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, 2002
 
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 incorporation or organization)	 	(I.R.S. Employer Identification No.)	
		
123 Main Street, Bristol, Connecticut	 	06011-0489	
(Address of Principal Executive Office)	 	(Zip Code)	
 
Registrant’s telephone number, including area code:
(860) 583-7070
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class	 	Name of each exchange on which registered	
Common Stock, $0.01 Par Value	 	New York Stock Exchange	
Preferred Stock Purchase Rights	 	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.             
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes x     No ¨     
 
The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the registrant as of the close of business on June 28, 2002 was approximately $410,710,448.90, based on the closing price of the Common Stock on the New York Stock Exchange on that date. The company does not have any non-voting common equity.
 
The registrant had outstanding 20,224,214 shares of common stock as of March 10, 2003.
 
Documents Incorporated by Reference:
 
Parts I and II incorporate information by reference from the registrant’s 2002 Annual Report to Stockholders. Part III incorporates information by reference from the registrant’s Proxy Statement dated March 17, 2003.

 

 
PART I
 
Item 1.    Business.
 
The Company is a diversified international manufacturer of precision components and assemblies and distributor of industrial supplies, serving a wide range of markets and customers. Founded in 1857 and headquartered in Bristol, Connecticut, the Company was organized as a Delaware corporation in 1925. The Company consists of three businesses: Associated Spring, one of the world’s largest manufacturers of precision mechanical and nitrogen gas springs, retaining rings, and plastic injection molded components; Barnes Aerospace, a manufacturer and repairer of highly engineered assemblies and products for aircraft engines, airframes, and land-based industrial gas turbines; and Barnes Distribution, an international distributor of industrial maintenance, repair and operating supplies. Currently, the Company has more than 6,200 employees at over 60 locations worldwide.[1]
 
Associated Spring is the largest manufacturer of precision springs in North America, and one of the largest precision spring manufacturers in the world. Associated Spring is equipped to produce virtually every type of precision spring, from fine hairsprings for electronics and instruments to large heavy-duty springs for machinery. Associated Spring also manufactures nitrogen gas springs and manifold systems used to precisely control stamping presses; retaining rings; and injection-molded plastic-on-metal and metal-in-plastic components and assemblies.
 
Nearly all of Associated Spring’s products are highly engineered custom solutions. These products are made of various metals and plastic types, and are purchased primarily by durable goods manufacturers in industries such as consumer products, farm equipment, telecommunications, medical devices, home appliances, electronics and transportation.
 
Associated Spring provides complete engineering solutions from concept to manufacturing. These include product design and development, physical product and material testing, rapid prototyping and reduction of manufacturing-cycle times. Associated Spring’s products 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. Products are sold primarily through Associated Spring’s sales employees.
 
Associated Spring has a global and diverse customer base, including original equipment manufacturers (OEMs) of industrial and textile machinery, motors, light vehicles, heavy trucks, medical equipment, generators, electronic equipment, aircraft, household appliances and fixtures, hardware, office equipment, agricultural equipment, railroad equipment, general machinery and scientific instruments.

1	 	As used in this annual report, “Company” refers to the registrant and its consolidated subsidiaries except where the context requires otherwise, and “Associated Spring,” “Barnes Aerospace,” and “Barnes Distribution” refer to the above-defined businesses, but not to separate corporate entities.	
 
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Associated Spring has manufacturing operations in the United States, Brazil, Canada, China, Germany, Mexico, Singapore and Sweden, and has retained a minority interest of 15% in its former subsidiary in Argentina.
 
Associated Spring owns a 45% interest in a joint venture corporation in the United States with NHK Spring Co., Ltd. of Japan. The joint venture corporation, NHK-Associated Spring Suspension Components Inc. (“NASCO”), manufactures suspension springs at its facility in Bowling Green, Kentucky.
 
Barnes Aerospace is a worldwide producer of precision machined and fabricated components and assemblies for OEM turbine engine, airframe and industrial gas turbine builders and the United States military. Barnes Aerospace also provides jet engine component overhaul and repair services for many of the world’s major commercial airlines and the United States military. Barnes Aerospace products and services, which have earned a reputation for excellence throughout the international aerospace community, are sold primarily through Barnes Aerospace’s sales employees.
 
Barnes Aerospace’s machining and fabrication operations, with facilities in Arizona, Connecticut, Michigan, Ohio and Utah, produce critical engine and airframe parts through processes such as laser drilling, multi-axis milling and turning, and electrical discharge machining, and specialize in hot and cold forming of complex parts made from titanium and other aerospace alloys. Additional capabilities include superplastic forming and diffusion bonding, and machining of aluminum and other sheet metal products. Customers include airframe and gas turbine engine manufacturers for commercial and military jets, business jets, and land-based industrial gas turbines.
 
Barnes Aerospace’s overhaul and repair facilities, located in Connecticut, Ohio and Singapore, specialize in the refurbishment of jet engine components such as cases, rotating air seals, honeycomb air seals and housings. Processes performed at these facilities include electron beam welding, plasma coating, vacuum brazing, and water jet cleaning. Customers include worldwide major airlines and engine overhaul businesses and the United States military.
 
Barnes Distribution is an industry leader in the distribution of maintenance, repair and operating (MRO) supplies. Since 1927, it has grown into one of the world’s largest value-added MRO distributors and international logistics management service businesses. Barnes Distribution distributes under six widely-recognized brands: Bowman, Curtis, Mechanics Choice, Raymond, Autoliaisons and Motalink.
 
Bowman, Curtis, Mechanics Choice, Autoliaisons and Motalink distribute a wide variety of replacement parts and other products, and provide related inventory management and logistics services. These products include fasteners, special purpose hardware, electrical supplies, hydraulics, chemicals and security products. Raymond distributes die and nitrogen gas springs, mechanical struts and standard parts such as coil and flat springs, most of which are manufactured by Associated Spring. With the exception of springs from Associated Spring, the products sold by Barnes Distribution are obtained from outside suppliers.
 
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Using innovative methods and new technology to solve complex supply problems, Barnes Distribution becomes a critical partner in the operation and profitability of its customers. Barnes Distribution has a well-diversified customer base ranging from small automobile dealers and repair shops to the largest railroads, utilities, food processors, chemical producers, and vehicle fleet operators. Barnes Distribution’s products are sold in the United States, Brazil, Canada, France, Ireland, Mexico, Spain, the United Kingdom and Asia through its sales force, and in many other countries through distributors.
 
On February 6, 2003, the Company acquired Kar Products, LLC of Des Plaines, Illinois and certain assets and liabilities of its Canadian business, A.&H. Bolt & Nut Company Ltd. (Kar Products). Kar Products is a full-service distributor of MRO supplies to industrial, construction, transportation and other markets. Kar Products adds to the Barnes Distribution segment a diversified customer base that operates in all 50 states, Puerto Rico and Canada, further enhancing Barnes Distribution’s international presence and leadership position within the MRO market. The combined sales and service organizations will have a direct sales force of more than 1,600 professionals.
 
Segment Analysis.    The analysis of the Company’s revenue from sales to unaffiliated customers, operating profit and assets by business segment as well as revenues from sales to unaffiliated customers and long-lived assets by geographic area appearing on pages 36 through 38 of the Company’s 2002 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 and assemblies (including aerospace components). The Company believes Associated Spring is the largest manufacturer of precision springs in North America and one of the largest in the world. The Company also faces active competition in the products sold by Barnes Distribution. The principal methods of competition for the Company’s three businesses include service, quality, price, reliability of supply, technology, innovation, and also, in the case of Associated Spring and Barnes Aerospace, design.
 
Acquisition Summary.    For information regarding acquisitions, please see pages 9 through 10 of the Company’s 2002 Annual Report to Stockholders.
 
Backlog.    The backlog of the Company’s orders believed to be firm amounted to $205,676,000 at the end of 2002, as compared with $198,417,000 at the end of 2001. Of the 2002 year-end backlog, $151,791,000 is attributable to Barnes Aerospace and all of the balance is attributable to Associated Spring. $43,244,000 of Barnes Aerospace’s backlog is not expected to be shipped in 2003. Substantially all of the remainder of the Company’s backlog is expected to be shipped during 2003.
 
Raw Materials and Customers.    None of the Company’s divisions or segments is dependent upon any single source for its principal raw materials or products for resale, and all such materials and products are readily available. One customer, General Electric Co., accounted for 11.4% of the Company’s total sales in 2002. Sales by Associated Spring to its three largest customers accounted for approximately 30% of
 
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its business. Sales by Barnes Aerospace to General Electric and four other manufacturers in the aerospace industry accounted for approximately 60% of its business. Barnes Distribution is not dependent on any one or a few customers for a significant portion of its sales.
 
Research and Development.    Although most of the products manufactured by the Company are custom parts made to customers’ specifications, the Company is engaged in continuing efforts aimed at discovering and implementing new knowledge that is useful in developing new products or services or significantly improving existing products or services. The Company spent approximately $4,315,000 on research and development activities in 2002, as compared to expenditures of approximately $4,478,000 in 2001 and $4,528,000 in 2000. There were no significant customer-sponsored research and development activities.
 
Patents and Trademarks.    Patents, trademarks, licenses, franchises and concessions are not significant to any of the Company’s businesses. 
 
Employees.    As of December 31, 2002, the Company employed 5,172 people.
 
Executive Officers.    See Part III, Item 10 of this Annual Report on Form 10-K for information regarding the Executive Officers of the Company.
 
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.
 
Available Information:    The Company’s Internet address is www.barnesgroupinc.com. The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports available on its website as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission.
 
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Item 2.    Properties.
 
As shown on the following table, at December 31, 2002, the Company had 46 manufacturing, sales, and distribution facilities worldwide. All but three of the manufacturing facilities are owned. None of the owned properties is subject to any encumbrances. The majority of the distribution centers are leased.
 
Type of Facility
	  	Canada & USA
	  	Europe
	  	Mexico & South America
	  	Asia/ Pacific
	    	Total
	
Associated Spring	  	 	  	 	  	 	  	 	    	 	
Manufacturing	  	8	  	2	  	2	  	2	    	14	
Sales & Development	  	2	  	—  	  	—  	  	—  	    	2	
Barnes Aerospace	  	 	  	 	  	 	  	 	    	 	
Manufacturing	  	7	  	—  	  	—  	  	1	    	8	
Sales	  	—  	  	1	  	—  	  	—  	    	1	
Barnes Distribution	  	 	  	 	  	 	  	 	    	 	
Distribution Centers	  	12	  	6	  	2	  	1	    	21	
 	  		  		  		  		    		
Total	  	29	  	9	  	4	  	4	    	46	

The above table does not include the Corporate Office of the Company, which is owned, or the headquarters for each of the businesses, one of which is owned and the other two of which are leased. The above chart does not include the 10 distribution facilities, offices and headquarter locations which were acquired as part of the acquisition of Kar Products. All of the Kar facilities, offices and locations are leased.
 
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 2002 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 33 through 35 and on page 41 of the Company’s 2002 Annual Report to Stockholders is incorporated by reference. As of March 10, 2003, the Company’s common stock was held by 20,224,214 stockholders of record. The Company’s common stock is traded on the New York Stock Exchange under the symbol “B”.
 
See Part III, Item 12 of this Annual Report on Form 10-K for information regarding securities authorized for  issuance under equity compensation plans.
 
Item 6.    Selected Financial Data.
 
The selected financial data for the last five years contained on page 42 of the Company’s 2002 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 7 through 16 of the Company’s 2002 Annual Report to Stockholders are incorporated by reference.
 
Item 7A.    Quantitative and Qualitative Disclosure About Market Risk.
 
The information regarding market risk contained on page 15 of the Company’s 2002 Annual Report to Stockholders is incorporated by reference.
 
Item 8.    Financial Statements and Supplementary Data.
 
The financial statements and report of independent accountants appearing on pages 17 through 40 of the Company’s 2002 Annual Report to Stockholders are incorporated by reference. See also the report of independent accountants included on page 20 below pursuant to Item 302(a)(4) of Regulation S-K. The material on page 41 of the Company’s 2002 Annual Report to Stockholders is  also incorporated by reference.
 
Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
None.
 
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PART III
 
Item 10.    Directors and Executive Officers of the Company.
 
Information about the Company’s directors and nominees can be found in the material under “Election of Four Directors For A Three-Year Term” on pages 1 through 3, of the Company’s Proxy Statement dated March 17, 2003.
 
Information about the filing of reports by our directors, officers and 10% stockholders under Section 16(a) of the Securities Exchange Act of 1934, as amended, can be found under “Section 16(a) Beneficial Ownership Reporting Compliance” on page 16, of the Company’s Proxy Statement dated March 17, 2003.
 
The Company’s executive officers as of the date of this report are as follows:
 
Executive Officer
	  	Position
	    	Age as of
December 31, 2002
	
Edmund M. Carpenter	  	President and Chief Executive Officer	    	61	
		
John R. Arrington	  	Senior Vice President, Human Resources	    	56	
		
Francis C. Boyle, Jr.	  	Vice President, Controller	    	52	
		
Leonard M. Carlucci	  	Vice President, Barnes Group Inc. and President, Associated Spring	    	56	
		
Joseph D. DeForte	  	Vice President, Tax	    	60	
		
William C. Denninger	  	Senior Vice President, Finance and Chief Financial Officer	    	52	
		
A. Keith Drewett	  	Vice President, Barnes Group Inc. and President, Barnes Distribution	    	56	
		
Thomas P. Fodell	  	Vice President, Barnes Group Inc. and Chief Operating Officer, Associated Spring	    	52	
		
Signe S. Gates	  	Senior Vice President, General Counsel and Secretary	    	53	
		
Philip A. Goodrich	  	Senior Vice President, Corporate Development	    	46	
 
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Executive Officer
	  	Position
	    	Age as of
December 31, 2002

Gregory F. Milzcik	  	Vice President, Barnes Group Inc. and President, Barnes Aerospace	    	43	
		
Lawrence W. O’Brien	  	Vice President, Treasurer	    	53	
		
Idelle K. Wolf	  	Vice President, Barnes Group Inc. and Chief Operating Officer, Barnes Distribution	    	50	
 
Except for Messrs. Carpenter, Arrington, DeForte, Denninger, Drewett, Goodrich, Milzcik and O’Brien, and Mses. Gates and Wolf, each of the Company’s executive officers has been employed by the Company or its subsidiaries in an executive or managerial capacity for at least the past five years. Each officer holds office until his or her successor is chosen and qualified or otherwise as provided in the By-Laws, except Mr. Carpenter who holds office pursuant to an employment agreement with the Company, which is incorporated as Exhibit 10.12 to this report. No family relationships exist among the executive officers of the Company.
 
Mr. Carpenter joined the Company as President and Chief Executive Officer in December 1998. From 1996 to 1998, Mr. Carpenter was a Senior Managing Director of Clayton, Dubilier & Rice, Inc., a private equity firm.
 
Mr. Arrington joined the Company as Senior Vice President, Human Resources in April 1998. From 1995 to 1998, Mr. Arrington was Vice President, Human Resources of U.S. West Communications Group.
 
Mr. DeForte joined the Company as Vice President, Tax in August 1999. From 1997 to 1999, Mr. DeForte was Vice President and Chief Financial Officer of Loctite Corporation, a manufacturer and distributor of adhesives and sealants. From 1988 to 1997, Mr. DeForte was Vice President, Tax, Loctite Corporation. In 1997, Loctite Corporation became a subsidiary of Henkel KGaA.
 
Mr. Denninger joined the Company as Senior Vice President, Finance and Chief Financial Officer in March 2000. From 1994 to 2000, Mr. Denninger was Vice President-Finance and Chief Financial Officer of BTR Inc., an industrial products manufacturer.
 
Mr. Drewett joined the Company as Vice President, Barnes Group Inc. and President, Barnes Distribution in May 2000, upon the Company’s acquisition of Curtis Industries. From 1998 to 2000, Mr. Drewett was President and Chief Executive Officer of Curtis Industries, Inc. From 1992 to 1998, he was President of the Automotive and Industrial Division of Curtis Industries. He was also Senior Vice President of Curtis from 1997 to 1998 and Vice President of Curtis from 1992 to 1997.
 
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Mr. Goodrich joined the Company as Vice President, Business Development in November 1999. He was promoted to Senior Vice President, Corporate Development in December 2000. From 1996 to 1998, Mr. Goodrich was Senior Vice President, Corporate Development of AMETEK, Inc., a manufacturer of electric motors and electronic equipment.
 
Mr. Milzcik joined the Company as Vice President, Barnes Group Inc. and President, Barnes Aerospace in June 1999. From 1997 to 1999, Mr. Milzcik was Vice President and General Manager of International Operations of Lockheed Martin Aircraft and Logistics, an aerospace manufacturing and service company. From 1994 to 1997, Mr. Milzcik was Group Vice President, Manufacturing and Overhaul of Precision Standard, Inc., an aerospace structure manufacturing and engineering services company.
 
Mr. O’Brien joined the Company as Vice President and Treasurer in August 2001. From 1997 to 2001, Mr. O’Brien was Vice President and Treasurer of L-3 Communications Corporation. From 1981 to 1996, Mr. O’Brien worked for Pechiney Corporation including serving as Vice President and Treasurer from 1990 to 1996.
 
Ms. Gates joined the Company as Senior Vice President, General Counsel and Secretary in June 1999. From 1996 to 1999, Ms. Gates was Vice President, General Counsel and Corporate Secretary of Axel Johnson Inc., a manufacturing, distribution and service company in the energy, telecommunications and environmental industries.
 
Ms. Wolf joined the Company as Vice President, Barnes Group Inc. and Chief Operating Officer, Barnes Distribution in May 2000, upon the Company’s acquisition of Curtis Industries. From 1998 to 2000, Ms. Wolf was Executive Vice President and Chief Operating Officer of Curtis Industries, Inc. She was Senior Vice President and Chief Financial Officer of Curtis from 1997 to 1998, and Vice President of Finance and Chief Financial Officer from  1992 to 1997.
 
Item 11.    Executive Compensation.
 
The information under “Compensation of Directors” appearing on page 4, and under “Compensation and Management Development Committee Report,” “Compensation,” “Stock Options,” “Pension Plans,” “Employment Agreement,” “Change-In-Control and Severance Arrangements,” and “Performance Graph” appearing on pages 8 through 16 of the Company’s Proxy Statement dated March 17, 2003, is incorporated by reference.
 
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The information under “Stock Ownership By Directors and Executive Officers” and “Beneficial Owners of More than 5% of Shares” appearing on pages 5 and 6 of the Company’s Proxy Statement dated March 17, 2003, is incorporated by reference.
 
The information regarding securities authorized for issuance under equity compensation plans is set forth below.
 
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Equity Compensation Plan Information
 
Plan Category
	    	Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
	    	Weighted-average
exercise price of outstanding options, warrants and rights
	 	    	Number of securities
remaining available for
future issuance under equity compensation plans
(excluding securities
reflected in column (a))
	
 	    	(a)	    	(b)	 	    	(c)	
Equity compensation plans approved by security holders:	    	 	    	 	 	 	    	 	
1991 Barnes Group Stock Incentive Plan (1991 Plan)	    	1,758,327	    	$	22.19	(1)	    	171,832	
Barnes Group Inc. Employee Stock and Ownership Program (2000 Plan)	    	2,542,901	    	$	19.52	(2)	    	749,432	
Employee Stock Purchase Plan (ESPP)	    	—  	    	 	—  	 	    	256,527	
Equity compensation plans not approved by security holders:	    	 	    	 	 	 	    	 	
Non-Employee Director Deferred Stock Plan	    	54,000	    	 	—  	 	    	—  	
Key Executive Stock Plan	    	98,520	    	$	26.30	(3)	    	6,286	
 	    		    				    		
Total	    	4,453,748	    	$	20.80	 	    	1,184,077	

Footnotes:
 
(1)	 	Weighted-average exercise price excludes 54,000 shares for restricted stock awards and 4,298 shares for dividend equivalents, both with zero exercise price.	
(2)	 	Weighted-average exercise price excludes 351,300 shares for restricted stock awards and 18,739 shares for dividend equivalents, both with zero exercise price.	
(3)	 	Weighted-average exercise price excludes 20,000 shares for incentive stock unit awards and 3,520 shares for dividend equivalents, both with zero exercise price.	
 
Non-Employee Director Deferred Stock Plan .    The plan provides that each non-employee director is granted the right to receive 6,000 shares of Company common stock when his or her membership on the Board of Directors terminates. The plan provides for payment of a dividend equivalent amount equal to 6,000 times the dividend per share of common stock.
 
Key Executive Stock Plan .    In 1998, pursuant to the plan, 60,000 incentive stock units and 75,000 stock options to acquire shares of Company common stock were granted. There are no additional grants to be made under the plan. The stock options have a ten (10)-year term and vest over a period of four (4) years. The incentive stock units vest over a five (5)-year period.
 
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Item 13.    Certain Relationships and Related Transactions.
 
None.
 
Item 14.    Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures.    During the 90-day period prior to the filing date of this report, management, including the Company’s President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon, and as of the date of, that evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.
 
Changes in Internal Controls.    There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date when the Company’s President and Chief Executive Officer and Chief Financial Officer carried out their evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation.
 
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PART IV
 
Item 15.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.
 
(a)	 	The report of PricewaterhouseCoopers LLP, independent accountants, and the following financial statements and financial statement schedules are filed as part of this report:	
	
 	    	Reference
	
 	    	Form 10-K
(page)
	    	Annual Report
to Stockholders
(page)
	
Report of independent accountants	    	20	    	40	
Consolidated balance sheets at December 31, 2002 and 2001	    	 	    	18	
Consolidated statements of income for the years ended December 31, 2002, 2001, and 2000	    	 	    	17	
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2002, 2001, and 2000	    	 	    	20	
Consolidated statements of cash flows for the years ended December 31, 2002, 2001, and 2000	    	 	    	19	
Notes to consolidated financial statements	    	 	    	21—39	
Supplementary information
Quarterly data (unaudited)	    	 	    	41	
Consolidated schedule for the years ended December 31, 2002, 2001, and 2000:	    	21	    	 	
Schedule II – Valuation and Qualifying Accounts	    	 	    	 	
 
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.
 
The consolidated financial statements listed in the above index which are included in the Annual Report to Stockholders of Barnes Group Inc. for the year ended December 31, 2002, are incorporated by reference. With the exception of the pages listed in the above index and in Items 1, 5, 6, 7, 7A, and 8, the 2002 Annual Report to Stockholders is not to be deemed filed as part of this report.
 
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(b)	 	Reports on Form 8-K	
 
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
 
(c)	 	The Exhibits required by Item 601 of Regulation S-K are filed as Exhibits to this Annual Report on Form 10-K and indexed at pages 22 through 26 of this report.	
 
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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 18, 2003

BARNES GROUP INC.	
		
By	 	/s/    E DMUND M. C ARPENTER        
	
 	 	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/    E DMUND M. C ARPENTER        
	
Edmund M. Carpenter
President and Chief Executive Officer
(Principal Executive Officer) and Director	
 
/s/    W ILLIAM C. D ENNINGER        
	
William C. Denninger
Senior Vice President, Finance
Chief Financial Officer
(Principal Financial Officer)	
 
/s/    F RANCIS C. B OYLE , J R .        
	
Francis C. Boyle, Jr.
Vice President, Controller
(Principal Accounting Officer)	
 
/s/    T HOMAS O. B ARNES        
	
Thomas O. Barnes
Director	
 
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/s/    J OHN W. A LDEN        
	
John W. Alden
Director	
 
/s/    G ARY G. B ENANAV        
	
Gary G. Benanav
Director	
 
/s/    W ILLIAM S. B RISTOW , J R .        
	
William S. Bristow, Jr
Director	
 
/s/    G EORGE T. C ARPENTER        
	
George T. Carpenter
Director	
 
/s/    D ONALD W. G RIFFIN        
	
Donald W. Griffin
Director	
 
/s/    F RANK E. G RZELECKI        
	
Frank E. Grzelecki
Director	
 
/s/    M YLLE H. M ANGUM        
	
Mylle H. Mangum
Director	
 
/s/    G. J ACKSON R ATCLIFFE        
	
G. Jackson Ratcliffe
Director	
 
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CERTIFICATIONS
 
I, Edmund M. Carpenter, certify that:
 
1.	 	I have reviewed this annual report on Form 10-K of Barnes Group Inc.;	
 
2.	 	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;	
 
3.	 	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;	
 
4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:	
 
 	(a)	 	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;	
 
 	(b)	 	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and	
 
 	(c)	 	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;	
 
5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):	
 
 	(a)	 	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and	
 
 	(b)	 	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and	
 
6.	 	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our	
 
16

most	 	recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.	
 
Dated: March 18, 2003
 
/s/    Edmund M. Carpenter                    
Edmund M. Carpenter
President and Chief Executive Officer
 
17

 
I, William C. Denninger, certify that:
 
1.	 	I have reviewed this annual report on Form 10-K of Barnes Group Inc.;	
 
2.	 	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;	
 
3.	 	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;	
 
4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:	
 
 	(a)	 	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;	
 
 	(b)	 	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and	
 
 	(c)	 	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;	
 
5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):	
 
 	(a)	 	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and	
 
 	(b)	 	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and	
 
18

 
6.	 	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.	
 
Dated: March 18, 2003
 
/s/    William C. Denninger                                         
William C. Denninger
Senior Vice President and Chief Financial Officer
 
19

 
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 January 31, 2003 (except for Note 3, which is as of February 6, 2003) appearing in the 2002 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 15(a) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
 
/s/    PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 31, 2003 (except for Note 3, which is as of February 6, 2003)
 
20

 
BARNES GROUP INC.
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2002, 2001, and 2000
( In thousands )

Allowances for Doubtful Accounts:	  	 	 	 	
		
Balance December 31, 1999	  	$	3,329	 	
Provision charged to income	  	 	936	 	
Doubtful accounts written off (net)(1)	  	 	(1,990	)	
Other adjustments(2)	  	 	445	 	
 	  				
Balance December 31, 2000	  	 	2,720	 	
Provision charged to income(3)	  	 	2,076	 	
Doubtful accounts written off (net)(3)	  	 	(1,682	)	
Other adjustments	  	 	—  	 	
 	  				
Balance December 31, 2001	  	 	3,114	 	
Provision charged to income	  	 	580	 	
Doubtful accounts written off (net)(1)	  	 	(1,657	)	
Other adjustments(2)	  	 	854	 	
 	  				
Balance December 31, 2002	  	$	2,891	 	

(1)	 	In both 2000 and 2002 the higher level of doubtful accounts written off as compared to the provision charged to income resulted from Barnes Distribution recognizing the write-off of receivables reserved and expensed in prior years.	
(2)	 	Opening balances of acquired businesses.	
(3)	 	The 2001 increase in the provision charged to income and the level of write-off of doubtful accounts reflect the impact of the weak economic environment on the Company’s customers.	
 
21

 
EXHIBIT  INDEX
 
Barnes Group Inc.
 
Annual Report on Form 10-K
for the Year ended December 31, 2002
 
Exhibit No.
	  	Description
	  	Reference

2.1	  	Asset Purchase Agreement, dated as of April 27, 2000, by and among the Company, Curtis Industries, Inc. and Paragon Corporation Holdings, Inc.	  	Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed on May 18, 2000.	
		
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	  	(i) $150,000 Senior Unsecured Revolving Credit Agreement, dated as of June 14, 2002, among the Company and several commercial banks.	  	Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended June 30, 2002.	
		
 	  	(ii) Amendment No. 1 to Revolving Credit Agreement dated as of February 5, 2003.	  	Filed with this report.	
		
4.2	  	(i) Rights Agreement dated as of December 10, 1996, between the Company and ChaseMellon Shareholder Services, L.L.C.	  	Incorporated by reference to Exhibit 1 to the Company’s report on Form 8-A filed on December 20, 1996.	
		
 	  	(ii) Amendment No. 1 to Rights Agreement, dated as of February 19, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C.	  	Incorporated by reference to Exhibit 1 to the Company’s report on Form 8-A/A filed on March 18, 1999.	

Exhibit No.
	  	Description
	  	Reference

4.3	  	(i) Note Purchase Agreement dated as of December 1, 1995, between the Company and several insurance companies.	  	Incorporated by reference to Exhibit 4.9 to the Company’s report on Form 10-K for the year ended December 31, 1995.	
		
 	  	(ii) First Amendment to Note Purchase Agreement dated as of September 1999.	  	Filed with this report.	
		
 	  	(iii) Interest Rate Swap Master Agreement, between Barnes Group Inc. and Sun Trust Bank, dated as of August 19, 2002.	  	Filed with this report.	
		
 	  	(iv) Amendment No. 2 to Note Purchase Agreement dated as of February 5, 2003.	  	Filed with this report.	
		
4.4	  	(i) Note Agreement dated as of November 12, 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.	  	Incorporated by reference to Exhibit 4.6 to the Company’s report on Form 10-K for the year ended December 31, 1999.	
		
 	  	(ii) Amendment No. 1 to Note Agreement, dated as of February 5, 2003.	  	Filed with this report.	
		
4.5	  	(i) Note Agreement dated as of November 21, 2000, between Barnes Group Inc. and several insurance companies.	  	Incorporated by reference to Exhibit 4.7 to the Company’s report on Form 10-K for the year ended December 31, 2000.	
		
 	  	(ii) Amendment No. 1 to Note Agreement dated as of February 21, 2002.	  	Filed with this report.	
		
 	  	(iii) Amendment No. 2 to Note Agreement dated as of February 5, 2003.	  	Filed with this report.	

Exhibit No.
	  	Description
	  	Reference

4.6	  	(i) Term Loan Facility Agreement between Associated Spring-Asia Pte. Ltd. and The Development Bank of Singapore Limited, dated June 19, 2001.	  	Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended June 30, 2001.	
		
 	  	(ii) Guarantee of Term Loan Facility Agreement, between Barnes Group Inc. and The Development Bank of Singapore Limited, dated June 19, 2001.	  	Incorporated by reference to Exhibit 10.2 to the Company’s report on Form 10-Q for the quarter ended June 30, 2001.	
		
 	  	(iii) Currency Swap and Interest Rate Hedging Master Agreement, between Associated Spring-Asia Pte. Ltd. and The Development Bank of Singapore Limited, dated June 19, 2001.	  	Incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q for the quarter ended June 30, 2001.	
		
 	  	(iv) Guarantee of Currency Swap and Interest Rate Hedging Master Agreement, between Barnes Group Inc. and The Development Bank of Singapore Limited, dated June 19, 2001.	  	Incorporated by reference to Exhibit 10.4 to the Company’s report on Form 10-Q for the quarter ended June 30, 2001.	
		
4.7	  	Guaranty dated as of February 6, 2003 by Kar Products, LLC in favor of Senior Lenders of Barnes Group Inc.	  	Filed with this report.	
		
10.1*	  	The Company’s Management Incentive Compensation Plan, as amended and restated January 1, 2000.	  	Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-K for the year ended December 31, 2000.	
		
10.2*	  	The Company’s 1996 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 Equalization Plan.	  	Filed with this report.	
		
10.4*	  	The Company’s Supplemental Executive Retirement Plan.	  	Filed with this report.	

Exhibit No.
	  	Description
	  	Reference

10.5*	  	The Company’s 1991 Stock Incentive Plan, as amended and restated May 15, 1998.	  	Incorporated by reference to Exhibit 10.5 to the Company’s report on Form 10-K for the year ended December 31, 1998.	
		
10.6*	  	The Company’s Non-Employee Director Deferred Stock Plan.	  	Incorporated by reference to Exhibit 10.7 to the Company’s report on Form 10-K for the year ended December 31, 1994.	
		
10.7*	  	The Company’s Amended and Restated Directors’ Deferred Compensation Plan.	  	Incorporated by reference to Exhibit 10.8 to the Company’s report on Form 10-K for the year ended December 31, 1996.	
		
10.8*	  	The Company’s Senior Executive Enhanced Life Insurance Program, as amended and restated May 16, 1997.	  	Incorporated by reference to Exhibit 10.8 to the Company’s report on Form 10-K for the year ended December 31, 1998.	
		
10.9*	  	The Company’s Enhanced Life Insurance Program.	  	Incorporated by reference to Exhibit 10.12 to the Company’s report on Form 10-K for the year ended December 31, 1993.	
		
10.10*	  	The Company’s Supplemental Senior Officer Retirement Plan.	  	Incorporated by reference to Exhibit 10.13 to the Company’s report on Form 10-K for the year ended December 31, 1996.	
		
10.11*	  	The Company’s Executive Officer Change-In-Control Severance Agreement.	  	Incorporated by reference to Exhibit 10.14 to the Company’s report on Form 10-K for the year ended December 31, 1997.	
		
10.12*	  	Employment Agreement dated as of December 8, 1998 between the Company and Edmund M. Carpenter.	  	Incorporated by reference to Exhibit 10.14 to the Company’s report on Form 10-K for the year ended December 31, 1998.	
		
10.13*	  	The Company’s Key Executive Stock Plan, effective December 8, 1998.	  	Incorporated by reference to the Company’s report on Form 10-Q for the quarter ended June 30, 2002.	

Exhibit No.
	  	Description
	  	Reference

10.14*	  	The Company’s Employee Stock and Ownership Program as amended effective February 1, 2002.	  	Incorporated by reference to Annex I to the Company’s Proxy Statement dated March 13, 2002 for the Annual Meeting of Stockholders held April 10, 2002 that was filed on March 12, 2002.	
		
10.15*	  	Barnes Group Inc. Executive Deferred Compensation Plan.	  	Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended September 30, 2001.	
		
10.16*	  	Barnes Group Inc. Retirement Saving Plan, as amended and restated January 1, 2002.	  	Incorporated by reference to Exhibit 10.15 of the Company’s report on Form 10-K for the year ended December 31, 2001.	
		
10.17*	  	Barnes Group Inc. Executive Separation Pay Plan	  	Filed with this report.	
		
13	  	Portions of the 2002 Annual Report to Stockholders.	  	Filed with this report.	
		
21	  	List of Subsidiaries.	  	Filed with this report.	
		
23	  	Consent of Independent Accountants.	  	Filed with this report.	
		
99.1	  	Certificate pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	  	Filed with this report.	
		
99.2	  	Certificate pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	  	Filed with this report.	
 
*Management contract or compensatory plan or arrangement.
 
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 Exhibits 13, 21, and 23, which will be furnished free of charge, copies of exhibits referred to above will be furnished at a cost of twenty-five cents per page to security holders who make a written request to the Secretary, Barnes Group Inc., 123 Main Street, P.O. Box 489, Bristol, Connecticut 06011-0489.
 
EXHIBIT 4.1. (ii)
AMENDMENT NO. 1 TO
REVOLVING CREDIT AGREEMENT
This AMENDMENT NO. 1 (this "Amendment"), made as of February 5, 2003 among BARNES GROUP INC., a Delaware corporation with a principal place of business at 123 Main Street, P.O. Box 489, Bristol, Connecticut 06011 (the "Borrower"), and FLEET NATIONAL BANK, a national banking association with an office at 100 Federal Street, Boston, MA 02110, as agent for the lenders which are or may become party to the Credit Agreement referred to below (collectively, the "Lenders") (Fleet National Bank, in its capacity as agent for the Lenders, being hereinafter referred to as the "Administrative Agent"), amends that certain Revolving Credit Agreement dated the 14th day of June, 2002 (as amended and in effect from time to time, the "Credit Agreement"), executed by the Borrower, the Lenders, the Administrative Agent, and HSBC Bank USA, KeyBank National Association, Mellon Bank, N.A., and Webster Bank as Co-Documentation Agents (the "Documentation Agents"). Terms not otherwise defined herein which are defined in the Credit Agreement referred to below shall have the respective meanings herein assigned to such terms in the Credit Agreement referred to below.
WHEREAS, the parties hereto wish to amend certain of the provisions of the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendments to Credit Agreement.
(a) Definitions. Section 1.1 of the Credit Agreement is hereby amended by (i) the deletion of the definition of "Applicable Margin" set forth therein and substituting in lieu thereof the following new definition and (ii) the addition of the following new definition of "Industrial Distribution Business Acquisition":
"Applicable Margin. For each period commencing on an Adjustment Date through the date immediately preceding the next Adjustment Date (each a "Rate Adjustment Period"), the Applicable Margin shall be the applicable margin set forth below with respect to the Leverage Ratio, as determined for the four
(4) consecutive fiscal quarters then ending of the Borrower and its Subsidiaries ending on the last day of the fiscal quarter ended immediately prior to the applicable Rate Adjustment Period.
-2-

                                             BASE        LIBOR
                        LEVERAGE             RATE        RATE         LETTER OF
     LEVEL                RATIO              LOANS       LOANS         CREDIT            COMMITMENT FEE
---------------------------------------------------------------------------------------------------------
       I         Less than to 2.25:1         0.125%      1.250%         1.250%              0.250%
---------------------------------------------------------------------------------------------------------
      II         Less than 2.50:1 but
                 greater than or equal
                 to 2.25:1                   0.250%      1.375%         1.375%              0.300%
---------------------------------------------------------------------------------------------------------
      III        Less than 2.75:1 but
                 greater than or equal
                 to 2.50:1                   0.375%      1.500%         1.500%              0.350%
---------------------------------------------------------------------------------------------------------
      IV         Less than 3.00:1 but
                 greater than or equal       0.500%      1.750%         1.750%              0.375%
                 to 2.75:1
---------------------------------------------------------------------------------------------------------
       V         Greater than or equal       0.625%       2.00%          2.00%              0.450%
                 to 3.00:1
---------------------------------------------------------------------------------------------------------	

Notwithstanding the foregoing, the Applicable Margin for the period from the date of Closing until the date of receipt of the Compliance Certificate for the period ending June 30, 2002 shall be Level IV above. If the Borrower fails to maintain a Leverage Ratio of 3.00 or less as evidenced by the Compliance Certificate delivered for the period ending September 30, 2003, the Applicable Margin for Level V above for the period commencing on the next Adjustment Date and thereafter will be increased to 2.25%. If the Borrower fails to deliver any Compliance Certificate pursuant to Section 8.4(c) hereof, then for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such Compliance Certificate is delivered, the Applicable Margin shall be the highest Applicable Margin set forth above."
"Industrial Distribution Business Acquisition. The acquisition by the Borrower of Kar Products, LLC ("Kar") pursuant to the Membership Interest and Asset Purchase Agreement dated as of January 15, 2003, by and among the Borrower, Barnes Group Canada Corp., Kar, A. & H. Bolt & Nut Company Ltd., Sunsource Canada Investment Company, GC-Sun Holdings II, L.P., A & H Bolt Holdings, Inc., GC-Sun, Inc., GC-Sun G.P. II, Inc., GC-Sun G.P., Inc. and GC-Sun Holdings, L.P., in which the Borrower purchased (i) certain A. & H. Bolt & Nut Company Ltd. assets for $4.0 million in cash and (ii) the membership interests in Kar Products, LLC, a limited liability company which will guaranty the Obligations and become a directly owned subsidiary of the Borrower, for $74.5 million."
(b) Section 5.2. Section 5.2 of the Credit Agreement is hereby amended by the addition of the following new subsection:
"5.2.1. Leverage Ratio Fee. In the event that the Leverage Ratio is not less than 3.10:1 for the four consecutive fiscal quarters ending September 30, 2003, the Borrower shall pay to the Administrative Agent, for the pro rata benefit of the
-3-
Lenders, a Leverage Ratio fee (the "Leverage Ratio Fee") on November 29, 2003 in an amount equal to 10 basis points multiplied by each Lender's Commitment."
(c) Section 8.14. Section 8 of the Credit Agreement is hereby amended by the addition of the following new section:
"8.14. Amendment of Kar Products, LLC Limited Liability Company Agreement. Within thirty (30) days of the effective date of Amendment No. 1 to the Credit Agreement, the Borrower will amend Section 6.1 of the Second Amended and Restated Limited Liability Company Agreement of Kar Products, LLC in form and substance satisfactory to the Administrative Agent."
(d) Section 9.3. Section 9.3 of the Credit Agreement is hereby amended by deleting the last paragraph set forth therein and substituting in lieu thereof the following new paragraph:
"The Investments permitted under clauses (g), (h) and (i)(A) of this Section 9.3 shall be limited as follows: the aggregate dollar amount of such Investments in the form of acquisitions (excluding consideration paid (i) by the issuance of equity of the Borrower, and (ii) in connection with the Industrial Distribution Business Acquisition, so long as the target of the contemplated transaction shall deliver a guaranty of the Obligations in the form of Exhibit E hereof), capital contributions, loans or advances, or their equivalent, net of stock redemptions, capital distributions, proceeds from the sale of new equity of the Borrower (which shall be limited to up to 50% of the net proceeds of any such issuance), loan repayments or advances by such Subsidiaries to the Borrower, shall not at any time exceed 10% of Consolidated Total Assets."
(e) Section 10.2. Section 10.2 of the Credit Agreement is hereby restated in its entirety as follows:
"10.2. Leverage Ratio. As of the end of any fiscal quarter, the Borrower will not permit the ratio of Consolidated Total Debt (excluding, for purposes of calculation of the Leverage Ratio, reverse interest rate swap contracts) as at such date to Consolidated EBITDA for the four (4) consecutive fiscal quarters then ending (the "Leverage Ratio") to be more than the applicable ratio set forth in the table below:

For the Four Quarters Ending                  Ratio
----------------------------                  -----
  6/30/2002 and 9/30/2002                     3.50:1
        12/31/2002                            3.00:1
   3/31/2003 - 9/30/2003                      3.25:1
   12/31/2003 - 3/31/04                       3.00:1
   6/30/04 - Thereafter                       2.75:1"	

-4-
2. Ratification. Except as expressly provided for herein, the Credit Agreement and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as one instrument.
3. Representations and Warranties. The Borrower hereby represents and warrants that all representations and warranties as set forth in the Credit Agreement are true and correct in all material respects on and as of the date hereof, except for Section 7.4.2 which continues to be true as of the Balance Sheet Date. All such representations and warranties are hereby ratified, affirmed and incorporated herein by reference with the same force and effect as though set forth herein in their entirety.
4. Effectiveness. This Amendment shall become effective as of the date hereof upon the satisfaction of the following conditions precedent:
(a) The Borrower and the Lenders shall have executed and delivered this Amendment.
(b) All proceedings in connection with the Industrial Distribution Business Acquisition and all documents incident thereto, including without limitation the guaranties of the Obligations by Kar, shall be reasonably satisfactory in substance and form to the Administrative Agent and its counsel, and the Administrative Agent shall have received all information and such counterpart originals or certified or other copies of such documents as the Administrative Agent may reasonably request.
(c) The Administrative Agent shall have received from the Borrower an amendment fee in an amount equal to 50 basis points multiplied by the individual Commitment of each Lender who has approved this Amendment as of February 5, 2003, for the benefit of such approving Lenders.
(d) Kar shall have executed and delivered to the Administrative Agent a Guaranty of the Obligations in the form of Exhibit E to the Credit Agreement.
5. No Waiver. Nothing contained herein shall constitute a waiver of, impair or otherwise adversely affect any Obligations, any other obligation of the Borrower or any rights of the Lenders consequent thereon.
6. Counterparts. This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the day and year first above written.
BARNES GROUP INC.

By:    /s/ William C. Denninger
Name:  William C. Denninger
Title: Senior Vice President, Finance
       and Chief Financial Officer

By:    /s/ Lawrence W. O'Brien
Name:  Lawrence W. O'Brien
Title: Vice President, Treasurer	

FLEET NATIONAL BANK, individually and as Administrative Agent

By:    /s/ Deanne M. Horn
Name:  Deanne M. Horn
Title: Director	

HSBC BANK USA, individually and as Co-Documentation Agent

By:    /s/ John V. Raleigh
Name:  John V. Raleigh
Title: Vice President	

KEYBANK NATIONAL ASSOCIATION,
 individually and as Co-Documentation
Agent

By:    /s/ Lawrence A. Mack
Name:  Lawrence A. Mack
Title: Senior Vice President	

MELLON BANK, N.A., individually and as Co-Documentation Agent

By:    /s/ Nancy E. Gale
Name:  Nancy E. Gale
Title: Vice President	

WEBSTER BANK, individually and as Co-Documentation Agent

By:    /s/ Richard A. O'Brien
Name:  Richard A. O'Brien
Title: Senior Vice President	

SUNTRUST BANK

By:    /s/ Heidi M. Khambatta
Name:  Heidi M. Khambatta
Title: Vice President	

THE BANK OF NEW YORK

By:    /s/ Kenneth P. Sneider
Name:  Kenneth P. Sneider
Title: Vice President	

BANK OF AMERICA, N.A.

By:    /s/ Steve A. Aronowitz
Name:  Steve A. Aronowitz
Title: Managing Director	

COMERICA BANK

By:    /s/ Stacey Judd
Name:  Stacey Judd
Title: Account Officer	

BANK ONE, NA (Main Office Chicago)

By:    /s/ Jules Panno
Name:  Jules Panno
Title: Director	

THE GOVERNOR & COMPANY OF
THE BANK OF IRELAND

By:    /s/ Geraldine Hannon
Name:  Geraldine Hannon
Title: Associate Director

By:    /s/ Tom Hayes
Name:  Tom Hayes
Title: Head of Acquisition Finance	

EXHIBIT 4.3(ii)
FIRST AMENDMENT
TO NOTE PURCHASE AGREEMENT
This AMENDMENT TO NOTE PURCHASE AGREEMENT (this "First Amendment"), dated as of September ____, 1999, is made by and between BARNES GROUP INC, a Delaware corporation (the "Company"), and each of CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY, CONNECTICUT GENERAL LIFE INSURANCE COMPANY, CIGNA INSURANCE COMPANY, LIFE INSURANCE COMPANY OF NORTH AMERICA, and THE LINCOLN NATIONAL LIFE INSURANCE (the "Holders").
BACKGROUND
A. Pursuant to the Note Purchase Agreement (the "Note Agreement"), dated as of December 1, 1995 between the Company and certain of the Holders the Company issued and the Holders or their predecessors in interest purchased Twenty-Five Million Dollars ($25,000,000) in aggregate principal amount of the Company's 7.13% Notes due 12/5/05 (the "Notes").
B. The Company has requested that the Holders amend the Note Agreement so as to permit the issuance of additional debt by a newly formed Canadian subsidiary to facilitate a proposed corporate acquisition.
C. The Company and the Holders desire to enter into this First Amendment to effectuate the above-mentioned amendment.
NOW, THEREFORE, in order to induce the Holders to grant the amendment specified below and in consideration of other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the Company and the Holders agree as follows:
1. DEFINITIONS.
All capitalized terms used, but not specifically defined, in this First Amendment have the respective meanings assigned to them in the Note Agreement.
2. EFFECTIVE DATE.
The provisions of Section 4 shall take effect on the first date on which all of the following conditions precedent have been and remain satisfied:
(a) Consenting Parties - Holders holding not less than sixty-six and two-thirds percent (66-2/3%) in aggregate principal amount of the Notes then outstanding (exclusive of Notes then owned by any one or more of the Company, any Subsidiaries and any affiliates) and the Company shall have duly authorized, executed and delivered this First Amendment;
Page 1
(b) No Defaults - no Default or Event of Default exists after giving effect to the amendments set forth in Section 4;
(c) Payment of Fees and Expenses - the Company shall have paid the legal fees and disbursements of the Holders' in-house legal department allocable to this First Amendment; and
3. TERMINATION OF AMENDMENT.
The amendment set forth in Section 4 shall terminate and shall be null and void and of no force and effect if any written materials furnished in connection with this First Amendment shall have been false or misleading in any material respect when made.
4. AMENDMENTS.
Section 7.7(i) of the Note Agreement shall be amended and restated in its entirety as follows:
"(i) the total Indebtedness of the Company's Subsidiaries shall not at any time exceed $100 million;"
5. EFFECT OF AGREEMENT.
Except as expressly provided in this First Amendment, the Note Agreement and all documents and instruments executed in connection with, or contemplated by, the Note Agreement shall remain in full force and effect, without modification or amendment. This First Amendment shall be binding upon, and shall inure to the benefit of, the successors and assigns of the parties hereto and the holders from time to time of the Notes.
6. DUPLICATE ORIGINALS: EXECUTION IN COUNTERPART.
Two or more duplicate originals of this First Amendment 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. This First Amendment may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party to this First Amendment and each set of counterparts which, collectively, show execution by each such party to this First Amendment shall constitute one duplicate original.
Page 2
8. GOVERNING LAW.
This First Amendment shall be governed by, and construed and enforced in accordance with internal Connecticut law.
IN WITNESS WHEREOF, the undersigned have each caused this First Amendment to Note Purchase Agreement to be duly executed and delivered by their respective, duly authorized officers as of the date first above written.
COMPANY:
BARNES GROUP INC.

By:  /s/ JOHN LOCHER
     --------------------------------
     Name:  JOHN LOCHER
     Title: VICE PRESIDENT, TREASURER	

[Signatures Continued On Next Page]
Page 3
HOLDERS:
CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY*
By: CIGNA Investments, Inc.

By: /s/ EDWARD LEWIS
    ----------------------------
    Name:
    Title:	

CONNECTICUT GENERAL LIFE INSURANCE COMPANY*
By: CIGNA Investments, Inc.

By: /s/ EDWARD LEWIS
    ----------------------------
    Name:
    Title:	

CIGNA INSURANCE COMPANY*
By: CIGNA Investments, Inc.

By: /s/ EDWARD LEWIS
    ----------------------------
    Name:
    Title:	

LIFE INSURANCE COMPANY OF NORTH AMERICA*
By: CIGNA Investments, Inc.

By: /s/ EDWARD LEWIS
    ----------------------------
    Name:
    Title:	

*The entity signing this agreement is either a holder of a Note referred to herein or the beneficial holder of such Note registered in the name of the nominee of such beneficial holder.
[Signatures Continued On Next Page]
Page 4
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Lincoln Investment Management, Inc.
By:
 Name: Edward Lewis
Title:

Page 5
 
(Multicurrency--Cross Border) EXHIBIT 4.3 (iii)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of August 19, 2002
SUNTRUST BANK and BARNES GROUP INC.
Party A Party B
have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) Definitions. The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.
(ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.
Copyright (C) 1992 by International Swap Dealers Association, Inc.
(b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law.
2 ISDA(R) 1992
(ii) Liability. If:--
(1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section
2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:--
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
3 ISDA(R) 1992
(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representations. Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure.
4 ISDA(R) 1992
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organized, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party's execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or
(3) disaffirms, disclaims, repudiates or rejects in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however
5 ISDA(R) 1992
described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter:
(8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:--
(1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger
6 ISDA(R) 1992
if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or
(v) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default.
7 ISDA(R) 1992
6. EARLY TERMINATION
(a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party's policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or
8 ISDA(R) 1992
an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an Event of Default:--
(1) First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement.
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(3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) Payment in the Contractual Currency. Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the "Contractual Currency"). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term "rate of exchange" includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made.
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9. MISCELLANEOUS
(a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation.
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11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.
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Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party's Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into.
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"consent" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.
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"Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head or home office.
"Potential Event of Default" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organized, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and
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(b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the "Other Currency"), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Terminated Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.
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"Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.

        SUNTRUST BANK                                   BARNES GROUP INC.

   By:  /s/  Fred D. Woolf                         By:  /s/  David J. Sinder
                                                        ----------------------
 Name:  Fred D. Woolf                            Name:  David J. Sinder
Title:  Vice President                          Title:  Assistant Treasurer
 Date:  10/2/02                                  Date:  9-10-02	

18
SCHEDULE TO THE
ISDA MASTER AGREEMENT
DATED AS OF AUGUST 19, 2002, BETWEEN
SUNTRUST BANK
 ("PARTY A")
AND
BARNES GROUP, INC.
 ("PARTY B")
Part 1
Definitions
1. "Affiliate" shall have the meaning assigned to such term in Section 14 of this Agreement.
2. "Calculation Agent" shall mean Party A.
3. "Shareholders' Equity" means with respect to any entity, at any time, the sum (as shown in the most recent annual audited financial statements of such entity) of (i) its capital stock (including preferred stock) outstanding, taken at par value, (ii) its capital surplus and (iii) its retained earnings, minus (iv) treasury stock, each to be determined in accordance with generally accepted accounting principles.
4. "Specified Entity" shall mean for the purposes of Sections 5(a)(v),
(vi), and (vii), and Section 5(b)(iv) of this Agreement, in the case of Party A, not applicable, and in the case of Party B, any Affiliate of Party B.
5. "Specified Indebtedness" shall have the meaning assigned to such term in
Section 14 of this Agreement, but, with respect to Party A, shall not include indebtedness in respect of deposits received in the ordinary course of its banking business.
6. "Specified Transaction" shall have the meaning assigned to such term in
Section 14 of this Agreement.
7. "Termination Currency" shall mean United States Dollars.
8. "Threshold Amount" shall mean, for purposes of Section 5(a)(vi) of this Agreement, (a) with respect to Party A, an amount equal to three percent (3%) of its Shareholders' Equity, determined in accordance with generally accepted accounting principles in such party's jurisdiction of incorporation or organization, consistently applied, as at the end of such party's most recently completed fiscal year, and (b) with respect to Party B, an amount equal to $5,000,000 (or the equivalent thereof in any other currencies).
19
Part 2
Representations
1. Tax Representations. None.
2. The following paragraph is added as Section 3(g) of this Agreement:
"(g) Eligible Contract Participant. It is an Eligible Contract Participant as defined in Section 101(12) of the Commodity Futures Modernization Act of 2000."
Part 3
Agreements
1. Documents to be delivered. For purposes of Section 4(a) of this Agreement, each party agrees to deliver the following documents as applicable:
(a) Certified copies of all documents evidencing necessary corporate authorizations, as well as other authorizations and approvals with respect to the execution, delivery and performance by the party of this Agreement and any Credit Support Document.

Party required to deliver:                Party B

Date by which to be delivered:            Upon execution of
                                          this Agreement

Covered by Section 3(d) Representation:   Yes	

(b) An incumbency certificate of an authorized officer of the party certifying the names, true signatures and authority of the officers of the party signing this Agreement and any Credit Support Document.

        Party required to deliver:                Party B

        Date by which to be delivered:            Upon execution of
                                                  this Agreement

        Covered by Section 3(d) Representation:   Yes

(c)     Such other document as the other party may reasonably request in
        connection with each Transaction.

        Party required to deliver:                Party B

        Date by which to be delivered:            Promptly upon request

        Covered by Section 3(d) Representation:   Yes	

(d) Such other written information respecting the condition or operations, financial or otherwise, of Party B as Party A may reasonably request from time to time.
20

Party required to deliver:                Party B

Date by which to be delivered:            Promptly upon request

Covered by Section 3(d) Representation:   Yes	

Part 4
Termination Provisions
1. Cross Default. The "Cross Default" provisions of Section 5(a)(vi) of this Agreement shall apply to each of Party A and Party B.
2. Credit Event Upon Merger. The "Credit Event Upon Merger" provisions of
Section 5(b)(iv) of this Agreement shall apply to each of Party A and Party B.
3. Automatic Early Termination. The "Automatic Early Termination" provision of Section 6(a) of this Agreement shall not apply to either Party A or Party B.
4. Payments on Early Termination. For purposes of Section 6(e) of this Agreement, Second Method and Loss shall apply.
5. Additional Termination Event will not apply. Notwithstanding the foregoing, Party A will have the right (but not the obligation) to terminate all or a pro rata portion of any Transaction related to the Loan Agreement and will be entitled to receive from, or will be required to pay to, Party B the fair market value for such termination, as determined by Party A in good faith and in accordance with market practice and its own customary procedures, upon the occurrence of one or more of the following events:
(a) If the indebtedness under the Loan Agreement is (for whatever reason, in whatever manner) partially or fully paid or discharged (except with respect to any scheduled amortization);
(b) If Party A ceases to be a party to the Loan Agreement;
(c) If the lenders party to the Loan Agreement become secured or, if already secured, the lenders obtain additional security thereunder and Party A, in its capacity as a party to this Agreement and any Transaction hereunder, is not entitled to the same rights, privileges, and interest in the collateral and/or guaranty agreements as the lenders are entitled to under the Loan Agreement;
(d) If there is a default, an event of default, or other similar condition or event (however described) in relation to Party B under the Loan Agreement (without regard to the existence of any waiver or forbearance agreement with respect thereto); and
(e) If the Loan Agreement is amended, restated, supplemented, or otherwise modified and Party A does not consent, in its sole discretion, to such amendment, restatement, supplement, or other modification.
Party A may exercise such right to terminate, at any time in its sole discretion, following the occurrence of any one of such events through the Termination Date. A failure or delay in exercising the foregoing right to terminate will not be presumed to operate as a waiver, and a single or partial exercise of such right will not be presumed to preclude any subsequent or further exercise of that right.
21
Part 5
Miscellaneous
1. Notices. For purposes of Section 12 of this Agreement:
(a) The address for notice or communication to Party A is:
SunTrust Capital Markets, Inc. Financial Risk Management, Operations 303 Peachtree Street, N.E.
23rd Floor, Center Code 3913
Atlanta, GA 30308
404-575-2696 (phone)
404-532-0514 (fax)
(b) The address for notice or communication to Party B is:
Mr. Lawrence O'Brien
Vice President & Treasurer Barnes Group, Inc.
123 Main St.
Bristol, CT 06011-0489
860-973-2108 (phone)
860-582-4008 (fax)
2. Governing Law. Section 13(a) of this Agreement is hereby restated as follows:
"(a) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine."
3. Jurisdiction. Section 13(b)(i) of this Agreement is hereby restated as follows:
"(i) submits to the nonexclusive jurisdiction of the courts of the State of Georgia and the United States District Court located in Atlanta, Georgia; and"
4. Process Agent. Process Agent shall not apply to this Agreement.
5. Offices. The provisions of Section 10(a) of this Agreement shall not apply to either party.
6. Multibranch Party. For purposes of Section 10(c) of this Agreement, neither Party A nor Party B is a Multibranch Party.
7. Credit Support Provider.
Credit Support Provider means in relation to Party A: Not applicable. Credit Support Provider means in relation to Party B: Not applicable.
8. Credit Support Document.
Credit Support Document means in relation to Party A: Not applicable. Credit Support Document means in relation to Party B: Not applicable.
22
Part 6
Additional Agreements
1. Recording of Conversations. Each party (i) consents to the monitoring or recording, at any time and from time to time, by the other party of any and all communications between officers or employees of the parties,
(ii) waives any further notice of such monitoring or recording, and
(iii) agrees to notify (and, if required by law, obtain the consent of) its officers and employees with respect to such monitoring or recording.
2. Mediation and Arbitration. Notwithstanding anything to the contrary contained herein, the parties agree to submit to mediation and, should settlement through mediation not occur, to arbitration any and all claims, disputes, and controversies between them (and their respective employees, officers, directors, affiliates, attorneys, and other agents) resulting from or arising out of this Agreement. Such mediation and arbitration shall proceed in the jurisdiction where Party A is located, shall be governed by the law specified in this Agreement, and shall be conducted (a) in accordance with such rules as may be agreed upon by the parties or (b) in the event the parties do not reach an agreement as to such rules within thirty (30) days after a notice of dispute, in accordance with the Commercial Mediation Rules and Commercial Arbitration Rules of the American Arbitration Association. If, within thirty (30) days after service of a written demand for mediation, the mediation does not result in settlement of the dispute, then any party may demand arbitration, and the decision of the arbitrator(s) shall be binding on the parties. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. It is agreed that the arbitrators shall have no authority to award treble, exemplary, or punitive damages of any type under any circumstances, whether or not such damages may be available under state or federal law, or under the Federal Arbitration Act, or under the Commercial Arbitration Rules of the American Arbitration Association, the parties hereby waiving their right, if any, to recover any such damages.
3. Set Off. Section 6 of the Agreement is amended by adding the following new subsection 6(f):
"(f) Right of Set-Off. Upon the occurrence of an Event of Default with respect to Party B, or an Illegality or Credit Event Upon Merger where Party B is the Affected Party, Party A will have the right (but not the obligation), without prior notice to Party B or any other person, to set-off any obligation of Party A or any of Party A's present or future Affiliates, branches, or offices owing to Party B, against any obligation of Party B owing to Party A or any of Party A's present or future Affiliates, branches, or offices (whether or not such obligations arise under this Agreement, whether or not matured, whether or not contingent, and regardless of the place of payment or booking office of the obligations). In order to enable Party A to exercise its rights of set-off, if an obligation is unascertained, Party A may in good faith estimate that obligation and set-off in respect of the estimate, subject to Party A accounting to Party B when the obligation is ascertained.
Nothing in this Section 6(f) shall be effective to create a charge or other security interest. This Section 6(f) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien, or other right to which any party is at any time otherwise entitled (whether by operation of law, contract, or otherwise)."
4. By signing this Schedule, Party B acknowledges that it has received and understands the SunTrust Bank "Terms of Dealing for OTC Risk Management Transactions" and the "Risk Disclosure Statement for OTC Risk Management Transactions" (each attached hereto and incorporated by reference into this Agreement).
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Please confirm your agreement to the terms of the foregoing Schedule by signing below.

SUNTRUST BANK                                    BARNES GROUP, INC.

By: /s/ Fred D. Woolf                            By: /s/ David J. Sinder
     Fred D. Woolf                               Name:  David J. Sinder
     Vice President                              Title:  Assistant Treasurer	

24
SUNTRUST BANK ("SUNTRUST")
TERMS OF DEALING FOR OTC RISK MANAGEMENT TRANSACTIONS
In connection with the negotiation, entry into, and performance from time to time of over-the-counter ("OTC") risk management transactions, please be advised that:
SunTrust acts as principal only and does not act as advisor, agent, broker, or fiduciary for or with respect to any counterparty (unless otherwise expressly agreed in a written engagement letter).
SunTrust expects that its counterparties have the authority and capacity to enter into and perform their obligations under their OTC risk management transactions with SunTrust, and SunTrust relies on the express and implied representations of its counterparties with respect thereto.
SunTrust expects that its counterparties possess adequate knowledge and experience to assess independently, or with the assistance of their own advisors, the merits and risks of each OTC risk management transaction that the counterparty may from time to time enter into, amend, or terminate.
SunTrust endeavors to maintain the confidentiality of all confidential counterparty information and expects its counterparties to do the same. Unless a counterparty gives SunTrust written notice to the contrary, each counterparty authorizes SunTrust and all SunTrust affiliates, including SunTrust Capital Markets, Inc. (STCM), to share with each other confidential information concerning a counterparty and/or its accounts for marketing or other purposes from time to time. Any trade ideas, term sheets, and other similar documents sent to counterparties by SunTrust are not to be shared with others.
SunTrust may pay fees, commissions, and other amounts to agents, brokers, and/or other third parties in connection with OTC risk management transactions entered into with counterparties. SunTrust considers the amount of such fees, commissions, and other amounts to be confidential and does not disclose the same to its counterparties.
SunTrust may from time to time receive orders for similar or identical transactions, and SunTrust makes no representation with respect to execution priorities.
STCM's Authorized Officers have the authority to bind SunTrust in connection with OTC risk management transactions. A current list of Authorized Officers may be obtained from STCM upon request.
OTC risk management obligations of SunTrust are not FDIC insured.
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SUNTRUST BANK ("SUNTRUST")
RISK DISCLOSURE STATEMENT FOR OTC RISK MANAGEMENT TRANSACTIONS
Over-the-counter ("OTC") risk management transactions, like other financial transactions, involve a variety of significant potential risks. OTC risk management transactions generally include options, forwards, swaps, swaptions, caps, floors, collars, combination and variations of such instruments, and other executory contractual arrangements, and may involve interest rates, currencies, securities, commodities, equities, credit, indices, and other underlying interests.
Before entering into any OTC risk management transaction, you should carefully consider whether the transaction is appropriate for you in light of your experience, objectives, financial and operational resources, and other relevant circumstances. You should also ensure that you fully understand the nature of the transaction and contractual relationship into which you are entering and the nature and extent of your exposure to risk of loss, which may significantly exceed the amount of any initial payment or investment by you.
The specific risks presented by a particular OTC risk management transaction necessarily depend upon the character of the specific transaction and your circumstances. In general, however, all OTC risk management transactions involve the risk of adverse or unanticipated market developments, risk of illiquidity and credit risk, and may involve other material risks. Equity risk management transactions may increase or decrease in value with a change in, among other things, stock prices and interest rates which could result in unlimited loss. In addition, you may be subject to internal operational risks in the event that appropriate internal systems and controls are not in place to monitor the various risks and funding requirements to which you are subject by virtue of your activities in the OTC risk management and related markets. OTC risk management transactions frequently are tailored to permit parties to customize transactions to accomplish complex financial and risk management objectives. Such customization can also introduce significant risk factors of a complex character.
As in any financial transaction, you must understand the requirements (including investment restrictions), if any, applicable to you that are established by your regulators or by your Board of Directors or other governing body. You should also consider the tax and accounting implications of entering into any risk management or other transaction. To the extent appropriate in light of the specific transaction and your circumstances, you should consider consulting such advisers as may be appropriate to assist you in understanding the risks involved. If you are acting in the capacity of financial adviser or agent, you must evaluate the foregoing matters in light of the circumstances applicable to your principal.
In entering into any OTC risk management transaction, you should also take into consideration that, unless you and SunTrust have established in writing an express financial advisory or other fiduciary relationship or you and SunTrust have expressly agreed in writing that you will be relying on SunTrust's recommendations as the primary basis for making your trading or investment decisions, SunTrust is acting solely in the capacity of an arm's-length contractual counterparty and not in the capacity of your financial advisor or fiduciary. In addition, SunTrust or its affiliates may from time to time have substantial long or short positions in and may make a market in or otherwise buy or sell instruments identical or economically related to the OTC risk management transaction entered into with you or may have an investment banking or other commercial relationship with the issuer of any security or financial instrument underlying an OTC risk management transaction entered into with you.
THIS BRIEF STATEMENT DOES NOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF ENTERING INTO OTC RISK MANAGEMENT TRANSACTIONS. YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH TRANSACTION UNLESS YOU FULLY UNDERSTAND ALL SUCH RISK AND HAVE INDEPENDENTLY DETERMINED THAT THE TRANSACTION IS APPROPRIATE FOR YOU.
26
 
EXHIBIT 4.3 (iv)
BARNES GROUP INC.
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
As of February 5, 2003
To each of the Current Noteholders
Named in Annex 1 hereto
Ladies and Gentlemen:
Barnes Group Inc., a Delaware corporation (hereinafter, the "Company"), together with its successors and assigns, agrees with you as follows:
1. PRELIMINARY STATEMENTS.
1.1 NOTE ISSUANCE, ETC.
The Company issued and sold $25,000,000 aggregate principal amount of its 7.13% Senior Notes due December 5, 2005 (as may be amended, restated or otherwise modified from time to time, the "Notes") pursuant to a Note Purchase Agreement, as amended by Amendment No. 1 to Note Purchase Agreement (the "Existing Note Agreement" and, as amended by this Amendment No. 2 to Note Purchase Agreement (this "Amendment Agreement"), the "Note Agreement"), dated as of December 1, 1995, and entered into by and among the Company and each of the Purchasers listed on Schedule A attached thereto. The register for the registration and transfer of the Notes indicates that the Persons named in Annex 1 hereto (collectively, the "Current Noteholders") are currently the holders of the outstanding principal amount of the Notes as set forth next to such holder's name in Annex 1.
2. DEFINED TERMS.
Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Note Agreement.
3. AMENDMENT.
Subject to Section 5, the Existing Note Agreement is amended as provided for by this Amendment Agreement in the manner specified in Exhibit A (the "Amendment").
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce you to enter into this Amendment Agreement and to consent to the Amendment, the Company represents and warrants as follows:
4.1. ORGANIZATION, POWER AND AUTHORITY, ETC.
The Company is a corporation duly incorporated and validly existing in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into and perform its obligations under this Amendment Agreement.
4.2. LEGAL VALIDITY.
The execution and delivery of this Amendment Agreement by the Company and compliance by the Company with its obligations hereunder: (a) are within the corporate powers of the Company; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of: (i) any charter instrument or bylaw to which the Company is a party or by which the Company or any of its Property may be bound; (ii) any order, judgment, decree or ruling of any court, arbitrator or governmental authority applicable to either the Company or its Property; or (iii) any agreement or instrument to which the Company is a party or by which the Company or any of its Property may be bound or any statute or other rule or regulation of any governmental authority applicable to the Company or its Property.
This Amendment Agreement has been duly authorized by all necessary action on the part of the Company, has been executed and delivered by a duly authorized officer of the Company, and constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies.
4.3. NO DEFAULTS.
No event has occurred and no condition exists that, upon the execution and delivery of this Amendment Agreement, would constitute a Default or an Event of Default.
5. EFFECTIVENESS OF AMENDMENT.
The Amendment shall become effective as of the first date written above (the "Effective Date") upon:
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(a) execution and delivery of a counterpart of this Amendment Agreement by the Company and the holders of 66-2/3% of the aggregate outstanding principal amount of the Notes;
(b) delivery by the Company of a fully executed copy of the Kar Guaranty (as defined below) dated as of February 5, 2003 from Kar Products, LLC, a Delaware limited liability company, in favor of (i) Fleet National Bank, a national banking association, as administrative agent (in such capacity, the "Administrative Agent") for itself and the other lending institutions (collectively, the "Bank Lenders") which are or may become parties to a Revolving Credit Agreement dated as of June 14, 2002 by and among the Company, the Bank Lenders, the Administrative Agent and the Documentation Agents (as such term is defined in the Credit Agreement) (the "Credit Agreement"), (ii) each of the Bank Lenders, (iii) each of the holders of the Notes and (iv) each of the other financial institutions named therein, guarantying the payment and other obligations of the Company under the Credit Agreement, the Note Agreement and the other agreements listed therein (including (x) the Note Purchase Agreement dated as of November 21, 2000, by and among the Company and each of the purchasers listed on Exhibit A attached thereto (the "2000 Note Agreement") and
(y) the separate Note Agreements, each dated as of November 12, 1999, by and among 3031786 Nova Scotia Company, a Nova Scotia company, the Company as guarantor and each of the purchasers listed on Schedule A attached thereto (collectively, the "Nova Scotia Agreement")) (the "Kar Guaranty");
(c) delivery by the Company of a fully executed copy of (i) an amendment to the 2000 Note Agreement, dated the date hereof, and (ii) an amendment to the Nova Scotia Agreement; and
(d) delivery by the Company of a fully executed copy of an amendment to the Credit Agreement, dated the date hereof.
6. EXPENSES.
Whether or not the Amendment becomes effective, the Company will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Amendment Agreement, including, but not limited to, the reasonable fees of your special counsel, Bingham McCutchen LLP, incurred in connection with the preparation, negotiation and delivery of this Amendment Agreement and any other documents related thereto. Nothing in this Section shall limit the Company's obligations pursuant to Section 1.5 of the Existing Note Agreement.
7. MISCELLANEOUS.
7.1. PART OF EXISTING NOTE AGREEMENT; FUTURE REFERENCES, ETC.
This Amendment Agreement shall be construed in connection with and as a part of the Existing Note Agreement and, except as expressly amended by this Amendment Agreement, all terms, conditions and covenants contained in the Existing Note Agreement are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment Agreement may refer to the Existing Note Agreement without making specific reference to this
-4-
Amendment Agreement, but nevertheless all such references shall include this Amendment Agreement unless the context otherwise requires.
7.2. COUNTERPARTS; EFFECTIVENESS.
This Amendment Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Delivery of an executed signature page by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Amendment Agreement.
7.3. GOVERNING LAW.
THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF CONNECTICUT EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN CONNECTICUT.
[Remainder of page intentionally left blank; next page is signature page.]
If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this Amendment Agreement and returning it to the Company, whereupon it will become a binding agreement among each of you and the Company.
BARNES GROUP INC.

By:    /s/ William C. Denninger
Name:  William C. Denninger
Title: Senior Vice President - Finance
       and Chief Financial Officer

By:    /s/ Lawrence W. O'Brien
Name:  Lawrence W. O'Brien
Title: Vice President and Treasurer	

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The foregoing Amendment Agreement is hereby accepted as of the date first above written.
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
 By: CIGNA Investments, Inc.

By:    /s/ Robert W. Eccles
Name:  Robert W. Eccles
Title: Managing Director	

LIFE INSURANCE COMPANY OF
NORTH AMERICA
 By: CIGNA Investments, Inc.

By:    /s/ Robert W. Eccles
Name:  Robert W. Eccles
Title: Managing Director	

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ACE AMERICAN INSURANCE CO.
 By: Stein Roe Farnham Inc., as
Agent

By:    /s/ Richard A. Hegwood
Name:  Richard A. Hegwood
Title: Senior Vice President	

ACE PROPERTY & CASUALTY
INSURANCE COMPANY
 By: Stein Roe Farnham Inc., as
Agent

By:    /s/ Richard A. Hegwood
Name:  Richard A. Hegwood
Title: Senior Vice President	

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THE LINCOLN NATIONAL LIFE
INSURANCE C0OMPANY
By: Delaware Investment Advisers,
a Series of Delaware Management
Business Trust, its
Attorney-in-Fact

By:    /s/ Richard Corwin
Name:  Richard Corwin
Title: Vice President	

ANNEX 1
CURRENT NOTEHOLDERS AND
CURRENT OUTSTANDING PRINCIPAL AMOUNT

Current Noteholders:                             Outstanding Principal Amount of Notes
--------------------                             -------------------------------------
Connecticut General Life                         $  5,100,000
Insurance Company

Life Insurance Company of                        $  3,750,000
North America

ACE American Insurance Co.                       $  2,594,625

ACE Property & Casualty Insurance Company        $  1,155,375

Lincoln Investment Management, Inc.              $  6,150,000

TOTAL                                            $ 18,750,000	

EXHIBIT A
AMENDMENT
1. Section 7.7 (Indebtedness) of the Existing Note Agreement is hereby amended and restated in its entirety to read as follows:
"Section 7.7 Indebtedness.
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:
(a) Indebtedness incurred by the Company under the Revolving Credit Agreement;
(b) the Notes;
(c) Indebtedness outstanding on the date hereof under the Company's $40,000,000, 9.47% Senior Notes due September 16, 2001;
(d) Indebtedness of the Company 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;
(e) the Kar Guaranty; and
(f) additional Indebtedness of the Company and its Subsidiaries;
provided, however, that (i) the total Indebtedness of the Company's Subsidiaries shall not at any time exceed $100 million (excluding the Kar Guaranty); (ii) total Indebtedness of the Company's Domestic Subsidiaries (excluding the Kar Guaranty) 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 30 days after acquisition of such Domestic Subsidiary); and (iii) the aggregate amount of all Indebtedness of the Company and its Subsidiaries at any time outstanding shall not exceed an amount equal to 155% of Consolidated Net Worth at such time."
2. Clause (d) of Section 7.14 (Restricted Loans, Advances and Investments) of the Existing Note Agreement shall be amended and restated in its entirety to read as follows:
"(d) loans or advances of the Company to any of its Subsidiaries and loans or advances of any Subsidiary of the Company to the Company or another such Subsidiary, or an investment made by the Company in a Person pursuant to which, immediately after giving effect to such investment, such Person becomes a Subsidiary of the Company,"
3. Clause (e) of Section 7.14 (Restricted Loans, Advances and Investments) of the Existing Note Agreement shall be amended and restated in its entirety to read as follows:
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"(e) in addition to those investments permitted by clause (d) hereof, purchases of stock or other securities of any corporations, associations or other business entities; provided, however, that the aggregate cost to or fair market value of the consideration paid by the Company and its Subsidiaries for such stock or securities of any such corporation, association or other business entity shall not exceed 40% of the Company's Consolidated Net Worth within any four-year period commencing on the Closing Date, or"
4. The definition of "Kar Guaranty" shall be added to Section 10.1 (Terms Defined) of the Existing Note Agreement in the appropriate alphabetical order thereof to read as follows:
""Kar Guaranty" means that certain Guaranty dated as of February 5, 2003 from Kar Products, LLC, a Delaware limited liability company, in favor of (i) Fleet National Bank, a national banking association, as administrative agent (in such capacity, the "Administrative Agent") for itself and the other lending institutions (collectively, the "Bank Lenders") which are or may become parties to a Revolving Credit Agreement dated as of June 14, 2002 by and among the Company, the Bank Lenders, the Administrative Agent and the Documentation Agents
(as such term is defined in the Credit Agreement) (the "Credit Agreement"), (ii)
each of the Bank Lenders, (iii) each of the holders of the Notes and (iv) each of the other financial institutions named therein, guarantying the payment and other obligations of the Company under the Credit Agreement, the Note Agreement and the other agreements listed therein (including (x) the Note Purchase Agreement dated as of November 21, 2000, by and among the Company and each of the purchasers listed on Exhibit A attached thereto (the "2000 Note Agreement") and (y) the separate Note Agreements, each dated as of November 12, 1999, by and among 3031786 Nova Scotia Company, a Nova Scotia company, the Company as guarantor and each of the purchasers listed on Schedule A attached thereto (collectively, the "Nova Scotia Agreement"))."
 
EXHIBIT 4.4 (ii)
3031786 NOVA SCOTIA COMPANY
AMENDMENT NO. 1 TO NOTE AGREEMENT
As of February 5, 2003
To each of the Current Noteholders
Named in Annex 1 hereto
Ladies and Gentlemen:
3031786 Nova Scotia Company, a Nova Scotia company, (hereinafter, the "Company") and Barnes Group Inc., a Delaware corporation (hereinafter, the "Guarantor" as to Sections 2, 7 and 8 of the Note Agreement), together with their respective successors and assigns, agree with you as follows:
1. PRELIMINARY STATEMENTS.
1.1 NOTE ISSUANCE, ETC.
The Company issued and sold (i) US$24,500,000 aggregate principal amount of its 7.66% Senior Notes due November 12, 2007 (as may be amended, restated or otherwise modified from time to time, the "7.66% Notes") and (ii) US$45,500,000 aggregate principal amount of its 7.80% Senior Notes due November 12, 2010 (as may be amended, restated or otherwise modified from time to time, the "7.80% Notes" and together with the 7.66% Notes, the "Notes") pursuant to a Note Agreement (the "Existing Note Agreement" and, as amended by this Amendment No. 1 to Note Agreement (this "Amendment Agreement"), the "Note Agreement"), dated as of November 12, 1999, and entered into by and among the Company, the Guarantor and each of the Purchasers listed on Schedule A attached thereto. The register for the registration and transfer of the Notes indicates that the Persons named in Annex 1 hereto (collectively, the "Current Noteholders") are currently the holders of the outstanding principal amount of the Notes as set forth next to such holder's name in Annex 1.
2. DEFINED TERMS.
Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Note Agreement.
3. AMENDMENT.
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Subject to Section 5, the Existing Note Agreement is amended as provided for by this Amendment Agreement in the manner specified in Exhibit A (the "Amendment").
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTOR.
To induce you to enter into this Amendment Agreement and to consent to the Amendment, the Company and the Guarantor represent and warrant as follows:
4.1. ORGANIZATION, POWER AND AUTHORITY, ETC.
Each of the Company and the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite corporate or other power and authority to enter into and perform its respective obligations under this Amendment Agreement.
4.2. LEGAL VALIDITY.
The execution and delivery of this Amendment Agreement by the Company and the Guarantor and compliance by the Company and the Guarantor with their respective obligations hereunder: (a) are within the corporate or other powers of the Company and the Guarantor; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of the Company or the Guarantor under the provisions of: (i) any charter instrument or bylaw to which either the Company or the Guarantor is a party or by which either the Company or the Guarantor any of its respective Property may be bound; (ii) any order, judgment, decree or ruling of any court, arbitrator or governmental authority applicable to the Company or the Guarantor or any of their respective Properties; or (iii) any agreement or instrument to which either the Company or the Guarantor is a party or by which either the Company or the Guarantor or any of their respective Properties may be bound or any statute or other rule or regulation of any governmental authority applicable to the Company or the Guarantor or any of their respective Properties.
This Amendment Agreement has been duly authorized by all necessary action on the part of each of the Company and the Guarantor, has been executed and delivered by a duly authorized officer of each of the Company and the Guarantor, and constitutes a legal, valid and binding obligation of each of the Company and the Guarantor, enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies.
4.3. NO DEFAULTS.
No event has occurred and no condition exists that, upon the execution and delivery of this Amendment Agreement, would constitute a Default or an Event of Default.
5. EFFECTIVENESS OF AMENDMENT.
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The Amendment shall become effective as of the first date written above (the "Effective Date") upon:
(a) execution and delivery of a counterpart of this Amendment Agreement by the Company, the Guarantor and the holders of 66-2/3% of the aggregate outstanding principal amount of the Notes;
(b) delivery by the Guarantor of a fully executed copy of the Kar Guaranty (as defined below) dated as of February 5, 2003 from Kar Products, LLC, a Delaware limited liability company, in favor of (i) Fleet National Bank, a national banking association, as administrative agent (in such capacity, the "Administrative Agent") for itself and the other lending institutions (collectively, the "Bank Lenders") which are or may become parties to a Revolving Credit Agreement dated as of June 14, 2002 by and among the Guarantor, the Bank Lenders, the Administrative Agent and the Documentation Agents (as such term is defined in the Credit Agreement) (the "Credit Agreement"), (ii) each of the Bank Lenders, (iii) each of the holders of the Notes and (iv) each of the other financial institutions named therein, guarantying the payment and other obligations of (x) the Guarantor under the Credit Agreement and the other agreements listed therein (including (A) the Note Purchase Agreement dated as of December 1, 1995, by and among the Guarantor and each of the purchasers listed on Schedule A attached thereto (the "1995 Note Agreement") and (B) the Note Purchase Agreement dated as of November 21, 2000, by and among the Guarantor and each of the purchasers listed on Exhibit A attached thereto (the "2000 Note Agreement")) and (y) of the Company under the Note Agreement (the "Kar Guaranty");
(c) delivery by the Guarantor of a fully executed copy of (i) an amendment to the 1995 Note Agreement, dated the date hereof, and (ii) an amendment to the 2000 Note Agreement, dated the date hereof; and
(d) delivery by the Guarantor of a fully executed copy of an amendment to the Credit Agreement, dated the date hereof.
6. EXPENSES.
Whether or not the Amendment becomes effective, the Company will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Amendment Agreement, including, but not limited to, the reasonable fees of your special counsel, Bingham McCutchen LLP, incurred in connection with the preparation, negotiation and delivery of this Amendment Agreement and any other documents related thereto. Nothing in this Section shall limit the Company's obligations pursuant to Section 1.5 of the Existing Note Agreement.
7. MISCELLANEOUS.
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7.1. PART OF EXISTING NOTE AGREEMENT; FUTURE REFERENCES, ETC.
This Amendment Agreement shall be construed in connection with and as a part of the Existing Note Agreement and, except as expressly amended by this Amendment Agreement, all terms, conditions and covenants contained in the Existing Note Agreement are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment Agreement may refer to the Existing Note Agreement without making specific reference to this Amendment Agreement, but nevertheless all such references shall include this Amendment Agreement unless the context otherwise requires.
7.2. COUNTERPARTS; EFFECTIVENESS.
This Amendment Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Delivery of an executed signature page by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Amendment Agreement.
7.3. GOVERNING LAW.
THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF CONNECTICUT EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN CONNECTICUT.
[Remainder of page intentionally left blank; next page is signature page.]
If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this Amendment Agreement and returning it to the Company, whereupon it will become a binding agreement among each of you and the Company.
3031786 NOVA SCOTIA COMPANY

By:    /s/ David J. Sinder
Name:  David J. Sinder
Title: Treasurer	

BARNES GROUP INC.

By:    /s/ William C. Denninger
Name:  William C. Denninger
Title: Senior Vice President - Finance
       and Chief Financial Officer

By:    /s/ Lawrence W. O'Brien
Name:  Lawrence W. O'Brien
Title: Vice President and Treasurer	

The foregoing Amendment Agreement is hereby accepted as of the date first above written.
ALLSTATE INSURANCE COMPANY

By:    /s/ Jerry D. Zinkula
Name:  Jerry D. Zinkula
Title:

By     /s/ Robert B. Bodett
Name:  Robert B. Bodett
Title:	

ALLSTATE LIFE INSURANCE COMPANY

By:    /s/ Jerry D. Zinkula
Name:  Jerry D. Zinkula
Title:

By:    /s/ Robert B. Bodett
Name:  Robert B. Bodett
Title:	

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MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
 By: David L. Babson & Company Inc,
as Investment Adviser

By:    /s/ Mark A. Ahmed
Name:  Mark A. Ahmed
Title: Managing Director	

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CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
 By: CIGNA Investments, Inc.

By:    /s/ Robert W. Eccles
Name:  Robert W. Eccles
Title: Managing Director	

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NATIONWIDE LIFE INSURANCE COMPANY

By     /s/ Mark W. Poeppelman
Name:  Mark W. Poeppelman
Title: Vice President	

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THE CANADA LIFE ASSURANCE COMPANY
 (J. ROMEO & CO. as Nominee)

By:    /s/ C. Paul English
Name:  C. Paul English
Title: U.S. Securities Vice-President	

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PAN-AMERICAN LIFE INSURANCE COMPANY

By:    /s/ Luis Ingles, Jr., C.F.A.
Name:  Luis Ingles, Jr., C.F.A
Title: Senior Vice President
       Investments	

ANNEX 1
CURRENT NOTEHOLDERS AND
CURRENT OUTSTANDING PRINCIPAL AMOUNT

Current Noteholders:                             Outstanding Principal Amount of Notes
--------------------                             -------------------------------------

                                                 7.66% Notes        7.80% Notes
                                                 -----------        -----------
Allstate Insurance Company                       $  5,000,000               n/a

Allstate Life Insurance Company                  $ 12,500,000               n/a

State Farm Life Insurance Company                $  7,000,000      $  7,000,000

Massachusetts Mutual Life Insurance Company               n/a      $ 14,000,000

Connecticut General Life Insurance Company                n/a      $ 10,500,000

Nationwide Life Insurance Company                         n/a      $  7,000,000

The Canada Life Assurance Company                         n/a      $  3,500,000

Pan-American Life Insurance Company                       n/a      $  3,500,000

TOTALS                                           $ 24,500,000      $ 45,500,000	

EXHIBIT A
AMENDMENT
1. Section 7.7 (Indebtedness) of the Existing Note Agreement is hereby amended and restated in its entirety to read as follows:
"Section 7.7 Indebtedness.
Except to the extent permitted under Section 7.7(d) through (f), inclusive, 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 the Guarantor under the Revolving Credit Agreement;
(b) the Notes;
(c) Indebtedness outstanding on the date hereof under the Guarantor'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;
(e) the Kar Guaranty; and
(f) 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 (excluding the Kar Guaranty); (ii) total Indebtedness of the Guarantor's Domestic Subsidiaries (excluding the Kar Guaranty) 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."
2. Clause (d) of Section 7.14 (Restricted Loans, Advances and Investments) of the Existing Note Agreement shall be amended and restated in its entirety to read as follows:
"(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, or an investment made by the Guarantor in a Person pursuant to which, immediately after giving effect to such investment, such Person becomes a Subsidiary of the Guarantor,"
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3. Clause (e) of Section 7.14 (Restricted Loans, Advances and Investments) of the Existing Note Agreement shall be amended and restated in its entirety to read as follows:
"(e) in addition to those investments permitted by clause (d) hereof, 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"
4. The definition of "Kar Guaranty" shall be added to Section 10.1 (Terms Defined) of the Existing Note Agreement in the appropriate alphabetical order thereof to read as follows:
""Kar Guaranty" means that certain Guaranty dated as of February 5, 2003 from Kar Products, LLC, a Delaware limited liability company, in favor of (i) Fleet National Bank, a national banking association, as administrative agent (in such capacity, the "Administrative Agent") for itself and the other lending institutions (collectively, the "Bank Lenders") which are or may become parties to a Revolving Credit Agreement dated as of June 14, 2002 by and among the Guarantor, the Bank Lenders, the Administrative Agent and the Documentation Agents (as such term is defined in the Credit Agreement) (the "Credit Agreement"), (ii) each of the Bank Lenders, (iii) each of the holders of the Notes and (iv) each of the other financial institutions named therein, guarantying the payment and other obligations of (x) the Guarantor under the Credit Agreement and the other agreements listed therein (including (A) the Note Purchase Agreement dated as of December 1, 1995, by and among the Guarantor and each of the purchasers listed on Schedule A attached thereto (the "1995 Note Agreement") and (B) the Note Purchase Agreement dated as of November 21, 2000, by and among the Guarantor and each of the purchasers listed on Exhibit A attached thereto (the "2000 Note Agreement")) and (y) of the Company under the Note Agreement."
 
EXHIBIT 4.5(ii)
BARNES GROUP, INC.
AMENDMENT NO. 1 TO NOTE AGREEMENT
As of February 21, 2002
To each of the Current Noteholders
Named in Annex 1 hereto
Ladies and Gentlemen:
Barnes Group, Inc. (hereinafter, the "Company"), together with its successors and assigns, agrees with you as follows:
1. PRELIMINARY STATEMENTS.
1.1 NOTE ISSUANCE, ETC.
The Company issued and sold $60,000,000 aggregate principal amount of its 8.59% Senior Notes due November 21, 2008 (as may be amended, restated or otherwise modified from time to time, the "Notes") pursuant to a Note Agreement (the "Existing Note Agreement" and, as amended by this Amendment No. 1 to Note Agreement (this "Amendment Agreement"), the "Note Agreement"), dated as of November 21, 2000, and entered into by and among the Company and each of the Purchasers listed in Exhibit A attached thereto. The register for the registration and transfer of the Notes indicates that the Persons named in Annex 1 hereto (collectively, the "Current Noteholders") are currently the holders of the entire outstanding principal amount of the Notes.
2. DEFINED TERMS.
Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Note Agreement.
3. AMENDMENT.
Subject to Section 5, the Existing Note Agreement is amended as provided for by this Amendment Agreement in the manner specified in Exhibit A (the "Amendment").
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce you to enter into this Amendment Agreement and to consent to the Amendment, the Company represents and warrants as follows:
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4.1. ORGANIZATION, POWER AND AUTHORITY, ETC.
The Company is a corporation duly incorporated and validly existing in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into and perform its obligations under this Amendment Agreement.
4.2. LEGAL VALIDITY.
The execution and delivery of this Amendment Agreement by the Company and compliance by the Company with its obligations hereunder: (a) are within the corporate powers of the Company; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of: (i) any charter instrument or bylaw to which the Company is a party or by which the Company or any of its Property may be bound; (ii) any order, judgment, decree or ruling of any court, arbitrator or governmental authority applicable to either the Company or its Property; or (iii) any agreement or instrument to which the Company is a party or by which the Company or any of its Property may be bound or any statute or other rule or regulation of any governmental authority applicable to the Company or its Property.
This Amendment Agreement has been duly authorized by all necessary action on the part of the Company, has been executed and delivered by a duly authorized officer of the Company, and constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies.
4.3. NO DEFAULTS.
No event has occurred and no condition exists that, upon the execution and delivery of this Amendment Agreement, would constitute a Default or an Event of Default.
5. EFFECTIVENESS OF AMENDMENT.
The Amendment shall become effective as of the first date written above (the "Effective Date") upon (a) receipt by the Company of the written consent of the holders of 66-2/3% of the aggregate outstanding principal amount of the Notes and (b) payment of the amendment fees described in Section 7 hereof to each holder of the Notes.
6. EXPENSES.
Whether or not the Amendment becomes effective, the Company will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Amendment Agreement, including, but not
-3-
limited to, the reasonable fees of your special counsel, Bingham Dana LLP, incurred in connection with the preparation, negotiation and delivery of the Amendment Agreement and any other documents related thereto. Nothing in this
Section shall limit the Company's obligations pursuant to Section 1.5 of the Existing Note Agreement.
7. AMENDMENT FEE.
Prior to the effectiveness of this Amendment Agreement, the Company shall have paid to each holder of Notes an amendment fee equal to 0.05% of the outstanding principal amount of the Notes held by such holder in the manner and to the accounts specified in the Existing Note Agreement for payments of principal and interest on the Notes.
8. MISCELLANEOUS.
8.1. PART OF EXISTING NOTE AGREEMENT; FUTURE REFERENCES, ETC.
This Amendment Agreement shall be construed in connection with and as a part of the Existing Note Agreement and, except as expressly amended by this Amendment Agreement, all terms, conditions and covenants contained in the Existing Note Agreement are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment Agreement may refer to the Existing Note Agreement without making specific reference to this Amendment Agreement, but nevertheless all such references shall include this Amendment Agreement unless the context otherwise requires.
8.2. COUNTERPARTS; EFFECTIVENESS.
This Amendment Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Delivery of an executed signature page by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Amendment Agreement.
8.3. GOVERNING LAW.
THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF CONNECTICUT EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN CONNECTICUT.
[Remainder of page intentionally left blank; next page is signature page.]
If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this Amendment Agreement and returning it to the Company, whereupon it will become a binding agreement among each of you and the Company.
BARNES GROUP, INC.

BY: /s/ LAWRENCE W. O'BRIEN
------------------------------
Name:  LAWRENCE W. O'BRIEN
Title: VICE PRESIDENT, TREASURER	

The foregoing Amendment Agreement is hereby accepted as of the date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA

BY: /s/ CHARLES KING
   ------------------------
Name: CHARLES KING
Title: MANAGING DIRECTOR	

ALLSTATE LIFE INSURANCE
COMPANY

BY: /s/ RONALD MENDEL
   ------------------------

BY: /s/ JERRY ZINKULA
   ------------------------

AMERICAN HERITAGE LIFE
INSURANCE COMPANY

BY: /s/ RONALD MENDEL
   ------------------------

BY: /s/ JERRY ZINKULA
   ------------------------

NATIONWIDE LIFE INSURANCE COMPANY

BY: /s/ MARK W. POEPPELMAN
   ------------------------
Name:  MARK W. POEPPELMAN
Title: ASSOCIATE VICE PRESIDENT	

NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY

BY: /s/ MARK W. POEPPELMAN
   ------------------------
Name:  MARK W. POEPPELMAN
Title: ASSOCIATE VICE PRESIDENT	

NATIONWIDE INDEMNITY COMPANY

BY: /s/ MARK W. POEPPELMAN
   ------------------------
Name:  MARK W. POEPPELMAN
Title: ASSOCIATE VICE PRESIDENT	

ANNEX 1
CURRENT NOTEHOLDERS
The Prudential Insurance Company of America
Allstate Life Insurance Company
American Heritage Life Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
Nationwide Indemnity Company
EXHIBIT A
AMENDMENT
(a) SECTION 10.1, Definition of Consolidated EBITR. The definition of Consolidated EBITR shall be and is hereby amended and restated in its entirety to read as follows:
"Consolidated EBITR -- means, for any period, the sum of (a) Consolidated Net Income for such period and (b) to the extent, and only to the extent, that such aggregate amount was deducted in the computation of such Consolidated Net Income, the aggregate amount of (i) Interest Charges, (ii) income tax expense and (iii) Lease Rentals. Notwithstanding the foregoing, those certain restructuring charges of the Company relating to loss on sale of assets and severance and related costs arising primarily from the closure of the Dallas facility of the Springs Division, in an amount not to exceed $4,500,000 and recorded in the Company's fiscal quarter ending December 31, 2001, shall not be included in any calculation of Consolidated EBITR for such fiscal quarter."
 
EXHIBIT 4.5 (iii)
BARNES GROUP INC.
AMENDMENT NO. 2 TO NOTE AGREEMENT
As of February 5, 2003
To each of the Current Noteholders
Named in Annex 1 hereto
Ladies and Gentlemen:
Barnes Group Inc., a Delaware corporation (hereinafter, the "Company"), together with its successors and assigns, agrees with you as follows:
1. PRELIMINARY STATEMENTS.
1.1 NOTE ISSUANCE, ETC.
The Company issued and sold $60,000,000 aggregate principal amount of its 8.59% Senior Notes due November 21, 2008 (as may be amended, restated or otherwise modified from time to time, the "Notes") pursuant to a Note Agreement, as amended by Amendment No. 1 to Note Agreement (the "Existing Note Agreement" and, as amended by this Amendment No. 2 to Note Agreement (this "Amendment Agreement"), the "Note Agreement"), dated as of November 21, 2000, and entered into by and among the Company and each of the Purchasers listed in Exhibit A attached thereto. The register for the registration and transfer of the Notes indicates that the Persons named in Annex 1 hereto (collectively, the "Current Noteholders") are currently the holders of the entire outstanding principal amount of the Notes.
2. DEFINED TERMS.
Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to them in the Note Agreement.
3. AMENDMENT.
Subject to Section 5, the Existing Note Agreement is amended as provided for by this Amendment Agreement in the manner specified in Exhibit A (the "Amendment").
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To induce you to enter into this Amendment Agreement and to consent to the Amendment, the Company represents and warrants as follows:
4.1. ORGANIZATION, POWER AND AUTHORITY, ETC.
The Company is a corporation duly incorporated and validly existing in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into and perform its obligations under this Amendment Agreement.
4.2. LEGAL VALIDITY.
The execution and delivery of this Amendment Agreement by the Company and compliance by the Company with its obligations hereunder: (a) are within the corporate powers of the Company; and (b) are legal and do not conflict with, result in any breach of, constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of: (i) any charter instrument or bylaw to which the Company is a party or by which the Company or any of its Property may be bound; (ii) any order, judgment, decree or ruling of any court, arbitrator or governmental authority applicable to either the Company or its Property; or (iii) any agreement or instrument to which the Company is a party or by which the Company or any of its Property may be bound or any statute or other rule or regulation of any governmental authority applicable to the Company or its Property.
This Amendment Agreement has been duly authorized by all necessary action on the part of the Company, has been executed and delivered by a duly authorized officer of the Company, and constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except that enforceability may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium, or other similar laws affecting the enforceability of creditors' rights generally and subject to the availability of equitable remedies.
4.3. NO DEFAULTS.
No event has occurred and no condition exists that, upon the execution and delivery of this Amendment Agreement, would constitute a Default or an Event of Default.
5. EFFECTIVENESS OF AMENDMENT.
The Amendment shall become effective as of the first date written above (the "Effective Date") upon:
(a) execution and delivery of a counterpart of this Amendment Agreement by the Company and the holders of 66-2/3% of the aggregate outstanding principal amount of the Notes;
(b) delivery by the Company of a fully executed copy of the Kar Guaranty (as defined below) dated as of February 5, 2003 from Kar Products, LLC, a Delaware limited liability
-3-
company, in favor of (i) Fleet National Bank, a national banking association, as administrative agent (in such capacity, the "Administrative Agent") for itself and the other lending institutions (collectively, the "Bank Lenders") which are or may become parties to a Revolving Credit Agreement dated as of June 14, 2002 by and among the Company, the Bank Lenders, the Administrative Agent and the Documentation Agents (as such term is defined in the Credit Agreement) (the "Credit Agreement"), (ii) each of the Bank Lenders, (iii) each of the holders of the Notes and (iv) each of the other financial institutions named therein, guarantying the payment and other obligations of the Company under the Credit Agreement, the Note Agreement and the other agreements listed therein (including
(x) the Note Purchase Agreement dated as of December 1, 1995, by and among the Company and each of the purchasers listed on Schedule A attached thereto (the "1995 Note Agreement") and (y) the separate Note Agreements, each dated as of November 12, 1999, by and among 3031786 Nova Scotia Company, a Nova Scotia company, the Company as guarantor and each of the purchasers listed on Schedule A attached thereto (collectively, the "Nova Scotia Agreement")) (the "Kar Guaranty");
(c) delivery by the Company of a fully executed copy of (i) an amendment to the 1995 Note Agreement, dated the date hereof, and (ii) an amendment to the Nova Scotia Agreement; and
(d) delivery by the Company of a fully executed copy of an amendment to the Credit Agreement, dated the date hereof.
6. EXPENSES.
Whether or not the Amendment becomes effective, the Company will promptly (and in any event within thirty days of receiving any statement or invoice therefor) pay all fees, expenses and costs relating to this Amendment Agreement, including, but not limited to, the reasonable fees of your special counsel, Bingham McCutchen LLP, incurred in connection with the preparation, negotiation and delivery of this Amendment Agreement and any other documents related thereto. Nothing in this Section shall limit the Company's obligations pursuant to Section 1.5 of the Existing Note Agreement.
7. MISCELLANEOUS.
7.1. PART OF EXISTING NOTE AGREEMENT; FUTURE REFERENCES, ETC.
This Amendment Agreement shall be construed in connection with and as a part of the Existing Note Agreement and, except as expressly amended by this Amendment Agreement, all terms, conditions and covenants contained in the Existing Note Agreement are hereby ratified and shall be and remain in full force and effect. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment Agreement may refer to the Existing Note Agreement without making specific reference to this Amendment Agreement, but nevertheless all such references shall include this Amendment Agreement unless the context otherwise requires.
7.2. COUNTERPARTS; EFFECTIVENESS.
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This Amendment Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Delivery of an executed signature page by facsimile transmission shall be effective as delivery of a manually signed counterpart of this Amendment Agreement.
7.3. GOVERNING LAW.
THIS AMENDMENT AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF CONNECTICUT EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN CONNECTICUT.
[Remainder of page intentionally left blank; next page is signature page.]
-5-
If you are in agreement with the foregoing, please so indicate by signing the acceptance below on the accompanying counterpart of this Amendment Agreement and returning it to the Company, whereupon it will become a binding agreement among each of you and the Company.
BARNES GROUP INC.

By:    /s/ William C. Denninger
Name:  William C. Denninger
Title: Senior Vice President-Finance
       and Chief Financial Officer

By:    /s/ Lawrence W. O'Brien
Name:  Lawrence W. O'Brien
Title: Vice President and Treasurer	

The foregoing Amendment Agreement is hereby accepted as of the date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA

By:    /s/ Kevin Kraska
Name:  Kevin Kraska
Title: Vice President	

ALLSTATE LIFE INSURANCE COMPANY

By:    /s/ Jerry D. Zinkula
Name:  Jerry D. Zinkula
Title:

By:    /s/ Robert B. Bodett
Name:  Robert B. Bodett
Title:
Authorized Signatories	

AMERICAN HERITAGE LIFE INSURANCE
COMPANY

By:    /s/ Jerry D. Zinkula
Name:  Jerry D. Zinkula
Title:

By:    /s/ Robert B. Bodett
Name:  Robert B. Bodett
Title:
Authorized Signatories	

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NATIONWIDE LIFE INSURANCE COMPANY

By:    /s/ Joseph P. Young
Name:  Joseph P. Young
Title: Credit Officer
       Fixed Income Securities	

NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY

By:    /s/ Joseph P. Young
Name:  Joseph P. Young
Title: Credit Officer
       Fixed Income Securities	

NATIONWIDE INDEMNITY COMPANY

By:    /s/ Joseph P. Young
Name:  Joseph P. Young
Title: Credit Officer
       Fixed Income Securities	

ANNEX 1
CURRENT NOTEHOLDERS AND
CURRENT OUTSTANDING PRINCIPAL AMOUNT

Current Noteholders                        Outstanding Principal Amount of Notes
-------------------                        -------------------------------------

The Prudential Insurance Company           $ 35,000,000
 of America

Allstate Life Insurance Company            $ 10,000,000

American Heritage Life Insurance           $  5,000,000
 Company

Nationwide Life Insurance Company          $  4,000,000

Nationwide Life and Annuity Insurance      $  2,000,000
 Company

Nationwide Indemnity Company               $  4,000,000

TOTAL                                      $ 60,000,000	

EXHIBIT A
AMENDMENT
1. Section 7.7 (Indebtedness) of the Existing Note Agreement is hereby amended and restated in its entirety to read as follows:
"Section 7.7 Indebtedness. (a) The Company will not permit any of its Subsidiaries to, directly or indirectly, incur, create, assume or permit to exist any Indebtedness (other than the Kar Guaranty) unless (i) all Indebtedness, plus the aggregate liquidation preference or redemption value of all Preferred Stock, of Subsidiaries (other than Indebtedness owing to, or Preferred Stock held by, the Company or other Subsidiaries, and other than the Nova Scotia Notes), plus (ii) all Indebtedness of the Company secured by Liens permitted to exist by Section 7.6(a)(vii), shall not at any time exceed 15% of Consolidated Tangible Assets determined as of the end of the then most recently completed fiscal year of the Company.
(b) The Company shall not, and shall not permit any Subsidiary to, make any Investment in, or otherwise transfer any Property to or guaranty or otherwise assume or be liable for any Indebtedness or other obligations of, 3031786 Nova Scotia Company so long as the Nova Scotia Notes shall be outstanding, provided, however, that this Section 7.7(b) shall not (i) prohibit the Kar Guaranty, (ii) prohibit the Company from guarantying the payment and obligations of 3031786 Nova Scotia Company under the Nova Scotia Notes, (iii) prevent or restrict 3031786 Nova Scotia Company from continuing to operate as a special purpose financing vehicle company in compliance with the laws and regulations of Canada and the United States of America or (iv) prevent or restrict the Company or any Subsidiary from transferring funds to 3031786 Nova Scotia Company in an amount equal to, but not more than, the amount necessary (x) to pay interest on and fees in respect of, or repay the principal of, the Nova Scotia Notes in accordance with the terms thereof, and (y) to pay fees and expenses of 3031786 Nova Scotia Company so long as it operates solely as a special purpose financing vehicle company in compliance with the laws and regulations of Canada and the United States of America. The amount necessary to make any such payment, or to pay any such fees or expenses, may not be so transferred more than five Business Days before the due date thereof, except that up to $500,000 of any such amount may be so transferred more than five Business Days before such due date."
2. Clause (d) of Section 7.16 (Restricted Payments and Restricted Investments) of the Existing Note Agreement shall be amended and restated in its entirety to read as follows:

"(d)    loans or advances made by the Company to any of its Subsidiaries and
loans or  advances  made by any  Subsidiary  of the  Company  to the  Company or
another  such  Subsidiary,  or an  investment  made by the  Company  in a Person	

pursuant to which, immediately after giving effect to such investment, such Person becomes a Subsidiary of the Company,"
3. Clause (e) of Section 7.16 (Restricted Payments and Restricted Investments) of the Existing Note Agreement shall be amended and restated in its entirety to read as follows:
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"(e) in addition to those investments permitted by Section 7.16(d) hereof, purchases of stock or other Securities of any corporations, associations or other business entities; provided, however, that the aggregate cost to, or Fair Market Value of the consideration paid by, the Company and its Subsidiaries for such stock or Securities of all such corporations, associations or other business entities shall not exceed the sum of (A) $25,000,000, plus (B) 50% of Consolidated Net Income for the period commencing on December 31, 1999 and ending on the date of such stock or Securities purchase (or minus 100% of Consolidated Net Income for such period if Consolidated Net Income for such period is a loss), or"
4. The definition of "Kar Guaranty" shall be added to Section 10.1 (Terms Defined) of the Existing Note Agreement in the appropriate alphabetical order thereof to read as follows:
""Kar Guaranty" means that certain Guaranty dated as of February 5, 2003 from Kar Products, LLC, a Delaware limited liability company, in favor of (i) Fleet National Bank, a national banking association, as administrative agent (in such capacity, the "Administrative Agent") for itself and the other lending institutions (collectively, the "Bank Lenders") which are or may become parties to a Revolving Credit Agreement dated as of June 14, 2002 by and among the Company, the Bank Lenders, the Administrative Agent and the Documentation Agents
(as such term is defined in the Credit Agreement) (the "Credit Agreement"), (ii)
each of the Bank Lenders, (iii) each of the holders of the Notes and (iv) each of the other financial institutions named therein, guarantying the payment and other obligations of the Company under the Credit Agreement, the Note Agreement and the other agreements listed therein (including (x) the Note Purchase Agreement dated as of December 1, 1995, by and among the Company and each of the purchasers listed on Schedule A attached thereto (the "1995 Note Agreement") and
(y) the separate Note Agreements, each dated as of November 12, 1999, by and among 3031786 Nova Scotia Company, a Nova Scotia company, the Company as guarantor and each of the purchasers listed on Schedule A attached thereto (collectively, the "Nova Scotia Agreement"))."
 
EXHIBIT 4.7
GUARANTY
GUARANTY (this "Guaranty"), dated as of February 6, 2003, by Kar Products, LLC, a Delaware limited liability company (the "Guarantor"), in favor of (i) Fleet National Bank, a national banking association, as agent
(hereinafter, in such capacity, as further defined in Section 1, the "Agent")
for itself and the other lending institutions (hereinafter, collectively, the "Lenders") which are or may become parties to that certain Revolving Credit Agreement dated as of June 14, 2002 (as amended and in effect from time to time, the "Credit Agreement"), among Barnes Group Inc., a Delaware corporation (the "Company"), the Lenders, the Agent, HSBC Bank USA, KeyBank National Association, Mellon Bank, N.A., and Webster Bank as Co-Documentation Agents (the "Documentation Agents"), and the Noteholders (as defined below) (ii) each of the Lenders and (iii) each of the holders (the "1995 Noteholders") of the Company's 7.13% Senior Notes due December 5, 2005 (the "1995 Notes"), issued pursuant to a Note Purchase Agreement dated as of December 1, 1995, by and among the Company and each of the purchasers listed in Exhibit A attached thereto (as amended and in effect from time to time, the "1995 Agreement"), (iv) each of the holders (the "7.66% Noteholders") of 3031786 Nova Scotia Company's ("Nova") 7.66% Senior Notes due November 12, 2007 (the "7.66% Notes") and the holders (the "7.80% Noteholders" and together with the 7.66% Noteholders, the "Nova Noteholders") of Nova's 7.80% Senior Notes due November 12, 2010 (the "7.80% Notes" and, together with the 7.66% Notes, the "Nova Notes"), issued pursuant to a Note Agreement dated as of November 12, 1999, by and among Nova, the Company as guarantor and each of the purchasers listed on Schedule A attached thereto (as amended and in effect from time to time, the "Nova Agreement") and (v) each of the holders (the "2000 Noteholders", and together with the 1995 Noteholders and the Nova Noteholders, collectively, the "Noteholders") of the Company's 8.59% Senior Notes due November 21, 2008 (the "2000 Notes" and, together with the 1995 Notes and the Nova Notes, the "Notes"), issued pursuant to a Note Purchase Agreement dated as of November 21, 2000, by and among the Company and each of the purchasers listed in Exhibit A attached thereto (as amended and in effect from time to time, the "2000 Note Agreement" and, together with the 1995 Agreement and the Nova Agreement, the "Note Agreements").
WHEREAS, the Agent, the Lenders and the Noteholders (collectively, the "Obligees" and each individually an "Obligee") have consented to the Guarantor issuing this Guaranty in favor of the Agent, for the benefit of the Obligees, pursuant to which the Guarantor has guaranteed the payment and performance of the Obligations (as defined below);
WHEREAS, the Company and the Guarantor are members of a group of related corporations, the success of any one of which is dependent in part on the success of the other members of such group;
WHEREAS, the Guarantor expects to receive substantial direct and indirect benefits from the extensions of credit to the Company by (i) the Agent and the Lenders,
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pursuant to the Credit Agreement (which benefits are hereby acknowledged) and
(ii) the Noteholders (as applicable), pursuant to the 1995 Agreement, the Nova Agreement and the 2000 Agreement (which benefits are hereby acknowledged); and
WHEREAS, the Guarantor wishes to guaranty the Company's obligations to the Obligees as provided herein;
NOW, THEREFORE, the Guarantor hereby agrees with the Agent and each of the Obligees as follows:
1. Definitions. Agent. "Agent" shall have the meaning set forth in the first paragraph hereof and shall also include any entity that may be appointed as successor to Fleet National Bank in its capacity as Agent hereunder (if it shall no longer be willing to act in such capacity) by the holders of a majority in principal amount of the then outstanding Obligations.
Event of Default. Any Event of Default as defined in and under the Credit Agreement, the 1995 Agreement, the Nova Agreement or the 2000 Agreement.
Obligations. The "Obligations" shall mean the aggregate of each of the "Obligations" as defined in the Credit Agreement, and all obligations under the 1995 Agreement, the Nova Agreement and the 2000 Agreement including, without limitation, principal, interest, Makewhole Price (as defined in the Note Agreements) and all other amounts owing by the Company and Nova under the Note Agreements and the Notes.
Permitted Investments. "Permitted Investments" means investments in the following:
(a) Investments in United States Governmental Securities provided that such obligations mature within 365 days from the date of acquisition thereof. "United States Governmental Securities" means any direct obligation of, or obligation guaranteed by, the United States of America, or any agency controlled or supervised by or acting as an instrumentality of the United States of America pursuant to authority granted by the Congress of the United States of America, so long as such obligation or guarantee shall have the benefit of the full faith and credit of the United States of America which shall have been pledged pursuant to authority granted by the Congress of the United States of America;
(b) Investments in certificates of deposit or banker's acceptances issued by an Acceptable Bank, provided that such obligations mature within 365 days from the date of acquisition thereof. "Acceptable Bank" means any bank or trust company: (i) which is organized under the laws of the United States of America or any State thereof; (ii) which has capital, surplus and undivided profits aggregating at least $100,000,000; and (iii) whose long-term unsecured debt obligations (or the long-term unsecured debt obligations of the bank holding company owning all of the capital stock of such bank or trust company) shall have been given a rating of "A" or better by Standard & Poor's
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Rating Service, a division of the McGraw-Hill, Inc. ("S&P") and/or "A2" or better by Moody's Investors Service, Inc. ("Moody's"); and
(c) Investments in securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof with a maturity not in excess of 270 days from the date of acquisition thereof and that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's, and not less than "A 1" if rated by S&P."
2. Guaranty of Payment and Performance. The Guarantor hereby guarantees to each of the Obligees, the full and punctual payment when due (whether at stated maturity, by required pre-payment, by acceleration or otherwise), as well as the performance, of all of the Obligations including all such which would become due but for the operation of the automatic stay pursuant to Section 362(a) of the Federal Bankruptcy Code and the operation of Sections 502(b) and 506(b) of the Federal Bankruptcy Code. This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of all of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that the Agent or any Obligee first attempt to collect any of the Obligations from the Company or resort to any collateral security or other means of obtaining payment. Should the Company default in the payment or performance of any of the Obligations, the obligations of the Guarantor hereunder with respect to such Obligations in default shall, upon demand by the Agent, or any Noteholder, become immediately due and payable to the Agent, for the benefit of the Obligees and the Agent, without demand or notice of any nature, all of which are expressly waived by the Guarantor. Payments by the Guarantor hereunder may be required by the Agent or the Obligees on any number of occasions. All payments by the Guarantor to any Obligee at any time after an Event of Default has occurred and is continuing shall be turned over to the Agent for distribution in accordance with the terms hereof. All payments by the Guarantor hereunder shall be made to the Agent, in the manner and at the place of payment specified therefor in the Credit Agreement for the account of the Obligees and the Agent. The Obligees will share all payments received hereunder on a pro rata basis with respect to their individual Obligations, regardless of whether this Guaranty is found to be inapplicable to some or all of any Obligee's respective Obligations.
3. Guarantor's Agreement to Pay Enforcement Costs, etc. The Guarantor further agrees, as the principal obligor and not as a guarantor only, to pay to the Agent and each of the Obligees, on demand, all costs and expenses (including court costs and legal expenses) incurred or expended by the Agent or any Obligee in connection with the Obligations, this Guaranty and the enforcement thereof (which enforcement may be undertaken by any Obligee, so long as the proceeds of such enforcement are paid to the Agent by such Obligee, for distribution in accordance with the terms hereof), together with interest on amounts recoverable under this Section 3 from the time when such amounts become due until payment, whether before or after judgment, at the rate of interest for overdue principal set forth in the Credit Agreement, the 1995 Agreement, the Nova Agreement or the 2000 Agreement, as applicable, provided that if such interest exceeds
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the maximum amount permitted to be paid under applicable law, then such interest shall be reduced to such maximum permitted amount.
4. Proceeds Received Under the Guaranty.
4.1 Guaranty Account.
(a) The Agent shall establish and maintain an account into which, subject to Section 4.1(b), it shall deposit all amounts received by it in its capacity as Agent for the benefit of the Obligees (and not in any other capacity), in respect of this Guaranty so long as an Event of Default shall be continuing, including all monies received on account of any payment on demand or other realization pursuant to this Guaranty (the "Guaranty Account"). All amounts deposited in the Guaranty Account shall be held by the Agent for the benefit of the Obligees subject to the terms hereof, it being understood that any such amounts may be released to the Guarantor to the extent required by this Guaranty. The Guarantor shall have no rights with respect to, and the Agent, for the benefit of the Obligees shall have exclusive dominion and control over, the Guaranty Account.
(b) The Agent shall establish sub-accounts in its Guaranty Account with respect to each outstanding Letter of Credit (as defined in the Credit Agreement). All amounts deposited in the Guaranty Account in respect of Letters of Credit shall be allocated among, and deposited in, the respective sub-accounts therein pro rata in accordance with the Reimbursement Obligations (as defined in the Credit Agreement) with respect to the related Letters of Credit. If, on or after the date on which any funds are deposited in the Guaranty Account pursuant to paragraph (b) above, any Letter of Credit is drawn upon by the beneficiary thereof, the Agent shall apply any funds in the sub-account with respect to such Letter of Credit to the reimbursement of such Letter of Credit Participation (as defined in the Credit Agreement) as if such reimbursement were being made by the Company pursuant to the Credit Agreement (but not in an amount in excess of the amount of such drawing plus accrued and unpaid interest thereon from the date of draw to the date of payment).
(c) At the time of any expiration or cancellation of any outstanding Letter of Credit, or any other reduction in the amount of Reimbursement Obligations thereunder (other than as a result of a Letter of Credit Participation), the amount of funds in the sub-account with respect to such Letter of Credit (or, in the case of any partial reduction in the amount of Reimbursement Obligations thereunder, a pro rata portion of such funds) shall be released from such sub-account, and the funds so released shall be deposited in the Guaranty Account.
4.2 Application of Proceeds.
(a) Amounts deposited in the Guaranty Account shall be applied in the following order of priority:
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First, to the payment of (i) the reasonable costs and expenses (including attorney fees and disbursements) incurred by the Agent in administering and carrying out its obligations under this Guaranty and (ii) all amounts owing to the Agent in respect of indemnification or expense reimbursement claims owing to the Agent pursuant to Section 5;
Second, to the payment of (i) the reasonable costs and expenses (including attorney fees and disbursements) of any Obligee in exercising or attempting to exercise any right or remedy hereunder and (ii) all amounts owing to any Obligee in respect of indemnification or expense reimbursement claims owing to it pursuant to Section 5;
Third, to the Obligees in respect of the outstanding Obligations of each Obligee, respectively, at such time, pro rata in accordance with the aggregate amounts of the outstanding Obligations of each Obligee, respectively, at such time, until the outstanding Obligations shall have been paid in full; and
Fourth, the balance, if any, to the Guarantor or such other person or persons as shall be entitled thereto.
(b) All amounts deposited in any sub-account in the Guaranty Account shall be applied as provided in Sections 4.1 (b) and (c).
(c) Each Obligee agrees that, notwithstanding any provision of this Guaranty, the Credit Agreement, the 1995 Agreement, the Nova Agreement or the 2000 Agreement, any sums and amounts received by such Obligee pursuant to this Section 4.2 shall be applied to the payment of its outstanding Obligations as follows: first, to the payment of all outstanding Obligations owed to such Obligee, other than principal, premium, interest and obligations in respect of reimbursement of Letter of Credit Participations; second, to the payment of all outstanding Obligations owed to such Obligee consisting of accrued interest; and third, to the payment of all outstanding Obligations owed to such Obligee consisting of principal, premium, Makewhole Price and obligations in respect of reimbursement of Letter of Credit Participations.
4.3. Time of Payments. Unless the Agent shall have received written instructions from the holders of a majority in principal amount of the Obligations as to the times at which any amounts are to be distributed pursuant to Section 4.2, all distributions under Section 4.2 shall be made at such times and as promptly as the Agent shall determine to be reasonable and practicable under the circumstances, subject to Section 4.4; provided, however, that any distributions from the Guaranty Account shall be made substantially simultaneously; provided, further, that distributions from the Guaranty Account shall be made at least once in each 6 months or any time the amount on deposit therein exceeds $1,000,000.
4.4. Application of Amounts Not Distributable. If there is no provision under the Credit Agreement, the 1995 Agreement, the Nova Agreement or the 2000
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Agreement, as the case may be, for the application of amounts that are to be distributed to the Lenders or the Noteholders pursuant to Section 4.2 (whether by virtue of the applicable outstanding Obligations thereunder not being then due and payable or otherwise) or for the holding of such amounts by or on behalf of such parties pending application thereof, then the Agent, for the benefit of the Obligees shall invest the amounts in the Guaranty Account in investments permitted by Section 4.5 and shall hold such amounts and all proceeds of such investments in the Guaranty Account for the benefit of the Obligees until such amounts are either applied against the outstanding Obligations of each Obligee, respectively, or such outstanding Obligations have been paid in full.
4.5. Investment of Amounts in Guaranty Account. Pending the disbursement thereof pursuant to the terms of this Guaranty, all amounts in the Guaranty Account shall (to the extent deemed practical) be invested by the Agent, for the benefit of the Obligees, in Permitted Investments. The Agent shall, to the extent that the timing of distributions to be made from the Guaranty Account is known or can be reasonably anticipated, select Permitted Investments for the Guaranty Account that mature prior to the anticipated date of any distribution to be made from the Guaranty Account. The Agent shall not be liable for any loss resulting from any investment made in accordance with the provisions of this Section 4.5, except to the extent such loss was the result of such person's gross negligence or willful misconduct. The Agent agrees to account to the Obligees for each investment of funds in the Guaranty Account, and to supply to the Obligees the documents relating thereto, promptly upon request.
4.6. Information. Each Obligee agrees promptly from time to time, upon written request of the Agent, to advise the Agent of the nature and amount of outstanding obligations owing to it as of such date as the Agent may specify.
5. Expenses and Indemnification by the Guarantor. By countersigning this Guaranty, the Guarantor agrees (i) to reimburse the Agent and each Obligee, on demand, for any reasonable expenses incurred, including reasonable (1) counsel fees, (2) other charges and (3) disbursements and compensation of agents, arising out of, in any way connected with, or as a result of, the execution or delivery of this Guaranty or any agreement or instrument contemplated hereby or thereby or the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or in connection with the enforcement or protection of the rights of the Agent, and the Obligees under this Guaranty and
(ii) to indemnify and hold harmless the Agent, the Obligees and each of their respective directors, officers, employees and agents (each such person being called an "Indemnitee"), on demand, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against any Indemnitee in their respective capacities or any of them in any way relating to or arising out of this Guaranty or any action taken or omitted by them under this Guaranty; provided, however, that the Guarantor shall not be liable to any Indemnitee for any such liabilities, obligations, losses, damages,
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penalties, actions, judgments, suits, costs, expenses or disbursements to the extent they have resulted from the gross negligence or willful misconduct of such Indemnitee.
6. Waivers by Guarantor; Lender's Freedom to Act. The Guarantor agrees that the Obligations will be paid and performed strictly in accordance with their respective terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or any Obligee with respect thereto. The Guarantor waives promptness, diligences, presentment, demand, protest, notice of acceptance, notice of any Obligations incurred and all other notices of any kind, all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshalling of assets of the Company or any other entity or other person primarily or secondarily liable with respect to any of the Obligations, and all suretyship defenses generally. Without limiting the generality of the foregoing, the Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Agent or any Obligee to assert any claim or demand or to enforce any right or remedy against the Company or any other entity or other person primarily or secondarily liable with respect to any of the Obligations; (ii) any extensions, compromise, refinancing, consolidation or renewals of any Obligation; (iii) any change in the time, place or manner of payment of any of the Obligations or any rescissions, waivers, compromise, refinancing, consolidation or other amendments or modifications of any of the terms or provisions of the Obligations or any other agreement evidencing, securing or otherwise executed in connection with any of the Obligations, (iv) the addition, substitution or release of any entity or other person primarily or secondarily liable for any Obligation; (v) the adequacy of any rights which the Agent or any Obligee may have against any collateral security or other means of obtaining repayment of any of the Obligations; (vi) the impairment of any collateral securing any of the Obligations, including without limitation the failure to perfect or preserve any rights which the Agent or any Obligee might have in such collateral security or the substitution, exchange, surrender, release, loss or destruction of any such collateral security; or (vii) any other act or omission which might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a release or discharge of the Guarantor, all of which may be done without notice to the Guarantor. To the fullest extent permitted by law, the Guarantor hereby expressly waives any and all rights or defenses arising by reason of (A) any "one action" or "anti-deficiency" law which would otherwise prevent the Agent or any Obligee from bringing any action, including any claim for a deficiency, or exercising any other right or remedy (including any right of set-off), against the Guarantor before or after the Agent's or such Obligee's commencement or completion of any foreclosure action, whether judicially, by exercise of power of sale or otherwise, or (B) any other law which in any other way would otherwise require any election of remedies by the Agent or any Obligee.
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7. Unenforceability of Obligations Against Company. If for any reason the Company has no legal existence or is under no legal obligation to discharge any of the Obligations, or if any of the Obligations have become irrecoverable from the Company by reason of the Company's insolvency, bankruptcy or reorganization or by other operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantor to the same extent as if the Guarantor at all times had been the principal obligor on all such Obligations. In the event that acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Company, or for any other reason, all such amounts otherwise subject to acceleration under the terms of any of the Obligations or any other agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantor.
8. Subrogation; Subordination.
8.1. Waiver of Rights Against Company. Until the final payment and performance in full of all of the Obligations, the Guarantor shall not exercise and hereby waives any rights against the Company arising as a result of payment by the Guarantor hereunder, by way of subrogation, reimbursement, restitution, contribution or otherwise, and will not prove any claim in competition with the Agent or any Obligee in respect of any payment hereunder in any bankruptcy, insolvency or reorganization case or proceedings of any nature; the Guarantor will not claim any setoff, recoupment or counterclaim against the Company in respect of any liability of the Guarantor to the Company; and the Guarantor waives any benefit of and any right to participate in any collateral security which may be held by the Agent or any Obligee.
8.2. Subordination. The payment of any amounts due with respect to any indebtedness of the Company for money borrowed or credit received now or hereafter owed to the Guarantor is hereby subordinated to the prior payment in full of all of the Obligations. The Guarantor agrees that, after the occurrence of any default in the payment or performance of any of the Obligations, the Guarantor will not demand, sue for or otherwise attempt to collect any such indebtedness of the Company to the Guarantor until all of the Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, the Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness while any Obligations are still outstanding, such amounts shall be collected, enforced and received by the Guarantor as trustee for the Obligees and the Agent and be paid over to the Agent, for each of the Obligees and the Agent, on account of the Obligations without affecting in any manner the liability of the Guarantor under the other provisions of this Guaranty.
8.3. Provisions Supplemental. The provisions of this Section 8 shall be supplemental to and not in derogation of any rights and remedies of the Obligees and the Agent under any separate subordination agreement which the Agent or any of the Obligees may at any time and from time to time enter into with the Guarantor for the benefit of the Obligees and the Agent.
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9. Setoff. Regardless of the adequacy of any collateral security or other means of obtaining payment of any of the Obligations, each of the Agent and the Obligees is hereby authorized at any time and from time to time, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) and to the fullest extent permitted by law, to set off and apply such deposits and other sums against the obligations of the Guarantor under this Guaranty, whether or not the Agent or such Obligee shall have made any demand under this Guaranty and although such obligations may be contingent or unmatured. Any funds obtained by any such setoff shall be paid to the Agent for deposit into the Guaranty Account.
10. Further Assurances. The Guarantor agrees that it will from time to time, at the request of the Agent or any Obligee, do all such things and execute all such documents as the Agent or such Obligee may consider necessary or desirable to give full effect to this Guaranty and to perfect and preserve the rights and powers of the Obligees and the Agent hereunder. The Guarantor acknowledges and confirms that the Guarantor itself has established its own adequate means of obtaining from the Company on a continuing basis all information desired by the Guarantor concerning the financial condition of the Company and that the Guarantor will look to the Company and not to the Agent or any Obligee in order for the Guarantor to keep adequately informed of changes in the Company's financial condition.
11. Termination; Reinstatement. This Guaranty shall remain in full force and effect until the Agent and the Obligees are given written notice of the Guarantor's intention to discontinue this Guaranty, notwithstanding any intermediate or temporary payment or settlement of the whole or any part of the Obligations. No such notice shall be effective unless received and acknowledged by an officer of the Agent and an officer of each Noteholder, at the address of the Agent for notices set forth in Section 16.6 of the Credit Agreement and at the address of each Noteholder specified in or pursuant to the Note Agreements. No such notice shall affect any rights of the Agent or any Obligee hereunder, including without limitation the rights set forth in Sections 5 and 8, with respect to any Obligations incurred or accrued prior to the receipt of such notice or any Obligations incurred or accrued pursuant to any contract or commitment in existence prior to such receipt, and this Guaranty shall remain in full force and effect until all such Obligations are paid in full. This Guaranty shall continue to be effective or be reinstated, notwithstanding any such notice, if at any time any payment made or value received with respect to any Obligation is rescinded or must otherwise be returned by the Agent or any Obligee upon the insolvency, bankruptcy or reorganization of the Company, or otherwise, all as though such payment had not been made or value received.
12. Invalidated Payments. If the Agent or any Obligee receives any amount which is shared pursuant to this Guaranty that is subsequently required to be returned or repaid by the Agent or Obligee to the Guarantor, the Company or any affiliate thereof or their respective representatives or successors in interest, whether by court order, settlement or otherwise (a "Repayment Event"), then
(a) if the Repayment Event results in the Agent being required to return or repay any amount distributed by it to the Obligees under this Guaranty, each
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Obligee to which such amount was distributed shall, forthwith upon its receipt of a notice thereof from the Agent, pay the Agent an amount equal to its ratable share (based on the amount distributed to such Obligee) of the amount required to be returned or repaid relating to such Repayment Event,
(b) if the Repayment Event results in any Obligee (any such Obligee, an "Affected Obligee") being required to return or repay any amount received by it which was delivered to and distributed by the Agent to the Affected Obligee and the other Obligees pursuant to this Guaranty, each other Obligee to which any amount was distributed shall, forthwith upon its receipt of notice thereof from the Affected Obligee, pay the Agent an amount, up to an amount equal to the prior distributions to such other Obligee, for distribution to such Affected Obligee such that, after giving effect to such payment and distribution, all Obligees shall have received such proportion of the amounts distributed pursuant to this Guaranty as they would have received had the original payment which was the subject of the Repayment Event not occurred, and
(c) in either case, the Agent shall thereafter apply all amounts to be distributed pursuant hereto in a manner consistent with the terms of this Guaranty such that all Obligees receive such proportion of such amounts as they would have received had the original payment which is required to be returned or repaid as the result of a Repayment Event not occurred;
it being understood that if any Obligee shall fail to promptly pay any such amount to the Agent, (i) the Agent may deduct such amount from any amount payable thereafter to such Obligee under this Guaranty, and (ii) such amount not paid to the Agent within thirty (30) days of receipt of such notice from the Agent, shall bear interest from the expiry of such thirty (30) day period at a rate per annum equal to the Base Rate (as defined in the Credit Agreement) from time to time and shall be due and owing by such Obligee.
13. Successors and Assigns. This Guaranty shall be binding upon the Guarantor, its successors and assigns, and shall inure to the benefit of the Agent and the Obligees and their respective successors, transferees and assigns. Without limiting the generality of the foregoing sentence, each Obligee (as applicable) may assign or otherwise transfer the Credit Agreement, the Notes, the other Loan Documents, the 1995 Agreement, the Nova Agreement, the 2000 Agreement or any other agreement or note held by it evidencing, securing or otherwise executed in connection with the Obligations, or sell participations in any interest therein, to any other entity or other person, and such other entity or other person shall thereupon become vested, to the extent set forth in the agreement evidencing such assignment, transfer or participation, with all the rights in respect thereof granted to such Obligee herein, all in accordance with
Section 15 of the Credit Agreement, Section 11.4 of the 1995 Agreement, Section 11.4 of the Nova Agreement and Section 11.4 of the 2000 Agreement. The Guarantor may not assign any of its obligations hereunder. Notwithstanding the foregoing, the Guarantor may assign its Obligations to the surviving entity in its merger with another domestic Subsidiary in accordance with Section 9.5 of the Credit Agreement, Section 7.4 of the 1995 Agreement, Section 7.4 of the
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Nova Agreement and Section 7.4 of the 2000 Agreement, provided that no Event of Default exists and is continuing.
14. Joinder Agreement and Affirmation. To the extent requested by the Agent for the benefit of the Obligees, or by any Obligee, the Guarantor will cause each Subsidiary (excluding any foreign Subsidiaries) assigned any of the Guarantor's Obligations in accordance with Section 13, to execute and deliver to the Agent for the benefit of the Obligees, (a) a Joinder Agreement and Affirmation in the form of Exhibit A attached hereto, and (b) any other instruments and documents as the Agent or any Obligee may reasonably require, together with legal opinions in form and substance reasonably satisfactory to the Agent and the requesting Obligees, to be delivered to the Agent and the Obligees opining as to authorization, validity and enforceability of such Guaranty.
15. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Agent, the Required Lenders under the Credit Agreement, holders of 66 2/3% of the principal amount of the 1995 Notes, holders of 66 2/3% of the principal amount of the Nova Notes and holders of 66 2/3% of the principal amount of the 2000 Notes. No failure on the part of the Agent or any Obligee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.
16. Notices. All notices and other communications called for hereunder shall be made in writing and, unless otherwise specifically provided herein, shall be deemed to have been duly made or given when delivered by hand or mailed first class, postage prepaid, or, in the case of telegraphic or telexed notice, when transmitted, answer back received, addressed as follows: if to the Guarantor, at the address set forth beneath its signature hereto, if to the Agent, at the address for notices to the Agent set forth in Section 16.6 of the Credit Agreement, and if to any Obligee, at the address specified by such Obligee, or at such address as any party may designate in writing to the others.
17. Governing Law; Consent to Jurisdiction. THIS GUARANTY SHALL,
PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW Section 5-1401, BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The Guarantor agrees that any suit for the enforcement of this Guaranty may be brought in the courts of the State of New York or any federal court sitting therein and consents to the nonexclusive jurisdiction of such court and to service of process in any such suit being made upon the Guarantor by mail at the address specified by reference in Section 16. The Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court.
18. Waiver of Jury Trial. THE GUARANTOR AND EACH OF THE BENEFICIARIES HEREBY WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
-12-
CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Guarantor hereby waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Guarantor (i) certifies that none of the Agent or any Obligee, nor any representative, agent or attorney of the Agent or any Obligee has represented, expressly or otherwise, that the Agent or any Obligee would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that, in entering into the Credit Agreement, the 1995 Agreement, the Nova Agreement, the 2000 Agreement and the other documents to which the Agent or any Obligee is a party, the Agent and the Obligees are relying upon, among other things, the waivers and certifications contained in this Section 18.
19. Miscellaneous. This Guaranty constitutes the entire agreement of the Guarantor with respect to the matters set forth herein. The rights and remedies herein provided are cumulative and not exclusive of any remedies provided by law or any other agreement, and this Guaranty shall be in addition to any other guaranty of or collateral security for any of the Obligations. The invalidity or unenforceability of any one or more sections of this Guaranty shall not affect the validity or enforceability of its remaining provisions. Captions are for ease of reference only and shall not affect the meaning of the relevant provisions. The meanings of all defined terms used in this Guaranty shall be equally applicable to the singular and plural forms of the terms defined. The Agent represents and warrants that its signature below binds the Lenders to their respective obligations hereunder.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed and delivered as of the date first above written.
KAR PRODUCTS, LLC
By: Barnes Group Inc.
Its: Sole Member

By:   /s/ Philip A. Goodrich
Name:     Philip A. Goodrich
Title:    Senior Vice President, Corporate
          Development	

Address:

c/o Barnes Group Inc.
123 Main Street
Bristol, CT 06010
FLEET NATIONAL BANK, as Agent

By:   /s/ Deanne M. Horn
Name:     Deane M. Horn
Title:    Director	

[Signature Page to Guaranty]
Acknowledged and agreed to:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA

By:  /s/ Kevin Kraska
Name:    Kevin Kraska
Title:   Vice President	

ALLSTATE LIFE INSURANCE COMPANY

By: /s/ Jerry D. Zinkula
Name:   Jerry D. Zinkula

By: /s/ Robert B. Bodett
Name:   Robert B. Bodett

Authorized Signatories	

ALLSTATE INSURANCE COMPANY

By: /s/ Jerry D. Zinkula
Name:   Jerry D. Zinkula

By: /s/ Robert B. Bodett
Name:   Robert B. Bodett

Authorized Signatories	

[Signature Page to Guaranty]
-2-
AMERICAN HERITAGE LIFE INSURANCE
COMPANY

By: /s/ Jerry D. Zinkula
Name:   Jerry D. Zinkula

By: /s/ Robert B. Bodett
Name:   Robert B. Bodett

Authorized Signatories	

NATIONWIDE LIFE INSURANCE COMPANY

By: /s/ Joseph P. Young
Name:   Joseph P. Young
Title:  Credit Officer
        Fixed Income Securities	

NATIONWIDE INDEMNITY COMPANY

By: /s/ Joseph P. Young
Name:   Joseph P. Young
Title:  Credit Officer
        Fixed Income Securities	

-3-
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
 By: CIGNA Investments, Inc.

By: /s/ Robert W. Eccles
Name:   Robert W. Eccles
Title:  Managing Director	

LIFE INSURANCE COMPANY OF NORTH
AMERICA
 By: CIGNA Investments, Inc.

By: /s/ Robert W. Eccles
Name:   Robert W. Eccles
Title:  Managing Director	

-4-
ACE AMERICAN INSURANCE CO.
 By: Stein Roe Farnham Inc., as Agent

By: /s/ Richard A. Hegwood
Name:   Richard A. Hegwood
Title:  Senior Vice President	

ACE PROPERTY & CASUALTY
INSURANCE COMPANY
 By: Stein Roe Farnham Inc., as Agent

By: /s/ Richard A. Hegwood
Name:   Richard A. Hegwood
Title:  Senior Vice President	

THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
 By: Delaware Investment Advisers,
a Series of Delaware Management Business Trust, its Attorney-in-Fact

By: /s/ Richard Corwin
Name:   Richard Corwin
Title:  Vice President	

-5-
STATE FARM LIFE INSURANCE COMPANY

By: /s/ Julie Pierce
Name:   Julie Pierce
Title:  Investment Officer

By: /s/ Larry Rottunda
Name:   Larry Rottunda
Title:  Assistant Secretary	

MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
 By: David L. Babson & Company Inc., as Investment Adviser

By: /s/ Mark A. Ahmed
Name:   Mark A. Ahmed
Title:  Managing Director	

PAN-AMERICAN LIFE INSURANCE COMPANY

By: /s/ Luis Ingles, Jr., C.F.A.
Name:   Luis Ingles, Jr., C.F.A.
Title:  Senior Vice President Investments	

-6-
THE CANADA LIFE ASSURANCE COMPANY
 (J. ROMEO & CO. as Nominee)

By: /s/ C. Paul English
Name:   C. Paul English
Title:  U.S. Securities Vice-President	

SCHEDULE TO THE
ISDA MASTER AGREEMENT
DATED AS OF AUGUST 19, 2002, BETWEEN
SUNTRUST BANK
 ("PARTY A")
AND
BARNES GROUP, INC.
 ("PARTY B")
Part 1
Definitions
1. "Affiliate" shall have the meaning assigned to such term in Section 14 of this Agreement.
2. "Calculation Agent" shall mean Party A.
3. "Shareholders' Equity" means with respect to any entity, at any time, the sum (as shown in the most recent annual audited financial statements of such entity) of (i) its capital stock (including preferred stock) outstanding, taken at par value, (ii) its capital surplus and (iii) its retained earnings, minus (iv) treasury stock, each to be determined in accordance with generally accepted accounting principles.
4. "Specified Entity" shall mean for the purposes of Sections 5(a)(v), (vi), and (vii), and Section 5(b)(iv) of this Agreement, in the case of Party A, not applicable, and in the case of Party B, any Affiliate of Party B.
5. "Specified Indebtedness" shall have the meaning assigned to such term in
Section 14 of this Agreement, but, with respect to Party A, shall not include indebtedness in respect of deposits received in the ordinary course of its banking business.
6. "Specified Transaction" shall have the meaning assigned to such term in
Section 14 of this Agreement.
7. "Termination Currency" shall mean United States Dollars.
8. "Threshold Amount" shall mean, for purposes of Section 5(a)(vi) of this Agreement, (a) with respect to Party A, an amount equal to three percent (3%) of its Shareholders' Equity, determined in accordance with generally accepted accounting principles in such party's jurisdiction of incorporation or organization, consistently applied, as at the end of such party's most recently completed fiscal year, and (b) with respect to Party B, an amount equal to $5,000,000 (or the equivalent thereof in any other currencies).
19
Part 2
Representations
1. Tax Representations. None.
2. The following paragraph is added as Section 3(g) of this Agreement:
"(g) Eligible Contract Participant. It is an Eligible Contract Participant as defined in Section 101 (12) of the Commodity Futures Modernization Act of 2000."
Part 3
Agreements
1. Documents to be delivered. For purposes of Section 4(a) of this Agreement, each party agrees to deliver the following documents as applicable:
(a) Certified copies of all documents evidencing necessary corporate authorizations, as well as other authorizations and approvals with respect to the execution, delivery and performance by the party of this Agreement and any Credit Support Document.

Party required to deliver:                         Party B

Date by which to be delivered:                     Upon execution of
                                                   this Agreement

Covered by Section 3(d) Representation:            Yes	

(b) An incumbency certificate of an authorized officer of the party certifying the names, true signatures and authority of the officers of the party signing this Agreement and any Credit Support Document.

Party required to deliver:                         Party B

Date by which to be delivered:                     Upon execution of
                                                   this Agreement

Covered by Section 3(d) Representation:            Yes	

(c) Such other document as the other party may reasonably request in connection with each Transaction.

Party required to deliver:                         Party B

Date by which to be delivered:                     Promptly upon request

Covered by Section 3(d) Representation:            Yes	

(d) Such other written information respecting the condition or operations, financial or otherwise, of Party B as Party A may reasonably request from time to time.
20

Party required to deliver:                      Party B

Date by which to be delivered:                  Promptly upon request

Covered by Section 3(d) Representation:         Yes	

Part 4
Termination Provisions
1. Cross Default. The "Cross Default" provisions of Section 5(a)(vi) of this Agreement shall apply to each of Party A and Party B.
2. Credit Event Upon Merger. The "Credit Event Upon Merger" provisions of
Section 5(b)(iv) of this Agreement shall apply to each of Party A and Party B.
3. Automatic Early Termination. The "Automatic Early Termination" provision of
Section 6(a) of this Agreement shall not apply to either Party A or Party B.
4. Payments on Early Termination. For purposes of Section 6(e) of this Agreement, Second Method and Loss shall apply.
5. Additional Termination Event will not apply. Notwithstanding the foregoing, Party A will have the right (but not the obligation) to terminate all or a pro rata portion of any Transaction related to the Loan Agreement and will be entitled to receive from, or will be required to pay to, Party B the fair market value for such termination, as determined by Party A in good faith and in accordance with market practice and its own customary procedures, upon the occurrence of one or more of the following events:
(a) If the indebtedness under the Loan Agreement is (for whatever reason, in whatever manner) partially or fully paid or discharged (except with respect to any scheduled amortization);
(b) If Party A ceases to be a party to the Loan Agreement;
(c) If the lenders party to the Loan Agreement become secured or, if already secured, the lenders obtain additional security thereunder and Party A, in its capacity as a party to this Agreement and any Transaction hereunder, is not entitled to the same rights, privileges, and interest in the collateral and/or guaranty agreements as the lenders are entitled to under the Loan Agreement;
(d) If there is a default, an event of default, or other similar condition or event (however described) in relation to Party B under the Loan Agreement (without regard to the existence of any waiver or forbearance agreement with respect thereto); and
(e) If the Loan Agreement is amended, restated, supplemented, or otherwise modified and Party A does not consent, in its sole discretion, to such amendment, restatement, supplement, or other modification.
Party A may exercise such right to terminate, at any time in its sole discretion, following the occurrence of any one of such events through the Termination Date. A failure or delay in exercising the foregoing right to terminate will not be presumed to operate as a waiver, and a single or partial exercise of such right will not be presumed to preclude any subsequent or further exercise of that right.
21
Part 5
Miscellaneous
1. Notices. For purposes of Section 12 of this Agreement:
(a) The address for notice or communication to Party A is:
SunTrust Capital Markets, Inc. Financial Risk Management, Operations 303 Peachtree Street, N.E.
23rd Floor, Center Code 3913
Atlanta, GA 30308
404-575-2696 (phone)
404-532-0514 (fax)
(b) The address for notice or communication to Party B is:
Mr. Lawrence O'Brien
Vice President & Treasurer
Barnes Group, Inc.
123 Main St.
Bristol, CT 06011-0489
860-973-2108 (phone)
860-582-4008 (fax)
2. Governing Law. Section 13(a) of this Agreement is hereby restated as follows:
"(a) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine."
3. Jurisdiction. Section 13(b)(i) of this Agreement is hereby restated as follows:
"(i) submits to the nonexclusive jurisdiction of the courts of the State of Georgia and the United States District Court located in Atlanta, Georgia; and"
4. Process Agent. Process Agent shall not apply to this Agreement.
5. Offices. The provisions of Section l0(a) of this Agreement shall not apply to either party.
6. Multibranch Party. For purposes of Section 1O(c) of this Agreement, neither Party A nor Party B is a Multibranch Party.
7. Credit Support Provider.
Credit Support Provider means in relation to Party A: Not applicable. Credit Support Provider means in relation to Party B: Not applicable.
8. Credit Support Document.
Credit Support Document means in relation to Party A: Not applicable. Credit Support Document means in relation to Party B: Not applicable.
22
Part 6
Additional Agreements
1. Recording of Conversations. Each party (i) consents to the monitoring or recording, at any time and from time to time, by the other party of any and all communications between officers or employees of the parties, (ii) waives any further notice of such monitoring or recording, and (iii) agrees to notify (and, if required by law, obtain the consent of) its officers and employees with respect to such monitoring or recording.
2. Mediation and Arbitration. Notwithstanding anything to the contrary contained herein, the parties agree to submit to mediation and, should settlement through mediation not occur, to arbitration any and al1 claims, disputes, and controversies between them (and their respective employees, officers, directors, affiliates, attorneys, and other agents) resulting from or arising out of this Agreement. Such mediation and arbitration shall proceed in the jurisdiction where Party A is located, shall be governed by the law specified in this Agreement, and shall be conducted (a) in accordance with such rules as may be agreed upon by the parties or (b) in the event the parties do not reach an agreement as to such rules within thirty (30) days after a notice of dispute, in accordance with the Commercial Mediation Rules and Commercial Arbitration Rules of the American Arbitration Association. If, within thirty (30) days after service of a written demand for mediation, the mediation does not result in settlement of the dispute, then any party may demand arbitration, and the decision of the arbitrator(s) shall be binding on the parties. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. It is agreed that the arbitrators shall have no authority to award treble, exemplary, or punitive damages of any type under any circumstances, whether or not such damages may be available under state or federal law, or under the Federal Arbitration Act, or under the Commercial Arbitration Rules of the American Arbitration Association, the parties hereby waiving their right, if any, to recover any such damages.
3. Set Off. Section 6 of the Agreement is amended by adding the following new subsection 6(f):
"(f) Right of Set-Off. Upon the occurrence of an Event of Default with respect to Party B, or an Illegality or Credit Event Upon Merger where Party B is the Affected Party, Party A will have the right (but not the obligation), without prior notice to Party B or any other person, to set-off any obligation of Party A or any of Party A's present or future Affiliates, branches, or offices owing to Party B, against any obligation of Party B owing to Party A or any of Party A's present or future Affiliates. branches, or offices (whether or not such obligations arise under this Agreement, whether or not matured, whether or not contingent, and regardless of the place of payment or booking office of the obligations). In order to enable Party A to exercise its rights of set-off, if an obligation is unascertained, Party A may in good faith estimate that obligation and set-off in respect of the estimate, subject to Party A accounting to Party B when the obligation is ascertained.
Nothing in this Section 6(f) shall be effective to create a charge or other security interest. This Section 6(f) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien, or other right to which any party is at any time otherwise entitled (whether by operation of law, contract, or otherwise)."
4. By signing this Schedule, Party B acknowledges that it has received and understands the SunTrust Bank "Terms of Dealing for OTC Risk Management Transactions" and the "Risk Disclosure Statement for OTC Risk Management Transactions" (each attached hereto and incorporated by reference into this Agreement).
23
Please confirm your agreement to the terms of the foregoing Schedule by signing below.

SUNTRUST BANK                                         BARNES GROUP, INC.

By: /s/ Fred D. Woolf                                 By:/s/ David J. Sinder
     Fred D. Woolf                                    Name: David J. Sinder
     Vice President                                   Title: Assistant Treasurer	

24
SunTrust Bank ("SunTrust") Terms of Dealing for OTC Risk Management Transactions
In connection with the negotiation, entry into, and performance from time to time of over-the-counter ("OTC") risk management transactions, please be advised that:
SunTrust acts as principal only and does not act as advisor, agent, broker, or fiduciary for or with respect to any counterparty (unless otherwise expressly agreed in a written engagement letter).
SunTrust expects that its counterparties have the authority and capacity to enter into and perform their obligations under their OTC risk management transactions with SunTrust, and SunTrust relies on the express and implied representations of its counterparties with respect thereto.
SunTrust expects that its counterparties possess adequate knowledge and experience to assess independently, or with the assistance of their own advisors, the merits and risks of each OTC risk management transaction that the counterparty may from time to time enter into, amend, or terminate.
SunTrust endeavors to maintain the confidentiality of all confidential counterparty information and expects its counterparties to do the same. Unless a counterparty gives SunTrust written notice to the contrary, each counterparty authorizes SunTrust and all SunTrust affiliates, including SunTrust Capital Markets, Inc. (STCM), to share with each other confidential information concerning a counterparty and/or its accounts for marketing or other purposes from time to time. Any trade ideas, term sheets, and other similar documents sent to counterparties by SunTrust are not to be shared with others.
SunTrust may pay fees, commissions, and other amounts to agents, brokers, and/or other third parties in connection with OTC risk management transactions entered into with counterparties. SunTrust considers the amount of such fees, commissions, and other amounts to be confidential and does not disclose the same to its counterparties.
SunTrust may from time to time receive orders for similar or identical transactions, and SunTrust makes no representation with respect to execution priorities.
STCM's Authorized Officers have the authority to bind SunTrust in connection with OTC risk management transactions. A current list of Authorized Officers may be obtained from STCM upon request.
OTC risk management obligations of SunTrust are not FDIC insured.
25
SunTrust Bank ("SunTrust") Risk Disclosure Statement for OTC Risk Management Transactions
Over-the-counter ("OTC") risk management transactions, like other financial transactions, involve a variety of significant potential risks. OTC risk management transactions generally include options, forwards, swaps, swaptions, caps, floors, collars, combination and variations of such instruments, and other executory contractual arrangements, and may involve interest rates, currencies, securities, commodities, equities, credit, indices, and other underlying interests.
Before entering into any OTC risk management transaction, you should carefully consider whether the transaction is appropriate for you in light of your experience, objectives, financial and operational resources, and other relevant circumstances. You should also ensure that you fully understand the nature of the transaction and contractual relationship into which you are entering and the nature and extent of your exposure to risk of loss, which may significantly exceed the amount of any initial payment or investment by you.
The specific risks presented by a particular OTC risk management transaction necessarily depend upon the character of the specific transaction and your circumstances. In general, however, all OTC risk management transactions involve the risk of adverse or unanticipated market developments, risk of illiquidity and credit risk, and may involve other material risks. Equity risk management transactions may increase or decrease in value with a change in, among other things, stock prices and interest rates which could result in unlimited loss. In addition, you may be subject to internal operational risks in the event that appropriate internal systems and controls are not in place to monitor the various risks and funding requirements to which you are subject by virtue of your activities in the OTC risk management and related markets. OTC risk management transactions frequently are tailored to permit parties to customize transactions to accomplish complex financial and risk management objectives. Such customization can also introduce significant risk factors of a complex character.
As in any financial transaction, you must understand the requirements (including investment restrictions), if any, applicable to you that are established by your regulators or by your Board of Directors or other governing body. You should also consider the tax and accounting implications of entering into any risk management or other transaction. To the extent appropriate in light of the specific transaction and your circumstances, you should consider consulting such advisers as may be appropriate to assist you in understanding the risks involved. If you are acting in the capacity of financial adviser or agent, you must evaluate the foregoing matters in light of the circumstances applicable to your principal.
In entering into any OTC risk management transaction, you should also take into consideration that, unless you and SunTrust have established in writing an express financial advisory or other fiduciary relationship or you and SunTrust have expressly agreed in writing that you will be relying on SunTrust's recommendations as the primary basis for making your trading or investment decisions, SunTrust is acting solely in the capacity of an arm's-length contractual counterparty and not in the capacity of your financial advisor or fiduciary. In addition, SunTrust or its affiliates may from time to time have substantial long or short positions in and may make a market in or otherwise buy or sell instruments identical or economically related to the OTC risk management transaction entered into with you or may have an investment banking or other commercial relationship with the issuer of any security or financial instrument underlying an OTC risk management transaction entered into with you.
THIS BRIEF STATEMENT DOES NOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF ENTERING INTO OTC RISK MANAGEMENT TRANSACTIONS. YOU SHOULD REFRAIN FROM ENTERING INTO ANY SUCH TRANSACTION UNLESS YOU FULLY UNDERSTAND ALL SUCH RISK AND HAVE INDEPENDENTLY DETERMINED THAT THE TRANSACTION IS APPROPRIATE FOR YOU.
26
 
EXHIBIT 10.3
BARNES GROUP INC.
RETIREMENT BENEFIT EQUALIZATION PLAN
1. Purpose
The purpose of the Retirement Benefit Equalization Plan (the "Equalization Plan") is to equalize the benefits for those participants in the Barnes Group Inc. Salaried Retirement Income Plan (the "Pension Plan") whose benefits are limited by statute, including Section 415 of the Internal Revenue Code of 1986 as amended from time to time (the "Code").
2. Participants
"Participant" shall mean any employee of Barnes Group Inc. (the "Company") who is a participant in the Pension Plan whose benefits under the Pension Plan are limited by statute, including Section 415 of the Code, and who are not receiving benefits under the Company's Supplemental Senior Officer Retirement Plan.
3. Benefits
3.1 Barnes Group Inc. will pay to any Participant the difference between the benefits paid under the Pension Plan and what the Participant would have received but for the limitations set forth in section 6.8 (or any successor thereto) of the Pension Plan.
- 1 -
3.2 Benefits payable hereunder will be paid at the same time and in the same manner as benefits paid pursuant to the Pension Plan.
4. Administration
The Benefits Committee which administers the Pension Plan shall administer the Equalization Plan, and it shall have the same powers relating to the Equalization Plan as it does with respect to the Pension Plan.
5. General
5.1 The Equalization Plan may be amended or terminated at any time by the Board of Directors of the Company, except that no such amendment or termination shall adversely affect the benefits payable to any person who has begun to receive benefits hereunder.
5.2 Benefits payable hereunder shall not be funded and shall be paid out of the general assets of the Company.
5.3 The Equalization Plan shall be construed, administered and enforced according to the laws of the State of Connecticut.
As amended April 3, 1996
2
 
EXHIBIT 10.4
BARNES GROUP INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. Purpose
The purpose of the Supplemental Executive Retirement Plan (the "Supplemental Plan") is to provide supplemental pension benefits to selected employees and certain Officers of Barnes Group Inc. (collectively "Participants") who elect any form of contingent annuity under the Barnes Group Inc. Salaried Retirement Income Plan (the "Pension Plan") under which a spouse or former spouse is the contingent annuitant.
2. Benefits
2.1 The Company will pay the amount described in the following paragraph to each person who meets the requirements of (A) and (B):
(A) such person is either (i) an Officer on or after November 16, 1979, who either retires as an Officer under the Pension Plan with ten years of service with Barnes Group or a direct or indirect subsidiary of Barnes Group, or ceases to be an Officer due to disability, or (ii) an employee of Barnes Group Inc. who has been designated to participate in the Supplemental Plan by the Benefits Committee, and
(B) such person is receiving retirement benefits under the Pension Plan pursuant to a contingent pensioner form of benefit under which the contingent pensioner is the Participant's spouse or former spouse.
1
The benefit payable to such Participants shall be a monthly supplemental annuity equal to (a) minus (b) where:
(a) equals the sum of: (i) the monthly retirement income payable to the Participant if he/she elected a straight life annuity under the Pension Plan; (ii) the monthly retirement income payable to the Participant under the Retirement Benefit Equalization Plan ("RBEP") if he/she elected a straight life annuity under the RBEP; and (iii) if the Participant is a participant in the Supplemental Senior Officer Retirement Plan ("SSORP"), the monthly retirement income payable to the Participant if he/she elected a straight life annuity under the SSORP; and
(b) equals the sum of: (i) the monthly pension benefits to which the Participant is entitled pursuant to the Pension Plan were he/she to elect the 50% contingent pensioner form of annuity, naming such spouse or former spouse as contingent pensioner; (ii) the monthly pension benefits to which the Participant is entitled pursuant to the RBEP were he/she to elect the 50% contingent pensioner form of annuity, naming such spouse or former spouse as contingent pensioner; and (iii) the monthly pension benefits to which the Participant is entitled pursuant to the SSORP were he/she to elect the 50% contingent pensioner form of annuity, naming such spouse or former spouse as contingent pensioner.
2.2 Benefits payable hereunder will be paid at the same time and in the same manner as benefits paid pursuant to the Pension Plan.
2
3. Administration
The Benefits Committee shall administer the Supplemental Plan, and shall have the same administrative powers relating to the Supplemental Plan as it does with respect to the Pension Plan.
4. General
4.1 The Supplemental Plan may be amended in whole or in part or terminated at any time by the Board of Directors of the Company, except that no such amendment or termination shall adversely affect the benefits payable to any person who has begun to receive benefits hereunder.
4.2 Benefits payable under the Supplemental Plan shall not be funded and shall be paid out of the general assets of the Company.
4.3 The Supplemental Plan shall be construed, administered, and enforced according to the laws of the State of Connecticut.
As amended by the Board of Directors May 16, 1997
3
 
EXHIBIT 10.17
BARNES GROUP INC. EXECUTIVE SEPARATION PAY PLAN
1. Purpose. The purpose of the Barnes Group Inc. Executive Separation Pay Plan (the "Plan") is to provide appropriate benefits to eligible executives of Barnes Group Inc. (the "Company") whose employment is terminated by the Company.
2. Covered Employees. Full-time salaried employees of the Company who are in salary grades 24 and above, and full-time salaried employees of the Company who are in salary grades 18 through 23 who have at least six months of service, are covered by the Plan. A person is considered to be a full-time employee if the person is regularly scheduled to work at least 30 hours per week.
3. Payment of Benefits. An employee covered under the Plan is entitled to receive benefits under the Plan if his/her employment is terminated by the Company; provided, however, that no benefits will be paid under the Plan if:
(a) the termination action is determined by the Company to be based on misconduct of any type including, but not limited to, violation of any Company rules or policies, or activity which results in the conviction of a felony; or
(b) the termination is the result of the sale of the stock or substantially all of the assets of a business unit of the Company and the employee is offered employment by the purchaser, within 30 days after the closing of the sale, in a position that is at least comparable to, and for compensation and benefits that are, in the aggregate, at least
substantially equivalent to, the employee's position, compensation and benefits with the Company prior to the sale.
4. SEVERANCE PAY
4.1 A terminated employee who is entitled to receive benefits under this Plan is eligible to receive severance pay based on the following schedule:
(a) Grades 18-20: four months of base salary plus an additional two weeks of base salary for each year of service over five years up to a maximum total payment of six months of base salary.
(b) Grades 21-23: seven months of base salary.
(c) Grades 24 and above, except for the President and Chief Executive Officer: twelve months of base salary. The minimum severance pay benefit payable under this Plan shall be one month's base salary or the amount of accrued vacation, whichever is greater. The payment of more than the minimum severance pay benefit shall be contingent on the terminated employee's execution of a release of any claims in a form approved by the Company's General Counsel. For purposes of the Plan, "base salary" shall be deemed to mean the employee's base salary in effect immediately prior to termination and any severance payment shall be calculated on the basis of the employee's salary grade immediately prior to termination.
2
4.2 Payment shall be made on the terminated employee's regularly scheduled payroll payment dates as if he/she had continued as an employee and will be subject to normal deductions for items such as income taxes, Social Security, and Medicare.
4.3 Severance pay for a terminated employee who was in any of salary grades 18 through 26 shall cease on the date that such terminated employee begins other employment, including but not limited to work for another party. The terminated employee shall promptly notify the Company in writing when he/she commences such employment.
4.4 Severance pay for a terminated employee who was in any of salary grades 27 and above shall not cease on the date that such terminated employee begins other employment, including but not limited to work for another party, but shall continue throughout the entire severance period.
5. Accrued Vacation A terminated employee entitled to receive benefits under this Plan will also be paid for any unused vacation or paid time off that he/she has accrued in accordance with Company policy prior to the termination date. Payment for such accrued unused vacation or paid time off shall be made in a lump sum, net of normal deductions for items such as income taxes, Social Security and Medicare, within five days after the employee's termination date.
3
6. OTHER BENEFITS
6.1 If the terminated employee will receive more than the minimum severance pay benefit, pursuant to Section 4.1 hereof, then he/she may continue participation, on the same terms in effect immediately prior to termination, in the Company's medical, dental, group life, supplemental life, dependent life, accidental death and dismemberment insurance, flexible benefit (i.e., premium pass-through plan, health care reimbursement account and dependent care reimbursement account), and long term disability plans for the period during which he/she receives severance payments. If payments cease during but prior to the end of any month, coverage will continue until the end of the last month during which such terminated employee receives any severance payments. Notwithstanding anything to the contrary herein, the Company reserves the right to discontinue or change the terms (including but not limited to the carrier) of any employee benefit plan. After severance payments cease, COBRA medical and dental coverage and the health care reimbursement account may be continued as required by law.
6.2 Except to facilitate benefit continuation as provided in Section 6.1 hereof, a person's status as an employee shall cease upon the termination date and not continue during the period in which severance payments are made. Without limiting the foregoing, employment shall be terminated for purposes of the Guaranteed Stock Plan, any applicable pension or profit-sharing plan, stock option plans, and for all other purposes upon the termination date.
4
6.3 A terminated employee shall not be eligible to receive unemployment benefits for any period during which he/she receives severance benefits.
7. ADMINISTRATION
7.1 Benefits Committee. The Plan is administered by the Benefits Committee of the Company's Board of Directors (the "Committee"). The Committee may promulgate rules or regulations for the administration of the Plan. The Committee shall, in its sole discretion, interpret and construe the Plan's terms and conditions, and determine an individual's eligibility for benefits. Any interpretations, constructions or determinations made by the Committee in good faith shall be final and binding.
7.2 Claims Procedure. If any person believes that he/she is not receiving any benefits to which he/she is entitled under the Plan, the person, after reviewing the matter with the human resource representative serving the person's place of work, may file a written claim with the Director, Compensation and Benefits, Barnes Group Inc., 123 Main Street, Bristol, Connecticut 06010, or such other person designated by the Benefits Committee, who shall respond to such claim in writing within 45 days after its receipt. If any claim is denied, the claimant may appeal such denial in writing to the Benefits Committee, c/o Barnes Group Inc., 123 Main Street, Bristol, Connecticut 06010. Any such appeal must be filed within 60 days after the denial of the claim. The Benefits Committee shall notify the claimant of its decision in writing within 60 days after receiving the appeal.
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8. OTHER PROVISIONS
8.1 This Plan may be amended or terminated at any time by the vote of a majority of the members of the Benefits Committee.
8.2 The benefits to be provided under this Plan shall not be funded and shall be paid out of the general assets of the Company.
8.3 For purposes of determining:
(a) an employee's eligibility under Section 2 of the Plan;
(b) the schedule of severance pay payments under Section 4 of the Plan; and
(c) the period of continuation of other benefits described in
Section 6 of the Plan, only service since the employee's last date of hire with the Company shall be counted.
8.4 The Plan shall be construed, administered and enforced under the laws of the State of Connecticut.
Effective: May 1, 1992
Revised: April 5, 2000
6
 
Exhibit 13
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
OUR BUSINESS
Barnes Group is a diversified international manufacturer of precision components and assemblies and distributor of industrial supplies. The Company is comprised of three business segments. The Associated Spring segment is a manufacturer of precision mechanical and nitrogen gas springs, retaining rings and injection-molded plastic components that are used in a variety of industries, including transportation, consumer goods, electronics and telecommunications. The Barnes Aerospace segment supplies precision machined and fabricated components and assemblies for commercial and military aircraft and industrial gas turbines, as well as engine component overhaul and repair services in support of the global airline industry. The Barnes Distribution segment is an international distributor of MRO supplies and a full-service provider of logistics management services for industrial, heavy equipment and transportation maintenance markets. It also distributes close-tolerance engineered metal components manufactured principally by Associated Spring. Through these three businesses, Barnes Group helps its customers enhance their competitiveness and responsiveness by realizing the benefits of Barnes Group's manufacturing and logistics management capabilities.
KEY BUSINESS DRIVERS
There are a number of end-market demand factors that impact sales in each of the three businesses. Key sales drivers for Associated Spring are: light vehicle production in North America and Europe, which correlates well with the sales of automotive springs and with tool and die build, which impacts the Company's nitrogen gas spring sales; sales of cell phone handsets and other electronic products in the telecommunications, computer and optical device markets; and sales of white goods, small engines, compressors, heavy duty trucks and similar products that impact the Company's industrial springs.
For original equipment manufacturer (OEM) components produced at Barnes Aerospace, key sales drivers include new commercial and military aircraft production and land-based industrial gas turbine deliveries. The number of commercial aircraft in the active fleet and the number of revenue passenger miles flown by the world's airlines are key drivers of sales for the Barnes Aerospace overhaul and repair operations.
General industrial activity in North America and Europe is the key sales driver for Barnes Distribution, as Barnes Distribution's customer base is well diversified through many different economic sectors.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make estimates and assump-tions 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. Significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements. The most significant areas involving management judgments and estimates are described below. Actual results could differ from such estimates.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used to value the majority of domestic inventories. Provisions are made to reduce excess or obsolete inventories to their estimated net realizable value. Loss provisions, if any, on contracts are established when reasonably expected. Loss provisions are based on the excess inventoriable costs over the net revenues of the products or group of related products under contract. The process for evaluating the value of excess and obsolete inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may necessitate future adjustments to these provisions.
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BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
BUSINESS ACQUISITIONS
Assets and liabilities acquired in a business combination are recorded at their estimated fair values at the acquisition date. At December 31, 2002, the Company had $164.6 million of goodwill, representing the cost of acquisitions in excess of fair values assigned to the underlying net assets of acquired companies. In accordance with Statement of Financial Accounting Standards (SFAS) 142, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment testing. The assessment of goodwill involves the estimation of the fair value of "reporting units," as defined by SFAS 142. Management completed this assessment during the second quarter of 2002 based on the best information available as of the date of the assessment, which incorporated management assumptions about expected future cash flows. Based on this assessment, there was no goodwill impairment in 2002. Future cash flows can be affected by changes in the global economy and local economies, industries and markets in which the Company sells products or services, and the execution of management's plans, particularly with respect to integrating acquired companies. There can be no assurance that future events will not result in impairment of goodwill or other intangible assets.
REORGANIZATION OF BUSINESSES
The Company records a liability for reorganization initiatives at the time that management approves and commits to a reorganization plan. Such a plan identifies all significant actions to be taken and specifies an expected completion date that is within a reasonable period of time. The liability includes those costs that can be reasonably estimated. These estimates are subject to adjustments based upon actual costs incurred (see "Recent Accounting Changes" on page 16).
PENSION AND OTHER POSTRETIREMENT BENEFITS
Accounting policies and significant assumptions related to pension and other postretirement benefits are disclosed in Note 10 to the Consolidated Financial Statements.
In 2002, the portfolio managers authorized to invest pension trust funds were changed and the mix of assets in which managers invest was revised. The following table provides a breakout of the new targeted mix of investments, by asset classification, along with the historical rates of return for each asset class and the long-term projected rates of return.

                                         Annual Return %
---------------------------------------------------------------
                     Asset Mix                       Long-Term
Asset Class              %       Historical/(1)/     Projection
---------------------------------------------------------------
Large Cap Growth         20         11.4                 10.4
Large Cap Value          20         13.1                 12.1
Small Cap Growth          9          8.9                  7.9
Small Cap Value           9         14.7                 13.7
Non-U.S. Equity           9         10.2                  9.2
Real Estate-Related       5         14.9                 12.9
Fixed Income             27          9.3                  7.3
Cash                      1          7.1                  5.1
Weighted  Average                   11.3                  9.9	

/(1)/ Historical returns based on the life of the respective index, approximately 20 to 25 years.
The historical rates of return were calculated based upon compounded average rates of return of published indices. The fixed income investments represent approximately 27% of the trust asset mix and are estimated to be 5% to 10% lower than the fixed income components of typical pension trusts. The fixed income investments include a higher-than-average component of yield-aggressive investments, including high-yield corporate bonds. Based on the overall historical and projected rates of return, management is projecting the long-term rate of return on pension assets to be 9.5%.
A one-quarter percentage point change in the assumed long-term rate of return would impact the Company's pretax income by approximately $0.8 million annually. A one-quarter percentage point change in the discount rate would impact the Company's pretax income by approximately $0.3 million annually. The Company reviews these and other assumptions at least annually.
The Company uses a calculated value to determine the market-related value of pension plan assets. This approach results in a market-related value of pension assets that differs from the fair
Page 8
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
market value of plan assets. This difference results from the deferment in the recognition of asset gains and losses above or below expected returns on assets for a period of approximately five years. At December 31, 2002, the market-related value of pension assets exceeded the fair market value by $70.0 million. This difference under SFAS 87 will increase pension expense by $3.1 million in 2003 and an additional $2.3 million in 2004.
INCOME TAXES
As of December 31, 2002, the Company had recognized $38.6 million of deferred tax assets, net of valuation reserves. The realization of these benefits is dependent on future taxable income.For those jurisdictions where the expiration date of tax carry-forwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided. Management believes that sufficient income will be earned in the future to realize deferred income tax assets, net of valuation allowances recorded. The recognized net deferred tax asset is based on the Company's estimates of future taxable income and its tax planning strategies. The realization of these deferred tax assets can be impacted by changes to tax codes, statutory tax rates and future taxable income levels.
ACQUISITIONS
During the past three years, the Company acquired a number of businesses, which were accounted for using the purchase method. Accordingly, the results of operations of the acquired companies have been included in the consolidated results from their respective acquisition dates.
In May 2000, the Company purchased substantially all of the assets and liabilities of Curtis Industries, Inc. (Curtis) for $63.4 million. Curtis, a distributor of MRO supplies and high-quality security products, was combined with Bowman Distribution to form Barnes Distribution. This business combination created a broader product offering, enhanced service capabilities and opportunities for increased sales penetration. The combination also created significant cost savings opportunities, primarily through headquarters and distribution center consolidations and increased purchasing leverage. The majority of these cost savings were realized in 2002.
In connection with the Curtis acquisition, the Company incurred certain integration costs. The integration plan included combining the headquarters functions and consolidating warehousing and distribution networks. As a result, the Company recorded total costs of $6.4 million, relating primarily to lease consolidation costs, facility closure costs and reductions in personnel. Costs of $4.7 million associated with the acquired business were reflected as assumed liabilities in the allocation of the purchase price to net assets acquired. The remaining integration costs of $1.7 million were reflected in expenses in 2000. As of December 31, 2002, $1.5 million remained as liabilities related primarily to future lease payments.
In September 2000, the Company purchased substantially all of the assets and liabilities of AVS/Kratz-Wilde Machine Company and Apex Manufacturing, Inc. (Kratz-Wilde/Apex) for $40.9 million. Kratz-Wilde/Apex fabricates and machines intricate aerospace components for jet engines and auxiliary power units. These businesses are included in the Barnes Aerospace segment. This acquisition augmented Barnes Aerospace by extending product depth and customer penetration, and also provided an additional FAA-licensed aircraft engine repair facility.
In 2001, the Company completed two bolt-on acquisitions, for a combined purchase price of $3.8 million. In January 2001, the Company acquired Euro Stock Springs & Components Limited (Euro Stock). Euro Stock distributes standard springs through catalogs to customers located primarily in Europe. This business, which is included in the Barnes Distribution segment, expanded Barnes Distribution's presence in Europe and added a new sales channel through Euro Stock's product catalog. In November 2001, the Company acquired certain assets of Forward Industries, L.L.C., and its subsidiary Forward Industries, Ltd. Forward Industries designs and manufactures nitrogen gas springs that are used in the appliance, automotive, heating and cooling and electrical industries. This acquisition has been integrated with the Company's existing nitrogen gas spring business and is included in the Associated Spring segment. The acquisition broadened the nitrogen gas spring product line offering of Associated Spring.
In 2002, the Company completed two acquisitions for a total purchase price of $34.0 million. Consideration for the acquisitions included cash of approximately $31.0 million, of which $2.0 million
Page 9
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
will be paid in two equal installments in April 2003 and April 2004, and issuance of 119,048 shares of Barnes Group common stock (at a market value at the time of the acquisition of approximately $3.0 million). In February 2002, the Company acquired substantially all of the manufacturing assets of Seeger-Orbis GmbH & Co. OHG of Germany (Seeger-Orbis) from TransTechnology Corporation. Seeger-Orbis is a leading manufacturer of retaining rings used in a number of transportation and industrial applications. The Seeger-Orbis acquisition expanded Associated Spring's product line and geographic reach, particularly into the automotive and industrial manufacturing markets of Western Europe. In April 2002, the Company acquired Spectrum Plastics Molding Resources, Inc. of Ansonia, Connecticut (Spectrum). Spectrum is a premier manufacturer of plastic injection-molded components and assemblies that are used primarily in the telecommunications, electronics, medical and consumer goods industries. Spectrum, which is included in the Associated Spring segment, provides Associated Spring with the capability of providing more complete product solutions with discrete or continuous metal-in-plastic and plastic-on-metal injection-molded components.
The purchase price of each acquisition has been allocated to tangible and intangible assets and liabilities of the businesses, based upon estimates of their respective fair values. For acquisitions initiated prior to June 30, 2001, the resulting goodwill had been amortized over a 40-year life. Beginning in 2002, goodwill is no longer amortized, as the lives are considered indefinite. See Note 1 to the Consolidated Financial Statements.
On February 6, 2003, the Company acquired Kar Products LLC of Des Plaines, Illinois, and certain assets and liabilities of its Canadian business,
A.&H. Bolt & Nut Company Ltd. (Kar Products). Kar Products adds to the Barnes Distribution segment a diversified customer base that operates in all 50 states, Puerto Rico and Canada, further enhancing Barnes Distribution's international presence and leadership position within the MRO market. The purchase price of $78.5 million was paid through a combination of $60.0 million cash and $18.5 million (923,506 shares) of Barnes Group common stock. The Company expects to achieve a number of post-acquisition cost savings and other synergies through headquarters and infrastructure consolidation. The Company also anticipates that the acquisition will be accretive in the first year.
RESULTS OF OPERATIONS
The following table sets forth the Company's consolidated statement of income data as a percentage of revenue:

                                        2002      2001     2000
----------------------------------------------------------------
Net sales                               100.0%    100.0%   100.0%
Cost of sales                            67.6%     67.6%    66.0%
----------------------------------------------------------------

Gross profit                             32.4%     32.4%    34.0%
Selling and administrative expenses      26.7%     27.2%    25.5%
----------------------------------------------------------------
Operating income                          5.7%      5.2%     8.5%

Other income                              0.5%      0.5%     0.6%
Interest expense                          1.9%      2.1%     2.0%
Other expense                             0.1%      0.6%     0.5%
Income taxes                              0.7%      0.5%     1.8%
----------------------------------------------------------------

Net income                                3.5%      2.5%     4.8%
================================================================	

Barnes Group reported record net sales of $784 million in 2002, an increase of $15 million, or 2%, over 2001 net sales of $769 million. The sales increase reflected the Company's recent acquisitions, which contributed $40 million, all to Associated Spring's sales, as well as organic growth in Associated Spring. This growth was partially offset by a 9% decline in sales at Barnes Aerospace, which coincides with a sharp decline in the commercial aerospace markets, and a 4% sales decline at Barnes Distribution. The decline at Barnes Distribution reflects the impact of adverse market conditions in the manufacturing, industrial and transport services sectors. From a geographic perspective, the Company's foreign sales increased 17% year-over-year, while domestic sales decreased 3%.
Page 10
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
In 2001, Barnes Group net sales were up $29 million, or 4%, over 2000, reflecting a sharp rise in sales at Barnes Aerospace and sales from the Company's 2000 and 2001 acquisitions. This growth was partially offset by a decline in transportation- and telecommunications-related sales at Associated Spring and the adverse impact of weak economic conditions on Barnes Distribution's sales. The businesses acquired in 2000 and 2001 provided incremental sales of $61 million in 2001: $1 million to Associated Spring, $34 million to Barnes Aerospace and $26 million to Barnes Distribution.
Operating income was $44.8 million in 2002, an increase of 11.2% compared with $40.3 million in 2001. These results reflect higher operating profit at Associated Spring and Barnes Distribution. The year-over-year increase in operating profit was impacted positively by a $4.8 million pretax business consolidation charge, relating primarily to the Associated Spring segment, taken in the fourth quarter of 2001, which did not recur in 2002. In addition, operating income in 2002 benefited from efficiencies gained from the actions taken in this business consolidation. These improvements were partially offset by lower profits at Barnes Aerospace due to lower sales volume and additional severance expense, higher postretirement benefit expense at Associated Spring and lower pension income Companywide. Pension income decreased by $1.2 million due primarily to reduced investment performance of plan assets and a lower discount rate. The cost of postretirement benefits, other than pensions, increased $1.4 million due to increased benefit levels provided to certain U.S. employees.
Overall operating income margin was 5.7% in 2002 compared with 5.2% in 2001. While gross profit margin held steady at 32.4% in 2002, gross profit margins improved at both Associated Spring and Barnes Distribution. The decline in gross profit margin in Barnes Aerospace, due directly to the sales shortfall, offset the improvements in the other two businesses. Total selling and administrative expenses declined to 26.7% as a percentage of sales, from 27.2% in 2001. In total dollars, selling and administrative expenses increased $0.2 million to $209.2 million in 2002, which included $5.8 million in selling and administrative expenses related to the recent acquisitions, offset by the impact of the $4.8 million fourth-quarter 2001 charge. Reductions in selling and administrative expenses resulting from synergies realized from Barnes Distribution's integration of Curtis were partially offset by the higher pension, postretirement and other compensation costs, including the higher severance expense at Barnes Aerospace.
Operating income was $40.3 million in 2001, compared with $62.9 million in 2000. A number of items contributed to the operating income decline. The primary factors were the impact of a weak industrial economy on sales volume and a shift in the overall sales mix to lower-margin businesses. The $29 million net sales increase was comprised of $61 million in incremental sales from the 2001 and 2000 acquisitions and a $31 million increase in the existing Aerospace business, which was substantially offset by a $63 million sales decrease in the higher-gross-margin Associated Spring and Barnes Distribution businesses. Also impacting operating income were higher personnel costs, specifically health insurance and pension costs. Selling and administrative expenses increased $20.5 million in 2001 over 2000, reflecting the fourth-quarter charge and the costs attributable to the newly acquired businesses, as well as the continued investment made in the sales, marketing and engineering functions throughout the Company.
SEGMENT REVIEW
Associated Spring sales for 2002 were $322 million, up $43 million, or 15%, from sales of $279 million in 2001. Sales were a record $327 million in 2000. Sales in 2002 increased over 2001 due to higher light vehicle production in the domestic transportation markets as well as from incremental sales from the acquisitions of Forward Industries, Seeger-Orbis and Spectrum, which in the aggregate totaled $40 million. Offsetting these increases was a sharp drop in organic sales of telecommunications and electronics products, as sales to those end markets fell by over 40% in 2002. Domestic sales at Associated Spring grew by approximately 5% in 2002, while foreign sales increased by approximately 38% to $120 million. Sales grew sharply in Europe in 2002, reflecting the Seeger-Orbis acquisition and organic growth in nitrogen gas spring sales from Sweden, but were lower in Asia, reflecting the weakness in the telecommunications and electronics markets. Associated Spring's sales fell in 2001 compared with 2000, due to the sharp contraction in domestic light vehicle production, a weak domestic economy and a worldwide decline in telecommunications and electronics sales.
Associated Spring reported operating profit of $28.1 million in 2002, compared with $19.4 million in 2001 and $44.0 million in 2000. The increase in operating profit in 2002 reflects
Page 11
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
the higher sales volume; higher profits resulting from actions taken since late 2000 to reduce the business's cost structure; operational improvements, particularly in Mexico; and the absence of a $4.6 million charge taken in 2001 to reduce the business unit's infrastructure. This increase was partially offset by a decline in sales of more profitable telecommunications and electronics products, and one-time costs related to the purchase accounting step-up of inventory to fair value at Seeger-Orbis. In 2002, the closure of the Texas spring plant was completed, with retained business from the Texas plant being relocated to other Associated Spring facilities, improving their capacity utilization. As of December 31, 2002, the remaining accrual balance of $0.5 million related primarily to facility holding costs for the Texas plant, which is currently held for sale. Management anticipates that the impact of the transfer of business from the Texas plant will continue to be accretive to operating profit in 2003. The decrease in operating profit in 2001 reflects the sales volume decline and, in particular, the significant shortfall in the more profitable electronics business. In addition, operating profit was significantly impacted in the fourth quarter of 2001 from expenses immediately recognized at the time of the announcement of the Texas plant closure.
Barnes Aerospace sales for 2002 were $183 million, down $17 million, or 9%, from a record $200 million in 2001. Sales in 2000 totaled $135 million. The sales decline in 2002 largely reflected the sharp decrease in global new commercial aircraft deliveries and continued aircraft order cancellations or deferrals by the major airlines in the wake of the events of September 11, 2001. The 2002 decline also reflects lower overhaul and repair sales, as a significant number of aircraft were removed from the active fleet in response to continued low passenger traffic. These factors were partially offset by higher direct and indirect military sales. Sales increased in 2001 versus 2000 as Barnes Aerospace benefited from the successful cultivation of new markets and customers and from approximately $34 million in incremental sales related to the acquisition of Kratz-Wilde/Apex. Total orders for 2002 were $178 million, compared with $216 million in 2001. Order backlog declined to $152 million at December 31, 2002, from $159 million at December 31, 2001. Both orders and order backlog were affected by the same factors that negatively impacted sales in 2002.
Barnes Aerospace operating profit was $10.8 million in 2002, compared with $16.4 million in 2001 and $8.0 million in 2000. Operating profit fell in 2002 primarily as a result of the decline in sales volume. In addition, during 2002, management addressed what is likely to be a protracted recovery in the aerospace industry by reducing employment by approximately 20%, resulting in severance expenses of $1.3 million. Management believes that these headcount reductions and other steps to reduce costs, such as work furloughs and reduced overtime, have properly positioned the business for the current economic environment. Operating profit increased in 2001 versus 2000, reflecting the sharply higher sales volume and the benefit of lean manufacturing initiatives completed throughout the year.
Sales at Barnes Distribution were $287 million in 2002, down $11 million, or 4%, from $298 million in 2001; sales in 2000 were $291 million. Sales fell in 2002 due to weak economic conditions within the manufacturing and industrial sectors in the United States and many international markets, which have persisted since late 2000. This was partially offset by new sales initiatives, including an increased focus on national and regional account development, which generated more than $3 million in sales during 2002. This initiative, combined with electronic commerce initiatives, will be a growth driver in 2003 and beyond. Sales increased in 2001 versus 2000 as a result of incremental sales from acquisitions of $26 million, which was largely offset by a $19 million decline in organic sales driven by the weak economic conditions noted above.
Despite the year-over-year decline in sales, operating profit at Barnes Distribution increased to $7.5 million in 2002 from $5.5 million in 2001. The increase largely reflects higher operating efficiency as synergies from the Curtis acquisition were successfully realized. Operating profit also benefited from an improvement in gross profit margin stemming from selective price increases and lower product procurement costs. Operating profit decreased in 2001 from $12.9 million in 2000 as a result of lower organic sales volume, which more than offset the benefits from incremental sales volume and early realization of synergies from the Curtis acquisition.
OTHER INCOME/EXPENSE
Other income totaled $3.7 million in 2002, compared with $3.9 million in 2001 and $4.8 million in 2000. The decrease in other income in 2002, compared with 2001, was due to foreign exchange transaction gains of $1.2 million in 2002 compared with gains of $1.9 million in 2001,
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BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
offset by higher equity income from the Company's NASCO joint venture. The foreign exchange gains related primarily to exposures on U.S. dollar-denominated financial instruments, primarily in the Company's Brazil operation. The Company's policy is to hedge foreign currency transaction exposure except in locations where the local currency has historically weakened against the U.S. dollar. The decrease in 2001, compared with 2000, was due to lower equity income from NASCO, offset in part by higher net foreign exchange transaction gains.
Lower interest expense in 2002, compared with 2001, was a result of lower market interest rates and a fixed-to-variable interest rate swap agreement that collectively more than offset the impact of an increase in average borrowings. Other expenses declined in 2002 due to an accounting change that eliminated goodwill amortization of $4.2 million in 2001. This change is more fully described in Note 1 to the Consolidated Financial Statements.
Interest expense and other expenses increased in 2001 as a result of acquisitions. Interest expense increased due to significantly higher borrowings, offset in part by lower average interest rates. Other expenses increased with the additional goodwill amortization associated with the acquisitions.
INCOME TAXES
The Company's effective tax rate was 18.0% in 2002, compared with 18.5% in 2001 and 26.6% in 2000. The decline in the tax rate in both 2002 and 2001 is due to a significant shift in the overall mix of income to a higher percentage of foreign income, in jurisdictions with tax rates lower than the U.S. statutory tax rate. In addition, the lower tax rate in 2002 reflects the benefit of an ESOP dividend distribution tax deduction. The 2002 tax deduction includes a retroactive election for the 2001 dividend distribution, the result of an amendment to the Company's Retirement Savings Plan (RSP). The effective tax rate is expected to be in the range of 22.0% to 25.0% in 2003, assuming a single-year deduction for the RSP dividends and an anticipated shift in earnings to countries with higher tax rates, primarily the United States.
NET INCOME AND NET INCOME PER SHARE
Consolidated net income was $27.2 million in 2002, $19.1 million in 2001 and $35.7 million in 2000. Basic earnings per share was $1.45 for 2002, compared with $1.03 in 2001 and $1.92 in 2000. Diluted earnings per share was $1.42 for 2002, $1.01 for 2001 and $1.90 in 2000.
LIQUIDITY AND CAPITAL RESOURCES
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.
The Company's ability to generate cash from operations in excess of its internal operating needs is one of its financial strengths. Management continues to focus on cash flow and working capital and anticipates that operating activities in 2003 will provide sufficient cash to take advantage of opportunities for organic business expansion and to meet the Company's current financial commitments. Future acquisitions are expected to be financed through a mix of internal cash, borrowing and equity.
Operating activities are the principal source of cash flow for the Company, generating $54.4 million in 2002, $65.0 million in 2001 and $51.9 million in 2000. Operating cash flow in 2002 reflects higher net income when compared with 2001. The reduction in depreciation and amortization was due to the absence of $4.2 million of goodwill amortization in 2002, as discussed in Note 1 to the Consolidated Financial Statements. In addition, depreciation declined $0.7 million due to lower capital spending over the past three years and the retirement of older assets. Management continues to stress the need for effective working capital management, which contributed to positive cash flow in 2002. Significant progress was made in reducing inventory levels, primarily at Barnes Distribution and Barnes Aerospace. Accounts payable decreased in part due to reduced inventory purchases, combined with the impact, in 2002, of aggressive working capital management at the end of 2001. The increase in deferred taxes reflects operating loss carry-forwards generated in 2002 that will be utilized in the future and the impact of a minimum pension liability adjustment. In 2001, the increase
Page 13
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
in operating cash flow was due primarily to significant improvements in working capital, which more than offset the lower net income in that year.
Investing activities used cash of $48.0 million in 2002, compared with $26.0 million in 2001 and $134.5 million in 2000. Investing activities in 2002 included the acquisitions of Seeger-Orbis and Spectrum. The Seeger-Orbis acquisition was funded from cash held by the Company outside the United States. In 2001, funds used for two bolt-on acquisitions were offset in part by a favorable purchase price adjustment received in 2001 on the Kratz-Wilde/Apex acquisition. The significant cash use in 2000 is attributable to the purchases of Curtis and Kratz-Wilde/Apex. The Company's capital spending program focuses on business growth and improvements in productivity and quality. In 2002, capital spending was reduced in response to the economic downturn. The Company expects to increase capital spending in 2003 to roughly 2001 levels.
Net cash used by financing activities was $24.4 million in 2002 and $13.3 million in 2001, compared with net cash provided by financing activities of $64.8 million in 2000. Cash from financing activities in 2002 included $4.7 million of cash proceeds from the termination of an interest rate swap. This cash, combined with cash provided by operating activities, proceeds from additional borrowings and excess cash, was used to fund acquisitions and capital expenditures and to pay dividends. Cash dividends were held at $0.80 per share. Total cash used to pay 2002 dividends to stockholders was $15.0 million. In 2001, proceeds from the sale of a cross-currency debt swap, combined with strong cash flow from operating activities, were used in part to fund capital expenditures, pay dividends, repurchase the Company's stock and reduce debt. In 2000, the increase in borrowings reflected the issuance of additional long-term debt to fund business acquisitions as well as to supplement cash generated by operating activities.
The Company maintains bank-borrowing facilities to supplement internal cash generation. At December 31, 2002, the Company had a $150 million borrowing facility under a three-year revolving credit agreement, of which $32 million was borrowed at an interest rate of 3.05%. Additionally, the Company had $6.0 million in borrowings under uncommitted short-term bank credit lines, at an interest rate of 2.38%. The revolving credit borrowing facility was signed in June 2002 and replaced a revolving credit facility that was due to expire in December 2002.
Borrowing capacity is limited by various debt covenants. The most restrictive covenant requires the Company to maintain a ratio of Total Debt to EBITDA, as defined in the revolving credit agreement, of not more than 3.0 times at December 31, 2002. The actual ratio at December 31, 2002, was 2.66 times and would have allowed additional borrowings of $27.6 million. In conjunction with the Kar Products acquisition, the Company amended the revolving credit agreement, pursuant to which the ratio was increased to 3.25 times for the first three quarters of 2003 and will return to 3.0 times at December 31, 2003, a ratio the Company expects to meet. In connection with the financing of the acquisition, the Company borrowed an additional $56 million under the revolving credit facility.
At December 31, 2002, the Company held $28.4 million in cash and equivalents, predominately in its non-U.S. subsidiaries. Although repatriation of certain non-U.S. cash balances to the U.S. could have adverse tax consequences, cash held outside the U.S. is available to fund international cash requirements, including acquisitions.
The Company believes its credit facilities, coupled with cash generated from operations, are adequate for its anticipated future requirements.
In November 2000, the Company financed a portion of the Curtis and Kratz-Wilde/Apex business acquisitions by issuing $60 million of privately placed Senior Notes (Notes) with three insurance companies. These Notes bear an annual fixed rate of 9.34% and are payable in three equal annual installments beginning in 2006. In August 2002, the Company terminated an interest rate swap agreement that had effectively converted the Notes to variable-rate debt. In connection with the swap agreement termination, the Company received a cash payment of $4.7 million. The corresponding adjustment to the carrying value of the debt is being amortized against interest expense over the remaining life of the Notes.
The funded status of the Company's pension plans is dependent upon many factors, including returns on invested assets and the level of market interest rates. Recent declines in the value of securities traded in equity markets and declines in long-term interest rates have had a negative impact
Page 14
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
on the funded status of the plans. In 2002, no contribution was required and no cash contribution was made to any of the U.S. qualified pension plans. Furthermore, no significant cash contributions to the qualified plans are anticipated in 2003. In accordance with SFAS 87, "Employers' Accounting for Pensions," the Company recorded a minimum pension liability adjustment for under-funded plans as of December 31, 2002, through an after-tax charge of $16.8 million to accumulated other non-owner changes to equity.
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 hedge its exposure to fluctuations in interest rates and foreign currency exchange rates. The Company does not use derivatives for speculative or trading purposes.
The Company's long-term debt portfolio consists of fixed-rate and variable-rate instruments and is managed to reduce the overall cost of borrowing while also minimizing the effect of changes in interest rates on near-term earnings. In August 2002, the Company entered into an interest rate swap agreement that effectively converts $18.8 million of its fixed-rate Senior Notes to variable-rate debt. This interest swap agreement had a positive impact on 2002 earnings, reducing interest expense by $0.1 million.
The Company's primary interest rate risk is derived from its outstanding variable-rate debt obligations. At December 31, 2002, the result of a hypothetical 1% increase in the average cost of the Company's variable-rate debt, including the interest rate swap agreement, would have reduced annual pretax profit by $0.6 million.
At December 31, 2002, the fair value of the Company's fixed-rate debt was $153.0 million, compared with its carrying amount of $156.9 million. The Company estimates that a 1% decrease in market interest rates at December 31, 2002, would have increased the fair value of the Company's fixed-rate debt to $158.5 million.
The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The currencies of the locations where the Company's business operations are conducted are the U.S. dollar, Singapore dollar, Euro, British pound, Mexican peso, Brazilian real, Canadian dollar, Swedish krona and Chinese renminbi. The Company is exposed primarily to U.S. dollar-denominated financial instruments at its international locations. A 10% adverse change in all currencies at December 31, 2002, would have resulted in a $1.0 million loss in the fair value of those financial instruments.
Foreign currency commitments and transaction exposures are managed at the operating units as an integral part of their businesses in accordance with a corporate policy that addresses acceptable levels of foreign currency exposures. The Company does not hedge its foreign currency net investment exposure. To reduce foreign currency exposure in countries where the local currency is strengthening against the U.S. dollar, management has converted U.S dollar-denominated cash and short-term investments to local currency and is using forward currency contracts for other U.S. dollar-denominated assets in an effort to reduce the effect of the volatility of changes in foreign exchange rates on the income statement. In weaker currency countries, such as Brazil and Mexico, management continues to invest excess cash in U.S. dollar-denominated instruments.
The Company's exposure to commodity price changes relates primarily to certain manufacturing operations that utilize high-grade steel spring wire and titanium. The Company manages its exposure to changes in those prices through its procurement and sales practices. The Company is not dependent upon any single source for any of its principal raw materials or products for resale, and all such materials and products are readily available.
INFLATION
Management believes that during the 2000-2002 period, inflation did not have a material impact on the Company's financial statements.
Page 15
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
MANAGEMENT'S DISCUSSION & ANALYSIS
RECENT ACCOUNTING CHANGES
The Company adopted SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141 requires companies to account for acquisitions entered into after June 30, 2001, using the purchase method and establishes criteria to be used in determining whether acquired intangible assets are to be recorded separately from goodwill. SFAS 142 sets forth the accounting for goodwill and other intangible assets. Goodwill and other intangible assets with indefinite lives are no longer amortized but instead are evaluated at least annually for impairment by comparing the carrying value to the fair value at the reporting unit level. Intangible assets with finite lives will be amortized over their useful lives. SFAS 142 is effective for acquisitions completed after June 30, 2001, and, as of January 1, 2002, became effective for all other prior acquisitions.
In August 2001, SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was issued. This statement was effective on January 1, 2002, for the Company. Adoption of this standard did not have a material impact on the Company's financial position, results of operations or cash flows.
In April 2002, SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, amendment of FASB Statement No. 13, and Technical Corrections," was issued. The standard eliminates an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The adoption of this statement is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
In June 2002, SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities," was issued. This statement provides guidance on the recognition and measurement of liabilities associated with exit or disposal activities and requires that such liabilities be recognized when incurred. This statement is effective for exit or disposal activities that are initiated after December 31, 2002, and does not impact the Company's existing accruals. Adoption of this standard may impact the timing of recognition of costs associated with future exit and disposal activities.
In November 2002, the FASB issued FASB Interpretation 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others." FIN 45 expands disclosure requirements and requires that a guarantor recognize, at fair value, a liability for its obligation under a guarantee. The recognition and measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. Management believes that FIN 45 will not have a material impact on the Company's financial position, results of operations or cash flows. The Company has complied with the expanded disclosure requirements.
In December 2002, SFAS 148, "Accounting for Stock Compensation - Transition and Disclosure," was issued. This statement addresses transition provisions and disclosure requirements. The Company has complied with the amended disclosure requirements.
FORWARD-LOOKING STATEMENTS
This Annual Report may contain certain forward-looking statements as defined in the Public Securities Litigation and Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements. Investors are encouraged to consider these risks and uncertainties as described within the Company's periodic filings with the Securities and Exchange Commission, including the following: the ability of the Company to integrate newly acquired businesses and to realize acquisition synergies on schedule; changes in market demand for the types of products and services produced and sold by the Company; the Company's success in identifying and attracting customers in new markets; the Company's timely ability to develop new and enhanced products to meet customers' needs; the effectiveness of the Company's marketing and sales programs; increased competitive activities that could adversely affect customer demand for the Company's products; changes in economic and political conditions worldwide and in the locations where the Company does business; interest and foreign exchange rate fluctuations; and regulatory changes.
Page 16
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)
Years ended December 31,                               2002           2001           2000
-----------------------------------------------------------------------------------------
Net sales                                      $    784,036   $    768,821   $    740,032

Cost of sales                                       530,004        519,536        488,634
Selling and administrative expenses                 209,192        208,965        188,449
-----------------------------------------------------------------------------------------
                                                    739,196        728,501        677,083
-----------------------------------------------------------------------------------------
Operating income                                     44,840         40,320         62,949

Other income                                          3,651          3,890          4,773

Interest expense                                     14,823         16,161         15,140
Other expenses                                          557          4,590          3,992
-----------------------------------------------------------------------------------------
Income before income taxes                           33,111         23,459         48,590
Income taxes                                          5,960          4,338         12,925
-----------------------------------------------------------------------------------------
Net income                                     $     27,151   $     19,121   $     35,665
=========================================================================================

Per common share:
          Net income:
             Basic                             $       1.45   $       1.03   $       1.92
             Diluted                                   1.42           1.01           1.90
          Dividends                                    0.80           0.80           0.79

Average common shares outstanding:
             Basic                               18,750,442     18,506,247     18,568,359
             Diluted                             19,185,332     18,919,968     18,791,227	

See accompanying notes
Page 17
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)
December 31,                                                 2002          2001
-------------------------------------------------------------------------------
ASSETS
Current assets
   Cash and cash equivalents                         $     28,355    $   48,868
   Accounts receivable, less allowances
    (2002-$2,891; 2001-$3,114)                             97,533        94,124
   Inventories                                             88,809        85,721
   Deferred income taxes                                   16,024        16,702
   Prepaid expenses                                         7,916        11,120
-------------------------------------------------------------------------------
               Total current assets                       238,637       256,535

Deferred income taxes                                      22,610         5,783
Property, plant and equipment                             159,440       152,943
Goodwill                                                  164,594       159,836
Other assets                                               67,249        61,408
-------------------------------------------------------------------------------
Total assets                                         $    652,530    $  636,505
===============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Notes payable                                     $         --    $    5,500
   Accounts payable                                        63,389        71,410
   Accrued liabilities                                     61,853        59,118
   Long-term debt - current                                 6,837        47,576
-------------------------------------------------------------------------------
               Total current liabilities                  132,079       183,604

Long-term debt                                            214,125       178,365
Accrued retirement benefits                                87,162        63,610
Other liabilities                                          10,944        12,089

Commitments and contingencies (Notes 9 and 18)

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                              53,511        54,874
   Treasury stock at cost (2002 - 3,081,718 shares;
                           2001 - 3,576,322 shares)       (61,847)      (76,903)
   Retained earnings                                      255,147       243,369
   Accumulated other non-owner changes to
    equity                                                (38,811)      (22,723)
-------------------------------------------------------------------------------
Total stockholders' equity                                208,220       198,837
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity           $    652,530    $  636,505
===============================================================================	

See accompanying notes.
Page 18
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)
Years ended December 31,                                                 2002         2001          2000
--------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income                                                         $   27,151    $  19,121   $    35,665
Adjustments to reconcile net income to net cash from operating
 activities:
    Depreciation and amortization                                      33,626       37,045        35,871
    Loss (gain) on disposition of property, plant and
     equipment                                                           (222)       2,093        (1,960)
    Changes in assets and liabilities:
     Accounts receivable                                                5,692       11,378         1,087
     Inventories                                                        9,843       (3,629)       (7,631)
     Prepaid expenses                                                   3,095       (1,884)       (1,425)
     Accounts payable                                                 (12,626)      13,514        (5,415)
     Accrued liabilities                                                  (87)      (5,552)        1,026
     Deferred income taxes                                            (15,941)       6,510         5,863
     Long-term pension asset                                           (2,070)      (7,514)       (8,249)
    Other                                                               5,950       (6,044)       (2,975)
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                              54,411       65,038        51,857

INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment              3,592        1,093         2,744
Capital expenditures                                                  (19,367)     (24,857)      (28,042)
Business acquisitions, net of cash acquired                           (31,189)      (1,036)     (104,935)
Other                                                                  (1,003)      (1,209)       (4,309)
--------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                 (47,967)     (26,009)     (134,542)

FINANCING ACTIVITIES:
Net decrease in notes payable                                          (2,935)      (1,463)       (5,201)
Payments on long-term debt                                            (61,004)     (28,000)      (60,000)
Proceeds from the issuance of long-term debt                           48,000       23,711       150,000
Proceeds from the issuance of common stock                              3,792        2,845         3,920
Common stock repurchases                                               (1,147)      (8,798)       (9,197)
Dividends paid                                                        (15,018)     (14,806)      (14,677)
Proceeds from the sale of swaps                                         4,702       13,766            --
Other                                                                    (752)        (584)           --
--------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities                      (24,362)     (13,329)       64,845

Effect of exchange rate changes on cash flows                          (2,595)        (135)       (2,489)
--------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents                      (20,513)      25,565       (20,329)

Cash and cash equivalents at beginning of year                         48,868       23,303        43,632
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                           $   28,355    $  48,868   $    23,303
========================================================================================================	

Supplemental Disclosure of Cash Flow Information:
Non-cash financing and investing activities include the 2002 issuance of $3.0 million of treasury stock and $2.0 million in installment payments in connection with the Spectrum acquisition.
See accompanying notes.
Page 19
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                                                                 Accumulated
                                                                                                       Other
                                                            Additional                             Non-Owner            Total
                                                   Common      Paid-in    Treasury    Retained    Changes to    Stockholders'
(Dollars in thousands)                              Stock      Capital       Stock    Earnings        Equity           Equity
-----------------------------------------------------------------------------------------------------------------------------
January 1, 2000                                  $    220   $   49,786   $ (63,893)  $ 218,388   $   (23,887)   $     180,614

Comprehensive income:
  Net income                                                                            35,665                         35,665
  Foreign currency translation adjustments                                                             3,070            3,070
                                                                                     ---------   -----------    -------------
  Comprehensive income                                                                  35,665         3,070           38,735
Dividends paid                                                                         (14,677)                       (14,677)
Common stock repurchases                                                    (9,197)                                    (9,197)
Employee stock plans                                             2,059       3,909        (110)                         5,858
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2000                                     220       51,845     (69,181)    239,266       (20,817)         201,333

Comprehensive income:
  Net income                                                                            19,121                         19,121
  Foreign currency translation adjustments                                                            (1,244)          (1,244)
  Unrealized losses on hedging activities                                                               (662)            (662)
                                                                                     ---------   -----------    -------------
  Comprehensive income                                                                  19,121        (1,906)          17,215
Dividends paid                                                                         (14,806)                       (14,806)
Common stock repurchases                                                    (8,798)                                    (8,798)
Employee stock plans                                             3,029       1,076        (212)                         3,893
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2001                                     220       54,874     (76,903)    243,369       (22,723)         198,837

Comprehensive income:
  Net income                                                                            27,151                         27,151
  Foreign currency translation adjustments                                                             1,236            1,236
  Unrealized losses on hedging activities                                                               (502)            (502)
  Minimum pension liability adjustment                                                               (16,822)         (16,822)
                                                                                     ---------   -----------    -------------
  Comprehensive income                                                                  27,151       (16,088)          11,063
Dividends paid                                                                         (15,018)                       (15,018)
Stock issued for the purchase of Spectrum                         (358)      3,358                                      3,000
Stock issued for charitable contribution                           (90)        488                                        398
Common stock repurchases                                                    (1,147)                                    (1,147)
Employee stock plans                                              (915)     12,357        (355)                        11,087
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2002                                $    220   $   53,511   $ (61,847)  $ 255,147   $   (38,811)   $     208,220
=============================================================================================================================	

See accompanying notes.
Page 20
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
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 17.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Consolidation: The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries. Intercompany transactions and account balances have been eliminated. The Company accounts for its 45% investment in the common stock of NASCO, a suspension spring company jointly owned with NHK Spring Co., Ltd. of Japan, under the equity method. The NASCO investment of $9,908 and $9,431 as of December 31, 2002 and 2001, respec- tively, is included in other assets. Other income in the accompanying income statements includes income of $1,090, $408 and $1,611 for the years 2002, 2001 and 2000, respectively, from the Company's investment in NASCO. The Company received dividends from NASCO totaling $44, $464 and $666 in 2002, 2001 and 2000, respectively.
Revenue recognition: Sales and related cost of sales are recognized when products are shipped to customers and title has passed.
Cash and cash equivalents: Cash in excess of operating requirements is invested in short-term, highly liquid, income-producing investments. All highly liquid investments purchased with a maturity of three months or less are cash equivalents. Cash equivalents are carried at fair 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 66% of total inventories. The cost of all other inventories was determined using the first-in, first-out (FIFO) method. Loss provisions, if any, on contracts are established when reasonably expected. Loss provisions are based on the excess inventoriable costs over the net revenues of the products or group of related products under contract.
Property, plant and equipment: Property, plant and equipment is stated at cost. Depreciation is recorded over estimated useful lives, ranging from 20 to 50 years for buildings and three to 17 years for machinery and equipment. The straight-line method of depreciation was adopted for all property, plant and equipment placed in service after March 31, 1999. For property, plant and equipment placed into service prior to April 1, 1999, depreciation is calculated using accelerated methods.
Goodwill: Goodwill represents the excess purchase price over the net assets of companies acquired in business combinations. In accordance with SFAS 142, "Goodwill and Other Intangible Assets," effective January 1, 2002, goodwill is not being amortized, as the lives are considered indefinite. For periods prior to January 1, 2002, goodwill acquired since 1970 but prior to July 1, 2001, was being amortized on a straight-line basis over 40 years. Annually, goodwill is subject to impairment testing in accordance with SFAS 142. Based on this assessment, there was no goodwill impairment in 2002.
Page 21
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents income adjusted to exclude goodwill amortization expense recognized in the prior periods:

                                                  2002       2001          2000
-------------------------------------------------------------------------------
Net  income, as reported                      $ 27,151   $ 19,121     $  35,665
Add back:  goodwill amortization,
 net of income taxes                                --      3,449         2,899
-------------------------------------------------------------------------------
Adjusted net income                           $ 27,151   $ 22,570     $  38,564
===============================================================================

Basic earnings per share, as
 reported                                     $   1.45   $   1.03     $    1.92
Add back: goodwill amortization,
 net of income taxes                                --        .19           .16
-------------------------------------------------------------------------------
Adjusted basic earnings per share             $   1.45   $   1.22     $    2.08
===============================================================================

Diluted earnings per share, as
 reported                                     $   1.42   $   1.01     $    1.90
Add back: goodwill amortization,
 net of income taxes                                --        .18           .15
-------------------------------------------------------------------------------
Adjusted diluted earnings per
share                                         $   1.42   $   1.19     $    2.05
===============================================================================	

Derivatives: The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program. The Company uses financial instruments to hedge its exposure to fluctuations in interest rates and foreign currency exchange rates but does not use derivatives for speculative or trading purposes. The Company also does not use derivatives to manage commodity exposures or hedge its foreign currency net investment exposure.
The Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, on January 1, 2001. The standard requires that all derivative instruments be recorded on the balance sheet at fair value. The accounting for changes in the fair value depends on how the derivative is used and designated. In accordance with the transition provisions of SFAS 133, the Company recorded a $400 gain on January 1, 2001, which was entirely offset by a loss recorded on the re-measurement of underlying balance sheet items. There was no transition adjustment to other non-owner changes to equity.
Foreign currency contracts qualify as fair value hedges of unrecognized firm commitments, or cash flow hedges of recognized assets and liabilities or anticipated transactions. Gains and losses on derivatives are recorded directly to earnings or other non-owner changes to equity, depending on the designation. Amounts recorded to other non-owner changes to equity are reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Any ineffective portion is recorded directly to earnings. The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying instrument.
At December 31, 2002, the fair value of derivatives held by the Company was a net liability of $1,833. During 2002, losses of $279 included in other non-owner changes to equity were reclassified to earnings. Amounts in other non-owner changes to equity expected to be reclassified to earnings within the next year are not material. During 2002, gains or losses related to hedge ineffectiveness were immaterial. Foreign currency transaction gains included in income were $1,172, $1,874 and $1,012 in 2002, 2001 and 2000, respectively, inclusive of gains and losses on foreign currency derivatives.
Foreign currency translation: The majority of the Company's foreign subsidiaries use the local currency as the functional currency. Assets and liabilities of foreign operations 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 non-owner changes to equity within stockholders' equity.
Page 22
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation: The Company has stock-based employee compensation plans, which are described more fully in Note 15. The Company accounts for those plans under the recognition and measurement principles of APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.

                                          2002         2001         2000
------------------------------------------------------------------------
Net income, as reported             $   27,151   $   19,121   $   35,665
Add: Stock-based employee
 compensation expense included in
 reported net income, net of
 related tax effects                     1,589        1,227          431
Deduct: Stock-based employee
 compensation expense determined
 under fair value based method for
 all awards, net of related tax
 effects                                (5,970)      (4,962)      (3,108)
------------------------------------------------------------------------
Pro forma net income                $   22,770   $   15,386   $   32,988
========================================================================

Earnings per share:
   Basic - as reported              $     1.45   $     1.03   $     1.92

   Basic - pro forma                      1.21          .83         1.78

   Diluted - as reported                  1.42         1.01         1.90

   Diluted - pro forma                    1.18          .81         1.76	

The fair value of each stock option grant on the date of grant has been estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

                                          2002         2001         2000
------------------------------------------------------------------------
Risk-free interest rate                   3.69%        4.84%        6.65%
Expected life                        4.0 years    4.3 years    5.0 years
Expected volatility                         35%          35%          30%
Expected dividend yield                   3.51%        3.40%        3.57%	

The weighted-average grant date fair values of options granted during 2002, 2001 and 2000 were $5.37, $4.77 and $4.44, respectively.
2. ACQUISITIONS
During the past three years, the Company has acquired a number of businesses, all of which were accounted for using the purchase method. Accordingly, the results of operations of the acquired companies have been included in the consolidated results from their respective acquisition dates.
In May 2000, the Company purchased substantially all of the assets and liabilities of Curtis for $63,363. Curtis, a distributor of MRO supplies and high-quality security products, was combined with Bowman Distribution to form Barnes Distribution. This business combination created a broader product offering, enhanced service capabilities and increased sales penetration for the business segment. The combination also created significant cost savings opportunities, primarily through headquarters and distribution center consolidations and increased purchasing leverage. A majority of these cost savings were realized in 2002. In connection with the Curtis acquisition, the Company incurred certain integration costs which are more fully discussed in Note 8.
In September 2000, the Company purchased substantially all of the assets and liabilities of Kratz-Wilde Machine Company and Apex Manufacturing Inc. (Kratz-Wilde/Apex) for $40,938. Kratz-Wilde/Apex fabricates and machines intricate aerospace components for jet engines and auxiliary power units. These businesses are included in the Barnes Aerospace segment. This
Page 23
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
acquisition augmented Barnes Aerospace by extending product depth and customer penetration, and also provided an additional FAA-licensed aircraft engine repair facility.
In 2001, the Company completed two bolt-on acquisitions for a combined purchase price of $3,830. In January 2001, the Company acquired Euro Stock. Euro Stock distributes standard springs through catalogs to customers located primarily in Europe. This business, which is included in the Barnes Distribution segment, expanded Barnes Distribution's presence in Europe and added a new sales channel through Euro Stock's product catalog. In November 2001, the Company acquired certain assets of Forward Industries, L.L.C., and its subsidiary Forward Industries, Ltd. Forward Industries designs and manufactures nitrogen gas springs that are used in the appliance, automotive, heating and cooling and electrical industries. This acquisition has been integrated with the Company's existing nitrogen gas spring business and is included in the Associated Spring segment. The acquisition broadened the nitrogen gas spring product line offering of Associated Spring.
In 2002, the Company completed two acquisitions for a total purchase price of $34,029. Consideration for the acquisitions included cash of approximately $31,029, of which $2,000 will be paid in two equal installments in April 2003 and April 2004, and issuance of 119,048 shares of Barnes Group common stock (at a market value at the time of the acquisition of approximately $3,000). In February 2002, the Company acquired substantially all of the manufacturing assets of Seeger-Orbis GmbH & Co. OHG of Germany (Seeger-Orbis) from TransTechnology Corporation. Seeger-Orbis is a leading manufacturer of retaining rings used in a number of transportation and industrial applications. The Seeger-Orbis acquisition expanded Associated Spring's product line and geographic reach, particularly into the automotive and industrial manufacturing markets of Western Europe. In April 2002, the Company acquired Spectrum Plastics Molding Resources, Inc. of Ansonia, Connecticut (Spectrum). Spectrum is a premier manufacturer of plastic injection-molded components and assemblies that are used primarily in the telecommunications, electronics, medical and consumer goods industries. Spectrum, which is included in the Associated Spring segment, provides Associated Spring with the capability of providing more complete product solutions with discrete or continuous metal-in-plastic and plastic-on-metal injection molded components.
The purchase prices for these acquisitions have been allocated to tangible and intangible assets and liabilities of the businesses based upon estimates of their respective fair values.
The 2002 and 2001 acquisitions provided incremental sales of $39,659 in 2002. The 2001 and 2000 acquisitions provided incremental sales of $60,860 in 2001. Pro forma net profit has not been presented for the 2002 and 2001 acquisitions because the results would not be significantly different than historical results.
The following table reflects the operating results of the Company for the year ended December 31, 2000, on a pro forma basis, which gives effect to the acquisitions of the two businesses acquired in 2000 at the beginning of the year. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisitions been effective January 1, 2000; nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the amortization expense associated with the assets acquired, the Company's financing arrangements, certain purchase accounting adjustments and related income tax effects. The pro forma results do not include the effects of synergies and cost reduction initiatives related to the acquisitions.

(Unaudited)                               2000
----------------------------------------------
Net sales                           $  798,652
Income before income taxes              48,309
Net income                              35,449
Per common share:
      Basic                         $     1.91
      Diluted                             1.89	

3. SUBSEQUENT EVENT
On February 6, 2003, the Company acquired Kar Products, a leading full-service distributor of MRO supplies to industrial, construction, transportation and other markets. The acquisition expands both the geographic scope and product line reach of the Barnes Distribution segment. Kar Products has a diversified customer base that operates in all 50 states, Puerto Rico and Canada, further enhancing
Page 24
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Barnes Distribution's leadership position within the MRO market and its international presence. The purchase price of $78,500 was financed through a combination of $4,000 of cash, $56,000 of debt and $18,500 (923,506 shares) of Barnes Group common stock. The Company expects to achieve a number of post-acquisition cost savings and other synergies through headquarters and infrastructure consolidation. The costs related to the consolidation efforts have not been finalized and therefore are not included in the pro forma data that follows.
The Company is in the process of obtaining third-party valuations of certain assets acquired with Kar Products. Thus, the allocation of the purchase price is subject to refinement. Any amounts attributable to such assets are expected to be finalized during 2003. The following pro forma data summarize the combined balance sheets of the Company and Kar Products as if the acquisition had occurred at December 31, 2002.

(Unaudited)                        As Reported     Kar/(1)/   Other/(2)/     Pro forma
--------------------------------------------------------------------------------------
Current assets                     $   238,637   $   29,543   $   (4,000)  $   264,180
Non-current assets                     249,299        7,052                    256,351
Goodwill                               164,594       50,247                    214,841
--------------------------------------------------------------------------------------
Total assets                       $   652,530   $   86,842   $   (4,000)  $   735,372
======================================================================================

Current liabilities                $   132,079   $    8,342   $        -   $   140,421
Long term debt                         241,125                    56,000       270,125
Other liabilities                       98,106                                  98,106
Stockholders' equity/net assets        208,220       78,500      (60,000)      226,720
--------------------------------------------------------------------------------------
Liabilities and stockholders'
 equity                            $   652,530   $   86,842   $   (4,000)  $   735,372
======================================================================================	

/(1)/ The Kar amounts represent the estimated fair values of the assets acquired and liabilities assumed.
/(2)/ Other includes the acquisition financing. The net increase in shareholders equity reflects the $18,500 issuance of shares.
4. INVENTORIES
Inventories at December 31 consisted of:

                                          2002         2001
-----------------------------------------------------------
Finished goods                     $    58,244   $   51,839
Work-in-process                         16,993       18,370
Raw materials and supplies              13,572       15,512
-----------------------------------------------------------
                                   $    88,809   $   85,721
===========================================================	

Inventories valued by the LIFO method aggregated $58,506 and $66,092 at December 31, 2002 and 2001, respectively. If LIFO inventories had been valued using the FIFO method, they would have been $12,567 and $13,135 higher at those dates.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consisted of:

                                          2002         2001
-----------------------------------------------------------
Land                               $     9,087   $    4,046
Buildings                               79,578       74,191
Machinery and equipment                340,647      328,402
-----------------------------------------------------------
                                       429,312      406,639
Less accumulated depreciation          269,872      253,696
-----------------------------------------------------------
                                   $   159,440   $  152,943
===========================================================	

Depreciation expense was $29,304, $30,008 and $30,314 for 2002, 2001 and 2000, respectively.
Page 25
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill: The following table sets forth the change in the carrying amount of goodwill for each reportable segment:

                         Associated        Barnes          Barnes         Total
                             Spring     Aerospace    Distribution           BGI
-------------------------------------------------------------------------------
January 1, 2001         $    71,416    $   26,127      $   58,124   $   155,667
Goodwill acquired            (1,120)        6,275           3,230         8,385
Goodwill amortization        (1,791)         (987)         (1,438)       (4,216)
-------------------------------------------------------------------------------
December 31, 2001            68,505        31,415          59,916       159,836
Goodwill acquired             7,872          (515)         (2,599)        4,758
-------------------------------------------------------------------------------
December 31, 2002       $    76,377    $   30,900      $   57,317   $   164,594
===============================================================================	

During 2002, an additional $1,035 of goodwill was recognized related to Associated Spring's November 2001 acquisition of Forward Industries assets, related primarily to an adjustment to the fair value of the equipment acquired, and $6,837 million for the April 2002 acquisition of Spectrum. No goodwill resulted in connection with the acquisition of Seeger-Orbis. Goodwill related to the Barnes Aerospace 2000 acquisition of Kratz-Wilde/Apex decreased $515 in 2002, the result of the reduction of accrued acquisition costs. Also in 2002, goodwill was reduced by $2,599 related to Barnes Distribution's Curtis acquisition. This reduction relates primarily to an adjustment to the reorganization accrual and inventory valuation.
In 2001, Associated Spring's goodwill related to the acquisition of the nitrogen gas spring business was reduced by $1,272, reflecting the adjustment to accrued acquisition costs. Initial goodwill of $152 was recorded for the acquisition of certain assets of Forward Industries. The $6,275 increase in goodwill resulted from the completion of the purchase price allocation to the Barnes Aerospace segment valuation of inventories, backlog and fixed assets, offset by a $700 purchase price adjustment. Barnes Distribution's business reorganization of Curtis, acquired in 2000, and the completion of the purchase price allocation resulted in $2,332 of additional goodwill being recognized. In addition, $898 of goodwill was recorded in Barnes Distribution related to the acquisition of Euro Stock.
At December 31, 2002, $80,524 of goodwill is tax deductible.
Acquired Intangible Assets: Intangible assets, other than goodwill, consist of registered trademarks, purchased in the acquisition of the nitrogen gas spring business in 1999, and registered trademarks and patents purchased in the 2002 acquisitions of Seeger-Orbis and Spectrum. The amounts attributable to these intangible assets are included in the purchase price allocations.
Trademarks acquired with the purchase of the nitrogen gas spring business are being amortized over their estimated useful lives of 30 years. At December 31, 2002, the gross carrying amount of trademarks was $4,395 and accumulated amortization was $488. The aggregate amortization expense is approximately $146 in each of the years 2003 through 2007.
Intangible assets that were acquired with Seeger-Orbis were $3,047 and consist of trademarks and patents with estimated useful lives of 30 and 15 years, respectively. The accumulated amortization at the end of 2002 was $197. The aggregate amortization expense is approximately $236 in each of the years 2003 through 2007.
Intangible assets that were acquired with Spectrum were $2,400 and consist primarily of trade-marks with estimated useful lives of 30 years. The accumulated amortization at the end of 2002 was $57. The aggregate amortization expense is $87 in each of the years 2003 through 2007.
7. ACCRUED LIABILITIES
Accrued liabilities at December 31 consisted of:

                                               2002           2001
------------------------------------------------------------------
Payroll and other compensation            $  16,063      $  13,503
Postretirement/postemployment benefits        9,315          9,283
Other                                        36,475         36,332
------------------------------------------------------------------
                                          $  61,853      $  59,118
==================================================================

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                                                               BARNES GROUP INC.

                                                          [GRAPHIC APPEARS HERE]	

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BUSINESS REORGANIZATION ACCRUALS
Business reorganization accruals are included in accrued liabilities.
In connection with the Curtis acquisition in May 2000, the Company incurred certain integration costs. The Company recorded total costs of $6,405 related primarily to lease consolidation costs, facility closure costs and reductions in personnel. At December 31, 2001, $5,537 remained as liabilities related to future lease payments and facility closure costs. During 2002, $2,010 of the accrual was utilized in connection with warehouse closures. In addition, $2,030 of accruals were reduced with a corresponding reduction to goodwill. As of December 31, 2002, an accrual of approximately $1,497 remained which related to future lease payments, which will continue through the remaining lives of the leases.
During the fourth quarter of 2001, the Company recorded pretax charges of $4,842, primarily for Associated Spring, related to actions aimed at reducing the Company's infrastructure. Such actions included the closure of an Associated Spring plant in Texas. Additional costs to transfer certain retained business to other Associated Spring plants in 2002 were not accruable in 2001 and were recognized as incurred in 2002. The 2001 charges included $179 recorded in cost of sales and $4,663 in selling and administrative expenses, and related to net workforce reductions of approximately 122 salaried and hourly employees, the elimination of approximately 128,500 square feet of facilities and the disposal of assets. At December 31, 2001, the accrual balance of $2,223 related to facility holding costs and severance. During 2002, $1,695 of the accrual was utilized. As of December 31, 2002, the remaining balance of $528 related to post-closure holding costs for the Texas plant, which is currently for sale.
9. DEBT AND COMMITMENTS
Long-term debt at December 31 consisted of:

                                                    2002                 2001
-----------------------------------------------------------------------------
                                          Carrying         Fair      Carrying
                                            Amount        Value        Amount
-----------------------------------------------------------------------------
7.13% Notes, including interest swap    $   19,028    $  18,724     $  25,000
7.66% Notes                                 24,500       24,530        24,500
7.80% Notes                                 45,500       44,861        45,500
9.34% Notes, including deferred gain        64,379       61,066        61,741
2.15% Notes                                 20,205       20,198        22,200
Revolving Credit                            32,000       32,000        40,000
Industrial Revenue Bonds                     7,000        7,000         7,000
Borrowings under lines of credit             6,000        6,000             -
Capital leases                               2,350        2,350             -
-----------------------------------------------------------------------------
                                           220,962      216,729       225,941
Less current maturities                     (6,837)      (6,837)      (47,576)
-----------------------------------------------------------------------------
Total                                   $  214,125    $ 209,892     $ 178,365
=============================================================================	

The 7.13% Notes are payable in four equal annual installments of $6,250 that began on December 5, 2002. The 7.66% Notes are payable in 2007. The 7.80% Notes are payable in three equal annual installments beginning in 2008. The 9.34% Notes are payable in three equal installments beginning in 2006.
In July 2001, the Company borrowed Yen 3,000 million, under a term loan facility with The Development Bank of Singapore Limited. The loan is payable in ten semi-annual installments of Yen 87.3 million that began on December 28, 2001, with a balloon payment of Yen 2,214.3 million due June 30, 2006. The borrowing has a stated interest rate of 2.15%. In connection with the Yen borrowing, the Company entered into a series of forward currency exchange contracts, a form of derivative, that effectively convert the Yen principal payments to Singapore dollar payments. The forward contracts are cash flow hedges, and increased the effective interest rate of the borrowing to 5.5%. On December 30, 2002, the Company prepaid the next four consecutive semi-annual installments totaling Yen 349.2 million (U.S. equivalent $2,917). As a result of this prepayment, there are no scheduled principal payments due on the Yen note until June 2005. The Company also
Page 27
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
paid $475 in settlement of the corresponding forward contracts. The fair value of the remaining forward contracts at December 31, 2002, was a liability of approximately $2,029.
The fair values of these Notes are determined using discounted cash flows based upon the Company's estimated current interest cost for similar types of borrowings. The carrying values of other long-term debt and notes payable approximate their fair market values.
In June 2002, the Company replaced its revolving credit agreement with a new three-year agreement with 11 banks that allows borrowings up to $150,000 under Notes due June 14, 2005. A fee of 0.45% per annum is paid on the unused portion of the commitments. The Company had $32,000 borrowed under this agreement at an interest rate of 3.05% at December 31, 2002. The Company also has available approximately $15,000 in uncommitted short-term bank credit lines, of which $6,000 and $5,500 was borrowed at December 31, 2002 and 2001, respectively. The interest rate on these borrowings was 2.38% and 2.78% at December 31, 2002 and 2001, respectively.
The Industrial Revenue Bonds, due in 2008, have variable interest rates. The interest rates on this borrowing were 1.70% and 1.80% at December 31, 2002 and 2001, respectively.
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 and to mitigate fluctuations in interest rates. Interest rate fluctuations result in changes in the market value of the Company's fixed-rate debt. In August 2002, the Company entered into an interest rate swap agreement, a form of derivative, which effectively converts $18,750 of 7.13% fixed-rate Senior Notes to variable-rate debt equal to LIBOR plus 425 basis points. The effective rate of the borrowing was 5.71% on December 31, 2002. This interest rate contract is a fair value hedge, which is effective in offsetting fluctuations in the fair value of the debt instrument. The gains and losses on the interest rate contract are recorded to earnings and are offset by gains and losses recorded on the re-measurement of the underlying debt. The fair value of the swap is determined based upon current market prices and was approximately $278 at December 31, 2002.
The Company assumed $2,750 of debt related to capital leases with the acquisition of Spectrum in April 2002. The weighted average interest rate on these borrowings was 7.81% at December 31, 2002. This debt has an interest rate equalization prepayment penalty.
In August 2002, the Company terminated its $60,000 interest rate swap dated July 2001. This agreement had converted $60,000 of fixed-rate 9.34% debt to floating rate at LIBOR plus 276 basis points. The Company received a payment of $5,286 at termination. The payment represented $4,702 for the fair value of the swap plus $584 for accrued interest at the time of termination. The accumulated adjustment to the carrying value of the debt is being amortized in accordance with the terms of the underlying debt, which effectively reduces the fixed rate of the debt to 7.84%.
At December 31, 2002, the Company classified $6,000 of borrowings under lines of credit due within one year as long-term debt. The Company has both the intent and the ability, through its revolving credit facility, to refinance this amount on a long-term basis.
Long-term debt, excluding the fair value of the swap and the deferred gain on the terminated swap, is payable as follows: $6,837 in 2003, $6,884 in 2004, $46,389 in 2005, $39,089 in 2006, $44,606 in 2007 and $72,500 thereafter.
In addition, the Company had outstanding letters of credit totaling $3,668 at December 31, 2002.
The Company's debt agreements contain financial covenants that require the maintenance of interest coverage and leverage ratios, and minimum levels of net worth. The agreements also place certain restrictions on indebtedness, capital expenditures and investments by the Company and its subsidiaries. Such covenants and restrictions determine the amount of borrowings, dividends or treasury stock purchases the Company can make under such agreements.
Under the most restrictive borrowing capacity covenant in any agreement, $27,600 of additional capacity was available at December 31, 2002. Under the most restrictive net worth covenant in any agreement, $8,409 was available for dividends or acquisitions of common stock at December 31, 2002. The future level of dividend payments is a function of future net income and the issuance of common stock. The acquisition of Kar Products included the issuance of $18,500 of Company common stock on February 6, 2003, which increased equity and the amount of net worth available for dividends dollar for dollar.
Page 28
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2002, the Company is required to maintain a ratio of Total Debt to EBITDA, as defined in the revolving credit agreement, of not more than 3.0 times. This ratio requirement will increase to 3.25 at March 31, 2003, and will return to 3.0 at December 31, 2003. The actual ratio at December 31, 2002, was 2.66 times.
Interest paid was $9,496, $16,076 and $17,945 in 2002, 2001 and 2000, respectively. The amount paid in 2002 reflects the $4,702 of cash received for the swap termination. Interest capitalized was $128, $163 and $188 in 2002, 2001 and 2000, respectively, and is being depreciated over the lives of the related fixed assets.
10. PENSION AND OTHER POSTRETIREMENT BENEFITS
Defined benefit pension plans cover a majority of the Company's worldwide employees at Associated Spring and the Company's Corporate Office and a substantial portion of the employees at Barnes Distribution. Plan benefits for salaried and non-union hourly employees are based on years of service and average salary. Plans covering union hourly employees provide benefits based on years of service. The Company funds U.S. pension costs in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA). Plan assets consist primarily of common stocks and fixed income investments, including 616,310 shares of Company stock. Additionally, the Company has defined contribution plans covering a majority of the employees of Barnes Aerospace, certain field sales employees of Barnes Distribution's U.S. operation, employees of Spectrum, non-union employees of Barnes Distribution Canada and union employees of Associated Spring-Milwaukee. Company contributions under these plans are based primarily on the performance of the business units and employee compensation. The Spectrum defined contribution plan was terminated effective January 1, 2003. Contribution expense under these defined contribution plans was $1,727, $1,803 and $1,447 in 2002, 2001 and 2000, respectively. Most U.S. salaried and non-union hourly employees are eligible to participate in the Company's 401(k) program. See Note 15 for further discussion of this plan.
In accordance with SFAS 87, "Employers' Accounting for Pensions," the Corporation has recorded a non-cash minimum pension liability adjustment for underfunded plans of $25,920 at December 31, 2002, representing the excess of the unfunded accumulated benefit obligation ("ABO") over previously recorded pension cost liabilities. The minimum pension liability adjustment is included in accrued retirement benefits on the balance sheet. An after-tax charge of $16,822 is included in accumulated other non-owner changes to equity, which is part of shareholders' equity. The principal cause of the accrual for a minimum pension liability adjustment was the decline in the value of equity securities held by the pension trusts.
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:

                                                                                       Other
                                                             Pensions        Postretirement Benefits
----------------------------------------------------------------------------------------------------
                                                         2002         2001         2002         2001
----------------------------------------------------------------------------------------------------
Benefit obligation, January 1                      $  264,261    $ 245,250   $   72,060     $ 73,676
Service cost                                            8,034        7,436          726          562
Interest cost                                          18,622       18,224        5,231        5,114
Amendments                                              3,538           --        3,914           --
Actuarial loss                                          8,980       11,013        9,999          848
Benefits paid                                         (17,554)     (16,612)      (7,905)      (8,083)
Acquisition                                             3,851           --           --           --
Curtailment                                              (576)          --            -           --
Foreign exchange rate changes                           2,675       (1,050)          15          (57)
----------------------------------------------------------------------------------------------------
Benefit obligation, December 31                    $  291,831    $ 264,261   $   84,040     $ 72,060
====================================================================================================
Projected benefit obligations related to plans
 with benefit obligations in excess of assets      $  274,644    $  20,603
====================================================================================================
Accumulated benefit obligations related to plans
 with accumulated benefit obligations in
 excess of assets                                  $  120,007    $  18,704
====================================================================================================	

Page 29
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning fair value of plan assets to the ending fair value of plan assets follows:

                                                            Pension
------------------------------------------------------------------------
                                                       2002         2001
------------------------------------------------------------------------
Fair value of plan assets, January 1            $   307,135   $  324,370
Actual return on plan assets                        (45,642)        (346)
Company contributions                                 1,836          821
Plan participants' contributions                        156          138
Benefits paid                                       (17,554)     (16,612)
Foreign exchange rate changes                         1,368       (1,236)
------------------------------------------------------------------------
Fair value of plan assets, December 31          $   247,299   $  307,135
========================================================================
Assets related to plans with projected
 benefit obligations in excess of plan assets   $   224,392   $    7,705
========================================================================
Assets related to plans with accumulated
 benefit obligations in excess of plan assets   $    83,795   $    7,705
========================================================================	

A reconciliation of the funded status of the plans with the amounts recognized in the accompanying balance sheets is set forth below:

                                                                      Other
                                            Pensions         Postretirement Benefits
------------------------------------------------------------------------------------
                                        2002        2001           2002         2001
------------------------------------------------------------------------------------
Funded status                      $ (44,532)  $  42,874     $  (84,040)   $ (72,060)
Adjustments for unrecognized:
   Net (gains) losses                 62,045     (24,888)        21,981       13,486
   Prior services costs (benefits)     7,742       5,365          3,112       (2,245)
   Net asset at transition              (114)       (292)            --           --
------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost     $  25,141   $  23,059     $  (58,947)   $ (60,819)
====================================================================================	

Amounts recognized in the accompanying balance sheets consists of:

                                                                  Other
                                         Pensions       Postretirement Benefits
------------------------------------------------------------------------------
                                      2002       2001         2002        2001
------------------------------------------------------------------------------
Other assets
   Prepaid benefit cost          $  29,996   $ 34,421   $       --   $      --
   Intangible asset                  6,524         --           --          --
Accrued liabilities                 (1,082)    (1,082)      (9,042)     (8,594)
Accrued retirement benefits        (36,217)   (10,280)     (49,905)    (52,225)
Accumulated other
 non-owner changes to equity        25,920         --           --          --
------------------------------------------------------------------------------
Prepaid (accrued) benefit cost   $  25,141   $ 23,059   $  (58,947)  $ (60,819)
==============================================================================	

Pension deferred gains and losses that fall outside of a 10% corridor are amortized over 8.7 years or the remaining average service life of active participants, whichever is shorter.
Significant assumptions used in determining pension and other postretirement expense and the funded status of the plans were:

                                           2002      2001     2000
------------------------------------------------------------------
Weighted average discount rate            6.75%     7.25%    7.75%
Long-term rate of return on plan assets   9.50%     9.75%    9.75%
Increase in compensation                  4.50%     4.50%    4.75%

Page 30	

                                                               BARNES GROUP INC.

                                                          [GRAPHIC APPEARS HERE]	

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and other postretirement benefit expenses consisted of the following:

                                                                                      Other
                                                     Pensions               Postretirement Benefits
----------------------------------------------------------------------------------------------------
                                         2002         2001       2000      2002        2001     2000
----------------------------------------------------------------------------------------------------
Service cost                        $   8,034    $   7,436   $  6,264   $   776   $    562   $   481
Interest cost                          18,622       18,224     17,707     5,231      5,114     5,148
Expected return on plan assets        (30,153)     (29,130)   (27,601)       --         --        --
Amortization of transition assets        (191)        (442)    (1,636)       --         --        --
Recognized (gains) losses              (1,499)      (2,934)    (3,420)      731        253       144
Curtailment                              (572)          --         --        --         --        --
Prior service cost (benefits)           1,169        1,096      1,113      (718)    (1,320)   (1,321)
----------------------------------------------------------------------------------------------------
Benefit (credit) cost               $  (4,590)    $ (5,750)    (7,573)  $ 6,020   $  4,609   $ 4,452
====================================================================================================	

The Company's accumulated postretirement benefit obligations, exclusive of pensions, take into account certain cost-sharing provisions. The annual rate of increase in the cost of covered benefits (i.e., healthcare cost trend rate) is assumed to be 14% at December 31, 2002, decreasing gradually to an ultimate rate of 5% at December 31, 2012. A one percentage point change in the assumed healthcare cost trend rate would have changed the ABO by approximately $1,490 at December 31, 2002, and would have changed the 2002 aggregate of the service and interest cost components of postretirement benefit expense by approximately $45.
11. INCOME TAXES
The components of income before income taxes and the income tax provision follow:

                                                2002         2001        2000
-----------------------------------------------------------------------------
Income before taxes:
  U.S.                                    $    7,120     $   2368    $ 19,763
  International                               25,991       21,091      28,827
-----------------------------------------------------------------------------
Income before income taxes                $   33,111     $ 23,459    $ 48,590
=============================================================================
Income tax provision:
  Current:
   U.S. - federal                         $    4,870     $ (3,407)   $  2,353
   U.S. - state                                2,213         (713)        674
   International                               4,050        3,699       4,035
-----------------------------------------------------------------------------
                                              11,133         (421)      7,062
-----------------------------------------------------------------------------
Deferred:
   U.S. - federal                             (4,350)       4,470       3,726
   U.S. - state                               (1,751)       1,121         683
   U.S. - state rate reduction                    --           --       1,181
   International                                 928         (832)        273
-----------------------------------------------------------------------------
                                              (5,173)       4,759       5,863
-----------------------------------------------------------------------------
Income tax provision                      $    5,960     $  4,338    $ 12,925
=============================================================================

                                                                         Page 31	

BARNES GROUP INC.	

[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income tax assets and liabilities at December 31 consisted of the tax effects of temporary differences related to the following:

                                             Assets            Liabilities
-----------------------------------------------------------------------------
                                          2002       2001      2002      2001
-----------------------------------------------------------------------------
Allowance for doubtful accounts       $    512   $    756   $    --   $    --
Depreciation and amortization          (13,729)    (9,023)    1,791     2,930
Inventory valuation                      6,593      7,472     1,007       782
Postretirement/postemployment costs     22,548     23,325      (265)     (249)
Tax loss carry-forwards                 28,156     10,762        --        --
Other                                    2,129     (2,883)    4,158     3,293
-----------------------------------------------------------------------------
                                        46,659     30,409     6,691     6,756
Valuation allowance                     (8,025)    (7,924)       --        --
-----------------------------------------------------------------------------
                                      $ 38,634   $ 22,485   $ 6,691   $ 6,756
=============================================================================
Current deferred income taxes         $ 16,024   $ 16,702   $   946   $   688
Non-current deferred income taxes       22,610      5,783     5,745     6,068
-----------------------------------------------------------------------------
                                      $ 38,634   $ 22,485   $ 6,691   $ 6,756
=============================================================================	

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. Tax loss carry-forwards of $67,523 have remaining carry-forward periods ranging from two years to unlimited. The Company has tax credit carry-forwards of $4,097, with remaining carry-forward periods ranging from one to 10 years.
The Company has not recognized deferred income taxes on $149,937 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:

                                            2002       2001      2000
---------------------------------------------------------------------
U.S. federal statutory income tax rate      35.0%      35.0%     35.0%
State taxes (net of federal benefit)         0.9        1.1       1.8
State tax rate reduction                      --         --       1.6
Foreign losses without tax benefit           3.6        3.6       0.8
Tax on foreign operations                  (16.0)     (22.8)    (12.7)
NASCO equity income                         (0.4)       0.1      (0.5)
Export sales benefit                        (1.3)      (1.5)     (0.9)
ESOP dividend                               (5.8)        --        --
Other                                        2.0        3.0       1.5
---------------------------------------------------------------------
Consolidated effective income tax rate      18.0%      18.5%     26.6%
=====================================================================	

Income taxes paid, net of refunds, were $1,906, $2,046 and $7,165 in 2002, 2001 and 2000, respectively.
Page 32
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME
Comprehensive income includes all changes in equity during a period except those resulting from investment by, and distributions to, stockholders. For the Company, comprehensive income includes net income and other non-owner changes to equity, which comprises foreign currency translation adjustments, deferred gains and losses related to certain derivative instruments and the minimum pension liability adjustment. The components of accumulated other non-owner changes to equity follow:

                                      Foreign           Unrealized             Minimum
                                     Currency            Losses on             Pension
                                  Translation              Hedging           Liability
                                  Adjustments           Activities          Adjustment        Total
---------------------------------------------------------------------------------------------------
Balance, January 1, 2000     $        (23,887)          $       --          $       --    $ (23,887)
2000 Change                             3,070                   --                  --        3,070
---------------------------------------------------------------------------------------------------
December 31, 2000                     (20,817)                  --                  --      (20,817)
2001 Change                            (1,244)                (662)                 --       (1,906)
---------------------------------------------------------------------------------------------------
December 31, 2001                     (22,061)                (662)                 --      (22,723)
2002 Change                             1,236                 (502)            (16,822)     (16,088)
---------------------------------------------------------------------------------------------------
December 31, 2002            $        (20,825)          $   (1,164)         $  (16,822)   $ (38,811)
===================================================================================================	

13. COMMON STOCK
In 2002, 2001 and 2000, 414,944 shares, 290,591 shares and 351,237 shares, respectively, of common stock were issued from treasury for the exercise of stock options, various other incentive awards, purchases by the Employee Stock Purchase Plan and matching contributions to the RSP. In addition, 119,048 shares and 17,500 shares were issued from treasury in 2002, in connection with the acquisition of Spectrum and for the payment of charitable contributions, respectively. In 2002, 2001 and 2000, the Company acquired 56,888 shares, 436,502 shares and 594,406 shares, respectively, of the Company's common stock at a cost of $1,147, $8,798 and $9,197, respectively. These amounts exclude shares issued and reacquired in connection with certain stock-for-stock exercises under the Company's stock option plans. These reacquired shares were placed in treasury.
The Company has a shareholder rights plan under which each share of common stock contains one right (Right) that entitles the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock for $200. The Rights generally will not become exercisable unless and until, among other things, any person or group acquires beneficial ownership of 35% or more of the outstanding stock. The Rights are generally redeemable at $0.01 per Right at any time until 10 days following a public announcement that a 35% or greater position in the Company's common stock has been acquired and will expire, unless earlier redeemed or exchanged, on December 23, 2006.
If, following the acquisition of 35% or more of the outstanding shares of the Company's common stock, the Company is acquired in a merger or other business combination, or 50% or more of the Company's assets or earnings power is sold or transferred, each outstanding Right becomes exercisable for common stock or other securities of the acquiring entity having a value of twice the exercise price of the Right.
14. PREFERRED STOCK
At December 31, 2002 and 2001, the Company had 3,000,000 shares of preferred stock authorized, none of which were outstanding.
15. STOCK PLANS
Most U.S. salaried and non-union hourly employees are eligible to participate in the Company's 401(k) plan. Effective April 1, 2001, the 401(k) plan, previously called the Barnes Group Inc. Guaranteed Stock Plan (GSP), was amended and renamed the Barnes Group Inc. Retirement Savings Plan (RSP). The RSP continues to provide for the investment of employer and employee contributions in the Company's common stock and also provides other investment alternatives for employee contributions. Employee contributions to the RSP for investment in the Company's
Page 33
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common stock after March 31, 2001, are no longer guaranteed a minimum rate of return. However, the Company continues to guarantee a minimum rate of return on certain pre-April 1, 2001, assets of the plan (see Note 18).
The Company contributes an amount equal to 50% of employee contributions up to 6% of eligible compensation plus any guarantee payment. Employees may elect to contribute additional amounts up to a total of 10% of eligible compensation. The Company expenses all contributions made to the RSP. The Company recognized expense of $2,990, $3,560 and $2,295 in 2002, 2001 and 2000, respectively. As of December 31, 2002, the RSP held 3,167,133 shares of the Company's common stock.
The Company has an Employee Stock Purchase Plan (ESPP) under which eligible employees may elect to have up to the lesser of $21,250 or 10% of base compensation deducted from payroll for the purchase of the Company's common stock at 85% of market value on the date of purchase. The maximum number of shares which may be purchased under the ESPP is 2,025,000. The number of shares purchased under the ESPP was 62,741, 62,691, and 75,052 in 2002, 2001 and 2000, respectively. As of December 31, 2002, 256,527 additional shares may be purchased.
The 1991 Barnes Group Stock Incentive Plan (1991 Plan) authorizes the granting of incentives to executive officers, directors and key employees in the form of stock options, stock appreciation rights, incentive stock rights and performance unit awards. Options granted under the 1991 Plan that terminate without being exercised become available for future grants under the 1991 Plan. A maximum of 1,945,984 common shares are subject to issuance under this plan after December 31, 2002. As of December 31, 2002 and 2001, there were 171,832 and 627,421 shares, respectively, available for future grant under the 1991 Plan.
The Barnes Group Inc. Employee Stock and Ownership Program (2000 Plan) was approved on April 12, 2000, and subsequently amended on April 10, 2002, by the Company's stockholders. The 2000 Plan permits the granting of incentive stock options, nonqualified stock options, restricted stock awards, performance share or cash unit awards and stock appreciation rights, or any combination of the foregoing, to eligible employees to purchase up to 3,450,000 shares of the Company's common stock. Such shares have been authorized and reserved. Options granted under the 2000 Plan that terminate without being exercised become available for future grants under the 2000 Plan. A maximum of 3,292,333 common shares are subject to issuance under this plan after December 31, 2002. As of December 31, 2002 and 2001, there were 749,432 and 325,125 shares, respectively, available for future grants under the 2000 Plan.
In 1998, 60,000 incentive units and 75,000 stock options were granted under the Key Executive Stock Plan (Key Plan). There are no additional shares available for future grant. A maximum of 104,806 common shares are subject to issuance under the Key Plan after December 31, 2002.
Compensation cost related to these plans was $2,588, $1,974 and $798 in 2002, 2001 and 2000, respectively. The Company recorded, in additional paid-in capital, tax benefits related to stock options of $1,148, $650 and $776 in 2002, 2001 and 2000, respectively.
Data relating to options granted under these plans follow:

                                     2002                   2001                      2000
-------------------------------------------------------------------------------------------------
                                         Average                Average                   Average
                           Number of    Exercise   Number of   Exercise      Number of   Exercise
                             Shares        Price      Shares      Price         Shares      Price
-------------------------------------------------------------------------------------------------
Outstanding, January 1     3,374,792    $  19.61   2,471,992   $  19.74      1,808,775    $ 20.70
Granted                    1,242,843    $  22.66   1,447,681   $  18.81      1,207,622    $ 16.88
Exercised                    616,348    $  17.81     379,435   $  17.11        324,036    $ 12.75
Cancelled                     53,396    $  23.13     165,446   $  20.33        220,369    $ 22.22
-------------------------------------------------------------------------------------------------
Outstanding, December 31   3,947,891    $  20.80   3,374,792   $  19.61      2,471,992    $ 19.74
=================================================================================================
Exercisable, December 31   2,065,666    $  21.29   1,388,325   $  21.34        899,926    $ 21.36
=================================================================================================	

Page 34
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at December 31, 2002:

                        Options Outstanding           Options Exercisable
-------------------------------------------------------------------------
     Range of                   Average    Average                Average
     Exercise      Number     Remaining   Exercise      Number   Exercise
       Prices   of Shares  Life (Years)      Price   of Shares      Price
-------------------------------------------------------------------------
 $ 10 to $ 19   1,554,404          7.56   $  17.46     645,363   $  16.94
 $ 19 to $ 23   1,069,164          6.60   $  20.75     918,458   $  20.88
 $ 23 to $ 31   1,324,323          7.87   $  24.75     501,845   $  27.63	

Incentive stock rights under the 1991 Plan (rights) and restricted stock awards under the 2000 Plan and Key Plan (awards) entitle the holder to receive, without payment, one share of the Company's common stock after the expiration of the vesting period. Certain rights are also subject to the satisfaction of established performance goals. Additionally, holders of stock units and rights are credited with dividend equivalents, which are converted into additional units or rights, as the case may be. All rights have up to a five-year vesting period. In 2002, 213,300 rights and awards were granted; 14,609 rights and awards were credited to holders for dividend equivalents; 25,028 rights and awards, which include dividend equivalents, were converted to an equivalent number of shares of common stock; and 16,000 rights and awards were forfeited. As of December 31, 2002, there were 451,857 rights and awards outstanding.
Under the Non-Employee Director Deferred Stock Plan each non-employee director is granted the right to receive 6,000 shares of the Company's common stock upon retirement. There were 6,000, 6,000 and 12,000 shares granted to new directors in 2002, 2001 and 2000, respectively. There are 54,000 shares reserved for issuance under this plan.
Total shares reserved for issuance under all stock plans aggregated 5,653,650 at December 31, 2002.
16. AVERAGE SHARES OUTSTANDING
Net income per common share is computed in accordance with SFAS 128, "Earnings per Share." Basic earnings per share is calculated using 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 RSP are considered outstanding for both basic and diluted earnings per share. There are no adjustments to net income for purposes of computing income available to common stockholders for the years ended December 31, 2002, 2001 and 2000. A reconciliation of the average number of common shares outstanding used in the basic and diluted EPS computation follows:

                                  Average Common Shares Outstanding
--------------------------------------------------------------------
                                     2002          2001         2000
--------------------------------------------------------------------
Basic                          18,750,442    18,506,247   18,568,359
  Dilutive effect of:
  Stock options                   288,036       273,651      101,413
  Stock incentive units           127,431       122,869      104,307
  Non-Employee
   Director Stock Plan             19,423        17,201       17,148
--------------------------------------------------------------------
Diluted                        19,185,332    18,919,968   18,791,227
====================================================================	

As of December 31, 2002, there were 3,947,891 stock options outstanding, of which 2,239,515 were considered dilutive and 1,708,376 were anti-dilutive.
Page 35
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. 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, as follows:
Associated Spring manufactures precision mechanical and nitrogen gas springs, manifold systems and other close-tolerance engineered metal components, principally for the electronics, telecommunications and transportation markets. Associated Spring's custom metal parts are sold in the U.S. and through its international subsidiaries. International manufacturing operations are located in Brazil, Sweden, Canada, Mexico, Germany, Singapore and China.
Barnes Aerospace supplies precision machined and fabricated components and assemblies for the aerospace and industrial gas turbine industries. Additionally, it refurbishes jet engine components for many of the world's commercial airlines and the military. Barnes Aerospace's operations are primarily in the U.S., with additional locations in Europe and Singapore. Its markets are located primarily in the U.S., Europe and Asia.
Barnes Distribution is an international distributor of MRO supplies and a full-service provider of logistics management services for industrial, heavy equipment and transportation maintenance markets. Additionally, it distributes close-tolerance engineered metal components, principally manufactured by Associated Spring. Barnes Distribution, formerly known as Bowman Distribution, was formed from the combination of the Curtis acquisition and Bowman Distribution. Barnes Distribution's operations and markets are located primarily in the U.S., with additional locations in Canada, Europe, Asia, Mexico and Brazil. As indicated in Note 3, the Company acquired Kar Products, a leading full-service distributor of MRO supplies, on February 6, 2003. Kar Products will be included in the Barnes Distribution segment.
The Company evaluates the performance of its reportable segments based on the operating profit of the respective businesses, which includes net sales, cost of sales, selling and administrative expenses and certain components of other income and other expenses, as well as the allocation of corporate overhead expenses.
The equity income from the Company's investment in the NASCO joint venture is incorporated into the segment results of Associated Spring. Sales between the business segments and between the geographic areas in which the businesses operate are accounted for on the same basis as sales to unaffiliated customers. Additionally, revenues are attributed to countries based on location of manufacturing or distribution facilities.
Page 36
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables (dollars shown in millions) set forth information about the Company's operations by its three reportable business segments and by geographic area.
OPERATIONS BY REPORTABLE BUSINESS SEGMENT

                    Associated       Barnes         Barnes            Total
                        Spring    Aerospace   Distribution   Other      BGI
---------------------------------------------------------------------------
Revenues
---------------------------------------------------------------------------
2002                $    321.7   $    183.0   $      286.7  $ (7.4) $ 784.0
2001                     279.2        200.4          298.4    (9.2)   768.8
2000                     327.3        135.1          291.1   (13.5)   740.0

Operating profit
---------------------------------------------------------------------------
2002                $     28.1   $     10.8   $        7.5  $   --  $  46.4
2001                      19.4         16.4            5.5      --     41.3
2000                      44.0          8.0           12.9      --     64.9

Assets
---------------------------------------------------------------------------
2002                $    283.8   $    123.9   $      168.5  $ 76.3  $ 652.5
2001                     244.1        141.4          171.5    79.5    636.5
2000                     273.6        130.1          178.6    54.6    636.9	

Depreciation and amortization

2002                $     15.5   $      9.2   $        7.7  $  1.2  $  33.6
2001                      16.8          9.7            9.9     0.6     37.0
2000                      17.8          8.6            9.0     0.5     35.9

Capital expenditures
---------------------------------------------------------------------------
2002                $      6.5   $      4.5   $        7.4  $  1.0  $  19.4
2001                       8.7         10.0            6.0     0.2     24.9
2000                      14.2          5.6            5.5     2.7     28.0	

Notes:
In 2002 and 2001, respectively, one customer accounted for 11% and 13% of the Company's total revenue. In 2000, sales from any one customer did not exceed 10% of the Company's total revenues.
"Other" revenues represent the elimination of intersegment sales, the majority of which are sales by Associated Spring to Barnes Distribution.
The operating profit of Associated Spring includes income from its equity investment in NASCO of $1.1 million, $0.4 million and $1.6 million in 2002, 2001 and 2000, respectively.
The assets of Associated Spring include the NASCO investment of $9.9 million, $9.4 million and $10.0 million in 2002, 2001 and 2000, respectively.
"Other" assets include corporate controlled assets, the majority of which are cash and deferred tax assets.
Page 37
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the total reportable segments' operating profit to income before income taxes follows:

                               2002      2001      2000
-------------------------------------------------------
Operating profit            $  46.4   $  41.3   $  64.9
Interest income                 0.9       0.9       1.5
Interest expense              (14.8)    (16.2)    (15.1)
Other income (expense)          0.6      (2.5)     (2.7)
-------------------------------------------------------
Income before income taxes  $  33.1   $  23.5   $  48.6
=======================================================

OPERATIONS BY GEOGRAPHIC AREA
                                                        Inter-
----------------------------------------------------------------------------
Revenues             Domestic   International     geographical    Total BGI
----------------------------------------------------------------------------
2002                  $ 606.6   $       200.8     $      (23.4)   $   784.0
2001                    625.7           172.2            (29.1)       768.8
2000                    580.6           186.3            (26.9)       740.0
----------------------------------------------------------------------------

Long-lived assets
----------------------------------------------------------------------------
2002                  $ 269.7   $       121.6     $         --    $   391.3
2001                    266.4           107.8               --        374.2
2000                    262.4           118.2               --        380.6
===========================================================================	

Notes:
International sales derived from any one country did not exceed 10% of the Company's total revenues.
Intergeographical sales are equally distributed between domestic and international.
18. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has various noncancellable operating leases for buildings, office space and equipment. As discussed in Note 9, the Company assumed certain debt related to capital leases with the acquisition of Spectrum. The balance of this debt at December 31, 2002, was $2,350. Rent expense was $10,257, $9,942 and $9,127 for 2002, 2001 and 2000, respectively. Minimum rental commitments under noncancellable leases in years 2003 through 2007 are $7,784, $6,816, $5,776, $4,843 and $1,960 and $7,187 thereafter.
RETIREMENT SAVINGS PLAN
The Company continues to guarantee a minimum rate of return on certain pre-April 2001 assets of its 401(k) Retirement Savings Plan (the Plan). This guarantee will become a liability for the Company only if, and to the extent that, the value of the related Company stock does not cover the guaranteed asset value when an employee who had invested in the Barnes Group stock investment election or vested in the Company match, which is paid in Barnes Group stock, withdraws from the Plan.
The following table provides a number of hypothetical market values of the Company's stock compared to the estimated guarantee amounts based on those market values:

                    Stock Price               Plan
                      Per Share           Guarantee
---------------------------------------------------
                    $     25.00           $      30
                          20.00                 400
                          15.00               4,200
                          10.00              13,100
                           5.00              22,400
                           0.00              33,300	

At December 31, 2002, the value of the Company's guarantee on these assets was approximately $320.
Page 38
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESTRICTIONS ON STOCK CONSIDERATION FOR SPECTRUM
The sole shareholder of Spectrum received 119,048 shares of the Company's common stock as partial consideration for Spectrum. For the one-year period following the required holding period under the federal securities laws, the sole shareholder has agreed not to sell the Company shares received in the acquisition at a price below $25.20 per share without the consent of the Company. In the event he sells any of the shares during that period with the consent of the Company or during the one month following that period, the Company will pay to him an amount equal to the difference between $25.20 per share and a lesser price at which he sells such shares.
PRODUCT WARRANTIES
The Company provides product warranties in connection with the sale of products. Product warranty liabilities were not significant as of December 31, 2002 and 2001.
Page 39
[LOGO OF PRICEWATERHOUSECOOPERS]
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BARNES GROUP INC.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Barnes Group Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards, No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002.

/s/ PricewaterhouseCoopers LLP

Hartford, Connecticut
January 31, 2003,
except for Note 3, which is as of February 6, 2003.	

Page 40
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions,            First                 Second            Third              Fourth              Full
 except per share data)        Quarter                Quarter          Quarter             Quarter(1)           Year
====================================================================================================================
2002
Net sales                $       194.2          $       209.4    $       196.8       $       183.6     $       784.0
Gross Profit/(2)/                 63.9                   67.2             62.3                60.6             254.0
Operating income                  11.6                   13.7             10.0                 9.5              44.8
Net income                         6.8                    8.7              6.9                 4.8              27.2

Per common share:
Net income:
 Basic                   $        0.37          $        0.46    $        0.37       $        0.25     $        1.45
 Diluted                          0.36                   0.45             0.36                0.25              1.42
Dividends                         0.20                   0.20             0.20                0.20              0.80
Market prices
 (high-low)              $ 26.35-21.60          $ 25.80-21.00    $ 23.38-18.45       $ 22.90-17.50     $ 26.35-17.50
====================================================================================================================
2001
Net sales                $       199.3          $       199.5    $       186.5       $       183.5     $       768.8
Gross profit/(2)/                 66.7                   65.6             61.3                55.7             249.3
Operating income                  13.8                   13.4             11.6                 1.5              40.3
Net income                         7.3                    6.9              5.7                (0.8)             19.1

Per common share:
Net income
Basic                    $        0.39          $        0.37    $        0.31       $       (0.04)    $        1.03
Diluted                           0.39                   0.36             0.30               (0.04)             1.01
Dividends                         0.20                   0.20             0.20                0.20              0.80
Market prices
 (high-low)              $ 21.00-18.00          $ 24.70-18.25    $ 24.80-19.48       $ 24.94-19.20     $ 24.94-18.00
====================================================================================================================	

/(1)/ The fourth quarter of 2001 includes a pre-tax charge of $4.8 million primarily related to a plant closure and severance costs.
/(2)/ Sales less cost of sales.
Page 41
 
BARNES GROUP INC.
[GRAPHIC APPEARS HERE]
SELECTED FINANCIAL DATA

                                 2002         2001         2000         1999         1998/(1)/
=========================================================================================
Per common share/(2)/
-----------------------------------------------------------------------------------------
Net income
-----------------------------------------------------------------------------------------
 Basic                     $     1.45   $     1.03   $     1.92   $     1.47   $     1.72
-----------------------------------------------------------------------------------------
 Diluted                         1.42         1.01         1.90         1.46         1.69
-----------------------------------------------------------------------------------------
Dividends paid                   0.80         0.80         0.79         0.75         0.69
-----------------------------------------------------------------------------------------
Stockholders' equity
 (at year-end)                  10.98        10.77        10.82         9.58         9.51
-----------------------------------------------------------------------------------------
Stock price (at
 year-end)                      20.35        23.99        19.88        16.31        29.25
=========================================================================================
FOR THE YEAR (in
 thousands)
-----------------------------------------------------------------------------------------
Net sales                  $  784,036   $  768,821   $  740,032   $  622,356   $  651,183
-----------------------------------------------------------------------------------------
Operating income               44,840       40,320       62,949       46,107       55,279
-----------------------------------------------------------------------------------------
 As a percent of sales            5.7%         5.2%         8.5%         7.4%         8.5%
-----------------------------------------------------------------------------------------
Income before income       $   33,111   $   23,459   $   48,590   $   42,698   $   54,663
 taxes
-----------------------------------------------------------------------------------------
Income taxes                    5,960        4,338       12,925       14,086       20,196
-----------------------------------------------------------------------------------------
Net income                     27,151       19,121       35,665       28,612       34,494
-----------------------------------------------------------------------------------------
 As a percent of
  average stockholders'
  equity                         13.0%         9.5%        19.1%        15.4%        18.4%
-----------------------------------------------------------------------------------------
Depreciation and
 amortization              $   33.626   $   37,045   $   35,871   $   30,602   $   28,431
-----------------------------------------------------------------------------------------
Capital expenditures           19,367       24,857       28,042       27,823       34,843
-----------------------------------------------------------------------------------------
Average common shares
 outstanding/(3)/              18,750       18,506       18,568       19,418       20,096
=========================================================================================
YEAR-END FINANCIAL
 POSITION (in thousands)
-----------------------------------------------------------------------------------------
Working capital            $  106,558   $   72,931   $  114,502   $  103,165   $  106,884
-----------------------------------------------------------------------------------------
Current ratio                1.8 to 1     1.4 to 1     1.9 to 1     1.9 to 1     2.1 to 1
-----------------------------------------------------------------------------------------
Property, plant and
 equipment                 $  159,440   $  152,943   $  163,766   $  145,105   $  139,247
-----------------------------------------------------------------------------------------
Total assets                  652,530      636,505      636,941      516,282      418,904
-----------------------------------------------------------------------------------------
Long-term debt(4)             220,962      225,941      230,000      140,000       51,000
-----------------------------------------------------------------------------------------
Stockholders' equity          208,220      198,837      201,333      180,614      188,674
-----------------------------------------------------------------------------------------
Debt as a percent of
 total capitalization/(5)/       51.5%        53.8%        54.1%        45.7%        24.1%
=========================================================================================
YEAR-END STATISTICS
Employees                       5,172        5,150        5,471        4,020        3,847
=========================================================================================	

/(1)/ 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 Company's former president.
/(2)/ 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.
/(3)/ Basic shares.
/(4)/ Long-term debt includes current and long-term portion.
/(5)/ Debt includes all interest-bearing debt and total capitalization includes interest-bearing debt and stockholders' equity.
Page 42
  
EXHIBIT 21
BARNES GROUP INC.
LIST OF SUBSIDIARIES

                             as of December 31, 2002

Subsidiaries of the Company:
----------------------------
                                                          Jurisdiction of
                  Name                                     Incorporation
                  ----                                    ---------------
Associated Spring-Asia PTE. LTD.                             Singapore
Associated Spring do Brasil Ltda.                            Brazil
Associated Spring Mexico, S.A.                               Mexico
Associated Spring (Tianjin) Company, Limited                 China
Barnes Financing Delaware LLC                                Delaware
Barnes Group (Bermuda) Limited                               Bermuda
Barnes Group Canada Corp.                                    Canada
Barnes Group (Delaware) LLC                                  Delaware
Barnes Group Finance Company (Bermuda) Limited               Bermuda
Barnes Group Finance Company (Delaware)                      Delaware
Barnes Group (Germany) GmbH                                  Germany
Barnes Group Holding B.V.                                    Netherlands
Barnes Sweden Holding Company AB                             Sweden
Barnes Group Spain SRL                                       Spain
Barnes Group (U.K.) Limited                                  United Kingdom
Barnes Group France S.A.                                     France
Euro Stock Springs & Components Limited                      United Kingdom
3031786 Nova Scotia Company                                  Canada
3032350 Nova Scotia Limited                                  Canada
Raymond Distribution (Ireland) Limited                       Ireland
Raymond Distribution-Mexico, S.A. de C.V.                    Mexico
Ressorts SPEC, SARL                                          France
Seeger-Orbis GmbH & Co. OHG                                  Germany
Spectrum Plastics Molding Resources, Inc.                    Connecticut
Stromsholmen AB                                              Sweden
The Wallace Barnes Company                                   Connecticut
Windsor Airmotive Asia PTE. LTD.                             Singapore	

The Company's consolidated financial statements include all of the above-named subsidiaries. For a statement of the principles of consolidation applicable to these subsidiaries, see Note 1 of the Notes to Consolidated Financial Statements on page 21 of the 2002 Annual Report to Stockholders.
 
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-56437, 2-91285, 33-20932, 33-30229, 33-91758, 33-27339, 333-41398, 333-88518 and 333-57658) of Barnes Group Inc. of our report dated January 31, 2003 (except for Note 3, which is as of February 6, 2003) relating to the financial statements of Barnes Group Inc., which appears in 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 January 31, 2003 (except for Note 3, which is as of February 6, 2003) relating to the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut

March 13, 2003	

EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Barnes Group Inc. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edmund M. Carpenter, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Edmund M. Carpenter
--------------------------------------
   Edmund M. Carpenter
   President and Chief Executive Officer
   March 18, 2003	

EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Barnes Group Inc. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William C. Denninger, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William C. Denninger
 -------------------------------
   William C. Denninger
   Senior Vice President and
   Chief Financial Officer
   March 18, 2003