-----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, QSXiw0pO5f/xLbREwCthJwqxXkuBkfDLiFMZdguKPy6U8VF0FX0k4a2OXNksnbyr zqVSRgF7quQtFamxZrJ/5Q== 0000007533-97-000004.txt : 19970520 0000007533-97-000004.hdr.sgml : 19970520 ACCESSION NUMBER: 0000007533-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970516 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARROW AUTOMOTIVE INDUSTRIES INC CENTRAL INDEX KEY: 0000007533 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 041449115 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07737 FILM NUMBER: 97610555 BUSINESS ADDRESS: STREET 1: 3 SPEEN ST CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5088723711 MAIL ADDRESS: STREET 1: 3 SPEEN STREET CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended MARCH 29, 1997 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 1-7737 ARROW AUTOMOTIVE INDUSTRIES, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-1449115 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer I.D. No.) 3 SPEEN STREET, FRAMINGHAM, MASSACHUSETTS 01701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 872-3711 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 2,873,083 shares of the Company's Common Stock ($.10 par value) were outstanding as of May 9, 1997. ARROW AUTOMOTIVE INDUSTRIES, INC. INDEX
Page NUMBER PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited): Condensed Balance Sheets - March 29, 1997 and June 29, 3 1996.......................................... Condensed Statements of Operations - Three Months Ended March 29, 1997 and March 30, 4 1996........................................ Condensed Statement of Operations - Nine Months Ended March 29, 1997 and March 30, 5 1996....................................... Condensed Statements of Cash Flows - Nine Months Ended March 29, 1997 and March 30, 6 1996........................................ Notes to Condensed Financial 7 - 8 Statements................................. ITEM 2. Management's Discussion and Analysis of the Financial Condition and Results of 9 - 14 Operations....................................... PART II OTHER INFORMATION ITEM 1. Legal 15 Proceedings...................................................................... ITEM 2. Changes in 15 Securities................................................................. ITEM 3. Default upon Senior 15 Securities................................................... ITEM 4. Submission of Matters to a Vote of Security 15 Holders.................. ITEM 5. Other 15 Information........................................................................ ITEM 6. Exhibits and Reports on Form 8- 15 K.............................................. SIGNATURES .................................................................................................... 16
1 PART I - ITEM 1 -- FINANCIAL INFORMATION ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS March 29, 1997 June 29, 1996 CURRENT ASSETS Cash and equivalents $ 380,415 $ 850,537 Accounts receivable, less allowances 13,532,212 16,468,224 Inventories - Note B 31,977,195 37,312,671 Deferred income tax - Note D 1,740,000 2,291,000 Prepaid expenses and other current assets 1,539,483 873,661 TOTAL CURRENT ASSETS 49,169,305 57,796,093 PROPERTY, PLANT AND EQUIPMENT 36,222,452 35,727,256 Less allowances for depreciation 23,849,134 22,912,356 12,373,318 12,814,900 OTHER ASSETS 2,354,816 2,500,718 TOTAL ASSETS $ 63,897,439 $ 73,111,711 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of advances under revolving line of credit $ 2,932,033 $ 5,104,715 Accounts payable 8,354,456 6,647,237 Cash overdrafts 1,729,358 1,260,165 Other current liabilities - Note C 4,600,213 5,272,737 Current portion of long-term debt 1,376,274 1,385,672 TOTAL CURRENT LIABILITIES 18,992,334 19,670,526 LONG-TERM DEBT 16,944,353 17,969,339 DEFERRED INCOME TAXES - Note D 1,740,000 1,748,000 ACCRUED RETIREMENT BENEFITS 2,648,749 2,428,226 STOCKHOLDERS' EQUITY Common stock 296,887 296,887 Other stockholders' equity 23,724,440 31,448,057 Less cost of common stock in treasury 449,324 449,324 TOTAL STOCKHOLDERS' EQUITY 23,572,003 31,295,620 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,897,439 $ 73,111,711
See accompanying notes to the condensed financial statements. 2 ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED March 29, 1997 March 30, 1996 (13 Weeks) (13 Weeks) Net sales $ 22,480,645 $ 26,226,073 Cost and expenses: Cost of products sold 22,517,273 20,742,553 Selling, administrative and general 5,396,339 5,486,176 Restructuring charge - Note C (100,000) Interest 618,317 532,587 28,431,929 26,761,316 Loss before income taxes (5,951,284) (535,243) Provision (benefit) for income taxes - Note D 169,000 (176,000) NET LOSS $ (6,120,284) $ (359,243) Weighted average number of shares outstanding 2,873,083 2,873,083 NET LOSS PER SHARE $ (2.13) $ (0.13)
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED March 29, 1997 March 30, 1996 (39 Weeks) (40 Weeks) Net sales $ 68,191,970 $ 79,101,309 Cost and expenses: Cost of products sold 58,563,196 62,842,821 Selling, administrative and general 15,110,583 15,971,539 Restructuring charge - Note C 1,100,000 Interest 1,726,808 1,567,500 76,500,587 80,381,860 Loss before income taxes (8,308,617) (1,280,551) Benefit from income taxes - Note D (585,000) (460,000) NET LOSS $ (7,723,617) $ (820,551) Weighted average number of shares outstanding 2,873,083 2,873,083 NET LOSS PER SHARE $ (2.69) $ (0.29)
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED March 29, 1997 March 30, 1996 (39 Weeks) (40 Weeks) OPERATING ACTIVITIES Net cash provided by operating activities $ 3,106,638 $ 2,618,020 INVESTING ACTIVITIES Purchase of property, plant and (495,196) (502,409) equipment Other 125,503 (174,081) Net cash used in investing activities (369,693) (676,490) FINANCING ACTIVITIES Payment of long-term debt and capital lease obligations (1,034,385) (1,037,697) Decrease in advances under revolving line of credit (2,172,682) (1,210,823) Proceeds from exercise of stock options 0 332 Net cash provided by financing activities (3,207,067) (2,248,188) DECREASE IN CASH AND EQUIVALENTS (470,122) (306,658) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 850,537 753,010 CASH AND EQUIVALENTS AT END OF PERIOD $ 380,415 $ 446,352
See accompanying notes to the condensed financial statements. 3 ARROW AUTOMOTIVE INDUSTRIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed 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 Rule 10-01 of Regulation 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 the fair presentation have been included. Operating results for the nine month period ended March 29, 1997 are not necessarily indicative of the results that may be expected for the year ending June 28, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 29, 1996. The balance sheet at June 29, 1996 has been derived from the audited financial statements at that date. NOTE B -- INVENTORIES The components of inventory consist of the following:
March 29, 1997 June 29, 1996 Stated at cost on the first-in, first-out (FIFO) method: Finished goods $ 11,605,000 $ 11,522,643 Work in process and materials 26,713,974 32,260,028 38,318,974 43,782,671 Less reserve required to state inventory on the last-in, first-out (LIFO) method (6,341,779) (6,470,000) $ 31,977,195 $ 37,312,671
The Company continually reviews the net realizable value of its inventory. The Company's analyses in the third quarter of fiscal 1997 identified certain inventory items for which quantities on hand exceed forecasted needs. The combined effect on the Company's inventory requirements due to the continued decline in unit sales through the third quarter of fiscal 1997 and the consolidation of manufacturing facilities and product line production resulted in excess inventory levels. As a result, the Company recorded a non-cash charge in the third quarter of $4,000,000 to write down certain inventories to net realizable value. 4 NOTE C -- RESTRUCTURING CHARGE In September, 1996, the Board of Directors of the Company approved a plan to restructure its operations by closing its Santa Maria, California production facility and transferring its manufacturing operations to the Company's Morrilton, Arkansas plant. The action was taken to enhance profit margins by streamlining the Company's productive capacity to better match its production requirements. As a result, a $1.2 million restructuring charge was recorded in the first quarter of fiscal 1997. Of the total charge, $625,000 related to the disposal of the facility, $360,000 related to termination benefits for displacement of its 350-employee workforce, $150,000 related to the write-off of machinery and equipment, and $65,000 to other closing expenses. The Company has paid $380,000 in termination benefits to its displaced employees, and in the third quarter of fiscal 1997, the Company reversed $100,000 of the restructuring charge relating to the write-off of machinery and equipment. NOTE D -- INCOME TAXES As a result of the losses sustained through the third quarter, the Company exceeded the amount of taxable income available for carryback and, as a result, the Company recorded a tax provision of $543,000 to establish a valuation allowance against net deferred tax assets. This tax provision was offset by a tax benefit of $1,128,000 recorded for the nine months ended March 29, 1997. 5 PART I ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and notes thereto. All forward looking statements contained in the following discussion and analysis and elsewhere in this report are qualified in their entirety by the cautionary statement appearing at the end of the discussion and analysis. RESTRUCTURING PLAN The Board of Directors of the Company approved a plan in September, 1996, to restructure its operations by closing its Santa Maria, California production facility and transferring its manufacturing operations to its Morrilton, Arkansas plant. Production at the Santa Maria, California facility ceased in early December, 1996. As a result of this plan, the Company accrued a $1.2 million restructuring reserve in the first quarter of fiscal 1997, related to termination benefits for displacement of its workforce and to the disposition of its plant facility and certain equipment. In the third quarter, the Company reversed $100,000 of the restructuring charge relating to the write off of machinery and equipment. The outstanding balance of this reserve at March 29, 1997 was $720,000 and relates primarily to the disposition of the facility, if and when such disposition occurs. In addition to the restructuring charge, the Company incurred one time period costs relating to the restructuring in the three quarters of fiscal 1997 of $10,000, $880,000 and $952,000, respectively. These costs relate to ongoing operations and include such costs as the shipment of inventory and equipment, employee relocation costs and initial labor and production inefficiencies resulting from the consolidation of production facilities from three to two plants. The Company anticipates that approximately $200,000 of additional costs relating to the restructuring will be incurred in the fourth quarter of fiscal 1997. INVENTORY PROVISION The Company continually reviews the net realizable value of its inventory. The Company's analyses in the third quarter of fiscal 1997 identified certain inventory items for which quantities on hand exceed forecasted needs. The combined effect on the Company's inventory requirements due to the continued decline in unit sales through the third quarter of fiscal 1997 and the consolidation of manufacturing facilities and product line production resulted in excess inventory levels. As a result, the Company recorded a non-cash charge in the third quarter of $4,000,000 to write down certain inventories to net realizable value. NET LOSS The third quarter of fiscal 1997 resulted in a net loss of $6,120,000 compared to a net loss of $359,000 for the third quarter of fiscal 1996. For the nine months ended March 29, 1997, the Company incurred a net loss of $7,724,000 compared to a net loss of $821,000 for the comparable period in fiscal 1996. The year to date operating loss before income taxes for fiscal 1997 includes the previously discussed restructuring charge of $1,100,000, the third quarter inventory provision of $4,000,000, and other non-recurring costs related to the California plant closing totaling $1,842,000. 6 NET SALES Net sales for the third quarter of fiscal 1997 of $22,481,000 were down 14.3% compared to net sales for the comparable period in fiscal 1996. Unit sales for the third quarter in the current fiscal year were down 15.9%, compared to the third quarter of the prior fiscal year. For the nine months ended March 29, 1997 (39 weeks), net sales of $68,192,000 were down 13.8% (11.6% adjusted for the number of weeks differential) from net sales of the first nine months in the prior fiscal year (40 weeks). Unit sales for the first nine months in the current fiscal year are down 14.1% (11.9% adjusted for the number of weeks differential) from unit sales of the same period in fiscal 1996. As in the previous two quarters, the Company experienced overall lower customer demand during the third quarter of fiscal 1997 in comparison with the same period in fiscal 1996. Also, approximately one half of the $3,745,000 sales decline in the third quarter of fiscal 1997, was due to the loss of one specific customer in fiscal 1996. The net sales attributable to this customer in the third quarter of fiscal 1996 approximated $2 million and in the first nine months in fiscal 1996 net sales to this customer approximated $4 million. Net sales declined $10,909,000 in the first nine months of fiscal 1997 compared to the same period in fiscal 1996. Approximately $4,000,000 of this decline was due to the loss of one specific customer, as mentioned above. $1.9 million of the decline in net sales was due to the number of weeks differential (39 weeks in fiscal 1997, 40 weeks in fiscal 1996) in the two periods. Approximately $1,400,000 of the decline in net sales is attributable to the adverse impact of higher levels of customer returns (which are deductions in calculating net sales). The remaining decrease in net sales was due to lower customer demand and the mix of products sold to customers. The Company has experienced a decline in demand from warehouse distributor customers in fiscal 1997 compared to the prior fiscal year. Unit sales to warehouse distributors have declined approximately 20 percent in the first nine months of fiscal 1997 compared to the same period last year. The Company believes that the aggressive consolidation and merger activity that has been occurring within this distribution sector of the industry is related to the overcapacity that has existed in the automotive aftermarket. The Company anticipates that this consolidation activity will continue. Mitigating the declining sales from warehouse distributors has been an increase in unit sales to the Company's retail customers. Much of the growth of our national retail customers is attributable to the expansion of their distribution through the opening of new retail outlets. In the first nine months of fiscal 1997, the Company's mix of product sold reflects a higher level of mechanical product sales with a decline in electrical product sales compared to the same period in fiscal 1996. Net sales in the current fiscal year have been adversely impacted by this product mix because mechanical products have a lower average sales price than electrical products. During the current fiscal year, the Company experienced a higher level of customer returns compared to the prior fiscal year. Customer returns are for re-usable "cores" (our basic raw material), warranty and stock adjustments received in the normal course of business. The Company believes that it has experienced a greater level of returns as many distributors have excess inventories due to increased consolidation and merger activity. The Company believes that to help rectify surplus inventory issues, distributors return as much of their excess inventory as permissible within our policies. 7 GROSS MARGINS The Company experienced a negative gross margin for the third quarter of fiscal 1997 compared to a gross margin of 20.9% for the same period in fiscal 1996. The cost of goods sold in the third quarter of the current fiscal year included one-time period costs of $498,000 related to the closing of the California manufacturing facility and the one time $4,000,000 charge to provide a reserve for excess inventory as discussed earlier. For the nine months ended March 29, 1997, the gross margin percentage was 14.1%, compared to the gross margin percentage for the comparable period in the prior year of 20.6%. The gross margin percentage before the impact of the inventory reserve adjustment and the costs related to the closing of the facility would have been 19.9% and 21.5%, for the third quarter and the first nine months of fiscal 1997, respectively. The cost of goods sold in the current year included one-time period costs of $1,054,000 related to the closing of the California manufacturing facility and the $4,000,000 charge to increase reserves for excess inventory. The costs related to the closing of the California facility included underabsorbed overhead, additional overtime and inefficient labor costs as the production of the California plant was shifted to the Company's remaining manufacturing plants. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses in the third quarter of fiscal 1997 of $5,396,000 were down 1.6% or $90,000 from the same period in fiscal 1996. For the nine months ended March 29, 1997, selling, general and administrative expenses of $15,111,000 declined 5.4% or $861,000 compared to the first nine months of the prior fiscal year. Selling, general and administrative expenses included non-recurring period costs in the third quarter and first nine months of fiscal 1997 of $454,000 and $788,000, respectively. These costs relate to the closing of the California facility and include shipping costs to transport inventory and equipment, personnel relocation costs, public relations and legal costs. The Company expects that it will continue to incur non-recurring period expenses related to the closing of the plant in the fourth quarter of fiscal 1997 but to a lesser extent. INTEREST EXPENSE Interest expense increased 16.1% and 10.1% in the third quarter and the first nine months of the current fiscal year, respectively, over the comparable periods of the last fiscal year. The increases are due primarily to the higher interest rates in the current year compared to the prior year. TAX PROVISION As a result of the losses sustained through the third quarter, the Company exceeded the amount of taxable income available for carryback and, as a result, the Company recorded a tax provision of $543,000 to establish a valuation allowance against net deferred tax assets. This tax provision was offset by a tax benefit of $1,128,000 recorded for the nine months ended March 29, 1997. LIQUIDITY AND SOURCES OF CAPITAL Net cash of $3,107,000 was provided by operating activities for the nine months ended March 29, 1997. The nine months ended March 30, 1996, provided net cash from operating activities of $2,618,000. In the current fiscal year, cash was provided from several areas. Inventory decreased slightly due to the effect of reducing the level of on-hand inventories as a result of the consolidation of the California facility's inventory to the Company's remaining manufacturing facilities. Cash was provided by a decline in accounts receivable of approximately $3 million, which is consistent with the lower sales volume in the third quarter of the current fiscal year. Additional cash was provided by a net increase in accounts payable, cash overdrafts and accrued liabilities of $1,500,000. These balances have increased primarily due to the lengthening of payment terms with our vendors during this period to fund the additional one- time cash requirements that were the result of the consolidation of the California manufacturing facility to the two remaining facilities. The Company's loss from operations, which included a non-cash inventory adjustment of $4,000,000 and the non-cash restructuring charge of $720,000, decreased the cash provided from operating activities. Cash of $370,000 was used in investing activities, primarily for property, plant and equipment in the first nine months of the current fiscal year compared to $676,000 used in the comparable period in the prior fiscal year. Cash of $3,207,000 was also used in the first nine months of the current fiscal year to reduce debt and advances under the Company's revolving line of credit compared to $2,248,000 used for that purpose in the comparable period of the prior fiscal year. The Company's financing agreements consist of a $20 million revolving line of credit and a $9 million term loan. The Company's primary lender was joined by a second commercial lender in the second quarter of fiscal 1997 to the extent of a one-third participation in the Company's line of credit and term loan. The Company's revolving line of credit enables the Company to borrow up to $20 million based on a formula applied to the balances of the Company's inventory and accounts receivable. The term loan, which had outstanding borrowings as of March 29, 1997, of $5,143,000 is payable in equal quarterly installments which are intended to extinguish the debt by December 31, 2000. During the third quarter of the current fiscal year compliance with tangible net worth, liabilities to worth, debt service, capital expenditures and operating performance covenants were waived such that the loss sustained by the Company did not result in a default under its financing agreement. Also, the Company's revolving line of credit has been extended to March 31, 1998. The Company's obligations under these agreements are secured by substantially all of its assets. Based on the Company's current operating forecast, it believes that its existing cash balance and cash generated from operations combined with its borrowing ability under its financing agreements will provide sufficient funds to meet the Company's cash requirements for operations for the next twelve months. OUTLOOK Consolidations and mergers have been frequent recently within the automotive aftermarket. The Company, too, has mirrored the industry dynamics by consolidating its own production facilities. The restructuring plan announced by the Company in the first quarter of fiscal 1997 called for the closure of the Company's California plant in December of 1996. This consolidation was aimed at streamlining the Company's productive capacity to better match its production requirements. Improved manufacturing efficiencies and profit margins are expected to result from the restructuring. However, as anticipated, the Company has incurred significant non-recurring period costs in connection with the restructuring that were expensed as incurred in the first nine months of fiscal 1997. The Company anticipates that there remains approximately $200,000 of additional one-time period costs, to be incurred in the last quarter of fiscal 1997, primarily related to costs to transfer certain machinery and equipment. The Company has experienced declining sales over the past two years and the decline has worsened in the first nine months of the current year. During this period the aftermarket has experienced significant consolidation within the traditional warehouse distributor sector as smaller operations are replaced by the more favorable economics of large-scale distribution. These consolidations and mergers often result in excess inventory as warehouses are closed and inventories consolidated. Following these consolidations, orders by distributors often decline for a period of time as inventory levels are adjusted. Also, these consolidations may result in large product returns as distributors streamline newly combined operations. The emergence of retail chains as major distributors of automotive aftermarket products has also impacted the Company. A number of large retail chains have evolved over the last ten years making successful inroads into product distribution previously dominated by smaller independent warehouses. In fact, the Company's business with retail chains has grown from a negligible percentage ten years ago to 22% for its last fiscal year ending in June 1996. While the retail business does present the Company with opportunities for significant growth, it also presents unique challenges. Inventory management practices by retailers can frequently result in large returns as the stock keeping units and quantities maintained in a store's inventory plan are constantly challenged and revised. In addition, retailers, accustomed to higher inventory turnovers on lower gross margins, are extremely price sensitive and exert considerable pressure on vendors for competitive pricing. These practices have resulted in similar pricing pressures in the traditional channels of distribution as warehouse distributors devise strategies to compete with retailers. Finally, while over longer periods of time the relationship of returns to sales remains relatively constant, the timing of customer returns has been unpredictable and inconsistent in relation to the orders received from customers in a given time frame. Fluctuations in channel mix (retail versus traditional warehouse distributors, for example) and product mix in product sales can also be significant. All of these factors can have a significant impact on the level of revenues and earnings. However, management believes that the streamlining of its manufacturing operations will position the Company competitively in the marketplace and make the Company an attractive supplier to all distributors in the aftermarket. During the month of April, 1997, the Company experienced a 9% decline in net sales compared to the same period in fiscal 1996. However, it is uncertain at this time if the lower unit sales in the month of April will be indicative of the Company's performance for its fourth quarter. CAUTIONARY STATEMENT All statements in the foregoing discussion and analysis which are not historical fact are forward looking statements. In connection with the "Safe Harbor" provision of the Private Securities Litigation Reform Act of 1995, the Company is providing the following cautionary statement to identify some (but not necessarily all) of the important factors that could cause its actual results to differ materially from those anticipated in any forward looking statements made in this report or otherwise by or on behalf of the Company. Actual results of the Company may differ from those anticipated in any forward looking statement made by or on behalf of the Company due to the following factors, among other risks and uncertainties affecting the Company's business: lack of availability to the Company of adequate funding sources and cash from operations, reduced product demand and industry over-capacity, the loss of or a material reduction in orders from the Company's largest customer or other material loss of business, the inability to realize the cost savings as estimated in the Company's plan to restructure its operations, new business acquisition costs, the impact of inflation and various other factors identified in the discussion appearing under the heading "Outlook" above and elsewhere in this report. 8 ARROW AUTOMOTIVE INDUSTRIES, INC.
PART II OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities. None. ITEM 3. Default upon Senior Securities. None. ITEM 4. Submission of Matters to a Vote of Security Holders. None. ITEM 5. Other Information. None. ITEM 6. Exhibits and Reports on Form 8-K. A. Exhibits Exhibit 10.1 Waiver and Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement with BankBoston, N.A. and BTM Capital Corporation dated as of March 29, 1997. 16 Exhibit 10.2 Director and Officer Liability Insurance Policy and Excess Policy 21 Exhibit 27. Financial Data Schedule
9 ARROW AUTOMOTIVE INDUSTRIES, INC. SIGNATURES Pursuant to the requirements 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.
ARROW AUTOMOTIVE INDUSTRIES, INC. (Registrant) May 16, 1997 /s/ Jim L. Osment Jim L. Osment President and Chief Executive Officer May 16, 1997 /s/ James F. Fagan James F. Fagan Executive Vice President, Treasurer and Chief Financial Officer
10 EX-10.1 2 ARROW AUTOMOTIVE INDUSTRIES, INC. WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT THIS WAIVER AND SECOND AMENDMENT (this "Amendment"), dated as of March 29, 1997, by and among Arrow Automotive Industries, Inc. (the "Borrower"), BankBoston, N.A., f/k/a The First National Bank of Boston, a national banking association ("BKB"), the other lending institutions listed on SCHEDULE 1 to the Credit Agreement (together with BKB, the "Banks"), and BankBoston, N./A., f/k/a The First National Bank of Boston as agent for the Banks (the "Agent"), as parties to a certain Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 3, 1996 (as amended by the Waiver and First Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated as of December 28, 1996, the "Credit Agreement"). Capitalized terms not otherwise defined herein shall have the same meanings ascribed thereto in the Credit Agreement. WHEREAS, the Borrower has requested the Banks to make certain amendments to, and waive certain provisions of, the Credit Agreement; and WHEREAS, the Banks are willing to make such amendments to, and waive certain provisions of, the Credit Agreement subject to the terms and conditions set forth herein. NOW THEREFORE, the Borrower and the Agent and the Banks hereby covenant and agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. (a) The definition of Borrowing Base contained in Section 1.1 of the Credit Agreement is amended by deleting the amount "$13,500,000" set forth in the proviso contained in such definition and substituting $13,000,000" therefor. (b) The definition of Revolving Credit Loan Maturity Date contained in Section 1.1 of the Credit Agreement is amended by deleting the date "December 31, 1997" contained in such definition and substituting the date "March 31, 1998" therefor. (c) Section 6 of the Credit Agreement is amended by adding the following new Section 6.10: 6.10 Prepayment and Termination. If the Borrower prepays all of the Obligations and terminates each Bank's Commitment in full prior to the Revolving Credit Loan Maturity Date or Term Loan Maturity Date, the Borrower shall pay a premium equal to one percent (1%) of the sum of (i) the Total Commitment with respect to the Revolving Credit Loans PLUS (ii) the outstanding amount of the Term Loan, on the date immediately prior to the date of prepayment (the "Total Prepayment Amount")' PROVIDED, HOWEVER, in the event that the Banks request the Borrower to refinance with a third party and repay all of the Obligations and all of the Obligations are repaid in full in cash within ninety (90) days of such request, the premium to be paid by the Borrower shall be equal to one-half percent (0.5%) of the Total Repayment Amount. (d) Section 11.1 of the Credit Agreement is amended by deleting such Section 11.1 and restating it in its entirety as follows: 11.1 Capital Expenditures. The Borrower will not make Capital Expenditures that exceed in the aggregate (a) $575,000 during the 1997 fiscal year (excluding amounts capitalized in connection with the closing of the Borrower's manufacturing facility located in Santa Maria, California up to an aggregate amount of $250,000) and (b) $500,000 during any fiscal year thereafter. (e) Section 11.2 of the Credit Agreement is amended by deleting such Section 11.2 and restating it in its entirety as follows: 11.2 Debt Service. The Borrower will not permit, as at the end of each fiscal quarter (commencing with the fiscal quarter ending on September 27, 1997), the ratio of (a) the sum of (i) Net Income plus (ii) Total Interest Expense, plus (iii) depreciation, plus (iv) amortization to (b) Total Debt Service to be less than 1.0:1.0. (f) Section 11.3 of the Credit Agreement is amended by deleting such Section 11.3 and restating it in its entirety as follows: 11.3 Liabilities to Worth Ratio. The Borrower will not permit the ratio of Total Liabilities to Tangible Net Worth to exceed (a) 1.50:1.100 as at the end of each of fiscal quarter Q1, 1997 and Q2, 1997 and (b) 2.00:1.00 as at the end of each fiscal quarter ending thereafter. (g) Section 11.4 of the Credit Agreement is amended by deleting such Section 11.4 and restating it in its entirety as follows: 11.4 Tangible Net Worth. The Borrower will not permit Tangible Net Worth to be less than $22,250,000 at any time. (h) Section 11.5 of the Credit Agreement is amended by deleting such Section 11.5 and restating it in its entirety as follows: 11.5 Minimum Profitability. The Borrower will not permit, as at the end of each fiscal quarter described in the table set forth below, its Net Income to be less than the amount set forth opposite such quarter in such table: FISCAL QUARTER AMOUNT Q4, 1997 -$750,000 Each fiscal quarter thereafter, $1.00 commencing with the fiscal quarter ending on the last day of Q1, 1998. 2. WAIVER. The Banks hereby waive the provisions of Sections 11.2 and 11.5 of the Credit Agreement solely to the extent necessary to permit non- compliance with such Sections 11.2 and 11.5, and only for the fiscal quarter ended March 31, 1997. 3. AMENDMENT FEE. The Borrower shall pay to the Agent for the PRO RATA accounts of the Banks on or prior to May 12, 1997 an amendment fee of $25,000. 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective upon satisfaction of the following condition: (a) this Amendment shall have been duly and properly executed and delivered to the Agent by the Borrower, the Banks and the Agent; (b) all corporate action necessary for the valid execution, delivery and performance by the Borrower of this Amendment and the Credit Agreement as amended hereby shall have been duly and effectively taken, and evidence thereof satisfactorily to the Agent shall have been provided to the Agent; and (c) the Borrower shall have paid to the Agent, for the benefit of the Banks, the Amendment Fee. 5. REPRESENTATIONS AND WARRANTIES. The Borrower, hereby represents and warrants to the Bank and the Agent as follows: (a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. The representations and warranties of the Borrower contained in the Credit Agreement (i) were true and correct in all material respects when made, and (ii) except to the extent such representations and warranties by their terms are made solely as of a prior date, continue to be true and correct in all material respects on the date hereof. (b) RATIFICATION, ETC. Except as expressly provided by this Amendment, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. (c) AUTHORITY, ETC. The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of all of its agreements and obligations under the Credit Agreement as amended hereby are within the corporate authority of the Borrower and have been duly authorized by all necessary corporate action on the part of the Borrower. (d) ENFORCEABILITY OF OBLIGATIONS. This Amendment and the Credit Agreement as amended hereby constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms. (e) NO DEFAULT. After giving effect to this Amendment, no Default or Event of Default has occurred and is continuing. 6. NO OTHER AMENDMENTS OR WAIVERS. Except as expressly provided in this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents remain in full force and effect. 7. EXPENSES. Pursuant to Section 17 of the Credit Agreement, all costs and expenses incurred or sustained by the Agent in connection with this Amendment, including the fees and disbursements of legal counsel for the Agent in producing, reproducing and negotiating the Amendment, will be for the account of the Borrower whether or not the transactions contemplated by this Amendment are consummated. 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but which together shall constitute one instrument. 9. MISCELLANEOUS. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). The captions in this Amendment are for the convenience of reference only and shall not define or limit the provisions hereof. (THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK) IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment under seal as of the date first set forth above. ARROW AUTOMOTIVE INDUSTRIES, INC. By: /S/ JAMES F. FAGAN Name: James F. Fagan Title: Executive Vice President BANKBOSTON, N.A., f/k/a THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /S/ MATTHEW A. ROSS Name: Matthew A. Ross Title: Vice President BTM CAPITAL CORPORATION By: /S/ THOMAS F. LEE Name: Thomas F. Lee Title: Assistant Managing Director EX-10.2 3 ROYAL INSURANCE Executive Offices: 9300 Arrowpoint Blvd. Charlotte, NC 28217 DIRECTORS AND OFFICERS LIABILITY AND COMPANY REIMBURSEMENT COVERAGE NOTICE: THIS IS A CLAIMS MADE INDEMNITY POLICY WHICH APPLIES ONLY TO CLAIMS FIRST MADE, AND REPORTED TO ROYAL DURING THE POLICY PERIOD (AGAINST THE INSURED PERSONS FOR A WRONGFUL ACT). NOTICE: THE LIMIT OF LIABILITY IS DEPLETED BY AMOUNTS INCURRED FOR DEFENSE FEES AND EXPENSES. AMOUNTS INCURRED FOR DEFENSE EXPENSES SHALL BE APPLIED FIRST AGAINST THE RETENTION AMOUNT. NOTICE: INSURER HAS NO DUTY TO PROVIDE A DEFENSE FOR ANY INSURED PERSON OR THE INSURED ORGANIZATION. PLEASE READ CAREFULLY CLAIM NOTICE Please notify Royal Specialty Underwriting, Inc. of all claims. Royal Specialty Underwritings, Inc. 945 East Paces Ferry Road Suite 1890 Atlanta, GA 30326 Attention: Claims Department RSUIFP-RI-00001 (Ed. 4/93) IN CONSIDERATION of the payment of premium and in reliance upon all statements made and information furnished to the Royal Indemnity Company, (a stock insurance company, hereinafter called the Insurer) including the statements made in the Application attached hereto and made a part hereof, and subject to the terms, conditions, definitions, exclusions and limitations hereinafter provided, the Insurer agrees: SECTION 1. INSURING CLAUSE (A) with the Insured Persons of the Insured Organization that if during the Policy Period, any Claim or Claims are first made against the Insured Persons and reported in accordance with Section 4, Condition (G) of this policy, jointly or severally, for a Wrongful Act, the Insurer will pay on behalf of such Insured Persons all Loss which such Insured Persons shall become legally obligated to pay. (B) with the Insured Organization that if during the Policy Period, any Claim or Claims are first made against the Insured Persons and reported in accordance with Section 4. Condition (G) of this policy, jointly or severally, for a Wrongful Act, the Insurer will pay on behalf of the Insured Organization, all Loss for which the Insured Organization is required or permitted to indemnify the Insured Persons pursuant to law, common or statutory, or the Charter or By-laws of the Insured Organization duly effective under such laws which determines and defines such rights to indemnify. SECTION 2. DEFINITIONS (A) "Application" means the Application attached to and forming part of this policy, including any materials submitted as part of the Application process which are on file with the Insurer and which form part of the policy, whether physically attached or not. (B) "Claim" means written or oral demand for money or services received by an Insured Person that any person or entity intends to hold any Insured Person responsible for a Wrongful Act. (C) "Defense Expenses" means reasonable legal fees and expenses incurred, with the written consent of the Insurer, by an Insured Person in defense of a Claim, including appeal, except that Defense Expenses shall not include: (1) remuneration, overhead or benefit expenses associated with any Insured Person; and (2) any amounts incurred in defense of any Claim including appeal for which any other insurer has a duty to defend, regardless of whether or not such other insurer undertakes such duty; and (3) any obligation to apply for, procure or provide security for any appellate or similar bond. (D) "Insured Organization" means the organization named in Item 1 of the Declarations and any Subsidiary existing prior to or at the inception date of this policy and listed on the Named Insured Endorsement attached to this policy. In addition, Insured Organization shall mean any Subsidiary created or acquired after the inception date of the policy subject to Section 4. Condition (H) Merger, Consolidation or Acquisition. (E) "Insured Person" means any past, present or future director or officer, and in the event of the death, incapacity or bankruptcy of an Insured Person, the estate, heirs, legal representatives or assigns of such individual. (F) "Loss" means any amount for settlement, damages or judgment, including Defense Expenses, in excess of the applicable retention and not exceeding the limit of liability, as listed on the Declarations Page, which an Insured Person is legally obligated to pay as a result of a Claim. Loss does not include sanctions, punitive or exemplary damages, the multiplied portion of any multiplied damage award, matters which are uninsurable under the law pursuant to which this policy shall be construed, fines, taxes or penalties. (G) "Policy Period" means the period from the inception date to the expiration date in Item 2 of the Declarations Page or to any earlier cancellation or termination date. Any extension of coverage under Section 4. Condition (E) will be part of and not in addition to the Policy Period. (H) "Subsidiary" means a corporation of which the Insured Organization owns more than fifty percent (50%) of the voting stock. (I) "Wrongful Act" means any actual or alleged error, omission, misstatement, misleading statement, neglect or breach of duty by an Insured Person solely in their capacity as an Insured Person acting on behalf of the Insured Organization. SECTION 3. EXCLUSIONS (A) Except for Loss for which the Insured Organization is required to indemnify the Insured Persons, or for which the Insured Organization has, to the extent permitted by law, indemnified the Insured Persons, the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons: (1) based upon or attributable to any Insured Person gaining in fact of any personal profit or advantage to which such Insured Person was not legally entitled; (2) for return by the Insured Persons of any remuneration paid to the Insured Persons without the previous approval of the governing bodies of the Insured Organization, which payment, without such previous approval, shall be held by the Courts to be in violation of law; (3) based upon, arising out of or attributable to profits in fact made from the purchase and sale or sale and purchase by the Insured Persons of securities of the Insured Organization within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any state statutory law or common law; (4) brought about or contributed to by the dishonesty of the Insured Persons. However, notwithstanding the foregoing, the Insured Persons shall be protected under the terms of this policy as to any Claims upon which suit may be brought against them, by reason of any alleged dishonesty on the part of the Insured Persons unless a judgment or other final adjudication thereof adverse to the Insured Persons shall establish that acts of active and deliberate dishonesty committed by the Insured Persons with actual dishonest purpose and intent were material to the cause of action so adjudicated. NOTE: The Wrongful Act of any Insured Person shall not be imputed to any other Insured Person for the purpose of determining the applicability of the exclusions enumerated in Section 3. Exclusions (A). (B) The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons: (1) for any actual or alleged (a) bodily injury, sickness, disease, or death of any person, assault, battery, mental anguish, or emotional distress; or (b) damage to or destruction of any tangible property including loss of use thereof; or (c) invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment or malicious prosecution; (2) for libel, slander or defamation in any form; (3) for any actual or alleged violations of the Employee Retirement Income Security Act of 1974 or any regulations promulgated thereunder, or of any similar provisions of any federal, state or local law or regulation; (4) alleging, arising out of, based upon, attributable to, or in any way involving, directly or indirectly: (a) the actual, alleged or threatened discharge, dispersal, release or escape of pollutants, or (b) any direction or request to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants, Including but not limited to Claims alleging damage to the Insured Organization; Pollutants includes (but is not limited to) any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes (but is not limited to) materials to be recycled, reconditioned or reclaimed; (5) by an Insured Person or Insured Organization, as defined in this policy, except: (a) for stockholder's derivative actions brought by a shareholder of the Insured Organization other than an Insured Person; (b) a Claim brought by an officer who is not a Director for their alleged wrongful termination; (6) based upon or attributable to, or arising out of, or in any way involving: (a) payments, commissions, gratuities, benefits or any other favors to or for the benefit of any full or part-time domestic or foreign governmental or armed services officials, agents, representatives, employees or any members of their family or any entity with which they are affiliated; or (b) payments, commissions, gratuities, benefits or any other favors to or for the benefit of any full or part-time officials, directors, agents, partners, representatives, principal shareholders, or owners or employees, or affiliates (as that term is defined in the Securities Exchange Act of 1934, including any of their officers, directors, agents, owners, partners, representatives, principal shareholders or employees) of any customers of the Insured Organization or any members of their family or any entity with which they are affiliated; or (c) Political Contributions, whether domestic or foreign; (7) based upon or attributable to any failure or omission on the part of the Insured Person to effect and maintain adequate insurance; (8) based upon or attributable to the essential fact underlying or alleged in any matter which prior to the inception date of this policy has been the subject of notice to any Insurer of a Claim, or a threat of Claim, or an occurrence which might give rise to a Claim under any policy of which this insurance is a renewal or replacement or which it may succeed in time; (9) based upon, arising out of directly or indirectly resulting from, in consequence of, or in any way involving service by an Insured Person as a director or officer of any entity other than the Insured Organization even if such service is directed or requested by the Insured Organization; (10) alleging, arising out of, based upon or attributable to the ownership, management, maintenance and/or control by the Insured Organization of any captive insurance company or entity including but not limited to Claims alleging the insolvency or bankruptcy of the Insured Organization named in Item 1 of the Declarations as a result of such ownership, operation, management and control; (11) based upon or in any way involving any offer to purchase, or purchase of, securities of the Insured Organization at a premium over their then current market value; made by the Insured Organization or by any of the Insured Persons, except where such offer or purchase extends to all security holders of the Insured Organization; (12) based upon or any way involving actual or alleged: (1) attempts whether successful or unsuccessful, by any person or entity to acquire securities of the Insured Organization, in opposition to the Board of Directors of the Insured Organization, or (2) efforts, whether successful or unsuccessful, by the Insured Organization or any of its Insured Persons to resist such attempts; SECTION 4. CONDITIONS (A) INDEMNITY PAYMENT FOR DEFENSE EXPENSES; INSURER HAS NO DUTY TO PROVIDE DEFENSE (1) It is the duty of the Insured Person and not the duty of the Insurer to provide for a defense of Claims against them. The Insurer shall indemnify the Insured Person or Insured Organization for Defense Expenses after final disposition of a covered Claim. No Defense Expenses shall be incurred and no settlement of any Claim shall be made without the Insurer's written consent; such consent not to be unreasonably withheld. Any Defense Expenses incurred or settlements made without the written consent of the Insurer will not be covered under this policy. (2) Under Section 1. Insuring Clause (A), (B), the Insurer may, upon written request by an Insured Person, pay on a current basis Defense Expenses which are otherwise payable under this policy except to the extent that the Insured Organization is required or permitted to indemnify the Insured Person for such Defense Expenses. (3) Under Section 1. Insuring Clause (B), The Insurer may, upon written request by the Insured Organization, reimburse on a current basis Defense Expenses which are otherwise payable under this policy. (4) Any Insured Person or the Insured Organization requesting that the Insurer pay on a current basis Defense Expenses for a claim hereunder must agree in writing, prior to any payment of Defense Expenses by the Insurer, that upon demand the Insured Person or the Insured Organization or both will repay the Insurer all Defense Expenses paid to or on behalf of such Insured Person in connection with such Claim if the Insurer determines that there is no coverage under Insuring Clause (A) or (B). (5) The Insured Organization and the Insured Persons shall give the Insurer the right to associate itself in the defense and settlement of any Claim that appears reasonably likely to involve the Insurer. (B) OTHER INSURANCE; OTHER INDEMNIFICATION In the event that: (1) there is any other insurance, whether prior or subsequent to this policy, directly or indirectly covering or insuring any Wrongful Act by an Insured Person otherwise covered by this policy, or (2) there is indemnification to which an Insured Person is entitled from any entity other than the Insured Organization, then all other insurance or indemnification shall apply first to the noticed Claim and this policy shall not be considered contributing but will indemnify only the difference between all amounts recoverable under all other insurance or indemnification and the amounts of any Loss otherwise covered under this policy, not exceeding the limit of liability shown on the Declarations Page and subject to all policy provisions. In the event there is other insurance or indemnity available to the Insured Person or Insured Organization, then this insurance shall provide specific excess coverage only and shall not be subject to the terms of any other insurance or indemnity. (C) LIMIT OF LIABILITY; RETENTION; PAYMENT OF LOSS (1) The amount stated in Item 3 of the Declaration is the maximum aggregate limit of liability under the policy and the total amount the Insurer shall be obligated to indemnify under the policy whether under Section 1. Insuring Agreements (A) or (B) or both, regardless of the time of payment by the Insurer. Defense Expenses shall be part of and not in addition to the limit of liability, and payment of Defense Expenses by the Insurer will deplete the limit of liability. (2) All Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same or related facts, circumstances, situations, transactions or events, or the same or related series of facts, circumstances, situations, transactions or events, shall be deemed to be a single Claim. (3) If Loss from a Claim is covered under more than one Insuring Clause, the application retention stated in Item 4 of the Declarations Page shall be applied separately to that part of the Loss covered by each Insuring Clause, and the sum of such retentions shall be the retention applicable to such Claim. However, the total retention shall not exceed the largest retention stated in Item 4 of the Declarations Page. (4) The company reimbursement RETENTION and SECTION 1 INSURING CLAUSE (B) shall be applicable to all Claims whenever indemnification by the Insured Organization is legally permissible or statutorily required, whether or not the Insured Organization has agreed to indemnify its Insured Persons or not, except where actual indemnification cannot be made by the Insured Organization to its Insured Persons solely by reason of the Insured Organization's financial insolvency. (5) Except for the payment of Defense Expenses as provided in Section 4. Conditions (A), (2) and (3), the Insurer shall indemnify for Loss only upon the final disposition of any Claim. (D) COOPERATION; SUBROGATION In the event of a Claim or notice of circumstances under Section 4. Conditions (G), (1), (2), the Insured Person will provide the Insurer with all information, assistance and cooperation that the Insurer reasonably requests, and will take no action that may prejudice the Insured Persons or Insurer's position or potential or actual rights or defense under the policy without the Insurer's consent. In the event of payment by the Insurer, it shall be subrogated to all of the rights of recovery of the Insured Persons, who shall execute all papers and take all necessary actions to secure such rights, including the execution of any documents necessary to enable the Insurer effectively to bring suit in the Insured Persons name. Any amount so recovered shall be apportioned for the repayment of; first, the Insurer's subrogation expenses, legal fees and costs; second, payments by the Insured Person or Insured Organization in excess of the retention and applicable insurance; third, payments by an excess insurer; fourth, payments by the Insurer; and last, reimbursement of the retention. (E) DISCOVERY PERIOD If the Insurer shall cancel or refuse to renew this policy the Insured Organization shall have the right, upon payment of an additional premium of fifty percent (50%) of the Full Annual Premium, to a period of ninety (90) days following the effective date of such cancellation or nonrenewal (herein referred to as the Discovery Period) in which to give written notice to the Insurer of claims first made against the Insured Persons during said ninety (90) day period for any Wrongful Act occurring prior to the end of the Policy Period and otherwise covered by this policy. As used herein, Full Annual Premium means the premium level in effect immediately prior to the end of the Policy Period. The rights contained in this clause shall terminate unless written notice of such election, together with the additional premium, is received by Royal Specialty Underwriting, Inc. at the address shown on the Declarations Page within ten (10) days of the effective date of cancellation or nonrenewal. The full additional premium for the Discovery Period shall be fully earned at the inception of the Discovery Period. The Discovery Period is not cancellable. This clause and the rights contained herein shall not apply to any cancellation resulting from non-payment of premium. (F) RENEWAL PROVISION The offer by the Insurer of renewal terms, conditions, limits of liability and/or premiums varying from those of the expiring policy shall not constitute a refusal to renew. (G) NOTICE OF CLAIM OR CIRCUMSTANCE (1) If during the Policy Period any Claim is first made, as a condition precedent to indemnity, the Insured Organization must give written notice to Royal Specialty Underwriting, Inc. on behalf of the Insurer by certified mail and properly addressed to the address shown on the Declarations Page, of such Claim as soon as practicable after such Claim is first made and in no event later than the expiration date or any earlier cancellation date of this policy. (2) If during the Policy Period, an Insured Person or the Insured Organization first becomes aware of any circumstance which may reasonably be expected to give rise to a Claim against any Insured Person and, as soon as practicable thereafter, before the expiration date or any earlier cancellation date of the policy, gives to Royal Specialty Underwriting, Inc. on behalf of the Insurer written notice via certified mail at the address shown on the Declarations Page of such circumstance along with full particulars of the specific alleged Wrongful Act, then any Claim subsequently made against an Insured Person arising out of such circumstance will be deemed first made during the Policy Period. (H) MERGER, CONSOLIDATION OR ACQUISITION (1) If after the inception date, the Insured Organization creates or acquires a Subsidiary, that Subsidiary will be deemed to qualify as an Insured Organization but only for a Wrongful Act on or after the effective date of such creation or acquisition, for the first ninety (90) days after the date of the creation or acquisition. After this ninety (90) day period the created or acquired Subsidiary will no longer be deemed an Insured Organization unless: (a) written notice of the creation of acquisition is given to the Insurer by the Insured Organization within sixty (60) days of the date of the creation or acquisition. Such written notice shall include: (i) a copy of the most recent audited Financial Statements of the Subsidiary; (ii) a copy of the creation or acquisition documents; and (iii) a new completed Royal Directors and Officers application giving full particulars of the new subsidiary, which is acceptable to the Insurer; (b) the Insured Organization provides the Insurer with any additional information the Insurer may request; (c) the Insured Organization agrees to the terms, conditions, exclusions and additional premium charge as may be required by the Insurer; and (d) the Insurer, at its sole discretion, agrees in writing to extend the coverage of the policy to the created or acquired Subsidiary. If the information in (H) 1(a), (b), and (c) is received within the sixty (60) day period and the Insurer does not expressly accept or decline to extend coverage within the initial ninety (90) day period, then such ninety (90) day period will be extended until the Insurer expressly accepts or declines such extension of coverage. (2) If after the inception date, the Insured Organization is acquired by, merged with or consolidated into any entity such that the Insured Organization is not the surviving entity, then coverage under this policy shall cease immediately upon the date of such acquisition, merger or consolidation. For the purpose of Section 3. Definitions (G), the date of such acquisition, merger or consolidation shall be deemed the expiration date. (I) SALE OR DISSOLUTION OF SUBSIDIARY If, after the inception date, any Subsidiary is sold or dissolved, this policy, subject to its terms, shall apply only to persons who were Insured Persons prior to the sale or dissolution and only with respect to Claims first made during the Policy Period or Discovery Period for Wrongful Acts alleged to have been committed prior to the date of sale or dissolution. No coverage will be afforded for any person who becomes an Insured Person after the date of sale or dissolution. (J) REPRESENTATIONS The Insured Organization, through its authorized representative, represents that as of the inception date of this policy the particulars and statements contained in the Application are complete, true and correct and agree that (1) those particulars and statements are the basis of this policy and are to be considered as incorporated into and constituting a part of this policy; (2) those particulars and statements are material to the acceptance of the risk assumed by the Insurer; and (3) this policy is issued in reliance upon the truthfulness and completeness of such representations. Except for material facts or circumstances known to the person or persons who signed the Application, no statement in the Application or knowledge or information possessed by an Insured Person will be imputed to any other Insured Person for the purpose of determining the availability of coverage. (K) NO ACTION AGAINST THE INSURER (1) No action may be taken against the Insurer unless, as a condition precedent thereto, there has been full compliance with all of the terms of this policy and until the amount of the Insured Person's obligation to pay Loss has been finally determined either by judgment against the Insured Persons after adjudicatory proceedings, or by written agreement of the Insured Persons, the claimant and the Insurer. (2) No Insured Person or Insured Organization has any right under this policy to join the Insurer as a party to any Claim against an Insured Person to determine the liability of such Insured Persons; nor shall the Insurer be impleaded by an Insured Person or his, her or its legal representative in any such Claim. (L) AUTHORIZATION AND NOTICES The Insured Persons agree that the Insured Organization acts on their behalf with respect to giving and receiving all notices and return of premium from the Insurer. (M) CHANGES Notice to any agent or knowledge possessed by any agent or representations by persons acting on behalf of the Insurer does not effect a waiver or change in any part of this policy or estop the Insurer from asserting any right under the terms, conditions and limititations of this policy. The terms, conditions and limitations of this policy can only be waivered or changed by written endorsement. (N) ASSIGNMENT Assignment of interest under this policy does not bind the Insurer without its written consent. (O) CANCELLATION This policy may be canceled by the Insured Organization at any time by written notice or by surrender of this policy at any time to Royal Specialty Underwriting, Inc. at the address shown in the Declarations Page. The policy may also be canceled at any time by Royal Specialty Underwriting, Inc. on behalf of the Insurer by delivery to the Insured Organization or by mailing to the Insured Organization by registered, certified or other first class mail, to the address shown in this policy, written notice stating when, not less than sixty (60) days thereafter, the cancellation will become effective. The mailing of such notice will be sufficient proof of notice and this policy will terminate at the date and hour specified in the notice. If this policy is canceled by the Insured Organization, the Insurer will retain the customary short rate proportion of the premium hereon. If this policy is canceled by the Insurer, the Insurer will retain the pro rata proportion of the premium hereon. Payment or tender of any unearned premium by the Insurer is not a condition precedent to the effectiveness of cancellation but such payment will be made a soon as practicable after the cancellation date is effective. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period will be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. If the Insured Organization fails to pay any premium when due, the Insurer may cancel the policy upon ten (10) days written notice. The Insurer shall not be required to renew this policy upon its expiration. (P) EXHAUSTION When the limit of liability is exhausted by the indemnification for Loss, including Defense Expenses, all obligations of the Insurer under this policy will be fulfilled and extinguished, and the Insurer will have no further obligations of any kind or nature whatsoever under this policy. (Q) ACCEPTANCE The Insured Organization and Insured Persons agree that this policy, including the Application and any endorsements, constitute the entire agreement between them and the Insurer relating to this insurance policy. (R) HEADINGS The description in the headings and sub-headings of the policy are solely for convenience, and form no part of the terms and conditions of coverage. (S) GOVERNING LAW CLAUSE This policy shall, to the extent permitted by applicable law, be construed in accordance with the laws of the state or jurisdiction of incorporation or organization of the Insured Organization or in the case of matters pertaining to a Subsidiary, the laws of the state or jurisdiction of incorporation or organization thereof. In Witness Whereof, the Insurer has caused this policy to be executed and attested, but this policy shall not be valid unless countersigned on the Declarations Page by a duly authorized agent of the Insurer. Joyce W. Wheeler William E. Buckley Corporate Secretary President DIRECTORS AND OFFICERS LIABILITY AND COMPANY REIMBURSEMENT DECLARATIONS Company Policy Symbol & Number Royal Insurance Symbol Executive Offices 9300 Arrowpoint Blvd. R HP 605193 Charlotte, NC 28217 Renewal of Number RHP604261 THIS POLICY IS ISSUED BY THE COMPANY NAMED BELOW: COMPANY NAME: ROYAL INDEMNITY COMPANY PRODUCER'S NAME AND ADDRESS ROYAL SPECIALTY UNDERWRITING, INC. Resurgens Plaza, Suite 1890 945 East Paces Ferry Road Atlanta, GA 30326 Tel: 404-231-2366 ITEM 1. INSURED'S NAME AND MAILING ADDRESS ARROW AUTOMOTIVE INDUSTRIES, INC. 3 SPEEN STREET FRAMINGHAM, MA 01701 ITEM 2. POLICY PERIOD: FROM June 1, 1996 TO June 1, 1997 (12:01 AM Standard Time at the address of the Insured) ITEM 3. LIMIT OF LIABILITY: $ 5,000,000 aggregate limit of liability each policy year. ITEM 4. RETENTION: $ 0 each Director or Officer each loss but in no event exceeding $ 0 in the aggregate subject to $ 75,000 company reimbursement. ITEM 5. PREMIUM: $ 55,000 "TERM" Prepaid Premium ITEM 6. POLICY FORM NUMBER AND ENDORSEMENTS ATTACHED AT ISSUANCE RSUIFP-RI-00001, (SEE ATTACHED SCHEDULE OF ENDORSEMENTS) These Declarations along with the completed and signed Application and the Directors and Officers Liability Insurance Policy, shall constitute the contract between the Directors and Officers, the Company and Royal Indemnity Company. Countersigned: August 6, 1996 SPW James A. Dixon Date Authorized Representative RSUI-DOP-0500 (07/92) Insureds Copy Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. SCHEDULE OF ENDORSEMENTS 1. NUCLEAR ENERGY LIABILITY EXCLUSION 00041 2. COVERAGE EXTENSION TO SUBSIDIARIES 3. PRIOR/PENDING LITIGATION EXCLUSION 4. DELETED EXCLUSIONS 5. ALLOCATION ENDORSEMENT 6. DISCOVERY ENDORSEMENT 00046 7. EMPLOYMENT PRACTICE LIABILITY 8. MARITAL ESTATE EXTENSION The above Schedule of Endorsements is for illustrative and convenience purposes only and forms no part of the terms and conditions of coverage. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. Countersigned By: Authorized Representative Date Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. DIRECTORS AND OFFICERS LIABILITY POLICY NUCLEAR ENERGY LIABILITY EXCLUSION It is agreed that the policy does not apply: I. Under any Liability Coverage, to injury, disease, death or destruction (a) with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or (b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, with any person or organization. II. Under any Medical Payments Coverage, or under any Supplementary Payments provision relating to immediate medical or surgical relief, to expenses incurred with respect to bodily injury, sickness, disease or death resulting from the hazardous properties of nuclear facility by any person or organization. III. Under any Liability Coverage, to injury, sickness, disease, death or destruction resulting from the hazardous properties of nuclear material, if (a) the nuclear material (1) is at any nuclear facility owned by, or operated by on behalf of, an insured or (2) has been discharged or dispersed therefrom; (b) the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or (c) the injury, sickness, disease, death or destruction arises out of the furnishing by an insured or services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories or possessions or Canada, this exclusion (c) applies only to injury to or destruction of property at such nuclear facility. Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. IV. As used in this endorsement "hazardous properties" include radioactive, toxic or explosive properties; "nuclear material" means source material, special material or byproduct material; "source material", "special nuclear material", and "byproduct material" have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; "spent fuel" means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; "waste" means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; "nuclear facility" means (a) any nuclear reactor (b) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling, processing or packaging waste, (c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235, (d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; "nuclear reactor" means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material; With respect to injury to or destruction of property, the word "injury" or "destruction" includes all forms of radioactive contamination of property. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned Policy other than as above stated. All other terms, conditions and warranties remaining unchanged. Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 1 Countersigned By: Authorized Respresentative Date RSUI-00041 Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. In consideration of the premium charged, it is understood and agreed that the coverage afforded by this policy is extended to include the following subsidiaries: Carbco, Inc. Icepac, Inc. It is further understood and agreed that this policy provides coverage (as herein defined) for loss from claims by reason of Wrongful Acts occurring subsequest to the date of acquisition. It is further understood and agreed that the above addition shall not serve to increase the Limit of Liability as set forth in Item 3 of the Policy Declaration. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned Policy other than as above stated. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 2 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. DIRECTORS AND OFFICERS LIABILITY POLICY PRIOR AND/OR PENDING LITIGATION EXCLUSION BACKDATED IN CONSIDERATION of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons based upon or attributable to litigation prior to or pending at the inception date of this policy involving the Insured Organization and/or Insured Persons or arising out of the facts or circumstances underlying or alleged in any such prior or pending litigation. It is further agreed that the above shall apply to prior and/or pending litigation prior to October 18, 1984. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy other than as above stated. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 3 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. In consideration of the premium charged, it is hereby understood and agreed that Section 3 (B) Exclusions (6), (7), (11) and (12) are deleted in their entirety from this policy. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the above mentioned policy other than as above stated. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 4 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. ALLOCATION ENDORSEMENT In consideration of the premium charged, it is hereby understood and agreed that: 1) With respect to any Claim under this Policy made against a Director or Officer which is also made against the Company, including but not limited to Claims for Securities Activity Wrongful Acts (as defined below), the Company, the Directors and Officers and the Underwriter agree to use their best efforts to determine a fair and proper allocation, as between the Company and the Directors and Officers, of all amounts, including Defense Expenses, that the Directors and Officers and/or the Company become obligated to pay in connection with such Claim. In making such determination, the parties shall take into account the relative legal and financial exposures of, and relative benefits obtained in connection with the defense and/or settlement of the Claim by, the Directors and Officers and the Company. In the event that an allocation cannot be agreed to, then the Underwriter shall be obligated to make an Interim payment of the amount of Loss, including Defense Expenses, which the parties agree is not in dispute (which, with respect to any Claim for Securities Activity Wrongful Acts, will be no less than the Minimum Securities Allocation Amount, as defined below) until a final amount is agreed upon or determined pursuant to the provisions of this Policy and applicable law. 2) Notwithstanding anything to the contrary contained in paragraph (1) above, with respect soley to Claims for Securities Activity Wrongful Acts, the portion of Loss allocated to Directors and Officers under this Policy shall in no event be less than 70% (seventy percent) (the "Minimum Securities Allocation Amount"). 3) "Securities Activity Wrongful Acts" means any actual or alleged act, error, omission, statement, misstatement, misleading statement or breach of duty by a Director or Officer in his or her capacity as a Director or Officer of the Company, or any matter asserted against a Director or Officer soley by reason of his or her status as a Director or Officer of the Company, but only in connection with a purchase or sale, or an offer to purchase or sell, securities issued at any time by the Company. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the below mentioned policy other than as above stated. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 5 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. DISCOVERY ENDORSEMENT IN CONSIDERATION of the premium charged, it is hereby understood and agreed that Section 4 Conditions (E) Discovery Period: is deleted and replaced by the following: If the Insurer shall cancel or refuse to renew this policy the Insured Organization shall have the right, upon payment of an additional premium of 75% of the Full Annual Premium, to a period of 1 YEAR following the effective date of such cancellation or nonrenewal (herein referred to as the Discovery Period) in which to give written notice to the Insurer of claims first made against the Insured Persons during said 1 Year period for any Wrongful Act occurring prior to the end of the Policy Period and otherwise covered by this policy. As used herein, Full Annual Premium means the premium level in effect immediately prior to the end of the Policy Period. The rights contained in this clause shall terminate, however, unless written notice of such election together with the additional premium due is received by Royal Specialty Underwriting, Inc. at the address shown on the Declarations Page within ten (10) days of the effective date of cancellation or nonrenewal. The full additional premium for the Discovery Period shall be fully earned at the inception of the Discovery Period. The Discovery Period is not cancellable. This clause and the rights contained herein shall not apply to any cancellation resulting from non-payment of premium. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 6 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. EMPLOYMENT PRACTICE LIABILITY In consideration of the premium charged it is hereby understood and agreed that coverage afforded by this policy is extended to cover Loss from Employment Practices Claims against an Insured Person subject to all terms of this endorsement and all other terms, conditions and exclusions of the policy. DEFINITIONS It is futher understood and agreed that for the purpose of this endorsement only the following definitions shall apply: 1) "Employment Practices Claims" shall mean any Claim relating to a past, present or prospective employee of the Insured Organization for or arising out of any actual, constructive or alleged wrongful dismissal, discharge or termination of employment; wrongful failure to employ or promote; wrongful disciplinary action; wrongful employee evaluation; any manner of sexual or workplace harassment; any manner of unlawful discrimination or wrongful failure to provide adequate employee policies and procedures. Employment Practices Claims shall include Claims brought under local, state or federal law (whether common or statutory) and includes but are not limited to allegations of violations of the following federal laws (as amended) including all regulations promulgated thereunder. 1. Family and Medical Leave Act of 1993. 2. Americans with Disabilities Act of 1992 (ADA). 3. Civil Rights Act of 1991. 4. Age Discrimination in Employment Act of 1967 (ADEA), including the Older Workers Benefit Protection Act of 1990. 5. Title VII of the Civil Rights Law of 1964, as amended (1983) including Pregnancy Discrimination Act of 1978. 6. Civil Rights Act of 1866, Section 1981 and 7. Fifth and Fourteenth Amendments of the U.S. Constitution. 2) "Insured Person" shall include, for the purposes of Employment Practices Claims only, any Director, Officer or Employee of the Company whether such individual is in a supervisory, co-worker or subordinate position to the claimant(s) or otherwise. Coverage shall apply to all new Directors, Officers or Employees elected, appointed or hired after the inception date of the policy. Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. It is further understood and agreed that exclusions 3(B)(1), 3(B)(5)(b) are amended as they relate to Employment Practices Claims only as follows: A) Exclusion 3(B)(1) is deleted in its entirety and replaced as follows: 3 (B) The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons: (1) for any actual or alleged (a) bodily injury, sickness, disease or death of any person, assualt, battery or (b) damage to or destruction of any tangible property including loss of use thereof; or (c) invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment or malicious prosecution. B) Exclusion 3(B)(5)(b) is deleted in its entirety and replaced as follows: 3 (B) The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Insured Persons: (5) by an Insured Person or Insured Organization, as defined in this policy, except: (b) a Claim brought by an Insured Person other than an Insured Person who is or was a Director of the Company for their alleged Employment Practices Claims. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the below mentioned policy other than as above stated. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 7 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. MARITAL ESTATE EXTENSION In consideration of the premium charged, it is hereby understood and agreed that subject otherwise to the terms hereof, this policy may cover Loss arising from any claims made against the lawful spouse (where such status is derived by reason of statutory law or common law) of a Director or Officer for claims arising solely out of his or her status as the spouse of a Director or Officer; including such claims that seek damages recoverable from marital community property, property jointly held by the Director or Officer and the spouse, or property transferred from the Director or Officer to the spouse; provided, however, that this extension shall not afford any coverage for any claim for any actual or alleged Wrongful Act of the spouse and that this policy shall apply only to actual or alleged Wrongful Acts of a Director of Officer subject to the full policy's terms and conditions. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, provisions, agreements or limitations of the below mentioned policy other than as above stated. All other terms, conditions and warranties remaining unchanged. Attached to and forming part of the Policy No. Issued to If this endorsement is listed in the policy declarations, it is in effect from the time coverage under this policy commences. Otherwise, the effective date of this endorsement is as shown below at the same time or hour of the day as the policy became effective. Effective Date: Endorsement No. 8 Countersigned By: Authorized Representative Dated Royal Insurance DIRECTORS AND OFFICERS LIABILITY AND COMPANY REIMBURSEMENT APPLICATION THIS FORM IS FOR PROFIT CORPORATIONS (RENEWAL ONLY) 1. (a) Name of Company Arrow Automotive Industries, Inc. (b) Address (City, State, Zip Code) 3 Speen Street Framingham, MA 01701 2. The Officer of the Entity designated to receive notice from the Insurer concerning this Insurance is: James F. Fagan Executive Vice President Name Title 3. Date since which the Company has continuously carried on business: 1929 4. Nature of operations (if Sales or Manufacturing, please detail accordingly): Remanufacture of automotive parts 5. Stock Ownership (a) Number of common shares outstanding 2,873,083 (b) Number of common stock shareholders 322 (c) Number of shares of the Company's common stock owned directly or beneficially by its Directors and Officers: 1,742,663 (d) Does any shareholder own directly or beneficially 10 percent or more of the common shares? X Yes No (If "Yes", please give details): Lawrence M. Levinson 48.98%; Mary S. Holzwasser, Joseph Segal and Lawrence Levinson as Trustees of the Trust u/w/o Albert S. Holzwasser 18.33%. (e) Are the common shares publicly traded? X Yes No (If "Yes", please specify the exchange(s) listing the Applicant's stock and the stock symbol.) AI American Stock Exchange (f) Provide the price range per share for the applicant's Common Stock for each of the last three (3) years Year 52 Week High 52 Week Low 1995 8 3/8 5 1/2 1994 10 6 1993 7 5/8 5 3/8 6. List the names, titles and affiliations of all Directors and Officers of the Entity and its Subsidiary companies: See attached. 7. Complete list of subsidiary companies: Name Type of Operation Percentage Date Domestic of Ownership Acquired or Foreign N/A 8. Have any plans for merger, acquisition or consolidation been approved by the Board of Directors? Yes X No (If "Yes", please give details): 9. Has the corporation or any subsidiary filled or contemplated filing any new public offering of securities either pursuant to the Securities Act of 1933 or exempt from registration under regulation A within the past 18 months or within the next 12 months? Yes X No (If "Yes", attach a statement of full details including the prospectus.) 10. Please indicate various Limit(s) of Liability and Retentions for which quotations are desired: LIMIT RETENTION $1,000,000 each loss $2,500 each person $1,000,000 each loss $5,000 all persons $10,000 organization The undersigned authorized Officer of the Company, on behalf of the Directors and Officers and the Company, warrant that to the best of his/her knowledge and belief the statements set forth herein are true and he/she agrees that this Renewal Application is a supplement to the application completed for the issuance of the first policy, and that application together with this Renewal Application and information furnished pursuant hereto shall be the basis of the contract should a policy be issued and such applications will be attached and become part of the policy. The Insurer is hereby authorized to make any investigation and inquiry it deems necessary in connection with this application. NOTICE TO NEW YORK APPLICANTS Your state insurance department requires applicants to be informed that any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance containing any false information, or conceals for the purpose of misleading, information concerning any fact material thereto, commits a fraudulent insurance act, which is a crime. NOTE: This application must be signed by the Chairman of the Board or the President and dated within 30 days of binding should an order be given. Signature Harry A. Holzwasser Title Chairman of the Board (Chairman of the Board or President) Date May 18, 1996 Company Arrow Automtive Industries, Inc. RSUFPR-00007 (Ed. 6/92) One copy of each of the following documents is attached and made a part of this proposal: (a) AUDITED ANNUAL REPORT (complete financial statements for the most recent three (3) years) (b) LATEST INTERIM FINANCIAL STATEMENT (c) MOST RECENT FORM 10K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION SUBSEQUENT TO THE FILING THE ANNUAL 10K (if the Entity is publicly traded) (d) LATEST PROXY STATEMENT (e) COPY OF CURRENT SCHEDULE OF INSURANCE Submitted By Johnson & Higgins, Boston Date 5/11/94 Producer NOTE: This Application and all exhibits shall be treated in the strictest confidence. 85431 (e.d. 10/83) CNA FINANCIAL INSURANCE GROUP One Continental Drive, Cranbury, New Jersey 08570 CNA For All the Commitments You Make CNA INSURANCE COMPANIES DECLARATIONS CNA PLAZA EXCESS INSURANCE POLICY CHICAGO, IL 60685 NOTICE THIS IS A "CLAIMS MADE" POLICY AND, SUBJECT TO ITS PROVISIONS, APPLIES ONLY TO ANY CLAIM FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD. NO COVERAGE EXISTS FOR ANY CLAIM FIRST MADE AFTER THE END OF THE POLICY PERIOD UNLESS, AND TO THE EXTENT, THE EXTENDED REPORTING PERIOD APPLIES. THE LIMIT OF LIABILITY SHALL BE REDUCED BY AMOUNTS INCURRED AS DEFENSE COSTS. ACCOUNT NUMBER COVERAGE PROVIDED BY 201028 POLICY NUMBER Continental Casualty Company AGENCY DOX 132022777 910 792169 NAMES ENTITY AND PRINCIPAL ADDRESS AGENT Item Arrow Automotive Industries, Inc. Johnson & Higgins Of Massachusetts, Inc. 1. 3 Speen Street Ms. Suzanne Hoppenstedt Framingham, MA 01701 Three Center Plaza Boston, MA 02108 Attn: Mr. James F. Fagan Item Policy Period: 2. 06/01/96 To 06/01/97 12:01 A.M. Standard Time at the Principal Address stated in Item 1. Item Limited of Liability (inclusive of Defense Costs): 3. $ 5,000,000 Maximum aggregate Limit of Liability each Policy Period. Item Schedule of Underlying Insurance: 4. A. Primary Policy Name of Carrier Policy No. Limits Deductible/ Retention Amount Royal Indemnity Company HP 605193 $5,000,000 0/0/$75,000 B. Underlying Excess Policy(ies): Name of Carrier Policy No. Limits Deductible/ N/A Retention Amount Item Policy Premium 5. $ 35,000 Item Forms and Endorsements forming a part of this policy at inception: 6. FIG-1006-A These Declarations along with the completed and signed Application and the Excess Insurance Policy, shall constitute the contract between the Insureds, the Named Entity, and the Insurer. Date 10/09/96 Chairman of the Board Secretary Authorized Representative Johnson & Higgins of Massachusetts, Inc. G-17728-A (ED 04/92) EXCESS INSURANCE POLICY In consideration of the payment of the premium and in reliance on all statements made and information furnished to Continental Casualty Company (hereinafter called the "Insurer"), and/or to the Insurers of the Underlying Insurance, including the statements made in the Application made a part hereof and subject to all of the provisions of this Policy, the Insurer and the Insureds agree as follows: I. INSURING AGREEMENT The Insurer shall provide the Insureds with excess coverage over the Underlying Insurance as set forth in Item 4 of the Declarations during the policy Period set forth in Item 2 of Declarations. Coverage hereunder shall attach only after all such Underlying Insurance has been exhausted by payments for losses and shall then apply in conformance with the same provisions of the Primary Policy at its inception, except for premium, limit of liability and as otherwise specifically set forth in the provisions of this Policy. II. POLICY DEFINITIONS Application shall mean the written application for this Policy, including any materials submitted therewith, which together shall be on file with the Insurer and deemed a part of and attached hereto as if physically attached to this Policy. Named Entity means the organization named in Item 1 of the Declarations. Insureds means those persons or organization(s) insured under the Primary Policy, at its inception. Policy Period means the period from the effective date and hour of this Policy as set forth in Item 2 of the Declarations, to the Policy expiration date and hour set forth in Item 2 of the Declarations, or its earlier cancellation date or termination date, if any. Primary Policy means the Policy scheduled in Item 4 (a) of the Declarations. Underlying Insurance means all those Policies scheduled in Item 4 of the Declarations and any Policies replacing them. III. MAINTENANCE OF UNDERLYING INSURANCE All of the Underlying Insurance scheduled in Item 4 of the Declarations shall be maintained during the Policy Period in full effect, except for any reduction of the aggregate limit(s) of liability available under the Underlying Insurance solely by reason of payment of losses thereunder. Failure to comply with the foregoing shall not invalidate this Policy but the Insurer shall not be liable to a greater extent than if this condition had been complied with. To the extent that any Underlying Insurance is not maintained in full effect during the currency of this Policy Period, then the Insureds shall be deemed to have retained any loss for the amount of the limit of liability of any Underlying Insurance which is not maintained as set forth above. In the event of any actual or alledged (a) failure by the Insureds to give notice or to exercise any extensions under any Underlying Insurance or (b) misrepresentation or breach of warranties by any of the Insured with respect to any Underlying Insurance, the Insurer shall not be liable hereunder to a greater extent than it would have been in the absence of such actual or alleged failure, misrepresentation or breach. It is further a condition of this Policy that the Insurer shall be notified in writing, as soon as practicable of cancellation and/or alteration of any provisions of any of the policies of Underlying Insurance. IV. LIMIT OF LIABILITY The amount set forth in Item 3 of the Declarations shall be the maximum aggregate Limit of Liability of the Insurer for the Policy Period. Costs of defense shall be part of and not in addition to the Limit of Liability in Item 3 of the Declarations, and such costs of defense shall reduce the Limit of Liability stated in Item 3 of the Declarations. V. DEPLETION OF UNDERLYING LIMIT(S) In the event of the depletion of the limit(s) of liability of the Underlying Insurance solely as the result of the actual payment of losses thereunder by the applicable insurers, this Policy shall, subject to the Insurer's Limit of Liability and to the other terms of this Policy, continue to apply to losses as Excess Insurance over the amount of Insurance remaining under such Underlying Insurance. In the event of the exhaustion of all of the limit(s) of liability of such Underlying Insurance solely as a result of payment of losses thereunder, the remaining limits available under this Policy shall, subject to the Insurer's Limit of Liability and to the other provisions of this Policy, continue for subsequent losses as primary insurance and any retention specified in the Primary Policy shall be imposed under this Policy as to each claim made; otherwise no retention shall be imposed under this policy. This Policy only provides coverage excess of the Underlying Insurance. This Policy does not provide coverage for any loss not covered by the Underlying Insurance except and to the extent that such loss is not paid under the Underlying Insurance solely by reason of the reduction or exhaustion of the available Underlying Insurance through payments of loss thereunder. In the event the insurer of one or more of the Underlying Insurance polices fails to pay loss in connection with any claim covered under the Underlying Insurance as a result of the insolvency, bankruptcy, or liquidation of said insurer, then the Insureds hereunder shall be deemed to have retained any loss for the amount of limit of liability of said Insurer which is not paid as the result of such insolvency, bankruptcy or liquidation. If any Underlying Insurance bears an effective date which is prior to the effective date of this Policy and if any such insurance becomes exhuasted or impaired by payment of loss with respect to any claim which, shall be deemed to be made prior to the effective date of this Policy, then with respect to any claim made after the the effective date of this Policy, the Insureds shall be deemed to have retained any loss for the amount of any such Underlying Insurance which is exhausted or impaired by payment of loss with respect to such claim made prior to the effective date of this Policy. VI. CLAIM PARTICIPATION The Insured shall not admit liability, consent to any judgment against them, or agree to any settlement which is reasonably likely to involve the Limit of Liability of this Policy without the Insurer's consent, such consent not to be unreasonably withheld. The Insurer may, at its sole discretion, elect to participate in the investigation, settlement or defense of any claim against any of the Insureds for matters covered by this Policy even if the Underlying Insurance has not been exhausted. All provisions of the Underlying Insurance are considered as part of this Policy except that it shall be the duty of the Insureds and not the duty of the Insurer to defend any claims against any of the Insureds. VII. SUBROGATION - RECOVERIES In that this Policy is "Excess Coverage", the Insureds and the Insurer's right of recovery against any person or other entity may not be exclusively subrogated. Despite the foregoing, in the event of any payment under this Policy, the Insurer shall be subrogated to all the Insured's rights of recovery against any person or organization, and the Insureds shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. Any amounts recovered after payment of loss hereunder shall be apportioned in the inverse order of payment to the extent of actual payment. The expenses of all such recovery proceedings shall be apportioned in the ratio of respective recoveries. VIII. NOTICE The Insurer shall be given notice in writing as soon as is practicable in the event (a) the cancellation of any Underlying Insurance and (b) any additional or return premiums charged or allowed in connection with any Underlying Insurance. Notice regarding (a) and (b) above shall be given to Manager, Directors and Officers Liability Underwriting, CNA Insurance Companies, CNA Plaza, Chicago, Illinois 60685. The Insurer shall be given notice as soon as practicable of any notice of claim or any situation that could give rise to a claim under any Underlying Insurance. Notice of any claim to the Insurer shall be given in writing to Manager, Professional Liability Claims, CNA Insurance Companies, CNA Plaza, Chicago, Illinois 60685. IX. COMPANY AUTHORIZATION CLAUSE By acceptance of this Policy, the Named Entity named in Item 1 of the Declarations agrees to act on behalf of all the Insureds with respect to the giving and receiving of notice of claim or cancellations, the payment of premiums and the receiving of any return premiums that may become due under this Policy; and the Insureds agree that the Named Entity shall in all cases be authorized to act on their behalf. X. ALTERATION No change in or modification of this Policy shall be effective except when made by endorsement signed by an authorized employee of the Insurer or any of its agents relating to this Policy. XI. POLICY CANCELLATION This Policy may be cancelled by the Named Entity at any time by written notice or by surrender of this Policy to the Insurer. This Policy may also be cancelled by or on behalf of the Insurer by delivery to the Named Entity or by mailing to the Named Entity, by registered, certified or other first class mail, at the address shown in Item 1 of the Declarations, written notice stating when, not less than thirty (30) days thereafter, the cancellation shall become effective. The mailing of such notice as aforesaid shall be sufficient proof of notice and this Policy shall cancel at the date and hour specified in such notice. If the period of limitation relating to the giving of notice is prohibited or made void by any law controlling the construction thereof, such period shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. The Insurer shall refund the unearned premium computed at less than pro-rata if the Policy is canceled in its entirety by the Named Entity. Under any other circumstances the refund shall be computed pro-rata. XII. EXCLUSIONS Nothwithstnading any provisions of the Underlying Insurance, the Insurer shall not be liable to make payment for loss in connection with any claim based upon, arising out of, relating to, directly or indirectly resulting from, or in consequence of, or in any way involving: 1. nuclear reaction, radiation, or contamination regardless of causes; 2. pollutants, including but not limited to loss arising out of any: a. request, demand or order that any of the Insureds or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants, or b. claim by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing or in any way responding to or assessing the effects of pollutants. Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed. XIII. CONDITIONS No action shall be taken against the Insurer unless, as a condition precedent, there shall have been full compliance with all the provisions of this Policy, nor until the amount of the Insureds obligation to pay shall have been finally determined either by final and nonappealable judgment against the Insureds after trial, or by written agreement of the Insureds, the claimant and the Insurer. Secretary Chairman of the Board Prior or Pending Litigation Exclusion In consideration of the premium paid for this policy, it is agreed that Section XII. is amended with the addition of the following: 3 Any fact, circumstance, situation, transaction or event underlying or alleged in any prior and/or pending litigation as of 06/01/96, regardless of the legal theory upon which such litigation is predicated. All other provisions of the policy remain unchanged. This endorsement, which forms a part of and is for attachment to the following described Policy issued by the designated Insurers takes effect on the effective date of said Policy, unless another effective date is shown below, at the hour stated in said Policy and expires concurrently with said Policy. Must be Completed Complete Only When This Endorsement is Not Prepared with the Policy or is Not to be Effective with the Policy ENDT.No. POLICY NO. ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT 01 ,132022777 Arrow Automotive 09/27/96 Industries, Inc. Countersigned by Johnson & Higgins of Massachusetts, Inc. Authorized Representative CNA Insurance Companies FIG-1006-A (ED. 07/94) RENEWAL APPLICATION FOR DIRECTORS AND OFFICERS LIABILITY INSURANCE NOTICE THIS IS AN APPLICATION FOR A CLAIMS-MADE POLICY WHICH, SUBJECT TO ITS PROVISIONS, APPLIES ONLY TO ANY CLAIM FIRST MADE AGAINST THE DIRECTORS AND OFFICERS DURING THE POLICY PERIOD. NO COVERAGE EXISTS FOR CLAIMS FIRST MADE AFTER THE END OF THE POLICY PERIOD UNLESS, AND TO THE EXTENT, THE EXTENDED REPORTING PERIOD APPLIES. THE LIMIT OF LIABILITY SHALL BE REDUCED BY AMOUNTS INCURRED AS DEFENSE COSTS. DEFENSE COSTS SHALL BE SUBJECT TO THE RETENTION AMOUNTS. PLEASE REVIEW THE POLICY CAREFULLY AND DISCUSS THE COVERAGE WITH YOUR INSURANCE AGENT OR BROKER. Instructions For Completing This Application Please read the instructions carefully, and complete and submit all requested information and required attachments. Please note that terms appearing in bold face in the above Notice and in any Application Question below are defined in the Policy and shall have the same meaning in this Application as in the Policy. This Application and all materials submitted or required shall be held in confidence. Questions 3 and 4 need not be answered if the information requested is contained-in any required attachments. Required Attachments: 1. All proxy statements and Notices of Annual Meeting to Stockholders within the last twelve months 2. Audited financial statements for the most recent three fiscal years 3. The latest interim financial statements 4. The indemnification provisions of the charter and bylaws 5. Any filings made to the SEC within the last 12 months Please submit this Application to: CNA Insurance Companies Financial Insurance Division - 20 South CNA Plaza Chicago, Illinois 60685 (800) 221-8201 ANY PERSON WHO, WITH INTENT TO DEFRAUD OR KNOWING THAT (S)HE IS FACILITATING A FRAUD AGAINST AN INSURER, SUBMITS AN APPLICATION OR FILES A CLAIM CONTAINING A FALSE OR DECEPTIVE STATEMENT MAY BE GUILTY OF INSURANCE FRAUD. 1. Named Entity: Arrow Automotive Industries, Inc. Street Address: 3 Speen Street City: Framingham State: MA Zip Code: 01701 Telephone: (508) 872-3711 2. The Officer designated by the Entity to receive notices from the Insurer concerning this insurance is: Kathaleen M. Carroll-Coelho Vice President and Controller Name of Officer Title Questions 3 and 4 Need Not Be Answered if the Information Requested is Contained in the Required Attachments 3. Has there been any material change in the nature of the operations within the last 12 months? Yes No X If yes, provide details: 4. Stock Ownership of Named Entity a. Total number of common shares outstanding: 2,873,083 b. Total number of common shareholders: 322 c. Total number of common shares owned directly or beneficially by Directors: 1,700,004 d. Total number of common shares owned directly or beneficially by Officers who are not Directors e. Does any shareholder own directly or beneficially five percent or more of the common shares? Yes X No If "Yes", designate name and percentage of holdings: Lawrence M. Levinson, 48.98%; Mary S. Holzwasser, Joseph Segal and Larry Levinson as Trustees of the Trust U/W/O Albert Holzwasser 18.33%. Include by attachment the information above (items a-e) for any additional classes of voting stock. f. Are there any other securities convertible to voting stock? Yes No X If "Yes", provide details: 5. Have there been any changes in senior management (Board Chairman, President, Executive Vice President, etc.) in the last 12 months? Yes No X If "Yes", provide details: 6. By attachment to this Application, provide the following information for any Subsidiary acquired or created after the effective date of the current Policy: Not applicable a. Name d. Nature of business b. Date of acquisition e. Domestic or foreign c. Percent of ownership f. Name of parent entity 7. During the last 12 months, has the Entity been involved in, or is it presently considering, any merger, consolidation, acquisition, tender offer, or divestment or sale of its stock in excess of 10% of the total stock outstanding? Yes No X If "Yes", provide details: 8. Has the Entity filed, or contemplated filing, a registration statement with the Securities and Exchange Commission: a. within the past 12 months? Yes No X b. within the next 12 months? Yes No X If "Yes", to either of the above, provide details and furnish a copy of such registration statement if available. N/A 9. a. Within the last 12 months has the Named Entity or any Subsidiary made or joined in a Schedule 13-D filing with the Securities and Exchange Commission with respect to ownership to the securities of another corporation? Yes No If "Yes", provide details. N/A b. Within the last 12 months, has the Named Entity or any Subsidiary become aware that any person, corporation or other entity has made a Schedule 13-D filing with respect to the ownership of the securities of the Named Entity or any Subsidiary? Yes X No If "Yes", provide details. Dimensional Fund Advisors, Inc., 1229 Ocean Avenue, Santa Monica, California 166,300 shares Amendment 13D - Lawrence M. Levinson - See Exhibit A 10. Please provide the following insurance information: a. Pension/Fiduciary Liability Limit: 1,000,000 Carrier: Federal (Chubb) Expir Date: 6/1/96 b. Commercial Crime/Fidelity Limit: 500,000 Carrier: Liberty Mutual Expir Date: 6/1/96 c. General Liability Limit: 1,000,000 Carrier: Liberty Mutual Expir Date: 6/1/96 11. During the last 12 months has the Entity or any of the Directors and Officers been involved in any of the following: a. any anti-trust, copyright or patent litigation? Yes No X b. any civil or criminal action or administrative proceeding charging a violation of any federal or state security law or regulation? Yes No X c. any representative actions, class actions or derivative suits? Yes No X d. other material litigation? Yes No X If "Yes", to any of the above, please attach full details. 12. The undersigned declares that to the best of his/her knowledge the statements set forth herein are true and correct and that reasonable efforts have been made to obtain sufficient information from all of the Directors and Officers to facilitate the proper and accurate completion of this Application for the proposed Policy. Signing of this Application does not bind the undersigned to complete the insurance, but it is agreed that this Application shall be the basis of the contract should a Policy be issued, and this Application will be attached to and become part of such Policy. The undersigned agrees that if after the date of this Application and prior to the effective date of the Policy, any occurrence, event or other circumstance should render any of the information contained in this Application inaccurate or incomplete, then the undersigned shall notify the Insurer of such occurrence, event or circumstance and shall provide the Insurer with information that would complete, update or correct the information contained in this Application. Any outstanding quotations may be modified or withdrawn at the sole discretion of the Insurer. 13. It is agreed that this Renewal Application and all Application(s) for all policies issued by the Insurer of which the proposed Policy would be a direct or indirect renewal or replacement, copies of which will be attached to the proposed Policy, and any materials submitted or required (which shall be maintained on file by the Insurer and be deemed attached as if physically attached to the proposed Policy), are true and are the basis of the proposed Policy and are to be considered as incorporated into and constituting a part of the proposed Policy. 14. The information requested in this Application is for underwriting purposes only and does not constitute notice to the Insurer under any Policy of a Claim or potential claim. All such notices must be submitted to the Insurer pursuant to Section VII of the Policy. The undersigned acknowledges that he or she is aware that Defense Costs reduce and may exhaust the Limit of Liability. The Insurer is not liable for any Loss (which includes Defense Costs) in excess of the Limit of Liability. This Application must be signed by the Chairman of the Board or President. Signed Harry A. Holzwasser Title Chairman of the Board Corporation Arrow Automotive Industries Inc. Date 05/15/96 A POLICY CANNOT BE ISSUED UNLESS THE APPLICATION IS PROPERLY SIGNED AND DATED FOR NEW YORK RESIDENTS ONLY: This Application must be signed by the Chairman of the Board or President: WARNING ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE CONTAINING ANY FALSE INFORMATION, OR CONCEALS, FOR THE PURPOSE OF MISLEADING, INFORMATION CONCERNING ANY FACT THERETO, COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A CRIME. Signed Title Corporation Date A POLICY CANNOT BE ISSUED UNLESS THE APPLICATION IS PROPERLY SIGNED AND DATED G-19906-A (ED. 07/93) EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-28-1997 MAR-29-1997 380 0 14,075 543 31,977 49,169 36,222 23,849 63,897 18,992 16,944 0 0 297 23,275 63,897 68,192 68,192 58,563 58,563 0 0 1,727 (8,309) (585) (7,724) 0 0 0 (7,724) (2.69) (2.69)
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