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<SEC-DOCUMENT>0000927016-01-001487.txt : 20010326
<SEC-HEADER>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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
Property List
-------------
L = Lease
O = Own
Barnes Group Inc. Barnes Distribution
- ---------------- -------------------
<S> <C>
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)
</TABLE>
5
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Age as of
Executive Officer Position December 31, 2000
- ------------------ -------- -----------------
<S> <C> <C>
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)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Age as of
Executive Officer Position December 31, 2000
- ---------------- -------- --------------------
<S> <C> <C>
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)
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Reference
--------------------------------
Annual Report
-------------
Form 10-K to Stockholders
--------- ---------------
(page) (page)
------ ------
<S> <C> <C>
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
</TABLE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
/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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the Year ended December 31, 2000
------------------------------------
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
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.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
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.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
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.
</TABLE>
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
<PAGE>
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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>NOTE AGREEMENT
<TEXT>
<PAGE>
Exhibit 4.7
================================================================================
Barnes Group Inc.
Note Agreement
$60,000,000
8.59% Senior Notes Due November 21, 2008
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Heading Page
<S> <C>
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
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-
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
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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.
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(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.
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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
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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
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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)
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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
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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
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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
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(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
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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
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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
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(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
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(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);
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(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
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(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.
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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;
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(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
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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.
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"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.
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"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;
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(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
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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-
<PAGE>
"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-
<PAGE>
"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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-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
- --------------------------------------------------------------------------------
<PAGE>
-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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-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
================================================================================
<PAGE>
-11-
<TABLE>
<CAPTION>
====================================================================================================================
Purchaser Name THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
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
====================================================================================================================
</TABLE>
<PAGE>
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.
<PAGE>
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:
<PAGE>
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
<PAGE>
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.
<PAGE>
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,
<PAGE>
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
<PAGE>
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;
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>MANAGEMENT INCENTIVE COMPENSATION PLAN
<TEXT>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EMPLOYEE STOCK AND OWNERSHIP PROGRAM
<TEXT>
<PAGE>
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).
<PAGE>
(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
<PAGE>
(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.
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(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
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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;
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(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:
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(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
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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
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<PAGE>
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
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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
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<PAGE>
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
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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
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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
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<PAGE>
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
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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
<PAGE>
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.
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<PAGE>
(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,
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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
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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.
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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(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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>PORTIONS OF THE 2000 ANNUAL REPORT
<TEXT>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=============================================================================================
</TABLE>
See accompanying notes.
10
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other Guaranteed Total
Common Paid-In Treasury Retained Comprehensive ESOP Stockholders'
(Dollars in thousands) Stock Capital Stock Earnings Income Obligation Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
=================================================================================================================================
</TABLE>
See accompanying notes.
11
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Assets Liabilities
- ------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==========================================================================================
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
================================================================================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
- ----------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
================================================================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
- -------------------------------------------------------------------------------------------
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
===========================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
- --------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
==============================================================================================================
</TABLE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
Associated Barnes Barnes
Revenues Spring Aerospace Distribution Other Total
=================================================================================================================
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
Quarterly Data (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth Full
(Dollars in millions, except per share data) Quarter Quarter Quarter Quarter Year
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
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
====================================================================================================================================
</TABLE>
(1) Sales less cost of sales.
23
<PAGE>
Selected Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998(3) 1997 1996
============================================================================================================================
<S> <C> <C> <C> <C> <C>
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
============================================================================================================================
</TABLE>
(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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>
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
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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