<PAGE> 1
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, 1998
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
incorporation or organization) Identification No.)
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 $365,984,508 as of January 31, 1999. The registrant
had outstanding 19,815,789 shares of common stock as of January 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II incorporate information by reference from the registrant's 1998
Annual Report to Stockholders. Part III incorporates information by reference
from the registrant's Proxy Statement dated March 17, 1999.
<PAGE> 2
PART I
Item 1. Business.
The Company was organized as a Delaware corporation in 1925. The
Company is in three businesses: Bowman Distribution, a distributor of consumable
repair and replacement products for industrial, heavy equipment, and
transportation maintenance markets; Associated Spring, a manufacturer of
custom-made springs and other close-tolerance engineered metal components; and
Barnes Aerospace, a manufacturer of precision machined and fabricated assemblies
for the aircraft and aerospace industries and a refurbisher of jet engine
components.*
Bowman Distribution. Bowman Distribution is engaged in distributing in
the United States, Canada, the United Kingdom and France, a variety of
replacement parts and other products, including fasteners and special purpose
hardware, general purpose electric and gas welding supplies, and industrial
maintenance supplies.
Bowman Distribution is also engaged in the distribution of die springs
which are sold under the Company's Raymond registered trademark and certain
standard parts consisting primarily of coil and flat springs which are sold
under the Company's SPEC registered trademark. These products are manufactured
primarily by Associated Spring.
Except as indicated above, the products sold by Bowman Distribution are
generally not manufactured by the Company, but are obtained from a number of
outside suppliers. The vast majority of these products are repackaged and sold
under Bowman's labels.
Sales by Bowman Distribution in the United States and Canada are
primarily to industrial and food processing plants, chemical and petrochemical
process industries, contractors, new-car dealers, garages, service stations,
operators of vehicle fleets, railroads, electric utilities and airline ground
maintenance facilities.
Associated Spring. Associated Spring manufactures a wide variety of
custom metal parts for mechanical purposes. It is equipped to produce
practically every type of spring requiring precision engineering, as well as an
extensive variety of precision metal components and assemblies. Its products
range in size from fine hairsprings for instruments to large springs for heavy
machinery, and its output of a given metal part may vary in amount from a few
units to several million. Associated Spring does not produce leaf springs or bed
springs.
- -----------------------
*As used in this annual report, "Company" refers to the registrant and its
consolidated subsidiaries except where the context requires otherwise, and
"Bowman Distribution," "Associated Spring," and "Barnes Aerospace" refer to the
above-defined businesses, but not to separate corporate entities.
1
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Associated Spring's custom metal parts 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. Custom metal
parts are sold primarily through Associated Spring's sales employees. In view of
the diversity of functions which Associated Spring's custom metal parts perform,
Associated Spring's output is characterized by little standardization, with the
major portion being manufactured to customer specifications.
The automotive and automotive parts industries constitute Associated
Spring's largest single custom metal parts market. Other important outlets
include manufacturers of industrial and textile machinery, motors, generators,
electronic equipment, aircraft, diesel and other internal combustion engines,
household appliances and fixtures, hardware, office equipment, agricultural
equipment, railroad equipment, general machinery and scientific instruments.
Associated Spring has manufacturing operations in Brazil, Canada,
Mexico and Singapore. The Company has retained a minority interest of 15% in its
former subsidiary in Argentina.
The Company is a partner 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"), has a manufacturing
facility in Bowling Green, Kentucky. It manufactures and sells hot-wound coil
springs for automotive suspension systems and counterbalance torque bars for
trunk lids. Barnes Group owns a minority interest of 45% in NASCO.
Barnes Aerospace. Barnes Aerospace is engaged in the advanced
fabrication and precision machining of components for jet engines and airframes
as well as the overhaul and repair of jet engine components. The engines,
aerostructures, and overhaul and repair businesses constitute the Barnes
Aerospace Group.
The engine division consists of two facilities located at Windsor,
Connecticut and Lansing, Michigan. The Windsor plant manufactures machined parts
as well as assemblies. It specializes in the machining of difficult-to-process
aircraft engine superalloys. Manufacturing processes include computer
numerically controlled machining, electrical discharge machining, laser
drilling, creep-feed grinding, and automated de-burring. Customers include gas
turbine engine manufacturers for commercial and military jets as well as
land-based turbines. The Lansing plant specializes in hot forming and
fabricating titanium and other high-temperature alloys such as hastelloy and
inconel for use in precision details and assemblies for aircraft engine and
airframe applications, utilizing advanced manufacturing processes including
superplastic forming and diffusion bonding.
2
<PAGE> 4
The aerostructures division is in Ogden, Utah. It specializes in larger
dimension fabrication for commercial and military airframes. Its processes
include hot and cold forming of aerospace metals as well as associated
machining. It also possesses a tube and duct production capability.
The overhaul and repair business maintains facilities in Windsor,
Connecticut and Singapore, specializing in refurbishing jet engine components.
Electron beam welding and plasma spray are two of the special processes employed
by this business. Customers include major airlines and engine overhaul
businesses worldwide as well as the U.S. military.
Segment Analysis. The analysis of the Company's revenue from sales to
unaffiliated customers, operating profit and assets by industry segments as well
as revenues from sales to unaffiliated customers and long-lived assets by
geographic areas appearing on pages 31 through 33 of the Company's 1998 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
domestic manufacturer of precision springs used for mechanical purposes. The
Company also faces active competition in the products sold by Bowman
Distribution. The principal methods of competition for the Company's three
businesses include service, quality, price, reliability of supply, and also, in
the case of Associated Spring and Barnes Aerospace, technology and design.
Backlog. The backlog of the Company's orders believed to be firm
amounted to $169,883,000 at the end of 1998, as compared with $185,336,000 at
the end of 1997. Of the 1998 year-end backlog, $124,787,000 is attributable to
the Barnes Aerospace Group and all of the balance is attributable to the
Associated Spring Group. $27,735,000 of Barnes Aerospace's backlog is not
expected to be shipped in 1999. Substantially all of the remainder of the
Company's backlog is expected to be shipped during 1999.
Raw Materials and Customers. None of the Company's divisions or
segments is dependent upon any single source for any of their principal raw
materials or products for resale, and all such materials and products are
readily available. One customer, General Electric Co., accounted for 11.8% of
the Company's total sales in 1998. Automotive manufacturers and manufacturers of
electronic products are important customers of Associated Spring. Sales by
Barnes Aerospace to three manufacturers in the aerospace industry accounted for
approximately 63% of its business. Bowman Distribution is not dependent on any
one or a few customers for a significant portion of its sales. No other customer
accounted for more than 10% of the Company's sales for 1998 or prior years.
Although the loss of a substantial customer may have a material short-term
effect on business, the Company believes that its product line diversity would
negate any long-term impact.
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Research and Development. Although most of the products manufactured by
the Company are custom parts made to the 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 improving
significantly existing products or services. The Company spent approximately
$3,673,000 on its research and development activities in 1998, as compared to
expenditures of approximately $3,625,000 in 1997 and $3,957,000 in 1996. There
were no significant customer-sponsored research and development activities.
Patents and Trademarks. Patents, licenses, franchises and concessions
are not material to any of the Company's businesses.
Employees. As of the date of this report, the Company employs
approximately 3,800 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 Canadian subsidiary operate 12 manufacturing plants
and 14 warehouses at various locations throughout the United States and Canada,
of which all of the plants and 5 of the warehouses are owned and the others are
leased. Of the properties which are owned, none are subject to any encumbrance.
The Company's other foreign subsidiaries own or lease plant or warehouse
facilities in the countries where their operations are conducted. The listing of
the facility locations of each of the Company's businesses contained in the
Directory of Operations on page 36 of the 1998 Annual Report to Stockholders,
included as Exhibit 13 to this report, is incorporated by reference. In 1999 the
Company will close the manufacturing facility located in Arden, North Carolina.
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.
4
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Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of 1998 to a vote of
security holders.
5
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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
27 through 29 of the Company's 1998 Annual Report to Stockholders is
incorporated by reference. As of January 31, 1999, the Company's common stock
was held by 2,985 stockholders of record. The Company's common stock is traded
on the New York Stock Exchange.
Item 6. Selected Financial Data.
The selected financial data for the last five years contained on page
35 of the Company's 1998 Annual Report to Stockholders is 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 13 through 18 of the Company's 1998 Annual Report to Stockholders are
incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements and report of independent accountants
appearing on pages 19 through 34 of the Company's 1998 Annual Report to
Stockholders are incorporated by reference. See also the report of independent
accountants included on page 14 below pursuant to Item 302(a) of Regulation S-K.
The material under "Quarterly Data" on page 34 of the Company's 1998 Annual
Report to Stockholders is also incorporated by reference.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
6
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PART III
Item 10. Directors and Executive Officers of the Company.
The material under "Election of Directors" on pages 1 through 3, and
the material under "Section 16(a) Beneficial Ownership Reporting Compliance" on
page 6, of the Company's Proxy Statement dated March 17, 1999 is 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, 1998
- ----------------- -------- -----------------
<S> <C> <C>
Edmund M. Carpenter President and Chief Executive Officer 57
(since 1998)
John R. Arrington Senior Vice President, Human Resources 52
(since 1998)
Cedric D. Beckett Vice President, Barnes Group Inc.(since 1997) and 34
President, Bowman Distribution (since 1999)
Francis C. Boyle, Jr. Vice President, Controller (since 1997) 48
Leonard M. Carlucci Vice President, Barnes Group Inc. (since 1994) 52
and President, Associated Spring (since 1999)
John J. Locher Vice President, Treasurer (since 1992) 54
Terry M. Murphy Senior Vice President, Finance 50
(since 1997)
Harry G. Saddock, Jr. Vice President, Barnes Group Inc., and Vice 47
President, Operations, Associated Spring (since
1998)
</TABLE>
7
<PAGE> 9
Except for Messrs. E.M. Carpenter, Arrington, Beckett and Murphy, 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 successor is chosen and qualified or
otherwise as provided in the By-Laws; except Mr. E.M. Carpenter who holds office
pursuant to an employment agreement with the Company, which is included as
Exhibit 10.14 to this report. No family relationships exist among the executive
officers of the Company.
Mr. E.M. Carpenter joined the Company as President and Chief Executive
Officer in December 1998. From 1997 to 1998, Mr. E.M. Carpenter was a Senior
Managing Director of Clayton, Dubilier & Rice, Inc., a private equity firm. From
1988 to 1995, he was Chairman and Chief Executive Officer of General Signal
Corporation, a manufacturer of capital equipment and instruments for the process
control, electrical semi-conductor, and telecommunications industries. Prior to
serving with General Signal, he was President and Chief Operating Officer of ITT
Corporation.
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 US West Communications Group. From 1991 to 1995, Mr.
Arrington was Vice President, Human Resources, GE Electrical
Distribution/Control Group.
Mr. Beckett joined the Company as Operations Analyst in June 1994; was
promoted to Director, Operations, for Windsor Manufacturing in December 1994;
and became Acting President of that unit in April 1995. In July 1995, he was
named President, Windsor Manufacturing. He was thereafter promoted to President,
Barnes Aerospace, OEM and Fabrications, in August 1997; and in November 1997, he
was elected to the position of Vice President, Barnes Group Inc. and President,
Barnes Aerospace. Effective March 1, 1999, he was elected to the position of
Vice President, Barnes Group Inc. and President, Bowman Distribution. Prior to
joining the Company, Mr. Beckett held various positions at the Hamilton Standard
Division of United Technologies Corporation.
Item 11. Executive Compensation.
The information under "Compensation of Directors" appearing on page 4
and the information under "Compensation," "Stock Options," "Long-Term Incentive
Plan Awards," "Pension Plans," "Employment Agreement," "Change-In-Control
Agreements," and "Severance Arrangements" appearing on pages 9 through 15 of the
Company's Proxy Statement dated March 17, 1999, is incorporated by reference.
8
<PAGE> 10
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning this item appearing on pages 5 through 7 of
the Company's Proxy Statement dated March 17, 1999, is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
None.
9
<PAGE> 11
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 14 34
Consolidated balance sheets at December 31, 1998 and 1997 20
Consolidated statements of income for the years ended December 31, 19
1998, 1997 and 1996
Consolidated statements of changes in stockholders' equity for the 22
years ended December 31, 1998, 1997 and 1996
Consolidated statements of cash flows for the years ended December 21
31, 1998, 1997 and 1996
Notes to consolidated financial statements 23-33
Supplementary information 34
Quarterly data (unaudited)
Consolidated schedule for the years ended December 31, 1998, 1997
and 1996:
Schedule II - Valuation and Qualifying Accounts 15
</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.
10
<PAGE> 12
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, 1998, are hereby incorporated by reference. With the
exception of the pages listed in the above index and in Items 1, 2, 5, 6, 7 and
8, the 1998 Annual Report to Stockholders is not to be deemed filed as part of
this report.
(b) 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 and indexed at pages 16
through 18 of this report.
11
<PAGE> 13
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: February 19, 1999
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/ Terry M. Murphy
- ------------------------------------------
Terry M. Murphy
Senior Vice President, Finance
(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
12
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/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/ Donna R. Ecton
- ------------------------------------------
Donna R. Ecton
Director
/s/ Robert W. Fiondella
- ------------------------------------------
Robert W. Fiondella
Director
/s/ Frank E. Grzelecki
- ------------------------------------------
Frank E. Grzelecki
Director
/s/ Marcel P. Joseph
- ------------------------------------------
Marcel P. Joseph
Director
13
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Barnes Group Inc.
Our audits of the consolidated financial statements for the years ended December
31, 1998, 1997 and 1996 referred to in our report dated January 27, 1999
appearing on page 34 of the 1998 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 for the years ended December 31, 1998, 1997 and
1996 listed in Item 14(a) 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
January 27, 1999
14
<PAGE> 16
BARNES GROUP INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Provision
Balance at Charged to Balance
Beginning Costs and at end of
of year expenses Deductions(1) year
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
1998
Allowance for $3,061 $ 357 $1,005 $2,413
doubtful accounts
1997
Allowance for $3,158 $1,232 $1,329 $3,061
doubtful accounts
1996
Allowance for $3,635 $ 545 $1,022 $3,158
doubtful accounts
</TABLE>
- ---------------------
(1) Write-offs, net of recoveries
15
<PAGE> 17
EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the year ended December 31, 1998
<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. Filed with this report.
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 the Company's report on Form 10-K for the
1, 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 Incorporated by reference to Exhibit 4.9 to
December 1, 1995, between the Company and the Company's report on Form 10-K for the
several insurance companies. year ended December 31, 1995.
10.1 The Company's Management Incentive Incorporated by reference to Exhibit 10.1 to
Compensation Plan. the Company's report on Form 10-K for the
year ended December 31, 1995.
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
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 Filed with this report.
amended and restated May 15, 1998.
10.6 The Company's Non-Employee Director Incorporated by reference to Exhibit 10.7 to
Deferred Stock Plan. the Company's report on Form 10-K for the
year ended December 31, 1994.
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 Filed with this report.
Life Insurance Program, amended and
restated May 16, 1997.
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.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
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 Retirement Agreement dated as of July 6, Incorporated by reference to Exhibit 10 to
1998 between the Company and Theodore E. the Company's report on Form 10-Q for the
Martin. quarter ended June 30, 1998.
10.13 Amendment to Retirement Agreement set forth Filed with this
report. in Exhibit 10.12 dated as of
October 29, 1998.
10.14 Employment Agreement dated as of December Filed with this report.
8, 1998 between the Company and Edmund M.
Carpenter.
10.15 Severance Agreement dated as of February Filed with this report.
21, 1999 between the Company and Ali A.
Fadel.
13 Portions of the 1998 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.
27 Financial Data Schedule 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.
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 cents per page to security
holders who make a written request to the Secretary, Barnes Group Inc.,
Executive Office, 123 Main Street, P.O. Box 489, Bristol, Connecticut
06011-0489.
18
<PAGE> 1
EXHIBIT 3.2
BARNES GROUP INC.
AMENDED AND RESTATED BY-LAWS
(as of February 19, 1999)
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I MEETINGS OF STOCKHOLDERS......................................... 1
Section 1. Annual Meetings.................................................. 1
Section 2. Special Meetings................................................. 1
Section 3. Place of Meetings................................................ 1
Section 4. Notice of Meetings............................................... 1
Section 5. Quorom........................................................... 2
Section 6. Voting........................................................... 2
Section 7. Nominations...................................................... 2
Section 8. Proposals........................................................ 3
ARTICLE II BOARD OF DIRECTORS............................................... 4
Section 1. General Powers................................................... 4
Section 2. Number, Classification, Term of Office, and Qualifications....... 4
Section 3. Election of Directors............................................ 5
Section 4. Term of Office for Directors Elected to Newly Created
Directorships.................................................... 5
Section 5. Time of Meetings, Notices, etc................................... 5
Section 6. Quorum and Manner of Acting...................................... 6
Section 7. Resignations..................................................... 6
Section 8. Removal of Directors............................................. 6
Section 9. Vacancies and Newly Created Directorships........................ 7
Section 10. Committees....................................................... 7
ARTICLE III OFFICERS......................................................... 7
Section 1. Number, Appointment, Term of Office and Qualifications........... 7
Section 2. The President and Vice Presidents................................ 7
ARTICLE IV REIMBURSEMENT AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES........................................................ 8
Section 1. Reimbursement.................................................... 8
Section 2. Indemnification.................................................. 8
ARTICLE V SHARES AND THEIR TRANSFER........................................ 10
ARTICLE VI FISCAL YEAR...................................................... 11
ARTICLE VII AMENDMENTS....................................................... 11
i
<PAGE> 3
BARNES GROUP INC. (the "Corporation")
AMENDED AND RESTATED BY-LAWS
(as of February 19, 1999)
-------
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings.
The annual meeting of the stockholders of the Corporation for the
election of directors and for the transaction of such other business as
may properly come before the meeting shall be held on such date or time as
may be designated by the Board of Directors.
SECTION 2. Special Meetings.
Special meetings of the stockholders may be called at any time by
the Chairman of the Board, the President or the Board of Directors.
SECTION 3. Place of Meetings.
All meetings of the stockholders shall be held at such place, within
or without the State of Delaware, as may be designated by the Board of
Directors and specified in the notice to be given to the stockholders in
the manner provided in Section 4 of this Article I.
SECTION 4. Notice of Meetings.
Except as otherwise provided by law, notice of each meeting of the
stockholders, whether annual or special, shall be given to each
stockholder of record entitled to vote thereat, not less than ten days
before the day on which the meeting is to be held, by delivering a written
or printed notice thereof to the stockholder personally or by posting such
notice in a postage prepaid envelope addressed to the stockholder at the
stockholder's last known post-office address. Except as otherwise provided
by law, no publication of any notice of a meeting of the stockholders
shall be required. Every notice of a special meeting of stockholders,
besides stating the time and place of the meeting, shall state briefly the
objects thereof, and no business other than that specified in such notice
shall be presented at such meeting, except with the unanimous consent in
writing of the holders of all the outstanding shares of the Corporation
entitled to vote thereon. Nevertheless, notice of any meeting shall not be
required to be given to any stockholder who shall attend such meeting in
person or by proxy; and if any stockholder shall waive notice of any
meeting in person or by attorney thereunto authorized in writing, notice
thereof need not be given to him. Notice of any adjourned meeting of
stockholders shall not be required to be given.
SECTION 5. Quorum.
<PAGE> 4
At each meeting of stockholders, the holders of record
of a majority of the shares outstanding and entitled to vote at such
meeting, present in person or represented by proxy, shall be necessary and
sufficient to constitute a quorum for the transaction of business. In the
absence of a quorum, a majority in interest of the stockholders entitled
to vote who or which are present in person or represented by proxy at the
meeting or, if no such stockholder is present or represented, any officer
entitled to preside or act as secretary of such meeting, may adjourn the
meeting from time to time. At any such adjourned meeting at which a quorum
may be present, any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 6. Voting.
Unless otherwise provided in the Certificate of Incorporation or
these By-Laws, each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of stock held
by such stockholder. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, at all meetings of the stockholders,
all matters shall be decided by the vote of a majority in interest of the
stockholders present in person or represented by proxy and entitled to
vote, a quorum being present.
SECTION 7. Nominations.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the Corporation,
except as may be otherwise provided in the Certificate of Incorporation.
Nominations of persons for election to the Board of Directors may be made
at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 7 and on the record date for
the determination of stockholders entitled to vote at such meeting and
(ii) who complies with the notice procedures set forth in this Section 7.
In addition to any other applicable requirements, for a nomination
to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the
Corporation: (a) in the case of an annual meeting, not less than 90 days
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the
event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the stockholder in
order to be timely must be so received not later than the close of
business on the later of (i) the 90th day preceding the date of the annual
meeting and (ii) the 10th day following the day on which such notice of
the date of the annual meeting is mailed or such public disclosure of the
date of the annual meeting is made, whichever first occurs; and (b) in the
case of a special meeting of stockholders called for the purposes of
electing directors, not later than the close of business on the 10th day
following the day on which notice of the date of the special meeting is
mailed or public disclosure of the date of the special meeting is made,
whichever first occurs.
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To be in proper written form, a stockholder's notice to the
Secretary must set forth: (a) as to each person whom the stockholder
proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or series and
number of shares of capital stock of the Corporation which are owned
beneficially or of record by the person and (iv) any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to
be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the
persons named in its notice and (v) any other information relating to such
stockholder that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of
proxies for election of directors pursuant to Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder. Such notice must
be accompanied by a written consent of each proposed nominee to being
named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth
in this Section 7. If the Chairman of the Board of Directors or such other
authorized representative of the Corporation presiding over the meeting
determines that a nomination was not made in accordance with the foregoing
procedures, the Chairman of the Board of Directors or such other
authorized representative shall declare to the meeting that the nomination
was defective and such defective nomination shall be disregarded.
SECTION 8. Proposals.
No business may be transacted at an annual meeting of stockholders,
other than business that is (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the annual meeting by or
at the direction of the Board of Directors or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 8 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section 8.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form
to the Secretary of the Corporation. To be timely, a stockholder's notice
to the Secretary must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 days nor
more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the
event that the annual meeting is a called for a
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<PAGE> 6
date that is not within 30 days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not
later than the close of business on the later of (i) the 90th day
preceding the date of the annual meeting and (ii) the 10th day following
the day on which such notice of the date of the annual meeting is mailed
or such public disclosure of the date of the annual meeting is made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or
of record by such stockholder, (iv) a description of all arrangements or
understandings between such stockholder and any other person or persons
(including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before
the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 8; provided, however, that, once
business has been properly brought before the annual meeting in accordance
with such procedures, nothing in this Section 8 shall be deemed to
preclude discussion by any stockholder of any such business. If the
Chairman of the Board of Directors or such other authorized representative
of the Corporation presiding over an annual meeting determines that
business was not properly brought before the annual meeting in accordance
with the foregoing procedures, the Chairman of the Board of Directors or
such other authorized representative shall declare to the meeting that the
business was not properly brought before the meeting and such business
shall not be transacted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The Board of Directors
shall have the authority to fix the compensation of the members thereof.
SECTION 2. Number, Classification, Term of Office, and Qualifications.
The number of directors to constitute the whole Board of Directors
shall be nine, but such number may from time to time be increased, or
diminished to not less than three, by resolution adopted by the Board of
Directors. The Board of Directors shall be divided into three classes as
nearly equal in number as may be, with the term of office of one class
expiring each year. At the annual meeting of stockholders in 1970,
directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual
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<PAGE> 7
meeting, directors of the second class shall be elected to hold office for
a term expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring at the
third succeeding annual meeting. At each annual meeting of stockholders
after 1970, successors to the directors whose terms shall then expire
shall be elected to hold office for terms expiring at the third succeeding
annual meeting, except that any director elected to a directorship newly
created since the last annual meeting shall hold office for the same term
as the other directors of the class to which such director has been
assigned. When the number of directors is changed, any newly created
directorships or any decrease in directorships shall be so assigned among
the classes by the Board of Directors as to make all classes as nearly
equal in number as may be. Each director shall continue in office until
his successor shall have been elected and qualified or until his death or
until his resignation or removal in the manner hereinafter provided. No
director need be a stockholder, nor a resident of the State of Delaware.
SECTION 3. Election of Directors.
At each meeting of the stockholders for the election of directors,
the directors shall be elected by a plurality of the votes given at such
election.
SECTION 4. Term of Office for Directors Elected to Newly Created Directorships.
In furtherance of Sections 2 and 9 of this Article II, any director
elected to a directorship newly created since the last annual meeting
shall be elected to serve the term of the class to which such director is
assigned; provided, however that the stockholders of the Corporation shall
be afforded the opportunity to ratify and approve the election of that
director to the director's assigned class at the next succeeding annual
meeting of stockholders. If the election of the director is so ratified
and approved, the director shall serve out the remainder of the director's
term without further stockholder ratification or approval. Any director
elected by stockholders to a directorship newly created at an annual
meeting of stockholders at which such director is elected shall serve out
the term of the class to which such director is assigned without further
stockholder ratification or approval.
SECTION 5. Time of Meetings, Notices, etc.
There shall be an organizational meeting of the Board of Directors
for the election of officers and for the transaction of such other
business as may properly come before the meeting on the date of the annual
meeting of stockholders or as soon as practicable thereafter upon the
notice hereinafter provided for a special meeting of the Board of
Directors. The directors may, however, without notice, hold the
organizational meeting in the city where the annual meeting of
stockholders is held and immediately following such annual meeting of
stockholders. At the organizational meeting, the directors shall elect one
of the directors as Chairman of the Board of Directors. The Chairman of
the Board of Directors may, but need not, be an officer or other employee
of the Corporation. The Chairman of the Board of Directors, or in the
absence of the Chairman of the Board of Directors, any other director
selected by those directors attending the meeting, shall preside at all
meetings of the Board of Directors. The Chairman of the Board of
Directors, or in the absence of the Chairman of the Board of Directors,
the President of the Company, shall preside at all meetings of the
stockholders. The Chairman of the Board of Directors may be removed as
Chairman of the Board of Directors at any time by the Board of Directors.
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<PAGE> 8
The Board of Directors may provide by resolution for the holding of
regular meetings and may fix the time of holding such meetings. Such
regular meetings of the Board of Directors may be held without notice.
Special meetings of the Board of Directors may be called by the Chairman
of the Board of Directors, the President or any three directors. Unless
otherwise specified in the notice or waiver of notice thereof, each
meeting of the Board of Directors shall be held at the office of the
Corporation in Bristol, Connecticut. Notice of each special meeting (a)
shall be mailed to each director, addressed to the director at the
director's residence or usual place of business, at least seven days
before the day on which the meeting is to be held or (b) shall be sent to
the director by telecopy (if confirmed) or shall be telephoned or
delivered to the director personally, in any such case, not later than
three days before the day on which the meeting is to be held, unless the
Chairman of the Board of Directors or the President determines that
circumstances require that a meeting be held on shorter notice. Notice of
any meeting need not be given to any director, however, if waived by that
director in writing. Any meeting of the Board of Directors shall be a
legal meeting without any notice thereof having been given if all the
directors shall be present thereat.
SECTION 6. Quorum and Manner of Acting.
A majority of the directors at the time in office (but not less than
one-third of the number necessary to constitute the whole Board of
Directors) at a meeting duly assembled shall be necessary and sufficient
to constitute a quorum for the transaction of business, subject, however,
to the provisions of Section 9 of this Article II. Except as otherwise
provided by law, the Certificate of Incorporation or these By-Laws, the
act of a majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors. In the absence of a
quorum, a majority of the directors present at any meeting may adjourn the
meeting from time to time until a quorum is available and present. Notice
of any adjourned meeting need not be given.
SECTION 7. Resignations.
Any director may resign at any time by giving written notice to the
Chairman of the Board, the President or the Secretary. Such resignation
shall take effect at the time specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 8. Removal of Directors.
Any director may be removed at any time for cause, at a meeting of
stockholders called for the purpose, by the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of stock of
the Corporation entitled to vote in elections of directors, considered for
the purposes of this Section 8 as one class.
SECTION 9. Vacancies and Newly Created Directorships.
Any vacancy occurring among the directors by death, resignation,
removal or otherwise and any newly created directorships may be filled by
a majority of the directors then in office, though less than a quorum, or,
in the event such directors are unable to act, by the stockholders. Each
director elected to fill a vacancy shall hold office for the
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<PAGE> 9
unexpired term in respect of which such vacancy occurred. Each director
elected to a newly created directorship shall hold office until the next
annual meeting of stockholders.
SECTION 10. Committees.
The Board of Directors, by resolution or resolutions passed by a
majority of the whole Board of Directors, may appoint such committees of
the Board of Directors as the Board of Directors may determine. Such
committees shall have the powers delegated thereto by the Board of
Directors. Unless otherwise provided in a resolution of the Board of
Directors, each committee of the Board of Directors may fix its own rules
of procedure and may meet at such place or places and at such time or
times as the committee from time to time shall determine. Each such
committee shall cause its proceedings to be recorded, and the minutes of
committee meetings shall be distributed to the Board of Directors.
ARTICLE III
OFFICERS
SECTION 1. Number, Appointment, Term of Office and Qualifications.
The officers of the Corporation shall be the President and any Vice
President or other person determined by the Board of Directors to be an
"executive officer" under the rules of the U.S. Securities and Exchange
Commission. Each officer shall be appointed by the Board of Directors and
shall hold office until a successor shall have been duly appointed and
qualified or until death or until earlier resignation or removal. Any
officer may be removed either with or without cause by a vote of a
majority of the directors then in office at any meeting of the Board of
Directors at which a quorum is present.
SECTION 2. The President and Vice Presidents.
The President, subject to the instructions of the Board of Directors
and the committees of the Board of Directors, shall have general charge of
the business, affairs and property of the Corporation and control over its
several officers. The President shall perform such other duties as from
time to time may be assigned by the Board of Directors, or any committee
of the Board of Directors. At the request of the President or, in his
absence or disability, a Vice President designated by the President (or in
the absence of such designation, a Vice President designated by the Board
of Directors) shall perform all the duties of the President, and when so
acting, that Vice President shall have all the powers of, and be subject
to all restrictions upon, the President. Any Vice President shall perform
such other duties as from time to time may be assigned to that Vice
President or to Vice Presidents generally by the Board of Directors, any
committee of the Board of Directors or the President.
ARTICLE IV
REIMBURSEMENT AND INDEMNIFICATION OF
DIRECTORS, OFFICERS AND EMPLOYEES
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SECTION 1. Reimbursement.
Each director and officer of the Corporation shall be entitled to
reimbursement for his reasonable expenses incurred in connection with his
attention to the affairs of the Corporation, including attendance at
meetings. Each employee of the Corporation other than an officer shall be
entitled to such reimbursement for that employee's reasonable expenses
incurred in connection with his attention to the affairs of the
Corporation in accordance with applicable policy of the Corporation or as
the Board of Directors or any person designated by it may authorize.
SECTION 2. Indemnification.
(a) Each person who was or is a party or is threatened to be made
a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that
he/she, or a person of whom he/she is the legal
representative, is or was a director or officer of the
Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding
is alleged action or inaction in an official capacity or in
any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of
Delaware, as the same exist or may hereafter be amended,
against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, employee benefit
plan excise taxes or penalties and amounts paid or to be paid
in settlement reasonably incurred or suffered by such person
in connection therewith) and such indemnification shall
continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of
his/her heirs, executors and administrators; provided,
however, that, except as provided in subdivision (b) of this
Section 2, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to
indemnification conferred in this Section 2 shall include the
right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses
incurred by a director or officer in his/her capacity as a
director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or
officer, including, without limitation, service to any
employee benefit plan) in advance of the final disposition of
a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer
is not entitled to be indemnified under this subdivision (a)
or otherwise. The Corporation may, by action
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of the Board, provide indemnification to employees and agents
of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) If a claim under subdivision (a) of this Section 2 is not paid
in full by the Corporation within sixty days after a written
claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to
the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under the
Delaware law for the Corporation to indemnify the claimant for
the amount claimed. Neither the failure of the Corporation
(including the Board, independent legal counsel, or its
stockholders) to have made a determination prior to the
commencement of such action that indemnification of the
claimant is permissible in the circumstances because he/she
has met such standard of conduct, nor an actual determination
by the Corporation (including the Board, independent legal
counsel, or its stockholders) that the claimant has not met
such standard of conduct, shall be a defense to the action or
create a presumption that the claimant has failed to meet such
standard of conduct.
(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final
disposition conferred in this Section 2 shall not be exclusive
of any other right which any person may have or hereafter
acquire under any statute, provision of the Certificate of
Incorporation, By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense,
liability or loss under Delaware law.
(e) To the extent that any director, officer, employee or agent of
the Corporation is by reason of such position, or a position
with another entity at the request of the Corporation, a
witness in any action, suit or proceeding, he shall be
indemnified against all costs and expenses actually and
reasonably incurred by him or on his behalf in connection
therewith.
(f) The Corporation may enter into agreements with any director,
officer, employee or agent of the Corporation providing for
indemnification to the full extent permitted by Delaware law.
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(g) For purposes of this Section 2, the term "Board" shall mean
the Board of Directors of the Corporation or, to the extent
permitted by the laws of Delaware, as the same exist or may
hereafter be amended, its Executive Committee. On vote of the
Board, the Corporation may assent to the adoption of this
Article V by any subsidiary, whether or not wholly owned.
(h) The rights provided by this Section 2 shall not be available
with respect to any claim asserted against the director,
officer, employee or agent which is based on matters which
antedate the adoption of this Section 2; any such claim will
be governed by the By-Laws in effect prior to April 2, 1987.
(i) If any provision of this Section 2 shall for any reason be
determined to be invalid, the remaining provisions hereof
shall not be affected thereby but shall remain in full force
and effect.
ARTICLE V
SHARES AND THEIR TRANSFER
Certificates for stock of the Corporation shall be issued in the
form and bear the signatures required by Delaware law and otherwise shall be as
set forth in any applicable resolutions or other action of the Board of
Directors. The Corporation and its transfer agents and registrars, if any, shall
be entitled to treat the holder of record of any share or shares of stock as the
absolute owner thereof for all purposes, except as otherwise expressly provided
by the statutes of the State of Delaware. The Board of Directors may make any
such policies, rules and regulations as it may deem expedient or advisable
concerning the issuance, replacement, transfer and registration of certificates
for shares of stock of the Corporation. The Board of Directors may fix in
advance a date, determined in accordance with applicable law, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any meeting of stockholders or entitled to consent to corporate action in
writing without a meeting or entitled to receive payment of any dividend or
distribution or to any allotment of rights or to exercise the rights in respect
of any change, conversion or exchange of stock or for the purpose of any other
lawful action.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
ARTICLE VII
AMENDMENTS
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Except as otherwise provided by law or the Certificate of
Incorporation, the power to amend, alter or repeal these By-Laws and adopt new
By-Laws may be exercised by the Board of Directors or by the affirmative vote of
the holders of record of a majority of the outstanding shares of stock of the
Corporation entitled to vote.
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Exhibit 10.5
1991 BARNES GROUP STOCK INCENTIVE PLAN
As Amended and Restated as of May 15, 1998
1. Purpose
The purpose of the Plan is to authorize the grant to Key Employees of the
Company or any Subsidiary of (i) nonqualified options to purchase shares of
Common Stock, (ii) Stock Appreciation Rights, (iii) Incentive Stock Rights, and
(iv) Performance Unit Awards, and to grant Directors of the Company or any
Subsidiary nonqualified options to purchase shares of Common Stock, and thus
benefit the Company by giving such employees and Directors a greater personal
interest in the success of the enterprise and an added incentive to continue and
advance their employment or service as a Director. An additional purpose of the
Plan is to provide "qualified performance-based compensation" (within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and
the regulations thereunder ("Section 162(m)") to Key Employees.
2. Definitions
The following terms, when used in the Plan, shall mean:
1981 Plan: The Barnes Group Inc. Stock Incentive Plan adopted by the
stockholders of the Company in 1981.
Board: The Board of Directors of the Company.
CEO: The Chief Executive Officer of the Company.
Committee: Such committee as shall be appointed by the Board pursuant to
the provisions of Section 11.
Common Stock: The Common Stock of the Company, par value $0.01 per share,
or such other class of shares or other securities as may be applicable
pursuant to the provisions of Section 9.
Company: Barnes Group Inc.
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1991 Barnes Group Stock Incentive Plan
5/15/98
<PAGE> 2
Director: A member of the Board of Directors of the Company or a Subsidiary
who is not an employee of the Company or a Subsidiary.
Disability: Inability to perform the services normally rendered by the
employee or Director due to any physical or mental impairment that can be
expected either to be of indefinite duration or to result in death, as
determined by the Committee on the basis of appropriate medical evidence.
Fair Market Value: As applied to the Common Stock on any day, the closing
market price of such stock as reported in the New York Stock Exchange
Composite Transactions Index for such day, or if the Common Stock was not
traded on such day, for the last preceding day on which the Common Stock
was traded.
Incentive: An incentive granted under the Plan in one of the forms provided
for in Section 3.
Key Employee: An employee of the Company or of a Subsidiary, including an
officer or a member of the Board of Directors who is an employee, who in
the Committee's or CEO's judgment can contribute significantly to the
growth and successful operations of the Company or a Subsidiary.
Option: An option to purchase shares of Common Stock.
Plan: The 1991 Barnes Group Stock Incentive Plan herein set forth, as
amended from time to time.
Subsidiary: A corporation in which the Company owns, directly or
indirectly, at least 50% of the voting stock.
3. Grants of Incentives
(a) Subject to the provisions of the Plan, the Committee may at any time,
or from time to time, grant Incentives under the Plan to, and only to, Key
Employees and, with respect to Options only, to Directors. In addition,
subject to the provisions of the Plan, the CEO may also grant Options to
Key Employees, but only in connection with the hiring or promotion of such
Key Employees and only if such Key Employees are not (or, by virtue of such
hiring or promotion, would not become) subject to the reporting
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1991 Barnes Group Stock Incentive Plan
5/15/98
<PAGE> 3
requirements under Rule 16a promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Any Options granted by the CEO
shall be (i) evidenced by a written instrument in the form most recently
approved by the Committee for such Option and (ii) subject to, if
applicable, the performance targets and incentive periods most recently set
forth by the Committee for such Option. For purposes of the Plan, grants by
the CEO complying with this Section 3(a) shall be deemed to have been
effected by the Committee.
(b) Incentives may be in the following forms:
(i) an Option, in accordance with Section 5;
(ii) a Stock Appreciation Right, in accordance with Section 6;
(iii) an Incentive Stock Right, in accordance with Section 7;
(iv) a Performance Unit Award, in accordance with Section 8; or
(v) a combination of two or more of the foregoing.
4. Stock Subject to the Plan
(a) Subject to adjustment as provided in Section 9, the aggregate number of
shares of Common Stock which may be issued subject to Incentives granted
under the Plan shall not exceed the sum of (i) 3,000,000 shares and (ii)
the number of shares of stock covered by outstanding options (or
installments thereof) granted under the 1981 Plan which, after its
expiration, shall terminate or expire in whole or in part without being
exercised. Charges against such aggregate number are governed by the
provisions of paragraph (c) of this Section 4, paragraph (k) of Section 5,
paragraph (e) of Section 6, paragraph (c) of Section 7, and paragraph (e)
of Section 8. No Key Employee may receive grants of Options, Stock
Appreciation Rights or Incentive Stock Rights in any year relating to
shares of Common Stock which in the aggregate exceed 150,000 shares, which
number shall be adjusted pursuant to the terms hereof.
(b) Such shares may be either authorized but unissued shares or shares
issued and thereafter acquired by the Company.
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(c) If any shares subject to an Incentive shall cease to be subject thereto
because of the termination without exercise or payment, in whole or in
part, of such Incentive, the shares as to which the Incentive was not
exercised or paid shall no longer be charged against the limits in
paragraph (a) of this Section 4 and may again be made subject to
Incentives.
(d) The Committee may permit the voluntary surrender of all or a portion of
any Incentive granted under this Plan conditioned upon the granting to the
employee of a new Incentive for the same or a different number of shares or
amount of other payment as the Incentive surrendered, or it may require
such voluntary surrender as a condition to a grant of a new Incentive to
such employee. Such new Incentive shall be exercisable at the price, during
the period, and in accordance with any other terms or conditions specified
by the Committee at the time the new Incentive is granted, all determined
in accordance with the provisions of this Plan without regard to the price,
period of exercise, or any other terms or conditions of the Incentive
surrendered.
5. Options
Incentives, in the form of options to purchase shares of Common Stock,
shall be subject to the following provisions:
(a) The Option price per share shall be determined as of the effective date
of the grant and shall not be less than 85% of the Fair Market Value of the
Common Stock at the time of the grant of the Option. In no event shall the
Option price be less than the par value of the stock which is the subject
of the Option.
(b) Each Option shall expire at such time as the Committee may determine at
the time the Option is granted; provided, however, that no Option may,
under any circumstances, expire later than ten years from the date such
Option shall have been granted.
(c) Any Option granted under the Plan may be exercised solely by the person
to whom granted, by his/her guardian or legal representative, or, in the
case of death, by an estate.
(d) No Option may be exercised less than 12 months from the date it is
granted. After completion of any additional required period of employment
or service as a
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Director specified in the Option grant, the Option may be exercised, in
whole or in part, at any time or from time to time during the balance of
the term of the Option, except as limited by provisions contained in the
Option (including provisions regarding exercise in installments).
(e) If the optionee terminates employment or service as a Director prior to
attaining age 55, the Option shall terminate 90 days after termination of
employment or service as a Director, except in the case of death or
Disability.
(f) If employment or service as a Director terminates as a result of death
or Disability, or if the Optionee terminates employment or service as a
Director after attaining age 55, the Option shall terminate five years
after termination of employment or service as a Director; provided,
however, if the Optionee's employment is terminated upon the request of the
Company after the Optionee attains age 55, the Option may be terminated by
the Committee effective 90 days after termination of employment.
(g) Notwithstanding anything else in this Section 5 to the contrary, (1)
the Committee may provide that an Option will terminate prior to time
periods specified in paragraphs 5(e) and 5(f) on conditions specified by
the Committee and incorporated in an Option Agreement between the Company
and the person receiving the option; and (2) in no event may any Option be
exercised after the expiration date thereof.
(h) Shares purchased upon exercise of an Option shall be paid for in full
within twenty days of the date of exercise in cash or, with the consent of
the Committee, in whole or in part in shares of Common Stock based on their
Fair Market Value on the date of exercise.
(i) If so authorized by the Committee, the Company may, with the consent of
the optionee, and at any time or from time to time, cancel all or a portion
of any Option granted under the Plan then subject to exercise and discharge
its obligation in respect of the Option either by payment to the optionee
of an amount of cash equal to the excess, if any, of the Fair Market Value,
at such time, of the shares subject to the portion of the Option so
canceled over the aggregate option price of such shares, or by issuance or
transfer to the optionee of shares of Common Stock with a Fair Market
Value, at such time, equal to any such excess, or by a combination of cash
and shares.
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(j) The forms of Option authorized by the Plan may contain such other
provisions as the Committee shall deem advisable.
(k) Upon the exercise of an Option there shall be charged against the
limits in paragraph (a) of Section 4 the number of shares issued to the
optionee. Upon the cancellation of any Option pursuant to paragraph (i) of
Section 5, there shall be charged against the limitations in paragraph (a)
of Section 4 a number of shares equal to (A) the number of any shares
issued to the optionee plus (B) the number of shares purchasable with the
amount of any cash paid to the optionee on the basis of the Fair Market
Value as of the date of payment; and the number of shares subject to the
portion of the Option so canceled, less the number of shares so charged
against such limitations, shall thereafter be available for other grants of
Incentives.
(l) An Option will not be treated as an Incentive Stock Option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended.
6. Stock Appreciation Rights
(a) A Stock Appreciation Right ("SAR") may be granted in connection with
any Option granted under the Plan, either at the time of the grant of such
Option or at any time thereafter during the term of the Option, or
independently of the grant of an Option.
(b) An SAR shall entitle the holder thereof, upon exercise of the SAR, to
receive a number of shares of Common Stock or cash or a combination of cash
and shares (as the Committee in its discretion may elect) determined
pursuant to paragraph (d) of this Section 6.
(c) An SAR shall be subject to the following terms and conditions and to
such other terms and conditions not inconsistent with the Plan as shall
from time to time be approved by the Committee:
(i) If granted in connection with an Option, an SAR shall be
exercisable at such time or times and by such person or persons and to
the extent, but only to the extent, that the Option to which it
relates shall be exercisable; provided, however, that such SAR shall
be exercisable only during the ten-day periods
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(the "Exercise Periods") beginning on the third business day following
the date of release of a summary statement of the Company's quarterly
or annual sales and earnings and ending on the twelfth business day
following such date of release.
(ii) If granted independently of an Option, an SAR shall be subject to
the following provisions:
(A) If a person terminates employment prior to attaining age 55,
the SAR shall terminate 90 days after the termination of
employment, except in the case of death or Disability.
(B) If employment terminates as a result of death or Disability
or if a person terminates employment after attaining age 55, the
SAR will terminate one year after the termination of employment.
(d) Upon exercise of an SAR, the holder thereof shall be entitled to
receive a number of shares equal in Fair Market Value to (1) the amount by
which the Fair Market Value of a share of Common Stock on the date of such
exercise shall exceed the Fair Market Value of a share of Common Stock on
the date of grant of the related Option, or, in the case of any SAR granted
independently of an option, on the date of grant of such SAR, multiplied by
(2) the number of shares in respect of which the SAR shall have been
exercised. Settlement for any fraction of a share due shall be made in
cash. The Committee may settle all or any part of the Company's obligation
arising out of an exercise of any SAR by the payment of cash equal to the
aggregate value of the shares of Common Stock that it would otherwise be
obligated to deliver under the provisions of this paragraph (d).
(e) Upon exercise of any SAR, (i) there shall be charged against the
limitations in paragraph (a) of Section 4 a number of shares equal to (A)
the number of shares issued to the grantee under paragraph (d) of this
Section 6 plus (B) the number of shares purchasable with the amount of any
cash paid to the grantee on the basis of the Fair Market Value as of the
date of payment and (ii) the portion of the Incentive in respect of which
such SAR shall have been exercised shall be canceled and the number of
shares subject to such portion, less the number of shares so charged
against such limitations, shall thereafter be available for other grants of
Incentives.
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7. Incentive Stock Rights
(a) An Incentive Stock Right will consist of incentive stock units, each of
which will be equivalent to one share of Common Stock. An Incentive Stock
Right will be evidenced by an agreement in form approved by the Committee;
will be nontransferable; will entitle the holder to receive shares of
Common Stock, without payment to the Company, after the lapse of the
incentive period or periods established by the Committee and subject to the
satisfaction of any performance goals established by the Committee from the
performance criteria set forth in Section 14 hereof with respect to such
Incentive Stock Rights; and will be subject to the limitations in paragraph
(a) of Section 4. The terms of the agreement evidencing an Incentive Stock
Right shall provide that holders of Incentive Stock Rights will be
entitled, from the date of the award, either (1) to receive from the
Company cash payments equal to the amount of dividends declared on the
number of shares of Common Stock equal to the number of incentive stock
units held by them, such payments to be made on or about the Company's
dividend payment dates or (2) to be credited with dividend equivalents
based upon dividends paid on outstanding shares of Common Stock. Such
dividend equivalents, once credited, shall be converted into a number of
additional incentive stock units, as of each dividend payment date, in
accordance with the following formula:
(A x B) /C
in which "A" equals the number of incentive stock units credited to the
holder on the dividend payment date, "B" equals the dividend per share and
"C" equals the Fair Market Value per share of Common Stock on the dividend
payment date. If a dividend is paid in property other than cash, dividend
equivalents shall be credited, as of the dividend payment date, in
accordance with the formula set forth above, except that "B" shall equal
the fair market value per share of the property which the holder would have
received in respect of the number of shares of Common Stock equal to the
number of incentive stock units credited to the holder as of the dividend
payment date, had such shares been owned as of the record date for such
dividend.
(b) If an employee terminates employment prior to attaining age 55, all
Incentive Stock Rights will terminate on the date employment terminates,
except in the case of death or Disability. Except as otherwise provided in
the agreement evidencing the
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Incentive Stock Right, if employment terminates as a result of death or
Disability, or after attainment of age 55, the Committee may elect, at any
time during or at the end of the Incentive period, to award a portion of
the shares of Common Stock that would have been awarded, but for the
termination of employment, equal to the number of months in the incentive
period prior to the termination date divided by the number of months in the
incentive period.
(c) After the issuance of shares in respect of Incentive Stock Rights,
there will be charged against the limitations in paragraph (a) of Section 4
a number of shares equal to the number of shares so issued.
(d) To the extent not inconsistent with Section 162(m), the Committee may
make such adjustments to any performance goals or to the Company's
financial results as it deems appropriate for changes in accounting
practices or principles, for material acquisitions or dispositions of stock
or property, for recapitalizations or reorganizations or for any other
events with respect to which the Committee determines such an adjustment to
be appropriate in order to avoid distortion in the operation of the Plan.
8. Performance Unit Awards
(a) A Performance Unit Award will consist of performance units granted to
Key Employees selected by the Committee which can be paid in cash or shares
of Common Stock. Performance units may be granted alone or in conjunction
with and related to an Option. When granted in conjunction with an Option,
the number of performance units, unless otherwise provided by the
Committee, will be equal to the number of shares under the related Option.
To the extent that the Committee elects to pay performance units granted
with a related Option, there will be a proportionate reduction in the
number of shares available under such Option and any related SAR. To the
extent the related Option or an SAR granted in connection with such Option
is exercised, the related number of performance units will be
proportionately reduced.
(b) The Committee will establish an initial value for each performance unit
at the time of grant. At that time, the Committee will also establish
performance targets (from the performance criteria set forth in Section 14
hereof) to be achieved during the award period of not less than one year
set by the Committee. The value of the performance units at the end of the
award period will be determined by the degree to which the performance
targets are achieved. Performance Unit Awards will be subject
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to the limitations in paragraph (a) of Section 4 and will be evidenced by
agreements setting forth the initial value for each performance unit, the
performance targets, the award period and such other terms and conditions
not inconsistent with the Plan as the Committee may determine.
(c) Payment, if any, at the end of the award period will be made in cash,
shares of Common Stock, or both, as determined by the Committee. In no
event shall payment to an individual in respect of any Performance Unit
Award exceed $250,000 in value. A Performance Unit Award granted alone, not
in conjunction with an Option, is automatically payable if the conditions
are met. A Performance Unit Award granted in conjunction with an Option is
payable only if the conditions are met and then at the election of the
Committee, as an alternative to the continuance of the related option and
any related SAR. The Committee may make this election to pay only during
the first two months after the end of the award period. If the election to
pay is not made, the Performance Unit Award terminates and the related
Option and SAR continue in effect.
(d) In the event of termination of employment prior to the end of the award
period by reason of death, Disability, or termination of employment after
attainment of 55 years of age, a pro rata portion of the value of the
performance units at the end of the award period will be paid to the
employee (or his/her estate in the case of death), unless the Committee
determines that a different portion should be payable or elects to
terminate the award. Except as otherwise determined by the Committee, upon
termination of employment under any other circumstances, the Performance
Unit Award will terminate.
(e) Upon payment of a Performance Unit Award, there shall be charged
against the aggregate limitations in paragraph (a) of Section 4 a number of
shares equal to (i) the number of any shares issued to the employee in
respect of the Performance Unit Award plus (ii) the number of shares
purchasable with the amount of any cash paid to the employee in respect of
the Performance Unit Award on the basis of the Fair Market Value of the
Common Stock as of the date of payment.
(f) To the extent not inconsistent with Section 162(m), the Committee may
make such adjustments to the performance goals or to the Company's
financial results as it deems appropriate for changes in accounting
practices or principles, for material acquisitions or disposition of stock
or property, for recapitalizations or reorganizations
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or for any other events with respect to which the Committee determines such
an adjustment to be appropriate in order to avoid distortion in the
operation of the Plan.
9. Adjustment Provisions
The Options granted under the Plan shall contain such provisions as the
Committee may determine with respect to adjustments to be made in the number and
kind of shares covered by such Options and in the Option price in the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, and in the event of any such
change, the aggregate number and kind of shares available under the Plan and the
maximum number of Options, Stock Appreciation Rights, and Incentive Stock Rights
which can be granted to any individual shall be appropriately adjusted. In the
event of any such change, equitable adjustments shall also be made by the
Committee in its discretion in the terms and conditions of any SAR, Incentive
Stock Right, or Performance Unit Award granted under the Plan.
10. Term
The Plan, as amended and restated as of February 16, 1996, shall become
effective if and when approved by the Company's stockholders at the 1996 Annual
Meeting. In the absence of such approval, the Plan, as in effect prior to such
amendment and restatement, shall remain in effect. No Incentives shall be
granted under the Plan after April 2, 2006.
11. Administration
(a) The Plan shall be administered by the Committee, to be appointed from
time to time by the Board consisting of not less than three members of the
Board. Each member of the Committee shall qualify as an "outside director"
within the meaning of Section 162(m).
(b) Incentives under the Plan shall be granted in accordance with the
Committee's determinations pursuant to the Plan, by execution and prompt
delivery to the employee of instruments approved by the Committee. Any such
grant shall be effective on the date of such determination or, if after, on
the date specified in the instrument evidencing the grant.
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(c) The interpretation and construction by the Committee of any provision
of the Plan and of any Incentive granted thereunder shall, unless otherwise
determined by the Board, be final and conclusive on all persons having any
interest thereunder.
12. General Provisions
(a) Absence on leave because of military or governmental service, or other
reason, if such absence is approved by the Committee, shall not be
considered an interruption or termination of employment or service as a
Director for any purpose of the Plan, or Incentives granted thereunder,
except that no Incentive may be granted to an employee or Director while
he/she is absent on leave.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any employee any right to continue in the employ of the
Company or a Subsidiary.
(c) No shares of Common Stock shall be sold, issued, or transferred
pursuant to, or accepted as payment of the Option price of, an Incentive
unless and until there has been compliance, in the opinion of the Company's
General Counsel, with all applicable legal requirements, including without
limitation those relating to securities laws and stock exchange listings.
(d) No employee or Director (individually or as a member of a group), and
no beneficiary or other person claiming under or through him/her, shall
have any right, title, or interest in or to any shares of Common Stock
allocated or reserved for the Plan or subject to any Incentive except as to
such shares of Common Stock, if any, as shall have been sold, issued, or
transferred to him/her.
(e) The Company or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which the Company or
Subsidiary determines it is required to withhold in connection with any
Incentive.
(f) No Incentive and no rights under the Plan, contingent or otherwise, (i)
shall be assignable or subject to any encumbrance, pledge, or charge of any
nature, whether by operation of law or otherwise, (ii) shall be subject to
execution, attachment, or similar process, or (iii) shall be transferable
other than by will or the laws of descent and distribution, and every
Incentive and all rights under the Plan shall be exercisable
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during the employee's or Director's lifetime only by him/her or by a
guardian or legal representative.
(g) Nothing in the Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan,
practice, or arrangement for the payment of compensation or fringe benefits
to any employee or Director which the Company or any Subsidiary now has or
may hereafter put into effect, including without limitation any retirement,
pension, savings or thrift, insurance, death benefit, stock purchase,
incentive compensation, or bonus plan.
13. Amendment or Discontinuance of Plan
(a) The Plan may be amended by the Board at any time, provided that,
without the approval of the stockholders of the Company, no amendment shall
be made if stockholder approval is required in order for the Plan to comply
with Rule 16b-3 promulgated under the Exchange Act or Section 162(m).
(b) The Board may discontinue the Plan at any time.
(c) No amendment or discontinuance of the Plan shall adversely affect,
except with the consent of the holder, any Incentive theretofore granted.
14. Performance Goals
The Committee may establish performance goals or targets in connection with
the grant of, and as a condition to payment in respect of, Incentive Stock
Rights and shall establish performance goals or targets in connection with the
grant of, and as a condition to payment in respect of Performance Unit Awards.
Such goals or targets shall be expressed in terms of one or more of the
following financial criteria or objectives of the Company: Net Income; Earnings
Per Share; Return on Equity; Return on Invested Capital; or Performance Profit.
For purposes of the Plan:
(a) "Return on Equity" shall mean net income divided by stockholders'
equity;
(b) "Return on Invested Capital" shall mean net income before interest and
taxes times one minus the tax rate divided by interest-bearing debt plus
equity;
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(c) "Performance Profit" shall mean operating income minus the charge for
the capital employed in the unit's basic business that is used in the
Company's current operating plan.
* * * * *
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<PAGE> 1
EXHIBIT 10.8
BARNES GROUP INC.
SENIOR EXECUTIVE ENHANCED LIFE INSURANCE PROGRAM
Section 1. Purpose
The Senior Executive Enhanced Life Insurance Program (SEELIP) is designed
to provide an alternative to the Company's standard group term life insurance
plan to officers and selected employees of Barnes Group Inc. that provides
increasing cash value and little or no post-retirement income tax liabilities.
Section 2. Definitions
2.1 "Base salary" means annual compensation excluding any bonuses or other
special compensation.
2.2 "Company" means Barnes Group Inc.
2.3 "Life Insurance Company" means Confederation Life Insurance Company of
Atlanta, Georgia or any other insurance carrier that the Company might use
for this program.
2.4 "Eligible Employee" means: (i) any officer of Barnes Group Inc.; or (ii)
an employee of Barnes Group Inc. who has been designated to participate in
the SEELIP by the Board of Directors of Barnes Group Inc.; and who is
hired on or before his/her 55th birthday.
2.5 "Participant" means an Eligible Employee who has met insurance
underwriting requirements and is issued a policy under the terms of this
Plan.
1
<PAGE> 2
SENIOR EXECUTIVE ENHANCED LIFE INSURANCE PROGRAM
2.6 "Plan" means the Barnes Group Inc. Senior Executive Enhanced Life
Insurance Program (SEELIP).
2.7 "Plan Year" means October 1 through September 30th.
Section 3. Administration
The Senior Executive Enhanced Life Insurance Program shall be administered
by the Benefits Committee of the Board of Directors, and is insured with
individual life insurance policies issued on the lives of Plan Participants.
Section 4. Participation in the Plan
4.1 Each Eligible Employee of the Company may participate in the Senior
Executive Enhanced Life Insurance Plan on the October 1st coinciding with
or next following his or her date of eligibility for the Company's group
term life insurance plan.
4.2 Eligible Employees may apply to become participants in the Plan by
completing an application to the Life Insurance Company and submitting any
required documentation. Acceptance in the Plan is subject to insurance
company underwriting requirements. An Eligible Employee shall become a
Participant in the Plan when an insurance policy covering him or her is
issued by the Life Insurance Company.
2
<PAGE> 3
SENIOR EXECUTIVE ENHANCED LIFE INSURANCE PROGRAM
Section 5. Benefits
5.1 The basic life insurance benefit equals four (4) times the Eligible
Employee's annual base salary, rounded up to the next $1,000. This benefit
may be reduced by policy loans or withdrawals against the cash value of
the policy.
5.2 When a Participant receives a salary increase other than in the beginning
of the Plan Year, the amount of additional life insurance (equal to four
(4) times the salary increase rounded up to the next $1,000) will be
provided through the Company's group term life insurance plan. This
additional life insurance benefit will be assumed by the Senior Executive
Enhanced Life Insurance Program on the next October 1, subject to
insurance company underwriting requirements.
5.3 The owner of the policy is the Participant unless otherwise designated by
the Participant. The cash value of the insurance policy belongs to the
owner. Beneficiary designations are named by the owner of the policy and
may be changed at any time. Upon termination of employment, the policy may
be continued by the policy owner.
Section 6. Payment of Premiums
6.1 While a Participant is an employee, the Company shall pay the full cost of
the insurance policy. In addition the Company shall reimburse the
Participant for a portion of the federal income taxes paid by the
Participant as a result of the foregoing premium payments.
3
<PAGE> 4
SENIOR EXECUTIVE ENHANCED LIFE INSURANCE PROGRAM
6.2 Except as provided in Section 6.3, the Company shall cease paying the cost
of the policy at the end of the quarter in which any of the following
occurs:
(a) a Participant terminates employment with the Company, or
(b) six months after the commencement of an unpaid leave of absence, or
(c) two years after the Participant is first absent from work because of
a disability.
6.3 If a Participant who has ten years of service with the Company and/or an
affiliate of the Company, terminates employment after attaining age 55,
the Company shall continue to pay the cost of the insurance until it is
fully paid and shall reimburse the Participant for a portion of the
federal income taxes resulting from such payments.
6.4 If the Company ceases paying premiums for any reason including those in
Section 6.2, the policy owner may continue paying the premium on his own,
may borrow against the policy to pay premiums, or may cash in the policy.
Section 7. Sole Life Insurance Benefit
Notwithstanding anything to the contrary in any benefit materials or
summary plan descriptions, a Participant in the Plan shall have no rights to any
benefits under any other group life insurance program funded in whole or in part
by the Company or any of its affiliates.
Section 8. Miscellaneous
4
<PAGE> 5
SENIOR EXECUTIVE ENHANCED LIFE INSURANCE PROGRAM
8.1 The Board of Directors of the Company reserves the right to amend, modify,
withdraw or add to any of the benefits, terms or conditions of the Plan at
any time.
8.2 The Benefits Committee of the Board of Directors shall, in its sole
discretion, interpret and construe the Plan's terms and provisions and
determine an individual's eligibility for benefits. Any interpretations,
constructions or determinations made by the Benefits Committee in good
faith shall be final and binding. 8.3 Circumstances not specifically
covered in this Plan Document will be reviewed by the Benefits Committee
and the Committee in its discretion will apply such rules as it deems
appropriate.
5
<PAGE> 1
EXHIBIT 10.13
AMENDMENT TO RETIREMENT AGREEMENT
This Amendment to Retirement Agreement (the "Amendment") is entered into
by Theodore E. Martin (the "Employee") and Barnes Group Inc., a Delaware
corporation (the "Company") (collectively, the "Parties"), in consideration of
the respective agreements and promises of the Parties contained in this
Amendment. The Parties acknowledge that the terms and conditions of this
Amendment have been voluntarily agreed to and that such terms are intended to be
final and binding.
WHEREAS, the Parties entered into a Retirement Agreement dated July 6,
1998 (the "Retirement Agreement");
WHEREAS, the parties desire to amend the Retirement Agreement as
set forth in this Amendment;
NOW, THEREFORE, it is hereby agreed as follows:
1. Section 2(g) of the Retirement Agreement is hereby amended in its
entirety to read as follows:
"(g) The Company shall pay to Employee within ten (10) days after January
15, 1999 an amount in cash equal to $1,305,420 in satisfaction of all of
his outstanding performance units under the Company's 1996 Long Term
Incentive Plan."
2. Section 2(m) of the Retirement Agreement is hereby amended in its
entirety to read as follows:
"(m) In respect of all incentive stock units granted to the Employee, the
Company shall pay to the Employee an amount equal to the product of (1)
125,199 and (2) the greater of (i) the closing per share price of the
Company's common stock on the Retirement Date and (ii) $30. The Company
shall pay such amount in cash within ten (10) days after January 15, 1999.
In addition, within ten (10) days after January 15, 1999, the Company
shall pay to the Employee an amount equal to the product of (1) 96,000 and
(2) the aggregate per share cash dividends paid to the Company's
shareholders in the third and fourth quarters of 1998."
<PAGE> 2
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3. Except as specifically provided herein, the Retirement Agreement shall
remain in full force and effect in accordance with its terms.
BARNES GROUP INC.
By: /s/ Thomas O. Barnes
----------------------------
Thomas O. Barnes
Chairman
STATE OF CONNECTICUT )
) SS.
COUNTY OF HARTFORD )
On this 29 day of October, 1998, before me personally appeared Thomas O.
Barnes, to me known to be the person who executed this Amendment To Retirement
Agreement and acknowledged that he executed the same as his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal in the Country and State aforesaid, the day and year first above written.
Notary Public
/s/ Wilma D. Hart
My Commission Expires:
June 30, 2001
By: /s/ Theodore E. Martin
----------------------------
Theodore E. Martin
STATE OF CONNECTICUT )
) SS.
COUNTY OF HARTFORD )
On this 29 day of October, 1998, before me personally appeared Theodore E.
Martin, to me known to be the person described in and who executed this
Amendment To
<PAGE> 3
-3-
Retirement Agreement and acknowledged that he executed the same as his free act
and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal in the Country and State aforesaid, the day and year first above written.
Notary Public
/s/ Wilma D. Hart
My Commission Expires:
June 30, 2001
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 8th day of December, 1998, by and between
Barnes Group Inc., a Delaware corporation (the "Company"), and Edmund M.
Carpenter (the "Executive").
WHEREAS, the Company desires to enlist the services and employment of
the Executive as the President and Chief Executive Officer of the Company and
the Executive is willing to render such services on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and provisions of this
Agreement, the Company hereby agrees to employ the Executive and the Executive
hereby agrees to be employed by the Company for the period commencing on the
date hereof (the "Commencement Date") and ending on December 31, 2001, unless
extended as provided below or terminated sooner as provided in Section 6 hereof
(the "Employment Term"); provided, however, that on December 31, 1999 and on
each December 31 thereafter, the Employment Term shall be automatically extended
for an additional one (1) year period so long as neither the Company nor the
Executive has provided the other party with not less than ninety (90) days prior
written notice that the Employment Term shall not be so extended.
Notwithstanding the foregoing, in no event shall the Employment Term extend
beyond December 31 of the calendar year in which the Executive attains age 65.
2. Position and Duties. During the Employment Term the Executive shall
be employed and shall serve as the President and Chief Executive Officer of the
Company and shall have complete responsibility for the day-to-day management and
operations of the Company and such other duties consistent with the position of
CEO of a publicly-held company as are reasonably assigned to him by the Board of
Directors of the Company (the "Board"). The Executive shall report solely and
directly to the Board and shall perform such other duties, services and
responsibilities as may from time to time be requested by the Board. On the
Commencement Date, the Board shall appoint the Executive to the Board to fill
the position thereon previously held by the Company's immediately former Chief
Executive Officer. As of the Commencement Date and thereafter during the
Employment
<PAGE> 2
Term, all other officers of the Company and any of its subsidiaries shall report
to the Executive or to one of his designees. The Executive shall devote his full
business time, attention and skill to the performance of his duties, services
and responsibilities hereunder, and will use his best efforts to promote the
interests of the Company; provided, however, that the Executive shall be
entitled to (a) serve on the boards of directors of the three (3) publicly-held
companies listed on Schedule A, attached hereto, and on such additional boards
of directors as may be specifically approved in writing by the Board (but not
more than the boards of four (4) publicly-held companies at any one time), (b)
serve on corporate, civic or charitable boards or committees, (c) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(d) manage private investments, in the case of each of (a) through (d), so long
as such activities do not materially interfere with the performance of
Executive's duties hereunder.
The Company will (i) include the Executive in its class of
directors nominated for election to the Board for a term of three (3) years at
the Company's next annual meeting of stockholders during the Employment Term and
at each third annual meeting thereafter during the Employment Term and will use
its reasonable best efforts to cause the Executive to be elected to the Board at
each such meeting, (ii) appoint the Executive to serve as a member of the boards
of directors of each of the Company's subsidiaries (each a "Subsidiary Board")
during the Employment Term, and (iii) upon the Executive's election to the Board
or appointment to any Subsidiary Boards, appoint the Executive to serve as a
member of the Executive Committees (if established) of the Board and each
Subsidiary Board. During the Employment Term the Executive shall also be
permitted to participate actively and meaningfully with the appropriate
committees of the Board in the establishment of targets and performance goals
with respect to the Company's bonus, incentive and equity-based award plans.
3. Location. The Executive shall perform his duties hereunder primarily
at the Company's executive office in Bristol, Connecticut, and shall perform
duties at such other locations as are reasonably designated by the Board. The
Executive shall promptly establish and maintain a residence in the central
Connecticut area.
4. Compensation and Benefits.
4.1 Base Salary. In consideration of the performance of all of
the Executive's obligations during the Employment Term (including any services
as an officer, director, employee, member of any committee of the Board or
Subsidiary Board, or otherwise), the Company will during the Employment Term pay
the Executive a base salary
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(the "Salary") at an annual rate of $550,000, subject to increase but not
decrease each year by the Board in its sole discretion. Any increased Salary
shall then constitute the "Salary" for purposes of this Agreement. The Salary
shall be payable in equal installments on the first working day of each month.
All payments and benefits hereunder shall be subject to all applicable taxes
required to be withheld by the Company pursuant to federal, state or local law.
4.2 Relocation Allowance. The Executive shall be entitled to a
one-time lump sum payment of $100,000 as a relocation allowance, which shall be
paid to the Executive upon securing housing in central Connecticut during the
Employment Term; such allowance shall be fully grossed up by the Company for any
taxes incurred thereon pursuant to the terms of the Company's relocation plan
(but the effective rate of tax for this purpose shall not exceed 45 percent).
4.3 Reimbursement of Legal Fees. Upon presentation of
documentation reasonably acceptable to the Company, the Company shall reimburse
the Executive for reasonable legal fees and expenses incurred in connection with
(i) any good faith action brought by the Executive to enforce his rights under
this Agreement (or to respond to any action commenced by the Company) but only
those fees and expenses attributable to claims with respect to which there was a
substantial likelihood that the Executive would prevail on the merits, and (ii)
the negotiation and documentation of this Agreement.
4.4 Expenses. The Company shall reimburse the Executive for
all reasonable expenses incurred by the Executive in connection with the
performance of his duties, services and responsibilities under this Agreement in
accordance with the Company's expense reimbursement policy then in effect upon
presentation of documentation reasonably acceptable to the Company.
4.5 Annual Bonus. Each full calendar year during the
Employment Term the Executive shall be eligible to receive an annual bonus
pursuant to the Company's Management Incentive Compensation Plan and any
successor plan (the "MICP"). Under the MICP, the amount of such annual bonus
will be 50% of the Salary upon the attainment of the target performance goal, up
to a maximum annual bonus of 150% of Salary. The amount and payment of such
bonus shall be based on the attainment of performance goals to be established by
the Board in accordance with the MICP. For the calendar year 1999 (without
duplication of any payments under Section 7 hereof or the Change in Control
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<PAGE> 4
Severance Agreement (as defined below)), the Executive shall be entitled to a
bonus under the MICP of at least $275,000, so long as he remains in the employ
of the Company through December 1, 1999.
4.6 Incentive Compensation. As of January 1, 1999, the
Executive shall participate in the Company's 1996 Long Term Incentive Plan and
any successor plan (the "LTIP"). With respect to the two (2) plan cycles that
will have commenced as of January 1, 1999, the Executive will receive LTIP units
for such cycles as follows:
(i) 27,200 units for the 1997-1999 cycle, and
(ii) 63,100 units for the 1998-2000 cycle.
The Executive's long-term incentive objective for the 1999-2001 cycle has been
set at $1,255,000 and will be apportioned between LTIP units and stock options
at the meeting of the Compensation Committee of the Board to be held in
February, 1999 (the "February Meeting").
4.7 Stock Options. The Company shall grant to the Executive on
the Commencement Date options (the "Commencement Option") to acquire 75,000
shares of Company common stock, par value $0.01 per share ("Company Stock"), at
a per share exercise price of 85% of the fair market value of each such share on
the date of grant. The Commencement Option shall (i) have a term of ten (10)
years, (ii) vest and become exercisable ratably on each of the first four
anniversaries of the grant date based on the Executive's continued employment
with the Company, (iii) provide for optional forms of exercise which are
consistent with those provided in the Company's 1991 Stock Incentive Plan (the
"SIP"), and (iv) provide for a post-termination exercise period of (A) three (3)
years following termination of the Executive's employment by the Company without
Cause, by reason of the Executive's Death or Disability, by the Executive for
Good Reason (as such terms are hereinafter defined), or upon expiration of the
Employment Term, and (B) ninety (90) days following termination of the
Executive's employment by the Executive without Good Reason; provided that the
Commencement Option shall expire immediately and the Executive shall not be
entitled to a post-termination exercise period with respect to such option upon
the Executive's termination of employment by the Company for Cause. To the
extent not inconsistent with this Agreement, the Commencement Option agreement
will be based upon the form of option agreement used under the SIP. Prior to the
time that any portion of the Commencement Option first becomes exercisable, the
Company shall cause the shares of the Common Stock underlying the Commencement
Option to be registered.
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<PAGE> 5
Future option grants to the Executive will be subject to the
general terms and conditions of the SIP or any successor plan. The Executive is
eligible to be granted, at the February Meeting, options pursuant to the SIP at
an exercise price per share equal to the fair market value of a share of Company
Stock on the date of grant. The number of shares of Company Stock subject to
such options shall be determined by the Compensation Committee. For that
purpose, the current present value of each such option is equal to $10.04.
Thereafter, the Executive shall be eligible to receive additional grants of
options under the SIP.
4.8 ISUs. The Company shall grant to the Executive on the
Commencement Date 120,000 incentive stock units to acquire restricted shares of
Company Stock ("ISUs"). Sixty thousand of such ISUs will be granted pursuant to
the SIP and will vest over a five (5) year period subject to the attainment of
performance goals established by the Compensation Committee and continued
employment with the Company ("Performance Vested ISUs") (2/3 of such ISUs are
eligible to time vest on the third anniversary of the date of grant and the
remaining 1/3 are eligible to time vest on the fifth anniversary of the date of
grant). The remaining sixty thousand of such ISUs will vest over a five (5) year
period subject only to continued employment with the Company ("Service Vested
ISUs") (2/3 of such ISUs are eligible to time vest on the third anniversary of
the date of grant and the remaining 1/3 are eligible to time vest on the fifth
anniversary of the date of grant). To the extent not inconsistent with this
Agreement, the Service Vested ISUs agreement will be based upon the form of
time-based ISU agreement used under the SIP. Prior to the time that any portion
of the Service Vested ISUs vest, the Company shall cause the shares of the
Common Stock underlying such ISUs to be registered. In the future, the Executive
shall be eligible to receive additional ISUs and other incentive awards under
the SIP.
4.9 Other Benefits. During the Employment Term, the Executive
(and his dependents, if eligible thereunder) shall participate immediately in
all existing and future employee benefit plans, programs and policies (other
than severance plans) generally available to senior executive officers of the
Company, as they may be amended from time to time, provided, however, that such
participation shall be subject to the eligibility and participation requirements
of any such plan which is intended to be qualified under Section 401(a) of the
Code (as defined below), including, without limitation, the following:
(a) Life Insurance. Pursuant to the Executive's participation
in the Company's Officer Enhanced Life Insurance Program (the "ELIP"),
until the Executive attains age 65 the Company shall pay all premiums
for a whole life
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<PAGE> 6
insurance policy on the life of the Executive. The insurance policy
shall be owned by the Executive and shall have a death benefit equal to
four (4) times the Salary. The Company shall fully gross up the
Executive for any income tax attributable to the premiums paid by the
Company in accordance with the ELIP (but the effective rate of tax for
this purpose shall not exceed 45%). The Executive shall have the
opportunity at his own cost to purchase additional life insurance with
a death benefit equal to one (1) times the Salary pursuant to the
Company's supplemental life insurance program.
(b) Financial Planning. The Company shall reimburse the
Executive for an amount of (i) up to $15,000 for financial planning
assistance and related services for the period commencing on the
Commencement Date and ending on April 30, 2000, and (ii) up to $5,000
for such assistance and services per full twelve-month period
thereafter (each such period commencing May 1st and ending April 30th),
in each case upon presentation of documentation reasonably acceptable
to the Company, and, in each case, fully grossed-up for taxes (but the
effective rate of tax for this purpose shall not exceed 45 percent).
(c) Automobile Allowance. The Company shall provide the
Executive with a car allowance not to exceed $900 per month, in
accordance with the Company's automobile policy as from time to time in
effect.
(d) Pension. Provided the Executive is actually employed by
the Company on a continual basis from the Commencement Date until
December 8, 2003, the Executive shall receive two (2) years of service
credit for each one (1) year of actual service under each of the
Company's non-qualified retirement plans in which he participates.
(e) Vacation. For each full calendar year during the
Employment Term, the Executive shall be entitled to four (4) weeks of
paid vacation.
(f) Welfare Benefit Plan Participation. The Company shall
waive any waiting periods, pre-existing condition limitations and
physical examination requirements applicable to the Executive and any
of his eligible dependents with respect to any Company medical plan,
dental plan, disability plan or other welfare benefit plan (other than
severance plans).
(g) Country Club. The Company shall reimburse (not grossed-up
for taxes) the Executive for his membership in one (1) country club in
accordance with Company policy as in effect from time to time.
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<PAGE> 7
5. Purchase of Company Stock. The Executive shall purchase on the open
market $1,000,000 of Company Stock; at least $500,000 of which shall be
purchased in accordance with the Company's Insider Trading Policy during the
first 30-day window period occurring during 1999 and the remainder of which
shall be so purchased during the second 30-day window period occurring in 1999.
6. Termination. The Executive's employment with the Company and the
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events of termination:
(a) By the Company (other than for Cause) upon thirty (30)
days prior written notice or by the Executive (other than for Good Reason) upon
thirty (30) days prior written notice.
(b) By the Company for Cause upon thirty (30) days prior
written notice (the "Cause Notice") to the Executive. The
Company may not terminate the Executive's employment for Cause
unless such written notice is delivered to the Executive
within thirty (30) days of any member of the Board (other than
the Executive) becoming aware of the action or omission
constituting Cause. "Cause" shall mean (i) the willful and
continued failure by the Executive to substantially perform
the Executive's duties with the Company (other than any such
failure resulting from the Executive's incapacity due to
physical or mental illness) after a written demand for
substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not
substantially performed the Executive's duties, (ii) the
willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or its
subsidiaries, monetarily or otherwise, (iii) the Executive's
conviction for the commission of (A) a felony or (B) any other
crime involving moral turpitude, and (iv) a willful and
material breach by the Executive of any provision of this
Agreement which is not cured within twenty (20) days of
receipt of written notice thereof from the Board which
specifies the nature of such breach. For purposes of clauses
(i), (ii) and (iv) of this definition, no act, or failure to
act, on the Executive's part shall be deemed "willful" unless
done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that the Executive's act,
or failure to act, was in the best interest of the Company.
The Executive
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<PAGE> 8
shall have the right to appear before the Board prior to any
final determination by the Board to terminate his employment
for Cause. The Executive may request a meeting with the Board
by submitting a written request to the Board within ten (10)
days of receipt of the Cause Notice. Such meeting with the
Board shall be fixed and shall occur on a date selected by the
Board (such date being not less than five (5) nor more than
twenty (20) days after the Board receives Executive's written
request). Such meeting shall take place at the executive
offices of the Company. For all purposes of this Agreement, if
the Executive's employment is terminated for Cause, the
effective date of such termination shall be the date of
delivery of the Cause Notice.
(c) By the Executive for Good Reason upon thirty (30) days
prior written notice to the Board. The Executive may not
terminate his employment for Good Reason by reason of any
event or action unless such written notice is delivered within
thirty (30) days of the Executive becoming aware of such event
or action. "Good Reason" shall mean the following, unless
specifically approved by the Executive in writing prior to the
event or action (i) a materially adverse change in the
Executive's title, position, duties, responsibilities or
reporting relationships, (ii) a reduction in the Salary or
failure to pay compensation or benefits, (iii) a change in
location of the Company's executive offices which is more than
fifty (50) miles away from both the location of the Company's
current executive offices and the Executive's Connecticut
residence, (iv) the assignment to the Executive of duties
materially inconsistent with the Executive's status as Chief
Executive Officer of the Company, (v) if the Company
terminates the Executive under Section 6(b) hereof, the
Company's failure to (A) provide thirty (30) days prior
written notice to the Executive of its intention to terminate
his employment for Cause in accordance with Section 6(b)
hereof, or (B) provide the Executive the opportunity to appear
before the Board in accordance with Section 6(b) hereof, (vi)
the Company notifies the Executive prior to September 30, 2000
of its intention not to extend the Employment Term pursuant to
Section 1 hereof, (vii) the Company does not nominate the
Executive for election to the Board or fails to use its
reasonable best efforts to cause the Executive to be elected
to the Board, in either case, in accordance with Section 2
hereof, and/or (viii) a material breach of this Agreement by
the Company. The Company shall be afforded twenty (20) days
following receipt of written notice from the Executive of his
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<PAGE> 9
intention to terminate his employment for Good Reason in which
to cure any of the foregoing actions or events.
(d) By reason of the Disability of the Executive. The
Executive shall be considered to be disabled after he has been
unable fully to perform his duties hereunder, with reasonable
accommodation as required by law, by reason of physical or
mental illness for 180 days during any 360 day period as
determined in a written medical opinion by a medical doctor
mutually acceptable to the Executive and the Company. In the
event that the Executive and the Company cannot agree upon
such medical doctor, they shall each appoint a medical doctor
of their choice and those two medical doctors shall then
appoint a third medical doctor to make the determination (a
"Disability").
(e) By reason of the death of the Executive ("Death").
In the event of termination of the Employment Term, for whatever reason, (i) the
Executive shall cooperate with the Company and be reasonably available to the
Company with respect to continuing and/or future matters arising out of the
Executive's employment or any other relationship with the Company, whether such
matters are business-related, legal or otherwise and (ii) the Executive shall
resign immediately from his membership on the Board and each Subsidiary Board.
7. Termination Payments. The following termination payments and
benefits shall be provided to the Executive in lieu of any benefits provided in
the Company's Executive Separation Pay Plan and such payments and benefits shall
be paid or provided in accordance with the terms of the applicable Company plan,
program or policy. Subject to Sections 10 and 14 hereof, the following payments
upon termination shall constitute the exclusive payments and benefits due the
Executive upon termination of Executive's employment, but shall have no effect
on (i) any benefits which may be due the Executive under any plan, program or
policy of the Company which provides benefits after termination of employment,
other than any severance pay or salary continuation plan, which shall be
inapplicable, and/or (ii) the Executive's entitlement to reimbursements under
Sections 4.3 and 4.4 hereof.
7.1 Termination for Cause or other than Good Reason. Upon
termination of the Executive's employment and the Employment Term by the Company
for Cause or by
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<PAGE> 10
the Executive other than for Good Reason, the Company shall pay the Executive
the Salary and other benefits accrued hereunder and unpaid as of the date of
termination.
7.2 Termination without Cause or for Good Reason. If the
Executive's employment and the Employment Term is terminated by the Company
without Cause (except by reason of the Executive's Death or Disability) or by
the Executive for Good Reason, the Company shall (i) pay the Executive the
Salary and other benefits accrued hereunder and unpaid as of the date of
termination, (ii) pay the Executive for the Severance Period (as hereinafter
defined) an amount equal to the Salary, (iii) continue to provide the Executive
for the Severance Period coverage under those Company-sponsored welfare benefit
plans (other than severance plans) in which he participated immediately prior to
such termination, (iv) pay the Executive an amount equal to the product of his
target bonus under the MICP for the year of termination and a fraction, the
numerator of which is the number of days in the Severance Period and the
denominator of which is 365, assuming for this purpose that the performance
target level for the year of termination has been achieved, (v) provide that any
outstanding option to purchase Company Stock held by the Executive as of the
date of termination shall continue to vest in accordance with its regular
vesting schedule through the expiration of the Severance Period and shall remain
exercisable in accordance with Section 4.7 hereof for one year (three (3) years
for the Commencement Option) following the expiration of the Severance Period,
after which any such outstanding option shall expire, (vi) provide that both
Performance Vested ISUs and Service Vested ISUs shall continue to vest in
accordance with their regular vesting schedule through the expiration of the
Severance Period, and, in the case of the Performance Vested ISUs, assuming that
the applicable target performance goal has been achieved, (vii) pay the
Executive when due the full amount owing pursuant to each of the Executive's
LTIP awards, assuming, for each award, that the applicable target performance
goal has been achieved, and (viii) provide the Executive service credit under
the Company's non-qualified retirement plans in which the Executive then
participates through the expiration of the Severance Period.
For purposes of this Section 7.2, the "Severance Period" shall mean the period
commencing on the date of termination and ending on the last day of the
Employment Term (as determined as of the day immediately preceding the date of
termination), provided, however, that the Severance Period shall be no shorter
than two years. All payments shall be made, and other benefits provided, when
such payments or other benefits would have been made or provided if the
Executive's employment had not terminated.
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<PAGE> 11
7.3 Termination upon Death or Disability. If the Executive's
employment and the Employment Term are terminated by reason of the Executive's
Death or Disability, the Company shall (i) pay the Executive the Salary and
other benefits accrued hereunder and unpaid as of the date of termination, (ii)
pay the Executive or his beneficiary, when ordinarily payable under the MICP, a
pro-rated portion of his annual bonus under the MICP for the calendar year of
termination, subject to the achievement of the applicable performance targets
for such year, (iii) provide that any outstanding options to purchase Company
Stock held by the Executive as of date of termination shall become immediately
vested and fully exercisable as of the date of such termination and remain
exercisable for the one (1) year period (three (3) years for the Commencement
Option) following such termination, (iv) provide that both Performance Vested
ISUs and Service Vested ISUs will continue to vest in accordance with their
regular vesting schedule for the remainder of the calendar year in which such
termination occurs, it being understood that vesting of the Performance Vested
ISUs shall remain subject to the achievement of the applicable performance
targets for such year, and (v) pay the Executive or his beneficiary, at the time
or times amounts are paid under the LTIP generally, a pro-rated portion of each
of the Executive's LTIP awards based on the number of days elapsed prior to such
termination during each relevant LTIP cycle, subject to the achievement of the
applicable performance goals.
7.4 Termination by the Executive. If on or prior to December
8, 2001, the Executive terminates his employment without Good Reason and during
the Employment Term (determined as of the day immediately preceding the date of
termination) he accepts employment as CEO or a comparable position with a
company of equal or larger size than the Company measured by gross revenues for
the most recently completed fiscal year, the Executive shall within twenty (20)
days of such acceptance pay the Company $500,000 in cash.
7.5 No Mitigation or Offset. Upon termination of the
Executive's employment hereunder, he shall have no mitigation obligation
hereunder; it being expressly agreed that if the Executive receives any income,
payment or other benefit from a third party after any such termination, such
income payment or benefit shall not be set off against any payments or benefits
to be made or provided to the Executive by the Company pursuant to this Section
7.
8. Excise Tax Limitation. (a) Notwithstanding anything contained in
this Agreement to the contrary, to the extent that any payment or distribution
of any type to or for
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<PAGE> 12
the benefit of the Executive by the Company, any affiliate of the Company, any
person who acquires ownership or effective control of the Company or ownership
of a substantial portion of the Company's assets (within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder), or any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments") is or will be subject to the excise tax
imposed under Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (but not below zero) if and to the extent that a
reduction in the Total Payments would result in the Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if the Executive received the entire
amount of such Total Payments. Unless the Executive shall have given prior
written notice specifying a different order to the Company to effectuate the
foregoing, the Company shall reduce or eliminate the Total Payments by first
reducing or eliminating the portion of the Total Payments which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by the Executive pursuant to the preceding sentence shall take precedence
over the provisions of any other plan, arrangement or agreement governing the
Executive's rights and entitlements to any benefits or compensation.
(b) The determination of whether the Total Payments shall be reduced as
provided in Section 8(a) and the amount of such reduction shall be made at the
Company's expense by an accounting firm selected by the Company from among the
five (5) largest accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Executive within ten (10) days of the Termination Date. Absent manifest
error, such Determination shall be binding, final and conclusive upon the
Company and the Executive. If the Accounting Firm determines that an Excise Tax
would be payable, the Executive shall have the right to accept the Determination
of the Accounting Firm as to the extent of the reduction, if any, pursuant to
Section 8(a), or to have such Determination reviewed by an accounting firm
selected by the Executive, at the expense of the Company, in which case a mutual
determination by such second accounting firm and the Accounting Firm shall be
binding, final and conclusive upon the Company and Executive.
9. Executive Covenants.
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<PAGE> 13
(a) Unauthorized Disclosure. The Executive agrees and understands that
in the Executive's position with the Company, the Executive has been and will be
exposed to and receive information relating to the business affairs of the
Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and in the nature of trade secrets. The Executive
agrees that during the Employment Term and thereafter, the Executive will keep
such information confidential and not disclose such information, either directly
or indirectly, to any third person or entity without the prior written consent
of the Company (unless such information is otherwise in the public domain
through no fault of the Executive); provided, however, that nothing in this
Section 9(a) shall prevent the Executive with or without the Company's consent,
from disclosing documents or information in connection with any judicial or
administrative investigation, inquiry or proceeding, provided the Executive is
compelled to do so by court order or subpoena and notifies the Company as soon
as practicable after the receipt of such court order or subpoena. This
confidentiality covenant has no temporal, geographical or territorial
restriction. Upon termination of the Employment Term, the Executive will
promptly supply to the Company all property, keys, notes, memoranda, writings,
lists, files, reports, customer lists, correspondence, tapes, disks, cards,
surveys, maps, logs, machines, technical data or any other tangible product or
document in the actual or constructive possession of the Executive at the end of
the Employment Term.
(b) Non-competition. By and in consideration of the Company's entering
into this Agreement and the Salary and benefits to be provided by the Company
hereunder, and further in consideration of the Executive's exposure to the
proprietary information of the Company, the Executive agrees that the Executive
will not, during the Employment Term and for a period of two (2) years
thereafter (the "Restriction Period"), directly or indirectly, own, manage,
operate, join, control, be employed by, or participate in the ownership,
management, operation or control of, or be connected in any manner, including
but not limited to, holding the position of shareholder, director, officer,
consultant, independent contractor, employee, partner, or investor, with any
Competing Enterprise. For purposes of this paragraph, the term "Competing
Enterprise" shall mean any person, corporation, partnership or other entity
engaged in a business which is in competition, directly or indirectly, with any
material or significant business of the Company or any of its affiliates at the
date of termination of employment. Following termination of the Employment Term,
- 13 -
<PAGE> 14
upon request, the Executive shall notify the Company of the Executive's then
current employment status.
(c) Non-solicitation and Non-disparagement. The Executive agrees that
during the Restriction Period, he will not intentionally or knowingly, directly
or indirectly, (i) interfere with the Company's or any of its affiliates'
relationship with, or endeavor to entice away from the Company or any of its
affiliates, any individual, person, firm, corporation or other business entity
who at any time during the Employment Term was an employee or customer of the
Company or any of its affiliates or otherwise had a material business
relationship with the Company or any of its affiliates, or (ii) discourage, or
attempt to discourage, any individual, person, firm, corporation or business
entity from doing business with the Company or any of its affiliates. The
Executive agrees that during the Employment Term and thereafter, he will not
intentionally or knowingly, directly or indirectly, make or publish any negative
or disparaging statements, comments or remarks regarding the Company or its
subsidiaries, affiliated entities, directors, or senior officers. The Company
agrees that during the Employment Term and thereafter neither it nor its
subsidiaries or affiliated entities will, on behalf of the Company, such
subsidiary or affiliated entity, intentionally or knowingly, directly or
indirectly, make or publish any negative or disparaging statements, comments or
remarks about the Executive and that it will inform its directors and senior
officers of this requirement and use its best efforts to ensure that its
directors and senior officers comply with this requirement.
(d) Remedies. The Executive agrees that any breach of the terms of this
Section 9 would result in irreparable injury and damage to the Company for which
the Company would have no adequate remedy at law; the Executive therefore also
agrees that in the event of said breach or any threat of breach, the Company
shall be entitled to an immediate injunction and restraining order to prevent
such breach and/or threatened breach and/or continued breach by the Executive
and/or any and all persons and/or entities acting for and/or with the Executive,
without having to prove damages, and to all costs and expenses, including
reasonable attorneys' fees and costs, in addition to any other remedies to which
the Company may be entitled at law or in equity. The terms of this paragraph
shall not prevent the Company from pursuing any other available remedies for any
breach or threatened breach hereof, including but not limited to the recovery of
damages from the Executive. The Executive and the Company further agree that the
provisions of this Section 9 are reasonable and the Company would not have
entered into this Agreement but for their inclusion herein. Should a court or
arbitrator determine that any provision of the covenant not to compete is
unreasonable, either in period of time, geographical area, or
- 14 -
<PAGE> 15
otherwise, the parties hereto agree that the covenant should be interpreted and
enforced to the maximum extent which such court or arbitrator deems reasonable.
The provisions of this Section 9 shall survive any termination of the
Employment Term, and the existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of this Section 9.
10. Indemnification and Insurance. During the Employment Term and at
all times thereafter, the Company shall cause the Executive to be covered and
named as an insured under any policy or contract of insurance obtained by it to
insure its officers and directors against personal liability for acts or
omissions in connection with service as an officer or director of the Company or
service in other capacities at the request of the Company. The coverage provided
to the Executive pursuant to this Section 10 shall be of the same scope and on
the same terms and conditions as the coverage provided to other officers or
directors of the Company. The Executive shall be entitled to indemnification for
liabilities and expenses to the fullest extent permitted under Delaware law to
the extent consistent with the Company's Articles of Incorporation and By-Laws.
11. Non-Waiver of Rights. The failure to enforce at any time the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of either party to enforce each and every
provision in accordance with its terms.
12. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown below, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 12.
If to the Company:
- 15 -
<PAGE> 16
Barnes Group, Inc.
3 Main Street
Bristol, Connecticut
ATTN: William V. Grickis
If to the Employee:
Mr. Edmund M. Carpenter
13. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and permitted assigns. Notwithstanding the
provisions of the immediately preceding sentence, the Executive shall not assign
all or any portion of this Agreement without the prior written consent of the
Company.
14. Interaction with Change in Control Severance Agreement. On the
Commencement Date or as soon as practicable thereafter, the Executive will enter
into a Change in Control Severance Agreement with the Company in the form
previously approved by the Board and attached hereto as Schedule B. In the event
the Executive becomes entitled to a substantially similar payment or benefit
under both this Agreement and such Change in Control Severance Agreement, each
as in effect from time to time, he will be entitled to receive (a) the payment
or benefit to which he is entitled under this Agreement, or (b) the payment or
benefit to which he is entitled under his Change in Control Severance Agreement,
whichever is greater, but not both, it being expressly understood that the
purpose of this provision is to provide the Executive with the highest
applicable payment or benefit and to prevent the duplication of any amount or
benefit payable to the Executive.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and plans, written or oral between them as
to such subject matter, including, but not limited to, the Company's Executive
Severance Pay Plan. However, except as provided in Section 14 hereof, this
Agreement shall not affect or reduce the rights and benefits of the Executive
under his Change in Control Severance Agreement.
- 16 -
<PAGE> 17
16. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Connecticut, without reference
to the principles of conflict of laws.
18. Modifications and Waivers. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions at the time
or at any prior or subsequent time.
19. Headings. The headings contained herein are solely for the purposes
of reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
21. Executive Representation. The Executive represents and warrants to
the Company that he is not subject to any agreement, written or oral, any law,
regulation or similar enactment, or any decree, order or similar action by any
tribunal or government authority, which could, in any way, restrict his ability
to negotiate, enter into or fully perform his obligations hereunder.
- 17 -
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Executive has hereunto
set his hand, the day and year first above written.
BARNES GROUP INC.
By: /s/ THOMAS O. BARNES
------------------------------------
Name: Thomas O. Barnes
Title: Chairman, Board of Directors
By: /s/ EDMUND M. CARPENTER
------------------------------------
Edmund M. Carpenter
- 18 -
<PAGE> 19
Schedule A
to Edmund M. Carpenter
Employment Agreement,
dated as of December 8, 1998
----------------------------------------
- - Texaco Inc.
- - Dana Corporation
- - Campbell Soup
<PAGE> 20
Schedule B
to Edmund M. Carpenter
Employment Agreement,
dated as of December 8, 1998
----------------------------------------
The Company's Executive Officer Change-In-Control Severance Agreement is
incorporated by reference to Exhibit 10.14 to the Company's report on Form 10-K
for the year ended December 31, 1997.
- 20 -
<PAGE> 1
EXHIBIT 10.15
[BARNES GROUP INC LETTERHEAD]
CONFIDENTIAL
January 26, 1999
Mr. Ali A. Fadel
Dear Ali:
This is to confirm arrangements regarding the termination of your employment as
Vice President, Barnes Group Inc., and President, Associated Spring, effective
February 21, 1999 (the "Termination Date").
1. MINIMUM SEVERANCE. Under the Company's Executive Separation Pay Plan, you
are eligible to receive the minimum severance pay of your current monthly
salary of $21,666.66 for one (1) month following the Termination Date, or
the amount of your accrued vacation pay, whichever is greater.
2. ENHANCED SEVERANCE. In order to receive additional severance payments and
other non-vested benefits to which you would not otherwise be entitled as
described in this Letter of Agreement ("letter"), you must agree to all of
the terms and conditions in this letter and the attached Release Addendum
("Release"), and return an initialed and signed copy of this letter and
the Release Addendum within the time period set forth in the Release
Addendum. In exchange for your signed release and compliance with the
terms of this letter, under the Company's Executive Separation Pay Plan,
you are eligible to receive severance payments at your current monthly
salary of $21,666.66 for the 12-month period following the date of this
letter (the "Severance Pay Period"). Severance payments will be payable at
the same times as salary payments are made, and subject to the customary
deductions. During the Severance Pay Period, you may also continue to
participate in some of the Company's benefit programs as described in
Paragraph 3.
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AAF
<PAGE> 2
January 26, 1999
Ali A. Fadel Page - 2-
3. BENEFITS. You may continue to participate in the Company's medical,
dental, group life insurance and long-term disability plans during the
Severance Pay Period. Your participation will cease in all of the
Company's other employee benefit plans, including the Guaranteed Stock
Plan and any applicable profit sharing or pension plan, upon the
Termination Date. After severance payments cease, COBRA medical and/or
dental coverage may be continued upon payment by you of the full premium
for up to eighteen (18) months or the date on which you become covered for
medical and/or dental benefits under another group health plan, whichever
occurs first.
4. MICP. As a participant in the Company's Management Incentive Compensation
Plan ("MICP") you were employed by the Company as of December 1, 1998,
therefore you are eligible for a full bonus for calendar year 1998 in the
amount of $149,954. This amount will be paid concurrently with payments to
other eligible participants.
5. LTIP. Under the terms of the Company's Long-Term Incentive Plan ("LTIP"),
if an employee is terminated prior to the end of the applicable incentive
period then all Performance Units granted to the employee for that period
shall terminate. As a result, you are eligible to receive a full LTIP
award for the 1996-1998 period. Although you are not eligible to receive
any additional payments under the terms of the LTIP, the Company will
provide prorated LTIP awards as follows: two-thirds (2/3) of a full LTIP
award for the 1997-1999 period and one-third (1/3) of a full LTIP award
for the 1998-2000 period. LTIP awards are not paid until they are approved
by the Compensation Committee of the Board of Directors in the year
following the end of a cycle. The current estimate of the awards for the
cycles ending 1999 and 2000, respectively, are $87,800 and $25,500, but,
as indicated above, the amount of the awards payable to you will depend
upon actual results as finalized at the February Compensation Committee
meeting, held after the end of the applicable cycle. The award for the
cycle ending in 1998 is in the amount of $179,140. LTIP awards will be
paid concurrently with payments to other eligible participants.
6. RETIREMENT BENEFITS. You are vested in the Barnes Group Inc. Salaried
Retirement Income Plan (the "Plan") and are eligible to receive retirement
benefits payable in accordance with the provisions of the Plan You will
receive a letter from Kevin Gordon, Director of Retirement Income
Programs, that will outline these benefits.
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AAF
<PAGE> 3
January 26, 1999
Ali A. Fadel Page - 3 -
7. STOCK OPTIONS. For purposes of your stock options, the date of termination
of employment is the Termination Date. You have vested in 18,300 stock
options. You have a period of 90 days from the Termination Date to
exercise these stock options, after which time the options will terminate.
For more detailed information regarding the exercise of your stock
options, please refer to your stock option agreements. If you have any
questions regarding the exercise of your stock options, please contact
Holly LeBlanc, Shareholder Relations Manager, at 860/583-7070 ext. 185.
8. INCENTIVE STOCK RIGHTS. For purposes of your restricted stock, you must be
employed as of February 16, 2001 to receive any shares of common stock;
however, the Company will give you three-fifths (3/5) of the 1996 grant of
performance based Incentive Stock Units, 15,750 shares of common stock,
and an additional 394 shares of common stock for the accrued dividends on
such units, within two (2) weeks of the Termination Date.
9. VACATION. Payments made pursuant to Paragraph 1 shall be deemed to
compensate you for any accrued vacation benefits.
10. ELIP. As a participant in the Company's Enhanced Life Insurance Program,
the life insurance policy is owned by you even though the Company has paid
the premiums for the coverage while you were employed. Premium payments
have been paid through September 30, 1999 and will be paid through the
Severance Pay Period. You have the option of continuing this policy in its
present form at your own cost. If you wish to pursue this, you should
contact Mr. Robert D. Smith at New England Capital Planners, 860/676-9989.
11. GUARANTEED STOCK PLAN. Regarding your Barnes Group Inc. Guaranteed Stock
Plan ("GSP") account, you will receive, under separate cover, the
necessary information to receive a distribution or roll over your account
to an IRA or another qualified plan. If you have any questions regarding
this procedure, please contact Kevin Gordon, Director of Retirement Income
Programs, at 860/583-7070 ext. 136.
12. FINANCIAL PLANNING ASSISTANCE. The Company will continue to pay for
expenses relating to Financial Planning Assistance that you have incurred
up to and including the Termination Date upon the same terms and
conditions in existence as of today up to a maximum of $4,000.00. This
amount will be paid to Mr. Robert D. Smith at New England Capital Planners
in the normal course of business.
- ----------
AAF
<PAGE> 4
January 26, 1999
Ali A. Fadel Page - 4 -
13. AUTOMOBILE. You will be permitted to use the vehicle leased by the Company
through May 31, 1999.
14. FINAL EXPENSES. Your expense account, and use of Company credit and
telephone cards, will cease immediately and you must submit your final
expense account, including an accounting for any advances before the
Termination Date.
15. RETURN OF COMPANY PROPERTY. You will promptly return to the Company any
information relating to the Company which may be in your possession and
you will not directly or indirectly, copy, take, or remove from the
company's premises, use or disclose to third parties any such information.
16. OUTPLACEMENT BENEFIT. To assist you in managing the change and locating a
new employment opportunity, the Company will engage an outplacement
specialist (to be determined), at the Company's expense.
17. CONFIDENTIALITY. You agree not to disclose to anyone other than your
spouse, lawyer, accountant, income tax preparer or financial planner that
you have entered into this letter and Release with the Company except upon
written approval of the Company or by court order or otherwise compelled
by law. You and your attorney also agree to keep the facts, amount, and
terms of this letter and Release in strict confidence, unless and only to
the extent you have been authorized in writing by the Company or its
attorney to make such disclosure or as compelled by law or court order.
You further agree not to disclose this document, its contents or subject
matter to any person other than to your spouse, lawyer, accountant, income
tax preparer, or financial planner, except pursuant to written
authorization by the Company or its attorney or as compelled by law or
court order. Notwithstanding the foregoing, this letter and Release may be
used as evidence in any subsequent proceeding alleging a breach of this
letter and Release.
In the event you discuss this letter and Release with your spouse, lawyer,
accountant, income tax preparer, financial planner, or pursuant to a court
order, it shall be your duty, responsibility, and obligation to advise
those persons of the confidential nature of this letter and Release and to
direct them not to discuss the terms and conditions of this letter and
Release with any other person. You shall be fully and completely
responsible for any breach of this confidentiality
- ----------
AAF
<PAGE> 5
January 26, 1999
Ali A. Fadel Page - 5 -
provision, whether it be your breach or a breach by your spouse, attorney,
accountant and/or income tax preparer.
The confidentiality obligations in this letter and Release are in addition
to any other confidentiality agreement entered into by you and the
Company, and nothing in this letter and Release is intended to waive,
modify, alter or amend the terms of any such confidentiality agreement.
18. NON-SOLICITATION. Employee shall not, directly or indirectly, hire or
solicit or arrange for the hiring or solicitation of any person who is an
employee of the Company, or encourage any such employee to leave such
employment, or knowingly assist any business s/he has become associated
with to do so for a period of one (1) year from the Termination Date.
19. EMPLOYEE COOPERATION. As a free and voluntary act, you agree that,
following the Termination Date you will cooperate with, and make yourself
available for, any investigations or lawsuits involving the Company. You
will be paid an hourly rate computed based on your final base salary for
time spent at the request of the Company, other than in depositions or at
trial for which you will not be paid. You agree not to assist or provide
information to any other party in any litigation against the Company,
except as required under law or formal legal process after Employee
provides advance notice to the Company at least ten (10) calendar days
prior to such assistance or provision of information (or, if you so
require to assist or provide such information within less than ten (10)
calendar days of receipt of such requirement after you provide timely
advance notice to the Company) to allow the Company to take legal action
with respect to the matter. Nothing in this letter shall restrict or
preclude you from, or otherwise influence you in, testifying fully and
truthfully in legal, administrative, or any other proceedings involving
the Company, as required by law or formal legal process.
20. NON-DISPARAGEMENT. You agree that, following the Termination Date you will
make no written or oral statements that directly or indirectly disparage
Barnes Group Inc. in any manner whatsoever, including but not limited to:
(a) the working conditions or employment practices of Barnes Group Inc.;
or (b) Barnes Group Inc. as a provider of springs or other products and
services. It will not be a violation of this paragraph for you to make
truthful statements, under oath, as required by law or formal legal
process. The Company agrees that it shall use its best efforts to ensure
that its directors and officers do not make or publish any disparaging
statements (whether written or oral) regarding you. Within five (5) days
of your execution of this letter, the Company will inform its officers and
directors of the Company's obligation under this Section 20.
- ----------
AAF
<PAGE> 6
January 26, 1999
Ali A. Fadel Page - 6 -
21. INDEMNIFICATION. The Company will indemnify you to the extent permitted or
authorized by the Company's bylaws.
22. LETTER OF RECOMMENDATION. The Company shall issue Mr. Fadel a letter of
recommendation in the form of Exhibit A to this letter. Mr. Fadel hereby
authorizes the Company to provide information to third parties regarding
Mr. Fadel's employment that confirms the contents of the letter of
recommendation and confirms Mr. Fadel's title, dates of employment, and
salary; and, Mr. Fadel will hold the Company harmless from any and all
claims in connection with the release of such information.
The attached Release Addendum is a legal release, the terms of which are
incorporated by reference in this letter. Please review it carefully and let me
know if you have any questions.
Sincerely,
/s/ John R. Arrington
John R. Arrington
Senior Vice President - Human Resources
Encl.
Agreed and accepted:
/s/ Ali A. Fadel
- ------------------------
Ali A. Fadel
Date 2/22/99
<PAGE> 7
CONFIDENTIAL
RELEASE ADDENDUM
In exchange for additional severance benefits to which I would not be
otherwise entitled, as set forth in the attached Letter of Agreement ("letter"),
the terms of which are incorporated by reference in this Release Addendum
("Release"), I (and anyone acting on my behalf) agree to release every past and
present right or claim of any kind, whether legal, equitable or otherwise, that
is related to my employment and termination of my employment with Barnes Group
Inc., as well as any and all related entities, corporations, partnerships,
subsidiaries, joint ventures and divisions ("the Company"). I give up such
rights and claims against the Company, its employee benefit plans and anyone
else related to the Company (such as the Company's present and former employees,
officers, directors, stockholders, representatives, agents and insurers) and
agree not to file a lawsuit or seek to receive a recovery related to such rights
and claims against any of them.
I agree that I executed this Release on my own behalf and also on behalf
of any heirs, agents, representatives, successors and assigns that I have now or
may have in the future. These rights and claims include, but are not limited to,
those that I may have under the Age Discrimination in Employment Act, which
prohibits age discrimination in employment; Title VII of the Civil Rights Act of
1964, which prohibits discrimination in employment based on race, color,
national origin, religion or sex; the Americans With Disabilities Act of 1990,
which prohibits discrimination in employment based on a handicap or disability;
the Equal Pay Act, which prohibits paying men and women unequal pay for equal
work; any claims under the WARN Act or any similar law, which requires, among
other things, that advance notice be given of certain work force reductions; and
all claims under the Employee Retirement Income Security Act of 1974, such as
claims relating to pension, profit sharing, or health plan benefits, except as
noted in the following paragraph; the Family and Medical Leave Act of 1993; all
claims under any state Fair Employment Practices Act as well as any other
federal, state or local laws or regulations; all claims for alleged physical or
personal injury or emotional distress; and any other claims which could arise
from employment or separation from employment, whether in express or implied
contract (whether written or oral), or in tort (e.g. defamation, assault,
battery, false imprisonment, interference with contractual or advantageous
business relationship, invasion of privacy, etc.) or for wrongful or retaliatory
discharge, whether based on common law or otherwise. The foregoing list is meant
to be illustrative rather than inclusive.
I keep my right, however, to (1) receive severance benefits under the
Executive Separation Pay Plan and under the attached Letter of Agreement; (2)
receive retirement benefits under the terms of any retirement plan in which I
have earned a vested benefit, except as to any claim of mine or a similarly
situated retirement plan participant which has been denied or rejected before I
signed this Release; and (3) elect health care coverage under the federal
continuation of health coverage law known as "COBRA," or under any applicable
state law concerning continuation of health coverage, unless I am ineligible for
such coverage under such law.
<PAGE> 8
This Release covers both claims that I know about and those I may not know
about. I expressly give up and waive all rights afforded by any statute, which
limits the effect of a release with respect to claims that are presently
unknown. I understand the significance of my release of unknown claims and my
waiver of statutory protection against a release of unknown claims. This Release
does not give up or waive any rights or claims which arise after the date that
this Release becomes enforceable, including, without limitations, with respect
to any breach by the Company of its obligations under the attached Letter of
Agreement.
I have a period of twenty-one (21) days from the date of my receipt of
this Release to review and consider this Release before signing it. I may take
as much of this period of time to consider this Release as I wish prior to
signing it. I understand that if I sign this Release, it is in exchange for
receiving the additional severance payments described in paragraph 1 of my
severance letter and the other benefits described in that letter for the full
Severance Pay Period. I ACKNOWLEDGE THAT I HAVE RECEIVED AND HAVE TWENTY-ONE
(21) DAYS TO REVIEW THIS RELEASE FROM WHEN IT WAS FIRST GIVEN TO ME. I
ACKNOWLEDGE AND AGREE THAT ANY CHANGES MADE TO THIS RELEASE BEFORE I SIGN IT
WILL NOT ENTITLE ME TO AN ADDITIONAL TWENTY-ONE (21) DAYS TO REVIEW THE NEW
VERSION OF THIS RELEASE.
I HAVE BEEN ADVISED BY THE COMPANY, IN WRITING, TO CONSULT WITH AN
ATTORNEY BEFORE SIGNING THIS RELEASE. I understand that whether or not to do so
is my decision.
I have not relied on any representations, promises, or agreements of any
kind made to me in connection with my decision to sign this Release except for
those set forth in the documents attached to or referred to by this Release. I
MAY REVOKE OR CANCEL THIS RELEASE WITHIN SEVEN (7) DAYS AFTER I SIGN IT. The
last day on which this Release can be revoked is called the "Last Revocation
Day." Revocation can only be made by delivering a written notice of revocation
to John R. Arrington, at Barnes Group Inc., 123 Main Street, P.O. Box 489,
Bristol, Connecticut 06011-0489. For this revocation to be effective, it must be
received not later than the close of business on the Last Revocation Day. I
acknowledge that this Release can be revoked only in its entirety and that once
revoked, I will only receive the minimum severance pay payment described in
paragraph one (1) of the attached letter and the other non-vested benefits to
which I would not otherwise be entitled described in that letter for the minimum
thirty (30) day Severance Pay Period.
If I do not revoke this Release, it shall go into effect on the day after
the Last Revocation Day and I will receive the additional severance payments
described in paragraph two (2) of the attached letter and the other benefits
described in that letter for the full Severance Pay Period.
A finding that any term or provision of this Release is invalid, unlawful
or unenforceable will not affect the remaining terms and provisions of this
Release.
<PAGE> 9
This Release, and the documents referenced in or attached to this Release,
sets forth the entire agreement between me and the Company and supersedes and
renders null and void any and all prior or contemporaneous oral or written
understandings, statements, representations or promises pertaining to the
matters set forth herein except for those set forth in the documents attached to
or referred to by this Release and except for any and all previously agreed to
noncompetition or confidentiality obligations to the Company to which I
specifically agree to remain bound after signing this Release.
If I violate any part of this Release, I will be responsible for all costs
incurred by the Company that flow from that violation, including the Company's
legal fees and other costs associated with any legal action that arises from
that violation. If I violate any part of this Release, I will also be required
to return all payments and reimburse the Company for all benefits provided to me
in exchange for signing this Release.
I UNDERSTAND THAT THE ATTACHED LETTER OF AGREEMENT AND THIS RELEASE
ADDENDUM CONTAIN A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. BY SIGNING THE
ATTACHED LETTER OF AGREEMENT AND THIS RELEASE ADDENDUM IN THE PLACES PROVIDED, I
ACKNOWLEDGE THAT I HAVE READ EACH OF THESE DOCUMENTS CAREFULLY, UNDERSTAND THEIR
CONTENTS AND EFFECT, AND THAT MY DECISION TO SIGN THESE DOCUMENTS WAS KNOWING
AND VOLUNTARY.
Agreed and accepted:
/s/ Ali A. Fadel
- -------------------------
Ali A. Fadel
2/22/99
- -------------------------
Date
<PAGE> 1
OUR BUSINESS
Barnes Group is a worldwide manufacturer of precision metal parts and an
industrial maintenance logistics Company with three business segments. The
Barnes Aerospace segment manufactures precision components and fabricated
assemblies for commercial and military aircraft, and provides overhaul and
repair services for large commercial aircraft engines. The Associated Spring
segment is a manufacturer of assemblies, high precision springs, wireforms and
stampings for the transportation, industrial, electronics and telecommunications
markets. The Bowman Distribution segment provides consumable repair and
replacement products for industrial, heavy equipment and transportation
maintenance markets, as well as, distributes close-tolerance engineered metal
components manufactured principally by Associated Spring. Through these three
businesses, Barnes Group works with its customers' organizations to help them
realize the benefits of its manufacturing capabilities and logistics management
to enhance their competitiveness and responsiveness.
RESULTS OF OPERATIONS
For 1998, Barnes Group reported record sales for the fifth consecutive year.
Sales were up $8.5 million to $651 million compared to $643 million in 1997. The
1998 increase reflects sales growth at Barnes Aerospace and Associated Spring,
which was partially offset by a sales decline at Bowman Distribution. In 1997,
sales were up 8% from 1996 levels, as a result of growth at all three business
segments, particularly at Barnes Aerospace, where sales increased 33%.
Operating income before a nonrecurring expense increased for the sixth
consecutive year, up 4% in 1998 to $68.1 million, compared to $65.8 million in
1997. Including the nonrecurring expense of $12.9 million related to the
accelerated retirement package for its retired president and chief executive
officer, operating income for 1998 was $55.2 million. The 1998 profit growth was
driven by higher sales volume and improved productivity at Barnes Aerospace and
aggressive cost management at Bowman Distribution. This profit growth was
partially offset by lower profits at Associated Spring, resulting from lower
sales in the Asia/Pacific region and costs related to product line
rationalization, which included a plant closing. Operating income in 1997 was
$65.8 million, a 19% increase over 1996. The 1997 profit growth was driven by
higher sales volume, improved productivity and continued cost reductions at
Barnes Aerospace and Bowman Distribution.
Operating margin, before the nonrecurring expense, has steadily increased to
10.5% in 1998 from the 10.2% and 9.3% reported in 1997 and 1996, respectively.
This reflects higher sales volume and lower selling and administrative expenses,
partially offset by increased cost of sales. Lower selling and administrative
expenses were driven in large part by Bowman Distribution's ongoing efforts to
lower its operating expenses in line with its strategy to become the most
efficient provider of logistical management services. In 1998, cost of sales as
a percentage of sales increased to 66.9% compared to 66.4% in 1997 and 64.7% in
1996. This is a result of a change in the revenue mix among the three business
segments and lower margins associated with new products and larger customers at
Bowman Distribution.
SEGMENT REVIEW -- SALES AND OPERATING PROFIT
Barnes Aerospace sales were $155 million in 1998, up 13% from 1997, which
followed an increase of 33% over 1996. In 1998, sales growth was driven by its
turbine engine components and overhaul and repair units. Both operations
benefited from the strong commercial aviation market as well as from increased
penetration of their customer bases. This growth was partially offset by lower
sales at its aerostructures business in Ogden, Utah, which was impacted by
reduced customer backlog and changes in customer requested delivery schedules.
All aerospace businesses reported sales growth in 1997.
Barnes Aerospace operating profit increased 20% to $17.3 million in 1998
compared to $14.4 million in 1997. In 1996, the business reported operating
profit of $6.5 million. The increase in profits for 1998 reflected higher sales
volume coupled with ongoing productivity improvements and cost containment. In
late 1997, the integration of operations that serve the OEM markets resulted in
a more effective utilization of existing
[PHOTO OF MELVIN FOO]
HIGH-QUALITY CONTROL STANDARDS ARE THE
CUSTOMERS' ASSURANCE THEY WILL RECEIVE
RELIABLE, HIGH-QUALITY PRODUCTS
Melvin Foo, testing inspector for Windsor Airmotive's Singapore facility,
performs a quality-control check for roundness concentricity with a coordinate
measuring device on a Rolls-Royce stub shaft part used in its RB211-324 engine.
Barnes Aerospace is a global provider of gas turbine engine overhaul and repair
services.
13
<PAGE> 2
MANAGEMENT'S
DISCUSSION AND
ANALYSIS
BARNES GROUP INC.
[PHOTO OF YONG CHEE KONG]
Developing New Markets will Contribute to Barnes Group's Future Sales and
Revenue Growth for Years to Come
Yong Chee Kong, a vertical lathe machinist at Windsor Airmotive's Singapore
facility, performs critical overhaul and repair service work on a Rolls-Royce
assembly part. The ability to offer a wide selection of customer services is
instrumental in the business' growth plans.
resources to meet customer needs. The above actions resulted in Barnes Aerospace
again achieving record sales and earnings in 1998.
Associated Spring sales for 1998 were $262 million, up slightly from $259
million in 1997. Sales in 1996 were $257 million. In 1998, sales at Associated
Spring's North American operations increased, reflecting a strong domestic
economy and further penetration of non-automotive markets. However, these
business units were impacted by lower sales to General Motors (GM), most of
which was attributable to the GM strike in the third quarter. International
operations sales were down, largely resulting from the economic uncertainties in
the Asia/Pacific region.
Associated Spring reported operating profit of $29.1 million in 1998 compared to
$29.4 million in 1997 and $33.5 million in 1996. Though 1998 sales rose
slightly, profits declined reflecting the adverse impact of the GM strike, the
product line rationalization, and the ongoing economic situation in Asia.
Partially offsetting this decline was the solid year-over-year performance at
Associated Spring's North American operations and the strong turnaround at its
Mexico operation. Profits declined in 1997, reflecting softness in the
Asia/Pacific markets, costs related to the Milwaukee facility expansion and the
operating issues at its manufacturing facility in Mexico.
Bowman Distribution sales for 1998 were $247 million compared to $259 million in
1997 and $248 million in 1996. Bowman North American 1998 sales were down
year-over-year by 5%, primarily the result of the loss of a large customer and
the continued refocus of its sales efforts to meet the changing requirements of
larger customers. In Europe, Bowman Distribution's sales were flat, as
management withdrew from smaller, less profitable accounts to focus its efforts
on developing larger industrial accounts.
Effective January 1, 1998, management responsibility for Raymond Distribution, a
distributor of die springs and precision stock springs, was transferred from
Associated Spring to Bowman Distribution. Bowman Distribution's operating profit
in 1998 of $40.4 million increased $1.6 million, or 4%, from 1997. The 1997
level of $38.9 million increased $4.1 million, or 12%, from 1996. The gains in
operating profit reflect lower operating expenses in both Bowman North America
and Raymond Distribution. Continued productivity improvements and cost
reductions are crucial to the business' strategy where competitive pricing is a
key to success.
NON-OPERATING INCOME/EXPENSE
In 1998, 1997 and 1996, other income included $2.6 million, $1.8 million and
$1.6 million, respectively, from the Company's equity investment in NASCO.
Foreign exchange gains, another component of other income, were $0.2 million in
1998 and $2.1 million in 1997. These gains compare with a foreign exchange loss
of $0.8 million in 1996, which is included in other expenses.
Interest expense decreased in 1998, as a result of lower debt levels and lower
interest rates. The 1997 and 1996 interest expense reflect comparable borrowing
levels and interest rates.
INCOME TAXES
The Company's effective income tax rate has declined steadily over the last five
years. The Company's effective tax rate was 36.9% in 1998 compared with 37.3% in
1997 and 37.7% in 1996. The lower rate in 1998 was due in part to implementing
tax reduction strategies, as well as lower state taxes and the favorable tax
impact of the higher NASCO equity income.
NET INCOME AND NET INCOME PER SHARE
Consolidated net income was $42.2 million in 1998 ($34.5 million including the
nonrecurring expense), $40.4 million in 1997 and $32.6 million in 1996. On a
basic earnings per share basis, income for 1998 was $2.10 ($1.72 including the
nonrecurring expense), compared to $2.00 in 1997 and $1.63 in 1996. Diluted
earnings per share shows the same positive trend as basic earnings per share,
increasing from $1.61 in 1996 to $1.96 in 1997 to $2.07 in 1998 ($1.69 including
the nonrecurring expense).
14
<PAGE> 3
In April 1997, stockholders approved an increase in authorized common shares
from 20 million to 60 million and a three-for-one stock split. All per share
data reflects the stock split.
INFLATION
Management believes that during the 1996-1998 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. In 1998, management continued
its working capital efforts, which contributed to the increase in the cash
provided by operating activities. Management will continue to manage cash flows
aggressively and anticipates that operating activities in 1999 will provide
sufficient cash to take advantage of opportunities for internal business
expansion and to meet all of the Company's 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 a record $76.0 million of cash flow in 1998 compared to $71.6 million
in 1997 and $45.8 million in 1996. The nonrecurring expense related to the
accelerated retirement package for the Company's retired president and chief
executive officer minimally impacted 1998 cash flow. During the past three
years, operating activities provided over $193 million in cash which the Company
used, in part, to pay dividends to stockholders, reduce financing debt,
repurchase Company stock, and fund significant investments in plants and
equipment. Continued emphasis on asset management eliminated the need for
additional investment in working capital in 1998 and 1997, both of which were
periods of increasing sales. This is in contrast with 1996, where significant
additional working capital was invested to support the sales growth.
Investing activities used cash of $35.3 million in 1998 compared with $34.2
million in 1997 and $32.2 million in 1996. Capital expenditures in 1998 were
$34.6 million versus $33.4 million in 1997. During the past three years the
Company has invested $102 million in new plant, equipment and information
systems. The focus of these investments is to support business growth and to
improve productivity and quality. The Company expects 1999 capital spending to
continue at a strong pace.
In 1998, the Company's financing activities used cash of $31.9 million compared
to $26.6 million in 1997 and $6.9 million in 1996. The higher usage of cash in
1998 was due to a $4.5 million reduction in debt and the repurchase of $17.0
million of the Company's stock. Cash dividends increased in 1998 for the fourth
consecutive year to $0.69 per share. As a result, total cash dividends paid to
stockholders increased to $14.0 million.
The Company has utilized and will continue to use cash from non-U.S.
subsidiaries to fund international cash requirements 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 ordinary
business needs outside the U.S.
To supplement internal cash generation, the Company maintains substantial bank
borrowing facilities. At December 31, 1998, the Company had $150 million of
borrowing capacity available under a revolving credit agreement that expires in
2002. During 1998, the Company used a portion of the free cash flow generated by
its U.S. operations to reduce its long-term debt from $60 million to $51
million. The long-term debt is comprised, in part, of borrowings under its
short-term bank credit lines, backed by its long-term revolving credit
agreement. The Company considers this a cost-effective way to manage its
long-term financing needs. The Company believes its bank credit facilities,
coupled with cash generated from operations, are adequate for its anticipated
future requirements.
[PHOTO OF TERRI ADAMS]
MANAGEMENT INFORMATION SYSTEMS
ALLOW BARNES GROUP TO GATHER AND
ACCESS CRITICAL DATA
Terri Adams, financial systems analyst at Barnes Group's Executive Office in
Bristol, Connecticut, reviews detailed financial reports from the Company's
business units. With this global financial reporting system, data is efficiently
collected and consolidated for review by senior management.
15
<PAGE> 4
MANAGEMENT'S
DISCUSSION AND
ANALYSIS
BARNES GROUP INC.
[PHOTO OF DAVE IMM]
NEW PRODUCTS FOR NEW MARKETS
Bowman Distribution recently introduced a new product line of soluble lubricants
for use on equipment in the food processing industry. Dave Imm, product and
supplier development manager, Bowman Distribution, U.K., holds a can of Handi
Sapphire Grease, one of the numerous new products offered in the United Kingdom
and France.
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'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 affect 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, 1998, 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 a material
impact on the pretax profit of the Company, or the fair value of the interest
rate exchange agreement.
As part of managing its debt portfolio, the Company entered into an interest
rate exchange agreement to convert a portion of its 9.47% fixed rate Senior
Notes to variable-rate debt. This interest rate exchange agreement is viewed by
the Company as a risk management tool, involves little complexity, and is not
used for speculative or trading purposes. The overall objective is to reduce the
cost of debt. The effect on 1998 earnings of the interest rate exchange
agreement was to decrease the Company's interest expense by $0.3 million.
At December 31, 1998, the fair value of the Company's fixed rate debt amounted
to a liability of $45.1 million, compared to its carrying amount of $43.5
million. The Company estimates that a 1% decrease in market interest rates at
December 31, 1998 would have changed the fair value of the Company's fixed rate
debt to a liability of $46.6 million.
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 by the operating units as an integral part of their business.
Residual exposures that cannot be offset may be hedged. At December 31, 1998,
the Company had no foreign currency forward contracts. The Company does not
hedge its foreign currency net asset exposure.
The currencies that the Company was primarily exposed to on December 31, 1998
were the Singapore dollar, Mexican peso, Brazilian real and Canadian dollar.
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 fiscal 1998 would
have resulted in reducing pretax profit by $1.9 million.
The Company's exposure to commodity price changes relates primarily to certain
manufacturing operations that utilize 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.
YEAR 2000 READINESS
BACKGROUND: When the Year 2000 (Y2K) arrives, computer software may not be able
to distinguish between the year 1900 and 2000 and, as a result, date-based
information may not be processed accurately. This situation has never been
experienced, so no one is quite sure of the consequences or how to completely
prevent business disruptions.
GENERAL APPROACH: The Company's intention is to be fully Y2K ready with all of
its critical business systems and critical third party business relationships
before the year 2000. The process of addressing Y2K readiness began in early
1997 at each of the Company's three business segments. The Company established a
primary Y2K project team led by its chief financial officer and its information
technology (IT) directors. With the assistance of a third party consultant, the
Company is using a multi-phase approach to manage the Y2K readiness project
involving assessment of the problem, remediation and testing. The Company plans
to substantially complete its Y2K readiness project by the end of the third
quarter of 1999, with the fourth quarter reserved for unforeseen issues.
16
<PAGE> 5
ASSESSMENT: In this phase, the Company identifies its critical business systems
and critical third party business relationships, and assesses the Y2K impact on
each one to determine the relative risks of possible Y2K failure. Based on the
risk assessments, priorities are set, resources are allocated and the plan for
the next phase, remediation, is established. The assessment of the Company's
systems is complete, although the monitoring of the readiness of our critical
business relationships with suppliers and customers is a continuous process. In
addition, as new IT systems come on line, they will be assessed as to their Y2K
impact on the readiness of the Company's critical systems.
REMEDIATION: This phase involves the conversion, modification, or replacement of
systems that are not Y2K ready, and the implementation and integration of new
Y2K ready systems. It also involves efforts to foster Y2K readiness of third
parties with which the Company has critical business relationships. This phase
is by far the most complicated, time consuming and costly of the Y2K project.
The anticipated completion of remediation or implementation of critical systems
for Barnes Aerospace and Associated Spring is during the first quarter of 1999
and for Bowman Distribution, during the third quarter of 1999. Required for the
success of this phase is the implementation of the Bowman Distribution
enterprise management system. Because it is not practical to modify Bowman's
existing system to be Y2K ready, every effort is being made to ensure that the
new enterprise system will be fully operational and Y2K compliant by the third
quarter of 1999.
TESTING: During this phase, the testing, verification and validation of the
performance, functionality and integration of new, replaced and converted
systems will be conducted. The scheduled testing is planned to be completed by
the end of the third quarter of 1999, with the fourth quarter encompassing
unanticipated activities, including possible vendor modifications.
In the fourth quarter of 1998, both Barnes Aerospace and Associated Spring made
significant progress toward Y2K readiness. At this time, both business' North
American operations have completed the remediation phase and are well into the
testing phase. Their international operations are on target to achieve the
remediation and testing dates outlined above. Bowman Distribution expects to
complete the remediation phase by July 1999, and complete the testing phase by
the end of the third quarter.
CONTINGENCY PLANS: The Company is developing contingency plans concurrent with
the testing phase. When the Y2K readiness risks have been determined upon
completion of the testing phase, contingency plans will be finalized to deal
with the most likely worst-case scenarios. This phase will be substantially
complete by the end of the third quarter of 1999, with follow-up to occur in the
fourth quarter.
COST: The total expenses specifically associated with the Company becoming Y2K
ready are not expected to be material. Because the Company has been in the
continuous process of upgrading and modifying existing IT systems as well as
adding new systems in the ordinary course of doing business, Y2K readiness was
incorporated into the overall strategy to improve and upgrade IT systems. With
the implementation of the Bowman Distribution enterprise management system in
1999, the Company will have completed a process that began in 1995 of upgrading
all of its critical application software. The costs specific to addressing the
Y2K readiness project are those directly related to the upgrading of existing
systems to be Y2K ready and costs related to outside consultants assisting with
the Y2K project. These costs have been expensed as they have been incurred and
totaled $0.6 million in 1998 and are expected to total approximately $1.0
million in 1999. However, a significant portion of the Company's overall IT
expense of $11.5 million was either directly or indirectly incurred by
addressing Y2K readiness either through software remediation or implementation.
In addition, capitalized IT related hardware and software expenditures totaled
$12 million in 1998 and are expected to be $8 million in 1999.
RISKS: Y2K readiness encompasses a number of factors which the Company cannot
completely control, including its critical business relationships with third
party suppliers and customers. Although the Company is taking steps to minimize
the potential adverse effects of the Y2K issue, any failure by the Company, its
major
[PHOTO OF TARA McCAUSLAND]
CUSTOMER SERVICE AND SALES
REPRESENTATIVES ARE INSTRUMENTAL IN
BUILDING THE COMPANY'S BUSINESS
Tara McCausland, customer service and sales representative for Associated
Spring's eastern U.S. region, is always in contact with an existing or
prospective new customer. Customer service and sales representatives routinely
communicate with Associated Spring customers to keep them informed of the status
of their orders and work with potential customers to determine their specific
needs.
17
<PAGE> 6
MANAGEMENT'S
DISCUSSION AND
ANALYSIS
BARNES GROUP INC.
[PHOTO OF WILMA HART]
STRONG ADMINISTRATIVE SUPPORT THROUGHOUT THE
ORGANIZATION IS CRITICAL TO SUCCESS
Wilma Hart, executive assistant to Thomas O. Barnes, chairman of the board, at
Barnes Group's Executive Office in Bristol, Connecticut, is one of many
outstanding employees on the administrative and clerical staff. Hardworking and
dedicated support personnel are essential to the success of Barnes Group Inc.
vendors, other material service providers, or its principal customers to address
this issue on an adequate and timely basis could have a material adverse effect
on the Company's business, results of operations, cash flow and financial
condition.
FUTURE ACCOUNTING CHANGES
In 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. Under the provisions of this standard, the
Company is not required to and will not adopt the new standard until 2000.
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
The Company cautions readers that certain factors may affect the Company's
results for future fiscal periods. These factors involve risks and uncertainties
that could cause future results to differ materially from those expressed or
implied in any forward-looking statements made on behalf of the Company. For
this purpose, any statement other than one of historical fact may be considered
a forward-looking statement. Some important factors that could cause actual
results to vary materially from those anticipated in forward-looking statements
include economic volatility, currency fluctuations, interest rate fluctuations,
regulatory changes and technological changes (including Y2K issues), all of
which may affect the Company's operations, products and markets.
18
<PAGE> 7
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $651,183 $642,660 $594,989
Cost of sales 435,918 426,550 384,722
Selling and administrative expenses 160,044 150,344 154,951
- -----------------------------------------------------------------------------------
595,962 576,894 539,673
- -----------------------------------------------------------------------------------
Operating income 55,221 65,766 55,316
Other income 5,617 5,969 4,095
Interest expense 4,106 4,864 4,981
Other expenses 2,069 2,369 2,120
- -----------------------------------------------------------------------------------
Income before income taxes 54,663 64,502 52,310
Income taxes 20,169 24,079 19,742
- -----------------------------------------------------------------------------------
Net income $34,494 $40,423 $32,568
===================================================================================
Per common share:
Net income:
Basic $ 1.72 $ 2.00 $ 1.63
Diluted 1.69 1.96 1.61
Dividends 0.69 0.65 0.60
Average common shares outstanding 20,095,710 20,236,884 19,923,987
</TABLE>
See accompanying notes.
Consolidated Statements of Income
Barnes Group Inc.
[PHOTO OF ROLAND BROCHU]
DEVELOPMENT OF PROTOTYPE COMPONENTS RESULTS
IN MANUFACTURING CONTRACTS
Roland Brochu, die setter at Associated Spring's Bristol, Connecticut, facility,
inspects an accordion spring used in General Motors and Ford cars and trucks.
Creating high-precision prototype components ensures outstanding initial product
quality, resulting in manufacturing contracts and partnerships with customers.
19
<PAGE> 8
CONSOLIDATED
BALANCE SHEETS
BARNES GROUP INC.
[PHOTO OF DONALD DaROS]
STATE-OF-THE-ART CAPITAL EQUIPMENT PURCHASES
REDUCE CUSTOMER COSTS AND IMPROVE PRODUCT
QUALITY
Donald DaRos, a CNC machinist at Barnes Aerospace's facility in Windsor,
Connecticut, prepares a titanium-forged Pratt & Whitney high-pressure compressor
rear case for final milling. State-of-the-art milling systems such as this
five-axis Nigata HN80C CNC horizontal machining center assure Barnes Group of
high manufacturing productivity and improved product quality and accuracy.
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31,
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $40,206 $32,530
Short-term investments 2,566 --
Accounts receivable, less allowances
(1998 - $2,413; 1997 - $3,061) 82,809 91,757
Inventories 64,404 61,082
Deferred income taxes 11,660 10,966
Prepaid expenses 5,583 6,682
- ------------------------------------------------------------------------------------------------------
Total current assets 207,228 203,017
Deferred income taxes 25,136 24,083
Property, plant and equipment 139,247 133,830
Goodwill 18,224 18,773
Other assets 29,069 28,275
- ------------------------------------------------------------------------------------------------------
Total assets $418,904 $407,978
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $6,766 $2,437
Accounts payable 38,439 37,776
Accrued liabilities 52,934 46,966
Guaranteed ESOP obligation 2,205 2,746
- ------------------------------------------------------------------------------------------------------
Total current liabilities 100,344 89,925
Long-term debt 51,000 60,000
Guaranteed ESOP obligation -- 2,205
Accrued retirement benefits 68,129 67,486
Other liabilities 10,757 7,503
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 49,231 47,007
Treasury stock at cost (1998 - 2,202,417 shares;
1997 - 1,875,111 shares) (42,893) (29,433)
Retained earnings 204,364 183,857
Accumulated other comprehensive income (20,043) (15,841)
Guaranteed ESOP obligation (2,205) (4,951)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 188,674 180,859
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $418,904 $407,978
======================================================================================================
</TABLE>
See accompanying notes.
20
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOW
BARNES GROUP INC.
[PHOTO OF VERONICA STOKLASEK]
PRODUCT PROTOTYPE DEVELOPMENT IS DRIVEN BY MARKET... APPLICATION... AND CUSTOMER
Veronica Stoklasek, a machine operator at Associated Spring's Bristol,
Connecticut, facility, inspects a prototype spring before customer shipment. The
ability to design and engineer new components, and redesign existing components,
will help Associated Spring continue to grow.
<TABLE>
<CAPTION>
(Dollars in thousands)
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 34,494 $ 40,423 $ 32,568
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 28,431 28,123 26,626
Loss (gain) on sale of property, plant and equipment (741) 735 (528)
Loss related to plant realignment 1,889 -- --
Changes in assets and liabilities:
Accounts receivable 7,726 (4,786) (2,321)
Inventories (3,766) 3,150 (9,971)
Accounts payable 980 8,036 (1,548)
Accrued liabilities 4,599 781 2,797
Deferred income taxes (2,536) (1,215) 564
Other 4,960 (3,607) (2,383)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 76,036 71,640 45,804
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 4,266 1,442 2,361
Capital expenditures (34,571) (33,398) (33,892)
Purchase of short-term investments (2,605) -- --
Other (2,340) (2,266) (706)
- ---------------------------------------------------------------------------------------------------
Net cash used by investing activities (35,250) (34,222) (32,237)
FINANCING ACTIVITIES:
Net increase in notes payable 4,539 813 1,322
Payments on long-term debt (9,000) (10,000) --
Proceeds from the issuance of common stock 3,598 6,476 4,907
Common stock repurchases (17,042) (10,673) (1,197)
Dividends paid (13,951) (13,187) (11,967)
- ---------------------------------------------------------------------------------------------------
Net cash used by financing activities (31,856) (26,571) (6,935)
Effect of exchange rate changes on cash flows (1,254) (2,303) (514)
- ---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 7,676 8,544 6,118
Cash and cash equivalents at beginning of year 32,530 23,986 17,868
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 40,206 $ 32,530 $ 23,986
===================================================================================================
</TABLE>
See accompanying notes.
21
<PAGE> 10
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BARNES GROUP INC.
[PHOTO OF MARSHA PARKER]
A STRONG AND TALENTED TEAM OF EMPLOYEES IS KEY TO BARNES GROUP'S FUTURE SUCCESS
Marsha Parker, supervisor of employee relations at Barnes Group's Executive
Office in Bristol, Connecticut, administers the Company's employee relations
programs for Executive Office employees. Human resources plays a vital role in
finding employees who are talented, capable, imaginative and dedicated to
serving customers.
<TABLE>
<CAPTION>
Accumulated
Additional Other Guaranteed
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, 1996 $ 15,737 $ 27,360 $(29,853) $136,092 $(10,656) $ (9,839) $128,841
Comprehensive income:
Net income 32,568 32,568
Other comprehensive income -- 569 569
-------- -------- --------
Comprehensive income 32,568 569 33,137
Dividends paid (11,967) (11,967)
Common stock repurchases (1,197) (1,197)
Employee stock plans 987 5,010 (134) 5,863
Guaranteed ESOP obligation 2,348 2,348
Income tax benefits on
unallocated ESOP dividends 139 139
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 15,737 28,347 (26,040) 156,698 (10,087) (7,491) 157,164
Comprehensive income:
Net income 40,423 40,423
Other comprehensive income -- (5,754) (5,754)
-------- -------- --------
Comprehensive income 40,423 (5,754) 34,669
Reduction in par value (15,517) 15,517 --
Dividends paid (13,187) (13,187)
Common stock repurchases (10,673) (10,673)
Employee stock plans 3,143 7,280 (181) 10,242
Guaranteed ESOP obligation 2,540 2,540
Income tax benefits on
unallocated ESOP dividends 104 104
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 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
==============================================================================================================================
</TABLE>
See accompanying notes.
22
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF JULIE YOUNG]
INDUSTRIAL STRENGTH ADHESIVES WITH A WORLDWIDE REACH
Julie Young, materials supervisor, Bowman Distribution, U.K., displays an
adhesive the unit distributes to customers involved in light- and heavy-duty
manufacturing. Bowman offers its customers in the U.K. and France a wide array
of industrial adhesives for a variety of uses. It contracts with worldwide
suppliers to offer customers high-quality products at competitive prices.
(All dollar amounts included in the notes are stated in thousands except per
share data and the tables in Note 12.)
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.
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, an automotive 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 $2,573, $1,763
and $1,550 for the years 1998, 1997 and 1996, respectively, from the Company's
investment in NASCO. The Company received dividends from NASCO totaling $732,
$596 and $709 in 1998, 1997 and 1996, respectively.
REVENUE RECOGNITION: Sales and related cost of sales are recognized when
products are shipped to customers.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: 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, while other investments
with an original maturity of one year or less are classified as short-term
investments. Both cash equivalents and short-term investments 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 all U.S. inventories
which represent 76% of total inventories. The cost of non-U.S. 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 provided using accelerated methods over estimated useful lives
ranging generally from 20 to 50 years for buildings and 3 to 17 years for
machinery and equipment.
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. Accumulated amortization was $9,391 and
$8,842 at December 31, 1998 and 1997, 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; revenue 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. These translation effects, along with
foreign currency transactions, generated net gains of $240 and $2,095 in 1998
and 1997, respectively, and a net loss of $826 in 1996.
STOCK-BASED COMPENSATION: The Company applies APB Opinion 25 to account for
stock-based compensation. Had the Company adopted Statement of Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the impact on net
income and income per share would not have been significant.
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 reflects the assumed
exercise and conversion of all dilutive securities. Shares held by the Employee
Stock Ownership Plan (ESOP) 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 shareholders for the years ended December 31, 1998, 1997 and
1996. For purposes of computing dilutive earnings per share, the weighted
average number of shares outstanding were increased by 330,659, 419,433 and
277,077 for 1998, 1997 and 1996, respectively, representing the potential
dilutive effects of stock based incentive plans.
23
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF LEE SHIK YEN]
MAINTAINING EXISTING CUSTOMERS IS JUST AS IMPORTANT AS FINDING NEW CUSTOMERS
Lee Shik Yen, a machine operator at Barnes Aerospace's Singapore Airmotive
facility, uses resistance tack welding to attach a component to an LPT air
sealing ring used in the Pratt & Whitney PW4000 engine. Barnes Group has long
recognized the importance of meeting the changing needs of its customers.
2. INVENTORIES
Inventories at December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $34,784 $30,519
Work-in-process 15,309 17,369
Raw materials and supplies 14,311 13,194
- --------------------------------------------------------------------------------
$64,404 $61,082
================================================================================
</TABLE>
Inventories valued by the LIFO method aggregated $48,705 and $45,661 at December
31, 1998 and 1997, respectively. If LIFO inventories had been valued using the
FIFO method, they would have been $14,097 and $13,744 higher at those dates.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,292 $ 3,782
Buildings 64,421 65,610
Machinery and equipment 283,080 265,444
- --------------------------------------------------------------------------------
350,793 334,836
Less accumulated depreciation 211,546 201,006
- --------------------------------------------------------------------------------
$139,247 $133,830
================================================================================
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities at December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Payroll and other compensation $13,413 $17,006
Postretirement/postemployment benefits 15,001 6,047
Vacation pay 1,941 4,621
Accrued income taxes 5,546 2,872
Pension and profit sharing 2,576 3,163
Other 14,457 13,257
- --------------------------------------------------------------------------------
$52,934 $46,966
================================================================================
</TABLE>
24
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF PANG JON WAH]
DEVELOPING NEW MARKETS AND NEW PRODUCTS FOR NEW APPLICATIONS WILL CONTINUE TO
DRIVE BARNES GROUP'S GROWTH
Pang Jon Wah, a machine setter at Associated Spring's Singapore facility, works
on an Itaya CNC machine to produce cost-effective battery contacts for
Motorola's FP5 portable two-way radios.
5. DEBT AND COMMITMENTS
Long-term debt at December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
CARRYING FAIR Carrying
AMOUNT VALUE Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
9.47% Notes $18,462 $19,347 $24,615
7.13% Notes 25,000 25,737 25,000
Borrowings under lines of credit 538 538 3,385
Industrial Revenue Bond 7,000 7,000 7,000
- --------------------------------------------------------------------------------
$51,000 $52,622 $60,000
================================================================================
</TABLE>
The 9.47% Notes are payable in 13 semi-annual payments of $3,077 which began on
September 16, 1995, while the 7.13% Notes are payable in four equal annual
installments of $6,250 beginning on December 5, 2002. 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, notes payable and the guaranteed ESOP
obligation, approximate their fair market value.
The Company has a revolving credit agreement with six banks that allows
borrowings up to $150,000 under notes due December 6, 2002. A commitment fee of
.115% per annum is paid on the unused portion of the commitments. The Company
had no borrowings under this agreement at December 31, 1998 and 1997. The
Company has available approximately $45,000 in short-term bank credit lines, of
which $4,500 and $3,400 were in use at December 31, 1998 and 1997, respectively.
The interest rate on these borrowings was 5.6% and 5.9% at December 31, 1998 and
1997, respectively.
The Industrial Revenue Bond, due in 2008, has a variable interest rate. The
interest rate on this borrowing was 5.25% and 4.50% at December 31, 1998 and
1997, respectively.
At December 31, 1998, the Company classified $538 of borrowings under its 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.
The Company had outstanding an interest rate swap (swap), a form of derivative,
which effectively converted $9,231 of its fixed rate 9.47% Notes to floating
rate debt with interest equal to LIBOR plus 83 basis points. The effective
interest rate on the floating rate portion was 6.1% and 6.9% at December 31,
1998 and 1997, respectively. This swap decreases as the Notes are repaid. The
fair value of the swap is determined based upon current market prices and was
$650 at December 31, 1998. The Company does not use derivatives for trading
purposes.
The Company guaranteed $8,100 of letters of credit, bank borrowings and capital
lease obligations related to its 45% investment in NASCO. In addition, the
Company had other outstanding letters of credit totaling $3,965 at December 31,
1998.
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, $49,658 was
available for dividends or acquisitions of common stock at December 31, 1998.
Interest paid was $4,947, $5,554 and $5,736 in 1998, 1997 and 1996,
respectively. Interest capitalized was $711, $472 and $527 in 1998, 1997 and
1996, respectively, and is being depreciated over the lives of the related fixed
assets.
25
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF CHARLES HUDON]
ENGINE MANUFACTURERS LOOK TO BARNES AEROSPACE FOR COMPLEX MACHINING OF CRITICAL
TURBINE COMPONENTS
Charles Hudon, a machinist at Barnes Aerospace's Windsor, Connecticut, facility,
prepares a Pratt & Whitney PW4000 combustor case for turning on a customized
Bullard vertical turning lathe (VTL). This four-axis machine utilizes a dual ram
process to enable an operator to turn two areas simultaneously.
6. INCOME TAXES
The components of income before income taxes and the income tax provision
follow:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
U.S $ 42,009 $ 49,517 $ 37,957
International 12,654 14,985 14,353
- --------------------------------------------------------------------------------
$ 54,663 $ 64,502 $ 52,310
================================================================================
Income tax provision:
Current:
U.S. - federal $ 15,256 $ 16,339 $ 12,451
U.S. - state 3,110 4,050 3,045
International 4,339 4,905 3,682
- --------------------------------------------------------------------------------
22,705 25,294 19,178
- --------------------------------------------------------------------------------
Deferred:
U.S. - federal (2,214) (821) (388)
U.S. - state (94) (217) (105)
International (228) (177) 1,057
- --------------------------------------------------------------------------------
(2,536) (1,215) 564
- --------------------------------------------------------------------------------
$ 20,169 $ 24,079 $ 19,742
================================================================================
</TABLE>
Deferred income tax assets and liabilities at December 31, consist of the tax
effects of temporary differences related to the following:
<TABLE>
<CAPTION>
Assets Liabilities
- --------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 829 $ 1,139 $ -- $ --
Depreciation and amortization (6,513) (6,492) 2,527 2,680
Inventory valuation 5,039 4,418 468 529
Postretirement/postemployment costs 26,771 27,771 (306) (331)
Foreign tax loss carryforwards 9,517 9,988 -- --
Other 8,718 5,954 1,390 1,709
- --------------------------------------------------------------------------------------
44,361 42,778 4,079 4,587
Valuation allowance (7,565) (7,729) -- --
- --------------------------------------------------------------------------------------
$ 36,796 $ 35,049 $ 4,079 $ 4,587
======================================================================================
Current deferred income taxes $ 11,660 $ 10,966 $ 455 $ 850
Noncurrent deferred income taxes 25,136 24,083 3,624 3,737
- --------------------------------------------------------------------------------------
$ 36,796 $ 35,049 $ 4,079 $ 4,587
======================================================================================
</TABLE>
26
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF DIANE PLANTE]
LEADING-EDGE MANAGEMENT INFORMATION SYSTEMS PROVIDE THE NECESSARY DATA TO MAKE
DAILY DECISIONS
Diane Plante, MIS manager at Barnes Aerospace's East Granby, Connecticut,
Airmotive facility, reviews data accumulated on a daily, weekly and monthly
basis. This data is analyzed and distributed to management teams to determine
workload scheduling.
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 have remaining carryforward periods
ranging from six years to unlimited.
The Company has not recognized deferred income taxes on $97,798 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:
1998 1997 1996
- --------------------------------------------------------------------------------
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
State taxes (net of federal benefit) 3.6 3.9 3.6
Foreign losses without tax benefit 1.0 0.6 1.6
Foreign tax rates (1.6) (1.5) (2.5)
NASCO equity income (1.0) (0.6) (0.6)
Other (0.1) (0.1) 0.6
- --------------------------------------------------------------------------------
Consolidated effective income tax rate 36.9% 37.3% 37.7%
================================================================================
Income taxes paid, net of refunds, were $18,473, $25,337 and $17,825 in 1998,
1997 and 1996, respectively.
7. COMMON STOCK
In 1998, 1997 and 1996, 270,854 shares, 566,077 shares and 389,418 shares,
respectively, of common stock were issued from treasury for the exercise of
stock options, purchases by the Employee Stock Purchase Plan and various other
incentive awards. In 1998, 1997 and 1996, the Company acquired 598,160 shares,
395,179 shares and 61,812 shares, respectively, of the Company's common stock at
a cost of $17,042, $10,673 and $1,197, respectively. These acquired shares were
placed in treasury.
On April 2, 1997, the stockholders approved an amendment to the Company's
restated certificate of incorporation providing for an increase in the number of
authorized common shares from 20 million to 60 million and a reduction in the
par value of common and preferred stock from $1.00 to $0.01 per share. This
enabled the Company to effect a three-for-one stock split for stockholders of
record on April 3, 1997. All references to shares and per-share amounts in the
consolidated financial statements and accompanying notes have been adjusted
retroactively for the three-for-one stock split. Stockholders' equity at
December 31, 1998 and 1997, reflects the effect of the stock split and change in
par value per share. These changes reduced the common stock account by $15,517
and increased the additional paid-in capital account by a like amount in 1997.
In December 1996, the Company adopted a new shareholder rights plan. Under the
new 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
new 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.
If, following the acquisition by a person or group 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.
8. PREFERRED STOCK
At December 31, 1998 and 1997, the Company had 3,000,000 shares of preferred
stock authorized, none of which were outstanding. As discussed in Note 7, the
par value of preferred stock was reduced from $1.00 to $0.01 per share in 1997.
27
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF STEPHEN PARENTI]
PRECISION-ENGINEERED CUSTOM SOLUTIONS ARE THE COMPANY'S SPECIALTY
Stephen Parenti, senior tool designer at Associated Spring's Bristol,
Connecticut, facility, measures a dimension on a spring. Data gathered in the
prototype development stage will greatly reduce set-up time for the actual
production machine. Working together as a team, tool designers and product
engineers use their collective experience to better serve customers.
9. STOCK PLANS
All 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.
The GSP is a leveraged ESOP. 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 are held in trust and are issued to
employees' accounts in the GSP as the loan is repaid. Principal and interest on
the GSP loan are being paid in quarterly installments through the second quarter
of 1999. The loan bears interest based on LIBOR. At December 31, 1998, the
interest rate was 6.1%. Interest of $212, $387 and $538 was incurred in 1998,
1997 and 1996, respectively. Contributions and certain dividends received are
used in part by the GSP to service its debt. Contributions include both employee
contributions up to a maximum of 10% of eligible pay and Company contributions.
The Company contributions are 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. The GSP used
$1,899, $1,781 and $1,642 of Company dividends for debt service in 1998, 1997
and 1996, respectively. The Company expenses all cash contributions made to the
GSP. In 1996, the Company recognized compensation cost of $1,666 and income of
$403 and $498 in 1998 and 1997, respectively. As of December 31, 1998, the GSP
held 3,031,067 shares of the Company's common stock, of which 137,191 shares
were unallocated. For financial statement purposes, the Company reflects its
guarantee of the GSP's debt as a liability with a like amount reflected as a
reduction of stockholders' equity.
The Company has an Employee Stock Purchase Plan (ESPP) under which eligible
employees may elect to have up to 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 which may be purchased under the
ESPP is 2,025,000. The number of shares purchased under the ESPP was 45,599,
46,600 and 53,535 in 1998, 1997 and 1996, respectively. As of December 31, 1998,
519,879 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. A predecessor plan that provided for similar incentives expired in
1991. Options granted under that plan continue to be exercisable and any options
which terminate without being exercised become available for grant under the
1991 Plan. A maximum of 2,425,697 common shares are subject to issuance under
this plan after December 31, 1998. Compensation cost related to these plans was
$1,596, $1,150 and $904 in 1998, 1997 and 1996, respectively. The Company
recorded, in additional paid-in capital, tax benefits related to stock options
of $1,573, $2,404 and $434 in 1998, 1997 and 1996, respectively.
In 1998, 60,000 Incentive Stock Rights 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>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
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 1 979,444 $16.13 1,088,991 $10.98 1,501,068 $10.91
Granted 566,770 $29.13 441,190 $22.96 69,450 $15.65
Exercised 224,332 $11.02 505,113 $10.79 327,636 $11.30
Cancelled 83,295 $25.24 45,624 $18.44 153,891 $11.67
- ----------------------------------------------------------------------------------------------------
Outstanding, December 31 1,238,587 $22.39 979,444 $16.13 1,088,991 $10.98
====================================================================================================
Exercisable, December 31 574,966 $16.94 478,680 $10.77 217,020 $10.25
====================================================================================================
</TABLE>
28
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
[PHOTO OF DANIEL DUFERR]
DEVELOPING NEW CUSTOMERS AND KEEPING EXISTING CUSTOMERS WORLDWIDE IS ESSENTIAL
TO GROWING THE COMPANY'S BUSINESS
In 1998, Daniel Dufeu, systems sales manager for Bowman Distribution France,
helped grow Bowman's business through increased sales to food distributors,
perfume manufacturers and other service industries in Europe. Other markets the
business currently serves include agriculture, airlines, auto dealerships, auto
repair, construction, government, manufacturing, mining, railroads and
transportation.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OF SHARES LIFE (YEARS) PRICE OF SHARES PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7 TO $11 219,487 4.3 $10.01 219,487 $10.01
$12 TO $14 123,519 6.4 $13.37 123,519 $13.37
$22 TO $23 297,111 8.2 $22.32 126,117 $22.32
$24 TO $32 598,470 9.3 $28.83 105,843 $29.06
================================================================================
</TABLE>
As of December 31, 1998 there were 928,050 shares available for future grant
(1,345,013 at December 31, 1997) under the 1991 Plan and its predecessor plan.
Incentive Stock Rights entitle the holder to receive without payment, incentive
stock units (units), each of which is equivalent to one share of the Company's
common stock, after the lapse 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, based on dividends paid on outstanding units. All units
granted have up to a five-year incentive period. In 1998, 193,500 units were
granted, 6,187 units were credited to holders for dividend equivalents and 6,000
units were forfeited. Additionally, 125,199 units, which includes dividend
equivalents, were terminated in 1998 in conjunction with the accelerated
retirement agreement for the retired president and chief executive officer. As
of December 31, 1998, there were 394,060 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 no shares issued under this plan in 1998, while 12,000 shares and 6,000
shares were issued in 1997 and 1996, respectively. As of December 31, 1998,
54,000 shares were reserved for issuance under this plan.
Total shares reserved for issuance under all stock plans aggregated 2,999,576 at
December 31, 1998.
10. PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined benefit pension plans cover a majority of the Company's worldwide
employees at Associated Spring, Bowman Distribution and its Executive Office.
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 (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 field sales
employees of Bowman 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 $2,029, $2,593
and $1,735 in 1998, 1997 and 1996, 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.
29
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BARNES GROUP INC.
A reconciliation of the beginning benefit obligations to the ending benefit
obligations follows:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
- ------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligations, January 1 $ 233,952 $ 222,281 $ 59,983 $ 62,030
Service cost 5,645 5,384 521 506
Interest cost 16,908 16,668 4,359 4,320
Amendments 2,889 -- -- --
Actuarial loss (gain) 7,925 4,774 4,720 (1,575)
Benefits paid from plan assets (15,283) (15,155) (5,626) (5,298)
- ------------------------------------------------------------------------------------------------------------
Benefit obligations, December 31 $ 252,036 $ 233,952 $ 63,957 $ 59,983
============================================================================================================
Benefit obligations related to plans
with benefit obligations in excess of assets $ 9,881 $ 5,692 $ 63,957 $ 59,983
============================================================================================================
</TABLE>
A reconciliation of the beginning fair value of plan assets to the ending fair
value of plan assets follows:
<TABLE>
<CAPTION>
Pensions
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets, January 1 $ 299,632 $ 271,450
Actual return on plan assets 34,150 43,726
Contributions 379 663
Benefits paid (15,283) (15,155)
Translation losses (520) (1,052)
- --------------------------------------------------------------------------------
Fair value of plan assets, December 31 $ 318,358 $ 299,632
================================================================================
Assets related to plans with benefit
obligations in excess of plan assets $ 487 $ 188
================================================================================
</TABLE>
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
- -------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status $ 66,321 $ 65,680 $(63,957) $(59,983)
Adjustments for unrecognized:
Net (gains) losses (60,445) (56,091) 4,536 (245)
Prior service costs (benefits) 5,583 5,934 (6,953) (8,376)
Net asset at transition (4,055) (5,765) -- --
- -------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 7,404 $ 9,758 $(66,374) $(68,604)
=======================================================================================================
</TABLE>
30
<PAGE> 19
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
BARNES GROUP INC.
Significant assumptions used in determining pension and other postretirement
expense and the funded status of the plans were:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 7.00% 7.50% 7.75% 7.00% 7.50% 7.75%
Long-term rate of return on plan assets 9.25% 9.00% 9.00% -- -- --
Increase in compensation 4.75% 5.25% 5.25% 4.75% 5.00% 5.00%
==================================================================================================================================
</TABLE>
Pension and other postretirement benefit expenses consisted of the following:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 5,645 $ 5,384 $ 5,591 $ 521 $ 506 $ 660
Interest cost 16,908 16,668 15,839 4,359 4,320 4,782
Return on plan assets expected (22,264) (20,965) (19,817) -- -- --
Amortization of transition assets (1,643) (1,660) (1,656) -- -- --
Recognized (gains) losses 2,898 (531) (133) -- -- --
Prior service cost 861 872 681 (1,422) (1,422) (1,150)
- ----------------------------------------------------------------------------------------------------------------------------------
Benefit cost (credit) $ 2,405 $ (232) $ 505 $ 3,458 $ 3,404 $ 4,292
==================================================================================================================================
</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 (i.e., healthcare cost trend rate) is
assumed to be 7.0% for 1998, gradually reducing to 5.0% by the year 2001. A one
percentage point increase in the assumed healthcare cost trend rate would
increase the accumulated benefit obligations by approximately $2,443 at December
31, 1998, and would have increased the 1998 aggregate of the service and
interest cost components of postretirement benefit expense by approximately
$174. A one percentage point decrease in the assumed healthcare cost trend rate
would decrease the accumulated benefit obligations by approximately $1,539 at
December 31, 1998, and would have decreased the 1998 aggregate of the service
and interest cost components of postretirement benefit expense by approximately
$166.
11. LEASES
The Company has various noncancelable operating leases for buildings, office
space and equipment. Capital leases were not significant. Rent expense was
$7,133, $7,178 and $6,268 for 1998, 1997 and 1996, respectively. During 1997,
both Associated Spring headquarters and Bowman Distribution headquarters
relocated to new facilities under operating leases. Minimum rental commitments
under noncancelable leases in years 1999 through 2003 are $5,718, $4,773,
$4,462, $3,073, $2,752 and $9,074 thereafter.
12. 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 custom-made springs and other close-tolerance
engineered metal components, principally to the transportation, electronics and
industrial 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, Canada, Mexico and Singapore. The automotive
and automotive parts industries constitute Associated Spring's largest market.
BOWMAN 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. Bowman Distribution's operations
and markets are located
31
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
BARNES GROUP INC.
primarily in the U.S. Other important locations include Canada and Europe.
BARNES AEROSPACE: manufactures precision machined parts and fabricated
assemblies, and refurbishes jet engine components for the aircraft and aerospace
industries. Barnes Aerospace's operations are primarily in the U.S., while its
markets are located in the U.S., Europe and Asia.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies, except with respect to inventory and
certain employee benefit programs. Specifically, the segments follow the
first-in, first-out (FIFO) method of accounting for inventory. Additionally, the
segments recognize pension expense based on a fixed percentage of payroll. The
Company evaluates the performance of its reportable segments based on operating
profit of the respective businesses which includes net sales, cost of sales,
selling and administrative expenses, and certain operating components of other
income and other expenses. Sales between the business segments and between the
geographic areas 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 BUSINESS SEGMENT
<TABLE>
<CAPTION>
(Dollars in millions)
Associated Bowman Total
Spring Distribution Barnes Aerospace Other BGI
Revenues
=============================================================================================================
<S> <C> <C> <C> <C> <C>
1998 $262.1 $246.9 $154.6 $(12.4) $651.2
1997 259.0 258.8 136.6 (11.7) 642.7
1996 256.8 248.2 103.1 (13.1) 595.0
Operating profit
=============================================================================================================
1998 $ 29.1 $ 40.4 $ 17.3 $(28.7) $ 58.1
1997 29.4 38.9 14.4 (15.7) 67.0
1996 33.5 34.8 6.5 (17.1) 57.7
Assets
=============================================================================================================
1998 $156.2 $ 89.0 $ 82.9 $ 90.8 $418.9
1997 152.0 89.7 84.6 81.7 408.0
1996 154.6 83.7 83.1 68.6 390.0
Depreciation & amortization
=============================================================================================================
1998 $ 15.3 $ 5.3 $ 7.0 $ 0.8 $ 28.4
1997 14.2 5.1 8.0 0.8 28.1
1996 12.7 4.3 8.8 0.8 26.6
Capital expenditures
=============================================================================================================
1998 $ 18.3 $ 7.5 $ 8.3 $ 0.5 $ 34.6
1997 18.3 7.0 7.9 0.2 33.4
1996 21.3 3.1 9.4 0.1 33.9
</TABLE>
NOTES:
In 1998, one customer accounted for 11.8% of the Company's total sales.
"Other" revenues represent intersegment sales of which, the majority are sales
by Associated Spring to Bowman Distribution.
The operating profit of Associated Spring includes income from its equity
investment in NASCO of $2.6 million, $1.8 million and $1.6 million in 1998, 1997
and 1996, respectively.
The majority of "Other" operating profit includes corporate office
administrative expenses, of which the 1998 expense includes $12.9 million
relating to the accelerated retirement package for the retired president and
chief executive officer.
The assets of Associated Spring include the NASCO investment of $9.2 million,
$7.8 million and $7.1 million in 1998, 1997 and 1996, respectively.
"Other" assets include corporate controlled assets, the majority of which are
cash, deferred tax assets and intangible assets.
32
<PAGE> 21
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
BARNES GROUP INC.
A reconciliation of the total reportable segments' operating profit to income
before income taxes follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit $ 58.1 $ 67.0 $ 57.7
Interest income 1.4 1.2 1.2
Interest expense (4.1) (4.9) (5.0)
Other income (expense) (0.7) 1.2 (1.6)
- -----------------------------------------------------------------------
Income before income taxes $ 54.7 $ 64.5 $ 52.3
=======================================================================
</TABLE>
OPERATIONS BY GEOGRAPHIC AREA
(Dollars in millions)
<TABLE>
<CAPTION>
Inter-
Domestic International Geographical Total BGI
Revenues
============================================================================================
<S> <C> <C> <C> <C>
1998 $526.8 $138.3 $(13.9) $651.2
1997 515.0 139.5 (11.8) 642.7
1996 466.4 138.8 (10.2) 595.0
============================================================================================
Long-lived assets
============================================================================================
1998 $145.5 $ 41.0 $ -- $186.5
1997 138.6 42.3 -- 180.9
1996 134.2 41.9 -- 176.1
============================================================================================
</TABLE>
NOTES:
International sales derived from any one country did not exceed 10% of total
revenues.
Intergeographical sales are equally distributed between domestic and
international.
33
<PAGE> 22
Report of Independent Accountants
[PricewaterhouseCoopers 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, changes in stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Barnes
Group Inc. and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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 expressed
above.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
January 27, 1999
Quarterly Data
(Unaudited)
Barnes Group Inc.
<TABLE>
<CAPTION>
(Dollars in millions, except per First Second Third Fourth FULL
share data) Quarter Quarter Quarter Quarter YEAR
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 168.8 $ 169.2 $ 158.3 $ 154.9 $ 651.2
Gross profit(1) 57.5 57.0 50.8 50.0 215.3
Operating income(2) 19.3 6.9 16.9 12.1 55.2
Net income(2) 11.9 4.6 10.7 7.3 34.5
Per common share:(2)(3)
Net income:
Basic 0.59 0.23 0.53 0.37 1.72
Diluted 0.58 0.23 0.52 0.36 1.69
Dividends 0.167 0.167 0.180 0.180 0.694
Market prices (high-low) $33.44-21.25 $34.00-26.50 $30.63-23.63 $31.88-24.56 $34.00-21.25
- --------------------------------------------------------------------------------------------------------------------------------
1997
Net sales $ 158.1 $ 165.9 $ 158.5 $ 160.2 $ 642.7
Gross profit(1) 55.2 54.6 53.2 53.1 216.1
Operating income 16.8 17.5 16.1 15.4 65.8
Net income 10.1 10.7 10.1 9.5 40.4
Per common share:(3)
Net income:
Basic 0.50 0.53 0.50 0.47 2.00
Diluted 0.49 0.52 0.49 0.46 1.96
Dividends 0.150 0.167 0.167 0.167 0.651
Market prices (high-low) $24.92-19.79 $ 29.88-22.88 $30.38-27.00 $29.25-22.75 $30.38-19.79
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Sales minus cost of sales.
(2) 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
retired president and chief executive officer of the Company recorded in
the second quarter.
(3) All per share data has been adjusted for the three-for-one stock split.
34
<PAGE> 23
SELECTED
FINANCIAL DATA
BARNES GROUP INC.
<TABLE>
<CAPTION>
1998(3) 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE (1)(2)
Income
- ----------------------------------------------------------------------------------------------------------------------------------
Continuing operations $ 1.72 $ 2.00 $ 1.63 $ 1.40 $ 1.07
- ----------------------------------------------------------------------------------------------------------------------------------
Net income:
Basic 1.72 2.00 1.63 1.40 1.07
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted 1.69 1.96 1.61 1.38 1.06
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends paid .69 .65 .60 .53 .48
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (at year-end) 9.51 8.97 7.86 6.55 5.55
- ----------------------------------------------------------------------------------------------------------------------------------
Stock price (at year-end) 29.25 22.75 20.00 12.00 12.67
==================================================================================================================================
FOR THE YEAR (in thousands)
Net sales $651,183 $642,660 $594,989 $592,509 $569,197
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 55,221 65,766 55,316 48,804 36,649
- ----------------------------------------------------------------------------------------------------------------------------------
As a percent of sales 8.5% 10.2% 9.3% 8.2% 6.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 54,663 $ 64,502 $ 52,310 $ 45,450 $ 33,922
- ----------------------------------------------------------------------------------------------------------------------------------
Income taxes 20,169 24,079 19,742 17,966 13,606
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 34,494 40,423 32,568 27,484 20,316
- ----------------------------------------------------------------------------------------------------------------------------------
As a percent of average stockholders' equity 18.4% 23.4% 22.8% 22.6% 20.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 28,431 $ 28,123 $ 26,626 $ 26,750 $ 23,733
- ----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 34,571 33,398 33,892 35,820 31,848
- ----------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding - basic 20,096 20,237 19,924 19,640 19,061
==================================================================================================================================
YEAR-END FINANCIAL POSITION (in thousands)
Working capital $106,884 $113,092 $109,476 $ 95,280 $ 88,325
- ----------------------------------------------------------------------------------------------------------------------------------
Current ratio 2.1 TO 1 2.3 to 1 2.4 to 1 2.2 to 1 2.0 to 1
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment $139,247 $133,830 $131,071 $122,870 $112,569
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 418,904 407,978 389,956 361,549 351,956
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 51,000 60,000 70,000 70,000 70,000
- ----------------------------------------------------------------------------------------------------------------------------------
Guaranteed ESOP obligation - long-term portion -- 2,205 4,951 7,491 9,839
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 188,674 180,859 157,164 128,841 107,139
- ----------------------------------------------------------------------------------------------------------------------------------
Debt as a percent of total capitalization(4) 24.1% 27.1% 33.5% 38.4% 45.6%
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR-END STATISTICS
Employees 3,847 3,872 3,761 3,880 4,181
==================================================================================================================================
</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 has 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
retired president and chief executive officer of the Company.
(4) Debt includes all interest-bearing debt including the guaranteed ESOP
obligation, and total capitalization includes interest-bearing debt and
stockholders' equity.
35
<PAGE> 24
LOCATIONS AROUND THE WORLD
BARNES GROUP INC.
HEADQUARTERS
*BRISTOL, CONNECTICUT
BARNES
AEROSPACE
HEADQUARTERS
1 WINDSOR, CONNECTICUT
MANUFACTURING PLANTS
UNITED STATES
2 EAST GRANBY, CONNECTICUT
3 WINDSOR, CONNECTICUT
4 LANSING, MICHIGAN
5 OGDEN, UTAH
ASIA
6 REPUBLIC OF SINGAPORE
SALES
EUROPE
7 CORSHAM, ENGLAND
ASSOCIATED
SPRING
HEADQUARTERS
1 FARMINGTON, CONNECTICUT
MANUFACTURING PLANTS
NORTH AMERICA
2 BRISTOL, CONNECTICUT
3 SALINE, MICHIGAN
4 SYRACUSE, NEW YORK
5 ARDEN, NORTH CAROLINA
6 CORRY, PENNSYLVANIA
7 DALLAS, TEXAS
8 MILWAUKEE, WISCONSIN
9 BURLINGTON, ONTARIO, CANADA
10 MEXICO CITY, MEXICO
JOINT VENTURE
UNITED STATES
11 NASCO, BOWLING GREEN,
KENTUCKY
SOUTH AMERICA
12 CAMPINAS, BRAZIL
ASIA
13 REPUBLIC OF SINGAPORE
BOWMAN
DISTRIBUTION
HEADQUARTERS
1 CLEVELAND, OHIO
DISTRIBUTION OPERATIONS
NORTH AMERICA
2 ANAHEIM, CALIFORNIA
3 BAKERSFIELD, CALIFORNIA
4 LAWRENCEVILLE, GEORGIA
5 ROCKFORD, ILLINOIS
6 ELIZABETHTOWN, KENTUCKY
7 EDISON, NEW JERSEY
8 COLUMBUS, OHIO
9 ARLINGTON, TEXAS
10 ALGONA, WASHINGTON
11 CONCORD, ONTARIO, CANADA
12 EDMONTON, ALBERTA, CANADA
13 MONCTON, NEW BRUNSWICK, CANADA
EUROPE
14 CORSHAM, ENGLAND
15 VOISINS LE BRETONNEUX, FRANCE
RAYMOND DISTRIBUTION
UNITED STATES
16 MAUMEE, OHIO
17 CERRITOS, CALIFORNIA
18 YPSILANTI, MICHIGAN
19 ARLINGTON, TEXAS
20 NEW BERLIN, WISCONSIN
EUROPE
21 EVESHAM, UNITED KINGDOM
22 MONTIGNY, FRANCE
36
<PAGE> 1
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
Barnes Group (Bermuda) Limited Bermuda
Barnes Group Canada Inc. Canada
Barnes Group Holding B.V. Netherlands
Bowman Distribution Europe Limited United Kingdom
Bowman Distribution France S.A. France
Ressorts SPEC, SARL France
Windsor Airmotive Asia PTE. LTD. Singapore
Associated Spring SPEC Limited is wholly-owned by Bowman
Distribution Europe Limited. Ressorts SPEC, SARL is wholly-owned by
Bowman Distribution France S.A. Windsor Airmotive Asia PTE. LTD. is
wholly-owned by Barnes Group Canada Inc. Associated Spring-Asia PTE.
LTD. and Associated Spring do Brasil Ltda. are wholly-owned by Barnes
Group (Bermuda) Limited. Associated Spring Mexico, S.A. is owned by
Barnes Group (Bermuda) Limited (20%), Barnes Group Canada Inc. (40%),
and Associated Spring-Asia PTE. LTD. (40%). Barnes Group Canada Inc.,
Bowman Distribution Europe Limited, and Bowman Distribution France S.A.
are wholly-owned by Barnes Group Holding B.V. Barnes Group (Bermuda)
Limited and Barnes Group Holding B.V. are wholly-owned by Barnes Group
Inc. 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 23 of the 1998 Annual
Report to Stockholders.
<PAGE> 1
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; and 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) of Barnes Group Inc.
of our report dated January 27, 1999 appearing on page 34 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 on the Financial
Statement Schedule, which appears on page 14 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- --------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF BARNES GROUP INC. AS OF DECEMBER 31, 1998, THE
RELATED CONSOLIDATED STATEMENT OF INCOME, NOTE 3 TO THE CONSOLIDATED FINANCIAL
STATEMENTS AND SCHEDULE II OF FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS, NOTE AND SCHEDULE.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 40,206
<SECURITIES> 2,566
<RECEIVABLES> 85,222
<ALLOWANCES> 2,413
<INVENTORY> 64,404
<CURRENT-ASSETS> 207,228
<PP&E> 350,793
<DEPRECIATION> 211,546
<TOTAL-ASSETS> 418,904
<CURRENT-LIABILITIES> 100,344
<BONDS> 51,000
0
0
<COMMON> 220
<OTHER-SE> 188,454
<TOTAL-LIABILITY-AND-EQUITY> 418,904
<SALES> 651,183
<TOTAL-REVENUES> 651,183
<CGS> 435,918
<TOTAL-COSTS> 435,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 357
<INTEREST-EXPENSE> 4,106
<INCOME-PRETAX> 54,663
<INCOME-TAX> 20,169
<INCOME-CONTINUING> 34,494
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,494
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.69
</TABLE>
