-----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, Otu2UvaZ2UxPmh1xrQn7R4Y5V1V5Ao6p68GxlOTC8TMZCOZdnYrj9yakpa0yYdSE OPFxk3LiBNmeC9Zi2jXkeA== 0000927016-02-002847.txt : 20020514 0000927016-02-002847.hdr.sgml : 20020514 ACCESSION NUMBER: 0000927016-02-002847 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05881 FILM NUMBER: 02647169 BUSINESS ADDRESS: STREET 1: 275 WEST NATICK ROAD CITY: WARWICK STATE: RI ZIP: 02886 BUSINESS PHONE: 401-244-4500 MAIL ADDRESS: STREET 1: 275 WEST NATICK ROAD CITY: WARWICK STATE: RI ZIP: 02886 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-5881 ------ BNS Co. ------- (Exact name of registrant as specified in its charter) Delaware 050113140 -------- --------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 275 West Natick Road, Warwick, Rhode Island 02886 ------------------------------------------------- (Address of principal executive offices and zip code) (401) 244-4500 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date, 2,861,352 of Class A common stock, 63,895 shares of Class B common stock, par value $0.01 per share, outstanding as of March 31, 2002. 1 PART I. FINANCIAL INFORMATION --------------------- Item 1. FINANCIAL STATEMENTS* - ------ -------------------- BNS Co. ------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (dollars in thousands except per share data) (Unaudited)
For the Three Months Ended March 31 2002 2001 ---- ---- Net sales $ 11 $ - Cost of sales 308 - Research and development expense 464 1,139 Selling, general and administrative 1,862 3,516 --------------------------------------------- Operating loss (2,623) (4,655) Interest expense 113 2,055 Other income, net 1,223 1,372 --------------------------------------------- Loss from continuing operations before income taxes (1,513) (5,338) Income tax expense 53 - --------------------------------------------- Net loss before discontinued operations (1,566) (5,338) Discontinued operations: Loss from operations, net of income taxes of $0 and $700 (46) (3,411) --------------------------------------------- Net loss $ (1,612) $(8,749) ============================================= Net loss per share basic and diluted from continuing $ (0.54) $ (1.93) operations Discontinued operations (0.02) (1.24) --------------------------------------------- Net loss per common share basic and diluted $ (0.56) $ (3.17) =============================================
* The accompanying notes are an integral part of the financial statements. 2 Item 1. FINANCIAL STATEMENTS* - ------ -------------------- BNS Co. ------- CONSOLIDATED BALANCE SHEETS --------------------------- (dollars in thousands)
March 31, 2002 December 31, 2001 ASSETS (unaudited) Current assets: Cash $ 7,300 $ 10,095 Other receivables, net of $826 allowance at both March 31 and December 31 657 1,272 Assets held for sale 2,422 2,363 Assets related to discontinued operations 242 274 Prepaid expenses and other current assets 370 385 --------------------- ----------------- Total current assets 10,991 14,389 Property, plant and equipment Land 415 415 Buildings and improvements 105 105 Machinery & equipment 1,285 1,244 --------------------- ----------------- 1,805 1,764 Less accumulated depreciation 484 420 --------------------- ----------------- 1,321 1,344 Other assets 3,189 3,550 --------------------- ----------------- $ 15,501 $ 19,283 ===================== ================= LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 5,710 $ 7,141 Current portion of long-term debt 3,085 3,317 --------------------- ----------------- Total current liabilities 8,795 10,458 Long-term liabilities 3,171 3,676 Commitments and contingencies Shareowners' equity Preferred stock; $1.00 par value; authorized 1,000,000 shares; none issued Common Stock: Class A, par value, $.01; authorized 30,000,000 shares; issued 2,861,352 shares in 2002 and 2,861,240 shares in 2001 29 29 Class B, par value, $.01; authorized 2,000,000 shares; issued 63,895 shares in 2002 and 64,007 shares in 2001 1 1 Additional paid-in capital 85,950 85,950 Retained deficit (81,985) (80,373) Accumulated other comprehensive loss (5) (3) Treasury stock; 8,518 shares in 2002 and 2001, at cost (455) (455) --------------------- ----------------- Total shareowners' equity 3,535 5,149 --------------------- ----------------- $ 15,501 $ 19,283 ===================== =================
* The accompanying notes are an integral part of the financial statements. 3 Item 1. FINANCIAL STATEMENTS* - ------ -------------------- BNS Co. ------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (dollars in thousands)
For the Three Months Ended March 31 2002 2001 ---- ---- Cash Used in Operations: Net loss $ (1,612) $(8,749) Adjustments to reconcile net loss to net cash used in operating activities from continuing operations: Depreciation and amortization 381 69 Changes in operating assets and liabilities (667) 2,085 Minority interest (320) - Changes in assets and liabilities related to discontinued operations (302) 4,074 --------- ------- Net Cash Used in Operations (2,520) (2,521) --------- ------- Investment Activities: Capital expenditures (41) (41) --------- ------- Net Cash Used in Investment Transactions (41) (41) --------- ------- Financing Transactions: Payment of notes payable (232) (232) --------- ------- Net Cash Used in Financing Transactions (232) (232) --------- ------- Effect of Exchange Rate Changes on Cash (2) - --------- ------- Cash and Cash Equivalents: Decrease during the period (2,795) (2,794) Beginning balance 10,095 8,882 --------- ------- Ending balance $ 7,300 $ 6,088 ========= ======= Supplementary Cash Flow Information: Interest Paid $ 103 $ 846 ========= ======= Taxes Paid $ - $ 230 ========= =======
* The accompanying notes are an integral part of the financial statements. 4 Item 1. FINANCIAL STATEMENTS* - ------ -------------------- BNS Co. ------ CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY --------------------------------------------- (in thousands) For the Three Months Ended March 31, 2002
Accumulated Additional other Total Common paid in Retained comprehensive Treasury Shareowners' Shares Stock capital deficit loss stock Equity -------------------------------------------------------------------------------- Balance at January 1, 2002 2,925 $30 $85,950 $(80,373) $(3) $(455) $5,149 Net loss (1,612) (1,612) Foreign currency translation adjustment (2) (2) -------------- Comprehensive loss (1,614) -------------------------------------------------------------------------------- 2,925 $30 $85,950 $(81,985) $(5) $(455) $3,535 ================================================================================
* The accompanying notes are an integral part of the financial statements. 5 BNS Co. ------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (dollars in thousands except per share data) 1. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2002 are not indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. In April 2001, the stockholders of Brown & Sharpe Manufacturing Company approved a number of transactions including: the sale of the Company's Metrology Business to Hexagon AB of Sweden ("Hexagon"), the sale of the Company's North Kingstown Facility to Precision Park Partners LLC, ("Precision Partners"), the change of the Company's name to BNS Co., and various stock-related transactions including a reverse stock split. Throughout this document, the "Company" refers to either Brown & Sharpe Manufacturing Company or BNS Co., as applicable. Due to a failure to reach mutual agreement on a number of issues, the Company did not complete the sale of its North Kingstown Facility to Precision Park Partners LLC. In connection with the sale of the Metrology Business, Hexagon agreed to make an initial investment of $2.5 million in BNS Co.'s software development subsidiary, Xygent Inc. ("Xygent"), in exchange for a 16.7% ownership interest. Additionally, Hexagon has committed, subject to certain conditions, to invest an additional $4.5 million in Xygent over the next three years. $1.5 million of this $4.5 million was received, as scheduled, in April 2002. Since the sale of the Company's Metrology Business, the Company presently plans to continue to operate its software development business through Xygent, which could ultimately lead to a sale or spin-off of that business. 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. 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 contingent and other retained liabilities. 2. Discontinued Operations - As mentioned above, the Company disposed of its Metrology Business, effective April 27, 2001. The financial statements for prior periods have been restated. 3. For the quarter ended March 31, 2002, the Company has recorded an income tax provision of $53. This represents an income tax provision associated with the gravel royalty income earned in the United Kingdom. No other income tax provision has been recorded in this period. 6 BNS Co. ------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ------------------------------------------------------ (dollars in thousands except per share data) 4. The following table sets forth the computation of basic and diluted loss per share:
For the ------- Three Months Ended ------------------ March 31 -------- 2002 2001 ---- ---- Numerator: Loss from Continuing Operations $ (1,566) $ (5,338) Loss from Discontinued Operations (46) (3,411) ------------------------------------ Net Loss $ (1,612) $ (8,749) ==================================== Denominator for Basic Earnings Per Share: Weighted-Average Shares 2,917 2,758 Effect of Dilutive Securities: Employee Stock Options - - - - - - ------------------------------------ Denominator for Diluted Earnings Per Share: 2,917 2,758 ==================================== Weighted-Average Shares and Assumed Conversions Basic and Diluted Loss Per Share from Continuing Operations $ (0.54) $ (1.93) Discontinued Operations (0.02) (1.24) ------------------------------------ Basic and Diluted Loss Per Share $ (0.56) $ (3.17) ====================================
Diluted loss per share is the same as basic loss per share in 2002 and 2001 because the computation of diluted earnings per share would have an antidilutive effect on loss per share calculations, and all options excercisable prior to the sale of the Metrology Business were exercised and are included in the basic calculation. 5. Comprehensive loss for the quarter ended March 31, 2002 and 2001 amounted to $1,614 and $14,294, respectively. Accumulated other comprehensive loss at March 31, 2002 and December 31, 2001 is comprised of foreign currency translation adjustments of $5 and $3, respectively. 6. Contingencies - At May 31, 2002, the Company was a defendant in several legal claims that arose in the normal course of business. Based upon the information presently available to management, the Company believes that any liability for these claims would not have a material effect on the Company's results of operations or financial condition. 7. Segment Information - Subsequent to the sale of the Metrology Business mentioned above, the Company conducts its business through its subsidiary Xygent, its only segment. 8. Executive Compensation - During the quarter, the Company recorded an additional charge in SG&A in connection with a compensation arrangement, not yet finalized, with its CEO, who has a change in control agreement (where a change in control occurred upon the April, 2001 sale of assets to Hexagon). This increased the earlier charge recorded in connection with such arrangement to $1.3 million. 9. Reclassification - Certain 2001 balances have been reclassified to conform with 2002 presentations. 7 BNS Co. ------- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Overview After completing the sale of its Metrology Business to Hexagon in April 2001, the Company's only actively conducted business is its Xygent measuring software business. The Company presently plans to continue to operate its software development business through its controlled subsidiary, Xygent, which could ultimately lead to a sale or spin-off of that business. The Company holds its North Kingstown Facility, where it acts as landlord, for sale and its UK gravel pit operations for sale, each at the appropriate time. The accompanying financial statements present the Metrology Business and the former Electronics Division as discontinued operations. The financial statements for the prior period have been restated. The discussions below relate only to our continuing operations, unless otherwise noted. 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 Form 10-Q. Results of Operations (Three Months ended March 31, 2002 compared to March 31, 2001) The Company had net revenues of $11 in the quarter ended March 31, 2002. During the quarter ended March 31, 2001, the Xygent measuring software was still being developed and had not yet been released. The operating loss for the three months ended March 31, 2002 of $2.6 million was $2.0 million less than the three months ended March 31, 2001. The principal differences year over year in selling, general and administrative expenses relate to the significant reduction in corporate staff and associated costs in conjunction with the sale of the Metrology Business to Hexagon. The reduction in software R&D expense is due to the shift in programming resources to marketing and sales support of XactMeasure software products. The Company began amortizing capitalized software costs upon initial sales in the fourth quarter of 2001. This amortization is recorded in cost of sales for the quarter ended March 31, 2002. Interest expense for the quarter ended March 31, 2002 of $113 is significantly lower than the quarter ended March 31, 2001 and principally reflects the reduced interest expense resulting from the repayment of the Company's U.S. bank debt and long-term senior notes following the sale of the Metrology Business. Other income, net for quarter ended March 31, 2002, was $1.2 million or $.2 million lower than the amount through March 31, 2001, primarily due to reduced interest rates in the current year along with the receipt in 2001 of additional interest related to an outstanding tax refund. 8 Discontinued operations for the quarter ended March 31, 2002 reflects additional closing expenses incurred in the sale of the Electronics Division. Discontinued operations for the quarter ended March 31, 2001 reflect the loss from operations of the Metrology Business of $2.6 million and the Electronics Division of $.8 million. During the quarter ended March 31, 2002, the Company completed the transfer to Hexagon of the Company's interest in the Metrology Business Joint Venture in China. Liquidity and Capital Resources The Company had cash of approximately $7.3 million at March 31, 2002. The Company is debt free, except for a $3.1 million mortgage on the North Kingstown Facility. There is no assurance that the future months' expenses and cash burn rate of the Company will not be greater than anticipated and that a liquidity problem may not arise (see Risk Factors: Liquidity Risk). On the other hand, the Company has not sold the North Kingstown Facility or the Heathrow, U.K. property and has, therefore, not declared any dividend in any amount with respect to the anticipated proceeds from such sales. Given its limited resources and its general intentions with respect to payment of distributions to its shareholders out of a portion of the net proceeds of sales of assets, subject to later Board determination of the amounts based on a number of factors as earlier disclosed, legal requirements applicable to dividends and other subsequent developments, including contingent and other retained liabilities, the Company has very limited sources of funds available for investment in Xygent beyond the (i) $5.0 million of Metrology Business sales proceeds the Company retained and committed for use in funding Xygent and (ii) the committed Hexagon investments under the Acquisition Agreement. Hexagon invested $2.5 million on April 27, 2001 and an additional $1.5 million on April 29, 2002. After giving effect to the April 2002 investment by Hexagon, and the issuance of shares of Xygent to the Company in April 2002 in exchange for $1.5 million of intercompany debt owed to the Company, Hexagon owns approximately 23% of Xygent. Hexagon has committed to invest an additional $1.5 million annually in April of 2003 and 2004. There can be no assurance that Xygent can achieve sales, customer acceptance and break-even profitability in its software operations prior to exhausting the available operating capital or that, if needed and determined appropriate by the Company and Hexagon, additional funding could 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 for the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Cash Flow and Working Capital Net cash used in operations for the three months ended March 31, 2002 and March 31, 2001 was $2.5 million. Net cash used in investing activities for the three months ended March 31, 2002 and March 31, 2001 was $41. The Company continues to classify the North Kingstown Facility and the related mortgage as current as the Facility continues to be held for sale. Excluding this asset along with the related mortgage and the Electronics Division assets also held for sale, the Company had working capital of $2.6 million at March 31, 2002, as compared with $4.6 million at December 31, 2001. 9 RISK FACTORS BNS Co., (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 (77% controlled as of April 29, 2002). 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 Coordinate Measuring Machines ("CMM") and for use with Computer Numerically Controlled ("CNC") machine tool, and it is still developing its software product for use with non-contact ("Vision") measuring machines. 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 has had only minimal sales. Since Xygent has only recently completed development of two of its planned products for sale to customers and has recognized only minimal sales, 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 $.5 million per month. There can be no assurances that Xygent will achieve a break-even month in 2002. The current economic climate is not favorable for Xygent. The current economic climate for capital investment/spending for many types of products, including software of the general Xygent type, is not promising. While Xygent has received favorable technical comments on its software, this has not been translated into significant product sales. 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). On the other hand, 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 them. Hexagon invested $2.5 million in Xygent on April 27, 2001 and an additional $1.5 million on April 29, 2002 and is committed, subject to certain conditions, to invest an additional $3.0 million over the next two years consisting of $1.5 million on each of April 27, 2003 and 2004. Given its limited resources and its general intentions with respect to payment of distributions to its shareholders out of a portion of the net proceeds of sales of assets, after satisfying legal requirements applicable to dividends and after provisions for contingent and other retained liabilities, including present and future contingent liabilities related to tort-type claims arising out of sales of machine tools by the Company prior to its discontinuance of that business in the early 1990's, the Company has limited sources of 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. 10 Auditors Opinion 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. Management's plan to continue as a going concern relies 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 investment of $3.0 million that has been committed by Hexagon), 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. Company management has limited experience managing a software company and may fail to manage effectively, limiting Xygent's potential. The Company has historically operated as a manufacturing company; and 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 existing management team may be materially adverse to the business of Xygent. Company management may not have the skills to develop, introduce and market Xygent's software products, 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. 11 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 the Company's former Metrology Business has been engaged in. Failure to develop and successfully market existing and new 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 these 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 patent applications covering its technology, inventions and improvements that are important to the development of its business. As of March 31,2002, 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. 12 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 lapsed in late 2001, 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.) 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. 13 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 May 1, 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. 14 PART II Item 3. NONE - ------ Item 4. NONE - ------ Item 5. NONE - ------ Item 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- (a) Exhibits 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 (correction filed herewith). Previously filed as Exhibit 10.24 to the Form 10-K for the year ended December 31, 2001. 10.29 Additional Amendment to Instrument of Termination and Amendment to Brown & Sharpe Stock Ownership and Profit Participation Plan and Trust Agreement dated as of February 12, 2002 (filed herewith). (b) Report on Form 8-K On February 11, 2002, the Company filed a Report on Form 8-K that the Company's Class A Common Stock is being traded on the OTC Bulletin Board and on the Boston Stock Exchange. Trading of the Company's Class A Common Stock on the New York Stock Exchange ceased on February 8, 2002. BNS Co. By: /s/ Andrew C. Genor --------------------------------------- Andrew C. Genor President and Chief Financial Officer (Principal Financial Officer) May 14, 2002 15 EX-10.24 3 dex1024.txt BNS CO. ESOP REVISED AMENDMENT 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, has 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 2.11 is hereby further amended effective as of January 1, 2001 by replacing the first sentence thereof with the following sentence: "`Compensation' means gross compensation received during the period at issue for services rendered to a Participating Employer while a Participant, including any amounts that would have been received by the individual from a Participating Employer while a Participant but for elections under Code sections 125, 401(k), and 132(f)(4), but excluding any amounts which are excluded from the definition of compensation under Section 415 of the Code and the Treasury regulations promulgated thereunder." As a related change, Section 2.11 is also amended effective as of January 1, 2001 by replacing the first parenthetical phrase in the second paragraph thereof with the following parenthetical phrase: "(or that would have been so paid absent an election under Code sections 125, 401(k) and 132(f)(4))" 3. 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." 4. 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 14/th/ day of November, 2001. BNS COMPANY By:___________________________ Andrew C. Genor Title: President & CEO EX-10.29 4 dex1029.txt BNS CO. ESOP ADDITIONAL AMENDMENT 2-02 Exhibit 10.29 BNS CO. Brown & Sharpe Employee Stock Ownership and Profit Participation Plan Additional 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, has requested a certain additional amendment; NOW, THEREFORE, pursuant to Section 11.1, the Company hereby amends the ESOP as provided herein. 1. Section 9.9 is amended effective as of January 1, 1999 by inserting a new sentence following the first sentence thereof, such new sentence to read as follows: "Notwithstanding the preceding sentence and for the avoidance of doubt, hardship distributions (as described in Code section 401(k)(2)(B)(i)(IV)) made after December 31, 1998 do not qualify as eligible rollover distributions (as defined in Code section 402(c)(4))." IN WITNESS WHEREOF, BNS Co. has caused this Amendment to be duly executed in its name and on its behalf by its officer hereto duly authorized this 12th day of February, 2002. BNS Co. By:___________________________ Andrew C. Genor Title: President and CEO -----END PRIVACY-ENHANCED MESSAGE-----