Carpenter Technology (CRS) DEF 14A Definitive proxy

[LOGO OF CARPENTER TECHNOLOGY] Carpenter Technology Corporation
1047 North Park Road
Wyomissing, PA 19610-1339

September 23, 1999

To Our Stockholders:

It is our pleasure to invite you to attend the 1999 Annual Meeting of Stockholders of Carpenter Technology Corporation, to be held at 4:00 p.m. on October 25, 1999. The meeting will be held at The Inn At Reading, located in Wyomissing, Pennsylvania. The doors of the ballroom will open at 3:00 p.m.

Business scheduled for the meeting includes the election of five directors and approval of the appointment of PricewaterhouseCoopers LLP as Carpenter’s independent public accountants for fiscal 2000. Information concerning these matters is included in the Notice of Annual Meeting and Proxy Statement. Also, at the meeting, I will review with you Carpenter’s operations during the past year and respond to questions.

If you plan to attend the meeting, please bring the Admission Ticket located on the bottom half of your proxy card with you. If your shares are held in the name of a broker, bank or other nominee, and you wish to attend the meeting, you should obtain a letter from your broker, bank or other nominee indicating that you are the beneficial owner of a stated number of shares of stock as of the record date, August 31, 1999.

If you do not attend the meeting, you may vote over the internet, by telephone or by returning your proxy card. To ensure proper representation of your shares at the meeting, please follow the instructions at the Vote by Net website address on your proxy card or follow the instructions that you will be given after dialing the toll-free number on your proxy card. You may also mark your proxy card, then sign, date and return it at your earliest convenience.

I look forward to seeing you at the meeting.

Sincerely,

/s/ ROBERT W. CARDY

ROBERT W. CARDY

Chairman and

Chief Executive Officer

TABLE OF CONTENTS

	Page
NOTICE OF ANNUAL MEETING	iii
PROXY STATEMENT	1
General Information	1
Why Proxies are Being Solicited	1
Cost of Solicitation	1
Who Can Vote	1
How to Vote	2
If You Change Your Mind After Voting	2
Required Vote	2
Stockholder Nominations to the Board of Directors	2
2000 Stockholder Proposals	3
Ownership Of Carpenter Stock By Certain Beneficial Owners	3
Ownership Of Carpenter Stock By Directors And Officers	5
Election Of Directors	6
Nominees — Terms to Expire 2002	6
Incumbent Directors to Continue in Office	8
Other Information About The Board Of Directors	10
Committees of the Board	10
Director Compensation Program	12
Human Resources Committee Report	12
Executive Compensation	16
Section 16(a) Beneficial Ownership Reporting Compliance	20
Stock Performance Graph	20
Approval Of Appointment Of Independent Accountants	21
Other Business	21

[LOGO OF CARPENTER TECHNOLOGY]

Notice of Annual Meeting of Stockholders

on

October 25, 1999

         CARPENTER TECHNOLOGY CORPORATION will hold its 1999 Annual Meeting of Stockholders at The Inn At Reading in Wyomissing, Pennsylvania on Monday, October 25, 1999 at 4:00 p.m. We will vote on the following matters:

(1)  The election of five directors;

(2)  Approval of independent accountants for the fiscal year ending June 30, 2000; and

(3)  Any other business that is properly presented at the meeting

        Only stockholders who were record owners at the close of business on August 31, 1999 may vote at the meeting. A list of those stockholders will be available at the meeting and also during the 10 days before the meeting, at the office of the Corporate Secretary, 1047 North Park Road, Wyomissing, Pennsylvania.

         Regardless of the number of shares that you own, it is important that your shares be represented at the meeting. You are encouraged to take advantage of the easy and cost-effective internet and telephone voting that Carpenter offers. To vote over the internet, go to the Vote by Net website address on your proxy card and follow the instructions. To vote by telephone, simply dial the toll-free number on your enclosed proxy card. You may also vote by completing and signing the proxy card and returning it in the enclosed postage pre-paid envelope as soon as you can.

        You are cordially invited to attend the meeting. A map showing the location of The Inn At Reading appears at the end of the Proxy Statement. Please note that the access to The Inn At Reading from Route 422 has been closed. If you plan to attend the meeting, please use the Admission Ticket attached to your proxy card. Of course, you may attend the meeting without an Admission Ticket, upon proper identification.

By Order of the Board of Directors,

/s/ JOHN R. WELTY

JOHN R. WELTY

Vice President,

General Counsel and Secretary

[LOGO OF CARPENTER TECHNOLOGY]

September 23, 1999

PROXY STATEMENT

General Information

        This Proxy Statement is furnished in connection with the solicitation of proxies for the Annual Meeting of Stockholders on October 25, 1999 and any adjournment thereof. Carpenter’s Annual Report to Stockholders, including financial statements, is being mailed along with this Notice and Proxy Statement, but is not incorporated as part of the Proxy Statement and is not to be considered part of the proxy solicitation material. These materials are being sent to stockholders on or about September 23, 1999.

Why Proxies are Being Solicited

         Carpenter’s Board of Directors is soliciting proxies so every stockholder will have an opportunity to vote at the meeting, whether or not the stockholder attends the meeting in person. You are being asked to vote on two proposals:

Ÿ The election of 5 directors to three year terms which will expire in 2002; and

Ÿ Approval of the appointment of PricewaterhouseCoopers LLP as Carpenter’s independent accountants for the fiscal year ending June 30, 2000.

Cost of Solicitation

         Carpenter will pay the cost of preparing, assembling and mailing of the Notice of Annual Meeting, Proxy Statement and proxy card. Directors, officers and regular employees of Carpenter may solicit proxies in person or by telephone without additional compensation. D. F. King will also solicit proxies on behalf of Carpenter at a cost of approximately $4,500. Carpenter will reimburse brokerage houses and other nominees for their expenses in forwarding proxy material to beneficial owners of Carpenter stock.

Who Can Vote

         Stockholders who were record owners at the close of business on August 31, 1999 may vote at the meeting. On August 31, 1999, there were 21,929,887 shares of Carpenter common stock issued and outstanding and entitled to vote. Each share of common stock is entitled to one vote. There were also 422.8 shares of Carpenter’ s series A convertible preferred stock held by the trustee of the Carpenter Employee Stock Ownership Plan (“ESOP”). Under the ESOP, each share of preferred stock is convertible into at least 2,000 shares of common stock, with the equivalent of 1.3 votes for each share of common stock, subject to anti-dilution adjustments and to limitations under applicable securities laws and stock exchange regulations. The preferred stock votes together with the common stock as a single class on all matters submitted to holders of common stock.

        Each participant in the ESOP, the Savings Plan of Carpenter Technology Corporation (“Savings Plan”) and subsidiary benefit plans which offer Carpenter stock as an investment may direct the trustee of each plan how to vote the shares credited to the participant’ s account. The trustee will vote any shares for which no direction is received, or shares in the ESOP that have not yet been allocated to participating employees’ accounts, in the same proportion and manner as the directed shares.

How to Vote

        You may vote in one of four ways:

Vote Over the Internet

        For the first time this year, you may vote your Carpenter shares over the internet. To vote over the internet, go to the Vote by Net website address stated on your proxy card. Enter the three-digit Voter Control number from your proxy card and enter the last four digits of your social security number. Mark your selections and then, click on “Vote Your Proxy” to cast your vote.

Vote by Telephone

        To access the telephone voting system, just dial toll-free, 1-877-779-8683, and follow the telephone instructions. The telephone instructions will lead you through the voting process.

         Internet and telephone voting will provide the proxies the same authority to vote your shares as if you returned your proxy card.

Return Your Proxy Card

        You may vote by signing and returning your proxy card. The proxy holders will vote your shares according to your directions. If you sign and return your proxy card without specifying choices, your shares will be voted as recommended by the Board of Directors. If you wish to give a proxy to someone other than those designated on the proxy card, you may do so by crossing out the names of the designated proxies and inserting the name of another person. The person representing you should then present your signed proxy card at the meeting.

Vote by Ballot at the Meeting

        You may also attend the meeting and vote by a ballot that you will receive at the meeting. The Admission Ticket to the meeting is attached to your proxy card.

If You Change Your Mind After Voting

        You can revoke your proxy at any time before it is voted. You can write to the Corporate Secretary stating that you wish to revoke your proxy and that you need another proxy card. More simply, you can vote again, either over the internet or by telephone. Your last vote is the vote that will be counted. If you attend the meeting, you may vote by ballot and thereby, cancel any previous proxy vote.

Required Vote

         Holders of a majority of the outstanding shares must be present in person or by proxy at the Annual Meeting to constitute a quorum so that business may be conducted. Carpenter’s By-Laws and Delaware law govern the vote needed to approve the proposals. Directors are elected by a plurality of the votes cast. A majority of the votes cast must approve the appointment of independent accountants.

         Abstentions and votes withheld are counted towards the quorum but are not included in the vote count for election of the directors or approval of the independent accountants. Because only routine matters (election of directors and approval of independent accountants) are described in this Proxy Statement, brokers have discretionary voting authority under the rules of the New York Stock Exchange. Thus, there will be no broker non-votes on these matters.

Stockholder Nominations to the Board of Directors

        The Corporate Governance Committee will consider sound and meritorious nomination suggestions from stockholders. Under Carpenter’s By-Laws, all letters of recommendation for nomination at the 2000 Annual Meeting of Stockholders must be received by the Corporate Secretary at Carpenter’s headquarters on or before August 26, 2000, but not sooner than July 27, 2000. Your notice to the Secretary should contain your name, address and number of shares of Carpenter stock beneficially owned, in addition to the following information:

Ÿ As to each person whom you propose to nominate for election or reelection as a director:

(i)  name, age, business address and residence address;

(ii)  principal occupation or employment;

(iii)   number of shares of Carpenter stock beneficially owned by the person; and

(iv)  any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Schedule 14A under the proxy rules.

Ÿ A signed statement from the person recommended for nomination indicating that he or she consents to be considered as a nominee.

         Carpenter may require any proposed nominee to furnish other information reasonably necessary to determine the person’s eligibility to serve as a director of Carpenter. Only individuals nominated in accordance with Carpenter’s By-Laws and applicable law are eligible for election as a director.

2000 Stockholder Proposals

        If you wish to include a proposal in the Proxy Statement for the 2000 Annual Meeting of Stockholders, your written proposal must be received by Carpenter no later than May 26, 2000. The proposal should be mailed by certified mail, return receipt requested, and must comply in all respects with applicable rules and regulations of the Securities and Exchange Commission, the laws of the state of Delaware and Carpenter’s By-Laws. Stockholder proposals may be mailed to the Corporate Secretary, Carpenter Technology Corporation, 1047 North Park Road Wyomissing, PA 19610-1339.

        Under Carpenter’s By-Laws, stockholder proposals that are not included in the proxy materials may be presented at the 2000 Annual Meeting of Stockholders only if they meet the above requirements and the Corporate Secretary is notified in writing of the proposals by August 26, 2000, but no earlier than July 27, 2000. For each matter that you wish to bring before the meeting, provide the following information:

(i) a brief description of the business and the reason for bringing it to the meeting;

(ii) your name and record address;

(iii) the number of shares of Carpenter stock which you own; and

(iv) any material interest (such as financial or personal interest) that you have in this matter.

Ownership of Carpenter Stock by Certain Beneficial Owners

         Listed below are the only individuals and entity known by Carpenter to own more than 5% of the common stock as of August 31, 1999:

Name and Address of Beneficial Owner	Number of Shares Beneficially Owned		Percent of Class
Mr. & Mrs. Peter C. Rossin	2,387,494	(1)	10.9	%
1500 Oliver Building
Pittsburgh, PA 15222
State Street Bank and Trust Company	2,740,936	(2)	12.0	%
P.O. Box 1389
Boston, MA 02104

(1)  These shares are subject to a standstill agreement between Carpenter and the Rossins. This agreement was entered into when Carpenter purchased Dynamet Incorporated in 1997. The standstill agreement provides certain limitations on the Rossins’ ability to buy or sell the common stock, solicit proxies, participate in a tender offer, business combination or restructuring of voting securities affecting Carpenter and on the Rossins’ ability to seek control of or influence Carpenter’ s Board or Management. In addition, the standstill agreement provides that the Board will recommend the election, as a director of Carpenter, of Mr. Rossin or another person that he and the other former Dynamet shareholders designate, if the person is reasonably acceptable to the Board. The standstill agreement expires in 2007, unless terminated earlier because of a change in control of Carpenter or a reduction of the voting power of the former Dynamet shareholders below 5% of Carpenter’s shares.

(2) Acting as trustee for various collective investment funds for employee benefit plans, other index accounts, and various personal trusts, State Street Bank and Trust Company has voting and investment power over these shares as follows:

Ÿ Sole voting power: 156,114 Ÿ Sole investment power: 157,714

Ÿ Shared voting and investment power: 2,583,222 including 845,690 shares of common stock if the shares of series A convertible preferred stock actually held in the ESOP were converted into common stock using the ratio of one preferred share equal to 2,000 shares of common stock.

Ownership of Carpenter Stock by Directors and Officers

        The following table shows the ownership of Carpenter common stock as of August 31, 1999, by each director, Carpenter’s five most highly compensated executive officers (the “Named Executive Officers ”) and the directors and officers as a group. Except as noted, the directors and officers have sole voting and investment power over these shares of common stock.

Director and Officer

Stock Ownership

Name	Number of Shares Beneficially Owned (1)	Director Stock Units (2)	Total Shares and Units Beneficially Owned		Percent of Outstanding Shares (3)
Bennett, M. C.	10,068	1,106	11,174
Cardy, R. W.	134,665	—	134,665	(4),(5)	.6
Dietrich, W. S.	11,244	962	12,206
Draeger, D. M.	64,000	—	64,000	(4)	.3
Evarts, C. M.	15,550	2,133	17,683
Fitzpatrick, J. M.	6,301	551	6,852
Hudson, W. J.	12,332	1,814	14,146
Lawless, R. J.	6,351	533	6,884
Miller, M.	16,085	1,875	17,960
Pokelwaldt, R. N.	5,160	358	5,518
Rossin, P. C.	2,278,650	1,230	2,279,880	(5),(6)	10.4
Turner, K. C.	9,776	705	10,481
Wolfe, K. L.	11,250	807	12,057
Cottrell, G. W.	64,244	—	64,244	(4)	.3
Fiore, N. F.	61,449	—	61,449	(4)	.3
Welty, J. R.	35,552	—	35,552	(4),(5)	.2
All directors and officers as a group (25 in all)	2,985,643	12,074	2,997,717		12.6

(1) The amounts include the following shares of common stock that the individuals have the right to acquire by exercising outstanding stock options within 60 days after August 31, 1999:

M. C. Bennett	8,000
R. W.Cardy	71,700
G. W. Cottrell	55,860
W. S. Dietrich	8,000
D. M. Draeger	42,100

C. M. Evarts	14,000
N. F. Fiore	55,553
J. M. Fitzpatrick	5,000
W. J. Hudson	8,000
R. J. Lawless	4,000

M. Miller	15,000
R. N. Pokelwaldt	4,000
K. C. Turner	8,502
J. R. Welty	25,380
K. L. Wolfe	10,000

All directors and officers as a group 494,395

(2) These stock units convert to an equivalent number of shares of common stock upon the director’s retirement or termination of service due to disability. Because of the standstill agreement with Carpenter, the value of Mr. Rossin’s stock units will be paid in cash. The value of the stock units tracks the value of the common stock but the units have no voting rights.

(3) Ownership is rounded to nearest 0.1% and is less than 0.1% except where stated. Stock units are not included in the calculation of ownership percentage.

(4) The amounts include the following shares of common stock held in the Savings Plan and the ESOP (if the preferred stock actually held in the ESOP were converted into common stock using the ratio of one preferred share equal to 2,000 shares of common stock):

R. W. Cardy	18,784
G. W. Cottrell	3,240

D. M. Draeger	3,448
N. F. Fiore	136

J. R. Welty 5,494

All officers as a group 72,837

(5) Voting and investment power is shared with respect to the following shares of common stock:

R. W.Cardy	21,160
G. W. Cottrell	327
P. C. Rossin	2,278,650
J. R. Welty	236
All director and officers as a group	2,330,697

(6) Mr. Rossin’s shares are subject to a standstill agreement with Carpenter. See footnote 1 on page 3.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

         Carpenter’s Board of Directors consists of 13 directors serving in three classes. Each class of directors serves for a period of three years. The term of office of one class of directors expires each year at the annual meeting.

         Messrs. Bennett, Dietrich, Draeger, Fitzpatrick and Miller are nominated for election at the 1999 Annual Meeting of Stockholders. If elected, their terms will expire at the October, 2002 Annual Meeting. The biographical summaries of the nominees and the remaining eight directors whose terms are continuing appear below. Unless otherwise directed by the stockholders, the shares represented by the proxies will be voted for the five nominees. Each nominee has consented to be nominated as a director and as far as the Board and Management are aware, will serve as a director if elected.

         The Board of Directors recommends that you vote FOR the election of Messrs. Bennett, Dietrich, Draeger, Fitzpatrick and Miller.

Nominees — Terms to Expire 2002

[Photo of Bennett] M ARCUS C. BENNETT , age 63, retired as Executive Vice President and Chief Financial Officer of Lockheed Martin Corporation in January 1999; he had held these positions since 1988. Mr. Bennett joined Martin Marietta Corporation in 1959 and held various administrative and finance positions with Martin Marietta and Lockheed Martin Corporation. He is a Director of Lockheed Martin Corporation, COMSAT Corporation, Martin Marietta Materials, Inc. and the Private Sector Council. In addition, he is a member of the Georgia Tech Advisory Board. Mr. Bennett has been a Director of Carpenter since 1993, chairs the Audit Committee and serves on the Corporate Governance Committee.

[Photo of Dietrich II] W ILLIAM S. DIETRICH II, age 61, is Chairman of the Board, Dietrich Industries, Inc. and President, Mallard Fund, Inc. Mr. Dietrich served as President of Dietrich Industries, Inc., from 1968 to 1998. Dietrich Industries, a subsidiary of Worthington Industries, Inc., is a manufacturer of metal framing for commercial and residential construction markets. Mr. Dietrich serves on the Board of Directors of Worthington Industries, Inc. He is an active community leader, serving on 11 boards in western Pennsylvania, including the Greater Pittsburgh Chamber of Commerce, the Allegheny Conference on Community Development, the University of Pittsburgh and the Pittsburgh Ballet Theater. Mr. Dietrich has been a Director of Carpenter since 1996, chairs the Corporate Governance Committee and is a member of the Human Resources Committee.

[Photo of Draeger] D ENNIS M. DRAEGER , age 58, was elected President and Chief Operating Officer and Director of Carpenter Technology Corporation effective June 1, 1999. He had been Executive Vice President of Carpenter since July, 1998 and a Director of Carpenter from 1992 until June 1996. Mr. Draeger assumed the duties of Senior Vice President— Specialty Alloys Operations for Carpenter in July 1996, when he resigned from Carpenter’s Board of Directors. Previously, he had been President of Worldwide Floor Products Operations for Armstrong World Industries, Inc. since 1994 and he became Group Vice President for Armstrong in 1988. Mr. Draeger is a member of the Finance Committee.

[Photo of Fitzpatrick] J. MICHAEL FITZPATRICK , age 52, is President and Chief Operating Officer and Director of Rohm and Haas. From 1995 through 1998, Dr. Fitzpatrick served as Vice President and Chief Technology Officer at Rohm and Haas. He had been elected Vice President and Director of Research in 1993. Dr. Fitzpatrick is a member of The Scientific Advisory Board of Ampersand Ventures, Vice Chairman of the Pennsylvania Division of the American Cancer Society and a member of the Board of Trustees of the Franklin Institute. Dr. Fitzpatrick has been a Director of Carpenter since January, 1997 and is a member of the Audit Committee and Corporate Governance Committee.

[Photo of Miller] M ARLIN MILLER , JR . , age 67, is Chairman and Chief Executive Officer and Director, Arrow International, Inc. Mr. Miller founded Arrow International, Inc. in 1975. Arrow is located in Reading, Pennsylvania, and is a leading producer of medical devices for critical care medicine. He serves on the Board of Trustees of Alfred University and on the Board of Directors of the Reading Hospital & Medical Center. Mr. Miller has been a Director of Carpenter since 1989 and serves as a member of the Audit Committee and Human Resources Committee.

        The Board of Directors and Management do not believe that any of the nominees will be unable to serve. If, before the meeting, any nominee becomes unable to serve because of special circumstances, the shares of stock represented by the proxies may be voted for the election of a nominee designated by the Board.

Incumbent Directors to Continue in Office

        The following are the other directors whose terms continue after this year’s meeting, as indicated:

Terms to Expire 2000

[Photo of Evarts] D R . C. MC COLLISTER EVARTS, age 68, is Chief Executive Officer, Senior Vice President for Health Affairs, Dean, College of Medicine, and Professor of Orthopaedics, The Pennsylvania State University, College of Medicine and University Hospitals, The Milton S. Hershey Medical Center. He has held these positions since 1987. He is Chief Academic Officer and Senior Vice President for Clinical Operations, The Milton S. Hershey Medical Center of the Pennsylvania State Geisinger Health System. He is past Chair of the Board of Directors of the Association of Academic Health Centers, a member of the Association of American Medical Colleges and a member of the National Academy of Sciences Institute of Medicine. He serves on the Board of Directors of Hershey Foods Corporation, Hershey Trust Company, M.S. Hershey Foundation, the Board of Managers of Milton Hershey School, Capital Region Health Futures Project, the Capital Region Economic Development Corporation, and the Lehigh Valley Hospital. Dr. Evarts has been a Director of Carpenter since 1990, chairs the Human Resources Committee and is a member of the Finance Committee.

[Photo of Hudson] W ILLIAM J. HUDSON , JR . , age 65, retired as Vice Chairman and Director, AMP Incorporated in April, 1999. Mr. Hudson joined AMP Incorporated in 1961 and held a variety of management positions, becoming Executive Vice President, International in 1991, a Director in 1992, and was elected Chief Executive Officer and President in 1993, positions he held until 1998. He also serves as Chairman of the Pacific Basin Economic Council, Vice Chairman of the National Association of Manufacturers and a member of the Executive Committee of the U.S. Council of International Business. Previously, he was a member of the Board of Governors of the National Electrical Manufacturers Association, the Business Roundtable and was a Presidential Appointee to the Advisory Council on U.S. Trade Policy. He is a Director of The Goodyear Tire & Rubber Company and Keithley Instruments, Inc. Mr. Hudson has been a Director of Carpenter since 1992 and serves as a member of the Audit Committee and Finance Committee.

[Photo of Rossin] P ETER C. ROSSIN , age 75, is the former Chairman, Chief Executive Officer and founder of Dynamet Incorporated. Before founding Dynamet in 1967, Mr. Rossin held various production and operations positions at Crucible Steel Corporation, Fansteel Metallurgical Corporation, and Cyclops Corporation. He has been a Director of Carpenter since 1997 and is a member of the Audit Committee and Human Resources Committee.

[Photo of Wolfe] K ENNETH L. WOLFE , age 60, is Chairman of the Board, Chief Executive Officer and Director, Hershey Foods Corporation. Mr. Wolfe was elected President and Chief Operating Officer in 1985, positions he held through 1993. He was elected Vice President, Finance and Chief Financial Officer of the Corporation in 1981, and Senior Vice President, Chief Financial Officer and Director in 1984. He serves as a Director of Bausch & Lomb Inc., the Hershey Trust Company and is a member of the Board of Managers, Milton Hershey School. Mr. Wolfe has been a Director of Carpenter since 1995, chairs the Finance Committee and is a member of the Human Resources Committee.

Terms to Expire 2001

 [Photo of Cardy] R OBERT W. CARDY , age 63, is Chairman and Chief Executive Officer and Director of Carpenter Technology Corporation. Mr. Cardy joined Carpenter in 1962 and held a variety of management positions, becoming Executive Vice President in 1989, President and Chief Operating Officer in 1990, and Chairman of the Board, President and Chief Executive Officer in 1992. He also serves as Director of the Reading Hospital & Medical Center, United Way of Berks County, and a member of the Executive Committee of the Pennsylvania Business Roundtable. Mr. Cardy has been a Director of Carpenter since 1990 and is a member of the Finance Committee.

 [Photo of Lawless] R OBERT J. LAWLESS , age 52, is Chairman, President and Chief Executive Officer and Director, McCormick & Company, Incorporated. Mr. Lawless had been serving as President and Chief Operating Officer since January 1996. He served as Executive Vice President and Chief Operating Officer from 1995. Mr. Lawless serves as a member of the Board of Directors of the United Way of Central Maryland, the Greater Baltimore Committee, Kennedy Kreiger Institute and the Grocery Manufacturers of America, Inc., and serves on the Junior Achievement of Central Maryland Executive Council. Mr. Lawless has been a Director of Carpenter since April 1997 and serves on the Corporate Governance Committee and Finance Committee.

[Photo of Pokelwaldt] R OBERT N. POKELWALDT , age 62, is Chairman and Chief Executive Officer and a Director of York International Corporation. He became Chairman and Chief Executive Officer in 1993. He had been named President and Chief Executive Officer in 1991 after serving as President and Chief Operating Officer since 1990. Mr. Pokelwaldt joined Applied Systems Worldwide, a division of York International, as Vice President in 1988. Mr. Pokelwaldt also serves as a Director of Mohawk Industries, Inc. and A.O. Smith Corporation. Mr. Pokelwaldt has been a Director of Carpenter since June 1998 and is a member of the Audit Committee and Human Resources Committee.

[Photo of Turner] K ATHRYN C. TURNER , age 52, is Chairperson and Chief Executive Officer of Standard Technology, Inc. Ms. Turner founded Standard Technology, Inc., an engineering and manufacturing firm in 1985. Standard Technology, Inc. is headquartered in Rockville, Maryland, with offices in Northern Virginia and Jacksonville, Florida. Ms. Turner was appointed to the President’s Export Council in 1994 and also serves as a Director of COMSAT Corporation and Phillips Petroleum Company. She is actively involved in both the Urban League and The Boy Scouts. Ms. Turner has been a Director of Carpenter since 1994 and is a member of the Corporate Governance Committee and Finance Committee.

        There is no family relationship between any of the directors or nominees.

Other Information About the Board of Directors

        The Board of Directors held 11 meetings during fiscal year 1999. In addition, there were 14 Committee meetings. The average attendance for Carpenter’s directors at these meetings was 93%.

Committees of the Board

        The Board of Directors has four standing Committees: Audit, Corporate Governance, Human Resources and Finance. No member of the Audit, Corporate Governance or Human Resources Committee may be an employee or former employee of Carpenter.

BOARD COMMITTEES

Committee And Members		Selected Functions of the Committee	1999 Meetings
Audit Committee
Marcus C. Bennett, Chairman	Ÿ	Reviews adequacy of Carpenter’s financial reporting, accounting systems and controls	3
J. Michael Fitzpatrick William J. Hudson, Jr.	Ÿ	Recommends independent accountants for financial audits
Marlin Miller, Jr. Robert N. Pokelwaldt Peter C. Rossin	Ÿ	Evaluates Carpenter ’s internal and external auditing procedures and security of data processing systems
	Ÿ	Evaluates environmental compliance program
	Ÿ	Maintains direct line of communication with independent accountants and Manager-Internal Audit
Corporate Governance Committee
William S. Dietrich II, Chairman	Ÿ	Reviews and recommends proposed changes to the Restated Certificate of Incorporation and By-Laws	4
Marcus C. Bennett J. Michael Fitzpatrick Robert J. Lawless Kathryn C. Turner	Ÿ	Reviews stockholder proposals
	Ÿ	Recommends Board size, composition and committee structure
	Ÿ	Reviews and evaluates nominees for election or re- election to the Board and to the Committees
	Ÿ	Maintains guidelines for directors’ duties and obligations
Human Resources Committee
C. McCollister Evarts, Chairman	Ÿ	Reviews and recommends to the Board the salary of CEO and other executive officers, approves salary and other compensation of other officers	5
William S. Dietrich II Marlin Miller, Jr. Robert N. Pokelwaldt Peter C. Rossin Kenneth L. Wolfe	Ÿ	Oversees Carpenter’s various benefit plans
	Ÿ	Reviews officers’ succession plans
	Ÿ	Administers stock and stock option plans
	Ÿ	Reviews Carpenter’s progress on: equal opportunity matters, employee health and safety, and worker’s compensation costs
Finance Committee
Kenneth L. Wolfe, Chairman	Ÿ	Reviews and recommends actions to the Board relating to Carpenter’s capital structure, pension fund asset management and dividend policy	2
Robert W. Cardy Dennis M. Draeger C. McCollister Evarts William J. Hudson, Jr. Robert J. Lawless Kathryn C. Turner

Director Compensation Program

         No director who is an employee of Carpenter is compensated as a member of the Board or as a member of any Committee of the Board. Compensation for non-employee directors consists of an annual retainer of $20,000 and a $1,000 fee, plus travel expenses, where appropriate, for each Board meeting attended and a fee of $800 for each Committee meeting attended. Each Committee Chairperson receives an additional annual retainer of $3,000. Non-employee directors are also provided stock based compensation opportunities as described below.

         The director compensation program was revised in 1997 to ensure that the program is fully competitive, highly performance oriented, and linked more closely to Carpenter ’s performance and stockholder returns. Directors, along with officers of Carpenter, are subject to share ownership guidelines that encourage the accumulation of a specified number of shares over a period of three years.

         Each non-employee who joins the Board is granted an option to purchase 2,000 shares of common stock. In addition, following each annual meeting, each non-employee director is granted an option to purchase 2,000 shares. These options permit the director, after one year of service following the grant, to purchase shares of common stock at the stock’s fair market value on the date of grant. The options expire ten years from the date of grant.

         At least 50% of the $20,000 annual retainer for Board service is paid in stock units that convert to an equivalent number of shares of common stock following retirement or termination of service due to disability. The value of these stock units will vary depending on the fair market value of the shares. At the director’s election, the remaining 50% of the retainer is paid in cash or deferred and paid in either cash or shares of stock at the time of distribution.

         Non-employee directors have an opportunity to earn a target performance share award. The target share award is reviewed annually and is currently set at 200 shares. The actual number of performance shares awarded to each director is tied to Carpenter’s fiscal year return on equity ( “ROE”) relative to the S&P 500’s average ROE for the preceding calendar year. If Carpenter’s actual ROE is less than 85% of the average S&P 500’s ROE, no performance shares will be awarded. The number of performance shares awarded will be greater or lesser than the target share award, based upon actual ROE measurements and, assuming the 85% threshold is achieved. Performance shares are awarded after completion of the fiscal year. Due to his standstill agreement with Carpenter, Mr. Peter C. Rossin does not participate in any stock or option program; instead, he receives a comparable amount in cash. There were no performance shares awarded for fiscal 1999.

Human Resources Committee Report

         The Human Resources Committee of the Board of Directors is composed entirely of nonmanagement directors. The Committee is responsible for the establishment and oversight of Carpenter ’s executive compensation programs.

Compensation Philosophy

         Carpenter’s executive compensation programs are designed to fulfill the following objectives:

—Attract, retain, and motivate highly effective executives.

—Link executive reward with enhanced stockholder value and profitability.

—Reward sustained corporate, functional, and/or individual performance with an appropriate base salary and incentive opportunity.

—Link pay to Carpenter’s financial performance and the achievement of Carpenter’s strategic business objectives.

—Stimulate and sustain significant management ownership in Carpenter.

         This philosophy remains unchanged in 1999 and continues to serve as the foundation for executive compensation policy and program application.

         Carpenter targets pay at market competitive (median) levels for achievement of expected levels of performance. During fiscal 1999, the Committee worked with an outside consulting firm to conduct an extensive review of the competitiveness of the executive compensation program. The analysis compared Carpenter’s pay levels to the pay levels of a comparator group made up of general industrial and capital goods manufacturers of similar size. These comparators were selected to reflect the Corporation’s labor pool for executive talent rather than Carpenter’s competitors.

         On an overall basis, Carpenter’s pay opportunities approximate market median levels. Actual compensation is positioned within the range of market norms. The nature and magnitude of pay varies for each Named Executive Officer.

Base Salary

         In general, base salaries are targeted at market 50th percentile levels and are adjusted by the Committee to recognize each individual’s responsibility, experience and value to the organization. In fiscal year 1999, base salary ranges were adjusted by 2% to reflect competitive market movement. Base salary ranges were not adjusted for fiscal year 2000. As a result of difficult business conditions, no merit increases or salary adjustments are planned for fiscal year 2000 for executive, corporate and divisional officers of the Company. As a group, the Named Executive Officers’ base salaries rest slightly below the market 50th percentile (when adjusted for company size differences).

Annual Incentives

         The Executive Annual Compensation Plan (“EACP” ) provides short-term variable compensation for the Named Executive Officers and other eligible executives with payments based on combinations of corporate and business unit financial performance and, to a lesser extent, based on individual contributions. For fiscal year 1999, the Committee established return on equity (“ROE”), return on assets (“ROA ”) and earnings before interest and income taxes (“ EBIT”) targets and a threshold performance level before any payment would be made. Given the Corporation’s actual performance in relation to target, no EACP awards were earned in 1999. At targeted levels of performance, 80% of each award would be tied to financial results and 20% would be tied to individual performance. For purposes of EACP administration, corporate financial performance is defined by ROE, whereas, unit financial performance is characterized by return on assets or controllable EBIT. Threshold levels of financial results must be attained to earn awards under the Plan. The EACP provides the Committee with the flexibility to adjust awards for other material factors influencing performance.

Long-Term Incentives

         Carpenter continues to deliver a significant portion of an executive’s total pay opportunity in the form of long-term incentive compensation. Long-term incentives are viewed to be a key program element given the Committee’s desire to reinforce connections between sustainable financial performance, shareholder value creation and executive pay. Long-term incentive awards include grants of nonqualified stock options and performance shares. The 1999 stock option awards were issued with exercise prices equal to the fair market value of the underlying shares. The basic provisions of the Stock-Based Incentive Compensation Plan for Officers and Key Employees (the “Plan”) also provide participants with the opportunity to earn shares of common stock at the conclusion of a three-year performance period. All performance share awards are contingent on the Corporation’s ROE achievement measured relative to the performance of the Standard & Poors (“S&P”) 500 Index.

Performance equal to that of the S&P 500 yields a target grant of shares; performance greater than the S&P 500 generates a larger grant; and performance lower than the S& P 500 generates a smaller grant with the potential for no grant if performance fails to reach a threshold level.