SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 1-5828
CARPENTER TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 23-0458500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 West Bern Street, Reading, Pennsylvania 19612-4662
(Address of principal executive offices) (Zip Code)
610-208-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange
(Title of each class) on which registered)
- --------------------- ---------------------
Common stock, par value $5 per share......New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of August 29, 1997, 19,498,210 shares of Common Stock of
Carpenter Technology Corporation were outstanding and the
aggregate market value of such Common Stock held by nonaffiliates
(based upon its closing transaction price on the Composite Tape
on such date) was $873,763,536.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference certain information from the
1997 definitive Proxy Statement.
The Exhibit Index appears on pages E-1 to E-6.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business:
Carpenter Technology Corporation, incorporated in
1904, is engaged in the manufacture, fabrication, and
distribution of specialty metals and engineered
products. There were no significant changes in the
form of organization or mode of conducting business of
Carpenter Technology Corporation (hereinafter called
"the Company" or "Carpenter") during the year ended
June 30, 1997, except for the transactions described
below:
On June 19, 1997, Carpenter acquired the net assets of
Rathbone Precision Metals, Inc., for $9.6 million in cash,
including acquisition costs. Rathbone is a manufacturer of
custom, cold-drawn metal shapes. The acquisition of
Rathbone enables Carpenter to bridge the specialty metal
mill-form manufacturing business with the engineered
products manufacturing business while providing additional
value-added services to specialty metals customers. This
investment was accounted for using the purchase method of
accounting.
On February 28, 1997, Carpenter purchased all of the
common stock of Dynamet Incorporated in exchange for
approximately 2.8 million shares of its treasury common
stock with a fair market value of $99.5 million and $51.5
million of cash, including acquisition costs. In addition,
Carpenter paid $10.3 million for consulting and non-compete
agreements, a portion of which is payable over four years.
Dynamet is a manufacturer of titanium bar, wire and powder
products, predominantly used by the aerospace, medical and
sports products industries. The Dynamet acquisition allows
Carpenter to better satisfy the aerospace industry's needs
for a range of technically advanced materials, and to help
realize Carpenter's goal of profitable growth. This
investment was accounted for using the purchase method of
accounting.
(b) Financial Information About Industry Segments:
Carpenter is primarily engaged in one business segment
- the manufacture, fabrication and distribution of specialty
metals. Additionally, Carpenter manufactures certain
engineered products. The engineered products operations do
not qualify as a reportable segment and therefore are not
presented as a separate business segment.
<PAGE>
(c) Narrative Description of Business:
(1) Products:
Carpenter primarily processes basic raw materials
such as chromium, nickel, titanium, iron scrap and
other metal alloying elements through various melting,
hot forming and cold working facilities to produce
finished products in the form of billet, bar, rod,
wire, narrow strip, special shapes, and hollow forms in
many sizes and finishes and produces certain fabricated
metal products. Sales of finished products include:
STAINLESS STEELS -
A broad range of corrosion resistant alloys
including conventional stainless steels and many
proprietary grades for special applications.
SPECIAL ALLOYS -
Other special purpose alloys used in critical
components such as bearings and fasteners. Heat
resistant alloys that range from slight modifica-
tions of the stainless steels to complex nickel
and cobalt base alloys. Alloys for electronic,
magnetic and electrical applications with
controlled thermal expansion characteristics, or
high electrical resistivity or special magnetic
characteristics. Fabrication of special stainless
steels and zirconium base alloys into tubular
products for the aircraft industry and nuclear
reactors.
TOOL AND OTHER STEEL -
Tool and die steels which are extremely hard
alloys used for tooling and other wear-resisting
components in metalworking operations such as
stamping, extrusion and machining. Other steel
includes carbon steels purchased for distribution
and other miscellaneous products.
CERAMICS AND OTHER MATERIALS -
Certain engineered products, including ceramic
cores for casting ranging from small simple
configurations to large complex shapes. Also,
metal injected molded designs in a variety of
materials, ultra-hard parts, and precision welded
tubular products, as well as drawn solid tubular
shapes.
TITANIUM PRODUCTS -
A corrosion resistant, highly specialized metal
with a combination of high strength and low
density. Most common uses are in aircraft,
medical devices, sporting equipment and chemical
and petroleum processing.
<PAGE>
Carpenter's products are sold primarily in the
United States and principally through its own sales
organization with service centers and sales offices
located in many of the major cities of the country.
Sales outside of the United States, including export
sales, were $117.8 million, $96.5 million and $74.7
million in fiscal 1997, 1996 and 1995, respectively.
(2) Classes of Products:
The approximate percentage of Carpenter's
consolidated net sales contributed by the major classes
of products for the last three fiscal years are as
follows:
1997 1996 1995
---- ---- ----
Stainless steel 49% 58% 56%
Special alloys 34% 32% 33%
Tool and other steel 7% 7% 8%
Ceramics and other
materials 5% 3% 3%
Titanium products 5% - -
---- ---- ----
100% 100% 100%
==== ==== ====
(3) Raw Materials:
Carpenter depends on continued delivery of
critical raw materials for its day-to-day operations.
These raw materials are nickel, ferrochrome, cobalt,
molybdenum, titanium, manganese and scrap. Some of
these raw materials sources are located in countries
subject to potential interruptions of supply. These
potential interruptions could cause material shortages
and affect the availability and price.
Carpenter is in a strong raw material position
because of its long-term relationships with major
suppliers. These suppliers provide availability of
material and competitive prices for these key raw
materials to help Carpenter maintain the appropriate
levels of raw materials.
(4) Patents and Licenses:
Carpenter owns a number of United States and
foreign patents and has granted licenses under some or
all of them. Certain of the products produced by
Carpenter are covered by patents of other companies
from whom licenses have been obtained. Carpenter does
not consider its business to be materially dependent
upon any patent or patent rights.
<PAGE>
(5) Seasonality of Business:
Carpenter's sales and earnings results are
normally influenced by seasonal factors. The first
fiscal quarter (three months ending September 30) is
typically the lowest - chiefly because of annual plant
vacation and maintenance shutdowns in this period by
Carpenter as well as by many of its customers. The
timing of major changes in the general economy can
alter this pattern, but over the longer time frame, the
historical patterns generally prevail. The chart below
shows the percent of net sales by quarter for the past
three fiscal years:
Quarter Ended 1997 1996 1995
------------- ---- ---- ----
September 30 21% 21% 20%
December 31 22% 24% 23%
March 31 27% 27% 28%
June 30 30% 28% 29%
---- ---- ----
100% 100% 100%
==== ==== ====
Fiscal 1997 includes the acquisition of Dynamet on
February 28, 1997.
(6) Customers:
Carpenter is not dependent upon a single customer,
or a very few customers, to the extent that the loss of
any one or more would have a materially adverse effect.
(7) Backlog:
As of June 30, 1997, Carpenter had a backlog of
orders, believed to be firm, of approximately $265
million, substantially all of which is expected to be
shipped within the current fiscal year. The backlog as
of June 30, 1996 was approximately $215 million.
(8) Competition:
Carpenter's business is highly competitive. It
supplies materials to a wide variety of end-use market
segments, none of which consumes more than about 25
percent of Carpenter's output, and competes with
various companies depending on end-use segment, product
or geography.
There are approximately 20 domestic companies
producing one or more similar specialty metal products
that are considered to be major competitors to the
specialty metals operations in one or more product
segments. There are several dozen smaller producing
companies and converting companies in the United States
who are competitors. Carpenter also competes directly
with several hundred independent distributors of
products similar to those distributed by Carpenter's
<PAGE>
wholly owned distribution system. Additionally,
numerous foreign producers import into the United
States various specialty metal products similar to
those produced by Carpenter. Furthermore, a number of
different products may, in certain instances, be
substituted for Carpenter's finished product.
Imports of foreign specialty steels have long been
a concern to the domestic steel industry because of the
potential for unfair pricing by foreign producers.
Such pricing practices have usually been supported by
foreign governments through direct and indirect
subsidies.
Because of these unfair trade practices, Carpenter
has been aggressive in filing trade actions against
foreign producers who have dumped their specialty steel
products into the United States. As a result of these
actions, the U.S. Department of Commerce has issued
antidumping orders for the collection of dumping duties
on imports of stainless bar from Brazil, India, Japan
and Spain at rates ranging up to about 61% of the value
and on imports of stainless rod from Brazil, France and
India at rates ranging up to about 49% of the value.
These antidumping orders will continue in effect until
the calendar year 2000, unless further extended.
On July 30, 1997, Carpenter joined with three
other domestic producers in filing new antidumping and
countervailing duty trade actions against imports of
stainless steel rod from seven countries - Germany,
Italy, Japan, Korea, Spain, Sweden and Taiwan. These
countries represent over 90% of current total imports
of stainless steel rod. The industry group alleges
that the foreign stainless steel rod is being dumped
into this country at prices which should require
antidumping margins ranging from about 10% up to about
47%. The U.S. Department of Commerce and the U.S.
International Trade Commission are expected to complete
their investigations of the unfair trade charges about
the middle of calendar year 1998. Preliminary dumping
determinations are expected in early 1998.
In a related matter, negotiations are continuing
between the U.S. government and the European Commission
(EC) for a Multilateral Specialty Steel Agreement
(MSSA). The objective of the MSSA would be to reduce
unfair trade in specialty steel products by establishing
international commitments and disciplines aimed at
eliminating subsidies and other trade-distortive
practices. The baseline for negotiations is an
agreement on principles and provisions developed
previously between the Specialty Steel Industry of
North America and the European steel industry group
known as Eurofer. The U.S. government would like to
expand the scope of the current negotiations with the
EC to include other countries as well.
<PAGE>
(9) Research, Product and Process Development:
Carpenter's expenditures for company-sponsored
research and development were approximately $13.0
million, $13.8 million and $12.3 million in fiscal
1997, 1996 and 1995, respectively.
(10) Environmental Regulations:
Carpenter is subject to various stringent federal,
state, and local environmental laws and regulations.
The liability for future environmental remediation
costs is evaluated by management on a quarterly basis.
Liabilities are recognized for remedial activities,
including remediation investigation and feasibility
study costs, when the cleanup is probable and the cost
can be reasonably estimated. Recoveries of
expenditures are recognized as a receivable when they
are estimable and probable. For further information on
environmental remediation, see the Commitments and
Contingencies section included in Item 7 "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" and Note 17 to the consolidated
financial statements included in Item 8 "Financial
Statements and Supplementary Data".
The costs of maintaining and operating environ-
mental control equipment were about $7.9 million and
$7.4 million for fiscal 1997 and 1996, respectively.
The capital expenditures for environmental control
equipment were $1.1 million and $.4 million for fiscal
1997 and 1996, respectively. Carpenter anticipates
spending approximately $2.5 million on major domestic
environmental capital projects over the next five
fiscal years. Due to the possibility of unanticipated
factual or regulatory developments, the amount of
future capital expenditures may vary.
(11) Employees:
As of August 31, 1997, Carpenter and its
affiliates had 5,081 employees.
Item 2. Properties
The primary locations of Carpenter's specialty metals
manufacturing and fabrication plants are: Reading, Pennsylvania;
Washington, Pennsylvania; Orangeburg, South Carolina; El Cajon,
California; and Clearwater, Florida. The Reading, Washington and
Orangeburg plants are owned in fee. The El Cajon and Clearwater
plants are owned, but the land is leased.
The primary locations of Carpenter's engineered products
manufacturing operations are: Wood-Ridge, New Jersey; Carlstadt,
New Jersey; Corby, England; Wilkes-Barre, Pennsylvania; Chicago,
Illinois; and Petaluma, California. The Corby and Chicago plants
are owned, while the rest of the locations are leased.
<PAGE>
The Reading plant has an annual practical melting capacity
of approximately 226,000 ingot tons of its normal product mix.
The annual tons shipped will be considerably less than the tons
melted due to processing losses and finishing operations. During
the years ended June 30, 1997 and 1996, the plant operated at
approximately 90 percent and 93 percent, respectively, of its
melting capacity.
Carpenter also operates sales offices and distribution and
service centers, most of which are owned, at 37 locations in 14
states and 8 foreign countries.
The plants, service centers and offices of Carpenter have
been acquired at various times over many years. There is an
active maintenance program to keep facilities in good condition.
In addition, Carpenter has had an active capital spending program
to replace equipment as needed to keep it technologically
competitive on a world-wide basis. Carpenter believes its
facilities are in good condition and suitable for its business
needs.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
Carpenter or any of its subsidiaries is a party or to which any
of their properties is subject. There are no material
proceedings to which any Director, Officer, or affiliate of
Carpenter, or any owner of more than five percent of any class of
voting securities of Carpenter, or any associate of any Director,
Officer, affiliate, or security holder of Carpenter, is a party
adverse to Carpenter or has a material interest adverse to the
interest of Carpenter or its subsidiaries. There is no
administrative or judicial proceeding arising under any Federal,
State or local provisions regulating the discharge of materials
into the environment or primarily for the purpose of protecting
the environment that (1) is material to the business or financial
condition of Carpenter (2) involves a claim for damages,
potential monetary sanctions or capital expenditures exceeding
ten percent of the current assets of Carpenter or (3) includes a
governmental authority as a party and involves potential monetary
sanctions in excess of $100,000.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
Listed below are the names of corporate executive officers
as of fiscal year end, including those required to be listed as
executive officers for Securities and Exchange Commission
purposes, each of whom assumes office after the annual meeting of
the Board of Directors which immediately follows the Annual
Meeting of Shareholders. All of the corporate officers listed
below have held responsible positions with the registrant for
more than five years except for Dennis M. Draeger.
<PAGE>
Mr. Draeger, who was a director of Carpenter since 1992,
resigned as a member of the Board of Directors as of June 30,
1996. Mr. Draeger assumed his duties as Senior Vice President -
Specialty Alloys Operations for Carpenter effective July 1, 1996.
Prior to that he was President of Worldwide Floor Products
Operations for Armstrong World Industries, Inc. since 1994 and he
became Group Vice President for Armstrong in 1988.
Assumed
Present
Name Age Positions Position
- ---- --- --------- --------
Robert W. Cardy 61 Chairman, President &
Chief Executive Officer July 1992
Director November 1990
G. Walton Cottrell 57 Senior Vice President -
Finance & Chief
Financial Officer January 1993
Dennis M. Draeger 56 Senior Vice President -
Specialty Alloys
Operations July 1996
Nicholas F. Fiore 57 Senior Vice President -
Engineered Products
Group January 1993
Robert W. Lodge 54 Vice President -
Human Resources September 1991
John R. Welty 48 Vice President,
General Counsel &
Secretary January 1993
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Common stock of Carpenter is listed on the New York Stock
Exchange. The ticker symbol is CRS. Here are the high and low
market prices of Carpenter's stock for the past two fiscal years:
Quarter Ended: 1997 1996
- ---------------------------------------------------------------
High Low High Low
September 30 $37-5/8 $31-1/4 $41-3/16 $33-7/8
December 31 $36-3/4 $32 $44 $37-5/8
March 31 $39-1/4 $34-3/4 $42 $35-5/8
June 30 $48-1/8 $37-1/4 $40-1/8 $32
- ---------------------------------------------------------------
$48-1/8 $31-1/4 $44 $32
Carpenter has paid quarterly cash dividends on its common
stock for 91 consecutive years. The quarterly dividend rate was
$.33 per share for fiscal 1997 and 1996, and $.30 per share for
fiscal 1995.
Carpenter had 5,980 common shareholders of record as of
August 29, 1997. The balance of the information required by this
item is disclosed in Note 10 to the consolidated financial
statements included in Item 8 "Financial Statements and
Supplementary Data".
<PAGE>
Item 6. Selected Financial Data
Five-Year Financial Summary
Dollar amounts in thousands, except per share data
(years ended June 30)
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
Summary of Operations
Net Sales $ 939,000 $865,324 $757,532 $628,795 $576,248
Income before extra-
ordinary charge &
cumulative effect
of changes in
accounting principles $ 59,993 $ 60,148 $ 47,492 $ 38,289 $ 26,534
Extraordinary charge,
net of income taxes $ - $ - $ - $ (2,039) $ -
Cumulative effect of
changes in accounting
principles, net of
income taxes $ - $ - $ - $ - $(74,676)
Net income (loss) $ 59,993 $ 60,148 $ 47,492 $ 36,250 $(48,142)
Financial Position
at Year-End
Total assets $1,223,001 $911,971 $831,775 $729,911 $699,565
Long-term debt, net $ 244,726 $188,024 $194,762 $158,070 $189,895
Per Share Data
Primary:
Income before extra-
ordinary charge &
cumulative effect
of changes in
accounting principles $ 3.30 $ 3.51 $ 2.81 $ 2.28 $ 1.55
Net income (loss) $ 3.30 $ 3.51 $ 2.81 $ 2.15 $ (3.11)
Fully Diluted:
Income before extra-
ordinary charge &
cumulative effect
of changes in
accounting principles $ 3.16 $ 3.38 $ 2.70 $ 2.20 $ 1.51
Net income (loss) $ 3.16 $ 3.38 $ 2.70 $ 2.08 $ (2.88)
Cash dividends-common $ 1.32 $ 1.32 $ 1.20 $ 1.20 $ 1.20
See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for discussion of factors
that affect the comparability of the "Selected Financial Data".
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion of Operations
Summary
Net sales and earnings trends for the past three fiscal years are
summarized below:
(in millions - except per share) 1997 1996 1995
- -------------------------------- --------------------------
Net sales $939.0 $865.3 $757.5
Net income $ 60.0 $ 60.1 $ 47.5
Primary earnings per share $ 3.30 $ 3.51 $ 2.81
Net sales increased to a record level in fiscal 1997 primarily as a
result of including the operations of Dynamet since its acquisition
on February 28, 1997, and increased sales of ceramic products and of
the Mexican steel distribution operations. Net income was unchanged
in fiscal 1997 as the favorable effects from the inclusion of Dynamet,
the improved ceramic sales and lower losses related to the reduced
investment in Walsin-CarTech were offset by higher Specialty Alloys
Operations environmental costs and extended maintenance shutdown
costs at the beginning of fiscal 1997. Primary earnings per common
share decreased from a year ago because of increased common shares
outstanding.
Net sales and earnings increased in fiscal 1996 as a result of a
strong market for specialty metals, selling price increases, an
improved product mix and cost reduction efforts.
The chart below shows net sales by product line for the past
three fiscal years:
(in millions) 1997 1996 1995
- ------------- ----------------------------------
Sales % Sales % Sales %
----------------------------------
Stainless steel $461.5 49 $496.9 58 $424.7 56
Special alloys 317.9 34 273.4 32 249.0 33
Tool and other steel 69.4 7 62.8 7 59.5 8
Ceramics and other materials 45.8 5 29.3 3 22.6 3
Titanium products 44.4 5 2.9 - 1.7 -
----------------------------------
Total $939.0 100 $865.3 100 $757.5 100
==================================
Results of Operations - Fiscal 1997 Versus Fiscal 1996
Net sales were $939.0 million in fiscal 1997, a 9 percent
increase from the $865.3 million level in fiscal 1996. A majority
of the increase resulted from the inclusion of Dynamet's sales
since acquisition. Increased sales of ceramic products, an
improved mix of Specialty Alloys Operations products and
increased sales of the Mexican steel distribution operations also
added to the higher sales level in fiscal 1997.
<PAGE>
Unit volume of Specialty Alloys Operations products was unchanged
from a year ago. Demand for specialty alloy products continued at
a high level across most of the product spectrum, especially
special alloys for aerospace and automotive applications. The
product mix shifted toward more premium-melted products and away
from certain commodity-priced products. Unit selling prices
remained relatively constant during fiscal 1997.
Cost of sales as a percentage of sales was 74 percent in both
years. In fiscal 1997, lower Specialty Alloys Operations raw
material costs were offset by higher labor, energy, maintenance
shutdown and environmental costs.
Specialty Alloys Operations raw material costs per unit purchased
decreased by 12 percent during fiscal 1997 versus the year-earlier
costs as a result of decreases in the cost of cobalt (26 percent),
nickel (11 percent), and chromium (10 percent). Also, the purchase
premium for semi-finished and finished products to supplement
internal capacity was lower in fiscal 1997.
Labor costs per hour for Specialty Alloys Operations production
and maintenance employees were up by 2 percent principally as a
result of a base wage increase in July 1996 which was partially
offset by lower profit sharing costs.
Specialty Alloys Operations natural gas and electric costs per
unit consumed increased by 14 percent and 6 percent versus fiscal
1996 costs, respectively.
Selling and administrative expenses were 13 percent of net sales
in fiscal years 1997 and 1996. Costs were higher by $13.5 million
primarily because of the inclusion of the costs for acquired
companies and increased usage of outside services for revising
computer systems to be year 2000 compliant.
Interest expense increased by $1.0 million in fiscal 1997 versus
fiscal 1996, as a result of a higher level of debt, primarily due
to the Dynamet acquisition, offset by an increased level of
capitalized interest on capital projects.
Equity in losses of the Walsin-CarTech joint venture decreased by
$5.8 million in fiscal 1997 due to the fiscal 1996 reduction of
the investment in Walsin-CarTech and an improvement in its
operating results (described in Note 4 to the consolidated
financial statements).
Income taxes as a percent of pre-tax income (effective tax rate)
increased to 39 percent in fiscal 1997 from 37 percent a year
earlier. The fiscal 1997 tax rate was negatively impacted by a
federal income tax law change relating to company-owned life
insurance programs, while the prior year's tax rate was favorably
affected by a state income tax rate change. A reconciliation of
the effective rate to the federal statutory rate is presented in
Note 16 to the consolidated financial statements.
<PAGE>
Results of Operations - Fiscal 1996 Versus Fiscal 1995
Net sales were $865.3 million in fiscal 1996, a 14 percent increase
from the $757.5 million level in fiscal 1995. The sales improvement
was primarily due to higher unit prices and a shift toward higher
alloyed products in the Specialty Alloys Operations. Unit volume of
Specialty Alloys Operations products was slightly higher than in
fiscal 1995. Demand for specialty steel products was at a high level,
especially in automotive, aerospace, and chemical and petroleum
processing related products. Unit selling prices for specialty steel
shipments increased by an average of 8 percent to offset higher labor
and other costs and to restore profit margins which had eroded in
prior years. A raw material surcharge was established in fiscal
1995 to offset sharply rising raw material costs. The product mix
shifted toward more premium-melted products and away from certain
commodity-priced products.
Approximately 12 percent of the increase in net sales was from
the inclusion, in fiscal 1996, of Green Bay Supply Co., Inc., a
specialty metals master distributor which was acquired in
November 1995, and Parmatech Corporation, a metal injection
molded parts business which was acquired in October 1995.
Cost of sales as a percentage of sales was 74 percent in both
years. Higher Specialty Alloys Operations raw material, labor and
other costs were offset by increased selling prices.
Raw material costs per unit purchased increased by 11 percent
during fiscal 1996 versus the year-earlier costs as a result of
increases in the cost of nickel (9 percent), chromium (22
percent) and cobalt (6 percent). Also, in both fiscal years,
Carpenter purchased at a premium semi-finished and finished
products to supplement internal capacity.
Labor costs per hour for Specialty Alloys Operations production
and maintenance employees were up by 4 percent, principally as a
result of a base wage increase in July 1995 and higher profit
sharing costs, partially offset by lower medical costs and higher
pension credits.
Specialty Alloys Operations natural gas costs per unit consumed
decreased by 2 percent versus fiscal 1995 costs, and electricity
costs per unit decreased by 3 percent.
Selling and administrative expenses fell to 13 percent of net
sales versus 14 percent in fiscal 1995, primarily because these
costs tend to change less rapidly than sales. Costs were higher
by $9.6 million primarily because of increased usage of outside
services, additional travel costs and costs of acquired
companies.
Interest expense increased by $4.4 million in fiscal 1996 versus
fiscal 1995, principally as a result of lower capitalized
interest and a higher level of debt.
<PAGE>
Equity in losses of the Walsin-CarTech joint venture increased to
$7.0 million in fiscal 1996 versus a loss of $3.0 million in
fiscal 1995. Lower sales volume, reduced selling prices and lower
production levels were the primary reasons for the increased
loss. The fiscal 1996 loss was partially offset by a pre-tax gain
of $2.7 million on the sale of a portion of Carpenter's interest
in the joint venture. The gain is included in other income on the
consolidated statement of income (described in Note 4 to the
consolidated financial statements).
Income taxes as a percent of pre-tax income (effective tax rate)
increased to 37 percent in fiscal 1996 from 36 percent a year
earlier. A reconciliation of the effective tax rate to the
federal statutory rate is presented in Note 16 to the
consolidated financial statements.
Management's Discussion of Cash Flow and Financial Condition
Cash Flow
Cash flow from operations was very strong over the past three fiscal
years despite working capital needs to support growth in sales.
Inventories, excluding amounts acquired through purchases of
businesses, increased $17.3 million, $59.6 million and $29.5
million in fiscal 1997, 1996 and 1995, respectively, due to
higher sales levels and a higher valued product mix of the
Specialty Alloys Operations.
Accounts receivable, excluding amounts relating to acquisitions,
increased $3.1 million, $14.8 million and $21.8 million in fiscal
1997, 1996 and 1995, respectively, as a result of increased fourth
quarter sales each year. The average days of sales outstanding at
the end of fiscal 1997 was comparable to that of the past two fiscal
years.
Capital expenditures of $93.6 million, $48.6 million and $36.9
million in fiscal 1997, 1996 and 1995, respectively, were
concentrated in the Specialty Alloys Operations' Reading,
Pennsylvania, plant and were used for increased capacity, normal
replacements and modernization. Fiscal 1997 and 1996 major
projects included a 20-metric ton vacuum induction degassing and
pouring furnace, two vacuum arc remelting furnaces, and annealing
facilities. Work has begun on construction of a bar finishing
cell and a major rebuild of the 3,000-ton press.
During fiscal 1997, Carpenter acquired Rathbone Precision Metals,
Inc., and Dynamet Incorporated. During fiscal 1996, the businesses
of Green Bay Supply Co., Inc., and Parmatech Corporation were
acquired and in fiscal 1995, Carpenter acquired Certech, Inc., and
an affiliated company. Fiscal 1996 and 1995 also include other less
significant acquisitions. The cost of all acquisitions totaled $86.6
million in cash and $107.2 million in common stock. Details of these
transactions are included in Note 3 to the consolidated financial
statements.
<PAGE>
During fiscal 1996, Carpenter sold a portion of its interest in
Walsin-CarTech Specialty Steel Corporation, reducing its
ownership interest from 19 percent to 5 percent. Carpenter
received $32.7 million in cash from the sale which resulted in a
$2.7 million pre-tax gain. Details of this transaction are
included in Note 4 to the consolidated financial statements.
During fiscal 1997, total debt increased by $106.4 million,
excluding debt of acquired companies, primarily to finance
acquisitions of businesses and the higher level of capital
expenditures. During fiscal 1995, $80 million of medium-term
notes were issued with a 7.4 percent average interest rate, and a
portion of the proceeds were used to retire borrowings under
credit arrangements. Details of debt and financing arrangements
are provided in Note 8 to the consolidated financial statements.
The dividend payout rate on common stock was $1.32 per share for
both fiscal 1997 and fiscal 1996 versus $1.20 in fiscal 1995. The
preferred stock dividend was maintained at $5,362.50 per share in
each of the past three fiscal years. Total dividend payments were
$24.4 million, $23.3 million and $21.0 million in fiscal 1997,
1996 and 1995, respectively.
Financial Condition
During the past three fiscal years, Carpenter maintained the
ability to provide adequate cash to meet its needs through strong
cash flow from operations, management of working capital and its
flexibility to use outside sources of financing to supplement
internally generated funds.
Carpenter ended fiscal 1997 in a sound liquidity position, with
current assets exceeding current liabilities by $144.2 million (a
ratio of 1.6 to 1). This favorable ratio is conservatively stated
because certain inventories are valued $138.9 million less than
the current cost as a result of using the LIFO method.
Total debt at June 30, 1997, was $330.6 million, or 36.9 percent
of total capital, including deferred taxes, versus 35.3 percent
of total capital, including deferred taxes, at June 30, 1996.
Financing is available under a $200 million financing arrangement
with a number of banks, providing for $150 million of revolving
credit to February 2002 and lines of credit of $50 million.
Borrowings under this agreement serve as back-up to Carpenter's
commercial paper program. Carpenter limits the aggregate
commercial paper and credit facility borrowings at any one time
to a maximum of $200 million. As of June 30, 1997, $57.5 million
was available under the credit facility and commercial paper
program.
At June 30, 1997, Carpenter had $20 million of medium-term debt
securities available for issuance under a Shelf Registration on
file with the Securities and Exchange Commission.
In summary, Carpenter believes that its present financial
resources, both from internal and external sources, are adequate
to meet its foreseeable short-term and long-term liquidity needs.
<PAGE>
Commitments and Contingencies
Environmental
Carpenter has environmental liabilities at some of its owned
operating facilities, and has been designated as a potentially
responsible party ("PRP") with respect to certain superfund waste
disposal sites. Additionally, Carpenter has been notified that it
may be a PRP with respect to other superfund sites as to which no
proceedings have been instituted against Carpenter. Neither the
exact amount of cleanup costs nor the final method of their
allocation among all designated PRPs at these superfund sites has
been determined. The estimated range of the reasonably possible
future costs of remediation at Carpenter-owned operating
facilities and the superfund sites is between $11.2 million and
$23.3 million. Carpenter has accrued amounts for environmental
remediation costs, including remediation investigation and
feasibility study costs, which represent management's best
estimate of the probable and reasonably estimable remediation
costs. Recoveries of expenditures are recognized as a receivable
when they are estimable and probable. The estimated range of the
anticipated recoveries for environmental costs is between $7.2
million and $7.5 million. Additional details are provided in Note
17 to the consolidated financial statements. Carpenter does not
anticipate that its financial position will be materially
affected by additional environmental remediation costs, although
quarterly or annual operating results could be materially
affected by future developments.
Other
Carpenter also is defending various claims and legal actions, and
is subject to commitments and contingencies that are common to
its operations. Carpenter provides for costs relating to these
matters when a loss is probable and the amount is reasonably
estimable. Additional details are provided in Note 17 to the
consolidated financial statements. While it is not feasible to
determine the outcome of these matters, in the opinion of
management, any total ultimate liability will not have a material
effect on Carpenter's financial position or results of operations
and cash flows.
<PAGE>
Forward-Looking and Other Statements
This Management Discussion and Analysis of Financial Condition
and Results of Operations and other sections of this Annual
Report on Form 10-K contain various "Forward-Looking Statements"
within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements, which represent Carpenter's
expectations or beliefs concerning various future events,
include, among other matters, statements concerning future
revenues and continued growth in various market segments. These
statements are based on current expectations that involve a
number of risks and uncertainties which could cause actual
results to differ from those of such forward-looking statements.
These risks include the following: 1) the cyclical nature of the
specialty materials business which are subject to changes in the
general economic conditions; 2) the critical importance of
certain raw materials used by Carpenter to produce specialty
materials that can only be acquired from foreign sources, some of
which are located in countries which may be subject to unstable
political and economic conditions which may affect the prices of
these materials; 3) the susceptibility of export sales to the
effects of export controls, changes in legal and regulatory
requirements, policy changes affecting the markets, changes in
tax laws and tariffs, exchange rate fluctuations, political and
economic instability, and accounts receivable collection; and 4)
the effects on operations of changes in domestic and foreign
governmental laws and public policy, including environmental
regulations. Any of these factors could have an adverse and/or
fluctuating effect on Carpenter's results of operations.
Additional risk factors may be described from time to time with
Carpenter's filings with the Securities and Exchange Commission.
Carpenter undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events
or otherwise.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data
Page
----
Consolidated Financial Statements:
Report of Independent Accountants 20
Consolidated Statement of Income for the
Years Ended June 30, 1997, 1996 and 1995 21
Consolidated Statement of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995 22
Consolidated Balance Sheet as of
June 30, 1997 and 1996 23
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
June 30, 1997, 1996 and 1995 24-25
Notes to Consolidated Financial Statements 26-47
Supplementary Data:
Quarterly Financial Data (Unaudited) 48
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Carpenter Technology Corporation:
We have audited the accompanying consolidated balance sheet of
Carpenter Technology Corporation and subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of income,
cash flows and changes in shareholders' equity for each of the
three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Carpenter Technology Corporation and
subsidiaries as of June 30, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.
s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 28, 1997
<PAGE>
Consolidated Statement of Income
Carpenter Technology Corporation
for the years ended June 30, 1997, 1996 and 1995
(in thousands, except
per share data) 1997 1996 1995
- --------------------- ----------------------------
Net sales $939,000 $865,324 $757,532
----------------------------
Costs and expenses:
Cost of sales 697,892 636,783 564,169
Selling and administrative
expenses 126,357 112,893 103,269
Interest expense 19,930 18,935 14,542
Equity in loss of joint venture 1,188 7,025 3,000
Other income, net (4,238) (5,482) (2,019)
----------------------------
841,129 770,154 682,961
----------------------------
Income before income taxes 97,871 95,170 74,571
Income taxes 37,878 35,022 27,079
----------------------------
Net income $ 59,993 $ 60,148 $ 47,492
============================
Earnings per common share:
Primary $ 3.30 $ 3.51 $ 2.81
Fully diluted $ 3.16 $ 3.38 $ 2.70
Weighted average common
shares outstanding:
Primary 17,703 16,677 16,327
Fully diluted 18,760 17,604 17,309
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statement of Cash Flows
Carpenter Technology Corporation
for the years ended June 30, 1997, 1996 and 1995
(in thousands) 1997 1996 1995
- -------------- ---------------------------------
OPERATIONS
Net income $ 59,993 $ 60,148 $ 47,492
Adjustments to reconcile net income
to net cash provided from operations:
Depreciation and amortization 40,985 35,226 32,479
Deferred income taxes 7,144 4,527 3,314
Pension credits (11,064) (10,292) (7,933)
Equity in loss of joint venture 1,188 7,025 3,000
Gain on sale of partial interest
in joint venture - (2,650) -
Changes in working capital and other,
net of acquisitions:
Receivables (3,097) (14,754) (21,819)
Inventories (17,264) (59,619) (29,480)
Accounts payable (4,192) 21,265 15,111
Accrued current liabilities 11,174 16,244 6,800
Other, net (10,799) (7,083) (5,177)
--------------------------------
Net cash provided from operations 74,068 50,037 43,787
INVESTING ACTIVITIES --------------------------------
Purchases of plant and equipment (93,614) (48,621) (36,945)
Disposals of plant and equipment 1,429 2,060 1,424
Acquisitions of businesses,
net of cash received (60,233) (13,301) (13,032)
Investment in joint venture - - (2,060)
Proceeds from sale of partial
interest in joint venture - 32,672 -
--------------------------------
Net cash used for investing activities (152,418) (27,190) (50,613)
--------------------------------
FINANCING ACTIVITIES
Provided by (payments on) short-term debt 53,576 (1,884) 20,145
Proceeds from issuance of long-term debt 60,000 - 80,000
Payments on long-term debt (7,138) (9,023) (55,736)
Dividends paid (24,383) (23,306) (21,045)
Proceeds from issuance of common stock 1,863 4,590 1,745
Payments to acquire treasury stock - - (3,002)
--------------------------------
Net cash provided from (used for)
financing activities 83,918 (29,623) 22,107
--------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (107) (185) (565)
--------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,461 (6,961) 14,716
Cash and cash equivalents at beginning of year 13,159 20,120 5,404
--------------------------------
Cash and cash equivalents at end of year $ 18,620 $ 13,159 $ 20,120
SUPPLEMENTAL DATA: ================================
Cash paid during the year for:
Interest payments, net of amounts capitalized $ 18,705 $ 17,900 $ 15,441
Income tax payments, net of refunds $ 23,915 $ 20,942 $ 17,692
Non-cash investing activities:
Treasury stock issued for business acquisitions $ 99,517 $ 4,500 $ 3,200
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Balance Sheet
Carpenter Technology Corporation
June 30, 1997 and 1996
(in thousands, except share data) 1997 1996
- --------------------------------- -----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 18,620 $ 13,159
Accounts receivable, net of allowance for
doubtful accounts ($1,385 and $1,249) 159,863 137,103
Inventories 211,483 160,452
Deferred income taxes - 2,113
Other current assets 12,247 11,643
-----------------------
Total current assets 402,213 324,470
Property, plant and equipment, net 513,636 419,472
Prepaid pension cost 99,748 91,474
Goodwill, net 104,610 18,792
Other assets 102,794 57,763
-----------------------
Total assets $1,223,001 $911,971
=======================
LIABILITIES
Current liabilities:
Short-term debt $ 82,540 $ 18,964
Accounts payable 78,962 75,811
Accrued compensation 26,932 26,088
Accrued income taxes 19,263 13,656
Deferred income taxes 5,601 -
Other accrued liabilities 41,375 30,446
Current portion of long-term debt 3,372 7,010
-----------------------
Total current liabilities 258,045 171,975
Long-term debt, net of current portion 244,726 188,024
Accrued postretirement benefits 135,903 137,738
Deferred income taxes 110,780 84,460
Other liabilities 24,240 20,697
SHAREHOLDERS' EQUITY
Preferred stock - authorized 2,000,000 shares 28,224 28,581
Common stock - authorized 50,000,000 shares 98,215 97,729
Capital in excess of par value - common stock 54,338 13,498
Reinvested earnings 303,566 267,956
Common stock in treasury, at cost (3,539) (64,483)
Deferred compensation (20,299) (22,830)
Foreign currency translation adjustments (11,198) (11,374)
-----------------------
Total shareholders' equity 449,307 309,077
-----------------------
Total liabilities and shareholders' equity $1,223,001 $911,971
========================
See accompanying notes to consolidated financial statements.
<TABLE>
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
Carpenter Technology Corporation
for the years ended June 30, 1997, 1996 and 1995
<CAPTION>
Common Stock
Preferred -----------------------
Stock Capital in
(in thousands, except Par Value Par Value Excess of Reinvested Treasury
share and per share data) of $5 of $5 Par Value Earnings Stock
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Balances at June 30, 1994 $ 29,029 $ 48,061 $ 50,882 $204,667 $(66,150)
Distributions to ESOP (204) 1 9
Stock options exercised, net
of 133 shares exchanged 176 1,569
Restricted shares issued, net 107 1,238 (28)
Shares purchased (3,002)
Shares issued to acquire
business 1,022 2,178
Net income 47,492
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,599)
Common, $2.40 per share (19,446)
Reduction of ESOP note
Accrued compensation
Translation adjustments
Other 426
Effects of 2-for-1 common
stock split 48,345 (48,345)
Balances at June 30, 1995 28,825 96,690 6,801 231,114 (67,002)
Distributions to ESOP (244) 36 206
Stock options exercised, net
of 41,010 shares exchanged 1,003 3,587
Restricted shares cancelled (138)
Shares issued to acquire
business 1,843 2,657
Net income 60,148
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,572)
Common, $1.32 per share (21,734)
Reduction of ESOP note
Accrued compensation
Translation adjustments, net
Other 1,061
Balances at June 30, 1996 28,581 97,729 13,498 267,956 (64,483)
Distributions to ESOP (357) 52 285
Stock options exercised, net
of 45,826 shares exchanged 434 1,429
Restricted shares cancelled (79)
Shares issued to acquire
business 38,494 61,023
Net income 59,993
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,578)
Common, $1.32 per share (22,805)
Reduction of ESOP note
Accrued compensation
Translation adjustments
Other 632
Balances at June 30, 1997 $ 28,224 $ 98,215 $ 54,338 $303,566 $ (3,539)
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
Carpenter Technology Corporation
for the years ended June 30, 1997, 1996 and 1995
<CAPTION>
Share Data
--------------------------------------------
Foreign Total Common Shares
Deferred Currency Share- Preferred-----------------------------------
Compen- Translation holders' Shares Net
sation Adjustments Equity Issued Issued Treasury Outstanding
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------- --------------------------------------------
Balances at June 30, 1994 $(26,386) $ (959) $239,144 459.9 9,612,181 (1,522,604) 8,089,577
Distributions to ESOP (194) (3.2) 179 179
Stock options exercised, net
of 133 shares exchanged 1,745 35,272 35,272
Restricted shares issued, net (1,317) - 21,350 (500) 20,850
Shares purchased (3,002) (53,124) (53,124)
Shares issued to acquire
business 3,200 53,124 53,124
Net income 47,492
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,599)
Common, $2.40 per share (19,446)
Reduction of ESOP note 1,071 1,071
Accrued compensation 1,171 1,171
Translation adjustments (6,063) (6,063)
Other 426
Effects of 2-for-1 common
stock split - 9,668,982 (1,523,104) 8,145,878
Balances at June 30, 1995 (25,461) (7,022) 263,945 456.7 19,337,964 (3,046,208) 16,291,756
Distributions to ESOP (2) (3.6) 7,251 7,251
Stock options exercised, net
of 41,010 shares exchanged 4,590 200,536 200,536
Restricted shares cancelled 138 - (4,652) (4,652)
Shares issued to acquire
business 4,500 120,786 120,786
Net income 60,148
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,572)
Common, $1.32 per share (21,734)
Reduction of ESOP note 1,209 1,209
Accrued compensation 1,284 1,284
Translation adjustments, net (4,352) (4,352)
Other 1,061
Balances at June 30, 1996 (22,830) (11,374) 309,077 453.1 19,545,751 (2,930,074) 16,615,677
Distributions to ESOP (20) (5.8) 10,400 10,400
Stock options exercised, net
of 45,826 shares exchanged 1,863 86,769 86,769
Restricted shares cancelled 79 - (2,590) (2,590)
Shares issued to acquire
business 99,517 2,772,059 2,772,059
Net income 59,993
Cash dividends:
Preferred, $5,362.50 per
share, net of income taxes (1,578)
Common, $1.32 per share (22,805)
Reduction of ESOP note 1,355 1,355
Accrued compensation 1,097 1,097
Translation adjustments 176 176
Other 632
Balances at June 30, 1997 $(20,299) $(11,198) $449,307 447.3 19,642,920 (160,605) 19,482,315
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
__________
1. Summary of Significant Accounting Policies
Description of Business - The Company is primarily engaged
in one business segment - the manufacture, fabrication and
distribution of specialty metals. Sales of finished products
include stainless steels, special alloys, tool steels and
titanium in the forms of bar, rod, wire and strip.
Additionally, the Company manufactures certain engineered
products including structural ceramics, metal injection
molded products and ultra-hard wear parts. The engineered
products do not qualify as a reportable segment and
therefore are not presented as a separate business segment.
The products of the Company are sold primarily in the United
States and principally through its own sales organization,
with service centers and sales offices located in many of
the major cities of the country. Sales outside of the United
States, including export sales, were $117.8 million, $96.5
million and $74.7 million in fiscal 1997, 1996 and 1995,
respectively.
Basis of Consolidation - The consolidated financial
statements include the accounts of the Company and all
majority-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated. The equity method
of accounting is used when the Company has a 20%-50%
interest in other entities and for investments in corporate
joint ventures. Under the equity method, the original
investment is recorded at cost and adjusted by the Company's
share of undistributed earnings or losses of the entity.
Cash Equivalents - Cash equivalents consist of highly liquid
instruments with maturities at the time of acquisition of
three months or less. Cash equivalents are stated at cost,
which approximates market.
Inventories - Inventories are valued at the lower of cost or
market. Cost for inventories is principally determined by
the Last-In, First-Out (LIFO) method. The Company also uses
the First-In, First-Out (FIFO) and average cost methods.
Depreciation and Amortization - Depreciation for financial
reporting purposes is computed by the straight-line method.
This method allocates depreciation equally over the
estimated useful lives of the assets. Depreciation for
income tax purposes is computed using accelerated methods.
The costs of intangible assets other than goodwill, which
are included in other assets on the consolidated balance
sheet, are comprised principally of agreements not to
compete, patents, trademarks and tradenames and are
amortized on a straight-line basis over their respective
estimated useful lives, ranging from 4 to 30 years.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Goodwill - Goodwill, representing the excess of the purchase
price over the estimated fair value of the net assets of
companies acquired to date, is being amortized on a
straight-line basis over periods not to exceed 30 years, the
estimated life of the goodwill. The Company's policy is to
record an impairment loss against the goodwill in the period
when it is determined that the carrying amount of the asset
may not be recoverable. This determination includes
evaluation of factors such as current market value, future
asset utilization, business climate and future cash flows
expected to result from the use of the net assets.
Long-Lived Assets - Effective July 1, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS)
121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS 121 requires
that long-lived assets, including related goodwill, be
reviewed for impairment and written down to fair value
whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. The Company
evaluates long-lived assets for impairment by individual
business unit. There was no cumulative effect resulting from
the adoption of SFAS 121 in fiscal 1997.
Environmental Expenditures - Environmental expenditures that
pertain to current operations or to future revenues are
expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the
remediation of an existing condition caused by past
operations and that do not contribute to current or future
revenues are expensed. Liabilities are recognized for
remedial activities, including remediation investigation and
feasibility study costs, when the cleanup is probable and
the cost can be reasonably estimated. Recoveries of
expenditures are recognized as receivables when they are
estimable and probable.
In October 1996, Statement of Position 96-1, "Environmental
Remediation Liabilities," was issued and is effective for
fiscal 1998. This statement provides guidance for
recognizing, measuring and disclosing environmental
remediation liabilities. The Company does not expect this
statement to have a material effect on its financial
position or results of operations.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation and Remeasurement - Assets and
liabilities of foreign operations, where the functional
currency is the local currency, are translated into U.S.
dollars at the fiscal year end exchange rate. The related
translation adjustments are recorded as cumulative
translation adjustments, a separate component of
shareholders' equity. Revenues and expenses are translated
using average exchange rates prevailing during the year.
Foreign currency exchange gains and losses are included in
net income. Realized and unrealized foreign currency
exchange gains and losses for the years presented were not
material.
Non-monetary assets and liabilities of foreign operations,
where the functional currency is the U.S. dollar or whose
economic environment is highly inflationary as defined by
SFAS 52, are translated at historical exchange rates. All
other assets and liabilities are translated at year-end
rates. Inventories charged to cost of sales and depreciation
are translated at historical exchange rates. All other
income and expense items are translated at average rates of
exchange prevailing during the year. Gains and losses that
result from translation are included in earnings. Effective
January 1, 1997, the Company's operations in Mexico were
considered to operate in a highly inflationary economy as
defined by SFAS 52.
Futures Contracts and Commodity Price Swaps - In connection
with the anticipated purchase of raw materials for certain
fixed-price sales arrangements, the Company enters into
futures contracts and commodity price swaps to reduce the
risk of cost increases. The contracts do not have leveraged
features and generally are not entered into for speculative
purposes. The significant characteristics and terms of the
anticipated purchase of raw materials are identifiable, and
the contracts are designated and effective as hedges,
because of the high correlation between the contracts and
the items being hedged. As such, they are accounted for as
hedges and unrealized gains and losses are deferred and
included in cost of sales in the periods when the related
transactions are completed.
Foreign Currency Forward Contracts - In connection with
certain future payments between the Company and its various
European subsidiaries, foreign currency forward contracts
are used to reduce the risk of foreign currency exposures.
The Company's primary foreign currency exposures are in
France. The foreign currency forward contracts do not
qualify as hedges for financial reporting purposes, as the
<PAGE>
1. Summary of Significant Accounting Policies (continued)
anticipated cash flows are not definitive. Therefore, the
contracts are marked to market and any related gain or loss
is included in income on a current basis. Gains and losses
for the years presented were not material to the Company's
results of operations or cash flows.
Earnings per Common Share - Primary earnings per common
share are computed by dividing net income (less preferred
dividends, net of tax benefits) by the weighted average
number of common shares and common share equivalents
outstanding during the period. On a fully-diluted basis,
both net earnings and shares outstanding are adjusted to
assume the conversion of the convertible preferred stock.
The Financial Accounting Standards Board (FASB) issued SFAS
128, "Earnings Per Share," which becomes effective for
periods ending after December 15, 1997. The Company will
adopt this statement effective with the quarter ending
December 31, 1997. SFAS 128 specifies the computation,
presentation and disclosure requirements for earnings per
share. The adoption of SFAS 128 will not have a material
effect on the Company's future presentation and disclosure
requirements of earnings per share as compared to the
current presentation and disclosure requirements.
Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Company-Owned Life Insurance Program - The Company has a
company-owned life insurance program covering essentially
all of the U.S.-based employees. The purpose of the program
is to provide cash to fund employee benefit obligations and
for other corporate purposes. At June 30, 1997 and 1996, the
cash surrender values, $81.2 million and $81.4 million, and
the insurance policy loans, $80.6 million and $80.7 million,
respectively, were netted and included in other assets on
the consolidated balance sheet.
Reclassifications - Certain reclassifications of prior
years' amounts have been made to conform with the current
year's presentation.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Other Accounting Pronouncements - The FASB issued SFAS 130,
"Reporting Comprehensive Income," and SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information,"
which will be effective for the Company's fiscal year 1999.
The impact of these new standards on the Company's future
financial statements and disclosures has not been
determined.
2. Two-for-One Common Stock Split
On August 10, 1995, the Board of Directors of the Company
declared a two-for-one common stock split which was
distributed to shareholders of record on September 1, 1995.
The par value of common shares remained at $5 per share.
The effect of the stock split has been retroactively
reflected as of June 30, 1995, in the statement of changes
in shareholders' equity, but activity for fiscal 1995 was
not restated in those statements. All references to the
number of common shares and per share amounts elsewhere in
the consolidated financial statements and related footnotes
reflect the effect of the split for all periods presented.
3. Acquisitions of Businesses
During the past three fiscal years, the Company acquired the
entities described below, which were accounted for by the
purchase method of accounting:
Fiscal 1997
On June 19, 1997, the Company acquired the net assets
of Rathbone Precision Metals, Inc., for $9.6 million in
cash, including acquisition costs. Rathbone is a manu-
facturer of custom, cold-drawn metal shapes. The pur-
chase price included goodwill of $6.8 million, which is
being amortized on a straight-line basis over 20 years.
On February 28, 1997, the Company purchased all of the
common stock of Dynamet Incorporated in exchange for
approximately 2.8 million shares of its treasury common
stock with a fair market value of $99.5 million and
$51.5 million of cash, including acquisition costs. In
addition, the Company entered into consulting and
non-competition agreements for $10.3 million, a portion
of which is payable over four years. Dynamet is a
manufacturer of titanium bar, wire and powder products.
Based upon a preliminary allocation, the excess of
purchase price over the estimated fair values of the
net assets acquired was $80.7 million and has been
recorded as goodwill, which is being amortized on a
straight-line basis over 30 years.
<PAGE>
3. Acquisitions of Businesses (continued)
Fiscal 1996
On November 9, 1995, the Company acquired the net
assets of Green Bay Supply Co., Inc., for $10.8 million
in cash, including acquisition costs. Green Bay is a
master distributor which purchases specialty metal
products globally and resells them to independent
distributors in the United States. The purchase price
approximated the fair value of the assets acquired.
On October 26, 1995, the Company acquired all of the
outstanding shares of Parmatech Corporation in exchange
for 120,786 shares of treasury common stock with a fair
value of $4.5 million and paid acquisition costs.
Parmatech manufactures complex, net or near-net shape
parts from a powder metal slurry using an injection
molding process. The excess of purchase price over the
fair values of the net assets acquired was $4.1 million
and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years.
Fiscal 1995
On July 22, 1994, the Company acquired all of the
outstanding shares of Certech, Inc., and an affiliated
company, for $16.7 million, including acquisition
costs, comprised of $13.5 million in cash and 106,248
shares of treasury common stock. Certech manufactures a
broad line of complex injection molded ceramics parts.
The excess of purchase price over the fair values of
the net assets acquired was $8.2 million and has been
recorded as goodwill, which is being amortized on a
straight-line basis over 20 years.
Fiscal 1996 and 1995 also include other acquisitions
which are immaterial.
The purchase prices have been allocated to the assets
purchased and the liabilities assumed based upon the fair
values on the dates of acquisition, as follows:
(in thousands) 1997 1996 1995
----------------------------
Working Capital,
other than cash $ 26,504 $ 9,457 $ 1,894
Property, plant and
equipment 38,800 4,612 10,200
Other assets 27,264 2,158 1,740
Goodwill 87,499 4,094 8,154
Noncurrent liabilities (20,317) (2,520) (5,756)
----------------------------
Purchase price, net of
cash received $159,750 $17,801 $16,232
============================
<PAGE>
3. Acquisitions of Businesses (continued)
Deferred tax liabilities included in the allocation totaled
$27.0 million in fiscal 1997 and $1.3 million in fiscal 1996
and 1995.
The operating results of these acquired businesses have been
included in the consolidated statement of income from the
dates of acquisition. On the basis of an unaudited pro forma
consolidation of the results of operations as if the
acquisitions in fiscal 1997 and 1996 had taken place at the
beginning of fiscal 1996, consolidated net sales would have
been $1,022.8 million for fiscal 1997 and $970.3 million for
fiscal 1996. Unaudited consolidated pro forma net income and
primary earnings per share would have been $66.7 million and
$3.29 for the year ended June 30, 1997, and $66.4 million
and $3.32 for the year ended June 30, 1996, respectively.
Such pro forma amounts are not necessarily indicative of
what the actual consolidated results of operations might
have been if the acquisitions had been effective at the
beginning of fiscal 1996.
As a result of the acquisition of Dynamet Incorporated, Mr.
Peter C. Rossin became a director of the Company. He and his
wife own of record or beneficially a total of 2,434,494
shares of the Company's common stock or approximately 12% of
the shares outstanding as of June 30, 1997. These shares are
subject to a Standstill Agreement which provides for certain
limitations on either the increase or disposal of their
interest in the Company's common stock, solicitation of
proxies, involvement in tender offers, business combinations
or restructuring of voting securities affecting the Company
and on their ability to seek control of or influence the
Company's Board of Directors or management. In addition, the
Standstill Agreement provides that the Board will recommend
the election, as a director of the Company, of Mr. Rossin or
another person that he and the other former Dynamet
shareholders designate, if, after consultation, the Board
determines such person is reasonably acceptable. The
Standstill Agreement expires in 2007, unless terminated
earlier as a result of a change in control of the Company or
a reduction of the voting power of the former Dynamet
shareholders below 5% of the Company's outstanding shares.
4. Investment in Joint Venture
The Company's investment in Walsin-CarTech Specialty Steel
Corporation, a corporate joint venture in Taiwan with Walsin
Lihwa Corporation, was $8.6 million at June 30, 1997, and
$9.8 million at June 30, 1996, and is included in other
assets on the consolidated balance sheet. This investment is
being accounted for using the equity method of accounting.
<PAGE>
From inception on September 2, 1993, through March 19, 1996,
the Company owned a 19 percent interest in the joint
venture, which became operational in January 1995. On
March 19, 1996, the Company sold a portion of its interest
in the joint venture to Walsin Lihwa Corporation, reducing
its ownership interest to 5 percent. The Company received
$32.7 million in cash from the sale which resulted in a $2.7
million pre-tax gain, which is included in other income on
the consolidated statement of income for fiscal 1996.
Additionally, Walsin Lihwa may acquire the Company's
remaining 5 percent interest for the original purchase cost,
plus interest at any time prior to March 19, 1998, and holds
the right of first refusal should the Company seek to sell
its remaining interest in the joint venture.
5. Inventories
June 30
(in thousands) 1997 1996
------------------
Finished and purchased products $121,532 $129,184
Work in process 177,650 134,751
Raw materials and supplies 51,152 58,388
------------------
Total at current cost 350,334 322,323
------------------
Less excess of current cost
over LIFO values 138,851 161,871
------------------
$211,483 $160,452
==================
Current cost of LIFO-valued inventories was $317.6 million
at June 30, 1997, and $295.4 million at June 30, 1996.
The acquisition of Dynamet Incorporated in fiscal 1997
resulted in a new basis of accounting for Dynamet's LIFO
inventories which are greater than those reportable for
federal income tax purposes by $17.2 million at June 30,
1997.
6. Property, Plant and Equipment
June 30
(in thousands) 1997 1996
------------------
Land $ 8,871 $ 7,374
Buildings and building equipment 183,506 154,871
Machinery and equipment 707,051 620,153
Construction in progress 37,028 27,299
------------------
Total at cost 936,456 809,697
------------------
Less accumulated depreciation
and amortization 422,820 390,225
------------------
$513,636 $419,472
==================
<PAGE>
6. Property, Plant and Equipment (continued)
The estimated useful lives are principally 45 years for
buildings and 20 years for machinery and equipment. The
ranges are as follows:
Estimated Useful Lives
Buildings and building equipment:
Land improvements 20 years
Buildings and equipment 20 to 45 years
Machinery and equipment:
Machinery and equipment 5 to 20 years
Autos and trucks 3 to 6 years
Office furniture and equipment 3 to 10 years
For the years ended June 30, 1997, 1996 and 1995,
depreciation expense was $36.8 million, $33.7 million and
$31.2 million, respectively.
7. Other Accrued Liabilities
June 30
(in thousands) 1997 1996
-----------------
Medical expenses $11,031 $10,690
Environmental costs 7,403 1,298
Interest 6,065 5,557
Other 16,876 12,901
-----------------
$41,375 $30,446
=================
8. Debt Arrangements
In February 1997, the Company renegotiated its existing
financing arrangements with a number of banks to increase
its credit facilities from $150 million to $200 million,
lower the costs of the facilities and extend the term to
February 2002. The arrangements provide for the availability
of $150 million of revolving credit and lines of credit of
$50 million and serve as back-up to the Company's commercial
paper borrowings. The Company limits the aggregate
commercial paper and credit facility borrowings at any one
time to a maximum of $200 million. Interest is based on
short-term market rates or competitive bids. This financing
arrangement replaced the previous revolving credit and lines
of credit arrangement. As of June 30, 1997, there were no
borrowings outstanding under the revolving credit agreement,
$13.5 million outstanding under the lines of credit and
$129.0 million of commercial paper outstanding. At June 30,
1997, $60.0 million of short-term debt was classified as
long-term debt because the Company has the ability and
intent to refinance it on a long-term basis through existing
credit facilities. There was $19.0 million of short-term
debt outstanding under the previous financing arrangement as
of June 30, 1996.
<PAGE>
8. Debt Arrangements (continued)
During fiscal 1995, the Company issued $80.0 million of
medium-term debt securities with a 7.38% average interest
rate under a Form S-3 registration statement ("Shelf
Registration") on file with the Securities and Exchange
Commission. The proceeds were used to retire borrowings
under credit arrangements. At June 30, 1997, the Company has
an additional $20.0 million of medium-term debt securities
available for issuance under the Shelf Registration.
For the years ended June 30, 1997, 1996 and 1995, interest
cost totaled $22.3 million, $19.3 million and $17.8 million,
of which $2.4 million, $.4 million and $3.3 million,
respectively, were capitalized.
The weighted average interest rates for short-term
borrowings during fiscal 1997 and 1996 were 5.9% and 6.0%,
respectively.
Long-term debt outstanding at June 30, 1997 and 1996,
consists of the following:
(in thousands) 1997 1996
------------------
9% Sinking fund debentures
due 2022; sinking fund
requirements are $5.0 million
annually from 2003 to 2021 $ 99,577 $ 99,559
Medium-term notes at
6.78% to 7.80% due from
October 1998 to 2005 80,000 80,000
Short-term debt classified as
long-term debt at 5.9% to 6.0% 60,000 -
10.45% Senior notes, series B,
due in annual installments
of $3.0 million through 1999 6,000 9,000
9.4% Notes - 3,571
Capitalized lease obligations
at 7.6% to 10.1% due in
installments through 2006 2,088 2,233
Other 433 671
------------------
Total 248,098 195,034
------------------
Less amounts due within one year 3,372 7,010
------------------
$244,726 $188,024
==================
Aggregate maturities of long-term debt for the four years
subsequent to June 30, 1998, are $13.2 million in fiscal
1999, $15.1 million in fiscal 2000, $10.1 million in fiscal
2001, and $85.2 million in fiscal 2002.
<PAGE>
8. Debt Arrangements (continued)
The Company's financing arrangements contain restrictions
which, among other things, limit the aggregate amount of the
Company's dividends. Reinvested earnings available for
dividends at June 30, 1997, were approximately $208.2
million.
9. Financial Instruments
The Company's financial instrument portfolio is comprised of
cash and cash equivalents, company-owned life insurance,
short-term and long-term debt instruments, raw material
futures contracts and commodity price swaps and foreign
currency forward contracts.
The carrying amounts and estimated fair values of the
Company's financial instruments were as follows:
June 30
(in thousands) 1997 1996
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------ ------------------
Cash and cash equivalents $ 18,620 $ 18,620 $ 13,159 $ 13,159
Company-owned life insurance $ 88,327 $ 88,327 $ 85,611 $ 85,611
Short-term debt $ 82,540 $ 82,540 $ 18,964 $ 18,964
Long-term debt $248,098 $259,841 $195,034 $205,475
Futures contracts (buy) $ - $ - $ - $ -
Foreign currency forward
contracts (sell) $ 910 $ 910 $ 7 $ 7
The contract values and estimated fair value of contracts
were as follows:
June 30
(in thousands) 1997 1996
------------------ ------------------
Fair Fair
Contract Value of Contract Value of
Value Contracts Value Contracts
------------------ ------------------
Futures contracts (buy) $21,671 $19,909 $21,610 $20,300
Foreign currency forward
contracts (sell) $ 8,180 $ 7,270 $ 4,944 $ 4,937
The carrying amounts for cash, cash equivalents and
short-term debt approximate their fair values due to the
short maturities of these instruments. The carrying amount
for company-owned life insurance is based on cash surrender
values determined by the insurance carriers.
The fair value of long-term debt as of June 30, 1997 and
1996, was determined by using current interest rates and
market values of similar issues.
<PAGE>
9. Financial Instruments (continued)
The fair value of raw material futures contracts and
commodity price swaps was based on quoted market prices for
these instruments. These financial instruments have various
maturity dates ranging from 1997 to 1999.
The fair value of foreign currency forward contracts
represents the amount to be exchanged if the existing
contracts were settled at year end, based on market quotes.
The foreign currency forward contracts have various maturity
dates ranging from 1997 to 1998.
The Company is exposed to credit risk related to its
financial instruments in the event of non-performance by the
counterparties. The Company does not generally require
collateral or other security to support these financial
instruments. However, the counterparties to these
transactions are major institutions deemed credit worthy by
the Company. The Company does not anticipate non-performance
by the counterparties.
10. Common Stock Purchase Rights
The Company has issued one common stock purchase right
("Right") for every outstanding share of common stock.
Except as otherwise provided in the Rights Agreement, the
Rights will become exercisable and separate Rights certifi-
cates will be distributed to the shareholders: (1) 10 days
following the acquisition of 20 percent or more of the
Company's common stock, (2) 10 business days (or such later
date as the Board may determine) following the commencement
of a tender or exchange offer for 20 percent or more of the
Company's common stock, or (3) 10 days after the Company's
Board of Directors determines that a holder of 15 percent or
more of the Company's shares has an interest adverse to
those of the Company or its shareholders (an "adverse
person"). Upon distribution, each Right would then entitle a
holder to buy from the Company one newly issued share of its
common stock for an exercise price of $145. After distribu-
tion, upon: (1) any person acquiring 20 percent of the
outstanding stock (other than pursuant to a fair offer as
determined by the Board), (2) a 20 percent holder engaging
in certain self-dealing transactions, (3) the determination
of an adverse person, or (4) certain mergers or similar
transactions between the Company and holder of 20 percent or
more of the Company's common stock, each Right (other than
those held by the acquiring party) entitles the holder to
purchase shares of common stock of either the acquiring
company or the Company (depending on the circumstances)
having a market value equal to twice the exercise price of
the Right. The Rights may be redeemed by the Company for
$.025 per Right at any time before they become exercisable.
The Rights Agreement expires on June 26, 2006.
<PAGE>
11. Stock-Based Compensation
Effective July 1, 1996, the Company adopted the
disclosure-only provisions of SFAS 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans. Had
compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for
awards in accordance with the provisions of SFAS 123, net
income would have been reduced by $.9 million or $.05 per
share in fiscal 1997. There would have been no effect on net
income or earnings per share in fiscal 1996. These pro forma
adjustments were calculated using the Black-Scholes option
pricing model to value all stock options granted since
July 1, 1995, using the following assumptions:
1997 1996
-----------------
Risk free interest rate 6.4% 5.8%
Expected volatility 20.6% 20.6%
Expected life of options 5 years 5 years
Expected dividends 4.2% 4.2%
The Company has three stock-based compensation plans for
officers and key employees: a 1993 plan, a 1982 plan and a
1977 plan.
1993 Plan:
The 1993 plan provides that the Board of Directors may grant
incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock and performance share
awards, and determine the terms and conditions of each
grant. As of June 30, 1997 and 1996, 1,358,455 and 1,545,965
shares, respectively, were reserved for options and share
awards which may be granted under this plan.
Stock option grants under this plan must be at no less than
market value on the date of grant, are exercisable after one
year of employment following the date of grant, and will
expire no more than ten years after the date of grant.
Restricted stock awards vest equally at the end of each year
of employment for the five-year period from the date of
grant. When the restricted shares are issued, deferred
compensation is recorded in the shareholders' equity section
of the consolidated balance sheet. The deferred compensation
is charged to expense over the vesting period. During fiscal
1997, 1996 and 1995, $.6 million, $.6 million and
$.3 million, respectively, were charged to expense for
vested restricted shares.
<PAGE>
11. Stock-Based Compensation (continued)
Performance share awards are earned only if the Company
achieves certain performance levels over a three-year
period. The awards are payable in shares of common stock and
expensed over the three-year performance period. In June
1997 and 1996, 25,700 and 18,400 performance share awards,
respectively, were granted contingent on performance over
the three fiscal years after grant. During fiscal 1997,
$.3 million was charged to expense for earned performance
shares. There was no charge to expense for these awards in
fiscal 1996.
1982 and 1977 Plans:
The 1982 plan expired in June 1992; however, all outstanding
unexpired options granted prior to that date remain in
effect. Under the 1982 and 1977 plans, options are granted
at the market value on the date of grant, and are
exercisable after one year of employment following the date
of grant. Under the 1982 plan, options granted since
August 9, 1990, expire ten years after grant, while options
granted prior to that date have expired. Options granted
under the 1977 plan expire ten years after grant. At
June 30, 1997 and 1996, 48,520 and 164,620 shares,
respectively, were reserved for options which may be granted
under the 1977 plan.
The Company also has a stock option plan which provides for
the granting of stock options to non-employee Directors.
Options are granted at the market value on the date of the
grant and are exercisable after one year of Board service
following the date of grant. Options expire ten years after
the date of grant. At June 30, 1997 and 1996, 129,000 and
157,000 shares, respectively, were reserved for options
which may be granted under this plan.
A summary of the option activity under all plans for the
past three years follows:
Number of Option Price
Shares per Share
----------------------------
Balance June 30, 1994 724,352 $19.00-$30.19
Granted 144,000 $28.32-$32.56
Exercised (70,810) $22.38-$30.19
Cancelled (3,390) $24.12-$30.19
----------------------------
Balance June 30, 1995 794,152 $19.00-$32.56
Granted 270,500 $33.00-$39.12
Exercised (241,546) $19.00-$30.19
Cancelled (9,600) $28.32-$32.56
----------------------------
Balance June 30, 1996 813,506 $19.00-$39.12
Granted 315,600 $31.63-$45.56
Exercised (132,595) $22.38-$33.00
Cancelled (7,100) $33.00-$39.12
----------------------------
Balance June 30, 1997 989,411 $19.00-$45.56
============================
<PAGE>
11. Stock-Based Compensation (continued)
At June 30, 1997, 673,811 of the 989,411 options outstanding
were exercisable. Of the options outstanding at June 30,
1997, 513,618 relate to the 1993 plan, 108,931 relate to the
1982 plan, 266,860 relate to the 1977 plan and 100,002
relate to the plan for non-employee Directors.
12. Pension Plans
The Company has several noncontributory defined benefit
pension plans, which cover a majority of its employees. The
benefits are based primarily upon employees' years of
service and average earnings prior to retirement. The
Company's funding policy for the domestic plans is to
contribute, at a minimum, amounts sufficient to meet ERISA
requirements. Plan assets are held in trust, and consist
primarily of publicly traded common stocks and fixed income
instruments.
Net pension credits included the following components:
(in thousands) 1997 1996 1995
--------------------------------
Service cost of benefits earned $ 13,442 $ 11,439 $ 9,852
Interest cost on projected
benefit obligation 32,696 28,852 27,255
Return on plan assets:
Actual (150,206) (96,868) (83,917)
Deferred gain 97,291 50,363 42,733
Net amortization and deferral (2,309) (2,240) (2,727)
--------------------------------
Net pension credits $ (9,086) $ (8,454) $ (6,804)
================================
Principal actuarial assumptions:
Discount rate 7.5% 7.5% 8.0%
Long-term rate of compensation
increase 4.5% 4.5% 4.5%
Long-term rate of return on
plan assets 9.0% 9.0% 9.0%
The .5% discount rate change decreased the pension credit by
$.8 million in fiscal 1996.
<PAGE>
12. Pension Plans (continued)
The funded status of these plans at June 30, 1997 and 1996
is summarized as follows:
Overfunded Plans Underfunded Plans
(in thousands) 1997 1996 1997 1996
---------------------------------------
Plan assets at fair value $718,638 $598,648 $ 2,380 $ 1,888
Actuarial present value of
benefit obligations:
Vested 391,068 310,648 11,181 9,006
Non-vested 203 60,433 382 397
---------------------------------------
Accumulated benefit
obligation 391,271 371,081 11,563 9,403
Effect of future
compensation increases 76,676 64,531 2,934 3,248
---------------------------------------
Projected benefit obligation 467,947 435,612 14,497 12,651
---------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 250,691 163,036 (12,117) (10,763)
Unrecognized net (gain) loss-
experience different from
assumptions (171,082) (90,990) 3,436 3,527
Unrecognized transition
(asset) obligation (11,595) (14,491) 370 417
Unrecognized prior service
cost 31,734 33,919 272 294
---------------------------------------
Prepaid (accrued) pension
cost $ 99,748 $ 91,474 $ (8,039) $ (6,525)
=======================================
Principal actuarial assumptions:
Discount rate 7.5% 7.5% 8.0% 8.1%
Long-term rate of
compensation increase 4.5% 4.5% 7.0% 6.8%
During fiscal 1997 the Company established a separate
account within a pension plan to fund certain postretirement
medical benefits. As a result, all active employees became
fully vested in their accrued pension benefits.
The actuarial present value of the projected benefit
obligation is computed assuming the continuing existence of
the plans. The obligation to fund these plans would be
substantially higher than the accumulated benefit obligation
if the plans were terminated.
<PAGE>
12. Pension Plans (continued)
The underfunded plans include the pension plan of the
Company's Mexican operations, Rathbone Precision Metals,
Inc., and several supplemental retirement plans for certain
key employees and outside directors. The Company has a
company-owned life insurance program covering certain key
employees and outside directors, the purpose of which is to
provide for the Company's obligation under the supplemental
retirement plans. As of June 30, 1997 and 1996, the cash
surrender values of $7.2 million and $4.2 million,
respectively, were included in other assets on the
consolidated balance sheet.
The Company also maintains defined contribution pension and
savings plans for substantially all domestic employees.
Company contributions were $5.3 million in fiscal 1997, $4.8
million in fiscal 1996 and $4.5 million in fiscal 1995.
There were 1,357,110 common shares reserved for issuance
under the savings plans at June 30, 1997.
13. Postretirement Medical and Life Insurance Benefits
In addition to pension plan benefits, the Company provides
health care and life insurance benefits for a majority of
its retired employees and covered dependents. Eligible
employees receive these benefits upon normal retirement.
Expense of postretirement medical and life insurance
benefits consisted of the following components:
(in thousands) 1997 1996 1995
-----------------------------
Service cost of benefits earned $ 2,382 $ 2,317 $ 2,287
Interest cost on accumulated
postretirement benefit obligation 10,590 9,767 10,317
Return on plan assets:
Actual (9,217) (4,548) (6,023)
Deferred gain 6,159 2,274 4,675
Net amortization and deferral (1,200) (1,575) (1,031)
-----------------------------
Postretirement medical and
life insurance
benefits expense $ 8,714 $ 8,235 $10,225
=============================
Principal actuarial assumptions:
Discount rate 7.5% 7.5% 8.0%
Return on plan assets 9.0% 9.0% 9.0%
Trend rate - beginning* 9.0% 10.0% 11.0%
Trend rate - ultimate 6.0% 6.0% 6.0%
* Declines 1% per year to the ultimate rate.
The .5% discount rate change increased expense by $.7 million in
fiscal 1996.
<PAGE>
13. Postretirement Medical and Life Insurance Benefits
(continued)
The funded status of the postretirement medical and life
insurance benefit plans at June 30, 1997 and 1996, is
summarized as follows:
(in thousands) 1997 1996
--------------------
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 86,904 $ 90,669
Fully eligible active
plan participants 24,534 24,751
Other active plan participants 29,339 28,968
--------------------
Total APBO 140,777 144,388
Plan assets at fair value 45,588 33,624
--------------------
APBO in excess of plan assets 95,189 110,764
Unrecognized net gain 48,796 35,074
Unrecognized prior service cost (1,948) (2,111)
--------------------
Accrued postretirement benefits $142,037 $143,727
====================
Principal actuarial assumptions:
Discount rate 7.5% 7.5%
Trend rate - beginning* 8.0% 9.0%
Trend rate - ultimate 6.0% 6.0%
*Declines 1% per year to the ultimate rate.
The Company has been voluntarily contributing amounts into a
Voluntary Employee Trust Fund (VEBA) since fiscal 1992. Plan
assets are invested in trust-owned life insurance.
The health-care cost trend rate assumption has a significant
effect on the amounts reported. If the assumed health-care
cost trend rate was increased by 1 percent, the APBO at
June 30, 1997 would increase by $17.1 million and the
postretirement benefit expense for fiscal 1997 would have
increased by $1.6 million.
14. Employee Stock Ownership Plan
The Company has a leveraged employee stock ownership plan
("ESOP") to assist a majority of its employees with their
future retiree medical obligations. The Company issued 461.5
shares of convertible preferred stock at $65,000 per share
to the ESOP in exchange for a $30.0 million 15-year 9.345%
note which is included in the shareholders' equity section
of the consolidated balance sheet as deferred compensation.
The preferred stock is recorded net of related issuance
costs.
<PAGE>
14. Employee Stock Ownership Plan (continued)
Principal and interest obligations on the note are satisfied
by the ESOP as the Company makes contributions to the ESOP
and dividends are paid on the preferred stock. As payments
are made on the note, shares of preferred stock are
allocated to participating employees' accounts within the
ESOP. The Company contributed $1.3 million in fiscal 1997
and 1996, and $1.1 million in fiscal 1995 to the ESOP.
Compensation expense related to the plan was $1.9 million in
fiscal 1997 and $2.0 million in fiscal 1996 and 1995.
As of June 30, 1997, the ESOP held 447.3 shares of the
convertible preferred stock, consisting of 140.3 allocated
shares and 307.0 unallocated shares. Each preferred share is
convertible into 2,000 shares of common stock. There are
894,558 common shares reserved for issuance under the ESOP
at June 30, 1997. The shares of preferred stock pay a
cumulative annual dividend of $5,362.50 per share, are
entitled to vote together with the common stock as a single
class and have 2,600 votes per share. The stock is
redeemable at the Company's option at $67,600 per share,
declining to $65,000 per share by 2001.
15. Supplemental Data
(in thousands) 1997 1996 1995
---------------------------
Research and development $12,986 $13,825 $12,302
Repairs and maintenance $58,295 $53,369 $49,305
16. Income Taxes
Provisions for income taxes consisted of the following:
(in thousands) 1997 1996 1995
----------------------------
Current:
Federal $25,886 $28,057 $20,117
State 2,407 2,018 2,488
Foreign 2,441 420 1,160
Deferred:
Federal 4,888 3,589 4,332
State 1,844 (211) (1,437)
Foreign 412 1,149 419
---------------------------
$37,878 $35,022 $27,079
===========================
<PAGE>
16. Income Taxes (continued)
The following is a reconciliation of the statutory federal
income tax rate to the actual effective income tax rate:
(% of pre-tax income) 1997 1996 1995
----------------------------
Federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in
taxes resulting from:
State income taxes, net
of federal tax benefit 2.8 2.0 4.1
Goodwill amortization 0.7 0.4 0.4
Federal and state tax
rate changes 0.3 (0.5) (2.0)
Other, net (0.1) (0.1) (1.2)
----------------------------
Effective tax rate 38.7% 36.8% 36.3%
============================
Deferred taxes are recorded based upon temporary differences
between financial statement and tax bases of assets and
liabilities. The following deferred tax liabilities and
assets were recorded as of June 30, 1997 and 1996:
(in thousands) 1997 1996
------------------
Deferred tax liabilities:
Depreciation and amortization $124,396 $109,846
Prepaid pensions 34,144 30,659
Intangible assets 11,515 1,060
Inventories 10,206 4,660
Other 11,269 9,954
------------------
Total deferred tax liabilities 191,530 156,179
------------------
Deferred tax assets:
Postretirement provisions 53,809 54,557
Other reserve provisions 22,278 20,576
Valuation allowance (938) (1,301)
------------------
Total deferred tax assets 75,149 73,832
------------------
Net deferred tax liability $116,381 $ 82,347
==================
The change in the valuation allowances relate to
pre-acquisition net operating loss carryforwards of an
acquired company.
17. Commitments and Contingencies
Environmental
The Company is subject to various stringent federal, state
and local environmental laws and regulations. The liability
for future environmental remediation costs is evaluated by
management on a quarterly basis. The Company accrues amounts
for environmental remediation costs which represent
<PAGE>
17. Commitments and Contingencies (continued)
management's best estimate of the probable and reasonably
estimable costs relating to environmental remediation. For
the years ended June 30, 1997 and 1995, $5.9 million and
$1.0 million, respectively, were charged to operations for
environmental remediation costs (no expense was recognized
in fiscal 1996). The liability recorded for environmental
cleanup costs, including remediation investigation and
feasibility study costs, remaining at June 30, 1997 and
1996, was $11.2 million and $5.6 million, respectively.
During fiscal years 1997 and 1996, the Company entered into
partial settlements of litigation relating to insurance
coverages for certain superfund sites and recognized income
of $3.0 million and $4.1 million, respectively. The
discounted amounts receivable for recoveries from these
settlements and from potentially responsible parties
("PRPs") at June 30, 1997 and 1996, were $7.2 million and
$4.2 million, respectively.
Estimates of the amount and timing of future costs of
environmental remediation requirements are necessarily
imprecise because of the continuing evolution of
environmental laws and regulatory requirements, the
availability and application of technology and the
identification of presently unknown remediation sites and
the allocation of costs among the PRPs. Based upon
information presently available, such future costs are not
expected to have a material effect on the Company's
competitive or financial position. However, such costs could
be material to results of operations in a particular future
quarter or year.
<PAGE>
17. Commitments and Contingencies (continued)
Other
The Company is also defending various claims and legal
actions, and is subject to commitments and contingencies
which are common to its operations. The Company provides for
costs relating to these matters when a loss is probable and
the amount is reasonably estimable. The effect of the
outcome of these matters on the Company's future results of
operations and liquidity cannot be predicted because any
such effect depends on future results of operations and the
amount and timing (both as to recording future charges to
operations and cash expenditures) of the resolution of such
matters. While it is not feasible to determine the outcome
of these matters, in the opinion of management, any total
ultimate liability will not have a material effect on the
Company's financial position or results of operations and
cash flows.
<PAGE>
SUPPLEMENTARY DATA
Quarterly Financial Data (Unaudited)
Quarterly sales and earnings results are usually influenced by seasonal
factors. The first fiscal quarter (three months ending September 30)
is typically the lowest because of annual plant vacation and maintenance
shutdowns in this period by Carpenter and by many of its customers.
This seasonal pattern can be disrupted by major economic cycles or special
accounting adjustments.
(dollars in thousands - First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
Results of Operations
Fiscal 1997
Net sales $194,746 $208,670 $250,869 $284,715
Gross profits $ 46,428 $ 56,601 $ 61,916 $ 76,163
Net income $ 8,075 $ 13,647 $ 15,494 $ 22,777
- --------------------------------------------------------------------------
Fiscal 1996
Net sales $184,469 $210,126 $233,274 $237,455
Gross profits $ 48,264 $ 52,897 $ 58,699 $ 68,681
Net income $ 11,906 $ 12,293 $ 14,726 $ 21,223
- --------------------------------------------------------------------------
Per Common Share
Fiscal 1997
Primary earnings $ .46 $ .79 $ .86 $ 1.14
Fully diluted earnings $ .45 $ .75 $ .84 $ 1.10
- --------------------------------------------------------------------------
Fiscal 1996
Primary earnings $ .70 $ .71 $ .86 $ 1.24
Fully diluted earnings $ .67 $ .69 $ .83 $ 1.19
- --------------------------------------------------------------------------
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
Not Applicable
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required as to directors is incorporated
herein by reference to the "Election of Directors" section of the
1997 definitive Proxy Statement.
Information concerning Carpenter's executive officers
appears in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required by this item is incorporated herein
by reference from the 1997 definitive Proxy Statement under the
"Election of Directors" section.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The security ownership of directors and officers as a group
is described in the 1997 definitive Proxy Statement under
"Security Ownership of Directors and Officers" section. Such
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein
by reference from the 1997 definitive Proxy Statement under the
"Election of Directors" section.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Documents Filed as Part of this Report:
(1) The following consolidated financial statement schedule
should be read in conjunction with the consolidated
financial statements (see Item 8. Financial Statements):
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is contained in the
consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF CARPENTER TECHNOLOGY CORPORATION
Our report on the consolidated financial statements of
Carpenter Technology Corporation and subsidiaries is included on
page 20 of the 1997 Annual Report on Form 10-K. In connection
with our audits of such financial statements, we have also
audited the related financial statement schedule listed in Item
14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 28, 1997
<PAGE>
(2) The following documents are filed as exhibits:
2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
3. Articles of Incorporation and By-Laws of the
Company
4. Instruments Defining the Rights of Security
Holders, Including Indentures
10. Material Contracts
11. Statement re Computation of Per Share Earnings
12. Statement re Computation of Ratios
23. Consent of Experts and Counsel
24. Powers of Attorney
27. Financial Data Schedule
99. Additional Exhibits
(b) Reports on Form 8-K:
On May 13, 1997, Carpenter filed Form 8-K/A, Amendment
to Current Report as an amendment to Carpenter's Current
Report on Form 8-K dated February 28, 1997 and filed March 27,
1997, with respect to preparation of pro forma financial
statements of Dynamet Incorporated related to Carpenter's
acquisition of that company. Such Form 8-K/A is
incorporated by reference herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARPENTER TECHNOLOGY CORPORATION
By s/G. Walton Cottrell
-----------------------------
G. Walton Cottrell
Sr. Vice President - Finance &
Chief Financial Officer
Date: September 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
s/Robert W. Cardy Chairman, President & September 19, 1997
- ---------------------
Robert W. Cardy Chief Executive Officer
and Director (Principal
Executive Officer)
s/G. Walton Cottrell Sr. Vice President - September 19, 1997
- ---------------------
G. Walton Cottrell Finance & Chief
Financial Officer
s/Edward B. Bruno Controller (Principal September 19, 1997
- ---------------------
Edward B. Bruno Accounting Officer)
* Director September 19, 1997
- ---------------------
Marcus C. Bennett
* Director September 19, 1997
- ---------------------
William S. Dietrich II
* Director September 19, 1997
- ---------------------
C. McCollister Evarts, M.D.
* Director September 19, 1997
- ---------------------
J. Michael Fitzpatrick
* Director September 19, 1997
- ---------------------
Carl R. Garr
<PAGE>
* Director September 19, 1997
- ---------------------
William J. Hudson, Jr.
* Director September 19, 1997
- ---------------------
Arthur E. Humphrey
* Director September 19, 1997
- ---------------------
Edward W. Kay
* Director September 19, 1997
- ---------------------
Frederick C. Langenberg
* Director September 19, 1997
- ---------------------
Robert J. Lawless
* Director September 19, 1997
- ---------------------
Marlin Miller, Jr.
* Director September 19, 1997
- ---------------------
Paul R. Roedel
* Director September 19, 1997
- ---------------------
Peter C. Rossin
* Director September 19, 1997
- ---------------------
Kathryn C. Turner
* Director September 19, 1997
- ---------------------
Kenneth L. Wolfe
Original Powers of Attorney authorizing John R. Welty to sign this
Report on behalf of: Marcus C. Bennett, William S. Dietrich II,
C. McCollister Evarts, M.D., J. Michael Fitzpatrick, Carl R. Garr,
William J. Hudson, Jr., Arthur E. Humphrey, Edward W. Kay,
Frederick C. Langenberg, Robert J. Lawless, Marlin Miller, Jr.,
Paul R. Roedel, Peter C. Rossin, Kathryn C. Turner, Kenneth L. Wolfe,
are being filed with the Securities and Exchange Commission.
*By s/John R. Welty
--------------------------------
John R. Welty
Attorney-in-fact
<PAGE>
CARPENTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
Balance ------------------
at Beg- Charged Charged Balance
inning to to at End
of Costs & Other Deduc- of
Description Period Expenses Accounts(1) tions(2) Period
- ----------- ------ -------- -------- ----- ------
Year ended
June 30, 1997:
Allowance for
doubtful
accounts
receivable $1,249 $ 276 $ 441 $ (581) $1,385
====== ======= ======= ======= ======
Year ended
June 30, 1996:
Allowance for
doubtful
accounts
receivable $1,034 $ 440 $ 472 $ (697) $1,249
====== ======= ======= ======= ======
Year ended
June 30, 1995:
Allowance for
doubtful
accounts
receivable $ 619 $ 578 $ 338 $ (501) $1,034
====== ======= ======= ======= ======
(1) Includes beginning balances of acquired businesses and recoveries
of accounts previously written off, net of collection expenses.
(2) Doubtful accounts written off.
F-1
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Title Page
- ----------- ----- ----
2. Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession
A. Agreement and Plan of Merger dated
January 6, 1997, by and among Dynamet
Incorporated, Shareholders of Dynamet
Incorporated and Carpenter is
incorporated herein by reference to
Exhibit 1 to Carpenter's Current
Report on Form 8-K filed on
March 27, 1997.
3. Articles of Incorporation and By-Laws
A. Restated Certificate of Incorporation
is incorporated herein by reference
to Exhibit 3A of Carpenter's 1987
Annual Report on Form 10-K.
B. By-Laws, amended as of December 5, 1996,
are incorporated herein by reference to
Exhibit 3B of Carpenter's 1996 Annual
Report on Form 10-K and to Exhibit 3 of
Carpenter's Form 10-Q Quarterly Report
for the quarter ended December 31, 1996.
4. Instruments Defining Rights of Security
Holders, Including Indentures
A. Restated Certificate of Incorporation
and By-Laws set forth in Exhibit Nos.
3A and 3B, above.
B. Rights Agreement relating to Rights
distributed to holders of Carpenter's
Stock, amended as of April 23, 1996,
is incorporated by reference to
Carpenter's Current Report on Form 8-K
filed May 3, 1996.
C. Section 5.8 of the Note Agreement dated E-7
August 1, 1988 with respect to the
issuance of $9,000,000 9.89% Senior
Notes, Series A due August 23, 1994 and
$21,000,000 10.45% Senior Notes,
Series B due May 15, 1999 by and among
Carpenter and certain financial institu-
tions identified therein which impose
certain restrictions on dividend payments
by Carpenter, the relevant portions of
which are attached hereto.
<PAGE>
D. Certificate of Designation, Preferences
and Rights of the Series A Convertible
Preferred Stock is incorporated herein
by reference to Exhibit No. 3.1 to
Carpenter's Form 8-K Current Report dated
September 6, 1991.
E. Indenture related to Carpenter's
$100,000,000 of 9.0% Sinking Fund
Debentures due 2022 is incorporated
herein by reference to Exhibit No. 4A
to Carpenter's Form 10-Q Quarterly
Report for the quarter ended March 31,
1992.
F. Carpenter's Registration Statement
No. 33-51613, as filed on Form S-3 on
January 6, 1994, with respect to its
Medium Term Note Program for issuance
of unsecured debt up to $100,000,000
and the Prospectus and Prospectus
Supplement, both dated and filed
June 14, 1994, with respect thereto
are incorporated by reference.
G. Indenture dated January 12, 1994,
between Carpenter and Morgan Guaranty
Trust Company of New York, as Trustee,
related to Carpenter's $100,000,000 of
unsecured medium term notes registered
under Registration No. 33-51613 is
incorporated by reference to Carpenter's
Report on Form 10-Q for the quarterly
period ended December 31, 1993.
H. Carpenter's Registration Statement
No. 33-54045 as filed on Form S-8 on
June 8, 1994, with respect to its
Stock-Based Incentive Compensation
Plan is incorporated by reference.
I. Pricing Supplements Nos. 1 and 2, dated
August 8, 1994, as filed on August 9,
1994, to Registration No. 33-51613 with
respect to issuance of $15,000,000 of
debt under Carpenter's $100,000,000
Medium Term Note Program is incorporated
by reference.
J. Pricing Supplements Nos. 3 and 4,
dated September 12, 1994, as filed on
September 13, 1994 to Registration
No. 33-51613 with respect to issuance of
$15,000,000 of debt under Carpenter's
$100,000,000 Medium Term Note Program
is incorporated by reference.
<PAGE>
K. Pricing Supplement No. 5 dated September 21,
1994 as filed on September 22, 1994 to
Registration No. 33-51613 with respect to
the issuance of $10,000,000 of debt under
Carpenter's $100,000,000 Medium Term Note
Program is incorporated by reference.
L. Pricing Supplement No. 6 dated October 5,
1994 as filed on October 6, 1994 to
Registration No. 33-51613 with respect to
issuance of $10,000,000 of debt under
Carpenter's $100,000,000 Medium Term Note
Program is incorporated by reference.
M. Pricing Supplements Nos. 7 and 8 dated
June 15, 1995 as filed on June 19, 1995
to Registration No. 33-51613 with respect
to issuance of $30,000,000 of debt under
Carpenter's $100,000,000 Medium Term
Note Program is incorporated by reference.
10. Material Contracts
A. Supplemental Retirement Plan for Executive
Officers, amended as of April 23, 1996, is
incorporated herein by reference to Exhibit
No. 10A to Carpenter's 1996 Annual Report on
Form 10-K.
B. Management and Officers Capital Appre-
ciation Plan, an Incentive Stock Option
Plan, amended as of August 9, 1990, is
incorporated herein by reference to
Exhibit No. 10B to Carpenter's 1990
Annual Report on Form 10-K.
C. Incentive Stock Option Plan for
Officers and Key Employees, amended
as of August 9, 1990, is incorporated
herein by reference to Exhibit No. 10C
to the Company's 1990 Annual Report on
Form 10-K.
D. Directors Retirement Plan is incorporated
herein by reference to Exhibit No. 10E to
Carpenter's 1983 Annual Report on Form
10-K.
E. Deferred Compensation Plan for
Nonmanagement Directors of Carpenter
Technology Corporation, amended as of
December 7, 1995, is incorporated
herein by reference to Exhibit No. 10E
to Carpenter's 1996 Annual Report on
Form 10-K.
<PAGE>
F. Deferred Compensation Plan for Corporate E-9
and Division Officers of Carpenter
Technology Corporation, amended as of
April 1, 1997, in the form attached
hereto.
G. Executive Annual Compensation Plan, E-20
amended as of July 1, 1997, in the
form attached hereto.
H. Non-Qualified Stock Option Plan For
Non-Employee Directors, as amended, is
incorporated herein by reference to
Appendix A of Carpenter's 1997 Proxy
Statement.
I. Officers' Supplemental Retirement Plan
of Carpenter Technology Corporation is
incorporated herein by reference to
Exhibit 10I to Carpenter's 1990 Annual
Report on Form 10-K.
J. Trust Agreement between Carpenter and E-28
the Chase Manhattan Bank, N.A., dated
September 11, 1990 as amended and
restated on May 1, 1997, in the form
attached hereto, relating in part to the
Supplemental Retirement Plan for Executive
Officers, Deferred Compensation Plan for
Corporate and Division Officers and the
Officers' Supplemental Retirement Plan of
Carpenter Technology Corporation set
forth in Exhibits 10A, 10F and 10I above.
K. Carpenter Technology Corporation
Employee Stock Ownership Plan, effective
as of September 6, 1991, is incorporated
herein by reference to Exhibit No. 10.1
to Carpenter's Form 8-K Current Report
dated September 6, 1991.
L. Carpenter Technology Corporation Employee
Stock Ownership Plan Trust Agreement
dated September 6, 1991, between
Carpenter and State Street Bank and Trust
Company, not in its individual capacity,
but solely in its capacity as the Trustee,
is incorporated herein by reference to
Exhibit No. 10.2 to Carpenter's Form
8-K Current Report dated September 6,
1991.
<PAGE>
M. Stock Purchase Agreement dated
September 6, 1991, between Carpenter
and State Street Bank and Trust Company,
not in its individual capacity, but
solely in its capacity as the Trustee,
is incorporated herein by reference
to Exhibit No. 10.3 to Carpenter's
Form 8-K Current Report dated
September 6, 1991.
N. Stock Subscription and Investment E-55
Agreement as amended and restated
effective January 1, 1997, by and
among Walsin Lihwa Corporation and
Carpenter in the form attached
hereto.
O. Indemnification Agreements, entered
into between Carpenter and each of the
directors and the following executive
officers: Robert W. Cardy, Dennis M.
Draeger, G. Walton Cottrell, Nicholas F.
Fiore, Robert W. Lodge and John R. Welty
are incorporated by reference to the form
attached to Carpenter's 1993 Form 10-K.
P. Stock-Based Incentive Compensation Plan
for Officers and Key Employees, amended
as of June 27, 1996, is incorporated
herein by reference to Appendix A to
the 1996 Proxy Statement.
Q. Stock Purchase Agreement dated
July 28, 1993, between Carpenter
Technology Corporation, Carpenter
Investments, Inc. and the shareholders
of Aceros Fortuna, S.A. de C.V. and
Movilidad Moderna, S.A. de C.V. with
respect to the purchase of all the
capital stock of Aceros Fortuna and
Movilidad Moderna is incorporated by
reference to Exhibit 1 to Carpenter's
Form 8-K Current Report dated
July 28, 1993.
R. Distribution Agreement dated
January 12, 1994 among Carpenter,
CS First Boston Corporation and
J.P. Morgan Securities Inc. is
incorporated by reference to
Exhibit 1 to Carpenter's
Registration Statement No. 33-51613.
<PAGE>
S. Special Severance Agreements entered
into between Carpenter and each of
the following executive officers:
Robert W. Cardy, Dennis M. Draeger,
G. Walton Cottrell, Nicholas F. Fiore,
Robert W. Lodge, and John R. Welty
are incorporated herein by reference
to the form attached to Carpenter's
1995 Form 10-K.
T. Trust Agreement between Carpenter E-83
and the Chase Manhattan Bank, N.A.,
dated December 7, 1990 as amended and
restated on May 1, 1997, in the form
attached hereto, relating in part to
the Directors' Retirement Plan and
the Deferred Compensation Plan for
Nonmanagement Directors set forth in
Exhibits 10D and 10E above.
11. Statement re Computation of Per Share E-108
Earnings
12. Statement re Computations of Ratios E-110
23. Consent of Experts and Counsel E-111
Consent of Independent Accountants
24. Powers of Attorney E-112
Powers of Attorney in favor of
G. Walton Cottrell or John R. Welty.
27. Financial Data Schedule E-127
99. Additional Exhibits
1997 Proxy Statement, submitted to the
SEC via Edgar
<PAGE>
Excerpt From Note Agreement Relating To
$9,000,000 9.89% Senior Notes Series A, Due August 23, 1994
And
$21,000,000 10.45% Senior Notes Series B, Due May 15, 1999
Section 5.8. Dividends, Stock Purchases. The Company will not
except as hereinafter provided:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class
(except dividends or other distributions payable solely in
shares of capital stock of the Company); or
(b) directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock
of any class or any warrants, rights or options to purchase
or acquire any shares of its capital stock (other than in
exchange for or out of the net proceeds to the Company from
the substantially concurrent issue or sale of other shares
of capital stock of the Company or warrants, rights or
options to purchase or acquire any shares of its capital
stock); or
(c) make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect
of its capital stock;
(such declarations or payments of dividends, purchases,
redemptions or retirements of capital stock and warrants, rights
or options, and all such other distributions being herein
collectively called "Restricted Payments"), if (a) any Default or
Event of Default shall have occurred and be continuing or (b)
after giving effect thereto the aggregate amount of Restricted
Payments made during the period from and after December 31, 1987
to and including the date of the making of the Restricted Payment
in question, would exceed the sum of (i) $50,000,000, plus (ii)
the net proceeds to the Company from the issue or sale of any
shares of capital stock of the Company during the period from and
after December 31, 1987, plus (iii) the aggregate principal
amount of any Adjusted Long-Term Debt of the Company converted
into or exchanged for capital stock of the Company after December
31, 1987, plus (iv) 100% of Consolidated Net Income for such
period, computed on a cumulative basis for said entire period (or
if such Consolidated Net Income is a deficit figure, then minus
100% of such deficit), minus the aggregate amount of payments
made by the Company pursuant to (a) and (b) of the next
succeeding paragraph.
<PAGE>
The provisions of this Section 5.8 to the contrary notwithstanding,
the Company may (a) make any required redemption of not exceeding
2,000,000 shares of its preferred stock, (b) pay dividends on its
capital stock within 90 days of the date of declaration of such
dividends, provided that, at the time of declaration, such
dividends were permitted by provisions of this Section 5.8, and (c)
redeem rights to purchase capital stock of the Company issued
pursuant to that certain Rights Agreement dated as of June 26,
1986 between the Company and Morgan Guaranty Trust Company, as
Rights Agent, or any similar or successor plans providing for the
issuance of capital stock of the Company, or securities
convertible into capital stock of the Company, provided that the
payments to effect such redemptions shall not exceed $3,000,000
in the aggregate.
The Company will not declare any dividend which constitutes
a Restricted Payment payable more than 90 days after the date of
declaration thereof.
For the purposes of this Section 5.8 the amount of any Restricted
Payment declared, paid or distributed in property of the Company
shall be deemed to be the fair market value (as determined in
good faith by an Executive Officer of the Company) of such
property at the time of the making of the Restricted Payment in
question.
<PAGE>
DEFERRED COMPENSATION PLAN FOR
OFFICERS AND KEY EMPLOYEES OF
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
As amended April 1, 1997
This is the Deferred Compensation Plan for Officers and Key
Employees of Carpenter Technology Corporation, effective
January 1, 1995, established by Carpenter Technology Corporation
and its subsidiaries expressly included herein to provide its
senior executives with an additional method of planning for their
retirement. The Plan is intended to be an "unfunded" plan
maintained for the purpose of providing deferred compensation for
a select group of management or highly compensated employees for
purposes of Title I of the Employee Retirement Income Security
Act of 1974.
ARTICLE I - DEFINITIONS
-----------------------
The following words and phrases as used herein have the
following meanings unless the context plainly requires a
different meaning:
1.1 Account means the total amount credited to the
-------
bookkeeping accounts in which a Participant's Contributions are
maintained, including earnings thereon. The Accounts will
consist of subaccounts for each type of Contribution made under
Article IV, as the Plan Administrator deems necessary.
1.2 Beneficiary means the person that the Participant
-----------
designates to receive any unpaid portion of the Participant's
Account should the Participant's death occur before the
Participant receives the entire balance to the credit of such
Participant's Account. If the Participant does not designate a
beneficiary, his Beneficiary shall be his spouse if he is married
at the time of his death, or his estate if he is unmarried at the
time of his death.
1.3 Board of Directors means the board of directors of
------------------
Carpenter Technology Corporation or the Human Resources Committee
thereof (including any successor committee performing similar
duties), whenever said Board delegates responsibilities under
this Plan to such Committee.
<PAGE>
1.4 Code means the Internal Revenue Code of 1986, as
----
amended.
1.5 Company means Carpenter Technology Corporation or any
-------
successor by merger, purchase or otherwise.
1.6 Compensation means all amounts that are treated as
------------
wages for Federal income tax withholding under Section 3401(a) of
the Code for the Plan Year plus amounts that would be paid to the
Employee during the year but for the Employee's election under a
cash or deferred arrangement described in Section 401(k) of the
Code or a cafeteria plan described in Section 125 of the Code.
Notwithstanding the preceding sentence, Compensation shall not
include:
1.6.1 bonuses or other amounts payable under the
Annual Extra Compensation Plan, the Executive Annual Compensation
Plan, and the Quarterly Profit Sharing Program;
1.6.2 contributions by the Employer to this or any
other plan or plans for the benefit of its employees, except as
otherwise expressly provided in this Section 1.6; or
1.6.3 amounts identified by the Employer as expense
allowances or reimbursements regardless of whether such amounts
are treated as wages under the Code.
1.7 Contribution means an amount deferred under the Plan
------------
pursuant to a Participant's election or an Employer Addition
under Article IV, and credited to a Participant's Account. No
money or other assets will actually be contributed to such
Accounts.
1.8 Effective Date means January 1, 1995.
--------------
1.9 Employee means an individual who is employed by an
--------
Employer.
1.10 Employer means the Company and any subsidiary that (1)
--------
the Board of Directors designates as an Employer and (2) the
Board of such subsidiary approves participation in the Plan. A
list of the subsidiaries currently designated as an Employer is
attached hereto as Appendix A.
1.11 Employer Addition means contributions made on behalf of
-----------------
a Participant by an Employer.
<PAGE>
1.12 Executive Annual Compensation Plan means the Carpenter
----------------------------------
Technology Corporation Executive Annual Compensation Plan, as may
be amended from time to time.
1.13 Five-Year Medium Term Note Borrowing Rate means the
-----------------------------------------
Company's Five-Year Medium Term Note Borrowing Rate, as provided
by one of the Company's investment bankers for any such medium
term note that would have been issued on November 15 (or the next
business day thereafter if November 15 is not a business day) of
each Plan Year.
1.14 Participant means a Senior Executive who elects to
-----------
participate or is otherwise granted participation in the Plan
pursuant to Section 2.2.
1.15 Pension Board means the Pension Board appointed
-------------
pursuant to the General Retirement Plan for Employees of
Carpenter Technology Corporation, as constituted from time to
time.
1.16 Plan means the Deferred Compensation Plan for Officers
----
and Key Employees of Carpenter Technology Corporation, as may be
amended from time to time.
1.17 Plan Administrator means the Pension Board.
------------------
1.18 Plan Year means the 12-month period beginning January 1
---------
and ending December 31.
1.19 Quarterly Profit Sharing Program means the Profit
--------------------------------
Sharing Plan of Carpenter Technology Corporation, as may be
amended from time to time.
1.20 Senior Executive means an Employee who is classified as
----------------
"exempt" under the Fair Labor Standards Act of 1938, as amended,
and whose salary grade is at least 19, or any other Employee who
the Board of Directors expressly designates as a Senior
Executive.
1.21 Carpenter Special Products Corporation Extra
--------------------------------------------
Compensation Plans means the Profit Sharing Plan for Carpenter
- ------------------
Special Products Corporation Employees (formerly the Profit
Sharing Plan for Special Products Division Employees), as may be
amended from time to time; the Management Bonus Plan for
Carpenter Special Products Corporation Employees (formerly the
Management Bonus Plan for Special Products Division Employees),
as may be amended from time to time; and, prior to July 1, 1995,
the Carpenter Technology Corporation Annual Extra Compensation
Plan for Special Products Division Management Employees.
<PAGE>
ARTICLE II - PARTICIPATION
--------------------------
2.1 Eligibility to Participate. All Senior Executives are
--------------------------
eligible to participate in the Plan.
2.2 Participation. Any Senior Executive who elects to
-------------
participate in the Plan shall become a Participant in the Plan
immediately upon enrolling as a Participant by the method
required by the Plan Administrator. Any Senior Executive
receiving Employer Additions shall become a Participant on the
date of the initial Employer Addition, if the Participant has not
enrolled under the preceding sentence. An individual shall
remain a Participant under the Plan until all amounts credited to
the Participant's Account have been distributed to the
Participant or the Participant's Beneficiary.
ARTICLE III - VESTING
---------------------
Participants are always fully vested in all amounts credited
to their Accounts.
ARTICLE IV - CONTRIBUTIONS
--------------------------
4.1 Eligibility to Receive Contributions. Subject to
------------------------------------
Section 5.5.2, a Participant may receive Contributions in each
Plan Year that the Participant is a Senior Executive.
4.2 Elective Participant Contributions.
----------------------------------
4.2.1 Salary Deferral Contributions. A Participant
-----------------------------
may elect to defer up to 25% of the Participant's Compensation
and to have the Employer make a Contribution of that amount to
the Participant's Account under the Plan.
4.2.2 Profit Sharing Deferral Contributions. A
-------------------------------------
Participant may elect to defer up to 100% of the amount the
Participant is eligible to receive under the Quarterly Profit
Sharing Program in any Plan Year and to have the Employer make a
Contribution of that amount to the Participant's Account under
the Plan.
<PAGE>
4.2.3 Annual Executive Compensation Deferral
--------------------------------------
Contributions. A Participant may elect to defer up to 100% of
- -------------
the amounts the Participant is eligible to receive under the
Executive Annual Compensation Plan or the Carpenter Special
Products Corporation Extra Compensation Plans in any Plan Year
and to have the Employer make a Contribution of that amount to
the Participant's Account under the Plan.
4.2.4 Other Deferral Contributions. A Participant
----------------------------
may elect to defer up to 100% of the amount the Participant is
eligible to receive under any compensation plan that the Board
designates a compensation plan for purposes of this Section
4.2.4, and to have the Employer make a Contribution of that
amount to the Participant's Account under the Plan.
4.3 Employer Additions. The Participant's Employer will
------------------
contribute to a separate subaccount on behalf of a Senior
Executive whose Company Basic Contributions [as defined in the
Savings Plan of Carpenter Technology Corporation ("Savings
Plan")] are limited by Code section 401(a)(17). The amount of
the Employer Addition will equal the amount that would have been
contributed to the Savings Plan as Company Basic Contributions
except for such limitation.
4.4 Elections.
---------
4.4.1 Frequency and Timing of Elections. Elections
---------------------------------
may be made once each Plan Year and they may not be modified
during the Plan Year. For Salary Deferral Contributions, Profit
Sharing Deferral Contributions, Other Deferral Contributions and
Employer Additions, described in Sections 4.2.1, 4.2.2, 4.2.4,
and 4.3 respectively, the Participant must make an election by
December 15 of a Plan Year for it to take effect for the next
Plan Year. For Annual Executive Compensation Deferral
Contributions described in Section 4.2.3, the Participant must
make an election by March 31 of the fiscal year for which the
award is based.
4.4.2 Duration of Elections. Elections to receive
---------------------
Contributions under this Article IV expire at the end of the Plan
Year for which the election was made.
4.4.3 Restriction on Elections. Elections to
------------------------
receive Contributions may be in the form of a whole percentage or
in $1 increments.
<PAGE>
4.5 Earnings. All amounts credited to a Participant's
--------
Account shall be credited with earnings at a rate equal to the
Five-Year Medium Term Note Borrowing Rate, established as of
November 15 (or the next business day thereafter if November 15
is not a business day) of the prior Plan Year. For the first
Plan Year, the rate is 8.25%. The Pension Board shall
communicate to all Senior Executives the Five-Year Medium Term
Note Borrowing Rate for the next Plan Year no later than November
30 of the current Plan Year. Earnings on Contributions shall
begin to accrue on the date that such Contributions would have
been paid to the Participant but for an election to defer under
this Article IV. Earnings shall be compounded semi-annually on
each January 1 and July 1. In addition, any distribution not
made on either January 1 or July 1 shall have earnings compounded
as of the date of distribution.
ARTICLE V - DISTRIBUTIONS
-------------------------
5.1 Payment of Distributions. All distributions shall, at
------------------------
the Employer's discretion, be made directly out of the Employer's
general assets or from the Carpenter Technology Corporation Non-
Qualified Employee Benefits Trust.
5.2 Form of Distributions. A Participant may receive
---------------------
distributions in one of the following manners, which the
Participant shall elect on the initial enrollment forms. A
Participant may elect to receive distributions from each
subaccount in different manners and at different times.
5.2.1 A lump sum distribution of the Participant's
entire Account;
5.2.2 Ten annual installments, with the
distribution each year equal to the product resulting from
multiplying the then current Account balance by a fraction. The
numerator of the fraction is always one, and the denominator of
the fraction is ten for the first distribution and is reduced by
one for each subsequent distribution; or
5.2.3 Fifteen annual installments, with the
distribution each year equal to the product resulting from
multiplying the then current Account balance by a fraction. The
numerator of the fraction is always one, and the denominator of
the fraction is fifteen for the first distribution and is reduced
by one for each subsequent distribution.
<PAGE>
5.3 Timing of Distributions. Participants shall elect on
-----------------------
their initial enrollment forms when distributions of their
Accounts will begin, which shall either be a specific date or
event. At any point prior to a year in which a distribution of
any or all of a Participant's Account is scheduled for
distribution pursuant to this Article V, the Participant shall
have the option to further defer all or part of the scheduled
distribution to a later year. A scheduled distribution or
portion thereof may, however, be further deferred only once.
5.4 Distributions of Employer Additions. In the case of a
-----------------------------------
Participant who receives an Employer Addition pursuant to Section
4.3, the distribution of such Employer Addition will be governed
by the Participant's election required by December 15 of the
immediately preceding Plan Year, pursuant to Section 4.4.1. If
the Participant did not make such election during the preceding
Plan Year, the Participant will be deemed to have made an initial
election for such Employer's Addition to be paid as a lump sum in
the month following his Termination of Employment.
5.5 Accelerated Distributions. Subject to the following
-------------------------
forfeiture and suspension provisions, a Participant may elect to
receive a distribution of all or a portion of his Account prior
to the date or dates originally elected under Section 5.3, as
long as such distribution is at least $5,000.
5.5.1 Forfeiture of Earnings. A Participant shall
----------------------
forfeit any earnings attributable to the amount distributed
pursuant to Section 5.5 that accrued during the six-month period
ending on the date of the distribution. The amount of forfeited
earnings shall be calculated using the highest interest rate that
was in effect during the six-month period. If, however, the
actual earnings credited to a Participant's Account are less than
the amount determined in the immediately preceding sentence, no
amount beyond the actual earnings shall be forfeited. Any
amounts forfeited under this Section shall not be distributed or
allocated to any other Account in the Plan and shall be forfeited
to the Employer.
5.5.2 Suspension of Participation. If a
---------------------------
Participant elects to accelerate a distribution under Section
5.5, he will not be entitled to receive any Contributions under
Article IV of the Plan for the Plan Year immediately following
the Plan Year in which the Participant elected to accelerate a
distribution. Any election made to receive Elective Participant
Contributions for a Plan Year in which participation is suspended
shall be disregarded.
<PAGE>
5.6 Termination of Employment. Upon termination of
-------------------------
employment, a Participant, or the Beneficiary if the termination
is caused by the Participant's death, shall have the following
options with respect to the distribution of the Participant's
Account:
5.6.1 Reaffirm Current Election. The Participant
-------------------------
or Beneficiary may elect to reaffirm the Participant's election
under Section 5.3 that was in effect at the time of the
Participant's termination; or
5.6.2 Request a New Election. The Participant or
----------------------
Beneficiary may elect new distribution option available under
Section 5.2, subject to the Employer's consent.
ARTICLE VI - PLAN ADMINISTRATION
--------------------------------
6.1 General. The Plan shall be administered by the Pension
-------
Board, which is the Plan Administrator.
6.2 Responsibilities and Reports. The Plan Administrator
----------------------------
may, pursuant to a written resolution, allocate, among one or
more of its members, specific responsibilities under the Plan,
and the Plan Administrator may name other persons to carry out
such responsibilities. The Plan Administrator shall be entitled
to rely conclusively upon all tables, valuations, certificates,
opinions and reports that are furnished by any actuary,
accountant, controller, counsel, investment banker or other
person who is employed or engaged for such purposes.
6.3 Governing Law. This Plan shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of
Pennsylvania, to the extent not preempted by federal law.
<PAGE>
ARTICLE VII - CLAIMS PROCEDURE
------------------------------
7.1 Plan Interpretation. The Human Resources Committee of
-------------------
the Board of Directors shall have the authority and
responsibility to interpret and construe the Plan and to decide
all questions arising thereunder, including, without limitation,
questions of eligibility for participation, eligibility for
Contributions, the amount of Account balances, and the timing of
the distribution thereof, and shall have the authority to deviate
from the literal terms of the Plan to the extent it shall
determine to be necessary or appropriate to operate the Plan in
compliance with the provisions of applicable law.
Notwithstanding the above, a member of the Human Resources
Committee shall not take any part in decisions regarding his
participation in the Plan.
7.2 Denial of Claim for Benefits. Any denial by the Human
----------------------------
Resources Committee of any claim for benefits under the Plan by a
Participant or Beneficiary shall be stated in writing by the
Human Resources Committee and delivered or mailed to the
Participant or Beneficiary. The Human Resources Committee shall
furnish the claimant with notice of the decision not later than
90 days after receipt of the claim, unless special circumstances
require an extension of time for processing the claim. If such
an extension of time for processing is required, written notice
of the extension shall be furnished to the claimant prior to the
termination of the initial 90 day period. In no event shall such
extension exceed a period of 90 days from the end of such initial
period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by
which the Human Resources Committee expects to render the final
decision. The notice of the Human Resources Committee's decision
shall be written in a manner calculated to be understood by the
claimant and shall include (i) the specific reasons for the
denial, including, where appropriate, references to the Plan,
(ii) any additional information necessary to perfect the claim
with an explanation of why the information is necessary, and
(iii) an explanation of the procedure for perfecting the claim.
7.3 Appeal of Denial. The claimant shall have 60 days
----------------
after receipt of written notification of denial of his or her
claim in which to file a written appeal with the Human Resources
Committee. As a part of any such appeal, the claimant may submit
issues and comments in writing and shall, on request, be afforded
an opportunity to review any documents pertinent to the
perfection of his or her claim. The Human Resources Committee
shall render a written decision on the claimant's appeal
ordinarily within 60 days of receipt of notice thereof but, in no
case, later than 120 days.
<PAGE>
ARTICLE VIII - FUNDING
----------------------
8.1 Funding. The Employer shall not segregate or hold
-------
separately from its general assets any amounts credited to the
Accounts, and shall be under no obligation whatsoever to fund in
advance any amounts under the Plan, including Contributions and
earnings thereon.
8.2 Insolvency. In the event that the Employer becomes
----------
insolvent, all Participants and Beneficiaries shall be treated as
general, unsecured creditors of the Employer with respect to any
amounts credited to the Accounts under the Plan.
ARTICLE IX - AMENDMENT AND TERMINATION
--------------------------------------
9.1 Reservation of Rights. The Employer reserves the right
---------------------
to amend or terminate the Plan at any time by action of the Board
of Directors. Notwithstanding the foregoing, no such amendment
or termination shall reduce the balance of any Participant's
Account as of the date of such amendment or termination.
9.2 Funding upon Termination. Upon a complete termination
------------------------
of the Plan, the Employer shall contribute to the Carpenter
Technology Corporation Non-Qualified Employee Benefits Trust an
amount equal to the aggregate of all amounts credited to
Participants' Accounts as of the date of such termination. If
the Carpenter Technology Corporation Non-Qualified Employee
Benefits Trust does not exist at the time the Plan is terminated,
the Employer shall create an irrevocable grantor trust to which
it will contribute such amounts. This newly created trust shall
be designed to ensure that Participants will not be subject to
taxation on amounts contributed to and held under the trust on
their behalf before the amounts are distributed.
9.3 Survival of Accounts and Elections. Notwithstanding
----------------------------------
any termination of the Plan, the trustee of the trust to which
amounts are contributed under Section 9.2 shall maintain the
Accounts for Participants in the same manner as under this Plan
and all elections for distributions under Article V of the Plan
shall survive the termination and remain in effect.
<PAGE>
ARTICLE X - MISCELLANEOUS
-------------------------
10.1 Limited Purpose of Plan. The establishment or
-----------------------
existence of the Plan shall not confer upon any individual the
right to be continued as an Employee. The Employer expressly
reserves the right to discharge any Employee whenever in its
judgment its best interests so require.
10.2 Non-alienation. No amounts payable under the Plan
--------------
shall be subject in any manner to anticipation, assignment, or
voluntary or involuntary alienation.
10.3 Facility of Payment. If the Plan Administrator, in its
-------------------
sole discretion, deems a Participant or Beneficiary who is
eligible to receive any payment hereunder to be incompetent to
receive the same by reason of age, illness or any infirmity or
incapacity of any kind, the Plan Administrator may direct the
Employer to apply such payment directly for the benefit of such
person, or to make payment to any person selected by the Plan
Administrator to disburse the same for the benefit of the
Participant or Beneficiary. Payments made pursuant to this
Section 10.3 shall operate as a discharge, to the extent thereof,
of all liabilities of all Employers and the Plan Administrator to
the person for whose benefit the payments are made.
<PAGE>
DEFERRED COMPENSATION PLAN FOR
OFFICERS AND KEY EMPLOYEES OF
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
APPENDIX A
PARTICIPATING SUBSIDIARIES
--------------------------
Carpenter Special Products Corporation
Dynamet, Inc.
As of April 1, 1997
<PAGE>
EXECUTIVE ANNUAL COMPENSATION PLAN OF
CARPENTER TECHNOLOGY CORPORATION
EFFECTIVE JULY 1, 1989
Restated July 1, 1997
I. Statement and Purpose of Plan
The Executive Annual Compensation Plan provides short-term
additional compensation for selected executives based on Company
profitability and individual performance. The Plan is separate
from the Profit Sharing Plan of Carpenter Technology Corporation
which was effective July 1, 1987. The combination of Base Pay
and Executive Annual Compensation is intended to provide
competitive cash compensation to Participants.
II. Definitions
A. Base Pay
--------
A Participant's Base Pay is the salary paid during the
Plan Year before salary reduction for flexible benefits or
savings. Covered hours paid include: hours worked, paid time
off for vacation, holidays, sickness, military leave,
miscellaneous paid absences (moving day, family sickness, poll
watching), jury duty and funeral leave, and sick leave covered by
salary continuance.
Excluded from Base Pay is pay for: Sickness and
Accident, Long-Term Disability Insurance, Workers' Compensation,
Moving Allowance, Mortgage Interest Differential Allowance,
imputed income, severance pay, profit sharing payments, Employee
Stock Ownership Plan contributions, and any other cash payments
made not otherwise expressly included.
B. Company
-------
Carpenter Technology Corporation or any successor by
merger, purchase or otherwise.
C. Employee
--------
A person employed by the Company who receives
compensation from the Company other than a pension, severance
pay, retainer, fee under contract, workers' compensation,
unemployment compensation or similar payments.
<PAGE>
D. Executive Annual Compensation
-----------------------------
The dollar payment to Participants under the Plan.
E. Net Income
----------
Net Income shall mean the amount shown under that
caption in the Company's audited Statement of Income for the Plan
Year.
F. Participant
-----------
Any Employee who on or after July 1, 1989 is in a
salaried exempt position classified in salary grade 19 or above
unless expressly excluded in writing by the Chief Executive
Officer. All Participants in the Plan are eligible for 100%
participation from the first day worked in an eligible position.
G. Performance Objective -
---------------------
A Performance Objective, as listed in Appendix "A", is
an objective standard used to determine a Participant's Executive
Annual Compensation as a result of Company financial performance
that has been established by the Human Resources Committee, or
any successor committee performing similar duties (the
"Committee"), and approved by the Company's Board of Directors.
H. Plan
----
The Executive Annual Compensation Plan of Carpenter
Technology Corporation, as defined in this document and as the
same may be amended or restated from time-to-time.
I. Plan Year
---------
The Company's fiscal year.
<PAGE>
J. Salary Grade Target Percentages
-------------------------------
The percentages (as set forth below) of Base Pay paid
to a Participant, depending on salary grade, for Company
financial and personal performance, respectively, upon 100%
attainment of the Target Percent Performance Objective:
Target Target
Salary Financial Personal Combined
Grade Percentage Percentage Percentages
----- ---------- ---------- -----------
33 48% 12% 60%
32 44% 11% 55%
31 44% 11% 55%
-------------------------------------------------------
30 44% 11% 55%
29 44% 11% 55%
28 44% 11% 55%
-------------------------------------------------------
27 36% 9% 45%
26 36% 9% 45%
25 36% 9% 45%
-------------------------------------------------------
24 32% 8% 40%
Target Target
Salary Financial Personal Combined
Grade Percentage Percentage Percentages
----- ---------- ---------- -----------
23 32% 8% 40%
-------------------------------------------------------
22 28% 7% 35%
21 28% 7% 35%
20 24% 6% 30%
-------------------------------------------------------
19 20% 5% 25%
K. Termination of Employment
-------------------------
A Participant's separation from employment with the
Company, whether voluntary or involuntary.
<PAGE>
III. Administration, Operation, and Executive
Annual Compensation Payments
Executive Annual Compensation shall be comprised of Company
Financial and Personal Performance Payments calculated on Base
Pay times the percentages determined as follows:
A. Company Financial Percentage
----------------------------
Performance Objectives are developed for each Plan Year
by the Committee. The Company Financial payout is a range based
on the individual Participant's Performance Objective and is
calculated and paid in the following manner:
1. Threshold payout at 80% attainment of the
Participant's Performance Objective generates 50%
of the financial Salary Grade Target Percentage.
2. Target payout at 100% attainment of the
Participant's Performance Objective generates 100%
of the financial Salary Grade Target Percentage.
3. Maximum payout at 120% attainment of the
Participant's Performance Objective generates 200%
of the financial Salary Grade Target Percentage.
B. Personal Performance Payment Percentage
---------------------------------------
In the event of a Company Financial Payment, an
additional Personal Performance Payment may be made. A
Participant's Personal Performance payment is determined by the
individual's performance as measured against predetermined
standards of performance. The expected payment for achieving
these standards of performance is the Target Personal Percentage.
However, a significant deviation in performance against these
standards, as determined by the Chief Executive Officer, may
result in a payment that can range from 0 to 50% of the EACP
Financial Percentage. The Chief Executive Officers' achievement
of standards is determined by the Board of Directors.
<PAGE>
C. Ad Hoc Performance Percentage
-----------------------------
Notwithstanding the foregoing section to the contrary,
a Personal Performance Payment may be granted by the CEO under
this Plan if the Plan's financial threshold is not achieved. The
Ad Hoc Performance Percentage shall be determined by the CEO, but
in no event shall be greater than the Target Personal Percentage
for the Participant's salary grade. Such awards are subject to
Board approval prior to payment.
IV. Frequency of Calculation
Executive Annual Compensation will be calculated at the end
of each Plan Year.
V. Method of Payment
Executive Annual Compensation will be paid as soon as
possible following the reporting of Plan Year earnings.
VI. New Participants
New Participants in the Plan subsequent to the beginning of
a Plan Year will have their initial Executive Annual Compensation
calculated on their Base Pay paid during the period of the Plan
Year in which such Employee was a Participant.
VII. Participation Change
Participants, whose salary grade change results in a change
in the Salary Grade Target Percentage during the Plan Year, will
have their Executive Annual Compensation calculated as the sum of
the results of multiplying the applicable partial Base Pay by the
Salary Grade Target Percentage for each portion of the Plan Year
the Participant was in a different salary grade. The individual
performance targets will be separately established for each
salary grade change and added thereto.
VIII. Termination of Participation in the Plan
Executive Annual Compensation for Participants after
Termination of Employment or termination of eligibility for the
Plan, will be based on their Base Pay paid as a Participant
during the Plan Year.
IX. Vesting
Except for payments made by mistake and as otherwise
provided in the Plan, all Executive Annual Compensation due
pursuant to this Plan shall at all times be 100% vested in the
Participant and nonforfeitable.
X. Other Benefit Calculations
Specific employee benefit plans will include these payments
to the extent permitted by the provisions of such employee
benefit plan.
<PAGE>
XI. Plan Amendment and Termination
Unless prohibited by law or contract, the Company may amend,
terminate or partially terminate the Plan at any time provided,
however, that no amendment, partial termination or termination
shall prevent the Participant from receiving Executive Annual
Compensation as calculated under the terms of this Plan for any
partial or full Plan Year participation prior to such amendment,
partial termination or termination. Notwithstanding the
foregoing to the contrary, extraordinary or unusual items may be
given special consideration by the Board of Directors who may
amend calculation of the Annual Executive Compensation
accordingly.
XII. No Guaranty of Employment
The adoption and maintenance of the Plan shall not be deemed
to be a contract of employment between the Company and any
Employee. Nothing herein contained shall be deemed to give any
Employee the right to be retained in the employ of the Company or
to interfere with the right of the Company to discharge any
Employee, at any time, nor shall it be deemed to give the Company
the right to require any Employee to remain in its employ, nor
shall it interfere with the Employee's right to terminate
employment at any time.
XIII. Administration
The general administration of the Plan and the
responsibility for carrying out the provisions thereof with
regard to all Participants shall be placed in the Company. Any
expenses incurred in administering the Plan shall be paid by the
Company. Interpretation of any disputed provisions of this Plan
shall be by the non-management members of the Board of Directors
and such interpretations shall be final.
<PAGE>
APPENDIX "A"
-----------
The following Performance Objectives have been approved by the
Committee:
1. Earnings Before Interest and Income Taxes (EBIT) - The entry
------------------------------------------------
labeled "Income Before Interest and Taxes" as calculated and
reported by the Company's Financial Department on the
Company's monthly internal financial statements related to
the Plan Year used for determination of Base Pay.
2. Return on Assets - Return on Assets shall be computed by
----------------
dividing EBIT by the sum of the Plan Year averages for total
inventories (before LIFO), accounts receivable and fixed
assets.
3. Return on Equity - Return on Equity shall be computed by
----------------
dividing Net Income by the average shareholders' equity for
the Plan Year. Average shareholders' equity shall be
computed by adding the amount of consolidated shareholders'
equity at the end of the previous Plan Year and at the end
of each month during the Plan Year and dividing that sum by
13.
<PAGE>
TRUST AGREEMENT
---------------
Carpenter Technology Corporation
Non-Qualified Employee Benefits Trust
TRUST AGREEMENT effective as of the 1st day of May,
1997, by and between Carpenter Technology Corporation, a
corporation organized under the laws of the State of Delaware
(hereinafter referred to as the "Company"), and THE CHASE
MANHATTAN BANK, a banking corporation organized under the laws of
the State of New York (hereinafter referred to as the "Trustee").
BACKGROUND
----------
The Company and its Affiliates maintain the benefit
plans listed on Exhibit A hereto (the "Plans") for the benefit of
various of its executives, officers and other selected employees.
The Company and its Affiliates intend to create a trust, to which
it will contribute cash, or other property acceptable to the
Trustee, to help the Company and its Affiliates meet its
obligations under the Plans, and to assure that, subject to the
sufficiency of the Trust Fund, payments provided for by the Plans
are not improperly withheld in the event of a Change in Control
of the Company and its Affiliates.
The establishment of this Trust shall not affect the
Company's and its Affiliates' continuing obligation to make
payments under the Plans, except that the liability shall be
reduced to the extent payments are made by the Trustee hereunder.
The assets of the Trust Fund shall be, and shall remain,
subject to the claims of the Company's and its Affiliates'
general creditors in the event of the Company's or its
Affiliates' insolvency. Otherwise, the Trust shall be
irrevocable until all liabilities under all Plans have been
satisfied, at which time the Trust shall terminate, and all
remaining assets of the Trust Fund shall be returned to the
Company.
The Trust is intended to be a "grantor trust" with the
result that the corpus and income of the Trust are treated as
assets and income of the Company and its Affiliates pursuant to
sections 671 through 679 of the "Code".
The Company and its Affiliates intend that the Plans
not be deemed funded (within the meaning of Title I of ERISA)
despite the existence of this Trust.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, the Company, its Affiliates, and the
Trustee covenant and agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS; ESTABLISHMENT OF TRUST
-----------------------------------
Section 1.01 Definitions. Whenever used in this
-----------
Trust Agreement, unless otherwise provided or the context
otherwise requires:
(a) "Account" shall mean an account maintained in
-------
respect of a Participant pursuant to Section 4.02.
(b) "Affiliate" or "Affiliates" shall mean any
--------- ----------
corporation or unincorporated business, controlling,
controlled by, or under common control with, the Company
within the meaning of sections 414(b) and (c) of the Code,
and any organization (whether or not incorporated) which is
a member of an affiliated service group [as defined in
section 414(m) of the Code] that has adopted participation
in the Plans and this Trust with the approval of the
Company. A list of participating Affiliates is contained in
Exhibit B.
(c) "Benefits" shall mean, with respect to each
--------
Participant, the benefits payable to or in respect of that
Participant pursuant to the applicable Plan listed on
Exhibit A.
(d) "Change in Control" is defined in Article III.
-----------------
(e) "Code" shall mean the Internal Revenue Code of
----
1986, as amended from time to time.
(f) "Committee" shall mean the Company's Pension Board
---------
appointed under the Company's General Retirement Plan for
Employees of Carpenter Technology Corporation.
(g) "Company" shall mean Carpenter Technology
-------
Corporation or any successor company by merger, acquisition
or otherwise.
(h) "ERISA" means the Employee Retirement Income
-----
Security Act of 1974, as amended from time to time.
<PAGE>
(i) "Investment Manager" shall mean any person or
------------------
entity that qualifies as an Investment Manager under section
3(38) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and is appointed by the Pension
Board or a duly authorized officer of the Company to manage
Trust assets that are not invested in life insurance
policies.
(j) "Participant" shall mean each person entitled to
-----------
benefits under any Plan, including the beneficiaries
pursuant to any Plan.
(k) "Pension Board" shall mean the Pension Board as
-------------
defined in the General Retirement Plan for Employees of
Carpenter Technology Corporation.
(l) "Plan" shall mean any plan listed on Exhibit A
----
hereto, as in effect from time to time. "Plans" shall mean
all such plans.
(m) "Trust" shall mean the trust established under
-----
this Trust Agreement.
(n) "Trust Agreement" shall mean this trust agreement,
---------------
as from time to time amended.
(o) "Trust Fund" shall mean the trust fund held from
----------
time to time by the Trustee hereunder consisting of all
contributions received by the Trustee together with the
investments and reinvestment made therewith and all net
profits and earnings thereon less all payments and charges
therefrom.
(p) "Trustee" shall mean The Chase Manhattan Bank, or
-------
its successor, or an officer, director or employee of such a
Trustee exercising any fiduciary powers under this Trust
Agreement; provided, however, that in no event may any
subsidiary or affiliate of the Company or any Participant be
such a successor Trustee.
Section 1.02 Establishment and Title of the Trust.
------------------------------------
The Company hereby establishes with the Trustee a trust to be
known as the "Carpenter Technology Corporation Non-Qualified
Employee Benefits Trust," consisting of such sums of money and
other property acceptable to the Trustee as from time to time may
be paid or delivered to the Trustee pursuant to this Trust
Agreement. The Trust Fund shall be held by the Trustee in trust
and shall be dealt with in accordance with the provisions of this
Trust Agreement.
<PAGE>
Section 1.03 Acceptance by the Trustee. The Trustee
-------------------------
accepts the Trust established hereunder on the terms and
conditions set forth herein and agrees to perform the duties
imposed on it by this Trust Agreement.
ARTICLE II
INVESTMENT AND ADMINISTRATION OF THE TRUST FUND
-----------------------------------------------
Section 2.01 Investment of the Trust Fund. Except as
----------------------------
directed by any Investment Manager, the Pension Board or a duly
authorized officer of the Company, the Trustee shall have the
exclusive responsibility and authority to hold, invest, reinvest
and administer the assets of the Trust, hereinafter referred to
as the "Fund", in accordance with the terms of this Trust
Agreement. The Trustee shall be under no liability for any loss
of any kind that may result when it follows proper written
directions of the Pension Board or a duly authorized officer of
the Company which are in accordance with the terms of the Trust
Agreement and not contrary to law.
(a) If an Investment Manager is so appointed by the
Pension Board or a duly authorized officer of the Company to
manage any portion of the Trust Fund, the Trustee's only
responsibility with respect to such portion shall be:
(1) except as otherwise directed by the Pension
Board or a duly authorized officer of the
Company, to retain custody of the assets of
such portion of the Trust Fund; and
(2) to follow the written directions of the
Investment Manager with respect to such
portion of the Trust Fund.
(b) The Trustee shall incur no liability with respect
to the investment of any portion of the Trust Fund if an
Investment Manager has been appointed to manage that portion
of the Trust Fund, by the Pension Board or a duly authorized
officer of the Company for either:
(1) following the written directions of the
Investment Manager; or
(2) failing to act in the absence of written
directions from the Investment Manager.
<PAGE>
Notwithstanding anything to the contrary herein
contained, the Pension Board or a duly authorized officer of
the Company may direct the transfer of such part or all of
the Fund as it shall deem advisable to The Chase Manhattan
Bank as trustee of any trust ("Collective Trust") maintained
by it as a common trust fund as defined under section 584 of
the Code, now or hereinafter maintained by it as a medium
for the collective investment of assets of trusts and which
it may elect to make available to non-qualified benefit
trusts, and the Pension Board or a duly authorized officer
of the Company may direct the withdrawal of any part or all
of the Fund so transferred. To the extent of the interest
of the Trust in any Collective Trust, the terms of the
agreement or declaration of trust establishing such
Collective Trust shall be a part of this Trust as if set
forth in full herein, and any assets transferred to any
Collective Trust shall be held, invested and administered in
accordance with such agreement or declaration of trust,
which shall be controlling notwithstanding any contrary
provision of this Agreement.
Section 2.02 Plan Insurance. The Company may apply
--------------
for and maintain such contracts of insurance with one or more
insurance companies and on such rating or risk terms as the
Company may determine to be appropriate for the provision of
benefits under the Plans. The Trust shall be the policyholder
and owner of such contracts. The Trustee, only as directed by
the Pension Board or a duly authorized officer of the Company,
shall pay premiums or other charges with respect to such
contracts from assets of the Trust Fund.
Section 2.03 Investments of Insurance. The Pension
------------------------
Board or a duly authorized officer of the Company may direct the
Trustee to apply for and maintain contracts of insurance with one
or more companies for investment purposes pursuant to Section
2.05(m), using the proceeds of such insurance to fund the Trust.
The Trustee shall be the policyholder and owner of such
contracts. The Trustee, only as directed by the Pension Board or
a duly authorized officer of the Company, shall exercise any and
all investment options, decisions or rights that the Trustee has
as policyholder and owner of such insurance policies held for
investment purposes.
(a) If the Trustee is directed by the Pension Board or
a duly authorized officer of the Company to purchase an
insurance policy for investment purposes, the Trustee's only
responsibility with respect to such policy shall be:
(1) except as otherwise directed by the Pension
Board or a duly authorized officer of the
Company, to retain custody of such policy;
and
(2) to follow the written directions of the
Pension Board or a duly authorized officer of
the Company with respect to such policy.
<PAGE>
(b) The Trustee shall incur no liability with respect
to the purchase of an insurance policy purchased for
investment purposes if directed by the Pension Board or a
duly authorized officer of the Company for either:
(1) following the written directions of the
Pension Board or a duly authorized officer of
the Company with respect to such policy; or
(2) failing to act in the absence of written
directions from the Pension Board or a duly
authorized officer of the Company with
respect to such policy.
Section 2.04 Funding Policy. From time to time the
--------------
Pension Board or a duly authorized officer of the Company may
communicate to the Trustee in writing the current funding policy
and method that have been established to carry out the objectives
of the Trust. The Trustee's discretion in investing and
reinvesting the principal and income of the Fund shall be subject
to the funding policy, and the Trustee shall have the duty to act
strictly in accordance with and may rely upon, such funding
policy, and any changes therein, as so communicated to the
Trustee from time to time in writing.
Section 2.05 Investment Powers of Trustee. Subject
----------------------------
to the direction of an Investment Manager, the Pension Board or a
duly authorized officer of the Company, or with respect to assets
subject to the Trustee's investment, management and control, the
Trustee shall have, with respect to any securities or other
property at any time held by it and constituting part of the
Fund, power:
(a) to purchase, receive or subscribe for any
securities or other property and to retain in trust such
securities or other property;
(b) to sell, exchange, redeem or otherwise dispose of
any securities or other property at public or private sale
for cash, on credit, or for other securities or property,
and to grant options for the purchase or exchange thereof
without liability on the purchasers to see to the
application of the purchase money;
(c) to participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other
similar plan relating to any securities or other property
held in the Fund, and to consent to or oppose any such plan
or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any person or corporation;
(d) to deposit any securities or other property with
any protective, reorganization or similar committee; and to
pay and agree to pay part of the expenses and compensation
of any such committee and any assessment levied with respect
to any securities or other property so deposited;
<PAGE>
(e) to exercise conversion and subscription rights
pertaining to any securities or other property held in the
Fund;
(f) to extend the time of payment of any obligation
held in the Fund;
(g) to enter into stand-by agreements for future
investment, either with or without a stand-by fee;
(h) to hold any moneys received by the Trustee in a
common trust fund as defined under Section 584 of the Code,
now or hereinafter maintained by it as a medium for the
collective investment of assets of trusts, or any other
comparable fund the Trustee deems advisable;
(i) to exercise all voting rights with respect to any
investment and to grant proxies, discretionary or otherwise;
(j) to collect and receive any and all money,
securities or other property due to the Fund and to give
full discharge therefor;
(k) with the consent of the Company, to settle,
compromise or submit to arbitration any claims, debts or
damages due or owing to or from the Trust; with the consent
of Carpenter, to commence or defend suits or legal
proceedings to protect any interest of the Trust; and, with
the consent of Carpenter, to represent the Trust in all
suits or legal proceedings in any court or before any other
body or tribunal (subsequent to a Change in Control the
consent of Carpenter is not required to pursue the powers
granted in this Section);
(l) for the purposes of the Trust and if so instructed
by the Investment Manager, the Pension Board or a duly
authorized officer of the Company, to borrow money from
others, to issue its promissory note or notes therefore, and
to secure the repayment thereof by pledging any securities
or other property in its possession; provided, however, that
no such loan or advance shall be made by the Trustee
hereunder other than as temporary advances to the Fund, on a
cash or overdraft basis, on which no interest is payable and
provided further that no insurance contract shall be pledged
except to secure a loan to pay premiums thereon;
(m) to purchase insurance contracts, and pay premiums
with respect thereto;
(n) to organize under the laws of any state a
corporation or trust for the purpose of acquiring and
holding title to any securities or other property which it
is authorized to acquire under this Trust Agreement and to
exercise with respect thereto any or all of the powers set
forth in this Trust Agreement.
<PAGE>
Section 2.06 Discretionary Powers of Trustee. The
--------------------------------
Trustee shall have the following powers and authority with
respect to the fund:
(a) to employ suitable agents and counsel and to pay
their reasonable and proper expenses and compensation;
(b) to register any securities held by it hereunder in
its own name or in the name of a nominee with or without the
addition of words indicating that such securities are held
in a fiduciary capacity and to hold any securities in bearer
form and to deposit any securities or other property in a
depository or a clearing corporation;
(c) to make, execute and deliver, as Trustee, any and
all deed, leases, mortgages, conveyances, waivers, releases
or other instruments in writing necessary or desirable for
the accomplishment of any of the powers listed in Section
2.05; and
(d) generally, to do all acts, whether or not
expressly authorized, which the Trustee may deem necessary
or desirable for the protection of the Fund.
Section 2.07 Securities or Other Property. The words
----------------------------
"securities or other property" as used in this Trust Agreement
shall be deemed to refer to any property, real or personal, or
part interest therein, wherever situate, including, but not
limited, to governmental, corporate or personal obligations,
trust and participation certificates, leaseholds, fee titles,
mortgages and other interests in realty, preferred and common
stocks, certificates of deposit, put and call options and other
option contracts of any type, foreign or domestic, whether or not
traded on any exchange, tangible personal property, contracts for
future or immediate receipt or delivery of property, evidences of
indebtedness or ownership in foreign corporation or other
enterprises, indebtedness of foreign governments, limited
partnerships, insurance contracts, and any other evidences of
indebtedness or ownership including securities or other property
of the Company, without being limited to the classes of property
in which trustees are authorized to invest trust funds by any law
or any rule of court of any State.
Section 2.08 Trustee's Authority. Persons dealing
-------------------
with the Trustee shall be under no obligation to see the proper
application of any money paid or property delivered to the
Trustee or to inquire into the Trustee's authority as to any
transaction.
Section 2.09 Protection Clause. Neither the Company
-----------------
nor its Affiliates nor the Trustee shall be responsible for any
insurance company's failure to make payments provided by such
contract, or for the action of any person which may delay payment
or render a contract null and void or unenforceable in whole or
in part.
<PAGE>
Section 2.10 Following a Change In Control -
-----------------------------
Following the occurrence of a Change in Control as defined in
Section 3.01, the Trustee shall follow the last funding policy
communicated in writing by the Pension Board or a duly authorized
officer of the Company prior to such Change in Control.
Notwithstanding instructions to the contrary, the maturity of
investment instruments shall at all times be selected to permit
the timely payment of benefits under the Plans.
ARTICLE III
CHANGE IN CONTROL
-----------------
Section 3.01 Definition of Change in Control. For
-------------------------------
purposes of this Trust, a "Change in Control" of the Company
shall be deemed to have occurred if:
(a) a "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding securities; or
(b) during any period of two consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in Section 3.01(a), 3.01(c) or 3.01(d) whose election by the
Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(c) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least 75% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger
or consolidation, or
<PAGE>
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all the
Company's assets.
Section 3.02 Definition of a Potential Change in
-----------------------------------
Control. For purposes of this Trust, a "Potential Change in
- -------
Control" of the Company shall be deemed to have occurred if:
(a) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
change in control of the Company,
(b) any person (including the Company) publicly
announces an intention to take or to consider taking actions
which if consummated would constitute a change in control of
the Company;
(c) any person, other than a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the
Company's then outstanding securities, increases his
beneficial ownership of such securities by 5% or more of the
combined voting power of the Company's then outstanding
securities on the effective date of this Agreement; or
(d) the Board of Directors of the Company adopts a
resolution to the effect that, for purposes of this Trust, a
"potential change in control" has occurred. Such a
resolution will be provided to the Trustee in certified
form.
Section 3.03 Requirement of Notice. Notwithstanding
---------------------
the definitions in Sections 3.01 and 3.02, no Change in Control
or Potential Change in Control shall be deemed to have occurred
for purposes of this Trust Agreement unless and until the Trustee
has actual written notice from the Company or from any person who
was an officer of the Company prior to the alleged Change in
Control or the alleged Potential Change in Control that such
Change in Control or Potential Change in Control has occurred.
<PAGE>
ARTICLE IV
CONTRIBUTIONS
-------------
Section 4.01 Contributions by the Company.
----------------------------
(a) The Company will deliver contributions hereunder
to the Trustee at such times, and in such amounts, as the
Company may determine to be appropriate to enable the Trust
to accumulate assets sufficient to pay all, or any part, as
determined by the Company, of the benefits payable under the
Plans. At the time of that delivery, the Company will
notify the Trustee of the amount of each contribution
attributable to the Company and to each Affiliate.
(b) Upon the occurrence of a Potential Change in
Control, the Company, if it so chooses, will deliver to the
Trustee cash and/or marketable securities having a fair
market value in an amount equal to the sum of the amounts,
determined by an actuary selected by the Company, which will
be sufficient to fund fully the Company's and its
Affiliates' obligations to pay to the Participants the full
amount of all Benefits to which they may become entitled
pursuant to the Plans. The actuarial basis employed by such
actuary shall include the following assumptions: no
interest will be earned on plan assets; salaries will
increase at the rate of 10% per annum; there will be no
changes in any of the plans; any dollar limitations imposed
on the underlying qualified plans will remain constant; and,
an employee will be assumed to terminate employment at such
time as to maximize his benefits under the Plans but not
later than age 65. Any such contribution shall be identified
to the Trustee, by the Company, as a Section 4.01(b)
contribution.
(c) In addition to contributions made to the Trust
pursuant to Sections 4.01(a) and 4.01(b), the Company shall
deliver to the Trustee any amounts which the Trustee is
required to pay pursuant to Section 6.02.
(d) The Trustee shall be responsible only for
contributions actually received by it hereunder. The
Trustee shall have no duty or authority to ascertain whether
any contributions should be made to it or to bring any
action or proceeding to enforce any obligation to make any
such contribution.
(e) In the event that the Trust is overfunded; any
amount of such assets constituting the overfunding shall:
(1) first, be transferred to the
Carpenter Technology Corporation Non-Qualified
Benefits Trust for Directors ("the Directors'
Trust") until the Directors' Trust becomes
overfunded; and
<PAGE>
(2) second, returned to the Company.
(f) For the purposes of Section 4.01(e), above, the
Trust is "overfunded" when the amount of assets held in the
Trust Fund exceed 110% of the present value of all the
unpaid accrued benefits under the Plans. The value of the
accrued benefits shall be calculated using the projected
benefit obligation method ("PBO"), as described in Statement
No. 87 of the Financial Accounting Standards Board, using
the actuarial methods and assumptions used for valuing
accrued benefits for funding purposes under the General
Retirement Plan for Employees of Carpenter Technology
Corporation. In calculating the PBO under the Plans, it
will be assumed that all participants in the Plans will
continue to earn credited service until attaining age 65 and
that projected service will also be taken into account. The
determination of whether the Trust is overfunded shall be
made by a qualified actuary selected by the Human Resources
Committee.
Section 4.02 Accounts.
--------
(a) Before a Change In Control. The Committee shall
--------------------------
create a separate Account for each Participant, and cause
records to be maintained by the Company, or a separate
recordkeeper as the Company's agent, reflecting the amount,
if any, credited to that Participant in accordance with the
terms of the Deferred Compensation Plan for Corporate and
Division Officers of Carpenter Technology Corporation (the
"Deferred Compensation Plan"). When a contribution is made,
the Committee shall notify the Trustee of the amount of such
contribution allocable to each Participant's Account and/or
specific plans. The Trustee shall not be required to
maintain any separate account records, but shall rely solely
upon the information maintained by the Committee and the
notice to the Trustee as herein provided. The remainder,
(or all thereof if no allocation is indicated) of such
contribution shall not be specifically allocated to any Plan
or any Participant, but shall be available to discharge the
Company's and its Affiliates' obligations to make benefit
payments under any of the Plans in accordance with the
applicable provisions of Article V. The Company shall,
however, provide to the Trustee, with respect to each Plan,
at such intervals as the Committee shall determine, but in
no event less frequently than annually, a schedule listing
each Participant, each Plan under which that Participant has
accrued a benefit and the amount of such benefit. The
Trustee shall have no responsibility with respect to the
determination or accuracy of any such allocations and/or the
accrued benefits due any participant or plan as herein
provided, but shall rely solely upon such information
provided to it by the Company.
<PAGE>
(b) Following a Change In Control. Upon notice to the
-----------------------------
Trustee that a Change in Control has occurred, or that a
Potential Change in Control has occurred and that the
Company has invoked the allocation procedures of this
Section 4.02(b), the Trustee, based upon the schedule of
such benefits most recently provided to the Trustee by the
Committee, shall allocate all of the Trust Fund's assets as
follows: assets shall first be allocated to the Deferred
Compensation Plan portion of each Participant's Account in
an amount equal to each Participant's accrued benefit
therein not previously allocated thereto. In the event that
the Trust Fund's assets are insufficient to fully fund each
Participant's accrued benefit under the Deferred
Compensation Plan, the assets shall be allocated ratably to
the Participants' Accounts in the ratio that the accrued
benefits in respect of each such Participant under said
Deferred Compensation Plan bear to the total accrued
benefits of all such Participants under said plan. The
balance of the assets shall be allocated to each
participant's account in an amount equal to each
participant's accrued benefit under all of the Plans other
than the Deferred Compensation Plans. If the assets of the
Trust Fund, after making provision for the Deferred
Compensation Plan, are insufficient to fully fund all of the
accrued benefits of all Participants under all of the other
Plans, those assets shall be allocated ratably to the
Participants' Accounts in the ratio that the accrued
benefits in respect of each such Participant under all of
such other Plans bear to the total accrued benefits of all
such Participants under all such other Plans.
Section 4.03 Delivery to the Company. Any Section
-----------------------
4.01(b) contribution delivered to the Trustee shall be returned
to the Company without interest on the 181st day following (and
exclusive of the date of) its receipt by the Trustee, unless
within 180 days following such receipt by the Trustee, a notice
of the "Change in Control" shall have been received by the
Trustee pursuant to Section 3.03. Such 180-day period shall be
extended for an additional 180-day period for any "Potential
Change in Control" which occurs or continues during any initial
or extended 180-day period. The Committee will provide the
Trustee with written notice of any extension.
Section 4.04 Trustee's Agent. The Trustee shall be
---------------
entitled to retain such actuarial, accounting, legal and other
services as it may deem necessary to accomplish and/or maintain
such allocations, payments and/or Participant Account records as
are provided for under Articles IV and V hereof or to conduct its
investment responsibilities under Section 2.06, and to pay for
such services as an expense of the Trust Fund out of the assets
of the Trust Fund, unless promptly paid by the Company.
<PAGE>
ARTICLE V
PAYMENT OF BENEFITS
-------------------
Section 5.01 Payments by Trustee.
-------------------
(a) Prior to a Change In Control. Until such time as
----------------------------
Section 5.01(b) applies, all payments to Participants in any
of the Plans shall be made by the Company and its
Affiliates, as agents for the Trustee, in accordance with
the applicable provisions of the Plans. Each month, upon
receipt of written instructions to the Trustee from the
Committee of the amount needed to pay such benefits the
Trustee shall promptly disburse such funds to the Company
and, upon that disbursement shall have no further
responsibility with respect to such funds or their
application.
(b) Following a Change In Control. Following notice
-----------------------------
to the Trustee that a Change in Control has occurred, and
subject to the limitation of Section 5.01(c), the Trustee
shall make payments to Participants and their beneficiaries
from the Trust Fund in accordance with the payment schedule
most recently provided by the Committee to the Trustee prior
to the occurrence of the Change in Control; provided,
however, that if the Company and a Participant agree to the
substitution of a new payment schedule with respect to such
Participant following the occurrence of a Change in Control,
the Trustee shall instead make payments in accordance with
such substitute payment schedule. In the event that the
Company and a Participant (or in the event of his death, his
Beneficiary) disagree as to the amount, form or duration of
benefit payments under a Plan, the Trustee shall continue to
make benefit payments pursuant to the payment schedule most
recently provided by the Committee prior to a Change in
Control until authorized to make payments under a substitute
schedule by both the Participant (or Beneficiary) and the
Company or until the Trustee receives a final non-appealable
order from a court of competent jurisdiction to alter such
benefit payment schedule.
(c) Any amount paid under this Section 5.01 shall be
charged by the Committee or the Trustee, as the case may be,
against the Account of the applicable Participant and no
payment with respect to an Account shall be made in excess
of the amount credited to such Account.
(d) The Trustee shall not make any payments to
Participants or beneficiaries from the Trust Fund except as
provided in this Section 5.01 even though it may be informed
from another source that payments are due under a Plan. The
Trustee shall be fully protected in making payments or
omitting to make payments in accordance with Section
5.01(b).
<PAGE>
Section 5.02 Determinations by Committee.
---------------------------
(a) If at any time the Committee or, if Section
5.01(b) applies, the Trustee, determines that any amount
held in the Trust Fund is includible in the gross income of
a Participant or his beneficiary for federal income tax
purposes prior to payment of such amount from the Trust
Fund, the Trustee, upon notice from the Committee or, if
Section 5.01(b) applies, upon notice by a Participant or
Beneficiary, in the format provided in Exhibit B, that based
on a (i) change in the tax or revenue laws of the United
States of America, (ii) a published ruling or similar
announcement issued by the Internal Revenue Service, (iii) a
regulation issued by the Secretary of the Treasury or his
delegate, (iv) a decision by a court of competent
jurisdiction involving the Participant or Beneficiary, or
(v) a closing agreement made under Code Section 7121 that is
approved by the Internal Revenue Service and involves the
Participant or Beneficiary, that Participant or Beneficiary
has recognized or will recognize income for federal income
tax purposes with respect to amounts that are or will be
payable to him under the Plans before they are paid to him,
shall pay such amount to such person in the manner directed
by the Committee or by such notice to the Trustee and the
Participant's Account shall be charged, or his accrued
benefit reduced, accordingly.
(b) If at any time the Committee prior to a Change in
Control determines that the amount allocated to the Account
of any Participant exceeds the amount reasonably expected to
be necessary to provide the Benefits payable in respect of
such Participant from such Account, such excess may be
reallocated to the Accounts of other Participants or held as
part of the unallocated Fund, as determined by the
Committee. If at any time prior to a Change in Control the
Committee determines that the Benefits in respect of all
Participants have been paid in full, the Committee shall so
notify the Trustee in writing.
Section 5.03 Withholding, Returns and Reports.
--------------------------------
(a) Prior to a Change in Control. Prior to a Change
----------------------------
in Control, the Company and its Affiliates shall withhold
all required federal, state and local taxes from benefit
payments under any of the Plans, and remit those
withholdings to the appropriate taxing authorities. The
Company and its Affiliates shall also be responsible for the
preparation of all information reports, returns, receipts
and other communications required by Chapter 61 of the Code
to be filed with, or distributed to, any person or
governmental entity.
<PAGE>
(b) Following a Change in Control. Following a Change
-----------------------------
in Control, the Trustee shall assume the Company's and its
Affiliates' responsibilities under Section 5.03(a) with
respect to benefit payments under any of the Plans, and
shall reduce such benefit payments by the amount of any such
required withholding. The Trustee shall remit the net
benefit payments to the Participants and shall pay the
required tax withheld to the Company and its Affiliates,
which shall continue to be responsible for the preparation
and filing of all items required by Chapter 61 of the Code,
as enumerated in Section 5.03(a).
(c) The Company, its Affiliates and the Trustee shall
cooperate with each other in providing any information
reasonably necessary to enable the other to carry out any of
its responsibilities under this Section 5.03.
Section 5.04 Company's Continuing Obligations.
--------------------------------
Notwithstanding any provisions of this Trust Agreement to the
contrary, the Company and its Affiliates shall remain obligated
to pay the Benefits under the Plan. To the extent the amount in
the Trust Fund is not sufficient to pay any Benefits when due,
the Company and its Affiliates shall pay such deficiency directly
to the person entitled thereto. Nothing in this Trust Agreement
shall relieve the Company and its Affiliates of its liabilities
to pay the Benefits except to the extent such liabilities are met
by the application of Trust Fund assets.
Section 5.05 Company's Income. The Company agrees
----------------
that all income, deductions and credits of the Trust Fund belong
to it as owner for income tax purposes and will be included on
the Company's income tax returns to the extent required by
applicable law.
ARTICLE VI
CONCERNING THE TRUSTEE
----------------------
Section 6.01 Notices to the Trustee. Except as
----------------------
provided in Section 5.02, the Trustee may rely on the
authenticity, truth and accuracy of:
(a) any notice, direction, certification, approval or
other writing of the Company, if evidenced by an instrument
signed in the name of the Company by its Chairman,
President, any Vice President, Secretary, Assistant
Secretary or Treasurer, and believed in good faith by it to
be genuine;
<PAGE>
(b) any notice, direction, certification, approval or
other written, oral or other transmitted form of instruction
received by the Trustee and believed by it in good faith to
be genuine and to be sent by or on behalf of the Committee;
or
(c) any copy of a resolution of the Board of Directors
of the Company, if certified by the Secretary or an
Assistant Secretary of the Company under its corporate seal.
(d) The Company shall furnish the Trustee from time to
time with a list of the names and signatures of the officers
or other persons authorized to act under this Section
6.01(a) and (b), or in any other manner authorized to notify
or instruct the Trustee pursuant to the provisions of this
Agreement. Any such list shall be certified by the
Secretary or an Assistant Secretary of the Company, and may
be relied upon by the Trustee until it receives a revised
list.
Section 6.02 Expenses of the Trust Fund. The Trustee
--------------------------
shall pay out of the Trust Fund: (a) all brokerage fees and
transfer tax expenses and other expenses incurred in connection
with the sale or purchase of investments; (b) all real and
personal property taxes, income taxes and other taxes of any kind
at any time levied or assessed under any present or future law
upon, or with respect to, the Trust Fund or any property included
in the Trust Fund; (c) the Trustee's compensation and expenses as
provided in Section 6.03, unless promptly paid by the Company;
and (d) unless promptly paid by the Company, all other reasonable
expenses of administering the Trust. Notwithstanding the
foregoing, the Trustee shall, at Company expense and direction,
contest the validity of any taxes in any manner deemed
appropriate by the Company or its counsel, but only if it has
received an indemnity bond or other security satisfactory to it
to pay any expenses of such contest; provided, however, that the
Trustee shall have no obligation to contest if it receives an
opinion of counsel of its choice to the effect that there is no
basis in law or fact for such contest. Alternatively, the
Company may itself contest the validity of any such taxes.
Section 6.03 Compensation of the Trustee. The
---------------------------
Company will pay to the Trustee compensation for its services
from time to time in accordance with its schedule of fees then in
- ----
effect for trusts of similar nature, and will reimburse the
Trustee for all reasonable expenses (including attorneys' fees)
incurred by the Trustee in the administration of the Trust.
<PAGE>
Section 6.04 Protection of the Trustee.
-------------------------
(a) The Company and its Affiliates agree to indemnify
and hold harmless the Trustee from and against any and all
damages, losses, claims or expenses as incurred (including
expenses of investigation and fees and disbursements of
counsel to the Trustee and any taxes imposed on the Trust
Fund or income of the Trust) arising out of or in connection
with the performance by the Trustee of its duties hereunder,
except to the extent that any such damages, losses, claims
or expenses result from the negligence or willful misconduct
of the Trustee, its officers, employees or agents.
(b) The Trustee shall incur no liability to any person
in discharging its duties hereunder for any action taken or
omitted in good faith in conformity with the terms of this
Trust Agreement. Each direction, notice, request or
approval provided (whether or not certified to the Trustee
in writing) by the Company, or the Pension Board/Committee,
shall constitute a certification by the Company to the
Trustee that such direction is in conformity with the terms
of the Plan and applicable law. Under no circumstances
shall the Trustee incur liability to any person for any
indirect, consequential or special damages (including,
without limitation, lost profits) of any form, whether or
not foreseeable and regardless of the form of the action in
which such a claim may be brought, with respect to the Trust
or its role as Trustee, except as otherwise required by
ERISA or New York State Law.
Section 6.05 Duties of the Trustee. The Trustee will
---------------------
be under no obligation to perform any duties whatsoever, except
such duties as are specifically set forth as such in this Trust
Agreement, and no implied covenant or obligation will be read
into this Trust Agreement against the Trustee. The Trustee will
not be compelled to take any action toward the execution or
enforcement of the Trust or to prosecute or defend any suit in
respect thereof, unless indemnified to its satisfaction against
loss, costs, liability and expense or there are sufficient assets
in the Trust Fund to provide such indemnity; and the Trustee will
be under no liability or obligation to anyone with respect to any
failure on the part of the Company to perform any of its
obligations under the Plans. Nothing in this Trust Agreement
should be construed as requiring the Trustee to make any payment
in excess of amounts held in the Trust Fund at the time of such
payment.
<PAGE>
Section 6.06 Settlement of Accounts of the Trustee.
-------------------------------------
The Trustee shall keep or cause to be kept accurate and detailed
records of all investments, receipts, disbursements and other
transactions hereunder. Such records shall be open to inspection
and audit at all reasonable times during normal business hours by
any person designated by the Company. At least annually, or upon
such more frequent intervals, but not more frequent than monthly,
as the Company may direct, the Trustee shall file with the
Company a written statement, listing the investments of the Trust
Fund and any uninvested cash balance thereof, and setting forth
all receipts, disbursements, payments and other transactions
respecting the Trust Fund not included in any such previous
statement. Any statement, when approved by the Company, will be
binding and conclusive on the Company and its Affiliates; and the
Trustee will thereby be released and discharged from any
liability or accountability to the Company and its Affiliates
with respect to all matters set forth therein. Omission by the
Company or its Affiliates to object in writing to any specific
items in any such statement, which shall be deemed an account
stated, within ninety (90) days after its delivery will
constitute approval of the account by the Company and its
Affiliates. No other accounts or reports shall be required to be
given to the Company, except as stated herein or except as
otherwise agreed to in writing by the Trustee. Except as
provided above, the Trustee shall not be required to file an
accounting, judicial or otherwise.
Section 6.07 Right to Judicial Settlement. Nothing
----------------------------
contained in this Trust Agreement shall be construed as depriving
the Trustee of the right to have a judicial settlement of its
accounts, and upon any proceeding for a judicial settlement of
the Trustee's accounts or for instructions the only necessary
party thereto in addition to the Trustee shall be the Company.
Section 6.08 Resignation or Removal of the Trustee.
-------------------------------------
The Trustee may at any time resign upon sixty (60) days notice in
writing to the Company (which sixty (60) days notice requirement
may be waived by agreement in writing of the Company). Prior to
a Change in Control, or a Potential Change in Control, the
Trustee may be removed by the Company upon sixty (60) days notice
in writing to the Trustee (which sixty (60) days notice
requirement may be waived by agreement in writing of the
Trustee).
Section 6.09 Appointment of Successor Trustee. In
--------------------------------
the event of the resignation or removal of the Trustee, or in any
other event in which the Trustee ceases to act, a successor
trustee may be appointed by the Company by instrument in writing
delivered to and accepted by the successor trustee. Notice of
such appointment will be given by the Company to the retiring
trustee, and the successor trustee will deliver to the retiring
trustee an instrument in writing accepting such appointment. If
no appointment of a successor trustee is made within a reasonable
time after such a resignation, removal or other event, any court
of competent jurisdiction may appoint a successor trustee.
<PAGE>
In the event of such resignation, removal or other
event, the retiring trustee or its successors and assigns shall
file with the Company a final statement to which the provisions
of Section 6.06 shall apply.
In the event of the appointment of a successor trustee,
such successor trustee will succeed to all the right, title and
estate of, and will be, the Trustee; and the retiring trustee
will after the settlement of its final account as provided for in
Section 6.06, and the receipt of any compensation or expenses due
it, deliver the Trust Fund to the successor trustee together with
all such instruments of transfer, conveyance, assignment and
further assurance as the successor trustee may reasonably
require. The retiring trustee will retain a first lien upon the
Trust Fund to secure all amounts due the retiring trustee
pursuant to the provisions of this Trust Agreement. The Company
will provide the Trustee with a ratification and release upon
such resignation, removal or other event.
Section 6.10 Merger or Consolidation of the Trustee.
-------------------------------------
Any corporation continuing as the result of any merger or
resulting from any consolidation to which merger or consolidation
the Trustee is a party, or any corporation to which substantially
all the business and assets of the Trustee may be transferred,
will be deemed automatically to be continuing as the Trustee.
ARTICLE VII
ENFORCEMENT
-----------
Section 7.01 Enforcement of Trust Agreement and Legal
----------------------------------------
Proceedings. The Company shall have the right to enforce any
- -----------
provision of this Trust Agreement in its own name. In any action
or proceeding affecting the Trust, the only necessary parties
shall be the Company and the Trustee and, except as otherwise
required by applicable law, no other person shall be entitled to
any notice or service of process. Any judgment entered in such
an action or proceeding shall, to the maximum extent permitted by
applicable law, be binding and conclusive on all persons having
or claiming to have any interest in the Trust.
<PAGE>
ARTICLE VIII
AMENDMENT, REVOCATION AND TERMINATION
-------------------------------------
Section 8.01 Amendment. The Company may from time to
---------
time prior to the occurrence of a Change in Control or a
Potential Change in Control with respect to which the allocation
procedures of Section 4.02(b) are invoked, with the Trustee's
consent, amend in writing, in whole or in part, any or all of the
provisions of this Trust Agreement without the consent of any
Participant or any other person; provided, however, that no such
amendment shall increase the duties or obligations or change the
compensation of the Trustee without the Trustee's written
consent. This Trust Agreement may not be amended following a
Change in Control nor may it be amended following a Potential
Change in Control with respect to which the allocation procedures
of Section 4.02(b) are invoked unless the resulting allocations
are revoked pursuant to Section 4.03.
Section 8.02 Irrevocability. Subject to section
--------------
10.08, the Trust shall be irrevocable and, except as otherwise
provided in Section 8.03 and Article IX, shall be held for the
exclusive purpose of providing the Benefits to Participants and
their beneficiaries and defraying expenses of the Trust in
accordance with the provisions of this Trust Agreement.
Section 8.03 Termination. The Trust shall terminate
-----------
if the Committee provides the Trustee with a written statement to
the effect that the Benefits in respect of all Participants have
been paid in full. As soon as practicable following such event,
and subject to the Trustee's independent verification of the
accuracy of that notice pursuant to Section 5.02, if applicable,
the Trustee shall settle its final accounts in accordance with
Section 6.06 and, after receipt of any unpaid fees and expenses,
shall distribute the balance of the Trust Fund to the Company.
ARTICLE IX
CLAIMS OF COMPANY'S CREDITORS
-----------------------------
Section 9.01 Insolvency. As used in this Article IX,
----------
the Company or its Affiliates (collectively the "Business
Entities" and individually each a "Business Entity") shall be
deemed to be "Insolvent" if (i) any Business Entity is unable to
pay its debts generally as they become due, or (ii) any Business
Entity is subject to a proceeding as a debtor under the federal
Bankruptcy Code (or any successor federal statute). If any
Business Entity is deemed Insolvent, the assets of the Trust
attributable to that Business Entity shall be subject to claims
of creditors of the Insolvent Business Entity (hereinafter the
"Bankruptcy Creditors").
<PAGE>
Section 9.02 Discontinuance of Benefits. If at any
--------------------------
time (i) any Business Entity, or a person claiming to be a
creditor of any Business Entity alleges in writing to the Trustee
that any Business Entity has become Insolvent, or (ii) the
Trustee is served with any order, process or paper from a court
of competent jurisdiction to the effect that a Business Entity is
Insolvent, the Trustee shall give notice thereof to the Company
and, if applicable, the allegedly Insolvent Business Entity, and
shall discontinue Benefit payments under this Trust Agreement on
account of services performed for the deemed Insolvent Business
Entity, shall hold the Trust assets attributable to the deemed
Insolvent Business Entity for the benefit of the Insolvent
Business Entity's Bankruptcy Creditors, and shall resume payment
of Benefits to a Participant on account of services performed for
the allegedly Insolvent Business Entity under this Trust
Agreement in accordance with Article V only upon: (a) in the
case of clause (ii) above, the receipt of an order of a court of
competent jurisdiction authorizing or requiring such payment, and
(b) in the case of clause (i) above, receipt of written notice
from the Company that the deemed Insolvent Business Entity is not
Insolvent. The Board of Directors of a Business Entity, and the
Company's Treasurer shall be obligated to give the Trustee prompt
written notice if the Business Entity becomes Insolvent, with the
same consequences as provided in the preceding sentence. If
payment of Benefits has been discontinued pursuant to clause (i)
of the second preceding sentence, the Board of Directors of the
deemed Insolvent Business Entity, and the Company's Treasurer,
shall be obligated to give the Trustee prompt written notice in
the event the deemed Insolvent Business Entity is not Insolvent,
and such notice shall be treated as notice from the Company for
purposes of the second preceding sentence. The Trustee shall not
be liable to anyone in the event Benefit payments are
discontinued pursuant to this Section 9.02.
If the Trustee discontinues payment of Benefits
pursuant to this Section 9.02 and subsequently resumes such
payment, to the extent the Trust Fund is sufficient for such
purpose, the first payment to a Participant following such
discontinuance shall include an aggregate amount equal to the
payments which would have been made to such Participant under
this Trust Agreement but for this Section 9.02, as shall be
determined by the Committee or if Section 5.01(b) applies, by the
Trustee. No interest shall be due or payable with respect to any
such payments in arrears.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
Section 10.01 Successors. This Trust Agreement shall
----------
be binding upon and inure to the benefit of the Company, its
Affiliates and the Trustee and their respective successors and
assigns.
<PAGE>
Section 10.02 Nonalienation. Except insofar as
-------------
applicable law may otherwise require:
(a) no amount payable to or in respect of any
Participant at any time under the Trust shall be subject in
any manner to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or
encumbrance of any kind, and any attempt to so alienate,
sell, transfer, assign, pledge, attach, charge or otherwise
encumber any such amount, whether presently or thereafter
payable, shall be void; and
(b) the Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of any Participant.
Section 10.03 Communications.
--------------
(a) Communications to the Company shall be addressed
to the Company at P.O. Box 14662, Reading, PA 19612-4662,
Attn. Treasurer, Carpenter Technology Corporation, provided,
however, that upon the Company's written request, such
communications shall be sent to such other address as the
Company may specify.
(b) Communications to the Trustee shall be addressed
to its Global Investor Services Division, 4-Chase Metrotech
Center, 18th Floor, Brooklyn, New York 11245; provided,
however, that upon the Trustee's written request, such
communications shall be sent to such other address as the
Trustee may specify.
(c) No communication shall be binding on the Trustee
until it is received by the Trustee, and no communication
shall be binding on the Company or any Affiliates until it
is received by the Company.
Section 10.04 Headings. Titles to the Sections of
---------
this Trust Agreement are included for convenience only and shall
not control the meaning or interpretation of any provision of
this Trust Agreement.
Section 10.05 Third Parties. A third party dealing
-------------
with the Trustee shall not be required to make inquiry as to the
authority of the Trustee to take any action nor be under any
obligation to follow the proper application by the Trustee of the
proceeds of sale of any property sold by the Trustee or to
inquire into the validity or propriety of any act of the Trustee.
<PAGE>
Section 10.06 Governing Law. This Trust Agreement and
-------------
the Trust established hereunder shall be governed by and
construed, enforced, and administered in accordance with the laws
of the State of New York. The United States District Court for
the Southern District of New York shall have the sole and
exclusive jurisdiction over any lawsuit or other judicial
proceeding relating to or arising from this Agreement. If that
court lacks federal subject matter jurisdiction, the Supreme
Court of the State of New York, New York County shall have sole
and exclusive jurisdiction. Either of these courts shall have
proper venue for any such lawsuit or judicial proceeding, and the
parties waive any objection to venue or their convenience as a
forum. The parties agree to submit to the jurisdiction of any of
the courts specified and to accept service of process to vest
personal jurisdiction over them in any of these courts. The
parties further hereby knowingly, voluntarily and intentionally
waive, to the fullest extent permitted by law, any right to a
trial by jury with respect to any such lawsuit or judicial
proceeding arising or relating to this Agreement or the
transactions contemplated hereby.
Section 10.07 Counterparts. This Trust Agreement may
------------
be executed in any number of counterparts, each of which shall be
deemed to be the original although the others shall not be
produced.
Section 10.8 IRS Ruling - Funded Status. The Company
--------------------------
intends to apply to the Internal Revenue Service for a ruling to
the effect that this Trust is a grantor trust within the meaning
of section 671, et. seq. of the Code and that contributions
hereunder will not be treated as taxable income to Plan
Participants until distributed to those Participants. If the
Company is unable to obtain a satisfactory ruling to that effect,
or if any Plan is finally determined to be funded within the
meaning of Title I of ERISA because of the existence of this
Trust and if a Change in Control has not then occurred, the
Company shall have the right, notwithstanding the provisions of
Article VIII, to further amend or revoke the Trust. If the Trust
is revoked, its assets, after deducting any unpaid fees or
expenses due the Trustee, shall be returned to the Company.
<PAGE>
IN WITNESS WHEREOF, this Trust Agreement has been duly
executed by the parties hereto as of the day and year first above
written.
Attest: CARPENTER TECHNOLOGY CORPORATION
John R. Welty
Secretary
By: John A. Schuler
--------------------------
Treasurer
Attest: THE CHASE MANHATTAN BANK
Robert Signorino
By: Vito Milillo
-------------------------
<PAGE>
STATE OF Pennsylvania )
)
COUNTY OF Berks )
Personally appeared John A. Schuler, Treasurer, of
Carpenter Technology Corporation, signer and sealer of the
foregoing instrument, and acknowledged the same to be his free
act and deed as such Treasurer and the free act and deed of said
company, before me May 1, 1997.
Anita M. Keltz
-----------------------
Notary Public
STATE OF New York )
) ss.:
COUNTY OF Kings )
Personally appeared Vito Milillo, Vice President, of
the Chase Manhattan Bank, signer and sealer of the foregoing
instrument, and acknowledged the same to be his free act and deed
as such Vice President and the free act and deed of said company,
before me May 20, 1997.
Julia R. Scalia
-----------------------
Notary Public
<PAGE>
EXHIBIT "A"
-----------
1. Deferred Compensation Plan for Officers and Key Employees of
Carpenter Technology effective January 1, 1995, subject to
any approved amendments.
2. Supplemental Retirement Plan For Executives of Carpenter
Technology Corporation effective December 13, 1979, subject
to any approved amendments.
3. Officers' Supplemental Retirement Plan of Carpenter
Technology Corporation effective January 1, 1983, subject to
any approved amendments.
4. Benefit Equalization Plan of Carpenter Technology
corporation effective January 1, 1983, subject to any
approved amendments.
5. Earnings Adjustment Plan of Carpenter Technology Corporation
effective January 1, 1989, subject to any approved
amendments.
<PAGE>
EXHIBIT "B"
-----------
1. Carpenter Special Products Corporation of El Cajon, CA<PAGE>
EXHIBIT "C"
-----------
FORM OF NOTICE CONCERNING EARLY TAXATION
----------------------------------------
I, the undersigned Participant (Beneficiary) under the Carpenter
Technology Corporation Non-Qualified Employee Benefits Trust
Agreement hereby notify The Chase Manhattan Bank, as Trustee, that
pursuant to Section 5.02(a) thereof, the undersigned will recognize
income for federal income tax purposes due to funds held in said
Trust and request payment of all funds held in my account. I do
hereby certify the above to be a true statement and I hereby
furnish the following independent verification of the reasons why
I will recognize income for federal income tax purposes:
[List below the type of independent verification and enclose
a copy of such verification.]
<PAGE>
================================================================
STOCK SUBSCRIPTION AND INVESTMENT AGREEMENT
BETWEEN
WALSIN LIHWA CORPORATION
AND
CARPENTER TECHNOLOGY CORPORATION
As Amended and Restated
Effective January 1, 1997
=================================================================
<PAGE>
STOCK SUBSCRIPTION AND INVESTMENT AGREEMENT
AGREEMENT dated April 8, 1993, as amended and restated
effective January 1, 1997, by and between WALSIN LIHWA
CORPORATION, a corporation organized and existing under the laws
of the Republic of China, with its principal office at 12th
Floor, 117 Ming Sheng East Road, Section 3, Taipei, Taiwan
("W-L") and CARPENTER TECHNOLOGY CORPORATION, a corporation
organized and existing under the laws of the State of Delaware,
United States of America, with its principal place of business at
101 West Bern Street, Reading, Pennsylvania 19603 ("CTC").
BACKGROUND
----------
W-L and CTC entered into a Stock Subscription and Investment
Agreement dated April 8, 1993 ("Investment Agreement") with
respect to establishing the Venture as defined in the Investment
Agreement. The Venture operates a specialty steel manufacturing
facility in Yenshui, Taiwan (the "Facility") which is designed to
manufacture hot finished specialty alloy long product. The
Venture is a party hereto to the extent set forth in Section 1.7.
The parties have determined that it is in their interests to
amend and restate the Investment Agreement as provided herein.
In consideration of the covenants and conditions herein
contained and intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1
FORMATION OF THE VENTURE
------------------------
1.1 Incorporation; Initial Capitalization. W-L and CTC
-------------------------------------
caused the Venture to be incorporated and organized under the
laws of the Republic of China. The initial authorized and paid-
in capital of the Venture was New Taiwan Dollars Six Billion
Three Hundred and Seventy Five Million (NT $6,375,000,000)
divided into 637,500,000 shares of Venture Stock (as hereinafter
defined). The share certificates representing the paid-up
capital shares of the Venture Stock were duly issued to the
parties as provided in the Investment Agreement.
1.2 Articles of Incorporation. The Articles of
-------------------------
Incorporation of the Venture shall be substantially in the form
attached hereto as Exhibit A.
1.3 Board of Directors. Immediately after the Time of
------------------
Stock Subscription Closing (as hereinafter defined), the Venture
shall have a Board of Directors consisting of an odd number of
persons, initially nine, of whom six shall be nominees of W-L and
three shall be nominees of CTC. In the event of changes in the
original CTC ownership percentages after March 18, 1996,
composition in the Board of Directors will be determined as
provided in Section 9.7 hereof.
<PAGE>
1.4 Executive Team.
--------------
(a) Effective as of January 10, 1996, CTC appointed an
executive team ("the Executive Team"), consisting of three (3)
persons, each of whom was well versed in steel operations, to
serve on-site at the Facility until January 10, 1997. CTC was
responsible for the direct labor costs of the Executive Team,
including salary and incentives, if any. The Venture was
responsible for the travel and living expenses of the Executive
Team. Further, the Venture was responsible for obtaining any
required work permits for the Executive Team.
(b) At the discretion of the Venture, one member of
the Executive Team could be appointed as Executive Vice-President
of the Venture through, but not after, January 10, 1997. In the
event of such appointment, the Venture shall fully indemnify the
Executive Vice-President against any and all liability
(including, but not limited to, legal fees) which may arise out
of the scope of his activities with the Venture.
1.5 Supervisors. The representation of any shareholder by
-----------
a supervisor shall be as provided by the Company Law.
1.6 Officers. Immediately after the Time of Stock Subscription
--------
Closing, the principal executive officers of the Venture shall be:
Chairman of the Board : Yu Lon Chiao
President : I-Lin Cheng
1.7 Joinder in Agreement by the Venture. The Venture
-----------------------------------
hereby accepts its rights, responsibilities and obligations under
Sections 2.5, 9.8, 10.1, 10.3, 10.4, 10.7, 10.8, and 10.11 hereof
and only to such extent becomes a party hereto.
ARTICLE 2
INITIAL ISSUANCE OF VENTURE STOCK; PURCHASE OF ASSETS
-----------------------------------------------------
2.1 Issuance to W-L of Shares of Venture Stock. At the
------------------------------------------
Stock Subscription Closing contemplated by Section 2.3, the
Venture shall issue to W-L 516,370,000 shares of Venture Stock,
constituting 81% of the initial paid-in capital shares (the "W-L
Subscribed Shares") against payment of the aggregate subscription
price therefor of NT$5,163.7 million (the "W-L Share Subscription
Price"), as provided in Section 2.3.
2.2 Issuance to CTC of Shares of Venture Stock. At the
------------------------------------------
Stock Subscription Closing, the Venture shall issue to CTC
121,130,000 shares of Venture Stock, constituting 19% of the
initial paid-in capital shares (the "CTC Subscribed Shares")
against payment of the aggregate subscription price therefor of
$NT1,211.3 million (the "CTC Share Subscription Price") as
provided in Section 2.3.
<PAGE>
2.3 Stock Subscription Closing.
--------------------------
(a) Time and Place. The closing of the transactions
--------------
contemplated by Sections 2.1 and 2.2 (the "Stock Subscription
Closing") will take place at 10:00 a.m., local time, on the later
to occur of September 1, 1993 or the third business day after the
parties have determined that all conditions to the Stock
Subscription Closing contemplated by Article 6 hereof not
theretofore waived have been or can be satisfied, at the offices
of W-L, 12th Floor, 117 Ming Sheng East Road, Section 3, Taipei,
Taiwan, or at such other time, date or place as the parties may
mutually agree. The date on which and the time at which the
Stock Subscription Closing occurs are sometimes referred to
herein respectively as the "Stock Subscription Closing Date" and
the "Time of Stock Subscription Closing."
(b) Deliveries and Proceedings at Closing. At the
-------------------------------------
Stock Subscription Closing:
(i) Deliveries by W-L and CTC. W-L and CTC will
-------------------------
each deliver to the Venture by wire transfer of immediately
available funds to an account designated by the Venture the
respective amounts of the W-L and CTC Share Subscription Prices;
(ii) Deliveries by the Venture. The Venture will
-------------------------
deliver to W-L and CTC appropriate evidence of (A) receipt of the
respective amounts of the W-L and CTC Share Subscription Prices
and (B) the resulting issuance to each of them of their
respective shares of Venture Stock to be held pending issuance of
stock certificates therefor; and
(iii) Other Deliveries. The closing certificates
----------------
and other documents required to be delivered pursuant to this
Agreement will be exchanged.
2.4 Purchase of Assets by Venture. At the Assets Purchase
-----------------------------
Closing contemplated by Section 2.5, the Venture shall purchase
from W-L, and W-L shall sell and transfer to the Venture, the
Assets, against payment of the purchase price therefor (the
"Assets Purchase Price"), all pursuant to and as more
specifically provided in an assets purchase agreement between the
Venture and W-L in substantially the form attached hereto as
Exhibit B (the "Assets Purchase Agreement"), and as otherwise
provided in Section 2.5. The Assets Purchase Agreement shall be
executed and delivered by W-L and the Venture promptly following
completion of the incorporation and organization formalities in
respect of the Venture.
<PAGE>
2.5 Assets Purchase Closing.
-----------------------
(a) Time and Place. The Closing of the assets
--------------
purchase transaction contemplated by Section 2.4 (the "Assets
Purchase Closing") will take place at 10:00 a.m., local time, on
the earlier to occur of September 30, 1993 or the third business
day after the parties have determined that all conditions to the
Assets Purchase Closing contemplated by Article 9 of the Assets
Purchase Agreement not theretofore waived have been or can be
satisfied, at the offices of W-L, 12th Floor, 117 Ming Sheng East
Road, Section 3, Taipei, Taiwan, or at such other time, date or
place as the parties may mutually agree. The date on which and
the time at which the Assets Purchase Closing occurs are
sometimes referred to herein respectively as the "Assets Purchase
Closing Date" and the "Time of Assets Purchase Closing">
(b) Deliveries and Proceedings at Closing. At the
-------------------------------------
Assets Purchase Closing:
(i) Deliveries by Venture to W-L. The Venture
----------------------------
will deliver to W-L by wire transfer of immediately, available
funds to an account designated by W-L the amount of the Assets
Purchase Price;
(ii) Deliveries by W-L to the Venture. W-L will
--------------------------------
deliver to the Venture such instruments and documents as shall be
appropriate to transfer title to, or otherwise confirm assignment
of legal ownership of, the Assets, as described or otherwise
referred to in the Assets Purchase Agreement;
(iii) Execution of Agreement. The KHT Licensing
and Transfer Agreement, the CEA Distributor Agreement and the
Western Hemisphere Distributor Agreement will be executed and
delivered (or released from escrow) by the respective parties
thereto;
(iv) Transfer of Licensed KHT Payment. The
--------------------------------
Venture will deliver to CTC by wire transfer of immediately
available funds to an account designated therefor the payment
contemplated by the KHT Licensing and Transfer Agreement; and
(v) Other Deliveries. The closing certificates
----------------
and other documents required to be delivered pursuant to the
Assets Purchase Agreement will be exchanged.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF W-L
-------------------------------------
As an inducement to CTC to enter into this Agreement and to
consummate the transactions contemplated herein, W-L hereby
represents and warrants to CTC as follows:
3.1 Organization. W-L is a company limited by shares duly
------------
organized, validly existing and, if required under applicable law
or regulation, in good standing under the laws of the Republic of
China, and has full corporate power and authority to own or lease
its properties and to carry on its business as now conducted.
3.2 Corporate Authority. The execution, delivery and
-------------------
performance of this Agreement by W-L has been duly authorized and
approved by its Board of Directors and will have been duly
approved by its shareholders by the Time of Stock Subscription
Closing. The Agreement has been duly executed and delivered by
W-L and constitutes the legal, valid and binding obligation of
W-L enforceable in accordance with its terms, and neither the
execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby, nor compliance with or
fulfillment of the terms and provisions hereof, will (i) conflict
with or result in a breach of the terms, conditions or provisions
of or constitute a default under the Articles of Incorporation of
W-L, any material agreement or judgment to which it is a party of
by which it is bound or any material statutory or regulatory
provisions affecting it, (ii) give any party to or with rights
under any such agreement or judgment the right to terminate,
modify or otherwise change the material rights or obligations of
W-L under such agreement or judgment, or (iii) require the
approval, consent or authorization of any court, governmental
authority or regulatory body, other than approvals of the
Securities and Exchange Commission, Investment Commission of the
Ministry of Economic Affairs and industrial authorities-in-charge
of the Republic of China (such approvals being herein referred to
collectively as the "W-L Governmental Approvals"), and such
approvals, consents or authorizations the failure of which to be
obtained would not have a material adverse effect on the
financial position or results of operations of W-L. W-L will
have at the Time of Stock Subscription Closing and at the Time of
Assets Purchase Closing, full corporate power and authority to do
and perform all acts and things required to be done by it under
this Agreement.
3.3 No Shareholder with Adverse Competitive Interests. To
-------------------------------------------------
the best of W-L's knowledge, no person or entity holding in
excess of 5% of the outstanding shares of capital stock of W-L or
any Affiliate thereof has a competitive interest or is in a
competitive position which will be materially adverse to the
Venture or CTC at the Time of Stock Subscription Closing.
<PAGE>
3.4 Brokers. W-L has not made any agreement or taken any
-------
other action which might cause CTC or any of its Affiliates to
pay or become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
3.5 Completeness and Accuracy of Information. None of
----------------------------------------
W-L's representations, warranties or statements contained in this
Agreement, or in the Exhibits or schedules hereto, contains any
untrue statement of a material fact or omits to state any
material fact necessary in order to make any of such
representations, warranties or statements not misleading in light
of the circumstances under which they were made.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CTC
-------------------------------------
As an inducement to W-L to enter into this Agreement and to
consummate the transactions contemplated herein, CTC represents
and warrants to W-L as follows:
4.1 Organization. CTC is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State
of Delaware, and has full corporate power and authority to own or
lease its properties and to carry on its business as now
conducted.
4.2 Corporate Authority. The execution, delivery and performance
-------------------
of this Agreement have been duly authorized and approved by the
Board of Directors of CTC (subject to final ratification following
execution and delivery hereof) and, if required by applicable law
or regulation, will have been duly approved by its stockholders by
the Time of Stock Subscription Closing, the Agreement has been duly
executed and delivered by CTC and constitutes the legal, valid and
binding obligation of CTC enforceable in accordance with its terms,
and neither the execution and delivery of this Agreement nor the
consummation of the trans-actions contemplated hereby, nor
compliance with or fulfillment of the terms and provisions hereof,
will (i) conflict with a result in a breach of the terms, conditions
or provisions of or constitute a default under the Certificate of
Incorporation or Bylaws of CTC, any material agreement or judgment
to which it is a party or by which it is bound or any material
statutory or regulatory provisions affecting it, (ii) give any party
to or with rights under any such agreement or judgment the right to
terminate, modify or otherwise change the material rights or
obligations of CTC under such agreement or judgment, or (iii) require
the approval, consent or authorization of any federal, state or local
court, governmental authority or regulatory body, other than the CTC
Investment, TA and Foreign Exchange Approvals and such approvals,
consents or authorizations the failure of which to be obtained would
not have a material adverse effect on the financial position or results
of operations of CTC. CTC will have at the Time of Closing, full
corporate power and authority to do and perform all acts and things
required to be done by it under this Agreement.
<PAGE>
4.3 Brokers. CTC has not made any agreement or taken any
-------
other action which might cause W-L or any of its Affiliates to
pay or become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
4.4 Completeness and Accuracy of Information. None of
----------------------------------------
CTC's representations, warranties or statements contained in this
Agreement, or in the Exhibits and schedules hereto, contains any
untrue statement of a material fact or omits to state any
material fact necessary in order to make any of such
representations, warranties or statements not misleading in light
of the circumstances under which they were made.
ARTICLE 5
ACTIONS PRIOR TO TIME OF STOCK PURCHASE CLOSING
-----------------------------------------------
The parties will take or permit to be taken the following
actions between the date hereof and the Time of Stock Purchasing
Closing:
5.1 Governmental Applications and Approvals. Promptly
---------------------------------------
following the date of this Agreement, CTC shall submit to the
Investment Commission of the Ministry of Economic Affairs of the
Republic of China the foreign investment and technical
cooperation applications and supporting documentation necessary
to obtain approvals for (i) the purchase of the CTC Subscribed
Shares and (ii) the right to receive payments under the KHT
Licensing and Technology Agreement, and shall in due course,
submit to the Central Bank of China the application necessary to
obtain approval with respect to foreign currency exchange for the
payment to the Venture of the CTC Share Subscription Price (such
approvals being herein referred to collectively as the "CTC
Investment, TA and Foreign Exchange Approvals"). CTC shall use
its reasonable best efforts promptly to furnish or cause to be
furnished such additional information as may be requested by the
governmental authorities in connection with such applications and
to take such additional action as may be necessary or required in
order to obtain the CTC Investment, TA and Foreign Exchange
Approvals.
<PAGE>
5.2 Investigation of the Venture and the Facility. Until
---------------------------------------------
the earlier to occur of the Time of Stock Subscription Closing or
such time as this Agreement is terminated pursuant to Section
6.3(a) hereof, W-L shall afford to the officers, employees and
authorized representatives (including, without limitation,
accounting and legal personnel) of CTC such access to the
offices, properties, business and financial records of W-L
relating to the Facility and the Assets and business to be
transferred to the Venture as CTC shall deem necessary or
desirable, and shall furnish to CTC or its authorized
representatives such additional financial and operating data as
shall be reasonably requested, subject at all times to the
provisions of the Confidentiality Agreement dated November 16,
1992 between W-L and CTC (the "Confidentiality Agreement"). No
investigation made by either party or its representatives
hereunder shall affect the representations and warranties of the
other party hereunder.
5.3 Preserve Accuracy of Representations and Warranties.
---------------------------------------------------
Each of the parties shall refrain from taking any action which
would render any of its respective representations and warranties
contained in Articles 3 and 4 of this Agreement inaccurate or
incomplete as of the Time of Stock Subscription Closing. W-L
promptly will notify CTC of any claims, proceedings or
investigations that may be threatened, brought, asserted or
commenced against W-L or any of its officers or directors (i)
involving in any manner the transactions contemplated hereby or
(ii) which might have a material adverse effect on the Facility
or the Venture. CTC promptly will notify W-L of any claims,
proceedings or investigations that may be threatened, brought,
asserted or commenced against CTC or its officers or directors
involving in any manner the transactions contemplated hereby.
5.4 Efforts towards Completion of the Facility. W-L will
------------------------------------------
use its reasonable best efforts to work towards completion of the
Facility with the objective of bringing it to fully-operational
status in or before July 31, 1994, and to maintain satisfactory
relationships with contractors, design professionals, suppliers,
customers and others who will have business relationships with
the Venture.
<PAGE>
ARTICLE 6
CONDITIONS TO CLOSING; TERMINATION
----------------------------------
6.1 Conditions Precedent to the Obligations of CTC. The
----------------------------------------------
obligation of CTC to proceed with the Stock Subscription Closing
under this Agreement is subjection to the fulfillment, prior to
or at the Time of Stock Subscription Closing, of the following
conditions (any one or more of which may be waived in whole or in
part by CTC at CTC's option):
(a) Representations and Warranties of W-L. The
-------------------------------------
representations and warranties of W-L contained in Article 3 of
this Agreement shall be true, complete and correct on and as of
the Stock Subscription Closing Date with the same force and
effect as though such representations and warranties had been
made on, as of and with reference to the Stock Subscription
Closing Date, and CTC shall have received a certificate to such
effect signed by the Chairman of the Board or President of W-L.
(b) Performance and Compliance. W-L shall have
--------------------------
reasonably performed all of the covenants and complied with all
of the provisions required by this Agreement to be performed or
complied with at or before the Time of Stock Subscription
Closing, and CTC shall have received a certificate to such effect
signed by the Chairman of the Board or President of W-L.
(c) Satisfactory Instruments. All instruments and
------------------------
documents required to be delivered on the part of W-L to
effectuate and consummate the transactions contemplated hereby
shall be delivered respectively to CTC or to the Venture and
shall be in the form and substance satisfactory to CTC and its
counsel.
(d) Required Approvals and Consents. The shareholders
-------------------------------
of W-L (and of CTC, if required by applicable law or regulation)
shall have approved this Agreement and the transactions
contemplated hereby, all consents and approvals of all
governmental departments, agencies, and authorities required for,
and of third parties to, the transactions contemplated hereby
(including the CTC Investment, TCA and Foreign Exchange Approvals
and the W-L Governmental Approvals) shall have been obtained on
terms and conditions reasonably satisfactory to CTC, and all
waiting periods specified by law the expiration of which are
necessary for the consummation of such transactions shall have
passed or been terminated.
<PAGE>
(e) Litigation. No order of any court, arbitrator or
----------
governmental, regulatory or administrative agency or commission
shall be in effect which restrains or prohibits the transactions
contemplated hereby, and there shall not have been threatened,
nor shall there be pending, any action or proceeding by or before
any court, arbitrator or governmental, regulatory or
administrative agency or commission, (i) challenging any of the
transactions contemplated by this Agreement or seeking monetary
relief by reason of the consummation of such transactions or (ii)
which might have a material adverse effect on the business or
operations of the Venture.
(f) Satisfactory Investigations. CTC shall have
---------------------------
completed such investigations, reviews and evaluations as it may
have instituted pursuant to Section 5.2 hereof and shall have
obtained the results of such independent appraisals of the Assets
as it shall have reasonably requested, the conclusions of all of
which shall be reasonably satisfactory to CTC.
(g) Currency Exchange Rate. The rate of currency
----------------------
exchange for the exchange of New Taiwan Dollars for United States
Dollars on the Stock Subscription Closing Date shall not be less
than NT$22:US$1.
6.2 Conditions Precedent to the Obligations of W-L. The
----------------------------------------------
obligation of W-L to proceed with the Stock Subscription.
Closing under this Agreement is subject to the fulfillment, prior
to or at the Time of Stock Subscription Closing, of the following
conditions (any one or more of which may be waived in whole or in
part by W-L at W-L's option):
(a) Representations and Warranties of CTC. The
-------------------------------------
representations and warranties of CTC contained in Article 4 of
this Agreement shall be true, complete and correct on and as of
the Stock Subscription Closing Date, with the same force and
effect as though such representations and warranties had been
made on, as of and with reference to such Date, and W-L shall
have received a certificate to such effect signed by the Chairman
and President of CTC.
(b) Performance and Compliance. CTC shall have
--------------------------
reasonably performed all of the covenants and complied with all
of the provisions required by this Agreement to be performed or
complied with at or before the Time of Stock Subscription
Closing, and shall have received a certificate to such effect
signed by the Chairman and President of CTC.
<PAGE>
(c) Satisfactory Instruments. All instruments and
------------------------
documents required to be delivered on the part of CTC to
effectuate and consummate the transactions contemplated hereby
shall be delivered respectively to W-L or the Venture and shall
be in the form and substance satisfactory to W-L and its counsel.
(d) Required Approvals and Consents. The shareholders
-------------------------------
of W-L (and of CTC, if required by applicable law or regulation)
shall have approved this Agreement and the transactions
contemplated hereby, all consents and approvals of all
governmental departments, agencies, and authorities required for,
and of third parties to, the transactions contemplated hereby
(including the W-L Governmental Approvals and the CTC Investment,
TA and Foreign Exchange Approvals) shall have been obtained on
terms reasonably satisfactory to W-L, and all waiting periods
specified by law the expiration of which are necessary for the
consummation of such transactions shall have passed or been
terminated.
(e) Litigation. No order of any court, arbitrator or
----------
governmental, regulatory or administrative agency or commission
shall be in effect which restrains or prohibits the transactions
contemplated hereby, and there shall not have been threatened,
nor shall there be pending, any action or proceeding by or before
any court, arbitrator or governmental, regulatory or
administrative agency or commission challenging any of the
transactions contemplated by this Agreement or seeking monetary
relief by reason of the consummation of such transactions.
(f) Technology Licensing and Transfer Agreement. CTC
-------------------------------------------
shall have executed and delivered into escrow pending execution
by the Venture at the Assets Purchase Closing a know-how and
technology licensing and transfer agreement, in substantially the
form attached hereto as Exhibit C (the "KHT Licensing and
Transfer Agreement"). Effective on January 1, 1997, Exhibit C
has been amended and restated in its entirety in the form
attached hereto.
(g) Distributor Agreements. Pursuant to the
----------------------
Investment Agreement the parties entered into agreements known as
the CEA Distribution Agreement and the Western Hemisphere
Distributor Agreement. Effective January 10, 1996, the CEA
Distribution Agreement was terminated and is of no further force
or effect. Effective on January 1, 1997, the Western Hemisphere
Distributor Agreement has been terminated and is of no further
force or effect. Any commissions, royalties or other amounts owed
under those agreements shall be paid with respect to any orders
that were received prior to the effective dates of such
terminations provided that the products ordered are thereafter
shipped and payment therefor is received.
<PAGE>
6.3 Termination.
-----------
(a) Termination of Agreement Prior to Closing. This
-----------------------------------------
Agreement may be terminated at any time prior to the Stock
Subscription Closing:
(i) By mutual written consent of CTC and W-L;
(ii) By CTC if there has been a material
misrepresentation by W-L, a material breach by W-L of any of its
warranties or covenants, or if any of the conditions specified in
Section 6.1 hereof shall not have been fulfilled by the time
required and shall not have been waived by CTC in writing;
(iii) By W-L if there has been a material
misrepresentation by CTC, a material breach by CTC of any of its
warranties or covenants, or if any of the conditions specified in
Section 6.2 hereof shall not have been fulfilled by the time
required and shall not have been waived by W-L in writing; or
(iv) By CTC or W-L if the Stock Subscription
Closing shall not have occurred prior to or on June 30, 1994;
provided that W-L or CTC may terminate this Agreement pursuant to
this subparagraph (iv) only if the Stock Subscription Closing
shall not have occurred by such date for a reason other than a
failure by the party seeking termination to satisfy the
conditions precedent to the obligation of the other party to
proceed with the Stock Subscription Closing respectively set
forth in Sections 6.1 or 6.2 hereof.
(b) Effect of Termination. In the event of
---------------------
termination of this Agreement by either CTC or W-L as provided in
subsection (a), there shall be no liability on the part of CTC or
W-L, except for liabilities arising from a willful, deliberate or
negligent breach of this Agreement with respect to which a claim
has accrued prior to such termination.
(c) Termination of Agreement Following Closing.
------------------------------------------
(i) The provisions of Articles 7, 8, 9, 10 and 11
shall continue in full force and effect following the Time of
Stock Subscription Closing until such time as either W-L or CTC
and any of their respective Affiliates cease to hold any shares
of Venture Stock, whereupon the effectiveness of all such
provisions shall terminate finally and absolutely with the
exception of Sections 9.8 and 10.14, which shall terminate only
upon completion of the action required thereby.
(ii) This Agreement will terminate automatically
upon listing of the Venture Stock on the Taiwan Stock Exchange of
the Republic of China.
<PAGE>
ARTICLE 7
FINANCING OF VENTURE OPERATIONS
-------------------------------
7.1 Borrowings. To the extent the Venture requires from
----------
time to time additional funds for future operations not generated
by its own activities, such additional funds may be borrowed from
either W-L or CTC (or both) to the extent (i) permitted by
applicable law and (ii) that either, in its discretion, chooses
to make such loans, provided that neither W-L nor CTC shall be
requested to make loans to the Venture that would not reasonably
be made by unrelated third parties. Funds may also be borrowed
by the Venture from third parties to the extent available at
reasonable rates of interest, and W-L and CTC each may severally
or jointly provide, to the extent agreed by them and as permitted
by applicable law, such guarantees as may be reasonably required
by such third parties in respect of such borrowings in proportion
to their respective equity interests in the Venture at the time
of borrowing or on such other basis as they may agree.
7.2 Funding Sources; Dilution. Funds shall be obtained by
-------------------------
the Venture by the most economic means reasonably available;
provided, however, that the Venture shall seek to fund all of its
capital requirements by borrowings or the occurrence of
indebtedness rather than through contributions or infusions of
additional equity capital involving the issuance of additional
shares of Venture Stock, unless otherwise agreed between W-L and
CTC. In the event that W-L and CTC agree to provide additional
shares of Venture Stock, unless otherwise agreed between W-L and
CTC. In the event that W-L and CTC agree to provide additional
equity capital and either party defaults on such agreement by
failure to provide such funding within 30 days after written
demand by the Venture or the non-defaulting party, the
nondefaulting party will have the right to make the contribution
of the defaulting party and receive shares of Venture Stock
therefor to the extent permitted by applicable law, subject in
the case of CTC to receipt of the necessary R.O.C. governmental
approvals with respect to such contribution.
<PAGE>
ARTICLE 8
ADDITIONAL AGREEMENTS OF THE PARTIES
------------------------------------
8.1 Indemnification.
---------------
(a) By W-L. From and after the Stock Subscription
------
Closing, W-L will indemnify and hold harmless CTC and its
subsidiaries, Affiliates, officers, directors, agents, and
employees (collectively, the "CTC indemnities") from and against
all liabilities, losses, deficiencies, claims, costs and expenses
(including, without limitation, reasonable legal fees incurred in
connection with any of the foregoing and in seeking
indemnification hereunder) suffered by any CTC indemnitee and
arising out of any inaccuracy in or breach of any of the
representations, warranties, covenants or agreements made by W-L
in this Agreement prior to the Time of Stock Subscription Closing
("W-L Indemnifiable Damages"). To the extent the Venture would
be a CTC indemnitee for W-L Indemnifiable Damages, W-L shall
satisfy its obligation under this Section 8.1(a) by indemnifying
that proportion of such W-L Indemnifiable Damages equal to the
number of shares of Venture Stock owned by CTC divided by the
total number of shares of Venture Stock then outstanding.
(b) By CTC. From and after the Stock Subscription
------
Closing, CTC will indemnify and hold harmless W-L and its
subsidiaries, Affiliates, officers, directors, agents and
employees (collectively, the "W-L indemnities") from and against
all liabilities, losses, deficiencies, claims, costs and expenses
(including, without limitation, reasonable legal fees incurred in
connection with any of the foregoing and in seeking
indemnification hereunder) suffered by any W-L indemnitee and
arising out of any inaccuracy in or breach of any of the
representations, warranties and covenants or agreements made by
CTC in this Agreement prior to the Time of Stock Subscription
Closing ("CTC Indemnifiable Damages"). To the extent the Venture
would be a CTC indemnitee for CTC Indemnifiable Damages, CTC
shall satisfy its obligation under this Section 8.1(b) by
indemnifying that proportion of such CTC Indemnifiable Damages
equal to the number of shares of Venture Stocked owned be W-L
divided by the total number of shares of Venture Stock then
outstanding.
<PAGE>
ARTICLE 9
EQUITY OWNERSHIP OF THE VENTURE
-------------------------------
9.1 Restriction on Share Transfers.
------------------------------
(a) Basic Prohibition; Exceptions. Except as
-----------------------------
otherwise specifically provided in this Article 9, neither CTC
nor W-L will sell, transfer, pledge, encumber, assign or
otherwise dispose of or limit its right to vote in any manner its
shares of Venture Stock (a "Transfer of Shares") other than (i)
with the prior written consent of the other party, upon such
terms and conditions as the other party in its reasonable
discretion may impose, and only after first offering such shares
to such other party in accordance with the terms of Section
9.6(a) at a price equal to the price offered by a third party (if
any such party shall have made an offer) which offer shall be at
a price not less than the Fair Value thereof (as determined
pursuant to Section 9.5), (ii) to any Affiliate of which a
majority of the voting stock is owned by the transferring party
so long as such Affiliate agrees in writing to be bound by this
Agreement; provided, that CTC or W-L, respectively, will not
--------
permit the sale, transfer, pledge, encumbrance, assignment or
other disposition of any voting securities of such Affiliate if
such Affiliate shall then own any such shares, and provided
--------
further that the transfer or, be its W-L or CTC, shall remain
liable for all of its obligations under this Agreement, (iii) in
connection with a "nominee" transfer for purposes of compliance
with applicable law governing the minimum number of shareholders
of the Venture, or (iv) pursuant to temporary or "bridge"
financing of its purchase obligations under Article 2 hereof (any
recipient of a Transfer of Shares under clauses (ii), (iii) or
(iv) hereof being hereinafter referred to as a "Permitted
Transferee").
(b) Remedy for Violations. If either W-L or CTC or
---------------------
any Permitted Transferee effects a Transfer of Shares in
violation of this Section 9.1, the other party shall, in
consequence of the injury sustained by such party as a result of
such violation, be entitled to receive from the party so
effecting the Transfer in the nature of liquidated damages a cash
payment in the amount of ten times the greater of (i) the
aggregate par value of the shares so transferred or (ii) the
proceeds received as a result of the transfer. In no event are
such liquidated damages to be considered or construed as in the
nature of a penalty, each party hereby acknowledging the
difficulty of determining actual damages under the circumstances
of such a violation.
<PAGE>
(c) Sale of Additional Stock. CTC acknowledges that
------------------------
the Venture is considering issuing new shares of stock to a third
party. CTC does not object to such issuance provided that the
shares are issued for adequate consideration and W-L maintains a
majority ownership of the Venture. If the Venture decides to
issue any new stock to such third party, neither the Venture nor
W-L shall be relieved from their confidentiality obligations with
respect to the KHT and they shall require such third party to
enter into such confidentiality, noncompetition and other
agreements as CTC shall deem appropriate with respect thereto.
9.2 Put Right of CTC; Call Right of W-L.
-----------------------------------
(a) Put Right and Initial Purchase Right. CTC shall
------------------------------------
have the one-time right to put to W-L for purchase (the "Put
Right") at any time prior to July 1, 1999, 89,255,000 shares of
the CTC Subscribed Shares (approximately 14% of the outstanding
stock), for their proportionate original CTC Share Subscription
Price of NT$892,550,000. The parties acknowledge that CTC
exercised its Put-Right as of March 19, 1996 and the put was
executed and completed as of that date.
(b) Call Right. In consideration of the modification
----------
of the Put Right, W-L shall have the one-time right to call from
CTC for purchase (the "Call Right"), at any time on or before
March 19, 1998, CTC's entire remaining interest in the CTC
Subscribed Shares and any additional shares of Venture Stock
representing any stock dividends or the capitalization of
retained earnings which have been distributed to CTC in respect
of the CTC Subscribed Shares or have been subsequently purchased
or otherwise acquired by CTC (collectively, the "Called Shares").
The price per Called Share shall be determined by dividing the
Aggregate Call Price by the number of Called Shares, the
Aggregate Call Price being equal to NT$318,750,000 plus interest
at the rate of 6% per annum, compounded annually and computed
from the Stock Subscription Closing Date to the date of the
closing of the purchase and sale of the Called Shares pursuant to
the Call Right (the "Call Closing Date"); provided, that if any
--------
of the Called Shares represent stock dividends or the
capitalization of capital surplus distributed with respect to the
CTC Subscribed Shares or are shares in addition to the CTC
Subscribed Shares which were purchased by CTC for cash or other
consideration after the Stock Subscription Closing Date, the
Aggregate Call Price shall be increased by the acquisition costs
of such shares (cash or non-cash consideration plus taxes paid by
CTC in connection with the acquisition) plus interest at the rate
of 6% per annum, compounded annually and computed from the date
of acquisition to the Call Closing Date.
<PAGE>
(c) Taxes. All securities transaction taxes imposed
-----
by the Republic of China on the sale of the shares under the
Purchase Right shall be paid by CTC. All ROC income taxes on the
capital gains deriving from the sale of the shares under the
Purchase Right shall be paid by W-L.
(d) Extension of Time for Exercise. In the event the
------------------------------
Stock Subscription Closing Date occurs after September 30, 1993,
the "July 1, 1996" date in subsection (a) will be extended by the
number of days to elapse between September 30, 1993 and the
Closing Date.
9.3 Purchase Right on Breach of Default. Each of CTC and
-----------------------------------
W-L at any time during the term of this Agreement shall have a
Purchase Right as to all, but not less than all, of the shares of
Venture Stock beneficially owned by the other party at a price
equal to Fair Value as of the date of notice given pursuant to
Section 9.6(a) upon the continuing or repeated breach by the
other part of, or its failure to discharge, its obligations
under, or otherwise observe the terms of, this Agreement, but
only after such other party has been given notice of the initial
breach or failure and an opportunity to cure such breach or
failure within 30 days after such notice has been given or such
other reasonable period of time as agreed by the parties.
9.4 Put and Call Rights of Both Parties. Upon the
-----------------------------------
occurrence of an Incompatibility Sequence, each of CTC and W-L
shall have the following rights:
(a) Call Right. The right to call for purchase (a
----------
"Call Right") all, but not less than all, of the other party's
shares of Venture Stock beneficially owned at a price equal to
the Fair Value thereof. The party whose shares are called shall
have the right to accept the offer and sell the shares to the
other party or alternatively to purchase all of the other party's
shares at a price equal to Fair Value.
(b) Put Right. The right to put to the other party
---------
for purchase (a "Put Right") all, but not less than all, of its
shares of Venture Stock beneficially owned at a price equal to
Fair Value.
<PAGE>
For purposes of this Section 9.4, "Incompatibility Sequence" means
a series of actions or a course of conduct reflected at meetings
of the Venture's Board of Directors evidencing incompatibility of
CTC and W-L as holders of Venture Stock resulting, after formal
objection by one or both parties and the passage of a period of
60 days for the alteration or correction of such actions or
conduct, in irresolvable deadlock or opposition with respect to
operating policies or additional investment decisions (including
but not limited to the use of debt versus equity financing and
the use or disposition of the retained earnings of the Venture).
9.5 Determination of Fair Value. Fair Value shall be
---------------------------
determined by agreement of W-L and CTC, or upon their failure to
agree, by an independent valuation service selected by CTC and
W-L (or selected by their respective independent accountants, if
CTC and W-L are unable to agree on such selection). The
determination of the firm so acting (the "Independent Valuation
Firm") shall be made in accordance with the principles employed
for the valuation of companies in similar lines of business at
the time of valuation, and such principles shall be clearly
articulated in the report of the Independent Valuation Firm
setting forth the Fair Value determination (the "Valuation
Report"). A preliminary version of the Valuation Report shall be
furnished to CTC and W-L, each of whom within 30 days of receipt
thereof shall furnish to the Independent Valuation Firm and to
the other party any comments or suggestions with respect to the
determination or the principles set forth therein. The
Independent Valuation Firm shall consider all such comments and
suggestions and shall thereupon issue the definitive Valuation
Report, which shall be the final determination of Fair Value and
binding upon the parties hereto. The fees and expenses of the
Independent Valuation Firm shall be borne equally by CTC and W-L,
and all other expenses associated with the determination
contemplated hereby shall be borne by the party incurring the
same.
9.6 Manner of Purchase or Exercise.
------------------------------
(a) Notice. A party desiring to effect a Transfer of
------
Shares under clause (i) of Section 9.1(a) (the "Transferor") will
deliver written notice of such proposed Transfer to the other
party (the "Purchaser"), offering the Purchaser the right to
purchase such shares as hereinbefore provided. Such notice shall
specify the number of shares to be transferred, the identity of
the prospective third-party transferee (if any), the proposed
price requested by the Transferor or offered by the prospective
third-party transferee and the terms and conditions under which
the shares are to be transferred. The Purchaser shall have a
period of 25 days from the date of receipt of such notice to (i)
elect to purchase such shares at the price and on the terms so
<PAGE>
offered, (ii) decline to make such purchase, or (iii) institute
the procedures for a Fair Value determination contemplated by
Section 9.5 in the event the Purchaser believes the proposed
price is below the Fair Value of the shares, in each case by
written notice to the Transferor. In the event the Purchaser
declines to make the purchase, or fails to give notice to the
Transferor by the end of such 25-day period, the Purchaser will
be deemed to have consented to the proposed third-party transfer
on the terms specified in the Transferor's notice, and the
Transferor shall be free to transfer the offered shares to such
third party, but at a price and terms set forth in the
Transferor's notice. A party desiring to exercise its Purchase,
Call or Put Right under Sections 9.2, 9.3 or 9.4, as the case may
be (the "Exerciser"), will deliver written notice of its
intention to effect such exercise to the other party (the
"Exercisee") indicating the provision of this Agreement pursuant
to which such exercise is to be effected and the reason for such
exercise, if it is appropriate to provide such a reason.
(b) Closing. If the parties cannot agree on Fair
-------
Value, the Purchaser or Exerciser shall immediately thereafter
commence, or cause to be commenced, the determination of Fair
Value pursuant to Section 9.5 of this Agreement. The closing of
a purchase or exercise shall occur on the date jointly selected
by the parties, not less than ten business days nor more than 30
business days subsequent to the delivery of the definitive
Valuation Report, subject to any applicable regulatory waiting
periods, provided, that an extension for a reasonable period of
time will be permitted for the purpose of obtaining financing.
Within ten business days of receipt of the definitive Valuation
Report, the Purchaser or Exerciser may revoke in writing the
purchase offer or exercise of the Purchase, Put or Call Right,
respectively. If such offer or exercise of such Purchase, Put or
Call Right is not revoked within such ten day period, then the
closing of the purchase or exercise of the Purchase, Put or Call
Right shall occur. At such closing, the party transferring
shares shall deliver or cause to be delivered to the other party
the certificate or certificates representing the shares, duly
endorsed for transfer or accompanied by duly executed stock
powers, and the party receiving shares shall deliver to the other
party the aggregate amount of the purchase price, by bank check
or by wire transfer of immediately available funds to an account
designated by such party.
<PAGE>
9.7 CTC Board Representation. Until such time as its
------------------------
Purchase Right under Section 9.2 expires, CTC will be entitled to
representation on the Board of Directors of the Venture otherwise
than in proportion to its holdings of shares of Venture Stock, as
provided in Section 1.3. Thereafter, CTC will be entitled to
Board representation in proportion to its holdings of shares of
Venture Stock; provided, however, that at all times during the
--------
effective term of this Agreement CTC will have the right to have
at least one nominee on the Board of Directors.
9.8 Elimination of Supermajority Vote Provisions. In the
--------------------------------------------
event that CTC's Purchase Right under Section 9.2 expires by its
terms without being exercised, the Articles of Incorporation of
the Venture shall thereafter be amended to delete therefrom all
provisions requiring a supermajority vote in respect of Board of
Directors or shareholder approval other than those required by
the laws of the Republic of China. It is hereby acknowledged by
the parties that Articles 17 and 28 of the Articles of
Incorporation shall be specifically amended to provide for those
protections normally provided for shareholders according to their
respective holdings by the laws of the Republic of China.
9.9 Change of Venture Name. The Venture shall reasonably
----------------------
promptly change or modify its name so as to delete therefrom the
word "CarTech" upon the earlier to occur of the following: (i)
January 1, 2000; or (ii) if CTC and all its Permitted Transferees
at any time cease to hold any shares of Venture Stock.
Thereafter, the Venture will not use in its name or in product
literature identifying it the words "Carpenter" or "CarTech" or
any word or phrase substantially similar thereto. If W-L and all
its Permitted Transferees at any time cease to hold any shares of
Venture Stock, the Venture shall reasonably promptly change or
modify its name so as to delete therefrom the word "Walsin" and
will not use in its name or in product literature identifying it
the words "Walsin" or "Lihwa" or any word or phrase substantially
similar thereto.
ARTICLE 10
MISCELLANEOUS PROVISIONS
------------------------
10.1 Governing Law. This Agreement shall be construed and
-------------
interpreted according to the laws of the Republic of China
applicable to contracts made and to be performed therein.
<PAGE>
10.2 Arbitration. All disputes, controversies or
-----------
differences which may arise between the parties under or in
respect of this Agreement, or for breach hereof (other than
disputes relating to Fair Value, which shall be subject
exclusively to the provisions of Section 9.5) which remain
unresolved after 60 days following notice thereof given by a
party hereto will be submitted to and finally resolved by
arbitration conducted in accordance with to the rules of the
International Chamber of Commerce as then in effect. Unless the
parties otherwise agree, arbitration proceedings will be
conducted in the English language in the City of Zurich,
Switzerland. Judgment upon any award reached in any such
proceeding may be entered in any court of competent jurisdiction.
10.3 Waiver. Any party hereto may, at its option, waive in
------
writing any or all of the conditions herein contained to which
its obligations hereunder are subject.
10.4 Amendment and Modification. W-L, CTC and the Venture,
--------------------------
by mutual consent of their respective Boards of Directors or the
officers authorized by such Boards of Directors, may amend or
modify and supplement this Agreement in such manner as may be
agreed upon in writing. To be effective, any such amendment,
modification or supplement must be in writing signed by an
authorized representative of the party against whom enforcement
of the same is sought.
10.5 Consents; Other Action. Each of the parties
----------------------
hereto shall use its reasonable best efforts to obtain the
consent or approval of each person, entity or governmental
authority or agency, if any, whose consent or approval shall be
required pursuant to this Agreement or otherwise in order to
permit it to consummate the transactions contemplated hereby in
the manner contemplated hereby, and each agrees to use its
reasonable best efforts to take any such other action as may be
required by any law, regulation or rule in order to carry out the
transactions contemplated hereby and to cause the conditions
precedent to be satisfied. This Agreement shall not constitute
an agreement to assign any interest in any contract, bid,
purchase order, agreement or instrument to be transferred to the
Venture, or any claim, right or benefit arising thereunder or
resulting therefrom, if an assignment without the consent of a
third party would constitute a breach or violation thereof or
adversely affect the rights of the Venture or the other parties
hereto or their respective Affiliates thereunder. If a consent
of a third party which is required in order to assign any such
contract, bid, purchase order, agreement or instrument or any
claim, right or benefit arising thereunder or resulting therefrom
<PAGE>
is not obtained prior to the Time of Closing, or if an attempted
assignment thereof would be ineffective or would adversely affect
the ability of the parties hereto will cooperate in effecting any
lawful and economically feasible arrangement to provide that the
Venture shall receive such interest in the benefits under any
such contract, bid, purchase order, agreement or instrument or
the equivalent value thereof; and any transfer or assignment to
the Venture by the parties hereto or their respective Affiliates
of any interest under any such contract, bid, purchase order,
agreement or instrument that requires the consent of a third
party shall be made subject to such consent or approval being
obtained.
10.6 Titles and Headings. The titles and headings contained
-------------------
in this Agreement preceding the text of the sections and
subsections hereof are inserted solely for the convenience of
reference and shall not constitute a part of this Agreement nor
affect in any way its meaning, construction or interpretation.
10.7 Notices and Communications. All notices, requests,
--------------------------
demands and other communications hereunder shall be in writing
and shall be deemed to have been duly given if (i) delivered in
person, (ii) sent by electronic facsimile transmission (with
receipt confirmed), (iii) mailed by first class, certified or
registered mail with postage prepaid or (iv) sent by overnight
courier, to the other party or parties at the following addresses
(or to such other address as shall be furnished in writing from
time to tome by any party to the others):
(a) If to W-L, to:
Walsin Lihwa Corporation
12th Floor
117 Ming Sheng East Road, Section 3
Taipei, Taiwan
Republic of China
Attention: Mr. Yu Lon Chiao, President
Fax No.: 02-719-7304
(b) If to CTC, to:
Carpenter Technology Corporation
101 West Bern Street
Reading, Pennsylvania 19603
United States of America
Attention: Robert W. Cardy, Chairman
and Chief Executive Officer
Fax No.: 610-208-2361
<PAGE>
with a copy to:
John R. Welty, Esquire
Vice President, General Counsel & Secretary
Carpenter Technology Corporation
101 West Bern Street
Reading, Pennsylvania 19603
United States of America
Fax No.: 610-208-3068
(c) If to the Venture, to:
Walsin-CarTech Corporation
c/o Walsin Lihwa Corporation
12th Floor
117 Ming Sheng East Road, Section 3
Taipei, Taiwan
Republic of China
Attention: I-Lin Cheng, President
Fax No.: 02-719-7304
10.8 Assignment; Successors. This Agreement shall be
----------------------
binding upon and inure to the benefit of the parties named herein
and their respective successors and assigns, provided, however,
that this Agreement shall not be assignable or otherwise
transferable without the consent of the other parties hereto,
except as specifically provided herein.
10.9 Expenses. Whether or not the transactions contemplated
--------
hereby are consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
10.10 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
10.11 Further Assurances. After the Asset Purchase Closing,
------------------ --------------
each party hereto shall from time to time, at any other party's
request, prepare, execute and deliver to such other party such
other documents and take such other action as such other party
may reasonably request so as to more effectively sell, transfer,
assign and deliver and vest in the Venture good and marketable
title to the Facility as provided in this Agreement, or otherwise
to consummate the transactions contemplated hereby.
<PAGE>
10.12 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way
be affected, impaired or invalidated, and the parties hereto
shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without
including any of such which may be hereafter declared invalid,
void or unenforceable.
10.13 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties contained herein shall survive the
Closing.
10.14 Entire Agreement. This Agreement including the
----------------
Exhibits, schedules and the agreements and other documents
referred to herein, and any other agreements collateral hereto
subsequently signed by the parties hereto, shall constitute the
entire agreement between the parties with respect to the subject
matter hereof, and shall supersede all previous negotiations and
writings with respect to such subject matter other than the
Confidentiality Agreement which shall remain in full force and
effect until termination thereof by its terms.
ARTICLE 11
DEFINITIONS
-----------
11.1 "Affiliate" means, with respect to a specified person,
a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the person specified. For purposes of this
definition, "person" means any individual, partnership,
corporation, trust or other entity, and "control" means the
possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or
otherwise.
11.2 "Agreement" has the meaning set forth in the first
paragraph of page 1 of this Agreement.
<PAGE>
11.3 "Assets" has the meaning set forth in the second
paragraph of page 1 of this Agreement.
11.4 "Assets Purchase Agreement" has the meaning set forth
in Section 2.4 of this Agreement.
11.5 "Assets Purchase Closing" has the meaning set forth in
Section 2.5 of this Agreement.
11.6 "Assets Purchase Price" has the meaning set forth in
Section 2.4 of this Agreement.
11.7 "CEA Distribution Agreement" has the meaning set forth
in Section 6.2(g) of this Agreement.
11.8 "Call Right" has the meaning set forth in Section
9.4(a) of this Agreement.
11.9 "Chinese Economic Area" means the Republic of China
(Taiwan), the Peoples Republic of China (including Hong Kong),
Indonesia, Thailand, Singapore, Malaysia, North and South Korea,
Japan, the Philippines, Brunei, Burma, Cambodia, Laos and
Vietnam.
11.10 "Confidentiality Agreement" has the meaning set forth
in Section 5.1 of this Agreement.
11.11 "CTC" has the meaning set forth in the first paragraph
of page 1 of this Agreement.
11.12 "CTC Indemnifiable Damages" has the meaning set forth
in Section 8.1(b) of this Agreement.
11.13 "CTC Indemnitees" has the meaning set forth in Section
8.1(b) of this Agreement.
11.14 "CTC Share Subscription Price" has the meaning set
forth in Section 2.2 of this Agreement.
11.15 "CTC Subscribed Shares" has the meaning set forth in
Section 2.2 of this Agreement.
11.16 "Exercisee" has the meaning set forth in Section 9.6(a)
of this Agreement.
11.17 "Exerciser" has the meaning set forth in Section 9.6(a)
of this Agreement.
11.18 "Facility" has the meaning set forth in the second
paragraph of page 1 of this Agreement.
11.19 "Incompatibility Sequence" has the meaning set forth in
Section 9.4(b) of this Agreement.
<PAGE>
11.20 "Independent Valuation Firm" has the meaning set forth
in Section 9.5 of this Agreement.
11.21 "KHT Licensing and Transfer Agreement" has the meaning
set forth in Section 6.2(f) of this Agreement.
11.22 [RESERVED]
11.23 "Permitted Transferee" has the meaning set forth in
Section 9.1(a) of this Agreement.
11.24 "Product" has the meaning set forth in the second
paragraph of page 1 of this Agreement.
11.25 "Purchase Right" has the meaning set forth in Section
9.3 of this Agreement.
11.26 "Purchaser" has the meaning set forth in Section 9.6(a)
of this Agreement.
11.27 "Put Right" has the meaning set forth in Section 9.4(b)
of this Agreement.
11.28 "Stock Subscription Closing" has the meaning set forth
in Section 2.3 of this Agreement.
11.29 "Stock Subscription Closing Date" has the meaning set
forth in Section 2.3 of this Agreement.
11.30 "Time of Assets Purchase Closing" has the meaning set
forth in Section 2.5 of this Agreement.
11.31 "Time of Stock Subscription Closing" has the meaning
set forth in Section 2.3 of this Agreement.
11.32 "Transfer of Shares" has the meaning set forth in
Section 9.1 of this Agreement.
11.33 "Transferor" shall have the meaning set forth in
Section 9.6(a) of this Agreement.
11.34 "Valuation Report" has the meaning set forth in Section
9.5 of this Agreement.
11.35 "Venture" has the meaning set forth in the second
paragraph of page 1 of this Agreement.
11.36 "Venture Stock" means authorized shares of capital
stock of the Venture as they may exist from time to time during
the term of this Agreement.
11.37 "Western Hemisphere Distributor Agreement" has the
meaning set forth in Section 6.2(g) of this Agreement.
<PAGE>
11.38 "W-L" has the meaning set forth in the first paragraph
of page 1 of this Agreement.
11.39 "W-L Governmental Approvals" has the meaning set forth
in Section 3.2 of this Agreement.
11.40 "W-L Indemnifiable Damages" has the meaning set forth
in Section 8.1(a) of this Agreement.
11.41 "W-L Indemnitee" has the meaning set forth in Section
8.1(b) of this Agreement.
11.42 "W-L Share Subscription Price" has the meaning set
forth in Section 2.1 of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
WALSIN LIHWA CORPORATION
By: s/Yu Lon Chiao
-----------------------
Yu Lon Chiao, Chairman
CARPENTER TECHNOLOGY CORPORATION
By: s/Dennis M. Draeger
-------------------------
Dennis M. Draeger
Senior Vice President
Steel Operations
WALSIN-CARTECH SPECIALTY STEEL
CORPORATION, to the extent set
forth in Section 1.7 hereof
By: s/Yu Lon Chiao
------------------------
Yu Lon Chiao, Chairman
<PAGE>
TRUST AGREEMENT
---------------
Carpenter Technology Corporation
Non-Qualified Benefits Trust for Directors
TRUST AGREEMENT effective as of the 1st day of May,
1997, by and between Carpenter Technology Corporation, a
corporation organized under the laws of the State of Delaware
(hereinafter referred to as the "Company"), and THE CHASE
MANHATTAN BANK, a banking corporation organized under the laws of
the State of New York (hereinafter referred to as the "Trustee").
BACKGROUND
----------
The Company maintains the benefit plans listed on
Exhibit A hereto (the "Plans") for the benefit of various of its
Directors. The Company intends to create a trust, to which it
will contribute cash, or other property acceptable to the
Trustee, to help the Company meet its obligations under the
Plans, and to assure that, subject to the sufficiency of the
Trust Fund, payments provided for by the Plans are not improperly
withheld in the event of a Change in Control of the Company.
The establishment of this Trust shall not affect the
Company's continuing obligation to make payments under the Plans,
except that the liability shall be reduced to the extent payments
are made by the Trustee hereunder.
The assets of the Trust Fund shall be, and shall
remain, subject to the claims of the Company's general creditors
in the event of the Company's insolvency. Otherwise, the Trust
shall be irrevocable until all liabilities under all Plans have
been satisfied, at which time the Trust shall terminate, and all
remaining assets of the Trust Fund shall be returned to the
Company.
The Trust is intended to be a "grantor trust" with the
result that the corpus and income of the Trust are treated as
assets and income of the Company pursuant to sections 671 through
679 of the "Code".
The Company intends that the Plans not be deemed funded
(within the meaning of Title I of ERISA) despite the existence of
this Trust.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, the Company and the Trustee covenant
and agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS; ESTABLISHMENT OF TRUST
-----------------------------------
Section 1.01 Definitions. Whenever used in this
-----------
Trust Agreement, unless otherwise provided or the context
otherwise requires:
(a) "Account" shall mean an account maintained in
-------
respect of a Participant pursuant to Section 4.02.
(b) "Benefits" shall mean, with respect to each
--------
Participant, the benefits payable to or in respect of that
Participant pursuant to the applicable Plan listed on
Exhibit A.
(c) "Change in Control" is defined in Article III.
-----------------
(d) "Code" shall mean the Internal Revenue Code of
----
1986, as amended from time to time.
(e) "Committee" shall mean the Human Resources
---------
Committee of the Company's Board of Directors, or its
successor.
(f) "Company" shall mean Carpenter Technology
-------
Corporation or any successor company by merger, acquisition
or otherwise.
(g) "ERISA" means the Employee Retirement Income
-----
Security Act of 1974, as amended from time to time.
(h) "Investment Manager" shall mean any person or
------------------
entity that qualifies as an Investment Manager under section
3(38) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and is appointed by the Pension
Board or a duly authorized officer of the Company to manage
Trust assets that are not invested in life insurance
policies.
(i) "Participant" shall mean each person entitled to
-----------
benefits under any Plan, including the beneficiaries
pursuant to any Plan.
<PAGE>
(j) "Pension Board" shall mean the Pension Board as
-------------
defined in the General Retirement Plan for Employees of
Carpenter Technology Corporation.
(k) "Plan" shall mean any plan listed on Exhibit A
----
hereto, as in effect from time to time. "Plans" shall mean
all such plans.
(l) "Trust" shall mean the trust established under
-----
this Trust Agreement.
(m) "Trust Agreement" shall mean this trust agreement,
---------------
as from time to time amended.
(n) "Trust Fund" shall mean the trust fund held from
----------
time to time by the Trustee hereunder consisting of all
contributions received by the Trustee together with the
investments and reinvestment made therewith and all net
profits and earnings thereon less all payments and charges
therefrom.
(o) "Trustee" shall mean The Chase Manhattan Bank, or
-------
its successor, or an officer, director or employee of such a
Trustee exercising any fiduciary powers under this Trust
Agreement; provided, however, that in no event may any
subsidiary or affiliate of the Company or any Participant be
such a successor Trustee.
Section 1.02 Establishment and Title of the Trust.
------------------------------------
The Company hereby establishes with the Trustee a trust to be
known as the "Carpenter Technology Corporation Non-Qualified
Benefits Trust for Directors," consisting of such sums of money
and other property acceptable to the Trustee as from time to time
may be paid or delivered to the Trustee pursuant to this Trust
Agreement. The Trust Fund shall be held by the Trustee in trust
and shall be dealt with in accordance with the provisions of this
Trust Agreement.
Section 1.03 Acceptance by the Trustee. The Trustee
-------------------------
accepts the Trust established hereunder on the terms and
conditions set forth herein and agrees to perform the duties
imposed on it by this Trust Agreement.
<PAGE>
ARTICLE II
INVESTMENT AND ADMINISTRATION OF THE TRUST FUND
-----------------------------------------------
Section 2.01 Investment of the Trust Fund. Except as
----------------------------
directed by any Investment Manager, the Pension Board or a duly
authorized officer of the Company, the Trustee shall have the
exclusive responsibility and authority to hold, invest, reinvest
and administer the assets of the Trust, hereinafter referred to
as the "Fund", in accordance with the terms of this Trust
Agreement. The Trustee shall be under no liability for any loss
of any kind that may result when it follows proper written
directions of the Pension Board or a duly authorized officer of
the Company which are in accordance with the terms of the Trust
Agreement and not contrary to law.
(a) If an Investment Manager is so appointed by the
Pension Board or a duly authorized officer of the Company to
manage any portion of the Trust Fund, the Trustee's only
responsibility with respect to such portion shall be:
(1) except as otherwise directed by the Pension
Board or a duly authorized officer of the
Company, to retain custody of the assets of
such portion of the Trust Fund; and
(2) to follow the written directions of the
Investment Manager with respect to such
portion of the Trust Fund.
(b) The Trustee shall incur no liability with respect
to the investment of any portion of the Trust Fund if an
Investment Manager has been appointed to manage that portion
of the Trust Fund, by the Pension Board or a duly authorized
officer of the Company for either:
(1) following the written directions of the
Investment Manager; or
(2) failing to act in the absence of written
directions from the Investment Manager.
<PAGE>
Notwithstanding anything to the contrary herein
contained, the Pension Board or a duly authorized officer of
the Company may direct the transfer of such part or all of
the Fund as it shall deem advisable to The Chase Manhattan
Bank as trustee of any trust ("Collective Trust") maintained
by it as a common trust fund as defined under section 584 of
the Code, now or hereinafter maintained by it as a medium
for the collective investment of assets of trusts and which
it may elect to make available to non-qualified benefit
trusts, and the Pension Board or a duly authorized officer
of the Company may direct the withdrawal of any part or all
of the Fund so transferred. To the extent of the interest
of the Trust in any Collective Trust, the terms of the
agreement or declaration of trust establishing such
Collective Trust shall be a part of this Trust as if set
forth in full herein, and any assets transferred to any
Collective Trust shall be held, invested and administered in
accordance with such agreement or declaration of trust,
which shall be controlling notwithstanding any contrary
provision of this Agreement.
Section 2.02 Plan Insurance. The Company may apply
--------------
for and maintain such contracts of insurance with one or more
insurance companies and on such rating or risk terms as the
Company may determine to be appropriate for the provision of
benefits under the Plans. The Trust shall be the policyholder
and owner of such contracts. The Trustee, only as directed by
the Pension Board or a duly authorized officer of the Company,
shall pay premiums or other charges with respect to such
contracts from assets of the Trust Fund.
Section 2.03 Investments of Insurance. The Pension
------------------------
Board or a duly authorized officer of the Company may direct the
Trustee to apply for and maintain contracts of insurance with one
or more companies for investment purposes pursuant to Section
2.05(m), using the proceeds of such insurance to fund the Trust.
The Trustee shall be the policyholder and owner of such
contracts. The Trustee, only as directed by the Pension Board or
a duly authorized officer of the Company, shall exercise any and
all investment options, decisions or rights that the Trustee has
as policyholder and owner of such insurance policies held for
investment purposes.
(a) If the Trustee is directed by the Pension Board or
a duly authorized officer of the Company to purchase an
insurance policy for investment purposes, the Trustee's only
responsibility with respect to such policy shall be:
(1) except as otherwise directed by the Pension
Board or a duly authorized officer of the
Company, to retain custody of such policy;
and
(2) to follow the written directions of the
Pension Board or a duly authorized officer of
the Company with respect to such policy.
<PAGE>
(b) The Trustee shall incur no liability with respect
to the purchase of an insurance policy purchased for
investment purposes if directed by the Pension Board or a
duly authorized officer of the Company for either:
(1) following the written directions of the
Pension Board or a duly authorized officer of
the Company with respect to such policy; or
(2) failing to act in the absence of written
directions from the Pension Board or a duly
authorized officer of the Company with
respect to such policy.
Section 2.04 Funding Policy. From time to time the
--------------
Pension Board or a duly authorized officer of the Company may
communicate to the Trustee in writing the current funding policy
and method that have been established to carry out the objectives
of the Trust. The Trustee's discretion in investing and
reinvesting the principal and income of the Fund shall be subject
to the funding policy, and the Trustee shall have the duty to act
strictly in accordance with and may rely upon, such funding
policy, and any changes therein, as so communicated to the
Trustee from time to time in writing.
Section 2.05 Investment Powers of Trustee. Subject
----------------------------
to the direction of an Investment Manager, the Pension Board or a
duly authorized officer of the Company, or with respect to assets
subject to the Trustee's investment, management and control, the
Trustee shall have, with respect to any securities or other
property at any time held by it and constituting part of the
Fund, power:
(a) to purchase, receive or subscribe for any
securities or other property and to retain in trust such
securities or other property;
(b) to sell, exchange, redeem or otherwise dispose of
any securities or other property at public or private sale
for cash, on credit, or for other securities or property,
and to grant options for the purchase or exchange thereof
without liability on the purchasers to see to the
application of the purchase money;
(c) to participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other
similar plan relating to any securities or other property
held in the Fund, and to consent to or oppose any such plan
or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any person or corporation;
(d) to deposit any securities or other property with
any protective, reorganization or similar committee; and to
pay and agree to pay part of the expenses and compensation
of any such committee and any assessment levied with respect
to any securities or other property so deposited;
<PAGE>
(e) to exercise conversion and subscription rights
pertaining to any securities or other property held in the
Fund;
(f) to extend the time of payment of any obligation
held in the Fund;
(g) to enter into stand-by agreements for future
investment, either with or without a stand-by fee;
(h) to hold any moneys received by the Trustee in a
common trust fund as defined under Section 584 of the Code,
now or hereinafter maintained by it as a medium for the
collective investment of assets of trusts, or any other
comparable fund the Trustee deems advisable;
(i) to exercise all voting rights with respect to any
investment and to grant proxies, discretionary or otherwise;
(j) to collect and receive any and all money,
securities or other property due to the Fund and to give
full discharge therefor;
(k) with the consent of the Company, to settle,
compromise or submit to arbitration any claims, debts or
damages due or owing to or from the Trust; with the consent
of Carpenter, to commence or defend suits or legal
proceedings to protect any interest of the Trust; and, with
the consent of Carpenter, to represent the Trust in all
suits or legal proceedings in any court or before any other
body or tribunal (subsequent to a Change in Control the
consent of Carpenter is not required to pursue the powers
granted in this Section);
(l) for the purposes of the Trust and if so instructed
by the Investment Manager, the Pension Board or a duly
authorized officer of the Company, to borrow money from
others, to issue its promissory note or notes therefore, and
to secure the repayment thereof by pledging any securities
or other property in its possession; provided, however, that
no such loan or advance shall be made by the Trustee
hereunder other than as temporary advances to the Fund, on a
cash or overdraft basis, on which no interest is payable and
provided further that no insurance contract shall be pledged
except to secure a loan to pay premiums thereon;
(m) to purchase insurance contracts, and pay premiums
with respect thereto;
(n) to organize under the laws of any state a
corporation or trust for the purpose of acquiring and
holding title to any securities or other property which it
is authorized to acquire under this Trust Agreement and to
exercise with respect thereto any or all of the powers set
forth in this Trust Agreement.
<PAGE>
Section 2.06 Discretionary Powers of Trustee. The
-------------------------------
Trustee shall have the following powers and authority with
respect to the fund:
(a) to employ suitable agents and counsel and to pay
their reasonable and proper expenses and compensation;
(b) to register any securities held by it hereunder in
its own name or in the name of a nominee with or without the
addition of words indicating that such securities are held
in a fiduciary capacity and to hold any securities in bearer
form and to deposit any securities or other property in a
depository or a clearing corporation;
(c) to make, execute and deliver, as Trustee, any and
all deed, leases, mortgages, conveyances, waivers, releases
or other instruments in writing necessary or desirable for
the accomplishment of any of the powers listed in Section
2.05; and
(d) generally, to do all acts, whether or not
expressly authorized, which the Trustee may deem necessary
or desirable for the protection of the Fund.
Section 2.07 Securities or Other Property. The words
----------------------------
"securities or other property" as used in this Trust Agreement
shall be deemed to refer to any property, real or personal, or
part interest therein, wherever situate, including, but not
limited, to governmental, corporate or personal obligations,
trust and participation certificates, leaseholds, fee titles,
mortgages and other interests in realty, preferred and common
stocks, certificates of deposit, put and call options and other
option contracts of any type, foreign or domestic, whether or not
traded on any exchange, tangible personal property, contracts for
future or immediate receipt or delivery of property, evidences of
indebtedness or ownership in foreign corporation or other
enterprises, indebtedness of foreign governments, limited
partnerships, insurance contracts, and any other evidences of
indebtedness or ownership including securities or other property
of the Company, without being limited to the classes of property
in which trustees are authorized to invest trust funds by any law
or any rule of court of any State.
Section 2.08 Trustee's Authority. Persons dealing
-------------------
with the Trustee shall be under no obligation to see the proper
application of any money paid or property delivered to the
Trustee or to inquire into the Trustee's authority as to any
transaction.
Section 2.09 Protection Clause. Neither the Company
-----------------
nor the Trustee shall be responsible for any insurance company's
failure to make payments provided by such contract, or for the
action of any person which may delay payment or render a contract
null and void or unenforceable in whole or in part.
<PAGE>
Section 2.10 Following a Change In Control -
-----------------------------
Following the occurrence of a Change in Control as defined in
Section 3.01, the Trustee shall follow the last funding policy
communicated in writing by the Pension Board or a duly authorized
officer of the Company prior to such Change in Control.
Notwithstanding instructions to the contrary, the maturity of
investment instruments shall at all times be selected to permit
the timely payment of benefits under the Plans.
ARTICLE III
CHANGE IN CONTROL
-----------------
Section 3.01 Definition of Change in Control. For
-------------------------------
purposes of this Trust, a "Change in Control" of the Company
shall be deemed to have occurred if:
(a) a "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding securities; or
(b) during any period of two consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in Section 3.01(a), 3.01(c) or 3.01(d) whose election by the
Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(c) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least 75% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger
or consolidation, or
<PAGE>
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially
all the Company's assets.
Section 3.02 Definition of a Potential Change in
-----------------------------------
Control. For purposes of this Trust, a "Potential Change in
- -------
Control" of the Company shall be deemed to have occurred if:
(a) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
change in control of the Company,
(b) any person (including the Company) publicly
announces an intention to take or to consider taking actions
which if consummated would constitute a change in control of
the Company;
(c) any person, other than a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the
Company's then outstanding securities, increases his
beneficial ownership of such securities by 5% or more of the
combined voting power of the Company's then outstanding
securities on the effective date of this Agreement; or
(d) the Board of Directors of the Company adopts a
resolution to the effect that, for purposes of this Trust, a
"potential change in control" has occurred. Such a
resolution will be provided to the Trustee in certified
form.
Section 3.03 Requirement of Notice. Notwithstanding
---------------------
the definitions in Sections 3.01 and 3.02, no Change in Control
or Potential Change in Control shall be deemed to have occurred
for purposes of this Trust Agreement unless and until the Trustee
has actual written notice from the Company or from any person who
was an officer of the Company prior to the alleged Change in
Control or the alleged Potential Change in Control that such
Change in Control or Potential Change in Control has occurred.
<PAGE>
ARTICLE IV
CONTRIBUTIONS
-------------
Section 4.01 Contributions by the Company.
----------------------------
(a) The Company will deliver contributions hereunder
to the Trustee at such times, and in such amounts, as the
Company may determine to be appropriate to enable the Trust
to accumulate assets sufficient to pay all, or any part, as
determined by the Company, of the benefits payable under the
Plans.
(b) Upon the occurrence of a Potential Change in
Control, the Company, if it so chooses, will deliver to the
Trustee cash and/or marketable securities having a fair
market value in an amount equal to the sum of the amounts,
determined by an actuary selected by the Company, which will
be sufficient to fund fully the Company's obligations to pay
to the Participants the full amount of all Benefits to which
they may become entitled pursuant to the Plans. The
actuarial basis employed by such actuary shall include the
following assumptions: no interest will be earned on plan
assets; Directors' fees will increase at the rate of 10% per
annum; there will be no change in the plan; and, a Director
will be assumed to terminate at such time as to maximize his
benefits under the Plans but not later than age 70. Any
such contribution shall be identified to the Trustee, by the
Company, as a Section 4.01(b) contribution.
(c) In addition to contributions made to the Trust
pursuant to Sections 4.01(a) and 4.01(b), the Company shall
deliver to the Trustee any amounts which the Trustee is
required to pay pursuant to Section 6.02.
(d) The Trustee shall be responsible only for
contributions actually received by it hereunder. The
Trustee shall have no duty or authority to ascertain whether
any contributions should be made to it or to bring any
action or proceeding to enforce any obligation to make any
such contribution.
(e) In the event that the Trust is overfunded; any
amount of such assets constituting the overfunding shall:
(1) first, be transferred to the
Carpenter Technology Corporation Non-Qualified Employee
Benefits Trust ("the Employees' Trust") until the
Employees' Trust becomes overfunded; and
(2) second, returned to the Company.
<PAGE>
(f) For the purposes of Section 4.01(e), above, the
Trust is "overfunded" when the amount of assets held in the
Trust Fund exceed 110% of the present value of the future
benefits expected to be paid under the Plans. The present
value of future benefits shall be calculated as the
projected benefit obligation ("PBO"), as described in
Statement No. 87 of the Financial Accounting Standards
Board, except that projected service will be taken into
account as if accrued. The present value shall be
calculated using the actuarial assumptions used to determine
the Company's pension expense for the General Retirement
Plan for Employees of Carpenter Technology Corporation,
except that the discount rate shall be adjusted to the
extent that assets held by the Trust are subject to tax.
The determination of whether the Trust is overfunded shall
be made by a qualified actuary selected by the Human
Resources Committee.
Section 4.02 Accounts.
--------
(a) Before a Change In Control. The Company shall
--------------------------
create a separate Account for each Participant, cause
records to be maintained by the Company, or retain a
separate recordkeeper as the Company's agent, reflecting the
amount, if any, credited to that Participant in accordance
with the terms of the Deferred Compensation Plan for Non-
Management Directors of Carpenter Technology Corporation
(the "Deferred Compensation Plan"). When a contribution is
made, the Company shall notify the Trustee of the amount of
such contribution allocable to each Participant's Account
and/or specific plans. The Trustee shall not be required to
maintain any separate account records, but shall rely solely
upon the information maintained by the Company and the
notice to the Trustee as herein provided. The remainder,
(or all thereof if no allocation is indicated) of such
contribution shall not be specifically allocated to any Plan
or any Participant, but shall be available to discharge the
Company's obligations to make benefit payments under any of
the Plans in accordance with the applicable provisions of
Article V. The Company shall, however, provide to the
Trustee, with respect to each Plan, at such intervals as the
Company shall determine, but in no event less frequently
than annually, a schedule listing each Participant, each
Plan under which that Participant has accrued a benefit and
the amount of such benefit. The Trustee shall have no
responsibility with respect to the determination or accuracy
of any such allocations and/or the accrued benefits due any
participant or plan as herein provided, but shall rely
solely upon such information provided to it by the Company.
<PAGE>
(b) Following a Change In Control. Upon notice to the
-----------------------------
Trustee that a Change in Control has occurred, or that a
Potential Change in Control has occurred and that the
Company has invoked the allocation procedures of this
Section 4.02(b), the Trustee, based upon the schedule of
such benefits most recently provided to the Trustee by the
Company, shall allocate all of the Trust Fund's assets as
follows: assets shall first be allocated to the Deferred
Compensation Plan portion of each Participant's Account in
an amount equal to each Participant's accrued benefit
therein not previously allocated thereto. In the event that
the Trust Fund's assets are insufficient to fully fund each
Participant's accrued benefit under the Deferred
Compensation Plan, the assets shall be allocated ratably to
the Participants' Accounts in the ratio that the accrued
benefits in respect of each such Participant under said
Deferred Compensation Plan bear to the total accrued
benefits of all such Participants under said plan. The
balance of the assets shall be allocated to each
participant's account in an amount equal to each
participant's accrued benefit under all of the Plans other
than the Deferred Compensation Plans. If the assets of the
Trust Fund, after making provision for the Deferred
Compensation Plan, are insufficient to fully fund all of the
accrued benefits of all Participants under all of the other
Plans, those assets shall be allocated ratably to the
Participants' Accounts in the ratio that the accrued
benefits in respect of each such Participant under all of
such other Plans bear to the total accrued benefits of all
such Participants under all such other Plans.
Section 4.03 Delivery to the Company. Any Section
-----------------------
4.01(b) contribution delivered to the Trustee shall be returned
to the Company without interest on the 181st day following (and
exclusive of the date of) its receipt by the Trustee, unless
within 180 days following such receipt by the Trustee, a notice
of the "Change in Control" shall have been received by the
Trustee pursuant to Section 3.03. Such 180-day period shall be
extended for an additional 180-day period for any "Potential
Change in Control" which occurs or continues during any initial
or extended 180-day period. The Company will provide the Trustee
with written notice of any extension.
Section 4.04 Trustee's Agent. The Trustee shall be
---------------
entitled to retain such actuarial, accounting, legal and other
services as it may deem necessary to accomplish and/or maintain
such allocations, payments and/or Participant Account records as
are provided for under Articles IV and V hereof or to conduct its
investment responsibilities under Section 2.06, and to pay for
such services as an expense of the Trust Fund out of the assets
of the Trust Fund, unless promptly paid by the Company.
<PAGE>
ARTICLE V
PAYMENT OF BENEFITS
-------------------
Section 5.01 Payments by Trustee.
-------------------
(a) Prior to a Change In Control. Until such time as
----------------------------
Section 5.01(b) applies, all payments to Participants in any
of the Plans shall be made by the Company, as agent for the
Trustee, in accordance with the applicable provisions of the
Plans. Upon receipt of written instructions to the Trustee
from the Company of the amount needed to pay such benefits
the Trustee shall promptly disburse such funds to the
Company and, upon that disbursement shall have no further
responsibility with respect to such funds or their
application.
(b) Following a Change In Control. Following notice
-----------------------------
to the Trustee that a Change in Control has occurred, and
subject to the limitation of Section 5.01(c), the Trustee
shall make payments to Participants and their beneficiaries
from the Trust Fund in accordance with the payment schedule
most recently provided by the Company to the Trustee prior
to the occurrence of the Change in Control; provided,
however, that if the Company and a Participant agree to the
substitution of a new payment schedule with respect to such
Participant following the occurrence of a Change in Control,
the Trustee shall instead make payments in accordance with
such substitute payment schedule. In the event that the
Company and a Participant (or in the event of his death, his
Beneficiary) disagree as to the amount, form or duration of
benefit payments under a Plan, the Trustee shall continue to
make benefit payments pursuant to the payment schedule most
recently provided by the Company prior to a Change in
Control until authorized to make payments under a substitute
schedule by both the Participant (or Beneficiary) and the
Company or until the Trustee receives a final non-appealable
order from a court of competent jurisdiction to alter such
benefit payment schedule.
(c) Any amount paid under this Section 5.01 shall be
charged by the Company or the Trustee, as the case may be,
against the Account of the applicable Participant and no
payment with respect to an Account shall be made in excess
of the amount credited to such Account.
(d) The Trustee shall not make any payments to
Participants or beneficiaries from the Trust Fund except as
provided in this Section 5.01 even though it may be informed
from another source that payments are due under a Plan. The
Trustee shall be fully protected in making payments or
omitting to make payments in accordance with Section
5.01(b).
<PAGE>
Section 5.02 Determinations by Committee or Company.
--------------------------------------
(a) If at any time the Company or, if Section 5.01(b)
applies, the Trustee, determines that any amount held in the
Trust Fund is includible in the gross income of a
Participant or his beneficiary for federal income tax
purposes prior to payment of such amount from the Trust
Fund, the Trustee, upon notice from the Company or, if
Section 5.01(b) applies, upon notice by a Participant or
Beneficiary, in the format provided in Exhibit B, that based
on a (i) change in the tax or revenue laws of the United
States of America, (ii) a published ruling or similar
announcement issued by the Internal Revenue Service, (iii) a
regulation issued by the Secretary of the Treasury or his
delegate, (iv) a decision by a court of competent
jurisdiction involving the Participant or Beneficiary, or
(v) a closing agreement made under Code Section 7121 that is
approved by the Internal Revenue Service and involves the
Participant or Beneficiary, that Participant or Beneficiary
has recognized or will recognize income for federal income
tax purposes with respect to amounts that are or will be
payable to him under the Plans before they are paid to him,
shall pay such amount to such person in the manner directed
by the Committee or by such notice to the Trustee and the
Participant's Account shall be charged, or his accrued
benefit reduced, accordingly.
(b) If at any time the Company prior to a Change in
Control determines that the amount allocated to the Account
of any Participant exceeds the amount reasonably expected to
be necessary to provide the Benefits payable in respect of
such Participant from such Account, such excess may be
reallocated to the Accounts of other Participants or held as
part of the unallocated Fund, as determined by the Company.
If at any time prior to a Change in Control the Committee
determines that the Benefits in respect of all Participants
have been paid in full, the Committee shall so notify the
Trustee in writing.
Section 5.03 Withholding, Returns and Reports.
--------------------------------
(a) Prior to a Change in Control. Prior to a Change
----------------------------
in Control, the Company shall withhold all required federal,
state and local taxes from benefit payments under any of the
Plans, and remit those withholdings to the appropriate
taxing authorities. The Company shall also be responsible
for the preparation of all information reports, returns,
receipts and other communications required by Chapter 61 of
the Code to be filed with, or distributed to, any person or
governmental entity.
<PAGE>
(b) Following a Change in Control. Following a Change
-----------------------------
in Control, the Trustee shall assume the Company's
responsibilities under Section 5.03(a) with respect to
benefit payments under any of the Plans, and shall reduce
such benefit payments by the amount of any such required
withholding. The Trustee shall remit the net benefit
payments to the Participants and shall pay the required tax
withheld to the Company, which shall continue to be
responsible for the preparation and filing of all items
required by Chapter 61 of the Code, as enumerated in Section
5.03(a).
(c) The Company and the Trustee shall cooperate with
each other in providing any information reasonably necessary
to enable the other to carry out any of its responsibilities
under this Section 5.03.
Section 5.04 Company's Continuing Obligations.
--------------------------------
Notwithstanding any provisions of this Trust Agreement to the
contrary, the Company shall remain obligated to pay the Benefits
under the Plan. To the extent the amount in the Trust Fund is
not sufficient to pay any Benefits when due, the Company shall
pay such deficiency directly to the person entitled thereto.
Nothing in this Trust Agreement shall relieve the Company of its
liabilities to pay the Benefits except to the extent such
liabilities are met by the application of Trust Fund assets.
Section 5.05 Company's Income. The Company agrees
----------------
that all income, deductions and credits of the Trust Fund belong
to it as owner for income tax purposes and will be included on
the Company's income tax returns to the extent required by
applicable law.
ARTICLE VI
CONCERNING THE TRUSTEE
----------------------
Section 6.01 Notices to the Trustee. Except as
----------------------
provided in Section 5.02, the Trustee may rely on the
authenticity, truth and accuracy of:
(a) any notice, direction, certification, approval or
other writing of the Company, if evidenced by an instrument
signed in the name of the Company by its Chairman,
President, any Vice President, Secretary, Assistant
Secretary or Treasurer, and believed in good faith by it to
be genuine;
<PAGE>
(b) any notice, direction, certification, approval or
other written, oral or other transmitted form of instruction
received by the Trustee and believed by it in good faith to
be genuine and to be sent by or on behalf of the Committee;
or
(c) any copy of a resolution of the Board of Directors
of the Company, if certified by the Secretary or an
Assistant Secretary of the Company under its corporate seal.
(d) The Company shall furnish the Trustee from time to
time with a list of the names and signatures of the officers
or other persons authorized to act under this Section
6.01(a) and (b), or in any other manner authorized to notify
or instruct the Trustee pursuant to the provisions of this
Agreement. Any such list shall be certified by the
Secretary or an Assistant Secretary of the Company, and may
be relied upon by the Trustee until it receives a revised
list.
Section 6.02 Expenses of the Trust Fund. The Trustee
--------------------------
shall pay out of the Trust Fund: (a) all brokerage fees and
transfer tax expenses and other expenses incurred in connection
with the sale or purchase of investments; (b) all real and
personal property taxes, income taxes and other taxes of any kind
at any time levied or assessed under any present or future law
upon, or with respect to, the Trust Fund or any property included
in the Trust Fund; (c) the Trustee's compensation and expenses as
provided in Section 6.03, unless promptly paid by the Company;
and (d) unless promptly paid by the Company, all other reasonable
expenses of administering the Trust. Notwithstanding the
foregoing, the Trustee shall, at Company expense and direction,
contest the validity of any taxes in any manner deemed
appropriate by the Company or its counsel, but only if it has
received an indemnity bond or other security satisfactory to it
to pay any expenses of such contest; provided, however, that the
Trustee shall have no obligation to contest if it receives an
opinion of counsel of its choice to the effect that there is no
basis in law or fact for such contest. Alternatively, the
Company may itself contest the validity of any such taxes.
Section 6.03 Compensation of the Trustee. The
---------------------------
Company will pay to the Trustee compensation for its services
from time to time in accordance with its schedule of fees then in
effect for trusts of similar nature, and will reimburse the
Trustee for all reasonable expenses (including attorneys' fees)
incurred by the Trustee in the administration of the Trust.
<PAGE>
Section 6.04 Protection of the Trustee.
-------------------------
(a) The Company agrees to indemnify and hold harmless
the Trustee from and against any and all damages, losses,
claims or expenses as incurred (including expenses of
investigation and fees and disbursements of counsel to the
Trustee and any taxes imposed on the Trust Fund or income of
the Trust) arising out of or in connection with the
performance by the Trustee of its duties hereunder, except
to the extent that any such damages, losses, claims or
expenses result from the negligence or willful misconduct of
the Trustee, its officers, employees or agents.
(b) The Trustee shall incur no liability to any person
in discharging its duties hereunder for any action taken or
omitted in good faith in conformity with the terms of this
Trust Agreement. Each direction, notice, request or
approval provided (whether or not certified to the Trustee
in writing) by the Company, the Pension Board, or the
Committee, shall constitute a certification by the Company
to the Trustee that such direction is in conformity with the
terms of the Plan and applicable law. Under no
circumstances shall the Trustee incur liability to any
person for any indirect, consequential or special damages
(including, without limitation, lost profits) of any form,
whether or not foreseeable and regardless of the form of the
action in which such a claim may be brought, with respect to
the Trust or its role as Trustee, except as otherwise
required by ERISA or New York State law.
Section 6.05 Duties of the Trustee. The Trustee will
---------------------
be under no obligation to perform any duties whatsoever, except
such duties as are specifically set forth as such in this Trust
Agreement, and no implied covenant or obligation will be read
into this Trust Agreement against the Trustee. The Trustee will
not be compelled to take any action toward the execution or
enforcement of the Trust or to prosecute or defend any suit in
respect thereof, unless indemnified to its satisfaction against
loss, costs, liability and expense or there are sufficient assets
in the Trust Fund to provide such indemnity; and the Trustee will
be under no liability or obligation to anyone with respect to any
failure on the part of the Company to perform any of its
obligations under the Plans. Nothing in this Trust Agreement
should be construed as requiring the Trustee to make any payment
in excess of amounts held in the Trust Fund at the time of such
payment.
Section 6.06 Settlement of Accounts of the Trustee.
-------------------------------------
The Trustee shall keep or cause to be kept accurate and detailed
records of all investments, receipts, disbursements and other
transactions hereunder. Such records shall be open to inspection
and audit at all reasonable times during normal business hours by
any person designated by the Company. At least annually, or upon
such more frequent intervals, but not more frequent than monthly,
as the Company may direct, the Trustee shall file with the
<PAGE>
Company a written statement, listing the investments of the Trust
Fund and any uninvested cash balance thereof, and setting forth
all receipts, disbursements, payments and other transactions
respecting the Trust Fund not included in any such previous
statement. Any statement, when approved by the Company, will be
binding and conclusive on the Company; and the Trustee will
thereby be released and discharged from any liability or
accountability to the Company with respect to all matters set
forth therein. Omission by the Company to object in writing to
any specific items in any such statement, which shall be deemed
an account stated, within ninety (90) days after its delivery
will constitute approval of the account by the Company. No other
accounts or reports shall be required to be given to the Company,
except as stated herein or except as otherwise agreed to in
writing by the Trustee. Except as provided above, the Trustee
shall not be required to file an accounting, judicial or
otherwise.
Section 6.07 Right to Judicial Settlement. Nothing
----------------------------
contained in this Trust Agreement shall be construed as depriving
the Trustee of the right to have a judicial settlement of its
accounts, and upon any proceeding for a judicial settlement of
the Trustee's accounts or for instructions the only necessary
party thereto in addition to the Trustee shall be the Company.
Section 6.08 Resignation or Removal of the Trustee.
-------------------------------------
The Trustee may at any time resign upon sixty (60) days notice in
writing to the Company (which sixty (60) days notice requirement
may be waived by agreement in writing of the Company). Prior to
a Change in Control, or a Potential Change in Control, the
Trustee may be removed by the Company upon sixty (60) days notice
in writing to the Trustee (which sixty (60) days notice
requirement may be waived by agreement in writing of the
Trustee).
Section 6.09 Appointment of Successor Trustee. In
--------------------------------
the event of the resignation or removal of the Trustee, or in any
other event in which the Trustee ceases to act, a successor
trustee may be appointed by the Company by instrument in writing
delivered to and accepted by the successor trustee. Notice of
such appointment will be given by the Company to the retiring
trustee, and the successor trustee will deliver to the retiring
trustee an instrument in writing accepting such appointment. If
no appointment of a successor trustee is made within a reasonable
time after such a resignation, removal or other event, any court
of competent jurisdiction may appoint a successor trustee.
In the event of such resignation, removal or other
event, the retiring trustee or its successors and assigns shall
file with the Company a final statement to which the provisions
of Section 6.06 shall apply.
<PAGE>
In the event of the appointment of a successor trustee,
such successor trustee will succeed to all the right, title and
estate of, and will be, the Trustee; and the retiring trustee
will after the settlement of its final account as provided for in
Section 6.06, and the receipt of any compensation or expenses due
it, deliver the Trust Fund to the successor trustee together with
all such instruments of transfer, conveyance, assignment and
further assurance as the successor trustee may reasonably
require. The retiring trustee will retain a first lien upon the
Trust Fund to secure all amounts due the retiring trustee
pursuant to the provisions of this Trust Agreement. The Company
will provide the Trustee with a ratification and release upon
such resignation, removal or other event.
Section 6.10 Merger or Consolidation of the Trustee.
-------------------------------------
Any corporation continuing as the result of any merger or
resulting from any consolidation to which merger or consolidation
the Trustee is a party, or any corporation to which substantially
all the business and assets of the Trustee may be transferred,
will be deemed automatically to be continuing as the Trustee.
ARTICLE VII
ENFORCEMENT
-----------
Section 7.01 Enforcement of Trust Agreement and Legal
----------------------------------------
Proceedings. The Company shall have the right to enforce any
- -----------
provision of this Trust Agreement in its own name. In any action
or proceeding affecting the Trust, the only necessary parties
shall be the Company and the Trustee and, except as otherwise
required by applicable law, no other person shall be entitled to
any notice or service of process. Any judgment entered in such
an action or proceeding shall, to the maximum extent permitted by
applicable law, be binding and conclusive on all persons having
or claiming to have any interest in the Trust.
<PAGE>
ARTICLE VIII
AMENDMENT, REVOCATION AND TERMINATION
-------------------------------------
Section 8.01 Amendment. The Company may from time to
---------
time prior to the occurrence of a Change in Control or a
Potential Change in Control with respect to which the allocation
procedures of Section 4.02(b) are invoked, with the Trustee's
consent, amend in writing, in whole or in part, any or all of the
provisions of this Trust Agreement without the consent of any
Participant or any other person; provided, however, that no such
amendment shall increase the duties or obligations or change the
compensation of the Trustee without the Trustee's written
consent. This Trust Agreement may not be amended following a
Change in Control nor may it be amended following a Potential
Change in Control with respect to which the allocation procedures
of Section 4.02(b) are invoked unless the resulting allocations
are revoked pursuant to Section 4.03.
Section 8.02 Irrevocability. Subject to section
--------------
10.08, the Trust shall be irrevocable and, except as otherwise
provided in Section 8.03 and Article IX, shall be held for the
exclusive purpose of providing the Benefits to Participants and
their beneficiaries and defraying expenses of the Trust in
accordance with the provisions of this Trust Agreement.
Section 8.03 Termination. The Trust shall terminate
-----------
if the Committee provides the Trustee with a written statement to
the effect that the Benefits in respect of all Participants have
been paid in full. As soon as practicable following such event,
the Trustee shall settle its final accounts in accordance with
Section 6.06 and, after receipt of any unpaid fees and expenses,
shall distribute the balance of the Trust Fund to the Company,
provided, however, that after a Change in Control, such Committee
statement shall be accompanied by written approvals of the
Participants then listed on the most recent payment schedule
provided to the Trustee pursuant to Section 4.02. In the event
any such Participant does not approve, Section 5.01(b) shall
apply.
<PAGE>
ARTICLE IX
CLAIMS OF COMPANY'S CREDITORS
-----------------------------
Section 9.01 Insolvency. As used in this Article IX,
----------
the Company shall be deemed to be "Insolvent" if (i) the Company
is unable to pay its debts generally as they come due, or (ii)
the Company is subject to a proceeding as a debtor under the
federal Bankruptcy Code (or any successor federal statute). In
the event the Company shall be deemed Insolvent, the assets of
the Trust shall be subject to claims of creditors of the Company
(hereinafter the "Bankruptcy Creditors").
Section 9.02 Discontinuance of Benefits. If at any
--------------------------
time (i) the Company or a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has
become Insolvent, or (ii) the Trustee is served with any order,
process or paper from a court of competent jurisdiction to the
effect that the Company is Insolvent, the Trustee shall give
notice thereof to the Company, shall discontinue Benefit payments
under this Trust Agreement, shall hold the Trust assets for the
benefit of the Company's Bankruptcy Creditors, and shall resume
payment of Benefits under this Trust Agreement in accordance with
Article V only upon: (a) in the case of clause (ii) above, the
receipt of an order of a court of competent jurisdiction
authorizing or requiring such payment, and (b) in the case of
clause (i) above, receipt of written notice from the Company that
the Company is not Insolvent. The Board of Directors of the
Company and the Company's Treasurer shall be obligated to give
the Trustee prompt written notice if the Company becomes
Insolvent, with the same consequences as provided in the
preceding sentence. If payment of Benefits has been discontinued
pursuant to clause (i) of the second preceding sentence, the
Board of Directors of the Company, and the Company's Treasurer,
shall be obligated to give the Trustee prompt written notice in
the event the Company is not Insolvent, and such notice from such
Board of Directors or Treasurer shall be treated as notice from
the Company for purposes of the second preceding sentence. The
Trustee shall not be liable to anyone in the event Benefit
payments are discontinued pursuant to this Section 9.02.
If the Trustee discontinues payment of Benefits
pursuant to this Section 9.02 and subsequently resumes such
payment, to the extent the Trust Fund is sufficient for such
purpose, the first payment to a Participant following such
discontinuance shall include an aggregate amount equal to the
payments which would have been made to such Participant under
this Trust Agreement but for this Section 9.02, as shall be
determined by the Committee or if Section 5.01(b) applies, by the
Trustee. No interest shall be due or payable with respect to any
such payments in arrears.
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
Section 10.01 Successors. This Trust Agreement shall
----------
be binding upon and inure to the benefit of the Company and the
Trustee and their respective successors and assigns.
Section 10.02 Nonalienation. Except insofar as
-------------
applicable law may otherwise require:
(a) no amount payable to or in respect of any
Participant at any time under the Trust shall be subject in
any manner to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or
encumbrance of any kind, and any attempt to so alienate,
sell, transfer, assign, pledge, attach, charge or otherwise
encumber any such amount, whether presently or thereafter
payable, shall be void; and
(b) the Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of any Participant.
Section 10.03 Communications.
--------------
(a) Communications to the Company shall be addressed
to the Company at P.O. Box 14662, Reading, PA 19612-4662,
Attn. Treasurer, Carpenter Technology Corporation, provided,
however, that upon the Company's written request, such
communications shall be sent to such other address as the
Company may specify.
(b) Communications to the Trustee shall be addressed
to its Global Investor Services Division, 4-Chase Metrotech
Center, 18th Floor, Brooklyn, New York 11245; provided,
however, that upon the Trustee's written request, such
communications shall be sent to such other address as the
Trustee may specify.
(c) No communication shall be binding on the Trustee
until it is received by the Trustee, and no communication
shall be binding on the Company until it is received by the
Company.
Section 10.04 Headings. Titles to the Sections of
--------
this Trust Agreement are included for convenience only and shall
not control the meaning or interpretation of any provision of
this Trust Agreement.
<PAGE>
Section 10.05 Third Parties. A third party dealing
-------------
with the Trustee shall not be required to make inquiry as to the
authority of the Trustee to take any action nor be under any
obligation to follow the proper application by the Trustee of the
proceeds of sale of any property sold by the Trustee or to
inquire into the validity or propriety of any act of the Trustee.
Section 10.06 Governing Law. This Trust Agreement and
-------------
the Trust established hereunder shall be governed by and
construed, enforced, and administered in accordance with the laws
of the State of New York. The United States District Court for
the Southern District of New York shall have the sole and
exclusive jurisdiction over any lawsuit or other judicial
proceeding relating to or arising from this Agreement. If that
court lacks federal subject matter jurisdiction, the Supreme
Court of the State of New York, New York County shall have sole
and exclusive jurisdiction. Either of these courts shall have
proper venue for any such lawsuit or judicial proceeding, and the
parties waive any objection to venue or their convenience as a
forum. The parties agree to submit to the jurisdiction of any of
the courts specified and to accept service of process to vest
personal jurisdiction over them in any of these courts. The
parties further hereby knowingly, voluntarily and intentionally
waive, to the fullest extent permitted by law, any right to a
trial by jury with respect to any such lawsuit or judicial
proceeding arising or relating to this Agreement or the
transactions contemplated hereby.
Section 10.07 Counterparts. This Trust Agreement may
------------
be executed in any number of counterparts, each of which shall be
deemed to be the original although the others shall not be
produced.
Section 10.8 IRS Ruling - Funded Status. The Company
--------------------------
intends to apply to the Internal Revenue Service for a ruling to
the effect that this Trust is a grantor trust within the meaning
of section 671, et. seq. of the Code and that contributions
hereunder will not be treated as taxable income to Plan
Participants until distributed to those Participants. If the
Company is unable to obtain a satisfactory ruling to that effect,
or if any Plan is finally determined to be funded within the
meaning of Title I of ERISA because of the existence of this
Trust and if a Change in Control has not then occurred, the
Company shall have the right, notwithstanding the provisions of
Article VIII, to further amend or revoke the Trust. If the Trust
is revoked, its assets, after deducting any unpaid fees or
expenses due the Trustee, shall be returned to the Company.
<PAGE>
IN WITNESS WHEREOF, this Trust Agreement has been duly
executed by the parties hereto as of the day and year first above
written.
Attest: CARPENTER TECHNOLOGY CORPORATION
John R. Welty
Secretary
By: John A. Schuler
------------------------
Treasurer
Attest: THE CHASE MANHATTAN BANK
Robert Signorino
By: Vito Milillo
-----------------------
<PAGE>
STATE OF Pennsylvania )
)
COUNTY OF Berks )
Personally appeared John A. Schuler, Treasurer, of
Carpenter Technology Corporation, signer and sealer of the
foregoing instrument, and acknowledged the same to be his free
act and deed as such and the free act and deed of said company,
before me May 1, 1997.
Anita M. Keltz
-------------------------
Notary Public
STATE OF New York )
) ss.:
COUNTY OF Kings )
Personally appeared Vito Milillo, Vice President, of the
Chase Manhattan Bank, signer and sealer of the foregoing instrument,
and acknowledged the same to be his free act and deed as such Vice
President and the free act and deed of said company, before me
May 20, 1997.
Julia R. Scalia
--------------------------
Notary Public
<PAGE>
EXHIBIT "A"
-----------
1. Carpenter Technology Corporation Deferred Compensation Plan
For Non-Management Directors effective January 1, 1995,
subject to any approved amendments.
2. Carpenter Technology Corporation Director Retirement Plan
adopted June 9, 1983, effective August 1, 1981, subject to
any approved amendments.
<PAGE>
EXHIBIT "B"
-----------
FORM OF NOTICE CONCERNING EARLY TAXATION
----------------------------------------
I, the undersigned Participant (Beneficiary) under the Carpenter
Technology Corporation Non-Qualified Benefits Trust for Directors
hereby notify The Chase Manhattan Bank, as Trustee, that pursuant
to Section 5.02(a) thereof, the undersigned will recognize income
for federal income tax purposes due to funds held in said Trust and
request payment of all funds held in my account. I do hereby
certify the above to be a true statement and I hereby furnish the
following independent verification of the reasons why I will
recognize income for federal income tax purposes:
[List below the type of independent verification and enclose
a copy of such verification.]
<PAGE>
Exhibit 11
Carpenter Technology Corporation
Primary Earnings Per Common Share Computations
For the Years Ended June 30, 1997, 1996 and 1995
1997 1996 1995
-------- -------- --------
(in thousands, except per share data)
Net Income for Primary Earnings
- -------------------------------
Per Common Share
----------------
Net income $ 59,993 $ 60,148 $ 47,492
Dividends on convertible
preferred stock, net of tax
benefits (1,578) (1,572) (1,599)
-------- -------- --------
Net income for primary earnings
per common share $ 58,415 $ 58,576 $ 45,893
======== ======== ========
Weighted Average Common Shares
- ------------------------------
Weighted average number of
common shares outstanding 17,579 16,537 16,240
Effect of shares issuable under
stock option plans 124 140 87
-------- -------- --------
Weighted average common shares 17,703 16,677 16,327
======== ======== ========
Primary Earnings Per Common Share $ 3.30 $ 3.51 $ 2.81
- ---------------------------- ======== ======== ========
<PAGE>
Exhibit 11
Carpenter Technology Corporation
Fully Diluted Earnings Per Common Share Computations
For the Years Ended June 30, 1997, 1996 and 1995
1997 1996 1995
-------- -------- --------
(in thousands, except per share data)
Net Income for Fully Diluted
- ----------------------------
Earnings Per Common Share
-------------------------
Net income $ 59,993 $ 60,148 $ 47,492
Assumed shortfall between common
and preferred dividend (637) (644) (705)
-------- -------- --------
Net income for fully diluted
earnings per common share $ 59,356 $ 59,504 $ 46,787
======== ======== ========
Weighted Average Common Shares
- ------------------------------
Weighted average number of
common shares outstanding 17,579 16,537 16,240
Assumed conversion of preferred shares 900 909 917
Effect of shares issuable
under stock option plans 280 158 152
-------- -------- --------
Weighted average common shares 18,759 17,604 17,309
======== ======== ========
Fully Diluted Earnings Per
- --------------------------
Common Share $ 3.16 $ 3.38 $ 2.70
---------- ======== ======== ========
<PAGE>
Exhibit 12
Carpenter Technology Corporation
Computations of Ratios of Earnings to Fixed Charges -- unaudited
Five years Ended June 30, 1997
(dollars in thousands)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Fixed charges:
Interest costs (a) $ 22,330 $ 19,275 $ 17,797 $ 19,651 $ 21,759
Interest component of
non-capitalized lease
rental expense (b) 2,419 2,074 2,452 2,522 2,532
-------- -------- -------- -------- --------
Total fixed charges $ 24,749 $ 21,349 $ 20,249 $ 22,173 $ 24,291
======== ======== ======== ======== ========
Earnings as defined:
Income before income
taxes, extraordinary
charge and cumulative
effect of changes in
accounting principles $ 97,871 $ 95,170 $ 74,571 $ 62,728 $ 42,799
Add: Loss in less-than-
fifty-percent-owned
persons 1,188 7,025 3,000 910 -
Less: Gain on sale of
partial interest in
less-than-fifty-
percent-owned persons - (2,650) - - -
Fixed charges less
interest capitalized 22,349 21,009 16,994 18,043 23,126
Amortization of
capitalized interest 1,879 2,074 1,952 1,788 1,725
-------- -------- -------- -------- --------
Earnings as defined $123,287 $122,628 $ 96,517 $ 83,469 $ 67,650
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 5.0x 5.7x 4.8x 3.8x 2.8x
====== ====== ====== ====== ======
(a) Includes interest capitalized relating to significant construction
projects and amortization of debt discount and debt expense.
(b) One-third of rental expense which approximates the interest
component of non-capitalized leases.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Carpenter Technology Corporation and subsidiaries on
Form S-8 and S-3 (File No. 2-83780, 2-81019, 2-60469, 33-42536, 33-65077,
33-51613 and 33-54045) of our reports dated July 28, 1997, on our audits
of the consolidated financial statements and financial statement schedule
of Carpenter Technology Corporation and subsidiaries as of June 30, 1997
and 1996, and for the years ended June 30, 1997, 1996 and 1995, which
reports are included in this Annual Report on Form 10-K.
s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 18, 1997
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Marcus C. Bennett
________________________________
Marcus C. Bennett
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/William S. Dietrich II
________________________________
William S. Dietrich II
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/C. McCollister Evarts
________________________________
C. McCollister Evarts
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Carl R. Garr
________________________________
Carl R. Garr
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/William J. Hudson, Jr.
________________________________
William J. Hudson, Jr.
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Arthur E. Humphrey
________________________________
Arthur E. Humphrey
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Edward W. Kay
________________________________
Edward W. Kay
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 15th day of September, 1997.
s/Frederick C. Langenberg
________________________________
Frederick C. Langenberg
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/J. Michael Fitzpatrick
________________________________
J. Michael Fitzpatrick
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Marlin Miller, Jr.
________________________________
Marlin Miller, Jr.
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Paul R. Roedel
________________________________
Paul R. Roedel
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Robert J. Lawless
________________________________
Robert J. Lawless
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Peter C. Rossin
________________________________
Peter C. Rossin
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in her
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 15th day of September, 1997.
s/Kathryn C. Turner
________________________________
Kathryn C. Turner
Director
<PAGE>
CARPENTER TECHNOLOGY CORPORATION
--------------------------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned in his
capacity as a Director of Carpenter Technology Corporation does
hereby appoint G. Walton Cottrell and John R. Welty or either of
them his true and lawful attorneys to execute in his name, place
and stead, in his capacity as Director of said Company, the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 on Form 10-K, for the year ended June 30, 1997, of said
Company, and any and all amendments to said Annual Report and all
instruments necessary or incidental in connection therewith and to
file the same with the Securities and Exchange Commission. Said
attorneys shall individually have full power and authority to do
and perform in the name and on behalf of the undersigned, in any
and all capacities, every act whatsoever requisite or desirable to
be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of said attorneys.
IN TESTIMONY WHEREOF, the undersigned has executed this
instrument this 11th day of September, 1997.
s/Kenneth L. Wolfe
________________________________
Kenneth L. Wolfe
Director
<PAGE>
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> $18,620
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$0
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<NET-INCOME> $59,993
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