<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, 1999
OR
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4801
BARNES GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0247840
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
123 MAIN STREET, BRISTOL, CONNECTICUT 06011-0489
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 583-7070
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, $0.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. -----
The aggregate market value of the registrant's voting stock held by
non-affiliates amounted to $219,456,001 as of January 31, 2000. The registrant
had outstanding 18,665,027 shares of common stock as of January 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II incorporate information by reference from the registrant's 1999
Annual Report to Stockholders. Part III incorporates information by reference
from the registrant's Proxy Statement dated March 15, 2000.
<PAGE> 2
PART I
Item 1. Business.
The Company was organized as a Delaware corporation in 1925. The
Company is in three businesses: Associated Spring, a manufacturer of custom-made
springs and other close-tolerance engineered metal components; Barnes Aerospace,
a manufacturer of precision machined and fabricated assemblies for the aircraft
and aerospace industries and a refurbisher of jet engine components; and Bowman
Distribution, a distributor of consumable repair and replacement products for
industrial, heavy equipment, and transportation maintenance markets.*
Associated Spring. Associated Spring manufactures a wide variety of
custom metal parts for mechanical and electrical purposes. It is equipped to
produce a broad array of springs 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 hundreds of millions. Associated Spring does not produce leaf springs
or bed springs.
Associated Spring is also engaged in the manufacture and
distribution of nitrogen gas springs which are sold under the Company's
Hyson(TM) and Kaller(R) trademarks.
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 its custom metal parts perform, Associated
Spring's output is characterized by little standardization, with the major
portion being manufactured to customer specifications.
Associated Spring's customer base is large and diverse, including
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. The
automotive and electronic industries are the largest markets for its products.
- -----------------
* As used in this annual report, "Company" refers to the registrant and its
consolidated subsidiaries except where the context requires otherwise, and
"Associated Spring," "Barnes Aerospace," and "Bowman Distribution" refer to the
above-defined businesses, but not to separate corporate entities.
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Associated Spring has manufacturing operations in the United States,
Brazil, Canada, Mexico, Singapore, and Sweden. 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 fabrication and
precision machining of components for turbine engines and airframes, the
overhaul and repair of turbine engine components, and contract manufacturing.
The Windsor, Advanced Fabrications, Windsor Airmotive and Ceramics Divisions
constitute the Barnes Aerospace Group.
The Windsor Division, located in Windsor, Connecticut, 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, rotary, continuous dress and creep-feed grinding,
multi-axis milling and turning, and automated de-burring. Customers include gas
turbine engine manufacturers for commercial and military jets as well as
land-based turbines.
The Advanced Fabrications Division consists of two facilities
located in Lansing, Michigan, and Ogden, Utah. Both plants specialize in hot,
cold and superplastic forming and fabricating titanium and other
high-temperature alloys such as hastelloy and inconel. Complex components, kits
and assemblies produced by this division are used in aircraft engine and
airframe applications. Additional key processes include diffusion bonding, laser
and water jet cutting, complex assembly, multi-axis milling, and welding.
Advanced Fabrications' customers include airframe and gas turbine engine
manufacturers for commercial and military jets.
The Windsor Airmotive Division, with facilities located in Windsor,
Connecticut and Singapore, specializes in the overhaul and repair of turbine
engine components including major high- and low-pressure cases, seal fin and
knife edge restoration, rotating and non-rotating air seals and internal case
supports. Processes performed at these facilities include electron beam welding,
gas tungsten and metal arc welding, plasma coating, vacuum brazing,
non-destructive testing, water jet cleaning, milling and turning. Customers
include worldwide major airlines and engine overhaul businesses and the United
States military.
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The Ceramics Division, located in Windsor, Connecticut, provides
contract manufacturing services for high technology manufacturing industries.
Various offload and just-in-time processes are performed in a facility which
includes clean room space.
Bowman Distribution. Bowman Distribution is engaged in distributing
in the United States, Canada, Mexico, Brazil, the United Kingdom, Ireland and
France, a variety of replacement parts, industrial maintenance supplies, and
related value-added services, including inventory management and procurement.
Bowman Distribution is also engaged in the distribution of die
springs and nitrogen gas 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,
through its Raymond Distribution business. 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. Except where there is high brand awareness, the vast majority
of these products are repackaged and sold under Bowman's labels.
Sales by Bowman Distribution 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.
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 area appearing on pages 22 through 24 of the Company's 1999 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 $135,647,000 at the end of 1999, as compared with $169,883,000 at
the end of 1998. Of the 1999 year-end backlog, $79,900,000 is attributable
to the Barnes
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<PAGE> 5
Aerospace Group and all of the balance is attributable to the Associated Spring
Group. $10,762,000 of Barnes Aerospace's backlog is not expected to be shipped
in 2000. Substantially all of the remainder of the Company's backlog is expected
to be shipped during 2000.
Raw Materials and Customers. None of the Company's divisions or
segments is dependent upon any single source for any of its principal raw
materials or products for resale, and all such materials and products are
readily available. No one customer accounted for more than 10% of total sales in
1999. 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 51% of its
business. Bowman Distribution is not dependent on any one or a few customers for
a significant portion of its sales.
Research and Development. Although most of the products manufactured
by the Company are custom parts made to 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
significantly improving existing products or services. The Company spent
approximately $4,272,000 on its research and development activities in 1999, as
compared to expenditures of approximately $3,673,000 in 1998 and $3,625,000 in
1997. 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 4,000 people.
Environmental Laws. Compliance with federal, state, and local laws
which have been enacted or adopted regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment has
not had a material effect and is not expected to have a material effect upon the
capital expenditures, earnings, or competitive position of the Company.
Item 2. Properties.
The Company and its operating subsidiaries conduct business at 18
manufacturing plants and 22 warehouses at various locations throughout the
world. All of the plants, except the two locations in Singapore, and 5 of the
warehouses are owned. Associated Spring-Asia has a long-term lease on the land
but owns the building. Of the properties that are owned, none is subject to any
encumbrance. A listing of the principal facility locations of each of the
Company's businesses is set forth below. In 1999, the Company closed a
manufacturing facility located in Arden, North Carolina.
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<TABLE>
<S> <C>
BARNES GROUP INC. BOWMAN DISTRIBUTION
- ----------------- -------------------
Headquarters -- Bristol, CT (0) + Headquarters -- Cleveland, OH (L)
+ Distribution Operations
ASSOCIATED SPRING - United States
- ----------------- Arlington, TX (L)
+ Headquarters -- Farmington, CT (L) Auburn, WA (L)
+ Manufacturing Plants Bakersfield, CA (L)
- United States Buena Park, CA (L)
Brecksville, OH (O) Columbus, OH (L)
Bristol, CT (O) Edison, NJ (L)
Corry, PA (O) Elizabethtown, KY (O)
Dallas, TX (O) Las Vegas, NV (L)
Milwaukee, WI (O) Lawrenceville, GA (L)
Saline, MI (O)
Syracuse, NY (O) - International
Concord, Ontario, Canada (O)
- International Edmonton, Alberta, Canada (O)
Burlington, Ontario, Canada (O) Moncton, New Brunswick, Canada (O)
Campinas, Brazil (O) Corsham, United Kingdom (L)
Mexico City, Mexico (O) Voisins Le Bretonneux, France (L)
Republic of Singapore (L-Land
O-Bldg.) + Raymond Distribution
Tranas, Sweden (O) Headquarters -- Maumee, OH (L)
Distribution Operations
BARNES AEROSPACE - United States
- ---------------- Arlington, TX (L)
+ Headquarters -- Windsor, CT (O) Buena Park, CA (L)
+ Manufacturing Plants New Berlin, WI (L)
- United States Ypsilanti, MI (O)
East Granby, CT (O)
Windsor, CT (2 - O) - International
Lansing, MI (O)x Burlington, Ontario, Canada (O)
Ogden, UT (O) Campinas, Brazil (O)
Evesham, United Kingdom (L)
- International Mexico City, Mexico (L)
Republic of Singapore (L) Montingy, France (L)
Mullingar, Ireland (L)
</TABLE>
Note:
- -----
L = Leased from a third party
O = Owned
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The Company believes that its owned and leased properties have been
adequately maintained, are in satisfactory operating condition, are suitable and
adequate for the business activities conducted therein, and have productive
capacities sufficient to meet current needs.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party, or of which any of their property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of 1999 to a vote
of security holders.
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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 17 through 19 of the Company's 1999 Annual Report to Stockholders is
incorporated by reference. As of January 31, 2000, the Company's common stock
was held by 2,850 stockholders of record. The Company's common stock is traded
on the New York Stock Exchange under the symbol "B".
Item 6. Selected Financial Data.
The selected financial data for the last five years contained on
page 26 of the Company's 1999 Annual Report to Stockholders are incorporated by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The financial review and management's analysis thereof appearing on
pages 5 through 8 of the Company's 1999 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 9 through 24 of the Company's 1999 Annual Report to
Stockholders are incorporated by reference. See also the report of independent
accountants included on page 15 below pursuant to Item 302(a) of Regulation S-K.
The material under "Quarterly Data" on page 25 of the Company's 1999 Annual
Report to Stockholders is also incorporated by reference.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
7
<PAGE> 9
PART III
Item 10. Directors and Executive Officers of the Company.
The material under "Election of Directors For A Three-Year Term" on
pages 1 through 3, and the material under "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 5, of the Company's Proxy Statement dated March
15, 2000 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, 1999
- ----------------- -------- -----------------
<S> <C> <C>
Edmund M. Carpenter President and Chief Executive 58
Officer (since 1998)
John R. Arrington Senior Vice President, Human 53
Resources (since 1998)
Cedric D. Beckett Vice President, Barnes Group 35
Inc.(since 1997) and President,
Bowman Distribution (since 1999)
Francis C. Boyle, Jr. Vice President, Controller (since 49
1997) and Acting Chief Financial
Officer (since 1999)
Leonard M. Carlucci Vice President, Barnes Group Inc. 53
(since 1994) and President,
Associated Spring (since 1999)
Joseph D. DeForte Vice President, Tax (since 1999) 57
Signe S. Gates Senior Vice President, General 50
Counsel and Secretary (since 1999)
Philip A. Goodrich Vice President, Business 43
Development (since 1999)
John J. Locher Vice President, Treasurer (since 55
1992)
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
Age as of
Executive Officer Position December 31, 1999
- ----------------- -------- -----------------
<S> <C> <C>
Gregory F. Milzcik Vice President, Barnes Group Inc. 40
and President, Barnes Aerospace
(since 1999)
Harry G. Saddock, Jr. Vice President, Barnes Group Inc. 48
and Vice President, Operations,
Associated Spring (since 1998)
</TABLE>
Except for Messrs. Carpenter, Arrington, DeForte, Goodrich, and
Milzcik, and Ms. Gates, each of the Company's executive officers has been
employed by the Company or its subsidiaries in an executive or managerial
capacity for at least the past five years. Each officer holds office until his
or her successor is chosen and qualified or otherwise as provided in the
By-Laws, except Mr. Carpenter who holds office pursuant to an employment
agreement with the Company, which is incorporated as Exhibit 10.12 to this
report. No family relationships exist among the executive officers of the
Company.
Mr. Carpenter joined the Company as President and Chief Executive
Officer in December 1998. From 1996 to 1998, Mr. Carpenter was a Senior Managing
Director of Clayton, Dubilier & Rice, Inc., a private equity firm. 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, semiconductor, 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. DeForte joined the Company as Vice President, Tax in August
1999. From 1997 to 1999, Mr. DeForte was Vice President and Chief Financial
Officer of Loctite Corporation, a manufacturer and distributor of adhesives
and sealants. From 1988 to 1997, Mr. DeForte was Vice President, Tax,
Loctite Corporation. In 1997, Loctite Corporation became a subsidiary of
Henkel KGaA.
Mr. Goodrich joined the Company as Vice President, Business
Development in November 1999. From 1996 to 1998, Mr. Goodrich was Senior Vice
President, Corporate Development of AMETEK, Inc., a manufacturer of electric
motors and electron equipment. From 1991 to 1995, Mr. Goodrich was Vice
President,
9
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Corporate Development, General Signal Corporation, a manufacturer of capital
equipment and instruments for the process control, electrical, semiconductor,
and telecommunications industries.
Mr. Milzcik joined the Company as Vice President, Barnes Group
Inc. and President, Barnes Aerospace in June 1999. From 1997 to 1999, Mr.
Milzcik was Vice President and General Manager of International Operations of
Lockheed Martin Aircraft and Logistics, an aerospace manufacturing and
service company. From 1994 to 1997, Mr. Milzcik was Group Vice President,
Manufacturing and Overhaul of Precision Standard, Inc., an aerospace
structure manufacturing and engineering services company.
Ms. Gates joined the Company as Senior Vice President, General
Counsel and Secretary in June 1999. From 1996 to 1999, Ms. Gates was Vice
President, General Counsel and Corporate Secretary of Axel Johnson Inc., a
manufacturing, distribution and service company in the energy,
telecommunications and environmental industries. From 1992 to 1996, Ms. Gates
was an Assistant General Counsel, General Signal Corporation, a manufacturer of
capital equipment and instruments for the process control, electrical,
semiconductor, and telecommunications industries.
Item 11. Executive Compensation.
The information under "Compensation of Directors" appearing on pages
3 through 4, and the information under "Compensation," "Stock Options,"
"Long-Term Incentive Plan Awards," "Pension Plans," "Employment Agreement," and
"Change-In-Control Agreements" appearing on pages 9 through 14 of the Company's
Proxy Statement dated March 15, 2000, are incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning this item appearing on pages 5 through 6
of the Company's Proxy Statement dated March 15, 2000, is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
None.
10
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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
to
Form 10-K Stockholders
(page) (page)
------ ------
<S> <C> <C>
Report of independent accountants 15 24
Consolidated balance sheets at December 31, 10
1999 and 1998
Consolidated statements of income for the 9
years ended December 31, 1999, 1998 and 1997
Consolidated statements of changes in 12
stockholders' equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated statements of cash flows for the 11
years ended December 31, 1999, 1998 and 1997
Notes to consolidated financial statements 13-24
Supplementary information 25
Quarterly data (unaudited)
Consolidated schedule for the years ended December
31, 1999, 1998 and 1997:
Schedule II - Valuation and Qualifying 16
Accounts
</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.
11
<PAGE> 13
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, 1999, are hereby incorporated by reference. With the
exception of the pages listed in the above index and in Items 1, 5, 6, 7 and 8,
the 1999 Annual Report to Stockholders is not to be deemed filed as part of this
report.
(b) Reports on Form 8-K
Other than the report on Form 8-K/A dated August 30, 1999 that
was filed with the Commission on November 12, 1999 and
previously reported, 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 17
through 19 of this report.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 17, 2000
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/ Francis C. Boyle, Jr.
- ------------------------------------------
Francis C. Boyle, Jr.
Vice President, Controller and
Acting Chief Financial Officer
(principal accounting and financial officer)
/s/ Thomas O. Barnes
- ------------------------------------------
Thomas O. Barnes
Director
13
<PAGE> 15
/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/ Robert W. Fiondella
- ------------------------------------------
Robert W. Fiondella
Director
/s/ Frank E. Grzelecki
- ------------------------------------------
Frank E. Grzelecki
Director
14
<PAGE> 16
[PricewaterhouseCoopers LLP Logo]
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Barnes Group Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 8, 2000 appearing on page 24 of the 1999 Annual Report to
Stockholders of Barnes Group Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 8, 2000
15
<PAGE> 17
BARNES GROUP INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Provision
Balance at Charged to Balance
Beginning Costs and at End of
of Year Expenses(1) Deductions(2) Year
------- --------- ----------- ----
<S> <C> <C> <C> <C>
1999
Allowance for $2,413 $1,343 $ 427 $3,329
doubtful
accounts
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
</TABLE>
- --------------
(1) The increase in the 1999 expense was a result of the complications
encountered during the implementation of a new integrated management system at
Bowman Distribution. The significant decrease in 1998 expense compared to 1997
resulted from Bowman Distribution's successful efforts to improve the recovery
of previously reserved receivables.
(2) Write-offs, net of recoveries
16
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EXHIBIT INDEX
Barnes Group Inc.
Annual Report on Form 10-K
for the Year ended December 31, 1999
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
3.1 Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to
the Company's report on Form 10-K for the
year ended December 31, 1997.
3.2 Amended and Restated By-Laws. Incorporated by reference to Exhibit 3.2 to
the Company's report on Form 10-K for the
year ended December 31, 1998.
4.1 Revolving Credit Agreement dated as of Incorporated by reference to Exhibit 4.1 to
December 1, 1991 among the Company and the Company's report on Form 10-K for the
several commercial banks. year ended December 31, 1996.
4.2 Sixth Amendment to Credit Agreement set Incorporated by reference to Exhibit 4.2 to
forth in Exhibit 4.1 dated as of December 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.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
4.6 Note Agreement dated as of November 12, Filed with this report.
1999, between 3031786 Nova Scotia Company,
a wholly owned subsidiary of the Company,
and several insurance companies; and
related Guaranty Agreement between the
Company and such insurance companies.
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.
10.2 The Company's Long Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to
the Company's report on Form 10-K for the
year ended December 31, 1995.
10.3 The Company's Retirement Benefit Incorporated by reference to Exhibit 10.3 to
Equalization Plan. the Company's report on Form 10-K for the
year ended December 31, 1995.
10.4 The Company's Supplemental Executive Incorporated by reference to Exhibit 10.4 to
Retirement Plan. the Company's report on Form 10-K for the
year ended December 31, 1995.
10.5 The Company's 1991 Stock Incentive Plan, as Incorporated by reference to Exhibit 10.5 to
amended and restated May 15, 1998. the Company's report on Form 10-K for the
year ended December 31, 1998.
10.6 The Company's Non-Employee Director 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.
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit No. Description Reference
- ----------- ----------- ---------
<S> <C> <C>
10.8 The Company's Senior Executive Enhanced Incorporated by reference to Exhibit 10.8 to
Life Insurance Program, amended and the Company's report on Form 10-K for the
restated May 16, 1997. year ended December 31, 1998.
10.9 The Company's Enhanced Life Insurance Incorporated by reference to Exhibit 10.12
Program. to the Company's report on Form 10-K for the
year ended December 31, 1993.
10.10 The Company's Supplemental Senior Officer Incorporated by reference to Exhibit 10.13
Retirement Plan. to the Company's report on Form 10-K for the
year ended December 31, 1996.
10.11 The Company's Executive Officer Incorporated by reference to Exhibit 10.14
Change-In-Control Severance Agreement. to the Company's report on Form 10-K for the
year ended December 31, 1997.
10.12 Employment Agreement dated as of December Incorporated by reference to Exhibit 10.14
8, 1998 between the Company and Edmund M. to the Company's report on Form 10-K for the
Carpenter. year ended December 31, 1998.
13 Portions of the 1999 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-five 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.
19
<PAGE> 1
EXHIBIT NO. 4.6
3031786 NOVA SCOTIA COMPANY
NOTE AGREEMENT
DATED AS OF NOVEMBER 12, 1999
U.S. $24,500,000
7.66% SENIOR NOTES DUE 2007
U.S. $45,500,000
7.80% SENIOR NOTES DUE 2010
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. PURCHASE AND SALE OF NOTES................................... 1
1.1 Issue of Notes............................................... 1
1.2 The Closing.................................................. 2
1.3 Purchase for Investment...................................... 2
1.4 Failure to Deliver........................................... 3
1.5 Expenses; Issue Taxes........................................ 3
1.6 Other Purchasers............................................. 4
SECTION 2. WARRANTIES AND REPRESENTATIONS............................... 4
2.1 Subsidiaries................................................. 4
2.2 Corporate Organization and Authority......................... 5
2.3 Business, Property, Indebtedness and Liens................... 5
2.4 Financial Statements......................................... 5
2.5 Full Disclosure.............................................. 6
2.6 Pending Litigation; Compliance with Law...................... 7
2.7 Title to Properties.......................................... 7
2.8 Patents and Trademarks....................................... 7
2.9 Sale is Legal and Authorized................................. 7
2.10 No Defaults.................................................. 8
2.11 Governmental Consent......................................... 8
2.12 Taxes........................................................ 9
2.13 Use of Proceeds.............................................. 9
2.14 Private Offering............................................. 9
2.15 Foreign Assets Control Regulations, etc...................... 10
2.16 Status under Certain Statutes................................ 10
2.17 ERISA........................................................ 10
2.18 Environmental Matters........................................ 11
2.19 Year 2000 Compliance......................................... 11
SECTION 3. CLOSING CONDITIONS........................................... 12
3.1 Opinions of Counsel.......................................... 12
3.2 Warranties and Representations True as of Closing Date....... 12
3.3 Compliance with this Agreement............................... 13
3.4 Officers' Certificate........................................ 13
3.5 Guaranty..................................................... 13
3.6 Proceedings Satisfactory..................................... 13
3.7 Sales To Other Purchasers.................................... 13
3.8 Private Placement Number..................................... 13
3.9 Legal Investment............................................. 13
SECTION 4. DIRECT PAYMENT............................................... 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
SECTION 5. PREPAYMENTS.................................................. 14
5.1 Required Payments............................................ 14
5.2 Option to Prepay............................................. 14
5.3 Notice of Optional Prepayment................................ 14
5.4 Partial Payment Pro Rata..................................... 15
SECTION 6. REGISTRATION; SUBSTITUTION OF NOTES.......................... 15
6.1 Registration of Notes........................................ 15
6.2 Exchange of Notes............................................ 15
6.3 Replacement of Notes......................................... 16
SECTION 7. COMPANY BUSINESS COVENANTS................................... 16
7.1 Payment of Taxes and Claims.................................. 16
7.2 Maintenance of Properties and Corporate Existence............ 17
7.3 Maintenance of Office........................................ 18
7.4 Sale of Assets or Merger..................................... 18
7.5 Leases....................................................... 19
7.6 Liens and Encumbrances....................................... 19
7.7 Indebtedness................................................. 20
7.8 Net Worth.................................................... 21
7.9 ERISA Compliance............................................. 21
7.10 Transactions with Affiliates................................. 22
7.11 Tax Consolidation............................................ 22
7.12 Acquisition of Notes......................................... 22
7.13 Lines of Business............................................ 22
7.15 Limitation on Restrictions on Dividends by Subsidiaries, etc. 23
SECTION 8. INFORMATION AS TO COMPANY.................................... 24
8.1 Financial and Business Information........................... 24
8.2 Officers' Certificates....................................... 26
8.3 Accountants' Certificates.................................... 27
8.4 Inspection................................................... 27
SECTION 9. EVENTS OF DEFAULT............................................ 27
9.1 Nature of Events............................................. 27
9.2 Default Remedies............................................. 29
9.3 Annulment of Acceleration of Notes........................... 30
SECTION 10. INTERPRETATION OF THIS AGREEMENT............................. 30
10.1 Terms Defined................................................ 30
10.2 Accounting principles........................................ 35
10.3 Directly or Indirectly....................................... 36
10.4 Governing Law................................................ 36
SECTION 11. MISCELLANEOUS................................................ 36
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
11.1 Notices...................................................... 36
11.2 Reproduction of Documents.................................... 36
11.3 Survival..................................................... 37
11.4 Successors and Assigns....................................... 37
11.5 Amendment and Waiver......................................... 37
11.6 Duplicate Originals.......................................... 38
11.7 Headings, etc................................................ 38
</TABLE>
Exhibit A -- Principal Amounts, Payment Information and Addresses
Exhibit B-1 -- Form of 7.66% Senior Note Due November 12, 2007
Exhibit B-2 -- Form of 7.80% Senior Note Due November 12, 2010
Exhibit C -- Form of Guaranty of Barnes Group, Inc.
Exhibit D -- List of Subsidiaries, Affiliates, Debt and Liens
Exhibit E -- Description of Company Counsel's Closing Opinion
Exhibit F -- Description of Guarantor Counsel's Closing Opinion
Exhibit G -- Description of Special Counsel's Closing Opinion
Exhibit H -- Certain Documents Furnished to Purchasers
Schedule I -- Schedule of Leases
-iii-
<PAGE> 5
3031786 NOVA SCOTIA COMPANY
Suite 800
1959 Upper Water Street
P.O. Box 997
Halifax, Nova Scotia B3J 2X2
---------------
NOTE AGREEMENT
U.S. $24,500,000
7.66% Senior Notes due November 12, 2007
U.S. $45,500,000
7.80% Senior Notes due November 12, 2010
-------------------
TO EACH OF THE PURCHASERS
LISTED ON THE ATTACHED
SCHEDULED A:
As of November 12, 1999
Dear Sirs:
3031786 Nova Scotia Company (the "Company"), a Nova Scotia company, and
Barnes Group Inc. (the "Guarantor"), a Delaware corporation (as to Sections 2, 7
and 8 hereof only), hereby agree with you as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1 Issue of Notes.
(a) The Company will issue U.S. $24,500,000 in aggregate principal
amount of its 7.66% Senior Notes due November 12, 2007 (herein called the "7.66%
Notes"). Each 7.66% Note will bear interest on the unpaid principal balance
thereof from the date of the 7.66% Note at the rate of 7.66% per annum (computed
on the basis of a 360-day year of twelve 30-day months), payable semi-annually
on the twelfth day of May and the twelfth day of November in each year,
commencing with the payment date next succeeding the date of the 7.66% Note,
until the principal amount shall be due and payable, and will bear interest,
payable on demand, on any overdue payment (including any overdue prepayment) of
principal or premium and (to the extent permitted by law) on any overdue payment
of interest at a fluctuating rate per annum, to be adjusted daily, equal to the
greater of (a) the rate announced publicly by Citibank, N.A. in New York, New
York from time to time as its prime rate, and (b) 9.66% per annum (but in no
event
<PAGE> 6
higher than the maximum rate permitted by law); and will mature on November 12,
2007. The 7.66% Notes will be registered notes in the form set out in Exhibit
B-1.
(b) The Company will issue U.S. $45,500,000 in aggregate principal
amount of its 7.80% Senior Notes due November 12, 2010 (herein called the "7.80%
Notes" and, together with the 7.66% Notes, the "Notes"). Each 7.80% Note will
bear interest on the unpaid principal balance thereof from the date of the 7.80%
Note at the rate of 7.80% per annum (computed on the basis of a 360-day year of
twelve 30-day months), payable semi-annually on the twelfth day of May and the
twelfth day of November in each year, commencing with the payment date next
succeeding the date of the 7.80% Note, until the principal amount shall be due
and payable, and will bear interest, payable on demand, on any overdue payment
(including any overdue prepayment) of principal or premium and (to the extent
permitted by law) on any overdue payment of interest at a fluctuating rate per
annum, to be adjusted daily, equal to the greater of (a) the rate announced
publicly by Citibank, N.A. in New York, New York from time to time as its prime
rate, and (b) 9.80% per annum (but in no event higher than the maximum rate
permitted by law); and will mature on November 12, 2010. The 7.80% Notes will be
registered notes in the form set out in Exhibit B-2.
(c) For the purpose only of disclosure pursuant to the Interest Act
(Canada), whenever interest is to be calculated on the basis of a 360-day year,
the yearly rate of interest to which the rate determined pursuant to such
calculation is equivalent is the rate so determined multiplied by the actual
number of days in the calendar year in which the same is to be ascertained and
divided by 360.
(d) The obligations of the Company pursuant to the Notes and this
Agreement are guaranteed by the Guarantor pursuant to a Guaranty Agreement
substantially in the form of Exhibit C (the "Guaranty").
1.2 The Closing.
The Company agrees to sell to you and you agree to purchase from the
Company, in accordance with the provisions of this Agreement, the principal
amount of each series of the Notes set forth opposite your name on Exhibit A
hereto at 100% of the principal amount thereof.
The closing of your purchase shall be held at 10:00 a.m. on November 12,
1999 ("Closing Date") at the office of Day, Berry & Howard LLP, CityPlace I,
25th Floor, Hartford, Connecticut 06103-3499. At the closing the Company will
deliver to you, unless you otherwise request, a single Note in each maturity
purchased in the principal amount of such purchase, dated the Closing Date and
payable to you, or your nominee, as set forth in Exhibit A, against payment in
United States Dollars in immediately available funds.
1.3 Purchase for Investment.
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<PAGE> 7
You represent to the Company that (i) you are on "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act of 1933, as amended, and (ii) you are purchasing the Notes for investment
for your own account and the account of your affiliated entities and with no
present intention of distributing or reselling the Notes or any part thereof to
anyone other than an affiliated entity, but without prejudice, however, to your
right at all times to sell or otherwise dispose of all or any part of the Notes
under a registration under the Securities Act of 1933, as amended, or under a
registration exemption available under that Act. You acknowledge receipt of the
Private Placement Memorandum and the opportunity to ask questions of Senior
Management of the Company and the Guarantor in the course of conducting your due
diligence. It is understood that, in making the representations set out in
Sections 2.9 and 2.11, the Company is relying, to the extent applicable, upon
your representation as aforesaid.
1.4 Failure to Deliver.
If, at the closing, the Company fails to tender to you the Notes to be
purchased by you or if the conditions specified in Section 3 have not been
fulfilled, you may thereupon elect to be relieved of all further obligations
under this Agreement. Nothing in this Section shall operate to relieve the
Company from any of its obligations hereunder or to waive any of your rights
against the Company.
1.5 Expenses; Issue Taxes.
Whether or not the Notes are sold, the Company will pay in United States
Dollars all expenses relating to this Agreement, including but not limited to:
(a) the cost of reproducing this Agreement and the Notes;
(b) the reasonable fees and disbursements of your special counsel;
(c) your out-of-pocket expenses;
(d) the cost of delivering to or from your home office, insured to
your satisfaction, the Notes purchased by you at the closing, any Note
surrendered by you to the Company pursuant to this Agreement and any Note
issued to you in substitution or replacement for a surrendered Note;
(e) the cost of obtaining the Private Placement Numbers referred to
in Section 3.7;
(f) all expenses, including attorneys' fees, relating to any
amendments or waivers pursuant to the provisions hereof; and
(g) all costs and expenses, including attorneys' fees, incurred by
the holder of any Note in enforcing any rights under this Agreement, the
Guaranty or
- 3 -
<PAGE> 8
the Notes or in responding to any subpoena or other legal process issued
in connection with this Agreement or the transactions contemplated hereby,
including without limitation, costs and expenses incurred in any
bankruptcy case.
The Company will pay all taxes in connection with the issuance and sale of
the Notes and in connection with any modification of the Notes and will save you
harmless against any and all liabilities with respect to such taxes. The
obligations of the Company under this Section 1.5 shall survive the payment of
the Notes and the termination of this Agreement.
1.6 Other Purchasers.
The purchase made by each Purchaser hereunder is to be a separate purchase
from the Company, and each sale and delivery of Notes to each Purchaser is to be
a separate sale and delivery by the Company to such Purchaser.
SECTION 2. WARRANTIES AND REPRESENTATIONS
The Guarantor and the Company warrant and represent to you that:
2.1 Subsidiaries.
(a) Exhibit D to this Agreement correctly identifies (i) each of
the Guarantor's active Subsidiaries (indicating which
Subsidiaries are Domestic Subsidiaries), its jurisdiction of
incorporation and the percentage of its Voting Stock owned by
the Guarantor and each other Subsidiary (identifying such
Subsidiary), and (ii) each of the Guarantor's or Company's
Affiliates (other than Subsidiaries) which is a corporation or
partnership or which is a holder of 5% or more of the Voting
Stock of the Guarantor or Company and the nature of the
affiliation.
(b) The Guarantor and each Subsidiary is the legal and beneficial
owner of all of the shares of Voting Stock it purports to own
of each Subsidiary, free and clear in each case of any Lien.
All such shares have been duly issued and are fully paid and
non-assessable.
(c) The Company has no Subsidiaries.
(d) As of September 30, 1999, the Guarantor's Foreign Subsidiaries
did not account for more than 39% of Consolidated Assets.
(e) As of September 30, 1999, the Guarantor's Foreign Subsidiaries
(excluding Stromsholmen AB and Barnes Sweden Holding Company
AB) did not account for more than 28% of Consolidated Assets.
- 4 -
<PAGE> 9
2.2 Corporate Organization and Authority.
The Guarantor, the Company, and each Subsidiary of either,
(a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation,
(b) has all requisite power and authority and, except as disclosed
on Exhibit D, all necessary licenses, permits, franchises and
other governmental authorizations to own and operate its
Properties and to carry on its business as now conducted and
as presently proposed to be conducted, and
(c) has duly qualified and is authorized to do business and in
good standing as a foreign corporation in each jurisdiction
where the character of its Properties or the nature of its
activities makes such qualification necessary and where the
failure to be so qualified would have a material adverse
effect on the Guarantor's, the Company's or such Subsidiary's
business or financial position.
2.3 Business, Property, Indebtedness and Liens.
(a) The Private Placement Memorandum previously delivered to you,
as supplemented by the Guarantor's report on Form 8-K dated
August 30, 1999, correctly describes the general nature of the
business and principal Properties of the Guarantor, the
Company and the Subsidiaries of each.
(b) Exhibit D correctly lists all outstanding Indebtedness for
borrowed money (including all Capitalized Leases) of, and all
Liens (other than those (x) permitted by clauses (i) - (v) of
Section 7.6(a) and (y) those on Property which individually
does not have a Fair Market Value in excess of $500,000 and
which, when aggregated with other Property subject to Liens
not included pursuant to this clause (y), does not have a Fair
Market Value in excess of $2,000,000) on Property of, the
Guarantor, the Company and the Subsidiaries of either. Neither
the Guarantor, the Company nor any Subsidiary has agreed or
consented to cause or permit in the future (upon the happening
of a contingency or otherwise) any of its Property, whether
now owned or hereafter acquired, to be subject to a Lien not
permitted by Section 7.6(a).
2.4 Financial Statements.
(a) The consolidated balance sheets of the Guarantor and its
Consolidated Subsidiaries as of December 31 in the years 1994,
-5-
<PAGE> 10
1995, 1996, 1997, and 1998 and the related statements of
income, retained earnings and changes in financial position or
cash flows for the fiscal years ended on such dates, all
accompanied by reports thereon containing opinions without
qualification, except as therein noted, by
PricewaterhouseCoopers LLP, independent certified public
accountants, and the consolidated balance sheets of the
Guarantor and its Consolidated Subsidiaries as of June 30,
1999 and the related statements of income, retained earnings
and cash flows for the 6-month period then ended, certified by
the Guarantor's chief financial officer or chief accounting
officer, have been prepared in accordance with generally
accepted accounting principles consistently applied, and
present fairly the financial position of the Guarantor and its
Consolidated Subsidiaries as of such dates and the results of
their operations for such periods; provided, however, that the
financial statements as of and for the period ended June 30,
1999 have been prepared in accordance with generally accepted
accounting principles for interim financial statements.
(b) Since December 31, 1998 there have been no materially adverse
changes in the Properties, business, prospects, profits or
financial condition of the Company or the Guarantor or the
Guarantor and its Subsidiaries taken as a whole.
2.5 Full Disclosure.
The financial statements referred to in Section 2.4 do not, nor does this
Agreement or the Private Placement Memorandum, as supplemented by the
Guarantor's report on Form 8-K dated August 30, 1999, contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading. The descriptions set
forth in Exhibit H of certain other written materials furnished to you by the
Company is correct. There is no agreement, restriction or other factual matter
which the Company has not disclosed to you in writing which so far as the
Company can now reasonably foresee, will have a material adverse impact on the
long-term financial condition or prospects of the Company, the Guarantor or the
ability of the Company or the Guarantor to perform this Agreement.
- 6 -
<PAGE> 11
2.6 Pending Litigation; Compliance with Law.
There are no proceedings or investigations pending, or to the knowledge of
the Guarantor or the Company threatened, against or affecting the Guarantor or
the Company or any other Subsidiary in or before any court, governmental
authority or agency or arbitration board or tribunal which, so far as the
Guarantor or the Company can now reasonably foresee, individually or in the
aggregate, will have a material adverse impact on the long-term financial
condition or prospects of the Guarantor, the Company, or the Guarantor and its
Subsidiaries taken as a whole, or would impair the ability of the Company or the
Guarantor to perform this Agreement or the Guarantor to perform the Guaranty.
Neither the Guarantor or the Company nor any such Subsidiary is in default with
respect to any order of any court, governmental authority or agency or
arbitration board or tribunal or in violation of any laws or governmental rules
or regulations where, so far as the Guarantor or the Company can now reasonably
foresee, such default or violation will have a material adverse impact on the
long-term financial condition or prospects of the Guarantor, the Company, or the
Guarantor and its Subsidiaries taken as a whole, or the ability of the Company
or the Guarantor to perform this Agreement or the Guarantor to perform the
Guaranty.
2.7 Title to Properties.
Except where the failure to possess good and marketable title in fee
simple or good title, as the case may be, would not have a material adverse
impact on the Guarantor, the Company or on the Guarantor and its Subsidiaries
taken as a whole, Guarantor, the Company, and each Subsidiary, has good and
marketable title in fee simple (or its equivalent under applicable law) to all
the real Property, and has good title to all the other Property, it purports to
own, including that reflected in the most recent balance sheet referred to in
Section 2.4 (except as sold or otherwise disposed of in the ordinary course of
business), free from Liens not permitted by Section 7.6(a).
2.8 Patents and Trademarks.
Except where failure to own or possess would not have a material adverse
impact on the Guarantor and its Subsidiaries taken as a whole, the Guarantor and
its Subsidiaries own and possess all the patents, trademarks, service marks,
trade names, copyrights and licenses acquired by them pursuant to the Asset
Purchase and Sale Agreement dated as of July 27, 1999 by and between the
Guarantor and Teledyne Industries Inc. The Guarantor, the Company, and each
Subsidiary, owns or possesses all the other patents, trademarks, service marks,
trade names, copyrights, licenses and rights with respect to the foregoing
necessary for the present and planned future conduct of its business, without
any conflict with the rights of others known by Senior Management.
2.9 Sale is Legal and Authorized.
- 7 -
<PAGE> 12
The sale of the Notes by the Company and compliance by the Company and the
Guarantor with the provisions of this Agreement and of the Notes and, in the
case of the Guarantor, the Guaranty:
(a) have been duly authorized and are within the corporate powers
of the Company and the Guarantor; and
(b) are legal and will not conflict with, constitute a violation
of, or result in the creation of any Lien upon any Property of
the Company, the Guarantor or any Subsidiary under the
provisions of, any agreement, charter instrument, by-law or
other instrument to which the Company, the Guarantor or any
Subsidiary is a party or by which any of them or their
respective Properties may be bound.
Neither the Guarantor nor the Company is a party to any agreement, or
subject to any charter or other corporate restriction, which restricts its right
or ability to incur Indebtedness, other than this Agreement and the agreements
identified with respect to such party and listed on Exhibit D.
2.10 No Defaults.
No event has occurred and no condition exists which, upon the issue of the
Notes, would constitute a Default or an Event of Default. Neither the Guarantor
nor the Company is in violation (whether or not temporarily waived) of any term
of any charter instrument or by-law and none of the Guarantor, the Company nor
any Subsidiary of either is in default under of any term under any agreement or
other instrument with respect to borrowed money. None of the Guarantor, the
Company nor any Subsidiary of either is in violation of any term of any other
agreement or instrument to which it is a party or by which it or any of its
Property may be bound which violation, individually or in the aggregate with
other violations, might reasonably be expected to have a materially adverse
impact on the long-term business or prospects of the Guarantor, the Company or
the Guarantor and its Subsidiaries taken as a whole.
2.11 Governmental Consent.
Neither the nature of the Guarantor, the Company or of any Subsidiary of
either, or of any of their respective businesses or Properties, nor any
relationship between the Guarantor, the Company or any Subsidiary and any other
Person, nor any circumstance in connection with the offer, issue, sale or
delivery of the Notes or the execution, delivery and performance of this
Agreement or the Guaranty is such as to require a consent, approval or
authorization of, or, filing, registration or qualification with, any
governmental authority on the part of the Guarantor, the Company or any
Subsidiary in connection with the execution, delivery and performance of this
Agreement or the Guaranty or the offer, issue, sale or delivery of the Notes.
- 8 -
<PAGE> 13
2.12 Taxes.
(a) Consolidated Federal income tax returns for the Guarantor and
its Domestic Subsidiaries have been examined by the Internal Revenue Service for
all years up to and including the year ended December 31, 1995. The Guarantor,
the Company and each Subsidiary has filed or caused to be filed all Federal,
provincial, state and local tax returns which, to the knowledge of Senior
Management are required to be filed and have paid or caused to be paid all taxes
as shown on such returns or on any assessment received by it or by any of them,
to the extent that such taxes have become due, except any such tax or assessment
the validity of which is being contested in good faith by appropriate
proceedings and with respect to which the Guarantor, the Company or a
Subsidiary, as appropriate, has set aside on its books adequate reserves to the
extent the Guarantor, the Company or any Subsidiary and a nationally recognized
independent certified public accountant believes such reserves are necessary. To
the extent that the Guarantor in good faith believes is necessary, the
Guarantor, the Company and their respective Subsidiaries have set up reserves
which are believed by the Guarantor to be adequate for the payment of additional
taxes. All assessed deficiencies resulting from examinations by the Internal
Revenue Service up to and including the year ended December 31, 1995 have been
discharged, reserved against or will not impair the Company's ability to repay
the Loans.
2.13 Use of Proceeds.
The Company will apply the proceeds from the sale of the Notes to
refinance outstanding Indebtedness for borrowed money. None of the transactions
contemplated in this Agreement (including, without limitation thereof, the use
of the proceeds from the sale of the Notes) will violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter II.
2.14 Private Offering.
During the twelve months preceding the issue of the Notes, none of the
Guarantor, the Company nor Fleet Corporate Finance (the only Person authorized
or employed by the Company as agent, broker, dealer or otherwise in connection
with the offering or sale of the Notes or any similar Security of the Company)
has offered any of the Notes or any similar Security of the Company for sale to,
or solicited offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, any prospective purchaser, other than the
purchasers of the Notes and not more than fifty other institutional investors,
each of whom was offered all or a portion of the Notes at private sale for
investment. The Company agrees that neither the Company nor anyone acting on its
behalf will offer the Notes or any part thereof or any similar Securities for
issue or sale to, or solicit any offer to acquire any of the same from, anyone
so as to bring
- 9 -
<PAGE> 14
the issuance and sale of the Notes within the provisions of Section 5 of the
Securities Act of 1933, as amended.
2.15 Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its use
of the proceeds thereof will violate the Trading with the Enemy Act, as amended,
or any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
2.16 Status under Certain Statutes.
None of the Company, the Guarantor, nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
2.17 ERISA.
(a) Relationship of Vested Benefits to Pension Plan Assets. The
present aggregate value of all benefits vested under all "employee pension
benefit plans", as such term is defined in Section 3 of ERISA, maintained
by the Guarantor and its Related Persons (including the Company), or in
which employees of the Guarantor or any Related Person (including the
Company) are entitled to participate, as from time to time in effect
(herein called the "Pension Plans"), did not, as of January 1, 1999, the
last annual valuation date, exceed the actuarial value of the assets of
the Pension Plans allocable to such vested benefits.
(b) Prohibited Transactions. Neither the Guarantor or any Related
Person (including the Company) nor any of the Pension Plans nor any trusts
created thereunder, nor any trustee or administrator thereof, has engaged
in a "prohibited transaction", as such term is defined in Section 4975 of
the Internal Revenue Code of 1986, as amended, or described in Section 406
of ERISA, which could subject the Guarantor, any Related Person (including
the Company), any of the Pension Plans, any such trust, or any trustee or
administrator thereof, or any party dealing with the Pension Plans or any
such trust to the tax or penalty on prohibited transactions imposed by
said Section 4975 or by Section 502(i) of ERISA.
(c) Reportable Events. Since December 31, 1986, neither any of the
Pension Plans nor any such trusts have been terminated, nor have there
been any "reportable events", as that term is defined in Section 4043 of
ERISA, since the effective date of ERISA.
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<PAGE> 15
(d) Accumulated Funding Deficiency. Neither any of the Pension Plans
nor any such trusts have incurred any "accumulated funding deficiency", as
such term is defined in Section 302 of ERISA (whether or not waived),
since the effective date of ERISA.
2.18 Environmental Matters.
None of the Guarantor, the Company nor any Subsidiary of either has
knowledge of any claim or has received any notice of any claim, and no
proceeding has been instituted raising any claim against the Guarantor, the
Company or any Subsidiary of either or any of their respective real properties
now or formerly owned, leased or operated by any of them or other assets,
alleging any damage to the environment or violation of any Environmental Laws,
except, in each case, such as could not reasonably be expected to result in a
material adverse effect on the Guarantor, the Company or the Guarantor and its
Subsidiaries taken as a whole. Except as otherwise disclosed to you in writing,
(a) none of the Guarantor, the Company nor any Subsidiary of
either has knowledge of any facts which would give rise to any
claim, public or private, of violation of Environmental Laws
or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned,
leased or operated by any of them or the other assets or their
use, except, in each case, such as could not reasonably be
expected to result in a material adverse effect on the
Guarantor, the Company or the Guarantor and its Subsidiaries
taken as a whole;
(b) neither the Guarantor, the Company nor any Subsidiary has
stored any Hazardous Materials on real properties now or
formerly owned, leased or operated by any of them and has not
disposed of any Hazardous Materials in a manner contrary to
any Environmental Laws in each case in any manner that could
reasonably be expected to result in a material adverse effect
on the Guarantor, the Company or the Guarantor and its
Subsidiaries taken as a whole; and
(c) all buildings on all real properties now owned, leased or
operated by the Guarantor, the Company or any Subsidiary of
either are in compliance with applicable Environmental Laws,
except where failure to comply could not reasonably be
expected to result in a material adverse effect on the
Guarantor, the Company or the Guarantor and its Subsidiaries
taken as a whole.
2.19 Year 2000 Compliance. The Guarantor, the Company and each Subsidiary
has reviewed the computer software, hardware and firmware systems and equipment
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containing embedded microchips it owns or operates (the "Company Computer
Equipment") to review the effect of the date change into the year 2000. The
Guarantor reasonably believes that it is undertaking all actions to ensure that
such Company Computer Equipment will continue to accurately accept, calculate,
process, maintain, store and output all times or dates, or both, whether before,
on or after 12:00 a.m. January 1, 2000, except where failure to do so will not
have a material adverse effect on the business or operation of the Guarantor and
its Subsidiaries taken as a whole. The Guarantor has requested that the third
party owners, suppliers or operators of key computer software, hardware and
firmware systems and equipment containing embedded microchips used or relied
upon in the conduct of the Guarantor's business ("Third Party Computer
Equipment") review the effect of the date change into the year 2000. Based on
such third parties' reviews and responses, the Guarantor reasonably believes
that such Third Party Computer Equipment will continue to accurately accept,
calculate, process, maintain, store and output all times or dates, or both,
whether before, on or after 12:00 a.m. January 1, 2000, except where failure to
do so will not have a material adverse effect on the business or operation of
the Guarantor and its Subsidiaries taken as a whole. To the best knowledge of
the Guarantor, all products which have been, or are currently, manufactured or
sold by the Guarantor, the Company or such Subsidiary, as the case may be,
either (i) have no date function or (ii) are year 2000 compliant and will
operate without function error or interruption upon the date change into the
year 2000 (including certain dates within the year 1999).
SECTION 3. CLOSING CONDITIONS
Your obligation to purchase and pay for the Notes to be delivered to you
at the closing shall be subject to the following conditions precedent:
3.1 Opinions of Counsel.
You shall have received from Stewart, McKelvey, Stirling, Scales, Counsel
to the Company, Signe Gates, Esq., General Counsel of the Guarantor, and Nixon
Peabody LLP, counsel to the Company and the Guarantor, and Day, Berry & Howard
LLP, special counsel to you, the closing opinions described in Exhibits E, F and
G.
3.2 Warranties and Representations True as of Closing Date.
(a) The warranties and representations (a) of the Company and the
Guarantor contained in Section 2 and of the Guarantor contained in the
Guaranty shall (except as affected by transactions contemplated by this
Agreement) be true in all material respects on the Closing Date with the
same effect as though made on and as of that date.
(b) None of the Guarantor, the Company nor any Subsidiary of either
shall have taken any action or permitted any condition to exist which
would have been prohibited by Section 7 if such Section had been binding
and effective at all
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times during the period from December 31, 1998 to and including the
Closing Date.
3.3 Compliance with this Agreement.
The Company shall have performed and complied with all agreements and
conditions contained herein which are required to be performed or complied with
by the Company before or at the closing.
3.4 Officers' Certificate.
You shall have received a (a) certificate dated the Closing Date and
signed by the President or a Vice President and the Treasurer or an Assistant
Treasurer of the Company, certifying that the conditions specified in Sections
3.2 and 3.3 have been fulfilled, and (b) a certificate dated the Closing Date
and signed by the President or a Vice President and the Treasurer or an
Assistant Treasurer of the Guarantor, certifying that the conditions specified
in Section 3.2 have been fulfilled as to the Guarantor.
3.5 Guaranty. The Guaranty shall have been duly executed and delivered by
the Guarantor and shall be in full force and effect.
3.6 Proceedings Satisfactory.
All proceedings taken in connection with the sale of the Notes and all
documents and papers relating thereto shall be satisfactory to you and your
special counsel. You and your special counsel shall have received copies of such
documents and papers as you or they may reasonably request in connection
therewith, all in form and substance satisfactory to you and your special
counsel.
3.7 Sales To Other Purchasers.
The Company shall have sold or shall simultaneously sell to the Other
Purchasers (and shall have received or simultaneously receive the purchase price
for) the remainder of the U.S. $70,000,000 aggregate principal amount of the
Notes.
3.8 Private Placement Number.
The Company shall have obtained from Standard & Poor's Corporation and
provided to you a Private Placement Number for each series of the Notes.
3.9 Legal Investment.
The Company acknowledges that each Note to be purchased by you must
qualify as a legal investment for life insurance companies under the New York
Insurance Law and any other law applicable to you (other than under any "basket"
or leeway provisions
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thereof), and the Company will deliver to you such officer's certificates or
other evidence as you may request to establish compliance with this condition.
SECTION 4. DIRECT PAYMENT
The Company agrees that, notwithstanding any provision in this Agreement
or the Notes to the contrary, it will pay all sums becoming due to any
institutional holder of Notes in the manner provided in Exhibit A or in any
other reasonable manner as any institutional holder may designate to the Company
in writing (without presentment of or notation on the Notes).
SECTION 5. PREPAYMENTS
5.1 Required Payments.
(a) Interest on the 7.66% Notes shall be due and payable on May 12
and November 12 each year beginning on May 12, 2000. The entire principal
amount of the 7.66% Notes, together with interest accrued thereon to the
date of payment shall be due and payable November 12, 2007.
(b) In addition to paying the entire remaining principal amount and
interest due on the 7.80% Notes at maturity, the Company will prepay, and
there shall become due and payable, U.S. $15,166,666.67 principal amount
of the 7.80% Notes on November 12 in each year beginning on November 12,
2008 and ending November 12, 2009, inclusive. Each such prepayment shall
be at 100% of the principal amount to be prepaid, together with interest
accrued thereon to the date of prepayment. The remaining principal amount
of the Notes shall be due and payable November 12, 2010.
(c) The acquisition of any Notes by the Company shall not reduce or
otherwise affect its obligation to make any prepayment required by Section
5.1(b). Upon any exercise by the Company of the prepayment option in
Section 5.2, each remaining scheduled payment of principal under Section
5.1(b) shall be reduced on a pro rata basis to reflect such reduction in
outstanding principal amount.
5.2 Option to Prepay.
The Company may make optional prepayments to prepay the Notes in whole or
in part, in multiples of U.S. $1,000,000, at any time at a price equal to the
greater of (i) the principal amount to be prepaid together with accrued interest
on the principal amount so prepaid to the prepayment date, and (ii) the
Makewhole Price applicable at such time with respect to the amount of the Notes
being prepaid.
5.3 Notice of Optional Prepayment.
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The Company will give notice of any optional prepayment of the Notes
pursuant to Section 5.2 to each holder of the Notes not less than 10 Business
Days nor more than 60 days before the date fixed for prepayment, specifying (a)
such date, (b) the section of this Agreement under which the prepayment is to be
made, (c) the principal amount of the Notes and of such holder's Notes to be
prepaid on such date, and (d) the accrued interest applicable to the prepayment,
and setting forth a detailed calculation of what the Makewhole Price would be if
the Notes were being prepaid on the date of such notice. Notice of prepayment
having been so given, the principal amount of the Notes specified in such
notice, together with the premium, if any, and accrued interest thereon, shall
become due and payable on the prepayment date. The Company will provide a
supplemental notice by courier or facsimile confirmed by telephone to be
received by each holder of the Notes by 2:00 p.m., Hartford, Connecticut time,
on the Business Day immediately preceding the date fixed for prepayment which
will set forth a detailed calculation of the Makewhole Price.
5.4 Partial Payment Pro Rata.
If there is more than one Note outstanding at any time the aggregate
principal amount of each required or optional partial payment of the Notes shall
be allocated among the outstanding Notes in proportion, as nearly as
practicable, to the respective unpaid principal amounts of the Notes. For the
purpose of this Section 5.4 only, any Notes reacquired by the Company shall be
deemed to be outstanding.
SECTION 6. REGISTRATION; SUBSTITUTION OF NOTES
6.1 Registration of Notes.
The Company will cause to be kept at its office maintained pursuant to
Section 7.3, a register for the registration and transfer of the Notes. The
names and addresses of the holders of the Notes, the transfer thereof and the
names and addresses of the transferees of any of the Notes will be registered in
the register. The Person in whose name any Note is registered shall be deemed
and treated as the owner and holder thereof for all purposes of this Agreement,
and the Company shall not be affected by any notice or knowledge to the
contrary.
6.2 Exchange of Notes.
Upon surrender of any Note to the Company at its office maintained
pursuant to Section 7.3, the Company, upon request, will execute and deliver, at
its expense (except as provided below), new Notes in exchange therefor, in
denominations of at least U.S. $500,000 (except as may be necessary to reflect
any principal amount not evenly divisible by U.S. $500,000), in an aggregate
principal amount equal to the unpaid principal amount of the surrendered Note.
Each such new Note (a) shall be payable to such Person as the surrendering
holder may request, and (b) shall be dated and bear interest from the date to
which interest has been paid on the surrendered Note or dated the
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date of the surrendered Note if no interest has been paid thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any transfer.
6.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note and,
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided, if the holder of the Note is an
institutional investor, its own agreement of indemnity shall be deemed to
be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation of
the Note, the Company at its expense will execute and deliver a new Note
of like tenor, dated and bearing interest from the date to which interest
has been paid on the lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest
has been paid thereon.
SECTION 7. COMPANY BUSINESS COVENANTS
The Company, and to the extent specified the Guarantor, covenants that on
and after the date of this Agreement until the Notes are paid in full:
7.1 Payment of Taxes and Claims.
Except in situations where the failure to pay would not result in a
material adverse impact on the Guarantor, the Company, or the Guarantor and its
Subsidiaries taken as a whole, the Guarantor, the Company, and each such
Subsidiary, will pay, before they become delinquent,
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property, and
(b) all claims or demands of any kind (including, but not limited
to, those of materialmen, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might
result in the creation of a Lien upon its Property not
permitted by Section 7.6,
provided that items of the foregoing description need not be paid while being
contested in good faith and by appropriate proceedings, if and for so long as
book reserves reasonably believed by the Guarantor and independent certified
public accountants of recognized national standing to be adequate have been
established with respect thereto; provided further that, unless contesting in
good faith in accordance with the provisions hereof, notwithstanding the
foregoing provisions of this Section 7.1, the Guarantor, the Company
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and each such Subsidiary will pay all taxes known by Senior Management to be due
and payable no later than fifteen days after the date such taxes are due.
7.2 Maintenance of Properties and Corporate Existence.
(a) Except where the failure to do so would not have a material adverse
impact on the Guarantor, the Company or the Guarantor and its Subsidiaries taken
as a whole, the Guarantor and the Company, will and will cause each of its
Subsidiaries to:
(i) Property -- maintain its Property in good condition and make
all necessary renewals, replacements, additions, betterments
and improvements thereto required to keep such Property in
good condition and in compliance with all requirements of law;
(ii) Insurance -- keep its properties adequately insured at all
times, by financially sound and reputable insurers; maintain
such other insurance, to such extent and against such risks,
including fire and other risks insured against by extended
coverage as is customary with companies in the same or similar
businesses located or operating in areas with similar
geological conditions; maintain in full force and effect
public liability insurance against claims for personal injury
or death or property damage occurring upon, in, about or in
connection with the use of any properties owned, occupied or
controlled by it, in such amounts as the Guarantor, the
Company or any Subsidiary, as the case may be, shall
reasonably deem necessary; and maintain such other insurance
as may be required by law;
(iii) Financial Records -- keep true books of records and accounts
in which full and correct entries will be made of all its
business transactions, and will reflect in its financial
statements adequate accruals and appropriations to reserves,
all in accordance with generally accepted accounting
principles, consistently applied; and
(iv) Corporate Existence and Rights -- do or cause to be done all
things necessary to preserve and keep in full force and effect
its existence, rights and franchises, except as otherwise
permitted by Section 7.4, provided, however, that the
Guarantor may liquidate or sell any Subsidiary if the
transaction is permitted by Section 7.4.
(b) The Guarantor and the Company will and each will cause each of its
Subsidiaries to comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
Environmental Laws, and, except as disclosed on Exhibit D, will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the
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ownership of their respective properties or to the conduct of their respective
businesses, in each case to the extent failure to so comply, maintain or obtain
could, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the Guarantor, the Company or any Subsidiary.
7.3 Maintenance of Office.
The Company and the Guarantor will each maintain an office in the State of
Connecticut where notices, presentations and demands in respect of this
Agreement, the Notes or the Guaranty may be made upon it. The office of each
shall be maintained at 123 Main Street, Bristol, Connecticut 06010, until such
time as the Company or the Guarantor, as the case may be, shall notify the
holders of the Notes of a change of location.
7.4 Sale of Assets or Merger.
(a) Sale of Assets -- Neither the Guarantor nor the Company will, nor
will either permit any of its Subsidiaries to, directly or indirectly,
except in the ordinary course of business, sell, lease, transfer or
otherwise dispose of any of its Property or assets, now owned or hereafter
acquired, if, as a result of such sale, lease, transfer or disposition,
the aggregate net book value or fair market value, whichever shall be
higher, of all Property and assets sold, leased, transferred or otherwise
disposed of by the Guarantor and its Subsidiaries (including the Company)
in the then current fiscal year of the Guarantor would exceed an amount
equal to 10% of the book value (computed in accordance with GAAP) of all
Property and assets of the Guarantor and its Consolidated Subsidiaries at
the end of the preceding fiscal year.
(b) Consolidation; Merger -- Neither the Company nor the Guarantor
will, nor will either permit any of its Subsidiaries to, directly or
indirectly, consolidate with or merge into any other corporation, or
permit another corporation to merge into it, provided, however, that (i)
any Subsidiary of the Company or the Guarantor may be merged into the
Company or the Guarantor, as the case may be, or another wholly-owned
Subsidiary, (ii) the Company or the Guarantor or any Subsidiary of the
Company or the Guarantor may merge or consolidate with another Person or
business, if the Company or such Subsidiary or the Guarantor, as the case
may be, is the surviving corporation, (iii) the Company or the Guarantor
or any Subsidiary may consolidate with or merge with another Person or
business in a transaction where the Company or the Guarantor or Subsidiary
is not the surviving entity if (1) the continuing or surviving entity
shall assume in writing all of the obligations of the Company or the
Guarantor, as the case may be, under this Agreement and the Notes or the
Guaranty, as the case may be, (2) the continuing or surviving entity shall
not, immediately after such merger or consolidation, be in default of any
of the Company's or the Guarantor's, as the case may be, obligations under
this Agreement, the Notes, or
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the Guaranty (3) the continuing or surviving entity shall be a corporation
organized under the laws of Canada or any province thereof or the United
States or any state thereof, and (4) after giving effect to such
consolidation or merger, the continuing or surviving entity could incur $1
of additional Indebtedness under Section 7.7.
7.5 Leases.
Neither the Company nor the Guarantor will, nor will either permit any of
its Subsidiaries, directly or indirectly, to incur, create or assume any
commitment to make any direct or indirect payment, whether as rent or otherwise,
under any lease, rental or other arrangement for the use of real or personal
Property or both of any other Person unless (a) after giving effect to such
lease the aggregate rental obligations of the Guarantor and its Subsidiaries
(exclusive of obligations to pay taxes and rental increments attributable to
escalator clauses) during any fiscal year shall not exceed an amount equal to
15% of the book value (computed in accordance with GAAP) of all Properties and
assets of the Guarantor and its Consolidated Subsidiaries at the end of the
preceding fiscal year or (b) such lease was in existence as of the Closing Date
and disclosed on Schedule I hereto.
7.6 Liens and Encumbrances.
(a) Negative Pledge. Neither the Guarantor nor the Company will, nor
will it permit any of its Subsidiaries to, directly or indirectly incur, create,
assume or permit to exist any mortgage, pledge, security interest, lien, charge
or other encumbrance of any nature whatsoever (including conditional sales or
other title retention agreements) on any of its Property or assets, whether
owned at the date hereof or hereafter acquired, or assign, or permit any of its
Subsidiaries to assign, any right to receive income, except:
(i) liens incurred or pledges and deposits made in connection
with workers' compensation, unemployment insurance, old-age
pensions, social security and public liability and similar
legislation;
(ii) liens securing the performance of bids, tenders, leases,
contracts (other than for the repayment of borrowed money),
statutory obligations, surety and appeal bonds and other obligations
of like nature, incurred as an incident to and in the ordinary
course of business;
(iii) statutory liens of landlords and other liens imposed by
law, such as carriers', warehousemen's, mechanics', materialmen's
and vendors' liens, incurred in good faith in the ordinary course of
business;
(iv) liens securing the payment of taxes, assessments and
governmental charges or levies, either (1) not delinquent, or (2)
being contested in good faith by appropriate proceedings;
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(v) zoning restrictions, easements, licenses, reservations,
restrictions on the use of real property or minor irregularities
incident thereto which do not in the aggregate materially detract
from the value of the Property or assets of the Guarantor, the
Company or such Subsidiary, as the case may be, or impair the use of
such Property in the operation of its business;
(vi) purchase money liens on real Property or equipment (which
are filed against the real Property or equipment within 180 days of
purchase) that do not exceed 100% of the fair market value of the
related Property;
(vii) liens existing on any Property prior to the acquisition
thereof by the Company, the Guarantor or any Subsidiary, provided
such lien was not created in contemplation of such acquisition, the
amount secured thereby does not exceed the fair market value of the
Property and such lien does not extend to any other Property of the
Company, the Guarantor or such Subsidiary.
(viii) other liens, that in the aggregate, do not exceed 15%
of the book value (computed in accordance with GAAP) of all
Properties and assets of the Guarantor and its Consolidated
Subsidiaries at the end of the preceding fiscal year.
(b) Equal and Ratable Lien: Equitable Lien. In case any Property is
subjected to a Lien in violation of Section 7.6(a), the Guarantor will make or
cause to be made provision whereby the Notes will be secured pursuant to
documents reasonably satisfactory to the holders of at least 51% in outstanding
principal amount of the Notes (exclusive of Notes owned by the Guarantor,
Company, Subsidiaries and Affiliates) equally and ratably with all other
obligations secured thereby, and in any case the Notes shall have the benefit,
to the full extent that, and with such priority as, the holders may be entitled
thereto under applicable law, of an equitable Lien on such Property securing the
Notes. Such violation of Section 7.6(a) shall constitute an Event of Default
hereunder, whether or not any such provision is made pursuant to this Section
7.6(b).
7.7 Indebtedness.
Except to the extent permitted under Section 7.7(d) and (e), the Company
will not nor will it permit any of its Subsidiaries to, directly or indirectly
incur, create, assume or permit to exist any Indebtedness other than the Notes.
The Guarantor will not, nor will it permit any of its Subsidiaries (including
the Company) to, directly or indirectly incur, create, assume or permit to exist
any Indebtedness other than:
(a) Indebtedness incurred by Barnes Group under the Revolving
Credit Agreement;
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(b) the Notes;
(c) Indebtedness outstanding on the date hereof under Barnes Group
Inc.'s $40,000,000, 9.47% Senior Notes Due September 16, 2001
and $25,000,000, 7.13% Senior Notes due December 5, 2005;
(d) Indebtedness which constitutes extensions, renewals or
replacements on substantially the same terms and conditions
(and does not increase the amount outstanding) of (a) through
(c) above; and
(e) additional Indebtedness of the Guarantor and its Subsidiaries;
provided, however, that (i) the total Indebtedness of the
Guarantor's Subsidiaries (including the Company) shall not at
any time exceed $100 million; (ii) total Indebtedness of the
Guarantor's Domestic Subsidiaries shall not at any time exceed
$10 million (excluding from the calculation thereof for all
purposes except compliance with Section 7.4(b)(4) any
pre-existing indebtedness of a newly acquired Domestic
Subsidiary for a period not exceeding 90 days after
acquisition of such Domestic Subsidiary), and (iii) the
aggregate amount of all Indebtedness of the Guarantor and its
Subsidiaries (including the Company) at any time outstanding
shall not exceed an amount equal to 155% of Consolidated Net
Worth at such time.
7.8 Net Worth.
The Guarantor will not permit Consolidated Net Worth of the Guarantor and
its Subsidiaries at any time to be less than $201 million plus 50% of
Consolidated Net Income for each fiscal year beginning after December 31, 1999
(but without deduction for any fiscal year in which Consolidated Net Income is a
negative amount), with the annual adjustments to be applicable as of December
31, 1999 and as of the end of each subsequent fiscal year.
7.9 ERISA Compliance.
Neither the Guarantor nor any Related Person (including the Company) will
at any time permit any Pension Plan maintained by it to:
(i) engage in any "prohibited transaction' as such term is
defined in Section 4975 of the Internal Revenue Code of 1986, as
amended, or described in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such term
is defined in Section 302 of ERISA, whether or not waived; or
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(iii) terminate under circumstances which could result in the
imposition of a Lien on the Property of the Guarantor or any
Subsidiary pursuant to Section 4068 of ERISA.
7.10 Transactions with Affiliates.
None of the Guarantor, the Company nor any Subsidiary will enter into any
transaction (except transactions which do not in any one calendar year involve
in the aggregate an amount in excess of $500,000), including, without
limitation, the purchase, sale or exchange of Property or the rendering of any
service, with any Affiliate except in the ordinary course of and pursuant to the
reasonable requirements of the Guarantor's, the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Guarantor,
the Company or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate.
7.11 Tax Consolidation.
Neither the Guarantor nor the Company will file or consent to the filing
of any consolidated income tax return with any Person other than a Subsidiary
(or in the case of the Company, the Guarantor).
7.12 Acquisition of Notes.
None of the Guarantor, the Company nor any Subsidiary nor any Affiliate
will, directly or indirectly, acquire or make any offer to acquire any Notes
unless the Guarantor, the Company or such Subsidiary or Affiliate has offered to
acquire Notes, pro rata, from all holders of the Notes and upon the same terms.
In case any of such parties acquires any Notes, such Notes shall thereafter be
cancelled and no Notes shall be issued in substitution therefor.
7.13 Lines of Business.
None of the Guarantor, the Company nor any Subsidiary of either will
engage in any line of business if as a result thereof the business of the
Guarantor, the Company, or the Guarantor and its Subsidiaries taken as a whole
would be substantially different from what it was at December 31, 1998 as
described in the Private Placement Memorandum.
7.14 Restricted Payments and Restricted Investments.
Neither the Guarantor nor the Company nor shall either permit any
Subsidiary to, at any time make or permit to exist any loans or advances to, or
purchase any stock, other securities or evidences of indebtedness of, or make or
permit to exist any investment or acquire any interest whatsoever in, any other
person, except (a) the purchase of the Guarantor's common or preferred stock,
(b) loans or advances of the Guarantor or any Subsidiary of the Guarantor (in
addition to loans or advances permitted by clauses (d) and (e) of this Section
7.14) not in excess of $10,000,000 aggregate principal amount for the
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Guarantor and its Subsidiaries at any time outstanding, (c) investments of its
cash by the Guarantor, the Company or any Subsidiary in (i) marketable direct
obligations of, or marketable obligations guaranteed by, the United States of
America or Canada, or marketable obligations of any instrumentality or agency
thereof, the payment of the principal and interest of which is unconditionally
guaranteed by the United States of America or Canada, (ii) certificates of
deposit or other obligations issued by, or bankers' acceptances of, any bank or
trust company organized under the laws of the Federal Republic of Germany,
France, the United Kingdom, Japan, Canada or the United States of America or any
state thereof (including foreign branches of any such bank or trust company) and
having capital, surplus and undivided profits in excess of $100,000,000, (iii)
open market commercial paper with a maturity not in excess of 270 days from the
date of acquisition thereof and having the highest credit rating by either
Standard & Poor's Corporation or Moody's Investors Service, Inc., or (iv) in the
case of any foreign Subsidiary of the Guarantor in a country in which a
Subsidiary exists as of the date of this agreement, such investments of a
comparable quality and term to the other investments permitted by this clause
(c) as are usually made in the jurisdiction or jurisdictions in which the
business of such foreign Subsidiary is principally conducted by prudent
corporate investors in like circumstances, (d) loans or advances of the
Guarantor to any of its Subsidiaries and loans or advances of any Subsidiary of
the Guarantor to the Guarantor or another such Subsidiary, (e) purchases of
stock or other securities of any corporations, associations or other business
entities; provided; however, that the aggregate cost to or fair market value of
the consideration paid by the Guarantor and its Subsidiaries for such stock or
securities of any such corporation, association or other business entity shall
not exceed the sum of: (A) $25,000,000, plus (B) 50% of Consolidated Net Income
for the period commencing on October 1, 1999 and ending on the date of such
stock or securities purchase (or minus 100% of Consolidated Net Income for such
period if Consolidated Net Income for such period is a loss) or (f) such other
investments in an aggregate amount not to exceed $250,000 as the Guarantor or a
Subsidiary may elect.
7.15 Limitation on Restrictions on Dividends by Subsidiaries, etc.
Except as provided in the Warrant Agreement dated August 25, 1999 among
the Company, 3032350 Nova Scotia Limited and PriceWaterhouseCoopers LLP and the
Shareholders Agreement dated August 25, 1999 among the Guarantor, the Company
and 3032350 Nova Scotia Limited, neither the Guarantor nor the Company shall
permit any Subsidiary or other entity in which it or any of its subsidiaries has
an equity investment (a "Subsidiary Investment") to be or become subject to any
restriction (except restrictions applicable to corporations generally and those
restrictions set forth in the Revolving Credit Agreement), whether arising by
agreement, by its articles of incorporation, by-laws or other constituent
documents of such subsidiary or Subsidiary Investment or otherwise, on the right
of such Subsidiary or Subsidiary Investment from time to time to (w) declare and
pay Stock Payments with respect to capital stock owned by the Guarantor from
time to time owed to the Guarantor or any of its Subsidiaries, or (y) make loans
or advances to the Guarantor or any of its Subsidiaries, or (z) transfer any of
its properties or
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assets to the Guarantor or any of its Subsidiaries; provided, however, that such
restriction may be permitted with respect to any Subsidiary or Subsidiary
Investment in which the Guarantor or a Subsidiary directly or indirectly owns
less than 80% of the Voting Stock and in which the Guarantor's or such
Subsidiary's cumulative investment since the Closing Date (in terms of cash
invested in and/or assets contributed to the entity) (i) individually is less
than 10% of the book value of the assets of the Guarantor and its consolidated
Subsidiaries, and (ii) when taken together with all such Subsidiaries and
Subsidiary Investments subject to any such restrictions in which the Guarantor
or a Subsidiary directly or indirectly owns less than 80% of the Voting Stock,
is less than 15% of the book value of the assets of the Guarantor and its
consolidated Subsidiaries.
SECTION 8. INFORMATION AS TO COMPANY
8.1 Financial and Business Information.
The Guarantor will deliver to you, if at the time you or your nominee
holds any Notes (or if you are obligated to purchase any Notes), and to each
other institutional holder of outstanding Notes:
(a) Quarterly Statements - within 60 days after the end of each of
the first three quarterly fiscal periods in each fiscal year of the Guarantor,
two copies of:
(i) a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as at the end of that quarter, and
(ii) consolidated statements of income, retained earnings and
cash flows of the Guarantor and its Consolidated Subsidiaries, for
that quarter and (in the case of the second and third quarters) for
the portion of the fiscal year ending with that quarter,
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year, all in
reasonable detail and certified by a principal financial
officer of the Guarantor as presenting fairly the financial
condition of the companies being reported upon and as having
been prepared in accordance with generally accepted accounting
principles for interim statements consistently applied;
(b) Annual Statements - within 90 days after the end of each fiscal
year of the Guarantor, two copies of:
(i) a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries, as at the end of that year, and
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(ii) consolidated statements of income, retained earnings and
cash flows of the Guarantor and its Consolidated Subsidiaries, for
that year,
setting forth in each case in comparative form the figures for
the previous fiscal year, and accompanied by an opinion of
independent certified public accountants of recognized
national standing stating that such financial statements
fairly present the financial condition of the companies being
reported upon and have been prepared in accordance with
generally accepted accounting principles consistently applied
(except for changes in application in which such accountants
concur), and that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards, and
which independent auditors' report shall not identify either
(A) any departure from the consistent application of generally
accepted accounting principles (except for identified changes
in application in which such accountants concur), or (B) any
tests of the accounting records or other auditing procedures
which were considered necessary in the circumstances and which
were not performed;
(c) Audit Reports - promptly upon receipt thereof, one copy of each
other report submitted to the Guarantor or any Subsidiary by independent
accountants in connection with any material interim or special audit made by
them of the books of the Guarantor or any material Subsidiary;
(d) SEC and Other Reports - promptly upon their becoming available
one copy of each report, notice or proxy statement sent by the Guarantor to
stockholders generally, and of each periodic report and any registration
statement, filed by the Guarantor with any securities exchange, securities
regulatory agency including the Securities and Exchange Commission or any
successor agency;
(e) ERISA - as soon as practicable, but in no event later than five
days, after a member of Senior Management becoming aware of the occurrence of
any (i) "reportable event" as such term is defined in Section 4043 of ERISA, or
(ii) "accumulated funding deficiency" as such term is defined in Section 302 of
ERISA, or (iii) "prohibited transaction", as such term is defined in Section
4975 of the Internal Revenue Code of 1986, as amended, or described in Section
406 of ERISA, in connection with any Pension Plan or any trust created
thereunder, a notice specifying the nature thereof, what action the Guarantor or
a Related Person is taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect thereto;
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(f) Notice of Default or Event of Default - immediately upon
becoming aware of the existence of any Default or Event of Default a notice
describing its nature and the action the Company is taking with respect thereto;
(g) Notice of Claimed Default - immediately upon becoming aware that
the holder of any Note or of any Indebtedness or Security of the Guarantor, the
Company or any Subsidiary has given notice or taken any other action with
respect to a claimed Default or Event of Default, a notice specifying the notice
given or action taken by such holder, the nature of the claimed Default or Event
of Default and the action the Company or the Guarantor is taking with respect
thereto;
(h) Report on Proceedings - The Guarantor, the Company and each
Subsidiary will give each holder of the Notes (a) notice, promptly, of any
action, suit or proceeding at law or in equity or by or before any court or
other governmental instrumentality or agency (i) which is not fully covered by
insurance without the applicability of any co-insurance provisions or with
respect to which insurance coverage is being contested and which has not been
bonded and in which either the aggregate specified dollar amount of all claims
(either as set forth in the complaint, demand letters or other written
communications by or on behalf of the plaintiff or as otherwise determined in
good faith by the Guarantor, the Company or its counsel) against the Company or
the Guarantor and its Subsidiaries taken as a whole, exceeds the amount of any
applicable insurance coverage by (x) $1,000,000 for any single proceeding or (y)
$5,000,000 in the aggregate during any fiscal year of the Company; provided,
however, that after giving notice of such claims aggregating at least
$5,000,000, notice is only required of subsequent claims made during the same
fiscal year which exceed insurance coverage by $500,000 for any single
proceeding, or (ii) if the results thereof may have a material adverse effect on
the business or condition of the Guarantor, the Company or, the Guarantor and
its Subsidiaries taken as a whole, and (b) with respect to any such action, suit
or proceeding such documentation as the holder of any Note reasonably requests.
(i) Requested Information - with reasonable promptness, such data
and information as from time to time may be reasonably requested.
8.2 Officers' Certificates.
Each set of financial statements delivered pursuant to Section 8.1(a) or
8.1(b) will be accompanied by a certificate of the President or a Vice President
and the Treasurer or an Assistant Treasurer of the Guarantor and the Company
setting forth:
(a) Covenant Compliance - the information required in order to
establish compliance with the requirements of Section 7 during the period
covered by the income statements being furnished; and
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(b) Event of Default - that the signers have reviewed the relevant
terms of this Agreement and have made, or caused to be made, under their
supervision, a review of the transactions and condition of the Guarantor, the
Company and the Subsidiaries of each from the beginning of the period covered by
the income statements being furnished and that the review has not disclosed the
existence during such period of any Default or Event of Default or, if any such
Default or Event of Default existed or exists, describing its nature and the
action the Company has taken with respect thereto.
8.3 Accountants' Certificates.
Each set of annual financial statements delivered pursuant to Section
8.1(b) will be accompanied by a certificate of the accountants who certify such
financial statements, stating that they have reviewed this Agreement and
whether, in making the examination necessary for their certification of such
statements, they have become aware of any Default or Event of Default, and, if
any Default or Event of Default then exists, describing its nature.
8.4 Inspection.
The Guarantor and the Company each will permit your representatives, while
you or your nominee holds any Note, or the representatives of any other
institutional holder of the Notes, at your or such holder's expense, to visit
and inspect any of the Properties of the Guarantor, the Company or any
Subsidiary of either, to examine and make copies and abstracts of all their
books of account, records, and other papers, and to discuss their respective
affairs, finances and accounts with their respective officers, employees
designated by said officers and independent public accountants (and by this
provision the Guarantor and the Company each authorizes said accountants to
discuss the finances and affairs of the Guarantor, and the Company and the
Subsidiaries of each) all at reasonable times, upon notice to a member of Senior
Management (unless there shall exist a Default or an Event of Default), and as
often as may be reasonably requested. Any visit or inspection made pursuant to
this Section 8.4 shall be at the expense of the holder requesting the same
unless, at the time of such visit or inspection, there shall exist a Default or
Event of Default, in which event the Company shall bear the cost thereof.
SECTION 9. EVENTS OF DEFAULT.
9.1 Nature of Events.
An "Event of Default" shall exist if any of the following occurs and is
continuing:
(a) Principal Payments - failure to pay principal or Makewhole Price
on any Note on or before the date such payment is due;
(b) Interest Payments - failure to pay interest on any Note on or
before the fifth Business Day following the date such payment is due;
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(c) Financial Covenant Defaults - default in the performance of or
compliance with any term contained in Sections 7.7, 7.8 or 8.1(f).
(d) Other Defaults - failure of the Company or the Guarantor to
comply with any other provision of this Agreement or the Guaranty, which
continues for more than 30 days after it first becomes known to any member of
Senior Management of the Company or the Guarantor;
(e) Warranties or Representations - any warranty or representation
by or on behalf of the Company or the Guarantor contained in this Agreement or
the Guaranty or in any instrument delivered under or in reference to this
Agreement is false or misleading in any material respect;
(f) Default on Other Indebtedness - a default or defaults shall have
occurred under any other Indebtedness or Securities of the Guarantor or the
Company having a principal or face amount, individually or in the aggregate in
excess of $5,000,000; or any event shall occur or any condition shall exist, the
effect of which is to cause (or permit any holder of such Indebtedness or
Securities having a principal or face amount, individually or in the aggregate,
in excess of $5,000,000, or a trustee to cause) such Indebtedness or Security,
or a portion thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment;
(g) Involuntary Bankruptcy Proceedings - a custodian receiver,
liquidator or trustee of the Guarantor, the Company or of any of the Property of
either, is appointed or takes possession and such appointment or possession
remains in effect for more than 30 days; or the Guarantor or the Company is
adjudicated bankrupt or insolvent; or an order for relief is entered under the
Federal Bankruptcy Code against the Guarantor; or any of the Property of the
Guarantor or the Company is sequestered by court order and the order remains in
effect for more than 30 days; or a petition is filed against the Guarantor or
the Company under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed within 30 days after
filing;
(h) Voluntary Petitions - the Guarantor or the Company files a
petition in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect, or consents to the filing of any petition against it under any such law;
(i) Assignments for Benefit of Creditors, etc. - the Guarantor or
the Company makes an assignment for the benefit of its creditors, or generally
fails to pay its debts as they become due, or consents to the appointment of or
taking possession by a custodian, receiver, liquidator or trustee of the Company
or of all or any part of the Property of the Guarantor or the Company; or
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(j) Undischarged Final Judgments - final judgment or judgments which
are not subject to appeal for the payment of money aggregating in excess of
$5,000,000 is or are outstanding against one or more of the Guarantor, the
Company, or any Subsidiary of either and any one of such judgments (x) has not
been stayed or paid on the date it is finally due and payable or (y) has
resulted in the attachment of a Lien on any Property of the Guarantor, the
Company or any Subsidiary.
(k) Change of Control - the occurrence of a Change of Control.
(l) Guaranty - the Guaranty shall fail to be in full force and
effect or the Guarantor shall disavow or purport to disavow its obligations
thereunder.
(m) Post-Closing Undertaking-the failure of the Guarantor to comply
fully with the provisions of the Post-Closing Undertaking on or before December
20, 1999
9.2 Default Remedies.
(a) If an Event of Default described in Section 9.1(g) or 9.1(h) or
(i) occurs, the entire outstanding principal amount of the Notes shall
automatically become due and payable, without the taking of any action on the
part of any holder of the Notes or any other Person and without the giving of
any notice with respect thereto. If an Event of Default described in Section
9.1(a), 9.1(b) or 9.1(m) exists, any holder of Notes may, at its option,
exercise any right, power or remedy permitted by law, including but not limited
to the right by notice to the Company to declare the Notes held by such holder
to be immediately due and payable. If any other Event of Default exists, the
holder or holders of at least 51% in outstanding principal amount of all Notes
(exclusive of Notes owned by the Guarantor, the Company, Subsidiaries and
Affiliates) may exercise any right, power or remedy permitted by law, including,
but not limited to, the right by notice to the Company to declare all the
outstanding Notes immediately due and payable. Upon any such acceleration the
principal of the Notes declared due or automatically becoming due shall be
immediately payable together with all interest accrued thereon without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company will immediately pay the greater of (x)
the principal of and interest accrued on such Notes and (y) the Makewhole Price
applicable at such time to such Notes.
(b) No course of dealing or delay or failure on the part of any
holder of the Notes to exercise any right shall operate as a waiver of such
right or otherwise prejudice such holder's rights, powers and remedies. The
Company will pay or reimburse the holders of the Notes, to the extent permitted
by law, for all costs and expenses, including but not limited to reasonable
attorneys' fees, incurred by them in collecting any sums due on the Notes or in
otherwise enforcing any of their rights.
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9.3 Annulment of Acceleration of Notes.
If a declaration is made pursuant to Section 9.2(a), the holders of at
least 51% of the outstanding principal amount of the Notes may annul such
declaration and the consequences thereof if no judgment or decree has been
entered for the payment of any monies due pursuant to such declaration and if
all sums payable under the Notes and this Agreement (except principal, interest
or premium which has become due solely by reason of such declaration) have been
duly paid. No such annulment shall extend to or waive any subsequent Default or
Event of Default.
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined.
As used in this Agreement (including Exhibits), the following terms have
the respective meanings set forth below or in the Section indicated:
Affiliate - as to any Person means a Person other than a Subsidiary (1)
which directly or indirectly controls, or is controlled by, or is under common
control with, such Person, (2) which owns 5% or more of the Voting Stock of such
Person, or (3) 5% or more of the voting Stock (or in the case of a Person which
is not a corporation, 5% or more of the equity interest) of which is owned by
such other Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Business Day - any day other than a Saturday, Sunday or a U.S. national,
Ontario, Connecticut or New York holiday.
Capitalized Lease - any lease which is shown or is required to be shown in
accordance with GAAP as a liability on a balance sheet of the lessee thereunder.
Change of Control - shall mean the Guarantor shall cease, directly or
indirectly, to own 100% of the outstanding voting stock of the Company or any
Person or group of Persons (as used in Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) shall have become the beneficial owner (as defined in
Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission (the
"SEC") under the Exchange Act) of 30% or more of the Guarantor's outstanding
voting stock provided, however, that members of the Barnes family, Fleet
financial group and any of its affiliates, successors and assigns (to the extent
that it owns stock in which a member of the Barnes family has an interest), the
Barnes Group Inc. Guaranteed Stock Plan and Fleet Bank, in its capacity as
trustee under such plan, or its successor or assigns in its capacity as trustee
under such plan, and employees of the Guarantor (except employees of the
Guarantor who became beneficial
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owners of more than 10% of the Guarantor's voting stock prior to becoming
employees of the Guarantor) shall not be counted as a person for purposes
hereof.
Closing Date - Section 1.2.
Consolidated Assets - shall mean the total assets of the Guarantor and its
Subsidiaries which would be shown as assets on a consolidated balance sheet of
the Guarantor and its Subsidiaries as of such time prepared in accordance with
GAAP, after eliminating all amounts properly attributable to minority interests,
if any, in the stock and surplus of Subsidiaries.
Consolidated Net Income - the consolidated net income of a Person and its
Subsidiaries for any period as determined in accordance with GAAP.
Consolidated Net Worth - shall mean the assets of the Guarantor and its
Subsidiaries less the liabilities of the Guarantor and its Subsidiaries, each as
shown on a consolidated balance sheet of the Guarantor and its Subsidiaries in
accordance with GAAP, plus any negative (less any positive) foreign currency
translation adjustments shown in the equity section of such a consolidated
balance sheet pursuant to FAS 52, plus any amount shown on such a consolidated
balance sheet in the equity contra account arising from the Guaranty.
Consolidated Subsidiary - shall mean any Subsidiary the accounts of which
shall at the time in question be consolidated with a Person.
Default - an event or condition which will, with the lapse of time or the
giving of notice or both, become an Event of Default.
Domestic Subsidiary - shall mean a Subsidiary incorporated in the United
States.
Environmental Laws - shall mean any and all Federal, provincial, state,
local, and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, permits, concessions, grants, franchises, licenses, agreements
or governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to, those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
ERISA - means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default - Section 9.1
Fair Market Value - means, at any time and with respect to any property,
the sale value of such property that would be realized in an arm's-length sale
at such time between an informed and willing buyer and an informed and willing
seller (neither being under a compulsion to buy or sell).
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Foreign Subsidiary - shall mean a Subsidiary organized outside the United
States.
GAAP - means generally accepted accounting principles which are consistent
with the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors; provided, however, that such principles shall be
applied without giving effect to FAS 106.
Guaranty - Section 1.1.
Hazardous Material - means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
Indebtedness - with respect to any Person, means, without duplication, (a)
all debt arising from borrowed money and similar monetary obligations, whether
direct or indirect; (b) all indebtedness of others secured by any mortgage,
pledge, security interest, lien, charge, or other encumbrance existing on
Property owned by such Person or any of its Subsidiaries or acquired by such
Person or any of its Subsidiaries subject thereto, whether or not the
Indebtedness secured thereby shall have been assumed; (c) all guarantees,
endorsements and other contingent obligations, in respect of Indebtedness of
others, including (x) any obligation to supply funds to or in any manner to
invest in, directly or indirectly, the debtor, to purchase Indebtedness, or to
assure the owner of Indebtedness against loss, through an agreement to purchase
goods, supplies, or services for the purpose of enabling the debtor to make
payment of the Indebtedness held by such owner or otherwise and (y) any
obligation of any partnership in which such Person or any of its Subsidiaries is
a general partner; and (d) the obligations to reimburse the issuer in respect of
any letters of credit. Indebtedness shall not include the indebtedness of (i) a
Subsidiary of such Person to such Person or to another Subsidiary of such
Person, or (ii) such Person to a Subsidiary of such Person; provided, however,
that in the case of debt of a Subsidiary not wholly owned by such Person and/or
another Subsidiary, Indebtedness shall include a percentage of such indebtedness
equal to the percentage of the total minority ownership.
Investment - means any investment, made in cash or by delivery of
property, by a Person or any of its Subsidiaries (i) in any other Person,
whether by acquisition of stock, Indebtedness or other obligation or Security,
or by loan, guaranty, advance, capital contribution or otherwise, or (ii) in any
property.
Lien - any mortgage, lien, charge, security interest or other encumbrance
of any kind upon any Property or assets of any character, or upon the income or
profits therefrom, any conditional sale or other title retention agreement,
device or arrangement
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(including Capitalized Leases), or any sale assignment, pledge or other transfer
for security of any accounts, general intangibles or chattel paper, with or
without recourse.
Makewhole Price - with respect to full or partial optional prepayments of
the Notes pursuant to Section 5.2 or repayment of Notes which have become or
been declared immediately due and payable pursuant to Section 9.2, means, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Makewhole Price may in no
event be less than zero. For the purposes of determining the Makewhole Price,
the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 5.2 or has become or
is declared to be immediately due and payable pursuant to Section 9.2, as
the context requires.
"Discounted Value" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Treasury Rate with respect
to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by the yields reported,
as of 10:00 A.M. (New York City time) on the second Business Day preceding
the Settlement Date with respect to such Called Principal for actively
traded U.S. Treasury Securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date
(as shown on page "PX1" of the Bloomberg Financial Markets Service or such
other display as may replace the Bloomberg Financial Markets Service);
provided, however, that if there is no U.S. Treasury security which has a
maturity equal to the Remaining Average Life of the Notes, the Treasury
Rate shall be obtained by interpolating linearly between (1) the U.S.
Treasury security for which a yield is given with the duration closest to
and greater than the Remaining Average Life, and (2) the U.S. Treasury
security for which a yield is given with the duration closest to and less
than the Remaining Average Life, except that if the Remaining Average Life
is less than one year, the yield on actively traded U.S. Treasury
securities adjusted to a constant maturity of one year shall be used.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum of
the products obtained by multiplying (a) the principal component of each
Remaining Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the
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nearest one-twelfth year) that will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a
date on which interest payments are due to be made under the terms of the
Notes, then the amount of the next succeeding scheduled interest payment
will be reduced by the amount of interest accrued to such Settlement Date
and required to be paid on such Settlement Date pursuant to Sections 5.2
or 9.2.
"Settlement Date" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 5.2 or has become or is declared to be immediately due and payable
pursuant to Section 9.2, as the context requires.
Notes - Section 1.1.
Other Purchasers - Section 1.6.
Pension Plans - Section 2.15(a).
Person - shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Post-Closing Undertaking - the Agreement of Undertaking by the Guarantor
dated as of November 12, 1999 and delivered by the Guarantor to the Purchasers
on the Closing Date.
Private Placement Memorandum - the Confidential Information Memorandum
dated September, 1999 prepared by Fleet Corporate Finance, acting as agent for
the Barnes Group.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Related Person - any Person (whether or not incorporated) which is under
common control with the Company within the meaning of Section 414(c) of the
Internal Revenue Code of 1986, as amended, or of Section 4001(b) of ERISA.
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Revolving Credit Agreement - means the $150,000,000 Revolving Credit dated
as of December 1, 1991 among the Company, Mellon Bank, N.A. , as Agent, and the
banks signatory thereto.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Senior Management - shall mean any of the following officers of the
Guarantor or the Company, as the context requires: President, any Group Vice
President, Chief Financial Officer, Treasurer or General Counsel.
Stock Payment - by any Person shall mean any dividend, distribution or
payment of any nature (whether in cash, securities, or other property) on
account of or in respect of any shares of the capital stock (or warrants,
options or rights therefor) of such Person, including, but not limited to, any
payment on account of the purchase, redemption, retirement, defeasance or
acquisition of any shares of the capital stock (or warrants, options or rights
therefor) of such Person, in each case regardless of whether required by the
terms of such capital stock (or warrants, options or rights) or any other
agreement or instrument.
Subsidiary - of a Person shall mean any corporation, association or other
business entity of which more than 50% of the outstanding stock having by its
terms ordinary voting power to elect a majority of the board of directors of
such corporation, or other business entity (irrespective of whether at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time owned
directly or indirectly by such Person.
Voting Stock - shall mean, with respect to any corporation, the capital
stock of such corporation having the power to vote for a majority of the board
of directors of such corporation under ordinary circumstances.
10.2 Accounting principles.
Where the character or amount of any asset or liability or item of income
or expense is required to be determined or any consolidation or other accounting
computation is required to be made under this Agreement, this shall be done in
accordance with GAAP.
- 35 -
<PAGE> 40
10.3 Directly or Indirectly.
Where any provision in this Agreement refers to any action which a Person
is prohibited from taking, the provision shall be applicable whether such action
is taken directly or indirectly by such Person, including actions taken by or on
behalf of any partnership in which such Person is a general partner and all
liabilities of such partnerships shall be considered liabilities of such Person
for purposes of this Agreement.
10.4 Governing Law.
This Agreement and the Notes shall be governed by and construed in
accordance with Connecticut law.
SECTION 11. MISCELLANEOUS
11.1 Notices.
All notices provided for hereunder shall be in writing and sent (a) by
telecopy if the sender on the same day sends a confirming copy of such notice by
a recognized overnight delivery service (charges prepaid), or (b) by registered
or certified mail with return receipt requested (postage prepaid), or (c) by a
recognized overnight delivery service (with charges prepaid. Any such notice
must be sent:
(a) if to any Noteholder, at the address specified for such
communications in Schedule A, or at such other address as it shall have
specified to the Company in writing.
(b) if to the Company, or the Guarantor at the address therefor set
forth in Section 7.3 hereof to the attention of "Treasurer," or at such
other address as the Company or the Guarantor, as the case may be, shall
have specified to the holder of each Note in writing.
Notices under this Section 11 will be deemed given only when actually
received.
11.2 Reproduction of Documents.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by you at the closing of your purchase of the
Notes (except the Notes themselves), and (c) financial statements, certificates
and other information previously or hereafter furnished to you, may be
reproduced by you by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and you may destroy any original
document so reproduced. The Company agrees and stipulates that any such
reproduction shall, to the extent permitted by applicable law, be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by you in the
- 36 -
<PAGE> 41
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
11.3 Survival.
All warranties, representations, and covenants made by the Company herein
or on any certificate or other instrument delivered by it or on its behalf
pursuant to the terms of this Agreement shall be considered to have been relied
upon by you and shall survive the delivery to you of the Notes regardless of any
investigation made by you or on your behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Company hereunder.
11.4 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, except that the Company's right
to require you to purchase the Notes in accordance with Section 1.2 shall be
personal to the Company and shall not be assignable or transferable to any other
Person (including successors at law) whether voluntarily or involuntarily. The
provisions of this Agreement are intended to be for the benefit of all holders,
from time to time, of the Notes, and shall be enforceable by any holder, whether
or not an express assignment to such holder of rights under this Agreement has
been made by you or your successor or assign.
11.5 Amendment and Waiver.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with (and only with) the written consent of the
Guarantor, the Company and the holders of at least 66-2/3% of the outstanding
principal amount of the Notes (exclusive of Notes owned by the Guarantor, the
Company, Subsidiaries and Affiliates); provided that no such amendment or waiver
of any of the provisions of Sections 1 through 4 shall be effective as to you
unless consented to by you in writing; and provided further, that no such
amendment or waiver shall, without the written consent of the holders of all the
outstanding Notes, (i) subject to Section 9.3, change the amount or time of any
prepayment or payment of principal or premium or the rate or time of payment of
interest, (ii) amend Section 9, or (iii) amend this Section 11.5. Executed or
true and correct copies of any amendment or waiver effected pursuant to the
provisions of this Section 11.5 shall be delivered by the Company to each holder
of outstanding Notes promptly following the date on which the same shall become
effective. No such amendment or waiver shall extend to or affect any provision
or obligation not expressly amended or waived.
- 37 -
<PAGE> 42
11.6 Duplicate Originals.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
11.7 Headings, etc.
Headings used in this Agreement and in the Private Placement Memorandum
have been inserted for convenience of reference only; and are not to be
considered a part hereof or thereof.
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart of this Agreement and return such
counterpart to the Company, whereupon this Agreement will become binding between
us in accordance with its terms.
Very truly yours,
3031786 NOVA SCOTIA COMPANY
By:/s/ David J. Sinder
---------------------------------
Name: David J. Sinder
Title: Treasurer
BARNES GROUP INC. (with respect to
Sections 2, 7 and 8 hereof only)
By: /s/ John J. Locher
---------------------------------
Name:John J. Locher
Title: Vice President
- 38 -
<PAGE> 43
ACCEPTED:
ALLSTATE INSURANCE COMPANY
By:/s/ Charles D. Mires
------------------------------------
Name: Charles D. Mires
Title: Authorized Signatory
By:/s/ David Walsh
------------------------------------
Name: David Walsh
Title: Authorized Signatory
ALLSTATE LIFE INSURANCE COMPANY
By:/s/ Charles D. Mires
------------------------------------
Name: Charles D. Mires
Title: Authorized Signatory
By:/s/ David Walsh
------------------------------------
Name: David Walsh
Title: Authorized Signatory
STATE FARM LIFE INSURANCE COMPANY
By:/s/ Lyle Triebwasser
------------------------------------
Name: Lyle Triebwasser
Title: Senior Investment Officer
By:/s/ Larry Rottunda
------------------------------------
Name: Larry Rottunda
Title: Assistant Secretary
- 39 -
<PAGE> 44
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:/s/ Thomas Li
------------------------------------
Name: Thomas Li
Title: Managing Director
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc. (authorized agent)
By:/s/ Stephen A. Osborn
------------------------------------
Name: Stephen A. Osborn
Title: Managing Director
NATIONWIDE LIFE INSURANCE COMPANY
By:/s/ Mark W. Poeppelman
------------------------------------
Name: Mark W. Poeppelman
Title: Authorized Signatory
THE CANADA LIFE ASSURANCE COMPANY
By:/s/ C. Paul English
------------------------------------
Name: C. Paul English
Title: Associate Treasurer
PAN-AMERICAN LIFE INSURANCE COMPANY
By:/s/ Luis Ingles, Jr.
------------------------------------
Name: Luis Ingles, Jr., C.F.A.
Title: Senior Vice President-Investments
- 40 -
<PAGE> 45
EXHIBIT A
This Exhibit to the foregoing Agreement sets forth registration, money transfer
and notice instructions for each purchaser.
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Allstate Life Allstate Life 7.66% $5,000,000
Insurance Company. Insurance Company 7.66% $5,000,000
(Tax ID # 36-2554642) 7.66% $2,500,000
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
BBK: Harris Trust & Savings Bank
ABA# 071000288
BNF: Allstate Life Insurance Company Collection Account 168-117-0
ORG: (Barnes Nova Scotia Company)
OBI: DPP - (C8852* AA 7) Payment Due Date (MM/DD/YY) - P
________ (Enter "P" and amount of principal being remitted,
for example P5000000.00) - I ________ (Enter "I" and amount of
interest being remitted, for example, 1225000.00) and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Allstate Insurance Company
Investment Operations - Private Placements
3075 Sanders Road, STE G4A
Northbrook, IL 60062-7127
Tel: (847) 402-2769/Fax: (847) 326-5040
In case of all other communications:
Allstate Life Insurance Company
Private Placement Department
3075 Sanders Road, STE G3A
Northbrook, Illinois 60062-7127
Tel: (847) 402-8922/Fax: (847) 402-3092
<PAGE> 46
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Allstate Insurance Allstate Insurance 7.66% $5,000,000
Company Company
(Tax ID # 36-0719665)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
BBK: Harris Trust & Savings Bank
ABA# 071000288
BNF: Allstate Insurance Company
Collection Account 168-114-7
ORG: (Barnes Nova Scotia Company)
OBI: DPP - (C8852* AA 7) Payment Due Date (MM/DD/YY) - P
________ (Enter "P" and amount of principal being remitted,
for example P5000000.00) - I ________ (Enter "I" and amount
of interest being remitted, for example, 1225000.00) and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Allstate Insurance Company
Investment Operations - Private Placements
3075 Sanders Road, STE G4A
Northbrook, IL 60062-7127
Tel: (847) 402-2769
Fax: (847) 326-5040
In case of all other communications:
Allstate Life Insurance Company
Private Placement Department
3075 Sanders Road, STE G3A
Northbrook, Illinois 60062-7127
Tel: (847) 402-8922
Fax: (847) 402-3092
<PAGE> 47
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Pan-American Pan-American 7.80% $3,500,000
Life Insurance Company Life Insurance Company
(Tax ID # 72-0281240)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
PAN-AMERICAN LIFE INSURANCE COMPANY
Account #552-0110029496
Bank One, Louisiana, NA
ABA #065400137
201 St. Charles Avenue
New Orleans, LA 70170
CUSIP: C8852* AB 5; Description: 7.80% Senior Notes Due 11/05/2010,
and providing complete details including the breakdown of interest
and principal.
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Pan-American Life Insurance Company
Attn: Bond & Stock Accounting 28th Floor
601 Poydras Street
New Orleans, LA 70130
Fax: (504) 566-3459
In case of all other communications:
Pan-American Life Insurance Company
Attn: Investment Department 28th Floor
601 Poydras Street
New Orleans, LA 70130
<PAGE> 48
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Massachusetts Mutual Massachusetts Mutual 7.80% $5,800,000
Life Insurance Company Life Insurance Company
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA # 021000089
For MassMutual Spot Priced Contract
Acct # 3890-4953
Re: 7.80% Senior Notes Due 11/05/2010; Principal: $5,800,000; PPN #
C8852* AB 5
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attn: Corporate Securities
In case of all other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attn: Corporate Securities
<PAGE> 49
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Massachusetts Mutual Massachusetts Mutual 7.80% $7,100,000
Life Insurance Company Life Insurance Company
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA # 021000089
For MassMutual Long-Term Pool
Acct # 4067-3488
Re: 7.80% Senior Notes Due 11/05/2010; Principal: $7,100,000; PPN#
C8852* AB 5.
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attn: Corporate Securities
In case of all other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attn: Corporate Securities
<PAGE> 50
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Massachusetts Mutual Massachusetts Mutual 7.80% $1,100,000
Life Insurance Company Life Insurance Company
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
Chase Manhattan Bank, N.A.
4 Chase Metro Tech Center
New York, NY 10081
ABA # 021000021
For MassMutual Pension Management
Acct # 910-2594018
Re: 7.80% Senior Notes Due 11/05/2010; Principal: $1,100,000; PPN #
C8852* AB 5
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attn: Corporate Securities
In case of all other communications:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attn: Corporate Securities
<PAGE> 51
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
State Farm Life State Farm Life 7.80% $7,000,000
Insurance Company. Insurance Company
(Tax ID # 37-0533090)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
The Chase Manhattan Bank
ABA No. 021000021
SSG Private Income Processing
A/C #900-9-002000
For Credit To Account Number G 06893
Ref. PPN # C8852* AB 5
Rate: 7.80%
Maturity: 11/05/2010
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, IL 61710
and
State Farm Life Insurance Company
Investment Accounting Dept. D-3
One State Farm Plaza
Bloomington, IL 61710
In case of all other communications:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, IL 61710
<PAGE> 52
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
State Farm Life State Farm Life 7.66% $7,000,000
Insurance Company. Insurance Company
(Tax ID # 37-0533090)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
The Chase Manhattan Bank
ABA No. 021000021
SSG Private Income Processing
A/C #900-9-002000
For Credit To Account Number G 06893
Ref. PPN # C8852* AA 7
Rate: 7.66%
Maturity: 11/05/2007
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, IL 61710
and
State Farm Life Insurance Company
Investment Accounting Dept. D-3
One State Farm Plaza
Bloomington, IL 61710
In case of all other communications:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, IL 61710
<PAGE> 53
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
The Canada Life The Canada Life 7.80% $3,500,000
Assurance Company. Assurance Company
(Tax ID # 38-0397420)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
CHASE MANHATTAN BANK
ABA 021-000-021
A/C #900-9-000200
Trust Account No. G52708, The Canada Life Assurance Company
Attn: Bond Interest
Re: CUSIP: C8852* AB 5; Issuer: Barnes Nova Scotia Company; Rate:
7.80%; Maturity: 11/05/2010; Description: 7.80% Senior Note Due
11/05/2010; Principal: $3,500,000.
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
CHASE MANHATTAN BANK
North America Insurance
3 Chase MetroTech Centre - 6th Floor
Brooklyn, N.Y. 11245
Attn: Ms. Doll Balbadar
with a copy to:
The Canada Life Assurance Company
330 University Avenue, SP-12
Toronto, Ontario, Canada, M5G 1R8
Attn: Supervisor, Securities Accounting
In case of all other communications:
The Canada Life Assurance Company
U.S. Private Placements, SP-11
330 University Avenue,
Toronto, Ontario, Canada, M5G 1R8
Attn: PAUL ENGLISH, Treasurer, U.S.
<PAGE> 54
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Connecticut General Life CIG & Co. 7.80% $5,700,000
Insurance Company CIG & Co. 7.80% $4,800,000
(Tax ID # 13-3574027)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) Chase NYC/CTR/
BNF=CIGNA Private Placements/AC=9009001802
ABA#021000021
and
(b) OBI=[Issuer: Barnes Nova Scotia Company; 7.80% Senior Notes Due
11/05/2010; PPN: C8852* AB 5; due date and application (as among
principal, premium and interest of the payment being made); contact
name and phone.]
with a notice of any payment (and all other notices in respect of payment)
to:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Securities Processing S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities - S307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Fax: 212-726-7203
with a copy to:
Chase Manhattan Bank
Private Placing Servicing
P.O. Box 1508
Bowling Green Station
New York, NY 10081
Attn: CIGNA Private Placements
Fax: 212-552-3107/1005
<PAGE> 55
In case of all other communications:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities Division - S-307
900 Cottage Grove Road
Hartford, Connecticut 06152-2307
Fax: 860-726-7203
<PAGE> 56
<TABLE>
<CAPTION>
Purchaser Registration Series Principal Amount
- --------- ------------ ------ ----------------
<S> <C> <C> <C>
Nationwide Life Nationwide Life 7.80% $7,000,000
Insurance Company Insurance Company
(Tax ID # 31-4156830)
</TABLE>
In the case of all payments on account of the Notes in accordance with Section
4.1, by:
(a) crediting (in form of federal funds bank wire transfer):
The Bank of New York
ABA #021-000-018
BNF: IOC566
F/A/O Nationwide Life Insurance Company
Attn: P & I Department
PPN# C8852* AB 5
Security Description: 7.80% Senior Note Due 11/05/2010 - 3031786
NOVA SCOTIA COMPANY
and
(b) providing sufficient information with such wire transfer to identify
the source and application of such funds including the Company's name, the
maturity date of the Notes, the applicable interest rate and identification of
the amounts to be applied to the payment of principal, premium and interest,
respectively;
with a notice of any payment (and all other notices in respect of payment)
to:
Nationwide Life Insurance Company
c/o The Bank of New York
P.O. Box 19266
Attn: P & I Department
Newark, NJ 07195
with a copy to:
Nationwide Life Insurance Company
Attn: Investment Accounting
One Nationwide Plaza (I-32-05)
Columbus, Ohio 43215-2220
In case of all other communications:
Nationwide Life Insurance Company
One Nationwide Plaza (I-33-07)
Columbus, Ohio 43215-2220
Attn: Corporate Fixed-Income Securities
<PAGE> 57
EXHIBIT B-1
3031786 NOVA SCOTIA COMPANY
7.66% Senior Note due November 12, 2007
U.S. $__________ Hartford, Connecticut
PPN: C8852* AA 7 November 12, 1999
3031786 Nova Scotia Company (the "Company"), a Nova Scotia company, for
value received, hereby promises to pay to ________________ or registered assigns
the principal sum of _______________ United States Dollars (U.S. $____________)
on November 12, 2007; and to pay interest (computed on the basis of a 360-day
year of twelve 30-day months) on the unpaid principal balance hereof from the
date of this Note at the rate of 7.66% per annum, semi-annually on the twelfth
day of May and the twelfth day of November in each year, commencing with the
payment date next succeeding the date hereof, until the principal amount hereof
shall become due and payable; and to pay on demand interest on any overdue
principal (including any overdue prepayment of principal) and premium, if any,
and (to the extent permitted by applicable law) on any overdue payment of
interest, at a fluctuating rate per annum, to be adjusted daily, equal to the
greater of (a) the rate announced publicly by Citibank, N.A. in New York, New
York from time to time as its prime rate, and (b) 9.66% per annum (but in no
event higher than the maximum rate permitted by law). For the purposes only of
disclosure pursuant to the Interest Act (Canada), whenever interest is to be
calculated on the basis of a 360-day year, the yearly rate of interest to which
the rate determined pursuant to such calculation is equivalent is the rate so
determined multiplied by the actual number of days in the calendar year in which
the same is to be ascertained and divided by 360.
Payments of principal, premium, if any, and interest shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts, by check mailed and
addressed to the registered holder hereof at the address shown in the register
maintained by the Company for such purpose, or, at the option of the holder
hereof, in such manner and at such other place in the United States of America
as the holder hereof shall have designated to the Company in writing.
This Note is one of an issue of 7.66% Senior Notes of the Company issued
in an aggregate principal amount limited to U.S. $24,500,000 pursuant to the
Company's Note Agreement dated as of November 12, 1999 with the Purchasers
listed on Schedule A thereto, and is entitled to the benefits thereof. As
provided in such Agreement, this 7.66% Note is subject to prepayment, in whole
or in part, with a premium as specified in said Agreement. This Note is also
entitled to the benefits of the Guaranty made as of the date hereof by Barnes
Group Inc.
<PAGE> 58
This 7.66% Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company in Bristol, Connecticut, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or his attorney duly authorized in writing.
Under certain circumstances, as specified in said Agreement, the principal
of this 7.66% Note may be declared due and payable in the manner and with the
effect provided in said Agreement.
This 7.66% Note and said Agreement are governed by and construed in
accordance with Connecticut law.
3031786 NOVA SCOTIA COMPANY
By:_________________________________
Name:
Title:
<PAGE> 59
EXHIBIT B-2
3031786 NOVA SCOTIA COMPANY
7.80% Senior Note due November 12, 2010
U.S. $__________ Hartford, Connecticut
PPN: C8852* AB 5 November 12, 1999
3031786 Nova Scotia Company (the "Company"), a Nova Scotia company, for
value received, hereby promises to pay to _______________ or registered assigns
the principal sum of _______________ United States Dollars (U.S. $____________)
on November 12, 2010; and to pay interest (computed on the basis of a 360-day
year of twelve 30-day months) on the unpaid principal balance hereof from the
date of this Note at the rate of 7.80% per annum, semi-annually on the twelfth
day of May and the twelfth day of November in each year, commencing with the
payment date next succeeding the date hereof, until the principal amount hereof
shall become due and payable; and to pay on demand interest on any overdue
principal (including any overdue prepayment of principal) and premium, if any,
and (to the extent permitted by applicable law) on any overdue payment of
interest, at a fluctuating rate per annum, to be adjusted daily, equal to the
greater of (a) the rate announced publicly by Citibank, N.A. in New York, New
York from time to time as its prime rate, and (b) 9.80% per annum (but in no
event higher than the maximum rate permitted by law). In addition to paying the
entire remaining principal amount at maturity, the Company shall prepay, and
there shall become due and payable, $U.S.15,166,666.67 principal amount of the
Notes on November 12, 2008 and on November 12, 2009. For the purposes only of
disclosure pursuant to the Interest Act (Canada), whenever interest is to be
calculated on the basis of a 360-day year, the yearly rate of interest to which
the rate determined pursuant to such calculation is equivalent is the rate so
determined multiplied by the actual number of days in the calendar year in which
the same is to be ascertained and divided by 360.
Payments of principal, premium, if any, and interest shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts, by check mailed and
addressed to the registered holder hereof at the address shown in the register
maintained by the Company for such purpose, or, at the option of the holder
hereof, in such manner and at such other place in the United States of America
as the holder hereof shall have designated to the Company in writing.
This Note is one of an issue of 7.80% Senior Notes of the Company issued
in an aggregate principal amount limited to U.S. $45,500,000 pursuant to the
Company's Note Agreement dated as of November 12, 1999 with the Purchasers
listed on Schedule A thereto, and is entitled to the benefits thereof. As
provided in such Agreement, this 7.80% Note is subject to prepayment, in whole
or in part, with a premium as specified in said Agreement. This Note is also
entitled to the benefits of the Guaranty made as of the date hereof by Barnes
Group Inc.
<PAGE> 60
This 7.80% Note is a registered Note and is transferable only by surrender
thereof at the principal office of the Company in Bristol, Connecticut, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or his attorney duly authorized in writing.
Under certain circumstances, as specified in said Agreement, the principal
of this 7.80% Note may be declared due and payable in the manner and with the
effect provided in said Agreement.
This 7.80% Note and said Agreement are governed by and construed in
accordance with Connecticut law.
3031786 NOVA SCOTIA COMPANY
By:________________________________
Name:
Title:
<PAGE> 61
EXHIBIT D
I. THE GUARANTOR'S SUBSIDIARIES, EACH OF WHICH HAS ONLY A SINGLE CLASS OF
STOCK OUTSTANDING, ARE AS FOLLOWS:
<TABLE>
<CAPTION>
Percentage of Voting
Stock Owned by
Jurisdiction of Guarantor, Company and
Name of Subsidiary Incorporation each other Subsidiary
- ------------------ ------------- ---------------------
<S> <C> <C>
</TABLE>
<PAGE> 62
II. AFFILIATES
Affiliates of Guarantor and/or Company, other than Subsidiaries, are as follows:
<TABLE>
<CAPTION>
Jurisdiction of Nature and Extent of
Name of Affiliate Incorporation Affiliation
- ----------------- ------------- --------------------
<S> <C> <C>
</TABLE>
<PAGE> 63
III. DESCRIPTION OF INDEBTEDNESS
(A) The Indebtedness for borrowed money (including Financing Leases) of
the Guarantor, the Company and the Subsidiaries of either as of June 30, 1999 is
as follows:
Description
Amount
(B) Agreements Restricting the Guarantor's or the Company's Ability to
Incur Indebtedness
IV. LIENS ON PROPERTY
Liens existing as of __________, 1999 (other than Liens of the types
permitted by clauses (i) through (v) of Section 7.6(a)) on any Property of the
Guarantor, the Company and the Subsidiaries of either which has a cost or market
value greater than $500,000 are as follows:
<PAGE> 64
GUARANTY AGREEMENT
This Guaranty Agreement (this "Guaranty Agreement") is made as of this
12th day of November, 1999 by Barnes Group Inc. (the "Guarantor") for the
benefit of the Purchasers of the Notes described below (collectively, the
"Purchasers"), their successors and assigns and any and all other
"Beneficiaries" (as such term is defined in Section 7 hereof).
RECITALS
A. The Purchasers have agreed to purchase U.S. $24,500,000 aggregate
principal amount of the 7.66% Senior Notes due November 12, 2007 (the "7.66%
Notes") and U.S. $45,500,000 aggregate principal amount of the 7.80% Senior
Notes due November 12, 2010 (the "7.80% Notes" and, together with the 7.66%
Notes, the "Notes") of 3031786 Nova Scotia Company (the "Debtor") pursuant to
the terms of the Note Agreement (the "Note Agreement") dated as of November 12,
1999 among the Debtor, the Guarantor and the Purchasers.
B. The Debtor is the wholly-owned Subsidiary of the Guarantor.
C. It is a condition to the purchase by the Purchasers of the Notes under
the Note Agreement that the Guarantor execute and deliver this Guaranty
Agreement.
NOW, THEREFORE, the Guarantor hereby agrees, as follows:
1. Guaranty of Payment and Performance of Obligations.
(a) The Guarantor unconditionally guarantees to each of the
Beneficiaries the full and punctual payment and performance of the Obligations
(as defined in subsection (b) below). This Guaranty Agreement is an absolute,
unconditional and continuing guaranty of the full and punctual payment and
performance by the Debtor of each of the Obligations, and not of collectibility
only, and is in no way conditioned upon any requirement that any Beneficiary
first attempt to collect payment from the Debtor or any other guarantor or
surety or resorts to any security or other means of obtaining payment of all or
any of the Obligations or upon any other contingency. Upon any default by the
Debtor in the full and punctual payment or performance of any of the
Obligations, the liabilities and obligations of the Guarantor hereunder shall at
the option of any Beneficiary become forthwith due and payable without demand or
notice of any nature, all such demands and notices being expressly waived by the
Guarantor.
(b) As used herein, the term "Obligations" means all indebtedness,
obligations and liabilities of any kind of the Debtor to any or all of the
Beneficiaries under or in connection with the Notes or the Note Agreement,
howsoever incurred, arising or evidenced, whether now or hereafter existing, due
or to become due or of payment or performance, and including without limitation
the Debtor's obligation to pay (i) all principal of, interest on and premium, if
any, with respect to the Notes when and as the same shall become due and payable
(whether at maturity or by declaration or otherwise), and (ii) all costs and
expenses (including court costs, reasonable
<PAGE> 65
attorneys' fees and other legal expenses) incurred by any Beneficiary in
exercising and enforcing any of its rights, powers and remedies under the Note
Agreement or the Notes including without limitation its rights and remedies
following the Debtor's default thereunder.
2. Guaranty Continuing and Liability Unlimited.
(a) This is a continuing guaranty and shall be binding upon the
Guarantor regardless of (a) how long before or after the date hereof any part of
the Obligations was or is incurred by the Debtor and (b) the amount of the
Obligations at any time outstanding (whether more or less than the original
principal amount of the Notes). This Guaranty Agreement may be enforced by any
or all of the Beneficiaries from time to time and as often as occasion for such
enforcement may arise.
(b) If after receipt of any payment of, or the proceeds of any
collateral for, all or any part of the Obligations, the Beneficiaries are
compelled to surrender or voluntarily surrender such payment or proceeds to any
person because such payment or application of proceeds is or may be avoided,
invalidated, recaptured, or set aside as a preference, fraudulent conveyance,
impermissible setoff or for any other reason, whether or not such surrender is
the result of (i) any judgment, decree or order of any court or administrative
body having jurisdiction over the Beneficiaries, or (ii) any settlement or
compromise by the Beneficiaries of any claim as to any of the foregoing with any
person (including the Debtor), then the Obligations or part thereof affected
shall be reinstated and continue and this Guaranty Agreement shall be reinstated
and continue in full force as to such Obligations or part thereof as if such
payment or proceeds had not been received, notwithstanding any previous
cancellation of any instrument evidencing any such Obligation or any previous
instrument delivered to evidence the satisfaction thereof. The provisions of
this Section 3(b) shall survive the termination of this Guaranty Agreement and
any satisfaction and discharge of the Debtor by virtue of any payment, court
order or any federal or state law.
3. Unconditional Nature of Guarantor's Obligations and Liabilities.
The obligations and liabilities of the Guarantor hereunder shall be
absolute and unconditional, shall not be subject to any counterclaim, set-off,
deduction or defense based upon any claim the Guarantor may have against the
Debtor, any other Guarantor, or any other person or entity, and shall remain in
full force and effect until all of the Obligations have been fully satisfied,
without regard to any event, circumstance or condition (whether or not the
Guarantor shall have knowledge or notice thereof) which but for the provisions
of this Section might constitute a legal or equitable defense or discharge of a
guarantor or surety or which might in any way limit recourse against the
Guarantor, including without limitation: (a) any amendment or modification or
supplement to the terms of the Note Agreement or the Notes; (b) any waiver,
consent or indulgence by any Beneficiary, or any exercise or non-exercise by any
Beneficiary of any right, power or remedy, under or in respect of this Guaranty
Agreement, the Note Agreement or the Notes (whether or not the Guarantor or the
Debtor has or have notice or knowledge of any such action or inaction); (c) the
invalidity or unenforceability, in whole or in part, of the Note Agreement or
the Notes, or the termination (except pursuant to its terms or by written
agreement between the Beneficiaries and the Debtor), cancellation or frustration
of any thereof, or any limitation or cessation of the Debtor's liability under
any thereof (other than any limitation or
- 2 -
<PAGE> 66
cessation expressly provided for therein), including without limitation any
invalidity, unenforceability or impaired liability resulting from the Debtor's
lack of capacity, power and/or authority to enter into the Note Agreement or the
Notes and/or to incur any or all of the Obligations; (d) any actual, purported
or attempted sale, assignment or other transfer by any or all of the
Beneficiaries or by the Debtor of the Notes or of any of its rights, interests
or obligations under the Notes or the Note Agreement; (e) the taking or holding
by any or all of the Beneficiaries of a security interest, lien or other
encumbrance in or on any property as security for any or all of the Obligations
or any exchange, release, non-perfection, loss or alteration of, or any other
dealing with, any such security; (f) the addition of any party as a guarantor or
surety of all or any part of the Obligations or any limitation of the liability
of any additional guarantor or surety of all or any part of the Obligations
under any other agreement; (g) any merger or consolidation of the Debtor into or
with any other entity, or any sale, lease, transfer or other disposition of any
or all of Debtor's assets or any sale, transfer or other disposition of any or
all of the shares of capital stock or other securities of the Debtor to any
other person or entity; (h) any change in the financial condition of the Debtor
or the Debtor's entry into an assignment for the benefit of creditors, an
arrangement or any other agreement or procedure for the restructuring of its
liabilities, or the Debtor's insolvency, bankruptcy, reorganization,
dissolution, liquidation or any similar action by or occurrence with respect to
the Debtor.
4. Guarantor's Waiver.
The Guarantor unconditionally waives, to the fullest extent permitted by
law: (a) notice of any of the matters referred to in Section 3 hereof; (b) any
right to the enforcement, assertion or exercise by any or all of the
Beneficiaries of any of its rights, powers or remedies under, against or with
respect to (i) the Note Agreement or the Notes, (ii) any other guarantor or
surety, or (iii) any security for all or any part of the Obligations; (c) any
requirement of diligence and any defense based on a claim of laches; (d) all
defenses which may now or hereafter exist by virtue of any statute of
limitations, or of any stay, valuation, exemption, moratorium or similar law,
except the sole defense of full and indefeasible payment; (e) any requirement
that the Guarantor be joined as a party in any action or proceeding against the
Debtor to enforce any of the provisions of the Note Agreement or the Notes; (f)
any requirement that any Beneficiary mitigate or attempt to mitigate damages
resulting from a default by the guarantor hereunder or from a default by the
Debtor under the Note Agreement or the Notes; (g) acceptance of this Guaranty
Agreement by any Beneficiary; and (h) all presentments, protests, notices of
dishonor, demands for performance and any and all other demands upon and notices
to the Debtor, and any and all other formalities of any kind, the omission of or
delay in performance of which might but for the provisions of this Section
constitute legal or equitable grounds for relieving or discharging the Guarantor
in whole or in part from its irrevocable, absolute and continuing obligations
hereunder, it being the intention of the Guarantor that its obligations
hereunder shall not be discharged except by payment and performance and then
only to the extent thereof.
- 3 -
<PAGE> 67
5. Representations and Warranties.
The Guarantor represents and warrants that:
(a) the Guarantor is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and has the
full power, authority and legal right to enter into and perform its obligations
under this Guaranty Agreement;
(b) this Guaranty Agreement has been duly authorized, executed and
delivered by the Guarantor and constitutes the legal, valid and binding
obligation of the Guarantor, enforceable against the Guarantor in accordance
with its terms.
(c) the execution, delivery and performance by the Guarantor of this
Guaranty Agreement do not require any stockholder approval or the consent or
approval of any of the Guarantor's creditors (except such as have already been
obtained in writing), do not and will not contravene any applicable law, rule,
regulation, judgment or order and do not and will not contravene the provisions
of, constitute a breach of or default under, or result in the creation of any
security interest, lien or encumbrance on any of the property of the Guarantor
pursuant to, the Guarantor's articles of incorporation or by-laws or any
indenture, mortgage, license or other contract, agreement or instrument to which
the Guarantor is a party or by which it is bound or to or by which any of its
properties is subject or affected;
(d) the execution, delivery and performance by the Guarantor of this
Guaranty Agreement do not require the consent, approval, authorization or order
of, the giving of notice to or the registration with, or the taking of any other
action with respect to, any governmental authority or agency, foreign or
domestic, other than such as have been duly obtained, given or taken; and
(e) the transactions contemplated by this Guaranty Agreement are
being consummated by the Guarantor in furtherance of the Guarantor's ordinary
business purposes, with no contemplation of insolvency and with no intent to
hinder, delay or defraud any of its present or future creditors. Neither before
or as a result of the transactions contemplated by this Guaranty Agreement will
the Guarantor be insolvent or have an unreasonably small capital for the conduct
of its business and the payment of its anticipated obligations. The Guarantor's
assets and cash flow enable it to meet its present obligations in the ordinary
course of business as they become due, and the Guarantor does not believe that
it will incur debts beyond its ability to pay.
6. Certain Covenants and Agreements.
In addition to its covenants and agreements set forth elsewhere in this
Guaranty Agreement, the Guarantor hereby covenants and agrees as follows:
(a) the Guarantor will pay all reasonable costs, expenses and
damages incurred (including without limitation court costs, reasonable
attorneys' fees and other legal expenses) in connection with any action by any
Beneficiary to collect payment from the Guarantor or otherwise to enforce the
performance of its obligations under this Guaranty Agreement; and
- 4 -
<PAGE> 68
(b) any and all indebtedness and other obligations of the Debtor to
the Guarantor (other than indebtedness to be satisfied on the Closing Date (as
defined in the Note Agreement) from the proceeds of the Notes) shall during the
term of this Guaranty Agreement be subordinated to the Obligations and other
indebtedness of the Debtor to any or all of the Beneficiaries.
7. Successors and Assigns.
This Guaranty Agreement shall be binding upon the Guarantor and its
respective successors and assigns (including without limitation any and all
successors and transferees which may assume the Guarantor's obligations), and
shall inure to the benefit of and be enforceable by each Purchaser, its
successors and assigns, and each successive holder of any of the notes
(hereinafter collectively called the "Beneficiaries").
8. Subordination of Obligations to Guarantor.
Any and all indebtedness and other obligations of the Debtor to the
Guarantor (including without limitation any such obligations resulting from any
rights of subrogation on the part of the Guarantor as a result of any payment by
the Guarantor hereunder but other than the indebtedness to be satisfied on the
Closing Date from the proceeds of the Notes) shall during the term of this
Guaranty Agreement be subordinated to the Obligations and to any other
indebtedness of the Debtor to any or all of the Beneficiaries.
9. Governing Law and Consent to Jurisdiction.
This Guaranty Agreement shall be governed by the laws of the State of
Connecticut. The Guarantor agrees that any judicial proceeding with respect to
this Guaranty Agreement may at the option of the Beneficiaries be brought in the
courts of the State of Connecticut or (to the extent permitted under applicable
Federal statutes and rules) in the U.S. District Court for the District of
Connecticut. By its execution and delivery of this Guaranty Agreement, the
Guarantor consents and submits to each such jurisdiction and waives (to the
extent permitted by law) whatever rights it may now or hereafter possess by
reason of its current or any future domicile. Nothing in this Section 10 shall
be construed to limit the right of any Beneficiary to commence judicial action
or otherwise to proceed against the Guarantor in any other jurisdiction or to
serve process on the Guarantor in any manner permitted or required by law.
10. Severability.
Wherever possible, each provision of this Guaranty Agreement shall be
construed in such manner as to be valid and enforceable against the Guarantor
under applicable law, but if any provision hereof shall be deemed invalid or
unenforceable to any extent against the Guarantor in any jurisdiction, such
provision shall be ineffective only to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remainder
of such provision or any of the other provisions hereof, and any such invalidity
or unenforceability against the Guarantor in one jurisdiction shall not render
such provision ineffective in any other jurisdiction.
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<PAGE> 69
11. Notices.
All notices, requests, demands and other communications provided for
herein shall be in writing, and shall be given by telex, telecopy, United States
mail or by personal delivery. All such communications shall be effective upon
the receipt thereof. Notices shall be addressed to the Guarantor at its address
set forth below its signature on this Guaranty Agreement and to each Purchaser
at its address set forth in the Note Agreement, or to such other address as the
Guarantor or any Purchaser or other Beneficiary shall theretofore have
transmitted to the other parties in writing by any of the means specified in
this Section.
12. Headings; Counterparts.
Section headings appearing in this Guaranty Agreement are for convenience
of reference only and shall not define, limit, amplify or otherwise modify any
provision hereof. This Guaranty Agreement may be executed in two or more
counterparts, each of which when executed shall be deemed to be an original but
all of which together shall constitute one and the same agreement.
13. Amendments.
No provision of this Guaranty Agreement may be amended, modified, waived,
discharged or terminated except by a writing signed by each of the Beneficiaries
and the Guarantor expressly referring to the provisions of this Guaranty
Agreement to which such writing relates. No course of dealing with respect to
any of the rights, powers and remedies of any or all of the Beneficiaries
hereunder, and no delay or omission on the part of any or all of the
Beneficiaries in exercising any such right, power or remedy, shall operate as a
waiver thereof or otherwise be prejudicial thereto.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty Agreement to be
executed on its behalf by an officer or other person thereunto duly authorized
on this 12th day of November, 1999.
BARNES GROUP INC.
By: /s/ John J. Locher
-------------------------------
Name: John J. Locher
Title: Vice President
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<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUR BUSINESS Barnes Group is a worldwide manufacturer of precision
metal parts and a provider of industrial main-
tenance logistics solutions. The Company is comprised
of three business segments. The Associated Spring
segment is a manufacturer of assemblies, high
precision mechanical springs, nitrogen gas springs,
manifold systems, wireforms and stampings for the
transportation, industrial, electronics and
communications markets. The Barnes Aerospace segment
supplies precision components and fabricated
assemblies for commercial and military aircraft as
well as overhaul and repair services in support of
the global airline industry. The Bowman Distribution
segment provides consumable repair and replacement
products for industrial, heavy equipment and trans-
portation maintenance markets. Its Raymond
Distribution operation also 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.
ACQUISITION OF On August 30, 1999, Barnes Group purchased
NITROGEN GAS substantially all of the assets and liabilities of
SPRINGS BUSINESS the nitrogen gas springs business of the Teledyne
Fluid Systems Division of Teledyne Industries, Inc.,
for a total cost of $92.2 million. This operation is
a major supplier of nitrogen gas springs and manifold
systems for the metal forming markets. The
acquisition of the nitrogen gas springs business was
recorded using the purchase method of accounting and
is included in the Associated Spring business
segment. This strategic acquisition provides
Associated Spring with new spring technologies and
allows it to continue to develop and expand products,
markets and services. The operation's results have
been included in Barnes Group's consolidated
financial statements from the date of acquisition.
The funds used to purchase the business were borrowed
initially under the Company's revolving credit
agreement. In November 1999, Barnes Group refinanced
a portion of these borrowings through the issuance of
$70 million of long-term private placement senior
notes. This debt ranges in maturity from eight to
eleven years at an average annual interest rate of
7.75%.
RESULTS OF For 1999, Barnes Group reported net sales of $622
OPERATIONS million, down 4% from the record sales of $651
million in 1998. The reduction in sales was
attributable to shortfalls at Bowman Distribution and
Barnes Aerospace, partially offset by increased sales
at Associated Spring. In addition, the newly acquired
nitrogen gas springs business provided incremental
sales of $16 million in 1999. In 1998, sales were up
$8.5 million from 1997 levels, primarily a result of
improvements at Barnes Aerospace.
Operating income in 1999 was $45.3 million, versus
$55.2 million in 1998. The decline in 1999 operating
income was driven by the sales volume shortfalls at
Bowman Distribution and Barnes Aerospace.
Additionally, non-Y2K system implementation issues
resulted in higher expense levels at Bowman
Distribution's North American operation, which
negatively impacted profit. The reduced profit at
Bowman Distribution and Barnes Aerospace was
partially offset by results at Associated Spring,
where profit improved 44% over 1998, and a $12.9
million expense, included in 1998, for the
accelerated retirement package for the Company's
retired president. Associated Spring's performance
was driven by higher sales volume, productivity
improvements and the additional profits generated
from the newly acquired nitrogen gas springs
business. Operating income in 1998 declined $10.5
million from 1997 as a result of the $12.9 million
expense related to the accelerated retirement package
for the Company's retired president. Part of the
$12.9 million of expense is $2.7 million for
accelerated retirement benefits which are included in
the 1998 pension expense.
Operating margin in 1999 declined to 7.3% from 8.5%
in 1998 and 10.2% in 1997. In 1999, cost of sales as
a percentage of sales increased to 68.3% from 66.9%
in 1998, as Bowman Distribution's North American
operation incurred higher distribution costs as a
result of inefficiencies generated during the
implementation of the new distribution management
system. Selling and administrative expenses as a
percentage of sales declined slightly in 1999 due to
the $12.9 million of expense for the accelerated
retirement package for the Company's retired
president in 1998. Excluding the cost of the
accelerated retirement package, selling and
administrative expenses as a percentage of sales
increased in 1999, reflecting the impact of higher
administrative costs associated with the Bowman
system implementation coupled with a higher
investment in sales resources, throughout the
Company, for the purpose of increasing future sales
growth. The decline in operating margin in 1998,
compared to 1997, is attributable to the $12.9
million retirement package expense incurred in 1998.
SEGMENT REVIEW - Associated Spring sales for 1999 were $283 million,
SALES AND up $20.5 million from 1998. Sales in 1997 were $259
OPERATING PROFIT million. In 1999, sales at Associated Spring's North
American operations increased, reflecting the
continued strength of the domestic economy and
continued penetration in both automotive and
non-automotive markets. Excluding the acquisition,
Associated Spring's international operations sales
kept pace with 1998 levels, despite a 9% sales
decline in its Brazil operation, a direct fallout of
the devaluation of the Brazilian currency in early
1999. Additionally, the acquisition of the
nitrogen gas springs business contributed to sales
increases both domestically and internationally.
Associated Spring's 1998 sales increased slightly
over 1997 on the strength of its North American
operations, partially offset by sales declines in its
international operations.
5
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Associated Spring reported profit of $33.5 million in
1999, compared to $23.2 million in 1998 and $24.5
million in 1997. The significant improvement in 1999
over 1998 results from the addition of the nitrogen
gas springs business, stabilization of the economic
situation in the Asia/Pacific region, manufacturing
efficiencies and lower operating expenses at
Associated Spring's headquarters. Profits declined in
1998, reflecting the adverse impact of the General
Motors strike, the turmoil within the Asia/Pacific
region and the cost of product line rationalization.
Partially offsetting the 1998 decline was the solid
year-over-year performance at Associated Spring's
North American operations and the strong turnaround
at its Mexican operation.
Barnes Aerospace sales were $121 million in 1999,
compared to $155 million in 1998 and $137 million
in 1997. Both the original equipment manufacturing
(OEM) business and the overhaul and repair business
were impacted by a slowdown in the aerospace markets,
which resulted in an industry-wide decline in new
orders and the cancellation or rescheduling of
existing orders. Though sales were down, Barnes
Aerospace continued to effectively penetrate new
markets and customers. In 1998, sales were up 13%
over 1997, driven by its OEM machining operation and
overhaul and repair units. This growth was partially
offset by lower sales at its OEM fabrication
operation in Ogden, Utah, which was impacted by
reduced customer backlog and changes in customer
requested delivery schedules.
Barnes Aerospace profit was $5.3 million, as compared
to $12.8 million in 1998 and $9.9 million in 1997.
The shortfalls in profit and margin were a direct
result of the sales volume decline. Effective cost
and expense control by Barnes Aerospace minimized the
adverse impact on profits from the sharp falloff in
sales volume. The increase in profits for 1998,
compared to 1997, reflected higher sales volume
coupled with ongoing productivity improvements and
cost containment.
Bowman Distribution sales for 1999 were $230 million,
compared to $247 million in 1998 and $259 million in
1997. Bowman's North American operation 1999 sales
decline was due to complications encountered in a
planned implementation of the fully integrated
distribution management system initiated in the first
half of 1999. This system installation encountered a
number of unanticipated software and implementation
issues that negatively impacted warehouse efficiency,
administrative costs and sales in 1999. Bowman
expects customer service levels to improve through
the first half of 2000 as system issues are
identified and process changes are implemented.
Bowman will continue to incur increased costs for
warehousing and administration until such
improvements are fully implemented. Bowman expects
to fully restore service levels to its customers'
satisfaction in 2000. In Europe, Bowman
Distribution's sales were down primarily from the
loss of a large customer and management's refocus
from smaller, less profitable accounts to larger
industrial accounts. Bowman's Raymond business
reported an increase in sales in 1999 as it continued
to penetrate new international markets. In 1998,
Bowman's sales were down 5% from 1997, primarily the
result of its North American business losing a major
customer and the continued refocus of its sales
efforts to meet the changing requirements of larger
customers.
Bowman Distribution's profit in 1999 was $9.9
million, compared to $35.0 million in 1998 and $32.6
million in 1997. The sharp decline in profits in 1999
was attributable to the sales volume decline, as well
as significantly higher warehousing and
administrative costs incurred in its North American
business to address operational issues caused by the
new system implementation. The 7.4% improvement in
profits in 1998 as compared to 1997 resulted from
lower operating expenses in both Bowman's North
American operation and Raymond Distribution.
NON-OPERATING Other income totaled $5.9 million in 1999, compared
INCOME/EXPENSE to $5.6 million in 1998 and $6.0 million in 1997. The
increase over 1998 reflects a higher gain on the sale
of underutilized assets and net foreign exchange
transaction gains. Partially offsetting the increase
in other income was lower equity income from the
Company's NASCO joint venture. The decrease in other
income in 1998, as compared to 1997, resulted from
lower foreign exchange gains offset by an increase in
equity income from the Company's NASCO joint venture.
Interest expense and other expenses increased in 1999
as a result of the acquisition of the nitrogen gas
springs business. Specifically, interest expense
increased as a result of additional borrowings used
to fund the acquisition. Other expenses increased
with the additional goodwill amortization associated
with the acquisition. Interest expense in 1998
declined compared to 1997, reflecting lower debt
levels and lower interest rates.
INCOME TAXES The Company's effective income tax rate has declined
steadily over the last six years. The Company's
effective tax rate was 33.0% in 1999, compared with
36.9% in 1998 and 37.3% in 1997. The lower rate in
1999 was due to lower state taxes, higher percentage
of foreign income with tax rates lower than the U.S.
statutory tax rate, and foreign tax benefits
associated with the acquisition of the nitrogen gas
springs business.
NET INCOME AND Consolidated net income was $28.6 million in 1999,
NET INCOME $34.5 million in 1998 and $40.4 million in 1997.
PER SHARE Basic earnings per share were $1.47 in 1999, compared
to $1.72 in 1998 and $2.00 in 1997. Diluted earnings
per share were $1.46 in 1999, compared to $1.69 in
1998 and $1.96 in 1997. The 1998 earnings included an
after-tax charge of $7.7 million, or $0.38 per share,
related to the accelerated retirement package of the
Company's retired president.
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 reflect the stock split.
6
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
INFLATION Management believes that during 1997-1999, 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 1999, the
Company continued to effectively manage working
capital, and its efforts in accounts receivable,
inventories and accounts payable generated nearly $18
million in positive cash flow. Management will
continue to aggressively manage cash flows and
anticipates that operating activities in 2000,
combined with aggressive asset management, will
provide sufficient cash to take advantage of
opportunities for internal business expansion and to
meet the Company's current financial commitments.
External business expansion will be funded with a
combination of new debt and internal cash.
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 $62.8 million in
1999, down from the record of $76.0 million in 1998
and $71.6 million in 1997. The decrease in operating
cash flows is primarily related to the decline in the
Company's operating results, as well as the cash
payment of $7.8 million in 1999 associated with the
accelerated retirement package for the Company's
retired president. During the past three years,
operating activities provided over $210 million in
cash, which the Company used, in part, to pay
dividends to stockholders, repurchase Company stock
and fund significant investments in new equipment.
Continued emphasis on asset management eliminated the
need for additional investments in working capital
during the past three years.
Investing activities used cash of $117.0 million in
1999, compared with $35.3 million in 1998 and $34.2
million in 1997. The increase in cash used in 1999 is
attributable to the purchase of the nitrogen gas
springs business. In 1999, the Company reduced its
capital spending following five years of heavy
investments by all three business segments. The
Company's capital spending program continues to focus
on business growth and improvements in productivity
and quality. The Company expects capital spending in
2000 to continue at a strong pace.
In 1999, the Company's financing activities generated
cash of $58.8 million, compared to cash usage of
$31.9 million in 1998 and $26.6 million in 1997. Cash
was generated primarily through the issuance of $89.0
million of long-term debt to fund the purchase of the
nitrogen gas springs business. The increase in cash
from borrowings was also partially used to repurchase
$22.4 million of Company stock. Cash dividends
increased in 1999 for the fifth consecutive year, to
$0.75 per share. As a result, total cash used to pay
1999 dividends to stockholders increased to $14.6
million.
The Company has utilized and will continue to use
cash from non-U.S. subsidiaries to fund international
cash requirements, including acquisitions, when it is
cost effective. The repatriation of certain cash
balances to the U.S. could have adverse tax
consequences; however, those balances are generally
available to fund business needs outside the U.S.
In November 1999, the Company financed a portion of
the nitrogen gas springs business acquisition through
issuance of $70 million of private placement senior
notes (the Notes). The Notes, placed with seven
insurance companies, range in maturity from eight to
eleven years and bear an average annual interest rate
of 7.75%. The balance of the acquisition purchase
price is financed through borrowings under the
Company's long-term revolving credit agreement. The
issuance of the Notes and usage of the Company's
long-term revolving credit agreement will result in
both higher interest expense and higher
debt-to-capitalization ratios in the future.
To supplement internal cash generation, the Company
maintains substantial bank borrowing facilities. At
December 31, 1999, the Company had $150 million of
borrowing capacity available under a revolving credit
agreement, of which $32.5 million was borrowed at an
interest rate of 6.5%. Additionally, the Company had
$4.5 million in borrowings under uncommitted
short-term bank credit lines at an interest rate of
6.8%. The Company believes its bank credit
facilities, including the new Notes, coupled with
cash generated from operations, are adequate for its
anticipated future requirements.
MARKET RISK Market risk is the potential economic loss that may
result from adverse changes in the fair value of
financial instruments. The Company's financial
results could be impacted by changes in interest
rates, foreign currency exchange rates and commodity
price changes. The Company uses financial instruments
to reduce its cost of debt, and to hedge its exposure
to fluctuations in interest rates and foreign
exchange rates.
The Company's long-term debt portfolio consists of
fixed-rate and variable-rate instruments and is
managed to reduce the overall cost of borrowing while
also reducing the effect of changes in interest rates
on near-term earnings. The Company's primary interest
rate risk is derived from its outstanding
variable-rate debt obligations. At December 31, 1999,
the result of a hypothetical 1% increase in the
average cost of the Company's variable-rate debt,
including the interest rate exchange agreement, would
not have had a material impact on the pretax profit
of the Company or the fair value of the interest rate
exchange agreement.
7
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
In September 1999, the Company entered into a
three-year, $70 million cross-currency exchange
agreement. In effect, the agreement converts the
Company's U.S. dollar-denominated interest and
principal liabilities into Swedish krona-denominated
liabilities at a fixed interest rate for a three-year
period ending October 2002. Additionally, as part of
managing its debt portfolio, the Company maintains an
interest rate exchange agreement to convert a portion
of its 9.47% fixed-rate Senior Notes to variable-rate
debt. These agreements are viewed by the Company as
risk management tools and are not used for
speculative or trading purposes. The overall
objectives are to reduce the exposure associated with
currency fluctuations between the U.S. dollar and the
Swedish krona and to reduce the exposure to
variable-rate debt. The effect on 1999 earnings of
the U.S. dollar and Swedish krona cross-currency
exchange agreement and interest rate exchange
agreement was to decrease the Company's expense by
$0.2 million.
At December 31, 1999, the fair value of the Company's
fixed-rate debt was $106.8 million, compared to its
carrying amount of $107.3 million. The Company
estimates that a 1% decrease in market interest rates
at December 31, 1999 would have increased the fair
value of the Company's fixed-rate debt to $112.5
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 at
the operating units as an integral part of their
businesses. Residual exposures that cannot be offset
may be hedged. The Company does not hedge its foreign
currency net asset exposure.
The currencies that the Company was primarily exposed
to on December 31, 1999, were the Singapore dollar,
Mexican peso, Brazilian real, Canadian dollar and
Swedish krona. 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 1999
would have resulted in reducing pretax profit by $2.4
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.
FUTURE ACCOUNTING In June 1998, the Financial Accounting Standards
CHANGES 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. In June 1999, the
statement's effective date was delayed by one year,
and it will be effective January 1, 2001, for the
Company. Management believes that adoption of this
standard will not have a material impact on the
Company's financial position, results of operations
or cash flows.
YEAR 2000 READINESS The Company's program to address the Y2K issue
consisted of the following phases: assessment,
remediation, testing and contingency planning. Barnes
Group met its commitment to be fully Y2K ready with
all of its critical business systems as of the end of
1999.
The costs specific to addressing the Y2K readiness
project were those directly related to upgrading
existing systems to be Y2K ready and costs related to
outside consultants assisting the Y2K project. These
costs were expensed as incurred and approximated $0.6
million in 1998 and $1.9 million in 1999. However, a
significant portion of the Company's overall
information technology (IT) expense approximating
$11.5 million in 1998 and $13.8 million in 1999 was
either directly or indirectly included to address Y2K
readiness either through software remediation or
implementation. In addition, capitalized IT-related
hardware and software expenditures approximated $12
million in both 1998 and 1999. Subsequent to 1999,
additional costs specific to ensuring the Company is
Y2K ready are not expected to be significant.
The Company completed its assessment of its Y2K risks
related to significant relationships with its
critical third-party suppliers and customers. Despite
these efforts, the Company can provide no assurance
that all supplier and customer Y2K compliance plans
were successfully completed in a timely manner,
although it is not currently aware of any problems
which would significantly impact its future
operations.
The foregoing Y2K readiness statements are designated
as a "Readiness Disclosure" within the meaning of the
Year 2000 Information and Readiness Disclosure Act of
1998.
FORWARD-LOOKING The Company cautions readers that certain factors may
STATEMENTS 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, all of which may affect the
Company's operations, products and markets.
8
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $622,356 $651,183 $642,660
Cost of sales 424,945 435,918 426,550
Selling and administrative expenses 152,161 160,044 150,344
- ------------------------------------------------------------------------------------------------------------------------------------
577,106 595,962 576,894
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 45,250 55,221 65,766
Other income 5,919 5,617 5,969
Interest expense 6,093 4,106 4,864
Other expenses 2,378 2,069 2,369
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 42,698 54,663 64,502
Income taxes 14,086 20,169 24,079
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 28,612 $ 34,494 $ 40,423
====================================================================================================================================
Per common share:
Net income:
Basic $ 1.47 $ 1.72 $ 2.00
Diluted 1.46 1.69 1.96
Dividends 0.75 0.69 0.65
Average common shares outstanding 19,417,856 20,095,710 20,236,884
</TABLE>
See accompanying notes.
9
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43,632 $40,206
Short-term investments -- 2,566
Accounts receivable, less allowances
(1999 - $3,329; 1998 - $2,413) 91,701 82,809
Inventories 66,351 64,404
Deferred income taxes 9,398 11,660
Prepaid expenses 8,103 5,583
--------- --------
Total current assets 219,185 207,228
Deferred income taxes 23,797 25,136
Property, plant and equipment 145,105 139,247
Goodwill 88,562 18,224
Other assets 39,633 29,069
--------- --------
Total assets $516,282 $418,904
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 12,136 $ 6,766
Accounts payable 57,458 38,439
Accrued liabilities 46,426 52,934
Guaranteed ESOP obligation -- 2,205
--------- --------
Total current liabilities 116,020 100,344
Long-term debt 140,000 51,000
Accrued retirement benefits 66,973 68,129
Other liabilities 12,675 10,757
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Authorized: 60,000,000 shares
Issued: 22,037,769 shares at par value 220 220
Additional paid-in capital 49,786 49,231
Treasury stock at cost (1999 - 3,187,242 shares;
1998 - 2,202,417 shares) (63,893) (42,893)
Retained earnings 218,388 204,364
Accumulated other comprehensive income (23,887) (20,043)
Guaranteed ESOP obligation -- (2,205)
--------- --------
Total stockholders' equity 180,614 188,674
--------- --------
Total liabilities and stockholders' equity $516,282 $418,904
========= ========
</TABLE>
See accompanying notes.
10
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 28,612 $ 34,494 $ 40,423
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 30,602 28,431 28,123
(Gain) loss on sale of property,
plant and equipment (857) (741) 735
Changes in assets and liabilities:
Accounts receivable (1,731) 7,726 (4,786)
Inventories 1,980 (3,766) 3,150
Accounts payable 17,356 980 8,036
Accrued liabilities (9,524) 6,488 781
Deferred income taxes 3,655 (2,536) (1,215)
Other (7,296) 4,960 (3,607)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 62,797 76,036 71,640
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 1,929 4,266 1,442
Capital expenditures (27,222) (34,571) (33,398)
Acquisition of nitrogen gas springs business (92,239) -- --
Redemption of short-term investments 2,566 -- --
Purchase of short-term investments -- (2,605) --
Other (2,019) (2,340) (2,266)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (116,985) (35,250) (34,222)
FINANCING ACTIVITIES:
Net increase in notes payable 5,249 4,539 813
Payments on long-term debt -- (9,000) (10,000)
Proceeds from the issuance of long-term debt 89,000 -- --
Proceeds from the issuance of common stock 1,486 3,598 6,476
Common stock repurchases (22,351) (17,042) (10,673)
Dividends paid (14,564) (13,951) (13,187)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 58,820 (31,856) (26,571)
Effect of exchange rate changes on cash flows (1,206) (1,254) (2,303)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 3,426 7,676 8,544
Cash and cash equivalents at beginning of year 40,206 32,530 23,986
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 43,632 $ 40,206 $ 32,530
===================================================================================================================================
</TABLE>
See accompanying notes.
11
<PAGE> 8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Treasury Retained Comprehensive
(Dollars in thousands) Stock Capital Stock Earnings Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 1, 1997 $ 15,737 $28,347 $(26,040) $156,698 $(10,087)
Comprehensive income:
Net income 40,423
Other comprehensive income -- (5,754)
-------- --------
Comprehensive income 40,423 (5,754)
Reduction in par value (15,517) 15,517
Dividends paid (13,187)
Common stock repurchases (10,673)
Employee stock plans 3,143 7,280 (181)
Guaranteed ESOP obligation
Income tax benefits on
unallocated ESOP dividends 104
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 220 47,007 (29,433) 183,857 (15,841)
Comprehensive income:
Net income 34,494
Other comprehensive income -- (4,202)
------- -------
Comprehensive income 34,494 (4,202)
Dividends paid (13,951)
Common stock repurchases (17,042)
Employee stock plans 2,224 3,582 (100)
Guaranteed ESOP obligation
Income tax benefits on
unallocated ESOP dividends 64
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 220 49,231 (42,893) 204,364 (20,043)
Comprehensive income:
Net income 28,612
Other comprehensive income -- (3,844)
-------- -------
Comprehensive income 28,612 (3,844)
Dividends paid (14,564)
Common stock repurchases (22,351)
Employee stock plans 555 1,351 (44)
Guaranteed ESOP obligation
Income tax benefits on
unallocated ESOP dividends 20
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 $ 220 $49,786 $(63,893) $218,388 $(23,887)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Guaranteed
ESOP Stockholders'
(Dollars in thousands) Obligation Equity
- -----------------------------------------------------------------------------
<S> <C> <C>
January 1, 1997 $(7,491) $157,164
Comprehensive income:
Net income 40,423
Other comprehensive income (5,754)
--------
Comprehensive income 34,669
Reduction in par value --
Dividends paid (13,187)
Common stock repurchases (10,673)
Employee stock plans 10,242
Guaranteed ESOP obligation 2,540 2,540
Income tax benefits on
unallocated ESOP dividends 104
- -----------------------------------------------------------------------------
December 31, 1997 (4,951) 180,859
Comprehensive income:
Net income 34,494
Other comprehensive income (4,202)
--------
Comprehensive income 30,292
Dividends paid (13,951)
Common stock repurchases (17,042)
Employee stock plans 5,706
Guaranteed ESOP obligation 2,746 2,746
Income tax benefits on
unallocated ESOP dividends 64
- -----------------------------------------------------------------------------
December 31, 1998 (2,205) 188,674
Comprehensive income:
Net income 28,612
Other comprehensive income (3,844)
---------
Comprehensive income 24,768
Dividends paid (14,564)
Common stock repurchases (22,351)
Employee stock plans 1,862
Guaranteed ESOP obligation 2,205 2,205
Income tax benefits on
unallocated ESOP dividends 20
- -----------------------------------------------------------------------------
December 31, 1999 $ -- $180,614
=============================================================================
</TABLE>
See accompanying notes.
12
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts included in the notes are stated in thousands except per
share data and the tables in Note 13.)
1 SUMMARY OF GENERAL: The preparation of financial statements
SIGNIFICANT requires management to make estimates and assumptions
ACCOUNTING POLICIES that affect the reported amounts of assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Certain reclassifications have been made to prior
year amounts to conform to the current year pre-
sentation.
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 $1,714, $2,573 and
$1,763 for the years 1999, 1998 and 1997,
respectively, from the Company's investment in NASCO.
The Company received dividends from NASCO totaling
$1,006, $732 and $596 in 1999, 1998 and 1997,
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 the majority of
U.S. inventories, which represent 71% of total
inventories. The cost of all other inventories was
determined using the first-in, first-out (FIFO)
method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and
equipment is stated at cost. Depreciation is recorded
over estimated useful lives, ranging from twenty to
fifty years for buildings and three to seventeen
years for machinery and equipment. The straight-line
method of depreciation was adopted for all property,
plant and equipment placed into service after March
31, 1999. For property, plant and equipment placed
into service prior to April 1, 1999, depreciation is
provided using accelerated methods. The change in
accounting principle was made to reflect improvements
in the design and durability of machinery and
equipment. Management believes that the straight-line
method results in a better matching of revenues and
costs, and the new method is prevalent in the
industries in which the Company operates.
Additionally, in 1999, the Company adopted AICPA
Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for
Internal Use," which requires capitalization of
certain costs incurred in the development of
internal-use software. The change to straight-line
depreciation and the adoption of the AICPA Statement
of Position 98-1 did not have a material impact on
the Company's financial position, results of
operations or cash flows.
GOODWILL: Goodwill represents the excess purchase
price over the net assets of companies acquired in
business combinations. Goodwill acquired since 1970
is being amortized on a straight-line basis over
forty years; similar investments for businesses
acquired prior to 1970 (approximately $5,200) are
not being amortized. On a periodic basis, the Company
estimates future undiscounted cash flows of the
businesses to which goodwill relates to ensure that
the carrying value of goodwill has not been impaired.
Goodwill resulting from the purchase of the nitrogen
gas springs business was $71,482. At December 31,
1999 and 1998, accumulated amortization was $10,536
and $9,391, respectively.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities
of foreign operations, except those in countries with
high rates of inflation, are translated at year-end
rates of exchange; revenues and expenses are
translated at average annual rates of exchange. The
resulting translation gains and losses are reflected
in accumulated other comprehensive income within
stockholders' equity.
For operations in countries with 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
$752, $240 and $2,095 in 1999, 1998 and 1997,
respectively.
NET INCOME PER COMMON SHARE: Earnings per share are
computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share."
Basic earnings per share are based on the weighted
average number of common shares outstanding during
the year. Diluted earnings per share reflect the
assumed exercise and conversion of all dilutive
securities. Shares held by the Guaranteed Stock Plan
are considered outstanding for both basic and diluted
earnings per share.
There are no adjustments to net income for purposes
of computing income available to common shareholders
for the years ended December 31, 1999, 1998 and 1997.
For purposes of computing diluted earnings per share,
the weighted average number of shares outstanding was
increased by 224,899 shares, 330,659 shares and
419,433 shares for 1999, 1998 and 1997, respectively,
representing the potential dilutive effects of
stock-based incentive plans.
13
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2 ACQUISITION OF On August 30, 1999, the Company purchased substantially
NITROGEN GAS all of the assets and liabilities of the nitrogen gas
SPRINGS BUSINESS springs business of the Teledyne Fluid Systems Division
of Teledyne Industries, Inc., pursuant to an Asset
Purchase and Sale Agreement dated July 27, 1999. The
acquisition of the nitrogen gas springs business was
recorded using the purchase method of accounting and is
included in the Associated Spring business segment. The
$92.2 million acquisition cost has been allocated to
tangible and intangible assets and liabilities of the
nitrogen gas springs business based upon estimates of
their respective fair market values. The resulting
goodwill will be amortized over 40 years. The funds used
to purchase the assets and liabilities were initially
borrowed under the Company's $150 million revolving
credit agreement. On November 12, 1999, the Company
financed a portion of the acquisition through the
issuance of $70 million of long-term private placement
debt. The debt ranges in maturity from eight to eleven
years at an average annual interest rate of 7.75%. The
issuance of the long-term debt and use of the Company's
long-term revolving credit agreement will result in both
higher interest expense and higher
debt-to-capitalization ratios in the future.
Additionally, the consolidation of the nitrogen gas
springs business will reduce the Company's effective tax
rate as a result of the associated income being taxed at
lower foreign tax rates, as well as the result of
certain foreign tax benefits.
The following table reflects the operating results of
the Company for the years ended December 31, 1999 and
1998 on a pro forma basis, which gives effect to the
acquisition of the nitrogen gas springs business at the
beginning of each of the years presented. The pro forma
results are not necessarily indicative of the operating
results that would have occurred had the acquisition
been effective either January 1, 1999 or January 1,
1998, nor are they intended to be indicative of results
that may occur in the future. The underlying pro forma
information includes the amortization expense associated
with the assets acquired, the Company's financing
arrangements, certain purchase accounting adjustments
and related income tax effects.
<TABLE>
<CAPTION>
(Unaudited) 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Net sales $652,486 $698,591
Income before income taxes 43,507 55,088
Net income 31,673 38,644
Per common share:
Basic $ 1.63 $ 1.92
Diluted 1.61 1.89
================================================================================
</TABLE>
3 INVENTORIES Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $39,573 $34,784
Work-in-process 12,861 15,309
Raw materials and supplies 13,917 14,311
----------------------------------------------------------------------------------------------
$66,351 $64,404
==============================================================================================
</TABLE>
Inventories valued by the LIFO method aggregated $47,098
and $48,705 at December 31, 1999 and 1998, respectively.
If LIFO inventories had been valued using the FIFO
method, they would have been $13,995 and $14,097 higher
at those dates.
4 PROPERTY, PLANT Property, plant and equipment at December 31 consisted
AND EQUIPMENT of:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,467 $ 3,292
Buildings 65,136 64,421
Machinery and equipment 299,588 283,080
-----------------------------------------------------------------------------------------
368,191 350,793
Less accumulated depreciation 223,086 211,546
-----------------------------------------------------------------------------------------
$145,105 $139,247
=========================================================================================
</TABLE>
14
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 ACCRUED LIABILITIES Accrued liabilities at December 31 consisted of:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Payroll and other compensation $12,547 $13,413
Postretirement/postemployment benefits 8,103 15,001
Accrued income taxes 4,583 5,546
Other 21,193 18,974
---------------------------------------------------------------------------------------------------
$46,426 $52,934
===================================================================================================
</TABLE>
6 DEBT AND Long-term debt at December 31 consisted of:
COMMITMENTS
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------------- -----------
Carrying Fair Carrying
Amount Value Amount
------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
9.47% Notes $ 12,308 $ 12,644 $18,462
7.13% Notes 25,000 24,199 25,000
7.66% Notes 24,500 24,500 --
7.80% Notes 45,500 45,500 --
Revolving Credit 25,692 25,692 --
Industrial Revenue Bond 7,000 7,000 7,000
Other -- -- 538
------------------------------------------------------------------------------- -----------
$140,000 $139,535 $51,000
=============================================================================== ===========
</TABLE>
The 9.47% Notes are payable in thirteen semiannual payments of $3,077 that began
on September 16, 1995, while the 7.13% Notes are payable in four equal annual
payments of $6,250, beginning on December 5, 2002. On November 12, 1999, the
Company issued $70,000 of privately placed debt securities comprising $24,500 of
7.66% Notes, payable in 2007, and $45,500 of 7.80% Notes, payable in three equal
annual payments of $15,167, beginning in 2008. The Notes are not redeemable
prior to maturity. Proceeds from the 7.66% and 7.80% Notes, in addition to
borrowings under the Company's revolving credit agreement, were used to fund the
acquisition of the nitrogen gas springs business. The fair values of these Notes
are determined using discounted cash flows based upon the Company's estimated
current interest cost for similar types of borrowings. The carrying values of
other long-term debt and notes payable approximate their fair market value.
The Company has a revolving credit agreement with five banks that allows
borrowings up to $150,000 under Notes due December 6, 2002. A fee of 0.115% per
annum is paid on the unused portion of the commitments. Under this agreement,
the Company had $32,500 borrowed at an interest rate of 6.5% at December 31,
1999, of which $25,692 is classified as long-term debt. The Company has
available approximately $35,000 in short-term bank credit lines, of which $4,500
was in use at both December 31, 1999 and 1998. The interest rate on these
borrowings was 6.8% and 5.6% at December 31, 1999 and 1998, respectively.
The Industrial Revenue Bond, due in 2008, has a variable interest rate. The
interest rate on this borrowing was 5.75% and 5.25% at December 31, 1999 and
1998, respectively.
At December 31, 1999, the Company classified $6,154 of its 9.47% Notes due
within one year as long-term debt. The Company has both the intent and the
ability, through its revolving credit agreement, to refinance these amounts on a
long-term basis.
Long-term debt is payable as follows: $44,250 in 2002, $6,250 in 2003, $6,250 in
2004 and $83,250 thereafter.
The Company had outstanding an interest rate swap (swap), a form of derivative,
which effectively converted half of its fixed-rate 9.47% Notes to variable-rate
debt with interest equal to London Interbank Offered Rate (LIBOR) plus 83 basis
points. The effective interest rate on the floating rate portion was 7.0% and
6.1% at December 31, 1999 and 1998, respectively. This swap decreases as the
Notes are repaid. The fair value of the swap is determined based upon current
market prices and was $251 at December 31, 1999. On September 7, 1999, the
Company entered into a three-year, $70 million cross-currency exchange agreement
to convert U.S. dollar-denominated interest and principal liabilities into
Swedish krona-denominated liabilities at a fixed interest rate during the
three-year period. The fair value of this foreign currency swap was determined
using current market prices and was $2,197 at December 31, 1999. The Company
does not use derivatives for speculative or trading purposes.
15
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company had outstanding letters of credit totaling $4,066 at
December 31, 1999.
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, $28,784 was
available for dividends or acquisitions of common stock at December 31, 1999.
Interest paid was $5,505, $4,947 and $5,554 in 1999, 1998 and 1997,
respectively. Interest capitalized was $264, $711 and $472 in 1999, 1998 and
1997, respectively, and is being depreciated over the lives of the related fixed
assets.
7. INCOME TAXES The components of income before income taxes and the income
tax provision follow:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
U.S. $27,585 $42,009 $49,517
International 15,113 12,654 14,985
- -----------------------------------------------------------------------------
$42,698 $54,663 $64,502
=============================================================================
Income tax provision:
Current:
U.S. - federal $5,233 $15,256 $16,339
U.S. - state 529 3,110 4,050
International 4,669 4,339 4,905
- -----------------------------------------------------------------------------
10,431 22,705 25,294
- -----------------------------------------------------------------------------
Deferred:
U.S. - federal 2,973 (2,214) (821)
U.S. - state 1,109 (94) (217)
International (427) (228) (177)
- -----------------------------------------------------------------------------
3,655 (2,536) (1,215)
- -----------------------------------------------------------------------------
$14,086 $20,169 $24,079
=============================================================================
</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
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 921 $ 829 $ -- $ --
Depreciation and amortization (6,293) (6,513) 3,727 2,527
Inventory valuation 6,400 5,039 613 468
Postretirement/postemployment costs 25,852 26,771 (333) (306)
Foreign tax loss carryforwards 9,923 9,517 -- --
Other 4,020 8,718 3,634 1,390
- ----------------------------------------------------------------------------------------------------------------------
40,823 44,361 7,641 4,079
Valuation allowance (7,628) (7,565) -- --
- ----------------------------------------------------------------------------------------------------------------------
$33,195 $36,796 $7,641 $4,079
======================================================================================================================
Current deferred income taxes $ 9,398 $11,660 $ 594 $ 455
Noncurrent deferred income taxes 23,797 25,136 7,047 3,624
- ----------------------------------------------------------------------------------------------------------------------
$33,195 $36,796 $7,641 $4,079
======================================================================================================================
</TABLE>
The deferred income tax assets will be realized through reversals of existing
taxable temporary differences with the remainder, net of the valuation
allowance, dependent on future income. Management believes that sufficient
income will be earned in the future to realize the remaining net deferred income
tax assets. The tax loss carryforwards have remaining carryforward periods
ranging from five years to unlimited.
16
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has not recognized deferred income taxes on $106,562 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:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
State taxes (net of federal benefit) 2.5 3.6 3.9
Foreign losses without tax benefit 1.2 1.0 0.6
Foreign tax rates (3.7) (1.6) (1.5)
NASCO equity income (0.9) (1.0) (0.6)
Foreign sales corporation (0.8) (0.4) --
Other (0.3) 0.3 (0.1)
- ----------------------------------------------------------------------------
Consolidated effective income tax rate 33.0% 36.9% 37.3%
============================================================================
</TABLE>
Income taxes paid, net of refunds, were $15,781, $18,473 and $25,337 in 1999,
1998 and 1997, respectively.
8 COMMON STOCK In 1999, 1998 and 1997, 105,189 shares, 270,854
shares and 566,077 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
1999, 1998 and 1997, the Company acquired 1,090,014
shares, 598,160 shares and 395,179 shares,
respectively, of the Company's common stock at a cost
of $22,351, $17,042 and $10,673, 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, 1999, 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-hun-
dredth 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 ten
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.
9 PREFERRED STOCK At December 31, 1999 and 1998, the Company had
3,000,000 shares of preferred stock authorized, none
of which were outstanding. As discussed in Note 8,
the par value of preferred stock was reduced from
$1.00 to $0.01 per share in 1997.
17
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10 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. At
December 31, 1999, the Company's guarantee on these
assets was $2,321. This amount will only become a
liability for the Company if, and to the extent, the
value of the related Company stock does not cover the
guaranteed asset value on the day an employee
withdraws from the plan.
The GSP was a leveraged ESOP until mid-1999. In 1989,
the GSP purchased 1,737,930 shares of the Company's
common stock at a cost of $21,000 using the proceeds
of a loan guaranteed by the Company. These shares
were held in trust and were issued to employees'
accounts in the GSP as the loan was repaid. The loan
interest was based on LIBOR and generated interest
costs of $32, $212 and $387 in 1999, 1998 and 1997,
respectively. Contributions and certain dividends
received were used in part by the GSP to service its
debt. Contributions included both employee and
Company contributions.
The Company contributions were equal to the amount
required by the GSP to pay the principal and interest
due under the GSP loan plus that required to purchase
any additional shares required to be allocated to
employee accounts, less the sum of employee
contributions and dividends received by the GSP.
Effective July 2, 1999, the GSP is no longer
leveraged. The Company now contributes 50% of
employee contributions up to 6% of eligible
compensation plus any guarantee payments. Employees
may elect to contribute additional amounts up to a
total of 10% of eligible compensation. The GSP used
$1,012, $1,899 and $1,781 of Company dividends for
debt service in 1999, 1998 and 1997, respectively.
The Company expenses all cash contributions made to
the GSP. The Company recognized expense of $1,115 in
1999 and income of $403 and $498 in 1998 and 1997,
respectively. As of December 31, 1999, the GSP held
3,060,386 shares of the Company's common stock. For
financial statement purposes, the Company reflected
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 62,868, 45,599 and
46,600 in 1999, 1998 and 1997, respectively. As of
December 31, 1999, 457,011 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 2,384,826
common shares are subject to issuance under this plan
after December 31, 1999. Compensation cost related to
these plans was $610, $1,596 and $1,150 in 1999, 1998
and 1997, respectively. The Company recorded, in
additional paid-in capital, tax benefits related to
stock options of $40, $1,573 and $2,404 in 1999, 1998
and 1997, 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>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Average Average Average
Number Exercise Number Exercise Number Exercise
Of Shares Price of Shares Price of Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 1,238,587 $22.39 979,444 $16.13 1,088,991 $10.98
Granted 827,820 $19.20 566,770 $29.13 441,190 $22.96
Exercised 24,727 $18.96 224,332 $11.02 505,113 $10.79
Canceled 232,905 $24.57 83,295 $25.24 45,624 $18.44
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31 1,808,775 $20.70 1,238,587 $22.39 979,444 $16.13
===========================================================================================================================
Exercisable, December 31 696,965 $18.91 574,966 $16.94 478,680 $10.77
===========================================================================================================================
</TABLE>
18
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES LIFE (YEARS) PRICE OF SHARES PRICE
- ---------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$ 7 to $14 365,979 4.5 $11.50 335,979 $11.24
$15 to $20 652,266 9.2 $19.04 2,700 $19.44
$21 to $23 313,840 7.7 $22.28 161,885 $22.32
$24 to $32 476,690 8.3 $28.99 196,401 $29.21
====================================================================== ==============================
</TABLE>
As of December 31, 1999 and 1998, there were 412,024 shares and 928,050 shares,
respectively, available for future grant 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. All units granted have up to a five-year incentive period. In
1999, 5,000 units were granted; 8,612 units were credited to holders for
dividend equivalents; 16,144 units, which include dividend equivalents, were
converted to an equivalent number of shares of common stock; and 92,501 units
were forfeited. Additionally, 125,199 units, which include dividend equivalents,
were terminated in 1998 in conjunction with the accelerated retirement agreement
for the Company's retired president. As of December 31, 1999, there were 299,027
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 1999 and 1998, while 12,000 shares were
issued in 1997. Additionally, 6,000 shares were canceled as of December 31,
1999. There are 48,000 shares reserved for issuance under this plan.
Total shares reserved for issuance under all stock plans aggregated 2,889,837 at
December 31, 1999.
The Company applies APB Opinion 25 to account for stock-based compensation. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $28,612 $34,494 $40,423
Pro forma 27,053 33,543 39,898
Basic earnings per share:
As reported $ 1.47 $ 1.72 $ 2.00
Pro forma 1.39 1.67 1.97
Diluted earnings per share:
As reported $ 1.46 $ 1.69 $ 1.96
Pro forma 1.38 1.64 1.93
========================================================================
</TABLE>
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.35% 5.35% 6.17%
Expected life 6 years 6 years 6 years
Expected volatility 30% 20% 20%
Expected dividend yield 3.54% 3.75% 4.00%
================================================================================
</TABLE>
The weighted-average grant date fair values of options granted during 1999, 1998
and 1997 were $5.07, $5.63 and $4.97, respectively.
19
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11 PENSION AND OTHER Defined benefit pension plans cover a majority of the
POSTRETIREMENT Company's worldwide employees at Associated Spring,
BENEFITS 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), as
amended. 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 $1,292, $2,029 and $2,593 in 1999, 1998
and 1997, respectively.
The Company provides certain other medical, dental
and life insurance postretirement benefits for a
majority of its retired employees in the U.S. and
Canada. It is the Company's practice to fund these
benefits as incurred.
A reconciliation of the beginning benefit obligations
to the ending benefit obligations follows:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
-------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit obligations, January 1 $252,036 $233,952 $63,957 $59,983
Service cost 6,218 5,645 629 521
Interest cost 16,944 16,908 4,445 4,359
Amendments (484) 2,889 746 --
Actuarial (gain) loss (28,231) 7,925 (3,953) 4,720
Benefits paid from plan assets (15,316) (15,283) (5,503) (5,626)
-------- -------- ------- -------
Benefit obligations, December 31 $231,167 $252,036 $60,321 $63,957
======== ======== ======= =======
Benefit obligations related to plans
with benefit obligations in excess of assets $ 8,868 $ 9,881 $60,321 $63,957
======== ======== ======= =======
</TABLE>
A reconciliation of the beginning fair value of plan assets to the ending fair
value of plan assets follows:
<TABLE>
Pensions
----------------------
1999 1998
---- ----
<S> <C> <C>
Fair value of plan assets, January 1 $318,358 $299,632
Actual return on plan assets 40,742 34,150
Company contributions 391 379
Benefits paid (15,316) (15,283)
Translation gains (losses) 272 (520)
-------- --------
Fair value of plan assets, December 31 $344,447 $318,358
======== ========
Assets related to plans with benefit
obligations in excess of plan assets $ -- $ 487
======== =========
</TABLE>
20
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the funded status of the plans with the amounts recognized
in the accompanying balance sheets is set forth below:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Funded status $113,280 $ 66,321 $(60,321) $(63,957)
Adjustments for unrecognized:
Net (gains) losses (107,041) (60,445) 491 4,536
Prior service costs (benefits) 6,332 5,583 (4,852) (6,953)
Net asset at transition (2,425) (4,055) -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost $ 10,146 $ 7,404 $(64,682) $(66,374)
======== ======== ======== ========
</TABLE>
Significant assumptions used in determining pension and other postretirement
expense and the funded status of the plans were:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
-------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount rate 8.00% 7.00% 7.50% 8.00% 7.00% 7.50%
Long-term rate of return on plan assets 9.75% 9.25% 9.00% -- -- --
Increase in compensation 4.75% 4.75% 5.25% 4.75% 4.75% 5.00%
==== ==== ==== ==== ==== ====
</TABLE>
Pension and other postretirement benefit expenses consisted of the following:
<TABLE>
<CAPTION>
Pensions Other Postretirement Benefits
----------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 6,218 $ 5,645 $ 5,384 $ 629 $ 521 $ 506
Interest cost 16,944 16,908 16,668 4,445 4,359 4,320
Return on plan assets (expected) (24,441) (22,264) (20,965) -- -- --
Amortization of transition assets (1,643) (1,643) (1,660) -- -- --
Recognized (gains) losses (753) 2,898 (531) 45 -- --
Prior service cost 1,048 861 872 (1,355) (1,422) (1,422)
------- ------- -------- ------ ------- ------
Benefit (credit) cost $(2,627) $ 2,405 $ (232) $3,764 $ 3,458 $3,404
======= ======= ======== ====== ======= ======
</TABLE>
The Company's accumulated postretirement benefit obligations, exclusive of
pensions, take into account certain cost-sharing provisions. The annual rate of
increase in the cost of covered benefits (that is, healthcare cost trend rate)
is assumed to be 6.0% for 1999, 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 $2,188 at December
31, 1999, and would have increased the 1999 aggregate of the service and
interest cost components of postretirement benefit expense by approximately
$167. A one percentage point decrease in the assumed healthcare cost trend rate
would decrease the accumulated benefit obligations by approximately $2,122 at
December 31, 1999, and would have decreased the 1999 aggregate of the service
and interest cost components of postretirement benefit expense by approximately
$125.
12 LEASES The Company has various noncancellable operating leases for
buildings, office space and equipment. Capital leases were not
significant. Rent expense was $7,712, $7,133 and $7,178 for
1999, 1998 and 1997, respectively. Minimum rental commitments
under noncancellable leases in years 2000 through 2004 are
$6,097, $5,802, $4,678, $3,660, $3,063 and $7,246 thereafter.
21
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13 INFORMATION ON
BUSINESS SEGMENTS
The Company's reportable segments are strategic
business groups that offer different products and
services. Each segment is managed separately because
each business requires different technology and
marketing strategies. Specifically, the Company
operates three reportable business segments:
ASSOCIATED SPRING manufactures custom-made mechanical
and nitrogen gas springs, manifold systems and
other close-tolerance engineered metal components,
principally for the transportation, electronics and
industrial markets. Associated Spring's custom metal
parts are sold in the United States and through its
international subsidiaries. International
manufacturing operations are located in Brazil,
Sweden, Canada, Mexico and Singapore. The automotive
and automotive parts industries constitute Associated
Spring's largest markets.
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
primarily in the United States. Other important
locations include Canada and Europe.
BARNES AEROSPACE supplies precision machined and
fabricated components and assemblies for the
aerospace industry. Additionally, it refurbishes jet
engine components for many of the world's commercial
airlines and the military. Barnes Aerospace's
operations are primarily in the United States, with
additional locations in Europe and Singapore. Its
markets are located in the United States, Europe and
Asia.
The Company evaluates the performance of its
reportable segments based on operating profit of the
respective businesses. In 1999, segment operating
profit was modified to follow the accounting policies
described in Note 1. The equity income from the
Company's investment in the NASCO joint venture is
incorporated into the segment results of Associated
Spring. The Company evaluates the performance of its
reportable segments based on the operating profit of
the respective businesses, which includes net sales,
cost of sales, selling and administrative expenses
and certain components of other income and other
expenses, as well as the allocation of corporate
overhead expenses. 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.
22
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OPERATIONS BY (Dollars in millions) Associated Bowman Barnes
BUSINESS SEGMENT Revenues Spring Distribution Aerospace Other Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1999 $282.6 $230.4 $121.3 $(11.9) $622.4
1998 262.1 246.9 154.6 (12.4) 651.2
1997 259.0 258.8 136.6 (11.7) 642.7
Operating profit
===================================================================================================================================
1999 $ 33.5 $ 9.9 $ 5.3 $ -- $ 48.7
1998 23.2 35.0 12.8 (12.9) 58.1
1997 24.5 32.6 9.9 -- 67.0
Assets
===================================================================================================================================
1999 $260.6 $ 94.8 $ 79.7 $ 81.2 $516.3
1998 160.1 86.7 92.3 79.8 418.9
1997 152.8 89.1 95.1 71.0 408.0
Depreciation & amortization
===================================================================================================================================
1999 $ 16.5 $ 6.0 $ 7.8 $ 0.3 $ 30.6
1998 15.3 5.4 7.5 0.2 28.4
1997 14.3 5.1 8.5 0.2 28.1
Capital expenditures
===================================================================================================================================
1999 $ 9.8 $ 9.4 $ 7.1 $ 0.9 $ 27.2
1998 18.3 7.5 8.3 0.5 34.6
1997 18.3 7.0 7.9 0.2 33.4
</TABLE>
NOTES:
In 1999, sales from any one customer did not exceed 10% of the
Company's total revenues. In 1998, one customer accounted for
11.8% of the Company's total revenues.
"Other" revenues represent intersegment sales, 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 $1.7 million, $2.6 million
and $1.8 million in 1999, 1998 and 1997, respectively.
"Other" operating profit in 1998 includes the $12.9 million
charge related to the accelerated retirement package for the
Company's retired president.
The assets of Associated Spring include the NASCO investment
of $9.5 million, $9.2 million and $7.8 million in 1999, 1998
and 1997, respectively.
"Other" assets include corporate controlled assets, the
majority of which are cash and deferred tax assets.
A reconciliation of the total reportable segments' operating
profit to income before income taxes follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit $48.7 $58.1 $67.0
Interest income 1.0 1.4 1.2
Interest expense (6.1) (4.1) (4.9)
Other income (expense) (0.9) (0.7) 1.2
- ------------------------------------------------------------------------------
Income before income taxes $42.7 $54.7 $64.5
==============================================================================
</TABLE>
23
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPERATIONS BY
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
(Dollars in millions) Inter-
Revenues Domestic International Geographical Total
=====================================================================================
<S> <C> <C> <C> <C>
1999 $488.2 $147.0 $(12.8) $622.4
1998 526.8 138.3 (13.9) 651.2
1997 515.0 139.5 (11.8) 642.7
=====================================================================================
Long-lived assets
=====================================================================================
1999 $164.5 $109.1 $ -- $273.6
1998 144.6 41.9 -- 186.5
1997 137.7 43.2 -- 180.9
=====================================================================================
</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.
REPORT OF TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
INDEPENDENT BARNES GROUP INC.
ACCOUNTANTS
In our opinion, the accompanying consolidated balance sheets
[PRICEWATERHOUSE- and the related consolidated statements of income,
COOPERS LOGO] stockholders' equity and cash flows present fairly, in all
material respects, the financial position of Barnes Group
Inc. and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for
each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally
accepted in the United States. These financial statements
are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards
generally accepted in the United States, 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
February 8, 2000
24
<PAGE> 21
QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Full
(Dollars in millions, except per share data) Quarter Quarter Quarter Quarter Year
================================================================================================================================
<S> <C> <C> <C> <C> <C>
1999
Net sales $162.2 $156.3 $154.0 $149.9 $622.4
Gross profit(1) 52.7 49.0 50.4 45.3 197.4
Operating income 14.8 12.5 13.4 4.6 45.3
Net income 10.0 8.2 8.9 1.5 28.6
Per common share:
Net income:
Basic 0.50 0.42 0.46 0.08 1.47
Diluted 0.50 0.41 0.45 0.08 1.46
Dividends 0.18 0.19 0.19 0.19 0.75
Market prices (high-low) $30.00-15.88 $25.50-18.56 $23.69-18.31 $22.75-15.25 $30.00-15.25
================================================================================================================================
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:
Net income:
Basic(2) 0.59 0.23 0.53 0.37 1.72
Diluted(2) 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
================================================================================================================================
</TABLE>
(1) Sales less cost of sales.
(2) Includes the $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 of the Company, recorded in the second
quarter.
25
<PAGE> 22
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998(3) 1997 1996 1995
=====================================================================
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE(1)(2)
Net Income
Basic $ 1.47 $ 1.72 $ 2.00 $ 1.63 $ 1.40
Diluted 1.46 1.69 1.96 1.61 1.38
Dividends paid 0.75 0.69 0.65 0.60 0.53
Stockholders' equity (at year-end) 9.58 9.51 8.97 7.86 6.55
Stock price (at year-end) 16.31 29.25 22.75 20.00 12.00
=====================================================================
FOR THE YEAR (in thousands)
Net sales $622,356 $651,183 $642,660 $594,989 $592,509
Operating income 45,250 55,221 65,766 55,316 48,804
As a percent of sales 7.3% 8.5% 10.2% 9.3% 8.2%
Income before income taxes $ 42,698 $ 54,663 $ 64,502 $ 52,310 $ 45,450
Income taxes 14,086 20,169 24,079 19,742 17,966
Net income 28,612 34,494 40,423 32,568 27,484
As a percent of average stockholders' equity 15.4% 18.4% 23.4% 22.8% 22.6%
Depreciation and amortization $ 30,602 $ 28,431 $ 28,123 $ 26,626 $ 26,750
Capital expenditures 27,222 34,571 33,398 33,892 35,820
Average common shares outstanding -- basic 19,418 20,096 20,237 19,924 19,640
=====================================================================
YEAR-END FINANCIAL POSITION (in thousands)
Working capital $103,165 $106,884 $113,092 $109,476 $ 95,280
Current ratio 1.9 to 1 2.1 to 1 2.3 to 1 2.4 to 1 2.2 to 1
Property, plant and equipment $145,105 $139,247 $133,830 $131,071 $122,870
Total assets 516,282 418,904 407,978 389,956 361,549
Long-term debt 140,000 51,000 60,000 70,000 70,000
Guaranteed ESOP obligation -- long-term portion -- -- 2,205 4,951 7,491
Stockholders' equity 180,614 188,674 180,859 157,164 128,841
Debt as a percent of total capitalization(4) 45.7% 24.1% 27.1% 33.5% 38.4%
=====================================================================
YEAR-END STATISTICS
Employees 4,020 3,847 3,872 3,761 3,880
=====================================================================
</TABLE>
(1) All per share data, other than earnings per common share, are based on
common shares outstanding at the end of each year. Earnings per common
share are based on weighted average common shares outstanding during
each year.
(2) All per share data have been adjusted for the three-for-one stock split
effective April 1997.
(3) Includes the $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 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.
26
<PAGE> 1
EXHIBIT 21
BARNES GROUP INC.
LIST OF SUBSIDIARIES
Operating Subsidiaries of the Company:
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- -------------
<S> <C>
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 Financing Delaware LLC Delaware
Barnes Group (Bermuda) Limited Bermuda
Barnes Group Canada Inc. Canada
Barnes Group Holding B.V. Netherlands
Barnes Sweden Holding Company AB Sweden
Bowman Distribution Europe Limited United Kingdom
Bowman Distribution France S.A. France
3031786 Nova Scotia Company Canada
3032350 Nova Scotia Limited Canada
Raymond Distribution (Ireland) Limited Ireland
Raymond Distribution-Mexico, S.A. de C.V. Mexico
Ressorts SPEC, SARL France
Stromsholmen AB Sweden
Windsor Airmotive Asia PTE. LTD. Singapore
</TABLE>
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 13 of the 1999 Annual Report to Stockholders.
<PAGE> 1
[PricewaterhouseCoopers LLP LOGO]
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 February 8, 2000 relating to the financial statements which
appears on page 24 of the Annual Report to Stockholders, which is incorporated
in this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report dated February 8, 2000 relating to the financial
statement schedule, which appears on page 15 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
March 24, 2000
<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, 1999, THE
RELATED CONSOLIDATED STATEMENT OF INCOME, NOTE 4 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 43,632
<SECURITIES> 0
<RECEIVABLES> 95,030
<ALLOWANCES> 3,329
<INVENTORY> 66,351
<CURRENT-ASSETS> 219,185
<PP&E> 368,191
<DEPRECIATION> 223,086
<TOTAL-ASSETS> 516,282
<CURRENT-LIABILITIES> 116,020
<BONDS> 140,000
0
0
<COMMON> 220
<OTHER-SE> 180,394
<TOTAL-LIABILITY-AND-EQUITY> 516,282
<SALES> 622,356
<TOTAL-REVENUES> 622,356
<CGS> 424,945
<TOTAL-COSTS> 424,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,343
<INTEREST-EXPENSE> 6,093
<INCOME-PRETAX> 42,698
<INCOME-TAX> 14,086
<INCOME-CONTINUING> 28,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,612
<EPS-BASIC> 1.47
<EPS-DILUTED> 1.46
</TABLE>
