-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVVW0RtRAM4eaqf94crBnXJKrk4fiazRQ5o81Am8HiuP6mqT/c7AHqEIjy0wm2Hj 9El/gWgYQFDZEcCtNBIWUA== 0000927016-02-001819.txt : 20020415 0000927016-02-001819.hdr.sgml : 20020415 ACCESSION NUMBER: 0000927016-02-001819 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BNS CO CENTRAL INDEX KEY: 0000014637 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 050113140 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05881 FILM NUMBER: 02596272 BUSINESS ADDRESS: STREET 1: PO BOX 456 STREET 2: 200 FRENCHTOWN ROAD CITY: NORTH KINGSTOWN STATE: RI ZIP: 02852 BUSINESS PHONE: 4018862000 MAIL ADDRESS: STREET 1: 200 FRENCHTOWN RD CITY: NORTH KINGSTOWN STATE: RI ZIP: 02852-1700 10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 Commission file number 1-5881 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) ------------------------------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 050113140 -------- --------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 275 West Natick Road, Warwick, RI 02886 --------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code 401-244-4500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- CLASS A COMMON STOCK-PAR VALUE $.01 BOSTON STOCK EXCHANGE PREFERRED STOCK PURCHASE RIGHTS BOSTON STOCK EXCHANGE Securities registered pursuant to Section 12 (g) of the Act: CLASS B COMMON STOCK - PAR VALUE $.01 (Title of Class) 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 ([sec] 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [__] The aggregate market value (as calculated under the rules) of the voting common stock held by non-affiliates of the Registrant was approximately $7,000,000 as of March 12, 2002. There were 2,852,812 Shares of Class A Common Stock and 63,917 Shares of Class B Common Stock, each having a par value of $.01 per share, outstanding as of March 12, 2002. Page 1 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) INDEX
PAGE ---- PART I Item 1 Business................................................................................... 3 - 8 General, 2001 Sale of the Metrology Business.................................................... 3 North Kingstown Facility........................................................................ 3-4 Heathrow, United Kingdom Property............................................................... 4 The Business of Xygent Inc...................................................................... 4-8 Background................................................................................... 4 Measuring Software Market ................................................................... 4 Potential End-User Customer.................................................................. 5 Measuring Software Market Trends............................................................. 5 Xygent Software Products..................................................................... 5 XactMeasure.............................................................................. 5 XactVision............................................................................... 5 XactCNC.................................................................................. 5 Sales and Distribution Strategy.............................................................. 5-6 Product Support.............................................................................. 6 Software Engineering and Product Development................................................. 6 Research and Development..................................................................... 6 Software Production.......................................................................... 6 Foreign Operations........................................................................... 6 Suppliers.................................................................................... 7 Patents, Licenses, Trademarks and Proprietary Information.................................... 7 Competition.................................................................................. 7 First Orders and Backlog..................................................................... 7 Funding of Xygent Operations................................................................. 8 2001 Stockholders' Agreement Between Xygent, the Company and Hexagon......................... 8 Employees and Management..................................................................... 8 Item 2 Properties................................................................................. 9 Item 3 Legal Proceedings.......................................................................... 10 Item 4 Submission of Matters to a Vote of Security Holders........................................ 10 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters....................... 11 Item 6 Selected Financial Data.................................................................... 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................. 13-23 Item 7A Qualitative and Quantitative Disclosures About Market Risk................................. 24 Item 8 Financial Statements and Supplementary Data................................................ 25-45 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure....................................................................... 46 PART III Item 10 Directors and Executive Officers of the Registrant......................................... 46-47 Item 11 Management Remuneration and Transactions................................................... 48 Item 12 Security Ownership of Certain Beneficial Owners and Management............................. 48-50 Item 13 Certain Relationships and Related Transactions............................................. 50 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 51 Signatures........................................................................................... 52 Exhibit Index........................................................................................ 53-56
Page 2 PART I ------ ITEM 1 - BUSINESS - ----------------- THE BUSINESS OF THE COMPANY GENERAL, 2001 SALE OF THE METROLOGY BUSINESS The Company, which was founded in 1833, was previously engaged in the Metrology Business in the design, manufacture and sale of precision measuring tools and instruments and manual and computer controlled measuring machines. At a special meeting held on April 27, 2001, the stockholders of the Company approved the sale of substantially all assets of the Company, including a) the sale of its worldwide Metrology Business to Hexagon AB of Stockholm, Sweden, ("Hexagon") and b) the sale of its North Kingstown Facility to Precision Park Partners LLC. At the same meeting, the stockholders also approved the change of the Company's name to BNS Co., a reduction of the par value per share of the Class A Common Stock and Class B Common Stock from $1.00 to $.01 and a one-for-five reverse stock split of the Company's outstanding Class A Common Stock and Class B Common Stock. The record date for the one-for-five reverse stock split was May 10, 2001. Following the conclusion of the Special Meeting of Stockholders, the Company completed the closing of the sale of its worldwide Metrology Business to Hexagon AB, effective April 27, 2001. The purchase price for the sale of the Metrology Business was $170 million less a $12.8 million cash adjustment based on the terms of the Acquisition Agreement. After the cash adjustment and payment of all U.S. bank debt and long-term senior noteholder obligations, the Company received net proceeds of approximately $70 million. Also in connection with the sale to Hexagon, Hexagon invested $2.5 million in Xygent Inc., the Company's software development subsidiary, in exchange for a 16.7% ownership interest in such subsidiary. On May 25, 2001, the Company paid a special cash distribution of $15.25 per share (post reverse stock split) on its outstanding shares of Class A Common Stock and Class B Common Stock to stockholders of record at May 11, 2001. The Company plans to sell its North Kingstown property and its real estate adjacent to the Heathrow Airport in the United Kingdom at later dates as determined by the Company's Board of Directors. The Company plans to make additional cash distributions to its shareholders when the property sales have been completed. However, the amount of such future cash distributions is subject to later determination by the Company's Board of Directors, based on a number of factors as earlier disclosed in the Company's Proxy Statement dated March 30, 2001 for the Special Meeting of Stockholders held on April 27, 2001, legal requirements applicable to dividends and other subsequent developments, including retained liabilities. The Company presently plans to continue to operate its software development business through its subsidiary, Xygent Inc., which could ultimately lead to a sale or spin-off of that business. NORTH KINGSTOWN FACILITY The North Kingstown, Rhode Island Facility (the "Facility") is comprised of a 734,000 square foot industrial building situated on 169 acres of commercially zoned land. All but 70,000 square feet (the former headquarters space) is currently under leases to four tenants, including Hexagon. Total gross monthly rental income is currently $207,000. Hexagon leases 263,000 square feet, with the right to put back space up to a minimum leased space of 135,000 square feet for a period of five years. The Agreement dated as of March 2, 2001, as extended by amendments as of May 31, 2001 and as of September 28, 2001, for the proposed sale of the Facility to Precision Park Partners LLC has lapsed, as the parties were not able to complete the transaction on the terms and conditions contemplated by the Agreement. The Company continues to plan to sell the Facility and has engaged the Page 3 services of CB Richard Ellis, a national commercial real estate broker and advisor, to assist in the sale and leasing of the facility. The Company is in the process of renting out the available office space. The Company also continues to work with the Rhode Island Department of Environmental Management to whom the Company has submitted the results of the Phase II environmental study on the Facility. The results of the study showed some exceedances of environmental standards for certain contaminants in the soil under the property and minor groundwater issues. The Company has been advised by its technical consultants that these exceedances are minor and do not create any hazard to human health or the environment. The Company believes, based on discussions with its real estate consultant, that completion of the environmental remediation work and completion of leasing the former headquarters space should result in increasing the fair market value of the Facility for a future sale at a time to be determined by the Company's Board of Directors. HEATHROW, UNITED KINGDOM PROPERTY The Heathrow, United Kingdom real estate consists of 85 acres of land adjacent to the Heathrow airport, currently used as a gravel pit. The property is subject to zoning restrictions which limit its development. The property is also subject to agreements with an adjacent land owner and a gravel pit operator for extraction of gravel and procuring acceptable material for land fill. The royalty for gravel removal is currently $4 per ton and the estimate of remaining gravel that can be extracted is one million tons. The royalty for landfill is 30% of the land fill revenue. The gravel and land fill royalties are shared 77%/23% between the Company and the adjacent land owner. The gravel pit operator is responsible for restoring the property after extraction of gravel and landfill is complete. In the year 2001 revenues from the property were approximately $950,000. We have not commenced any selling efforts. THE BUSINESS OF XYGENT Xygent (formerly BSIS) was formed in December 1997 to develop next generation metrology software applications for the Company's various business units. As its secondary mission, Xygent was to establish and execute a "measuring software" business strategy, which would ultimately lead to the formulation of a software business that could spin off as an independent business separate from the metrology equipment manufacturing businesses. Accordingly, Xygent is now focused on the commercialization of its new XactMeasure measuring software. Background "Metrology" is defined as "the science of measuring physical attributes" such as the physical dimensions, like part size and feature position of manufactured component parts, but also extends into the measurement of color, weight, surface finish or any other physical attributes that are defined by a design standard and can be inspected and compared to the designer's intended specification. The metrology machine or instrument hardware, together with metrology or measuring software forms a complete metrology system, which is used by manufacturers of mechanical and electrical components for the purposes of inspecting and verifying that the physical dimensions of the manufactured components meet their required "dimensional design specifications". Measuring Software Market Xygent has defined three major measuring software market segments by inspection device type: CMMs (Coordinate Measuring Machines), which include any device that collects three dimensional coordinate data points from a component part; Vision systems, which collect a video camera image of a manufactured part of feature into a frame grabbing sub-system; and CNC (Computer Numerically Controlled) machine tools, which cover CNC metal cutting or forming machine tools equipped with measuring probes. Page 4 Potential End-User Customer Profile Xygent's potential end-user customers can be categorized as Large Original Equipment Manufacturers ("OEMs") such as automotive, aerospace, and heavy equipment manufacturers, typically with production facilities located around the world; Medium (sized) production equipment manufacturers and assembly subsystem suppliers to the Large OEMs, such as engine or transmission transfer lines or vehicle subassemblies; and small component part specialized tooling and fixture job shop manufacturers which supply to both the Medium and Large OEM manufacturers. Xygent's strategy is to become a leading independent provider of metrology software by providing products based on an open-architecture extensible framework. Measuring Software Market Trends A significant trend in the measuring software market is the desire of many large-sized users of metrology equipment to standardize on one measuring system software product throughout their organizations. There is a recognition that the use of different software on measuring devices introduces uncertainty in the production system due to the differences in CAD model access and analysis. Standardization will enable the users to more easily transfer skilled operators within the enterprise and facilitate movement of inspection and measuring programs between production sites. Another significant trend is the penetration of PC platforms, Microsoft Windows NT and CE and the Internet/Intranet technologies onto the manufacturing shop floor. These advanced technologies permit the transmission of data, including design engineering and production data, throughout the manufacturing enterprise and its supply network. The combination of these technologies with the open architecture and other application features of Xygent measuring software products enable operators of measuring systems and machine tools located at diverse manufacturing sites to share manufacturing data to improve productivity. Xygent Software Products XactMeasure XactMeasure is a metrology software system designed to be used with both Computer Controlled and Manual CMMs. Features include full CAD support, Kinematic display of machine and parts, ASME compliant Geometric Dimensioning and Tolerancing and HTML result reporting. XactVision XactVision is based on the same component core as XactMeasure but substitutes functions designed to support non-contact vision systems that use image analysis and laser-based systems as the primary means of part data acquisition. XactVision is in final beta testing and is scheduled for commercial release in the summer of 2002. XactCNC XactCNC supports in-process inspection on board machine tools utilizing touch probes. The Xact Technology component core is augmented by functions to support tuning of CNC machining processes as well as the conversion of these machines into fully functional CMMs. Sale and Distribution Strategy Xygent has established arrangements for the distribution of its products primarily through third party independent retrofit dealers. Dealers have been established in North America, Europe and Australia. A relationship in China is anticipated before the end of second quarter 2002. Distribution agreements are being pursued with several major OEMs. Page 5 The Xygent/Hexagon Stockholders Agreement includes license and royalty arrangements between Xygent and Hexagon which provide that, for the period ending April 27, 2006, Hexagon may purchase XactMeasure licenses from Xygent for $1,500 per unit. Xygent will pay Hexagon a royalty of $5,000 per unit for any XactMeasure licenses for CMM applications sold by Xygent through a distribution channel other than Hexagon. The preferential pricing and royalty provision in favor of Hexagon are applicable only to software products for use in CMM applications. Product Support Software users in manufacturing industries require service and support as a major criteria in their purchasing decision. Xygent offers hot-line service support to the retrofit dealers and expects the authorized dealer to provide 24 hour-a-day, seven-days-a-week support to the actual end-user customer. Software Engineering and Product Development Xygent's commercial success is dependent on its ability to develop quality products and enhancements in a timely fashion. Xygent has adopted the Rational Unified Process (RUP) as a development methodology. The use of RUP leads to shorter development cycles through a concurrent engineering approach. Shorter interactive cycles are executed with highest risk R&D tasks being scheduled first to minimize project slippage. Research and Development Xygent's product development activities take place in facilities located in the United States, United Kingdom, France, Germany and Italy. Xygent has connected the software development tools and infrastructures of each of these facilities in order to provide a global software development process. The American National Standards Institute (ANSI), American Society of Mechanical Engineers (ASME), and the International Standards Organization (ISO) all influence the evolution of standards directly related to Xygent's end users and their businesses. Xygent actively participates in the GD&T standard, known as ANSI/ASME Y14.5.1M; the NIST/ISO STEP AP219, which will define exchange of metrology and feature/tolerance information between software systems; and the B89 standard, which propagates best measurement practices throughout the industry. Software Production All of Xygent's products include a commercial "soft key" licensing mechanism whereby a unique code locks the product to a specific computer and enables the purchased options to be executed by the customer. The generation of these soft keys has been WEB Enabled by Xygent to allow any authorized distributor, anywhere in the world, to distribute and activate Xygent products. Xygent creates master CDs that contain a standard Microsoft Installation Procedure (i.e. RUN:SETUP). The normal setup procedure is followed by the user and the product installs itself on the selected hard drive. Following installation the user enters the soft key license and the correct options are enabled. Master CDs will be distributed to authorize high-volume OEMs along with suitable artwork for packaging with permission to copy as needed. Foreign Operations Xygent expects to develop and sell a significant portion of its products in foreign countries. Technical sales support subsidiaries are in Wetzlar, Germany; Torino, Italy and Teddington, England. Third party independent retrofit dealers have been established in several foreign countries. Page 6 Suppliers Xygent incorporates several third party software components into its products to both leverage domain expertise and reduce support workload. These suppliers are all major market leaders in their respective fields. Cooperative market activities are periodically undertaken in partnership with these suppliers to enhance Xygent's image in the marketplace. Patents, Licenses, Trademarks and Proprietary Information As of December 31, 2001, Xygent has filed three patent applications, two in the United States and one foreign application, covering methods and apparatus embodied in its measuring software product (i) for simulating the measurement of a part without using a physical measurement system and (ii) for interacting with measuring devices by allowing users to extend the capabilities of software for controlling measuring devices. Xygent has obtained rights to XactMeasure(R) as a registered trademark. Xygent also owns the domain names Xygentinc.com and XactMeasure.com. At the April 27, 2001 closing with Hexagon, the Metrology Business CMM legacy software (including Quindos, Tutor, Chorus and MM4) and legacy derivatives, or proprietary software enhancements to basic software programs, (including XactQuindos, Chorus X, MM4X and Tutor X) became an exclusive asset of Hexagon. Xygent has no right to sell or license the legacy or legacy derivatives software. Xygent's rights to use the legacy software and legacy derivatives in connection with the development of XactMeasure are embodied in Software Programming Services Agreements between Xygent and certain Hexagon subsidiaries. The parties have agreed to make such mutually agreed changes to the various Software Programming Services Agreements as may be necessary to protect the proprietary rights of Hexagon in the legacy software products. Competition The markets in which we sell our products include established competitors that largely fit into one of two classes: 1) Those that produce measuring software only, selling through one or more OEMs or retrofitters, of which there are five principle competitors; and 2) CMM or Vision OEMs that produce both hardware and software, of which there are eight major CMM competitors and six major Vision system competitors. The CMM measuring software market is shared by two classes of participants: (1) those that produce measurement system hardware and software including Hexagon, Zeiss, Mitutoyo, LK, Sheffield, Starrett, IMS and Wenzel; and (2) those that produce software only including Metrologic, AAT, Tecnomatix, Silma and Delmia. The Vision measuring software market consists primarily of participants that produce measurement system hardware and customized software to run their hardware. Each of the major OEMs, including OGP and View Engineering (both now held by QVII), Sony, Nikon, MicroVu, and J-Mar, all produce their own non-contact system including software. In addition, Metronics markets Quadra-Check(R) both as OEM and retrofit software in the lower end of the vision measuring software segment. The principal competition in the CNC measuring software market is Renishaw, which produces an inspection probe, controller card and software macros to run an inspection cycle from within an NC-G code program First Orders and Backlog Xygent ships its software products upon receipt of customer orders. In late 2001, after the completion of the development and quality assurance processes, Xygent received its first customer orders for seven XactMeasure licenses. Page 7 Funding of Xygent Operations The operating capital for Xygent is provided by (i) the $5.0 million of Metrology Business sales proceeds the Company retained for use in funding Xygent and (ii) by Hexagon's investments under the Acquisition Agreement. Hexagon invested $2.5 million at the Closing on April 27, 2001, for a 16.7% ownership stake and has committed to invest an additional $1.5 million annually in April of 2002, 2003 and 2004. We expect Xygent will begin to generate revenue such that said aggregate funding will be sufficient; however, there can be no assurance that said aggregate funding will be sufficient to fund the contemplated operations of Xygent or that, if needed and determined appropriate by BNS Co. and Hexagon, the two stockholders of Xygent, additional funding could be raised through the issuance and sale of shares which would further dilute the current stockholders, or through any other method of financing. Moreover, the Company may entertain offers for the purchase of Xygent as an alternative to the proposed execution of the business plan described above. 2001 Stockholders' Agreement Between Xygent, the Company and Hexagon The 2001 Stockholders' Agreement gives Hexagon the right to designate two of the five members of the Board of Directors of Xygent, gives Xygent a right of first refusal on any transfer of Xygent shares by Hexagon, gives Hexagon a right of first refusal on any transfer of Xygent shares by the Company, gives Hexagon pre-emptive rights on the issue of additional Xygent shares, limits the number of options on Xygent shares that may be granted to Xygent employees without further consent of Hexagon, affords Hexagon registration rights on its Xygent shares under certain circumstances and provides that Hexagon's consent is required for certain other matters, including any amendment to Xygent's certificate of incorporation or by-laws (except as required by additional investors or for increases in authorized stock) and any sale of more than 51% of Xygent's assets or a merger or consolidation of Xygent. Employees and Management BNS Co., including Xygent, had 44 employees at December 31, 2001. Of the total employees, 39 were employed by Xygent (21 in the U.S. and 18 in Europe) in software development and quality assurance (22), marketing, sales and sales support (14) and administration and information technology (3). Corporate support, including facility management, is provided by the BNS Co. employees (5). None of the employees are covered by a collective bargaining agreement. Management believes that its relationship with its employees is good. Page 8 ITEM 2 - PROPERTIES - ------------------- PROPERTIES The following table sets forth certain information concerning the Company's facilities:
Owned/ Approximate Location Leased Principal Use Square Footage -------- ------ ------------- -------------- United States N. Kingstown, Owned Commercial Real Estate Rental 734,000 sq. ft. /(1)/ Rhode Island Warwick, Rhode Island Leased Headquarters Xygent Inc., Sales, 11,000 sq. ft. /(3)/ Software Development, Administration United Kingdom Owned Gravel Extraction/Landfill 85 Acres /(2)/ Heathrow Teddington Leased Xygent Sales Support, Software 2,000 sq. ft. /(4)/ Development Italy Torino Leased Xygent Sales Support, Software 1,800 sq. ft. /(5)/ Development Germany Wetzlar Leased Xygent Sales Support, Software 3,000 sq ft. /(6)/ Development
In Management's opinion, the Company's properties are in good condition and adequate for the Company's business as presently conducted. /(1)/ see Item 1: North Kingstown /(2)/ see Item 1: Heathrow, United Kingdom Property /(3)/ the lease in Warwick, RI expires in 2006 /(4)/ the lease in Teddington, UK expires in 2002 /(5)/ the lease in Torino, Italy expires in 2004 /(6)/ the lease in Wetzlar, Germany expires in 2002 All of the above leases contain renewal options. Page 9 ITEM 3 - LEGAL PROCEEDINGS - -------------------------- ENVIRONMENTAL MATTERS The nature of the Company's current software development operations are not affected by environmental laws, rules and regulations. However, because the Company and its subsidiaries and predecessors, prior to the sale to Hexagon on April 27, 2001 (and prior to sales of other divisions made in prior years) have conducted heavy manufacturing operations and often in locations at which or adjacent to which, other industrial operations were conducted, from time to time the Company is subject to environmental claims. As with any such operations that involved the use, generation, and management of hazardous materials, it is possible that prior practices, including practices that were deemed acceptable by regulatory authorities in the past, may have created conditions which could give rise to liability under current or future environmental laws. Because the law in this area is developing rapidly, such environmental laws are subject to amendment and widely varying degrees of enforcement, the Company may be subject to, and cannot predict with any certainty the nature and amount of potential environmental liability related to these operations or locations (including its North Kingstown Facility and property on which the Facility is located where, after the sale to Hexagon, the Company is now solely the landlord) that the Company may face in the future. A recently completed Phase II environmental study on the North Kingstown Facility had indicated certain environmental problems on the property. The results of the study show some exceedances of environmental standards for certain contaminants in the soil under the property and minor groundwater issues. The Company has been advised by its technical consultants that these exceedances are minor and do not create any hazard to human health or the environment. The Company submitted the results of the study to the Rhode Island Department of Environmental Management ("RIDEM") on October 2, 2001, and has stated to RIDEM that it will address these exceedances in a timely and appropriate manner consistent with applicable law and regulation. As of March 25, 2002, the Company had not received the position of RIDEM on the submitted study. The Company believes, based on the preliminary advice of its consultants, that the estimated costs for further investigation and remediation of the identified exceedances, which have been accrued, approximate $500,000. However, as noted above, the study has been furnished by the Company to the Rhode Island Department of Environmental Management, and it is possible that the risks and estimated costs of further investigation and remediation may be more significant. LITIGATION The Company is a defendant in a variety of legal claims that arise in the normal course of business, including compensation disputes with two former executives as to the amounts due them under their change-in-control contracts that were triggered by the 2001 Hexagon transaction. Based on the information presently available to management, the Company believes that any additional liability for these claims would not have a material effect on the Company's consolidated results of operations or financial condition. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not Applicable Page 10 PART II ------- ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ----------------------------------------------------------------------------- COMMON STOCK MARKET PRICES AND DIVIDENDS The Class A Common Stock is listed on the Boston Stock Exchange and is traded on the NASD Over-the-Counter Bulletin Board, where market makers and other dealers provide bid and ask quotations. In each case, the Class A Common Stock trades under the symbol "BNSXA." Prior to its delisting on February 8, 2002 the Class A Common Stock was listed on the New York Stock Exchange and traded under the symbol "BNS". At December 31, 2001, the Company had approximately 1,626 shareowners of record of its Class A Common Stock and 622 shareowners of record of its Class B Common Stock. Set forth below are the high and low closing prices for the Class A Common Stock on the New York Stock Exchange, adjusted for the one-for-five reverse stock split effective May 10, 2002. Calendar Year High Low 2001 4th Quarter $ 2.55 $ 1.90 3rd Quarter 6.25 2.51 2nd Quarter 25.50 19.00 1st Quarter 28.15 24.00 2000 4th Quarter $ 25.65 $ 13.75 3rd Quarter 21.25 10.00 2nd Quarter 16.25 7.80 1st Quarter 16.25 7.80 In May of 2001, the Company made a cash distribution to shareholders following the sale of the Metrology Business to Hexagon AB, a Swedish company. Previously, no dividends or distributions had been paid by the Company since 1990. Future distributions or dividends are not likely except as the Company may sell other assets and then decide to pay a distribution or dividend of some or all of the proceeds of the sale. See also "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report. Page 11 ITEM 6 - SELECTED FINANCIAL DATA - -------------------------------- The following selected data should be reviewed in conjunction with Part II, Item 7-"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto in Item 8 of this Annual Report.
Year ended December 31 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- (in thousands except per share information) Statement of Operations Data Sales $91 $-- $-- $-- $-- Loss from continuing operations (12,422) (19,913) (19,635) (23,922) (14,749) Net income (loss) $21,170 $(57,309) $(42,874) $ 11,929 $(9,164) Net income (loss) per common share, basic, from continuing operations $(4.33) $(7.26) $(7.30) $(8.94) $(5.56) Net income (loss) per common share, basic $7.38 $(20.88) $(15.93) $4.45 $(3.45) Net income (loss) per common share, diluted, from continuing operations $(4.33) $(7.26) $(7.30) $(8.94) $(5.56) Net income (loss) per common share, diluted $7.38 $(20.88) $(15.93) $4.40 $(3.45) Average shares outstanding 2,867 2,745 2,691 2,677 2,651 Cash dividends per share $15.25 - - - - Balance Sheet Data Total assets $19,283 $250,645 $302,177 $317,778 $296,593 Long-term debt including current maturity 3,317 65,176 69,030 74,705 76,062
(1) The 2001 net income includes a gain from the disposal of the Metrology Business to Hexagon AB in the amount of $47,113 or $16.43 per share. (2) The 2001 net income includes an extraordinary item of $6,566, which represents the payment of a prepayment penalty in connection with the repayment of the long-term senior debt and the write-off of debt acquisition costs previously capitalized. (3) The 2000 loss includes a change in accounting principle as the Company adopted SEC Staff Accounting Bulletin No. 101 ("SAB 101"). The effect of applying this change in accounting principle was a charge for the cumulative effect of the change amounting to $27,401 (net of an income tax benefit of $600) or $9.98 per share. (4) During 2001, the Company's shareholders approved a one-for-five reverse stock split. Accordingly, all periods presented have been restated to reflect this reverse stock split. Page 12 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) ------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------ ----------------------------------------------------------------------- OF OPERATIONS ------------- OVERVIEW At a special meeting held on April 27, 2001, the stockholders of BNS Co. (formerly Brown & Sharpe Manufacturing Company) approved the sale of substantially all assets of the Company, including a) the sale of its worldwide Metrology Business to Hexagon AB of Stockholm, Sweden, ("Hexagon") and b) the sale of its North Kingstown Facility to Precision Park Partners LLC. At the same meeting, the stockholders also approved the change of the Company's name to BNS Co., a reduction of the par value per share of the Class A Common Stock and Class B Common Stock from $1.00 to $.01 and a one-for-five reverse stock split of the Company's outstanding Class A Common Stock and Class B Common Stock. The record date for the one-for-five reverse stock split was May 10, 2001. Following the conclusion of the Special Meeting of Stockholders, the Company completed the closing of the sale of its worldwide Metrology Business to Hexagon AB, effective April 27, 2001. The purchase price for the sale of the Metrology Business was $170 million less a $12.8 million cash adjustment based on the terms of the Acquisition Agreement. After the cash adjustment and payment of all U.S. bank debt and long-term senior noteholder obligations, the Company received net proceeds of approximately $70 million. Also in connection with the sale to Hexagon, Hexagon invested $2.5 million in Xygent Inc., the Company's software development subsidiary, in exchange for a 16.7% ownership interest in such subsidiary. The transfer to Hexagon of the Company's interests in the Metrology Business Joint Ventures in China was completed on January 23, 2002 and required a net outlay of cash by the Company of $0.3 million. There are no other material post-closing matters pending with Hexagon. On May 25, 2001, the Company paid a special cash distribution of $15.25 per share (post reverse stock split) on its outstanding shares of Class A Common Stock and Class B Common Stock to stockholders of record at May 11, 2001. Although the Purchase and Sale Agreement with Precision Park Partners LLC for the sale of the North Kingstown property has lapsed, as the parties were not able to complete the transaction on the terms and conditions contemplated by the Agreement, the Company continues to plan to sell its North Kingstown property and its real estate adjacent to the Heathrow Airport in the United Kingdom at later dates as determined by the Company's Board of Directors. The Company plans to make additional cash distributions to its shareholders after the properties have been sold. However, the amount of such future cash distributions is subject to later determination by the Company's Board of Directors, based on a number of factors as earlier disclosed in the Company's Proxy Statement dated March 30, 2001 for the Special Meeting of Stockholders held on April 27, 2001, legal requirements applicable to dividends and other subsequent developments including retained liabilities. The Company will continue to operate its software development business through its controlled subsidiary, Xygent Inc. The accompanying financial statements present the Metrology Business and the former Electronics Division as discontinued operations. The financial statements for prior periods have been restated. The discussions below relate only to our continuing operations, unless otherwise noted. Page 13 FORWARD-LOOKING STATEMENTS This "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as other portions of this Report contain forward-looking statements concerning the Company's cash burn, retained liabilities, capital requirements, operations, economic performance and financial condition. In addition, forward-looking statements may be included in various other Company documents to be issued in the future and various oral statements by Company representatives to security analysts and investors from time to time. Such statements are not guarantees of future performance and are subject to various risks and uncertainties, including those set forth in "Risk Factors," and actual performance could differ materially from that currently anticipated by the Company. In addition, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Report. CRITICAL ACCOUNTING POLICIES Management's discussion and analysis of financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The accounting policies used in reporting the financial results are reviewed on a regular basis. The preparation of these financial statements requires the use of estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, estimates, including those related to revenue recognition, accounts receivable, capitalized software development costs, contingencies and litigation are evaluated. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates are reviewed by management on an on-going basis. The following critical accounting policies affect the more significant judgements and estimates used in the preparation of the consolidated financial statements. REVENUE RECOGNITION Software revenue is recognized in accordance with SOP 97-2, "Software Revenue Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions." Under these guidelines, revenue recognition is deferred on transactions where persuasive evidence of an arrangement does not exist, title has not transferred, product payment is contingent upon performance of installation or service obligations, the price is not fixed or determinable or payment is not reasonably assured. ALLOWANCE FOR DOUBTFUL ACCOUNTS Allowances for doubtful accounts are maintained for estimated losses resulting from the inability of customers to make required payments. If the financial condition of customers or channel partners were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. CAPITALIZED SOFTWARE DEVELOPMENT COSTS The policy on capitalized software costs determines the timing of the recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or cost of license fees. Management is required to use professional judgment in determining whether development costs meet the criteria for immediate expense or capitalization.The impairment of capitalized software costs is assessed whenever events or changes in circumstances indicate that the Page 14 carrying value may not be recoverable. Some factors considered important which could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of our use of the assets or the strategy for our overall business; and significant negative industry or economic trends. When determining that the carrying value of capitalized software costs may not be recoverable based upon the existence of one or more of the above indicators of impairment, any impairment is measured based on our best estimate of the fair value of the intangible as determined by management. Total capitalized software costs represent 17.5% of total assets at December 31, 2001. Based on management's best estimate, these costs are deemed to be recoverable. CONTINGENCIES The Company periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and the Company's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur." SFAS 5 does not permit the accrual of gain contingencies under any circumstances. For loss contingencies, the loss must be accrued if (1) information is available that indicates it is probable that the loss has been incurred, given the likelihood of the uncertain future events; and (2) that the amount of the loss can be reasonably estimated. The accrual of a contingency involves considerable judgment on the part of management. The Company uses its internal expertise, and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. As discussed in Note 16, the Company is currently involved in certain legal disputes and environmental proceedings. It is not believed that these proceedings will have a material adverse affect on our consolidated results of operations or financial condition. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions, or the effectiveness of our strategies, related to these proceedings. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 1 of the Notes to Consolidated Financial Statements for a discussion of new accounting pronouncements and the potential impact to the Company's consolidated results of operations and consolidated financial position. Page 15 RESULTS OF OPERATIONS 2001 COMPARED TO 2000 During the fourth quarter of 2001, Xygent recorded its initial revenue from the sale of software licenses. As a result of these sales of licenses Xygent was required to pay royalties related to sublicenses utilized in the Company's products. These royalties have been recorded in cost of sales. The royalty payments to Hexagon are reported under selling expenses. Due to the initial recording of revenue in 2001, the Company began amortizing the capitalized software costs recorded in Other assets. This amortization is recorded in cost of sales. In 2001 the Company recorded net income of $21.2 million. The 2001 results include the following: In Millions of Dollars Loss from continuing operations $(12.4) Income from discontinued operations 40.2 Extraordinary item (6.6) -------------- Net income $21.2 ============== The 2001 loss from continuing operations includes the Xygent software business and the Company's corporate operations, along with the results from the commercial rental activity of the North Kingstown facility and the gravel extraction from the gravel pit in the United Kingdom. Research and development expenses related to the Company's software development decreased from $4.7 million in 2000 to $3.8 million in 2001. This was primarily due to the completion of the Company's primary software product during 2001 and the redirection of some of the development manpower to supporting the sales function. Due to the sale of the Metrology Business the Company has reduced the selling, general and administrative ("S,G,&A") function of the Company. Although total S,G,&A expense in 2001 increased by $.5 million from 2000 on an annual basis, the Company has actually reduced the recurring S,G,&A expense in 2001 from 2000 as a result of the Company no longer owning the Metrology Business. As a result of the April 2001 closing of the transaction with Hexagon, the Company has certain arrangements, as yet not finalized, relating to a change in control contract with an employee who has remained as the CEO. While all the details of the CEO's compensation arrangement have not been finalized and a contract has not, as yet, been executed, certain provisions of the arrangement have been agreed upon which resulted in the Company recording a charge, included in S,G,&A, of $1.2 million during the year 2001. Additionally, in 2001 the Company recorded a charge of $.5 million for further environmental investigation and remediation costs related to the North Kingstown facility. Interest expense in 2001 has decreased from 2000 by $4.8 million. This is entirely due to the repayment of all of the Company's debt (as discussed above), with the exception of the mortgage on the North Kingstown facility. As a result of such repayment the Company had to pay a prepayment penalty and related costs of $6.6 million. This amount is reflected as an extraordinary loss in the statement of operations for 2001. Other income in 2001 increased by $2.7 million over 2000 due primarily to the increase in rental income from the North Kingstown Facility. The decision to sell the North Kingstown facility has allowed the Company to cease recording depreciation, which would have been approximately $.3 million if the facility were held for use rather than for sale. As discussed above, the Company continues to lease the North Kingstown facility to its tenants and has leased that portion of the facility previously occupied by the Metrology Business to Hexagon. The former headquarters space is available for rent. Additionally, the Company has maintained a cash balance which has earned interest income during the year 2001. Page 16 Results from continuing operations in 2001 included a $0.1 million tax provision. This tax provision relates to the taxable income generated by the subsidiary owning the gravel pit in the United Kingdom. In prior years this asset was owned by a subsidiary that had losses available to shelter such income. As a result of the sale of the Metrology Business, this asset was transferred to a subsidiary that had no such losses available. 2000 COMPARED TO 1999 The Company incurred a net loss in 2000 amounting to $57.3 million. The 2000 results include the following: In Millions of Dollars Loss from continuing operations $(19.9) Loss from discontinued operations related to the Electronics Division (11.1) Loss from discontinued operations related to the Metrology Business (26.3) ---------------- $(57.3) ================ The 2000 loss from continuing operations includes the Xygent software business and the Company's corporate operations, along with the results from the commercial rental activity of the North Kingstown facility and the gravel extraction from the gravel pit in the United Kingdom. Research and development expenses related to the Company's software development increased by approximately $2.6 million from 1999 to 2000. This increase is attributable to the termination of the capitalization of software development expenses. When the development activities reached the technological feasibility stage, the Company began to capitalize its software production costs incurred to code and test its software product. Due to the extended testing period, the Company ceased capitalizing the software development costs in 2000 because of the uncertainty of the recoverability of the additional costs at December 31, 2000. The Company concluded that the carrying value at December 31, 2000 was recoverable based upon expected revenues that would result from the future sales of the software product. S,G, & A expense decreased from 1999 to 2000 by $4.1 million. This was attributable to pension expense recorded in 1999 that was not required in 2000 for certain key employees who were participants in the Company's Senior Executive Supplemental Umbrella Pension Plan, who became fully vested in 1999 and eligible to receive these benefits at that time. Interest expense in 2000 was $1.6 million higher than in 1999 due to increased average borrowings and higher interest rates in 2000 resulting from the Company's adverse financial position. LIQUIDITY AND CAPITAL RESOURCES Until the sale of the Company's Metrology Business on April 27, 2001, the Company was obligated under a $50 million private placement of senior notes with principal payments due from November 2001 to November 2007 as well as other long-term debt amounting to $11.0 million. The Company also had, until April 27, 2001, a $30 million three-year syndicated multi-currency revolving Credit Agreement with four banks. As a result of the sale of the Metrology Business to Hexagon on April 27, 2001, the Company paid all of the $50 million private placement notes, including accumulated interest and prepayment penalties totaling $8 million, and the balance of the $30 million Revolving Credit Agreement. In addition, all of the foreign short-term and long-term debt was assumed by Hexagon. After the sale of the Metrology Business, the Company is debt-free, except for a $3.3 million mortgage on the North Kingstown Facility, which was retained by the Company. Page 17 The Company had cash of approximately $10.1 million at December 31, 2001 after operating its business remaining after the sale to Hexagon (such remaining business consisting of the Xygent software development business, the Company's ownership and status as the landlord of the North Kingstown Facility, in which Hexagon is one of the tenants, and ownership of a gravel pit near Heathrow Airport in the United Kingdom) and after collecting a net $1.3 million related to the sale of the Electronics Division. There are retained liabilities remaining to be settled (including the completion of arrangements to transfer to Hexagon the Company's interest in the Metrology Business Joint Venture in China, which required on January 23, 2002 a net outlay of cash of $0.3 million by the Company). As noted under "Results of Operations", the Company and its CEO are structuring an alternative arrangement to the CEO's August 1999 change in control agreement, which, when triggered, would have paid the CEO approximately $1.2 million. The alternative arrangement may be payable in cash or equity. There is no assurance that the future expenses and cash burn rate of the Company on a consolidated basis (including Xygent's software operations) will not be greater than anticipated and that a liquidity problem may not arise (see Risk Factors: Liquidity Risk). Since the Purchase and Sale Agreement with Precision Park Partners LLC for sale of the North Kingstown Facility lapsed in 2001, the Company continues to own and rent out the Facility (which generates both cash and income). Management's plan to continue as a going-concern rely on its ability to achieve sales, customer acceptance and profitability in its Xygent software operations prior to running out of available cash (including the remaining $4.5 million that has been committed by Hexagon over the three year period ending April 27, 2004) plus cash flow from its landlord operations on the North Kingstown facility and royalty income from the UK property, plus any additional cash which may be raised to further finance the operations of Xygent (and there can be no assurance that any such additional cash can be raised). In addition, the Company's efforts to continue as a going-concern will be negatively affected by any sale of its North Kingstown facility (and any related distribution of all or a portion of the net sales proceeds, after providing for retained liabilities and satisfaction of legal requirements, to stockholders), as to which there can be no assurance that such sale can be completed. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. CASH FLOW Net cash used in operations in 2001 was $15.9 million compared with $18.8 million in 2000. In the calculation of net cash used in operations for the year ended December 31, 2001, the net income of $21.2 million was decreased by the gain on the sale of the Metrology Business of $47.1 million and the payment of pension obligations of $4.4 million, and increased by the loss from the discontinued operations of $7.0 million, the extinguishment of debt charge of $6.6 million and other non-cash items including depreciation and amortization of $.7 million, write off of debt acquisition costs of $.6 million, an environmental charge related to the North Kingstown facility of $.5 million, and other non-cash items of $.8 million. Cash flows from working capital decreased from 2000 by $3.1 million. In the calculation of cash used in operations for the year ended December 31, 2000, the net loss of $57.3 was decreased by depreciation and amortization of $.5 million, and other non-cash items of $37.9 million, including $37.4 million related to discontinued operations and $.5 million related to long-term liabilities; and decreased by $1.3 million for pension expense. Cash flows from working capital increased from 1999 by $5.5 million. Net cash provided by investment transactions was $140.6 million in 2001. This included proceeds from the disposal of businesses of $141.3 million. Capital expenditures in 2001 and 2000 amounted to $.7 million and $.3 million, respectively. The increase from 2000 to 2001 was mostly attributable to the Company moving out of the North Kingstown facility to its new location in Warwick, RI. Cash used in financing activities in 2001 was $126.2 million. Financing transactions during 2001 consisted of repayment of the $27.4 million principal balance due under the Company's $30 million Revolving Credit Facility and the repayment of the long-term senior notes (including prepayment penalties) of $56.6 million; payment on the mortgage of $.9 million; distribution to the stockholders of $44.5 million; and equity contributions related to the exercise of stock options of $1.8 million; offset by proceeds from the purchase of a net minority interest in Xygent by Hexagon of $1.4 million. Cash provided by the discontinued operations amounted to $2.8 million and $17.0 million in 2001 and 2000, respectively. Page 18 WORKING CAPITAL As stated above the North Kingstown facility and the related mortgage have been classified as current at December 31, 2001 as a result of the facility being held for sale. The net assets of the Company's discontinued operations have been reclassified as current in 2000. Excluding these assets the Company had working capital related to the continuing operations of $4.6 million at December 31, 2001 and $3.2 million at December 31, 2000. RISK FACTORS BNS Co., formerly known as Brown & Sharpe Manufacturing Company, (the "Company") sold its Metrology Business to Hexagon AB of Stockholm, Sweden ("Hexagon") on April 27, 2001. Certain post-closing transactions have also been completed, as previously disclosed. After the sale, the Company has continued the business of developing measuring software through its controlled subsidiary, Xygent (formerly named BSIS). Xygent is the only active operation of the Company, which holds its North Kingstown Facility (in which it is solely a landlord) and its U.K. real property for sale at the appropriate times in the future. XYGENT MEASURING SOFTWARE PRODUCTS ARE STILL IN THE INTRODUCTORY STAGE. At this point Xygent has released for sale its measuring software products for use with CMM machines and for use with CNC (Computer Numerically Controlled) machine tools and it is still developing its software product for use with Vision (non-contact) measuring machines. Sales of $91,000 were recorded in late 2001. If Xygent fails to complete its Vision measuring software or fails to continue to develop its software products or its products fail to obtain market acceptance at price levels that are satisfactory to Xygent, Xygent will not generate sufficient revenue to be successful. There can be no assurance that Xygent will be able to develop other software products that are accepted by consumers on a basis which is profitable to Xygent. Market acceptance of Xygent's current products and any new software products is dependent in part on Xygent's ability to demonstrate the cost effectiveness, ease of use and technological advantages of its products over competing products. XYGENT HAD ONLY MINIMAL SALES IN LATE 2001. Since Xygent has only completed development of two of its planned products for sale to customers and has recognized only minimal sales in 2001, its operating results to date (losses) do not form any basis for conclusion that Xygent will become profitable. Xygent's expense burn rate is approximately $500,000 per month. There can be no assurances that Xygent will achieve a break-even month or quarter in 2002. THE COMPANY MAY NOT HAVE ADEQUATE RESOURCES FOR FUNDING THE OPERATIONS OF XYGENT; LIQUIDITY RISK There is no assurance that the future months' expenses and the future cash burn rate of the Company on a consolidated basis (including Xygent) will not be greater than presently anticipated and that a liquidity problem may not arise (see "Liquidity and Capital Resources" in the Management's Discussion and Analysis) set forth in this Item 7. On the other hand, at the present time the Company's Agreement with Precision Park Partners LLC for their purchase of the North Kingstown Facility has lapsed and the Company has not sold the North Kingstown Facility (which generates cash on a net basis) and has, therefore, not declared any dividend or distribution in any amount with respect to all or a portion of the anticipated net proceeds of such sale after provisions for the Company's retained liabilities. Xygent will have substantially more limited financial and other resources than all, or most, of its software competitors and potential software competitors and we may be unable to compete significantly against Page 19 them. Hexagon has invested $2.5 million in Xygent at the Closing on April 27, 2001 and committed, subject to certain conditions, to invest an additional $4.5 million over the next three years consisting of $1.5 million on each of April 27, 2002, 2003 and 2004. Given its limited resources and its general intentions with respect to payment of distributions to its shareholders out of all or a portion of the net proceeds of sales of assets, after satisfying legal requirements applicable to dividends and after provisions for retained liabilities, the Company has limited funds available for investment in Xygent, and there can be no assurance that Xygent, or the Company, will be able to raise additional funds for Xygent operations. THE COMPANY RECEIVED A REPORT FROM ITS INDEPENDENT AUDITORS FOR THE YEAR ENDED DECEMBER 31, 2001, CONTAINING AN EXPLANATORY PARAGRAPH STATING THE COMPANY'S OPERATING LOSSES RAISE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN. THE COMPANY MAY CONTINUE TO RECEIVE A SIMILAR OPINION FROM THE AUDITORS IN THE FUTURE. Although losses for periods prior to the Company's sale of its former Metrology Business to Hexagon on April 27, 2001 are not relevant to the Company's current operations, the Company recorded losses with respect to its continuing operations in 2001. Losses from continuing operations for the second, third and fourth quarters in 2001 were $3.1 million, $2.6 million and $1.4 million, respectively. The Company received a report from its independent auditors for the year ended December 31, 2001 containing an explanatory paragraph stating that the Company's operating losses raised substantial doubt about the Company's ability to continue as a going concern. While on April 27, 2001 the Company paid off all liabilities on all its loan agreements (excluding the $3.3 million mortgage on the North Kingstown Facility), following the sale to Hexagon, management's plan to continue as a going-concern after the sale to Hexagon rely on its ability to achieve sales, customer acceptance and profitability in its Xygent software operations prior to running out of available cash (including the remaining $4.5 million that has been committed by Hexagon over the three year period ending April 27, 2004) plus net cash flow from its landlord operations of the North Kingstown Facility, (after environmental remediation expenses) and from its Heathrow U.K. property plus any additional cash which may be raised to further finance the operations of Xygent (and there can be no assurance that any such additional cash can be raised). In addition, the Company's efforts to continue as a going-concern will be negatively affected by any sale in the future of its North Kingstown Facility (and any related distribution out of all or a portion of the net sales proceeds to stockholders), as to which there can be no assurance that such sale can be completed (see below "Risk of not Having the Proposed Sale of the North Kingstown Facility Under a Purchase and Sale Agreement"). OUR INDUSTRY IS VERY COMPETITIVE AND WE MAY NOT BE SUCCESSFUL IF WE FAIL TO COMPETE EFFECTIVELY. In addition to the significant competition for software products, with many offerings in the marketplace, the software products to be developed by Xygent are expected at the outset to compete with software used by the Metrology Business sold to Hexagon which has been augmented by Hexagon's purchase of the remaining interests in Wilcox Associates. Increased competition may result in lower prices for our products and reduced opportunities for growth and profitability. ROYALTY OBLIGATIONS OF XYGENT TO THE METROLOGY BUSINESS SOLD TO HEXAGON MAY PREVENT XYGENT FROM ACHIEVING PROFITABILITY. For five years beginning April 27, 2001, Xygent is required to sell its XactMeasure software products to Hexagon, on a non-exclusive basis, for use in CMM applications at a price per unit of $1,500, which is expected to be substantially below the price charged by Xygent to other customers for CMM applications. In addition, Xygent is required for the five-year period to pay a significant royalty to Hexagon of $5,000 per unit of software sold to persons other than Hexagon for CMM market applications. The effect of these provisions is necessarily adverse to the business of Xygent. Royalty obligations of Xygent to Hexagon may limit the profitability of Xygent, depending significantly on the extent to which Xygent is successful in introducing and selling software products which are used in applications other than CMM applications--namely Vision applications and CNC applications. The preferential pricing and royalty provisions in favor of Hexagon are applicable only to software products for use in CMM applications. Page 20 COMPANY MANAGEMENT HAS LIMITED EXPERIENCE MANAGING A SOFTWARE COMPANY AND MAY FAIL TO MANAGE EFFECTIVELY, LIMITING XYGENT'S POTENTIAL. The Company has historically been a manufacturing company; since the sale to Hexagon, it is a software company. While Xygent has significant software business experience, there is no assurance the Company and Xygent will be able to successfully manage a "software company" and the possible loss of the services of any member of the management team may be materially adverse to the business of Xygent. Company management may not have the skills to introduce and market Xygent's software product, to manage future growth or obtain funds to fund growth and/or operations and their inexperience in these areas may detract from Xygent's business. XYGENT HAS LIMITED EXPERIENCE IN DEVELOPING SOFTWARE PRODUCTS FOR APPLICATIONS OTHER THAN CMM MARKETS. The Xygent business plan contemplates the development of additional software products for markets other than CMM applications, including primarily Vision (non-contact) and CNC applications. There can be no assurance such additional software products will be of interest to customers in fields beyond those in which its former Metrology Business has been engaged in. Failure to develop and successfully market such products may prevent Xygent from achieving profitability. XYGENT MAY NOT SUCCEED IF IT IS UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND SKILLED EMPLOYEES. In order to grow its business, Xygent will have to hire additional employees. Xygent's future success, therefore, will depend, in part, on attracting and retaining additional qualified management, marketing and technical personnel. The Company does not know whether it will be successful in hiring or retaining qualified personnel. Competition for qualified personnel throughout the software industry is intense. The inability to hire additional qualified employees or the loss of the services of some of the foreign technical employees that are currently doing work for Xygent could have a material adverse effect on the business of Xygent. XYGENT MAY BE UNABLE TO FORM THE STRATEGIC ALLIANCES THAT ARE KEY TO ITS STRATEGY. The Xygent business plan calls for Xygent to establish marketing, development and distribution relationships through strategic alliances, and plans to enter into various agreements with other companies to achieve its marketing, development and distribution goals. There can be no assurance that Xygent will be able to establish any such agreements and, accordingly, there can be no assurance that Xygent will be able to achieve its planned objectives for the year 2002 or establish a software business that will grow and be profitable. In addition, as noted above, Xygent is required for a five-year period beginning April 27, 2001, to pay royalties to Hexagon for any unit of software for CMM market applications sold to persons other than Hexagon and is required to sell its XactMeasure software products to Hexagon for CMM applications at a price per unit substantially below the price charged by Xygent to other customers, with Hexagon making no purchase commitment. XYGENT SOFTWARE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH COULD LIMIT XYGENT'S SALES. If we become subject to intellectual property infringement claims, or if we are unable to protect important intellectual property, we could incur significant expenses and be prevented from offering specific products, and we may lose prospective sales to competitors. The success of Xygent may depend, in part, on its ability to obtain and maintain patent protection for its computer software products, to protect and preserve its proprietary information and trade secrets and to operate and sell its products without infringing on the proprietary rights of others. It has been Xygent's policy to seek, where appropriate, to protect its proprietary positions by, among other methods, maintaining its product information as a trade secret and filing United States and corresponding foreign Page 21 patent applications covering its technology, inventions and improvement that are important to the development of its business. As of September 20, 2001, Xygent had filed three patent applications, two in the United States and one foreign application, covering methods and apparatus (i) for simulating the measurement of a part without using a physical measurement system and (ii) for interacting with measuring devices by allowing users to extend the capabilities of software for controlling measuring devices. These patent applications are pending and there can be no assurance that any pending patents will be issued, or that any pending applications will not be challenged, invalidated or circumvented in the future. Further, there can be no assurance that competitors, many of whom have substantially more resources than Xygent, will not seek to apply for and obtain patents that will prevent, limit or interfere with Xygent's ability to make, use or sell its products in the United States or internationally. Xygent, like many software companies, also relies upon trade secrets, technical know-how and skill of its employees and continuing technical creativity and innovation to develop and maintain its products and its anticipated position in the software business market. It requires its employees, consultants and advisors to execute confidentiality and disclosure agreements and assignment of invention agreements in connection with their employment, consulting or advisory relationships with the Company. There can be no assurance, however, that these agreements will not be breached or that Xygent will have or be able to obtain an adequate remedy for any breach. Further, no assurance can be given that competitors will not independently develop substantially equivalent proprietary information and technologies or otherwise gain access to Xygent's proprietary technology, or that Xygent can meaningfully protect its rights in unpatented proprietary technology. The failure or inability of Xygent to adequately protect its intellectual property rights could have a material adverse effect on its business, financial condition, and future prospects and business plans. RISKS PARTICULAR TO XYGENT'S INTERNATIONAL OPERATIONS AND POTENTIAL INTERNATIONAL SALES COULD ADVERSELY AFFECT ITS RESULTS. Xygent's financial condition and results of operations may be adversely affected by international business risks, including currency exchange rate fluctuation, inflation, import and export controls, exchange controls and other business factors in foreign countries that may complicate Xygent operations, including the fact that the protection of copyrights and other intellectual property is difficult to achieve under the laws of certain foreign countries. RISK OF NOT HAVING THE PROPOSED SALE OF THE NORTH KINGSTOWN FACILITY UNDER A PURCHASE AND SALE AGREEMENT. The Agreement dated as of March 2, 2001, as extended by amendments as of May 31, 2001 and as of September 28, 2001, for the proposed sale of the Company's North Kingstown Facility to Precision Park Partners LLC has lapsed, as the parties were not able to complete the transaction on the terms and conditions contemplated by the Agreement. The Company is in the process of renting out its former office headquarters space in the North Kingstown Facility. The Company is also continuing to work with the Rhode Island Department of Environmental Management to whom this Company had submitted the results of the recently completed Phase II environmental study on the Facility on October 2, 2001. The Company believes, based on discussions with its real estate consultant, that completion of leasing the former headquarters space at the North Kingstown Facility to a new tenant and completion of the environmental remediation work that appears to be necessary at the Facility should result in increasing the fair market value of the Facility for a future sale of the property, although there can be no assurance that either of these two matters will be completed successfully by the Company or that the Company's expectation as to future increased market value of the Facility will prove to be the case. (See "Environmental Risks" below.) Page 22 THE MARKET PRICE OF THE COMPANY'S COMMON STOCK COULD DECLINE AS A RESULT OF SALES OF SHARES BY THE COMPANY'S EXISTING STOCKHOLDERS. The market price of the Company's Common Stock could decline as a result of sales of shares by stockholders who had acquired shares during the period prior to April 27, 2001 when the Metrology Business was the Company's principal business, including option holders who became shareholders in connection with the April 27, 2001 closing under the Acquisition Agreement with Hexagon, sales by beneficiaries under the Company's Employee Stock Ownership Plan, which terminated as a result of the closing, sales by beneficiaries of the Company's 401(k) plan or beneficiaries of employee benefit plans of Hexagon which have received shares of stock of the Company previously held in accounts under the Company's employee benefit plans and sales of other shares by former employees of the Company. DELISTING OF THE COMPANY'S CLASS A COMMON STOCK FROM THE NEW YORK STOCK EXCHANGE The Company's Class A Common Stock was delisted from the New York Stock Exchange and commenced trading on the OTC Bulletin Board and the Boston Stock Exchange under the symbol "BNSXA" on February 11, 2002. There is no assurance that there will continue to be a sufficient number of securities firms prepared to make an active trading market in our stock and the public perception of the value of the Class A Common Stock could be materially adversely affected. ENVIRONMENTAL RISKS The nature of the Company's current software development operations are not affected by environmental laws, rules and regulations. However, because the Company and its subsidiaries and predecessors, prior to the sale to Hexagon on April 27, 2001 (and prior to sales of other divisions made in prior years) have conducted heavy manufacturing operations and often in locations at which, or adjacent to which, other industrial operations were conducted, from time to time the Company is subject to environmental claims. As with any such operations that involved the use, generation, and management of hazardous materials, it is possible that prior practices, including practices that were deemed acceptable by regulatory authorities in the past, may have created conditions which could give rise to liability under current or future environmental laws. Because the law in this area is developing rapidly, such environmental laws are subject to amendment and widely varying degrees of enforcement, the Company may be subject to, and cannot predict with any certainty the nature and amount of potential environmental liability related to these operations or locations (including its North Kingstown Facility and property on which the Facility is located, where, after the sale to Hexagon, the Company is now solely the landlord) that the Company may face in the future. A recently completed Phase II environmental study on the North Kingstown Facility had indicated certain environmental problems on the property. The results of the study show some exceedances of environmental standards for certain contaminants in the soil under the property and minor groundwater issues. The Company has been advised by its technical consultants that these exceedances are minor and do not create any hazard to human health or the environment. The Company submitted the results of the study to the Rhode Island Department of Environmental Management ("RIDEM") on October 2, 2001, and has stated to RIDEM that it will address these exceedances in a timely and appropriate manner consistent with applicable law and regulation. As of March 25, 2002, the Company had not received the position of RIDEM on its submitted study. The Company believes, based on the preliminary advice of its consultants, that the estimated costs for further investigation and remediation of the identified exceedances, which have been accrued, approximate $500,000. However, as noted above, the study has been furnished by the Company to the Rhode Island Department of Environmental Management and it is possible that the risks and estimated costs of further investigation and remediation may be more significant. Page 23 ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- The Company has no derivative financial instruments or derivative commodity instruments. The Company's long-term debt (the mortgage on the North Kingstown Facility) is a fixed rate U.S. dollar denominated obligation. An increase in market interest rates would not increase the Company's interest expense or result in a material change in the fair value of its debt obligation. Page 24 ITEM 8--FINANCIAL STATEMENT AND SUPPLEMENTARY DATA - --------------------------------------------------
PAGE NUMBER ----------- Report of Independent Auditors - Ernst & Young LLP 26 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 27 Consolidated Balance Sheets at December 31, 2001 and 2000 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 29 Consolidated Statements of Shareowners' Equity for the Years Ended December 31, 2001, 2000 and 1999 30 Notes to Consolidated Financial Statements 31-45
Page 25 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Directors of BNS Co. (formerly Brown & Sharpe Manufacturing Company) We have audited the accompanying consolidated balance sheets of BNS Co. (formerly Brown & Sharpe Manufacturing Company) as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareowners' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BNS Co. (formerly Brown & Sharpe Manufacturing Company) at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that BNS Co. will continue as a going concern. As more fully described in Note 2, the Company has recurring operating losses from continuing operations. This condition raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ ERNST & YOUNG LLP Providence, Rhode Island February 13, 2002 Page 26 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2001, 2000, and 1999 (dollars in thousands, except per share data)
2001 2000 1999 ------------------ ------------------- ------------------ Net sales $ 91 $ - $ - Cost of sales 344 - - Research and development expense 3,794 4,712 2,142 Selling, general and administrative 10,644 10,099 14,184 ------------------ ------------------- ------------------ Operating loss (14,691) (14,811) (16,326) Interest expense 2,909 7,726 6,051 Other income, net 5,317 2,624 2,742 ------------------ ------------------- ------------------ Loss from continuing operations before income taxes and extraordinary item (12,283) (19,913) (19,635) Income tax provision 139 - - ------------------ ------------------- ------------------ Loss from continuing operations before extraordinary item (12,422) (19,913) (19,635) Discontinued operations: Loss from operations (6,955) (31,159) (23,239) Gain (loss) from disposal 47,113 (6,237) - ------------------ ------------------- ------------------ Income (loss) before extraordinary item 27,736 (57,309) (42,874) Extraordinary item (6,566) - - ------------------ ------------------- ------------------ Net income (loss) $ 21,170 $ (57,309) $ (42,874) ================== =================== ================== Income (loss) per share, basic and diluted, from continuing operations $ (4.33) $ (7.26) $ (7.30) Discontinued operations 14.00 (13.62) (8.63) Extraordinary item (2.29) - - ------------------ ------------------- ------------------ Net income (loss) per common share basic and diluted $ 7.38 $ (20.88) $ (15.93) ================== =================== ==================
The accompanying notes are an integral part of the financial statements Page 27 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) CONSOLIDATED BALANCE SHEETS December 31, 2000 and 2001 (dollars in thousands, except share data)
2001 2000 ----- ----- ASSETS Current assets Cash and cash equivalents $ 10,095 $ 8,882 Other receivables, net of $826 allowance in 2001 1,272 313 Assets held for sale 2,363 2,863 Assets related to discontinued operations 274 231,367 Prepaid expenses and other current assets 385 1,919 --------------- --------------- Total current assets 14,389 245,344 Property, plant and equipment Land 415 415 Buildings and improvements 105 - Machinery and equipment 1,244 672 --------------- --------------- 1,764 1,087 Less accumulated depreciation 420 255 --------------- --------------- 1,344 832 Other assets 3,550 4,469 --------------- --------------- $ 19,283 $ 250,645 =============== =============== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities Notes payable to banks $ - $ 27,400 Accounts payable and accrued expenses 7,141 7,953 Current portion of long-term debt 3,317 54,200 Liabilities related to discontinued operations - 142,879 --------------- --------------- Total current liabilities 10,458 232,432 Long-term liabilities 3,676 7,070 Commitments and contingencies - - Shareowners' equity Preferred stock; $1 par value; authorized 1,000,000 shares; none issued - - Common stock Class A, par value, $.01; authorized 30,000,000 shares; issued shares 2,861,240 in 2001 and 2,665,755 in 2000 29 27 Class B, par value, $.01; authorized 2,000,000 shares; issued shares 64,007 in 2001 and 100,341 in 2000 1 1 Additional paid-in capital 85,950 127,276 Retained deficit (80,373) (101,543) Accumulated other comprehensive loss (3) (14,163) Treasury stock; 8,518 shares in 2001 and 2000, at cost (455) (455) --------------- --------------- Total shareowners' equity 5,149 11,143 --------------- --------------- $ 19,283 $ 250,645 =============== ===============
The accompanying notes are an integral part of the financial statements Page 28 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 (dollars in thousands)
2001 2000 1999 ---- ---- ---- Cash Used in Operations: Net income (loss) $ 21,170 $ (57,309) $(42,874) Adjustment to reconcile net income (loss) to net cash used in operating activities from continuing operations: Loss from discontinued operations 6,955 31,159 23,239 (Gain) loss from disposal of business (47,113) 6,237 - Extraordinary item-extinguishment of debt 6,566 - - Write-off of intangible asset 572 - - Environmental reserve on asset held for sale 500 - - Depreciation and amortization 657 467 422 Unfunded pension (4,380) (1,313) 7,585 Minority interest 385 - - Change in long-term liabilities 457 538 (88) Other non-cash (32) - - Changes in Working Capital: (Increase) decrease in other receivables (34) (11) 147 Decrease (increase) in prepaid expenses and other current assets 1,534 74 (1,799) (Decrease) increase in accounts payable and accrued expenses (3,176) 1,363 1,112 Increase in other assets - - (3,559) -------------- -------------- ------------ Net Cash Used In Operations (15,939) (18,795) (15,815) -------------- -------------- ------------ Investment Transactions: Capital expenditures (724) (259) (90) Proceeds from sale of fixed assets 52 - - Proceeds from sale of businesses, net of expenses 141,285 - - -------------- -------------- ------------ Cash Provided by (Used in) Investment Transactions 140,613 (259) (90) -------------- -------------- ------------ Financing Transactions: Payment of notes payable (27,400) - - Payment of long-term senior notes payable (56,566) - 21,308 Payment on mortgage (883) (683) - Distribution to shareholders (44,480) - - Equity contributions 1,772 704 658 Purchase of minority interest (1,116) - - Contribution from minority interest 2,500 - - -------------- -------------- ------------ Cash (used in) Provided by Financing Transactions (126,173) 21 21,966 -------------- -------------- ------------ Cash provided by discontinued operations 2,767 17,030 2,068 Effect of Exchange Rate Changes on Cash (55) - - -------------- -------------- ------------ Cash and Cash Equivalents: Increase (decrease) during the period 1,213 (2,003) 8,129 Beginning balance 8,882 10,885 2,756 -------------- -------------- ------------ Ending balance $ 10,095 $ 8,882 $ 10,885 ============== ============== ============ Supplementary Cash Flow Information: Interest Paid $ 3,378 $ 7,546 $ 6,703 ============== ============== ============ Taxes Paid $ 230 $ 2,300 $ 2,386 ============== ============== ============
Page 29 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY For the Years Ended December 31, 2001, 2000, and 1999 (dollars in thousands)
Accumulated Additional other Common paid in Retained comprehensive Treasury Shares * Stock capital deficit income(loss) stock Total Equity ------------ ------------ ------------ --------------- ---------------- ---------- --------------- Balance Dec. 31, 1998 2,687 $ 27 $ 125,915 $ (1,360) $ 5,528 $(455) $ 129,655 Net loss - - - (42,874) - - (42,874) Foreign currency translation adjustment - - - - (15,905) - (15,905) --------------- Comprehensive loss (58,779) ESOP Contribution 16 - 658 - - - 658 ------------ ------------ ------------ --------------- ---------------- ---------- --------------- Balance Dec. 31, 1999 2,703 27 126,573 (44,234) (10,377) (455) 71,534 Net loss - - - (57,309) - - (57,309) Foreign currency translation adjustment - - - - (3,786) - (3,786) --------------- Comprehensive loss (61,095) ESOP Contribution 63 1 703 - - - 704 ------------ ------------ ------------ --------------- ---------------- ---------- --------------- Balance Dec. 31, 2000 2,766 28 127,276 (101,543) (14,163) (455) 11,143 Net income - - - 21,170 - - 21,170 Foreign currency translation adjustment - - - - 14,160 - 14,160 --------------- Comprehensive income 35,330 Dividend Paid ($15.25 per share) - - (44,480) - - - (44,480) Exercise of stock options 159 2 1,770 - - - 1,772 Acquisition of subsidiary minority interest - - 1,384 - - - 1,384 ------------ ------------ ------------ --------------- ---------------- ---------- --------------- Balance Dec. 31, 2001 2,925 $ 30 $ 85,950 $ (80,373) $ (3) $(455) $ 5,149 ============ ============ ============ =============== ================ ========== ===============
* Number of shares have been restated to reflect the effect of the one-for-five reverse stock split in 2001. The accompanying notes are an integral part of the financial statements Page 30 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except share and per share data) 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Company completed the sale of its Metrology Business to Hexagon AB of Stockholm, Sweden ("Hexagon") on April 27, 2001. After the sale, the Company has continued the business of developing and producing measuring software through its controlled subsidiary, Xygent Inc., formerly BSIS ("Xygent"). Xygent has released software products for use with CMM (Coordinate Measuring Machines) machines and for use with CNC (Computer Numerically Controlled) machine tools and it is developing its software for use with Vision (non-contact) measuring machines. The Company also owns real estate in North Kingstown, RI (in which it is solely a landlord) and a gravel pit in the U.K. (from which it derives royalties). BASIS OF PRESENTATION The consolidated financial statements include the accounts of BNS Co., formerly known as Brown & Sharpe Manufacturing Company, (the "Company") and all subsidiaries. Intercompany transactions have been eliminated from the consolidated financial statements. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain account balances for the prior years have been reclassified to conform to the current year financial statement presentation. REVENUE RECOGNITION Software revenue is recognized in accordance with SOP 97-2, "Software Revenue Recognition", as amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions". Under these guidelines, revenue recognition is deferred on transactions where persuasive evidence of an arrangement does not exist, title has not transferred, product payment is contingent upon performance of installation or service obligations, the price is not fixed or determinable or payment is not reasonably assured. Revenue from technical support contracts are recognized ratably over the term of the contract. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Certain costs related to the preliminary activities associated with the development of software have been deferred. These costs were determined by the Company to have future economic benefits. These costs are amortized over a period of 36 months beginning in the period in which the initial shipment of the related product is made. PROPERTY AND EQUIPMENT Property and equipment is carried at cost and is being depreciated principally on a straight-line basis over the estimated useful lives of the assets, which generally range from 20 to 40 years for buildings and improvements and from 3 to 12 years for machinery and equipment. Depreciation expense was $310, $434 and $422 in 2001, 2000 and 1999, respectively. Page 31 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) OTHER ASSETS Other assets include software and software development costs, along with certain intangible assets, which are being amortized on a straight-line basis over periods ranging from 3 to 5 years. Amortization expense for these assets was $347, $33, and $0, in 2001, 2000 and 1999, respectively. FOREIGN CURRENCY Assets and liabilities of those subsidiaries located outside the United States whose cash flows are primarily in local currencies are translated at year-end exchange rates, and income and expense items are translated at average monthly rates. Translation gains and losses are accounted for in a separate shareowners' equity account titled accumulated other comprehensive loss. There were no forward exchange contracts outstanding at December 31, 2001 and 2000. COMPREHENSIVE INCOME Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting shareowners' equity that, under generally accepted accounting principles, are excluded from net income. For the Company, such items consist primarily of foreign currency translation gains and losses. Accumulated other comprehensive loss at December 31, 2001 and 2000 are comprised of currency translation adjustments of $3 and $14,163, respectively. STOCK INCENTIVE PLANS The Company accounts for its stock compensation arrangements under the provisions of APB 25, Accounting for Stock Issued to Employees (see Footnote 9 for further details). INCOME TAXES The Company provides for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes. SFAS No.109 requires an asset and liability based approach in accounting for income taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences of revenue and expense items for financial statement and income tax purposes. Valuation allowances are provided against assets which are not likely to be realized. Federal income taxes are not provided on the unremitted earnings of foreign subsidiaries since it has been the practice and is the intention of the Company to continue to reinvest these earnings in the business outside the United States. CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of cash on hand and deposits in banks with a maturity of three months or less. The carrying amount of cash and cash equivalents approximates fair value. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and other intangible assets with indefinite useful lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets with finite lives will continue to be amortized over their useful lives. The adoption of SFAS No. 141 and No. 142 are not expected to have a material effect on the Company's results of operations. Page 32 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business". SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, although early adoption is allowed. The adoption of SFAS No. 144 is not expected to have a material effect on the Company's results of operations. 2. GOING CONCERN Although losses for periods prior to the Company's sale of its former Metrology Business to Hexagon on April 27, 2001 are not relevant to the Company's continuing operations, the Company recorded losses with respect to its continuing operations for the last three quarters of 2001. Losses from continuing operations for the second, third and fourth quarters of 2001 were $3,055, $2,615 and $1,414, respectively. The Company paid off all liabilities on its loan agreements (excluding the mortgage on the North Kingstown Facility) following the sale to Hexagon. Management's plan to continue as a going-concern rely on its ability to achieve sales, customer acceptance and profitability in its Xygent software operations prior to running out of available cash (including the remaining $4.5 million that has been committed by Hexagon over the three year period ending April 27, 2004) plus cash flow from its landlord operations on the North Kingstown facility and royalty income from the UK property, plus any additional cash which may be raised to further finance the operations of Xygent (and there can be no assurance that any such additional cash can be raised). In addition, the Company's efforts to continue as a going-concern will be negatively affected by any sale of its North Kingstown facility (and any related distribution of all or a portion of the net sales proceeds, after providing for retained liabilities and satisfaction of legal requirements, to stockholders), as to which there can be no assurance that such sale can be completed. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 3. DISCONTINUED OPERATIONS At a special meeting held on April 27, 2001, the stockholders of BNS Co. approved the sale of substantially all assets of the Company, including a) the sale of its worldwide Metrology Business to Hexagon AB of Stockholm, Sweden, ("Hexagon") and b) the sale of its North Kingstown Facility to Precision Park Partners LLC. The Company completed the sale of its worldwide Metrology Business to Hexagon AB, effective April 27, 2001. The purchase price for the sale of the Metrology Business was $170 million less a $12.8 million cash adjustment based on the terms of the Acquisition Agreement. After the cash adjustment and payment of all U.S. bank debt and long-term senior noteholder obligations, the Company received net proceeds of approximately $70 million. The assets and liabilities related to the Metrology Business for all periods presented have been reclassified to assets and liabilities of discontinued operations. Also in connection with the sale to Hexagon, Hexagon invested $2.5 million in Xygent Inc., the Company's software development subsidiary, in exchange for a 16.7% ownership interest in such subsidiary. Page 33 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The results of the discontinued operations have been reported separately on the consolidated statements of operations. Summarized results of the discontinued operations are as follows:
2001 2000 1999 ---- ---- ---- Sales $ 89,781 $ 280,392 $ 323,300 Loss from operations, net of income taxes (6,955) (3,758) (23,239) Gain (loss) on disposal 47,113 (6,237) - Cumulative effect of change in accounting related to the Metrology Business - (27,401) - ------------ -------------- ------------ $ 40,158 $ (37,396) $ (23,239) ============ ============== ============
In 2000, the Company adopted SEC Staff Accounting Bulletin No. 101 (SAB 101). The effects of this adoption have been reclassified to discontinued operations. As a result of adopting SAB 101, the Company changed the way it recognizes revenue for machines sold to customers. Prior to the adoption of SAB 101, the Company recognized revenue when the machines were shipped and title passed to the customer. Effective as of January 1, 2000, the Company recognizes revenue for machines sold to customers once the performance of machines is accepted by the customers. 4. ASSETS HELD FOR SALE During 2000, the Company committed to a plan to sell the North Kingstown Facility. Although a definitive agreement has not been reached as of the date of this report, the Company continues to pursue sale opportunities. Accordingly, the carrying value of the North Kingstown Facility is classified as assets held for sale. Currently, the North Kingstown facility is being leased to various tenants under operating lease agreements. All of these leases are scheduled to expire within five years. Rental income is presented in other income in the statements of operations. The future minimum rentals related to the property are $2,499 in 2002, $2,379 in 2003, $2,020 in 2004, $2,020 in 2005 and $512 in 2006. 5. INCOME TAXES Loss from continuing operations before income taxes consisted of the following:
2001 2000 1999 ---- ---- ---- Domestic $(12,970) $(20,692) $(19,690) Foreign 687 779 55 -------------- -------------- --------------- Loss from continuing operations before income taxes $(12,283) $(19,913) $(19,635) ============== ============== ===============
Page 34 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table reconciles the income tax provision (benefit) at the U.S. statutory rate to that in the financial statements:
2001 2000 1999 ---- ---- ---- Taxes Computed at 34% $(4,176) $(6,770) $(8,654) Foreign Taxes 139 - - Net operating losses not benefited 4,111 6,743 8,641 Other (net) 65 27 13 --------------- -------------- --------------- Income tax provision $ 139 $ 0 $ 0 =============== ============== ===============
The income tax provision (benefit) from continuing operations before discontinued operations and extraordinary items consisted of the following:
2001 2000 1999 ---- ---- ---- Current: Federal $ -- $ -- $ -- State -- -- -- Foreign 133 -- -- ---------- ------------ ---------- $ 133 $ -- $ -- Deferred: Federal -- -- -- Foreign 6 -- -- ---------- ------------ ---------- 6 -- -- ---------- ------------ ---------- Income tax provision $ 139 $ -- $ -- ========== ============ ==========
The Company has reclassified the income taxes related to the Metrology Business to the loss from discontinued operations. The Company has recorded an income tax provision related to discontinued operations of $751, $2,800 and $2,350 for the years ended December 31, 2001, 2000 and 1999, respectively. The components of the Company's deferred tax assets and liabilities as of December 31, 2001 and 2000 are as follows:
2001 2000 ---- ---- Deferred tax assets: Other receivable reserve $ 313 -- Depreciation 285 232 Loss carryforwards 29,436 14,246 Accrued expenses 2,871 582 Asset basis differences 1,547 -- Other 131 31 ------------ ---------- Gross deferred assets 34,583 15,091 Less valuation allowance 34,385 12,533 ------------ ---------- Deferred tax asset $ 198 $ 2,558 ============ ========== Deferred tax liabilities: Asset basis differences $ -- $ 2,554 Other 209 4 ------------ ---------- Deferred tax liability $ 209 $ 2,558 ============ ==========
Page 35 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A valuation allowance has been established due to the uncertainty of realizing certain tax credit and loss carryforwards and a portion of the other deferred tax assets. The Company recorded a $21,852 increase in the valuation allowance to reflect management's uncertainty regarding the realization of previously recognized tax loss carryforwards and certain other deferred tax assets. For income tax purposes, the Company has a U.S. operating loss and capital loss carryforwards of $81,030 and $3,700, respectively. The U.S. net operating loss carryforward expires between 2018 and 2021. The Internal Revenue Service completed the examination of the U.S. income tax returns through 1998. The examination did not have a material effect on the Company's financial statements. 6. RELATED PARTY TRANSACTIONS The Company has a license and royalty arrangement with Hexagon and its affiliates ("Hexagon") for a period of five years commencing on April 27, 2001. As of December 31, 2001, Hexagon owns 16.7% of Xygent Inc., a subsidiary of the Company. During 2001 the Company recorded $25 of royalty expense related to this license and royalty arrangement. The Company leases a portion of its North Kingstown Facility to Hexagon under a non-cancelable lease agreement for a period of five years commencing in April 2001. In addition to the rental payment, the agreement provides that Hexagon will bear the cost of other expenses associated with the rented space. Total rental income from Hexagon received for the year ended December 31, 2001 was $1,003. Future minimum rentals are $1,105 annually for years 2002 through 2005 and $368 for the year 2006. The net balance of accounts receivable due from Hexagon as of December 31, 2001 is $973, which includes $925 related to the acquisition of the Metrology Business Joint Ventures in China by Hexagon. The net balance of accounts payable and accrued expenses due to Hexagon as of December 31, 2001 is $143. A Director of the Company is a partner of a law firm that provides legal services to the Company. Total fees incurred during 2001 were $1,343. 7. OTHER INCOME AND EXPENSE Other income (expense), net from continuing operations includes: 2001 2000 1999 ----------- ----------- ----------- Rental income $ 2,391 $ 1,334 $ 1,513 Minority interest 730 - - Gravel royalty 949 726 759 Interest income 1,303 591 338 Exchange losses (7) - - Other income (expenses) (49) (10) 135 Loss on sale of fixed assets - (17) (3) ----------- ----------- ----------- $ 5,317 $ 2,624 $ 2,742 =========== =========== =========== Page 36 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. LEASES The Company leases corporate office space and certain office equipment under operating lease agreements expiring at various times through 2006. Minimum annual rental commitments under non-cancelable leases at December 31, 2001 are $141, $124, $119, $102 and $26 for the years 2002 through 2006, respectively. Rental expense for the years ended December 31, 2001, 2000 and 1999 were $152, $194 and $129, respectively. 9. INCENTIVE AND RETIREMENT PLANS The Company has for many years utilized stock options and other stock-based awards as part of its overall management incentive compensation programs. The grant of options under the 1989 Equity Incentive Plan (the '89 Plan), as amended, expired February 24, 1999 and the plan terminated following the sale of the Metrology Business. On February 12, 1999, the Company adopted the 1999 Equity Incentive Plan (the '99 Plan). STOCK INCENTIVE PLANS Under the provisions of the Company's 1999 Equity Incentive Plan (the '99 Plan), a variety of stock and stock-based incentive awards, including stock options, are available to be granted to eligible key employees of the Company and its subsidiaries. The Plan permits the granting of stock options which qualify as incentive stock options under the Internal Revenue Code and non-statutory options which do not so qualify. No options were granted in 2001 under the '99 Plan. The options previously granted under the '99 Plan were exercisable for a seven-year term, of Class A Common Stock granted at exercise prices between $1.875 and $2.375 per share. As a result of the sale of the Metrology Business, all of the options previously granted under the '99 Plan and the '89 Plan became exercisable upon the closing date of the transaction. All options not exercised at that time have since expired. 200,360 shares of Class A Common Stock or Class B Common Stock remain available for issuance under the '99 Plan. Option activity during the past three years is summarized as follows:
2001 2000 1999 ------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Options Average Options Average Options Average Exercise Exercise Exercise (000) Price (000) Price (000) Price -------------------------------------------------------------------------------------- Outstanding--beginning of year 378 29.15 402 35.80 249 50.25 Granted - - 47 9.55 161 12.55 Exercised (160) 11.20 - - - - Forfeited or canceled (218) 42.00 (71) 39.25 (8) 60.20 ---------- ------------ ------------ Outstanding--end of year 0 - 378 29.15 402 35.80 ========== ============ ============ Exercisable at end of year 0 - 191 48.85 152 47.85 Weighted average fair value of options granted during the year 8.25 5.50
Page 37 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation (FAS 123), requires use of valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FAS 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000 and 1999, respectively: risk-free interest rates of 5.0%, and 5.9%, volatility factors of the expected market price of the Company's common stock of 128%, and 45%, and a weighted-average expected life of the option of 4.25 years. No dividend yield was utilized due to the fact that the Company did not anticipate that it would pay dividends from continuing operations in the foreseeable future. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Since all options were either exercised or forfeited as a result of the sale of the Metrology Business to Hexagon, the remaining compensation expense has been recorded in 2001 for pro forma purposes. The Company's pro forma information follows: 2001 2000 1999 ---- ---- ---- Pro forma net (loss) $20,526 $(57,765) $(43,934) income Pro forma (loss) earnings per share: Basic and $ 7.16 $ (21.04) $ (16.33) diluted PROFIT INCENTIVE PLAN Under the provisions of the Company's Amended Profit Incentive Plan as originally approved in 1979, awards of cash could be made as bonuses to certain management employees. Plan awards provisions under the Plan in the amounts of $0, $1,659, and $1,152 were made for 2001, 2000, and 1999, respectively, based on performance objectives for the respective year. Page 38 BNS CO.(FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) LONG-TERM DEFERRED CASH INCENTIVE PLAN The Brown & Sharpe Key Employee's Long-Term Deferred Cash Incentive Plan (the "LTDCIP") provides long-term deferred incentive compensation to key executive employees of the Company with award credits being established, subject to certain vesting requirements, in unfunded LTDCIP accounts for each LTDCIP participant. The LTDCIP was amended in 1998 to provide that beginning in 1998 participant award opportunities are individually determined by the Compensation and Nominating Committee of the Board of Directors administering the LTDCIP as a percentage of adjusted annual pre-tax profit. As a result of the sale of the Metrology Business, this plan was terminated and all amounts accrued under the plan were distributed to the participants. The expenses related to this plan of $0, $(149), and $231 for 2001, 2000, and 1999, respectively, have been reflected in discontinued operations. SAVINGS PLANS The Company has 401(k) stock bonus and thrift savings plans for U.S. employees, which include retirement income features consisting of employer contributions and employee tax deferred contributions. Contributions under all plans are invested in professionally managed portfolios. The savings plans' expense for the three years ended December 31, 2001 was $192, $2,052, and $1,994, respectively. STOCK OWNERSHIP PLAN Under the provisions of the Company's Employee Stock Ownership Plan ("ESOP"), the Company may make contributions of common stock or cash to purchase common stock from the Company or otherwise, to be held in trust for employees meeting certain eligibility requirements until the employees reach retirement age. The ESOP may also borrow funds to purchase common shares, in which event the Company would contribute amounts as necessary to pay down the indebtedness. As a result of the disposition of the Metrology Business, the Company terminated the ESOP. All funds under this plan were distributed to participants during 2001. The Company is awaiting final termination determination from the Internal Revenue Service. ESOP expense was $0 in 2001, $0 in 2000, and $704 in 1999. In lieu of a contribution to the ESOP, the Board of Directors approved an additional 2% contribution to each participant of the Savings Plan during 2000. RETIREMENT PLANS The Company had a defined contribution retirement plan covering employees in its Swiss subsidiary and defined benefit retirement plans covering substantially all employees in its U.K. and German subsidiaries, as well as, beginning in 1998, a Senior Executive Supplemental Umbrella Pension Plan covering certain key employees of the parent company in the United States. In connection with the disposition of the Metrology Business, the Swiss, U.K. and German plans were assumed by the acquirer of the Metrology Business. The benefits earned by certain key management under Senior Executive Supplemental Umbrella Pension Plan were either distributed during the year or provisions were made for such distribution, and the plan was terminated. The Defined Contribution Plan expense recorded in discontinued operations for the three years ended December 31, 2001 was $452, $1,089, and $1,148, respectively. Page 39 BNS CO.(FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. NET INCOME (LOSS) PER SHARE Basic income (loss) per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is the same as basic loss per share in 2001, 2000 and 1999 because the computation of diluted income (loss) per share would have an anti-dilutive effect on income (loss) per share. The computation of basic and diluted loss per share is as follows:
2001 2000 1999 ---- ---- ---- Numerator: Loss from continuing operations before extraordinary item $ (12,422) $ (19,913) $ (19,635) Income (loss) from discontinued operations 40,158 (37,396) (23,239) Extraordinary item (6,566) - - -------------- -------------- --------------- Net income (loss) $ 21,170 $ (57,309) $ (42,874) ============== ============== =============== Denominator for basic and diluted earnings per share 2,867 2,745 2,691 ============== ============== =============== Net income (loss) per share - basic and diluted Loss from continuing operations $ (4.33) $ (7.26) $ (7.30) Income (loss) from discontinued operations 14.00 (13.62) (8.63) Extraordinary item (2.29) - - -------------- -------------- --------------- Basic and diluted earnings per share $ 7.38 $ (20.88) $ (15.93) ============== ============== ===============
11. OTHER ASSETS
2001 2000 ---- ---- Capitalized software costs $ 3,693 $ 3,693 Capitalized acquisition cost 194 1,453 Others 43 32 -------------- --------------- 3,930 5,178 Accumulated amortization (380) (709) -------------- --------------- $ 3,550 $ 4,469 ============== ===============
12. DEBT Debt consisted of the following:
2001 2000 ---- ---- Notes payable under Revolving Credit Agreement $ - $ 27,400 8.79% term loan - 50,000 8.12% mortgage 3,317 4,200 ---------------- ------------------ $ 3,317 $ 81,600 ================ ==================
Page 40 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company has a mortgage payable on the North Kingstown Facility with an original principal amount of $4.9 million. The mortgage is payable in monthly installments including interest computed at 8.12% per annum. The mortgage matures in February 2005 and is secured by the North Kingstown Facility. The outstanding balance on the mortgage was $3,317 and $4,200 at December 31, 2001 and 2000, respectively. Future maturities of the mortgage are $957 in 2002, $1,038 in 2003, $1,125 in 2004 and $197 in 2005. This mortgage payable has been classified as current in order to match the classification of the security for this debt. Until the sale of the Company's Metrology Business on April 27, 2001, the Company was obligated under a $50,000 private placement of senior notes with principal payments due from November 2001 to November 2007. During 1999, the Company breached certain financial covenants in its senior note agreement, and on February 7, 2001, the Company's lenders amended the maturity date of the notes to be the earlier of the completion of the sale to Hexagon or April 30, 2001. As a result, the full amount of the related long-term debt was classified as a current liability in the balance sheet as of December 31, 2000. Following the consummation of the sale to Hexagon, all of the debt to its private placement lenders was paid. The repayment of the note obligation resulted in the payment of a prepayment penalty. This penalty, together with the write-off of previously recorded debt acquisition costs, has been recorded as an extraordinary loss in the statements of operations in the amount of $6,566. No income taxes have been recorded related to this item. The Company had a $30 million three-year syndicated multi-currency revolving credit arrangement with four banks. Following the consummation of sale to Hexagon on April 27, 2001, the Company paid the outstanding balance of $27,400. 13. LONG-TERM LIABILITIES Long-term liabilities consisted of the following: 2001 2000 ---- ---- Unfunded accrued pension cost $1,891 $6,271 Taxes payable 1,400 -- Minority interest 385 -- Other long-term liabilities -- 799 ----------------- -------------- $3,676 $7,070 ================= ============== 14. COMMON STOCK At a special meeting held on April 27, 2001, the stockholders of BNS Co. approved the reduction of the par value per share of the Class A Common Stock and Class B Common Stock from $1.00 to $.01 and a one-for-five reverse stock split of the Company's outstanding Class A Common Stock and Class B Common Stock. The record date for the one-for-five reverse stock split was May 10, 2001. All references to shares have been restated to reflect the stock split. Both classes of common stock have equal rights upon liquidation. Class A Common Stock may not receive less cash dividends per share than Class B Common Stock, nor may such dividends be less frequent. The Class A Common Stock has one vote per share. Except as otherwise provided by the Certificate of Incorporation and By-Law, the Class B Common Stock has ten votes per share, and the Class B Common Stock is convertible into Class A Common Stock on a one-for-one basis, and can be transferred in Class B form only to specified transferees, generally members of a shareowner's family and certain others affiliated with a shareowner. During 2000 and 1999, 108 and 136 shares, respectively, were converted from Class B Common Stock to Class A Common Stock. Page 41 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. PREFERRED STOCK PURCHASE RIGHTS On February 13, 1998, the Board approved a new Rights Plan and declared a dividend purchase right (a "Right") for every outstanding share of the Company's Class A Common Stock and Class B Common Stock to be distributed on March 9, 1998 to stockholders of record as of the close of business on that date. The Rights expire on February 13, 2008 or upon the earlier redemption of the Rights, and they are not exercisable until a distribution date on the occurrence of certain specified events. Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series B Participating Preferred Stock, $1.00 par value per share, at a price of $40.00 per one one-hundredth of a share, subject to adjustment. The Rights will, on the distribution date, separate from the Common Stock and become exercisable ten days after a person has acquired beneficial ownership of 20% or more of the outstanding shares of Common Stock of the Company or commencement of a tender or exchange offer that would result in any person owning 20% or more of the Company's outstanding Common Stock. Each holder of a Right will in such event have the right to receive shares of the Company's Class A Common Stock having a market value of two times the exercise price of the Right, which has been set at $40.00; and in the event that the Company is acquired in a merger or other business combination, or if more than 25% of its assets or earning power is sold, each holder of a Right would have the right to receive common stock of the acquiring company with a market value of two times the exercise price of the Right. Following the occurrence of any of these events, any Rights that are beneficially owned by any acquiring person will immediately become null and void. The Company, by a majority vote of the Board, may redeem the Rights at a redemption price of $.01 per Right. 16. CONTINGENCIES The Company is a defendant in a variety of legal claims that arise in the normal course of business, including compensation disputes with two former executives as to the amounts due them under their change-in-control contracts that were triggered by the 2001 Hexagon transaction. Based upon the information presently available to management, the Company believes that any additional liability for these claims would not have a material effect on the Company's consolidated results of operations or financial condition. A recently completed Phase II environmental study on the North Kingstown Facility had indicated certain environmental problems on the property. The results of the study show some exceedances of environmental standards for certain contaminants in the soil under the property and minor groundwater issues. The Company has been advised by its technical consultants that these exceedances are minor and do not create any hazard to human health or the environment. The Company submitted the results of the study to the Rhode Island Department of Environmental Management ("RIDEM") on October 2, 2001, and has stated to RIDEM that it will address these exceedances in a timely and appropriate manner consistent with applicable law and regulation. As of March 25, 2002, the Company had not received the position of RIDEM on its submitted study. The Company believes, based on the preliminary advice of its consultants, that the estimated costs for further investigation and remediation of the identified exceedances, which have been accrued, approximate $500,000. However, as noted above, the study has been furnished by the Company to the Rhode Island Department of Environmental Management and it is possible that the risks and estimated costs of further investigation and remediation may be more significant. Page 42 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. ALLOWANCE FOR DOUBTFUL ACCOUNTS The activity in the Company's allowance for doubtful accounts is as follows:
/(1)/ Balance at Charged to Foreign Balance at Beginning of Costs and /(2)/ Currency End of Period Expenses Deductions Translation Period 2001 $4,461 $ 826 $4,461 $ -- $ 826 2000 /(3)/ 4,759 1,088 1,072 (314) 4,461 1999 3,657 1,826 394 (330) 4,759
/(1)/ Adjustment resulting from translating allowance for doubtful accounts of foreign subsidiaries at year-end exchange rates. /(2)/ Write-offs of uncollectible accounts; in 2001 assets and related reserves were sold. /(3)/ Amounts are attributable to the Metrology Business and are presented in Assets related to discontinued operations. Page 43 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 18. QUARTERLY DATA (UNAUDITED)
Previously ---------- Reported Restated -------- -------- Mar 31 Mar 31 June 30 Sept 30 ----------------- ------------- -------------- --------------- 2001 - ---- Sales $ 70,109 $ - $ - $ - Gross profit 19,134 - - - Loss from continuing operations (7,920) (5,338) (3,055) (2,615) Income (loss) from discontinued operations, net of income taxes (829) (3,411) 44,125 - Extraordinary item-extinguishment of debt - - (6,566) - ----------------- ------------- -------------- --------------- Net income (loss) $ (8,749) $ (8,749) $ 34,504 $(2,615) ================= ============= ============== =============== Net income (loss) from continuing operations per share basic and diluted $ (2.87) $ (1.93) $ (1.06) $ (0.90) Discontinued operations (0.30) (1.24) 15.34 - Extraordinary item - - (2.28) - ----------------- ------------- -------------- --------------- Net income (loss) per common share-basic and diluted $ (3.17) $ (3.17) $ 12.00 $ (0.90) ================= ============= ============== =============== Dec 31 ------------- 2001 - ---- Sales $ 91 Gross profit (253) Loss from continuing operations (1,414) Income (loss) from discontinued operations, net of income taxes (556) Extraordinary item-extinguishment of debt - ------------- Net income (loss) $(1,970) ============= Net income (loss) from continuing operations per share basic and diluted $ (0.48) Discontinued operations (0.19) Extraordinary item - ------------- Net income (loss) per common share-basic and diluted $ (0.67) =============
On April 27, 2001, the Company sold its Metrology Business to Hexagon AB of Sweden. As a result of this transaction, all activity related to the Metrology Business is required to be presented as discontinued operations for all periods presented. As a result, the previously reported results included in the Company's Form 10-Q for the three months ending March 31, 2001 are restated here to reflect the classification of the Metrology Business as discontinued operations. Page 44 BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) QUARTERLY DATA (UNAUDITED) (continued)
Previously Previously ---------- ---------- Reported Restated Reported Restated -------- -------- -------- -------- Mar 31 Mar 31 June 30 Sept 30 Dec 31 Dec 31 -------------- ------------- ------------ ----------- -------------- ----------- 2000 - ---- Sales $ 73,124 $ - $ - $ - $70,469 $ - Gross profit 24,156 - - - 22,133 - Income (loss) from continuing operations 1,649 (5,905) (5,805) (6,556) 5,091 (1,647) Income (loss) from discontinued operations, net of income taxes (28,443) (20,889) (16,732) (5,042) 415 5,267 -------------- ------------- ------------ ----------- ------------ ----------- Net income (loss) $ (26,794) $(26,794) $(22,537) $(11,598) $ 5,506 $ 3,620 ============== ============= ============ =========== ============ =========== Net income (loss) from continuing operations per share Basic $ 0.61 $ (2.18) $ (2.10) $ (2.38) $ 1.85 $ (0.60) ============== ============= ============ =========== ============ =========== Diluted $ 0.61 $ (2.18) $ (2.10) $ (2.38) $ 1.80 $ (0.60) ============== ============= ============ =========== ============ =========== Discontinued operations (10.51) (7.72) (6.07) (1.83) 0.15 1.91 Net income (loss) Basic $ (9.90) $ (9.90) $ (8.17) $ (4.21) $ 2.00 $ 1.31 ============== ============= ============ =========== ============ =========== Diluted $ (9.90) $ (9.90) $ (8.17) $ (4.21) $ 1.95 $ 1.31 ============== ============= ============ =========== ============ ===========
On April 27, 2001, the Company sold its Metrology Business to Hexagon AB of Sweden. As a result of this transaction, all activity related to the Metrology Business is required to be presented as discontinued operations for all periods presented. As a result, the previously reported results included in the Company's Form 10-Q for the three months ended March 31, 2000 and December 31, 2000 are restated here to reflect the classification of the Metrology Business as discontinued operations. Page 45 PART 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURES --------------------- None PART III -------- ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The following table summarizes information regarding directors of the Company as of March 1, 2002:
Name (Age) Year First (Board Committee Elected a Principal Occupation During Last Five Years and Membership) Director Directorships in Public Reporting and Other Companies ------------ -------- ----------------------------------------------------- Terms Expiring in 2002 John M. Nelson (70) 1975 From September 2001 to present, Chairman, Commonwealth (Audit, Executive, Corporate National Bank; from May 2000 to May 2001, Chairman of the Board of Governance) Directors of BNS Co.; from June 1999 to June 2001, Lead Director, and from June 1995 to July 1999, Chairman of the Board, The TJX Companies, Inc., an off price specialty apparel retailer. Chairman of the Board, Wyman Gordon Company, Worcester, MA, manufacturer of forgings and castings, from May 1994 to October 1997 and Chairman and Chief Executive Officer from May 1991 to May 1994; Director, Eaton Vance Corp.; Director, Commerce Holdings, Inc., a holding company for property and casualty insurance companies. Russell A. Boss (63) 1990 Director and Chairman of the Board of Directors, A.T. Cross Company, (Executive, Compensation and Lincoln, RI, manufacturer of fine writing instruments. Nominating) Roger E. Levien (66) 1996 From May 1997 to present, Managing Partner, Levien Enterprises, a (Compensation and Nominating, consulting business; July 1992 to April 1997, Vice President, Corporate Governance) Strategy and Innovation, Xerox Corporation, Stamford, CT, manufacturer of document and office technology equipment. Terms Expiring in 2003 Richard M. Donnelly (58) 1999 Currently a principal in the firm of Donnelly Associates, a (Executive, Compensation and consulting firm to manufacturing industries and a Partner in Nominating) Ripplewood Holdings, private equity investors; from 1995 to 1998, President of General Motors Europe; from 1992 to 1994, Vice President & Group Executive for GM Powertrain Group; from 1983 to 1995, various executive management positions with General Motors Corporation; Director, Powerway, Inc.; Director, Oshkosh Truck Corp.; Director, Separation Dynamics, Inc.
Page 46 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued) - ------------------------------------------------------------------------ Kenneth N. Kermes (66) 2000 Chairman of the Board of Directors of BNS Co. since May 2001; from (Executive, Audit) May 2001 to present, Partner of SeaView Capital, a private equity firm; from April 2000 to May 2001, President and Chief Executive Officer of BNS Co.; from 1999 to 2000, Partner of SeaView Capital, a private equity firm; from 1998 to 1999, partner of Bay View Equity Partners, a private equity firm; from 1994 to 1998, Vice President for Business and Finance and Chief Financial and Administrative Officer, University of Rhode Island. Terms Expiring in 2004 Howard K. Fuguet (64) 1990 Partner of the law firm of Ropes & Gray, Boston, MA. (Audit, Corporate Governance) Henry D. Sharpe, III (47) 1992 May 2001 to present, Director, Gamete Technology, Inc. a start-up (Audit, Corporate Governance) cryopreservation business; Co-founder and Technical Director, Design Lab, LCC, Providence, RI, a multi-disciplinary product design firm specializing in research and design of new products, re-design of existing products, and engineering management services; and Partner, Konden & Associates LLC, a placement agent for independent product design firms. J. Robert Held (63) 1996 Currently a consultant to the computer industry; from 1988 to 1995 (Compensation and Nominating) President, Chief Executive Officer, and a Director of Chipcom Corporation, Southborough, MA, a computer communications company; Director, e-studio, a web casting business; and Director, ESI, a software company. The following table summarizes information regarding Executive Officers of the Company as of March 1, 2002: Name Age Positions Held During the Last Five Years - ---- --- ----------------------------------------- Andrew C. Genor 59 President and Chief Executive Officer since May, 2001; President of Xygent Inc., subsidiary of the Company, since January, 2002; from December 1, 1998 to May 2001, Vice President & Chief Financial Officer; previously Chief Financial Officer, Safety First from May 1998 through September 1998; previously Vice President, Chief Financial Officer & Treasurer, Wyman-Gordon Company from November 1994 through March 1998.
Each Executive Officer holds office until the first meeting of the Board of Directors following the next Annual Stockholders' meeting and until his successor is elected or appointed and qualified, unless he dies, resigns, is removed or replaced. Page 47 ITEM 11 - EXECUTIVE COMPENSATION - -------------------------------- Information with respect to this item is incorporated by reference herein to information contained under the heading "Item 1 - Election of Directors", subheadings "Nominees for Election", and "Section 16(a) Security Ownership of Certain Beneficial Owners And Management" in the definitive 2002 Proxy Statement. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT I. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Set forth below, as of March 12, 2002 are the persons or groups known to the Company who beneficially own, under the applicable rules and regulations of the Securities and Exchange Commission, more than 5% of any class of the Company's voting securities.
Name and Address Title of Class Amount and Nature of Percent Percent of Combined of Beneficial Owner of Common Stock Beneficial Ownership of Class Voting Power ------------------- --------------- -------------------- -------- ------------------- Direct Indirect ------- --------- Option Opportunities Co. /(1)/ Class A 152,895 -- 5.4 4.4 225 W. Washington Street, 3rd Floor Class B -- -- Chicago, IL 60606 Ingalls & Snyder LLC /(2)/ Class A 371,700 -- 13.0 10.6 61 Broadway Class B -- -- New York, NY 10006 Dimensional Fund Advisors Inc./(3)/ Class A 212,454 -- 7.4 6.1 1299 Ocean Avenue Class B -- -- 11th Floor Santa Monica, CA 90401 Morningside Value Investors LLC /(4)/ Class A 168,260 -- 5.9 4.8 153 East 53rd Street Class B -- -- New York, NY 10022 Paul D. Sonkin, Managing Member of Morningside Class A 170,260 -- 6.0 4.9 Value Investors LLC /(4)/ Class B -- -- 153 East 53rd Street New York, NY 10022 Gabelli Asset Management Inc. /(5)/ Class A 340,060 -- 11.9 9.7 One Corporate Center Class B -- -- Rye, NY 10580-1434 Schroder Investment Management /(6)/ Class A -- -- International Ltd. Class B 5,666 -- 8.9 1.6 31 Gresham Street London EC2V 7QA, United Kingdom
Page 48 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ (continued) - ----------- STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (continued) /(1)/ Options Opportunities Co., a registered broker, has sole voting and dispositive power and is deemed to have beneficial ownership of the reported shares. /(2)/ Ingalls & Snyder LLC ("I&G"), a registered broker, has sole voting and dispositive power over 3,400 of the shares reported and shares dispositive power over 368,300 of the shares reported. I&G is deemed to have beneficial ownership over the aggregate of 371,700 shares reported. /(3)/ Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, has voting and dispositive control over and is deemed to have beneficial ownership of the reported shares, all of which shares are held in portfolios of various registered investment companies and trusts, all of which Dimensional Fund Advisors Inc. serves as investment manager or advisor. Dimensional disclaims beneficial ownership of all such shares. /(4)/ Morningside Value Investors LLC ("Morningside"), a Delaware limited liability company, acts as an investment manager to The Hummingbird Value Fund ("Hummingbird"), which holds an aggregate of 168,260 shares of Class A Stock, and over which Morningside has sole voting and dispositive power. Paul D. Sonkin is managing member of Morningside, managing member of Morningside Capital LLC, a Delaware limited liability company, and managing member of Hummingbird. In his capacity as managing member of Morningside, Mr. Sonkin directly exercises voting and dispositive control over the shares reported by Morningside and, as managing member and control person of Morningside, may be deemed the beneficial owner of such shares. Morningside disclaims any beneficial ownership of the shares reported. Additionally Mr. Sonkin is the beneficial owner of 2,000 shares held individually by him and therefore may be deemed to be the beneficial owner of 170,260 shares of Class A Stock. Mr. Sonkin disclaims any beneficial ownership of any shares not individually held by him. /(5)/ Gabelli Asset Management, Inc. ("GAMI"), is the parent company of the following companies, which in the aggregate own 340,060 shares of Class A Stock: Gabelli Funds, LLC, a registered investment advisor, which holds 80,600 shares; and GAMCO Investors, Inc., a registered investment advisor, which holds 160,600 shares. Gabelli Associates Limited, a British Virgin Islands corporation, which holds 98,860 shares, is managed by Gabelli Securities, Inc., a majority owned subsidiary of GAMI. Each company has sole voting and dispositive control over and is deemed to have beneficial ownership of the reported shares. /(6)/ Schroder Investment Management International Ltd., an investment advisor, has sole voting and dispositive power and is deemed to have beneficial ownership of the reported shares. /(7)/ Various members of the family of Henry D. Sharpe, Jr. (father of Henry D. Sharpe III, a Director) beneficially own an aggregate of 127,137 shares of common stock of the Company comprised of 95,353 shares of Class A Stock and 31,784 shares of Class B Stock of the Company. These holdings amount in the aggregate to 3.3% and 49.7%, respectively, of each class of stock and represent collectively 11.83% of the combined voting power of the Class A Stock and Class B Stock. These shares are comprised of (a) 31,827 shares of Class A Stock and 10,608 shares of Class B Stock beneficially owned by Henry Sharpe, III; (b) 31,743 shares of Class A Stock and 10,580 shares of Class B Stock held by the Douglas Boyd Sharpe Trust; (c) 31,755 shares of Class A Stock and 10,584 shares of Class B Stock held by the Sarah Sharpe Trust; (d) 2 shares of Class A Stock and 2 shares of Class B Stock held in the Henry D. Sharpe, Jr. Revocable Trust; (e) 2 shares of Class A Stock and 2 shares of Class B Stock held in the Peggy Sharpe Revocable Trust; and (f) 24 shares of Class A Stock and 8 shares of Class B Stock held by the Sharpe Family Foundation, a charitable foundation, held by Northern Trust Company, for which Mr. Sharpe, Jr. is Trustee and has voting power. The shares held by the various individual family members or, in some cases, within the various family trusts relating to a single family member are owned by the respective individual family members or in trusts as to which each such individual family member has sole voting power and dispositive power. Page 49 II. SECURITY OWNERSHIP OF MANAGEMENT The following table and accompanying footnotes set forth certain information about the beneficial ownership of the Company's Class A Stock and Class B Stock as of March 12, 2002 by the Directors, the Executive Officers and all Directors and Executive Officers as a group.
Name and Address Title of Class Amount and Nature of Percent Percent of Combined of Beneficial Owner of Common Stock Beneficial Ownership of Class Voting Power ------------------- --------------- -------------------- -------- -------------------- Direct Indirect ------- --------- Henry D. Sharpe, III /(1)/ Class A 31,826 -- 1.1 * Class B 10,608 -- 16.6 3.0 John M. Nelson Class A 30,800 -- 1.1 * Class B -- -- Howard K. Fuguet Class A 1,000 -- * * Class B -- -- Russell A. Boss Class A 2,400 -- * * Class B -- -- J. Robert Held Class A 1,800 -- * * Class B -- -- Roger E. Levien Class A 1,200 -- * * Class B -- -- Richard A. Donnelly Class A -- -- * * Class B -- -- Kenneth N. Kermes Class A 30,000 -- 1.1 * Class B -- -- Andrew C. Genor /(2)/ Class A 14,343 -- * * Class B -- -- All Directors and Executive Officers (as a Group 9 persons) Class A 113,369 -- 4.0 3.2 Class B 10,608 -- 16.6 3.0
* Less than one percent (1%) /(1)/ See Footnote /(7)/I. Security Ownership of Certain Beneficial Owners. /(2)/ Includes 1,343 shares of Class A common stock held by Mr. Genor in the BNS Co. Savings and Retirement Plan. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Information with respect to this item is incorporated by reference herein to information contained in the Company's definitive 2002 Proxy Statement. Page 50 PART IV ------- ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) (1) and (2) List of Financial Statements and Financial Statement Schedules Financial Statements filed in Item 8 of this Annual Report: - ----------------------------------------------------------- Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Balance Sheets at December 31, 2001 and 2000 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 Consolidated Statements of Shareowners' Equity for the Years Ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements - December 31, 2001 Schedules Omitted. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are not required, are not inapplicable, or the information is included in the financial statements. (a) The response to this portion of Item 14 is submitted as a separate section of this report. (b) No Form 8-K was filed in the fourth quarter of 2001. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - No financial statement schedules were filed for the year ended December 31, 2001. Page 51 SIGNATURES - ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BNS Co. (FORMERLY BROWN & SHARPE MANUFACTURING COMPANY) (Registrant) Date: April 1, 2002 By: /s/ Andrew C. Genor -------------------- ------------------------------------- Andrew C. Genor President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Kenneth N. Kermes 4/1/02 /s/ Howard K. Fuguet 4/1/02 - ------------------------------------------------- -------------------------------------------- Kenneth N. Kermes Date Howard K. Fuguet Date Chairman of the Board and Director Director /s/ John M. Nelson 4/1/02 /s/ Russell A. Boss 4/1/02 - ------------------------------------------------- -------------------------------------------- John M. Nelson Date Russell A. Boss Date Director Director /s/ J. Robert Held 4/1/02 /s/ Roger E. Levien 4/1/02 - ------------------------------------------------- -------------------------------------------- J. Robert Held Date Roger E. Levien Date Director Director /s/ Henry D. Sharpe, III 4/1/02 /s/ Richard M. Donnelly 4/1/02 - ------------------------------------------------- -------------------------------------------- Henry D. Sharpe, III Date Richard M. Donnelly Date Director Director /s/ Andrew C. Genor 4/1/02 - ------------------------------------------------- Andrew C. Genor Date Vice President and Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer)
Page 52 Exhibit Index ------------- Number ------ 3.1 Joint Agreement of Merger between Brown & Sharpe Manufacturing Company, incorporated in Rhode Island, and Brown & Sharpe Manufacturing Company, the surviving corporation incorporated in Delaware, filed as the only Exhibit to Form 8-K for the month of January, 1969, and such is hereby incorporated by reference. 3.2 Amendment to Certificate of Incorporation, dated April 26, 1989, filed as Exhibit 13 to Form 10-K for the period ending December 29, 1989, and such is hereby incorporated by reference. 3.3 Amendment to Certificate of Incorporation, dated April 25, 1980, filed as Exhibit 3.1 to Form 10-Q for the period ending June 28, 1980, and such is hereby incorporated by reference. 3.4 Amendment to Certificate of Incorporation dated April 24, 1987. Exhibit 3.7 was filed as Exhibit 10.4 to Form 10-Q for the period ended June 26, 1987, and such is hereby incorporated by reference. 3.5 Amendment to Certificate of Incorporation dated May 6, 1988 filed as Exhibit 1 to Current Report on Form 8-K filed May 9, 1988 and such is hereby incorporated by reference. 3.6 Certificate of Designation filed as Exhibit A to Exhibit 5 of Amendment on Form 8 filed on March 6, 1989, and such is hereby incorporated by reference. 3.7 Amendment to Certificate of Incorporation dated May 2, 1989. Exhibit 3.7 was filed as Exhibit 3.7 to the Form 10-K for the year ended December 30, 1989 and such is hereby incorporated by reference. 3.8 By-laws of Brown & Sharpe Manufacturing Company, as amended through July 29, 1994; previously filed as Exhibit 3.1 to the Form 10-Q for the quarter ended July 2, 1994 and such is hereby incorporated by reference. 3.9 Amendments to By-laws of Brown & Sharpe Manufacturing Company, as of September 28, 1994; previously filed as Exhibit 3 to the Form 10-Q for the quarter ended October 1, 1994 and such is hereby incorporated by reference. 3.10 Amendment to Certificate of Incorporation dated April 27, 2001 filed as Exhibit 99.2 to Report on Form 8-K filed May 10, 2001 and hereby incorporated by reference. 3.11 Amendment to Certificate of Incorporation dated April 27, 2001 filed as Exhibit 99.3 to Report on Form 8-K filed May 10, 2001 and hereby incorporated by reference. +10.1 Amended 1983 Stock Option Plan, as amended through March 9, 1988. Exhibit 10.1 was filed as Exhibit 10.2 to the Form 10-K for the year ended December 31, 1988, and is hereby incorporated by reference. +10.2 Amendment dated December 29, 1990 to the Brown & Sharpe Amended 1983 Stock Option Plan. Exhibit 10.2 was filed as Exhibit 10.3 to the Form 10-K for the year ended December 29, 1990 and such is herein incorporated by reference. +10.3 Amended 1989 Equity Incentive Plan as amended through February 21, 1992. Exhibit 10.3 was filed as Exhibit 10.24 to the Form 10-K for the year ended December 28, 1991 and such is hereby incorporated by reference. Page 53 +10.4 Amendment dated November 11, 1992 to 1989 Equity Incentive Plan as amended through November 6, 1992. Exhibit 10.4 was filed as Exhibit 10.43 to the Form 10-K for the year ended December 26, 1992, and is hereby incorporated by reference. +10.5 Amended Profit Incentive Plan, as amended through February 14, 1994. Exhibit 10.5 was filed as Exhibit 10.53 to the Form 10-K for the year ended December 31, 1994, and is hereby incorporated by reference. +10.6 Form of Indemnity Agreement with Alfred J. Corso dated May 3, 1995. Exhibit 10.6 was filed as Exhibit 10.62 to the Form 10-Q for the quarter ended September 30, 1995, and is hereby incorporated by reference. +10.7 Form of Indemnity Agreement with Harry A. Hammerly dated October 25, 1996. +10.8 Form of Indemnity Agreement with John Robert Held dated October 25, 1996. +10.9 Form of Indemnity Agreement with Roger E. Levien dated October 25, 1996. (Also Form of Indemnity Agreement between Company and other Directors and Executive Officers) Exhibits 10.7, 10.8 and 10.9 were filed as Exhibits 10.79, 10.80 and 10.81, respectively, to the Form 10-K for the year ended December 31, 1996, and are hereby incorporated by reference. 10.10 Rights Agreement dated as of February 13, 1998 ("Rights Agreement") between the Company and BankBoston N.A., as Rights Agent, filed as Exhibit 1 to Report on Form 8-K dated March 5, 1998, which is hereby incorporated by reference. 10.11 Form of Certificate of Designation with respect to the Series B Participating Preferred Stock, par value $1.00 per share, of the Company (filed as Exhibit A to the Rights Agreement, filed as Exhibit A to Report on Form 8-K dated March 5, 1998), which is hereby incorporated by reference. 10.12 Amendment to Rights Agreement dated February 13, 1998 filed as Exhibit 10.90.2 to Report on Form 10-Q for quarter ending September 30, 2001, and incorporated herein by reference. +10.13 Key Employee's Long-Term Deferred Cash Incentive Plan as amended through February 23, 1998. +10.14 Supplemental Executive Retirement Plan as amended February 13, 1998. +10.15 Senior Executive Supplemental Umbrella Pension Plan dated February 13, 1998. Exhibits 10.13 through 10.15 were filed as Exhibits 10.106, 10.107 and 10.108, respectively, to the Form 10-Q for the quarter ended June 30, 1998, and are hereby incorporated by reference. +10.16 Brown & Sharpe Manufacturing Company 1999 Equity Incentive Plan dated February 12, 1999. Exhibit 10.16 was filed as Exhibit 10.109 to the Form 10-Q for the quarter ended June 30, 1999, and is hereby incorporated by reference. 10.17 Brown & Sharpe Savings and Retirement Plan for Management Employees dated December 23, 1998 (filed herewith). 10.18 First Amendment to Brown & Sharpe Savings and Retirement Plan for Management Employees dated as of April 30, 1999 (filed herewith). Page 54 10.19 Second Amendment to Brown & Sharpe Savings and Retirement Plan for Management Employees dated as of December 26, 2001 (filed herewith). 10.20 Brown & Sharpe Savings and Retirement Plan and BNS Co. Savings and Retirement Plan Instrument of Merger dated as of December 31, 2001 (filed herewith). 10.21 Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust Agreement (1998 restatement) dated December 23, 1998, filed as Exhibit 10.1 to Registration Statement No. 333-666-22 on Form S-8 and hereby incorporated by reference. 10.22 First Amendment to Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust Agreement (1998 restatement) dated as of April 30, 1999, filed as Exhibit 10.2 to Registration Statement No. 333-666-22 on Form S-8 and hereby incorporated by reference. 10.23 Instrument of Termination and Amendment to Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust Agreement (as amended) dated as of April 10, 2001, filed as Exhibit 10.3 to Registration Statement No. 333-666-22 on Form S-8 and hereby incorporated by reference. 10.24 First Amendment to Instrument of Termination and Amendment to First Amendment to Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust Agreement dated as of November 14, 2001 (filed herewith). 10.25 Notice to Stockholders regarding Shareholder Rights Plan dated May 21, 2001 filed as Exhibit 99.1 to Report on Form 8-K filed May 21, 2001 and incorporated herein by reference. +10.26 Change in Control Agreement between Brown & Sharpe Manufacturing Company and Alfred J. Corso dated August 31, 1999, filed as Exhibit 10.114 to Report on Form 10-Q for the quarter ended March 31, 2001 and hereby incorporated by reference. +10.27 Change in Control Agreement between Brown & Sharpe Manufacturing Company and Andrew C. Genor dated August 31, 1999, filed as Exhibit 10.126 to Report on Form 10-Q for the quarter ended March 31, 2001 and hereby incorporated by reference. +10.28 Change in Control Agreement between Brown & Sharpe Manufacturing Company and James W. Hayes dated August 31, 1999, filed as Exhibit 10.117 to Report on Form 10-Q for the quarter ended March 31, 2001 and hereby incorporated by reference. 21. Subsidiaries of the Registrant. 23. Consent of Independent Auditors - Ernst & Young LLP. To obtain a copy of the Exhibits in this Annual Report on Form 10-K refer to Page 56. + This identifies management contracts or compensatory plans. Page 55 Shareholders may obtain the following Exhibits filed with the 2001 Annual Report on Form 10-K upon request. Charges will be made according to the following schedule and payment should be made either by check or money order and should accompany the request. The charge for all 2001 Exhibits is $6.41. Charges for previously filed Exhibits incorporated by reference will be provided upon request. Requests should be directed to: Secretary, BNS Co., 275 West Natick Road, Warwick, RI 02886.
Exhibit Pages Postage Total ------- ----- ------- ----- 10.17 Brown & Sharpe Savings and Retirement Plan for Management 52 $.34 $2.18 Employees dated December 23, 1998. 10.18 First Amendment to Brown & Sharpe Savings and Retirement Plan 1 $.34 $ .58 for Management Employees dated as of April 30, 1999 10.19 Second Amendment to Brown & Sharpe Savings and Retirement Plan 2 $.34 $ .83 for Management Employees dated as of December 26, 2001 10.20 Brown & Sharpe Savings and Retirement Plan and BNS Co. Savings 2 $.34 $ .83 and Retirement Plan Instrument of Merger dated as of December 31, 2001 10.24 First Amendment to Instrument of Termination and Amendment to 2 $.34 $ .83 First Amendment to Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust Agreement dated as of November 14, 2001. 21. Subsidiaries of the Registrant 1 $.34 $ .58 23. Consent of Independent Auditors 1 $.34 $ .58
Page 56 EX-10.17 3 dex1017.txt THE BROWN & SHARPE SAVINGS AND RETIREMENT PLAN EXHIBIT 10.17 THE BROWN & SHARPE SAVINGS AND RETIREMENT PLAN FOR MANAGEMENT EMPLOYEES (Amended and Restated Effective January 1, 1998) TABLE OF CONTENTS ARTICLE PAGE Article I. Introduction............................................... 1 1.1 Plan and Trust intended to qualify................. 1 1.2 Purpose of Plan ................................... 1 1.3 Effective dates.................................... 1 Article II. Definitions ............................................... 2 2.1 "A&T Transfer Account"............................. 2 2.2 "Affiliated Company"............................... 2 2.3 "After-Tax Contribution Account"................... 2 2.4 "Annual Addition".................................. 2 2.5 "Beneficiary"...................................... 2 2.6 "Board of Directors"............................... 2 2.7 "Break in Service"................................. 2 2.8 "Change of Control"................................ 2 2.9 "Class B Stock".................................... 3 2.10 "Code"............................................. 3 2.11 "Committee"........................................ 3 2.12 "Company".......................................... 3 2.13 "Computation Period"............................... 3 2.14 "Current Market Value"............................. 3 2.15 "Effective Date"................................... 3 2.16 "Elective Contribution"............................ 3 2.17 "Elective Contribution Account".................... 3 2.18 "Eligibility Period"............................... 3 2.19 "Eligible Employee"................................ 4 2.20 "Employee"......................................... 4 2.21 "Employer"......................................... 4 2.22 "Employment Commencement Date"..................... 4 2.23 "Entry Date"....................................... 4 2.24 "ERISA"............................................ 4 2.25 "Hour of Service".................................. 4 2.26 "Matching Contribution"............................ 5 2.27 "Matching Contribution Account".................... 5 2.28 "Maternity/Paternity Absence"...................... 5 2.29 "Participant"...................................... 6 2.30 "Participating Employer"........................... 6 2.31 "Participating Employer Contribution".............. 6 2.32 "Participating Employer Contribution Account"...... 6 -i- ARTICLE PAGE 2.34 "Plan"............................................. 6 2.35 "Plan Year" or "Limitation Year"................... 6 2.36 "Prior Matching Contribution Account".............. 6 2.37 "Prior Plan"....................................... 7 2.38 "Qualified Domestic Relations Order"............... 7 2.39 "Retirement"....................................... 7 2.40 "Salary"........................................... 7 2.41 "Share of the Trust Fund".......................... 8 2.42 "Social Security Wage Base"........................ 8 2.43 "Stock"............................................ 8 2.44 "Total and Permanent Disability"................... 8 2.45 "Transfer Account"................................. 8 2.46 "Trust"............................................ 8 2.47 "Trust Fund"....................................... 8 2.48 "Trustee".......................................... 8 2.49 "Valuation Date"................................... 8 2.50 "Vesting Period"................................... 8 2.51 "Year of Service for Vesting"...................... 9 Article III. Administration............................................ 10 3.1 Plan Administrator................................. 10 3.2 Powers of Committee................................ 10 3.3 Effect of Interpretation or Determination.......... 11 3.4 Examination of records............................. 11 3.5 Nondiscriminatory exercise of authority............ 11 3.6 Reliance on tables, etc............................ 11 3.7 Named fiduciary.................................... 11 3.8 Claims and review procedures....................... 11 3.9 Indemnification of Committee Members and Assistants....................................... 12 3.10 Costs of Administration............................ 12 Article IV. Participation............................................. 13 4.1 Participation...................................... 13 4.2 Cessation of Participation......................... 13 4.3 Breaks in Participation............................ 13 Article V. Contributions; Limitations................................ 14 5.1 Elective Contributions............................. 14 5.2 Matching Contributions............................. 14 5.3 Participating Employer Contributions............... 14 5.4 Certain prospective adjustments in Elective Contributions.................................... 15 -ii- ARTICLE PAGE 5.5 Excess contributions returned...................... 16 5.6 Certain limitations and adjustments pertaining to Matching Contributions........................... 17 5.7 General provisions and limitations................. 19 5.8 Mistake of fact, etc............................... 19 Article VI. Accounts.................................................. 21 6.1 Committee to maintain accounts..................... 21 6.2 Adjustment of accounts............................. 21 6.3 Treatment of forfeitures........................... 21 6.4 Limitations........................................ 21 6.5 Reports to Participants............................ 22 Article VII. Trust Fund................................................ 23 7.1 Appointment of Trustee............................. 23 7.2 Investment of accounts............................. 23 7.3 Certain Investments in the Company Stock Fund...... 23 Article VIII. Withdrawals............................................... 25 8.1 Withdrawal of prior contribution................... 25 8.2 In-Service Withdrawal from A&T Transfer Account.... 25 8.3 In-Service Withdrawal After Attaining Age 70 1/2... 25 8.4 Hardship withdrawals............................... 25 8.5 Order of withdrawals; adjustment................... 27 Article IX. Loans to Participants..................................... 28 9.1 Loans.............................................. 28 Article X. Vesting of Accounts....................................... 31 10.1 Immediate vesting of certain Accounts.............. 31 10.2 Deferred Vesting of Participating Employer Contribution Account and A&T Transfer Account.... 31 10.3 Special vesting rules.............................. 32 10.4 Changes in vesting schedule........................ 32 10.5 Forfeitures........................................ 33 10.6 Separate Account................................... 33 Article XI. Distribution of Benefits.................................. 35 11.1 Method of making distributions..................... 35 11.2 Direct rollovers................................... 35 11.3 Time of distributions.............................. 35 -iii- ARTICLE PAGE 11.4 Latest payment of benefits......................... 36 11.5 Distributions after a participant's death.......... 37 11.6 Notice to Trustee.................................. 37 11.7 Designation of Beneficiary......................... 38 Article XII. Amendment and Termination ................................ 40 12.1 Amendment ......................................... 40 12.2 Binding Effect on other Participating Employers ... 40 12.3 Termination or partial termination ................ 40 12.4 Distributions upon termination of the Plan ........ 41 12.5 Merger or consolidation of Plan; transfer of Plan assets .................................... 41 12.6 Successor employers ............................... 41 12.7 Participating Employer ceasing to be affiliated ... 41 Article XIII. Miscellaneous. .......................................... 43 13.1 Voting of Stock ................................... 43 13.2 Tender or Exchange Offers ......................... 43 13.3 Special account for rollovers, etc. ............... 45 13.4 Certain Non-U.S. Employees ........................ 45 13.5 Limitation of rights .............................. 45 13.6 Nonalienability of benefits ....................... 46 13.7 Payment under Qualified Domestic Relations Orders . 46 13.8 Information between Committee and Trustee ......... 46 13.9 Governing Law ..................................... 46 13.10 Reclassification of Employees .................... 46 13.11 Amounts transferred from other plans ............. 47 13.12 Veterans' Re-Employment and Benefits Rights ...... 47 Article XIV. Special Top Heavy Rules .................................. 48 14.1 Special contribution for top heavy plan years ..... 48 14.2 Adjustment to limitations ......................... 48 14.3 Definitions ....................................... 49 -iv- Article I. Introduction. 1.1 Plan and Trust intended to qualify. This Plan and its related Trust are intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Subject to the provisions of Sections 5.8 and 6.4, no part of the corpus or income of the Trust forming part of the Plan will be used for or diverted to purposes other than for the exclusive benefit of each Participant and Beneficiary. 1.2 Purpose of Plan. The purposes of the amended Plan are (1) to encourage thrift on the part of eligible employees through a program of elective savings, with certain additional Participating Employer contributions, (2) to operate this Plan as a profit-sharing plan, with or without the availability of current and accumulated earnings and profits, and (3) to provide benefits to eligible employees in the event of retirement, death, disability and certain other separations of service. The Plan is intended as an amendment, restatement and continuation of the Brown & Sharpe Savings and Retirement Plan for Management Employees as in effect prior to the Effective Date. 1.3 Effective dates. The provisions of the restated Plan as set forth below are effective as of the date or dates set forth at Section 2.15 below. Article II. Definitions. Wherever used herein, the following terms have the following meanings unless a different meaning is clearly required by context: 2.1 "A&T Transfer Account" means that portion, if any, of a Participant's Share of the Trust Fund attributable to amounts transferred from the Brown & Sharpe Aftermarket Services, Inc. (or its predecessor) Savings and Investment Plan, and to the earnings thereon. 2.2 "Affiliated Company" means (i) any corporation (other than the Company) which is a member of a controlled group of corporations (as defined in section 414(b) of the Code) with the Company, (ii) any trade or business (other than the Company), whether or not incorporated, which is under common control (as defined in section 414(c) of the Code) with the Company, (iii) any trade or business (other than the Company) which is a member of an affiliated service group (as defined in section 414(m) of the Code) of which the Company is also a member; or (iv) any other corporation, trade or business after the Board of Directors in its discretion declares it to be an "Affiliated Company." Solely for the purposes of Section 6.4, sections 414(b) and 414(c) of the Code will be considered modified as provided in section 415(h) of the Code. 2.3 "After-Tax Contribution Account" means that portion, if any, of a Participant's Share of the Trust Fund attributable to the Participant's own, after-tax contributions to the Prior Plan prior to January 1, 1983, and to the earnings thereon. 2.4 "Annual Addition" means, in the case of any Participant for any Limitation Year, the sum of all amounts contributed for such year by a Participating Employer and credited to the Participant's accounts under the Plan, including amounts, if any, returned to the Participant pursuant to Section 5.5 or Section 5.6 and the amount of any subsidy provided under Section 7.3 in respect of investments in the Company Stock Fund. 2.5 "Beneficiary" means the person or persons entitled under Article XI to receive benefits under the Plan upon the death of the Participant. 2.6 "Board of Directors" means the Board of Directors of the Company. The Board of Directors may allocate and delegate its fiduciary responsibilities, or may designate others to carry out its fiduciary responsibilities, in accordance with Section 405 of ERISA. 2.7 "Break in Service" means a Vesting Period during which an Employee has completed no more than 500 Hours of Service. 2.8 "Change of Control" means a change in control of the Company as defined in Exhibit A. -2- 2.9 "Class B Stock" means the Class B Common Stock of the Company. 2.10 "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.11 "Committee" means the committee appointed to administer the Plan in accordance with Article III. 2.12 "Company" means Brown & Sharpe Manufacturing Company and any successor to all or a major portion of its assets or business which assumes the obligations of the Company. 2.13 "Computation Period" means an Eligibility Period or a Vesting Period, as the context requires. 2.14 "Current Market Value," as applied to Stock, means the closing market price on the New York Stock Exchange on the day of reference or, if the New York Stock Exchange is closed on such day, the closing price on the next preceding trading day on which shares of Stock are traded. As applied to Class B Stock, the term "Current Market Value" shall mean the fair market value of such stock as determined by the Committee. 2.15 "Effective Date" means January 1, 1998, provided, however, that with respect to Sections 2.40, 5.4, 5.5, 5.6 and 11.4, the Effective Date shall be January 1, 1997, and that with respect to Section 13.12, the Effective Date shall be October 13, 1996. 2.16 "Elective Contribution" means any contribution made for the benefit of a Participant under Section 5.1. 2.17 "Elective Contribution Account" means that portion of a Participant's Share of the Trust Fund attributable to Elective Contributions (including basic and supplemental contributions under the Prior Plan) and to the earnings thereon. 2.18 "Eligibility Period" means, with respect to an Employee, any of (i) the period of six (6) consecutive months beginning with the Employee's Employment Commencement Date, or (ii) the period of six (6) consecutive months beginning with the day following the end of the six-month period described in (i), or (iii) the period of six (6) consecutive months beginning on any anniversary (adjusted as necessary for leap years) of the first day of the six-month period described in (i), or (iv) the period of six (6) consecutive months beginning on any anniversary (adjusted as necessary for leap years) of the first day of the six-month period described in (ii). -3- 2.19 "Eligible Employee" means any Employee actively employed by a Participating Employer, other than (a) an Employee covered by a collective bargaining agreement, unless such agreement provides for participation in the Plan, and (b) an Employee who is classified by his or her Participating Employer as a student intern or co-operative student. For the avoidance of doubt, no individual shall be considered an Eligible Employee if the individual is classified by a Participating Employer as an independent contractor (regardless of any later reclassification, whether or not retroactive), or the individual would be considered an Employee solely by reason of the leased-employee rules of section 414(n) of the Code or the second sentence of Section 2.20 unless the Employer for which he or she performs services is a Participating Employer, such Participating Employer has elected in writing to treat such individual as an Eligible Employee, and the Company has consented to such election. 2.20 "Employee" means any individual employed by the Employer. Any person who is a "leased employee," within the meaning of section 414(n) of the Code, of an Employer shall be considered an Employee to the extent required under section 414(n) of the Code. 2.21 "Employer" means the Company and all Affiliated Companies. 2.22 "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service. 2.23 "Entry Date" means the first day of each payroll period. 2.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended, and any successor statute or statutes of similar import. 2.25 "Hour of Service" means, with respect to any Employee, (1) each hour for which the Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer, each such hour to be credited to the Employee for the Computation Period in which the duties were performed; (2) each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer (including payments made or due from a trust fund or insurer to which the Employer contributes or pays premiums) on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the Employee for the Computation Period in which such period of time occurs; -4- (3) each hour not credited under (1) or (2) above for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer, each such hour to be credited to the Employee for the Computation Period to which the award or agreement pertains; and (4) each hour not credited under (1), (2) or (3) above during a period of leave of absence (i) from the Employer for service in the armed forces of the United States if the Employee returns to work for the Employer as an Employee at a time when he or she has reemployment rights under federal law, or (ii) which, under the Family and Medical Leave Act of 1993, is required to be credited for purposes of the Plan. Solely for purposes of determining whether an Employee has had a Break in Service, an Employee will also be credited with up to 501 Hour of Service for each noncompensated hour during a Maternity/Paternity Absence. The following special rules apply to a Maternity/Paternity Absence: (i) any Hour of Service credited under this paragraph with respect to such Absence shall be credited (a) only in the Plan Year in which the Absence begins, if the Employee would be prevented from incurring a Break in Service in such Year solely because of Hours of Service credited hereunder for such Absence, or (b) in any other case in the immediately following Plan Year; and (ii) no Hour of Service shall be credited hereunder that is also credited under another provision of this Section, except to the extent required by law. Hours of Service to be credited to an individual under (1), (2) and (3) above will be calculated and credited pursuant to Section 2530.200(b)-3(e) of the Department of Labor Regulations which is incorporated herein by reference, on the basis of 10 Hours of Service for each day for which the individual would be credited with at least one Hour of Service under those paragraphs above. Hours of Service to be credited to an individual under (4) above or in respect of a Maternity/Paternity Absence will be determined by the Committee with reference to the individual's most recent normal work schedule; provided, that in the case of a Maternity/Paternity Absence, if the Committee cannot so determine the number of Hours to be credited, there shall instead be credited eight (8) Hours of Service for each day of absence. 2.26 "Matching Contribution" means any contribution made to the Trust under Section 5.2. 2.27 "Matching Contribution Account" means that portion of a Participant's Share of the Trust Fund which is attributable to Matching Contributions and earnings thereon. 2.28 "Maternity/Paternity Absence" means a period of absence from the Employer for any of the following reasons: (a) the Employee's pregnancy; (b) birth of the Employee's child; -5- (c) placement of a child with the Employee in connection with adoption of such child by the Employee; or (d) the caring for such child for a period beginning immediately following such birth or placement; provided, however, that in order for an Employee's absence to qualify as a Maternity/Paternity Absence, the Employee must furnish the Committee with such information as the Committee may reasonably require (in such form and at such time as the Committee may reasonably require) to establish that the absence from work is an absence described hereunder and the number of days for which the absence lasted. 2.29 "Participant" means each Eligible Employee who participates in the Plan in accordance with Article IV. 2.30 "Participating Employer" means (a) the Company, and (b) each Affiliated Company which has adopted the Plan with the consent of the Company. 2.31 "Participating Employer Contribution" means any contribution made to the Trust under Section 5.3. 2.32 "Participating Employer Contribution Account" means that portion of a Participant's Share of the Trust Fund attributable to Participating Employer Contributions, and to the earnings thereon. 2.33 "Period of Service for Participation" means, with respect to an Employee, an Eligibility Period during which the Employee is credited with 500 or more Hours of Service. For purposes of this Section 2.34: (i) service performed for Digital Electronics Automation Company shall be credited as service for the Employer, provided, however, that no individuals shall participate in the Plan before April 1, 1995, solely on account of the application of this clause; and (ii) service performed for Brown & Sharpe Aftermarket Services, Inc. (or its predecessor) shall be credited as service for the Employer, provided, however, that no individuals shall participate in the Plan before July 21, 1997, solely on account of the application of this clause. 2.34 "Plan" means The Brown & Sharpe Savings and Retirement Plan for Management Employees as set forth herein, together with any and all amendments and supplements hereto. 2.35 "Plan Year" or "Limitation Year" means the calendar year. 2.36 "Prior Matching Contribution Account" means that portion, if any, of a Participant's Share of the Trust Fund which is attributable to Participating Employer matching contributions under the Prior Plan as in effect prior to January 1, 1987, and the earnings thereon. -6- 2.37 "Prior Plan" means the Brown & Sharpe Savings and Retirement Plan for Management Employees as in effect prior to the Effective Date, and includes the Brown & Sharpe Fund as in effect prior to January 1, 1987. 2.38 "Qualified Domestic Relations Order" means any judgment, decree or order (including approval of a property settlement agreement) which is determined by the Committee to: (a) relate to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant; (b) be made pursuant to a State domestic relations law (including a community property law); (c) constitute a "qualified domestic relations order" within the meaning of Code Section 414(p) and ERISA Section 206(d)(3)(B), as added by the Retirement Equity Act of 1984; and (d) be entered on or after January 1, 1985. In addition, any judgment, decree or order which is determined to have satisfied the requirements of (a) and (b) above, and which is entered prior to January 1, 1985 may be treated as a Qualified Domestic Relations Order by the Committee. A judgment, decree or order which is determined to have satisfied the requirements of (a) and (b) above shall not be deemed to fail to satisfy (c) above merely because it requires payment to an alternate payee prior to the Participant's "earliest retirement age" (as that term is defined in Section 414(p) of the Code and ERISA section 206(d)(3)). 2.39 "Retirement" means (i) separation from service (for any reason other than death or a Total and Permanent Disability) on or after attainment of age 65, or (ii) if the Participant has at least ten (10) Years of Service for Vesting, separation from service (for any reason other than death or a Total and Permanent Disability) on or after attainment of age 55. 2.40 "Salary" means gross compensation received during the period at issue for services rendered to a Participating Employer while a Participant, including any amount that would have been received by the individual from a Participating Employer while a Participant but for elections under Code sections 125 and 401(k), but excluding any amounts which are excludable from the definition of compensation under Code section 415 and the Treasury regulations promulgated thereunder. For purposes of determining the status of an individual as a highly compensated Employee or a key employee, "Salary" shall include such amounts determined pursuant to the preceding sentence, but with respect to services rendered to the Company or any Affiliated Company and without regard to whether the individual is a Participant hereunder. Notwithstanding the foregoing, for purposes of Sections 5.4, 5.5 and 5.6, "Salary" means compensation determined pursuant to a definition acceptable under Code section 414(s) and the Treasury regulations thereunder, as determined by the Committee. -7- Salary shall include only Salary (as defined in the preceding paragraph) that is actually paid to the Participant during the applicable Plan Year (or that would have been so paid absent reduction pursuant to a Salary reduction agreement under Article V) and shall be limited for purposes of the Plan to $160,000 (or such larger amount as the Secretary of the Treasury may determine under Section 401(a)(17) of the Code) for any Plan Year. 2.41 "Share of the Trust Fund" means, in the case of each Participant, that portion of the Trust's assets which is allocated to the accounts maintained on behalf of the Participant under the Plan. 2.42 "Social Security Wage Base" means the contribution and benefit base under Section 230 of the Social Security Act as from time to time in effect. 2.43 "Stock" means the Class A Common Stock of the Company. 2.44 "Total and Permanent Disability" means a mental or physical impairment that entitles the individual to Social Security disability benefits, based on such evidence as the Committee may require. 2.45 "Transfer Account" means that portion of a Participant's Share of the Trust Fund, if any, attributable to amounts transferred under the Prior Plan for the benefit of the Participant to the Trust from the trust associated with the Brown & Sharpe Manufacturing Company Retirement Plan for Management Employees in connection with the termination of such plan. 2.46 "Trust" means the trust or trusts established by the Company in connection with the Plan under an agreement between the Company and the Trustee, together with any and all amendments thereto. 2.47 "Trust Fund" means the property held in trust by the Trustee for the benefit of Participants, former Participants and their Beneficiaries. 2.48 "Trustee" means the person or person appointed as Trustee pursuant to Section 7.1, any successor trustee or trustees, and any additional trustee or trustees. 2.49 "Valuation Date" means each day during which trading occurs on the New York Stock Exchange, or such other day as the Committee may designate. 2.50 "Vesting Period" means the Plan Year. -8- 2.51 "Year of Service for Vesting" means, with respect to any Employee, a Vesting Period during which the Employee has completed 1,000 or more Hours of Service. Employees who participated in the Prior Plan as of January 1, 1983 shall be granted one (1) Year of Service for Vesting for the Plan Year ended December 31, 1982 regardless of the number of Hours of Service completed in such Plan Year. For purposes of this Section 2.51, service performed for Digital Electronic Automation Company or Brown & Sharpe Aftermarket Services, Inc. (or its predecessor) shall be credited as service for the Employer. All pronouns used in the Plan that are gender-specific are intended to include the opposite gender, unless the context dictates otherwise. -9- Article III. Administration. 3.1 Plan Administrator. For purposes of ERISA, the plan administrator shall be the Company. To administer the Plan, the Company, through its Board of Directors, has established a Committee, consisting of at least three individuals appointed from time to time by the Board of Directors, to serve at its pleasure. Participants may be appointed to serve as members of the Committee at the discretion of the Board of Directors. Except as may be directed by the Company, no person serving on the Committee will receive any compensation for such services. The Committee may adopt by-laws and regulations for the conduct of its affairs and may appoint one of its members chairman. It may also appoint a secretary and one or more other agents, none of whom need be a member of the Committee. Any determination of the Committee may be made by a majority of the Committee at a meeting thereof or without a meeting by a resolution or memorandum signed by all the members. The Committee may authorize one or more of its members, officers or agents to sign on its behalf any instructions of the Committee to the Trustee, and the Trustee will be fully protected in acting thereon. Any individual serving on the Committee who is a Participant will not vote or act on any matter relating solely to himself. 3.2 Powers of Committee. The Committee will have full power to administer the Plan in all of its details, subject, however, to the requirements of ERISA. For this purpose the Committee's power will include, but will not be limited to, the following authority: (a) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) to interpret the Plan, its interpretation thereof in good faith to be final and conclusive on any Employee, former Employee, Participant, former Participant and Beneficiary; (c) to decide all questions and ambiguities concerning the Plan and the eligibility of any person to participate in the Plan; (d) to compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan, and to determine the person or persons to whom such benefits will be paid; (e) to authorize the payment of benefits; -10- (f) to keep such records and submit such filings, elections, applications, returns or other documents or forms as may be required under the Code and applicable regulations, or under state or local law and regulation; (g) to appoint such agents, counsel, accountants and consultants as may be required to assist in administering the Plan; and (h) by written instrument, to allocate and delegate its fiduciary responsibilities in accordance with Section 405 of ERISA. 3.3 Effect of Interpretation or Determination. Any interpretation of the Plan or other determination with respect to the Plan by the Committee shall be final and conclusive on all persons in the absence of clear and convincing evidence that the Committee acted arbitrarily or capriciously. 3.4 Examination of records. The Committee will make available to each Participant such of its records as pertain to him or her, for examination at reasonable times during normal business hours. 3.5 Nondiscriminatory exercise of authority. Whenever, in the administration of the Plan, any discretionary action by the Committee is required, the Committee shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated will receive substantially the same treatment. 3.6 Reliance on tables, etc. In administering the Plan, the Committee will be entitled, to the extent permitted by law, to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by any accountant, trustee, counsel or other expert who is employed or engaged by the Committee. 3.7 Named fiduciary. The Committee will be a "named fiduciary" for purposes of Section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan, and will be responsible for complying with all of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA. 3.8 Claims and review procedures. (a) Claims procedure. If any person believes he or she is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Committee. If any such claim is wholly or partially denied, the Committee will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary and (iv) -11- information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Committee (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period). If such notification is not given within such period, the claim will be considered denied as of the last day of such period and such person may request a review of his or her claim. (b) Review procedure. Within 60 days after the date on which a person receives written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or the person's duly authorized representative, may (i) file a written request with the Committee for a review of the denied claim and of pertinent documents and (ii) submit written issues and comments to the Committee. The Committee will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Committee (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Committee to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period). If the decision on review is not made within such period, the claim will be considered denied. 3.9 Indemnification of Committee Members and Assistants. The Company agrees to indemnify and defend to the fullest extent of the law, any Employee or former Employee (a) who in good faith serves or has served as a member of the Committee, (b) who has been appointed to assist the Committee in administering the Plan, or (c) to whom the Committee has delegated any of its duties or responsibilities, against any liabilities, damages, costs and expenses including attorneys' fees or liability, including any sum paid in settlement of any claim with the approval of the Board of Directors, arising out of any act or omission to act in connection with the Plan, excepting only willful misconduct. 3.10 Costs of Administration. To the extent consistent with ERISA, all reasonable costs and expenses incurred by the Committee or members thereof in administering the Plan will be paid by the Plan, unless otherwise paid by the Company. The compensation of all agents, counsel or other persons retained or employed by the Committee shall be fixed by the Committee, subject to the approval of the Board of Directors, and shall be paid in the same manner as provided in the preceding sentence. -12- Article IV. Participation. 4.1 Participation. Each Eligible Employee who was eligible to receive Participating Employer Contributions under the Plan as in effect on the day before the Effective Date will continue to be a Participant for purposes of Section 5.3 on and after the Effective Date, subject to Section 4.2 below. Each other Eligible Employee will become a Participant for purposes of Section 5.3 on the first administratively practicable Entry Date coinciding with or next following his or her completion of a Period of Service for Participation, provided that he or she is an Eligible Employee on that Entry Date. For all other purposes of the Plan, an Eligible Employee will become a Participant on the day on which he or she first performs an Hour of Service as an Eligible Employee. 4.2 Cessation of Participation. In general, a Participant will cease to be a Participant as of the earlier of (a) the date on which he or she ceases to be an Eligible Employee, and (b) the date on which the Plan terminates. Notwithstanding the preceding sentence, an individual will continue to be treated as a Participant for purposes of Articles VI, VIII, IX, X and XI until such time as the Participant's Share of the Trust Fund has been completely forfeited or distributed. 4.3 Breaks in Participation. If a Participant ceases to be a Participant pursuant to Section 4.2(a) and thereafter returns to the employ of a Participating Employer, he or she will again become a Participant on the day (if prior to the date described in Section 4.2(b)) on which he or she performs an Hour of Service as an Eligible Employee. -13- Article V. Contributions; Limitations. 5.1 Elective Contributions. For each pay period a Participating Employer will contribute to the Trust for the benefit of each Participant employed by such Participating Employer an amount equal to the amount by which the Participant's Salary for such period was reduced pursuant to the Salary reduction agreement then in effect between the Participant and the Participating Employer. Contributions made pursuant to this Section 5.1 will be paid to the Trustee as soon as the contributions can be reasonably segregated from the general assets of the Participating Employer, but in no event later than the fifteenth business day of the month following the month during which the Salary to which such contributions relate is paid, and will be credited to the Participant's Elective Contribution Account in accordance with the provisions of Section 6.2. For purposes of the Plan, "Salary reduction agreement" means an agreement between a Participant and a Participating Employer that satisfies the requirements of this paragraph. Each such agreement shall provide for (i) reduction of the Participant's Salary by a percentage elected by the Participant subject to such limitations and procedures as the Committee may prescribe, and (ii) an equivalent contribution to the Trust by the Participating Employer pursuant to this Section 5.1. Each Salary reduction agreement will be effective as of the first pay period commencing after the agreement is received by the Committee, or as soon as administratively practicable thereafter. Each such agreement will be (A) irrevocable while the agreement is in effect with respect to Salary already earned, but (B) revocable as provided in the following sentence with respect to Salary not yet earned. Subject to such limitations and procedures as the Committee may prescribe, a Participant may elect to increase or decrease the amount by which his or her Salary is to be reduced with respect to future pay periods, or to suspend or revoke a Salary reduction agreement with respect to future pay periods, by giving notice pursuant to procedures established by the Committee. 5.2 Matching Contributions. For each pay period, a Participant's Participating Employer shall contribute to the Trust for the Participant's benefit Matching Contributions in an amount equal to a percentage (which may be zero) (the "matching percentage") of the aggregate Elective Contributions, if any, made for the pay period for the Participant's benefit. For purposes of the preceding sentence, Elective Contributions for any pay period in excess of 6% of the Participant's Salary for such pay period shall be disregarded. Except as the Board of Directors may otherwise determine, the matching percentage for any pay period shall be twenty-five (25%) percent. 5.3 Participating Employer Contributions. The Participating Employers shall contribute to the Trust, in addition to amounts (if any) contributed under Sections 5.1 and 5.2, their allocable share (as determined by the Committee) of an amount equal to the sum of (a) four (4%) percent of each eligible Participant's Salary for such Plan Year to the extent such Salary does not exceed the Social Security Wage Base as in effect at the beginning of the Year, plus (b) eight (8%) percent of each eligible Participant's Salary for such Plan Year in excess -14- of the Social Security Wage Base. The Board of Directors may provide for any Plan Year that the rates of contribution under (a) and (b) above shall be less or more than four and eight percent, respectively, or that no contributions shall be made under this Section 5.3; provided, that in each case the relative rates of contribution under this Section 5.3 for any Plan Year must satisfy the requirements of Section 401(l) of the Code. Contributions under this Section 5.3 shall be made as soon as practicable following the close of each Plan Year and shall be allocated in accordance with Section 6.2. For purposes of this Section 5.3, a Participant shall be considered an "eligible Participant" for any Plan Year if he or she (i) is a Participant on the last day of the Plan Year or separated from service on account of Retirement, death or Total and Permanent Disability during the Plan Year, and (ii) is (or, in the case of death, Retirement or Total and Permanent Disability during the Plan Year, was at the time of such death, Retirement or Total and Permanent Disability) employed by a Participating Employer designated by the Board of Directors as participating in the program of Participating Employer Contributions described in this Section. Only those Participating Employers which are so designated shall make Participating Employer Contributions in accordance with the provisions of this Section. 5.4 Certain prospective adjustments in Elective Contributions. (a) If at any time during a Plan Year the Committee determines that the nondiscrimination standard of Code section 401(k)(3), hereby incorporated by reference and described below, may not be satisfied (or that the limitations set forth in Section 6.4 may be exceeded) by reason of excessive Elective Contributions made or to be made for such Year, the Committee may decrease the rate of future contributions under Section 5.1 for the Plan Year to the extent it deems such a decrease to be necessary or appropriate to satisfy or meet the aforesaid standard or limitations (or both). In the event of any such decrease in a contribution made for the benefit of any Participant, the amount by which the Participant's Salary is reduced will be appropriately adjusted. (b) The nondiscrimination standard referred to in the preceding paragraph will be satisfied for a Plan Year if either of the following tests is satisfied: (i) the average of the ratios of all Elective Contributions to Salary ("Deferral Ratios") for the Plan Year for all highly compensated Participants does not exceed the product of 1.25 times the average of the Deferral Ratios for the Plan Year (or the preceding Plan Year, as applicable) for all Participants other than highly compensated Participants -15- (including those Participants who do not make an election under Section 5.1), or (ii) the excess of the average of the Deferral Ratios for the Plan Year for all highly compensated Participants over the average of the Deferral Ratios for the Plan Year (or the preceding Plan Year, as applicable) for all Participants other than highly compensated Participants is not more than two percentage points, and the average of the Deferral Ratios for the Plan Year for all highly compensated Participants does not exceed the product of two times the average of the Deferral Ratios for the Plan Year (or the preceding Plan Year, as applicable) for all Participants other than highly compensated Participants. For purposes of these tests, "highly compensated Participants" for the Plan Year includes only those Participants who would be considered highly compensated employees under section 414(q) of the Code after applying the "top-paid group" (rule of Code section 414(q)(1)(B)(ii)). In the event that the Plan satisfies the requirements of Code sections 401(k), 410(a)(4) or 401(b) only if aggregated with one or more other plans with the same plan year, or if one or more of the plans with the same plan year satisfy such Code sections only if aggregated with the Plan, then this Section 5.4 shall be applied by determining the deferral ratios as if as such plans were a single plan, provided that each such plan uses the same "current year" or "prior year" testing method. Also, if, in addition to this Plan, a highly compensated Participant for the Plan Year is eligible to have elective deferrals (including qualified matching contributions, to the extent treated as elective deferrals) allocated to his or her accounts under any other cash or deferred arrangement described in Code section 401(k) and maintained by the Employer, the highly compensated Participant's Deferral Ratio shall be determined as if the additional elective deferrals, if any, are made under this Plan. (c) If the Committee determines pursuant to this Section 5.4 to decrease the rate of contributions under Section 5.1 in order to satisfy the nondiscrimination standard described above, any such decrease shall be affected by a method determined by the Committee in its discretion to satisfy the nondiscrimination requirement described in this Section 5.4. (d) If the Committee requires a decrease in the rate of Elective Contributions in order to meet the requirements of Section 6.4 with respect to any Participant, only those contributions which would have been made for the benefit of the Participant will be decreased. (e) The Plan shall be tested under the "current year" testing method for the Plan Year beginning January 1, 1997, and shall be tested under the "prior year" method for the Plan Year beginning January 1, 1998 and each year thereafter unless otherwise elected by the Committee consistent with procedures and guidance issued by the Internal Revenue Service. 5.5 Excess contributions returned. If, notwithstanding the adjustments described in Section 5.4, the Committee determines that the nondiscrimination standard of Code section 401(k)(3), described in Section 5.4, will not be (or has not been) satisfied for such Year, -16- excess contributions (as hereinafter defined) for such Year shall be returned to Participants within 2 1/2 months after the close of the Plan Year, in accordance with and subject to the following rules: (a) No return of contributions pursuant to this Section shall be effected except in accordance with section 401(k)(8) of the Code. (b) The Committee shall determine the excess Elective Contribution attributable to each highly compensated Participant by (i) first, treating Elective Contributions made on behalf of all highly compensated Participants as having been reduced in the order of the Participants' respective Deferral Ratios, beginning with the largest such Ratio, until the Deferral Ratios for the highly compensated Participants (as so reduced) would satisfy the nondiscrimination standard of Section 5.4(b) above, and (ii) second, aggregating the excess contributions determined under clause (i). The Committee shall then cause an amount equal to the aggregate amount of such excess to be distributed to highly compensated Participants as follows: (A) first, highly compensated Participants shall be ranked in descending order based on the amounts of Elective Contributions that were contributed to the Plan for their benefit; and (B) second, there shall be distributed to the Participant with the highest dollar amount of Elective Contributions the amount required to cause that Participant's undistributed Elective Contributions to equal the dollar amount of the Elective Contributions for the benefit of the highly compensated Participant with the next highest dollar amount of Elective Contributions. These steps shall be repeated until the aggregate amount of Elective Contributions so distributed equals the aggregate amount of excess Elective Contributions determined under the first sentence of this Section 5.5(b). There shall be distributed together with any Elective Contributions that are returned under this subsection earnings attributable to such contributions, as determined by the Committee in a manner consistent with applicable regulations. (c) Elective Contributions for the benefit of a Participant which are returned as a result of this Section shall not be taken into account in determining the amount of Matching Contributions to be made for the Participant's benefit. To the extent Matching Contributions have already been made with respect to the Elective Contributions at the time the Elective Contributions are determined to be excess contributions, such Matching Contributions shall be distributed to the Participant at the same time the Elective Contributions are returned. 5.6 Certain limitations and adjustments pertaining to Matching Contributions. (a) In general. Matching Contributions made under the Plan and any subsidy provided pursuant to Section 7.3 (together, "Matching Amounts") are subject to the limits of Code section 401(m), as more fully described below. The Plan provisions relating to the 401(m) limits are to be interpreted and applied in accordance with Code -17- sections 401(m) and 401(a)(4), which are hereby incorporated by reference, and in such manner as to satisfy such other requirements relating to Code section 401(m) as may be prescribed by the Secretary of the Treasury from time to time. (b) Limits. In addition to the limitations of Section 5.7, Matching Amounts for any Plan Year shall be limited so that the nondiscrimination standard described in this subsection is satisfied. The nondiscrimination standard described in this subsection is satisfied if and only if (i) either (A) the average of the ratios of all Matching Contributions to Salary (the "Contribution Ratios") for the Plan Year for all highly compensated Participants does not exceed 1.25 times the average of the Contribution Ratios for the Plan Year (of the preceding Plan Year, as applicable) for all Participants other than highly compensated Participants, or (B) the excess of the average of the Contribution Ratios for the Plan Year for all highly compensated Participants over the average of the Contribution Ratios for the Plan Year (of the preceding Plan Year, as applicable) for all Participants other than highly compensated Participants is not more than two percentage points, and the average of the Contribution Ratios for the Plan Year for all highly compensated Participants does not exceed the product of two times the average of the Contribution Ratios for the Plan Year (of the preceding Plan Year, as applicable) for all Participants other than highly compensated Participants; and (ii) after taking into account Elective Contributions made for the Plan Year for the benefit of highly compensated Participants, the so-called "multiple use" limitations of Treasury regulation section 1.401(m)-2 have not been exceeded. For purposes of these determinations, "highly compensated Participants" has the same meaning as in Section 5.4. Elective Contributions not applied to satisfy the Code section 401(k)(3) limits described in Section 5.4 above may be treated as Matching Amounts for purposes of the limitations described in this Section to the extent permitted by Treasury regulation section 1.401(m)-1(b)(5). In the event that the Plan satisfies the requirements of Code sections 401(k), 410(a)(4), or 410(b) only if aggregated with one or more other plans with the same plan year, or if one or more other plans with the same plan year satisfy such Code sections only if aggregated with this Plan, then this Section shall be applied by determining the ratios of Matching Amounts to Salary as if all such plans were a single plan, provided that each such plan uses the same "current year" or "prior year" method of testing described above. The Plan shall be tested under the "current year" testing method for the Plan Year beginning January 1, 1997, and shall be tested under the "prior year" method for the Plan Year beginning January 1, 1998 and each year thereafter unless otherwise elected by the Committee consistent with procedures and guidance issued by the Internal Revenue Service. -18- (c) Adjustments; return. Notwithstanding Section 5.2 above, if the amount determined to be contributed to the Trust for any Plan Year as Matching Amounts would result in a failure to satisfy the limitations of paragraph (b) above, then the Matching Amounts to be contributed to the Trust for the benefit of highly compensated Participants shall be reduced in such manner and to such extent as the Committee determines to be necessary to satisfy such limitations. If, notwithstanding such precautions, Matching Amounts made to the Trust for a Plan Year exceed the limitations of paragraph (b) above, the excess of such contributions shall be determined and distributed as follows. First, the amount of excess shall be determined by treating Matching Amounts made for the benefit of highly compensated Participants as having been reduced in the order of their respective Contribution Ratios, beginning with the largest such ratio, until the Contribution Ratios for the highly compensated Participants (as so reduced) would satisfy the nondiscrimination standard of Section 5.6(b) above. Second, the amount of the excess contributions determined under the preceding sentence shall be aggregated. Third, the aggregate excess amount so determined shall be distributed by (i) ranking highly compensated Participants in descending order based on the amounts of Matching Amounts made for their benefit, and (ii) then distributing to the Participant with the highest dollar amount of such contributions the amount necessary to cause the undistributed portion of such contributions to equal the dollar amount of Matching Amounts for the benefit of the highly compensated Participant with the next highest amount of such contributions, and so forth until the entire aggregate excess amount of Matching Amounts has been distributed. Any distributions made pursuant to the preceding sentence shall consist first of Matching Contributions, then, to the extent necessary, any subsidy under Section 7.3, and only then any other contributions treated as Matching Amounts. There shall be distributed together with any amounts distributed under the preceding sentences earnings attributable to such amounts, as determined by the Committee in a manner consistent with applicable regulations. Any excess Matching Amounts distributed in accordance with this subsection shall nevertheless be treated as employer contributions for purposes of Code sections 401(a)(4), 404, and 415. 5.7 General provisions and limitations. In no event will the sum of a Participating Employer's contributions under Sections 5.1, 5.2 and 5.3 for any Plan Year (a) exceed the maximum amount which is permitted to be deducted for federal income tax purposes, including amounts deductible under the carryover provisions of the Code, or (b) be in an amount which would cause the Annual Addition for any Participant to exceed the amount permitted under Section 6.4. Contributions under the Plan are conditioned on their deductibility under section 404 of the Code. In no event shall the sum of the Elective Contributions made for the benefit of any Participant under Section 5.1 for any calendar year exceed $10,000 (or such higher amount as may be in effect for such year under section 402(g)(1) of the Code). 5.8 Mistake of fact, etc. If a contribution to the Trust is, -19- (a) made by reason of a good faith mistake of fact, or (b) believed in good faith to be deductible under section 404 of the Code, but the deduction is disallowed, the Trustee shall, upon request by the Participating Employer making the contribution, return the excess of the amount contributed over the amount, if any, that would have been contributed had there not occurred a mistake of fact or a mistake in determining the deduction. If the Trust has suffered a net loss since the time of the excess contribution, the amount returned shall be reduced by the portion of the net loss attributable to the excess contribution. If the excessive amount described in the preceding paragraph has been credited to the accounts of Participants, the amount returned under this Section 5.8 shall be subtracted from each Participant's Share of the Trust Fund in proportion to the portion of the excess amount allocated to the Participant. However, if, as a result of distributions from the Trust, a Participant's Share of the Trust Fund is less than the amount to be subtracted from it under the preceding sentence, the amount returned shall be reduced by the difference, and the accounts of other Participants shall not be further adjusted under the preceding sentence. In no event shall the return of a contribution hereunder cause any Participant's Share of the Trust Fund to be reduced to less than it would have been had the mistaken or nondeductible amount not been contributed. No return of a contribution hereunder shall be made more than one year after the mistaken payment of the contribution, or disallowance of the deduction, as the case may be. -20- Article V1. Accounts. 6.1 Committee to maintain accounts. The Committee will establish and maintain on its books for each Participant an Elective Contribution Account, a Participating Employer Contribution Account, a Matching Contribution Account and such other accounts or sub-accounts as it deems necessary or desirable to fulfill the provisions of the Plan (including, if applicable, an After-Tax Contribution Account, a Prior Matching Contribution Account, and a Transfer Account). 6.2 Adjustment of accounts. The Committee will, with respect to the accounts maintained under Section 6.1 for each Participant, (a) First, as of each Valuation Date, reduce the Participant's accounts by the aggregate amount of all distributions, forfeitures and withdrawals made with respect to the Participant since the preceding Valuation Date; (b) Second, as of each Valuation Date, adjust the balance of such accounts to reflect the current fair market value of the Trust assets; (c) Third, with respect to each pay period and as of the Valuation Date coinciding with or next following the date such contributions are deposited in the Trust, credit the Participant's Elective Contribution Account with the Elective Contributions (if any) and the Participant's Matching Contribution Account with the Matching Contributions (if any) made for the Participant's benefit for such pay period; (d) Fourth, as of the last Valuation Date in each Plan Year, credit the Participant's Participating Employer Contribution Account with the Participating Employer Contributions (if any) made in respect of such Participant for such Plan Year. 6.3 Treatment of forfeitures. If a Participant forfeits any interest in the Trust Fund as provided under Section 10.5 below, the amount of the forfeiture will be applied toward Matching Contributions under Section 5.2 (if any) for the Plan Year, with any excess applied toward Participating Employer Contributions for such Year, if any. If any excess remains after application of the preceding sentence, the excess shall be applied first toward the correction of any errors in allocation, the determination of benefit amounts or the execution of benefit payments, and then toward the payment of Plan expenses in accordance with Section 3.10. If any excess still remains after application of the preceding sentences, it shall be allocated in the same manner as Participating Employer Contributions. 6.4 Limitations. Each Plan Year, the requirements of Code section 415, hereby incorporated by reference into the Plan, shall apply to limit contributions under the Plan. -21- (a) Order of reduction. To the extent necessary to satisfy the limitations of Code Section 415 for any Participant, the Annual Addition which would otherwise be made on behalf of a Participant under the Plan shall be reduced after the Participant's benefit is reduced under any and all defined benefit plans, and before the Participant's Annual Addition is reduced under any other defined contribution plan. (b) Correction of excess Annual Addition. The Committee, to the extent necessary to satisfy the foregoing limitations in the case of any Participant, shall: (i) first, reduce any future contributions remaining to be made for the Limitation Year for the benefit of the Participant; (ii) second, if a reduction is necessary in respect of amounts already contributed, return to the affected Participant his or her Elective Contributions while transferring any related Matching Contributions (and earnings) to a suspense account within the Plan, to be applied or allocated as hereinafter provided; and (iii) if a further reduction is necessary, transfer any Participating Employer Contributions (and earnings) for the benefit of the Participant to a suspense account within the Plan, to be applied or allocated as hereinafter provided. Amounts held in a suspense account pursuant to the preceding sentence shall be used to reduce Matching Contributions for the benefit of the effected Participant during the next Limitation Year (and succeeding Limitation Years, if any), provided the Participant is an Eligible Employee. If the Participant ceases to be an Eligible Employee, any amount remaining in such suspense account shall be applied toward Matching Contributions for remaining Participants. If for any Plan Year a Participating Employer Contribution but no Matching Contribution is made to the Trust, any amounts that would have been applied under this Section to Matching Contributions shall instead be applied to reduce Participating Employer Contributions. 6.5 Reports to Participants. The Committee, at least quarterly, will determine each Participant's Share of the Trust Fund and will report the same in writing to the Participant concerned. -22- Article VII. Trust Fund. 7.1 Appointment of Trustee. The Board of Directors will appoint one or more persons (including, in the Board of Directors' discretion, banks or other institutions as well as natural persons) to act as Trustee under the Plan, and at any time may remove and appoint a successor to any such person or persons. The Company may, without reference to any Participant or other party in interest, enter into a trust agreement with the Trustee and make such amendments to such trust agreement or such further agreements as the Company in its sole discretion may deem necessary or desirable to carry out the Plan, including designations of investment counsel to direct the Trustee in the investment and reinvestment of the Diversified Fund and/or the Guaranteed Interest Fund created hereunder. 7.2 Investment of accounts. All contributions to the Trust and all investments held thereunder will be held by the Trustee in the Trust Fund. All Participant accounts under the Plan shall be invested in one or more investment options made available from time to time by the Company for this purpose. The Plan is intended to qualify, to the maximum extent possible taking into account the other provisions of the Plan, as an "ERISA section 404(c) plan" within the meaning of regulations issued pursuant to such section. Participants shall have the opportunity, at least once in any 3-month period, to give investment instructions to the Committee (with an opportunity to obtain written confirmation of such instructions) as to the investment of contributions made on his or her behalf among the investment options. The Committee shall be obligated to comply with such instructions except as otherwise provided in the ERISA section 404(c) regulations. The Committee shall prescribe the form and manner in which such directions shall be made, as well as the frequency with which such directions may be made or changed, and the dates as of which they shall be effective, in a manner consistent with the foregoing. By failing to submit a completed investment election form or otherwise affirmatively directing the initial investment of his or her accounts, a Participant shall be deemed to elect that contributions shall be contributed to The Brown & Sharpe Stable Value Fund. The Committee shall be the fiduciary identified to furnish the information contemplated by ERISA section 404(c), but may designate on its behalf another person or entity to provide such information or to perform any of the obligations of the Committee under this Section 7.2. 7.3 Certain Investments in the Company Stock Fund. Effective as to Elective Contributions (but not Participating Employer or Matching Contributions or existing account balances, from wherever derived) directed to be invested in the Company Stock Fund, the following special rules shall apply: (a) At the Company's election, either (i) such Elective Contribution shall be invested in Stock purchased from the Company at a price equal to 80 percent of Current Market Value, or (ii) the Participant's Employer shall contribute to the Trust, together with the Elective Contributions, a supplemental cash payment in an amount which, when added to the Elective Contributions and applied toward the purchase of Stock at Current Market Value, results in the purchase of the same number of shares of Stock as would have been purchased under (i). -23- (b) Notwithstanding Section 7.2 above, amounts invested in Stock pursuant to this Section 7.3 shall remain invested in the Company Stock Fund for not less than 12 months, subject, however, to Section 5.6, Section 9.1(g), or unless the Trust or the Common Stock Fund sooner terminates. -24- Article VIII. Withdrawals. 8.1 Withdrawal of prior contributions. Any Participant who was a Participant in the Prior Plan prior to January 1, 1983, may withdraw all or any part of that portion of his or her Share of the Trust Fund attributable to his or her After-Tax Contribution Account, the value of such portion to be determined as of the Valuation Date coinciding with or immediately preceding the date of the withdrawal. A request for a withdrawal under this Section 8.1 shall be made in compliance with such rules and procedures as may be established by the Committee. 8.2 In-Service Withdrawal from A&T Transfer Account. A Participant who is an Employee and who has attained age 59 1/2 may withdraw all or any part of the vested portion of his or her Share of the Trust Fund attributable to his or her A&T Transfer Account, the value of such portion to be determined as of the Valuation Date coinciding with or immediately proceeding the date of the withdrawal. A request for a withdrawal under this Section 8.2 shall be made in compliance with such rules and procedures as may be established by the Committee. 8.3 In-Service Withdrawal After Attaining Age 70 1/2. A Participant who is an Employee and who has attained age 70 1/2 may, once each calendar year, withdraw his or her Share of the Trust Fund, the value to be determined as of the Valuation Date coinciding with or immediately proceeding the date of the withdrawal. A request for a withdrawal under this Section 8.3 shall be made in compliance with such rules and procedures as may be established by the Committee. 8.4 Hardship withdrawals. (a) Any Participant who has demonstrated to the satisfaction of the Committee that he or she has suffered an immediate and heavy financial need as defined in this paragraph (a) may request a withdrawal from his or her Share of the Trust Fund of any sum not in excess of his or her cumulative Elective Contributions (determined as of the Valuation Date coinciding with or immediately preceding the date of the withdrawal) reduced by the amount of previous distributions made pursuant to this Section 8.4. A request for withdrawal under this Section 8.4 shall be made in accordance with such rules and procedures as may be established by the Committee. Such request shall set forth the facts establishing the existence of the hardship and the amount requested. In addition to such request, the Committee may require such other information, in form satisfactory to the Committee, as it deems necessary to discharge its responsibilities pursuant to this Article VIII. Upon receipt of such a request, the Committee will determine whether an immediate and heavy financial need exits; if the Committee determines that such a need does exist, it will further determine what portion of the amount requested by the Participant is required to relieve the financial need and will direct the Trustee to distribute to the Participant in a single lump sum the amount so -25- determined to be required. For purposes of this Section, a distribution will be deemed to be on account of an immediate and heavy financial need if the distribution is on account of: (i) medical expenses described in Section 213(d) of the Code incurred by the Participant, his or her spouse or a dependent of the Participant, or (ii) payment of tuition for the next 12 months of post-secondary education of the Participant or the Participant's spouse, children or dependents, or (iii) the purchase (excluding mortgage payments) of a principal residence for the Participant, or (iv) the need to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence. (b) For purposes of this Section, a distribution will be treated as an "amount necessary to relieve the financial need" if (i) the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant (including any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution), (ii) the Participant has obtained all distributions (if any) available under this and all other qualified retirement plans maintained by the Employer (other than hardship withdrawals), and (iii) the Participant has obtained all nontaxable loans currently available under Article IX and under all other qualified plans of the Employer. (c) Any Participant making a withdrawal under this Section shall be ineligible to have Elective Contributions (or any other contributions described in Code section 402(g)(3)) made to the Plan or to any other qualified or nonqualified plans of deferred compensation of the Employer (other than health or welfare benefit plans) for a 12-months period following the Valuation Date as of which the withdrawal is effective. Such 12-month period shall begin as of the first pay period following such hardship withdrawal as is administratively practicable. In addition, for the Plan Year following the year the hardship withdrawal is effective, no Elective Contributions (and any other contributions described in Code section 402(g)(3)) shall be made for the benefit of the Participant to the Plan or to any other qualified retirement plan maintained by the -26- Employer for such Year in excess of the applicable limit in effect under Section 402(g)(1) of the Code for such Year reduced by the aggregate amount of Elective Contributions (and any other contributions described in Code section 402(g)(3)) made for the benefit of the Participant to all other qualified retirement plans maintained by the Employer for the Plan Year in which the hardship withdrawal is effective. 8.5 Order of withdrawals; adjustments. Amounts withdrawn pursuant to this Article VIII in the case of any Participant will be taken pro rata from each of the investment options in which the Participant's Share of the Trust Fund is invested (determined as of the Valuation Date coinciding with or immediately preceding the date of the withdrawal). -27- Article IX. Loans to Participants. 9.1 Loans. Upon the request of a Participant on a form and in a manner approved or prescribed by the Committee, the Committee may direct the Trustee to make a loan from the Plan to such Participant, subject to the following conditions: (a) The Committee shall determine the time or times each year when loans shall be made available to Participants, and shall formulate such rules and procedures as it deems appropriate relating to such loans including such terms as may from time to time be specified by the Committee in accordance with this Article IX. Any written procedures developed by the Committee shall become part of this Plan. (b) The amount of any loan (the "subject loan"), together with the aggregate amount of principal and accrued interest owed by the Participant with respect to any prior loans from the Trust, shall not exceed the least of: (i) $50,000 reduced by the excess (if any) of (A) the highest outstanding balance of loans from the Plan to the Participant during the one-year period ending on the day before the date on which the subject loan is made, over (B) the outstanding balance of loans from the Plan to the Participant on the date on which the subject loan is made; or (ii) one-half of the vested portion of that part of the Participant's Share of the Trust Fund. For purposes of this Section 9.1(b), the value of a Participant's account shall be determined as of the Valuation Date immediately preceding the date the loan is approved. A loan shall not be available under the Plan unless the loan (determined after applying the limitations described above) is at least $1,000. For purposes of this Article IX, a former Participant, an individual described in Section 13.3 or 13.12, and a Beneficiary of a Participant shall be treated as a Participant only to the extent required by applicable regulations issued by the Department of Labor. (c) Each loan must be evidenced by a note and must be secured by not more than 50% of the Participant's nonforfeitable interest in his or her Share of the Trust Fund, including as part of such security the note evidencing the loan. The amount of the loan shall bear interest at -28- an annual percentage interest rate to be fixed by the Committee. In determining the interest rate, the Committee shall take into consideration interest rates currently being charged by persons in the business of lending money with respect to loans made in similar circumstances. The Committee shall make such determination through consultation with one or more lending institutions, as the Committee deems appropriate. Loans granted at different times may bear different interest rates. In the event of any default by a Participant under the note evidencing any loan under this Section 9.1(c), the unpaid principal of the note shall immediately become due and payable in full. Such unpaid principal, together with any accrued but unpaid interest, shall thereupon be deducted from the Participant's Share of the Trust Fund, subject to the following restriction: in no event shall the Committee apply the Participant's Share of the Trust Fund to satisfy the Participant's loan obligation, whether or not the Participant is in default, unless and until the amount so applied could be distributed in accordance with Article XI of the Plan or withdrawn in accordance with Article VIII of the Plan. (d) Each such loan made to a Participant who is an Employee shall be repayable by payroll deduction, with substantially level amortization (as that term is used in section 72(p)(2)(C) of the Code) and payments not less frequent than quarterly, over a specified period of time, as determined by the Committee. Each such loan made to any other Participant shall be repayable in a manner providing for substantially level amortization (as that term is used in section 72(p)(2)(C) of the Code) and payments not less frequent than quarterly, over a specified period of time, as determined by the Committee. Such period of time shall not exceed five years, unless the loan is used to acquire a dwelling unit which is to be used within a reasonable time as the principal residence of the Participant, in which case such period may not exceed fifteen years. (e) If, at the time benefits are to be distributed to a Participant or the Participant's Beneficiary under Article XI of the Plan, there remains any unpaid balance of a loan hereunder, such unpaid balance must become immediately due and payable in full. Such unpaid balance, together with any accrued but unpaid interest on the loan, shall be deducted from the Participant's account before any such distribution of benefits is made. No loan shall be made hereunder after the time distributions to a Participant or Beneficiary under Article XI are to be paid or commence. -29- (f) A note evidencing a loan to a Participant under this Article IX shall be an asset of the Trust which is allocated to the account of the Participant, and shall be deemed to have a fair market value at any given time equal to the unpaid balance of the note plus the amount of any accrued but unpaid interest. (g) Amounts necessary to provide a loan under this Article shall be obtained by the Trustee pro rata from each of the investment options in which the Participant's accounts are invested. Any repayment of a loan hereunder shall be reinvested in the investments funds in accordance with written rules or procedures prescribed by the Committee. The Committee shall communicate the rules and procedures which it formulates hereunder to each Participant who applies for a loan under the Plan. (h) Loans shall be made available to all Participants on a reasonably equivalent basis, except that the Committee may make reasonable distinctions based upon creditworthiness, other obligations of the Participant, state law restrictions affecting payroll deductions and any other factors that may adversely effect the ability to assure repayment through payroll deduction, where applicable, or such other manner as the Committee may require. The Committee may reduce or refuse a requested loan where it determines that timely repayment of the loan through payroll deduction is not assured. (i) In the case of a loan made hereunder to a Participant who is married at the time the loan is made, the Committee shall require the Participant's grant of a security interest in his or her accounts be accompanied by the written consent of the Participant's spouse to any set-off by the Plan with respect to such security interest. The Spouse's consent (together with the spouse's acknowledgment of the effect of the Participant's grant of the security interest) must be witnessed by a Plan representative or a notary public. -30- Article X. Vesting of Accounts. 10.1 Immediate vesting of certain Accounts. A Participant will at all times be 100% vested in the balance of his or her Elective Contribution Account, Matching Contribution Account and, if applicable, his or her Prior Matching Contribution Account, After-Tax Contribution Account, Transfer Account, any accounts maintained for the Participant's benefit under Sections 13.3, and any accounts or sub-accounts established by the Committee under Section 6.1 other than the Participant's Participating Employer Contribution Account and A&T Transfer Account, if any, and any sub-accounts relating thereto. 10.2 Deferred Vesting of Participating Employer Contribution Account and A&T Transfer Account. (a) Each Participant whose Employment Commencement Date is prior to January 1, 1998 and who is credited with one or more Hours of Service on or after that date shall have a vested interest in a percentage of his or her Participating Employer Contribution Account and A&T Transfer Account, if any, determined in accordance with the following schedule and based on the Participant's Years of Service for Vesting: Years of Service Applicable for Vesting Percentage Less than 1 0% 1, but fewer than 2 20% 2, but fewer than 3 40% 3 or more 100% (b) Each Participant whose Employment Commencement Date is on or after January 1, 1998, shall have a vested interest in a percentage of his or her Participating Employer Contribution Account determined in accordance with the following schedule and based on the Participant's Years of Service for Vesting: Years of Service Applicable for Vesting Percentage Less than 1 0% 1, but fewer than 2 20% 2, but fewer than 3 40% 3, but fewer than 4 60% 4, but fewer than 5 80% 5 or more 100% -31- (c) Each Participant whose Employment Commencement Date is prior to January 1, 1998 but who is not credited with at least one Hour of Service on or after that date shall a vested interest in a percentage of his or her Participating Employer Contribution Account and A&T Transfer Account, if any, determined in accordance with the Plan as in effect prior to January 1, 1998. 10.3 Special vesting rules. Notwithstanding any provision of the Plan to the contrary: (a) A participant will be fully vested in his or her Share of the Trust Fund upon the happening of any one of the following events: (1) The Participant's attainment of Normal Retirement Age while an Employee. (2) The Participant's death while an Employee. (3) The termination or partial termination of the Plan or the complete cessation of contributions to the Plan, to the extent that the Participant is affected by such termination, partial termination, or complete discontinuance. (4) The Participant's separation from service due to his or her Total and Permanent Disability. (b) Any person who was a Participant in the Prior Plan on May 15, 1987, shall be fully vested in the balance of all his or her accounts as of that date, but shall have a nonforfeitable interest in subsequent allocations, if any, in accordance with Sections 10.1, 10.2 and 10.3. (c) Any person who is a Participant on the date immediately preceding a Change of Control shall be fully vested in the balance of all his or her accounts as of that date, but shall have a nonforfeitable interest in subsequent allocations, if any, in accordance with Sections 10.1, 10.2 and 10.3. 10.4 Changes in vesting schedule. If the Plan's vesting schedule is amended, or the Plan is amended in any way that directly or indirectly affects the computation of a Participant's vested percentage (of if the Plan changes to or from a top-heavy vesting schedule), each Participant who has completed 3 Years of Service for Vesting may elect, within the period described below, to have his or her vested percentage determined without regard to such -32- amendment or change. The period referred to in the preceding sentence will begin on the date the amendment of the vesting schedule is adopted and will end 60 days after the latest of the following dates: (a) the date on which such amendment is adopted; (b) the date on which such amendment becomes effective; and (c) the date on which the Participant is issued written notice of such amendment by the Committee. 10.5 Forfeitures. If a Participant separates from the service of the Employer at a time when he or she has a less than 100 percent (100%) nonforfeitable interest in his or her Participating Employer Contribution Account or A&T Transfer Account, if any, the forfeitable portions of such Accounts will immediately be treated as forfeited. Notwithstanding the foregoing, if at any time prior to incurring five consecutive Breaks in Service the Participant is reemployed by the Employer, any amount so forfeited will be recredited to the Participant's Participating Employer Contribution Account and A&T Transfer Account, as applicable, subject to the following special rules: (a) Amounts required to be recredited to a Participant's Accounts pursuant to this Section will be taken first from amounts forfeited by other Participants which have not yet been applied in accordance with Section 6.3. (b) A reemployed Participant's nonforfeitable interest in any amounts recredited to his or her Accounts pursuant to this Section will be determined under Section 10.2, taking into account the Participant's Years of Service for Vesting accumulated before the separation from service which caused the forfeiture. All forfeitures arising under this Section 10.5, to the extent not applied to the recrediting of Accounts of reemployed Participants as described above, will be applied in accordance with Section 6.3. 10.6 Separate Account If a distribution has been made to a Participant at a time when he or she has a nonforfeitable right to less than one hundred (100%) percent of his or her Share of the Trust Fund, the vesting schedule in Section 10.2 will thereafter apply only to his or her Accounts attributable to contributions allocated after such distribution. The balance in his or her Accounts which were not 100% vested at the time of such distribution shall, immediately after such distribution, be transferred to separate accounts which will be maintained for the purpose of determining his or her interest therein at any later time. At any relevant time, his or her nonforfeitable interest in the portion of his or her Share of the Trust Fund held in each such separate account will be equal to P(AB+D)-D, where P is the nonforfeitable percentage -33- of his or her Account at the relevant time determined under Section 10.2; AB is the account balance of the separate account at the relevant time; and D is the amount of the distribution. However, if any portion of such separate account is forfeited under Section 10.5, the Participant's interest in the remaining balance, if any, in such separate account will thereafter be fully vested and nonforfeitable. -34- Article XI. Distribution of Benefits. 11.1 Method of making distributions. Distributions to a Participant or Beneficiary from the Trust will normally be made in a single lump sum payment. However, a Participant who separates from service by reason of Retirement may irrevocably elect, by notice given to the Committee in accordance with such rules and procedures as the Committee may establish for this purpose, to receive his or her entire Share of the Trust Fund in ten (10) annual installments, the amount of each such installment to be determined by dividing the former Participant's remaining Share of the Trust Fund by the number of years over which payments remain to be made. If a Participant elects installment payments in accordance with this Section, all costs, including recordkeeping costs, associated with maintaining the Participant's remaining Share of the Trust Fund will be charged, for the installment payment period, against the Participant's account. All amounts distributed from the Trust Fund shall be paid in cash, except that, at the election of the Participant or Beneficiary, distributions from the Company Stock Fund shall be paid in cash or in whole shares of Stock, with the value of any fractional share paid in cash. For purposes of the preceding sentence, the value of shares of Stock shall be the market value on the Valuation Date coinciding with or next preceding the date of distribution. 11.2 Direct rollovers. To the extent a distribution pursuant to Article XI or Section 8.1 constitutes an "eligible rollover distributions" as described in Code section 402(c)(4), a Participant, a Beneficiary who is the Participant's surviving spouse, or an alternate payee of a Participant under a Qualified Domestic Relations Order described in Section 13.7 may elect, at the time and in the manner prescribed by the Committee, to have any portion of the eligible rollover distribution paid directly to an eligible retirement plan. For this purpose, an "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), a qualified plan described in Code Section 401(a), or an annuity plan described in Code Section 403(a). However, in the case of a distribution under this Section 11.2 to a Participant's surviving spouse, an "eligible retirement plan" is an individual retirement account or individual retirement annuity. The Committee shall give a distributee notice of his or her right to elect a direct rollover and an explanation of the withholding consequences if not making the election. Such notice shall be given no earlier than 90 days and no less than 30 days before the date of distribution. However, a distribution may commence before the expiration of the 30-day period, at the election of the distributee, provided the distributee is provided information clearly indicating his or her right to such 30-day period. 11.3 Time of distributions. Distribution with respect to a Participant's separation from service will commence as soon as practicable after the Participant's separation from service. -35- In the case of a Participant whose vested portion of his or her Share of the Trust Fundis valued in excess of $5,000 and who has not yet attained age 65, distribution may not be made under this Section unless: (a) between the 30th and 90th day prior to the date distribution is to be made, the Committee notifies the Participant in writing that he or she may defer distribution until age 65; and (b) the Participant consents to the distribution in writing after the information described above has been provided to him or her, and files such consent with the Committee; Notwithstanding the foregoing, a distribution may commence less than 30 days after the notification under paragraph (ii)(a) above is given, provided that the Committee informs the Participant that he or she has a right to a period of at least 30 days after receiving the notice to consider any distribution election and the Participant may rescind any election to receive a distribution for a period of at least seven days after the date the individual receives such notice. For purposes of (i) above, the vested portion of a Participant's accounts will be considered to be valued in excess of $5,000 if the value of such portion exceeds such amount at the time of the distribution in question or exceeded such amount at the time of any prior distribution to the Participant under the Plan. The failure of a Participant to consent to an immediate distribution under paragraph (b) above shall be deemed to be an election to defer commencement of the payment of benefits as provided under Section 11.4. An individual who elects deferral of a benefit under this Section 11.3 may at any time subsequent to such election request a distribution of the benefit deferred. The Committee may prescribe such rules as it deems necessary pertaining to the form of such a request or to any information or signatures required with respect thereto. Distribution under this Section will be made in any case not later than the earliest to occur of the following: (1) the latest date for payment prescribed by Section 11.4, (2) as soon as reasonably practicable after the Committee is notified of the Participant's death, or (3) as soon as reasonably practicable after the Committee receives from the Participant and records a written consent to distribution. 11.4 Latest payment of benefits. (a) In no event will any payment of benefits to a Participant under the Plan commence later than the earliest of the dates described in (1), (2) and (3), where: (1) is, unless otherwise elected by the Participant, the 60th day after the close of the Plan Year in which occurs the latest of the date on which the Participant attains age 65, the tenth anniversary of the year in which the -36- Participant commenced participation in the Plan, and the date on which the Participant ceases to be an Employee, (2) is, for a Participant who is not a 5% owner, April 1 following the calendar year during which the Participant retires or attains age 70 1/2, whichever is later, and (3) is, for a Participant who is a 5% owner, April 1 following the calendar year in which the Participant attains age 70 1/2. (b) Notwithstanding paragraph (a)(2), with respect to any Participant who is not a 5% owner and who attains age 70 1/2 on or after January 1, 1996, and on or before December 31, 1998, the payment of the Participant's Share of the Trust Fund shall commence no later than the April 1 following the close of the calendar year in which the Participant attains age 70 1/2 (or such later date as may be permitted under guidance from the Internal Revenue Service), unless such Participant elects to delay such payment until he or she retires. In addition, any Participant who is not a 5% owner and who attained age 70 1/2 before January 1, 1996 may elect, in accordance with rules and procedures established by the Committee, to stop receiving payments pursuant to paragraph (a)(2) until such Participant retires. (c) If a Participant remains an Employee after the beginning of the year in which benefits are to commence under (a)(3) above or (b), the Participant's Share of the Trust Fund shall be distributed on or before the following April 1, and any additional amounts credited to the Participant's Accounts shall be distributed on or before each subsequent December 31. (d) Notwithstanding any other provision of the Plan to the contrary, all benefit distributions under the Plan shall be made in a manner consistent with Section 401(a)(9) of the Code and regulations thereunder, including Prop. Reg. Section 1.401(a)(9)-2. 11.5 Distributions after a participant's death. If a Participant dies before the complete distribution of his or her Accounts, the Participant's Beneficiary will receive the vested portion of the Participant's Accounts in cash in a single sum as soon as practicable following the Participant's death (but in no event later than December 31 of the calendar year following the year of the Participant's death). The value of such Accounts shall be determined as of the Valuation Date coinciding with or immediately following receipt from the Beneficiary and recording by the Committee of a certified copy of the death certificate for the Participant and the final distribution form to be provided by the Committee. 11.6 Notice to Trustee. The Committee will notify the Trustee whenever any Participant or Beneficiary is entitled to receive a distribution under the Plan. In giving such notice, the Committee will specify the name and last known address of the person receiving -37- such distribution. Upon receipt of such notice from the Committee, the Trustee will, as soon as is reasonably practicable, distribute such amount. 11.7 Designation of Beneficiary. (a) Subject to the provisions of this Section, a Participant's Beneficiary shall be the person or persons and entity or entities, if any, designated by the Participant from time to time on a form approved by the Committee. A non-spouse Beneficiary designation by a Participant who is married at the time of his or her death shall not be effective unless (1) prior to the Participant's death, the Participant's surviving spouse consented to and acknowledged the effect of the Participant's designation of a specific non-spouse Beneficiary (including any class of Beneficiaries or any contingent Beneficiaries) or a written form approved by the Committee and witnessed by a notary public or a duly authorized Plan representative; or (2) it is established to the satisfaction of the Committee that spousal consent may not be obtained because there is no spouse, because the spouse has died, because the spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may prescribe; or (3) the spouse had earlier executed a general consent form permitting the Participant (A) to select from among certain specified Beneficiaries without any requirement of further consent by the spouse (and the participant designates a Beneficiary from the specified list), or (B) to change his or her beneficiary without any requirement of further consent by the spouse. Any such general consent shall be on a form approved by the Committee, and must acknowledge that the spouse has the right to limit consent to a specific Beneficiary and that the spouse voluntarily elects to relinquish such right. Notwithstanding the foregoing, the Committee may, in its discretion, determine whether a Beneficiary designation is effective, and shall reject as ineffective any designation first received by or presented to the Committee after the death of the Participant. In the event a spouse is legally incompetent to give consent, the spouse's legal guardian, even if the guardian is the Participant, may give consent on behalf of the spouse. Any consent and acknowledgment by (or on behalf of) a spouse, or the establishment that the consent and acknowledgment cannot be obtained, shall be effective only with respect to such spouse, but shall be irrevocable once made. -38- (b) A Participant who has designated a Beneficiary in accordance with this Section 11.7 may change such designation at any time by giving written notice to the Committee, subject to the conditions of this Section 11.7 and such additional conditions and requirements as the Committee may prescribe in accordance with applicable law. (c) If a Participant dies without a surviving Beneficiary, the full amount payable upon his or her death will be paid to his or her surviving spouse or, if none, to his or her issue per stirpes. If any of such issue is a minor, the Trustees may deposit his or her share in a savings account to his or her credit in a savings bank or other financial institution for the benefit of such issue. If there is no surviving spouse or issue, then the amount may be paid to the Participant's executor or administrator or applied to the payment of his or her debts and funeral expenses, all as the Committee shall determine. -39- Article XII. Amendment and Termination. 12.1 Amendment. The Company reserves the power at any time or times to amend the provisions of the Plan and Trust to any extent and in any manner that it may deem advisable by written instrument, executed by an officer of the Company, providing for such amendment. Any such instrument will be effective in accordance with its terms as to all Participants and all persons having or claiming any interest hereunder. This power to amend shall be exercised by vote of the Board of Directors, pursuant to the rules established in the Company's By-Laws. However, notwithstanding this provision of power, the Company will not have the power: (a) to amend the Plan and Trust in such manner as would cause or permit any part of the assets of the Trust to be diverted to purposes other than for the exclusive benefit of each Participant and his or her Beneficiary, unless such amendment is permitted by law, governmental regulations or ruling; (b) to amend the Plan or Trust retroactively in such a manner as would eliminate or reduce any benefit attributable to service before the amendment to the extent such elimination or reduction would be prohibited under Section 411(d)(6) of the Code; or (c) to amend the Plan or Trust in such manner as would increase the duties or liabilities of the Trustee or affect its fee for services hereunder, unless the Trustee consents thereto in writing. 12.2 Binding Effect on other Participating Employers. Any amendment or termination of the Plan by the Company under Section 12.1 shall bind all of the other Participating Employers without the requirement for action or consent on the part of any such Participating Employer. In addition, no participating Employer other than the Company shall have any power to amend, modify, suspend or terminate the Plan as to its own or any other Participating Employer's participation therein, and all such power is exclusively vested in the Company. In addition, the Plan shall be treated as if it were maintained by a single employer, and the withdrawal from participation in the Plan of one or more Participating Employers shall not be deemed to be a termination or partial termination of the Plan with respect to the Participants employed by such participating Employer or Employers unless required to be treated as such by applicable laws or regulations. 12.3 Termination or partial termination. The Company has established the Plan and the Trust with the bona fide intention and expectation that contributions will be continued indefinitely, but the Company will have no obligation or liability whatsoever to maintain the Plan for any given length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee without any liability whatsoever for any such discontinuance or termination. The Plan will be deemed terminated (a) if and when the Company is judicially declared bankrupt, (b) if and when the Company is a -40- party to a merger in which it is not the surviving corporation or sells all or substantially all of its assets, unless the surviving corporation or the purchaser adopts the Plan by an instrument in writing delivered to the Trustee within 60 days after the merger or sale, or (c) upon dissolution of the Company. 12.4 Distributions upon termination of the Plan. Upon termination of the Plan or complete discontinuance of contributions thereunder, each affected Participant (including a terminated Participant in respect of amounts not previously forfeited by him or her) will have a fully vested and nonforfeitable interest in his or her Share of the Trust Fund, and the Trustee will make prompt distribution to each Participant or other person entitled to distribution of an amount equal to his or her Share of the Trust Fund, in a lump sum payment, subject to Treasury regulation section 1.411(a)-11(e). However, if a successor plan is maintained or established within the meaning of Treasury regulation section 1.401(k)-1(d)(3), distributions shall be made to Participants and their Beneficiaries only in accordance with Article XI. Upon the completion of distributions to all Participants and Beneficiaries, the Trust will terminate, the Trustee will be relieved from all liability under the Trust, and no Participant or other person will have any claims thereunder, except as required by applicable law. Notwithstanding the foregoing, if the Plan and Trust (or any portion thereof) are terminated in connection with the merger into, or transfer to, another plan and trust, distributions shall not be made upon termination but shall be governed by the successor or transferee plan and trust. 12.5 Merger or consolidation of Plan; transfer of Plan assets. In case of any merger or consolidation of the Plan with, or transfer of assets and liabilities of the Plan to, any other plan, provision must be made so that each Participant would, if the Plan then terminated, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation or transfer if the Plan had then terminated. 12.6 Successor employers. In the event of the dissolution, merger, consolidation or reorganization of a Participating Employer or all Participating Employers, provision may be made by which the Plan and the Trust will be continued by or under the sponsorship of the successor employer; and in that event, such successor shall be substituted for the Participating Employer or Employers under this Plan. This substitution of the successor shall constitute an assumption of the applicable Plan liabilities by the successor, and the successor shall have all of the powers (if any), duties and responsibilities of the replaced Participating Employer or Employers under the Plan. 12.7 Participating Employer ceasing to be affiliated. In the event a Participating Employer (other than the Company) ceases to be a subsidiary or other affiliate of the Company -41- as a result of a merger, reorganization, or sale or other transfer of stock, the following provisions shall apply: (a) Such Participating Employer shall thereupon cease to be a participating Employer under the Plan. (b) The Plan shall not terminate with respect to the Participants employed by such former Participating Employer solely because it ceased to be a Participating Employer. (c) The Company may agree with such former Participating Employer (or with an organization acquiring the former Participating Employer) that the assets of the Trust properly allocable to Participants employed by the former Participating Employer be transferred to another plan maintained by the former Participating Employer (or by such other organization), provided that the requirements of Section 12.5 are satisfied and such other plan assumes all liabilities of the Plan with respect to such Participants. The Committee shall direct the Trustee to carry out such transfer in accordance with the terms of such agreement. -42- Article XIII. Miscellaneous. 13.1 Voting of Stock. Before each annual or special meeting of the stockholders of the Company, the Company shall cause to be sent to each Participant having an interest in the Company Stock Fund a copy of the proxy solicitation material therefor, together with a form requesting confidential instructions to the Trustee on how to vote the number of shares of Stock or Class B Stock representing the Participant's interest in the Company Stock Fund. Upon receipt of such instructions, the Trustee shall vote the shares of Stock or Class B Stock as instructed. Instructions received from individual Participants by the Trustee shall be held in the strictest confidence and shall not be divulged or released to any person, including officers or employees of the Company. At the direction of the Committee, the Trustee shall vote, in person or by proxy at its discretion, shares of the Stock held in the Trust for which voting instructions shall not have been received. 13.2 Tender or Exchange Offers. The provisions of this Section shall apply in the event a tender offer (hereinafter, a "tender offer") for Stock is commenced by a person or persons. (a) Certain Tender Offers Not Approved by Continuing Directors. In the event a tender offer not approved by the continuing directors (as hereinafter defined) for Stock (including, for purposes of this Section 13.2, Class B Stock) is commenced by a person or persons other than (i) the Company, (ii) an Affiliated Company (determined as of the date immediately preceding the commencement of the tender offer), (iii) the Plan, or (iv) any other employee benefit plan maintained by an Affiliated Company (determined as of the date immediately preceding the commencement of the tender offer), the Company and the Trustee, promptly after receiving notice of the commencement of any such tender offer, shall transfer the recordkeeping functions and responsibilities under the Plan hereinafter described to an independent recordkeeper. The independent recordkeeper in turn shall confidentially solicit from each Participant and Beneficiary to whose accounts units representing an interest in shares of Stock are allocated, instructions as to whether shares are to be tendered or held. Each Participant and Beneficiary shall be given the right of instruction as to that number of shares of Stock which bears the same relationship to the total number of shares of Stock for which unit interests are allocated to individual accounts under the Plan, as the number of units allocated to such Participant's or Beneficiary's accounts bears to the total number of units allocated to individual accounts under the Plan. On the basis of these instructions, the recordkeeper shall determine a fraction, the numerator of which is the total number of shares of Stock for which it has received instructions to tender and the denominator of which is the total number of shares of Stock as to which unit interests are allocated under the Plan to the individual accounts of Participants and Beneficiaries. The recordkeeper shall then multiply this fraction by the total number of shares of Stock held in the Trust and shall instruct the Trustee to tender, and the Trustee shall -43- tender from among the shares of stock held in the Trust, that number of shares of stock which equals the resulting product. The Trustee shall not tender shares of Stock in excess of the number so authorized to be tendered. Following any tender offer described in the preceding paragraph that has resulted in the sale or exchange of any shares of Stock held in the Trust, the recordkeeper shall continue to maintain on a confidential basis the accounts of Participants and Beneficiaries to whose accounts units representing an interest in shares of Stock were allocated at any time during such offer, until complete distribution of such accounts. In the event that there is no sale or exchange of any shares of Stock held in the Trust pursuant to the tender offer, the recordkeeper shall transfer back to the Trustee and the Company the recordkeeping functions, provided, however, it shall keep confidential any instructions which it may have received from Participants and Beneficiaries relating to the tender offer. (b) Other Tender Offers. In the event of a tender offer not covered by subsection (a) above, the Trustee shall solicit from each Participant and Beneficiary to whose accounts units representing interests in shares of Stock are allocated, instructions as to whether shares are to be tendered or held. Each Participant and Beneficiary shall be given the right of instruction as to that number of shares of Stock which bears the same relationship to the total number of shares of Stock for which unit interests are allocated to individual accounts under the Plan, as the number of units allocated to such Participant's or Beneficiary's accounts bears to the total number of units allocated to individual accounts under the Plan. On the basis of these instructions, the Trustee shall determine a fraction, the numerator of which is the total number of shares of Stock for which it has received instructions to tender and the denominator of which is the total number of shares of Stock as to which unit interests are allocated under the Plan to the individual accounts of Participants and Beneficiaries. The Trustee shall then multiply this fraction by the total number of shares of Stock held in the Trust and shall tender, from among the shares of Stock held in the Trust, that number of shares of Stock which equal the resulting product. The Trustee shall not tender shares of Stock in excess of the number so authorized to be tendered. (c) Other. For purposes of allocating the proceeds of any sale or exchange pursuant to a tender offer, the Committee or the independent recordkeeper, as the case may be, shall treat as having been sold or exchanged first those shares of Stock as to which, immediately prior to the sale or exchange, unit interests were allocated to individual accounts. Any proceeds remaining after application of the preceding sentences shall be treated as proceeds from the sale or exchange of unallocated shares. Any adjustments to individual accounts pursuant to the provisions of the Plan shall be made by the Committee or the independent recordkeeper, as the case may be, on information supplied by the Company, the Committee or the Trustee. -44- (d) Definition of "Continuing Director". For purposes of this Section, a "continuing director" is any director of the Company (i) who has continuously been a director of the Company since April 29, 1988 or (ii) who is a successor of a continuing director as defined in (i) if such successor (and any intervening successor) shall have been recommended or elected to succeed a continuing director by a majority of the then continuing directors. 13.3 Special account for rollovers, etc. An individual who becomes an Employee of a Participating Employer and who immediately prior thereto had an interest in a pension or profit-sharing plan (the "other plan") qualified under section 401(a) of the Code which was maintained by an employer other than a Participating Employer, may make a rollover contribution to the Plan of an amount in cash equal to the value of all or a portion of such individual's vested interest in the other plan upon demonstration to the Committee that the contribution is eligible for transfer to the Plan pursuant to the rollover provisions of the Code. In no event shall any such rollover contribution be permitted if, in the opinion of the Committee, such transfer would adversely affect the qualification of the Plan under the Code. The amount so rolled over to the Trust will be invested by the Trustee, pursuant to such individual's directions as transmitted to the Trustee by the Committee, in the same manner as Elective Contributions under Article VII. The individual making a rollover hereunder will not become a Participant until he or she has satisfied the eligibility requirements of Article IV, but a special account will be maintained for the individual, and the balance thereof will be adjusted from time to time, as if he or she were a Participant. In addition, such individual will be treated as a Participant, with respect to his or her interest in such account, for purposes of Articles VI, VIII, IX, X and XI of the Plan. Such individual will have a fully vested and nonforfeitable interest in the balance of such special account. 13.4 Certain Non-U.S. Employees. In the event any amount is held under the Trust for the benefit of an Employee who transfers employment outside the U.S. (whether or not to an Affiliated Company), and such amount includes a portion attributable to benefits previously earned by the Employee in non-U.S. employment (the "Transferable Portion"), the Committee shall take such steps as are necessary to cause the Transferable Portion to be transferred as soon as practicable to such successor plan as the employee shall designate, or if no such plan is designated, then to the Employee; provided, that in no circumstances shall such transfer be effected if it would cause the Plan to fail to satisfy the provisions of section 401(a) or 401(k) of the Code. 13.5 Limitation of rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to any Participant or other person any legal or equitable right against any Participating Employer, the Committee or the Trustee, except as provided herein, and in no event will the terms of employment or service of any Participant be modified or in any way be affected hereby. It is a condition of the Plan, and each Participant expressly agrees -45- by his or her participation herein, that each Participant will look solely to the assets held in the Trust for the payment of any benefit to which he or she is entitled under the Plan. 13.6 Nonalienability of benefits. The benefits provided hereunder will not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, and any attempt to cause such benefits to be so subjected will not be recognized, except to such extent as may be required by law. The provisions of the preceding paragraph shall apply in general to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order. Notwithstanding the foregoing, if such order is a Qualified Domestic Relations Order, the provisions of the preceding paragraph shall not apply. 13.7 Payment under Qualified Domestic Relations Orders. Notwithstanding any provisions of the Plan to the contrary, if there is entered any Qualified Domestic Relations Order that affects the payment of benefits hereunder, such benefits shall be paid in accordance with the applicable requirements of such Order. The Committee shall establish procedures to determine whether an order or other decree is a Qualified Domestic Relations Order, and to administer distributions under such Orders. 13.8 Information between Committee and Trustee. The Committee will furnish to the Trustee, and the Trustee will furnish to the Committee, such information relating to the Plan and Trust as may be required under the Code and any regulations issued or forms adopted by the Treasury Department thereunder or under the provisions of ERISA and any regulations issued or forms adopted by the Labor Department thereunder. 13.9 Governing Law. The Plan will be construed, administered and enforced according to the laws of the State of Rhode Island to the extent such laws are not inconsistent with, or preempted by, ERISA or other Federal laws. 13.10 Reclassification of Employees. In the event of any reclassification of Employees by the Employer which results in an Employee's change from management to hourly employment status, the Employer may transfer funds and liabilities held for the benefit of such Employee who is a Participant in the Plan from the Trust, subject to Section 12.5, directly to the trustee of the trust forming part of The Brown & Sharpe Savings and Retirement Plan, in accordance with the provisions of the Plan and such rules as the administrator of suchother plan may establish. Each Participant for whom such funds and liabilities are transferred will cease to be a Participant in the Plan in accordance with Section 4.2, and such funds and liabilities will cease to be assets of the Trust as of the date they are received by the trustee of such trust. In the event of a reclassification which results in an Employee's change from hourly to management employment status, the Employer may transfer funds and liabilities held for the -46- benefit of such Employee who is a participant in The Brown & Sharpe Savings and Retirement Plan from the trust forming part of such plan directly to the Trustee, in accordance with the provisions of such plan and such rules as the Trustee may establish. Each participant for whom such funds and liabilities are transferred will become a Participant in the Plan for all purposes as of the date of the reclassification, and such funds and liabilities will become assets of the Trust as of the date they are received by the Trustee. 13.11 Amounts transferred from other plans. From time to time the Company may determine to merge or consolidate another tax-qualified plan with, or transfer all or a portion of the assets and liabilities of another tax-qualified plan to, the Plan, whether in connection with an acquisition by the Company or otherwise. Such merger, consolidation or transfer of amounts from another plan to the Plan may occur only if the Committee determines that the requirements of Code section 414(l) will be satisfied with respect to the affected participants of the other plan and that such merger, consolidation or transfer will not jeopardize the Plan's tax qualification under section 401(a) of the Code. In connection with any such merger, consolidation or transfer, an individual whose benefits are transferred to the Plan will not become a Participant until he or she has satisfied the eligibility requirements of Article IV, but shall be treated as a Participant (with respect to such transferred benefit) for purposes of Articles VI, VIII, IX, X and XI. To the extent necessary to satisfy the requirements of Code section 411(d)(6), or as otherwise determined by the Committee, forms of benefit distributions with respect to transferred amounts shall be preserved hereunder. The Committee may provide for the separate accounting of benefits transferred pursuant to this Section to the extent it deems such separate accounting necessary or appropriate to carry out the provisions of this Section. 13.12 Veterans' Re-Employment and Benefits Rights. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code section 414(u). In addition, loan repayments will be suspended under the Plan as permitted under Section 414(u)(4) of the Code. -47- Article XIV. Special Top Heavy Rules. 14.1 Special contribution for top heavy plan years. Notwithstanding anything contained in the Plan to the contrary, if for any top heavy plan year the Participating Employer Contribution made for the benefit of any Participant who is not a key employee for that year is less than three percent of such Participant's Salary, a special contribution shall be made hereunder so that the sum of the special contribution and Participating Employer Contribution equals three percent of the Participant's Salary; provided, however, that if for such top heavy plan year the sum of the Elective, Matching and Participating Employer Contributions made for the benefit of each key employee, expressed as a percentage of his or her Salary, is less than three percent, the minimum contribution required under this Section 14.1 for the benefit of each Participant who is not a key employee will be limited to an amount which, when added to the Participating Employer Contributions made for the benefit of such Participant, constitutes a percentage of such Participant's Salary not less than the highest percentage obtained by dividing, for each key employee, the sum of the Elective, Matching and Participating Employer Contributions made for the benefit of such key employee by his or her Salary. In applying the preceding sentence, there shall be aggregated with contributions made for a Participant's benefit under the Plan all Employer contributions (other than elective contributions, in the case of a Participant who is not a key employee) for the benefit (and forfeitures allocated to the account) of the Participant under all qualified defined contribution plans (if any) required to be aggregated with the Plan pursuant to the first sentence of Section 14.3(b)(iii), subject to the special rule of Code section 416(c)(2)(B)(ii)(II). Notwithstanding the foregoing, no amount shall be required to be contributed pursuant to this Section in respect of any Participant for any year if, by reason of amounts contributed or benefits accrued with respect to such Participant of such year under one or more other plans maintained by the Employer, a contribution in respect of such Participant for such year under this Section would result in the duplication of minimum benefits or contributions, as determined under section 416(f) of the Code and the regulations thereunder. Any additional contribution made for the benefit of any Participant under this Section shall be credited to his or her Participating Employer Contribution Account as soon as practicable after the close of the Plan Year for which the contribution is made. 14.2 Adjustment to limitations. For any Plan Year which is a top heavy plan year, the adjustment described in Section 416(h) of the Code will apply for purposes of determining a Participant's "defined benefit plan fraction" (as determined under Section 415(e)(2) of the Code and the regulations promulgated thereunder) and "defined contribution plan fraction" (as determined under Section 415(e)(3) of the Code and the regulations promulgated thereunder, including, if elected, the special transition rule of Section 415(e)(7) of the Code) unless (a) the Plan and each qualified plan with which the Plan is required to be aggregated pursuant to the first sentence of Section 14.3(b)(iii) satisfies the requirements of Section 416(h)(2)(A) of the -48- Code, and (b) such Plan year would not be a top heavy plan year if "ninety percent" were substituted for "sixty percent" in the first paragraph of Section 14.3(b). 14.3 Definitions. As used in this Article, the following words shall have the following meaning: (a) "Key employee" means any Employee or Beneficiary who is a "key employee" within the meaning of section 416(i) of the Code and the regulations promulgated thereunder. For purposes of determining who is a key employee, the compensation taken into account shall be the individual's Salary. Any Employee (and any Beneficiary of an Employee) who is not a key employee shall be a non-key employee. (b) "Top heavy plan year" means a Plan Year commencing on or after January 1, 1984 if the sum of the account balances of all key employees under the Plan and under each other qualified defined contribution plan (as of the applicable determination date of each such plan) which is aggregated with this Plan plus the sum of the present value of the total accrued benefits of all key employees under each qualified defined benefit plan (as of the applicable determination date of each such plan) which is aggregated with this Plan exceeds 60 percent of the sum of such amounts for all Employees, former Employees and Beneficiaries (other than former key employees) under such plans. The following rules shall apply for purposes of the foregoing determination: (i) all determinations hereunder will be computed in accordance with section 416 of the Code and the regulations promulgated thereunder, which are specifically incorporated herein by reference. (ii) The term "determination date" means, with respect to the initial plan year of a plan, the last day of such plan year and, with respect to any other plan year of a plan, the last day of the preceding plan year of such plan. The term "applicable determination date" means, with respect to the Plan, the determination date of the Plan Year of reference and, with respect to any other plan, the determination date for any plan year of such plan which falls within the same calendar year as the applicable determination date of the Plan. Accrued benefits or account balances under a plan will be determined as of the most recent valuation date of the plan; provided, however, that in the case of a defined benefit plan such valuation date must be the same date as is employed for computing plan costs for minimum funding purposes, and in the case of a defined contribution plan the value so determined will be adjusted for contributions made after the valuation date to the extent required by applicable Treasury regulations. -49- (iii) There shall be aggregated with this Plan (1) any other plan of an Employer under which at least one key employee participates and which is able to satisfy the requirements of sections 401(a)(4) or 410 of the Code by reason, at least in part, of the existence of this Plan, and (2) if at least one key employee is a Participant hereunder, any other plan of an Employer (A) in which a key employee participates or (B) which enables another such plan (including, but not limited to, the Plan) to satisfy the requirements of sections 401(a)(4) or 410 of the Code. Any plan of an Employer not required to be aggregated with the Plan may nevertheless, at the discretion of the Committee, be aggregated with the Plan if the benefits and coverage of all aggregated plans would continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code. IN WITNESS WHEREOF, Brown & Sharpe Manufacturing Company has caused this instrument to be signed by its duly authorized officer this 23rd day of December, 1998. BROWN & SHARPE MANUFACTURING COMPANY By /s/ AC Genor -------------------------- -50- Exhibit A Change in Control A "Change in Control" shall be deemed to have occurred if: (a) any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act") (other than (i) the Company; (ii) any subsidiary of the Company; (iii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any subsidiary of the Company; or (iv) any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of Stock of the Company), is or becomes the "beneficial owner" (as defined in Section 13(d) of the 1934 Act), together with all Affiliates and Associates (as such terms are used in Rule 12b-2 of the General Rules and Regulations under the 1934 Act) of such person, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (b) the shareholders of the Company approve a merger or consolidation of the Company with any other company, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 65% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (with the exception given and the method of determining `beneficial ownership' used in clause (a) of this definition) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (c) during any period of two consecutive years (not including any period prior to the execution of the Plan), individuals who, at the beginning of such period, constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (b), or (d) of this definition) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof; or (d) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets -51- Exhibit B The following Affiliated Companies participate in The Brown & Sharpe Savings and Retirement Plan for Management Employees (in addition to the Company): Borel & Dunner, Inc. Brown & Sharpe Aftermarket Services, Inc. -52- EX-10.18 4 dex1018.txt THE BROWN & SHARPE SAVINGS PLAN FOR MGT. FIRST AME EXHIBIT 10.18 THE BROWN & SHARPE SAVINGS AND RETIRMENT PLAN FOR MANAGEMENT EMPLOYEES First Amendment --------------- Pursuant to Section 12.1 of The Brown & Sharpe Savings and Retirement Plan for Management Employees (the "Plan"), the Plan is hereby amended effective as of January 1, 1998: 1. Section 13.1 is hereby amended by replacing the last sentence thereof with the following sentence: "At the direction of the Committee, the Trustee shall vote, in person or by proxy at its discretion, shares of Stock and Class B Stock held in the Trust for which voting instructions shall not have been received." IN WITNESS WHEREOF, Brown & Sharpe Manufacturing Company has caused this Amendment to be signed by its duly authorized officer this 30th day of April, 1999. Brown & Sharpe Manufacturing Company By: _______________________________ Les W. Sgnilek Treasurer EX-10.19 5 dex1019.txt THE BROWN & SHARPE SAVINGS AND RETIRE SECOND AMEND EXHIBIT 10.19 THE BROWN & SHARPE SAVINGS AND RETIREMENT FOR MANAGEMENT EMPLOYEES Second Amendment ---------------- Pursuant to Section 12.1 of The Brown & Sharpe Savings and Retirement Plan for Management Employees (the "Plan"), the Plan is hereby amended as of the dates set forth below: 1. Section 7.3 is hereby deleted in its entirety and replaced with the following new Section 7.3, effective March 31, 2001: "7.3 Investments in the Company Stock Fund. Effective March 31, 2001, no further allocations shall be made to the Company Stock Fund. For the avoidance of doubt, the restriction on further allocations to the Company Stock Fund shall include, but not be limited to, Elective Contributions with respect to payroll periods beginning after March 30, 2001, all other contributions made to the Plan after March 30, 2001, and transfers after March 30, 2001 of existing Plan Account balances. In addition, any dividend or other cash payment made in respect of Company Stock or Class B Stock held in the Company Stock Fund and received by the Plan after March 30, 2001 shall not be allocated to the Company Stock Fund, but shall instead be allocated according to the investment allocation elections, made pursuant to Section 7.2, of Participants who have an interest in the Company Stock Fund. If a Participant's investment directions with respect to amounts contributed after March 30, 2001 includes an amount to be invested in the Company Stock Fund, such Participant shall be deemed to have elected that amounts so directed shall be contributed instead in The Brown & Sharpe Stable Value Fund (until reallocated in accordance with the Participant's directions pursuant to Section 7.2). Any attempt by a Participant to transfer any portion of the balance of his or her Plan Accounts to the Company Stock Fund after March 30, 2001 shall be null and void. A Participant may elect, in accordance with Section 7.2, to transfer any portion of his or her Plan Account balances allocated to the Company Stock Fund to other investment options available under the Plan. However, any amount transferred out of the Company Stock Fund may not thereafter be transferred back to the Company Stock Fund." 2. Section 11.1 is hereby deleted in its entirety and replaced by the following new Section 11.1, effective June 15, 2001: "11.1 Method of making distributions. Distributions to a Participant or Beneficiary from the Trust will be made in a single lump sum payment. All amounts distributed from the Trust Fund shall be paid in cash, except that, if elected by the Participant or Beneficiary, distributions from the Company Stock Fund shall be paid in whole shares of Stock, with the value of any fractional share paid in cash. For purposes of the preceding sentence, the value of shares of Stock shall be the market value on the Valuation Date coinciding with or next preceding the date of distribution. For the avoidance of doubt, pursuant to this amendment, all distributions made from the Plan on and after June 15, 2001, including distributions made with respect to amounts transferred to the Plan pursuant to Section 3.11 prior to such date, will be made in a single lump sum payment as described above, unless otherwise required by Code Section 411(d)(6) and the regulations there under. 3. Effective as of April 27, 2001, the Plan shall be renamed as the BNS Co. Savings and Retirement Plan. IN WITNESS WHEREOF, BNS Co. has caused this amendment to be signed by its duly authorized officer this 26th day of December, 2001. BNS CO. By: ________________________ Andrew C. Genor President and CEO -2- EX-10.20 6 dex1020.txt BROWN & SHARPE SAVING AND BNS CO. SAVINGS PLAN EXHIBIT 10.20 BNS CO. The Brown & Sharpe Savings and Retirement Plan AND BNS Co. Savings and Retirement Plan Instrument of Merger -------------------- WHEREAS Brown & Sharpe Manufacturing Company sold a majority of its assets to Hexagon AB pursuant to an asset purchase agreement dated November 16, 2000, as approved by Company shareholders on April 27, 2001, and the Company continues in business as BNS Co.; WHEREAS the Company continues to maintain The Brown & Sharpe Savings and Retirement Plan and its related trust (the "Hourly SARP") and the BNS Co. Savings and Retirement Plan (formerly known as "The Brown & Sharpe Savings and Retirement Plan for Management Employees") and its related trust (the "BNS Co. SARP"); WHEREAS, the Hourly SARP and BNS Co. SARP accounts (including assets and liabilities relating thereto) maintained on behalf of participants who were employed by Hexagon AB immediately after the asset sale were transferred to a qualified retirement plan maintained by Hexagon; WHEREAS, following the asset sale described above, there being no longer any active participants in the Hourly SARP, the Company desires to merge the Hourly SARP, including all of its assets and liabilities, into the BNS Co. SARP; NOW THEREFORE, pursuant to the terms of the BNS Co. SARP and the Hourly SARP, as of December 31, 2001, the Hourly SARP is merged with and into the BNS Co. SARP (from and after such merger, the "Merged Plan"). Upon and following the merger, the terms of the Merged Plan shall be those of the BNS Co. SARP immediately prior to the merger, and as such plan may be amended from time to time. In connection with this merger, there shall be established a separate account under the Merged Plan on behalf of each individual with respect to whom assets and liabilities are merged from the Hourly SARP. Such account shall remain fully vested, shall be invested upon the merger in the same investment options as it was invested under the Hourly SARP, and shall be adjusted pursuant to the terms of the Merged Plan (which are currently in this respect the same terms as those of the Hourly SARP). Any optional form of benefit with respect to the SARP assets that is required to be protected pursuant to Code Section 411(d)(6) and the regulations thereunder with respect to a merged account shall be retained under the Merged Plan with respect to that account. Any participant loans outstanding on the date the assets and liabilities of Hourly SARP are merged into the Merged Plan shall continue to be processes in the normal course. As of December 31, 2001, the trusts formerly relating exclusively to the BNS Co. SARP and Hourly SARP shall be available to provide benefits under the Merged Plan, and, for so long as they are maintained as separate trusts, shall relate to the respective accounts of the Merged Plan allocable thereto. IN WITNESS WHEREOF, BNS Co. has caused this instrument of Merger to be duly executed in its name and on its behalf by its officer this 31st day of December, 2001. BNS Co. By: ________________________________ Andrew C. Genor President and CEO -2- EX-10.24 7 dex1024.txt BROWN & SHARPE EMPLOYEE STOCK OWNERSHIP PLAN EXHIBIT 10.24 BNS COMPANY Brown & Sharpe Employee Stock Ownership and Profit Participation Plan Amendment --------- WHEREAS the Company terminated the Brown & Sharpe Employee Stock Ownership and Profit Participation Plan and Trust Agreement (1998 Restatement) (the "ESOP") on April 27, 2001; WHEREAS, the Internal Revenue Service, in connection with its determination of the tax-qualified status of the ESOP upon its termination, as requested certain amendments; NOW THEREFORE, pursuant to Section 11.1, the Company hereby amends the ESOP as provided herein. 1. Section 2.11 is amended effective January 1, 1997 by adding a new paragraph to the end thereof to read as follows: "For all purposes under the Plan, the term `Highly Compensated Employee' means each individual employed by an Affiliated Company who (a) during such Plan Year or preceding Plan Year, is a `5% owner' within the meaning of Code Section 414(q), or (b) during the preceding Plan Year received Compensation in excess of $80,000 (as adjusted under such Code section)." 2. Section 2.15 is amended effective January 1, 1997 by adding a new paragraph to the end thereof to read as follows: "For purposes of this Section 2.15 and Section 2.16 below, a `leased employee' means any person who pursuant to an agreement between an Affiliated Company and any other person has performed services for the Affiliated Company and related persons as defined in Code Section 414(n)(6) on a substantially full-time basis for a period of at least one year provided such services are performed under the primary direction or control of the Affiliated Company." 3. Section 12.6 is amended in its entirety to read as follows: "12.6 Veterans' Re-Employment and Benefits Rights. Notwithstanding any provision of the Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u)." IN WITNESS WHEREOF, BNS Company has caused this Amendment to be duly executed in its name and on its behalf by its officer hereto duly authorized this 14th day of November, 2001. BNS COMPANY By:___________________________ Title:________________________ EX-21 8 dex21.txt BNS CO. SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 BNS Co. ------ SUBSIDIARIES OF THE REGISTRANT ------------------------------ Subsidiaries of the Registrant as of December 31, 2001, are as follows: Percentage of Jurisdiction Voting Power of Owned by the Name of Subsidiary Incorporation Registrant ------------------ ------------- ----------- BNS Co. (PH) Ltd. UK 100% Xygent Inc. Delaware /(1)/ Xygent srl Italy /(2)/ Xygent SARL France /(2)/ Xygent GmbH Germany /(3)/ Xygent (UK) Ltd. UK /(3)/ /(1)/ Owned 83.3% by BNS Co. and 16.7% by Hexagon Holdings, Inc. /(2)/ Owned 1% by BNS Co. and 99% by Xygent Inc. /(3)/ Owned 100% by Xygent Inc. EX-23 9 dex23.txt CONSENT OF ERNST & YOUNG EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 2-33676, 2-56821, 2-77219, 2-77575, 2-83637, 2-97935, 33-17831, 33-23601, 33-23603, 33-30927, 33-54496, 333-07733, 333-91367 and 333-66622) pertaining to employee benefit plans of BNS Co. of our report dated February 13, 2002, with respect to the consolidated financial statements of BNS Co. included in the Annual Report (Form 10-K) for the year ended December 31, 2001. /s/ ERNST & YOUNG LLP Providence, Rhode Island March 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----