-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NsGn7hVMLXVtXBjTJ0hJmx69EvgbvCDq1+vtXB6nP9MfiCLUxnBep92h0OIJsXp2 qdR0Fjn6brbnWWDB2ykPww== 0000927016-01-001487.txt : 20010326 0000927016-01-001487.hdr.sgml : 20010326 ACCESSION NUMBER: 0000927016-01-001487 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARNES GROUP INC CENTRAL INDEX KEY: 0000009984 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 060247840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04801 FILM NUMBER: 1577920 BUSINESS ADDRESS: STREET 1: 123 MAIN ST CITY: BRISTOL STATE: CT ZIP: 06010 BUSINESS PHONE: 2035837070 MAIL ADDRESS: STREET 1: 123 MAIN ST CITY: BRISTOL STATE: CT ZIP: 06010 FORMER COMPANY: FORMER CONFORMED NAME: ASSOCIATED SPRING CORP DATE OF NAME CHANGE: 19760518 10-K 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4801 BARNES GROUP INC. (Exact name of registrant as specified in its charter) Delaware 06-0247840 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 123 Main Street, Bristol, Connecticut 06011-0489 ------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) Registrant's telephone number, including area code: (860) 583-7070 ------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $0.01 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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 such filing requirements for 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. _____ The aggregate market value of the registrant's voting stock held by non-affiliates amounted to $274,819,573 as of January 31, 2001. The registrant had outstanding 18,609,926 shares of common stock as of January 31, 2001. Documents Incorporated by Reference: Parts I and II incorporate information by reference from the registrant's 2000 Annual Report to Stockholders. Part III incorporates information by reference from the registrant's Proxy Statement dated March 15, 2001. PART I Item 1. Business. --------- The Company was organized as a Delaware corporation in 1925. The Company is comprised of three business segments: Associated Spring, a manufacturer of precision mechanical and nitrogen gas springs, manifold systems and other close-tolerance engineered metal components; Barnes Aerospace, a manufacturer of precision machined and fabricated components and assemblies for the aerospace industry and a provider of jet engine component overhaul and repair services; and Barnes Distribution, formerly known as Bowman Distribution, a distributor of maintenance, repair, and operating supplies and engineered metal components. Barnes Distribution also provides logistics management services for industrial, heavy equipment, and transportation maintenance markets.* Associated Spring. Associated Spring manufactures a wide variety of ----------------- precision springs. Associated Spring is equipped to produce virtually every type of precision spring, from fine hairsprings for electronics and instruments to large heavy-duty springs for machinery. Nearly all of Associated Spring's products, which are manufactured in plants located on four continents, are highly engineered custom solutions, with order sizes ranging from just a few units to several million. These products are made of various metals, and are purchased primarily by durable goods manufacturers in industries such as farm equipment, telecommunications, home appliances, electronics and transportation. Associated Spring also manufactures nitrogen gas springs and manifold systems used to precisely control stamping presses utilized in metal forming industries. Through Associated Spring's ability to conduct product design and development, physical product and material testing, rapid prototyping and reduction of manufacturing-cycle times, the Company provides complete engineering solutions from concept to manufacturing. Associated Spring's precision mechanical and nitrogen gas springs are sold in the United States and through the Company's foreign subsidiaries to manufacturers in many industries, chiefly for use as components in their own products. Precision springs are sold primarily through Associated Spring's sales employees. Associated Spring's customer base is large and diverse, including manufacturers of industrial and textile machinery, motors, generators, electronic equipment, aircraft, household appliances and fixtures, hardware, office equipment, agricultural equipment, railroad equipment, general machinery, scientific instruments, light vehicles and heavy trucks. ____________________ *As used in this annual report, "Company" refers to the registrant and its consolidated subsidiaries except where the context requires otherwise, and "Associated Spring," "Barnes Aerospace," and "Barnes Distribution" refer to the above-defined businesses, but not to separate corporate entities. 1 Associated Spring has manufacturing operations in the United States, Brazil, Canada, China, Mexico, Singapore, and Sweden. The Company has retained a minority interest of 15% in its former subsidiary in Argentina. The Company owns a 45% minority interest in a joint venture corporation in the United States with NHK Spring Co., Ltd. of Japan. The joint venture corporation, NHK-Associated Spring Suspension Components Inc. ("NASCO"), manufactures suspension springs at its facility in Bowling Green, Kentucky. Barnes Aerospace. Barnes Aerospace is a worldwide producer of ---------------- precision machined and fabricated components and assemblies for original equipment manufacturer (OEM) turbine engine and airframe builders, and provides jet engine component overhaul and repair services for many of the world's major commercial airlines. Barnes Aerospace products and services are sold primarily through Barnes Aerospace's sales employees. Barnes Aerospace's machining operations, with facilities in Connecticut, Arizona, and Mexico, produce critical engine parts through processes such as electrical discharge machining, laser drilling, and multi-axis milling and turning. Customers include gas turbine engine manufacturers for commercial and military jets as well as land-based turbines. Barnes Aerospace's fabrication operations, located in Ohio, Michigan, Utah, and Mexico, specialize in hot and cold forming of complex parts made from titanium and other aerospace alloys. Additional capabilities include superplastic forming and diffusion bonding, and machining of aluminum and other sheet metal products. Customers of the fabrication operations include airframe and gas turbine engine manufacturers for commercial and military jets. Barnes Aerospace's overhaul and repair facilities, located in Connecticut, Ohio, and Singapore, specialize in the refurbishment of jet engine components such as cases, rotating air seals, honeycomb air seals and housings. Processes performed at these facilities include electron beam welding, plasma coating, vacuum brazing, and water jet cleaning. Customers include worldwide major airlines and engine overhaul businesses and the United States military. Barnes Distribution. Barnes Distribution has been an industry leader ------------------- in the distribution of maintenance, repair, and operating (MRO) supplies since 1927, and has grown into one of the world's largest MRO distributors and international logistics management service businesses. Barnes Distribution has four operating units: Bowman Distribution, Curtis Industries, Raymond Distribution, and Mechanics Choice. Bowman, Curtis and Mechanics Choice distribute a wide variety of replacement parts and other products, and provide related inventory management and logistics services. These products include, among many others, fasteners, special purpose hardware, electric and gas welding supplies, hydraulics, chemicals, and security products. Raymond distributes die and nitrogen gas springs, as well as standard parts such as coil and flat springs, the majority of which are manufactured by Associated Spring. With the exception of springs from Associated Spring, the products sold by 2 Barnes Distribution are generally not manufactured by the Company, but are obtained from a number of outside suppliers. Barnes Distribution's products are sold in the United States, Canada, Mexico, the United Kingdom, Ireland, France, and Brazil through a sales force of over 1,000 people, and in many other countries through distributors. Barnes Distribution's customers range from small automobile dealers and truck repair shops to the largest railroads, utilities, and vehicle fleet operators. Segment Analysis. The analysis of the Company's revenue from sales to ---------------- unaffiliated customers, operating profit and assets by business segment as well as revenues from sales to unaffiliated customers and long-lived assets by geographic area appearing on pages 20 through 22 of the Company's 2000 Annual Report to Stockholders, included as Exhibit 13 to this report, is incorporated by reference. Competition. The Company competes with many other companies, large ----------- and small, engaged in the manufacture and sale of custom metal parts (including aerospace components). The Company believes Associated Spring is the largest manufacturer of precision springs in North America and one of the largest in the world. The Company also faces active competition in the products sold by Barnes Distribution. The principal methods of competition for the Company's three businesses include service, quality, price, reliability of supply, technology, innovation, and also, in the case of Associated Spring and Barnes Aerospace, design. Backlog. The backlog of the Company's orders believed to be firm ------- amounted to $202,667,000 at the end of 2000, as compared with $135,647,000 at the end of 1999. Of the 2000 year-end backlog, $144,923,000 is attributable to the Barnes Aerospace and all of the balance is attributable to Associated Spring. $23,130,000 of Barnes Aerospace's backlog is not expected to be shipped in 2001. Substantially all of the remainder of the Company's backlog is expected to be shipped during 2001. Raw Materials and Customers. None of the Company's divisions or --------------------------- segments is dependent upon any single source for any of its principal raw materials or products for resale, and all such materials and products are readily available. No one customer accounted for more than 10% of total sales in 2000. Automotive manufacturers and manufacturers of electronic products are important customers of Associated Spring. Sales by Barnes Aerospace to four manufacturers in the aerospace industry accounted for approximately 55% of its business. Barnes Distribution is not dependent on any one or a few customers for a significant portion of its sales. Research and Development. Although most of the products manufactured ------------------------ by the Company are custom parts made to customers' specifications, the Company is engaged in continuing efforts aimed at discovering and implementing new knowledge that is useful in developing new products or services or significantly improving existing products or services. The Company spent approximately $4,528,000 on its research and development activities in 2000, as compared to expenditures of approximately $4,272,000 in 1999 and $3,673,000 in 1998. There were no significant customer-sponsored research and development activities. 3 Patents and Trademarks. Patents, licenses, franchises and concessions ---------------------- are not material to any of the Company's businesses. Employees. As of December 31, 2000, the Company employed --------- approximately 5,600 people. Environmental Laws. Compliance with federal, state, and local laws ------------------ which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect and is not expected to have a material effect upon the capital expenditures, earnings, or competitive position of the Company. Item 2. Properties. ---------- The Company and its operating subsidiaries conduct business at 21 manufacturing plants, and 32 sales and distribution centers at various locations throughout the world. All of the plants, except the one in China, two locations in Singapore and one in Arizona, are owned. Six of the sales and distribution centers are owned. Associated Spring-Asia has a long-term lease on the land but owns the building in Singapore. Of the properties that are owned, none is subject to any encumbrance. A listing of the principal facility locations of each of the Company's businesses is set forth below. In 2000, the Company closed a distribution facility in Lawrenceville, Georgia which was in close proximity to the Atlanta distribution facility acquired through the purchase of Curtis Industries in May 2000. 4
Property List ------------- L = Lease O = Own Barnes Group Inc. Barnes Distribution - ---------------- ------------------- Headquarters Bristol, CT (O) . Headquarters Cleveland, OH (L) Headquarters, Raymond Distribution Associated Spring Maumee, OH (L) - ----------------- . Headquarters Farmington, CT (L) . Distribution Operations -- United States . Manufacturing Plants Arlington, TX (L) -- United States Atlanta, GA (L) Brecksville, OH (O) Auburn, WA (L) Bristol, CT (O) Bakersfield, CA (L) Corry, PA (O) Buena Park, CA (2-L) Dallas, TX (O) Columbus, OH (L) Milwaukee, WI (O) Edison, NJ (L) Saline, MI (O) Elizabethtown, KY (O) Syracuse, NY (O) Las Vegas, NV (L) -- International New Berlin, WI (L) Burlington, Ontario, Canada (O) Shelbyville, KY (O) Campinas, Brazil (O) Sparks, NV (0) Mexico City, Mexico (O) Ypsilanti, MI (L) Republic of Singapore (L-Land, -- International O-Bldg.) Burlington, Ontario, Canada (L) Tianjin, China (L) Campinas, Brazil (L) Tranas, Sweden (O) Concord, Ontario, Canada (0) Corsham, United Kingdom (L) . Sales & Development Edmonton, Alberta, Canada (0) Boynton Beach, FL (L) Evesham, United Kingdom (L) Glen Ellyn, IL (L) Mexico City, Mexico (L) Plymouth, MI (L) Mississauga, Ontario, Canada (L) Moncton, New Brunswick, Canada (0) . Distribution Montingy, France (L) Frazer, MI (L) Mullingar, Ireland (L) Redditch, United Kingdom (L) Barnes Aerospace Voisins Le Bretonneux, France (L) - ---------------- . Headquarters -- Windsor, CT (O) . Manufacturing Plants -- United States East Granby, CT (O) Lansing, MI (O) Phoenix, AZ (L) Ogden, UT (O) West Chester, OH (O) Windsor, CT (2 -- 0) -- International Republic of Singapore (L) . Sales Derby, United Kingdom (L)
5 The Company believes that its owned and leased properties have been adequately maintained, are in satisfactory operating condition, are suitable and adequate for the business activities conducted therein, and have productive capacities sufficient to meet current needs. Item 3. Legal Proceedings. ----------------- There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is the subject. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- No matter was submitted during the fourth quarter of 2000 to a vote of security holders. 6 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder ---------------------------------------------------------------- Matters. ------- The information regarding the Company's common stock contained on pages 16 through 19 of the Company's 2000 Annual Report to Stockholders is incorporated by reference. As of January 31, 2001, the Company's common stock was held by 3,931 stockholders of record. The Company's common stock is traded on the New York Stock Exchange under the symbol "B". Item 6. Selected Financial Data. ----------------------- The selected financial data for the last five years contained on page 24 of the Company's 2000 Annual Report to Stockholders are incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations. --------------------- The financial review and management's analysis thereof appearing on pages 3 through 7 of the Company's 2000 Annual Report to Stockholders are incorporated by reference. Item 7A. Quantitative and Qualitative Disclosure About Market Risk. --------------------------------------------------------- The information regarding market risk contained on pages 6 and 7 of the Company's 2000 Annual Report to Stockholders is incorporated by reference. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- The financial statements and report of independent accountants appearing on pages 8 through 22 of the Company's 2000 Annual Report to Stockholders are incorporated by reference. See also the report of independent accountants included on page 15 below pursuant to Item 302(a) of Regulation S-K. The material under "Quarterly Data" on page 23 of the Company's 2000 Annual Report to Stockholders is also incorporated by reference. Item 9. Changes and Disagreements with Accountants on Accounting and ------------------------------------------------------------ Financial Disclosure. --------------------- None. 7 PART III Item 10. Directors and Executive Officers of the Company. ----------------------------------------------- The material under "Election of Directors For A Three-Year Term" on pages 1 through 3, and the material under "Section 16(a) Beneficial Ownership Reporting Compliance" on page 5, of the Company's Proxy Statement dated March 15, 2001 are incorporated by reference. The Company's executive officers as of the date of this report are as follows:
Age as of Executive Officer Position December 31, 2000 - ------------------ -------- ----------------- Edmund M. Carpenter President and Chief Executive Officer 59 (since 1998) John R. Arrington Senior Vice President, Human Resources (since 54 1998) Francis C. Boyle, Jr. Vice President, Controller (since 1997) 50 Leonard M. Carlucci Vice President, Barnes Group Inc. (since 1994) 54 and President, Associated Spring (since 1999) Joseph D. DeForte Vice President, Tax (since 1999) 58 William C. Denninger Senior Vice President, Finance and 50 Chief Financial Officer (since 2000) A. Keith Drewett Vice President, Barnes Group Inc. and 54 President, Barnes Distribution (since 2000) Thomas P. Fodell Vice President, Barnes Group Inc. and 50 Vice President, Sales and Marketing, Associated Spring (since 2000) Signe S. Gates Senior Vice President, General Counsel and 51 Secretary (since 1999) Philip A. Goodrich Senior Vice President, Corporate Development 44 (since 2000)
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Age as of Executive Officer Position December 31, 2000 - ---------------- -------- -------------------- Gregory F. Milzcik Vice President, Barnes Group Inc. and President, 41 Barnes Aerospace (since 1999) Harry G. Saddock, Jr. Vice President, Barnes Group Inc. and Vice 49 President, Operations, Associated Spring (since 1998) Idelle K. Wolf Vice President, Barnes Group Inc. and 48 Chief Operating Officer, Barnes Distribution (since 2000)
Except for Messrs. Carpenter, Arrington, DeForte, Denninger, Drewett, Goodrich, and Milzcik, and Mses. Gates and Wolf, each of the Company's executive officers has been employed by the Company or its subsidiaries in an executive or managerial capacity for at least the past five years. Each officer holds office until his or her successor is chosen and qualified or otherwise as provided in the By-Laws, except Mr. Carpenter who holds office pursuant to an employment agreement with the Company, which is incorporated as Exhibit 10.12 to this report. No family relationships exist among the executive officers of the Company. Mr. Carpenter joined the Company as President and Chief Executive Officer in December 1998. From 1996 to 1998, Mr. Carpenter was a Senior Managing Director of Clayton, Dubilier & Rice, Inc., a private equity firm. Mr. Arrington joined the Company as Senior Vice President, Human Resources in April 1998. From 1995 to 1998, Mr. Arrington was Vice President, Human Resources of U.S. West Communications Group. Mr. DeForte joined the Company as Vice President, Tax in August 1999. From 1997 to 1999, Mr. DeForte was Vice President and Chief Financial Officer of Loctite Corporation, a manufacturer and distributor of adhesives and sealants. From 1988 to 1997, Mr. DeForte was Vice President, Tax, Loctite Corporation. In 1997, Loctite Corporation became a subsidiary of Henkel KGaA. Mr. Denninger joined the Company as Senior Vice President, Finance and Chief Financial Officer in March 2000. From 1994 to 2000, Mr. Denninger was Vice President-Finance and Chief Financial Officer of BTR Inc., an industrial products manufacturer. Mr. Drewett joined the Company as Vice President, Barnes Group Inc. and President, Barnes Distribution in May 2000, upon the Company's acquisition of Curtis Industries. From 1998 to 2000, Mr. Drewett was President and Chief Executive Officer of Curtis Industries, Inc. From 1992 to 1998, he was President of the Automotive and 9 Industrial Division of Curtis Industries. He was also Senior Vice President of Curtis from 1997 to 1998 and Vice President of Curtis from 1992 to 1997. Mr. Goodrich joined the Company as Vice President, Business Development in November 1999. He was promoted to Senior Vice President, Corporate Development in December 2000. From 1996 to 1998, Mr. Goodrich was Senior Vice President, Corporate Development of AMETEK, Inc., a manufacturer of electric motors and electronic equipment. Mr. Milzcik joined the Company as Vice President, Barnes Group Inc. and President, Barnes Aerospace in June 1999. From 1997 to 1999, Mr. Milzcik was Vice President and General Manager of International Operations of Lockheed Martin Aircraft and Logistics, an aerospace manufacturing and service company. From 1994 to 1997, Mr. Milzcik was Group Vice President, Manufacturing and Overhaul of Precision Standard, Inc., an aerospace structure manufacturing and engineering services company. Ms. Gates joined the Company as Senior Vice President, General Counsel and Secretary in June 1999. From 1996 to 1999, Ms. Gates was Vice President, General Counsel and Corporate Secretary of Axel Johnson Inc., a manufacturing, distribution and service company in the energy, telecommunications and environmental industries. Ms. Wolf joined the Company as Vice President, Barnes Group Inc. and Chief Operating Officer, Barnes Distribution in May 2000, upon the Company's acquisition of Curtis Industries. From 1998 to 2000, Ms. Wolf was Executive Vice President and Chief Operating Officer of Curtis Industries, Inc. She was Senior Vice President and Chief Financial Officer of Curtis from 1997 to 1998, and Vice President of Finance and Chief Financial Officer from 1992 to 1997. Item 11. Executive Compensation. ---------------------- The information under "Compensation of Directors" appearing on pages 3 and 4, and the information under "Compensation," "Stock Options," "Long-Term Incentive Plan Awards," "Pension Plans," "Employment Agreement," and "Change-In- Control Agreements" appearing on pages 11 through 16 of the Company's Proxy Statement dated March 15, 2001, are incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- The information concerning this item appearing on pages 5 and 6 of the Company's Proxy Statement dated March 15, 2001, is incorporated by reference. Item 13. Certain Relationships and Related Transactions. ----------------------------------------------- None. 10 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. ---------------------------------------------------------------- (a) The report of PricewaterhouseCoopers LLP, independent accountants, and the following financial statements and financial statement schedules are filed as part of this report:
Reference -------------------------------- Annual Report ------------- Form 10-K to Stockholders --------- --------------- (page) (page) ------ ------ Report of independent accountants 15 22 Consolidated balance sheets at December 31, 2000 and 1999 9 Consolidated statements of income for the years ended December 8 31, 2000, 1999 and 1998 Consolidated statements of changes in stockholders' equity for 11 the years ended December 31, 2000, 1999 and 1998 Consolidated statements of cash flows for the years ended 10 December 31, 2000, 1999 and 1998 Notes to consolidated financial statements 12-22 Supplementary information 23 Quarterly data (unaudited) Consolidated schedule for the years ended December 31, 2000, 1999 and 1998: Schedule II - Valuation and Qualifying Accounts 16
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto. The consolidated financial statements listed in the above index which are included in the Annual Report to Stockholders of Barnes Group Inc. for the year ended December 31, 2000, are incorporated by reference. With the exception of the pages listed in the above index and in Items 1, 5, 6, 7, 7A and 8, the 2000 Annual Report to Stockholders is not to be deemed filed as part of this report. 11 (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. (c) The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report on Form 10-K and indexed at pages 17 through 20 of this report. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 23, 2001 BARNES GROUP INC. By /s/ Edmund M. Carpenter -------------------------------- Edmund M. Carpenter President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of the above date by the following persons on behalf of the Company in the capacities indicated. /s/ Edmund M. Carpenter - ----------------------------------------- Edmund M. Carpenter President and Chief Executive Officer (principal executive officer) and Director /s/ William C. Denninger - ----------------------------------------- William C. Denninger Senior Vice President, Finance Chief Financial Officer (principal financial officer) /s/ Francis C. Boyle, Jr. - ----------------------------------------- Francis C. Boyle, Jr. Vice President, Controller (principal accounting officer) /s/ Thomas O. Barnes - ----------------------------------------- Thomas O. Barnes Director 13 /s/ John W. Alden - ----------------------------------------- John W. Alden Director /s/ Gary G. Benanav - ----------------------------------------- Gary G. Benanav Director /s/ William S. Bristow, Jr. - ----------------------------------------- William S. Bristow, Jr. Director /s/ Robert J. Callander - ----------------------------------------- Robert J. Callander Director /s/ George T. Carpenter - ----------------------------------------- George T. Carpenter Director /s/ Frank E. Grzelecki - ----------------------------------------- Frank E. Grzelecki Director 14 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Barnes Group Inc. Our audits of the consolidated financial statements referred to in our report dated February 8, 2001 appearing on page 22 of the 2000 Annual Report to Stockholders of Barnes Group Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Hartford, Connecticut February 8, 2001 15 BARNES GROUP INC. Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 2000, 1999 and 1998 (In thousands ) Allowances for Doubtful Accounts: Balance December 31, 1997 $ 3,061 Provision charged to income (1) 357 Doubtful accounts written off (net) (1,005) Other adjustments -- -------- Balance December 31, 1998 2,413 Provision charged to income (2) 1,343 Doubtful accounts written off (net) (427) Other adjustments -- -------- Balance December 31, 1999 3,329 Provision charged to income 936 Doubtful accounts written off (net) (3) (1,990) Other adjustments (4) 445 -------- Balance December 31, 2000 $ 2,720 ======== (1) The low charge to income in 1998 was a result of Barnes Distribution's successful efforts to improve the recovery of previously reserved receivables. Barnes Distribution was formerly known as Bowman Distribution. (2) The increase in the 1999 provision charged to income was a result of the complications encountered during the implementation of a new integrated management system at Barnes Distribution. (3) The increase in doubtful accounts written off in 2000 was the result of Barnes Distribution recognizing the write-off of receivables reserved and expensed. (4) Opening balances of acquired businesses. 16 EXHIBIT INDEX Barnes Group Inc. Annual Report on Form 10-K for the Year ended December 31, 2000 ------------------------------------
Exhibit No. Description Reference - ----------- ----------- --------- 3.1 Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's report on Form 10-K for the year ended December 31, 1997. 3.2 Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2 to the Company's report on Form 10-K for the year ended December 31, 1998. 4.1 Revolving Credit Agreement dated as of Incorporated by reference to Exhibit 4.1 to December 1, 1991 among the Company and the Company's report on Form 10-K for the several commercial banks. year ended December 31, 1996. 4.2 Sixth Amendment to Credit Agreement set Incorporated by reference to Exhibit 4.2 to forth in Exhibit 4.1 dated as of December 1, the Company's report on Form 10-K for the 1997. year ended December 31, 1997. 4.3 Rights Agreement dated as of December 10, Incorporated by reference to Exhibit 1 to 1996, between the Company and ChaseMellon the Company's report on Form 8-A filed on Shareholder Services, L.L.C. December 20, 1996. 4.4 Note Agreement dated as of September 16, Incorporated by reference to Exhibit 4.8 to 1991, among the Company and several the Company's report on Form 10-K for the insurance companies. year ended December 31, 1996. 4.5 Note Purchase Agreement dated as of December Incorporated by reference to Exhibit 4.9 to 1, 1995, between the Company and several the Company's report on Form 10-K for the insurance companies. year ended December 31, 1995.
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Exhibit No. Description Reference - ----------- ----------- --------- 4.6 Note Agreement dated as of November 12, Incorporated by reference to Exhibit 4.6 to 1999, between 3031786 Nova Scotia Company, a the Company's report on Form 10-K for the wholly owned subsidiary of the Company, and year ended December 31, 1999. several insurance companies; and related Guaranty Agreement between the Company and such insurance companies. 4.7 Note Agreement dated as of November 21, Filed with this report. 2000, between Barnes Group Inc. and several insurance companies. 10.1 The Company's Management Incentive Filed with this report. Compensation Plan, as amended and restated January 1, 2000. 10.2 The Company's Long Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to the Company's report on Form 10-K for the year ended December 31, 1995. 10.3 The Company's Retirement Benefit Incorporated by reference to Exhibit 10.3 to Equalization Plan. the Company's report on Form 10-K for the year ended December 31, 1995. 10.4 The Company's Supplemental Executive Incorporated by reference to Exhibit 10.4 to Retirement Plan. the Company's report on Form 10-K for the year ended December 31, 1995. 10.5 The Company's 1991 Stock Incentive Plan, as Incorporated by reference to Exhibit 10.5 to amended and restated May 15, 1998. the Company's report on Form 10-K for the year ended December 31, 1998. 10.6 The Company's Non-Employee Director Deferred Incorporated by reference to Exhibit 10.7 to Stock Plan. the Company's report on Form 10-K for the year ended December 31, 1994.
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Exhibit No. Description Reference - ----------- ----------- --------- 10.7 The Company's Amended and Restated Incorporated by reference to Exhibit 10.8 to Directors' Deferred Compensation Plan. the Company's report on Form 10-K for the year ended December 31, 1996. 10.8 The Company's Senior Executive Enhanced Life Incorporated by reference to Exhibit 10.8 to Insurance Program, as amended and restated the Company's report on Form 10-K for the May 16, 1997. year ended December 31, 1998. 10.9 The Company's Enhanced Life Insurance Incorporated by reference to Exhibit 10.12 Program. to the Company's report on Form 10-K for the year ended December 31, 1993. 10.10 The Company's Supplemental Senior Officer Incorporated by reference to Exhibit 10.13 Retirement Plan. to the Company's report on Form 10-K for the year ended December 31, 1996. 10.11 The Company's Executive Officer Incorporated by reference to Exhibit 10.14 Change-In-Control Severance Agreement. to the Company's report on Form 10-K for the year ended December 31, 1997. 10.12 Employment Agreement dated as of December 8, Incorporated by reference to Exhibit 10.14 1998 between the Company and Edmund M. to the Company's report on Form 10-K for the Carpenter. year ended December 31, 1998. 10.13 The Company's Employee Stock and Ownership Filed with this report. Program. 13 Portions of the 2000 Annual Report to Filed with this report. Stockholders. 21 List of Subsidiaries. Filed with this report. 23 Consent of Independent Accountants. Filed with this report.
The Company agrees to furnish to the Commission, upon request, a copy of each instrument with respect to which there are outstanding issues of unregistered long-term debt of the Company and its subsidiaries the authorized principal amount of which does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. 19 Except for Exhibit 13, which will be furnished free of charge, and Exhibits 21 and 23, which are included herein, copies of exhibits referred to above will be furnished at a cost of twenty-five cents per page to security holders who make a written request to the Secretary, Barnes Group Inc., 123 Main Street, P.O. Box 489, Bristol, Connecticut 06011-0489. 20 EX-4.7 2 0002.txt NOTE AGREEMENT Exhibit 4.7 ================================================================================ Barnes Group Inc. Note Agreement $60,000,000 8.59% Senior Notes Due November 21, 2008 ================================================================================ Table of Contents
Section Heading Page Section 1. Purchase and Sale of Notes................................ 1 Section 1.1. Issue of Notes............................................ 1 Section 1.2. The Closing............................................... 1 Section 1.3. Purchase for Investment................................... 2 Section 1.4. Failure to Deliver........................................ 3 Section 1.5. Transaction Expenses...................................... 3 Section 1.6. Other Purchasers.......................................... 4 Section 2. Warranties and Representations............................ 4 Section 2.1. Subsidiaries.............................................. 4 Section 2.2. Corporate Organization and Authority...................... 4 Section 2.3 Business, Property, Indebtedness and Liens................ 5 Section 2.4. Financial Statements...................................... 5 Section 2.5. Full Disclosure........................................... 5 Section 2.7. Title to Properties....................................... 6 Section 2.8. Patents and Trademarks.................................... 6 Section 2.9. Sale is Legal and Authorized.............................. 6 Section 2.10. No Defaults............................................... 7 Section 2.11. Governmental Consent...................................... 7 Section 2.12. Taxes..................................................... 7 Section 2.13. Use of Proceeds........................................... 7 Section 2.14. Private Offering.......................................... 8 Section 2.15. Foreign Assets Control Regulations, Etc................... 8 Section 2.17. ERISA..................................................... 8 Section 2.18. Environmental Matters..................................... 9 Section 3. Closing Conditions........................................ 9 Section 3.1. Opinions of Counsel....................................... 9 Section 3.2. Warranties and Representations True as of Closing Date.... 10 Section 3.3. Compliance with this Agreement............................ 10 Section 3.4. Officers' Certificate..................................... 10 Section 3.5. Proceedings Satisfactory.................................. 10 Section 3.6. Sales To Other Purchasers................................. 10 Section 3.7. Private Placement Number.................................. 10 Section 3.8. Legal Investment.......................................... 10 Section 4. Direct Payment............................................ 10
-i- Section 5. Prepayments......................................................................... 11 Section 5.1. Option to Prepay.................................................................... 11 Section 5.2. Notice of Optional Prepayment....................................................... 11 Section 5.3. Partial Payment Pro Rata............................................................ 11 Section 6. Registration; Substitution of Notes................................................. 11 Section 6.1. Registration of Notes............................................................... 11 Section 6.2. Exchange of Notes................................................................... 12 Section 6.3. Replacement of Notes................................................................ 12 Section 7. Company Business Covenants.......................................................... 12 Section 7.1. Payment of Taxes and Claims......................................................... 12 Section 7.2. Maintenance of Properties, Insurance, Corporate Existence and Compliance with Law... 13 Section 7.3. Maintenance of Office............................................................... 14 Section 7.4. Sale of Assets or Merger............................................................ 14 Section 7.5. Leases.............................................................................. 14 Section 7.6. Liens and Encumbrances.............................................................. 15 Section 7.7. Indebtedness........................................................................ 16 Section 7.8. Net Worth........................................................................... 16 Section 7.10. Transactions with Affiliates........................................................ 17 Section 7.11. Tax Consolidation................................................................... 17 Section 7.12. Acquisition of Notes................................................................ 17 Section 7.13. Lines of Business................................................................... 17 Section 7.14. Restricted Payments and Restricted Investments...................................... 18 Section 7.15. Limitation on Restrictions on Dividends by Subsidiaries, Etc........................ 19 Section 8. Information as to Company........................................................... 19 Section 8.1. Financial and Business Information.................................................. 19 Section 8.2. Officers' Certificates.............................................................. 22 Section 8.3. Accountants' Certificates........................................................... 22 Section 8.4. Inspection.......................................................................... 22 Section 9. Events of Default................................................................... 23 Section 9.1. Nature of Events.................................................................... 23 Section 9.2. Default Remedies.................................................................... 24 Section 9.3. Annulment of Acceleration of Notes.................................................. 24 Section 10. Interpretation of This Agreement.................................................... 25 Section 10.1. Terms Defined....................................................................... 25 Section 10.2. Accounting Principles............................................................... 31 Section 10.3. Directly or Indirectly.............................................................. 31 Section 10.4. Governing Law....................................................................... 31
-ii- Section 11. Miscellaneous........................................ 32 Section 11.1. Notices.............................................. 32 Section 11.2. Reproduction of Documents............................ 32 Section 11.3. Survival............................................. 32 Section 11.4. Successors and Assigns............................... 32 Section 11.5. Amendment and Waiver................................. 33 Section 11.6. Powers and Rights Not Waived; Remedies Cumulative.... 33 Section 11.7. Severability......................................... 33 Section 11.8. Payment.............................................. 33 Section 11.9. Duplicate Originals.................................. 33 Section 11.10. Confidentiality...................................... 33 Section 11.11. Headings, Etc........................................ 34 Signatures............................................................... 35
Exhibit A -- Principal Amounts, Payment Information and Addresses Exhibit B -- Form of 8.59% Senior Note due November 21, 2008 Exhibit C -- Form of Opinion of General Counsel to the Company Exhibit D -- Form of Opinion of Special Counsel for the Purchasers Schedule 2.1 -- List of Subsidiaries and Affiliates Schedule 2.3 -- List of Indebtedness and Liens Schedule 7.2(b) -- Licenses Schedule 7.5 -- Leases -iii- Barnes Group Inc. 123 Main Street P.O. Box 489 Bristol, CT 06011 ___________________ Note Agreement $60,000,000 8.59% Senior Notes due November 21, 2008 ___________________ To each of the Purchasers Listed on the Attached Exhibit A: As of November 21, 2000 Dear Sirs: Barnes Group Inc., a Delaware corporation (the "Company"), hereby agrees with the Purchasers as follows: Section 1. Purchase and Sale of Notes. Section 1.1. Issue of Notes. The Company will issue $60,000,000 in aggregate principal amount of its 8.59% Senior Notes due November 21, 2008 (herein called the "Notes"). Each Note will bear interest on the unpaid principal balance thereof from the date of such Note at the rate of 8.59% per annum (computed on the basis of a 360-day year of twelve 30-day months), payable semi-annually on the 21/st/ day of May and November in each year, commencing with the payment date next succeeding the date of such Note, until the principal amount shall be due and payable, and will bear interest, payable on demand, on any overdue payment (including any overdue prepayment) of principal or premium and (to the extent permitted by applicable law) on any overdue payment of interest at a rate per annum, to be adjusted daily, equal to the greater of (a) the rate announced publicly by Citibank, N.A. in New York, New York from time to time as its prime rate, and (b) 10.59% per annum (but in no event higher than the maximum rate permitted by law); and will mature on November 21, 2008. The Notes will be registered notes substantially in the form set out in Exhibit B. Section 1.2. The Closing. The Company agrees to sell to the Purchasers and the Purchasers agree to purchase from the Company, in accordance with the provisions of this Agreement; the principal amount of the Notes set forth opposite their respective names on Exhibit A hereto at 100% of the principal amount thereof. The closing of the sale of the Notes shall be held at 11 a.m. EST on November 21, 2000 (the "Closing Date") at the office of Bingham Dana LLP, One State Street, Hartford, 1 Connecticut 06103. At the closing the Company will deliver to each Purchaser a single Note (or such greater number of Notes in denominations of at least $500,000 as each Purchaser may request) in the aggregate principal amount of its purchase, dated the Closing Date and payable to such Purchaser, or its nominee, as set forth in Exhibit A, against payment in immediately available funds. Section 1.3. Purchase for Investment. (a) Each Purchaser represents to the Company that (i) it is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Act and (ii) it is purchasing the Notes for investment for its own account and the account of its affiliated entities and with no present intention of distributing or reselling the Notes or any part thereof to anyone other than an affiliated entity. Each Purchaser understands that the Notes have not been registered under the Act and may be resold only if registered pursuant to the provisions of the Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by applicable law, and that the Company is not required to register the Notes. Each Purchaser acknowledges receipt of the Private Placement Memorandum and the opportunity to ask questions of Senior Management of the Company in the course of conducting its due diligence. It is understood that, in making the representations set out in Sections 2.9 and 2.11, the Company is relying, to the extent applicable, upon each Purchaser's representation as aforesaid. (b) Source of Funds. Each Purchaser represents that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by it to pay the purchase price of the Notes to be purchased by it hereunder: (i) if such Purchaser is an insurance company, the Source does not include assets allocated to any separate account maintained by it in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with its fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (ii) the Source is either (A) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90- 1 (issued January 29, 1990), or (B) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as such Purchaser has disclosed to the Company in writing pursuant to this paragraph (ii), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (iii) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same -2- employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (A) the identity of such QPAM and (B) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (iii); or (iv) the Source is a governmental plan; or (v) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (v); or (vi) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 1.3, the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. Section 1.4. Failure to Deliver. If, at the closing, the Company fails to tender to any Purchaser the Notes to be purchased by it or if the conditions specified in Section 3 have not been fulfilled, such Purchaser may thereupon elect to be relieved of all further obligations under this Agreement. Nothing in this Section shall operate to relieve the Company from any of its obligations hereunder or to waive any of the Purchasers' rights against the Company. Section 1.5. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel) incurred by each Purchaser in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in connection with any investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses incurred in connection with the insolvency or bankruptcy of the Company or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save each Purchaser harmless from all claims in respect of any fees, costs or expenses of any brokers and finders (other than those retained by such Purchaser). The obligations of the Company under this Section 1.5 shall survive the payment of the Notes and the termination of this Agreement. -3- Section 1.6. Other Purchasers. The purchase made by each Purchaser hereunder is to be a separate purchase from the Company, and each sale and delivery of Notes to each Purchaser is to be a separate sale and delivery by the Company to such Purchaser. Section 2. Warranties and Representations. The Company warrants and represents to each Purchaser that: Section 2.1. Subsidiaries. (a) Schedule 2.1 to this Agreement correctly identifies (i) each of the Company's Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Company, and (ii) each of the Company's Affiliates which is a corporation or partnership or which is a holder of 5% or more of the Voting Stock of the Company and the nature of the affiliation. (b) Each of the Company and the Subsidiaries is the legal and beneficial owner of all of the shares of Voting Stock it purports to own of each Subsidiary, free and clear in each case of any Lien. All such shares of Voting Stock have been duly issued and are fully paid and non-assessable. Section 2.2. Corporate Organization and Authority. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; it is duly qualified and authorized to do business and is in good standing as a foreign corporation in each jurisdiction where the character of its Properties or the nature of its activities makes such qualification necessary, other than those jurisdictions where the failure to be so qualified would not have a material adverse effect on the Company's business or financial position; and it has all requisite power and authority and all necessary licenses, permits, franchises and other governmental authorizations to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, other than where the failure to have such licenses, permits, franchises or other governmental authorizations would not have a material adverse effect on (i) the Company's business or financial position or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. (b) Each Subsidiary of the Company is a corporation duly organized and validly existing under the laws of the jurisdiction of incorporation; it is duly qualified and authorized to do business and is in good standing as a foreign corporation in each jurisdiction where the character of its Properties or the nature of its activities makes such qualification necessary, other than those jurisdictions where the failure to be so qualified would not have a material adverse effect on the Company's business or financial position; and it has all requisite power and authority and all necessary licenses, permits, franchises and other governmental authorizations to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, other than where the failure to have such licenses, permits, franchises or other governmental authorizations would not have a material adverse effect on (i) the Company's business or financial position or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. -4- Section 2.3 Business, Property, Indebtedness and Liens. (a) The Private Placement Memorandum previously delivered to each Purchaser fairly describes in all material respects the general nature of the business and principal Properties of the Company and its Subsidiaries. (b) Schedule 2.3 correctly lists all outstanding Indebtedness for borrowed money (including all Capitalized Leases) of, and all Liens (other than those (x) permitted by clauses (i) through (v) of Section 7.6(a) and (y) on Property of the Company and its Subsidiaries which individually does not have a Fair Market Value in excess of $500,000 and which, when aggregated with other Property subject to Liens not included pursuant to this clause (y), does not have a Fair Market Value in excess of $2,000,000). Neither the Company nor any of its Subsidiaries has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its Property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 7.6(a). Section 2.4. Financial Statements. (a) The consolidated balance sheets of the Company and its Consolidated Subsidiaries as of December 31 in the years 1995, 1996, 1997, 1998, and 1999 and the related statements of income, retained earnings and changes in financial position or cash flows for the fiscal years ended on such dates, all accompanied by reports thereon containing opinions without qualification, by Pricewaterhouse Coopers LLP, independent certified public accountants, and the consolidated balance sheets of the Company and its Consolidated Subsidiaries as of September 30, 2000 and the related statements of income, retained earnings and cash flows for the 9 month period then ended, certified by the Company's chief financial officer or chief accounting officer, have been prepared in accordance with GAAP consistently applied, and present fairly in all material respects the financial position of the Company and its Consolidated Subsidiaries as of such dates and the results of their operations for such periods; provided, however, that the financial statements as of and for the period ended September 30, 2000 have been prepared in accordance with GAAP for interim financial statements. (b) Since December 31, 1999, there has been no materially adverse change in the Properties, business, prospects, profits or financial condition of the Company and its Consolidated Subsidiaries, taken as a whole. Section 2.5. Full Disclosure. The financial statements referred to in Section 2.4 do not, nor does this Agreement, the Private Placement Memorandum or any other written statement furnished by the Company to any Purchaser in connection with the negotiation of the sale of the Notes contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The assumptions used in preparation of the projected financial statements of the Company were reasonable when made and continue to be reasonable, and correctly apply the appropriate pro forma adjustments to the respective historical financial information; such projections project the business judgment of management of the Company when made, and are good faith estimates and as such actual results may vary from such projections. There is no agreement, restriction or other factual matter which the Company has not disclosed to each Purchaser in writing which, so far as the Company can now reasonably foresee, will have a material adverse impact on (i) the long-term financial condition or prospects -5- of the Company or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. Section 2.6. Pending Litigation; Compliance with Law. There are no proceedings or investigations pending, or to the knowledge of the Company threatened, against or affecting the Company or any of its Subsidiaries in or before any court, governmental authority or agency or arbitration board or tribunal which, so far as the Company can now reasonably foresee, individually or in the aggregate, will have a material adverse impact on the long-term financial condition or prospects of the Company and its Subsidiaries taken as a whole, or would impair the ability of the Company to perform its obligations under this Agreement. Neither the Company nor any of its Subsidiaries is in default with respect to any order of any court, governmental authority or agency or arbitration board or tribunal or in violation of any laws or governmental rules or regulations where, so far as the Company can now reasonably foresee, such default or violation will have a material adverse impact on (i) the long- term financial condition or prospects of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. Section 2.7. Title to Properties. Except where the failure to possess good and marketable title in fee simple or good title, as the case may be, would not have a material adverse impact on the Company and its Subsidiaries taken as a whole, the Company, and each of its Subsidiaries as applicable, has good and marketable title in fee simple (or its equivalent under applicable law) to all the real Property, and has good title to all the other Property, it purports to own, including that reflected in the most recent balance sheet referred to in Section 2.4 (except as sold or otherwise disposed of in the ordinary course of business), free from Liens not permitted by Section 7.6(a). Section 2.8. Patents and Trademarks. Each of the Company and its Subsidiaries owns or possesses all the patents, trademarks, service marks, trade names, copyrights, licenses and rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any conflict with the rights of others known by Senior Management. Section 2.9. Sale is Legal and Authorized. The sale of the Notes by the Company and compliance by the Company with the provisions of this Agreement and of the Notes: (a) have been duly authorized, executed and delivered and are within the corporate powers of the Company; and (b) are legal, valid, binding and enforceable in accordance with their terms and will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with, constitute a violation of, or result in the creation of any Lien upon any Property of the Company or any of its Subsidiaries under the provisions of, any agreement, charter instrument, by-law or other instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective Properties may be bound. -6- The Company is not a party to any agreement, or subject to any charter or other corporate restriction, which restricts its right or ability to incur Indebtedness, other than this Agreement and the agreements identified in Schedule 2.3. Section 2.10. No Defaults. No event has occurred and no condition exists which, upon the issue of the Notes, would constitute a Default or an Event of Default. The Company is not in violation of any term of any charter instrument or by-law and neither the Company nor any of its Subsidiaries is in default of any term under any agreement or other instrument with respect to borrowed money. Neither the Company nor any of its Subsidiaries is in violation of any term of any other agreement or instrument to which it is a party or by which it or any of its Property may be bound which violation might reasonably be expected to have a materially adverse impact on (i) the long-term business or prospects of the Company and its Subsidiaries taken as a whole or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. Section 2.11. Governmental Consent. No consent, withholding of objection on the part of, approval or authorization of, or filing, registration or qualification with, any governmental authority is required on the part of the Company or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement or the offer, issue, sale or delivery of the Notes. Section 2.12. Taxes. Consolidated Federal income tax returns for the Company and its Domestic Subsidiaries have been examined by the Internal Revenue Service for all years up to and including the year ended December 31, 1995. The Company and each of its Domestic Subsidiaries has filed or caused to be filed all Federal, provincial, state and local tax returns which, to the knowledge of Senior Management, are required to be filed and have paid or caused to be paid all taxes as shown on such returns or on any assessment received by it or by any of them, to the extent that such taxes have become due, except any such tax or assessment the validity of which is being contested in good faith by appropriate proceedings and with respect to which the Company or such Subsidiary, as applicable, has set aside on its books adequate reserves to the extent the Company or such Subsidiary and a nationally recognized independent certified public accountant believes such reserves are necessary. To the extent that the Company in good faith believes is necessary, the Company and its Subsidiaries have set up reserves which are believed by the Company to be adequate for the payment of additional taxes. All assessed deficiencies resulting from examinations by the Internal Revenue Service up to and including the year ended December 31, 1995 have been discharged, reserved against or will not impair the Company's ability to repay the Notes. Section 2.13. Use of Proceeds. The Company will apply the proceeds from the sale of the Notes to refinance outstanding Indebtedness for borrowed money. None of the transactions contemplated in this Agreement (including, without limitation thereof, the use of the proceeds from the sale of the Notes) will violate or result in a violation of Section 7 of the Exchange Act or any regulations issued pursuant thereto, including, without limitation, Regulations T, U or X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11. Neither the Company nor any Subsidiary owns or intends to carry or purchase any "margin stock" within the meaning of Regulation U. None of the proceeds from the sale of the Notes will be used to -7- purchase or refinance any borrowing the proceeds of which were used to purchase any "security" within the meaning of the Exchange Act. Section 2.14. Private Offering. Neither the Company nor Fleet Securities Inc. (the only Person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Notes) has offered any of the Notes or any similar Security of the Company for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchaser, other than the purchasers of the Notes and not more than 30 other institutional investors, each of whom was offered all or a portion of the Notes at private sale for investment. The Company agrees that neither the Company nor anyone acting on its behalf will offer the Notes or any part thereof or any similar Securities for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Act. Section 2.15. Foreign Assets Control Regulations, Etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Section 2.16. Status under Certain Statutes. Neither the Company nor any of its Subsidiaries is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. Section 2.17. ERISA. (a) Relationship of Vested Benefits to Pension Plan Assets. The present aggregate value of all benefits vested under all "employee pension benefit plans," as such term is defined in Section 3 of ERISA, maintained by the Company and its Related Persons, or in which employees of the Company or any Related Person are entitled to participate, as from time to time in effect (herein called the "Pension Plans"), did not, as of January 1, 2000, the last annual valuation date, exceed the actuarial value of the assets of the Pension Plans allocable to such vested benefits. (b) Prohibited Transactions. Neither the Company or any Related Person nor any of the Pension Plans nor any trusts created thereunder, nor any trustee or administrator thereof, has engaged in a "prohibited transaction," as such term is defined in Section 4975 of the Code, or described in Section 406 of ERISA, which could subject the Company, any Related Person, any of the Pension Plans, any such trust, or any trustee or administrator thereof, or any party dealing with the Pension Plans or any such trust to the tax or penalty on prohibited transactions imposed by said Section 4975 or by Section 502(i) of ERISA. -8- (c) Reportable Events. Since December 31, 1990, neither any of the Pension Plans nor any such trusts have been terminated, nor have there been any "reportable events," as that term is defined in Section 4043 of ERISA, since the effective date of ERISA. (d) Accumulated Funding Deficiency. Neither any of the Pension Plans nor any such trusts have incurred any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA since the effective date of ERISA. Section 2.18. Environmental Matters. Neither the Company nor any of its Subsidiaries has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim, against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a material adverse effect on (i) the Company and its Subsidiaries taken as a whole or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. Except as otherwise disclosed to each Purchaser in writing, (a) neither the Company nor any of its Subsidiaries has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or any other assets or their use, except, in each case, such as could not reasonably be expected to result in a material adverse effect on the Company and its Subsidiaries taken as a whole; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a material adverse effect on the Company and its Subsidiaries taken as a whole, and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a material adverse effect on the Company and its Subsidiaries taken as a whole. Section 3. Closing Conditions. The obligation of each Purchaser to purchase and pay for the Notes to be delivered to it at the closing shall be subject to the following conditions precedent: Section 3.1. Opinions of Counsel. Such Purchaser shall have received from Signe S. Gates, Esq., General Counsel of the Company and Bingham Dana LLP, special counsel to the Purchasers, the closing opinions described in Exhibits C and D, respectively. -9- Section 3.2. Warranties and Representations True as of Closing Date. (a) The warranties and representations (a) of the Company contained in Section 2 shall (except as affected by transactions contemplated by this Agreement) be true in all material respects on the Closing Date with the same effect as though made on and as of that date. (b) Neither the Company nor any of its Subsidiaries shall have taken any action or permitted any condition to exist which would have been prohibited by Section 7 if such Section had been binding and effective at all times during the period from December 31, 1999 to and including the Closing Date. Section 3.3. Compliance with this Agreement. The Company shall have performed and complied with all agreements and conditions contained herein which are required to be performed or complied with by the Company before or at the closing. Section 3.4. Officers' Certificate. Such Purchaser shall have received a certificate dated the Closing Date and signed by the President or a Vice President and the Treasurer or an Assistant Treasurer of the Company, certifying that the conditions specified in Sections 3.2 and 3.3 have been fulfilled as to the Company. Section 3.5. Proceedings Satisfactory. All proceedings taken in connection with the sale of the Notes and all documents and papers relating thereto shall be satisfactory to such Purchaser and its special counsel. Such Purchaser and its special counsel shall have received copies of such documents and papers as it or they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to such Purchaser and its special counsel. Section 3.6. Sales To Other Purchasers. The Company shall have sold or shall simultaneously sell to the other Purchasers (and shall have received or simultaneously receive the purchase price for) the aggregate principal amount of the Notes to be purchased by them. Section 3.7. Private Placement Number. The Company shall have obtained from Standard & Poor's Corporation and provided to such Purchaser a Private Placement Number for the Notes. Section 3.8. Legal Investment. The Company acknowledges that each Note to be purchased by such Purchaser must qualify as a legal investment for life insurance companies under the New York Insurance Law and any other law applicable to it (other than under any "basket" or leeway provisions thereof), and the Company will deliver to such Purchaser such officer's certificates or other evidence as it may reasonably request to establish compliance with this condition. Section 4. Direct Payment. The Company agrees that, notwithstanding any provision in this Agreement or the Notes to the contrary, it will pay all sums becoming due to any institutional holder of Notes in the manner provided in Exhibit A or in any other reasonable manner as any institutional holder may designate to the Company in writing (without presentment of or notation on the Notes); provided -10- that after payment or prepayment in full of any Note, the holder thereof shall surrender such Note for cancellation, reasonably promptly after such payment or prepayment to the Company at its principal office. Section 5. Prepayments. Section 5.1. Required Payments. On November 21, 2006, November 21, 2007 and November 21, 2008 the Company will pay $20,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Makewhole Price or any premium, provided that upon any partial payment of the Notes pursuant to Section 5.2 the principal amount of each required payment of the Notes becoming due under this Section 5.1 on or after the date of such payment shall be reduced in the inverse order of the maturity thereof, and provided, further, that any outstanding principal amount of the Notes shall be paid on November 21, 2008. Section 5.2. Option to Prepay. The Company, at its sole discretion, may make optional prepayments of the Notes in whole or in part, in integral multiples of $1,000,000, at any time at a price equal to the sum of (i) the principal amount to be prepaid together with accrued interest on the principal amount so prepaid to the prepayment date, and (ii) the Makewhole Price applicable at such time with respect to the principal amount of the Notes being prepaid. Section 5.3. Notice of Optional Prepayment. The Company will give notice of any optional prepayment of the Notes pursuant to Section 5.2 to each holder of the Notes not less than 10 Business Days nor more than 60 days before the date fixed for prepayment, specifying (a) such date, (b) the section of this Agreement under which the prepayment is to be made, (c) the principal amount of the Notes and of such holder's Notes to be prepaid on such date, and (d) the accrued interest applicable to the prepayment, and setting forth a detailed calculation of what the Makewhole Price would be if the Notes were being prepaid on the date of such notice. Notice of prepayment having been so given, the principal amount of the Notes specified in such notice, together with the Makewhole Price, if any, and accrued interest thereon, shall become due and payable on the prepayment date. The Company will provide a supplemental notice by courier or facsimile confirmed by telephone to be received by each holder of the Notes by 2:00 p.m., Hartford, Connecticut time, on the Business Day immediately preceding the date fixed for prepayment which will set forth a calculation of the Makewhole Price. Section 5.4. Partial Payment Pro Rata. If there is more than one Note outstanding at any time the aggregate principal amount of each optional partial payment of the Notes shall be allocated among the outstanding Notes in proportion, as nearly as practicable, to the respective unpaid principal amounts of the Notes. Section 6. Registration; Substitution of Notes. Section 6.1. Registration of Notes. The Company will cause to be kept at its office maintained pursuant to Section 7.3, a register for the registration and transfer of the Notes. The names and addresses of the holders of the Notes, the transfer thereof and the names and addresses of the transferees of any of the Notes will be registered in the register. The Person in -11- whose name any Note is registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement, and the Company shall not be affected by any notice or knowledge to the contrary. Section 6.2. Exchange of Notes. Upon surrender of any Note to the Company at its office maintained pursuant to Section 7.3, the Company, upon request, will execute and deliver, at its expense (except as provided, below), new Notes in exchange therefor, in denominations of at least $500,000 (except as may be necessary to reflect any principal amount not evenly divisible by $500,000), in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note (a) shall be payable to such Person as the surrendering holder may request, and (b) shall be dated and bear interest from the date to which interest has been paid on the surrendered Note or dated the date of the surrendered Note if no interest has been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any transfer. Section 6.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note and, (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided, if the holder of the Note is a Purchaser or an institutional investor, its own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation of the Note, the Company at its expense will execute and deliver a new Note of like tenor, dated and bearing interest from the date to which interest has been paid on the lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest has been paid thereon. Section 7. Company Business Covenants. The Company covenants that on and after the date of this Agreement until the Notes are paid in full: Section 7.1. Payment of Taxes and Claims. Except in situations where the failure to pay would not result in a material adverse impact on the Company and its Subsidiaries taken as a whole, the Company and each such Subsidiary will pay, before they become delinquent, (a) all taxes, assessments and governmental charges or levies imposed upon it or its Property, and (b) all claims or demands of any kind (including, but not limited to, those of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons) -12- which, if unpaid, might result in the creation of a Lien upon its Property not permitted by Section 7.6, provided that items of the foregoing description need not be paid while being contested in good faith and by appropriate proceedings, if and for so long as book reserves reasonably believed by the Company and independent certified public accountants of recognized national standing to be adequate have been established with respect thereto; provided further that, unless contesting in good faith in accordance with the provisions hereof, notwithstanding the foregoing provisions of this Section 7.1, the Company and each such Subsidiary will pay all taxes known by Senior Management to be due and payable no later than fifteen days after the date such taxes are due. Section 7.2. Maintenance of Properties, Insurance, Corporate Existence and Compliance with Law. (a) Except where the failure to do so would not have a material adverse impact on the Company and its Subsidiaries taken as a whole, the Company will, and will cause each of its Subsidiaries to: (i) Property -- maintain its Property in good condition, reasonable wear and tear excepted, and make all necessary renewals, replacements, additions, betterments and improvements thereto required to keep such Property in good condition and in compliance with all requirements of law; (ii) Insurance -- keep its properties adequately insured at all times, by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage as is customary with companies in the same or similar businesses located or operating in areas with similar geological conditions; maintain in full force and effect public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it, in such amounts as the Company or any of its Subsidiaries, as the case may be, shall reasonably deem necessary; and maintain such other insurance as may be required by applicable law; (iii) Financial Records -- keep true books of records and accounts in which full and correct entries will be made of all its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with generally accepted accounting principles, consistently applied; and (iv) Corporate Existence -- do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises, except as otherwise permitted by Section 7.4, provided, however, that the Company may liquidate or sell any Subsidiary if the transaction is permitted by Section 7.4. (b) The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and, except as disclosed on Schedule 7.2(b), will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental -13- authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent failure to so comply, maintain or obtain could, individually or in the aggregate, reasonably be expected to have a material adverse effect on (i) the Company or any of its Subsidiaries or (ii) the ability of the Company to perform its obligations under this Agreement and the Notes. Section 7.3. Maintenance of Office. The Company will maintain an office in the State of Connecticut where notices, presentations and demands in respect of this Agreement or the Notes may be made upon it. Such office of each shall be maintained at 123 Main Street, Bristol, Connecticut 06010, until such time as the Company shall notify the holders of the Notes of a change of location. Section 7.4. Sale of Assets or Merger. (a) Sale of Assets -- The Company will not and will not permit any of its Subsidiaries to, directly or indirectly, except in the ordinary course of business, sell, lease, transfer or otherwise dispose of any of its Property or assets, now owned or hereafter acquired, if, as a result of such sale, lease, transfer or disposition, the aggregate net book value or Fair Market Value, whichever shall be higher, of all Property and assets sold, leased, transferred or otherwise disposed of by the Company and its Subsidiaries in the then current fiscal year of the Company would exceed an amount equal to 10% of the book value (computed in accordance with GAAP) of all Property and assets of the Company and its Consolidated Subsidiaries at the end of the preceding fiscal year. (b) Consolidation; Merger -- The Company will not and will not permit any of its Subsidiaries to, directly or indirectly, consolidate with or merge into any other corporation, or permit another corporation to merge into it; provided, however, that (i) any Subsidiary of the Company may be merged into the Company or another wholly-owned Subsidiary, (ii) the Company or any of its Subsidiaries may merge or consolidate with another Person or business, if the Company or such Subsidiary, as the case may be, is the surviving corporation, or (iii) the Company or any of its Subsidiaries may consolidate with or merge with another Person or business in a transaction where the Company or the Subsidiary is not the surviving entity if (1) the continuing or surviving entity shall assume in writing all of the obligations of the Company under this Agreement and the Notes, pursuant to documentation in form and substance reasonably acceptable to the holders of the Notes, (2) the continuing or surviving entity shall have caused to be delivered to each holder of the Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the holders of the Notes, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof, (3) immediately after such merger or consolidation, no Default or Event of Default shall exist and (4) the continuing or surviving entity shall be a corporation organized under the laws of the United States or any state thereof. Section 7.5. Leases. The Company will not, nor will it permit any of its Subsidiaries, directly or indirectly, to incur, create or assume any commitment to make any direct or indirect payment, whether as rent or otherwise, under any lease, rental or other arrangement for the use of -14- real or personal Property or both of any other Person unless (a) after giving effect to such lease the aggregate rental obligations of the Company and its Subsidiaries (exclusive of obligations to pay taxes and rental increments attributable to escalator clauses) during any fiscal year shall not exceed an amount equal to 15% of the book value (computed in accordance with GAAP) of all Properties and assets of the Company and its Consolidated Subsidiaries at the end of the preceding fiscal year, or (b) such lease was in existence as of the Closing Date and disclosed on Schedule 7.5 hereto. Section 7.6. Liens and Encumbrances. (a) Negative Pledge. The Company will not, nor will it permit any of its Subsidiaries to, directly or indirectly incur, create, assume or permit to exist any mortgage, pledge, security interest, lien, charge or other encumbrance of any nature whatsoever (including conditional sales or other title retention agreements) on any of its Property or assets, whether owned at the date hereof or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, except: (i) liens incurred or pledges and deposits made in connection with workers' compensation, unemployment insurance, old-age pensions, social security and public liability and similar legislation; (ii) liens securing the performance of bids, tenders, leases, contracts (other than for the repayment of borrowed money), statutory obligations, surety and appeal bonds and other obligations of like nature, incurred as an incident to and in the ordinary course of business; (iii) statutory liens of landlords and other liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business, either (1) not delinquent, or (2) being contested in good faith by appropriate proceedings; (iv) liens securing the payment of taxes, assessments and governmental charges or levies, either (1) not delinquent, or (2) being contested in good faith by appropriate proceedings; (v) zoning restrictions, easements, licenses, reservations, restrictions on the use of real property or minor irregularities incident thereto which do not in the aggregate materially detract from the value of the Property or assets of the Company or such Subsidiary, as the case may be, or impair the use of such Property in the operation of its business; (vi) purchase money liens on real Property or equipment (which are perfected against the real Property or equipment within 180 days of purchase) that do not exceed 100% of the Fair Market Value of the related Property; or -15- (vii) other liens, that in the aggregate, when combined with all Indebtedness of Subsidiaries permitted to exist by Section 7.7(a) would not, at any time, exceed 15% of Consolidated Tangible Assets determined as of the end of the then most recently completed fiscal year of the Company. (b) Equal and Ratable Lien: Equitable Lien. In case any Property is subjected to a Lien in violation of Section 7.6(a), the Company will make or cause to be made provision whereby the Notes will be secured pursuant to documents reasonably satisfactory to the holders of at least 51% in outstanding principal amount of the Notes (exclusive of Notes owned by the Company, its Subsidiaries and its Affiliates) equally and ratably with all other obligations secured thereby, and in any case the Notes shall have the benefit to the full extent that, and with such priority as, the holders may be entitled thereto under applicable law, of an equitable Lien on such Property securing the Notes. Such violation of Section 7.6(a) shall constitute an Event of Default hereunder, whether or not any such provision is made pursuant to this Section 7.6(b). Section 7.7. Indebtedness. (a) The Company will not permit any of its Subsidiaries to, directly or indirectly incur, create, assume or permit to exist any Indebtedness unless (i) all Indebtedness, plus the aggregate liquidation preference or redemption value of all Preferred Stock, of Subsidiaries (other than Indebtedness owing to, or Preferred Stock held by, the Company or other Subsidiaries, and other than the Nova Scotia Notes), plus (ii) all Indebtedness of the Company secured by Liens permitted to exist by Section 7.6(a)(vii), shall not at any time exceed 15% of Consolidated Tangible Assets determined as of the end of the then most recently completed fiscal year of the Company. (b) The Company shall not, and shall not permit any Subsidiary to, make any Investment in, or otherwise transfer any Property to or guaranty or otherwise assume or be liable for any Indebtedness or other obligations of, 3031786 Nova Scotia Company so long as the Nova Scotia Notes shall be outstanding, provided, however, that this Section 7.7(b) shall not (i) prevent or restrict 3031786 Nova Scotia Company from continuing to operate as a special purpose financing vehicle company in compliance with the laws and regulations of Canada and the United States of America or (ii) prevent or restrict the Company or any Subsidiary from transferring funds to 3031786 Nova Scotia Company in an amount equal to, but not more than, the amount necessary (x) to pay interest on and fees in respect of, or repay the principal of, the Nova Scotia Notes in accordance with the terms thereof, and (y) to pay fees and expenses of 3031786 Nova Scotia Company so long as it operates solely as a special purpose financing vehicle company in compliance with the laws and regulations of Canada and the United States of America. The amount necessary to make any such payment, or to pay any such fees or expenses, may not be so transferred more than five Business Days before the due date thereof, except that up to $500,000 of any such amount may be so transferred more than five Business Days before such due date. Section 7.8. Net Worth. The Company will not permit Consolidated Net Worth of the Company and its Subsidiaries at any time to be less than $201,000,000 plus 50% of Consolidated Net Income for each fiscal year beginning after December 31, 1999 (but without deduction for any fiscal year in which Consolidated Net Income is a negative amount), with the annual -16- adjustments to be applicable as of December 31, 2000 and as of the end of each subsequent fiscal year. Section 7.9. Fixed Charges Coverage Ratio. The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 1.90 to 1. Section 7.10. Consolidated Leverage Ratio. The Company will not permit the Consolidated Leverage Ratio to exceed (a) 1.55 to 1 at any time on or prior to December 31, 2001, and (b) 1.35 to 1 at any time on or after January 1, 2002. Section 7.11. ERISA Compliance. Neither the Company nor any Related Person will at any time permit any Pension Plan maintained by it to: (a) engage in any "prohibited transaction" as such term is defined in Section 4975 of the Code or described in Section 406 of ERISA; (b) incur any "accumulated funding deficiency" as such term is defined in Section 302 of ERISA, whether or not waived; or (c) terminate under circumstances which could result in the imposition of a Lien on the Property of the Company or any of its Subsidiaries pursuant to Section 4068 of ERISA. Section 7.12. Transactions with Affiliates. Neither the Company nor any of its Subsidiaries will enter into any transaction (except transactions which do not in any one calendar year involve in the aggregate an amount in excess of $500,000), including, without limitation, the purchase, sale or exchange of Property or the rendering of any service, with any of its Affiliates except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate. Section 7.13. Tax Consolidation. The Company will not file or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary. Section 7.14. Acquisition of Notes. Neither the Company nor any Subsidiary nor Affiliate thereof will, directly or indirectly, acquire or make any offer to acquire any Notes unless the Company or such Subsidiary or Affiliate has offered to acquire Notes, pro rata, from all holders of the Notes and upon the same terms. In case any of such parties acquires any Note(s), the holder shall surrender such Note for cancellation, reasonably promptly after request by the Company, in which case such Notes shall thereafter be cancelled and no Notes shall be issued in substitution therefor. Section 7.15. Lines of Business. Neither the Company nor any of its Subsidiaries will engage in any line of business if as a result thereof the business of the Company and its -17- Subsidiaries taken as a whole would be substantially different from what it was at December 31, 1999 as described in the Private Placement Memorandum. Section 7.16. Restricted Payments and Restricted Investments. The Company shall not, and shall not permit any of its Subsidiaries to, at any time make or permit to exist any loans or advances to, or purchase any stock, other securities or evidences of indebtedness of, or make or permit to exist any Investment or acquire any interest whatsoever in, any other Person, except (a) the purchase of the Company's common or preferred stock, (b) loans or advances made by the Company or any of its Subsidiaries (in addition to loans or advances permitted by clauses (d) and (e) of this Section 7.16) not in excess of $10,000,000 aggregate principal amount for the Company and its Subsidiaries at any time outstanding, (c) Investments of its cash by the Company or any such Subsidiary in (i) marketable direct obligations of, or marketable obligations guaranteed by, the United States of America, or Canada, or marketable obligations of any instrumentality or agency thereof the payment of the principal and interest of which is unconditionally guaranteed by the United States of America or Canada, (ii) certificates of deposit or other obligations issued by, or bankers' acceptances of, any bank or trust company organized under the laws of the Federal Republic of Germany, France, the United Kingdom, Japan, Canada or the United States of America or any state thereof (including foreign branches of any such bank or trust company) and having capital, surplus and undivided profits in excess of $100,000,000, (iii) open market commercial paper with a maturity not in excess of 270 days from the date of acquisition thereof and having the highest credit rating by either Standard & Poor's Corporation or Moody's Investors Service, Inc., or (iv) in the case of any Foreign Subsidiary of the Company, but only with respect to countries in which a Subsidiary exists, such Investments of a comparable quality and term to the other Investments permitted by this clause (c) as are usually made in the jurisdiction or jurisdictions in which the business of such Foreign Subsidiary is principally conducted by prudent corporate investors in like circumstances, (d) loans or advances made by the Company to any of its Subsidiaries and loans or advances made by any Subsidiary of the Company to the Company or another such Subsidiary, (e) purchases of stock or other Securities of any corporations, associations or other business entities; provided, however, that the aggregate cost to, or Fair Market Value of the consideration paid by, the Company and its Subsidiaries for such stock or Securities of all such corporations, associations or other business entities shall not exceed the sum of (A) $25,000,000, plus (B) 50% of Consolidated Net Income for the period commencing on December 31, 1999 and ending on the date of such stock or Securities purchase (or minus 100% of Consolidated Net Income for such period if Consolidated Net Income for such period is a loss), or -18- (f) such other Investments in an aggregate amount not to exceed $250,000 as the Company or a Subsidiary may elect, in its sole discretion. Section 7.17. Limitation on Restrictions on Dividends by Subsidiaries, Etc. Except as provided in the Warrant Agreement, dated August 25, 1999, among 3031786 Nova Scotia Company, 3032350 Nova Scotia Limited and Pricewaterhouse Coopers LLP and the Shareholders Agreement, dated August 25, 1999, among the Company, 3031786 Nova Scotia Company, and 3032350 Nova Scotia Limited, the Company shall not permit any of its Subsidiaries or other Person in which it or any of its Subsidiaries has an equity investment to be or become subject to any restriction (except restrictions applicable to corporations generally), whether arising by agreement, or by the articles of incorporation, bylaws or other constituent documents of such Subsidiary or other Person or otherwise, on the right of such Subsidiary or other Person from time to time to (x) declare and pay Stock Payments with respect to capital stock or other equity interests of such Subsidiary or other Persons owned by the Company from time to time, (y) make loans or advances to the Company or any of its Subsidiaries, or (z) transfer any of its properties or assets to the Company or any of its Subsidiaries; provided, however, that such restriction may be permitted with respect to any Subsidiary or any such other Person in which the Company or a Subsidiary directly or indirectly owns less than 80% of the Voting Stock and in which the Company's or such Subsidiary's cumulative Investment since the Closing Date (in terms of cash invested therein and/or assets contributed thereto) (i) individually is less than 10% of the book value of the assets of the Company and its Consolidated Subsidiaries, and (ii) when taken together with the aggregate amount of all Investments made since the Closing Date in all such Subsidiaries and other Persons, is less than 15% of the book value of the assets of the Company and its Consolidated Subsidiaries (each such determination of book value to be as of the date of the last balance sheet of the Company required to be delivered pursuant to Section 8.1(a) or Section 8.1(b)). Section 8. Information as to Company. Section 8.1. Financial and Business Information. The Company will deliver to each original Purchaser, if at the time it or its nominee holds any Notes (or if it is obligated to purchase any Notes), and to each other institutional holder of outstanding Notes: (a) Quarterly Statements -- within 60 days after the end of each of the first three quarterly fiscal periods in each fiscal year of the Company, two copies of: (i) a consolidated balance sheet of the Company and its Consolidated Subsidiaries as at the end of that quarter, and -19- (ii) consolidated statements of income, retained earnings and cash flows of the Company and its Consolidated Subsidiaries, for that quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with that quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail and certified by a principal financial officer of the Company as presenting fairly the financial condition of the companies being reported upon and as having been prepared in accordance with generally accepted accounting principles for interim statements consistently applied; (b) Annual Statements -- within 90 days after the end of each fiscal year of the Company, two copies of: (i) a consolidated balance sheet of the Company and its Consolidated Subsidiaries, as at the end of that year, and (ii) consolidated statements of income, retained earnings and cash flows of the Company and its Consolidated Subsidiaries, for that year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by an opinion of independent certified public accountants of recognized national standing stating that such financial statements fairly present the financial condition of the companies being reported upon and have been prepared in accordance with GAAP consistently applied (except for changes in application in which such accountants concur), and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and which independent auditors' report shall not identify either (A) any departure from the consistent application of generally accepted accounting principles (except for identified changes in application in which such accountants concur), or (B) any tests of the accounting records or other auditing procedures which were considered necessary in the circumstances and which were not performed; (c) Audit Report -- promptly upon receipt thereof, one copy of each other report submitted to the Company or any of its Subsidiaries by independent accountants in connection with any material interim or special audit made by them of the books of the Company or any material Subsidiary; (d) SEC and Other Reports -- promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company or any Subsidiary to stockholders generally, and of each periodic report and any registration statement filed by the Company or any Subsidiary with any securities exchange or securities regulatory agency (including, without limitation, the Securities and Exchange Commission or any successor agency); -20- (e) ERISA -- as soon as practicable, but in no event later than five days, after a member of Senior Management becoming aware of the occurrence of any (i) "reportable event" as such term is defined in Section 4043 of ERISA, or (ii) "accumulated funding deficiency" as such term is defined in Section 302 of ERISA, or (iii) "prohibited transaction," as such term is defined in Section 4975 of the Code or as described in Section 406 of ERISA in connection with any Pension Plan or any trust created thereunder, a notice specifying the nature thereof, what action the Company or a Related Person is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service with respect thereto; (f) Notice of Default or Event of Default -- immediately upon becoming aware of the existence of any Default or Event of Default a notice describing its nature and the action the Company is taking with respect thereto; (g) Notice of Claimed Default -- immediately upon becoming aware that the holder of any Note or of any Indebtedness or Security of the Company or any of its Subsidiaries has given notice or taken any other action with respect to a claimed Default or Event of Default, a notice specifying the notice given or action taken by such holder, the nature of the claimed Default or Event of Default and the action the Company is taking with respect thereto; (h) Report on Proceedings -- (i) prompt notice of the commencement of any action, suit or proceeding at law or in equity or by or before any court or other governmental instrumentality or agency (A) which is not fully covered by insurance without the applicability of any co-insurance provisions or with respect to which insurance coverage is being contested and which has not been bonded and in which either the aggregate specified dollar amount of all claims (either as set forth in the complaint, demand letters or other written communications by or on behalf of the plaintiff or as otherwise determined in good faith by the Company or its counsel) against the Company and its Subsidiaries taken as a whole, exceeds the amount of any applicable insurance coverage by (1) $1,000,000 for any single proceeding or (2) $5,000,000 when taken together with all such actions, suits or proceedings commenced in the current fiscal year of the Company; provided, however, that after giving notice of such claims aggregating at least $5,000,000 in any fiscal year of the Company, notice is only required of subsequent claims made during the same fiscal year which exceed insurance coverage by $500,000 for any single proceeding, or (B) if the results thereof may have a material adverse effect on the business or condition of the Company and its Subsidiaries taken as a whole, and -21- (ii) with respect to any such action, suit or proceeding, such documentation as the holder of any Note reasonably requests; and. (i) Requested Information -- with reasonable promptness, such data and information as from time to time may be reasonably requested. Section 8.2. Officers' Certificates. Each set of financial statements delivered pursuant to Section 8.1(a) or 8.1(b) will be accompanied by a certificate of the President or a Vice President and the Treasurer or an Assistant Treasurer of the Company setting forth: (a) Covenant Compliance -- the information required in order to establish compliance with the requirements of Section 7 during the period covered by the income statements being furnished; and (b) Event of Default -- that the signers thereof have reviewed the relevant terms of this Agreement and have made, or caused to be made, under their supervision, a review of the transactions and condition of the Company and its Subsidiaries from the beginning of the period covered by the income statements being furnished and that the review has not disclosed the existence during such period of any Default or Event of Default or, if any such Default or Event of Default existed or exists, describing its nature and the action the Company has taken with respect thereto. Section 8.3. Accountants' Certificates. Each set of annual financial statements delivered pursuant to Section 8.1(b) will be accompanied by a certificate of the accountants who certify such financial statements, stating that they have reviewed this Agreement and whether, in making the examination necessary for their certification of such statements, they have become aware of any Default or Event of Default, and, if any Default or Event of Default then exists, describing its nature. Section 8.4. Inspection. The Company will permit the representatives of each Purchaser of Notes, so long as it (or its nominees) holds any Notes, or the representatives of any other institutional holder of the Notes, at each such holder's expense, to visit and inspect any of the Properties of the Company or any of its Subsidiaries, to examine and make copies and abstracts of all their books of account, records, and other papers, and to discuss their respective affairs, finances and accounts with their respective officers, employees designated by said officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the finances and affairs of the Company and its Subsidiaries) all at reasonable times, upon notice to a member of Senior Management (unless there shall exist a Default or an Event of Default), and as often as may be reasonably requested. Any visit or inspection made pursuant to this Section 8.4 shall be at the expense of the holder requesting the same unless, at the time of such visit or inspection, there shall exist a Default or Event of Default, in which event the Company shall bear the cost thereof. -22- Section 9. Events of Default. Section 9.1. Nature of Events. An "Event of Default" shall exist if any of the following occurs and is continuing: (a) Principal Payments -- failure to pay principal or Makewhole Price on any Note on or before the date such payment is due; (b) Interest Payments -- failure to pay interest on any Note on or before the fifth Business Day following the date such payment is due; (c) Financial Covenant Defaults -- default in the performance of or compliance with any term contained in Sections 7.7, 7.8, 7.9 or 8.1(f); (d) Other Defaults -- failure of the Company to comply with any other provision of this Agreement, which continues for more than 30 days after it first becomes known to any member of Senior Management of the Company; (e) Warranties or Representations -- any warranty or representation by or on behalf of the Company contained in this Agreement or in any instrument delivered under or in reference to this Agreement is false or misleading in any material respect; (f) Default on Other Indebtedness -- a default or defaults shall have occurred under any other Indebtedness or Securities of the Company having a principal or face amount, individually or in the aggregate, in excess of $5,000,000; or any event shall occur or any condition shall exist, the effect of which is to cause (or permit any holder of such Indebtedness or Securities having a principal or face amount, individually or in the aggregate, in excess of $5,000,000, or a trustee to cause) such Indebtedness or Security, or a portion thereof, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; (g) Involuntary Bankruptcy Proceedings -- a custodian, receiver, liquidator or trustee of the Company or of any of its Property, is appointed or takes possession and such appointment or possession remains in effect for more than 30 days; or the Company is adjudicated bankrupt or insolvent; or an order for relief is entered under the Federal Bankruptcy Code against the Company; or any of the Property of the Company is sequestered by court order and the order remains in effect for more than 30 days, or a petition is filed against the Company under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, and is not dismissed within 30 days after filing; (h) Voluntary Petitions -- the Company files a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect, or consents to the filing of any petition against it under any such law; -23- (i) Assignments for Benefit of Creditors, Etc. -- the Company makes an assignment for the benefit of its creditors, or generally fails to pay its debts as they become due, or consents to the appointment of or taking possession by a custodian, receiver, liquidator or trustee of the Company or of all or any part of the Property of the Company; (j) Undischarged Final Judgments -- final judgment or judgments which are not subject to appeal for the payment of money aggregating in excess of $5,000,000 is or are outstanding against one or more of the Company or any Subsidiary and any one of such judgments (x) has not been stayed or paid on the date it is finally due and payable or (y) has resulted in the attachment of a Lien on any Property of the Company or any of its Subsidiaries; or (k) Change of Control -- the occurrence of a Change of Control. Section 9.2. Default Remedies. (a) If an Event of Default described in Section 9.1(g), 9.1(h) or 9.1(i) occurs, the entire outstanding principal amount of the Notes shall automatically become due and payable, without the taking of any action on the part of any holder of the Notes or any other Person and without the giving of any notice with respect thereto. If an Event of Default described in Section 9.1(a) or 9.1(b) exists, any holder of Notes may, at its option, exercise any right, power or remedy permitted by law, including but not limited to the right by notice to the Company to declare the Notes held by such holder to be immediately due and payable. If any other Event of Default exists, the holder or holders of at least 51% in outstanding principal amount of all Notes (exclusive of Notes owned by the Company, its Subsidiaries and its Affiliates) may exercise any right, power or remedy permitted by law, including, but not limited to, the right by notice to the Company to declare all the outstanding Notes immediately due and payable. Upon any such acceleration the principal of the Notes declared due or automatically becoming due shall be immediately payable together with all interest accrued thereon without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company will immediately pay the sum of (x) the principal of and interest accrued on such Notes and (y) the Makewhole Price applicable at such time to such Notes. (b) No course of dealing or delay or failure on the part of any holder of the Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Company will pay or reimburse the holders of the Notes, to the extent permitted by law, for all costs and expenses, including but not limited to reasonable attorneys' fees, incurred by them in collecting any sums due on the Notes or in otherwise enforcing any of their rights. Section 9.3. Annulment of Acceleration of Notes. If a declaration is made pursuant to Section 9.2(a), the holders of at least 51% of the outstanding principal amount of the Notes may annul such declaration and the consequences thereof if no judgment or decree has been entered for the payment of any monies due pursuant to such declaration, if all sums payable under the Notes and this Agreement (except principal, interest or Makewhole Price which has become due solely by reason of such declaration) have been duly paid and each and every other Default or -24- Event of Default shall have been made good, cured or waived pursuant to Section 11.5. No such annulment shall extend to or waive any subsequent Default or Event of Default. Section 10. Interpretation of This Agreement. Section 10.1. Terms Defined. As used in this Agreement (including Exhibits), the following terms have the respective meanings set forth below or in the Section indicated: "Act" -- the Securities Act of 1933, as amended. "Affiliate" -- as to any Person means a Person other than a Subsidiary (1) which directly or indirectly controls, or is controlled by, or is under common control with, such Person, (2) which owns 5% or more of the Voting Stock of such Person, or 5% or more of the voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is owned by such other Person. The term "control" means the possession, directly or indirectly, 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. "Agreement" -- shall mean this Agreement as amended, modified or restated from time to time. "Business Day" -- any day other than a Saturday, Sunday or a U.S. national, Connecticut or New York holiday. "Capitalized Lease" -- any lease which is shown or is required to be shown in accordance with GAAP as a liability on a balance sheet of the lessee thereunder. "Change of Control" -- shall mean any Person or group of Persons (as used in Sections 13 and 14 of the Exchange Act, and the rules and regulations thereunder) shall have become the beneficial owner (as defined in Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission (the "SEC") under the Exchange Act) of 30% or more of the Company's outstanding Voting Stock provided, however, that members of the Barnes family, Fleet National Bank and any of its affiliates, successors and assigns (to the extent that it owns stock in which a member of the Barnes family has an interest), the Barnes Group Inc. Guaranteed Stock Plan and Fleet National Bank, in its capacity as trustee under such plan, or its successor or assigns in its capacity as trustee under such plan, and employees of the Company (except employees of the Company who became beneficial owners of more than 10% of the Company's Voting Stock prior to becoming employees of the Company) shall not be counted as a Person for purposes hereof. "Closing Date" -- Section 1.2. "Code" -- the Internal Revenue Code of 1986, as amended. "Company" - the introductory sentence hereof. -25- "Consolidated Assets" - shall mean the total assets of the Company and its Subsidiaries which would be shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries. "Consolidated EBITR" - means, for any period, the sum of (a) Consolidated Net Income for such period and (b) to the extent, and only to the extent, that such aggregate amount was deducted in the computation of such Consolidated Net Income, the aggregate amount of (i) Interest Charges, (ii) income tax expense and (iii) Lease Rentals. "Consolidated Leverage Ratio" - means, at any time, the ratio of (a) the aggregate amount of all Indebtedness of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, outstanding at such time to (b) Consolidated Net Worth determined at such time. "Consolidated Net Income" -- the consolidated net income of the Company and its Subsidiaries for any period as determined in accordance with GAAP. "Consolidated Net Worth" -- shall mean the assets of the Company and its Subsidiaries less the liabilities of the Company and its Subsidiaries, each as shown on a consolidated balance sheet of the Company and its Subsidiaries in accordance with generally accepted accounting principles which are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, plus any negative (less any positive) foreign currency translation adjustments shown in the equity section of such a consolidated balance sheet pursuant to statement of Financial Accounting Standards No. 52; provided, however, that such principles shall be applied without giving effect to Statement of Financial Account Standards No. 106. "Consolidated Subsidiary" -- shall mean any Subsidiary the accounts of which shall at the time in question be consolidated with the Company. "Consolidated Tangible Assets" shall mean, at any time, Consolidated Assets at such time less (a) patents, copyrights, trademarks, trade names, service marks, brand names, franchises, goodwill, experimental expenses and other similar intangibles; (b) unamortized debt discount and expense; and (c) all other Property which would be classified as intangible under GAAP. "Default" -- an event or condition which will, with the lapse of time or the giving of notice or both, become an Event of Default. "Domestic Subsidiary" -- shall mean a Subsidiary incorporated under the laws of the United States or one of the state thereof. -26- "Environmental Laws" -- shall mean any and all Federal, provincial, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to, those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" -- means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Exchange Act" -- means the Securities Exchange Act of 1934, as amended. "Event of Default" -- Section 9.1. "Fair Market Value" -- means, at any time and with respect to any property, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell). "Fixed Charges Coverage Ratio" - means, at any time, the ratio of (a) Consolidated EBITR for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such time to (b) the sum of Lease Rentals plus Interest Charges for such period. "Foreign Subsidiary" -- shall mean a Subsidiary organized outside the United States. "GAAP" -- means generally accepted accounting principles which are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors. "Hazardous Material" -- means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "Indebtedness" -- with respect to any Person, means, without duplication, (a) all debt arising from borrowed money and similar monetary obligations, whether direct or indirect; (b) all indebtedness of others secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on Property owned by such Person or any of its Subsidiaries or acquired by such Person or any of its Subsidiaries subject thereto, whether or not the Indebtedness secured thereby shall have been assumed; -27- (c) all guarantees, endorsements and other contingent obligations, in respect of Indebtedness of others, including (i) any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase Indebtedness, or to assure the owner of Indebtedness against loss, through an agreement to purchase goods, supplies. or services for the purpose of enabling the debtor to make payment of the Indebtedness held by such owner or otherwise and (ii) any obligation of any partnership in which such Person or any of its Subsidiaries is a general partner; and (d) the obligations to reimburse the issuer in respect of any letters of credit. Indebtedness shall not include the indebtedness of (i) a Subsidiary of such Person to such Person or to another Subsidiary of such Person or (ii) such Person to a Subsidiary of such Person; provided, however, that in the case of debt of a Subsidiary not wholly owned by such Person and/or another Subsidiary, Indebtedness shall include a percentage of such debt equal to the percentage of the total minority ownership. "Interest Charges" - means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP): (a) all interest in respect of Indebtedness of the Company and its Subsidiaries (including imputed interest on Capitalized Lease obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) all debt discounted and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. "Investment" -- means any investment, made in cash or by delivery of Property, by a Person or any of its Subsidiaries (i) in any other Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, guaranty, advance, capital contribution or otherwise, or (ii) in any Property. "Lease Rentals" - means, with respect to any period, the sum of the minimum amount of rental and other obligations required to be paid during such period by the Company or any Subsidiary as lessee under all leases of real or personal property (other than Capitalized Leases), except any such rental or other obligations paid to the Company or a Subsidiary as lessor, excluding any amounts required to be paid by the lessee (whether or not therein designated as rental or additional rental) (a) which are on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, or (b) which are based on profits, revenues or sales realized by the lessee from the leased property or otherwise based on the performance of the lessee. "Lien" -- any mortgage, lien, charge, security interest or other encumbrance of any kind upon any Property or assets of any character, or upon the income or profits therefrom, any conditional sale or other title retention agreement, device or arrangement (including Capitalized -28- Leases), or any sale assignment, pledge or other transfer for security of any accounts, general intangibles or chattel paper, with or without recourse. "Makewhole Price" -- with respect to full or partial optional prepayments of any Note pursuant to Section 5.2 or repayment of any Note which has become or been declared immediately due and payable pursuant to Section 9.2, means, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Makewhole Price may in no event be less than zero. For the purposes of determining the Makewhole Price, the following terms have the following meanings: "Called Principal" -- means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 5.2 or has become or is declared to be immediately due and payable pursuant to Section 9.2, as the context requires. "Discounted Value" -- means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" -- means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal for actively traded U.S. Treasury Securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date (as shown on page "PX1" of the Bloomberg Financial Markets Service or such other display as may replace the Bloomberg Financial Markets Service); provided, however, that if there is no U.S. Treasury security which has a maturity equal to the Remaining Average Life of the Notes, such yield shall be obtained by interpolating linearly between (1) the U.S. Treasury security for which a yield is given with the duration closest to and greater than the Remaining Average Life and (2) the U.S. Treasury security for which a yield is given with the duration closest to and less than the Remaining Average Life, except that if the Remaining Average Life is less than one year, the yield on actively traded U.S. Treasury securities adjusted to a constant maturity of one year shall be used. The Reinvestment Yield will be rounded to two decimal places. "Remaining Average Life" -- means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. -29- "Remaining Scheduled Payments" -- means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Sections 5.2 or 9.2. "Settlement Date" -- means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 5.2 or has become or is declared to be immediately due and payable pursuant to Section 9.2, as the context requires. "Notes" -- Section 1.1. "Nova Scotia Notes" - means the 7.66% Senior Notes due November 12, 2007 and the 7.80% Senior Notes due November 12, 2010 issued by 3031786 Nova Scotia Company, and any extensions or renewals thereof, provided that the principal amount of Indebtedness evidenced thereby is not increased. "Pension Plans" -- Section 2.17(a). "Person" -- shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" - means capital stock of any class of any Person which is preferred as to the payment of dividends, or the payment of distributions upon liquidation of such Person, to any other class of capital stock of such Person. "Private Placement Memorandum" -- the Confidential Information Memorandum dated September 2000 prepared by Fleet Securities Inc., acting as agent for the Company. "Property" -- any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "PTE" - Section 1.3(b). "Purchaser" - means each of the Persons listed on Schedule A hereto. "Related Person" -- any Person (whether or not incorporated) which is under common control with the Company within the meaning of Section 414(c) of the Code or Section 4001(b) of ERISA. -30- "Revolving Credit Agreement" -- means the $150,000,000 Revolving Credit, dated as of December 1, 1991, as amended from time to time, among the Company, Mellon Bank, N.A., as Agent, and the banks signatory thereto. "Security" -- shall have the same meaning as in Section 2(l) of the Act. "Senior Management" -- shall mean any of the following officers of the Company, as the context requires: President, Chief Financial Officer, Treasurer or General Counsel. "Source" - Section 1.3(b). "Stock Payment" -- by any Person shall mean any dividend, distribution or payment of any nature (whether in cash, securities, or other property) on account of or in respect of any shares of the capital stock or other equity interests (or warrants, options or rights therefor) of such Person, including, but not limited to, any payment on account of the purchase, redemption, retirement, defeasance or acquisition of any shares of the capital stock or other equity interests (or warrants, options or rights therefor) of such Person, in each case regardless of whether required by the terms of such capital stock or other equity interests (or warrants, options or rights) or any other agreement or instrument. "Subsidiary" -- of a Person shall mean any corporation, association or other business entity of which more than 50% of the outstanding stock having by its terms ordinary voting power to elect a majority of the board of directors of such corporation, or other business entity (irrespective of whether at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned directly or indirectly by such Person. "Voting Stock" -- shall mean, with respect to any corporation, the capital stock of such corporation having the power to vote for a majority of the board of directors of such corporation under ordinary circumstances and, with respect to any other Person, equity interests sufficient to control such Person under ordinary circumstances or sufficient to constitute the right to receive a majority of the profits of such Person. Section 10.2. Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made under this Agreement, this shall be done in accordance with GAAP, unless otherwise specified. Section 10.3. Directly or Indirectly. Where any provision in this Agreement refers to any action which a Person is prohibited from taking, the provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any partnership in which such Person is a general partner and all liabilities of such partnerships shall be considered liabilities of such Person for purposes of this Agreement. Section 10.4. Governing Law. This Agreement and the Notes shall be governed by and construed in accordance with Connecticut law. -31- Section 11. Miscellaneous. Section 11.1. Notices. All notices provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (a) if to any Noteholder, at the address specified for such communications in Schedule A, or at such other address as it shall have specified to the Company in writing; and (b) if to the Company at the address therefor set forth in Section 7.3 hereof to the attention of "Treasurer," or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 11 will be deemed given only when actually received. Section 11.2. Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by the Purchasers at the closing of their purchase of the Notes (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to any Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process and such Purchaser may destroy any original document so reproduced. The Company agrees and stipulates that any such reproduction shall, to the extent permitted by applicable law, be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by a Purchaser in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section 11.3. Survival. All warranties, representations, and covenants made by the Company herein or in any certificate or other instrument delivered by it or on its behalf pursuant to the terms of this Agreement shall be considered to have been relied upon by the Purchasers and shall survive the delivery to the Purchasers of the Notes regardless of any investigation made by the Purchasers or on their behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by the Company hereunder. Section 11.4. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, except that the Company's right to require the Purchaser to purchase the Notes in accordance with Section 1.2 shall be personal to the Company and shall not be assignable or transferable to any other Person (including successors at law) whether voluntarily or involuntarily. The provisions of this Agreement are intended to be for the benefit of all holders, from time to time, of the Notes, and shall be enforceable by any holder, whether or not an express assignment to such holder of rights under this Agreement has been made by any Purchaser or its successor or assign. -32- Section 11.5. Amendment and Waiver. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Company and the holders of at least 66-2/3% of the outstanding principal amount of the Notes (exclusive of Notes owned by the Company, its Subsidiaries and its Affiliates); provided that no such amendment or waiver of any of the provisions of Sections 1 through 4 shall be effective as to any Purchaser unless consented to by such Purchaser in writing; and provided further, that no such amendment or waiver shall, without the written consent of the holders of all the outstanding Notes, (i) subject to Section 9.3, change the amount or time of any prepayment or payment of principal or premium or the rate or time of payment of interest, (ii) amend Section 9, or (iii) amend this Section 11.5. Executed or true and correct copies of any amendment or waiver effected pursuant to the provisions of this Section 11.5 shall be delivered by the Company to each holder of outstanding Notes promptly following the date on which the same shall become effective. No such amendment or waiver shall extend to or affect any provision or obligation not expressly amended or waived. Section 11.6. Powers and Rights Not Waived; Remedies Cumulative. No delay or failure on the part of the holder of any Note in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of the holder of any Note are cumulative to, and are not exclusive of, any rights or remedies any such holder would otherwise have. Section 11.7. Severability. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid or unenforceable portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid or unenforceable. Section 11.8. Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by the holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. Section 11.9. Duplicate Originals. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. Section 11.10. Confidentiality. For the purpose of this Section 11.10, "Confidential Information" means information delivered to a Purchaser by or on behalf of the Company or any of its Subsidiaries in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that, with respect to information delivered after -33- the Closing Date, is clearly marked or labeled or otherwise adequately identified when received by a Purchaser as being confidential information of the Company or any of its Subsidiaries; provided that such term does not include information that (i) is generally known to the public, (ii) subsequently becomes publicly known through no act or omission by a Purchaser or any person action on its behalf, (iii) otherwise becomes known to a Purchaser other than through disclosure by the Company or any Subsidiary so long as the source of such information is not actually known by such Purchaser to be bound by any confidentiality agreement with respect to such information. Each Purchaser will use its best efforts to maintain the confidentiality of such Confidential Information in accordance with procedures adopted by such Purchaser in good faith to protect confidential information of third parties delivered to it; provided that it may deliver or disclose such Confidential Information to its directors, officers, employees, agents, professional consultants and affiliates; any Person to which it sells or offers to sell such Note or any part thereof or any participation therein, provided that such Person has entered into a confidentiality agreement with the Company similar to that contained in this Section 11.10; any Purchaser or holder of any Note; any Person from which it offers to purchase any security of the Company, provided that such Person has entered into a confidentiality agreement with the Company similar to that contained in this Section 11.10; any federal or state regulatory authority having jurisdiction over a Purchaser; the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about a Purchaser's investment portfolio; or any other Person to which delivery or disclosure may be necessary or appropriate to effect compliance with any law, rule, regulation, or order applicable to a Purchaser, in response to any subpoena or other legal process or informal investigative demand, in connection with any litigation to which a Purchaser is a party or in order to protect the investment of any holder in any Note. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 11.10 as though it were a party to this Agreement. Section 11.11. Headings, Etc. Headings used in this Agreement have been inserted for convenience of reference only; and are not to be considered a part hereof or thereof. [Signatures Appear on Following Page] -34- If this Agreement is satisfactory, please so indicate by signing the acceptance at the foot of a counterpart of this Agreement and return such counterpart to the Company on or before 5:00 P.M., on November 21, 2000, whereupon this Agreement will become binding among us in accordance with its terms. Very truly yours, Barnes Group Inc. By /s/ John J. Locher -------------------------------- Name: John J. Locher --------------------------- Title: Vice President, Treasurer -------------------------- The Foregoing is hereby agreed to as of the date hereof. The Prudential Insurance Company of America By /s/ Kevin J.Kraska ------------------------------- Name: Kevin J. Kraska Title: Vice President Allstate Life Insurance Company By: /s/ Robert B. Bodett ------------------------------ Name: Robert B. Bodett Title: Portfolio Manager By /s/ David A. Walsh ------------------------------- Name: David A. Walsh Title: Assistant Vice President American Heritage Life Insurance Company By /s/ Robert B. Bodett ------------------------------ Name: Robert B. Bodett Title: Portfolio Manager By /s/ David A. Walsh ------------------------------- Name: David A. Walsh Title: Assistant Vice President Nationwide Life Insurance Company By /s/ Mark W. Poeppelman ------------------------------- Name: Mark W. Poeppelman Title: Associate Vice President Nationwide Life and Annuity Insurance Company By /s/ Mark W. Poeppelman ------------------------------- Name: Mark W. Poeppelman Title: Associate Vice President Nationwide Indemnity Company By /s/ Mark W. Poepplman ------------------------------- Name: Mark W. Poepplman Title: Associate Vice President -35- EXHIBIT A INFORMATION RELATING TO PURCHASERS ================================================================================ Purchaser Name ALLSTATE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in Which Note is Registered ALLSTATE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Note Registration Number; R-1; $5,000,000 Principal Amount R-2; $5,000,000 - -------------------------------------------------------------------------------- Payment on Account of Note Method Federal Funds Wire Transfer Account Information BBK = Harris Trust and Savings Bank ABA #071000288 BNF = Allstate Life Insurance Company Collection Account #168-117-0 ORG = Barnes Group Inc. Re: (see "Accompanying Information" below) - -------------------------------------------------------------------------------- Accompanying Information Name of Company: Barnes Group Inc. Description of Security: 8.59% Senior Notes due November 21, 2008 Security Number: 067806 D@ 5 Due Date and Application (as among principal, premium and interest) of the payment being made: - -------------------------------------------------------------------------------- Allstate Insurance Company Address for Notices Related to Investment Operations - Private Placements Payments 3075 Sanders Road, STE G4A Northbrook, IL 60062-7127 Telephone: (847) 402-2769 Telecopy: (847) 326-5040 - -------------------------------------------------------------------------------- Address for All other Notices Allstate Life Insurance Company Private Placements Department 3075 Sanders Road, STE G3A Northbrook, IL 60062-7127 Telephone: (847) 402-8922 Telecopy: (847) 402-3092 ================================================================================ -2- ================================================================================ Purchaser Name ALLSTATE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Signature Block Format ALLSTATE LIFE INSURANCE COMPANY By:____________________________ Name: Title: By:____________________________ Name: Title: - -------------------------------------------------------------------------------- Citibank, Federal Savings Bank Instructions re Delivery of Notes U.S. Custody & Employee Benefit Trust 500 W. Madison Street Floor 6, Zone 4 Chicago, Illinois 60661-2591 Attention: Pam Jost For Allstate Life Insurance Company/Safekeeping Account No. 846627 - -------------------------------------------------------------------------------- 36-2554642 Tax Identification Number ================================================================================ -3- ================================================================================ Purchaser Name AMERICAN HERITAGE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in Which Note is Registered AMERICAN HERITAGE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Note Registration Number; R-3; $5,000,000 Principal Amount - -------------------------------------------------------------------------------- Payment on Account of Note Method Federal Funds Wire Transfer Account Information BBK = Harris Trust and Savings Bank ABA #071000288 BNF = American Heritage Life Insurance Company Collection Account #172-504-3 ORG = Barnes Group Inc. Re: (see "Accompanying Information" below) - -------------------------------------------------------------------------------- Accompanying Information Name of Company: Barnes Group Inc. Description of Security: 8.59% Senior Notes due November 21, 2008 Security Number: 067806 D@ 5 Due Date and Application (as among principal, premium and interest) of the payment being made: - -------------------------------------------------------------------------------- Allstate Insurance Company Address for Notices Related to Investment Operations - Private Placements Payments 3075 Sanders Road, STE G4A Northbrook, IL 60062-7127 Telephone: (847) 402-2769 Telecopy: (847) 326-5040 - -------------------------------------------------------------------------------- Address for All other Notices Allstate Life Insurance Company Private Placements Department 3075 Sanders Road, STE G3A Northbrook, IL 60062-7127 Telephone: (847) 402-8922 Telecopy: (847) 402-3092 ================================================================================ -4- ================================================================================ Purchaser Name AMERICAN HERITAGE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Signature Block Format AMERICAN HERITAGE LIFE INSURANCE COMPANY By:______________________________ Name: Title: By:______________________________ Name: Title: - -------------------------------------------------------------------------------- Citibank, Federal Savings Bank Instructions re Delivery of Notes U.S. Custody & Employee Benefit Trust 500 W. Madison Street Floor 6, Zone 4 Chicago, Illinois 60661-2591 Attention: Pam Jost For American Heritage Life Insurance Company/Safekeeping Account No. 846928 - -------------------------------------------------------------------------------- 59-0781901 Tax Identification Number ================================================================================ -5- ================================================================================ Purchaser Name NATIONWIDE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in Which Note is Registered NATIONWIDE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Note Registration Number; R-4; $4,000,000 Principal Amount - -------------------------------------------------------------------------------- Payment on Account of Note Method Federal Funds Wire Transfer Account Information The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Life Insurance Company Attn: P & I Department Re: (see "Accompanying Information" below) - -------------------------------------------------------------------------------- Accompanying Information Name of Company: Barnes Group Inc. Description of Security: 8.59% Senior Notes due November 21, 2008 Security Number: 067806 D@ 5 Due Date and Application (as among principal, premium and interest) of the payment being made: - -------------------------------------------------------------------------------- Nationwide Life Insurance Company Address for Notices Related to c/o The Bank of New York Payments P.O. Box 19266 Attn: P & I Department Newark, NJ 07195 With a copy to: Nationwide Life Insurance Company Attn: Investment Accounting One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 - -------------------------------------------------------------------------------- Address for All other Notices Nationwide Life Insurance Company Attn: Corporate Fixed-Income Securities One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 ================================================================================ -6- ================================================================================ Purchaser Name NATIONWIDE LIFE INSURANCE COMPANY - -------------------------------------------------------------------------------- Signature Block Format NATIONWIDE LIFE INSURANCE COMPANY By:______________________________ Name: Title: - -------------------------------------------------------------------------------- The Bank of New York Instructions re Delivery of Notes One Wall Street 3rd Floor - Window A New York, NY 10286 F/A/O Nationwide Life Insurance Company Account No. 267829 - -------------------------------------------------------------------------------- Tax Identification Number 31-4156830 ================================================================================ -7- ================================================================================ Purchaser Name NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY - -------------------------------------------------------------------------------- Name in Which Note is Registered NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY - -------------------------------------------------------------------------------- Note Registration Number; R-5; $2,000,000 Principal Amount - -------------------------------------------------------------------------------- Payment on Account of Note Method Federal Funds Wire Transfer Account Information The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Life and Annuity Insurance Company Attn: P & I Department Re: (see "Accompanying Information" below) - -------------------------------------------------------------------------------- Accompanying Information Name of Company: Barnes Group Inc. Description of Security: 8.59% Senior Notes due November 21, 2008 Security Number: 067806 D@ 5 Due Date and Application (as among principal, premium and interest) of the payment being made: - -------------------------------------------------------------------------------- Nationwide Life and Annuity Insurance Company Address for Notices Related to c/o The Bank of New York Payments P.O. Box 19266 Attn: P & I Department Newark, NJ 07195 With a copy to: Nationwide Life and Annuity Insurance Company Attn: Investment Accounting One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 - -------------------------------------------------------------------------------- Address for All other Notices Nationwide Life and Annuity Insurance Company Attn: Corporate Fixed-Income Securities One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 - -------------------------------------------------------------------------------- -8- ================================================================================ Purchase Name NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY - -------------------------------------------------------------------------------- Signature Block Format NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY By:______________________________ Name: Title: - -------------------------------------------------------------------------------- The Bank of New York Instructions re Delivery of Notes One Wall Street 3rd Floor - Window A New York, NY 10286 F/A/O Nationwide Life and Annuity Insurance Company Account No. 267961 - -------------------------------------------------------------------------------- Tax Identification Number 31-1000740 ================================================================================ -9- ================================================================================ Purchaser Name NATIONWIDE INDEMNITY COMPANY - -------------------------------------------------------------------------------- Name in Which Note is Registered NATIONWIDE INDEMNITY COMPANY - -------------------------------------------------------------------------------- Note Registration Number; R-6; $4,000,000 Principal Amount - -------------------------------------------------------------------------------- Payment on Account of Note Method Federal Funds Wire Transfer Account Information The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Indemnity Company Attn: P & I Department Re: (see "Accompanying Information" below) - -------------------------------------------------------------------------------- Accompanying Information Name of Company: Barnes Group Inc. Description of Security: 8.59% Senior Notes due November 21, 2008 Security Number: 067806 D@ 5 Due Date and Application (as among principal, premium and interest) of the payment being made: - -------------------------------------------------------------------------------- Nationwide Indemnity Company Address for Notices Related to c/o The Bank of New York Payments P.O. Box 19266 Attn: P & I Department Newark, NJ 07195 With a copy to: Nationwide Indemnity Company Attn: Investment Accounting One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 - -------------------------------------------------------------------------------- Address for All other Notices Nationwide Indemnity Company Attn: Corporate Fixed-Income Securities One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 ================================================================================ -10- ================================================================================ Purchase Name NATIONWIDE INDEMNITY COMPANY - -------------------------------------------------------------------------------- Signature Block Format NATIONWIDE INDEMNITY COMPANY By:______________________________ Name: Title: - -------------------------------------------------------------------------------- The Bank of New York Instructions re Delivery of Notes One Wall Street 3rd Floor - Window A New York, NY 10286 F/A/O Nationwide Indemnity Company Account No. 264234 - -------------------------------------------------------------------------------- Tax Identification Number 31-1399201 ================================================================================ -11-
==================================================================================================================== Purchaser Name THE PRUDENTIAL INSURANCE COMPANY OF AMERICA - -------------------------------------------------------------------------------------------------------------------- Name in Which Notes are Registered THE PRUDENTIAL INSURANCE COMPANY OF AMERICA - -------------------------------------------------------------------------------------------------------------------- Note Registration Number; Principal R-7; $35,000,000 Amount - -------------------------------------------------------------------------------------------------------------------- Payment on Account of Note Method Federal Funds Wire Transfer Account Information Bank: Bank of New York New York, NY ABA No.: 021-000-018 For the Account of: The Prudential Insurance Company of America Account No.: 890-0304-391 Account Name: Prudential Managed Account - -------------------------------------------------------------------------------------------------------------------- Accompanying Information Name of Issuers: Barnes Group Inc. Description of Security: Senior Note due November 21, 2008 Security Number: 067806 D@ 5 Due Date and Application (as among principal, and interest) of the payment being made: - -------------------------------------------------------------------------------------------------------------------- Address for Notices Related to The Prudential Insurance Company of America Payments c/o Prudential Capital Group Trade Management Group Gateway Center Four, 7th Floor Newark, NJ 07102 Fax: (973) 802-9425 - -------------------------------------------------------------------------------------------------------------------- Address for all other Notices The Prudential Insurance Company of America (including copies of all Notices c/o Prudential Capital Group Related to Payments 1114 Avenue of the Americas, 30th Floor New York, NY 10036 Fax: (212) 626-2077 - -------------------------------------------------------------------------------------------------------------------- Signature Block Format THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By_______________________ Name: Title: - -------------------------------------------------------------------------------------------------------------------- Instructions re Delivery of Note Philip Corsello Assistant General Counsel The Prudential Insurance Company of America 1114 Avenue of the Americas, 30th Floor New York, NY 10036 - -------------------------------------------------------------------------------------------------------------------- Tax Identification Number 22-1211670 ====================================================================================================================
EXHIBIT B [FORM OF SENIOR NOTE] BARNES GROUP INC. 8.59% Senior Note Due November 21, 2008 No. R-___ [Date] $_______ PPN: FOR VALUE RECEIVED, the undersigned, BARNES GROUP INC. (herein called the "COMPANY"), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to ________________________, or registered assigns, the principal sum of ___________________ DOLLARS ($________) on November 21, 2008 with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 8.59% per annum from the date hereof, payable semiannually on May 21 and November 21 of each year, commencing with the later of May 21, 2001 and the payment date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Makewhole Price (as defined in the Note Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 10.59% or (ii) the rate announced publicly by Citibank, N.A. in New York, New York from time to time as its prime rate. Payments of principal of, interest on and any Makewhole Price with respect to this Note are to be made in lawful money of the United States of America at the address shown in the register maintained by the Company for such purpose or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Agreement referred to below. This Note is one of a series of Senior Notes (herein called the "NOTES") issued pursuant to that certain Note Agreement, dated as of November 21, 2000 (as from time to time amended, the "NOTE AGREEMENT"), between the Company and the Purchasers named therein and is entitled to the benefits thereof. Each holder of this Notes will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 11.10 of the Note Agreement and (ii) to have made the representation set forth in Section 1.3(b) of the Note Agreement. This Note is a registered Note and, as provided in the Note Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Agreement, but not otherwise. If an Event of Default, as defined in the Note Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Makewhole Price) and with the effect provided in the Note Agreement. THIS NOTE AND THE NOTE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CONNECTICUT, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. BARNES GROUP INC. By:_________________________ Name: Title: Exhibit C [FORM OF OPINION OF COMPANY] (Letterhead of Barnes Group Inc.) November 21, 2000 To: Each Addressee listed on Schedule A hereto Re: Note Agreement (the "Note Agreement") dated as of November 21, 2000 among Barnes Group Inc., a Delaware corporation (the "Company"), and the Addressees listed on Schedule A attached hereto ( the "Purchasers"). Unless otherwise defined herein, capitalized terms used herein have the meaning set forth in the Note Agreement. Ladies and Gentlemen: As General Counsel of the Company, I am familiar with the negotiation, execution and delivery of the Note Agreement. This opinion is delivered to you pursuant to Section 3.1 of the Note Agreement. In connection with this opinion, I have examined a copy of the Note Agreement, including the Schedules thereto, and the Notes, in each case in execution form. I have also examined originals or photostatic or certified copies of such corporate records, certificates of officers of the Company and of public officials and such agreements, documents and instruments, and made such investigations of law, as I have deemed relevant and necessary as the basis for the opinion hereinafter expressed. I have assumed, without verification, the authenticity of any document or instrument submitted to me as original, the conformity to the original of any document or instrument submitted to me as a copy, the legal capacity of signatories other than the Company and the genuineness of all signatures on such documents or instruments, other than the signatures of the Company. I have also assumed without investigation that all documents executed by a party other than the Company are duly and validly executed and delivered by such party, are the legal, valid and binding obligations of such party, and are enforceable against such party in accordance with their respective terms. I am licensed to practice law in the State of Connecticut, and I express no opinion concerning (a) the laws of any jurisdiction other than the State of Connecticut, the General Corporation Law of the State of Delaware and the federal law of the United States, (b) choice of law matters, or (c) limitations imposed by public policy and equity principles. Based upon and subject to the foregoing, and the other assumptions and qualifications set forth herein, I am of the opinion that: 1. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware, has the corporate power and the corporate authority to execute and perform the Note Agreement and to issue the Notes and has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which the character of the Properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a material adverse effect on the business or financial condition of the Company. 2. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly licensed or qualified and is in good standing in each jurisdiction in which the character of the Properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified or in good standing would not have a material adverse effect on the business or financial condition of the Company, and all of the issued and outstanding shares of capital stock of each such Subsidiary have been duly issued, are fully paid and non-assessable and are owned by the Company, by one or more Subsidiaries, or by the Company and one or more Subsidiaries. 3. The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Note Agreement do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien upon any of the Property of the Company pursuant to the provisions of (i) any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease or the Articles of Incorporation or the By-laws of the Company or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company or any of its Properties may be bound or affected, (ii) any order, judgment, decree or ruling of any court, arbitration board or governmental authority applicable to the Company, or (iii) any statute or other rule or regulation of any governmental authority applicable to the Company, except where such conflict or breach or default would not have a material adverse effect on the business or financial condition of the Company. 4. There are no proceedings pending or, to the knowledge of such counsel, threatened against or affecting the Company or any Subsidiary in any court or before any governmental authority questioning the validity of the Note Agreement or the Notes. 5. The Note Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 6. The Notes have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 7. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental authority, is necessary in connection with the execution, delivery or performance by the Company of the Note Agreement or the Notes. 8. The issuance of the Notes and the use of the proceeds of the sale of the Notes in accordance with the provisions of and contemplated by the Note Agreement do not violate or conflict with Regulation T, U or X of the Board of Governors of the Federal Reserve System. 9. Neither the Company nor any Subsidiary is an "investment company", or a company "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. 10. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Agreement do not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. This opinion is rendered solely for the benefit of the Addressees hereto and their permitted successors, assigns and transferees, and may not be relied upon by any other person, or used, circulated, quoted or otherwise referred to, without my prior written consent, except that Bingham Dana LLP, special counsel to the Purchasers, may rely on this opinion for the sole purpose of rendering their opinion to be rendered pursuant to Section 3.1 of the Note Agreement. Very truly yours, Schedule A The Prudential Insurance Company of America 1114 Avenue of the Americas, 30th Floor New York, NY 10036 Allstate Life Insurance Company 3075 Sanders Road Northbrook, IL 60062-7127 American Heritage Life Insurance Company c/o Allstate Life Insurance Company 3075 Sanders Road Northbrook, IL 60062-7127 Nationwide Life Insurance Company One Nationwide Plaza Columbus, OH 43215 Nationwide Life and Annuity Insurance Company One Nationwide Plaza Columbus, OH 43215 Nationwide Indemnity Company One Nationwide Plaza Columbus, OH 43215 EXHIBIT D FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS [Letterhead of Bingham Dana LLP] November 21, 2000 To each of the Persons listed on Annex 1 attached hereto Re: Barnes Group Inc. $60,000,000 8.59% Senior Notes due November 21, 2008 Ladies and Gentlemen: We have acted as special counsel for the persons set forth on Annex 1 attached hereto (collectively, the "Purchasers") in connection with (i) the Note Agreement (the "Note Agreement"), dated as of November 21, 2000, between Barnes Group Inc., a Delaware corporation (the "Issuer"), and each of the Purchasers and (ii) the transactions contemplated thereby. Capitalized terms used herein and not otherwise defined shall have the respective meanings given such terms in the Note Agreement. Our representation of the Purchasers has been as special counsel for the purposes stated above. As to all matters of fact (including factual conclusions and characterizations and descriptions of purpose, intention or other state of mind), we have relied, with your permission, entirely upon (a) the representations and warranties of the Issuer and the Purchasers set forth in the Note Agreement and (b) certificates of certain officers of the Issuer delivered in connection with the closing, and have assumed, without independent inquiry, the accuracy of those representations, warranties, and certificates. In connection with this opinion, we have examined originals or copies of the documents identified below, (i) the Note Agreement; (ii) the 8.59% Senior Notes due November 21, 2008, dated the date hereof, in the form of Exhibit B to the Note Agreement, issued by the Issuer and registered in the names, in the principal amounts and with the registration numbers set forth in Exhibit A to the Note Agreement (collectively, the "Notes"); (iii) a copy of the constitutive documents of the Issuer certified by the Secretary of the Issuer as of the date hereof as being true, complete and correct and in full force and effect; (iv) a certificate of the Secretary of the Issuer, dated the date hereof, certifying that the copies attached thereto of the Issuer's articles of incorporation and bylaws and those certain resolutions passed by the Board of Directors of the Issuer are true, complete and correct copies thereof and are in full force and effect, and as to the incumbency and specimen signatures of certain officers (the articles of incorporation of the Issuer and such bylaws are referred to herein as the "Issuer's Governing Documents"); (v) a certificate of an officer of the Issuer, dated the date hereof, with respect to the matters set forth therein; (vi) a letter, dated the date hereof, addressed to us from Fleet Securities Inc. describing the manner of the offering of the Notes (the "Offeree Letter"); and (vii) the opinion of Signe S. Gates, Esq., general counsel of the Issuer, dated the date hereof and delivered to you pursuant to Section 3.1 of the Note Agreement. In addition to the documents identified above, we have examined such corporate and public records and agreements, instruments, certificates and other documents as we have deemed necessary or appropriate for the purposes of this opinion. Based on such investigation as we have deemed appropriate, the opinion referred to in clause (vii) above is satisfactory in form and scope to us, and, in our opinion, you are justified in relying thereon. 2 We have assumed the genuineness of all signatures, the conformity to the originals of all documents reviewed by us as copies, the authenticity and completeness of all original documents reviewed by us in original or copy form, the legal competence of each individual executing any document and that each Person executing the Note Agreement or the Notes validly exists, has the power and authority to enter into and perform its obligations thereunder, and is qualified to do business and is in good standing under the law of its jurisdiction of incorporation and each jurisdiction where such qualification is required generally or is necessary in order for such party to enforce its rights under such documents, and that such documents have been duly authorized, executed and delivered by, and, as to Persons other than the Issuer, are binding upon and enforceable against, such Persons. In addition, we have relied, to the extent we deem necessary and proper, upon the Offeree Letter. For purposes of this opinion, we have made such examination of law as we have deemed necessary. This opinion is limited solely to the internal substantive laws of the State of Connecticut as applied by courts located in the State of Connecticut without regard to choice of law and the federal laws of the United States of America, and we express no opinion as to the laws of any other jurisdiction. In particular, our opinion in paragraph 3 below is based solely on a review of the Issuer's Governing Documents and not on any analysis of the law of the jurisdiction of organization of the Issuer and its effect on the interpretation of the Issuer's Governing Documents. In addition, we note that the Note Agreement and the Notes contain provisions stating that they are to be governed by the laws of the State of Connecticut (a "Chosen-Law Provision"). No opinion is given herein as to any Chosen-Law Provision, or otherwise as to the choice of law or internal substantive rules of law that any court or other tribunal may apply to the transactions contemplated by the Note Agreement and the Notes. Except as set forth in paragraph 4 below, we express no opinions as to any securities or "blue sky" laws of any jurisdiction. Our opinion is further subject to the following exceptions, qualifications and assumptions, all of which we understand to be acceptable to you: 3 (a) The enforcement of any obligations of any person or entity under the Note Agreement or the Notes or otherwise may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws and rules of law affecting the enforcement generally of creditors' rights and remedies (including such as may deny giving effect to waivers of debtors' or guarantors' rights); and we express no opinion as to the status under any fraudulent conveyance laws or fraudulent transfer laws of any of the obligations of any person or entity, whether under the Note Agreement or the Notes or otherwise. (b) We express no opinion as to the availability of any specific or equitable relief of any kind. (c) The enforcement of any of your rights may in all cases be subject to an implied duty of good faith and fair dealing and to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (d) We express no opinion as to the enforceability of any particular provision of the Note Agreement relating to (i) waivers of any applicable defenses, setoffs, recoupments, or counterclaims, (ii) waivers or variations of legal provisions or rights which are not capable of waiver or variation under applicable law, or (iii) exculpation or exoneration clauses, indemnity clauses and clauses relating to releases or waivers of unmatured claims or rights. (e) Our opinion in paragraph 2 below is based solely on a review of generally applicable laws of the State of Connecticut and the United States of America and not on any search with respect to, or review of, any orders, decrees, judgments or other determinations specifically applicable to the Issuer. (f) This opinion speaks as of the date hereof and does not address any additional or changed facts, or changes in law, of which we may become aware after the date hereof, and we assume no responsibility to inform you of additional or changed facts, or changes in law, of which we may become aware. 4 Based upon the foregoing, and subject to the limitations and qualifications set forth below, we are of the opinion that: 1. Each of the Note Agreement and the Notes constitutes a legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms. 2. No consent, approval or authorization of, or designation, declaration, filing, registration, qualification or recordation with, any governmental authority is required under the laws of the State of Connecticut or the United States of America in connection with the execution and delivery by the Issuer of the Note Agreement or the Notes, or the offer, issue, sale or delivery of the Notes by the Issuer under the circumstances contemplated by the Note Agreement. 3. The execution and delivery of each of the Note Agreement and the Notes by the Issuer, and the consummation of the transactions contemplated thereby and compliance by the Issuer with the provisions thereof will not constitute a violation by the Issuer of the provisions of the Issuer's Governing Documents. 4. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes delivered to you today under the circumstances contemplated by the Note Agreement to register the Notes under the Securities Act of 1933, as amended, or to qualify an indenture in respect of the issuance of the Notes under the Trust Indenture Act of 1939, as amended. This opinion is delivered solely to you and for your benefit in connection with the Note Agreement and may not be relied upon by you for any other purpose or relied upon by any other person or entity (other than future holders of Notes acquired in accordance with the terms of the Note Agreement) for any reason without our prior written consent. Very truly yours, BINGHAM DANA LLP 5 Annex 1 The Prudential Insurance Company of America 1114 Avenue of the Americas, 30th Floor New York, NY 10036 Allstate Life Insurance Company 3075 Sanders Road Northbrook, IL 60062-7127 American Heritage Life Insurance Company c/o Allstate Life Insurance Company 3075 Sanders Road Northbrook, IL 60062-7127 Nationwide Life Insurance Company One Nationwide Plaza Columbus, OH 43215 Nationwide Life and Annuity Insurance Company One Nationwide Plaza Columbus, OH 43215 Nationwide Indemnity Company One Nationwide Plaza Columbus, OH 43215 Annex 1-1 EX-10.1 3 0003.txt MANAGEMENT INCENTIVE COMPENSATION PLAN EXHIBIT 10.1 ------------ BARNES GROUP INC. MANAGEMENT INCENTIVE COMPENSATION PLAN -------------------------------------- Amended and Restated Effective as of January 1, 2000 SECTION 1. PURPOSE - ------------------- The Management Incentive Compensation Plan (the "MICP") is designed to provide incentive compensation opportunities to persons in key positions who contribute importantly to the success of Barnes Group Inc. (the "Company"). SECTION 2. ADMINISTRATION - -------------------------- The MICP shall be administered by the Compensation Committee of the Board of Directors of the Company, or its successor (the "Committee"). Amounts paid or projected to be paid under the MICP are referred to herein as "Awards." SECTION 3. DEFINITIONS - ----------------------- 3.1 "Award Period" shall mean the period of time within which Performance is measured for the purpose of determining whether an Award has been earned. 3.2 "Business Unit" shall mean a cost center, profit center or international subsidiary within a Group. 3.3 "Business Unit Fund" shall mean an amount equal to the sum, in the aggregate, of the Individual Targets earned by all of the MICP participants in a Business Unit. 3.4 "CEO" shall mean the President and Chief Executive Officer of the Company. 3.5 "Company Officer" shall mean an executive officer of the Company elected by its Board of Directors. 3.6 "Fund" shall mean an amount equal to the sum, in the aggregate, of the Individual Targets earned by all of the MICP participants in a Group. 3.7 "Group" shall mean the Executive Office, Associated Spring, Bowman Distribution, or Barnes Aerospace. 1 3.8 "Group President" shall mean the president of Associated Spring, Bowman Distribution, or Barnes Aerospace. 3.9 "Individual Target" shall mean the percentage of salary for each individual participating in the MICP. The Committee will establish the Individual Target for each MICP participant, by position title, salary grade, or other category before or during the Award Period. 3.10 "Maximum" shall mean a Performance level at or above which the amount paid or projected to be paid for an Award Period is equal to 300% of the Fund for the corresponding Group. 3.11 "Performance" shall mean the performance objectives established by the Committee in advance, with respect to each Group or Business Unit, as the case may be, for an Award Period, for the purpose of determining whether, and to what extent, an Award has been earned by the Group or Business Unit for an Award Period. Performance may be adjusted by the Committee to include or exclude extraordinary and non-recurring items or other factors. 3.12 "Target" shall mean a Performance level at which the amount paid or projected to be paid for an Award Period is equal to 100% of the Fund for the corresponding Group. 3.13 "Threshold" shall mean a Performance level at or above which an Award is earned for an Award Period. For Threshold Performance, the amount paid or projected to be paid for an Award Period is equal to 25% of the Fund for the corresponding Group. SECTION 4. GROUP FUNDS - ----------------------- If an Award Period is a calendar year, prior to March 1, the Committee shall establish the Threshold, Target and Maximum for each Group. The Committee may also designate one or more intermediate levels of Performance between the Threshold and the Target, and the Target and the Maximum, for a Group, and the percentage of the corresponding Fund that will be available for payment as an Award if Performance equals such intermediate level. 2 SECTION 5. BUSINESS UNIT FUNDS - ------------------------------- If an Award Period is a calendar year, prior to May 1, the CEO shall designate which Business Units, if any, shall have separate Business Unit Funds. For each such Business Unit, the CEO shall also determine the threshold, target and maximum on the same basis as such measures are determined for a Fund. The CEO may also designate intermediate levels of Performance between the threshold and the target, and the target and the maximum, for the Business Unit and the percentage of the Business Unit Fund that will be available for payment as an Award if Performance equals such intermediate level. SECTION 6. PARTICIPANTS - ------------------------ If an Award Period is a calendar year, prior to May 1, the CEO, upon the recommendations of the Company Officers, shall designate eligible participants in the MICP for the current year and the respective Funds or Business Unit Funds, as the case may be, in which they shall participate. The CEO shall participate in the Executive Office Fund. Except for participants who retire, die or become permanently disabled during the year, whose Award shall be prorated to the date of such retirement, death or permanent disability, a person must be employed by the Company or one of its subsidiaries on December 1 in order to be eligible to receive an Award, unless the CEO decides otherwise in individual cases. SECTION 7. AWARDS - BUSINESS UNIT FUNDS - ---------------------------------------- After the end of the Award Period and based on the final Performance of each Business Unit for which a Business Unit Fund has been designated pursuant to Section 5, the CEO, upon the recommendation of the corresponding Company Officer, shall determine each participant's share of the Business Unit Fund (except for any Company Officer who participates in the Business Unit Fund or the Fund of the corresponding Group, whose Award shall be determined by the Committee pursuant to Section 8.1). Without limiting the foregoing, the CEO shall have the authority, subject to Section 9, to 3 make adjustments to the amount of any Business Unit Fund and to adjust or refrain from making an Award to any participant. SECTION 8. AWARDS - GROUP FUNDS - -------------------------------- 8.1 After the end of the Award Period and based on the final Performance of each Group, the CEO shall determine each participant's share of the corresponding Group Fund, upon the recommendations of the Company Officers (except for any Company Officer who participates in the Fund). The CEO shall recommend the share of the Executive Office Fund for each Company Officer, other than the CEO. The Committee shall approve the Award to each Company Officer other than the CEO, and determine the appropriate Award for the CEO, based in all instances on Individual Targets and the Performance level achieved. 8.2 Subject to Section 9, the Committee shall have the authority to make adjustments to the Funds and to adjust or refrain from making an Award including, without limitation, making an Award to any Company Officer in excess of his or her calculated Award and recommending to the CEO an Award in excess of the calculated Award for any participant who is not a Company Officer. SECTION 9. AWARDS ABOVE MAXIMUM - -------------------------------- Notwithstanding anything in the MICP to the contrary, no awards in excess of the Maximum shall be made to any person without the approval of the Committee. SECTION 10. PAYMENT - ------------------- Awards shall be paid within 60 days after the expiration of the Award Period, unless otherwise decided by the Committee. SECTION 11. GENERAL - ------------------- 11.1 The interpretation of the MICP by the Committee and its decisions on all questions arising under the MICP shall be conclusive and binding on all participants and the CEO. 4 11.2 The MICP may be amended at any time, including retroactively, by the Committee. 11.3 This amendment and restatement of the MICP supersedes all prior MICP and similar incentive plans, effective as of January 1, 2000 for the Award Period of calendar year 2000 and Award Periods thereafter. Amended - ------- 2/17/95 2/20/96 7/20/98 4/11/00 5 EX-10.13 4 0004.txt EMPLOYEE STOCK AND OWNERSHIP PROGRAM EXHIBIT 10.13 ------------- BARNES GROUP INC. EMPLOYEE STOCK AND OWNERSHIP PROGRAM EFFECTIVE FEBRUARY 1, 2000 1. Purpose The purpose of the Plan is to provide a means through which the Company may attract able persons to provide services to or enter and remain in the employ with the Company and its Subsidiaries and to provide a means whereby they can acquire and maintain Common Stock ownership, or be paid incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company and promoting an identity of interest between stockholders of the Company and these service providers and employees. So that the appropriate incentive can be provided, the Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Awards, Performance Share or Cash Unit Awards, and SARs or any combination of the foregoing. 2. Definitions The following definitions shall be applicable throughout the Plan. (a) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (b) "Award" means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Restricted Stock Award, Performance Share or Cash Unit Award, or SAR under the Plan. (c) "Award Agreement" means the agreement between the Company and a Participant who has been granted an Award which defines the rights and obligations of the parties with respect to such Award. (d) "Award Period" means a period of time within which performance is measured for the purpose of determining whether an Award of Performance Share or Cash Units has been earned. (e) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (f) "Board" means the Board of Directors of the Company. (g) "Change in Control" shall have the meaning set forth in Section 11(p). (h) "Code" means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section. (i) "Committee" means the committee appointed by the Board to administer the Plan as described in Section 4. (j) "Common Stock" means the common stock of the Company. (k) "Company" means Barnes Group Inc. (l) "Date of Grant" means the date on which the granting of an Award is authorized or such other date as may be specified in such authorization. (m) "Disability" means, with respect to Incentive Stock Options, "permanent and total disability" as defined in Section 22(e)(3) of the Code, and, for all other purposes shall have the meaning set forth in the Company's long-term disability plan. (n) "Eligible Person" means any person regularly employed by or providing consulting or other services to the Company or a Subsidiary. An Award other than an Incentive Stock Option may be granted to an Eligible Person, in connection with hiring, retention or otherwise, prior to the date the Eligible Person first performs services for the Company or a Subsidiary, provided that such Award shall not become vested prior to the date on which the Eligible Person completes one continuous year of employment/service with the Company and/or Subsidiaries. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" on a given date means (i) if the Stock is listed on a national securities exchange, the closing sale prices reported as having occurred on the primary exchange on which the Stock is listed and traded on the date prior to such date, or, if there is no such sale on that date, then on the last preceding date on which such a sale was reported; (ii) if the Stock is not listed on any national securities exchange but is quoted in the National Market System of The Nasdaq Stock Market on a last sale basis, the average between the high bid price and low ask price reported on the date prior to such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Stock is not listed on a national securities exchange nor quoted in the National Market System of The Nasdaq Stock Market on a last sale basis, the amount determined by the Committee to be the fair market value based upon a good faith attempt to value the Stock accurately. (q) "Holder" means a Participant who has been granted an Award, or a permitted transferee of such a Participant. (r) "Incentive Stock Option" means an Option granted by the Committee to a Participant under the Plan which is designated by the Committee as an "incentive stock option" within the meaning of Section 422 of the Code. 2 (s) "Nonqualified Stock Option" means an Option granted under the Plan which is not designated as an Incentive Stock Option. (t) "Normal Termination" means termination of employment or service with the Company or a Subsidiary other than by reason of death or Disability. (u) "Option" means an Award granted under Section 7 of the Plan. (v) "Option Period" means the period described in Section 7(c). (w) "Option Price" means the exercise price set for an Option described in Section 7(a). (x) "Participant" means an Eligible Person who has been selected by the Committee to participate in the Plan and to receive an Award pursuant to Section 6. (y) "Performance Goals" means the performance objectives established by the Committee with respect to an Award Period, Restricted Period, or Option Period with respect to Performance Share or Cash Units, Restricted Stock, Options or SARs respectively, established for the purpose of determining whether, and to what extent, such Awards will be earned for an Award Period, Restricted Period or Option Period. (z) "Performance Cash Unit" means a hypothetical equivalent to a number of dollars established by the Committee and granted in connection with an Award made under Section 8 of the Plan. (aa) "Performance Share Unit" means a hypothetical investment equivalent equal to one share of Stock granted in connection with an Award made under Section 8 of the Plan. (bb) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) any member of the Barnes family (by blood or marriage) or any entity for the benefit of, or controlled by, a member of the Barnes family (by blood or marriage), (ii) the Company or a Subsidiary, (iii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iv) an underwriter temporarily holding securities pursuant to an offering of such securities, or (v) 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. (cc) "Plan" means the Company's Employee Stock And Ownership Program, as amended. (dd) "Restricted Period" means, with respect to any share of Restricted Stock, the period of time determined by the Committee during which such Award is subject to the restrictions set forth in Section 9 of the Plan. 3 (ee) "Restricted Stock" means shares of Stock issued or transferred to a Participant subject to forfeiture and the other restrictions set forth in Section 9 of the Plan. (ff) "Restricted Stock Award" means an Award of Restricted Stock granted under Section 9 of the Plan. (gg) "SAR" means a stock appreciation right which entitles a Participant to receive, in cash or Stock (valued at Fair Market Value), at the discretion of the Committee, an amount equal to the excess of the Fair Market Value of a specified number of shares of Stock at the time of exercise over the Option Price established by the Committee. (hh) "Securities Act" means the Securities Act of 1933, as amended. (ii) "Stock" means the Common Stock of the Company or such other authorized shares of stock of the Company as from time to time may be authorized for use under the Plan. (jj) "Subsidiary" means any corporation or other business entity in which the Company owns a significant equity interest, as determined in the discretion of the Committee. 3. Effective Date, Duration and Shareholder Approval The Plan is effective as of February 1, 2000. The validity of any and all Awards granted pursuant to the Plan is contingent upon approval of the Plan by the stockholders of the Company in a manner which complies with Section 422(b)(1) of the Code and Section 162(m)(4)(C)(ii) of the Code. The expiration date of the Plan, after which no Awards may be granted hereunder, shall be January 31, 2005; provided, however, that the administration -------- ------- of the Plan shall continue in effect until all matters relating to the payment of Awards previously granted have been settled. 4. Administration The Plan shall be administered by the Committee, which shall be composed of at least two persons, each member of which, at the time he or she takes any action with respect to an Award under the Plan, shall be a "Non-Employee Director", as defined in Rule 16b-3 under the Exchange Act, or any successor rule or regulation, and an "outside director", as defined in Treasury Regulations (S) 1.162-27(e)(3), or any successor regulation. The majority of the members of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed the acts of the Committee. Subject to the provisions of the Plan, the Committee shall have exclusive power to: (a) Select the Eligible Persons to participate in the Plan; (b) Determine the nature and extent of the Awards to be made to each Participant; 4 (c) Determine the time or times when Awards will be made to Eligible Persons; (d) Determine the duration of each Award Period and Restricted Period; (e) Determine the conditions to which the payment of Awards may be subject; (f) Establish the Performance Goals, if any, for each Award Period; (g) Prescribe the form of Award Agreement or other form or forms evidencing Awards; and (h) Cause records to be established in which there shall be entered, from time to time as Awards are made to Eligible Persons, the date of each Award, the number of Incentive Stock Options, Nonqualified Stock Options, Performance Share or Cash Units, shares of Restricted Stock and SARs awarded by the Committee to each Eligible Person, and the expiration date and the duration of any applicable Award Period or Restricted Period. The Committee shall have the authority, subject to the provisions of the Plan, to establish, adopt, or revise such rules and regulations and to make all such determinations relating to the Plan as it may deem necessary or advisable for the administration of the Plan. The Committee's interpretation of the Plan or any documents evidencing Awards granted pursuant thereto and all decisions and determinations by the Committee with respect to the Plan shall be final, binding, and conclusive on all parties unless otherwise determined by the Board. 5. Grant of Awards; Shares Subject to the Plan The Committee may, from time to time, grant Awards of Options, Restricted Stock, Performance Share or Cash Units and/or SARs to one or more Eligible Persons; provided, however, that: -------- ------- (a) The aggregate number of shares of Stock that may be issued or transferred pursuant to all Awards may not exceed 2,500,000 plus the aggregate number of shares of Stock available for future awards under the 1991 Barnes Group Stock Incentive Plan (including any shares of Stock which become available due to forfeiture, cancellation or expiration of Stock or options under such plan), subject to Section 12; provided, however, that no more than 25% of the -------- ------- foregoing number of shares of Stock may be available for grant of Restricted Stock that is not subject to vesting based on the achievement of Performance Goals, and; provided, further, that the maximum number of shares of Stock with respect to which Options or SARs or other Awards may be granted during any calendar year to any Eligible Person is 500,000. (b) In the event any Option, Restricted Stock Award, Performance Share or Cash Unit or SAR shall be surrendered, terminate, expire, or be forfeited, the number of shares of Stock no longer subject thereto shall thereupon be released and shall thereafter be available for new Awards under the Plan. If the person exercising an Option pays the purchase price of the shares subject to such Option by delivering shares of Common Stock to the Company (either through actual delivery or by attestation) in accordance with the provisions of paragraph 7(b) below, or pays the withholding taxes due in connection with the grant, exercise, vesting, distribution, or payment of any Award or the shares subject thereto (including without 5 limitation any withholding taxes due as a result of an election made by an Eligible Person under Section 83(b) of the Internal Revenue Code) by delivering shares of Common Stock to the Company or having the Company withhold shares of Common Stock otherwise issuable in connection with the Award in accordance with the provisions of paragraph 11(d) below, the number of shares so delivered or withheld shall be added back to the aggregate number of shares available for issuance or transfer under the Plan so that the aggregate number of shares that may be issued or transferred under the Plan pursuant to paragraph 5(a) above shall have been charged only for the net number of shares issued or transferred by the Company in connection with the Award; provided, however, that none of the surrendered or withheld shares shall -------- ------- be available for issuance under Incentive Stock Options. (c) Stock delivered by the Company in settlement of Awards under the Plan may be authorized and unissued Stock or Stock held in the treasury of the Company or may be purchased on the open market or by private purchase. (d) The Committee may, in its sole discretion, require a Participant to pay consideration for an Award in an amount and in a manner as the Committee deems appropriate. (e) The Committee may only grant Incentive Stock Options to Eligible Persons who are employees of the Company or a subsidiary corporation as defined in Section 424 of the Code. 6. Eligibility Participation shall be limited to Eligible Persons selected by the Committee. 7. Stock Options and SARs Subject to Section 5(e), the Committee is authorized to grant one or more Incentive Stock Options, Nonqualified Stock Options or SARs to any Eligible Person. Each Option or SAR so granted shall be subject to the following conditions or to such other conditions as may be reflected in the applicable Award Agreement. (a) Option Price. The exercise price ("Option Price") per share of Stock for each Option or SAR shall be set by the Committee at the time of grant but shall not be less than the Fair Market Value of a share of Stock at the Date of Grant or, other than with respect to Incentive Stock Options, at a date subsequent to the Date of Grant as specified in the Option Award Agreement. (b) Manner of Exercise and Form of Payment. SARs which have become exercisable may be exercised by delivery of written notice of exercise to the Committee. Options which have become exercisable may be exercised by delivery of written notice of exercise to the Committee accompanied by payment of the Option Price. The Option Price shall be payable either (i) by United States dollars in cash or by check, (ii) at the discretion of the Committee, by either actual delivery of shares or by attestation, through shares of Stock 6 valued at the Fair Market Value at the time the Option is exercised (provided that such Stock has been held by the Participant for at least six months), or (iii) at the discretion of the Committee, by any combination of (i) and (ii) above. (c) Option Period and Expiration. Options and SARs shall vest and become exercisable in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the "Option Period"); provided, however, that -------- ------- notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option or SAR, which acceleration shall not affect the terms and conditions of any such Option or SAR other than with respect to exercisability. If an Option or SAR is exercisable in installments, such installments or portions thereof which become exercisable shall remain exercisable until the Option or SAR expires. Unless otherwise stated in the applicable Option Award Agreement, an Incentive Stock Option shall expire earlier than the end of the Option Period in the following circumstances: (i) If prior to the end of the Option Period, the Participant shall undergo a Normal Termination, the Incentive Stock Option shall expire on the earlier of the last day of the Option Period or the date that is 90 days three months after the date of such Normal Termination. In such event, the Incentive Stock Option shall remain exercisable by the Holder until its expiration, only to the extent the Option was exercisable at the time of such Normal Termination. (ii) If the Participant dies prior to the end of the Option Period and while still in the employ of the Company or such Participant becomes Disabled, the Incentive Stock Option shall expire on the earlier of the last day of the Option Period or the date that is one year after the first anniversary of such date of death or Disability of the Participant. In the event of death or Disability, the Incentive Stock Option shall remain exercisable by the Participant or the Holder or Holders to whom the Participant's rights under the Incentive Stock Option pass by will or the applicable laws of descent and distribution until its expiration, only to the extent the Incentive Stock Option was exercisable by the Participant at the time of death or Disability. In granting any Nonqualified Stock Option or SAR, the Committee may specify that such Nonqualified Stock Option shall be subject to the restrictions set forth in Section 7(c)(i) or (ii) with respect to Incentive Stock Options, or such other termination and cancellation provisions as the Committee may determine; provided, however, that in the event a Participant terminates service -------- ------- or employment due to death, Disability, retirement (as defined in any qualified retirement plan maintained by the Company), or, in the case of a non-employee director, after attaining age 55, termination of the Option Period shall occur no later than the fifth anniversary of such date of termination, and in the event of any other termination, termination of the Option Period shall occur no later than the third anniversary of such date of 7 termination, and provided further, that the extension of any Option Period beyond the limits set forth in Section 7(c)(i) or (ii) herein with respect to Incentive Stock Options shall be conditioned on the Participant executing a release of claims and/or a covenant not to compete in a form approved by the Committee. (d) Other Terms and Conditions. In addition, each Option or SAR granted under the Plan shall be evidenced by an Award Agreement, which shall contain such provisions as may be determined by the Committee and, except as may be specifically stated otherwise in such Award Agreement, which shall be subject to the following terms and conditions: (i) Each Option or SAR issued pursuant to this Section 7 or portion thereof that is exercisable shall be exercisable for the full amount or for any part thereof. (ii) Each share of Stock purchased through the exercise of an Option issued pursuant to this Section 7 shall be paid for in full at the time of the exercise. Each Option shall cease to be exercisable, as to any share of Stock, when the Holder purchases the share or when the Option expires. (iii) Subject to Section 11(k), Options and SARs issued pursuant to this Section 7 shall not be transferable by the Holder except by will or the laws of descent and distribution and shall be exercisable during the Holder's lifetime only by the Holder. (iv) Each Option and SAR issued pursuant to this Section 7 shall vest and become exercisable by the Holder in accordance with the vesting schedule established by the Committee and set forth in the Award Agreement; provided, however, that no Option or SAR -------- ------- shall be exercisable prior to the date on which the Participant completes one year of continuous service with the Company or a Subsidiary, unless termination of service occurs due to death, Disability, retirement (as defined in any qualified retirement plan maintained by the Company), after a Change-in-Control, or, in the case of a non-employee director, after attaining age 55. (v) Each Award Agreement may contain a provision that, upon demand by the Committee for such a representation, the Holder shall deliver to the Committee at the time of any exercise of an Option issued pursuant to this Section 7 a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an Option issued pursuant to this Section 7 shall be a condition precedent to the right of the Holder to purchase any shares. In the event certificates for Stock are delivered under the Plan with respect to which 8 such investment representation has been obtained, the Committee may cause a legend or legends to be placed on such certificates to make appropriate reference to such representation and to restrict transfer in the absence of compliance with applicable federal or state securities laws. (vi) Each Incentive Stock Option Award Agreement shall contain a provision requiring the Holder to notify the Company in writing immediately after the Holder makes a disqualifying disposition of any Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including any sale) of such Stock before the later of (a) two years after the Date of Grant of the Incentive Stock Option or (b) one year after the date the Holder acquired the Stock by exercising the Incentive Stock Option. (e) Incentive Stock Option Grants to 10% Stockholders. Notwithstanding anything to the contrary in this Section 7, if an Incentive Stock Option is granted to a Participant who owns stock representing more than ten percent of the voting power of all classes of stock of the Company or of a Subsidiary, the Option Period shall not exceed five years from the Date of Grant of such Option and the Option Price shall be at least 110 percent of the Fair Market Value (on the Date of Grant) of the Stock subject to the Option. (f) $100,000 Per Year Limitation for Incentive Stock Options. To the extent the aggregate Fair Market Value (determined as of the Date of Grant) of Stock for which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options. (g) Conversion of Incentive Stock Options into Nonqualified Stock Options; Termination of Incentive Stock Options. The Committee, at the written request of any Holder, may in its discretion, take such actions as may be necessary to convert such Holder's Incentive Stock Options (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Nonqualified Stock Options at any time prior to the expiration of such Incentive Stock Options, regardless of whether the Holder is an employee of the Company or a Subsidiary at the time of such conversion. Such actions may include, but not be limited to, extending the Option Period or reducing the exercise price of the appropriate installments of such Incentive Stock Options. At the time of such conversion, the Committee (with the consent of the Holder) may impose such conditions on the exercise of the resulting Nonqualified Stock Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give any Holder the right to have such Holder's Incentive Stock Options converted into Nonqualified Stock Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the Holder, may also terminate any portion of any Incentive Stock Option that has not been exercised at the time of such termination. 9 (h) Substitution of Options. The Committee may grant Options and/or SARs in substitution for options or stock appreciation rights held for stock in corporations acquired by the Company with terms in accordance with the terms for such previous options, but with an appropriate adjustment in the exercise price and number of shares subject to the options in compliance with the requirements of Section 424 of the Code. 8. Performance Share or Cash Units (a) Award Grants. The Committee is authorized to establish performance programs to be effective over designated Award Periods determined by the Committee. The Committee may grant Awards of Performance Share or Cash Units to Eligible Persons in accordance with such performance programs. Before or within 90 days after the beginning of each Award Period, the Committee will establish written Performance Goals based upon financial objectives for the Company for such Award Period and a schedule relating the accomplishment of the Performance Goals to the Awards to be earned by Participants. Performance Goals may include absolute or relative growth in earnings per share or rate of return on stockholders' equity or other measurement of corporate performance and may be determined on an individual basis or by categories of Participants. The Committee shall determine the number of Performance Share or Cash Units to be awarded, if any, to each Eligible Person who is selected to receive such an Award. (b) Determination of Award. At the completion of a Performance Award Period, or at other times as specified by the Committee, the Committee shall calculate the number of shares of Stock or amount of cash earned with respect to each Participant's Performance Share or Cash Unit Award by multiplying the number of Performance Units granted to the Participant by a performance factor representing the degree of attainment of the Performance Goals. (c) Payment of Performance Share or Cash Unit Awards. Performance Share or Cash Unit Awards shall be payable in that number of shares of Stock or that amount of cash determined in accordance with Section 8(b); provided, however, -------- ------- that, at its discretion, the Committee may make payment to any Participant of Performance Share Units in the form of cash upon the specific request of such Participant. The amount of any payment made in cash shall be based upon the Fair Market Value of the Stock on the business day prior to payment. Payments of Performance Unit Awards shall be made as soon as practicable after the completion of an Award Period; provided, however, that if a Participant makes -------- ------- the election described below, Performance Share or Cash Units (with any Cash Units being converted into equivalent Performance Share Units) shall instead be credited to the Participant's Performance Share Account. Such credit of Performance Shares to a Participant's Performance Share Account shall be made as of the same date as payment of the Award would have been made to the Participant had no prior election been made. (i) Elections. 10 Any election to have an Award or a portion of an Award credited to a Performance Share Account shall be made on a written form provided by the Company for such purpose and shall only be effective with respect to Awards that may be made on and after the January 1 following the Company's receipt of such form, provided that such form is received by the December 24 prior to the applicable January 1. Any such election shall be made only in increments of ten percent (10%) of the Award (rounded to the nearest whole share) and shall be effective only for Awards made during the year in which the election becomes effective. (ii) Performance Share Account. The Company shall maintain on its books and records a Performance Share Account to record its liability for future payments to the Participant or his or her beneficiary pursuant to the Plan. However, a Performance Share Account under the Plan shall constitute an unfunded arrangement; the Company shall not be required to segregate or earmark any of its assets for the benefit of the Participant or his or her beneficiary, and the amount reflected in a Performance Share Account shall be available for the Company's general corporate purposes and shall be available to the Company's general creditors. The amount reflected in a Performance Share Account shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Participant or his or her beneficiary, and any attempt to anticipate, alienate, transfer or assign the same shall be void. Neither the Participant nor his or her beneficiary may assert any right or claim against any specific assets of the Company in respect of a Performance Share Account, and the Participant and his or her beneficiary shall have only a contractual right against the Company for the amount reflected in a Performance Share Account. Notwithstanding the foregoing, in order to pay amounts which may become due under the Plan in respect of a Participant's Performance Share Account, the Company may establish a grantor trust (hereinafter the "Trust") within the meaning of Section 671 of the Code. Some or all of the assets of the Trust may be dedicated to providing benefits to the Participants pursuant to the Plan, but, nevertheless, all assets of the Trust shall at all times remain subject to the claims of the Company's general creditors in the event of the Company's bankruptcy or insolvency. (iii) Dividend Equivalents. On every date on which a dividend or other distribution is paid with respect to Common Stock, commencing with the first such payment date after the date on which a Performance Share is credited to a Participant's Performance Share Account and continuing until such Performance Share is either forfeited or paid out, there shall be credited to the Participant's Performance Share Account a 11 Dividend Equivalent in respect of such Performance Share. A Dividend Equivalent shall mean, with respect to a whole Performance Share credited to a Participant's Performance Share Account, a measure of value equal to the fractional share of Common Stock that could be purchased with the amount that would have been paid to the Participant as a dividend or other distribution if the Participant had owned a whole share of Common Stock in lieu of said whole Performance Share, the date of such deemed purchase being the dividend payment date. Dividend Equivalents are expressed in the form of Performance Shares. Notwithstanding the foregoing, the Committee may decide when granting a Performance Share that Dividend Equivalents with respect to such Performance Share shall be paid to a Participant as accrued, rather than credited to the Participant's Performance Share Account. (iv) Participant not a Stockholder. The Participant shall have no stockholder's rights with respect to any shares of Common Stock in respect of which Performance Shares are credited to his or her Performance Share Account. (v) Payments in Respect of Performance Shares. (1) Termination of Employment or Provision of Services: In the -------------------------------------------------- event of a Participant's Normal Termination and without a payment date having been specified as provided below, such Participant shall be entitled to receive payment in respect of the entire amount then credited to his or her Performance Share Account. Such payment shall be made in the form of the number of shares of Common Stock equal to the number of whole Performance Shares then credited to the Participant's Performance Share Account, with any fractional Performance Share being paid in cash determined on the basis of the value of a corresponding fractional share of Common Stock on the business day preceding the date of payment. Said shares of Common Stock and any cash amount shall be transferred to the Participant within sixty (60) days after the Participant's Normal Termination. (2) Election of Participant: Upon prior written election by a ----------------------- Participant, the Participant shall be entitled to receive payment in respect of an Award of Performance Shares, to the extent then vested, and any Dividend Equivalents earned on such Award on the date or dates specified in such written election. Such election must either be made as part of the election to have such Award of Performance Shares credited to a Performance Share Account as provided above, or at any time at least one year prior to the date on which such payment would otherwise be made. Such payment shall be made in the form of the number of shares of Common Stock equal to the number of whole Performance Shares, including related Dividend Equivalents, then credited to the Participant's Performance Share Account with respect to such Award, with any fractional Performance Share being paid in cash determined on the basis of the value of a corresponding fractional share of Common Stock on the business day preceding the date of payment. The Participant's Performance Share 12 Account thereafter shall be reduced to reflect the foregoing payment. Nothing herein shall preclude separate elections with respect to separate Awards. (3) Disability or Death While Employed by or Providing Services ----------------------------------------------------------- to the Company: Notwithstanding an election made pursuant to the preceding - -------------- section, in the event of a Participant's termination of employment or provision of services for reasons of Disability or death, the Participant or his or her beneficiary, as the case may be, shall be entitled to receive payment in respect of the entire amount then credited to his or her Performance Share Account. Such payment shall be made in the form of the number of shares of Common Stock equal to the number of whole Performance Shares then credited to the Participant's Performance Share Account, with any fractional Performance Share being paid in cash determined on the basis of the value of a corresponding fractional share of Common Stock on the business day preceding the date of payment. Said shares of Common Stock and any cash amount shall be transferred to the Participant or his or her beneficiary within sixty (60) days after the Company has been notified in writing of the Disability or death of the Participant and has been provided with any additional information, forms or other documents it may reasonably request. (4) Hardship Payment: Notwithstanding an election made pursuant ---------------- to the Plan or the Participant's continued employment with or provision of services to the Company, if the Committee, upon written petition of the Participant, determines, in the Committee's sole discretion, that the Participant has suffered an unforeseeable financial emergency, the Participant shall be entitled to receive, as soon as practicable following such determination, payment sufficient to meet the cash needs arising from the unforeseeable financial emergency, not in excess of the number of whole Performance Shares then credited to the Participant's Performance Share Account. Such payment shall be made, at the election of the Participant, either (i) in the form of the number of whole shares of Common Stock, the proceeds from the sale of which would be sufficient to meet the cash needs arising from the unforeseeable financial emergency, not in excess of the number of whole Performance Shares then credited to the Participant's Performance Share Account; (ii) in cash equal to the value on the business day preceding the date of payment of the number of whole shares of Common Stock available for payment under clause (i) of this sentence; or (iii) in any combination of the methods of payment provided for in clauses (i) and (ii) of this sentence. In the event of a hardship payment in respect of the Participant's entire Performance Share Account, any fractional Performance Share shall be paid in cash determined on the basis of the value of a corresponding fractional share of Common Stock on the business day preceding the date of payment. For purposes of the foregoing, an unforeseeable financial emergency is an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal, or other such unforeseeable occurrence. Cash needs arising from foreseeable events such as generally the purchase of a house or educational expenses for children shall not be considered to be the result of an unforeseeable financial emergency. Said shares of Common Stock and any cash amount shall be transferred to the Participant as soon as practicable after the Committee determines that the Participant has suffered an unforeseeable financial emergency. The Participant's Performance Share Account thereafter shall be reduced to reflect the foregoing payment. 13 (5) Early Withdrawal: Notwithstanding an election made pursuant ---------------- to the Plan or the Participant's continued employment with or provision of services to the Company, the Participant, upon written petition to the Committee at any time, shall be entitled to receive payment in respect of all or any portion of the amount then credited to his or her Performance Share Account, subject to a forfeiture penalty of six percent (6%) of the amount of the payment requested by the Participant. Such payment shall be made, at the election of the Participant, either (i) in the form of the number of shares of Common Stock equal to the number of whole Performance Shares requested by the Participant in the written petition and then credited to the Participant's Performance Share Account; (ii) in cash equal to the value on the business day preceding the date of payment of the number of whole shares of Common Stock available for payment under clause (i) of this sentence; or (iii) in any combination of the methods of payment provided for in clauses (i) and (ii) of this sentence. In the event of an early withdrawal in respect of the Participant's entire Performance Share Account, any fractional Performance Share shall be paid in cash determined on the basis of the value of a corresponding fractional share of Common Stock on the business day preceding the date of payment. Said shares of Common Stock and any cash amount shall be transferred to the Participant within sixty (60) days after the Company has received the Participant's written petition. The Participant's Performance Share Account thereafter shall be reduced to reflect the foregoing payment and the six percent (6%) forfeiture penalty. (d) Adjustment of Performance Goals. The Committee may, during the Award Period, make such adjustments to Performance Goals as it may deem appropriate, to compensate for, or reflect, (i) extraordinary or non-recurring events experienced during an Award Period by the Company or by any other corporation whose performance is relevant to the determination of whether Performance Goals have been attained; (ii) any significant changes that may have occurred during such Award Period in applicable accounting rules or principles or changes in the Company's method of accounting or in that of any other corporation whose performance is relevant to the determination of whether an Award has been earned; (iii) any significant changes that may have occurred during such Award Period in tax laws or other laws or regulations that alter or affect the computation of the measures of Performance Goals used for the calculation of Awards; or (iv) any other factors which the Committee deems appropriate. The Committee may exercise only negative discretion with respect to awards that are intended to qualify as performance-based compensation under Internal Revenue Code Section 162(m) of the Code. Unless the Committee determines otherwise at any time prior to payment of a Participant's award under the Plan for any year, extraordinary or non-recurring events pursuant to paragraph Section 8(d)(i) above, significant changes in accounting rules or changes in the Company's method of accounting pursuant to paragraph Section 8(d)(ii) above, and changes in tax law or other laws or regulations pursuant to paragraph Section 8(d)(iii) above shall be automatically excluded or included in determining the extent to which the Performance Goal has been achieved, whichever will produce the higher award. 9. Restricted Stock Awards (a) Award of Restricted Stock. 14 (i) The Committee shall have the authority (1) to grant Restricted Stock Awards, (2) to issue or transfer Restricted Stock to Eligible Persons, and (3) to establish terms, conditions and restrictions applicable to such Restricted Stock, including the Restricted Period, which may differ with respect to each grantee, the time or times at which Restricted Stock shall be granted or become vested and the number of shares to be covered by each grant. (ii) The Holder of a Restricted Stock Award shall execute and deliver to the Company an Award Agreement with respect to the Restricted Stock setting forth the restrictions applicable to such Restricted Stock. If the Committee determines that the Restricted Stock shall be held in escrow rather than delivered to the Holder pending the release of the applicable restrictions, the Holder additionally shall execute and deliver to the Company (1) an escrow agreement satisfactory to the Committee and (2) the appropriate blank stock powers with respect to the Restricted Stock covered by such agreements. If a Holder shall fail to execute a Restricted Stock Award Agreement and, if applicable, an escrow agreement and stock powers, the Award shall be null and void. Subject to the restrictions set forth in Section 9(b), the Holder shall generally have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock, and to receive dividends paid thereon. (iii) Upon the Award of Restricted Stock, the Committee shall cause a Stock certificate registered in the name of the Holder to be issued and, if it so determines, deposited together with the Stock powers with an escrow agent designated by the Committee. If an escrow arrangement is used, the Committee shall cause the escrow agent to issue to the Holder a receipt evidencing any Stock certificate held by it registered in the name of the Holder. (b) Restrictions. (i) Restricted Stock awarded to a Participant shall be subject to the following restrictions until the expiration of the Restricted Period, and to such other terms and conditions as may be set forth in the applicable Award Agreement: (1) if an escrow arrangement is used, the Holder shall not be entitled to delivery of the Stock certificate; (2) the shares shall be subject to the restrictions on transferability set forth in the Award Agreement; and (3) the shares shall be subject to forfeiture to the extent provided in subparagraph Section 9(d) and the Award Agreement and, to the extent such shares are forfeited, the Stock certificates shall be returned to the Company, and all rights of the Holder to such shares and as a 15 stockholder shall terminate without further obligation on the part of the Company. (ii) The Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Restricted Stock Award, such action is appropriate. (c) Restricted Period. The Restricted Period of Restricted Stock shall commence on the Date of Grant and shall expire from time to time as to that part of the Restricted Stock Award indicated in a schedule established by the Committee and set forth in the written Award Agreement. The Restricted Period shall be at least three years; provided, however, that it may be as short as -------- ------- one year if vesting is based on achievement of Performance Goals. (d) Forfeiture Provisions. Except to the extent determined by the Committee and reflected in the underlying Award Agreement, in the event a Participant terminates employment with or ceases to provide services to the Company during a Restricted Period for any reason, that portion of the Award with respect to which restrictions have not expired shall be completely forfeited to the Company. Except as otherwise determined by the Committee, in the event of such a forfeiture, the amount of an Award that would otherwise be payable shall be reduced, but not below zero, by the amount of any dividends previously paid to the Holder with respect to the forfeited Restricted Stock. (e) Delivery of Restricted Stock. Upon the expiration of the Restricted Period with respect to any shares of Stock covered by a Restricted Stock Award, the restrictions set forth in Section 9(b) and the Award Agreement shall be of no further force or effect with respect to shares of Restricted Stock which have not then been forfeited. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Holder, or his or her beneficiary, without charge, the Stock certificate evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full share) and any cash dividends or Stock dividends credited to the Holder's account with respect to such Restricted Stock and the interest thereon, if any. (f) Stock Restrictions. Each certificate representing Restricted Stock awarded under the Plan shall bear the following legend until the end of the Restricted Period with respect to such Stock: "Transfer of this certificate and the shares represented hereby is restricted pursuant to the terms of a Restricted Stock Agreement, dated as of ______, between Barnes Group Inc. and ___________. A copy of such Agreement is on file at the offices of the Company." Stop transfer orders shall be entered with the Company's transfer agent and registrar against the transfer of legended securities. 16 (g) Deferral. Upon election by a Participant, a whole share of Restricted Stock that would otherwise have been granted to the Participant shall instead be made in the form of Performance Shares, and such Performance Shares shall be credited to the Participant's Performance Share Account, subject to the provisions of Section 8. Such credit of Performance Shares shall be made as of the same date as Restricted Stock would have been awarded to the Participant had no prior election been made. Any such election shall be made by December 24 prior to the year in which the Award for which the election is made will be made, and shall otherwise comply with the requirements for elections in Section 8(c). If an event occurs which would have caused forfeiture of the Restricted Stock for which an election pursuant to this paragraph is made, then the equivalent Performance Shares, along with any related Dividend Equivalents, shall be forfeited. 10. Non-Competition Provisions In addition to such other conditions as may be established by the Committee, in consideration of the granting of Awards under the terms of the Plan, the Committee, in its discretion, may include non-competition provisions in the applicable Award Agreement. 11. General (a) Additional Provisions of an Award. Awards under the Plan also may be subject to such other provisions (whether or not applicable to the benefit awarded to any other Participant) as the Committee determines appropriate including, without limitation, provisions to assist the Participant in financing the purchase of Stock upon the exercise of Options, provisions for the forfeiture of or restrictions on resale or other disposition of shares of Stock acquired under any Award, provisions giving the Company the right to repurchase shares of Stock acquired under any Award in the event the Participant elects to dispose of such shares, and provisions to comply with Federal and state securities laws and Federal and state tax withholding requirements. Any such provisions shall be reflected in the applicable Award Agreement. (b) Privileges of Stock Ownership. Except as otherwise specifically provided in the Plan, no person shall be entitled to the privileges of stock ownership in respect of shares of Stock which are subject to Awards hereunder until such shares have been issued to that person. (c) Government and Other Regulations. The obligation of the Company to make payment of Awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any shares of Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied 17 with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Stock to be offered or sold under the Plan. If the shares of Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption. (d) Tax Withholding. Notwithstanding any other provision of the Plan, the Company or a Subsidiary, as appropriate, shall have the right to deduct from all Awards cash and/or Stock, valued at Fair Market Value on the date of payment, in an amount necessary to satisfy all Federal, state or local taxes as required by law to be withheld with respect to such Awards and, in the case of Awards paid in Stock, the Holder may be required to pay to the Company prior to delivery of such Stock, the amount of any such taxes which the Company is required to withhold, if any, with respect to such Stock. The Company shall accept shares of Stock of equivalent Fair Market Value in payment of such withholding tax obligations if the Holder of the Award elects to make payment in such manner. (e) Claim to Awards and Employment or Service Rights. No employee or other person shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or any Subsidiary. (f) Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons as the beneficiary who shall be entitled to receive the rights or amounts payable with respect to an Award due under the Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, -------- however, that no designation, or change or revocation thereof, shall be - ------- effective unless received by the Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by the Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. (g) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor. 18 (h) No Liability of Committee Members. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on such member's behalf in such member's capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or willful bad faith; provided, however, that approval of the Board -------- ------- shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. (i) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Connecticut without regard to the principles of conflicts of law thereof. (j) Funding. No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Holders shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law. (k) Nontransferability. A person's rights and interest under the Plan, including amounts payable, may not be sold, assigned, donated, or transferred or otherwise disposed of, mortgaged, pledged or encumbered except, in the event of a Holder's death, to a designated beneficiary to the extent permitted by the Plan, or in the absence of such designation, by will or the laws of descent and distribution; provided, however, the Committee may, in its sole discretion, -------- ------- allow in an Award Agreement for transfer of Awards other than Incentive Stock Options to other persons or entities. (l) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountants of the Company and its Subsidiaries and upon any other information furnished in connection with the Plan by any person or persons other than such member. (m) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group 19 insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan. (n) Expenses. The expenses of administering the Plan shall be borne by the Company. (o) Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. (p) Change-in-Control. Notwithstanding anything in the Plan to the contrary, in the event of a "Change-in-Control", as defined below, all Awards made pursuant to the Plan shall become fully vested immediately, and all Options shall be immediately exercisable (provided that if the "Change-in-Control" occurs with respect to a Subsidiary, only Awards and Options granted to employees of such Subsidiary shall be affected), if the Committee so provides in an Award Agreement, or if so provided in an employment, severance or other agreement of an employee granted an Award. A "Change-in-Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any such securities acquired directly from the Company or its Affiliates)) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (1) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any 20 parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or a ny Subsidiary of the Company, at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 12. Changes in Capital Structure Awards granted under the Plan and any Award Agreements shall be subject to equitable adjustment or substitution, as determined by the Committee in its sole discretion, as to the number, price or kind of a share of Stock or other consideration subject to such Awards (i) in the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the Date of Grant of any such Award, (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, or (iii) upon the occurrence of any other event which otherwise warrants equitable adjustment because it interferes with the intended operation of the Plan. In addition, in the event of any such corporate or other event, the aggregate number of shares of Stock available under the Plan and the maximum number of shares of Stock with respect to which any one person may be granted in connection with Awards shall be appropriately adjusted by the Committee, whose determination shall be conclusive. Notwithstanding the above, in the event of any of the following: (1) The Company is merged or consolidated with another corporation or entity and, in connection therewith, consideration is received by 21 stockholders of the Company in a form other than stock or other equity interests of the surviving entity; (2) All or substantially all of the assets of the Company are acquired by another person; (3) The reorganization or liquidation of the Company; or (4) The Company shall enter into a written agreement to undergo an event described in clauses (1), (2) or (3) above, then the Committee may, in its sole discretion and upon at least 10 days advance notice to the affected persons, cancel any outstanding Awards and pay to the Holders thereof, in cash, the value of such Awards based upon the price per share of Stock received or to be received by other stockholders of the Company in the event. The terms of this Section 12 may be varied by the Committee in any particular Award Agreement. 13. Nonexclusivity of the Plan Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 14. Amendment and Termination The Board may at any time terminate the Plan. The Committee may, at any time, or from time to time, amend or suspend and, if suspended, reinstate, the Plan in whole or in part; provided, that any such amendment of the Plan shall be contingent on obtaining the approval of the stockholders of the Company if such amendment would materially increase benefits available to Participants or the Committee determines that such approval is necessary to comply with any requirement of law, including the requirements for qualification of Incentive Stock Options or the rules of any stock exchange, stock market or automated quotation system on which the Company's equity securities are traded or quoted. Approved: April 12, 2000 22 EX-13 5 0005.txt PORTIONS OF THE 2000 ANNUAL REPORT Exhibit 13 Management's Discussion & Analysis - -------------------------------------------------------------------------------- Our Business Barnes Group is a diversified international manufacturer of precision metal parts and distributor of industrial supplies. The Company is comprised of three business segments. The Associated Spring segment is a manufacturer of precision mechanical and nitrogen gas springs for the electronics, telecommunications and transportation markets. The Barnes Aerospace segment supplies precision machined and fabricated components and assemblies for commercial and military aircraft, as well as engine component overhaul and repair services in support of the global airline industry. The Barnes Distribution segment, formerly known as Bowman Distribution, is a distributor of maintenance, repair, and operating (MRO) supplies and a provider of logistics management services for industrial, heavy equipment and transportation maintenance markets. It also distributes close-tolerance engineered metal components manufactured principally by Associated Spring. Through these three businesses, Barnes Group helps its customers enhance their competitiveness and responsiveness by realizing the benefits of its manufacturing and logistics management capabilities. Acquisitions During the past two years, the Company acquired a number of businesses, which were recorded using the purchase method of accounting. Accordingly, the results of operations of the acquired companies have been included in the consolidated results from their respective acquisition dates. In August 1999, the Company purchased substantially all of the assets and liabilities of the nitrogen gas spring business of Teledyne Industries, Inc., for a total acquisition cost of $92.2 million. This operation is a major supplier of nitrogen gas springs and manifold systems for the metal forming industries. The nitrogen gas spring business is included in the Associated Spring segment. This strategic acquisition provides Associated Spring with new spring technologies and allows it to continue to develop and expand products, markets, and services. In May 2000, the Company purchased substantially all of the assets and liabilities of Curtis Industries, Inc. (Curtis) for a total acquisition cost of $63.3 million. Curtis, a distributor of MRO supplies and high quality security products, was combined with Bowman Distribution to form the Barnes Distribution segment. This business combination provides a broader product offering, enhanced service capabilities, increased sales penetration and cost savings opportunities. In September 2000, the Company purchased substantially all of the assets and liabilities of AVS/Kratz-Wilde Machine Company and Apex Manufacturing, Inc. (Kratz-Wilde/Apex) for a total acquisition cost of $41.6 million. Kratz-Wilde/Apex fabricates and machines intricate aerospace components for jet engines and auxiliary power units. These businesses are included in the Barnes Aerospace segment. This acquisition augments Barnes Aerospace by extending product depth and customer penetration. The funds used to purchase the businesses were borrowed initially under the Company's revolving credit agreement. The Company refinanced a portion of these borrowings through the issuance of $70 million of long-term private placement debt in November 1999 and the issuance of $60 million of long-term private placement debt in November 2000. Results of Operations For the year 2000, Barnes Group reported record net sales of $740 million, an increase of $118 million, or 19%, over net sales of $622 million in 1999. The increase in net sales reflects acquisitions and internal growth in each of the three businesses. Geographically, foreign sales increased 27% year-over-year, while U.S. sales increased 19% year-over-year. The newly acquired businesses provided incremental sales of $101 million: $32 million to Associated Spring, $13 million to Barnes Aerospace, and $56 million to Barnes Distribution. In 1999, Barnes Group net sales were down $29 million from 1998 levels, primarily as a result of reductions at Barnes Distribution and Barnes Aerospace. Operating income in 2000 increased 37%, to $62.9 million, compared with $46.1 million in 1999. The increase was driven by double-digit sales and profit growth in each of the three businesses. Lower pension expense, which primarily reflects solid investment performance on plan assets, contributed $4.9 million of incremental operating income over the comparable 1999 period. Operating income in 1999 declined $9.2 million from 1998 due to reduced profits at Barnes Distribution and Barnes Aerospace, partially offset by strong results at Associated Spring and a $12.9 million expense in 1998 for the accelerated retirement package for the Company's former president. 3 Management's Discussion & Analysis - -------------------------------------------------------------------------------- Operating margin in 2000 improved to 8.5%, compared with 7.4% in 1999. The year-over-year operating margin increase reflects an improvement in gross profit to 34.0% of sales in 2000, compared with 31.7% in 1999. The improvement in gross margin reflects higher manufacturing productivity at both Associated Spring and Barnes Aerospace as well as a shift in the overall sales mix toward the higher gross margin Barnes Distribution business. This was offset in part by higher selling and administrative expenses. Selling and administrative expenses increased $37.1 million in 2000 over 1999, of which $33.6 million is attributable to the newly acquired businesses. Also reflected in selling and administrative expenses is the additional investment made in sales and marketing functions throughout the Company. Included in operating income in 2000 is a gain of $2.2 million related to the sale of a corporate asset and $1.7 million of one-time integration costs related to the Curtis acquisition. The decline in operating margin in 1999, compared with 1998, reflected the impact of higher administrative costs associated with a system implementation at Barnes Distribution, coupled with a higher investment in sales resources throughout the Company. Segment Review - Sales and Operating Profit Associated Spring sales for 2000 were $327 million, up $45 million from 1999. Sales in 1998 were $262 million. The 2000 sales increase included both domestic and foreign sales growth. In 2000, sales at Associated Spring's U.S. operations increased, reflecting continued penetration of the electronics and transportation markets and the strength of the domestic economy. Associated Spring's international sales increased significantly in the Pacific Rim as well as in Brazil. Additionally, the full year impact in 2000 of the August 1999 acquisition of the nitrogen gas spring business contributed to sales increases both domestically and internationally. Associated Spring's 1999 sales increased over 1998 on the strength of its U.S. operations and the addition of the nitrogen gas spring business. Associated Spring reported operating profit of $44.0 million in 2000, compared with $33.5 million in 1999 and $23.2 million in 1998. The significant improvement in 2000 over 1999 reflects a full year of ownership of the nitrogen gas spring business, increased sales to new sectors, higher manufacturing productivity and lower operating expenses. Barnes Aerospace sales were $135 million in 2000, up 11% compared with $121 million in 1999. Sales in 1998 were $155 million. Barnes Aerospace continued to penetrate new markets and customers, primarily in the original equipment manufacturing businesses. Total orders for the year were $171 million, up 118% from $79 million in 1999. Order backlog rose to a record $145 million at December 31, 2000, compared with $80 million last year. Sales were down in the overhaul and repair unit, driven by overall weakness in that market. The acquisition of Kratz-Wilde/Apex added $13 million in sales in 2000. In 1999, the original equipment manufacturing business as well as the overhaul and repair business were impacted by a slowdown in the aerospace markets, which in turn resulted in an industry-wide decline in new orders and the cancellation or rescheduling of existing orders. Barnes Aerospace operating profit was $8.0 million in 2000, as compared with $5.3 million in 1999 and $12.8 million in 1998. The increase in 2000 profit and margin reflects higher sales volume and benefits from lean manufacturing initiatives. The decrease in profits for 1999, compared with 1998, was a direct result of lower sales volume. Barnes Distribution sales for 2000 were $291 million, compared with $230 million in 1999 and $247 million in 1998. Geographically, Barnes Distribution achieved double-digit growth both in U.S. and foreign sales. The acquisition of Curtis in May 2000 contributed $56 million in sales. The remaining increase reflects higher sales in the North American business. This increase reflects significant improvement in a distribution management system that had negatively impacted customer service and sales in 1999. Customer service has been restored to levels that now meet customer expectations, which is positively impacting sales volume. In 1999, Barnes Distribution's sales were down nearly 7%, due in large part to complications encountered in the distribution system implementation. Barnes Distribution operating profit in 2000 was $12.9 million, compared with $9.9 million in 1999 and $35.0 million in 1998. The increase in profits reflects increased sales volume, offset in part by one-time integration costs of $1.7 million related to the acquisition of Curtis. The sharp decline in profits in 1999 was attributable to the sales volume decline, as well as to significantly higher warehousing and administrative costs incurred in its North American business to address operational issues caused by the new distribution system implementation. Management continues to address the higher administrative costs 4 Management's Discussion & Analysis - -------------------------------------------------------------------------------- and warehouse inefficiencies created by the system implementation and expects that greater efficiencies will help drive considerable improvement in profitability in 2001. Non-Operating Income/Expense Other income totaled $4.8 million in 2000, compared with $4.4 million in 1999 and $4.6 million in 1998. The increase over 1999 reflects higher interest income and net foreign exchange transaction gains. The decrease in other income in 1999, compared with 1998, was due to lower equity income from the Company's NASCO joint venture, offset in part by higher net foreign exchange transaction gains. Interest expense and other expenses increased as a result of the 1999 and 2000 acquisitions. In each year, interest expense increased as a result of additional borrowings used to fund acquisitions, and other expenses increased with the additional goodwill amortization associated with the acquisitions. Income Taxes The Company's effective tax rate was 26.6% in 2000, compared with 33.0% in 1999 and 36.9% in 1998. The lower rate in 2000 was due to a higher percentage of foreign income, with tax rates lower than the U.S. statutory tax rate. Net Income and Net Income Per Share Consolidated net income was $35.7 million in 2000, $28.6 million in 1999, and $34.5 million in 1998. Basic earnings per share was $1.92 for 2000, compared with $1.47 in 1999 and $1.72 in 1998. Diluted earnings per share was $1.90 for 2000, as compared with $1.46 in 1999 and $1.69 in 1998. The 1998 earnings included an after-tax charge of $7.7 million, or $0.38 per share, related to the accelerated retirement package for the Company's former president. Inflation Management believes that during the 1998-2000 period inflation did not have a material impact on the Company's historical financial statements. Liquidity and Capital Resources The Company's ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. Management continues to focus on cash flow and anticipates that operating activities in 2001, combined with aggressive asset management, will provide sufficient cash to take advantage of opportunities for internal business expansion and to meet the Company's current financial commitments. Management assesses the Company's liquidity in terms of its overall ability to generate cash to fund its operating and investing activities. Of particular importance in the management of liquidity are cash flows generated from operating activities, capital expenditure levels, dividends, capital stock transactions, effective utilization of surplus cash positions overseas, and adequate bank lines of credit. Operating activities are the principal source of cash flow for the Company, generating $51.9 million in 2000, down from $62.8 million in 1999 and $76.0 million in 1998. In 2000, improved operating results contributed significantly to operating cash flow, but this increase was more than offset by higher investments in working capital and other non-cash income. This contrasts with both 1999 and 1998, when an overall reduction in working capital contributed to operating cash flow. Management continues to stress the need for efficient asset utilization, in particular working capital, as a necessary ingredient of internal cash generation. Management expects that its efforts will result in working capital contributing to operating cash flow in 2001. During the past three years, operating activities provided over $190 million in cash, which the Company used, in part, to pay dividends to stockholders, repurchase Company stock, and fund significant investments in new plants and equipment. Investing activities used cash of $134.5 million in 2000, compared with $117.0 million in 1999 and $35.3 million in 1998. The increase in cash used in 2000 is attributable to the purchase of Curtis and Kratz-Wilde/Apex. The increase in cash used in 1999 compared with 1998 is attributed to the purchase of the nitrogen gas spring business. The Company's capital spending program focuses on business growth and improvements in productivity and quality. In 2000, capital spending approximated 1999 levels. The reduced spending level in both 2000 and 1999 follows five years of heavy investment by all three business segments. The Company expects capital spending in 2001 to approximate 2000 levels, barring any major economic downturn. 5 Management's Discussion & Analysis - -------------------------------------------------------------------------------- In 2000, the Company's financing activities generated cash of $64.8 million, compared with $58.8 million in 1999 and a cash usage of $31.9 million in 1998. Cash was generated primarily through the issuance of long-term debt, net of repayments, of $90 million and $89 million in 2000 and 1999, respectively, to fund business acquisitions. The increase in cash from borrowings was partially offset by funds used to repurchase Company stock. Additionally, cash dividends increased in 2000, for the seventh consecutive year, to $0.79 per share. As a result, total cash used to pay 2000 dividends to stockholders was $14.7 million. The Company has utilized and will continue to use cash from non-U.S. subsidiaries to fund international cash requirements, including acquisitions when it is cost effective. The repatriation of certain cash balances to the U.S. could have adverse tax consequences; however, those balances are generally available to fund business needs outside the U.S. In November 1999, the Company financed a portion of the nitrogen gas spring business acquisition through the issuance of $70 million of private placement Senior Notes. The Notes, placed with seven insurance companies, range in maturity from eight to eleven years and bear an average annual interest rate of 7.75%. The balance of the acquisition purchase price was financed through borrowings under the Company's revolving credit agreement. In November 2000, the Company financed a portion of the Curtis and Kratz-Wilde/Apex business acquisitions through issuance of $60 million of privately placed Senior Notes with three insurance companies. The Notes have an effective interest rate of 9.34%. These Notes are payable in three equal annual installments beginning in 2006. Proceeds from the Notes were used to repay borrowings under the Company's revolving credit agreement. The additional borrowings will result in higher interest expense in 2001. To supplement internal cash generation, the Company maintains substantial bank borrowing facilities. At December 31, 2000, the Company had $150 million of borrowing capacity available under a revolving credit agreement, of which $50 million was borrowed at an interest rate of 7.03%. Additionally, the Company had $15 million in borrowings under uncommitted short-term bank credit lines, at an interest rate of 7.70%. The Company believes its bank credit facilities, coupled with cash generated from operations, are adequate for its anticipated future requirements. Market Risk Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. The Company's financial results could be impacted by changes in interest rates, foreign currency exchange rates, and commodity price changes. The Company uses financial instruments to reduce its cost of debt and to hedge its exposure to fluctuations in interest rates and foreign exchange rates. The Company does not use derivatives for speculative or trading purposes. The Company's long-term debt portfolio consists of fixed-rate and variable-rate instruments and is managed to reduce the overall cost of borrowing, while also reducing the effect of changes in interest rates on near-term earnings. The Company's primary interest rate risk is derived from its outstanding variable-rate debt obligations. At December 31, 2000, the result of a hypothetical 1% increase in the average cost of the Company's variable-rate debt, including the interest rate exchange agreement, would not have had a material impact on the pretax profit of the Company or the fair value of the interest rate exchange agreement. In September 2000, the Company amended its $70 million cross-currency exchange agreement by extending the maturity from October 2002 to October 2009. In effect, the agreement converts the Company's U.S. dollar-denominated interest and principal liabilities into Swedish krona-denominated liabilities at a fixed interest rate for the period ending October 2009. The overall objective is to reduce the exposure associated with currency fluctuations between the U.S. dollar and the Swedish krona. As part of managing its debt portfolio, the Company maintains an interest rate exchange agreement to convert a portion of its 9.47% fixed rate Senior Notes to variable-rate debt. The effect on 2000 earnings of the interest rate exchange agreement and the U.S. dollar and Swedish krona cross-currency exchange agreement was a decrease in the Company's interest expense by $0.6 million. At December 31, 2000, the fair value of the Company's fixed rate debt was $164.9 million, compared with its carrying amount of $161.2 million. The fair value of the interest rate component of the cross-currency swap as of December 31, 2000, was not significant. The Company estimates that a 1% decrease in market interest rates at December 31, 2000 would have increased the fair value of the Company's fixed rate debt to $173.1 million. 6 Management's Discussion & Analysis - -------------------------------------------------------------------------------- The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. Foreign currency commitments and transaction exposures are managed at the operating units as an integral part of their businesses in accordance with a corporate policy that addresses acceptable levels of foreign currency exposures. The Company does not hedge its foreign currency net asset exposure. The currencies of the environments in which the Company's business operations are conducted are the U.S. dollar, Singapore dollar, French franc, British pound, Mexican peso, Brazilian real, Canadian dollar and Swedish krona. The Company is exposed primarily to U.S. dollar-denominated financial instruments at its international locations. Based on a 10% adverse movement in all currencies, the potential loss in fair value from the Company's financial instruments at the end of 2000 would have resulted in reducing pretax profit by $2.5 million. The Company's exposure to commodity price changes relates primarily to certain manufacturing operations that utilize high-grade steel spring wire and titanium. The Company manages its exposure to changes in those prices through its procurement and sales practices. The Company is not dependent upon any single source for any of its principal raw materials or products for resale, and all such materials and products are readily available. Future Accounting Changes In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires that the Company recognize derivatives on the balance sheet at fair value. The statement, as amended, will be effective January 1, 2001 for the Company. Management believes that adoption of this standard will not have a material impact on the Company's financial position, results of operations, or cash flows. Forward-Looking Statements This Annual Report may contain certain forward-looking statements as defined in the Public Securities Litigation and Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements. Investors are encouraged to consider these risks and uncertainties as described within the Company's periodic filings with the Securities and Exchange Commission, including the following: changes in market demand for the types of products and services produced and sold by Barnes Group, changes in world-wide economic and political conditions, interest and foreign exchange rate fluctuations, and regulatory changes. 7 Consolidated Statements of Income - -------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Years ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Net sales $ 740,032 $ 622,356 $ 651,183 Cost of sales 488,634 424,945 435,918 Selling and administrative expenses 188,449 151,304 159,986 - -------------------------------------------------------------------------------- 677,083 576,249 595,904 - -------------------------------------------------------------------------------- Operating income 62,949 46,107 55,279 Other income 4,773 4,400 4,640 Interest expense 15,140 6,093 4,106 Other expenses 3,992 1,716 1,150 - -------------------------------------------------------------------------------- Income before income taxes 48,590 42,698 54,663 Income taxes 12,925 14,086 20,169 - -------------------------------------------------------------------------------- Net income $ 35,665 $ 28,612 $ 34,494 ================================================================================ Per common share: Net income: Basic $ 1.92 $ 1.47 $ 1.72 Diluted 1.90 1.46 1.69 Dividends 0.79 0.75 0.69 Average common shares outstanding 18,568,359 19,417,856 20,095,710 See accompanying notes. 8 Consolidated Balance Sheets - -------------------------------------------------------------------------------- (Dollars in thousands) December 31, 2000 1999 - -------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 23,303 $ 43,632 Accounts receivable, less allowances (2000 -- $2,720; 1999 -- $3,329) 107,434 91,701 Inventories 88,514 66,351 Deferred income taxes 12,647 9,398 Prepaid expenses 9,450 8,103 - -------------------------------------------------------------------------------- Total current assets 241,348 219,185 Deferred income taxes 15,010 23,797 Property, plant and equipment 163,766 145,105 Goodwill 155,667 88,562 Other assets 61,150 39,633 - -------------------------------------------------------------------------------- Total assets $ 636,941 $ 516,282 ================================================================================ Liabilities and Stockholders' Equity Current liabilities Notes payable $ 6,896 $ 12,136 Accounts payable 59,767 57,458 Accrued liabilities 60,183 46,426 - -------------------------------------------------------------------------------- Total current liabilities 126,846 116,020 Long-term debt 230,000 140,000 Accrued retirement benefits 67,686 66,973 Other liabilities 11,076 12,675 Commitments and contingencies Stockholders' equity Common stock - par value $0.01 per share Authorized: 60,000,000 shares Issued: 22,037,769 shares at par value 220 220 Additional paid-in capital 51,845 49,786 Treasury stock at cost (2000 -- 3,430,411 shares; 1999 -- 3,187,242 shares) (69,181) (63,893) Retained earnings 239,266 218,388 Accumulated other comprehensive income (20,817) (23,887) - -------------------------------------------------------------------------------- Total stockholders' equity 201,333 180,614 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 636,941 $ 516,282 ================================================================================ See accompanying notes. 9 Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
(Dollars in thousands) Years ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------------------------- Operating activities: Net income $ 35,665 $ 28,612 $ 34,494 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,871 30,602 28,431 Gain on sale of property, plant and equipment (1,960) (857) (741) Changes in assets and liabilities: Accounts receivable 1,087 (1,731) 7,726 Inventories (7,631) 1,980 (3,766) Accounts payable (5,415) 17,356 980 Accrued liabilities 1,026 (9,524) 6,488 Deferred income taxes 5,863 3,655 (2,536) Other (12,649) (7,296) 4,960 - --------------------------------------------------------------------------------------------- Net cash provided by operating activities 51,857 62,797 76,036 Investing activities: Proceeds from sale of property, plant and equipment 2,744 1,929 4,266 Capital expenditures (26,575) (27,222) (34,571) Business acquisitions (104,935) (92,239) -- Redemption (purchase) of short-term investments -- 2,566 (2,605) Other (5,776) (2,019) (2,340) - --------------------------------------------------------------------------------------------- Net cash used by investing activities (134,542) (116,985) (35,250) Financing activities: Net increase (decrease) in notes payable (5,201) 5,249 4,539 Payments on long-term debt (60,000) (70,000) (9,000) Proceeds from the issuance of long-term debt 150,000 159,000 -- Proceeds from the issuance of common stock 3,920 1,486 3,598 Common stock repurchases (9,197) (22,351) (17,042) Dividends paid (14,677) (14,564) (13,951) - --------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 64,845 58,820 (31,856) Effect of exchange rate changes on cash flows (2,489) (1,206) (1,254) - --------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (20,329) 3,426 7,676 Cash and cash equivalents at beginning of year 43,632 40,206 32,530 - --------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 23,303 $ 43,632 $ 40,206 =============================================================================================
See accompanying notes. 10 Consolidated Statements of Changes in Stockholders' Equity - --------------------------------------------------------------------------------
Accumulated Additional Other Guaranteed Total Common Paid-In Treasury Retained Comprehensive ESOP Stockholders' (Dollars in thousands) Stock Capital Stock Earnings Income Obligation Equity - --------------------------------------------------------------------------------------------------------------------------------- January 1, 1998 $ 220 $ 47,007 $ (29,433) $ 183,857 $ (15,841) $ (4,951) $180,859 Comprehensive income: Net income 34,494 34,494 Other comprehensive income -- (4,202) (4,202) --------- --------- -------- Comprehensive income 34,494 (4,202) 30,292 Dividends paid (13,951) (13,951) Common stock repurchases (17,042) (17,042) Employee stock plans 2,224 3,582 (100) 5,706 Guaranteed ESOP obligation 2,746 2,746 Income tax benefits on unallocated ESOP dividends 64 64 - --------------------------------------------------------------------------------------------------------------------------------- December 31, 1998 220 49,231 (42,893) 204,364 (20,043) (2,205) 188,674 Comprehensive income: Net income 28,612 28,612 Other comprehensive income -- (3,844) (3,844) --------- --------- -------- Comprehensive income 28,612 (3,844) 24,768 Dividends paid (14,564) (14,564) Common stock repurchases (22,351) (22,351) Employee stock plans 555 1,351 (44) 1,862 Guaranteed ESOP obligation 2,205 2,205 Income tax benefits on unallocated ESOP dividends 20 20 - --------------------------------------------------------------------------------------------------------------------------------- December 31, 1999 220 49,786 (63,893) 218,388 (23,887) -- 180,614 Comprehensive income: Net income 35,665 35,665 Other comprehensive income -- 3,070 3,070 --------- --------- -------- Comprehensive income 35,665 3,070 38,735 Dividends paid (14,677) (14,677) Common stock repurchases (9,197) (9,197) Employee stock plans 2,059 3,909 (110) 5,858 - --------------------------------------------------------------------------------------------------------------------------------- December 31, 2000 $ 220 $ 51,845 $ (69,181) $ 239,266 $ (20,817) $ -- $201,333 =================================================================================================================================
See accompanying notes. 11 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (All dollar amounts included in the notes are stated in thousands except per share data and the tables in Note 13.) 1. Summary of Significant Accounting Policies General: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of 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. Certain reclassifications have been made to prior year amounts to conform to current year presentation. Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. Intercompany transactions and account balances have been eliminated. The Company accounts for its 45% investment in the common stock of NASCO, a suspension spring company jointly owned with NHK Spring Co., Ltd. of Japan, under the equity method. Other income in the accompanying income statements includes income of $1,611, $1,714, and $2,573 for the years 2000, 1999, and 1998, respectively, from the Company's investment in NASCO. The Company received dividends from NASCO totaling $666, $1,006, and $732 in 2000, 1999, and 1998, respectively. Revenue recognition: Sales and related cost of sales are recognized when products are shipped to customers and title has passed. Cash and cash equivalents: Cash in excess of operating requirements is invested in short-term, highly liquid, income-producing investments. All highly liquid investments purchased with an original maturity of three months or less are cash equivalents. Cash equivalents are carried at fair market value. Inventories: Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method was used to accumulate the cost of the majority of U.S. inventories, which represent 73% of total inventories. The cost of all other inventories was determined using the first-in, first-out (FIFO) method. Property, plant and equipment: Property, plant and equipment is stated at cost. Depreciation is recorded over estimated useful lives ranging from 20 to 50 years for buildings and three to 17 years for machinery and equipment. The straight-line method of depreciation was adopted for all property, plant and equipment placed into service after March 31, 1999. For property, plant and equipment placed into service prior to April 1, 1999, depreciation is calculated using accelerated methods. The change in accounting principle was made to reflect improvements in the design and durability of machinery and equipment. Management believes that the straight-line method results in a better matching of revenues and costs, and the new method is prevalent in the industries in which the Company operates. Additionally, in 1999, the Company adopted AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of certain costs incurred in the development of internal-use software. The change to straight-line depreciation and the adoption of the AICPA Statement of Position 98-1 did not have a material impact on the Company's financial position, results of operations, or cash flows. Goodwill: Goodwill represents the excess purchase price over the net assets of companies acquired in business combinations. Goodwill acquired since 1970 is being amortized on a straight-line basis over 40 years; similar investments for businesses acquired prior to 1970 (approximately $5,200) are not being amortized. On a periodic basis, the Company estimates future undiscounted cash flows of the businesses to which goodwill relates to ensure that the carrying value of goodwill has not been impaired. Goodwill resulting from the 1999 purchase of the nitrogen gas spring business was $71,482. The acquisition in 2000 of Curtis and Kratz-Wilde/Apex resulted in additions to goodwill of $53,267 and $17,095, respectively. At December 31, 2000 and 1999, accumulated amortization was $13,904 and $10,536, respectively. Foreign currency translation: Assets and liabilities of foreign operations, except those in countries with high rates of inflation, are translated at year-end rates of exchange; revenues and expenses are translated at average annual rates of exchange. The resulting translation gains and losses are reflected in accumulated other comprehensive income within stockholders' equity. For operations in countries that have high rates of inflation, translation gains and losses are included in net income. In 2000, 1999, and 1998, the Company did not operate in countries with high rates of inflation. Foreign currency transactions generated net gains of $1,012, $752, and $240 in 2000, 1999, and 1998, respectively, which are included in net income. Net income per common share: Earnings per share is computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic earnings per share is based on the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the assumed exercise and conversion of all dilutive securities. Shares held by the Guaranteed Stock Plan are considered outstanding for both basic and diluted earnings per share. There are no adjustments to net income for purposes of computing income available to common stockholders for the years ended December 31, 2000, 1999, and 1998. For purposes of computing diluted earnings per share, the weighted average number of shares outstanding was increased by 222,868 shares, 224,899 shares, and 330,659 shares for 2000, 1999, and 1998, respectively, representing the potential dilutive effects of stock-based incentive plans. 12 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 2. Acquisitions During the past two years, the Company has acquired a number of businesses, all of which were recorded using the purchase method of accounting. Accordingly, the results of operations of the acquired companies have been included in the consolidated results from their respective acquisition dates. In August 1999, the Company purchased substantially all of the assets and liabilities of the nitrogen gas spring business of Teledyne Industries, Inc., for a total acquisition cost of $92,239. The nitrogen gas spring business is included in the Associated Spring segment. In May 2000, the Company purchased substantially all of the assets and liabilities of Curtis Industries, Inc. (Curtis), for a total acquisition cost of $63,341. Curtis, a distributor of maintenance, repair, and operating supplies and high quality security products, is included in the Barnes Distribution segment. In September 2000, the Company purchased substantially all of the assets and liabilities of AVS/Kratz-Wilde Machine Company and Apex Manufacturing, Inc. (Kratz-Wilde/Apex), for a total acquisition cost of $41,594. Kratz-Wilde/Apex fabricates and machines intricate aerospace components for jet engines and auxiliary power units. Kratz-Wilde/Apex is included in the Barnes Aerospace business segment. The acquisition costs have been allocated to tangible and intangible assets and liabilities of the businesses based upon estimates of their respective fair market values. The resulting goodwill will be amortized over 40 years. In connection with the Curtis acquisition, the Company incurred certain one-time integration costs. The integration plan includes combining the headquarters functions and warehousing and distribution networks. As a result, the Company recorded total costs of $5,813, relating primarily to lease consolidation costs and reductions in personnel. Costs of $4,070 not associated with the generation of future revenue are reflected as assumed liabilities in the allocation of the purchase price to net assets acquired. The remaining integration costs of $1,743 are reflected in expenses. The following table reflects the operating results of the Company for the years ended December 31, 2000 and 1999 on a pro forma basis, which gives effect to the acquisitions of the three businesses at the beginning of 1999. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective January 1, 1999; nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the amortization expense associated with the assets acquired, the Company's financing arrangements, certain purchase accounting adjustments, and related income tax effects. The pro forma results do not include the effect of synergies and cost reduction initiatives related to the acquisitions. These actions have already commenced and are expected to continue in the year 2001. (Unaudited) 2000 1999 - -------------------------------------------------------------------------------- Net sales $798,652 $780,042 Income before income taxes 48,309 44,908 Net income 35,449 32,607 Per common share: Basic $ 1.91 $ 1.68 Diluted 1.89 1.66 3. Inventories Inventories at December 31 consisted of: 2000 1999 - -------------------------------------------------------------------------------- Finished goods $ 59,665 $ 39,573 Work-in-process 13,605 12,861 Raw materials and supplies 15,244 13,917 - -------------------------------------------------------------------------------- $ 88,514 $ 66,351 ================================================================================ Inventories valued by the LIFO method aggregated $64,422 and $47,098 at December 31, 2000 and 1999, respectively. If LIFO inventories had been valued using the FIFO method, they would have been $13,283 and $13,995 higher at those dates. 13 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 4. Property, Plant and Equipment Property, plant and equipment at December 31 consisted of: 2000 1999 - -------------------------------------------------------------------------------- Land $ 4,181 $ 3,467 Buildings 73,400 65,136 Machinery and equipment 322,738 299,588 - -------------------------------------------------------------------------------- 400,319 368,191 Less accumulated depreciation 236,553 223,086 - -------------------------------------------------------------------------------- $163,766 $145,105 ================================================================================ 5. Accrued Liabilities Accrued liabilities at December 31 consisted of: 2000 1999 - -------------------------------------------------------------------------------- Payroll and other compensation $ 19,909 $ 12,547 Postretirement/ postemployment benefits 7,949 8,103 Accrued income taxes 3,036 4,583 Other 29,289 21,193 - -------------------------------------------------------------------------------- $ 60,183 $ 46,426 ================================================================================ 6. Debt and Commitments Long-term debt at December 31 consisted of: 2000 1999 - -------------------------------------------------------------------------------- Carrying Fair Carrying Amount Value Amount - -------------------------------------------------------------------------------- 9.47% Notes $ 6,154 $ 6,263 $ 12,308 7.13% Notes 25,000 24,575 25,000 7.66% Notes 24,500 24,463 24,500 7.80% Notes 45,500 44,893 45,500 9.34% Notes 60,000 64,723 -- Revolving Credit 50,000 50,000 25,692 Industrial Revenue Bond 7,000 7,000 7,000 Borrowings under lines of credit 11,846 11,846 -- - -------------------------------------------------------------------------------- $230,000 $233,763 $140,000 ================================================================================ The 9.47% Notes are payable in 13 semi-annual installments of $3,077 that began on September 16, 1995. The 7.13% Notes are payable in four equal annual installments of $6,250 beginning on December 5, 2002. The 7.66% Notes are payable in 2007. The 7.80% Notes are payable in three equal annual installments beginning in 2008. On November 21, 2000, the Company issued $60 million of privately placed Notes with three insurance companies. These Notes, which have an effective interest rate of 9.34%, are payable in three equal installments beginning in 2006 and are not redeemable by the Noteholders prior to maturity. Proceeds from these Notes were used to repay borrowings under the Company's revolving credit agreement. The fair values of these Notes are determined using discounted cash flows based upon the Company's estimated current interest cost for similar types of borrowings. The carrying values of other long-term debt and notes payable approximate their fair market values. The Company has a revolving credit agreement with five banks that allows borrowings up to $150,000 under notes due December 6, 2002. A fee of 0.115% per annum is paid on the unused portion of the commitments. The Company had $50,000 borrowed under this agreement at an interest rate of 7.03% at December 31, 2000. The Company also has available approximately $25,000 in short-term bank credit lines, of which $15,000 and $4,500 was in use at December 31, 2000 and 1999, respectively. The interest rate on these borrowings was 7.7% and 6.8% at December 31, 2000 and 1999, respectively. 14 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The Industrial Revenue Bond, due in 2008, has a variable interest rate. The interest rate on this borrowing was 5.10% and 5.75% at December 31, 2000 and 1999, respectively. At December 31, 2000, the Company classified $11,846 of borrowings under lines of credit and $6,154 of its 9.47% Notes due within one year as long-term debt. The Company has both the intent and the ability, through its revolving credit agreement, to refinance these amounts on a long-term basis. Long-term debt is payable as follows: $74,250 in 2002, $6,250 in 2003, $6,250 in 2004, $6,250 in 2005, and $137,000 thereafter. The Company has an outstanding interest rate swap, a form of derivative, which effectively converts $3,100 of its fixed rate 9.47% Notes to variable rate debt with interest equal to LIBOR plus 83 basis points. The effective interest rate on the floating rate portion was 7.4% and 7.0% at December 31, 2000 and 1999, respectively. This swap decreases as the Notes are repaid. The fair value of the swap is determined based upon current market prices and was approximately $100 at December 31, 2000. In September 2000, the Company amended its $70 million cross-currency exchange agreement by extending the final maturity date from October 2002 to October 2009. This agreement converts U.S. dollar-denominated interest and principal liabilities into Swedish krona-denominated liabilities at a fixed interest rate during the agreement period. The fair value of this foreign currency swap, determined using current market prices, was approximately $9,600 at December 31, 2000. The Company does not use derivatives for speculative or trading purposes. In addition, the Company had outstanding letters of credit totaling $3,557 at December 31, 2000. Certain of the Company's debt arrangements contain requirements as to maintenance of minimum levels of working capital and net worth and place certain restrictions on dividend payments and acquisitions of the Company's common stock. Under the most restrictive covenant in any agreement, $30,045 was available for dividends or acquisitions of common stock at December 31, 2000. Interest paid was $14,601, $5,505, and $4,947 in 2000, 1999, and 1998, respectively. Interest capitalized was $188, $264, and $711 in 2000, 1999, and 1998, respectively, and is being depreciated over the lives of the related fixed assets. 7. Income Taxes The components of income before income taxes and the income tax provision follow: 2000 1999 1998 - -------------------------------------------------------------------------------- Income before income taxes: U.S. $19,763 $ 27,585 $ 42,009 International 28,827 15,113 12,654 - -------------------------------------------------------------------------------- $48,590 $ 42,698 $ 54,663 ================================================================================ Income tax provision: Current: U.S. -- federal $ 2,353 $ 5,233 $ 15,256 U.S. -- state 674 529 3,110 International 4,035 4,669 4,339 - -------------------------------------------------------------------------------- 7,062 10,431 22,705 - -------------------------------------------------------------------------------- Deferred: U.S. -- federal 3,726 2,973 (2,214) U.S. -- state 683 1,109 (94) U.S. -- state rate reduction 1,181 -- -- International 273 (427) (228) - -------------------------------------------------------------------------------- 5,863 3,655 (2,536) - -------------------------------------------------------------------------------- $12,925 $ 14,086 $ 20,169 ================================================================================ 15 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Deferred income tax assets and liabilities at December 31 consisted of the tax effects of temporary differences related to the following:
Assets Liabilities - ------------------------------------------------------------------------------------------ 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------ Allowance for doubtful accounts $ 780 $ 921 $ -- $ -- Depreciation and amortization (5,447) (6,293) 3,506 3,727 Inventory valuation 7,168 6,400 983 613 Postretirement/postemployment costs 24,676 25,852 (306) (333) Foreign tax loss carryforwards 10,062 9,923 -- -- Other (1,898) 4,020 3,476 3,634 - ------------------------------------------------------------------------------------------ 35,341 40,823 7,659 7,641 Valuation allowance (7,684) (7,628) -- -- - ------------------------------------------------------------------------------------------ $ 27,657 $ 33,195 $ 7,659 $ 7,641 - ------------------------------------------------------------------------------------------ Current deferred income taxes $ 12,647 $ 9,398 $ 1,062 $ 594 Noncurrent deferred income taxes 15,010 23,797 6,597 7,047 - ------------------------------------------------------------------------------------------ $ 27,657 $ 33,195 $ 7,659 $ 7,641 ==========================================================================================
The deferred income tax assets will be realized through reversals of existing taxable temporary differences with the remainder, net of the valuation allowance, dependent on future income. Management believes that sufficient income will be earned in the future to realize the remaining net deferred income tax assets. The tax loss carryforwards of $27,885 have remaining carryforward periods ranging from four years to unlimited. The Company has not recognized deferred income taxes on $131,784 of undistributed earnings of its international subsidiaries, since such earnings are considered to be reinvested indefinitely. If the earnings were distributed in the form of dividends, the Company would be subject, in certain cases, to both U.S. income taxes and foreign withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate follows: 2000 1999 1998 - -------------------------------------------------------------------------------- U.S. federal statutory income tax rate 35.0% 35.0% 35.0% State taxes (net of federal benefit) 1.8 2.5 3.6 State tax rate reduction 1.6 -- -- Foreign losses without tax benefit 0.8 1.2 1.0 Tax on foreign operations (12.7) (3.7) (1.6) NASCO equity income (0.5) (0.9) (1.0) Foreign sales corporation (0.9) (0.8) (0.4) ESOP dividend -- (1.2) (1.3) Other 1.5 0.9 1.6 - -------------------------------------------------------------------------------- Consolidated effective income tax rate 26.6% 33.0% 36.9% ================================================================================ Income taxes paid, net of refunds, were $7,165, $15,781, and $18,473 in 2000, 1999, and 1998, respectively. 8. Common Stock In 2000, 1999, and 1998, 351,237 shares, 105,189 shares, and 270,854 shares, respectively, of common stock were issued from treasury for the exercise of stock options, various other incentive awards and purchases by the Employee Stock Purchase Plan. In 2000, 1999, and 1998, the Company acquired 594,406 shares, 1,090,014 shares and 598,160 shares, respectively, of the Company's common stock, at a cost of $9,197, $22,351, and $17,042, respectively. These amounts exclude shares issued and reacquired in connection with certain non-cash exercises under the Company's stock option plans. The acquired shares were placed in treasury. In December 1996, the Company adopted a new shareholder rights plan. Under the plan, each share of common stock contains one right (Right) which entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, for two hundred dollars. The Rights generally will not become exercisable unless and until, among other things, any person or group acquires beneficial ownership of 35% or more of the outstanding stock. The Rights are generally redeemable at $0.01 per Right at any time until 10 days following a public announcement that a 35% or greater position in the Company's common stock has been acquired and will expire, unless earlier redeemed or exchanged, on December 23, 2006. 16 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- If, following the acquisition of 35% or more of the outstanding shares of the Company's common stock, the Company is acquired in a merger or other business combination or 50% or more of the Company's assets or earnings power is sold or transferred, each outstanding Right becomes exercisable for common stock or other securities of the acquiring entity having a value of twice the exercise price of the Right. 9. Preferred Stock At December 31, 2000 and 1999, the Company had 3,000,000 shares of preferred stock authorized, none of which was outstanding. 10. Stock Plans Most U.S. salaried and non-union hourly employees are eligible to participate in the Company's Guaranteed Stock Plan (GSP). The GSP provides for the investment of employer and employee contributions in the Company's common stock. The Company guarantees a minimum rate of return on certain GSP assets. At December 31, 2000, the Company's guarantee on these assets equaled $401. This amount will only become a liability for the Company if, and to the extent that, the value of the related Company stock does not cover the guaranteed asset value on the day an employee withdraws from the plan. The GSP was a leveraged ESOP until mid-1999. In 1989, the GSP purchased 1,737,930 shares of the Company's common stock at a cost of $21,000, using the proceeds of a loan guaranteed by the Company. These shares were held in trust and were issued to employees' accounts in the GSP until the loan was repaid in mid-1999. The loan interest was based on LIBOR and generated interest costs of $32 and $212 in 1999 and 1998, respectively. Contributions and certain dividends received were used in part by the GSP to service its debt. Contributions included both employee contributions and Company contributions. The Company contributions were equal to the amount required by the GSP to pay the principal and interest due under the GSP loan plus that required to purchase any additional shares required to be allocated to participant accounts, less the sum of participant contributions and dividends received by the GSP. Now that the GSP is no longer leveraged, the Company contributes an amount equal to 50% of employee contributions up to 6% of eligible compensation plus any guarantee payment. Employees may elect to contribute additional amounts up to a total of 10% of eligible compensation. The GSP used $1,012 and $1,899 of Company dividends for debt service in 1999 and 1998, respectively. The Company expenses all contributions made to the GSP. The Company recognized expense of $2,295 and $1,115 in 2000 and 1999, respectively, and income of $403 in 1998. As of December 31, 2000, the GSP held 3,440,507 shares of the Company's common stock. The Company has an Employee Stock Purchase Plan (ESPP) under which eligible employees may elect to have up to the lesser of twenty-five thousand dollars or 10% of base compensation deducted from payroll for the purchase of the Company's common stock at 85% of market value on the date of purchase. The maximum number of shares that may be purchased under the ESPP is 2,025,000. The number of shares purchased under the ESPP was 75,052, 62,868, and 45,599 in 2000, 1999, and 1998, respectively. As of December 31, 2000, 381,959 additional shares may be purchased. The 1991 Barnes Group Stock Incentive Plan (1991 Plan) authorizes the granting of incentives to executive officers, directors, and key employees in the form of stock options, stock appreciation rights, incentive stock rights, and performance unit awards. Options granted under the 1991 Plan that terminate without being exercised become available for grant under the 1991 Plan. As of December 31, 2000 and 1999, there were 502,319 shares and 412,024 shares, respectively, available for future grant under the 1991 Plan. A maximum of 2,131,106 common shares are subject to issuance under this plan after December 31, 2000. On April 12, 2000, the Company's Board of Directors adopted and the stockholders approved the Barnes Group Inc. Employee Stock and Ownership Program (2000 Plan). Effective February 1, 2000, the 2000 Plan permits the granting of incentive stock options, nonqualified stock options, restricted stock awards, performance share or cash unit awards, and stock appreciation rights, or any combination of the foregoing, to eligible employees to purchase up to 2,500,000 shares of the Company's common stock. Such shares have been authorized and reserved. Options granted under the 2000 Plan that terminate without being exercised become available for future grant under the 2000 Plan. As of December 31, 2000, there were 1,462,497 shares available for future grant under the 2000 Plan. A maximum of 2,425,469 common shares are subject to issuance under this plan after December 31, 2000. Compensation cost related to these plans was $798, $610, and $1,596 in 2000, 1999, and 1998, respectively. The Company recorded, in additional paid-in-capital, tax benefits related to stock options of $776, $40, and $1,573 in 2000, 1999, and 1998, respectively. 17 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- In 1998, 60,000 incentive stock units and 75,000 stock options were granted outside of the 1991 Plan. The options are included in the tables below. Data relating to options granted under these plans follow:
2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Average Average Average Number Exercise Number Exercise Number Exercise of Shares Price of Shares Price of Shares Price - -------------------------------------------------------------------------------------------------------------------------------- Outstanding, January 1 1,808,775 $20.70 1,238,587 $22.39 979,444 $16.13 Granted 1,207,622 $16.88 827,820 $19.20 566,770 $29.13 Exercised 324,036 $12.75 24,727 $18.96 224,332 $11.02 Cancelled 220,369 $22.22 232,905 $24.57 83,295 $25.24 - -------------------------------------------------------------------------------------------------------------------------------- Outstanding, December 31 2,471,992 $19.74 1,808,775 $20.70 1,238,587 $22.39 - -------------------------------------------------------------------------------------------------------------------------------- Exercisable, December 31 899,926 $21.36 696,965 $18.91 574,966 $16.94 ================================================================================================================================
The following table summarizes information about stock options outstanding at December 31, 2000: Options Outstanding Options Exercisable - -------------------------------------------------------------------------------- Range of Average Average Average Exercise Number Remaining Exercise Number Exercise Prices of Shares Life (Years) Price of Shares Price - -------------------------------------------------------------------------------- $ 7 to $14 224,674 6.7 $12.93 93,980 $10.79 $15 to $17 1,016,525 9.1 $16.97 180,134 $16.97 $18 to $23 812,488 7.8 $20.33 370,131 $20.82 $24 to $32 418,305 7.4 $28.98 255,681 $29.10 ================================================================================ Incentive stock units (units) entitle the holder to receive, without payment, one share of the Company's common stock after the expiration of the incentive period. Certain units are also subject to the satisfaction of established performance goals. Additionally, holders are credited with dividend equivalents, which are converted into additional units. All incentive stock unit awards have up to a five-year incentive period. In 2000 no units were granted; 10,261 units were credited to holders for dividend equivalents; 4,215 units, which include dividend equivalents, were converted to an equivalent number of shares of common stock; and 50,306 units were forfeited. Additionally, 125,199 units, which included dividend equivalents, were terminated in 1998 in conjunction with the accelerated retirement agreement for the Company's former president. As of December 31, 2000, there were 254,767 units outstanding. Under the Non-Employee Director Deferred Stock Plan, each non-employee director is awarded 6,000 shares of the Company's common stock upon retirement. There were 12,000 shares issued under this plan in 2000, and no shares were issued in 1999 and 1998. Additionally, 6,000 shares were cancelled in 1999. There are 42,000 shares reserved for issuance under this plan. Total shares reserved for issuance under all stock plans aggregated 4,980,534 at December 31, 2000. The Company applies APB Opinion 25 to account for stock-based compensation. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 2000 1999 1998 - -------------------------------------------------------------------------------- Net income: As reported $35,665 $28,612 $34,494 Pro forma 32,988 27,053 33,543 Basic earnings per share: As reported $ 1.92 $ 1.47 $ 1.72 Pro forma 1.78 1.39 1.67 Diluted earnings per share: As reported $ 1.90 $ 1.46 $ 1.69 Pro forma 1.76 1.38 1.64 ================================================================================ 18 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The fair value of each stock option grant on the date of grant has been estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2000 1999 1998 - -------------------------------------------------------------------------------- Risk-free interest rate 6.65% 5.35% 5.35% Expected life 5 years 6 years 6 years Expected volatility 30% 30% 20% Expected dividend yield 3.57% 3.54% 3.75% The weighted-average grant date fair values of options granted during 2000, 1999, and 1998 were $4.44, $5.07, and $5.63, respectively. 11. Pension and Other Postretirement Benefits Defined benefit pension plans cover a majority of the Company's worldwide employees at Associated Spring, its Executive Office, and a substantial portion of the employees at Barnes Distribution. Plan benefits for salaried and non-union hourly employees are based on years of service and average salary. Plans covering union hourly employees provide benefits based on years of service. The Company funds U.S. pension costs in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA). Plan assets consist primarily of common stocks and fixed income investments including 384,048 shares of Company stock. Additionally, the Company has a defined contribution plan covering employees of Barnes Aerospace and certain field sales employees of Barnes Distribution's U.S. operation. Company contributions under this plan are based primarily on the performance of the business units and employee compensation. Contribution expense under this plan was $1,447, $1,292, and $2,029 in 2000, 1999, and 1998, respectively. The Company provides certain other medical, dental, and life insurance postretirement benefits for a majority of its retired employees in the U.S. and Canada. It is the Company's practice to fund these benefits as incurred. A reconciliation of the beginning benefit obligations to the ending benefit obligations follows:
Pensions Other Postretirement Benefits - ---------------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------- Benefit obligation, January 1 $ 231,167 $ 252,036 $ 60,321 $ 63,957 Service cost 6,264 6,218 481 629 Interest cost 17,707 16,944 5,148 4,445 Amendments 232 (484) -- 746 Actuarial loss (gain) 4,855 (28,443) 12,519 (3,975) Benefits paid from plan assets (15,719) (15,316) (6,510) (5,503) Acquisition 2,048 -- 1,747 -- Foreign exchange rate changes (1,304) 212 (30) 22 - ---------------------------------------------------------------------------------------------------------------- Benefit obligation, December 31 $ 245,250 $ 231,167 $ 73,676 $ 60,321 ================================================================================================================ Projected benefit obligations related to plans with benefit obligations in excess of assets $ 12,204 $ 8,868 $ 73,676 $ 60,321 ================================================================================================================
A reconciliation of the beginning fair value of plan assets to the ending fair value of plan assets follows: Pensions - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Fair value of plan assets, January 1 $ 344,447 $ 318,358 Actual return on plan assets (4,610) 40,742 Company contributions 292 269 Plan participants' contributions 120 122 Benefits paid (15,719) (15,316) Foreign exchange rate changes (2,014) 272 Acquisition 1,854 -- - -------------------------------------------------------------------------------- Fair value of plan assets, December 31 $ 324,370 $ 344,447 ================================================================================ Assets related to plans with benefit obligations in excess of plan assets $ 1,808 $ -- ================================================================================ 19 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- A reconciliation of the funded status of the plans with the amounts recognized in the accompanying balance sheets is set forth below:
Pensions Other Postretirement Benefits - ------------------------------------------------------------------------------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------- Funded status $ 79,120 $ 113,280 $(73,676) $(60,321) Adjustments for unrecognized: Net (gains) losses (66,668) (107,041) 12,862 491 Prior service costs (benefits) 6,171 6,332 (3,531) (4,852) Net asset at transition (758) (2,425) -- -- - ------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 17,865 $ 10,146 $(64,345) $(64,682) ===========================================================================================
Pension deferred gains and losses that fall outside of a 10% corridor are amortized over 8.7 years or the remaining average service life of active participants, whichever is shorter. Significant assumptions used in determining pension and other postretirement expense and the funded status of the plans were: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Weighted average discount rate 7.75% 8.00% 7.00% Long-term rate of return on plan assets 9.75% 9.75% 9.25% Increase in compensation 4.75% 4.75% 4.75% ================================================================================ Pension and other postretirement benefit expenses consisted of the following:
Pensions Other Postretirement Benefits - -------------------------------------------------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------- Service cost $ 6,264 $ 6,218 $ 5,645 $ 481 $ 629 $ 521 Interest cost 17,707 16,944 16,908 5,148 4,445 4,359 Expected return on plan assets (27,601) (24,441) (22,264) -- -- -- Amortization of transition assets (1,636) (1,643) (1,643) -- -- -- Recognized (gains) losses (3,420) (753) 2,898 144 45 -- Prior service cost 1,113 1,048 861 (1,321) (1,355) (1,422) - -------------------------------------------------------------------------------------------------------------- Benefit (credit) cost $ (7,573) $ (2,627) $ 2,405 $ 4,452 $ 3,764 $ 3,458 ==============================================================================================================
The Company's accumulated postretirement benefit obligations, exclusive of pensions, take into account certain cost-sharing provisions. The annual rate of increase in the cost of covered benefits (that is, healthcare cost trend rate) is assumed to be 11% in 2000, decreasing gradually to an ultimate rate of 5% in 2006. A one percentage point increase in the assumed healthcare cost trend rate would have increased the accumulated benefit obligations by approximately $2,458 at December 31, 2000, and would have increased the 2000 aggregate of the service and interest cost components of postretirement benefit expense by approximately $169. A one percentage point decrease in the assumed healthcare cost trend rate would have decreased the accumulated benefit obligations by approximately $2,378 at December 31, 2000, and would have decreased the 2000 aggregate of the service and interest cost components of postretirement benefit expense by approximately $168. 12. Leases The Company has various noncancellable operating leases for buildings, office space and equipment. Capital leases were not significant. Rent expense was $9,127, $7,712, and $7,133 for 2000, 1999, and 1998, respectively. Minimum rental commitments under noncancellable leases in years 2001 through 2005 are $7,487, $6,696, $5,085, $4,634, and $4,462, and $7,882 thereafter. 13. Information on Business Segments The Company's reportable segments are strategic business groups that offer different products and services. Each segment is managed separately because each business requires different technology and marketing strategies. Specifically, the Company operates three reportable business segments: Associated Spring manufactures precision mechanical and nitrogen gas springs, manifold systems, and other close-tolerance engineered metal components, principally for the electronics, telecommunications, and transportation markets. Associated Spring's custom metal parts are sold in the U.S. and through its international subsidiaries. International manufacturing operations are located in Brazil, Sweden, Canada, Mexico, and Singapore. 20 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Barnes Aerospace supplies precision machined and fabricated components and assemblies for the aerospace industry. Additionally, it refurbishes jet engine components for many of the world's commercial airlines and the military. Barnes Aerospace's operations are primarily in the U.S., with additional locations in Europe, Singapore, and Mexico. Its markets are located in the U.S., Europe, and Asia. Barnes Distribution distributes fast-moving, consumable repair and replacement products for industrial, heavy equipment, and transportation maintenance markets. Additionally, it distributes close-tolerance engineered metal components, principally manufactured by Associated Spring. Barnes Distribution, formerly known as Bowman Distribution, was formed from the combination of the Curtis acquisition and Bowman Distribution. Barnes Distribution's operations and markets are located primarily in the U.S. Other important locations include Canada and Europe. The Company evaluates the performance of its reportable segments based on the operating profit of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and other expenses, as well as the allocation of corporate overhead expenses. The equity income from the Company's investment in the NASCO joint venture is incorporated into the segment results of Associated Spring. Sales between the business segments and between the geographic areas in which the businesses operate are accounted for on the same basis as sales to unaffiliated customers. Additionally, revenues are attributed to countries based on location of manufacturing or distribution facilities. The following tables set forth information about the Company's operations by its three reportable business segments and by geographic area. Operations by Reportable Business Segment (Dollars in millions)
Associated Barnes Barnes Revenues Spring Aerospace Distribution Other Total ================================================================================================================= 2000 $327.3 $135.1 $291.1 $(13.5) $740.0 1999 282.6 121.3 230.4 (11.9) 622.4 1998 262.1 154.6 246.9 (12.4) 651.2 Operating profit ================================================================================================================= 2000 $ 44.0 $ 8.0 $ 12.9 $ -- $ 64.9 1999 33.5 5.3 9.9 -- 48.7 1998 23.2 12.8 35.0 (12.9) 58.1 Assets ================================================================================================================= 2000 $273.6 $130.1 $178.6 $ 54.6 $636.9 1999 260.6 79.7 94.8 81.2 516.3 1998 160.1 92.3 86.7 79.8 418.9 Depreciation and amortization ================================================================================================================= 2000 $ 17.8 $ 8.6 $ 9.0 $ 0.5 $ 35.9 1999 16.5 7.8 6.0 0.3 30.6 1998 15.3 7.5 5.4 0.2 28.4 Capital expenditures ================================================================================================================= 2000 $ 14.2 $ 4.2 $ 5.5 $ 2.7 $ 26.6 1999 9.8 7.1 9.4 0.9 27.2 1998 18.3 8.3 7.5 0.5 34.6
Notes: In 2000 and 1999, sales from any one customer did not exceed 10% of the Company's total revenues. In 1998, one customer accounted for 11.8% of the Company's total revenues. "Other" revenues represent intersegment sales, the majority of which are sales by Associated Spring to Barnes Distribution. The operating profit of Associated Spring includes income from its equity investment in NASCO of $1.6 million, $1.7 million, and $2.6 million in 2000, 1999, and 1998, respectively. "Other" operating profit in 1998 includes a $12.9 million charge related to the accelerated retirement package for the Company's former president. The assets of Associated Spring include the NASCO investment of $10.0 million, $9.5 million and $9.2 million in 2000, 1999 and 1998, respectively. "Other" assets include corporate-controlled assets, the majority of which are cash and deferred tax assets. 21 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- A reconciliation of the total reportable segments' operating profit to income before income taxes follows: 2000 1999 1998 - -------------------------------------------------------------------------------- Operating profit $ 64.9 $48.7 $58.1 Interest income 1.5 1.0 1.4 Interest expense (15.1) (6.1) (4.1) Other income (expense) (2.7) (0.9) (0.7) - -------------------------------------------------------------------------------- Income before income taxes $ 48.6 $42.7 $54.7 ================================================================================ Operations by Geographic Area (Dollars in millions) Inter- Revenues Domestic International geographical Total ================================================================================ 2000 $580.6 $186.3 $(26.9) $740.0 1999 488.2 147.0 (12.8) 622.4 1998 526.8 138.3 (13.9) 651.2 ================================================================================ Long-lived assets - -------------------------------------------------------------------------------- 2000 $262.4 $118.2 $ -- $380.6 1999 164.5 109.1 -- 273.6 1998 144.6 41.9 -- 186.5 ================================================================================ Note: International sales derived from any one country did not exceed 10% of the Company's total revenues. ================================================================================ Report of Independent Accountants [LOGO] To the Board of Directors and Stockholders of Barnes Group Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Barnes Group Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut February 8, 2001 22 Quarterly Data (Unaudited) - --------------------------------------------------------------------------------
First Second Third Fourth Full (Dollars in millions, except per share data) Quarter Quarter Quarter Quarter Year ==================================================================================================================================== 2000 Net sales $ 173.0 $ 188.5 $ 190.6 $ 187.9 $ 740.0 Gross profit(1) 56.7 65.6 67.0 62.1 251.4 Operating income 15.8 16.1 17.0 14.0 62.9 Net income 9.4 9.1 9.3 7.9 35.7 Per common share: Net income: Basic 0.51 0.49 0.50 0.42 1.92 Diluted 0.50 0.49 0.49 0.41 1.90 Dividends 0.19 0.20 0.20 0.20 0.79 Market prices (high-low) $16.50-12.00 $18.25-14.63 $20.25-16.44 $22.38-17.63 $22.38-12.00 ==================================================================================================================================== 1999 Net sales $ 162.2 $ 156.3 $ 154.0 $ 149.9 $ 622.4 Gross profit(1) 52.7 49.0 50.4 45.3 197.4 Operating income 14.7 13.2 13.3 4.9 46.1 Net income 10.0 8.2 8.9 1.5 28.6 Per common share: Net income: Basic 0.50 0.42 0.46 0.08 1.47 Diluted 0.50 0.41 0.45 0.08 1.46 Dividends 0.18 0.19 0.19 0.19 0.75 Market prices (high-low) $30.00-15.88 $25.50-18.56 $23.69-18.31 $22.75-15.25 $30.00-15.25 ====================================================================================================================================
(1) Sales less cost of sales. 23 Selected Financial Data - --------------------------------------------------------------------------------
2000 1999 1998(3) 1997 1996 ============================================================================================================================ Per common share (1) (2) Net Income - ---------------------------------------------------------------------------------------------------------------------------- Basic $ 1.92 $ 1.47 $ 1.72 $ 2.00 $ 1.63 - ---------------------------------------------------------------------------------------------------------------------------- Diluted 1.90 1.46 1.69 1.96 1.61 - ---------------------------------------------------------------------------------------------------------------------------- Dividends paid 0.79 0.75 0.69 0.65 0.60 - ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity (at year-end) 10.82 9.58 9.51 8.97 7.86 - ---------------------------------------------------------------------------------------------------------------------------- Stock price (at year-end) 19.88 16.31 29.25 22.75 20.00 ============================================================================================================================ For the year (in thousands) Net sales $740,032 $622,356 $651,183 $642,660 $594,989 - ---------------------------------------------------------------------------------------------------------------------------- Operating income 62,949 46,107 55,279 65,031 55,844 - ---------------------------------------------------------------------------------------------------------------------------- As a percent of sales 8.5% 7.4% 8.5% 10.1% 9.4% - ---------------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 48,590 $ 42,698 $ 54,663 $ 64,502 $ 52,310 - ---------------------------------------------------------------------------------------------------------------------------- Income taxes 12,925 14,086 20,169 24,079 19,742 - ---------------------------------------------------------------------------------------------------------------------------- Net income 35,665 28,612 34,494 40,423 32,568 - ---------------------------------------------------------------------------------------------------------------------------- As a percent of average stockholders' equity 19.1% 15.4% 18.4% 23.4% 22.8% - ---------------------------------------------------------------------------------------------------------------------------- Depreciation and amortization $ 35,871 $ 30,602 $ 28,431 $ 28,123 $ 26,626 - ---------------------------------------------------------------------------------------------------------------------------- Capital expenditures 26,575 27,222 34,571 33,398 33,892 - ---------------------------------------------------------------------------------------------------------------------------- Average common shares outstanding -- basic 18,568 19,418 20,096 20,237 19,924 ============================================================================================================================ Year-end financial position (in thousands) Working capital $114,502 $103,165 $106,884 $113,092 $109,476 - ---------------------------------------------------------------------------------------------------------------------------- Current ratio 1.9 to 1 1.9 to 1 2.1 to 1 2.3 to 1 2.4 to 1 - ---------------------------------------------------------------------------------------------------------------------------- Property, plant and equipment $163,766 $145,105 $139,247 $133,830 $131,071 - ---------------------------------------------------------------------------------------------------------------------------- Total assets 636,941 516,282 418,904 407,978 389,956 - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt 230,000 140,000 51,000 60,000 70,000 - ---------------------------------------------------------------------------------------------------------------------------- Guaranteed ESOP obligation -- long-term portion -- -- -- 2,205 4,951 - ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 201,333 180,614 188,674 180,859 157,164 - ---------------------------------------------------------------------------------------------------------------------------- Debt as a percent of total capitalization(4) 54.1% 45.7% 24.1% 27.1% 33.5% ============================================================================================================================ Year-end statistics Employees 5,624 4,020 3,847 3,872 3,761 ============================================================================================================================
(1) All per share data, other than earnings per common share, are based on common shares outstanding at the end of each year. Earnings per common share are based on weighted average common shares outstanding during each year. (2) All per share data have been adjusted for the three-for-one stock split effective April 1997. (3) Includes a $12.9 million pretax, $7.7 million after-tax charge ($0.38 per share) against income related to the accelerated retirement package for the Company's former president. (4) Debt includes all interest-bearing debt, including the guaranteed ESOP obligation, and total capitalization includes interest-bearing debt and stockholders' equity. 24 EX-21 6 0006.txt LIST OF SUBSIDIARIES EXHIBIT 21 BARNES GROUP INC. LIST OF SUBSIDIARIES -------------------- Operating Subsidiaries of the Company: - ------------------------------------- Jurisdiction of Name Incorporation ---- ------------- Associated Spring-Asia PTE. LTD. Singapore Associated Spring do Brasil Ltda. Brazil Associated Spring Mexico, S.A. Mexico Associated Spring SPEC Limited United Kingdom Associated Spring (Tianjin) Company, Limited China Barnes Financing Delaware LLC Delaware Barnes Group (Bermuda) Limited Bermuda Barnes Group Canada Corp. Canada Barnes Group Holding B.V. Netherlands Barnes Sweden Holding Company AB Sweden Barnes Group (U.K.) Limited United Kingdom Barnes Group France S.A. France Curtis Industries of Canada Limited Canada Curtis Industries (U.K.) Limited United Kingdom 3031786 Nova Scotia Company Canada 3032350 Nova Scotia Limited Canada Raymond Distribution (Ireland) Limited Ireland Raymond Distribution-Mexico, S.A. de C.V. Mexico Ressorts SPEC, SARL France Stromsholmen AB Sweden The Wallace Barnes Company Connecticut Windsor Airmotive Asia PTE. LTD. Singapore The Company's consolidated financial statements include all of the above-named subsidiaries. For a statement of the principles of consolidation applicable to these subsidiaries, see Note 1 of the Notes to Consolidated Financial Statements on page 12 of the 2000 Annual Report to Stockholders. EX-23 7 0007.txt CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-56437, pertaining to the Employee Stock Purchase Plan; No. 2-91285, pertaining to the 1981 Stock Incentive Plan; Nos. 33-20932 and 33-30229, pertaining to the Guaranteed Stock Plan; the registration statements filed on July 18, 1994, No. 33-91758 and May 16, 1997, No. 33-27339, pertaining to the 1991 Barnes Group Stock Incentive Plan; and No. 33-41398, pertaining to the Barnes Group Inc. Employee Stock and Ownership Program) of Barnes Group Inc. of our report dated February 8, 2001 relating to the financial statements which appears on page 22 of the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 8, 2001 relating to the financial statement schedules, which appears on page 15 of this Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP Hartford, Connecticut March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----