006 on behalf of Ms. Smith; and (b) $16,177 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Ms. Smith. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(7)General.  Effective as of June 8, 2006, Mr. Wessner ceased being an employee of the Corporation in connection with the closing of the sale of 100% of the stock of J&L America, Inc. to MSC Acquisition Corp. IV, a wholly owned subsidiary of MSC Industrial Direct Co. Inc.
Bonus.  Through fiscal year 2005, these figures include bonuses paid partially or entirely in shares of Capital Stock or in stock credits as elected by Mr. Wessner under the Corporation’s Performance Bonus Stock Plan. Under the plan, an executive was permitted to elect to receive stock or stock credits in lieu of a all or a portion of a cash bonus. Pursuant to the plan, any portion of a bonus paid in shares of Capital Stock or in stock credits was increased by 25% of that value. The 25% premium feature under the plan was discontinued and was no longer applicable for fiscal year 2006.
Other Annual Compensation.  Figures in this column include taxes paid on behalf of Mr. Wessner for executive benefit programs for fiscal years 2004, 2005, and 2006.
Restricted Stock Awards.  Fiscal Year 2006 Awards: The figure reflects the market value on the grant date of restricted stock awards of 2,000 shares and 2,470 shares, respectively, granted in fiscal 2005 as follows: Mr. Tambakeras, 8,300 shares; Mr. Breisinger, 1,900 shares; Mr. Cardoso, 2,700 shares; Mr. Duzy, 1,900 shares; andto Mr. Wessner 1,900 shares. Theseon July 25, 2005. Under the terms of Mr. Wessner’s Success Agreement described elsewhere in this Proxy Statement, all of the shares under these awards were forfeited effective June 8, 2006 in connection with the closing of the sale of J&L America, Inc.
Fiscal Year 2005 Awards:  The figure reflects the market value on the grant date of the following restricted stock awards granted to Mr. Wessner: (a) an award of 1,900 shares granted to Mr. Wessner on July 27, 2004, andwhich shares originally were scheduled to vest in three equal installments commencing on the first anniversary of the grant date. Also includedUnder the terms of Mr. Wessner’s Success Agreement, the unvested shares under this award were forfeited effective June 8, 2006 in this figure for Messrs. Cardoso and Wessner isconnection with the market value of a restricted stock award of 5,000 shares granted January 6, 2005 to Mr. Cardoso, which vests in four equal installments commencing on the first anniversaryclosing of the grant date,sale of J&L America, Inc.; and a restricted stock(b) an award of 6,000 shares granted July 27, 2004 to Mr. Wessner on July 24, 2004, which vestswas originally scheduled to vest in full on the third anniversary of the grant date. Under the terms of Mr. Wessner’s Success Agreement, all of the shares under this award were forfeited effective June 8, 2006 in connection with the closing of the sale of J&L America, Inc.
Fiscal Year 2004 Award:  The figure reflects the market value on the grant date of a restricted stock award of 2,000 shares granted to Mr. Wessner on July 29, 2003, which shares originally were scheduled to vest on the sixth anniversary of the grant date, but for which vesting could be accelerated if certain corporate performance goals were met. Under the terms of Mr. Wessner’s Success Agreement, the unvested shares under this award were forfeited effective June 8, 2006 in connection with the closing of the sale of J&L America, Inc.
Dividends are paid on shares subject to these awards. TheInformation regarding Mr. Wessner’s aggregate holdings and the attendant market value of restricted stock held on June 30, 2005 by2006 was not available due to the individuals listed in this table are: Mr. Tambakeras, 125,633 shares with a market value of $5,760,273; Mr. Breisinger, 7,233 shares with a market value of $331,633; Mr. Cardoso, 27,700 shares with a market value of $1,270,045; Mr.Duzy, 10,565 shares with a market value of $484,405; andfact that Mr. Wessner 14,899 shares withwas no longer a market valuereporting officer of $683,119.the Corporation under Section 16(a) of the Securities and Exchange Act of 1934, as amended.


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(4) RepresentsSecurities Underlying Options.  These figures represent options to purchase shares of the Corporation’s Capital Stock. Under the terms of Mr. Wessner’s Success Agreement, all outstanding options became vested effective June 8, 2006 in connection with the closing of the sale of J&L America, Inc.
 
(5) ThisAll Other Compensation.  For Fiscal Year 2006, the figure includesincludes: (a) income imputed to the employeeMr. Wessner based upon premiums paid by the Corporation to secure and maintain for certain officers, including all executive officers of the Corporation, a $500,000 term life insurance policy onwhile Mr. Wessner remained an active employee of the lifeCorporation. The Corporation paid a premium in the amount of such officer until he or she reaches age 65. Premiums paid by the

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Corporation,$1,215 during fiscal year 2005, for Messrs. Tambakeras, Breisinger, Cardoso, Duzy and Wessner were $1,785, $1,875, $835, $1,225, and $1,215, respectively.
(6) This figure also includes amounts contributed2006 on behalf of the employeeMr. Wessner; (b) $15,592 contributed by the Corporation under its Thrift Plus Plan, either as a cash contribution or a matching contribution, on behalf of Mr. Wessner; and (c) under the terms of Mr. Wessner’s Success Agreement, a cash payment in the amount of $1,794,000 and an additional cash payment of $698,295, which represented the value of restricted stock for which vesting could not be accelerated. Please refer to Footnote Number 8 below for additional details relating to the Corporation’s contributions under the Thrift Plus Plan.
(8)Beginning January 1, 2004, for each employee whose benefit accrual under the Corporation’s defined benefit pension plan was discontinued as of December 31, 2003, the Corporation: (a) makes a cash contribution to each eligible employee’s plan account in an amount equal to 3% of the employee’s eligible compensation (salary and, if applicable, bonus); and (b) may make an annual discretionary cash contribution of up to 3% of eligible compensation based on the overall performance of the Company for the fiscal year. These contributions are not made to employees whose benefit accruals under the defined benefit plan were continued, based upon specified age and service criteria, as further described in the “Retirement Benefits” section of this Proxy Statement. Among the Named Executive Officers, Mr. Breisinger is the only officer whose benefit accruals under the Corporation’s defined benefit pension plan were continued. Contributed amounts are invested in the Thrift Plus Plan’s investment funds (including the Corporation’s Capital Stock), in proportions as directed by the employee, and can be withdrawn by the employee only upon the occurrence of certain events. Employees may elect to contribute 1% to 20% of their monthly compensation (salary and, if applicable, bonus) to this plan. Additionally, for substantially all U.S. employees, the Corporation contributes shares of Capital Stock to each participant’s account, as a matching contribution, in an amount equal to one-half of that portion of the employee’s contribution that does not exceed 6% of the employee’s eligible compensation. The Corporation’s matching contribution is invested in the plan fund whichthat holds the Corporation’s Capital Stock, but may be subsequently reinvested, at the employee’s discretion, into one of the Plan’s other investment accounts. Employee contributed sums are invested, as directed by the employee, in the plan’s investment funds (including the Corporation’s Capital Stock). PlanThe employee can withdraw plan account balances 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, as amended (the “Code”), which permit elective employee contributions on a pre-tax basis. Amounts contributed by the Corporation, during fiscal year 2005, as a cash contribution or a matching contribution, for Messrs. Tambakeras, Breisinger, Cardoso, Duzy and Wessner were $14,506, $6,375, $14,650, $13,980 and $14,560, respectively.
(7) Represents restricted stock awards granted December 11, 2003 as follows: Mr. Tambakeras, 15,000 shares and Mr. Breisinger, 2,000 shares. The awards vest on the sixth anniversary of the grant date, but vesting may be accelerated if certain corporate performance goals are met.
(8) In connection with Mr. Cardoso’s employment agreement, effective April 29, 2003, the Corporation granted Mr. Cardoso an option to purchase 100,000 shares at $29.635 per share. The option vests in three equal installments commencing on the first anniversary of the grant date. Also in connection with Mr. Cardoso’s employment agreement, effective April 29, 2003, the Corporation granted Mr. Cardoso a restricted stock award of 40,000 shares. The restricted stock vests in four equal annual installments commencing on the first anniversary of the grant date.
(9) This figure includes a moving allowance of $15,315 and $40,129 for fiscal years 2003 and 2004, respectively.

(10) Represents a restricted stock award of 3,000 shares granted July 29, 2003, which vests on the sixth anniversary of the grant date, but vesting may be accelerated if certain corporate performance goals are met.
(11) Represents a restricted stock award of 5,000 shares granted January 1, 2003, which vests in three equal installments commencing with January 1, 2004.
(12) Represents a restricted stock award of 2,000 shares granted July 29, 2003, which vests on the sixth anniversary of the grant date, but vesting may be accelerated if certain corporate performance goals are met.

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Employment Agreements and Termination of Employment andChange-in-Control Arrangements
Employment Agreements With Executive Officers
Amended and Restated Officer’s Employment Agreements.  The Corporation has agreements with Messrs. Breisinger, Cardoso, Duzy, Greenfield, Keating, and Wessner,Ms. Smith, and all 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, each will be employed by the Corporation.Corporation, subject to certain terms and conditions. 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“cause” or following a change-in-control)“change-in-control” (each as defined in the agreements)) 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 provideexecutive officer’s base salary, size of bonus award, if any, and any other emoluments for severance payments upon terminationservices will be determined by the Board of employment occurring either beforeDirectors or after a change-in-controlthe Compensation Committee of the Corporation.Board of Directors, as appropriate, from time to time. By amendment dated December 6, 2005, Mr. Cardoso is entitled to: (i) an annual base salary of $700,000; (ii) continue participation in the Prime Bonus Plan; and (iii) participate in an additional incentive program with a target bonus incentive amount equal to 15% of his base salary for the achievement of the fiscal year 2006 business plan. In addition, effective July 1, 2006, Mr. Cardoso has a target bonus incentive of 90% of base salary, and, commencing July 2006, is eligible for a long term incentive award of $1,330,000 (which will be


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payable, if earned, 30% in stock options, 20% in restricted stock, and 50% in cash), the terms of which are subject to the Corporation’s applicable stock and incentive plans.
An executive officer’s employment may be terminated, with or without any reason, by either party at any time; provided, that any employment termination on the Corporation’s part will occur only if specifically authorized by the Board of Directors. In the event of termination of his or heran executive officer’s employment by the Corporation prior to achange-in-control each and other than for cause, such executive officer would receive,be entitled, as severance, pay, an amount equal to three months’continuation of base salary atfor up to twelve months (twenty-four months in the timecase of such termination unless otherwise mutually agreed.Mr. Cardoso) which could be discontinued or offset in the event of subsequent employment. In the event of termination of employment by the executive officer prior to achange-in-control, or without good reason“good reason” (as defined the agreements) following achange-in-control, or due to death, no severance payments will be made. In general, in the event of termination of employment at or after achange-in-control but prior to the third anniversary of suchchange-in-control, by the officer for good reason or by the employer other than for cause or disability, each“disability” (as defined in the agreements), such officer would receive as severance pay up to 2.8 times the sum of (i) his respectivesuch officer’s annual base salary at the date“date of terminationtermination” (as defined in the agreements) or, at the officer’s election, hissuch officer’s salary as of the beginning of the month preceding the month in which thechange-in-control occurs, and (ii) the average of any bonuses which hesuch executive officer was entitled to or paid during the three most recent fiscal years ending prior to the date of termination or, atif the officer’s election, the average of any bonuses which theexecutive officer was entitled to or paidemployed for less than one year, the three fiscal years precedingtarget bonus for the fiscal year in which the change-in-controltermination occurred. In addition, for a three-year period following the date of termination, the executive officer would receive the same medical and group insurance benefits that hesuch officer received at the date of termination. The executive officer would also receive up to three years of additional credit for purposes of computing benefits under the Corporation’s pension, retirement and supplemental retirement plan.plans.
 
The agreements also provide for a payment adjustment if, due to excise taxes imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the executive’s net after-tax benefits are less than intended under the cash severance component.
Executive Chairman Agreement.  On December 6, 2005, the Corporation hasentered into an agreementAmended and Restated Employment Agreement with Markos I. Tambakeras dated as of May 1, 2002, effective July 1, 2002, pursuant to which, effective January 1, 2006, Mr. Tambakeras servescommenced his new position as Chairman, President and Chief Executive OfficerChairman. The term of the Corporation. agreement is for one year and ends on December 31, 2006.
Pursuant to the agreement, Mr. Tambakeras is entitledTambakeras: (i) will continue to a minimumreceive his annual base salary of $780,000 and$900,000 through December 31, 2006; (ii) for the fiscal year ending June 30, 2006, is eligible to receive future bonusesa bonus under the Prime Bonus Plan targeted at one hundred percent of his then-current annual base salary under the Corporation’s bonus plan for executive officers, the$900,000 (which actual amount towill be based on the performance of the Corporation and Mr. Tambakeras. The initial three-year termTambakeras); (iii) for the fiscal year ending June 30, 2007, will receive a bonus of the agreement is automatically extended on July 1 of each year beginning with July 1, 2003 for an additional year, until either the Company or Mr. Tambakeras provides at least twelve months’ notice of non-renewal to the other party. Pursuant to the agreement, Mr. Tambakeras was granted the following awards: (i) an option to purchase 70,000 shares at $36.15 per share which vested over three (3) years; (ii) a restricted stock grant covering 50,000 shares of Capital Stock vesting on the earlier of (A) July 1, 2008 or (B) the date on which the closing market price of the Capital Stock of the Corporation equals or exceeds $80.00 per share for ten (10) consecutive trading days prior to July 1, 2008; (iii) a restricted stock grant covering 33,334 shares of Capital Stock that vested on July 1, 2003;$450,000; and (iv) a restricted stock grant covering 33,333 shares of Capital Stock that vested on July 1, 2004; and (v) a restricted stock grant covering 33,333 shares of Capital Stock that vested on July 1, 2005.
      The agreement with Mr. Tambakeras provides that if, during the term, will be entitled to receive life insurance with a death benefit of not less than $500,000, certain club memberships, and participation in all group benefit plans and programs provided to the agreement and priorCorporation’s executive officers.
Mr. Tambakeras’s employment may be terminated, with or without any reason, by either party at any time. Any termination by the Corporation is to a change-in-control,be authorized by the Board of Directors. In the event that Mr. TambakerasTambakeras’s employment is terminated during the term by the Corporation other than for cause, death or disability, or if he terminates“cause” (as defined in the agreementagreement), by Mr. Tambakeras due to the Corporation’s breach heor due to his death or “disability” (as defined in the agreement), or by either party for any reason following a “change in control” (as defined in the agreement), Mr. Tambakeras or his estate will be entitled to (A) 12 month’s noticereceive all payments or paymentbenefits remaining during the term which are set forth in clauses (i) through (iv) of the prior paragraph. Additionally, if Mr. Tambakeras’s employment is terminated under the circumstances described in the prior sentence or if his current annual base salary and most recent cash bonus; plus (B)employment with the Corporation is terminated due to the expiration of the term, Mr. Tambakeras or his estate will be entitled to receive as severance pay the following: (i) $450,000 to be paid during calendar year 2007 in accordance with the Corporation’s payroll practices, (ii) a lump sum pension payment equalof $2,600,000 payable on or before December 31, 2007, (iii) with respect to two times his current annual base salary plusMr. Tambakeras’s unvested stock options held by him as of the average“date of his two most recent cash bonuses. In addition, his optionstermination” (as defined in the agreement), that portion that would have vested at any time subsequent to the date of termination and restricted stock awards would vest.
      In the event Mr. Tambakeras’ employment is terminated by Mr. Tambakeras without good reason following a change-in-controlon or prior to December 31, 2007 will vest and become immediately exercisable as of the date of termination (except in the event of a change-in-control other than forchange in control on or prior to date of termination which is described below) and all unvested portions of stock options as of the Corporation’s breach,date of


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termination will be forfeited as of that date, (iv) to the extent permitted under appropriate plans, all restricted stock held by Mr. Tambakeras for which the forfeiture restrictions would have lapsed subsequent to the date of termination and on or prior to December 31, 2007 will become unrestricted as of the date of termination (except in the event of a change in control on or prior to the date of termination which is described below) and all other restricted stock for which forfeiture restrictions have not lapsed as of the date of termination will be forfeited as of such date, (v) with respect to restricted stock awards for which forfeiture restrictions may not be lapsed or waived, such awards (except in the event of a change in control on or prior to date of termination which is described below) will be forfeited as of the date of termination and the Corporation will make a cash payment to Mr. Tambakeras no later than January 31, 2007 equal to the fair market value of the restricted stock forfeited, if any, on the date of termination for which the forfeiture restrictions would have lapsed subsequent to the date of termination and on or prior to December 31, 2007.
In the event of a change in control on or prior to the date of termination, (i) with respect to unvested stock options held by Mr. Tambakeras as of the change in control, that portion of such stock options that would have vested at any time subsequent to the change in control and on or prior to December 31, 2007 will vest and become immediately exercisable as of the change in control and all other unvested stock options (or portions thereof) will be forfeited as of the change in control, (ii) with respect to restricted stock held by Mr. Tambakeras as of the change in control, restricted shares whose forfeiture restrictions would have lapsed at any time subsequent to the change in control and on or prior to December 31, 2007 will lapse as of the change in control and all other shares of restricted stock for which restrictions have not lapsed will be forfeited as of the change in control, and (iii) each of the incentive bonus awards dated July 27, 2004 and July 25, 2005, respectively (the “LTIP Awards”), will be forfeited and cancelled without any payment to Mr. Tambakeras; provided, however, that the foregoing provisions relating to the forfeiture of awards will not be entitledapply in the event of an “unsolicited change in control” (as defined in the agreement) on or prior to receive any severance paythe date of termination in which case the provisions of the applicable plans and awards will govern. Additionally, if Mr. Tambakeras is terminated by the Corporation other than for cause prior to December 31, 2006, and in the amounts, if any, due him atevent of an unsolicited change in control after the date of termination, but will be entitled to receive pension benefits.
      In the event that, aton or after a change-in-control and prior to December 31, 2006, then notwithstanding anything to the third anniversarycontrary therein or in any plan, agreement or award, with respect to all stock option, restricted stock and LTIP Awards held by Mr. Tambakeras as of the date of termination, such awards will remain outstanding and the change-in-control,provisions of the applicable plans and awards will govern. If, as a result of an unsolicited change in control, any payments or benefits received or to be received by Mr. Tambakeras’Tambakeras will be subject to excise taxes imposed by Section 4999 of the Code, or any similar tax, the Corporation will make a taxgross-up payment to Mr. Tambakeras.
In the agreement, Mr. Tambakeras agreed to refrain, during employment and for three years thereafter, from competing with the Corporation (unless his employment is terminated by the Corporation without cause or by him due to the Corporation’s “breach” (as defined in the agreement)) and, during employment and for two years thereafter, from soliciting the Corporation’s employees and clients. Mr. Tambakeras has also agreed to provisions regarding confidentiality and assignment of intellectual property.
During the term, if Mr. Tambakeras’s employment is terminated by him during the termother than for good reason, the Corporation’s breach or by the Corporation for cause, he will not be entitled to any severance payments described herein and will only be entitled to accrued amounts, if any, due to him at the date of termination and required by law.
Following the date of termination, Mr. Tambakeras will be entitled to elect continued coverage at his expense under the Corporation’s group medical plans. Following expiration of his rights under COBRA, Mr. Tambakeras will, in general, be permitted during his lifetime or until he is eligible to receive benefits under Medicare or any similar successor program, to elect continued coverage at his expense under the Corporation’s group medical plans to the extent such plans permit. Notwithstanding, the Corporation will continue, in general, to provide Mr. Tambakeras with certain benefits under programs described above through December 31, 2006 if his employment is terminated prior to such date during the term by the Corporation other than for cause or death or disability, or ifby Mr. Tambakeras terminates his employment duringfor the thirty (30) day period commencing twelve (12) months after the change-in-control, thenCorporation’s breach. Unless Mr. Tambakeras would receiveis terminated by the Corporation for cause or death, the Corporation will continue to provide health and life insurance benefits then provided to him from the date of termination to December 31, 2007 and the Corporation will pay the premiums associated with such insurance and Mr. Tambakeras will bear any personal tax cost of such benefits.


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Pursuant to the agreement, Mr. Tambakeras further agreed, in accordance with the Corporation’s Corporate Governance Guidelines, to resign from the Board of Directors on the date of termination and to resign as an officer or director (or any similar position) of any subsidiary or affiliate of the Corporation on such date.
J&L Success Agreement.  On March 14, 2006, the Corporation entered into a lump sumsuccess agreement with Mr. Wessner, who at that time served as a Vice President of the Corporation and the President of the Corporation’s J&L Industrial Supply business unit (“J&L”), in connection with the sale of J&L. The sale of J&L closed on June 8, 2006.
Pursuant to the success agreement, Mr. Wessner received, upon the closing of the transaction, an incentive payment equal to three times his base salary$1,794,000, the immediate vesting of all stock options, the immediate vesting of all restricted stock awards for which vesting could be accelerated, and averagea cash payment equal to the value of restricted stock for which vesting could not be accelerated. The incentives set forth in the success agreement were in lieu of any amounts owed Mr. Wessner under the Corporation’s Prime Bonus Plan for fiscal year 2006.
The success agreement contains non-competition and non-solicitation restrictive covenants that apply for two years following the closing, and requires Mr. Wessner to preserve the confidentiality of information obtained in the context of his three most recent cash bonuses. Severance payments upon change-in-control would be grossed-up foremployment by the excise tax during the three-year term.Corporation or its affiliates.
Stock Options
 
The following table sets forth information concerning options granted to the Named Executive Officers during the fiscal year ended June 30, 2005:2006:
Option Grants in Last Fiscal Year
                     
  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)
           
Markos I. Tambakeras  36,100   3.7550   40.975   7/26/14   394,266 
James R. Breisinger  8,600   .8946   40.975   7/26/14   93,925 
Carlos M. Cardoso  12,200   1.2690   40.975   7/26/14   133,242 
Stanley B. Duzy  8,600   .8946   40.975   7/26/14   93,925 
Michael P. Wessner  8,600   .8946   40.975   7/26/14   93,925 
 
                     
  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) 
 
Markos I. Tambakeras  39,000   7.8310  $50.60500   7/25/15  $487,500 
Carlos M. Cardoso  30,766   6.1776   50.60500   7/25/15   384,575 
Stanley B. Duzy, Jr.   8,700   1.7469   50.60500   7/25/15   108,750 
David W. Greenfield  6,350   1.2750   50.60500   7/25/15   79,360 
Ronald C. Keating  5,000   1.0040   50.60500   7/25/15   62,500 
Catherine R. Smith  14,000   2.8111   50.60500   7/25/15   175,000 
Michael P. Wessner(3)  16,383   3.2896   50.60500   12/31/06   204,788 
(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. These options vest in threefour equal annual installments commencing on the first (1st) anniversary of the grant date.
 
(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- ScholesBlack-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 3.679%4.041% (the rate applicable to a five-year treasury security at the time of the awards); a dividend yield of 1.569%1.575% (the annualized yield at the date of grant); volatility of 28.35%24.81% (calculated using daily stock returns for the Capital Stock for the five-year period preceding the option award); and an exercise price equal to the fair market value of the Capital Stock on the date of grant. The average value of these options under the Black-Scholes model of option valuation applying the preceding assumptions is $10.92$12.50 per share.
(3)In connection with Mr. Wessner’s Success Agreement, these options fully vested on June 8, 2006, which was the date of the closing of the sale of J&L. In accordance with the terms of the Success Agreement, the period during which Mr. Wessner may exercise these options will expire on December 31, 2006.


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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
                 
      Number of  
      Securities Value of
      Underlying Unexercised
      Unexercised In-the-Money
      Options at Fiscal Options at Fiscal
      Year End(#) Year End($)
  Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
         
Markos I. Tambakeras  —   —   357,667/ 81,433   5,337,027/ 564,458 
James R. Breisinger  16,628   357,289   92,272/ 13,600   1,190,896/ 78,775 
Carlos M. Cardoso  —   —   66,667/ 45,533   1,081,005/ 599,970 
Stanley B. Duzy  —   —   67,500/ 13,600   991,556/ 78,755 
Michael P. Wessner  5,000   106,319   53,667/ 11,993   723,461/ 66,489 
 
                 
        Number of
    
        Securities
  Value of
 
        Underlying
  Unexercised
 
        Unexercised
  In-the-Money
 
        Options at Fiscal
  Options at Fiscal
 
        Year End (#)
  Year End ($ )
 
  Shares Acquired
  Value
  Exercisable/
  Exercisable/
 
Name
 On Exercise (#)  Realized ($)  Unexercisable  Unexercisable 
 
Markos I. Tambakeras  275,198  $8,646,829   128,836/74,066  $3,052,015/1,227,629 
Carlos M. Cardoso  0   0   104,067/38,899   3,348,025/531,300 
Stanley B. Duzy  69,961   2,082,826   2,906/16,933   71,223/282,706 
David W. Greenfield  28,224   788,481   0/12,016   0/198,647 
Ronald C. Keating  4,000   86,580   23,717/19,183   536,417/307,093 
Catherine R. Smith  0   0   0/64,000   0/969,780 
Michael P. Wessner  81,983   1,814,735   0   0 
The following table sets forth information concerning awards made to the Named Executive Officers under our long-term incentive program in Fiscal Year 2005:2006:
Long-Term Incentive Plan — Awards in the Last Fiscal Year
                 
    Estimated Future Payouts Under Non-
    Stock Price-Based Plans(1)
  Performance or Other  
  Period Until Threshold Target Maximum
Name Maturation or Payout ($)(2) ($) ($)(2)
         
Markos I. Tambakeras  FY2005 — FY2007   425,000   850,000   1,700,000 
James R. Breisinger  FY2005 — FY2007   102,604   205,207   410,414 
Carlos M. Cardoso  FY2005 — FY2007   143,770   287,539   575,078 
Stanley B. Duzy  FY2005 — FY2007   102,604   205,207   410,414 
Michael P. Wessner  FY2005 — FY2007   102,604   205,207   410,414 
 
                 
     Estimated Future Payouts Under
 
  Performance or Other
  Non-Stock Price-Based Plans(1) 
  Period Until
  Threshold
  Target
  Maximum
 
Name
 Maturation or Payout  ($) (2)  ($)  ($) (2) 
 
Markos I. Tambakeras  FY2006 — FY2008   500,000   1,000,000   2,000,000 
Carlos M. Cardoso  FY2006 — FY2008   202,000   404,000   808,000 
Stanley B. Duzy  FY2006 — FY2008   112,000   224,000   448,000 
David W. Greenfield  FY2006 — FY2008   81,250   162,500   325,000 
Ronald C. Keating  FY2006 — FY2008   58,250   116,500   233,000 
Catherine R. Smith  FY2006 — FY2008   175,000   350,000   700,000 
Michael P. Wessner(3)  FY2006 — FY2008   112,000   224,000   448,000 
(1)Payment of these awards is subject to, and contingent upon, achievement of certain performance criteria over a three yearthree-year period, which are set by the Compensation Committee based on target performance goals of the Corporation established by the Board for earnings per share and return on invested capital. No long-term bonus is paid under the LTIP Plan if actual performance during the applicable three-year period with respect to the above financial metrics is less than 80% of target.the performance goals. Awards under the LTIP Plan are dollar-denominated awards, which may be paid either in cash or stock, or any combination of cash and stock, at the election of the Compensation Committee.
 
(2)The long-term incentive bonus threshold and maximum amounts range from 50% of the specified target award to 200% of the specified target award for the Named Executive Officers based on performance goal achievement of between 80% of target and 120% of target.the performance goals.
(3)Effective as of June 8, 2006, Mr. Wessner ceased being an employee of the Corporation in connection with the closing of the sale J&L. Due to the cessation of his employment, Mr. Wessner no longer participates in the Corporation’s LTIP Plan. Mr. Wessner has not received any amounts under the plan to date and will not receive any amounts under the plan in the future.


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Retirement Benefits
 
The following table indicates, for purposes of illustration, the approximate annual retirement benefits that would be payable at the present time (assuming retirement under the Kennametal Inc. Retirement Income Plan (the “RIP”) at age 65) on a straight life annuity basis pursuant to the RIP and the Supplemental Executive Retirement Plan (the “SERP”) under various assumptions as to salary, bonus and years of service. The amounts shown in the table below have been adjustedare subject to the vesting provisions of the SERP, which provide for vesting of 20% per year commencing at age 56, and are subject to offsets for the straight life annuity retirement benefit that would be payable from the Kennametal Inc. Retirement Income Plan (the “RIP”) and from Social Security and are not subject to any deductions for Social Security or other offset amount.on the basis of an age 65 retirement.
Pension Plan Table
                           
Annualized Estimated Annual Benefit Upon Retirement With Years of Credited Service Indicated
Covered  
Compensation 5 10 15 20 25 30
             
$100,000  $35,000  $40,000  $45,000  $50,000  $55,000  $60,000 
 200,000   70,000   80,000   90,000   100,000   110,000   120,000 
 400,000   140,000   160,000   180,000   200,000   220,000   240,000 
 600,000   210,000   240,000   270,000   300,000   330,000   360,000 
 800,000   280,000   320,000   360,000   400,000   440,000   480,000 
 1,000,000   350,000   400,000   450,000   500,000   550,000   600,000 
 1,200,000   420,000   480,000   540,000   600,000   660,000   720,000 
 1,400,000   490,000   560,000   630,000   700,000   770,000   840,000 
 1,600,000   560,000   640,000   720,000   800,000   880,000   960,000 
 1,800,000   630,000   720,000   810,000   900,000   990,000   1,080,000 
 
                               
Annualized
    
Covered
    
Compensation
  Estimated Annual Benefit Upon Retirement With Years of Credited Service Indicated 
   5  10  15  20  25  30  35 
 
$100,000  $35,000  $40,000  $45,000  $50,000  $55,000  $60,000  $65,000 
 200,000   70,000   80,000   90,000   100,000   110,000   120,000   130,000 
 400,000   140,000   160,000   180,000   200,000   220,000   240,000   260,000 
 600,000   210,000   240,000   270,000   300,000   330,000   360,000   390,000 
 800,000   280,000   320,000   360,000   400,000   440,000   480,000   520,000 
 1,000,000   350,000   400,000   450,000   500,000   550,000   600,000   650,000 
 1,200,000   420,000   480,000   540,000   600,000   660,000   720,000   780,000 
 1,400,000   490,000   560,000   630,000   700,000   770,000   840,000   910,000 
 1,600,000   560,000   640,000   720,000   800,000   880,000   960,000   1,040,000 
 1,800,000   630,000   720,000   810,000   900,000   990,000   1,080,000   1,170,000 
On October 28, 2003, the Board of Directors approved amendments to the RIP and the SERP which became effective on December 31, 2003. Benefits under the RIP do not continue to accrue after December 31, 2003 for participants who did not meet specified age and service criteria. Generally, only the following categories of participants continued their participation in the RIP after December 31, 2003: participants who, as of December 31, 2003, were either (a) age 45 with 20 years of continuous service or (b) age 50 with 5 years of continuous service. With the exception of James R. Breisinger, noneNone of the Named Executive Officers met the above criteria; therefore, their benefit accruals under the RIP discontinued as of January 1, 2004.
 
The SERP was amended to assure that the retirement benefits provided under the SERP will not make up or protect participants from the financial impact of the reduction in retirement benefits payable through the RIP, as amended.
 
For those executive officers whose benefit accruals under the RIP were discontinued, the retirement benefits provided under the amended RIP and SERP will vary by individual based on salary, current service and years until retirement, but will, in any event, be less than the amounts shown in the above table.
 
As of June 30, 2005,2006, the credited years of service under the RIP and SERP for the Named Executive Officers were approximately: Markos I. Tambakeras, 6 years; James R. Breisinger, 26 years; Carlos M. Cardoso, 23 years; Stanley B. Duzy, 7 years; David W. Greenfield, 4 years; Ronald C. Keating, 4 years; and Catherine R. Smith, 1 year. Under the terms of the SERP and as a result of the sale of J&L Industrial Supply and Mr. Wessner’s cessation of employment by the Corporation, Mr. Wessner’s participation in the SERP terminated, and he is not entitled to any benefit under the SERP. Under the terms of his Amended and Restated Executive Employment Agreement dated December 6, years2005, Markos I. Tambakeras’s participation in the SERP terminated, and Michael P. Wessner, 4 years.he is not entitled to any benefit under the SERP.
 
Annualized Covered Compensation is the Named Executive Officer’s base salary as of June 30, 2005,2006, plus the average annual bonus over the past three fiscal years. The Named Executive Officer’s base salary as of June 30, 20052006 may differ from the base salary shown in the Summary Compensation Table for fiscal year 2005.2006. Additionally, Annualized Covered Compensation does not include certain special bonus amounts or the 25% premium awarded pursuant to the Corporation’s Performance Bonus Stock Plan of 1995 (the “Bonus Stock Plan,” as further described in the “Equity Compensation Plans — Other Stock and Incentive Plans” section of this Proxy Statement ) for any


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portion of a bonus paid in shares of Capital Stock or stock credits. The 25% premiumspecial bonus amounts are included in the bonus amount shownreflected in the Summary Compensation Table for years up to and including fiscal 2005. Beginning withyear 2006 where applicable and the 25% premium is included in the bonus amounts set forth in the Summary Compensation Table for years up to and including fiscal year 2006, the2005. The 25% premium feature under the Performance Bonus Stock Plan will be discontinued.was discontinued and was no longer applicable for fiscal year 2006.

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Annualized Covered Compensation as of June 30, 2005,2006, for purposes of the retirement benefits under the RIP and the SERP for the Named Executive Officers, is as follows: Markos I. Tambakeras, $1,755,264; James R. Breisinger, $481,201; Carlos M. Cardoso, $864,968;$1,275,535; Stanley B. Duzy, $499,882;$573,876; Ronald C. Keating, $553,361; Catherine R. Smith, $627,240; and Michael P. Wessner, $516,067.David W. Greenfield, $505,527.
EQUITY COMPENSATION PLANS
Approval of Kennametal Inc. Management Performance BonusStock and Incentive Plan
      The Compensation Committee approved and recommended to the Board of Directors, and the Board of Directors adopted and recommends that you approve the Prime Bonus Plan.
      The Board believes the Prime Bonus Plan will advance the interests of the Corporation and its shareholders by providing incentives to key employees with significant responsibility for achieving performance goals critical to the success and growth of the Corporation. The Plan is designed to: (i) promote the attainment of the Corporation’s significant business objectives; (ii) encourage and reward management teamwork across the Corporation; and (iii) assist in the attraction and retention of employees vital to the Corporation’s long-term success. The Prime Bonus Plan is structured so as to permit the Corporation to provide cash incentive bonuses that are deductible for U.S. federal income tax purposes without the limitations imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).The Board of Directors unanimously recommends a vote FOR the approval of the Management Performance Bonus Plan.
      The complete text of the Prime Bonus Plan is set forth in Appendix A to this Proxy Statement. A summary of the key provisions of the Prime Bonus Plan is set forth below.
Administration.2002.  The Compensation Committee administers the Prime Bonus Plan. The Compensation Committee’s acts and authority with respect to the Prime Bonus Plan are subject to the Committee’s charter and such other authority as may be delegated to the Compensation Committee by the Board. The Committee may, subject to the preceding sentence and with respect to participants whom the Compensation Committee determines are not likely to be subject to Section 162(m) of the Code, delegate such powers and authority under the Prime Bonus Plan to the Corporation’s officers as it deems necessary or appropriate.
      The Compensation Committee has full authority and discretion to determine, among other matters, eligibility for participation in the Prime Bonus Plan, make awards, establish the terms and conditions of such awards (including performance goals and measures) and to determine whether the performance goals applicable to any performance measures for any awards have been achieved. The Compensation Committee’s determinations under the Prime Bonus Plan need not be uniform among all participants and may be applied to such participants as the Compensation Committee, in its sole discretion, considers necessary or appropriate. The Compensation Committee will also have the authority and discretion to determine the extent to which awards under the Prime Bonus Plan will be structured to conform to Section 162(m) of the Code and to take such action at the time such awards are granted to conform to such requirements.
Eligibility. Officers and key employees of the Corporation (and any subsidiary entity or affiliate thereof) will be eligible to participate in the Prime Bonus Plan.
Incentive Compensation Awards. The Compensation Committee may, in its discretion, make cash awards to eligible participants under the Prime Bonus Plan. The amount of an award may be based on a percentage of such participant’s salary or such other methods as may be established by the Compensation Committee. Each award will be communicated to a participant and will state, among other matters, the terms and conditions of the award and the performance goals to be achieved. The maximum award that may be earned under the Plan by any Participant for a Performance Period covering one fiscal year or less (hereinafter “Annual Award”) shall not exceed USD $4,000,000; provided, however, if more than one Annual Award is outstanding for a Participant under the Plan for a given fiscal year, the foregoing limitation shall apply to the aggregate amount earned under all such Annual Awards. The maximum award that may be earned under the Plan by any Participant for each fiscal year (or portion thereof) contained in a Performance Period covering

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more than one fiscal year (hereinafter “Long-Term Award”) shall not exceed USD $4,000,000 (this limitation is separate from the limitation applicable to Annual Awards set forth in the preceding sentence); provided, however, if more than one Long-Term Award is outstanding for a Participant under the Plan for a given fiscal year, the foregoing limitation shall apply to the aggregate amount earned under all such Long-Term Awards. For purposes of the foregoing limitations, (i) the term “earned” means satisfying the applicable Performance Goals so that an amount becomes payable, without regard to whether it is to be paid currently or on a deferred basis or continues to be subject to any service requirement or other condition; and (ii) with respect to Long-Term Awards, an amount shall be deemed to be “earned” pro-rata over the applicable Performance Period.
      With respect to awards that are intended to be performance-based compensation under Section 162(m) of the Code, each award will be conditioned on the Corporation’s achievement of one or more performance goals with respect to the performance measures established by the Compensation Committee. The Compensation Committee may, in its discretion, choose one or more of the following performance measures, and subject to such modifications or variations as specified by the Compensation Committee and measured over a period of time as determined by the Compensation Committee: cash flow; cash flow from operations; earnings (including, but not limited to, earnings before interest, taxes, depreciation and amortization); earnings per share, diluted or basic; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures; debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; productivity; delivery performance; safety record; stock price; return on equity; total stockholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating margin or profit margin; and completion of acquisitions, business expansion, product diversification, new or expanded market penetration and other non-financial operating and management performance objectives.
      To the extent consistent with Section 162(m) of the Code and the regulations promulgated thereunder and unless otherwise determined by the Committee at the time the Performance Goals are established, the Committee shall, in applying the Performance Goals, exclude the adverse affect of any of the following events that occur during a Performance Period: the impairment of tangible or intangible assets; litigation or claim judgments or settlements; changes in tax law, accounting principles or other such laws or provisions affecting reported results; business combinations, reorganizations and/or restructuring programs that have been approved by the Board; reductions in force and early retirement incentives; and any extraordinary, unusual, infrequent or non-recurring items separately identified in the financial statements and/or notes thereto in accordance with generally accepted accounting principles.
      With respect to awards that are intended to be performance-based compensation under Section 162(m) of the Code, each award will conditioned on the Corporation’s achievement of one or more performance goals in connection with performance measures established by the Compensation Committee. The Compensation Committee will establish in writing the performance goals, performance measures, and the method(s) of computing the amount of compensation that will be payable under the Prime Bonus Plan to each participant if the performance goals are attained, not later than ninety (90) days after the beginning of the applicable performance period; provided, however, that for a performance period of less than one year, the Compensation Committee will take any such actions prior to the lapse of 25% of the performance period. In addition to establishing minimum performance goals below which no compensation will be payable pursuant to an award, the Compensation Committee, in its discretion, may create a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goals have been achieved.
      The Compensation Committee may also establish such additional restrictions or conditions that must be satisfied as a condition precedent to the payment of all or a portion of any awards, which need not be performance-based and may include, among other matters, the receipt by the participant of a specified annual performance rating, continued employment by the participant and/or achievement of specified performance goals by the Corporation, business unit, or participant.

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      The Compensation Committee may, in its sole discretion, reduce the amount of any award to a participant if it concludes that such reduction is necessary or appropriate based on: (i) evaluation of such participant’s performance, (ii) comparisons with compensation received by other similarly situated individuals working within the Corporation’s industry, (iii) the Corporation’s financial results and conditions, or (iv) such other factors or conditions that the Compensation Committee deems relevant. Notwithstanding, the Compensation Committee may not use its discretionary authority to increase any award that is intended to be performance-based compensation under Section 162(m) of the Code.
Payment of Incentive Awards. Awards will be paid as promptly as practicable (but in no event later than 21/2 months after the close of the fiscal year in which the performance period ends) after the Compensation Committee has certified in writing the extent to which the applicable performance goals and any other material terms have been achieved.
Termination of Employment. Unless otherwise determined by the Compensation Committee, participants who have terminated employment with the Corporation prior to the actual payment of an award for any reason will forfeit any and all rights to payment under any awards then outstanding.
Amendment or Termination of the Prime Bonus Plan. While the Corporation intends that the Prime Bonus Plan will continue in force from year to year, the Corporation reserves the right to amend, modify, or terminate the Prime Bonus Plan at any time; provided, that no such modification, amendment or termination will, without the participant’s consent, materially adversely affect the rights of such participant to any payment that has been determined by the Compensation Committee to be due and owing to the participant under the Prime Bonus Plan but not yet paid. Any such action authorized under the terms of the preceding sentence may be taken by the Compensation Committee.
      Notwithstanding, the Compensation Committee may at any time (without the participant’s consent) modify, amend or terminate any or all of the provisions of the Prime Bonus Plan to the extent necessary to conform the provisions of the Prime Bonus Plan with Section 409A of the Code or Section 162(m) of the Code or the regulations promulgated thereunder regardless of whether such modification, amendment or termination of the Prime Bonus Plan will adversely affect the rights of a participant under the Plan.
Federal Income Tax Consequences. When any part of an award is paid in cash to a participant, the participant will realize compensation taxable as ordinary income in an amount equal to the cash paid. The Corporation will generally be entitled to a deduction in the same amount and at the same time that the participant recognizes ordinary income.
Limitations on Corporation’s Deductions. With certain exceptions, Section 162(m) of the Code limits the Corporation’s deduction for compensation in excess of $1 million paid to certain covered employees (generally the Corporation’s chief executive officer and its four other highest-paid executive officers). Compensation paid to covered employees is not subject to the deduction limitation if it is considered “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. If the Corporation’s shareholders approve the Prime Bonus Plan, the Corporation believes that performance awards (intended to be treated as qualified performance-based compensation as defined in the Code) granted to covered employees under the Prime Bonus Plan will satisfy the requirements of qualified performance-based compensation and therefore the Corporation will be entitled to a deduction with respect to the payment of such awards. However, with respect to awards that are not intended to be treated as qualified performance-based compensation as defined in the Code, the deduction that the Corporation might otherwise receive with respect to such awards to covered employees may be disallowed.
Equity Compensation Plans
      In 2002, the Corporation’s shareowners approved the Kennametal Inc. Stock and Incentive Plan of 2002, as amended (the “2002 Plan”), which provides for the granting of nonstatutory and incentive stock options and certain share awards. At the Annual Meeting of Shareowners for fiscal 2004, the shareowners approved an amendment toUnder the 2002 Plan, which increased the aggregate number of shares available for issuance from 1,750,000 to 3,750,000 (an increase of 2,000,000 shares). Under theis 3,750,000. The 2002 Plan provides that the price at which the shares

19

covered by underlying an option may be purchased must not be less than the fair market value of such shares at the time the option is granted. 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 Capital Stock (a stock swap) or a combination of shares and cash having an aggregate fair market value equal to the purchase price.
Other Stock and Incentive Plans.  Each of the Kennametal Inc. Stock Option and Incentive Plan of 1988 (the “1988 Plan”), the Kennametal Inc. Stock Option and Incentive Plan of 1992 (the “1992 Plan”), the Kennametal Inc. Stock Option and Incentive Plan of 1996 (the “1996 Plan”), and the Kennametal Inc. Stock Option and Incentive Plan of 1999 (the “1999 Plan”) provideprovided for the granting of nonstatutory and incentive stock options and certain share awards. The Kennametal Inc. 1999 Stock Plan (the “1999 Stock Plan”) is a non-shareowner approved plan that providesprovided for the granting of nonstatutory stock options and certain share awards. This planThe 1999 Stock Plan was implemented in connection with the hiring of new employees and was not submitted for shareowner approval because the New York Stock Exchange at that time the NYSE permitted the listing of shares under non-shareowner approved plans for stock awards to new employees and other limited circumstances. Although options are still outstanding under the 1988 Plan, 1992 Plan, 1996 Plan, 1999 Plan and 1999 Stock Plan, no further grants may be made under these plans.
 Prior to June 30, 2005, the Corporation maintained an Employee Stock Purchase Plan (the “ESPP”), which was designed to provide employees with the opportunity to purchase shares of the Corporation’s Capital Stock at 85% of the fair market value and was intended to qualify as an employee stock purchase plan under Section 423 of the Code. Effective June 30, 2005, the ESPP was terminated.
      In May 2005, the Corporation filed a registration statement with the SEC on Form S-8 to increase the total number of shares available for issuance under the Kennametal Thrift Plus Plan (“Thrift Plan”) and the Kennametal Retirement Income Savings Plan (formerly known as the Greenfield Industries Inc. Retirement Income Savings Plan) (“KRISP Plan”) from 1,500,000 shares to 2,500,000 shares (an increase of 1,000,000 shares). The Thrift Plan and the KRISP Plan are defined contribution employee benefit plans, established to encourage investment and savings for eligible employees of the Corporation and certain subsidiaries and to provide a method to supplement their retirement income benefits. The Thrift Plan and the KRISP Plan provide these employees the opportunity to defer a portion of their annual compensation for federal income tax purposes in accordance with Section 401 of the Code. The Corporation may match a portion of the contribution in cash or Capital Stock. The Thrift Plan and the KRISP Plan are subject to certain provisions of the Employee Retirement Income Security Act of 1974, as amended.
The Corporation’s Performance Bonus Stock Plan of 1995 (hereinafter, the(the “Bonus Stock Plan”) provided for the issuance of not more than 750,000 shares. The Bonus Stock Plan provided that certain performance-based bonus compensation plans for managementand/or senior executives (each a “Management Performance Bonus Plan”) were eligible for participation in the Bonus Stock Plan. Up to and including bonuses for fiscal year 2005, each participant in a Management Performance Bonus Plan was able to elect to receive Capital Stock or stock credits in lieu of a cash bonus under the Bonus Stock Plan. Pursuant to the Bonus Stock Plan, any portion of a bonus paid in shares of Capital Stock or in stock credits iswas increased by up to 25% of that value. Beginning with fiscal year 2006, the opportunity to elect to receive shares of Capital Stock or stock credits and the 25% premium feature under the Performance Bonus Stock Plan will bewas discontinued.
 
The Corporation’s Directors Stock Incentive Plan, which is a non-shareowner approved plan, provides for the issuance of not more than 200,000 shares. The plan allows any non-employee director to elect to receive shares of the Corporation’s Capital Stock in lieu of all or a portion of any compensation payable for services as a director that is not deferred pursuant to the Corporation’s Deferred Fee Plan and to receive stock credits for any compensation that is deferred.
Defined Contribution Plans.  The Kennametal Thrift Plus Plan (“Thrift Plan”) and the Kennametal Retirement Income Savings Plan (“KRISP Plan”) are defined contribution employee benefit plans established to encourage investment and savings for eligible Kennametal employees and employees of certain subsidiaries. The Thrift Plan and the KRISP Plan provide these employees the opportunity to defer a portion of their annual compensation for federal income tax purposes in accordance with Section 401 of the Code. The Corporation may match a portion of the contribution in cash or Capital Stock. The Thrift Plan and the KRISP Plan are subject to certain provisions of the Employee Retirement Income Security Act of 1974, as amended.


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20

Equity Compensation Plan Information
 
The following table sets forth information concerning the Corporation’s equity compensation plans as of June 30, 2005:2006:
             
      Number of Securities
  Number of   Remaining Available
  Securities to be   for Future Issuance
  Issued Upon Weighted Average Under Equity
  Exercise of Exercise Price of Compensation Plans
  Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column A)
       
  A (1) B (2) C (3)
Equity compensation plans approved by shareowners(4)  3,301,725  $37.46   2,815,002(5)
Equity compensation plans not approved by shareowners(6)  353,198  $27.52   94,736(7)
TOTAL  3,654,923  $36.70   2,909,738 
 
             
        Number of Securities
 
  Number of
     Remaining Available
 
  Securities to be
     for Future Issuance
 
  Issued Upon
  Weighted Average
  Under Equity
 
  Exercise of
  Exercise Price of
  Compensation Plans
 
  Outstanding Options,
  Outstanding Options,
  (Excluding Securities
 
Plan Category
 Warrants and Rights  Warrants and Rights  Reflected in Column A) 
  A (1)  B (2)  C (3) 
 
Equity compensation plans approved by shareowners(4)  2,225,168  $42.06   2,003,162(5)
Equity compensation plans not approved by shareowners(6)  206,487  $29.51   89,082(7)
TOTAL  2,431,655  $41.42   2,092,244 
(1)This column also includes stock credits issued under the Bonus Stock Plan and Directors Stock Incentive Plan. Not included in this column are awards under the LTIP Plan, which are dollar-denominated awards, but may be paid either in cash or stock, or any combination of cash and stock, at the election of the Compensation Committee.
 
(2)The calculations of the weighted average exercise prices shown in this column do not include stock credits issued under the Bonus Stock Plan or the Directors Stock Incentive Plan.
 
(3)No further grants may be made from: (i) the 1988 Plan; (ii) the 1992 Plan; (iii) the 1996 Plan; (iv) the 1999 Plan; and (v) the 1999 Stock Plan.
 
(4)These plans consist of: (i) the 1988 Plan; (ii) the 1992 Plan; (iii) the 1996 Plan; (iv) the 1999 Plan; (v) the 2002 Plan; and (vi) the Bonus Stock Plan.
 
(5)The number of securities available for future issuance under the 2002 Plan, other than upon the exercise of options, warrants or rights, is 2,358,075.1,842,535.
 
(6)The 1999 Stock Plan and Directors Stock Incentive Plan are non-shareowner approved plans.
 
(7)The number of securities available for future issuance under the Directors Stock Incentive Plan, other than upon the exercise of options, warrants or rights, is 94,736.89,082.


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21

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
 
The Compensation Committee (the “Committee”) of the Board of Directors recommends an overall compensation policy for the Corporation and the Board of Directors, has direct responsibility for matters relating to compensation of the officers and directors of the Corporation, advises the Board of Directors on management succession and administers certain stock plans of the Corporation. The Committee is composed entirely of independent directors.
Executive Compensation Principles
 
Executive and managerial compensation programs at the Corporation are designed and implemented with the following guiding principles in mind:
 • To link the interests of executives and managers to the interests of the shareowners and other potential investors.
 
 • To provide incentives for working toward increasing the market value of the Corporation’s stock and to increase shareowner value through achieving financial and business objectives.
 
 • To provide incentives for strategic vision and decision-making that will promote and enhance the longer-term health and viability of the Corporation.
 
 • To provide incentives for innovation, quality management, responsiveness to customer needs, development of value-added products and services, and an action-oriented approach to opportunities in the marketplace.
 
 • To attract, develop, retain and motivate 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.
 
 • To tie compensation to achievement of strong results.
General Compensation Plan Design
 
Executive and management compensation plans consist of: (1) salary; (2) annual performance incentive rewards; (3) long-term incentive rewards; (4) stock ownership guidelines; and (5) executive perquisites and benefits. Total compensation levels (salary, annual incentive rewards, and long-term incentive rewards), including those for the Chief Executive Officer, are targeted at median pay levels developed using a select peer group of US-based industrial firms and nationally recognized industry specific survey data for similar positions (“Market Data”). The peer group established for this purposeremuneration purposes is larger than that used for purposes of the Performance Graph and, together with the industry specific survey data, is intended to provide the Committee with a broader view of the competitive compensation landscape. The total compensation targets includeprovide an opportunity to providefor compensation levels at, above, or below the competitive median based on the performance of the Corporation, a division of the Corporation and the individual performance of an executive. The total compensation of the Chief Executive Officer is determined by the Committee, as described later in this report.
 
The components of total compensation are:
 • Salaryfor executives, including the Chief Executive Officer, is intended to be competitive with Market Data and is designed to attract and retain high-quality individuals.superior talent. The Committee conducts an annual base salary merit increase review for executives. This review is intended to reward achievements in innovation, quality, performance against assigned key objectives, service to the customer and leadership. Consideration is given to Market Data and recommendations by independent compensation consultants.
 
 • Annual performance incentive rewardsopportunitiesfor executives, including the Chief Executive Officer, provide at risk compensation tied to annual corporate performance, divisionbusiness unit performance, and individual contributions,contribution relative to the Corporation’s business plans and strategies. Annual incentive rewardsopportunities are also

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intended to maintain management compensation at a competitive level, as indicated by Market Data and as recommended by independent compensation consultants.


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 • Long-term incentive rewardsawardslinkalign the long-term interests of shareowners with those of the executives. In order to more effectively linkalign compensation to sustained long-term performance, during fiscal year 2004 the Committee reviewed the Corporation’s long-term incentive compensation program and approved the implementation of a revised program for a select group of senior executive officers beginning with fiscal year 2005. In fiscal 2005, employees and officers receivedare eligible for annual equity grants under the Corporation’s long-standing policy. These grants consistconsisting of a mix of stock options and/orand restricted stock awards, with vesting dependentawards. Typically, these grants vest pro-rata over four (4) years and are contingent upon continued service andwith the achievement of specific performance metrics. However, beginning with fiscal year 2005 grants, theCorporation. The Corporation’s executive officers and senior management also participate in a long-term cash incentive program (“LTIP”) under the 2002 Plan.. The LTIP provides cash incentive bonus awards based upon specific, pre-determined, objective financial goals, as approved by the Committee, over a three-year period. The value of stock optionEach year begins a new LTIP cycle with approved financial metrics and restricted stock awards for executive officers was reduced as a result of their participationtargets. When considering all three long-term compensation vehicles in the LTIP so thataggregate, approximately 50% of the combined long-term incentive value is provided in cash under the new three-year incentiveLTIP program, and 50%30%% is provided via stock option grants and 20% is provided in restricted stock awards. For the fiscal year 2006 grants, the LTIP was extended to other officers and key executives of the Corporation.
 
 • Stock Ownership Guidelinesare designed to tie the interests of executives and managers to the interests of the shareowners. The Corporation has adopted Stock Ownership Guidelines for executives, key managers, and for members of the Board of Directors. The belief is that stock should be acquired and held in such quantities to provide an ongoing incentive to make decisions and take actions that will enhance the performance of the Corporation and increase its value. These guidelines were first adopted in 1995 and, periodically, the level of ownership (i.e., multiple of base salary for executives, multiple of retainer for directors) and number of individuals subject to the guidelines has been modified. The current guidelines are:
      
   FY05FY06
 
   
Multiple
 
Chief Executive Officer   5X
 
Executive Vice Presidents and Group Presidents   3X
 
Executive Management Council, Corporate Officers, and certain Business Unit Managers   2X 
Other Key Managers   1X
 
Non-Employee Directors   5X 
      
 
Executives and directors are required to achieve applicable ownership requirements within 5 years of becoming subject to each such requirement. Shares that are either owned directly (including restricted shares of Common Stock) or indirectly through plans sponsored by the Corporation are included in determining whether an individual attains the minimum ownership guidelines. Shares that are subject to unexercised stock options are not included in the calculation of the number of shares owned.
 • Executive Perquisites and Benefits.  Executives are entitled to what the Committee believes are reasonable perquisites and benefits including the Supplemental Executive Retirement Plan, based on Market Data and consistent with the Corporation’s executive compensation principles.principles, including an executive retirement program, employment agreement, financial planning services, annual physicals, life insurance, and health and country club memberships. Executives also participate in those employee benefit plans that are available to salaried employees generally.
Compensation of Chief Executive Officer and Other Executive Officers
 
Total compensation of the Corporation’s Chief Executive Officer and other executive officers is determined pursuant to the Executive Compensation Principles stated above and in accordance with the Committee’s charter. The Committee has retained an independent compensation-consulting firm to assist it in

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the evaluation of the Chief Executive Officer’s compensation as well as that of the directors and other executive officers.
Compensation of the Chief Executive Officer
 
Markos I. Tambakeras currently serves as the Executive Chairman of the Board. Mr. Tambakeras served as Chairman of the Board from July 1, 2002 to December 31, 2005, and as President and Chief Executive Officer from July 1, 1999 to December 31, 2005.


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At the start of the 20052006 fiscal year, the Compensation Committee reviewed and approved specific goals and objectives relevant to the compensation of Mr. Tambakeras, who was then serving as the Chief Executive Officer, evaluated Mr. Tambakeras in light of these objectives, and based on such evaluation, determined and approved Mr. Tambakeras’Tambakeras’s total compensation opportunity.for the fiscal year.
• Markos I. Tambakeras became Chairman of the Board on July 1, 2002 and President and Chief Executive Officer on July 1, 1999.
• Mr. Tambakeras’ annual base salary was increased from $780,000 to $810,000 consistent with the Corporation’s targeted competitive compensation positioning.
• With respect to the annual performance incentive for Mr. Tambakeras for fiscal year 2005, the Compensation Committee noted that sales increased by 17%, earnings per share increased by 51% and return on invested capital increased by 37%. Each of these financial results substantially exceeded the objectives approved by the Committee at the start of the fiscal year. The actual performance incentive award for fiscal year 2005 was calculated by the Committee using a pre-established formula and Mr. Tambakeras’ performance versus objectives approved by the Committee at the start of the fiscal year. Based on specific achievements against those objectives, which included, among others, the Corporation’s performance relative to the financial, operational and strategic objectives agreed upon at the start of the fiscal year, the Committee approved a bonus award of $1,436,940 for Mr. Tambakeras for fiscal year 2005. Pursuant to the terms of his employment agreement with the Corporation, this amount represents 177% of targeted performance. The performance incentive award was calculated by the Committee using a pre-established formula that weighted the performance measures as follows: Sales growth (40%), earnings per share (30%) and return of invested capital (30%).
• During fiscal year 2005, Mr. Tambakeras was awarded restricted shares, stock options, and LTIP as set forth elsewhere in this Proxy Statement in accordance with the Corporation’s executive compensation principles and annual grant guidelines. In determining the long-term incentive component of Mr. Tambakeras’ compensation, the Committee considered the Corporation’s performance, relative shareowner return and the value of similar incentive awards to chief executive officers as indicated by the Market Data.
• Mr. Tambakeras has exceeded his stock ownership guidelines.
Salary.  Mr. Tambakeras’s annual base salary was increased from $810,000 to $900,000 consistent with the Corporation’s targeted competitive compensation positioning and his performance.
Annual Performance Incentive.  At the conclusion of fiscal year 2006, the Committee evaluated Mr. Tambakeras’s performance and the performance of the Corporation against the goals and objectives that were approved at the start of fiscal year 2006. With respect to the annual performance incentive for Mr. Tambakeras for fiscal year 2006, the Committee noted that sales increased by 6%, adjusted earnings per share increased by 22% and adjusted return on invested capital increased by 19%. Sales growth, although increasing over fiscal year 2005 results, did not meet the objectives approved by the Committee at the start of the fiscal year; whereas both earnings per share and return on invested capital achieved record highs and substantially exceeded the objectives. The actual performance incentive award for fiscal year 2006 was calculated by the Committee using a pre-established formula taking into consideration Mr. Tambakeras’s performance versus objectives approved by the Committee at the start of the fiscal year. Based on specific achievements against those objectives, which included, among others, the Corporation’s performance relative to the financial, operational and strategic objectives agreed upon at the start of the fiscal year, the Committee approved a bonus award of $1,216,800 for Mr. Tambakeras for fiscal year 2006. Pursuant to the terms of his amended and restated employment agreement with the Corporation, this amount represents 135% of targeted performance. The performance incentive award was calculated by the Committee using a pre-established formula that weighted the performance measures as follows: sales growth (30%), earnings per share (35%) and return of invested capital (35%).
Long-term Incentive Awards.  During fiscal year 2006, Mr. Tambakeras was awarded restricted shares, stock options, and LTIP as set forth elsewhere in this Proxy Statement in accordance with the Corporation’s executive compensation principles and annual grant guidelines. In determining the long-term incentive component of Mr. Tambakeras’s compensation, the Committee considered the Corporation’s performance, relative shareowner return and the value of similar incentive awards to chief executive officers as indicated by the Market Data.
Mr. Tambakeras has exceeded his stock ownership guideline.
Effective January 1, 2006 the Board of Directors appointed Carlos M. Cardoso as President and Chief Executive Officer replacing Mr. Tambakeras. Mr. Cardoso previously served as the Corporation’s Executive Vice President and Chief Operating officer since January 6, 2005.
Salary.  Mr. Cardoso’s annual base salary was increased from $562,000 to $700,000 consistent with the Corporation’s targeted competitive compensation positioning and his experience relative to the Chief Executive Officer role.
Annual Performance Incentive.  With respect to the annual performance incentive for Mr. Cardoso for fiscal year 2006, the Committee noted the above-mentioned performance with respect to sales, earnings per share and return on invested capital. The actual performance incentive award for fiscal year 2006 was calculated by the Committee using a pre-established formula taking into consideration Mr. Cardoso’s performance versus objectives approved by the Committee at the start of the fiscal year and at the time of Mr. Cardoso’s appointment to Chief Executive Officer. Based on specific achievements against those predefined objectives, which included, among others, the Corporation’s performance relative to the financial, operational and strategic objectives, the Committee approved a bonus award of $753,200 for Mr. Cardoso for fiscal year 2006. Pursuant to the terms of his employment agreement with the Corporation, this amount represents 120% of targeted performance. The performance incentive award was calculated by the Committee using a pre-established formula that weighted the performance measures as follows: sales growth (30%), earnings per share (35%) and return of invested capital (35%).
Long-term Incentive Awards.  During fiscal year 2006, Mr. Cardoso was awarded restricted shares, stock options, and LTIP as set forth elsewhere in this Proxy Statement in accordance with the Corporation’s executive compensation principles and annual grant guidelines.


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Mr. Cardoso has exceeded the stock ownership guidelines associated with the Chief Executive Officer position.
Compensation of Other Executive Officers
 • Base salaries for certain executive officers of the Corporation were adjusted in fiscal year 20052006 to be in line with the Corporation’s stated executive compensation principles, and based on individual performanceto reflect the role’s scope of responsibility and responsibility.the individual’s contribution to the Corporation’s results. Market Data was considered as well.
 
 • Individual executive officer annual performance incentive rewards for fiscal year 20052006 performance were determined by corporate, unit and individual performance, as recommended by Mr. Tambakeras,Cardoso, and approved by the Compensation Committee.
 
 • Stock options, restricted stockand/or LTIP were awarded to certain executive officers, during the course of fiscal year 2005,2006, to provide an incentive for managing the continuing performance and value of the Corporation. The awards, as recommended by Mr. Tambakeras,Cardoso, were approved by the Compensation Committee. The number of stock options and restricted stock awards, andas well the amount of LTIP, were determined in accordance with the Corporation’s stated principles and guidelines and the Market Data. The amount of such awards for Named Executive Officers is set forth elsewhere in this Proxy Statement.

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Deductibility of Executive Compensation
 
The Committee believes that the Corporation should strive to structure its compensation program for executive officers in a manner that would permit deductibility under the Internal Revenue Code. It also realizes that the evaluation of the overall performance of the executive officers cannot be reduced in all cases to a fixed formula. There may be situations in which the prudent use of discretion in determining pay levels is in the best interest of the Corporation and its shareowners. In some situations where discretion is used, compensation may not be fully deductible on the Corporation’s tax return. However, the Committee does not believe that such loss of deductibility would have any material impact on the financial condition of the Corporation.
Compensation Committee:Committee
Ronald M. DeFeo, Chair
Peter B. BartlettPhilip A. Dur
A. Peter Held
William R. Newlin
Steven H. Wunning


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25

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
 
The Audit Committee of the Board of Directors is composed solely of five independent directors, as defined inrequired by the listing standards of the New York Stock Exchange,NYSE, and operates under a written charter adopted by the Board of Directors.Directors, a copy of which is attached to this Proxy Statement as Appendix A. The members of the Audit Committee as of June 30, 20052006 are listed at the end of this report. The Board of Directors has determined that all of the members of the Audit Committee are “financially literate,” and that Mr.each of Messrs. Stranghoener and McLevish qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations promulgated under the Exchange Act.
Functions of the Audit Committee
 
The Audit Committee’s function is to assist the Board in its oversight of: the quality and integrity of the financial statements of the Corporation; the compliance by the Corporation with legal and regulatory requirements; the performance, qualifications and independence of the Corporation’s Independent Registered Public Accounting Firm (“auditors”); and the performance of the Corporation’s internal audit function. In addition, the Audit Committee has the sole authority to appoint, retain, terminate and replace the Corporation’s auditors, subject to shareowner ratification with respect to retention at the next regularly scheduled Annual Meeting of Shareowners. The Audit Committee performs an annual self-assessment to evaluate the composition, activities and interactions of the committee and submits the results of the self-assessment to the Nominating/Corporate Governance Committee and the Board of Directors.
Responsibilities
 
Management is responsible for the Corporation’s financial reporting process and system of internal controls, and for the preparation and presentation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. The auditors are responsible for planning and carrying out an audit of the financial statements and internal controls over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board and issuing a report thereon. The Audit Committee’s responsibility is to provide oversight to these processes. The Audit Committee does not certify the financial statements or guarantee the auditor’s report. In fulfilling its oversight role, the Audit Committee relies, without independent verification, on the information provided to it, the representations made by management and the auditors and the report of the auditors. The Audit Committee’s charter describes more fully its duties and responsibilities.
Complaints
 
Anyone, including the Corporation’s employees, who has a complaint or concern regarding the Corporation’s accounting, internal auditing controls or auditing matters may communicate that complaint or concern to the Audit Committee by sending correspondence in care of the Vice President, Secretary and General Counsel, Kennametal Inc., 1600 Technology Way, P.O. Box 231, Latrobe, Pennsylvania15650-0231, or by calling the Corporation’s toll-free HELPLINE (1-877-781-7319), which can be utilized, on a confidential and anonymous basis, twenty-four (24) hours a day.
Monitoring Activities in Fiscal Year 20052006
 
The Audit Committee held ten (10)eleven (11) meetings in fiscal year 2005.2006. During these meetings, the Audit Committee discussed with management, the internal auditors and PricewaterhouseCoopers LLP (“PwC”), the Corporation’s auditors, to the extent applicable, the quality and adequacy of the Corporation’s internal controls,control over financial reporting, the internal audit function’s organization, responsibilities, budget and staffing and the results of internal audit examinations. The Audit Committee also reviewed with both PwC and the internal auditors their respective audit plans, audit scope and identification of audit risks, and met separately with PwC and with the internal auditors, without management present, to discuss the results of their examinations, their evaluations of the Corporation’s internal controlscontrol over financial reporting and the overall quality of the Corporation’s financial reporting. The Audit Committee reviewed the interim financial information contained in each quarterly earnings announcement and eachForm 10-Q filed with the


29

SEC in fiscal year 20052006 and discussed this information with PwC and with the Corporation’s Chief Financial Officer and

26

Controller prior to release. The Audit Committee also reviewed and discussed with both management and PwC the audited financial statements for the year ended June 30, 20052006 prior to release.
 
The discussions with PwC included the matters required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, relating to communication with audit committees. The Audit Committee received from PwC written disclosures and the letter regarding its independence as required by Independence Standards Board Standard No. 1, describing all relationships between PwC and the Corporation that might bear on PwC’s independence, and discussed with PwC their independence.
 
Based on these reviews and these meetings, discussions and reports, the Audit Committee recommended to the Board of Directors that the Corporation’s audited consolidated financial statements be included in the Corporation’s Annual Report onForm 10-K for the fiscal year ended June 30, 2005,2006, for filing with the SEC. The Audit Committee has, subject to shareowner ratification at the 20052006 Annual Meeting of Shareowners, retained PwC as the Corporation’s auditor for the fiscal year ending June 30, 2006.2007.
Audit Committee:Committee
Lawrence W. Stranghoener, Chair
Ronald M. DeFeo
A. Peter Held
Timothy R. McLevish
Larry D. Yost


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27

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
 
The following graph compares cumulative total shareowner return on the Corporation’s Capital Stock with the cumulative total shareowner return on the common equity of the companies in the Standard & Poor’s Mid-Cap 400 Market Index (the “S&P Mid-Cap”Mid-Cap 400”), the Standard & Poor’s Composite 1500 Market Index (the “S&P Composite”), and a peer group of companies determined by the Corporation (“Peer Group”) for the period from July 1, 20002001 to June 30, 2005.2006.
 
The Corporation created the Peer Group for benchmarking its sales and earnings growth, return on invested capital, profitability and asset management. The Peer Group consists of the following companies: Allegheny Technologies Incorporated; *CarpenterCarpenter Technology Corporation; *CraneCrane Co.; Danaher Corporation; Eaton Corporation; *FlowserveFlowserve Corp.; *HarscoHarsco Corporations; *IllinoisIllinois Tool Works, Inc.; *JoyJoy Global Inc.; Lincoln Electric Holdings, Inc.; *MSCMSC Industrial Direct Co. Inc.; Parker-Hannifin Corporation; *Pentair,Pentair, Inc.; Precision Castparts Corp.; *Sauer-Danfoss,Sauer-Danfoss, Inc.; *Teleflex,Teleflex, Incorporated; and The Timken Co. and
Intermec, Inc. (formerly, UNOVA, Inc. Companies denoted with an * are new to the Peer Group this year and were added to give the group a broader scope of companies that address similar end markets to the various business units of the Corporation. Ingersoll-Rand Company) was deleted from the Peer Group this year.year due to a change in its business model.
 
The following graph and chart assumes a $100 investment on July 1, 2000,2001, in each of Kennametal Inc. Capital Stock, the S&P Mid-Cap 400, the S&P Composite, the current Peer Group and the prior Peer Group and further assumes the reinvestment of all dividends.
Comparison of5-Year Cumulative FiveTotal Return
(LINE GRAPH)
Assumes $100 Invested on July 1, 2001
Assumes Dividend Reinvested Fiscal Year Total Return
(LINE GRAPH)
Ending June 30, 2006

Fiscal Year Ended June 30, 2006
                         
  2000 2001 2002 2003 2004 2005
             
Kennametal Inc.  $100   176.10   177.70   167.69   230.76   234.45 
S&P Mid-Cap 400 $100   108.87   103.74   103.00   131.82   150.31 
Current Peer Group $100   117.63   131.17   123.74   190.77   192.13 
Prior Peer Group $100   117.06   130.30   128.78   201.75   211.62 
                         
  2001 2002 2003 2004 2005 2006
Kennametal Inc. $100.00  $100.96  $95.39  $131.31  $133.41  $183.67 
Prior Peer Group Index  100.00   111.52   105.30   162.47   162.62   218.51 
S&P Mid-Cap 400  100.00   95.28   94.60   121.07   138.06   155.98 
Current Peer Group Index  100.00   111.65   104.88   161.48   160.93   217.64 
S&P Composite  100.00   82.01   82.22   97.93   104.12   113.11 


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PRINCIPAL HOLDERS OF VOTING SECURITIES
 
The following table sets forth each person or entity whothat may be deemed to have beneficial ownership of more than 5% of the outstanding Capital Stock of the Corporation based upon information publicly available as of July 31, 2005.2006.
         
    Percent of
  Number of Outstanding
Name and Address Shares Capital Stock(1)
     
Barclays Global Investors, NA  3,853,843   10.04%
45 Fremont Street        
San Francisco, CA 94105        
 
Fidelity Management & Research Co.   2,125,012   5.53%
82 Devonshire Street        
Boston, MA 02109        
 
Franklin Advisors, Inc.  2,098,803   5.47%
1 Franklin Parkway        
San Mateo, CA 94403-1906        
 
         
    Percent of
  Number of
 Outstanding
Name and Address
 Shares(1) Capital Stock(1)
 
Barclays Global Investors, NA  2,231,207   5.64%
45 Fremont Street        
San Francisco, CA 94105        
Franklin Resources, Inc.   2,583,581   6.53%
1 Franklin Parkway        
San Mateo, CA94403-1906
        
Transamerica Investment Management LLC  2,601,608   6.57%
(1)Based onAs reported by the number ofholder in the most recent Form 13F or 13G filing with the Securities Exchange Commission. Barclays has sole dispositive power over all 2,231,207 shares outstanding as of July 31, 2005.and sole voting power over 1,991,779 shares. Franklin Resources has shared dispositive power over all 2,621,331 shares, sole voting power over 2,618,231 shares and disclaims voting power over 3,100 shares. Transamerica Investment has shared dispositive power over all 2,601,608 shares, sole voting power over 2,426,898 shares and shared voting power over 208 shares.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Proposal III. Ratification of the Selection of the Independent Registered Public Accounting Firm
 
The Audit Committee elected to retain PricewaterhouseCoopers LLP (“PwC”) as the Corporation’s Independent Registered Public Accounting Firm (“auditors”) for the fiscal year ending June 30, 2006.2007. As a matter of good corporate practice, the Audit Committee has determined to submit its selection to shareowners for ratification at the Annual Meeting. Unless otherwise directed by the shareowners, proxies will be voted in favor of the ratification of the selection of PwC as the Corporation’s auditors for the fiscal year ending June 30, 2006.2007. In the event that this selection is not ratified by the shareowners, the Audit Committee will consider this vote in determining its future selection of an auditor. Even if the selection is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such change would be in the best interests of the Corporation and its shareowners.
 
Representatives of PwC attended all meetings of the Audit Committee held during fiscal year 2005.2006. The Audit Committee reviewed the non-audit services provided by PwC to the Corporation in fiscal year 2005. Based2006 and, based on that review, the Audit Committee considered whether the provision ofdetermined that the non-audit services provided by PwC waswere compatible with maintaining the independence of PwC.
 
Representatives of PwC will attend the Annual Meeting, and will be availablehave the opportunity to make a statement at the meeting if they wish. They also will be available to respond to appropriate questions from shareowners in accordance with the rules of the meeting.


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Fees and Services
 
During fiscal years 2006 and 2005, and 2004,fees for professional services (including expenses) rendered by PwC billedto the Corporation and its subsidiaries the following fees (including expenses) for its serviceswere as follows (in millions):
         
  Fiscal 2005 Fiscal 2004
     
Audit Fees(1) $4.2  $1.9 
Audit-Related Fees(2) $0.1  $0.2 
Tax Fees(3) $0.5  $0.6 
All Other Fees $—  $— 
TOTAL $4.8  $2.7 

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  Fiscal 2006 Fiscal 2005
 
Audit Fees(1) $4.8  $4.7 
Audit-Related Fees(2)  0.2   0.1 
Tax Fees(3)  0.4   0.5 
All Other Fees  —   — 
         
TOTAL $5.4  $5.3 
         
(1)These fees relate to services provided for the audit of the consolidated financial statements, subsidiary and statutory audits, the issuance of consents and assistance with the review of documents filed with the SEC. In fiscal 2005, theseAlso included are fees also includefor services provided related to the audit of the Corporation’s internal controlscontrol over financial reporting. The fiscal 2006 fees include $0.5 million related to the divestiture of J&L America, Inc. The Corporation was reimbursed by the buyer of J&L America, Inc. for these fees. The fiscal 2005 fees have been revised to reflect $0.5 million in fees related to the fiscal 2005 audit that were billed subsequent to the preparation of the prior year proxy.
 
(2)The fiscal 2005These fees primarily relate to services provided in connection with financial due diligence services in connection with acquisitions. The fiscal 2004 fees primarily relate to services provided in connection with employee benefit and pension plan audits as well as services related to the Corporation’s preparation to comply with the internal control provisions of the Sarbanes-Oxley Act of 2002, as amended, including Section 404 (“Section 404”).
 
(3)These fees relate primarily to tax compliance services, tax planning advice, tax preparation services for employees on international assignments and tax audit assistance.
Audit Committee Pre-Approval PoliciesPolicy
 
The Audit Committee annually adopts a policy for pre-approval of audit and non-audit services to be provided to the Corporation by auditors. Under the policy, the Audit Committee pre-approves categories of services and fee caps for each category. The pre-approved services include: (i) audit services, such as statutory audits and internal control-related services, services associated with regulatory filings and upon the effectivenessconsultations regarding disclosure treatment of Section 404, internal control-related services;certain transactions or events; (ii) audit-related services, such as due diligence and accounting consultations; (iii) tax services, such as tax compliance (domestic and international), tax planning and advice and expatriate tax services; and (iv) other permissible non-audit services that the Audit Committee believes will not impair the auditor’s independence. The Audit Committee must specifically pre-approve the terms of the annual audit services engagement terms.engagement. All other audit and permissible non-audit services not covered by the policy, and any proposed services which materially exceed the pre-approved fee levels, require separate specific pre-approval by the Audit Committee. The Audit Committee may delegate specific engagement pre-approval authority to one or more of its members. The member(s) to whom such authority is delegated must present any pre-approval decisions to the Audit Committee at its next scheduled meeting for ratification. The policy requires the auditor to provide the Audit Committee with detailed supporting documentation regarding the specific services to be provided.
 
The Board of Directors unanimously recommends a vote FOR the ratification of the selection of PwC as the Corporation’s auditors for the fiscal year ending June 30, 2006.2007.


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FORM 10-K ANNUAL REPORT TO THE

SECURITIES AND EXCHANGE COMMISSION
 
Copies of the Annual Report (Form(Form 10-K) of the Corporation for the fiscal year ended June 30, 20052006 as filed with the Securities and Exchange Commission were mailed to shareowners with this Proxy Statement. A shareowner may obtain a copy of the Annual Report without charge by writing to: Chief Financial Officer, Kennametal Inc., 1600 Technology Way, P.O. Box 231, Latrobe, Pennsylvania15650-0231.
OTHER MATTERS
 
The Corporation knows of no other matters to be presented for action at the Annual Meeting. However, the enclosed form of proxy confers discretionary authority with respect to the transaction of any other business that may properly come before the meeting. If any other matters should properly come before the meeting, it is intended that votes will be cast pursuant to the proxy in respect theretonamed proxies in accordance with their best judgment.judgment will cast votes.
Solicitation of 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 owners 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, facsimile, the Internet or other means of communication. 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 Morrow & Co., Inc., a professional soliciting organization, to assist in soliciting proxies from brokerage houses, custodians, nominees, other fiduciaries and other shareowners of the Corporation. The fees and expenses of that firm in connection with such solicitation are not expected to exceed $32,000.$35,000, which fees will be borne by the Corporation.
 
SEC regulations permit the Corporation to deliver a single annual report, Proxy Statement, Proxy Statement combined with a prospectus, or any information statement to any household at which two or more registered shareowners have the same last name and address, unless the Corporation has received contrary instructions from one or more of the shareowners. The Corporation will continue to include a separate proxy card for each registered shareowner account.
 
Separate copies of the documents listed above will be delivered promptly by the Corporation to a shared address upon the written request of a shareowner to Kennametal Inc., Attention: Secretary, 1600 Technology Way, P.O. Box 231, Latrobe, Pennsylvania15650-0231 or by calling(724) 539-6578.
 
If the shareowner wishes to receive a single copy of the documents listed above at a shared address in the future or if the shareowner wishes to receive separate copies of the documents listed above in the future, contact Mellon Investor Services as indicated below:
       
By Phone: 1-866-211-6288
By Mail: Mellon Investor Services LLC
P.O. Box 3315
South Hackensack, NJ 07606		 or Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
By Internet: http://www.melloninvestor.com/isd
Shareowner Proposals and Nominating Procedures
 
Shareowners who intend to submit a proposal for inclusion in the Corporation’s 20062007 Proxy Statement for consideration at the Annual Meeting of the Shareowners of the Corporation expected to be held in October 2006,2007, 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, 2006.2007. Any such proposal must comply withRule 14a-8 of

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Regulation 14A of the SEC proxy rules and must contain certain information specified in the By-Laws of the Corporation.


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The By-Laws of the Corporation require that all shareowner 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 no earlier than May 1, 20062007 and no later than July 1, 2006,2007, 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 20062007 Annual Meeting, other than those made by the Board of Directors, be submitted to the Secretary of the Corporation no earlier than May 1, 20062007 and no later than July 1, 2006.2007. The By-Laws require that notice of such nominations contain certain information regarding the nominee and certain information regarding the nominating shareowner. Any shareowner may obtain a copy of the applicable By-Law from the Secretary of the Corporation upon written request. Please see “Committee Functions — Corporate Governance/Nominating Committee” under the “Board of Directors and Board Committees” section of this Proxy Statement for additional information regarding shareowner nominations to be considered by the Corporation’s Corporate Governance/Nominating Committee.
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation’s executive officers and directors and persons who own more than ten percent of a registered class of the Corporation’s equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the NYSE.SEC. SEC regulations also require the Corporation’s executive officers, directors and greater than ten percent (10%) shareowners to furnish the Corporation with copies of all Forms 3, 4 and 5 they file.
 
Based solely on the Corporation’sa review of the copies of such forms itreports Kennametal has received, and information furnished by these parties, the Corporation believes that all of its executive officers, directors and greater then ten percent (10%) beneficial owners have filed with the SEC, or the Corporation has filed on their behalf of the reporting person pursuant to a valid power of attorney, onand written representations that no other reports were required for fiscal 2006, the Corporation believes that all Section 16(a) reporting requirements applicable to our executive officers, directors and persons who owned more than 10% of a registered class of Kennametal’s equity securities in fiscal 2006 were satisfied in a timely basis, all required forms with respect to transactions in securities of the Corporation in fiscal year 2005, with the exception of one late Form 4 filing for James R. Breisinger for two transactions occurring in January 2005. The Form 4 was filed two days later than the last date on which it would have been considered timely, and all transactions included on the filing are reflected in this Proxy Statement.fashion.


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Appendix A
KENNAMETAL INC.
AUDIT COMMITTEE CHARTER
MANAGEMENT PERFORMANCE BONUS PLANPurpose
1.Purpose of the Plan
The purpose of the Management Performance Bonus Plan (also known asAudit Committee (the “Committee”) of the “Prime Bonus Plan,Board of Directors (the “Board” and hereinafter the “Plan”) of Kennametal Inc. (the “Company”) is to advanceto:
1. Assist the interests ofBoard in its oversight of:
(a) the Company and its shareholders by providing incentives to key employees with significant responsibility for achieving performance goals critical to the success and growth of the Company. The Plan is designed to: (i) promote the attainmentintegrity of the Company’s significant business objectives; (ii) encouragefinancial statements.
(b) the Company’s compliance with legal and reward management teamwork acrossregulatory requirements.
(c) the entire Company;performance, qualifications and (iii) assistindependence of the Company’s independent auditors (the “Independent Auditor”). (d) the performance of the Company’s internal audit function, as conducted through the Director, Internal Audit and Risk Management (the “Internal Auditor”).
2. Prepare the report required to be included in the attractionCompany’s annual proxy statement, in accordance with the rules and retentionregulations of employees vitalthe Securities and Exchange Commission (the “SEC”).
3. Provide an open avenue of communication between the Independent Auditor, the Internal Auditor, the Board and management.
Committee Membership
The Committee shall be comprised of at least three (3) members of the Board, each of whom shall be:
1. Independent, in accordance with the Company’s Corporate Governance Guidelines.
2. Financially literate, as that qualification is interpreted by the Board in its business judgment, or become financially literate within a reasonable period of time after his or her appointment to the Company’s long-term success.Committee.
2.Definitions
      For the purposeAt least one member of the Plan,Committee shall have accounting or related financial management expertise, as the following definitionsBoard interprets such qualification in its business judgment. Notwithstanding the above, each member of the Committee shall apply:meet the independence, experience and any other applicable requirements relevant to audit committee members, as and when required, of the New York Stock Exchange, the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations of the SEC and any other applicable regulatory authority.
      (a) “Board” means the Board of Directors of the Company.
      (b) “Code” means the Internal Revenue Code of 1986, as amended, including any successor law thereto.
      (c) “Committee” means the Compensation Committee of the Board, or such other committee as is appointed or designated by the Board to administer the Plan, in each case which shall be comprised solely of two or more “outside directors” (as defined under Section 162(m) of the Code and the regulations promulgated thereunder).
      (d) “Company” means Kennametal Inc. and any subsidiary entity or affiliate thereof, including subsidiaries or affiliates which become such after adoption of the Plan.
      (e) “Forfeit,” “Forfeiture,” “Forfeited” means the loss by a Participant of any and all rights to an award granted under the Plan, including the loss to any payment of compensation by the Company under the Plan or any award granted thereunder.
      (f) “Participant” means any person: (1) who satisfies the eligibility requirements set forth in Paragraph 4; (2) to whom an award has been made by the Committee; and (3) whose award remains outstanding under the Plan.
      (g) “Performance Goal” means, in relation to any Performance Period, the level of performance that must be achieved with respect to a Performance Measure.
      (h) “Performance Measures” means any one or more of the following performance criteria, either individually, alternatively or in any combination, and subject to such modifications or variations as specified by the Committee, applied to either the Company as a whole or to a business unit or subsidiary entity thereof, either individually, alternatively or in any combination, and measured over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee: cash flow; cash flow from operations; earnings (including, but not limited to, earnings before interest, taxes, depreciation and amortization); earnings per share, diluted or basic; earnings per share from continuing operations; net asset turnover; inventory turnover; capital expenditures; debt; debt reduction; working capital; return on investment; return on sales; net or gross sales; market share; economic value added; cost of capital; change in assets; expense reduction levels; productivity; delivery performance; safety record; stock price; return on equity; total stockholder return; return on capital; return on assets or net assets; revenue; income or net income; operating income or net operating income; operating profit or net operating profit; gross margin, operating margin or profit margin; and completion of acquisitions, business expansion, product diversification, new or expanded market penetration and other non-financial operating and management performance objectives.
The members of the Committee shall be appointed by the Board on the recommendation of the Nominating/Corporate Governance Committee. Committee members may be replaced by the Board. The Chair of the Committee shall be designated by the Board, or, if it does not do so, the Committee members shall elect a chairperson by vote of a majority of the full Committee.
A member of the Committee may not serve on the audit committees of more than two (2) other public companies, unless the Board determines that such simultaneous service would not impair the member’s ability to effectively serve on the Committee, and such determination is disclosed in the Company’s annual proxy statement, as and when required under the listing standards of the New York Stock Exchange.
Meetings
The Committee shall meet or hold telephonic meetings as often as it deems appropriate to discharge its duties and responsibilities, but not less frequently than four (4) times each year. The Committee shall meet periodically in separate executive sessions with management (including the Chief Executive Officer, Chief Financial Officer and General Counsel), with the Internal Auditor and with the Independent Auditor, and have such other direct and independent interaction with such persons as from time to time as the Committee deems appropriate. The Committee shall also meet privately in regularly scheduled executive sessions without the presence of any management, the Internal Auditor or the Independent Auditor. The Committee may request any officer or employee


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      To the extent consistent with Section 162(m)
of the CodeCompany or the Company’s outside counsel or other advisor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
Duties and Responsibilities
The Committee shall:
Oversight of the Independent Auditor
1. Have the sole authority to appoint, retain, terminate and replace the Independent Auditor, subject to shareowner ratification with respect to retention at the next regularly scheduled annual meeting of shareowners.
2. Be directly responsible for the compensation and oversight of the work of the Independent Auditor, including the resolution of disagreements between management and the regulations promulgated thereunderIndependent Auditor regarding financial reporting, for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. The Independent Auditor shall report directly to the Committee and unless otherwise determinedshall be ultimately accountable to the Board and the Committee.
3. Have the sole authority to approve, and shall preapprove, the terms (including compensation) of all auditing services, including the providing of any comfort letters in connection with securities offerings, and the terms (including compensation) of any non-audit services which the Independent Auditor or an affiliate of the Independent Auditor are permitted to render under the Exchange Act, with preapproval of such non-audit services subject to thede minimis exceptions under the Exchange Act (which services must be approved prior to the completion of the audit).
4. At least annually, obtain and review a report prepared by the Committee atIndependent Auditor describing:
(a) the timeIndependent Auditor’s internal quality-control procedures.
(b) any material issues raised by the Performance Goals are established, the Committee shall, in applying the Performance Goals, exclude the adverse affect of anymost recent internal quality-control review, or peer review, of the following events that occur during a Performance Period:Independent Auditor or by any inquiry or investigation by governmental or professional authorities, within the impairment of tangible or intangible assets; litigation or claim judgments or settlements; changes in tax law, accounting principles or other such laws or provisions affecting reported results; business combinations, reorganizations and/or restructuring programs that have been approved by the Board; reductions in force and early retirement incentives; and any extraordinary, unusual, infrequent or non-recurring items separately identified in the financial statements and/or notes thereto in accordance with generally accepted accounting principles.
      (i) “Performance Period” means, in relation to any award, the fiscal year or other period for whichpast five years, regarding one or more Performance Goals have been established,independent audits carried out by the Independent Auditor, and any steps taken to deal with eachany such period constituting a separate Performance Period.issues.
3.Administration of the Plan
      (a) The management(c) an assessment of the Plan shall be vestedIndependent Auditor’s independence, including all relationships between the Independent Auditor and the Company and the disclosures regarding the Independent Auditor’s independence required by the Independence Board Standard No. 1, as in the Committee; provided, however, that all acts and authority of the Committee pursuant to this Plan shall be subject to the provisions of the Committee’s Charter, as amendedeffect from time to time or as otherwise required by any rules of the Public Company Accounting Oversight Board.
5. Review and evaluate the qualifications, performance and independence of the Independent Auditor and the lead partner of the Independent Auditor, including: (i) considering whether the Independent Auditor’s quality controls are adequate; (ii) considering whether the provision of permitted non-audit services is compatible with maintaining the Independent Auditor’s independence; (iii) considering the Independent Auditor’s impact on the accounting practices, internal controls and financial reporting of the Company; and (iv) taking into account the opinions of management and the Internal Auditor. The Committee shall present its conclusions regarding the Independent Auditor to the Board.
6. Ensure the five-year rotation of the lead (or coordinating) audit partner of the Independent Auditor having primary responsibility for the audit and the audit partner responsible for reviewing the audit, as required by law. Ensure the rotation (seven (7) years of service followed by a two (2) year cooling off period) of all other “audit partners” of the Independent Auditor, as such other authorityterm is defined by the SEC and as mayrequired by applicable law.
7. Set clear hiring policies for any former or current employees of the Independent Auditor, taking into account the prohibitions under the Exchange Act.
8. Review and discuss with the Independent Auditor, prior to the audit, the planning and staffing of the audit, including the scope of, and the audit procedures utilized in, the annual audit and quarterly reviews of the Company’s financial statements.


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Oversight of the Internal Auditor
1. Review and concur in the appointment, replacement or dismissal of the head of the Internal Auditor function and the compensation package for such person.
2. Evaluate, as it deems necessary or appropriate, the Internal Auditor function and its impact on the accounting practices, internal controls and financial reporting of the Company.
3. Periodically review and discuss with the Internal Auditor, the Independent Auditor and management the responsibilities, budget and staffing of the Company’s internal audit function, and any recommendations with respect thereto.
4. Periodically review and discuss with the Internal Auditor the scope of the annual internal audit plan and the results of completed internal audits.
Oversight of Financial Statements, Internal Controls and Disclosures
1. Periodically review and discuss with the Independent Auditor, the Internal Auditor, the Corporate Controller and management (including the Chief Executive Officer, Chief Financial Officer and General Counsel) (and, where required or appropriate, in separate executive sessions):
(a) the Company’s annual and quarterly financial statements (including the notes thereto) before their release, including significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, the Company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and changes in the Company’s selection or application of accounting principles.
(b) the adequacy of the Company’s system of internal controls and any special audit steps adopted in light of material control deficiencies, and any recommendations with respect thereto.
(c) management’s internal control report over financial reporting and the Independent Auditor’s attestation of the report prior to the filing of the Company’sForm 10-K.
(d) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s financial statements.
2. Periodically review and discuss with the Independent Auditor:
(a) the matters required to be delegateddiscussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties the Independent Auditor encountered in the course of its audit work, any restrictions on the scope of its audit activities or access to requested information, and any significant disagreements with management.
(b) any accounting adjustments that were noted or proposed by the Independent Auditor but were “passed” as immaterial or otherwise; and any communications between the audit team and the Independent Auditor’s national office with respect to auditing or accounting issues presented by the engagement; and any “management” or “internal control” letter issued, or proposed to be issued, by the Independent Auditor to the Company.
(c) any reports or letters issued by the Independent Auditor to the Committee or management letters issued to the Company.
3. Obtain, review and discuss the reports required to be delivered to the Committee by the Board. The Committee may, subjectIndependent Auditor on:
(a) all critical accounting policies and practices used or to be used.
(b) all alternative treatments of financial information within generally accepted accounting principles (“GAAP”) that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the Independent Auditor.
(c) other material written communications between the Independent Auditor and management.


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4. Review disclosures made to the preceding sentenceCommittee by the Chief Executive Officer and Chief Financial Officer during their certification process for theForm 10-K andForm 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls.
5. Review and discuss with management financial risk exposures of the Company and management’s initiatives to monitor and control such exposures, including the Company’s guidelines and policies governing the process by which risk management and assessment is undertaken.
6. Review and discuss generally with management earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. The Committee’s responsibility to discuss earnings releases as well as financial information and earnings guidance may be done generally (i.e. discussion of the types of information to be disclosed and the type of presentation to be made).
7. Based upon the review and discussions of the relevant matters described in the Committee’s report required by the rules and regulations of the SEC, recommend to the Board whether the audited financial statements of the Company should be included in the Company’s Annual Report onForm 10-K.
8. Prepare the report required to be included in the Company’s annual proxy statement, in accordance with the rules and regulations of the SEC.
Oversight of Compliance Matters
1. Obtain and review reports from the Independent Auditor, the Internal Auditor and management that the Company and its subsidiary and foreign affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Ethics and Conduct.
2. Review affiliated party transactions.
3. Advise the Board with respect to Participants whom the Committee determines are not likely to be subject toCompany’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Business Ethics and Conduct.
4. Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.
5. Review and discuss with the Independent Auditors, the Internal Auditor and management any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies.
6. Obtain assurance from the Independent Auditor that Section 162(m)10A(b) of the Code, delegate suchExchange Act concerning audit discoveries has not been implicated.
7. Review and discuss with the General Counsel legal matters that may have a material impact on the Company’s financial statements or compliance policies.
Other Functions
The Committee shall:
1. Investigate any matter brought to its attention within the scope of its powersduties and authority under the Plan to the Company’s officersresponsibilities, as it deems necessary or appropriate. In
2. Have the event of such delegation, all referencesauthority to engage independent legal, accounting or other advisors, at the Company’s expense, as it deems necessary or appropriate.
3. Determine, and the Company shall provide for, appropriate funding for payment of: (i) compensation to the Committee in this Plan shall be deemed references to such officers as it relates to those aspectsIndependent Auditor for the purpose of the Plan that have been delegated.
      (b) Subject to the terms of the Plan, the Committee shall, amongpreparing or issuing an audit report or performing other things, have full authority and discretion to determine eligibility for participation in the Plan, make awards under the Plan, establish the terms and conditions of such awards (including the Performance Goal(s) and Performance Measure(s) to be utilized) and determine whether the Performance Goals applicableaudit, review or attest services; (ii) compensation to any Performance Measures for any awards have been achieved. The Committee’s determinations under the Plan need not be uniform among all Participants, or classes or categories of Participants, and may be applied to such Participants, or classes or categories of Participants, as the Committee, in its sole and absolute discretion, considers necessary, appropriate or desirable. The Committee is authorized to interpret the Plan, to adopt administrative rules, regulations, and guidelines for the Plan, and may correct any defect, supply any omission or reconcile any inconsistency or conflict in the Plan or in any award. All determinationsadvisors engaged by the Committee shall be final, conclusiveunder 2. above; and binding on the Company, the Participant and any and all interested parties.
      (c) Subject to the provisions of the Plan, the Committee will have the authority and discretion to determine the extent to which awards under the Plan will be structured to conform to the requirements applicable to performance-based compensation as described in Section 162(m) of the Code, and to take such action, establish such procedures, and impose such restrictions at the time such awards are granted as the Committee determines to be necessary or appropriate to conform to such requirements. Notwithstanding any provision of the Plan to the contrary, if an award under this Plan is intended to qualify as performance-based compensation under Section 162(m) of the Code and the regulations issued thereunder and a provision of this Plan would prevent such award from so qualifying, such provision shall be administered, interpreted and construed to carry out such intention (or disregarded to the extent such provision cannot be so administered, interpreted or construed).


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      (d) Notwithstanding any provision of the Plan to the contrary, if any benefit provided under this Plan is subject to the provisions of Section 409A of the Code and the regulations issued thereunder, the provisions of the Plan shall be administered, interpreted and construed in a manner necessary to comply with Section 409A and the regulations issued thereunder (or disregarded to the extent such provision cannot be so administered, interpreted, or construed.)

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4.Participation in the Plan
      Officers and key employees(iii) ordinary administrative expenses of the CompanyCommittee that are necessary or appropriate in carrying out its duties.
4. Develop and adopt, where appropriate, policies and procedures for carrying out its duties and responsibilities.
5. Perform an annual performance self-evaluation of the Committee, the results of which shall be eligiblesubmitted to participate in the Plan. No employee shall haveNominating/Corporate Governance Committee and the rightBoard.
6. Report to participate in the Plan, and participation in the Plan in any one Performance Period does not entitle an individual to participate in future Performance Periods.
5.Incentive Compensation Awards
      (a) The Committee may, in its discretion, from time to time make awards to persons eligible for participation in the Plan pursuant to which the Participant will earn cash compensation. The amount of a Participant’s award may be basedBoard on a percentage of such Participant’s salaryregular basis and review with the Board any issues that arise with respect to: (i) the quality or such other methods as may be established by the Committee. Each award shall be communicated to the Participant, and shall specify, among other things, the terms and conditionsintegrity of the awardCompany’s financial statements; (ii) the Company’s compliance with legal or regulatory requirements; (iii) the performance, qualifications and the Performance Goals to be achieved. The maximum amount of an award that may be earned under the Plan by any Participant for a Performance Period covering one fiscal year or less (hereinafter “Annual Award”) shall not exceed USD $4,000,000; provided, however, if more than one Annual Award is outstanding for a Participant under the Plan for a given fiscal year, the foregoing limitation shall apply to the aggregate amount earned under all such Annual Awards. The maximum amount of an award that may be earned under the Plan by any Participant for each fiscal year (or portion thereof) contained in a Performance Period covering more than one fiscal year (hereinafter “Long-Term Award”) shall not exceed USD $4,000,000 (this limitation is separate from the limitation applicable to Annual Awards set forth in the preceding sentence); provided, however, if more than one Long-Term Award is outstanding for a Participant under the Plan for a given fiscal year, the foregoing limitation shall apply to the aggregate amount earned under all such Long-Term Awards. For purposesindependence of the foregoing limitations, (i)Independent Auditor; or (iv) the term “earned” means satisfying the applicable Performance Goals so that an amount becomes payable, without regard to whether it is to be paid currently or on a deferred basis or continues to be subject to any service requirement or other condition; and (ii) with respect to Long-Term Awards, an amount shall be deemed to be “earned” pro-rata over the applicable Performance Period.
      (b) With respect to awards that are intended to be performance-based compensation under Section 162(m)performance of the Code, each award shall be conditioned uponInternal Auditor.
7. Have the Company’s achievementauthority to delegate any of its duties and responsibilities (or functions) to a subcommittee of the Committee consisting of one or more Performance Goal(s) with respectmembers, as appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant preapprovals shall be presented to the Performance Measure(s) established byfull Committee at its next scheduled meeting for ratification.
8. Review and reassess its charter annually and recommend any changes to the Committee. No later than ninety (90) days afterBoard for approval.
9. Perform such additional activities, and consider such other matters, within the beginningscope of its responsibilities, as the Committee or the Board deems necessary or appropriate.
Limitation of the applicable Performance Period,Committee’s Role
Notwithstanding the duties and responsibilities of the Committee shall establishset forth in writingthis charter, it is not the Performance Goals, Performance Measures and the method(s) for computing the amountduty of compensation which will be payable under the Plan to each Participant if the Performance Goals established by the Committee are attained; provided however,to plan or conduct audits or to determine that for a Performance Period of less than one year, the Committee shall take any such actions prior to the lapse of 25% of the Performance Period. In addition to establishing minimum Performance Goals below which no compensation shall be payable pursuant to an award, the Committee, in its discretion, may create a performance schedule under which an amount less than or more than the target award may be paid so long as the Performance Goals have been achieved.
      (c) The Committee, in its sole discretion, may also establish such additional restrictions or conditions that must be satisfied as a condition precedent to the payment of all or a portion of any awards. Such additional restrictions or conditions need not be performance-based and may include, among other things, the receipt by a Participant of a specified annual performance rating, the continued employment by the Participant and/or the achievement of specified performance goals by the Company, business unit or Participant. Furthermore and notwithstanding any provision of this Plan to the contrary, the Committee, in its sole discretion, may reduce the amount of any award to a Participant if it concludes that such reduction is necessary or appropriate based upon: (i) an evaluation of such Participant’s performance; (ii) comparisons with compensation received by other similarly situated individuals working within the Company’s industry; (iii) the Company’s financial resultsstatements and conditions; or (iv) such other factors or conditions thatdisclosures are complete and accurate and are in accordance with GAAP and applicable rules and regulations. These are the Committee deems relevant. Notwithstandingresponsibilities of management and the Independent Auditor. Moreover, the designation of any provision of this Plan to the contrary, the Committee shall not use its discretionary authority to increase any award that is intended to be performance-based compensation under Section 162(m) of the Code.

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6.Payment of Individual Incentive Awards
      (a) Awards shall be paid as promptly as practicable (but in no event later than 21/2 months after the close of the fiscal year in which the Performance Period ends) after the Committee has certified in writing the extent to which the applicable Performance Goals and any other material terms have been achieved. For purposes of this provision, and for so long as the Code permits, the approved minutesmember of the Committee meeting in which the certification is made may be treated as written certification.
      (b) Unless otherwise determined by the Committee, Participants who have terminated employment with the Company prior to the actual payment of an award for“audit committee financial expert” does not: (i) impose on such person any reason, shall Forfeit any and all rights to payment under any awards then outstanding under the terms of the Plan.
      (c) The Committee shall determine whether, to what extent, and under what additional circumstances amounts payable with respect to an award under the Plan shall be deferred either automatically, at the election of the Participant,duties, obligations or by the Committee.
7.Amendment or Termination of the Plan
      While the Company intendsliabilities that the Plan shall continue in force from year to year, the Company reserves the right to amend, modify or terminate the Plan, at any time; provided, however, that no such modification, amendment or termination shall, without the consent of the Participant, materially adversely affect the rights of such Participant to any payment that has been determined by the Committee to be due and owing to the Participant under the Plan but not yet paid. Any action authorized under this Section 7 may be taken by the Committee.
      Notwithstanding the foregoing or any provision of the Plan to the contrary, the Committee may at any time (without the consent of the Participant) modify, amend or terminate any or all of the provisions of this Plan to the extent necessary to conform the provisions of the Plan with Section 409A or Section 162(m) of the Code or the regulations promulgated thereunder regardless of whether such modification, amendment, or termination of the Plan shall adversely affect the rights of a Participant under the Plan.
8.Rights Not Transferable
      A Participant’s rights under the Plan may not be assigned, pledged, or otherwise transferred except, in the event of a Participant’s death, to the Participant’s designated beneficiary, or in the absence of such a designation, by will or by the laws of descent and distribution.
9.Funding
      The Plan is not funded and all awards payable hereunder shall be paid from the general assets of the Company. No provision contained in this Plan and no action taken pursuant to the provisions of this Plan shall create a trust of any kind or require the Company to maintain or set aside any specific funds to pay benefits hereunder. To the extent a Participant acquires a right to receive payments from the Company under the Plan, such right shall be noare greater than the rightduties, obligations and liabilities imposed on any member of the Committee not so designated; (ii) deem such person an “expert” for any purpose, including without limitation for purposes of the Securities Act of 1933; and (iii) affect the duties, obligations or liabilities of any unsecured general creditorother member of the Company.Committee or the Board.
10.Withholdings
      The Company shall have the right to withhold from any awards payable under the Plan or other wages payable to a Participant such amounts sufficient to satisfy federal, state and local tax withholding obligations arising from or in connection with the Participant’s participation in the Plan and such other deductions as may be authorized by the Participant or as required by applicable law.
AMENDED AND RESTATED: December 7, 2004
11.No Employment or Service Rights
      Nothing contained in the Plan shall confer upon any Participant any right with respect to continued employment with the Company (or any of its affiliates) nor shall the Plan interfere in any way with the right


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of the Company (or any of its affiliates) to at any time reassign the Participant to a different job, change the compensation of the Participant or terminate the Participant’s employment for any reason.
12.Other Compensation Plans
      Nothing contained in this Plan shall prevent the Corporation from adopting other or additional compensation arrangements for employees of the Corporation, including arrangements that are not intended to comply with Section 162(m) of the Code.
13.Governing Law
      The Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to its conflict of law provisions.
14.Effective Date
      The Plan shall become effective immediately upon the approval and adoption thereof by the Board; provided, however, that no award intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code shall be payable prior to approval of the Plan’s material terms by the Company’s shareholders.

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 Please
Mark Here
for Address
Change or
Comments
SEE REVERSE SIDE		 o
I. ELECTION OF THREE DIRECTORS FOR TERMS TO EXPIRE IN 2008;Change or Comments
SEE REVERSE SIDE
   I. ELECTION OF FOUR DIRECTORS FOR TERMS TO EXPIRE IN 2009:
   
VOTEFORallWITHHOLD

nominees listed		AUTHORITY

(except as marked		to vote FOR ALL

to the contrary).		 
WITHHOLD
AUTHORITY
to vote FOR ALL
NOMINEES listed
o o
Nominees: 01 TimothyRonald M. DeFeo; 02 Philip A. Dur; 03 William R. McLevish; 02 Markos I. Tambakeras;Newlin and 03 Steven H. Wunning04 Lawrence W. Stranghoener
(Instruction: To withhold authority to vote for ANY INDIVIDUAL NOMINEE, write that nominee’s name on the line provided below):
FORAGAINSTABSTAIN
II.THE APPROVAL OF THE KENNAMETAL INC. MANAGEMENT PERFORMANCE BONUS PLAN; ANDooo

         
II.THE APPROVAL OF THE AMENDMENT TO KENNAMETAL’S AMENDED AND RESTATED ARTICLES OF INCORPORATION;FOR
o		AGAINST
o		ABSTAIN
o
    FOR AGAINST ABSTAIN
III. RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING JUNE 30, 2006.2007. FOR
o		 AGAINST
o		 ABSTAIN
o

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 approval of the Kennametal Inc. Management Performance Bonus Plan and FOR the ratification of the selection of the independent registered public accounting firm.The proxies are authorized to vote, in accordance with their judgment, upon such other matters as may properly come before the meeting and any adjournments thereof.
Consenting to receive all future annual meeting materials and shareowner communications electronically is simple and fast!Enroll today at www.melloninvestor.com/ISD for secure online access to your proxy materials, statements, tax documents and other important shareowner correspondence.


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 approval of the Amendment to Kennametal’s Amended and Restated Articles of Incorporation and FOR the ratification of the selection of the independent registered public accounting firm.The proxies are authorized to vote, in accordance with their judgment, upon such other matters as may properly come before the meeting and any adjournments thereof.
ChooseMlinkSM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on toInvestor ServiceDirect® atwww.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment.
             
Signature(s)
   Signature(s)   Date   , 20052006
             
SIGN EXACTLY AS ADDRESSED, BUT IF EXECUTED FOR A CORPORATION, MINOR, ETC., SIGN THAT
NAME
AND SIGNATURE AND CAPACITY OF AUTHORIZED SIGNOR.SIGNITORE.
 
~FOLD AND DETACH HERE~

Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed
and returned your proxy card.
         
Internet
TelephoneMail

http://www.eproxy.com/www.proxyvoting.com/kmt
   1-800-435-6710Telephone
1-866-540-5760		   Mark, sign and date your proxy
Mail
Use the Internet to vote your proxy.
Have your proxy card in hand when
you access the web site.		 OR Use any touch-tone telephone to vote
your proxy. Have your proxy card in
hand when you call.		 OR Mark, sign and date your proxy card and return it in the enclosed
postage-paid envelope.
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the Internet atwww.kennametal.com

PROXY KENNAMETAL INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE CORPORATION
You, the undersigned shareowner, appoint each of Markos I. Tambakeras, William R. Newlin and Larry D. Yost, your attorney and proxy, with full power of substitution, on your behalf and with all powers that you would possess if personally present (including the power to vote cumulatively in the election of directors as explained in the Proxy Statement), to vote all shares of Kennametal Inc. Capital Stock that you would be entitled to vote at the Annual Meeting of Shareowners of Kennametal Inc. to be held at the Quentin C. McKenna Technology Center, located at 1600 Technology Way (on Route 981 South), Latrobe, Unity Township, Pennsylvania, on Tuesday, October 25, 200524, 2006 at 2:00 p.m. (Eastern Time), and at any adjournments thereof. The shares represented by this proxy shall be voted as instructed by you. If you do not otherwise specify, shares (other than shares of Kennametal Inc. Capital Stock held in your Kennametal Inc. 401(k) account, which will be voted by the plan trustee based on your instructions) will be voted in accordance with the recommendations of the Board of Directors, as follows:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES LISTED IN ITEM I, FOR THE APPROVAL OF THE KENNAMETAL INC. MANAGEMENT PERFOMANCE BONUS PLANAMENDMENT TO KENNAMETAL’S AMENDED AND RESTATED ARTICLES OF INCORPORATION IN ITEM II AND FOR THE RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM IN ITEM III.
If you have shares of Kennametal Inc. Capital Stock in your Kennametal Inc. 401(k) account, you must provide voting instructions to the plan trustee with this proxy or by internet or telephone no later than Thursday, October 20, 200519, 2006 in order for such shares to be voted. Your voting instructions will be held in confidence.
(over)
Address Change/Comments (Mark the corresponding box on the reverse side)
 
~ FOLD AND DETACH HERE~
You can now access yourKennametal Inc.account online.
Access your Kennametal Inc. shareowner account online via Investor ServiceDirect®ServiceDirect® (ISD).
Mellon Investor Services LLC, Transfer Agent for Kennametal Inc., now makes it easy and convenient to get current information on your shareowner account.
       
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•
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•
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