-----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, I/tIKuYNKsWhks/NqeQkgEik9gBpB4FGaxk2i12gZfrjddg/1r/h3ZI2fqgmoSda Ortpm1NaRZgMCB7yi50EnA== 0000007533-98-000008.txt : 19980513 0000007533-98-000008.hdr.sgml : 19980513 ACCESSION NUMBER: 0000007533-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980512 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: SEC FILE NUMBER: 001-07737 FILM NUMBER: 98617108 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 28, 1998 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 (I.R.S. Employee I.D. No.) incorporation or organization) 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 8, 1998. ARROW AUTOMOTIVE INDUSTRIES, INC. INDEX
Page NUMBER PART I FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited): Condensed Balance Sheets - March 28, 1998 and June 28, 3 1997.......................................... Condensed Statements of Operations - Three Months Ended March 28, 1998 and March 29, 4 1997....................................... Condensed Statements of Operations - Nine Months Ended March 28, 1998 and March 29, 5 1997........................................ Condensed Statements of Cash Flows - Nine Months Ended March 28, 1998 and March 29, 6 1997........................................ Notes to Condensed Financial 7 - 8 Statements................................. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of 9 - 13 Operations....................................... PART II OTHER INFORMATION ITEM 1. Legal 14 Proceedings...................................................................... ITEM 2. Changes in Securities and Use of 14 Proceeds............................... ITEM 3. Default upon Senior 14 Securities................................................... ITEM 4. Submission of Matters to a Vote of Security 14 Holders.................. ITEM 5. Other 14 Information........................................................................ ITEM 6. Exhibits and Reports on Form 8- 14 K.............................................. SIGNATURES .................................................................................................... 15
1 of 62 PART I - ITEM 1 -- FINANCIAL INFORMATION ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS March 28, 1998 June 28, 1997 CURRENT ASSETS Cash and equivalents $ 141,249 $ 240,291 Accounts receivable, less allowances 12,838,129 12,538,853 Inventories 31,530,955 30,920,184 Prepaid expenses and other current assets 525,814 1,705,746 TOTAL CURRENT ASSETS 45,036,147 45,405,074 PROPERTY, PLANT AND EQUIPMENT 29,868,824 33,989,146 Less allowances for depreciation 21,106,993 22,362,518 8,761,831 11,626,628 OTHER ASSETS 2,500,364 2,300,956 TOTAL ASSETS $ 56,298,342 $ 59,332,658 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of advances under revolving line of credit $ 3,543,401 $ 3,836,680 Accounts payable 8,875,685 8,523,743 Cash overdrafts 1,176,547 764,113 Other current liabilities 4,259,881 4,864,374 Current portion of long-term debt 1,129,461 1,166,111 TOTAL CURRENT LIABILITIES 18,984,975 19,155,021 LONG-TERM DEBT 17,195,918 16,819,166 OTHER NONCURRENT LIABILITIES 3,521,605 3,315,105 STOCKHOLDERS' EQUITY Common stock 296,887 296,887 Other stockholders' equity 16,748,281 20,195,803 Less cost of common stock in treasury 449,324 449,324 TOTAL STOCKHOLDERS' EQUITY 16,595,844 20,043,366 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,298,342 $ 59,332,658
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED March 28, 1998 March 29, 1997 Net sales $ 19,506,927 $ 22,480,645 Cost and expenses: Cost of products sold 16,768,128 22,517,273 Selling, administrative and general 4,371,898 5,396,339 Restructuring charge (205,000) (100,000) Interest 610,836 618,317 21,545,862 28,431,929 Loss before income taxes (2,038,935) (5,951,284) Provision from income taxes 0 169,000 NET LOSS $ (2,038,935) $ (6,120,284) Weighted average number of shares used to calculate basic and diluted loss per 2,873,083 2,873,083 share NET LOSS PER BASIC AND DILUTED SHARE $ (0.71) $ (2.13)
See accompanying notes to the condensed financial statements. 2 of 62 ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED March 28, 1998 March 29, 1997 Net sales $ 64,055,844 $ 68,191,970 Cost and expenses: Cost of products sold 51,752,584 58,563,196 Selling, administrative and general 14,127,692 15,110,583 Restructuring charge (205,000) 1,100,000 Interest 1,828,089 1,726,808 67,503,365 76,500,587 Loss before income taxes (3,447,521) (8,308,617) Benefit from income taxes 0 (585,000) NET LOSS $ (3,447,521) $ (7,723,617) Weighted average number of shares used to calculate basic and diluted loss per share 2,873,083 2,873,083 NET LOSS PER BASIC AND DILUTED SHARE $ (1.20) $ (2.69)
See accompanying notes to the condensed financial statements. ARROW AUTOMOTIVE INDUSTRIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED March 28, 1998 March 29, 1997 OPERATING ACTIVITIES Net cash (used in) provided by operating activities $ (2,390,275) 3,106,638 INVESTING ACTIVITIES Net proceeds from the sale of property, plant and equipment 2,555,920 0 Purchase of property, plant and equipment (186,907) (495,196) Other (124,603) 125,503 Net cash provided by (used in) investing activities 2,244,410 (369,693) FINANCING ACTIVITIES Payment of long-term debt and capital lease obligations (2,980,898) (1,034,385) Decrease in advances under revolving line of credit (293,279) (2,172,682) Replacement financing proceeds 3,321,000 0 Net cash provided by (used in) financing activities 46,823 (3,207,067) DECREASE IN CASH AND EQUIVALENTS (99,042) (470,122) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 240,291 850,537 CASH AND EQUIVALENTS AT END OF PERIOD $ 141,249 380,415
See accompanying notes to the condensed financial statements. 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 28, 1998 are not necessarily indicative of the results that may be expected for the year ending June 27, 1998. 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 28, 1997. The balance sheet at June 28, 1997 has been derived from the audited financial statements at that date. NOTE B -- INVENTORIES The components of inventory consist of the following:
March 28, 1998 June 28, 1997 Stated at cost on the first-in, first-out (FIFO) method: Finished goods $ 11,083,261 $ 10,507,186 Work in process and materials 25,684,694 25,649,998 36,767,955 36,157,184 Less reserve required to state inventory on the last-in, first-out (LIFO) method (5,237,000) (5,237,000) $ 31,530,955 $ 30,920,184
NOTE C -- EARNINGS (LOSS) PER SHARE: In the second quarter of fiscal year 1998, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. SFAS 128 requires disclosure of basic and diluted earnings per share. Diluted earnings per share assumes the conversion of all diluted securities. The adoption of SFAS 128 has no effect on the Company's earnings per share. 3 of 62 NOTE D -- RESTRUCTURING CHARGE In fiscal 1997, the Company restructured its operations by closing its California production facility and transferring its manufacturing operations to its Arkansas facility. For the 1997 fiscal year, the restructuring charge amounted to $1.1 million, consisting of $413,000 of employee termination benefits and $687,000 related to the facility closing and other expenses. In the third quarter of fiscal 1998, the Company sold its California production facility. The transaction price was greater than anticipated in the restructuring charge and as a result $204,000 of the restructuring charge was reversed in the third quarter of fiscal year 1998. NOTE E -- LONG TERM DEBT On October 7, 1997, the Company restructured its bank agreements via an amendment. The new agreements consist of a $7,500,000 term loan and a $20 million revolving line of credit. The interest rate on amounts outstanding under the revolving line of credit will change depending upon the achieved debt service coverage ratio and can range from the lender's base rate to 1.50% over the lender's base rate. The revolving credit loan maturity date is July 31, 2000. Similarly, the interest rate on the replacement term loan on a given date can range from 0.25% to 1.75% over the lender's base rate depending upon the achieved debt service coverage ratio. The term loan has a maturity date of July 31, 2000. The amendment resulted in $3,321,000 of incremental cash proceeds of the replacement term loan over the outstanding balance of the prior term loan. The Company's obligations under these agreements continue to be secured by substantially all of its assets. In the third quarter of fiscal year 1998, $2,000,000 of the cash proceeds from the sale of the California facility reduced the term note to the Company's bank lenders as required by the existing bank agreements. 4 of 62 PART 1 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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. On January 2, 1998, Arrow Automotive Industries the "Company" announced its engagement of an investment banking firm, Advest Inc., to act as its exclusive financial advisor to identify and investigate strategic opportunities for the Company. The Company continues to work closely with Advest to explore and evaluate various strategic opportunities, including, but not limited to, a possible merger or sale of the Company. In the third quarter of fiscal 1998, the Company sold its California production facility. As required by the existing debt agreement, $2,000,000 of the cash proceeds were applied against the term note to the Company's bank lenders. The transaction price was greater than anticipated in the restructuring charge and as a result, $204,000 of the restructuring charge was reversed in the third quarter of fiscal 1998. During the third quarter, the Company discontinued the remanufacture of carburetors. The Company sold its carburetor inventory to a third-party carburetor remanufacturer in the third quarter of fiscal 1998 for approximately $225,000, payable as a credit against future carburetor purchases by the Company from such carburetor remanufacturers. The Company will continue to sell carburetors purchased from third party remanufacturers. The Company concluded a similar transaction subsequent to the third quarter of fiscal 1998 with its rack and pinion product line selling $400,000 of its rack and pinion inventory to a third-party remanufacturer. Again, the Company will continue to distribute rack and pinion purchased from third party remanufacturers. The Company will continue to review its product lines to maximize profitability. OPERATING RESULTS Operations during the third quarter of fiscal 1998 resulted in a net loss of $2,039,000 compared to a net loss of $6,120,000 for the third quarter of fiscal 1997. The nine months ended March 28, 1998, resulted in a net loss of $3,448,000 compared to a net loss of $7,724,000 for the comparable period in the prior fiscal year. The nine month operating loss before income taxes for fiscal 1997 includes: a) a first quarter restructuring charge relating to the closure of the Company's California production facility of $1,100,000, b) a third quarter inventory provision of $4,000,000 to write down certain inventories to net realizable value and c) other non-recurring period costs related to the closure the California plant closing of $10,000, $880,000 and $720,000 in the first three quarters of fiscal 1997, respectively. SALES Net sales for the third quarter of fiscal 1998 of $19,507,000 declined $2,974,000 or 13.22% compared to net sales for the comparable period in fiscal 1997. Unit sales for the third quarter in the current fiscal year were down 12.91% compared to the third quarter of the prior fiscal year. For the nine months ended March 28, 1998, net sales of $64,056,000 were down 6.07% from net sales of 5 of 62 the first nine months in the prior fiscal year. Unit sales for the first nine months in the current fiscal year were down 10.81% from unit sales of the same period in fiscal 1997. The third quarter of fiscal 1998 experienced a decline in the sale of electrical products. In the current quarter, the electrical units sold represented 52.5% of total units sold compared to 57.1% of total units sold in the third quarter of fiscal 1997. The decline in electrical business in the third quarter of fiscal 1998 was attributable in part to the unseasonably mild winter weather experienced in North America which resulted in fewer part failures and reduced the demand for many of the Company's products. Because electrical products on average have a higher selling price than mechanical products, this decline in electrical units sold as a percentage of total units sold by the Company contributed to a greater decline in net sales of the quarter relative to the unit decline. The decline in net sales in the nine months ended March 28, 1998, is related to the mild winter weather discussed above and reduced demand from our traditional warehouse distributors ("WD"). The consolidation in the distribution sector of the automotive aftermarket and resultant excess inventory levels found throughout the chain of distribution has been a significant factor contributing to the decline in sales to WD's. See the INDUSTRY CHANGE DISCUSSION IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FORM 10-Q for the period ended December 27, 1997 for further discussion about changes in the industry. GROSS MARGIN The Company's gross margin percentage for the third quarter of fiscal 1998 was 14.04%. The Company experienced a negative gross margin percentage for the corresponding period last fiscal year of 0.16%. For the nine months ended March 28, 1998, the gross margin percentage was 19.21% compared to a 14.12% gross margin for the same period in fiscal 1997. The cost of goods sold in the second and third quarters of the current fiscal year include one-time period costs of $260,000 and $316,000, respectively, related to the consolidation of the starter line production to the Company's Arkansas manufacturing facility. These costs included expenses for personnel additions and training at the Company's Arkansas facility while their counterparts at the Company's South Carolina facility continued normal production levels. A parallel workforce of approximately 100 production workers continued until the line shut down in South Carolina in February 1998. This training period resulted in additional labor costs in both the second and third quarters of fiscal 1998. Additional labor costs were also incurred in the third quarter to ship the starter product manufacturing equipment and inventory to Arkansas. The cost of goods sold in the third quarter and first nine months of the prior fiscal year included one- time period costs of $498,000 and $1,054,000, respectively, related to the closing of the California manufacturing facility and a $4,000,000 charge to provide a reserve for inventories for which quantities on hand exceeded forecasted need. A significant factor contributing to the decline in gross margin in the third quarter of fiscal year 1998 was the decline in sales volume which resulted in the inability to absorb fixed and semi-variable overhead costs into production. Also during the current year's third quarter the Company incurred unfavorable price and source variances. Early in fiscal 1998 the Company extended payment terms with its vendors as a result of the tightened cash situation. The Company has been paying premium prices for purchased components as a result of the extended payment terms with its vendors. During the third quarter of fiscal 1998, the Company incurred unfavorable price and source variances of approximately $364,000 compared to $83,000 during the same period last year. Year to date, the Company incurred unfavorable price and source variances of $1,172,000 compared to favorable price and source variances of $210,000 in the first nine months of the prior fiscal year. 6 of 62 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expenses in the third quarter and first nine months of fiscal 1998 were $4,491,000 (23.02% of net sales) and $14,247,000 (22.24% of net sales), respectively. Selling, general and administrative expenses in the third quarter and first nine months of fiscal 1997 were $5,396,000 (24.0% of net sales) and $15,111,000 (22.16% of net sales), respectively. The expenses for the second and third quarters of the prior fiscal year include non-recurring period costs related to the closing of the California facility of $300,000 and $474,000, respectively. The reduction in selling, general and administrative expenses in the current fiscal year is primarily due to the reduction of personnel through the consolidation of administrative functions. RESTRUCTURING CHARGE In fiscal 1997, the Company restructured its operations by closing its California production facility and transferring its manufacturing operations to its Arkansas facility. For the 1997 fiscal year, the restructuring charge amounted to $1.1 million, consisting of $413,000 of employee termination benefits and $687,000 related to the facility closing and other expenses. In the third quarter of fiscal 1998, the Company sold its California production facility. The transaction price was greater than anticipated in the restructuring charge and as a result $204,000 of the restructuring charge was reversed in the third quarter of fiscal year 1998. INTEREST Interest expense was $611,000 for the third quarter of fiscal 1998. Interest expense for the same period in the prior fiscal year was $618,000. The third quarter of fiscal 1998 had lower interest rates but higher borrowing levels than compared to the third quarter of fiscal 1997. For the nine months ended March 28, 1998, interest expenses of $1,828,000 increased $101,000 or 5.9% over the same period last fiscal year. The higher interest expenses in the first nine months of fiscal 1998 is due to higher interest rates and higher borrowing levels through the current fiscal year compared to last year. TAX PROVISION The Company has not recorded an income tax benefit in the current fiscal year. In the prior fiscal year, the Company recorded an income tax benefit which was realized with the carryback of the 1997 net operating loss. Net operating loss carryforwards can be carried forward to fiscal year 2013. CAPITAL RESOURCES Net cash of $2,390,000 was used by operating activities during the nine months ended March 28, 1998, compared to net cash provided by operations of $3,107,000 during the first nine months of the prior fiscal year. The Company's loss from operations had a significant impact on the cash position in the third quarter of fiscal 1998. The increase in accounts receivable of $392,000 and a decrease in accrued liabilities of $678,000 also used cash in the period. The increase in accounts receivable was due primarily to the sales volume in the month of March 1998 compared to sales volume in the month of June 1997. The decline in accrued liabilities related to the timing of payments such as severance pay and casualty insurance. Cash was provided by the receipt of a Federal income tax refund of $1,140,000 and an increase in trade payables and cash overdrafts of $764,000. Trade payables increased due to the lengthening of payment terms and higher average 7 of 62 cost per unit purchased in the current year. Inventories, while lower during the quarter, are up $611,000 in the nine months ended March 28, 1998. The Company continues to dispose of inventory that was reserved for in the third quarter of fiscal 1997. The Company expects that this disposal effort will continue in the fourth quarter of fiscal 1998. Further, in the fourth quarter of fiscal 1998 the Company's inventory of rack and pinion products will decline due to its exit from the manufacture of this product discussed earlier. In fiscal 1998, cash was provided from investing activities of $2,244,000 as a result of the sale of the California facility. Of the cash proceeds, $2,000,000 reduced the term note to the Company's banks as required by existing debt agreements. In fiscal 1997 cash of $370,000 was used in investing activities. Cash of $47,000 was provided by financing activities in the first nine months of fiscal 1998 compared to cash used by financing activities of $3,207,000 in the same period of last fiscal year. On October 7, 1997, the Company restructured its bank agreements. Incremental cash proceeds of $3,321,000 became available over the outstanding balance of the replaced credit agreements. Over the past few years, the Company has implemented actions to consolidate operations and functions in order to reduce costs and improve operating results. At the same time, ongoing consolidation, and intense competition among automotive remanufacturers and distributors, coupled with unfavorable warm weather conditions in fiscal 1998, have adversely impacted operating results. It is anticipated that the Company will incur an operating loss for its current fiscal year ended in June 1998. Additionally, it is unclear whether the Company will be in compliance at June 1998 with certain debt covenants under its existing financing agreements with its bank or, if the Company does not meet its debt covenants, whether the Company's bank will waive any such noncompliance. The Company will continue to closely monitor revenues and cash flow, and manage its expenses and cost structure accordingly. The Company believes its current cash position, plus available borrowings under it revolving credit facility, will meet the Company's liquidity needs for the remainder of fiscal 1998. However, if the Company's cash resources are insufficient to fund its operations at any time, there can be no assurance that the Company will be able to obtain additional capital or borrowings, or, if it does so, that such capital or borrowings can be obtained at commercially reasonable terms including, but not limited to the merger or sale of the company. 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" provisions 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 statement made in this report 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: unwillingness of the Company's vendors to cooperate in agreements that lengthen payment terms; reduced product demand; lack of availability of adequate funding sources and cash from operations; a change in product sales mix between electrical or mechanical products; the loss of or a material reduction in orders from either of the Company's two largest customers or other material loss of business; deterioration of vendor relationships adversely impacting material supplies; month-to-month volatility in sales volumes or customer returns which can result in additional labor and operating costs; new business acquisition 8 of 62 costs; unseasonably mild weather patterns, the impact of inflation, and the various other factors identified in the discussion appearing under the heading "Outlook" above and elsewhere in this report. 9 of 62 ARROW AUTOMOTIVE INDUSTRIES, INC.
PART II OTHER INFORMATION ITEM 1. Legal Proceedings. None. ITEM 2. Changes in Securities and Uses of Proceeds. 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 Director and Officer Liability 16 - 62 Insurance Policy and Excess Policy Exhibit 27 Financial Data Schedule 63 B. Reports on Form 8-K The Company filed a report on Form 8-K on January 14, 1998 to report its engagement of the investment banking firm Advest, Inc. to act as its exclusive financial advisor to identify and investigate strategic opportunities for the Company.
10 of 62 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 12, 1998 /s/ Jim L. Osment Jim L. Osment President and Chief Executive Officer May 12, 1998 /s/ James F. Fagan James F. Fagan Executive Vice President, Treasurer and Chief Financial Officer
11 of 62 EX-10 2 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 606008 Charlotte, NC 28217 Renewal of Number RHP 605193 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, 1997 TO June 1, 1998 (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: $ 53,000 1 Year 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: September 4, 1997 JAC 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 - BACKDATED 00120 4. DELETED EXCLUSIONS 6,7,11 and 12 5. INSURED ORGANIZATION TO INCLUDE SUBSIDIARIES 6. DISCOVERY ENDORSEMENT-BILATERAL 7. ALLOCATION ENDORSEMENT 8. MARITAL ESTATE EXTENSION 9. EMPLOYMENT PRACTICE LIABILITY EPL-NAP 10. NINETY DAY(90)NOTICE OF CANCELLATION The above Schedule of Endorsements is for illustrative and convenience purposes only and forms no part of the terms and conditions of coverage. 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. 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. Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. DIRECTORS AND OFFICERS LIABILITY POLICY INSURED ORGANIZATION EXCLUSION In consideratin of the premium charged, it is hereby understood and agreed that Section 2. Definition (D) "Insured Organization" is deleted in its entirety and replaced with the following: (D) "Insured Organization" means the organization named in Item 1 of the Declarations and any Subsidiary exsisting prior to or at the inception date o fthis policy and listed on the application 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. 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 remain 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. Oterwise, the effective date of this endorsement is as shown at the same time or hour of the day as the policy became effective. Effective Date:_______________ Endorsement No. 5___ Countersigned By: _______________________________ _________________ Authorized Representative Date Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. BILATERAL 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 OR INSURED shall cancel or refuse to renew this policy the INSURED ORGANIZATION shall have the right, upon payment of SEVENTY-FIVE PERCENT of the FULL ANNUALL PREMIUM, to a period 365 DAYS following the effective date of such cancellation of nonrenewal (herein referred to as the DISCOVERY PERIOD) in which to give written notice to the INSURER of claims first made against the INSURED PERSON during said 365 DAY period for any WRONDFUL ACT occuring 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. Attached to and forming part of 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 data 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 Date 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 80% (eighty 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. 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 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. 9 Countersigned By: Authorized Representative Dated Royal Insurance THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. NINETY DAY NOTICE OF CANCELLAION In consideration of the premium charged, it is hereby understood and agreed that Section 4. Condition (O) Cancellation Clause is amended in part to read "ninety (90) days" 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 declaration, 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. __10______ Countersigned By: ______________________________ ___________________________ Authorized Representaive Date 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 305 (c) Number of shares of the Company's common stock owned directly or beneficially by its Directors and Officers: 1,731,113 (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 48.31%; Mary S. Holzwasser, Joseph Segal and Lawrence Levinson as Trustees of the Trust u/w/o Albert S. Holzwasser 18.68%. (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 1996 7 3/8 4 3/4 1995 8 3/8 5 1/2 1994 10 6 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 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. Barbara Gubitose Framingham, MA 01701 One Financial Center Boston, MA 02111 Attn: Ms. Kathaleen Carroll-Coelho Item Policy Period: 2. 06/01/97 To 06/01/98 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 606008 $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. $ 28,000 Item Forms and Endorsements forming a part of this policy at inception: 6. FIG-1006-A, FIG-1009-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 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 ,132022777 Arrow Automotive Industries, Inc. Countersigned by Johnson & Higgins of Massachusetts, Inc. Authorized Representative CNA Insurance Companies FIG-1006-A (ED. 07/94) AMEND CANCELLATION CLAUSE In consideration of the premium paid for this policy, it is agreed that Section XI. POLICY CANCELLATION is amended as follows: The phrase "not less than thirty (30) days thereafter' is deleted and replaced by "not less than ninety (90) days thereafter". 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 Insurance 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 ENDT. NO. Policy NO. Complete Only When This Endorsement is not prepared with the Policy or is not to be Effective with the Policy ISSUED TO EFFECTIVE DATE OF THIS ENDORSEMENT Effective Date: Endorsement No. 12 Countersigned By: Authorized Representative Date 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: 305 c. Total number of common shares owned directly or beneficially by Directors: 1,731,113 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, 48.31%; Mary S. Holzwasser, Joseph Segal and Larry Levinson as Trustees of the Trust U/W/O Albert Holzwasser 18.33%, M S Holzwasser 18.68%, Dimensional Fund Advisor 5.97%, H A Holzwasser 6.0% 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 X No If "Yes", provide details: Termination of Vice President of Marketing - William Ledbetter 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 No X If "Yes", provide details. 10. Please provide the following insurance information: a. Pension/Fiduciary Liability Limit: 1,000,000 Carrier: Federal (Chubb) Expir Date: 6/1/98 b. Commercial Crime/Fidelity Limit: 500,000 Carrier: Travelers Expir Date: 6/1/98 c. General Liability Limit: 1,000,000 Carrier: Travelers Expir Date: 6/1/98 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 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 3
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. 9-MOS JUN-27-1998 MAR-28-1998 141 0 13,433 595 31,531 45,036 29,869 21,107 56,298 18,985 17,196 0 0 297 16,299 56,298 64,056 64,056 51,753 51,753 0 0 1,828 (3,448) 0 (3,448) 0 0 0 (3,448) (1.20) (1.20)
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