UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 28, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
.
Commission File No. 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. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
COMMON STOCK, $.10 PAR VALUE AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Page 1 of 83 Pages
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ x ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of October 7, 1997: $3,999,850.
Number of shares of Common Stock, $.10 Par Value, outstanding as of October 7,
1997: 2,873,083.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
Page 2 of 83 Pages
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Arrow Automotive Industries, Inc. (the "Company" or "Arrow") was founded in
1929, incorporated in 1946 as a Massachusetts corporation and became a public
company in 1972. The Company's Common Stock has been traded on the American
Stock Exchange since 1978 under the trading symbol AI.
The Company is primarily engaged in the remanufacture and distribution of
replacement automotive parts used in the repair of domestic and imported
passenger cars, light and heavy duty trucks, farm vehicles and heavy duty
industrial and construction equipment. The Company's products are distributed
throughout the United States and in Canada to the automotive aftermarket.
The Company sells to the distribution sector of the automotive aftermarket
including warehouse distributors ("WD's"), such as General Parts, Inc., Parts
Warehouse, Inc., Mar-Lac Distributing Co., Acklands, Ltd., Joint & Clutch
Service, Inc.; retail automotive chain stores ("retailers") such as Chief Auto
Parts, Inc., TRAK Auto Corporation and The Pep Boys-Manny, Moe & Jack; and
original equipment manufacturers ("OEM's") such as Brake Parts, Inc., New
Holland North America, Inc. and Nacco Materials Handling Group, Inc. The
Company's sales to customers in the retail channel of distribution have been
increasing, but the majority of the Company's sales continue to be to customers
in the WD channel of distribution.
Products are manufactured at and distributed from the Company's two
manufacturing facilities located in Spartanburg, South Carolina and Morrilton,
Arkansas. The Company also maintains distribution facilities in Toronto,
Vancouver and Edmonton, Canada. The Company's corporate headquarters are in
Framingham, Massachusetts, and its operations headquarters are in Conway,
Arkansas.
The Company operates in one industry segment as a remanufacturer and
distributor of replacement parts for automotive vehicles and trucks. The
Company does not consider its overall business to be seasonal, however, demand
for certain products may be affected by extreme weather.
RECENT DEVELOPMENTS
The distribution sector within the automotive aftermarket is undergoing
rapid consolidation, resulting in fewer and larger distributors. WD's are
expanding vertically through the acquisition of jobber stores and becoming more
like their retail counterparts in the industry. This consolidation is expected
to continue. Program buying groups, which represent most of the WD channel of
distribution, are becoming a more powerful voice for their member warehouses by
encouraging members to maximize their collective buying power through the use
of preferred vendors. In addition, over the last ten years, retail chains have
emerged as major distributors of automotive aftermarket products and have made
successful inroads into product distribution previously dominated by the
traditional WD. As a result of the competitive pressures created by these
changes in the automotive aftermarket, all distributors have become extremely
price sensitive, exerting considerable pressure on vendors for competitive
pricing.
Over the last two fiscal years, the Company has restructured and
streamlined its organization to better compete in the changing automotive
aftermarket. The Company's restructuring plan included the closing of its
Santa Maria, California production facility in December, 1996. The
manufacturing operations formerly conducted at that facility were transferred
to the Company's two remaining manufacturing facilities. As a result of this
consolidation, the Company incurred a $1.1 million restructuring charge in
fiscal 1997. The Company also incurred $1.8 million in non-recurring period
costs related to the consolidation of the production operations from three to
two manufacturing facilities. The streamlining of the Company's operations
during the last two years also included the consolidation of production of four
product lines from multiple facilities to a single manufacturing facility, as
well as the centralization of certain administrative functions.
PRODUCT INFORMATION
The Company remanufactures and distributes a wide range of electrical and
mechanical automotive parts. The Company's product offering encompasses a
broad range of vehicle applications including domestic and import passenger
automobiles, light and heavy trucks, heavy duty industrial and construction
equipment, and farm vehicles. The Company is a leading remanufacturer of
electrical products, which represented 55% of the Company's unit sales in
fiscal 1997. The balance of the Company's sales were of mechanical products.
The table below summarizes the product lines offered by the Company, the total
number of parts offered for sale and the vehicle coverage.
<TABLE>
<CAPTION>
VEHICLE COVERAGE
PRODUCT PART NUMBERS
<S> <C> <C> <C>
ELECTRICAL
Alternators 990 1961 - 1997
Starters 1033 1939 - 1997
Generators 123 1939 - 1997
MECHANICAL
Water Pumps 751 1932 - 1997
Clutches 1,141 1939 - 1997
Master Brake Cylinders 620 1960 - 1996
Power Steering Pumps 559 1955 - 1995
Power Brakes 664 1946 - 1994
Smog Pumps 161 1966 - 1994
Brake Calipers 1,096 1965 - 1996
Distributors 560 1950 - 1995
Wiper Motors 341 1962 - 1997
Crankshafts 342 1946 - 1996
Rack and Pinion Steering 222 1973 - 1995
Carburetors 1,827 1937 - 1989
</TABLE>
Page 3 of 83 Pages
<PAGE>
MANUFACTURING OPERATIONS
The Company's manufacturing operations consist principally of the
collection, disassembly, cleaning, examination and reconditioning of used parts
(referred to in the industry as "cores") and the reassembly of their
components, together with new replacement components where necessary, into
remanufactured products. The principal raw materials used by the Company in
its operations are cores, which are obtained primarily from customers on a
trade-in basis and to a lesser extent from concerns which sell cores, and new
component parts which are obtained from a wide variety of suppliers. The
Company's raw materials are available in adequate supply in the open market.
When first received, cores are sorted and held until needed for production.
When needed, cores are disassembled into their component parts. The major
components are then further sorted and examined for suitability for further
processing, and, if suitable, are cleaned, reconditioned and refinished.
Components that are not reconditioned are replaced with new materials which are
purchased from outside vendors. The metal components of cores not utilized in
the manufacturing process are sold for scrap. Production of remanufactured
parts is carried on in an assembly-line operation with inspection and testing
conducted at various stages of assembly. The finished product is further
inspected and tested by simulating the product's performance under operating
conditions.
Each of the product lines is supported by an engineer. Their function is
to improve the quality of existing products and formulate the specifications
and procedures for adapting particular remanufactured products for use on makes
and models of vehicles in addition to those for which the products were
originally designed. The Company maintains a Quality Assurance department that
is responsible for monitoring the manufacturing process through a variety of
methods, including Statistical Process Control (SPC), to maintain compliance
with the Company's quality standards as well as to ensure that Arrow's quality
standards are maintained by our suppliers for any purchased component.
WORKING CAPITAL ITEMS
Inventories are kept at a sufficient level to service customer orders.
Sales reported on the Company's financial statements are net of credits given
to customers for prompt payment and volume discounts, as well as credits given
for customer product returns.
The primary customer returns are of "cores". When invoiced, the price of
the finished product sold includes a separately invoiced amount for the core
("core value") which is part of the product. When a customer returns a core to
the Company, the customer receives credit for the then current core value of
the part returned which is applied to future purchases by that customer. The
customer's ability to return product cores is limited to the number of like-
type products purchased by the customer. The core must be in rebuildable
condition to receive credit.
The Company also allows for warranty returns and stock adjustment returns.
The Company's warranty program provides for the right to return defective
product for up to 24 months for the Company's premium line of alternators,
starters and water pumps and up to 12 months for all other products. Stock
adjustment returns are generally returns allowed for the customer's slow-moving
product. Credits for stock adjustment returns are limited to 4% of the
previous calendar year's purchases.
It is industry practice that remanufacturers only accept product returns
from current customers. When a customer ceases to do business with the
Company, the Company no longer accepts product returns for any reason. As
returns generate credits which can only be used against future purchases, the
Company does not record a reserve for customer's warranty, stock adjustments or
core returns.
Page 4 of 83 Pages
<PAGE>
DISTRIBUTION
The Company sells its products nationwide, primarily through its own direct
sales force. The Company currently maintains a direct sales force of 33 full-
time salesmen. The Company also employs sales agencies in certain market
areas. The majority of the Company's sales (approximately 72 percent in fiscal
1997) are to warehouse distributors. The balance of the Company's sales are to
retailers (approximately 18 percent in fiscal 1997), original equipment
manufacturers (approximately 9 percent in fiscal 1997) and other customers.
During fiscal 1997, sales to the Company's two largest customers, General
Parts, Inc., and Chief Auto Parts, Inc. accounted for 24% and 13% of net sales,
respectively. No other customer accounted for more than 10% of the Company's
net sales.
Substantially all of the Company's WD customers are members of program
distribution associations. These associations use the collective buying power
of their members to negotiate price and other terms with vendors, which has the
effect of encouraging competition among remanufacturers in the automotive
aftermarket. The associations do not purchase directly from vendors and
members of these associations generally are not obligated to purchase solely
from association approved vendors. The evolution of these associations and the
emergence of high volume retail chains in the automotive aftermarket have
combined to create additional price competition among manufacturers.
The Company utilizes its own truck fleet, and to a lesser extent
independent trucking services, to handle most of its product deliveries and
other shipping requirements. Special order and delivery options are also made
available to customers, such as overnight direct parts service.
MARKETING
The Company markets its products under its Arrow( and Lance( labels. The
Arrow( line consists of the Company's premium quality parts often containing a
number of new components. The Lance( line consists of higher volume units
whereby manufacturing economies of scale permit reduced pricing to customers.
The Lance( line is available in starters and alternators. At the request of
customers, Arrow also distributes product under a variety of private labels
such as Carquest, Proven Valu, Bravo, Rockhill, Parts Plus, Pronto, Parts
Master and many others. In fiscal 1997, approximately 54 percent of the
Company's sales were made under various private labels and the balance were
made under the Company's own labels.
The Company markets its remanufactured products with frequent customer
contact by sales representatives, merchandising bulletins, direct mailing
campaigns, advertising, participation in trade shows and complete catalog
coverage. The Company also offers a subscription basis service bulletin
program, which provides periodic technical information.
The Company receives the majority of its product orders through an
automated communication system called TRANSNET(, which enables customers to
submit orders to the Company directly by computer. The TRANSNET( computerized
system is made available through the Motor Equipment Manufacturers Association.
The Company can also accept orders through other proprietary electronic data
interchange (EDI) networks for its customers' convenience upon request.
Page 5 of 83 Pages
<PAGE>
COMPETITION
The Company competes with other national, regional and local
remanufacturers, with rebuilders of automotive parts and with manufacturers of
new parts, including the leading automobile manufacturers. The Company
believes it is one of the largest companies engaged primarily in the production
and sale of remanufactured automotive parts, although there may be other
companies whose sales of such products exceed those of the Company. The
automotive aftermarket is highly competitive. The Company considers the key
factors determining the ability to compete in this highly competitive industry
to be price, product quality, a complete product offering, current product
catalogs, direct factory sales service and high order fill rate.
EMPLOYEES
On June 28, 1997, the Company employed 1,259 full-time employees and 23
part-time employees.
ENVIRONMENTAL
The Company is subject to various federal, state and local environmental
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of a variety of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fines and criminal sanctions
for violations. The Company believes, although there can be no assurance, that
the overall impact of compliance with regulations and legislation protecting
the environment will not have a material adverse effect on its future financial
position or results of operation. However, the operation of automotive parts
remanufacturing plants involves environmental risks, and there can be no
assurance that the Company will not incur material costs or liabilities in
these areas. In addition, significant expenditures could be required to comply
with evolving environmental, health and safety laws, regulations or
requirements that may be adopted or imposed in the future. The Company is in
various stages of investigation or remediation at five separate sites where
contamination has been alleged, as discussed in the footnotes to the financial
statements, and has recorded a liability of $509,000 at June 28, 1997 for
future costs pertaining to environmental cleanup.
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in Framingham,
Massachusetts; its operations headquarters are located in Conway, Arkansas; and
it occupies industrial and warehouse space in Spartanburg, South Carolina,
Morrilton, Arkansas, and Toronto, Canada. The Company utilizes fee warehouses
in Edmonton and Vancouver, Canada.
The Company leases approximately 15,000 square feet of office space in
Framingham, Massachusetts, for its corporate headquarters under a lease
expiring in 1998. Approximately 9,500 square feet of this space is subleased
under an agreement which also expires in 1998. The Company also leases
approximately 7,000 square feet of office space for its operations headquarters
in Conway, Arkansas, under a lease expiring in 2001.
The Company operates manufacturing facilities in Spartanburg, South
Carolina (occupying approximately 315,000 square feet of floor space) and
Morrilton, Arkansas (occupying approximately 209,000 square feet of floor
space). The Company formerly occupied industrial space in Santa Maria,
California (occupying approximately 98,000 square feet of floor space) which
was closed during fiscal 1997. The South Carolina, Arkansas and California
facilities are all owned by the Company, subject to mortgages which, together
with other collateral, secure the Company's obligations to its lenders. The
Company is actively marketing the California property.
Page 6 of 83 Pages
<PAGE>
In addition, the Company leases warehouse space of approximately 67,000
square feet in Morrilton, Arkansas, 58,000 square feet in Spartanburg, South
Carolina, and 10,500 square feet in Toronto, Canada.
All facilities are well maintained and are in good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
The Company is, from time to time, party to routine litigation incidental
to the business. The amounts claimed in these matters are either covered by
insurance or are not, in the aggregate, material in amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders during
the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The common stock of the Company is traded on the American Stock Exchange
under the trading symbol AI. The approximate number of holders of record of
the Company's common stock at October 7, 1997 was 289. The following table
sets forth the high and low sale price on the American Stock Exchange of the
Company's common stock during each fiscal quarter during the last two fiscal
years:
<TABLE>
<CAPTION>
FISCAL FISCAL
1997 1996
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First $ 5 5/8 $ 4 1/2 $ 7 3/8 $ 5 1/2
Quarter.....................
Second Quarter............... 4 15/16 3 3/4 6 7/8 4 3/4
Third 4 5/8 4 7 1/2 5 3/4
Quarter...................
Fourth 4 1/4 2 15/16 6 1/8 5 1/16
Quarter.................
</TABLE>
The Company did not pay any dividends during the 1997 or 1996 fiscal years.
Operating covenants in the Company's loan agreement with its lenders prohibit
the Company from paying dividends unless the following conditions are met: (i)
the Company is not then in default, and after giving effect to the dividend
would not be in default, under the loan agreement; (ii) the aggregate amount of
such dividends does not exceed the greater of (a) during any period of four (4)
consecutive fiscal quarters an amount equal to fifty percent (50%) of the net
income of the Company for the immediately preceding four (4) consecutive fiscal
quarter periods, or (b) an amount equal to the excess of (i) twenty-five
percent (25%) of the net income of the Company for the period commencing June
27, 1993 and ending with the last day of the fiscal quarter next preceding the
proposed date of the dividend, treated as a single accounting period, over (ii)
all dividends made subsequent to June 27, 1993.
Page 7 of 83 Pages
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
FOR THE FISCAL YEARS ENDED IN JUNE
(Amounts in Thousands Except Per Share Amounts and Financial Ratio Data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(52 WKS) (53 WKS) (52 WKS) (52 WKS) (52 WKS)
<S> <C> <C> <C> <C> <C>
Net $87,501 $103,603 $106,574 $ 108,055 $100,654
sales...................................................
Gross 13,180 21,441 25,092 27,861 26,622
margin.............................................
Selling, administrative & general
21,310 21,597 23,505 23,334 23,147
expense...................................................
Interest 2,364 2,113 1,935 1,614 1,830
expense........................................
(Loss) income before income taxes and
extraordinary (11,594) (2,269) (348) 2,914 1,645
items..................................
(Benefit) provision for income (597) (825) (103) 1,113 628
taxes...........
(Loss) income before extraordinary
(10,997) (1,444) (245) 1,801 1,017
items........................................................
Loss on refinancing of debt, net of
income tax -- -- -- (276) --
benefit...................................
Net (loss) (10,997) (1,444) (245) 1,525 1,017
income.......................................
(Loss) income per share before
extraordinary (3.83) (.50) (.09) .64 .36
items...................................
Loss per share on refinancing of debt,
net of income tax -- -- -- (.10) --
benefit..........................
Net (loss) income per (3.83) (.50) (.09) .54 .36
share.......................
Cash dividends declared per share............ -- -- -- -- --
Capital 644 828 2,574 670 648
expenditures..................................
Depreciation and $ 1,170 $ 1,373 $ 1,412 $ 1,546 $ 1,692
amortization....................
Average shares 2,873 2,873 2,872 2,821 2,814
outstanding.......................
AT YEAR END
Working $ 26,250 $ 36,378 $38,518 $32,071 $29,994
capital...........................................
Total 59,333 71,728 67,144 69,490 60,345
assets................................................
Long-term 16,819 17,969 19,265 11,732 12,487
debt...........................................
Stockholders' 20,043 31,296 32,739 32,974 31,175
equity...................................
Equity per common $ 6.98 $ 10.89 $ 11.40 $ 11.69 $ 11.08
share..........................
FINANCIAL RATIOS (%)
Gross 15.06 20.70 23.54 25.78 26.45
margin.............................................
Net profit (12.57) (1.39) (.23) 1.41 1.01
margin........................................
Return on (42.84) (4.51) (.74) 4.75 3.32
equity.........................................
Current ratio (to 2.37 2.82 3.82 2.39 2.93
1)......................................
</TABLE>
Page 8 of 83 Pages
<PAGE>
ITEM 7. 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 this discussion and analysis.
RESULTS OF OPERATIONS
The Company incurred net losses of $10,997,000, $1,444,000 and $245,000 for
the respective fiscal years ended June 28, 1997, June 29, 1996 and June 24,
1995. The fiscal 1997 operating loss is attributable to several one-time
charges and a 15.5% decline in net sales compared to the prior fiscal year.
The one-time costs include the following, each of which is discussed in more
detail below:
<diamond> a restructuring charge and non-recurring period costs relating
to the Company's California plant closing of $1,100,000 and
$1,842,000, respectively;
<diamond>
<diamond> a $4,000,000 charge to write down certain inventories to net
realizable value; and
<diamond>
<diamond> a $437,000 increase in the Company's reserve for environmental
remediation costs as a result of the Company's adoption of Statement
of Position 96-1, ENVIRONMENTAL REMEDIATION LIABILITIES.
RESTRUCTURING CHARGE AND RELATED NON-RECURRING PERIOD COSTS
In December, 1996, the Company closed its Santa Maria, California
production facility and transferred the manufacturing operations formerly
conducted at that plant to its remaining manufacturing facilities. This action
was taken to streamline the Company's productive capacity to better match its
production requirements. As a result of this consolidation, the Company
incurred a $1.1 million restructuring charge in fiscal 1997. Of the total
charge, $413,000 represented severance benefits for terminated employees and
$687,000 related to the closing of the facility. The Company is actively
marketing the California property.
In addition to the restructuring charge, the Company incurred non-recurring
period costs totaling $1.8 million attributable to the relocation of production
operations from the California facility to the Company's two remaining
facilities and included such costs as the shipment of inventory and equipment,
employee relocation and initial labor and production inefficiencies.
The consolidation of manufacturing operations is consistent with the
Company's long-term strategy to streamline its operations. Starting in fiscal
1996, the Company consolidated to one location production of certain product
lines which were previously manufactured at all of the Company's
remanufacturing facilities. Centralization of administrative functions began
late in fiscal 1996 and continued throughout fiscal 1997, and included customer
service, customer billing and vendor payment functions. These actions were
taken to enhance operating efficiencies and improve the financial performance
of the Company. The Company is continuing to review its operations and will
take the necessary measures to control costs and promote efficient
manufacturing operations.
INVENTORY PROVISION
The Company continually reviews the net realizable value of its inventory.
The Company's analyses in the third quarter of fiscal 1997 identified certain
inventory items for which quantities on hand exceeded forecasted needs. Lower
unit sales in fiscal 1997 and the consolidation of manufacturing facilities and
product line production resulted in excess inventory levels. As a result, the
Company recorded a charge in the third quarter of $4,000,000 to write down
certain inventories to net realizable value.
ENVIRONMENTAL
In fiscal 1997, the Company adopted Statement of Position No. 96-1
ENVIRONMENTAL REMEDIATION LIABILITIES (SOP 96-1) which provided new guidance
for the accrual of environmental remediation costs. The SOP provides
benchmarks to aid in the determination of when environmental remediation
liabilities should be recognized and specific guidance as to how they should be
measured. The adoption of SOP 96-1 resulted in a pretax charge to operations
of $437,000 in fiscal 1997.
The Company is subject to various federal, state and local environmental
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of a variety of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fines and criminal sanctions
for violations. The Company believes, although there can be no assurance, that
the overall impact of compliance with regulations and legislation protecting
the environment will not have a material adverse effect on its future financial
position or results of operation. However, the operation of automotive parts
remanufacturing plants involves environmental risks, and there can be no
assurance that the Company will not incur material costs or liabilities in
these areas. In addition, significant expenditures could be required to comply
with evolving environmental, health and safety laws, regulations or
requirements that may be adopted or imposed in the future. The Company is in
various stages of investigation or remediation at five sites where
contamination has been alleged, as discussed in the footnotes to the financial
statements, and has recorded a liability of $509,000 at June 28, 1997 ($437,000
due to the adoption of SOP 96-1) for future costs pertaining to environmental
cleanup.
SALES
Net sales of $87,501,000 declined $16,102,000 or 15.5% in fiscal 1997
compared to fiscal 1996 net sales of $103,603,000. $1,992,000 of the net sales
decline was due to the number of weeks differential in the two periods (52
weeks in fiscal 1997, 53 weeks in fiscal 1996). The other factors contributing
to the decline in net sales in fiscal 1997 were:
<diamond> reduced unit sales,
<diamond>
<diamond> the change in the mix of products sold between electrical
products and mechanical products, and
<diamond>
<diamond> a higher level of customer returns in the current fiscal year
compared to the previous fiscal year.
While unit sales to the Company's two largest customers increased this
year, overall unit sales declined 14.8% in fiscal 1997 compared to unit sales
in the previous fiscal year. The majority of the unit sales decline was due to
a general decline in customer orders throughout the Company's customer base,
while approximately 6% of the decline was due to the loss of two customers. The
Company attributes the lower sales in its customer base in part to the current
merger and consolidation actively occurring among distributors. These mergers
have resulted in closings of distribution centers as newly consolidated
entities rationalize necessary facilities and inventory requirements. Vertical
integration is also occurring in the automotive aftermarket with warehouse
distributors (WD's) purchasing jobber stores. Many jobber stores have closed
due to the extreme competition in the aftermarket distribution channels,
shrinking the customer base of traditional WD's. Program buying groups, which
began as WD membership organizations, focused purely on purchasing power, are
now enlarging their mission statements to include marketing and other services.
The program groups want to send a consistent message regarding all aspects of
vendor services and, therefore, they are promoting broader use of a preferred
vendor concept within their group membership. The growth in the preferred
vendor concept will lead to larger shifts in sales when a group changes
preferred vendor.
In fiscal 1997, the Company experienced a change in the mix of products
sold, in that sales of electrical products declined as a percentage of total
units sold compared to the prior year. The average selling price of electrical
products is higher than the average selling price of mechanical products.
Therefore, the reduction in unit sales of electrical products has a larger
adverse impact on net sales than a reduction in unit sales of mechanical
products. This product sales mix contributed to a larger dollar decline in net
sales than the decline in unit sales. There were no significant changes in the
Company's pricing structure during the current fiscal year.
Customer returns as a percentage of gross sales in fiscal 1997 increased
2.6% relative to fiscal 1996. Customer returns are deducted from gross sales
in calculating net sales. The Company's gross sales were $191,312,000,
$219,889,000, and $212,820,000 for the fiscal years 1997, 1996 and 1995,
respectively. Credits are issued to customers for core returns, warranty
returns and stock adjustments. The higher level of customer returns is due to
the following factors:
<diamond> Customer returns for core, warranty and stock adjustments, as a
percentage of net sales, naturally increases during periods of
declining sales volume, as the returned product relates to the higher
sales volume of previous periods.
<diamond>
<diamond> The Company believes that increased consolidation and merger
activity of distributors resulted in excess customer inventory levels.
The Company believes that in order to rectify surplus inventory
issues, many distributors returned as much of their excess inventory
as permissible within Arrow's policies.
Fiscal 1996 net sales declined 2.8% from fiscal 1995 net sales of
$106,574,000. The decline in net sales in fiscal 1996 (53 weeks) compared to
fiscal 1995 (52 weeks) was due to lower unit sales and a higher level of
customer returns. Unit sales for fiscal 1996 declined 5.8% from unit sales in
fiscal 1995. The Company believes that the impact of consolidations and
mergers within the distribution sector of the industry negatively impacted the
Company's unit sales and resulted in increased customer returns, similar to
that seen in fiscal 1997 and discussed above. The adverse impact on the lower
unit sales volume and the high level of customer returns was mitigated somewhat
by a favorable mix of products sold and a price increase implemented in fiscal
1996.
GROSS MARGIN
The gross margin in fiscal 1997 was 15.1%, down from the prior year's gross
margin of 20.7%. Fiscal 1997's cost of goods sold includes the $4,000,000
inventory provision and non-recurring period costs of $1,054,000 related to the
closure of the California facility.
Gross margin before the above adjustments would have been 20.8%,
approximately the same as the gross margin of fiscal 1996.
The Company's strategy to improve its gross margin has been to streamline
operations and to reduce the break even point. However, lower sales volume and
product mix combined to reduce gross margins below management's goals. The
higher percentage of mechanical products in the current year's sales mix
adversely impacted margins because generally mechanical products have a lower
gross margin than electrical products.
The decline in the gross margin in fiscal 1996 relative to fiscal 1995 was
due to several factors, including temporary labor inefficiencies during the
effort to consolidate production of four product lines from multiple facilities
to a single manufacturing facility. Also, additional costs were incurred due
to down time and inefficient output from certain new manufacturing related
equipment. During fiscal 1996, customer gains and losses caused significant
swings in production requirements resulting in labor inefficiencies and
additional overhead expenses. Finally, the Company realized a 13% increase in
the cost to provide medical benefits to its employees in fiscal 1996 compared
to fiscal 1995, of which approximately 85%, or $445,000, was reported as
increased cost of goods sold.
IMPACT OF INFLATION
The Company follows the LIFO method of determining inventory costs to
better match current costs with current revenues. In fiscal 1997, the impact
of price changes and operating factors, primarily in reduced spending and
improved material sourcing and usage, decreased cost of goods sold by
$1,200,000 compared to fiscal 1996. In fiscal 1996, the impact of price
changes and operating factors, primarily improved material sourcing and usage,
decreased cost of goods sold from the prior year by $345,000.
Charges to operations for depreciation represent the allocation of
historical cost incurred in prior years and are significantly less than if they
were based on current or replacement cost of the Company's production capacity.
In the normal course of business, the Company will replace its productive
capacity over an extended period of time. Decisions concerning such
replacements will be made in light of economic, regulatory and competitive
conditions existing from time to time. These new assets will result in
additional depreciation charges. In many cases, however, there will be
offsetting cost savings from technological advances.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in fiscal 1997 were
$21,310,000, or 24.4% of net sales, compared to $21,597,000, or 20.8% of net
sales, in fiscal 1996. The current year's selling, general and administrative
expenses include $788,000 of non-recurring costs related to the closure of the
California plant, consisting primarily of shipping costs to relocate inventory
and equipment to the Company's two remaining manufacturing facilities,
personnel relocation costs, public relations and legal costs. Also during the
current year, the Company accrued $437,000 of additional environmental
remediation liabilities as a result of its adoption of Statement of Position
No. 96-1, ENVIRONMENTAL REMEDIATION LIABILITIES. Selling, general and
administrative expenses, exclusive of these adjustments, would have been
$20,085,000 (22.9% of net sales), reflecting a decrease in spending of
$1,512,000 compared to fiscal 1996. The increase in selling, general and
administrative expenses as a percentage of net sales for fiscal 1997 (exclusive
of the aforementioned adjustments) was primarily attributable to the higher
proportionate fixed expenses not absorbed during the current period of
declining sales volume.
Selling, general and administrative expenses in fiscal 1996 declined $1.9
million compared to the prior fiscal year. The declines in spending related to
lower customer acquisition costs in fiscal 1996 and the effect of cost
reduction measures implemented in that year.
INTEREST EXPENSE
Interest expense in fiscal 1997 of $2,364,000 increased $251,000 or 11.9%
over fiscal 1996. Interest expense in fiscal 1996 of $2,113,000 increased
$178,000 or 9.2% over fiscal 1995. In fiscal 1997, the increase in interest
expense compared to fiscal 1996 is due to higher interest rates on the
Company's bank debt. In fiscal 1996, higher borrowing levels and higher
interest rates resulted in the additional interest expense compared to interest
expense in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations of $2,467,000 increased in 1997 compared to
fiscal 1996 which had cash flow from operations of $67,000. Declines in
inventories and accounts receivable and an increase in accounts payable and
accrued expenses were the primary working capital components contributing to
the increase in cash flow. Inventory decreased approximately $6.4 million due
to the $4 million inventory provision, as well as a reduction in the level of
on-hand inventories required as a result of the consolidation of the California
facility's inventory with the Company's remaining manufacturing facilities.
Cash flow was also generated from a reduction in accounts receivable of
approximately $4 million, which is consistent with the lower sales volume
during the current fiscal year. Additional cash was provided by a net increase
in accounts payable, cash overdrafts and accrued liabilities of approximately
$350,000. The cash requirements created by the closing of the California
facility resulted in the Company's lengthening of payment terms with vendors
during the current year.
Cash used for investing activities for fiscal 1997 of $787,000 was used
primarily to purchase property, plant and equipment. Capital expenditures were
$644,000 in fiscal 1997 compared to $725,000 in fiscal 1996. The Company
continues to invest in capital improvements and other long-term assets to
enhance operations and maintain the highest standards of overall quality.
During fiscal 1997, net cash used in financing activities was $2.3 million.
The reduction under the revolving line of credit was $1.3 million and
repayments of long-term debt and capital lease obligations were $1.4 million.
In December, 1993, the Company entered into financing agreements ("Prior
Credit Agreements") with a commercial bank. The Company's primary lender was
joined by a second commercial lender (the "Prior Lenders") in the second
quarter of fiscal 1997 to the extent of a one-third participation. The Prior
Credit Agreements, at June 28, 1997, consisted of a term loan in the original
principal amount of $9 million and a revolving line of credit with a principal
amount of up to $20 million. During fiscal 1997, the Company failed to meet
certain then existing financial covenants related to earnings and balance sheet
ratios in the Prior Credit Agreements. The Prior Lenders subsequently waived
these defaults by modifying such covenants in a manner which resulted in
compliance by the Company for the periods completed.
On October 7, 1997, the Company restructured the Prior Credit Agreements
via an amendment ("Replacement Credit Agreements") effective as of June 28,
1997. The Replacement Credit Agreements consist of a replacement $7,500,000
term loan and continuation of a $20 million revolving line of credit. The
Company's primary lender issued a one-third participation to a financial credit
institution (the "Replacement Lenders") to replace the prior participant.
Under the Replacement Credit Agreements, as in the Prior Credit Agreements,
amounts available to the Company under the revolving line of credit are subject
to a borrowing base formula based upon certain percentages of the Company's
accounts receivable and inventories. The interest rate on amounts outstanding
under the line 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, as compared to rates at June 28, 1997 under the Prior Credit Agreements
of lender's base rate plus 3%. At June 28, 1997, the Company has classified
$13 million of advances outstanding under the line as noncurrent, since it does
not intend to reduce its advances under the credit line below this amount
during fiscal 1998. 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. Under the Prior Credit Agreements at
June 28, 1997, the Company was paying interest on the term loan equal to the
lender's base rate plus 3.25%. The term loan has a maturity date of July 31,
2000. Principal is payable in twelve consecutive quarterly installments of
$267,857, except the final payment which shall be equal to the unpaid balance
of the term loan of $4,285,716. The outstanding balance of the term loan as of
the refinancing date was $4,179,000. The $3,321,000 million incremental cash
proceeds of the replacement term loan over the outstanding balance of the prior
term loan will be used for working capital purposes, primarily to reduce
accounts payable to vendors.
The balance sheet as of June 28, 1997, reflects the current and long term
portion payable under the Replacement Credit Agreements. The Company's
obligations under these agreements continue to be secured by substantially all
of its assets. The interest rate borne on the revolving line of credit and the
term loan at June 28, 1997 was 11.5% and 11.75%, respectively.
Both the Prior Credit Agreements and the Replacement Credit Agreements
contain certain provisions and covenants which, among other things, restrict
the amount of future indebtedness, amount of cash dividends and capital
expenditures and require the Company to maintain levels of minimum
profitability, tangible net worth, debt service coverage and liabilities to
worth ratios. Certain of these covenants were modified in the Replacement
Credit Agreements.
The Company believes that based upon its current operating forecast for
fiscal 1998, its existing cash balance and cash generated from operations
combined with its borrowing ability under its financing agreements, the Company
will have sufficient funds to meet its cash requirements for operations and
other obligations over the next twelve months.
OUTLOOK
Arrow's strategy has been to focus on streamlining its operations and
reducing operating costs in order to reduce its break-even point. As indicated
throughout this management discussion, Arrow has taken great strides to remove
excess overhead costs from its operations. Strategic efforts included the
following:
<diamond> Closure of the California manufacturing facility and
transferring these operations to the Company's remaining two
manufacturing facilities.
<diamond>
<diamond> Consolidation of the production of four product lines to one
manufacturing facility, changing the previous practice of
manufacturing most product lines at all manufacturing facilities.
<diamond>
<diamond> Investment in the expansion of the "warranty recovery"
department to enhance the efficiency with which the Company transforms
warranty returns to finished good products.
<diamond> Centralization of certain administrative functions in order to
reduce fixed cost per unit produced.
<diamond>
<diamond> Investment in winding equipment with which the Company began
winding major components for alternators and starters, providing
material cost savings by eliminating the need to purchase these parts
from outside vendors.
<diamond>
<diamond> Development of automated bore reaming process for master brake
cylinders which will improve the quality of the product and lower
costs through automation and better material utilization.
<diamond>
<diamond> Establishment of quality task forces focusing on quality
enhancements which have resulted in several significant improvements
over OEM designs and will ultimately favorably impact warranty rates.
<diamond>
<diamond>Through these efforts, the Company has been able to reduce its
operating costs and thereby reduce its break-even point.
<diamond>
<diamond>The marketplace is changing in ways that result in reduced gross
margins. The distribution sector within the marketplace is consolidating.
The traditional warehouse distributors ("WD's") are buying jobber stores and
becoming more like their retail counterparts in the industry; and the
program buying groups, which represent most of the WD channel of
distribution, are becoming a more powerful voice for their member warehouses
by encouraging the use of a primary vendor. In addition to these changes,
retail chains are emerging as major distributors of automotive aftermarket
products, making successful inroads into product distribution previously
dominated by the traditional WD. The increased competition between
retailers and WD's has resulted in lower gross margins at all levels of
distribution. Accordingly, all distributors are extremely price sensitive
and exert considerable pressure on vendors for competitive pricing.
In times of change, opportunities exist. Arrow's opportunity lies in its
ability to offer a broad line of quality, remanufactured automotive parts,
distributed nationwide at reasonable prices. Arrow is not the lowest priced
competitor, but is price competitive. Lower-priced competitors generally
sacrifice either quality, breadth of coverage or service in order to maintain
low price structures. Customers that the Company regains tell Arrow that they
came back for those very reasons and that Arrow's product is worth a price
premium. With this sales approach, the Company is aggressively pursuing
relationships at all levels of distribution, including the traditional market
program distribution groups and retail chains.
The Company is continually studying ways to reduce costs inherent in its
structure and better strategically position itself in the marketplace. Arrow
will continue to change as necessary to adapt to the evolution of the
aftermarket it supplies.
CAUTIONARY STATEMENT
All statements made in the foregoing discussion and analysis and elsewhere
in this report 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 statements made in this report or
otherwise by or on behalf of the Company.
Actual results of the Company may differ from those anticipated in any
forward looking statement made by or on behalf of the Company due to the
following factors, among other risks and uncertainties affecting the Company's
business: the inability to realize the cost savings as estimated in the
Company's plan to restructure its operations; lack of availability to the
Company of adequate funding sources and cash from operations; reduced product
demand and industry over-capacity; 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; month-to-month volatility in sales volumes or customer
returns which can result in additional labor and operating costs; new business
acquisition 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.
Page 9 of 83 Pages
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included as part of Item 14 of this report.
An index to the financial statements and schedules filed as a part of this
report appears on page 18 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company has not reported on Form 8-K any disagreement with its public
accountants on any matter of accounting principles or practices or financial
statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
ITEM 11. EXECUTIVE COMPENSATION;
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT;
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Information required under these items has been omitted, as the Company
intends to file with the Securities and Exchange Commission not later than 120
days after the close of its fiscal year a definitive proxy statement pursuant
to Regulation 14A. The information concerning directors and executive officers
of the Company, executive compensation, security ownership of certain
beneficial owners and management, and certain relationships and related
transactions is incorporated by reference to the Company's Annual Proxy
Statement for its 1997 Annual Meeting of Stockholders.
Page 10 of 83 Pages
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. FINANCIAL STATEMENTS. The following financial statements of the
Company are included in Item 8:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent 20
Auditors...............................................................................
Balance Sheets - June 28, 1997 and June 29, 21
1996................................................
Statements of Operations - Years ended June 28, 1997, June 29, 1996, and
June 24, 22
1995......................................................................................................
Statements of Changes in Stockholders' Equity - Years ended June 28, 1997
June 29, 1996, and June 24, 23
1995.......................................................................
Statements of Cash Flows - Years ended June 28, 1997, June 29, 1996
and June 24, 24
1995...............................................................................................
Notes to Financial 25 - 38
Statements................................................................................
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules of the Company are included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts PAGE 39
All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the financial statements or the notes
thereto.
3. LISTING OF EXHIBITS. A listing of exhibits filed as part of this
Form 10-K begins on page 40 hereof.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1997.
(c) The Company hereby files as a part of this Form 10-K the exhibits
listed in Item 14(a)(3) above.
(d) The Company hereby files as a part of this Form 10-K the financial
statements and schedules listed in Items 14(a)(1) and (2) above.
Page 11 of 83 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
ARROW AUTOMOTIVE INDUSTRIES, INC.
<S> <C>
Dated: October 9, 1997 By: /S/ JIM L. OSMENT
Jim L. Osment, President and
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
/S/ JIM L. OSMENT President, Chief Executive Officer, October 9, 1997
Jim L. Osment (Principal Executive Officer) and Director
<S> <C> <C>
/S/ JAMES F. FAGAN Executive Vice President, Chief Financial October 9, 1997
James F. Fagan Officer (Principal Financial Officer),
Treasurer and Director
/S/ HARRY A. HOLZWASSER Chairman of the Board and Director October 9, 1997
Harry A. Holzwasser
Mary S. Holzwasser Director
/S/ ROBERT A. HOLZWASSER Director October 9, 1997
Robert A. Holzwasser
/S/ JOEL D. HOLZWASSER Director October 9, 1997
Joel D. Holzwasser
/S/ LAWRENCE M. LEVINSON Director October 9, 1997
Lawrence M. Levinson
Director
Winthrop P. Rockefeller
Director
Alan Steinert, Jr.
Director
Marvin Almy
/S/ KATHALEEN M. CARROLL-COELHO Vice President and Controller October 9, 1997
Kathaleen M. Carroll-Coelho
</TABLE>
Page 12 of 83 Pages
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
ARROW AUTOMOTIVE INDUSTRIES, INC.
We have audited the accompanying balance sheets of Arrow Automotive Industries,
Inc. (the Company) as of June 28, 1997 and June 29, 1996, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 28, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arrow Automotive Industries,
Inc. at June 28, 1997 and June 29, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended June 28, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as whole, presents fairly, in all
material respects, the information set forth therein.
ERNST & YOUNG LLP
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
September 3, 1997, except
for Notes 1 and 7, as to which the date
is October 8, 1997.
Page 13 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and $ 240,291 $ 850,537
equivalents...........................................................
Accounts receivable, less allowance ($542,017 in
1997 and $524,401 in 1996) for doubtful 12,538,853 16,468,224
accounts............
30,920,184 37,312,671
Inventories...........................................................................
Deferred income 543,000
taxes.........................................................
Refundable income 1,140,000 675,000
taxes.....................................................
Other current 565,746 563,346
assets.............................................................
Total current 45,405,074 56,412,778
assets......................................................
Property, plant and equipment:
952,087 952,087
Land....................................................................................
Buildings and building 15,185,937 15,780,776
improvements..................................
Leasehold 246,441 247,670
improvements....................................................
Machinery and 17,604,681 18,746,723
equipment...................................................
33,989,146 35,727,256
Less allowances for depreciation and 22,362,518 22,912,356
amortization.............
Net property, plant and 11,626,628 12,814,900
equipment...................................
Other 2,300,956 2,500,718
assets................................................................................
$ 59,332,658 $ 71,728,396
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash $ 764,113 $ 1,260,165
overdraft....................................................................
Current portion of advances under
revolving line of 3,836,680 5,104,715
credit.....................................................
Trade accounts 8,523,743 6,647,237
payable.....................................................
Accrued 4,864,374 5,637,422
expenses..............................................................
Current portion of long-term 1,166,111 1,385,672
debt........................................
Total current liabilities 19,155,021 20,035,211
Long-term debt, net of current 16,819,166 17,969,339
portion.........................................
Other noncurrent 3,315,105 2,428,226
liabilities...........................................................
Stockholders' equity
Preferred stock, par value $.01 per
share--authorized 1,000,000 shares, none issued
Common stock, par value $.10 per
share--authorized 5,000,000 shares,
issued 2,968,870 in 1997 and 296,887 296,887
1996.................................
Capital in excess of par 7,428,586 7,428,586
value............................................
Retained 13,022,570 24,019,471
earnings..............................................................
20,748,043 31,744,944
Less cost of common stock in treasury
(95,787 shares in 1997 and 449,324 449,324
1996)..................................
Less minimum pension 255,353
liability..........................................
Total stockholders' 20,043,366 31,295,620
equity.............................................
$ 59,332,658 $ 71,728,396
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 14 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Net $ 87,501,307 $ 103,602,534 $ 106,574,023
sales........................................
Cost and expenses:
Cost of products 74,320,940 82,161,642 81,482,460
sold....................
Selling, administrative
and 21,309,855 21,597,047 23,504,545
general................................
2,364,413 2,112,887 1,934,722
Interest.........................................
Restructuring 1,100,000
charge.....................
99,095,208 105,871,576 106,921,727
Loss before income taxes............ (11,593,901) (2,269,042) (347,704)
Benefit for income (597,000) (825,000) (103,000)
taxes.................
Net $ (10,996,901) $ (1,444,042) $ (244,704)
loss.........................................
Net loss per $ (3.83) $ $ (.50) $ $ (.09)
share..........................
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 15 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN MINIMUM
COMMON EXCESS OF RETAINED TREASURY PENSION
Stock Par Value Earnings Stock Liability
<S> <C> <C> <C> <C> <C>
Balance at June 25, $ 296,767 $ 7,418,004 $ 25,708,217 $ 449,248
1994............
Income tax benefit
resulting from disqualifying
disposition of shares under
stock option 3,920
plans.............
Purchase of treasury stock.. 76
Exercise of stock options ... 120 6,330
Net loss for the (244,704)
year.............
Balance at June 24,1995..... 296,887 7,428,254 25,463,513 449,324
Income tax benefit
resulting from disqualifying
disposition of shares under
stock option 332
plans.............
Net loss for the (1,444,042)
year............
Balance at June 29,1996... 296,887 7,428,586 24,019,471 449,324
Minimum pension
liability $ 255,353
adjustment.............
Net loss for the (10,996,901)
year............
Balance at June 28,1997.... $ 296,887 $ 7,428,586 $ 13,022,570 $ 449,324 $ 255,353
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 16 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
FISCAL YEAR ENDED
<CAPTION>
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Operating activities
Net $ (10,996,901) $ (1,444,042) $ (244,704)
loss..........................................................
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and 1,170,068 1,373,132 1,411,722
amortization......................
Provision for environmental
remediation 436,700
costs......................................
Deferred income taxes 543,000 (399,000) 144,000
(credits).....................
Restructuring 1,100,000
charge.....................................
Cash payments relating to the restructuring
(475,000)
charge.......................................................
Provision for bad 22,754 109,840 41,376
debts..................................
(Increase) decrease in assets:
Accounts 3,906,617 (4,042,418) 3,084,405
receivable......................................
6,392,487 (1,004,810) 1,125,159
Inventories....................................................
Refundable income (465,000) (57,477) (567,523)
taxes..............................
Other current 29,897 595,634 31,402
assets......................................
Increase (decrease) in liabilities:
Accounts payable, accrued
expenses and other current 352,052 4,229,577 (1,261,460)
liabilities...........
Income taxes (961,842)
payable.....................................
Accrued retirement 450,179 706,359 68,580
benefits............................
Cash provided by
operating 2,466,853 66,795 2,871,115
activities..........................................
Investing activities
Purchase of (644,119) (724,744) (2,551,563)
equipment..................................
Increase in net cash
surrender value of life insurance (278,709) (268,296) (139,599)
policies......
135,737 34,735 84,898
Other..............................................................
Cash used for investing (787,091) (958,305) (2,606,264)
activities......................
Financing activities
(Decrease) increase in
advances under revolving line of (1,268,035) 2,374,740 1,410,529
credit.........
Repayments of long-
term debt and capital lease (1,369,735) (1,386,035) (1,377,984)
obligations.........
Proceeds from life insurance 347,762
loans.................
Proceeds from exercise of
stock options and related tax 332 10,370
benefits...........
Purchase of treasury (76)
stock.............................
Cash (used in) provided by financing activities. (2,290,008) 989,037 42,839
(Decrease) increase in cash and equivalent..... (610,246) 97,527 307,690
Cash and equivalents at beginning of year..... 850,537 753,010 445,320
Cash and equivalents at end of $ 240,291 $ 850,537 $ 753,010
year...............
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 17 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. MANAGEMENT'S PLAN AND SUBSEQUENT EVENT
Over the last two fiscal years, in response to continuing losses from
operations, Arrow Automotive Industries, Inc. (the
"Company" or "Arrow") has restructured and streamlined its organization to
better compete in a changing automotive aftermarket. The Company's
restructuring plan included the closing of its Santa Maria, California
production facility in December, 1996. The manufacturing operations formerly
conducted at that facility were transferred to the Company's two remaining
manufacturing facilities. As a result of this consolidation, the Company
incurred a $1.1 million restructuring charge in fiscal 1997, consisting of
$413,000 of employee termination benefits and $687,000 relating to the facility
closing. The Company also
incurred $1.8 million in non-recurring period costs related to the
consolidation of the production operations from three to two manufacturing
facilities. The streamlining of the Company's operations during the last two
years also included the consolidation of production of four product lines from
multiple facilities to a single manufacturing facility, as well as the
centralization of certain administrative functions.
The Company's strategy to improve its operating results has been to
streamline operations and to reduce the break even point. The Company is
continually studying ways to reduce costs inherent in its structure and better
strategically position itself in the marketplace. In addition, the Company's
sales and marketing personnel have developed several programs intended to
increase the
sales of the Company's products. These include installer incentives to pull
the product through the distribution channel to end users. The Company has
also implemented aggressive and focused efforts throughout its sales
organization to pursue prospective customers.
On October 7, 1997, the Company restructured the Company's existing credit
agreements via an amendment effective as of June 28, 1997. The new credit
agreements consist of a replacement $7,500,000 term loan and continuation of a
$20 million revolving line of credit. The incremental cash proceeds of
$3,321,000 from the new term loan over the outstanding balance of the previous
term loan will be used for working capital purposes. The new credit agreements
will provide lower interest rates than the existing credit agreements.
The Company's fiscal 1998 operating plan contemplates an improvement over the
fiscal 1997 operating results. Managament believes, that based on the 1998
operating plan and the availability under its new credit line, the Company will
have sufficient cash to support operations and remain in compliance with the
financial covenants of its new credit agreements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies of the Company are as follows:
FISCAL YEAR: The Company's fiscal year ends on the last Saturday of June.
Fiscal years 1997 and 1995 contained 52 weeks and fiscal year 1996 contained 53
weeks. The number of weeks in fiscal quarters varies from twelve to fourteen.
BUSINESS SEGMENT: The Company is a remanufacturer and distributor of
replacement parts for automotive vehicles and trucks, which is considered to be
a single line of business.
USE OF ESTIMATES: The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
INVENTORIES: Inventories are valued at the lower of cost or market. Cost
is determined by the last-in, first-out (LIFO) method.
Page 18 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
PROPERTY, PLANT AND EQUIPMENT:: Property, plant and equipment is recorded
on the basis of cost or, in the case of leased assets under certain capital
leases (see Note 10), at the present value of future lease payments.
Depreciation and amortization of plant and equipment are provided on a
straight-line basis, based upon the following estimated useful lives of the
assets:
Buildings and building improvements 10-33 years
Leasehold improvements 2-5 years
Machinery and equipment 2-10 years
The Company eliminates from its accounts the cost and accumulated
depreciation of the assets when they are retired, sold or abandoned. Gains and
losses are reflected in the statements of operations.
INCOME TAXES: Income taxes have been provided using the liability method
in accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES. The amounts deductible in determining income
taxes may exceed amounts charged to income as a result of tax deductions
arising from disqualifying dispositions of stock acquired under the Company's
qualified stock option plans. Any reduction in income taxes as a result of
these differences is credited to capital in excess of par value.
EARNINGS (LOSS) PER SHARE: Earnings (loss) per share is computed based
upon the weighted average number of common shares outstanding during each year,
plus the dilutive effect, if any, of the assumed exercise of outstanding stock
options. Weighted average shares used in the calculation of earnings (loss)
per share were 2,873,083 for 1997 and 1996 and 2,872,309 for 1995.
STOCK BASED COMPENSATION: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
(SFAS 123), ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS 123 encourages, but
does not require, companies to record the compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
continue accounting for stock-based compensation under the Accounting
Principles Board Opinion No. 25 (APB 25), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations, as permitted by SFAS 123. This allows
the Company to continue to account for stock-based compensation plans using the
intrinsic value method, and to disclose the pro forma effects on net income and
earnings per share had the fair value of options been expensed. Under the
provisions of APB 25, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock at the
date of grant over the amount an employee must pay to acquire the stock.
Accordingly, no compensation expense has been recognized for options issued
under the Company's Incentive Stock Option Plan. No grants were issued under
the Incentive Stock Option Plan for the years ended June 28, 1997 and June 29,
1996. The effect of applying SFAS 123 to the Company's stock-based awards on a
pro forma basis was not material.
IMPAIRMENT OF LONG-LIVED ASSETS: In fiscal 1997, the Company adopted
Statement of Financial Account Standards No. 121 (SFAS 121), ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the estimated fair value of those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. As a
result of the operating loss sustained in 1997, the Company evaluated the
recoverability of its long-lived assets, principally plant and equipment. The
Company's analysis, consisting principally of independent appraisals, indicates
that there was no impairment in the carrying amount of these assets.
CASH EQUIVALENTS: The Company considers all highly liquid investments with
a maturity of three months or less at the date acquired to be cash equivalents.
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
RECLASSIFICATION: Certain amounts reported in prior years have been
reclassified to conform to the 1997 presentation.
CONCENTRATION OF CREDIT RISK: The Company sells its products nationwide,
primarily to warehouse distributors and to a lesser extent, to retailers and
original equipment manufacturers. The Company performs ongoing credit
evaluations of its customers and when appropriate registers UCC filings to
provide a security interest in its customers' inventory. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations. In fiscal 1997, sales to the Company's two largest
customers represented 24% and 13%, respectively, of net sales and no other
customer accounted for more than 10% of net sales.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In October 1996, the
American Institute of Certified Public Accountants issued Statement of Position
96-1, ENVIRONMENTAL REMEDIATION LIABILITIES, (SOP 96-1) which provides new
guidance with respect to the accrual of environmental remediation costs. The
SOP provides benchmarks to aid in the determination of when environmental
remediation liabilities should be recognized and specific guidance as to how
they should be measured. The Company adopted SOP 96-1 as of June 28, 1997,
which resulted in a pretax charge of $437,000 ($.15 per share) which is included
in the results from operations.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE (SFAS 128). This new standard requires dual
presentation of basic and diluted earnings per share (EPS) in the face of the
statement of income and requires reconciliation of the numerators and the
denominators of the basic and diluted EPS calculations. This statement will be
effective for the second quarter of the Company's fiscal year ended June, 1998.
The Company has not yet quantified the effect of the adoption of SFAS 128 on
its earnings per share of common stock.
In June 1997, the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, (SFAS 130), and Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS 131). SFAS 130 established standards
for reporting and displaying comprehensive income and its components. SFAS 131
establishes standards for the manner by which public companies report
information about operating segments in financial statements. The requirements
to report information about major customers remains consistent with SFAS 14,
FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS 130 and 131
are effective for the Company in fiscal 1998. The Company does not believe the
adoption of these Statements will have a material effect on the Company's
financial statements.
NOTE 3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Stated at cost on first-in, first out (FIFO) method
(which approximates replacement cost):
Finished goods........................................$ 10,507,186 $ 11,522,643
Work in process and materials......................... 25,649,998 32,260,028
36,157,184 43,782,671
Less reserve required to state inventory on the
last-in, first-out (LIFO) method...................... (5,237,000) (6,470,000)
$ 30,920,184 $ 37,312,671
</TABLE>
Page 19 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
The Company continually reviews the net realizable value of its inventory.
The Company's review in the third quarter of fiscal 1997 identified certain
inventory items for which quantities on hand exceeded forecasted needs. The
combined effect on the Company's inventory requirements due to the reduced unit
sales in fiscal 1997 and the consolidation of manufacturing facilities and
product lines resulted in excess inventory levels. As a result, the Company
recorded a charge in the third quarter of $4,000,000 to write down certain
inventories to net realizable value.
NOTE 4. CASH MANAGEMENT SYSTEM
Daily, under the Company's cash management system, the bank notifies the
Company of checks presented for payment against imprest operating accounts.
The Company transfers funds from available lines of credit, to cover the checks
presented for payment. The Company reflects a book cash overdraft as a result
of the checks outstanding.
The cash (overdraft) balance consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C> <C>
Bank $ 13,398 $ 30,591
balance.......................................................................
Less outstanding (777,511) (1,290,756)
checks......................................................
$ (764,113) $ (1,260,165)
</TABLE>
NOTE 5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses consist of the
following:
1997 1996
<S> <C> <C> <C> <C>
Compensation and taxes withheld
$ 2,489,180 $ 3,358,507
therefrom............................................................................
Promotional 833,319 629,246
allowances........................................................
Other.................................................................................... 1,541,875 1,649,669
$ 4,864,374 $ 5,637,422
</TABLE>
NOTE 6. ENVIRONMENTAL
In fiscal 1997, the Company adopted Statement of Position No. 96-1
ENVIRONMENTAL REMEDIATION LIABILITIES (SOP 96-1) which provided new guidance
for the accrual of environmental remediation costs. The SOP provides benchmarks
to aid in the determination of when environmental remediation liabilities
should be recognized and specific guidance as to how they should be measured.
The adoption of SOP 96-1 resulted in a pretax charge to operations of $437,000
in fiscal 1997.
The Company is in various stages of investigation or remediation at five
separate sites where contamination has been alleged. The total accrual for
environmental remediation liability as of June 28, 1997 is $509,000, which
includes the $437,000 impact of SOP 96-1. Of this total liability, $392,000
relates to a manufacturing facility formerly occupied by the Company in Hudson,
Massachusetts. Testing at the site has indicated the presence of relatively
high levels of volatile organic compounds in both the soil and ground water. A
ground-water treatment system has been installed at this site pursuant to the
direction of the
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Massachusetts Department of Environmental Protection ("DEP"). In addition to
the ground water treatment, treatment or removal of contaminated soil may also
be required.
The balance of the accrual for environmental remediation liability relates
to two sites identified by the Environmental Protection Agency and state
regulatory agencies for cleanup under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state statutes with
respect to which the Company has been named as a potentially responsible party.
The environmental investigations at these sites are on-going, but based on
information available to date the Company does not believe its liability with
respect to either site will be material.
NOTE 7. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1997 1996
<S> <C> <C> <C> <C>
Term $ 4,821,429 $ 6,107,143
loans.......................................................................
Noncurrent portion of advances under
revolving line of credit 13,000,000 13,000,000
Other................................................................................ 163,848 247,868
17,985,277 19,355,011
Less current (1,166,111) (1,385,672)
portion..........................................................
$ 16,819,166 $ 17,969,339
</TABLE>
Maturities of amounts classified as long-term debt are as follows: 1999--
$1,115,255; 2000--$1,090,603; 2001--$14,611,882; 2002--$1,426.
Interest paid amounted to $2,367,367 during 1997, $2,034,098 during 1996
and $1,960,718 during 1995.
In December, 1993, the Company entered into financing agreements ("Prior
Credit Agreements") with a commercial bank. The Company's primary lender was
joined by a second commercial lender (the "Prior Lenders") in the second
quarter of fiscal 1997 to the extent of a one-third participation. The Prior
Credit Agreements, at June 28, 1997, consisted of a term loan in the original
principal amount of $9 million and a revolving line of credit with a principal
amount of up to $20 million. During fiscal 1997, the Company failed to meet
certain then existing financial covenants related to earnings and balance sheet
ratios in the Prior Credit Agreements. The Prior Lenders subsequently waived
these defaults by modifying such covenants in a manner which resulted in
compliance by the Company for the periods completed.
On October 7, 1997, the Company restructured the Prior Credit Agreements
via an amendment ("Replacement Credit Agreements") effective as of June 28,
1997. The Replacement Credit Agreements consist of a replacement $7,500,000
term loan and continuation of a $20 million revolving line of credit. The
Company's primary lender issued a one-third participation to a financial credit
institution (the "Replacement Lenders") to replace the prior participant.
Under the Replacement Credit Agreements, as in the Prior Credit Agreements,
amounts available to the Company under the revolving line of credit are subject
to a borrowing base formula based upon certain percentages of the Company's
accounts receivable and inventories. The interest rate on amounts outstanding
under the line will change depending upon the achieved debt service coverage
ratio and can
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
range from the lender's base rate to 1.50% over the lender's base rate, as
compared to rates at June 28, 1997 under the Prior Credit Agreements of
lender's base rate plus 3%. At June 28, 1997, the Company has classified $13
million of advances outstanding under the line as noncurrent, since it does not
intend to reduce its advances under the credit line below this amount during
fiscal 1998. 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. Under the Prior Credit Agreements at
June 28, 1997, the Company was paying interest on the term loan equal to the
lender's base rate plus 3.25%. The term loan has a maturity date of July 31,
2000. Principal is payable in twelve consecutive quarterly installments of
$267,857, except the final payment which shall be equal to the unpaid balance
of the term loan. The outstanding balance of the term loan as of the
refinancing date was $4,179,000. The $3,321,000 incremental cash proceeds of
the replacement term loan over the outstanding balance of the prior term loan
will be used for working capital purposes, primarily to reduce accounts payable
to vendors.
The balance sheet as of June 28, 1997, reflects the current and long term
portion payable under the Replacement Credit Agreements. The Company's
obligations under these agreements continue to be secured by substantially all
of its assets. The interest rate borne on the revolving line of credit and the
term loan at June 28, 1997 was 11.5% and 11.75%, respectively.
Both the Prior Credit Agreements and the Replacement Credit Agreements
contain certain provisions and covenants which, among other things, restrict
the amount of future indebtedness, amount of cash dividends and capital
expenditures and require the Company to maintain levels of minimum
profitability, tangible net worth, debt service coverage and liabilities to
worth ratios. Certain of these covenants were modified in the Replacement
Credit Agreements.
At June 28, 1997, the Company had $505,622 of outstanding letters of
credit.
NOTE 8. PREFERRED STOCK
The Board of Directors has the authority to issue Preferred Stock in one or
more series, and to fix the dividend, redemption, liquidation, conversion and
voting rights associated with each such series.
NOTE 9. STOCK OPTIONS
Effective as of December 21, 1992, the Company adopted the 1993 Incentive
Stock Option Plan. The 1993 Plan provides for grants of options to key
employees to purchase up to 200,000 shares of common stock of the Company.
Options under the 1993 Plan may be granted during a period of ten years
beginning December 21, 1992, and are exercisable ratably over a period of five
years from date of grant and expire on the sixth anniversary of the date of
grant.
The Company's Stock Option Plan for Non-Employee Directors provides for
grants of options to purchase up to 20,000 shares of Common Stock of the
Company. Options granted under the Non-Employee Directors' Plan become fully
exercisable six months after the date of grant, and expire ten years from the
date of grant. As of November 22, 1993, no further options could be granted
under the Stock Option Plan for Non-Employee Directors.
Page 20 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Information with respect to incentive stock options outstanding is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 6/28/97 CONTRACTUAL LIFE EXERCISE PRICE
<S> <C> <C> <C>
$6.625 89,000 7 months $6.625
$6.125 5,000 7 months $6.125
$6.125 - $6.625 94,000 7 months $6.600
</TABLE>
A summary of the status of the Incentive Stock Option Plan as of June 28,
1997, June 29, 1996 and June 24, 1995, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF PRICE OF PRICE OF PRICE
SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
121,500 $6.693 121,500 $6.693 128,700 $6.666
year.....................
Options cancelled
or expired............ (27,500) $7.010 (6,000) $6.417
Options exercised (1,200) $5.375
Outstanding
at year end........... 94,000 $6.600 121,500 $6.693 121,500 $6.693
Exercisable
at year end........... 94,000 99,200 76,900
Available for
future grant.......... 110,000 87,500 87,500
</TABLE>
At June 28, 1997, 204,000 shares of Common Stock were reserved for issuance
under the Company's stock option plans
NOTE 10. LEASES
Property, plant and equipment includes the following amounts for leases of
manufacturing facilities that have been capitalized:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Building, building improvements
and machinery and $ 443,308 $ 446,308
equipment...............................................
Less accumulated (288,487) (217,949)
amortization................................................
$ 154,821 $ 228,359
</TABLE>
Page 21 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Lease amortization is included in depreciation expense and amounted to
$70,680 in 1997, $69,320 in 1996 and $72,643 in 1995. During 1996 and 1995,
the Company acquired $103,371 and $10,888 respectively, of equipment under
capital lease arrangements. No equipment was acquired under capital lease
arrangements in 1997.
The future minimum rental commitments as of June 28, 1997 for all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
TRUCKS AND
TOTAL REAL ESTATE TRAILERS
<S> <C> <C> <C>
1998............................................. $835,569 $331,741 $ 503,828
1999............................................. 610,958 107,130 503,828
2000............................................. 567,036 63,208 503,828
2001............................................. 558,353 54,525 503,828
2002............................................. 364,656 23,000 341,656
Thereafter......................................... 654,020 654,020
$ 3,590,592 $ 579,604 $ 3,010,988
</TABLE>
Total rental expense for all operating leases was:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Minimum Rental $ 1,262,284 $ 1,322,209 $ 1,309,206
Contingent Rentals 595,715 616,760 592,707
Less: Sublease Rental (130,780) (113,710) (114,629)
$ 1,727,219 $ 1,825,259 $ 1,787,284
</TABLE>
The contingent rentals are based on additional truck miles driven over a
specified minimum.
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company maintains the Arrow Automotive Industries Hourly and Sales
Employees' Retirement Plan (Hourly Plan) for substantially all hourly paid
employees and contract salesmen. Monthly benefits are based on years of
benefit service multiplied by the applicable dollar rate. Annual Company
contributions to the Hourly Plan are determined using the entry age normal
actuarial cost method and are equal to or exceed the minimum required by law.
Page 22 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
The assets of the Hourly Plan are primarily shares of mutual funds holding
stocks, bonds and cash. A financial institution is the investment manager of
these plan assets.
The Company maintains Supplemental Benefit Agreements (Supplemental
Agreements) which provide retirement and death benefits to certain executive
officers and their beneficiaries. The annual benefit is equal to a percentage
of the executive's average final salary. The benefits will be funded by the
proceeds of certain life insurance policies purchased by the Company on the
lives of these executives. The Company is the beneficiary under these life
insurance policies. The Company's obligations under the Supplemental
Agreements are limited in all events to an amount not greater than the benefits
available to the Company under these life insurance policies, less the
aggregate net outlay by the Company on such policies. As of June 28, 1997 and
June 29, 1996, the accrued pension cost of the Supplemental Benefit Agreements
totaled $1,581,932 and $1,418,167 respectively.
The following table sets forth the Hourly Plan and the Supplemental
Agreements (Plans) funded status and amounts recognized in the Company's
balance sheet at June 28, 1997 and June 29, 1996 (in thousands):
<TABLE>
<CAPTION>
PLANS IN WHICH ACCUMULATED BENEFITS
EXCEED ASSETS
1997 1996
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations,
including vested benefits of $6,283
in 1997 and $5,531 in $ (6,926) $ (6,081)
1996..........................................
Recognition of future salary (309) (349)
increases..........................
Projected benefit obligation for
service rendered to (7,235) (6,430)
date..............................................
Plan assets at fair 5,479 4,602
value...............................................
Projected benefit obligation in excess
of plan (1,756) (1,828)
assets..............................................................
Unrecognized transition (585) (650)
asset.......................................
Unrecognized net 554 382
loss..................................................
Unrecognized prior service 479 517
cost....................................
Adjustment to record minimum (734) (531)
liability.........................
Accrued pension cost included in the
balance $ (2,042) $ (2,110)
sheet..............................................................
</TABLE>
Page 23 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Net pension expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the $ 312 $ 259 $ 237
period............
Interest cost on projected benefit 562 490 434
obligation..................
Return on plan (571) (441) (412)
assets...................................................
Deferred asset gain 182 95 78
(loss)...............................................
Amortization of transition (65) (65) (65)
asset.....................................
Amortization of unrecognized net 15 (3) (22)
gain..........................
Amortization of unrecognized prior service 38 37 23
costs..........
Total pension expense $ 473 $ 372 $ 273
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 87,
EMPLOYERS ACCOUNTING FOR PENSION, (FAS87) the Company has recorded an
additional minimum liability representing the excess of unfunded accumulated
benefit obligations over previously recorded pension cost liabilities. A
corresponding amount is recognized as an intangible asset except to the extent
that these additional liabilities exceed related unrecognized prior service
cost and net transition obligations, in which case the increase in the
liabilities is charged directly to stockholders' equity. At June 28, 1997,
$255,353 of the excess minimum liability resulted in a charge to equity.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation for the Plans was 8%. The
rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation under the
Supplemental Agreements was 6%. The expected long-term rate of return on plan
assets of the Hourly Plan was 8%.
The Company maintains The Arrow Automotive Industries, Inc. Salaried and
Clerical Employees' Profit Sharing Plan (Profit Sharing Plan) for substantially
all clerical and salaried employees. Under the terms of the Profit Sharing
Plan, the amount of the Company's contribution is determined at the sole
discretion of the Board of Directors. There were no amounts charged to
operations under the Plan in 1997, 1996 and 1995.
Page 24 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
The Company also maintains The Arrow Automotive Industries, Inc. 401(K) Plan
for all employees. The cost of providing matching contributions for the year
ended June 28, 1997 and June 29, 1996 was $61,612 and $45,314, respectively.
The Company provides for the continuation of health care and life insurance
benefits upon retirement for certain of its active and retired employees. In
accordance with the Statement of Financial Accounting Standards No. 106
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (FAS
106), the Company elected to recognize the FAS 106 liability of $2.4 million on
a prospective basis to be amortized over 20 years as a part of the future
annual postretirement benefit cost. The following represents the unfunded
accumulated postretirement benefit obligation reconciled with amounts
recognized in the Company's balance sheet at June 28, 1997 and June 29, 1996
(in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
$ (1,397) $ (1,602)
Retirees..............................................................................................
Fully eligible active plan (140) (220)
participants...................................................
Other active plan (292) (353)
participants.............................................................
Accumulated postretirement benefit (1,829) (2,175)
obligation......................................
Unrecognized transition 1,927 2,048
obligation........................................................
Unrecognized net (610) (316)
gain..........................................................................
Accrued postretirement benefit $ (512) $ (443)
cost......................................................
</TABLE>
Net periodic postretirement benefit cost includes the following components
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during
the $ 22 $ 19 $ 20
period...................................................................................
Interest cost on projected benefit
142 168 156
obligation....................................................................................
Amortization of transition
obligation over 20 121 121 121
years..............................................................
Amortization of unrecognized (30) (7) (18)
gain................................................
Net periodic postretirement
benefit $ 255 $ 301 $ 279
cost.................................................................................
</TABLE>
The cost of covered health care benefits was assumed to increase 8.5% for
retirees less than 65 years old and 6.0% for retirees 65 years and older for
fiscal 1997. These rates are assumed to decrease incrementally to 5.5% in 2001
and remain at that level thereafter. The weighted average discount rate used
in determining the accumulated postretirement benefit obligation was 8%.
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
An increase of 1% in the assumed medical trend rates would result in an
increase to the accumulated postretirement benefit obligation of $501,000 at
June 29, 1996 and a 1997 net periodic postretirement benefit cost of $295,000.
The Company maintains a severance pay plan for its clerical and salaried
employees. The Company's obligation for these postemployment benefits as of
June 28, 1997 is not material.
NOTE 12. INCOME TAXES
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Current:
$ (1,140,000) $ (426,000) $ (225,000)
Federal.............................................................
State (22,000)
Deferred............................................................. 543,000 (399,000) 144,000
$ (597,000) $ (825,000) $ (103,000)
</TABLE>
The Company recorded a current income tax benefit which will be realized
with the carryback of the 1997 net operating loss. Net operating loss
carryforwards can be carried forward to fiscal year 2012.
A reconciliation of the statutory federal income tax rate to the annual
effective income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Income tax (benefit) at statutory (34.0)% (34.0)% (34.0)%
rate...............................
Valuation allowance on temporary 16.5
differences.................
Tax loss with no current tax 12.0
benefit................................
Nondeductible portion of
travel and entertainment 0.2 0.2 4.4
expenses................................
State income tax
benefit, net of federal tax (2.6)
benefit...................................
Other.............................................................................. (0.2)
(5.5)% (36.4)% (29.6)%
</TABLE>
Page 25 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of June 28, 1997 and
June 29, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
$ 2,880,000 $ 1,543,000
Inventory.........................................................................
Net operating loss 1,744,000
carryforwards.....................................
Accrued retirement 680,000 653,000
benefits............................................
Accrued medical 229,000 376,000
benefits................................................
Accounts 217,000 210,000
receivable.......................................................
493,000 161,000
Other..............................................................................
Total deferred tax asset 6,243,000 2,943,000
Deferred tax liabilities:
Book/tax 2,386,000 2,296,000
depreciation.....................................................
104,000 104,000
Other..............................................................................
Total deferred tax liabilities 2,490,000 2,400,000
Net deferred tax asset before
valuation 3,753,000 543,000
reserve............................................................
Valuation (3,753,000)
reserve..............................................................
Net deferred tax $ 0 $ 543,000
asset......................................................
</TABLE>
Income taxes paid (refunded) amounted to $(678,193) during 1997, $(645,554)
during 1996, and $1,365,465 during 1995.
Page 26 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Quarter 1997
1ST 2ND 3RD 4TH
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net $ 24,481 $ 21,230 $ 22,481 $ 19,309
sales............................
Gross 5,454 4,211 (36) 3,551
margin.....................
Net (584) (1,019) (6,120) (3,274)
loss.............................
Net loss per
$ (.20) $ (.35) $ (2.13) $ (1.15)
share...............................
Weighted average
shares outstanding........... 2,873 2,873 2,873 2,873
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTER 1996
1ST 2ND 3RD 4TH
(14 wks) (13 wks) (13 wks) (13 wks)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net $ 29,137 $ 23,738 $ 26,226 $ 24,502
sales............................
Gross 6,271 4,504 5,484 5,182
margin......................
Net(loss) income................ 332 (793) (359) (624)
Net (loss) income per
$ .12 $ (.28) $ (.13) $ (.22)
share................................
Weighted average
shares outstanding........... 2,873 2,873 2,873 2,873
</TABLE>
In the first quarter of 1997, the Company recorded a $1.2 million
restructuring charge for the closure of its Santa Maria, California
manufacturing facility of which $100,000 was reversed in the third quarter.
The Company incurred one-time period costs relating to the restructuring in the
first, second and third quarters of fiscal 1997 of $10,000, $880,000 and
$952,000 respectively.
In the third quarter of fiscal 1997, the Company recorded a $4 million
charge to write down certain inventories to a net realizable value.
In the fourth quarter of fiscal 1997, the Company recorded $437,000 as a
result of the adoption of Statement of Position 96-1, ENVIRONMENTAL REMEDIATION
LIABILITIES.
Page 27 of 83 Pages
<PAGE>
ARROW AUTOMOTIVE INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDING JUNE 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
CHARGED CHARGED TO
BALANCE AT TO COSTS OTHER (1) BALANCE
BEGINNING AND ACCOUNTS- DEDUCTIONS- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts-Accounts Receivable:
Year Ended
June 24, 1995...... $ 552,622 $ 41,376 $ 0 $ 116,712 $ 477,286
Year Ended
June 29, 1996...... $ 477,286 $ 109,840 $ 0 $ 62,725 $ 524,401
Year Ended
June 28, 1997...... $ 524,401 $ 22,754 $ 0 $ 5,138 $ 542,017
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
Page 28 of 83 Pages
<PAGE>
LIST AND INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Filed with This
ITEM Incorporated by Form 10-K at
NUMBER Description Reference To or Page Indicated
<S> <C> <C> <C>
3.1 Restated Articles of Organization Form 10-Q for quarter ended
as amended to date December 31, 1983, Exhibit 3.1
3.2 By-Laws as amended to date Page 43
4. Copies of Stock Certificates Form 10-K for year ended June
29, 1991, Exhibit 4
9.1 Arrow Automotive Industries, Inc. Form 10-K for year ended June
Voting Trust Agreement 29, 1991, Exhibit 9
9.2 Extension of Term of Arrow Form 10-K for year ended June
Automotive Industries, Inc. 27, 1992, Exhibit 9.2
Voting Trust Agreement Dated May
20, 1992
10.1 Agreement and Lease Amendment Form 10-K for year ended June
dated March 15, 1984 with 30, 1984, Exhibit 10.2
Holzwasser Realty Trust
10.2* Exec-U-Care Participation Form 10-K for year ended June
Agreement dated December 22, 1982 30, 1984, Exhibit 10.21
10.3* Arrow Automotive Industries, Inc. Proxy Statement for 1983 Special
Stock Option Plan for Non- Meeting of Stockholders in Lieu
Employee Directors of Annual Meeting
10.4* Supplemental Benefit Plan Form 10-K for year ended June
Agreement 28, 1985, Exhibit 10.15
10.5 $450,000 demand promissory note Form 10-K for year ended June
from Harry A. Holzwasser 29, 1985, Exhibit 10.25
10.6* Executive Life Insurance Plan Form 10-K for year ended June
Agreement 27, 1987, Exhibit 10.28
10.7 Lease with CFMS General Form 10-Q for quarter ended
Partnership dated July 14, 1987 December 30, 1995, Exhibit 10.2
re: 8000 New Jersey Avenue,
Hammond, Indiana
</TABLE>
<TABLE>
<CAPTION>
FILED WITH THIS
ITEM Incorporated by FORM 10-K AT
NUMBER DESCRIPTION REFERENCE TO OR PAGE INDICATED
<S> <C> <C> <C>
10.8 Lease Agreement with Point West Form 10-K for year ended June
Office Center Limited Partnership 25, 1988, Exhibit 10.29
Associates dated July 15, 1988
re: 3 Speen Street, Framingham,
Massachusetts
10.9* Employment Agreement with Jim L. Form 10-K for year ended June
Osment dated May 14, 1991 29, 1991, Exhibit 10.15
10.10* Employment Agreement with James Form 10-K for year ended June
F. Fagan dated May 14, 1991 29, 1991, Exhibit 10.16
10.11* Arrow Automotive Industries, Inc. Registration Statement No. 33-
1993 Incentive Stock Option Plan 64990 on Form S-8 filed June 25,
1993
10.12* Employment Agreement with Harry Form 10-Q for quarter ended
A. Holzwasser dated as of June December 25, 1993, Exhibit 10.2
28, 1993
10.13* Directors and Officers Liability Form 10-Q for quarter ended
Insurance Policy and Excess March 29, 1997, Exhibit 10.2
Policy
10.14* Amendment No. 1 to Employment Form 10-K for year ended June
Agreement with Jim L. Osment 25, 1994, Exhibit 10.17
dated May 3, 1994
10.15* Amendment No. 1 to Employment Form 10-K for year ended June
Agreement with James F. Fagan 25, 1994, Exhibit 10.18
dated May 3, 1994
10.16 Amendment No. 1 to Employment Form 10-K for year ended June
Agreement with Harry A. 24, 1995, Exhibit 10.21
Holzwasser dated August, 1995
</TABLE>
Page 29 of 83 Pages
<PAGE>
<TABLE>
<CAPTION>
FILED WITH THIS
ITEM Incorporated by FORM 10-K AT
NUMBER DESCRIPTION REFERENCE TO OR PAGE INDICATED
<S> <C> <C> <C>
10.17 Amendment and Restated Revolving Form 10-Q for quarter ended
Credit and Term Loan Agreement December 28, 1996, Exhibit 10.1
dated December 3, 1996 among
Arrow Automotive Industries, Inc.
and the First National Bank of
Boston and BTM Capital
Corporation.
10.18 Waiver and First Amendment to Form 10-Q for quarter ended
Amended and Restated Revolving December 28, 1996, Exhibit 10.2
Credit and Term Loan Agreement
dated December 28, 1996.
10.19 Waiver and Second Amendment to Form 10-Q for quarter ended
Amended and Restated Revolving March 29, 1997, Exhibit 10.1
Credit and Term Loan Agreement
with BankBoston, N.A. and BTM
Capital Corporation dated as of
March 29, 1997.
10.20 Third Amendment to Amended and
Restated Revolving Credit and
Term Loan Agreement with
BankBoston, N.A.,
and Norwest Business Credit, Inc.
dated as of June 28, 1997.
Page 62
11. Statement re Computation of per Note 2 to Notes to Financial
share earnings (loss) Statements filed herewith
23. Consent of Independent Auditors
Page 82
27. Financial Data Schedule Page 83
</TABLE>
Page 30 of 83 Pages
BY-LAWS
OF
ARROW AUTOMOTIVE INDUSTRIES, INC.
(AS AMENDED THROUGH JUNE 6, 1997)
ARTICLE FIRST
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders
shall be held on the second Thursday of November in each year (or if that
be a legal holiday in the place where the meeting is to be held, on the
next succeeding full business day) at the hour fixed by the Directors or
the President and stated in the notice of the meeting. The purposes for
which the annual meeting is to be held, in addition to those prescribed by
law, by the Articles of Organization or by these By-Laws, may be specified
by the Directors or the President. If no annual meeting is held in
accordance with the foregoing provisions, a special meeting may be held in
lieu thereof, and any action taken at such meeting shall have the same
effect as if taken at the annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders
may be called by the President, or by the Directors, and shall be called by
the Clerk, or in case of the death, absence, incapacity or refusal of the
Clerk, by any other officer, upon written application of one or more
stockholders who are entitled to vote at the meeting and who hold at least
one-tenth part in interest of the capital stock entitled to vote at the
meeting, stating the time, place and purposes of the meeting. No call of a
special meeting of the stockholders shall be required if such notice of the
meeting shall have been waived either in writing (including a telegram) by
every stockholder entitled to notice thereof, or by his attorney thereunto
authorized.
SECTION 3. PLACE OF MEETINGS. All meetings of stockholders shall be
held at the principal office of the corporation unless a different place
(within the United States) is fixed by the Directors or the President and
stated in the notice of the meeting.
SECTION 4. NOTICES. Notice of all meetings of stockholders shall be
given as follows, to wit: - A written notice, stating the place, day and
hour thereof, shall be given by the Clerk or an Assistant Clerk (or the
person or persons calling the meeting), at least ten days before the
meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law, the Articles of Organization, or these By-laws, is
entitled to such notice, by leaving such notice with him or at his
residence or usual place of business, or by mailing it, postage prepaid,
and addressed to such stockholder at his address as it appears upon the
books of the corporation. Notices of all meetings of stockholders shall
state the purposes for which the meetings are called. No notice need be
given to any stockholder if a written waiver of notice, executed before or
after the meeting by the stockholder or his attorney thereunto authorized
is filed with the records of the meeting.
SECTION 5. QUORUM. At any meeting of stockholders a quorum for the
transaction of business shall consist of one or more individuals appearing
in person and/or as proxies and owning and/or representing a majority of
the shares of the corporation then outstanding and entitled to vote,
provided that less than such quorum shall have the power to adjourn the
meeting from time to time.
SECTION 6. VOTING AND PROXIES. Each stockholder shall have one vote
for each share of stock entitled to vote and a proportionate vote for any
fractional share entitled to vote, held by him of record according to the
records of the corporation, unless otherwise provided by the Articles of
Organization. Stockholders may vote either in person or by written proxy
dated not more than six months before the meeting named therein. Proxies
shall be filed with the Clerk before being voted at any meeting or any
adjournment thereof. Except as otherwise limited therein, proxies shall
entitle the persons named therein to vote at the meeting specified herein
and at any adjourned session of such meeting but shall not be valid after
final adjournment of the meeting. A proxy with respect to stock held in
the name of two or more persons shall be valid if executed by one of them
unless at or prior to exercise of the proxy the corporation receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid unless challenged at or prior to its exercise.
SECTION 7. ACTION AT MEETING. When a quorum is present, the action
of the stockholders on any matter properly brought before such meeting
shall be decided by the holders of a majority of the stock present or
represented and entitled to vote and voting on such matter, except where a
different vote is required by law, the Articles of Organization or these
By-laws. Any election by stockholders shall be determined by a plurality
of the votes cast by the stockholders entitled to vote at the election. No
ballot shall be required for such election unless requested by a
stockholder present or represented at the meeting and entitled to vote in
the election.
SECTION 8. SPECIAL ACTION. Any action to be taken by stockholders
may be taken without a meeting if all stockholders entitled to vote on the
matter consent to the action by a writing filed with the records of the
meetings of stockholders. Such consent shall be treated for all purposes
as a vote at a meeting.
SECTION 9. RECORD DATE. The Directors may fix in advance a time
which shall be not more than sixty days prior to (a) the date of any
meeting of stockholders;(b) the date for the payment of any dividend or the
making of any distribution to stockholders, or (c) the last day on which
the consent or dissent of stockholders may be effectively expressed for any
purpose, as the record date for determining the stockholders having the
right to notice of and to vote at such meeting and any adjournment thereof,
the right to receive such dividend or distribution, or the right to give
such consent or dissent. In such case only stockholders of record on such
record date shall have such right, notwithstanding any transfer of stock on
the books of the corporation after the record date. Without fixing such
record date the Directors may for any of such purposes close the transfer
books for all or any part of such period.
ARTICLE SECOND
DIRECTORS
SECTION 1. POWERS. The Board of Directors, subject to any action at
any time taken by such stockholders as then have the right to vote, shall
have the entire charge, control and management of the corporation, its
property and business and may exercise all or any of its powers.
SECTION 2. ELECTION, VACANCIES, NUMBER AND TENURE. The Board of
Directors shall consist of not less than three nor more than ten (10)
Directors, the exact number of Directors to be determined from time to time
by resolution adopted by affirmative vote of a majority of the whole Board
of Directors, and such exact number shall be ten (10) until otherwise
determined by resolution adopted by affirmative vote of a majority of the
whole Board of Directors. Notwithstanding the foregoing, in case of any
vacancy in the Board of Directors, the Board may act by its then members
without regard to number. As used herein, the term "whole Board" means the
total number of Directors which the Corporation would have if there were no
vacancies. The Board of Directors shall divide the Directors into three
classes and, when the number of Directors is changed, shall determine the
class or classes to which the increased or decreased number of Directors
shall be apportioned; provided, that no decrease in the number of Directors
shall affect the term of any Director then in office. Notwithstanding the
foregoing, and except as otherwise required by law, whenever the holders of
any one or more series of Preferred Stock shall have the right, voting
separately as a class, to elect one or more Directors of the Corporation,
the terms of the Director or Directors elected by such holders shall expire
at the next succeeding annual meeting of stockholders. The term of office
of Directors elected at the 1983 Special Meeting of Stockholders in lieu of
Annual Meeting shall be as follows: the term of office of Directors of the
first class shall expire at the first annual meeting of stockholders after
their election; the term of office of Directors of the second class shall
expire at the second annual meeting of stockholders after their election;
and the term of office of Directors of the third class shall expire at the
third annual meeting of stockholders after their election; and as to
Directors of each class, when their respective successors are elected and
qualified. At each annual meeting of stockholders subsequent to such
Special Meeting of Stockholders in lieu of Annual Meeting, Directors
elected to succeed those whose terms are expiring shall be elected for a
term of office to expire at the third succeeding annual meeting of
stockholders and when their respective successors are elected and
qualified.
Vacancies in the Board of Directors, however caused, and newly created
directorships shall be filled solely by a majority vote of the Directors
then in office, whether or not a quorum, which majority must include at
least 60% of the Non-Acquiring Directors, and any Director so chosen shall
hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the Director has been chosen expires
and when the Director's successor is elected and qualified.
THIS BY-LAW MAY ONLY BE AMENDED, ALTERED, CHANGED OR REPEALED (A) AT A
MEETING OF THE CORPORATION'S STOCKHOLDERS CALLED AT LEAST IN PART FOR THAT
PURPOSE BY THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES OF
EACH CLASS REPRESENTED IN PERSON OR BY PROXY AT SUCH MEETING AND ENTITLED
TO VOTE THEREON, WHICH MAJORITY MUST INCLUDE AT LEAST 60% OF ALL SHARES OF
EACH CLASS HELD BY NON-ACQUIRING STOCKHOLDERS (AS DEFINED BELOW) PRESENT IN
PERSON OR BY PROXY AT SUCH MEETING AND ENTITLED TO VOTE OR (B) AT A MEETING
OF THE BOARD OF DIRECTORS CALLED AT LEAST IN PART FOR THAT PURPOSE, BY THE
AFFIRMATIVE VOTE OF AT LEAST 60% OF THE NON-ACQUIRING DIRECTORS (AS DEFINED
BELOW) THEN IN OFFICE. IF SO AMENDED BY THE DIRECTORS, THIS BY-LAW MAY BE
FURTHER AMENDED OR REPEALED BY THE STOCKHOLDERS IN THE MANNER DESCRIBED
ABOVE.
A corporation, person or other entity which after the end of the
Company's 1983 fiscal year (June 25, 1983) for the first time became or
becomes the beneficial owner, directly or indirectly, of 5% or more of this
corporation's outstanding voting securities (taken together as a single
class) is referred to in this by-law as an "Acquiring Entity". For
purposes of this by-law, any stockholder who is not an Acquiring Entity
shall be known as a "Non-Acquiring Stockholder" and any member of the Board
of directors who is unaffiliated, directly or indirectly, with an Acquiring
Entity, shall be known as a "Non-Acquiring Director."
FOR PURPOSES OF THIS BY-LAW, ANY CORPORATION, PERSON OR ENTITY WILL BE
DEEMED TO BE BENEFICIAL OWNER OF ANY VOTING SECURITIES OF THIS CORPORATION:
(a) which it owns directly, whether or not of record, or
(B) WHICH IT HAS THE RIGHT TO ACQUIRE PURSUANT TO ANY
agreement or arrangement or understanding or upon exercise of
conversion rights, exchange rights, warrants or options or
otherwise, or
(C) WHICH ARE BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY (INCLUDING
SHARES DEEMED TO BE OWNED THROUGH APPLICATION OF CLAUSE (B)
ABOVE), BY ANY "AFFILIATE" OR "ASSOCIATE" AS THOSE TERMS ARE
DEFINED IN RULE 12B-2 OF THE GENERAL RULES AND REGULATIONS UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AS IN EFFECT ON NOVEMBER 9,
1983, OR
(d) which are beneficially owned, directly or indirectly (including
shares deemed owned through application of clause (b) above), by
any other corporation, person or entity with which it or any of
its "affiliates" or "associates" has any agreement or arrangement
or understanding for the purpose of acquiring, holding, voting or
disposing of voting securities of this corporation.
FOR THE PURPOSES ONLY OF DETERMINING WHETHER A CORPORATION, PERSON OR
OTHER ENTITY OWNS BENEFICIALLY, DIRECTLY OR INDIRECTLY, 5% OR MORE OF THE
OUTSTANDING VOTING SECURITIES OF THIS CORPORATION, THE OUTSTANDING VOTING
SECURITIES OF THIS CORPORATION WILL BE DEEMED TO INCLUDE ANY VOTING
SECURITIES THAT MAY BE ISSUABLE PURSUANT TO ANY AGREEMENT, ARRANGEMENT OR
UNDERSTANDING OR UPON EXERCISE OF CONVERSION RIGHTS, EXCHANGE RIGHTS,
WARRANTS, OPTIONS OR OTHERWISE WHICH ARE DEEMED TO BE BENEFICIALLY OWNED BY
SUCH CORPORATION, PERSON OR OTHER ENTITY PURSUANT TO THE FOREGOING
PROVISIONS OF THIS BY-LAW.
A majority of the Non-Acquiring Directors of this corporation shall
have the power and duty to determine, on the basis of information known to
them after reasonable inquiry, all facts necessary to determine compliance
with this by-law, including without limitation (a) whether a person is an
Acquiring Entity, (b) the number of shares of voting stock beneficially
owned by any person, (c) whether a person is an affiliate of another, and
(d) all other issues of fact needed to be determined hereunder; and the
good faith determination of a majority of the Non-Acquiring Directors on
such matters shall be conclusive and binding.
SECTION 3. Intentionally omitted
SECTION 4. Intentionally omitted
SECTION 5. RESIGNATION. Any Director may resign by delivering his
written resignation to the corporation at its principal office or upon
receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
SECTION 6. REMOVAL. A Director may be removed with or without cause.
Such removal may be effected either (a) at any annual or special meeting of
the stockholders by the affirmative vote of a majority of the shares
present, which majority must include at least 60% of the voting securities
of each class held by the Non-Acquiring Stockholders (as defined below)
present in person or by proxy at such meeting and entitled to vote in the
election of Directors, or (b) at any annual or special meeting of the Board
of Directors by a vote of at least 60% of the Non-Acquiring Directors (as
defined below) then in office. A Director may be removed for cause only
after he has received a copy of the charges against him, delivered to him
personally or by mail at his address appearing upon the records of the
corporation at least 30 days prior to the adoption of the resolution for
his removal, and an opportunity to be heard on such charges before the body
proposing to remove him.
THIS BY-LAW MAY ONLY BE AMENDED, ALTERED, CHANGED OR REPEALED (A) AT A
MEETING OF THE CORPORATION'S STOCKHOLDERS CALLED AT LEAST IN PART FOR THAT
PURPOSE BY THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES OF
EACH CLASS REPRESENTED IN PERSON OR BY PROXY AT SUCH MEETING AND ENTITLED
TO VOTE THEREON, WHICH MAJORITY MUST INCLUDE AT LEAST 60% OF ALL SHARES OF
EACH CLASS HELD BY NON-ACQUIRING STOCKHOLDERS PRESENT IN PERSON OR BY PROXY
AT SUCH MEETING AND ENTITLED TO VOTE OR (B) AT A MEETING OF THE BOARD OF
DIRECTORS CALLED AT LEAST IN PART FOR THAT PURPOSE, BY THE AFFIRMATIVE VOTE
OF AT LEAST 60% OF THE NON-ACQUIRING DIRECTORS THEN IN OFFICE. IF SO
AMENDED BY THE DIRECTORS, THIS BY-LAW MAY BE FURTHER AMENDED OR REPEALED BY
THE STOCKHOLDERS IN THE MANNER DESCRIBED ABOVE.
A corporation, person or other entity which after the end of the
Company's 1983 fiscal year (June 25, 1983) for the first time became or
becomes the beneficial owner, directly or indirectly, of 5% or more of this
corporation's outstanding voting securities (taken together as a single
class) is referred to in this by-law as an "Acquiring Entity". For
purposes of this by-law, any stockholder who is not an Acquiring Entity
shall be known as a "Non-Acquiring Stockholder" and any member of the Board
of Directors who is unaffiliated, directly or indirectly, with an Acquiring
Entity shall be known as a "Non-Acquiring Director."
FOR THE PURPOSES OF THIS BY-LAW, ANY CORPORATION, PERSON OR ENTITY
WILL BE DEEMED TO BE BENEFICIAL OWNER OF ANY VOTING SECURITIES OF THIS
CORPORATION:
(a) which it owns directly, whether or not of record, or
(B) WHICH IT HAS THE RIGHT TO ACQUIRE PURSUANT TO ANY AGREEMENT OR
ARRANGEMENT OR UNDERSTANDING OR UPON ANY EXERCISE OF CONVERSION
RIGHTS, EXCHANGE RIGHTS, WARRANTS OR OPTIONS OR OTHERWISE, OR
(c) which are beneficially owned, directly or indirectly (including
shares deemed to be owned through application of clause (b)
above), by any "affiliate" or "associate" as those terms are
defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934 as in effect on November 9,
1983, or
(D) WHICH ARE BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY (INCLUDING
SHARES DEEMED OWNED THROUGH APPLICATION OF CLAUSE (B) ABOVE), BY
ANY OTHER CORPORATION, PERSON OR ENTITY WHICH IT OR ANY OF ITS
"AFFILIATES" OR "ASSOCIATES" HAS ANY AGREEMENT OR ARRANGEMENT OR
UNDERSTANDING FOR THE PURPOSE OF ACQUIRING, HOLDING, VOTING OR
DISPOSING OF VOTING SECURITIES OF THIS CORPORATION.
For the purposes only of determining whether a corporation, person or
other entity owns beneficially, directly or indirectly, 5% or more of the
outstanding voting securities of this corporation, the outstanding voting
securities of this corporation will be deemed to include any voting
securities that may be issuable pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, exchange rights,
warrants, options or otherwise which are deemed to be beneficially owned by
such corporation, person or other entity pursuant to the foregoing
provisions of this by-law.
A MAJORITY OF THE NON-ACQUIRING DIRECTORS OF THIS CORPORATION SHALL
HAVE THE POWER AND DUTY TO DETERMINE, ON THE BASIS OF INFORMATION KNOWN TO
THEM AFTER REASONABLE INQUIRY, ALL FACTS NECESSARY TO DETERMINE COMPLIANCE
WITH THIS BY-LAW, INCLUDING WITHOUT LIMITATION (A) WHETHER A PERSON IS AN
ACQUIRING ENTITY, (B) THE NUMBER OF SHARES OF VOTING STOCK BENEFICIALLY
OWNED BY ANY PERSON, (C) WHETHER A PERSON IS AN AFFILIATE OF ANOTHER, AND
(D) ALL OTHER ISSUES OF FACT NEEDED TO BE DETERMINED HEREUNDER; AND THE
GOOD FAITH DETERMINATION OF A MAJORITY OF THE NON-ACQUIRING DIRECTORS ON
SUCH MATTES SHALL BE CONCLUSIVE AND BINDING.
SECTION 7. ANNUAL MEETING. Immediately after each annual meeting of
stockholders, or the special meeting held in lieu thereof, and at the place
thereof, if a quorum of the Directors elected at such meeting were present
thereat, there shall be a meeting of the Directors without notice; but if
such a quorum of the Directors elected thereat were not present at such
meeting, or if present do not proceed immediately thereafter to hold a
meeting of the Directors, the annual meeting of the Directors shall be
called in the manner hereinafter provided with respect to the call of
special meetings of Directors.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Directors may
be held at such times and places as shall from time to time be fixed by
resolution of the Board and no notice need by given of regular meetings
held at times and places so fixed, PROVIDED, HOWEVER, that any resolution
relating to the holding of regular meetings shall remain in force only
until the next annual meeting of stockholders, or the special meeting held
in lieu thereof, and that if at any meeting of Directors at which a
resolution is adopted fixing the times or place or places for any regular
meetings any Director is absent, no meeting shall be held pursuant to such
resolution until either each such absent Director has in writing or by
telegram approved the resolution or seven days have elapsed after a copy of
the resolution certified by the Clerk has been mailed, postage prepaid,
addressed to each such absent Director at his last known home or business
address.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Directors may
be called by the President or by the Treasurer or by any two Directors and
shall be held at the place designated in the call thereof.
SECTION 10. NOTICES. Notices of any special meeting of the Directors
shall be given by the Clerk to each Director, by mailing to him, postage
prepaid, and addressed to him at his address as registered on the books of
the corporation, or if not so registered at his last known home or business
address, a written notice of such meeting at least four days before the
meeting or by delivering such notice to him at least forty-eight hours
before the meeting or by sending to him at least forty-eight hours before
the meeting, by prepaid telegram addressed to him at such address, notice
of such meeting. If the Clerk refuses or neglects for more than twenty-
four hours after receipt of the call to give notice of such special
meeting, or if the office of Clerk is vacant or the Clerk is absent from
the Commonwealth of Massachusetts, or incapacitated, such notice may be
given by the officer or one of the Directors calling the meeting. Notice
need not be given to any Director if a written waiver of notice, executed
by him before or after the meeting, is filed with the records of the
meeting, or if any director who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him. A notice
or waiver of notice of a Directors' meeting need not specify the purposes
of the meeting.
SECTION 11. QUORUM. At any meeting of the Directors a majority of
the number of Directors required to constitute a full Board, as fixed in or
determined pursuant to these By-laws as then in effect, shall constitute a
quorum for the transaction of business; provided always that any number of
Directors (whether one or more and whether or not constituting a quorum)
present at any meeting or at any adjourned meeting may make any reasonable
adjourned thereof.
SECTION 12. ACTION AT MEETING. At any meeting of the Directors at
which a quorum is present, the action of the Directors on any matter
brought before the meeting shall be decided by the vote of a majority of
those present and voting, unless a different vote is required by law, the
Articles of Organization, or these By-laws.
SECTION 13. SPECIAL ACTION. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the
directors and filed with the records of the Directors' meetings. Such
consent shall be treated as a vote of the Directors for all purposes.
SECTION 14. COMMITTEES. The Directors may, by vote of a majority of
the number of Directors required to constitute a full Board as fixed in or
determined pursuant to these By-laws as then in effect, elect from their
number an executive or other committees and may by like vote delegate
thereto some or all of their powers except those which by law, the Articles
of Organization or these By-laws they are prohibited from delegating.
Except as the Directors may otherwise determine, any such committee may
make rules for the conduct of its business, but unless otherwise provided
by the Directors or in such rules, its business shall be conducted as
nearly as may be in the same manner as is provided by these By-laws for the
Directors.
ARTICLE THIRD
OFFICERS
SECTION 1. ENUMERATION. The officers of the corporation shall be a
President, a Treasurer, a Clerk, and such Vice Presidents, Assistant
Treasurers, Assistant Clerks, and other officers as may from time to time
be determined by the Directors.
SECTION 2. ELECTION. The President, Treasurer and Clerk shall be
elected annually by the Directors at their first meeting following the
annual meeting of stockholders, or the special meeting held in lieu
thereof. Other officers may be chosen by the Directors at such meeting or
at any other meeting.
SECTION 3. QUALIFICATION. The President may, but need not be, a
Director. No officer need be a stockholder. Any two or more offices may
be held by the same person, provided that the President and Clerk shall not
be the same person. The Clerk shall be a resident of Massachusetts unless
the corporation has a resident agent appointed for the purpose of service
of process. Any officer may be required by the Directors to give bond for
the faithful performance of his duties to the corporation in such amount
and with such sureties as the Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by law, by the
Articles of Organization or by these By-laws, the President, Treasurer and
Clerk shall hold office until the first meeting of the Directors following
the annual meeting of stockholders, or the special meeting held in lieu
thereof, and thereafter until his successor is chosen and qualified. Other
officers shall hold office until the first meeting of the Directors
following the annual meeting of stockholders, or the special meeting held
in lieu thereof, unless a shorter term is specified in the vote choosing or
appointing them. Any officer may resign by delivering his written
resignation to the corporation at its principal office or to the President
or Clerk, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
SECTION 5. REMOVAL. The Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors
then in office, provided, that an officer may be removed for cause only
after reasonable notice and opportunity to be heard by the Board of
Directors prior to action thereon.
SECTION 6. PRESIDENT. The President when present shall preside at
all meetings of the stockholders and of the Directors. It shall be his
duty and he shall have the power to see that all orders and resolutions of
the Directors are carried into effect. The President, as soon as
reasonably possible after the close of each fiscal year, shall submit to
the Directors a report of the operations of the corporation for such year
and a statement of its affairs and shall from time to time report to the
Directors all matters within his knowledge which the interests of the
corporation may require to be brought to its notice. The President shall
perform such duties and have such powers additional to the foregoing as the
Directors shall designate.
SECTION 7. VICE PRESIDENTS. In the absence or disability of the
President, his powers and duties shall be performed by the Vice President,
if only one, or, if more than one, by the one designated for the purpose by
the Directors. Each Vice President shall have such other powers and
perform such other duties as the Directors shall from time to time
designate.
SECTION 8. TREASURER. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all monies and other valuable effects in the
name and to the credit of the corporation in such depositories as shall be
designated by the Directors or in the absence of such designation in such
depositories as he shall from time to time deem proper. He shall disburse
the funds of the corporation as shall be ordered by the Directors, taking
proper vouchers for such disbursements. He shall promptly render to the
President and to the Directors such statements of his transactions and
accounts as the President and Directors respectively may from time to time
require. The Treasurer shall perform such duties and have such powers
additional to the foregoing as the Directors may designate.
SECTION 9. ASSISTANT TREASURERS. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant
Treasurer, if only one, or, if more than one, by the one designated for the
purpose by the Directors. Each Assistant Treasurer shall have such other
powers and perform such other duties as the Directors shall from time to
time designate.
SECTION 10. CLERK. The Clerk shall record in books kept for the
purpose all votes and proceedings of the stockholders and, if there be no
Secretary or Assistant Secretary, of the Directors at their meetings.
Unless the Directors shall appoint a transfer agent and/or registrar or
other officer or officers for the purpose, the Clerk shall be charged with
the duty of keeping, or causing to be kept, accurate records of all stock
outstanding, stock certificates issued and stock transfers; and, subject to
such other or different rules as shall be adopted from time to time by the
Directors, such records may be kept solely in the stock certificate books.
The Clerk shall perform such duties and have such powers additional to the
foregoing as the Directors shall designate.
SECTION 11. ASSISTANT CLERKS. In the absence of the Clerk from any
meeting of the stockholders or, if there be no Secretary or Assistant
Secretary, from any meeting of the Directors, the Assistant Clerk, if one
be elected, or, if there be more than one, the one designated for the
purpose by the Directors, otherwise a Temporary Clerk designated by the
person presiding at the meeting shall perform the duties of the Clerk.
Each Assistant Clerk shall have such other powers and perform such other
duties as the Directors may from time to time designate.
SECTION 12. SECRETARY AND ASSISTANT SECRETARIES. If a Secretary is
elected, he shall keep a record of the meetings of the Directors and in his
absence, an Assistant Secretary, if one be elected, or, if there be more
than one, the one designated for the purpose by the Directors, otherwise a
Temporary Secretary designated by the person presiding at the meeting,
shall perform the duties of the Secretary. Each Assistant Secretary shall
have such other powers and perform such other duties as the Directors may
from time to time designate.
ARTICLE FOURTH
PROVISIONS RELATING TO CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled
to a certificate or certificates representing in the aggregate the shares
owned by him and certifying the number and class thereof, which shall be in
such form as the Directors shall adopt. Each certificate of stock shall be
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer, but when a certificate is countersigned by a transfer
agent or a registrar, other than a Director, officer or employee of the
corporation, such signatures may be facsimiles. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer at the time of its issue. Every certificate for shares of stock
which are subject to any restriction on transfer pursuant to the Articles
of Organization, the By-laws or any agreement to which the corporation is a
party, shall have the restriction noted conspicuously on the certificate
and shall also set forth on the face or back either the full text of the
restriction or a statement of the existence of such restriction and a
statement that the corporation will furnish a copy to the holder of such
certificate upon written request and without charge. Every certificate
issued when the corporation is authorized to issue more than one class or
series of stock shall set forth on its face or back either the full text of
the preferences, voting powers, qualifications and special and relative
rights of the shares of each class and series authorized to be issued or a
statement of the existence of such preferences, powers, qualifications and
rights, and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
SECTION 2. TRANSFER OF STOCK. The stock of the corporation shall be
transferable, so as to affect the rights of the corporation, only by
transfer recorded on the books of the corporation, in person or by duly
authorized attorney, and upon the surrender of the certificate of
certificates properly endorsed or assigned.
SECTION 3. EQUITABLE INTERESTS NOT RECOGNIZED. The corporation shall
be entitled to treat the holder of record of any share or shares of stock
as the holder in fact hereof and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of any other person except as may be otherwise expressly provided by law.
SECTION 4. LOST OR DESTROYED CERTIFICATES. The Directors of the
corporation may, subject to Massachusetts General Laws, Chapter 156B,
Section 29, as amended from time to time, determine the conditions upon
which a new certificate of stock may be issued in place of any certificate
alleged to have been lost, destroyed, or mutilated.
ARTICLE FIFTH
STOCK IN OTHER CORPORATIONS
Except as the Directors may otherwise designate, the President or
Treasurer may waive notice of, and appoint any person or persons to act as
proxy or attorney in fact for this corporation (with or without power of
substitution) at, any meeting of stockholders or shareholders of any other
corporation or organization, the securities of which may be held by this
corporation.
ARTICLE SIXTH
Inspection of Records
BOOKS, ACCOUNTS, DOCUMENTS AND RECORDS OF THE CORPORATION SHALL BE
OPEN TO INSPECTION BY ANY DIRECTOR AT ALL TIMES DURING THE USUAL HOURS OF
BUSINESS. THE ORIGINAL, OR ATTESTED COPIES, OF THE ARTICLES OF
ORGANIZATION, BY-LAWS AND RECORDS OF ALL MEETINGS OF THE INCORPORATORS AND
STOCKHOLDERS, AND THE STOCK AND TRANSFER RECORDS, WHICH SHALL CONTAIN THE
NAMES OF ALL STOCKHOLDERS AND THE RECORD ADDRESS AND THE AMOUNT OF STOCK
HELD BY EACH, SHALL BE KEPT IN MASSACHUSETTS AT THE PRINCIPAL OFFICE OF THE
CORPORATION, OR AT AN OFFICE OF ITS TRANSFER AGENT OR OF THE CLERK OR OF
ITS REGISTERED AGENT. SAID COPIES AND RECORDS NEED NOT ALL BE KEPT IN THE
SAME OFFICE. THEY SHALL BE AVAILABLE AT ALL REASONABLE TIMES TO THE
INSPECTION OF ANY STOCKHOLDER FOR ANY PROPER PURPOSE BUT NOT TO SECURE A
LIST OF STOCKHOLDERS FOR THE PURPOSE OF SELLING SAID LIST OR COPIES THEREOF
OR OF USING THE SAME FOR A PURPOSE OTHER THAN IN THE INTEREST OF THE
APPLICANT, AS A STOCKHOLDER, RELATIVE TO THE AFFAIRS OF THE CORPORATION.
ARTICLE SEVENTH
CHECKS, NOTES, DRAFTS AND OTHER INSTRUMENTS
Checks, notes, drafts and other instruments for the payment of money
drawn or endorsed in the name of the corporation may be signed by any
officer or officer or person or persons authorized by the Directors to sign
the same. No officer or person shall sign any such instrument as aforesaid
unless authorized by the Directors to do so.
ARTICLE EIGHTH
Seal
THE SEAL OF THE CORPORATION SHALL BE CIRCULAR IN FORM, BEARING ITS
NAME, THE WORD "MASSACHUSETTS", AND THE YEAR OF ITS INCORPORATION. THE
TREASURER SHALL HAVE CUSTODY OF THE SEAL AND MAY AFFIX THE SEAL (AS MAY ANY
OTHER OFFICER IF AUTHORIZED BY THE DIRECTORS) TO ANY INSTRUMENT REQUIRING
THE CORPORATE SEAL.
ARTICLE NINTH
THE FISCAL YEAR OF THE CORPORATION SHALL BE THE 52 OR 53 WEEK PERIOD
ENDING WITH THE LAST SATURDAY OF JUNE IN EACH YEAR.
ARTICLE TENTH
AMENDMENTS
These By-Laws may only be amended, altered, changed or repealed (a) at
a meeting of this corporation's stockholders, called at least in part for
the purpose of considering the proposed amendment, by the affirmative vote
of at least a majority of the shares of each class represented in person or
by proxy at such meeting and entitled to vote thereon, which majority must
include at least 60% of all shares of each class held by Non-Acquiring
Stockholders present in person or by proxy at such meeting and entitled to
vote, or (b) at a meeting of the Board of Directors called at least in part
for the purpose of considering the proposed amendment by the affirmative
vote of at least 60% of the Non-Acquiring Directors then in office. Any
By-Law adopted or amended by the Directors may be further amended or
repealed by the stockholders in the manner described above.
A CORPORATION, PERSON OR OTHER ENTITY WHICH AFTER THE END OF THE
COMPANY'S 1983 FISCAL YEAR (JUNE 25, 1983) FOR THE FIRST TIME BECAME OR
BECOMES THE BENEFICIAL OWNER, DIRECTLY OR INDIRECTLY, OF 5% OR MORE OF THIS
CORPORATION'S OUTSTANDING VOTING SECURITIES (TAKEN TOGETHER AS A SINGLE
CLASS) IS REFERRED TO IN THIS BY-LAW AS AN "ACQUIRING ENTITY". FOR
PURPOSES OF THIS BY-LAW, ANY STOCKHOLDER WHO IS NOT AN ACQUIRING ENTITY
SHALL BE KNOWN AS A "NON-ACQUIRING STOCKHOLDER" AND ANY MEMBER OF THE BOARD
OF DIRECTORS WHO IS UNAFFILIATED, DIRECTLY OR INDIRECTLY, WITH AN ACQUIRING
ENTITY, SHALL BE KNOWN AS A "NON-ACQUIRING DIRECTOR."
For purposes of this by-law, any corporation, person or entity will be
deemed to be beneficial owner of any voting securities of this corporation:
(A) WHICH IT OWNS DIRECTLY, WHETHER OR NOT OF RECORD, OR
(b) which it has the right to acquire pursuant to any agreement or
arrangement or understanding or upon exercise of conversion
rights, exchange rights, warrants or options or otherwise, or
(C) WHICH ARE BENEFICIALLY OWNED, DIRECTLY OR INDIRECTLY (INCLUDING
SHARES DEEMED TO BE OWNED THROUGH APPLICATION OF CLAUSE (B)
ABOVE), BY ANY "AFFILIATE" OR "ASSOCIATE" AS THOSE TERMS ARE
DEFINED IN RULE 12B-2 OF THE GENERAL RULES AND REGULATIONS UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AS IN EFFECT ON NOVEMBER 9,
1983, OR
(d) which are beneficially owned, directly or indirectly (including
shares deemed owned through application of clause (b) above), by
any other corporation, person or entity with which it or any of
its "affiliates" or "associates" has any agreement or
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of voting securities of this
corporation.
FOR THE PURPOSES ONLY OF DETERMINING WHETHER A CORPORATION, PERSON OR
OTHER ENTITY OWNS BENEFICIALLY, DIRECTLY OR INDIRECTLY, 5% OR MORE OF THE
OUTSTANDING VOTING SECURITIES OF THIS CORPORATION, THE OUTSTANDING VOTING
SECURITIES OF THIS CORPORATION WILL BE DEEMED TO INCLUDE ANY VOTING
SECURITIES THAT MAY BE ISSUABLE PURSUANT TO ANY AGREEMENT, ARRANGEMENT OR
UNDERSTANDING OR UPON EXERCISE OF CONVERSION RIGHTS, EXCHANGE RIGHTS,
WARRANTS, OPTIONS OR OTHERWISE WHICH ARE DEEMED TO BE BENEFICIALLY OWNED BY
SUCH CORPORATION, PERSON OR OTHER ENTITY PURSUANT TO THE FOREGOING
PROVISIONS OF THIS BY-LAW.
A majority of the Non-Acquiring Directors of this corporation shall
have the power and duty to determine, on the basis of information known to
them after reasonable inquiry, all facts necessary to determine compliance
with this by-law, including without limitation (a) whether a person is an
Acquiring Entity, (b) the number of shares of voting stock beneficially
owned by any person, (c) whether a person is an affiliate of another, and
(d) all other issues of fact needed to be determined hereunder; and the
good faith determination of a majority of the Non-Acquiring Directors on
such matters shall be conclusive and binding.
ARTICLE ELEVENTH
Transactions With Related Parties
THE CORPORATION MAY ENTER INTO CONTRACTS OR TRANSACT BUSINESS WITH ONE
OR MORE OF ITS DIRECTORS, OFFICERS, OR STOCKHOLDERS OR WITH ANY
CORPORATION, ASSOCIATION, TRUST COMPANY, ORGANIZATION OR OTHER CONCERN IN
WHICH ANY ONE OR MORE OF ITS DIRECTORS, OFFICERS OR STOCKHOLDERS ARE
DIRECTORS, OFFICERS, TRUSTEES, SHAREHOLDERS, BENEFICIARIES OR STOCKHOLDERS
OR OTHERWISE INTERESTED AND OTHER CONTRACTS OR TRANSACTIONS IN WHICH ANY
ONE OR MORE OF ITS DIRECTORS, OFFICERS OR STOCKHOLDERS IS IN ANY WAY
INTERESTED; AND IN THE ABSENCE OF FRAUD, NO SUCH CONTRACT OR TRANSACTION
SHALL BE INVALIDATED OR IN ANY WAY AFFECTED BY THE FACT THAT SUCH
DIRECTORS, OFFICERS OR STOCKHOLDERS OF THE CORPORATION HAVE OR MAY HAVE
INTERESTS WHICH ARE OR MIGHT BE ADVERSE TO THE INTEREST OF THE CORPORATION
EVEN THOUGH THE VOTE OR ACTION OF DIRECTORS, OFFICERS OR STOCKHOLDERS
HAVING SUCH ADVERSE INTERESTS MAY HAVE BEEN NECESSARY TO OBLIGATE THE
CORPORATION UPON SUCH CONTRACT OR TRANSACTION. AT ANY MEETING OF THE BOARD
OF DIRECTORS OF THE CORPORATION (OR ANY DULY AUTHORIZED COMMITTEE THEREOF)
WHICH SHALL AUTHORIZE OR RATIFY ANY SUCH CONTRACT OR TRANSACTION, ANY SUCH
DIRECTOR OR DIRECTORS, MAY VOTE OR ACT THEREAT WITH LIKE FORCE AND EFFECT
AS IF HE HAD NOT SUCH INTEREST, PROVIDED, in such case the nature of such
interest (though not necessarily the extent or details thereof) shall be
disclosed or shall have been known to the Directors or a majority thereof.
A general notice that a Director or officer is interested in any
corporation or other concern of any kind above referred to shall be a
sufficient disclosure as to such Director or officer with respect to all
contracts and transactions with such corporation or other concern. No
Director shall be disqualified from holding office as Director or officer
of the corporation by reason of any such adverse interests. In the absence
of fraud, no Director, officer or stockholder having such adverse interest
shall be liable to the corporation or to any stockholder or creditor
thereof or to any other person for any loss incurred by it under or by
reason of such contract or transaction, nor shall any such Director,
officer or stockholder be accountable for any gains or profits realized
thereon.
ARTICLE TWELFTH
INDEMNIFICATION OF OFFICERS AND DIRECTORS
In order to induce officers and Directors of the corporation to serve
as such and as partial consideration for such services the corporation
shall reimburse, exonerate and hold harmless and indemnify each present and
future Director and officer of the corporation of, from and against any and
all claims and liabilities to which he may become subject by reason of his
being a Director or officer of the corporation or by reason of his alleged
acts or omissions as a Director or officer as aforesaid, and shall
reimburse, exonerate, hold harmless and indemnify each such Director and
officer for all legal and other expenses reasonably paid or incurred by him
in connection with any such claims or liabilities, whether or not at or
prior to the time when so reimbursed, exonerated, held harmless and
indemnified he had ceased to be a Director or officer of the corporation,
unless such Director or officer shall have been finally adjudged by a court
of competent jurisdiction, not to have acted in good faith in the
reasonable belief that his action was in the best interests of the
corporation. The corporation prior to such final adjudication may
compromise, settle, pay and discharge any such claims and liabilities and
pay such expenses if such settlement, payment or discharge, as the case may
be, appears in the judgment of a majority of the Board of Directors to be
for the best interests of the corporation, evidenced by a resolution to
that effect adopted after receipt by the corporation of a written opinion
of counsel for the corporation to the effect that such director or officer
has acted in good faith in the reasonable belief that his action was in the
best interests of the corporation, in connection with the matters involved
in such compromise, settlement, payment and discharge. The foregoing
rights of such Directors and officers shall not be exclusive of any other
rights to which they may be lawfully entitled.
ARROW AUTOMOTIVE INDUSTRIES, INC.
THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN
AGREEMENT
THIS THIRD AMENDMENT (this "Amendment"), dated as of June 28, 1997, by
and among Arrow Automotive Industries, Inc. (the "Borrower"), BankBoston, N.A.,
f/k/a The First National Bank of Boston, a national banking association
("BKB"), the other lending institutions listed on Schedule 1 to the Credit
Agreement (together with BKB, the "Banks"), and BankBoston, N.A., f/k/a The
First National Bank of Boston as agent for the Banks (the "Agent"), as parties
to a certain Amended and Restated Revolving Credit and Term Loan Agreement,
dated as of December 3, 1996 (as amended by the Waiver and First Amendment,
dated as of December 28, 1996, and the Waiver and Second Amendment, dated as of
March 29, 1997, the "Credit Agreement"). Capitalized terms not otherwise
defined herein shall have the same meanings ascribed thereto in the Credit
Agreement.
WHEREAS, the Borrower has requested the Banks to make certain
amendments to the Credit Agreement; and
WHEREAS, the Banks are willing to make such amendments to the Credit
Agreement subject to the terms and conditions set forth herein.
NOW THEREFORE, the Borrower and the Agent and the Banks hereby covenant
and agree as follows:
1. Amendment to Credit Agreement. The Credit Agreement is hereby
amended as follows:
(a) Section 1.1 of the Credit Agreement is amended as follows:
(i) The definition of Applicable Margin contained in o1.1 of the Credit
Agreement is amended by deleting the table and the following paragraph
and restating them in their entirety as follows:
<TABLE>
<CAPTION>
Revolving
Level Debt Service Revolving Term Base Credit Term
Coverage Credit/Base Rate Loans /Eurodollar Eurodollar
Rate Loans Rate Loans Rate Loan
<S> <C> <C> <C> <C> <C>
I Less than 1.3: 1.00 1.50% 1.75% Not Available Not Available
II Greater than or equal
to 1.30:1.00 but less
than 1.50:1.00 1.00% 1.25% Not Available Not Available
III Greater than or equal
to 1.50:1:00 but less
than 1.70:1.00 0.50% 0.75% Not Available Not Available
IV Greater than or equal
to 1.70:1.00 0.00% 0.25% Not Available Not Available
</TABLE>
Notwithstanding the foregoing, if the Borrower fails to deliver any certificate
of compliance when required by o9.4(d) hereof then, for the period commencing
on the next Adjustment Date to occur subsequent to such failure through the
date immediately following the date on which such certificate of compliance is
delivered, the Applicable Margin shall be the highest Applicable Margin set
forth above. For the purposes of this definition, Debt Service Coverage shall
mean the ratio of (a)(i) the sum of (A) Earnings Before Interest and Taxes,
plus (B) depreciation, plus (C) amortization(ii) less the sum of (A) cash
payments for all taxes paid during the relevant period, plus (B) Capital
Expenditures made during the relevant period to the extent permitted by o11.1,
plus (C) dividends paid or accrued by the Borrower during the relevant period,
plus (D) extraordinary gains accounted for during the relevant period to (b)
Total Debt Service.
(ii) The definition of Loan Documents contained in o1.1 of the Credit
Agreement is amended by inserting the words ", the Acceptance Agreement, the
Eligible Drafts" immediately prior to the words "and the Security Documents."
(iii) The definition of Net Income contained in o1.1 of the Credit Agreement
is amended by deleting the proviso in its entirety.
(iv) The definition of Revolving Credit Loan Maturity Date contained in o1.1
of the Credit Agreement is amended by deleting the date "March 31, 1998"
contained in such definition and substituting the date "July 31, 2000"
therefor.
(v) The definition of Term Loan contained in o1.1 of the Credit Agreement
is amended by deleting the amount "[$9,000,000]" and substituting the
amount "$7,500,000" therefor.
(vi) The definition of Term Loan Maturity Date contained in o1.1 of the
Credit Agreement is amended by deleting the date "December 31, 2000" contained
in such definition and substituting the date "July 31, 2000" therefor.
(vii) The definition of Total Debt Service contained in o1.1 of the Credit
Agreement is amended by deleting such definition and restating it in its
entirety as follows:
Total Debt Service. For any period, the sum of (i) Total Interest Expense,
plus (ii) 100% of Current Financial Obligations; provided, however, for the
fiscal quarters ended 9/30/98, 12/31/98 and 3/31/99, clause (ii) shall be equal
to the product of Current Financial Obligations multiplied by 25%, 50%, and
75%, respectively; and provided further, so long as no Default or Event of
Default shall have occurred and be continuing, for the purpose of determining
Current Financial Obligations after 6/30/99 for this covenant, current
maturities of long term debt shall be the amount of current maturities of long
term debt shown on the Borrower's balance sheet as of 6/30/98.
(viii) Section 1.1 of the Credit Agreement is further amended by adding the
following new definitions in the appropriate alphabetical order:
Acceptance Agreement. See o5.2.1.
Acceptance Face Amount. The aggregate amount, from time to time, of the face
amount of all Bankers' Acceptances created and outstanding hereunder.
Bankers' Acceptance Fee. See o5.2.1.
Bankers' Acceptances. Eligible Drafts of the Borrower that have been or are
accepted from time to time pursuant to o5.2.1.
Bankers' Acceptance Participation. See o5.2.2
Credit Instrument Participations. Letter of Credit Participations and Bankers'
Acceptance Participations.
Credit Instruments. Letters of Credit and Bankers' Acceptances.
Earnings Before Interest and Taxes. The earnings (or loss) from operations of
the Borrower for any period, after all expenses and other proper charges but
before payment or provision for any income taxes or interest expense for such
period or any extraordinary non-cash expenses accounted for during such period,
determined in accordance with generally accepted accounting principles.
Eligible Draft. A draft in a form satisfactory to the Agent being issued to
finance the purchase of inventory and for other general working capital
purposes, which draft (a) is drawn on the Agent and dated the date of
presentment; (b) has a maturity not longer than 180 days; provided that in no
event shall such maturity extend beyond the Revolving Credit Loan Maturity
Date; and (c) is, if accepted by a member bank of the Federal Reserve System,
eligible for discount with a Federal Reserve Bank under applicable law and all
applicable rules, regulations and interpretations of the Board of Governors of
the Federal Reserve System. An Eligible Draft shall in no event include
bankers' acceptances issued outside of this Agreement.
Letter of Credit Participation. See o5.1.4.
Reimbursement Obligations. The Borrower's obligation to reimburse the Agent on
account of any drawing under, or payment made with respect to, any Credit
Instrument as provided in o5.3.
Reference Period. The period of four (4) consecutive fiscal quarters (or such
shorter period of one, two, or three consecutive fiscal quarters as has elapsed
since 6/30/98).
(b) Section 2.1 of the Credit Agreement is amended by inserting the words
", the Acceptance Face Amount and all Unpaid Reimbursement Obligations"
immediately after each reference to the words "Maximum Drawing Amount."
(c) Section 2.2 of the Credit Agreement is amended by inserting the words
", the sum of" immediately before the words "Maximum Drawing Amount"
and by inserting the words ", the Acceptance Face Amount, and all Unpaid
Reimbursement Obligations" immediately following the words
"Maximum Drawing Amount."
(d) Section 2.4 of the Credit Agreement is amended by inserting in the
beginning of the parenthetical contained in the first sentence of
such o2.4 the words "as amended, restated or supplemented and in effect from
time to time,".
(e) Section 3.2 of the Credit Agreement is amended by inserting the text
"the sum of" immediately before the words "Maximum Drawing Amount" and by
inserting the words ", the Acceptance Face Amount and all Unpaid Reimbursement
Obligations" immediately after the words "Maximum Drawing Amount."
(f) Section 4.1 of the Credit Agreement is amended by deleting the amount
"$9,000,000" contained in such o4.1 and substituting the amount "$7,500,000"
therefor.
(g) Section 4.2 of the Credit Agreement is amended by inserting in the
beginning of the parenthetical contained in the first sentence of such
o4.2 the words "as amended, restated or supplemented and in effect from time
to time,".
(h) Section 4.3 of the Credit Agreement is amended by deleting such o4.3
and restating it in its entirety as follows:
4.3 Mandatory Payments of Principal of Term Loan.
4.3.1. Scheduled Payments. The Borrower promises to pay to the Agent for the
accounts of the Banks the principal amount of the Term Loan in twelve (12)
consecutive quarterly installments of $267,857.14, each of which shall be due
and payable on the last day of each calendar quarter of each calendar year,
commencing on September 30, 1997, except the final payment which shall be due
and payable on the Term Loan Maturity Date in an amount equal to the unpaid
balance of the Term Loan.
4.3.2. Payment Upon Sale of Santa Maria Property. Immediately following the
sale of the Borrower's property located in Santa Maria, California, the
Borrower shall prepay the principal amount of the Term Loan by the lesser of
(a) $2,000,000 and (b) the total net proceeds from such sale, which amount
shall be applied against the scheduled installments of principal due on the
Term Loan in the inverse order of maturity; provided, however, in the event
that Net Income is equal to or greater than $250,000 for the fiscal year of the
Borrower ended as of June 27, 1998, as confirmed by the 1998 audited year end
financial statements delivered to the Agent pursuant to o9.4, Net Proceeds from
the sale of the Santa Maria Property of not less than $2,000,000 has been
applied to the Term Loan in accordance with the preceding sentence, and no
Default or Event of Default shall have occurred and be continuing, the Banks
agree to adjust the amortization schedule set forth in o4.3.1 to reflect a
proportional reduction in the remaining principal installments. For the
purposes of this o4.3.2, "Net Proceeds" shall mean the cash proceeds received
by the Borrower from the sale of the Santa Maria Property after deducting
therefrom the amount of anticipated closing adjustments, brokerage fees and
other costs of sale, including attorneys' fees and environmental audits
incurred in connection with such sale.
(i) Section 5 of the Credit Agreement is amended by deleting such o5 and
restating it in its entirety as follows:
5. LETTERS OF CREDIT AND BANKERS' ACCEPTANCES
5.1 Letter of Credit Commitments.
5.1.1 Commitment to Issue Letters of Credit. Subject to the terms and
conditions hereof and the execution and delivery by the Borrower of a letter of
credit application on the Agent's customary form (a "Letter of Credit
Application"), the Agent on behalf of the Banks, in reliance upon the agreement
of the Banks set forth in 5.1.4 hereof and upon the representations and
warranties of the Borrower contained herein, agrees, in its individual
capacity, to issue, extend and renew for the account of the Borrower one or
more standby or documentary letters of credit (individually, a "Letter of
Credit"), in such form as may be requested from time to time by the Borrower
and agreed to by the Agent; provided, however, that, after giving effect to
such request, (a) the aggregate Maximum Drawing Amount shall not exceed
$1,000,000 at any one time for standby Letters of Credit and $500,000 at any
one time for documentary Letters of Credit and (b) the sum of (i) the Maximum
Drawing Amount, (ii) the Acceptance Face Amount, (iii) all Unpaid Reimbursement
Obligations and (iv) the amount of all Revolving Credit Loans outstanding shall
not exceed the lesser of (A) the sum of the Banks' Commitments to make
Revolving Credit Loans and (B) the Borrowing Base. Notwithstanding the
foregoing, the Agent shall have no obligation to issue any Letter of Credit to
support or secure any Indebtedness of the Borrower to the extent that such
Indebtedness was incurred prior to the proposed issuance date of such Letter of
Credit, unless in any such case the Borrower demonstrates to the satisfaction
of the Agent that (x) such prior incurred Indebtedness was then fully secured
by a prior perfected and unavoidable security interest in collateral provided
by the Borrower to the proposed beneficiary of such Letter of Credit or (y)
such prior incurred Indebtedness was then secured or supported by a letter of
credit issued for the account of the Borrower and the reimbursement obligation
with respect to such letter of credit was fully secured by a prior perfected
and unavoidable security interest in collateral provided to the issuer of such
letter of credit by the Borrower.
5.1.2 Letter of Credit Applications. Each Letter of Credit Application shall
be completed to the satisfaction of the Agent. In the event that any provision
of any Letter of Credit Application shall be inconsistent with any provision of
this Credit Agreement, then the provisions of this Credit Agreement shall, to
the extent of any such inconsistency, govern.
5.1.3 Terms of Letters of Credit. Each Letter of Credit issued, extended or
renewed hereunder shall, among other things, (a) provide for the payment of
sight drafts for honor thereunder when presented in accordance with the terms
thereof and when accompanied by the documents described therein, and (b) have
an expiry date no later than the date which is fourteen (14) days (or, if the
beneficiary is located outside of the United States of America, forty-five (45)
days) prior to the Revolving Credit Loan Maturity Date. Each Letter of Credit
so issued, extended or renewed shall be subject to the Uniform Customs.
5.1.4 Letter of Credit Participations. Each Bank severally agrees that it
shall be absolutely liable, without regard to the occurrence of any Default or
Event of Default or any other condition precedent whatsoever, to the extent of
such Bank's Commitment Percentage, to reimburse the Agent on demand for the
amount of each draft paid by the Agent under each Letter of Credit to the
extent that such amount is not reimbursed by the Borrower pursuant to o5.3
(such agreement for a Bank being called herein the "Letter of Credit
Participation" of such Bank).
5.1.5 Purchase by Banks. Each such payment made by a Bank shall be treated as
the purchase by such Bank of a participating interest in the Borrower's
Reimbursement Obligation under o5.3 in an amount equal to such payment. Each
Bank shall share in accordance with its participating interest in any interest
which accrues pursuant to o5.3.
5.2 Bankers' Acceptance Facility.
5.2.1 Bankers' Acceptance Commitment. Subject to the terms and
conditions set forth in this Credit Agreement and the execution by the Borrower
of an Acceptance Agreement in the Agent's customary form (the "Acceptance
Agreement") and a certification by the Borrower that the bankers' acceptances
relate to goods in transit, upon the written request of the Borrower, the
Agent, on behalf of the Banks, and in reliance upon the agreement of the Banks
set forth in o5.2.2 and upon the representations and warranties of the Borrower
contained herein, agrees, in its individual capacity, to discount Eligible
Drafts for the account of the Borrower (all such accepted and discounted
Eligible Drafts whether heretofore or hereafter issued being referred to
individually as a "Bankers' Acceptance" and collectively as the "Bankers'
Acceptances"); provided, however, that any Bankers' Acceptance issued shall
provide for a maturity date not longer than 180 days provided that in no event
shall such maturity extend beyond the Revolving Credit Loan Maturity Date; and
provided, further, that, after giving effect to such request, the sum of (A)
the Maximum L/C Drawing Amount, (B) the Acceptance Face Amount, (C) all Unpaid
Reimbursement Obligations, and (D) the amount of all Revolving Credit Loans
outstanding shall not exceed the lesser of (A) the sum of the Banks'
Commitments and (B) the Borrowing Base; and provided, further, that the Agent
shall not accept an Eligible Draft if the face amount of all outstanding drafts
accepted by the Agent which are of the type described in paragraph 7 of Section
13 of the Federal Reserve Act (12 U.S.C. o372), as amended from time to time,
or any successor statute, would cause the Agent to violate any limitation
imposed upon it under said paragraph or would cause the Agent to violate such
limitation if all such drafts were sold by the Agent in the secondary market.
To expedite the acceptance and discounting of Eligible Drafts, the Borrower
shall provide to the Agent fully executed drafts, which shall be blank as to
dates and amounts. The Borrower may request the Agent to accept and discount
an Eligible Draft by submitting to the Agent at least one (1) Business Day
prior to the proposed date of acceptance and discounting a bankers' acceptance
application in the Agent's customary form, completed to the satisfaction of the
Agent and accompanied by such documents as may be required by the Agent to
establish that the drafts to be accepted and discounted will (if accepted and
endorsed by a member bank of the Federal Reserve System) be eligible for
discount by such Federal Reserve Bank. The Agent shall make available to the
Borrower at the time of acceptance of each Eligible Draft and upon the
satisfaction of the conditions set forth in o13 an amount equal to the
discounted value of such Eligible Draft based on: (x) the stated maturity date
of such Eligible Draft, (y) the face amount of such Eligible Draft, and (z) a
rate (computed on the basis of a year of three hundred sixty (360) days for the
actual days elapsed) equal to the sum of (a) the per annum average discount
rate quoted to the Agent on the day an Eligible Draft is presented for discount
by the Agent's bankers' acceptance traders for acceptances which are of the
type described in paragraph 7 of section 13 of the Federal Reserve Act (12
U.S.C. o372), as amended from time to time, or any successor statute and which
approximate the face amount and mature on the maturity date of such Eligible
Draft plus (b) two percent (2%) per annum (the "Bankers' Acceptance Fee").
5.2.2 Bankers' Acceptance Participations. Each Bank severally agrees
that it shall participate in any Bankers' Acceptances upon notification by the
Agent that it has received an application for acceptance and discounting of an
Eligible Draft in form and substance satisfactory to the Agent. The Agent
agrees to furnish each Bank with a copy of each Bankers' Acceptance promptly
after issuance. Each Bank severally agrees that it shall be absolutely liable,
without regard to the occurrence of any Default or Event of Default or any
other condition precedent whatsoever to the extent of such Bank's Percentage,
to reimburse the Agent on demand for the amount of each draft paid by the Agent
under each Bankers' Acceptance to the extent such amount is not reimbursed by
the Borrowers pursuant to o2.2(c) hereof (such amount for a Bank being called
herein the "Bankers' Acceptance Participation" of such Bank).
5.2.3 Purchase by Banks. Each such payment made by a Bank shall be
treated as the purchase by such Bank of a participating interest in the
Borrowers' Reimbursement Obligation under o5.3 hereof in an amount equal to
such payment. Each Bank shall share in accordance with its participating
interest in any interest which accrues pursuant to o5.3.
5.3 Reimbursement Obligations of Borrower; Effects of Drawing.
(a) The amount of each drawing under any Credit Instrument
issued by the Agent pursuant to this Credit Agreement shall be a Revolving
Credit Loan made by the Banks to the Borrower on the date of such drawing and
shall be funded by the Banks in accordance with o2.8. The liability of the
Borrower under this Credit Agreement to repay the Banks any and all Revolving
Credit Loans in respect of drawings under Credit Instrument shall be
Obligations secured by the Security Documents,
(b) Each request for the issuance, extension or renewal of a
Credit Instrument hereunder shall constitute a representation by the Borrower
that the applicable conditions set forth in oo12 and 13 have been satisfied on
the date of such request and on the date of issuance of such Credit Instrument,
(c) On each date that any draft presented under the Credit
Instrument is honored by the Agent, or the Agent otherwise makes a payment with
respect thereto, the Borrower agrees to reimburse or pay to the Agent for the
account of the Agent, or as the case may be, the Banks the amount of any taxes,
fees, charges or other costs and expenses whatsoever incurred by the Agent or
any Bank in connection with any payment made by the Agent or any Bank under, or
with respect to, the Credit Instrument;
(d) Upon the reduction (but not termination) of the aggregate
Commitments of the Banks to make Revolving Credit Loans to an amount less than
the sum of the Maximum Drawing Amount, the Acceptance Face Amount and all
Unpaid Reimbursement Obligations, or if the Borrowing Base is less than the sum
of the Maximum Drawing Amount, the Acceptance Face Amount and all Unpaid
Reimbursement Obligations, the Borrower agrees to reimburse or pay to the Agent
for the account of the Banks an amount equal to such difference, which amount
shall be held by the Agent for the benefit of the Banks and the Agent as cash
collateral for all Reimbursement Obligations; and
(e) Upon the termination of the Credit Instrument
commitments, or the acceleration of the Reimbursement Obligations with respect
to the Credit Instruments in accordance with o14, the Borrower agrees to
reimburse or pay to the Agent for the account of the Banks an amount equal to
the sum of the Maximum Drawing Amount, the Acceptance Amount and all Unpaid
Reimbursement Obligations which amount shall be held by the Agent for the
benefit of the Agent and the Banks as cash collateral for all Reimbursement
Obligations. Unless funded by a Revolving Credit Loan, each such payment shall
be made to the Agent at the Agent's Head Office in immediately available funds.
Interest on any and all amounts remaining unpaid by the Borrower under this
o5.3 at any time from the date such amounts become due and payable (whether as
stated in this o5.3, by acceleration or otherwise) until payment in full
(whether before or after judgment) shall be payable to the Agent on demand at
the rate specified in o6.9 following an Event of Default.
5.4. Credit Instrument Payments. If any draft shall be presented or other
demand for payment shall be made under the Credit Instrument, the Agent shall
notify the Borrower of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor
such demand for payment. If the Borrower fails to reimburse the Agent as
provided in o5.3 on or before the date that such draft is paid or other payment
is made by the Agent, the Agent may at any time thereafter notify the Banks of
the amount of any such Unpaid Reimbursement Obligation. No later than 3:00
p.m. (Boston time) on the Business Day next following the receipt of such
notice, each Bank shall make available to the Agent, at the Agent's Head
Office, in immediately available funds, such Bank's Commitment Percentage of
such Unpaid Reimbursement Obligation, together with an amount equal to the
product of (a) the average, computed for the period referred to in clause (c)
below, of the weighted average interest rate paid by the Agent for federal
funds acquired by the Agent during each day included in such period, times (b)
the amount equal to such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, times (c) a fraction, the numerator of which is the
number of days that elapse from and including the date the Agent paid the draft
presented for honor or otherwise made payment to the date on which such Bank's
Commitment Percentage of such Unpaid Reimbursement obligation shall become
immediately available to the Agent, and the denominator of which is 360. The
responsibility of the Agent to the Borrower and the Banks, as the case may be,
shall be only to determine that the documents (including each draft) delivered
under the Letter of Credit in connection with such presentment shall be in
conformity in all material respects with the Credit Instrument.
5.5. Obligations Absolute. The Borrower's obligations under this o5 to repay
Revolving Credit Loans in respect of drawings under the any Credit Instrument
as provided herein shall rank pari passu with the obligations of the Borrower
to repay all other Revolving Credit Loans and shall be absolute and
unconditional under any and all circumstances and irrespective of the
occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the Borrower
may have or have had against the Agent, any Bank or any beneficiary of any
Credit Instrument. The Borrower further agrees with the Agent and the Banks
that the Agent and the Banks shall not be responsible for, among other things,
the validity or genuineness of documents or of any endorsements thereon, even
if such documents should in fact prove to be in any or all respects invalid,
fraudulent or forged (unless the Agent or any Bank's officers active on the
account of the Borrower have actual knowledge of such invalidity, fraudulence
or forgery prior to taking any action with respect to such documents), or any
dispute between or among the Borrower, the beneficiary of any Credit Instrument
or any financing institution or other party to which any Credit Instrument may
be transferred or any claims or defenses whatsoever of the Borrower against the
beficiary of any Credit Instrument or any such transferee. The Agent and the
Banks shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Credit Instrument. The Borrower agrees
that any action taken or omitted by the Agent or any Bank under or in
connection with each Credit Instrument and the related drafts and documents, if
done in good faith, shall be binding upon the Borrower and shall not result in
any liability on the part of the Agent or any Bank to the Borrower.
5.6. Reliance by Issuer. To the extent not inconsistent with o5.5, the Agent
shall be entitled to rely, and shall be fully protected in relying upon, any
Letter of Credit, draft, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the Agent. The Agent shall be fully justified in failing
or refusing to take any action under this Agreement unless it shall first have
received such advice or concurrence of the Majority Banks as it reasonably
deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Banks against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all case be fully protected in acting, or in refraining from
acting, under this Agreement in accordance with a request of the Majority
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon the Banks and all future holders of a Letter of Credit
Participation or Bankers' Acceptance Participation.
5.7. Letter of Credit Fee. The Borrower shall, on the date of issuance or any
extension or renewal of any Letter of Credit and at such other time or times as
such charges are customarily made by the Agent, pay a fee (in each case, a
"Letter of Credit Fee") to the Agent (i) in respect of each standby Letter of
Credit equal to one and one-half percent (1 1/2%) per annum of the face amount
of such standby Letter of Credit plus the Agent's customary issuance fee, and
(ii) in respect of each documentary Letter of Credit equal to (A) the Agent's
customary issuance fee of $135 or amendment fee of $65, as the case may be,
plus (B) a negotiation fee of the higher of (1) $120, or (2) one-half of one
percent (1/2%) of the face amount of such documentary Letter of Credit plus (C)
a processing fee of $50, plus (D) if applicable, a cancellation fee of $100
plus (E) all telex, Swift, courier and other communication charges, such Letter
of Credit Fee (but not such issuance, amendment or administrative fee) to be
for the accounts of the Banks in accordance with their respective Commitment
Percentages. 5.8. Bankers' Acceptance Fees. The Borrower shall, (i) in
accordance sith o5.2.1, pay to the Agent for the accounts of the Banks in
accordance with their respective Commitment Percentages, the Bankers'
Acceptance Fee and (ii) on the date of issuance of any Bankers' Acceptance, pay
to the Agent for the Agent's own account the Agent's customary issuance fee.
(j) Section 6.2 of the Credit Agreement is amended by inserting the words
"Bankers' Acceptance Fees" immediately after the words "commitment fees,"
contained in such o6.2.
(k) Section 6.5 of the Credit Agreement is amended by deleting each
reference to
the words "Letters of Credit" contained in such o6.5 and substituting in each
case the words "Credit Instrument" therefor.
(l) Section 6.10 of the Credit Agreement is amended by deleting such o6.10
and restating it in its entirety as follows::
6.10 Prepayment and Termination. If the Borrower prepays all of the
Obligations and terminates each Bank's Commitment in full during any of the
periods set forth in the table below, the Borrower shall pay a premium equal to
the percentage set forth in the table below opposite the period during which
such prepayment is made of the sum of (i) the Total Commitment with respect to
the Revolving Credit Loans plus (ii) the outstanding amount of the Term Loan,
on the date immediately prior to the date of prepayment:
<TABLE>
<CAPTION>
Period Prepayment Premium
<S> <C>
September 30, 1997
through August 31, 1998 3% of the Commitment
September 1, 1998
through August 31, 1999 2% of the Commitment
September 1, 1999
through January 31, 2000 1% of the Commitment
</TABLE>
(m) Section 8.16 of the Credit Agreement is amended by deleting the words
"Letter
of Credit" contained in such o8.16 and substituting the words "Credit
Instrument" therefor.
(n) Section 9 of the Credit Agreement is amended as follows:
(i) the preamble to such o9 is amended by deleting the first reference to
the words "Letter of Credit" and substituting the words
"Credit Instrument" therefor and by inserting the words
"or issue any Bankers' Acceptance" at the
end of such preamble and immediately before the colon;
(ii) o9.1 is amended by inserting the words "Bankers' Acceptance Fee,"
immediately after the words "Letter of Credit Fees,";
(iii) Section 9.4(g) of the Credit Agreement is amended by deleting such
o9.4(g) and restating it in its entirety as follows:
(g) on Tuesday of each calendar week with respect to the
immediately preceding calendar week or at such earlier times as the Banks may
reasonably request (which may be as often as daily), a Borrowing Base Report
setting forth the Borrowing Base as at the end of such calendar week or other
date so requested by the Banks:
(iv) Section 9.4(h) of the Credit Agreement is amended by deleting such
o9.4(h) and restating it in its entirety as follows:
(h) on Tuesday of each calendar week with respect to the
immediately preceding calendar week, an Accounts Receivable aging report, an
accounts payable report and an inventory designation report;
(v) Section 9.9.1 of the Credit Agreement is amended by deleting such
o9.9.1 and restating it in its entirety as follows:
The Borrower shall permit the Agent or any of its other designated
representatives accompanied by any of the Banks to conduct commercial finance
examinations, such examinations to be at the Borrower's expense, which expense
shall be $650.00 per day, per auditor plus expenses incurred in connection with
each such exam.
(vi) o9.12 is amended by deleting the words "Letters of Credit" and
substituting the words "Credit Instruments" therefor;
(vii) Section 9.14(a) of the Credit Agreement is amended by deleting such
o9.14(a) and restating it in its entirety as follows:
9.14 Depository Arrangements.
(a) The Borrower will, as soon as practicable, but in any event no later
than November 7, 1997, either replace any existing depository, collection or
lock box account maintained with a financial institution other than the Agent
with the Blocked Account (as defined below) or direct all account debtors and
obligors to make all payments directly to the Blocked Accont. Until the
replacement of each such account has been completed, the Borrower shall cause
to remain in full force and effect, separate agency account agreements (the
"Agency Agreements") in form and substance satisfactory to the Agent among the
Borrower, each such institution and the Agent, pursuant to which all collected
funds in the respective depository, collection or lock box account shall be
transferred to the Agent on a daily basis for deposit in the Blocked Account
(except for the account(s) maintained with The Bank of Nova Scotia from which
collected funds shall be transferred to the Blocked Account at least twice a
month).
(b) The Borrower will at all times (i) maintain with the Agent at the
Agent's Head Office and under the control of the Agent, as contemplated by the
terms of the lock box agreement and blocked account agreement, each between the
Borrower and the Agent, a lock box and blocked account arrangement (the
"Blocked Account") and (ii) except for, prior to the delivery of direction by
the Borrower to all account debtors and obligors as contemplated by clause (a)
above, direct all of its account debtors with respect to all of its Accounts
Receivable, chattel paper and general intangibles and obligors on instruments
for which the Borrower is an obligee pursuant to a notification letter or
statement on the invoice of the Borrower delivered to such account debtors and
obligors in form and substance satisfactory to the Agent, that all amounts in
respect of such Accounts Receivable, chattel paper, general intangibles or
instruments due or to become due to the Borrower are to be paid directly to the
Blocked Account.
(c) In the event that, notwithstanding the issuance of such notification
letters or statement on any invoice of the Borrower and compliance by the
Borrower with the provisions of o9.14(b), the Borrower receives any cash,
checks or other payments or proceeds of Collateral, the Borrower shall,
immediately upon receipt thereof, in the identical form received, cause such
cash, checks and other payments and proceeds (except for any endorsements
thereon which may be required by the Agent), to be paid directly into the
Blocked Account. Prior to payment into the Blocked Account, all such items
shall be held in trust by the Borrower for the benefit of the Agent and the
Banks.
(d) For purposes of calculating interest on the Obligations, (i) funds
received by federal wire transfer in the Blocked Account before 11:00 a.m.
(Boston time) on a Business Day will be applied (on a provisional basis until
final receipt of good funds) to the Obligations as contemplated by o9.14(e) on
the Business Day of receipt; and (ii) all other payments or funds will be
applied (on a provisional basis until final receipt of good funds) to the
Obligations as contemplated by o9.14(e) two (2) Business Days following the
date of receipt of immediately available funds by the Agent in the Blocked
Account. For purposes of calculating the amount of the Revolving Credit Loans
available to the Borrower, such payments will be applied (on a provisional
basis until final receipt of good funds) to the Obligations as contemplated by
o9.14(e) on the Business Day of receipt by the Agent in the Blocked Account, if
such payments are received within sufficient time (in accordance with the
Agent's usual and customary practices as in effect from time to time) to credit
the Borrower's loan account on such day, and if not, then on the next Business
Day. The Borrower acknowledges and agrees that any such provisional credit
shall be subject to reversal if final collection in good funds of the related
item is not received by the Agent in accordance with the Agent's customary
procedures and practices for collecting provisional items.
(e) All payments to be applied towards the Obligations pursuant to
o9.14(d) shall, except as otherwise provided, be applied to the Obligations as
follows: (i) first, to any fees then due and payable to the Agent under or in
respect of the Credit Agreement or any of the other Loan Documents; (ii)
second, to any Obligations related to Credit Instruments; (iii) third, to any
interest on the Revolving Credit Loans then due and payable; (iv) fourth, to
any outstanding Obligations then due and payable; (v) fifth, unless the Banks
shall otherwise elect, as cash collateral for any settlement of provisional
credit; and (vi) sixth, so long as no payment Default or Event of Default shall
have occurred and be continuing, the excess, if any, shall be credited to the
Borrower's operating account with the Agent. In the event that the Agent shall
elect at any time not to apply the payment as contemplated by the foregoing
clause (iv), such election shall not be deemed a waiver of any Bank's or the
Agent's rights to apply payments pursuant to such clause at a later time, and
such Bank or the Agent shall be entitled to apply payments pursuant to such at
such later time and from time to time thereafter. The Borrower shall not have
any right to withdraw amounts in the Blocked Account. Subject to satisfaction
of the conditions set forth in o13, amounts prepaid pursuant to clauses (ii)
and (iii) above may be reborrowed.
(f) Absent gross negligence or willful misconduct by the Agent, the
Borrower agrees to indemnify the Agent and to hold the Agent harmless from and
against any loss, cost or expense sustained or incurred by the Agent on account
of any claims arising in connection with the Agent's operation of the Blocked
Account.
(o) Section 11 of the Credit Agreement is amended as follows:
(i) the preamble to o11 is amended by deleting the first reference to the
words "Letter of Credit" and substituting the words "Credit Instrument"
therefor and by inserting the words "or issue any Bankers' Acceptances" at the
end of such preamble and immediately before the colon.
(ii) o11.2 is amended by deleting such o11.2 and restating it in its
entirety as follows:
o11.2 Debt Service. The Borrower will not permit the ratio of the sum of (i)
Net Income plus (ii) Total Interest Expense, plus (iii) depreciation, plus (iv)
amortization to (b) Total Debt Service to be less than (x) for the fiscal year
ended 6/30/98, 0.63:1.00 and (y) as at the end of each Reference Period
thereafter commencing on 9/30/98, 1.10:1.00.
(iii) Section 11.3 is amended by deleting such o11.3 and restating it in its
entirety as follows:
o11.3 Liabilities to Worth Ratio. The Borrower will not permit the ratio of
Total Liabilities to Tangible Net Worth to exceed 2.40:1.00 as at the end of
any Reference Period commencing on 9/30/98.
(iv) Section 11.4 is amended by deleting such o11.4 and restating it in its
entirety as follows:
o11.4 Tangible Net Worth. The Borrower will not permit Tangible Net Worth to
be less than $17,750,000 as at the fiscal year end ending on 6/30/98.
(v) Section 11.5 is amended by deleting such o11.5 and restating it in its
entirety as follows:
o11.5 Minimum Profitability. The Borrower will not permit as at the end of
each fiscal period described in the table below, its Net Income for the twelve
(12) month period ended 6/30/98 or Net Income before payment or provision for
any income taxes for any other period described in the table below to be less
than the amount set forth opposite such fiscal period in such table:
Fiscal Period Amount
12 month period ended 6/30/98 -$1,400,000
Each fiscal quarter
from 7/1/98 through 6/30/00 $1.00
12 month periods ended 6/30/99
and 6/30/00 $100,000
(p) The Preamble to o12 of the Credit Agreement is amended by deleting the
words "Letters of Credit" and substituting the words "Credit Instruments"
therefor.
(q) Section 13 of the Credit Agreement is amended as follows:
(i) the preamble to o13 is amended by deleting the words "Letter of Credit"
and substituting the words "Credit Instruments" therefor;
(ii) o13.1 is amended by inserting the words "or the issuance of Credit
Instruments" immediately after the words "Letter of Credit,"; and
(iii) o13.2 is amended by inserting the words "or issue such Credit
Instruments" immediately after the words "Letter of Credit".
(r) Section 14.1(b) of the Credit Agreement is amended by inserting the
words "any
Bankers' Acceptance Fee," immediately after the words "Letter of Credit Fee,".
(s) Section 14.2 of the Credit Agreement is amended by deleting each
reference to the words "Letters of Credit" and substituting in each case the
words "Credit Instruments" therefor.
(t) Section 14.3 of the Credit Agreement is amended by deleting the words
"issuer of any Letter of Credit" and substituting the words
"or purchaser of any Letter of Credit Participation or Bankers' Acceptance
Participation" therefor.
(u) Section 16.4 of the Credit Agreement is amended by deleting the words
"Letter of Credit" and substituting the words "Credit Instruments" therefor.
(v) Section 16.5.3 of the Credit Agreement is amended by inserting the
words "or
Bankers' Acceptance Participation" immediately after the words "Letter of
Credit Participation".
(w) Section 16.6 of the Credit Agreement is amended by inserting the words
"or
Bankers' Acceptance Participation" immediately after the words "Letter of
Credit Participation".
(x) Section 16.8 of the Credit Agreement is amended by inserting the words
"or
Bankers' Acceptance Participation" immediately after the words "Letter of
Credit Participation".
(y) Section 19 of the Credit Agreement is amended by deleting each
reference to the
words "Letters of Credit" and "Letter of Credit" and in each case substituting
the words "Credit Instruments" therefor.
(z) Section 21(b)of the Credit Agreement is amended by deleting such o21(b)
and restating it in its entirety as follows:
(b) if to the Agent, at 7 New England Executive Park, Burlington,
Massachusetts 01803, Attention: Kathy Sweeney, Vice President, or such other
address for notice as the Agent shall last have furnished in writing in the
manner provided for notices to the Person giving notice; and
(aa) Notwithstanding any provision of the Credit Agreement to the contrary,
no Eurodollar Rate Loans shall be made by any of the Banks.
(bb) To the extent that the outstanding amount of the Term Loan is less than
$7,500,000 on October 8, 1997, all of the conditions precedent to the making of
Loans under the Credit Agreement have been satisfied as of such date and all of
the conditions set forth in o3 hereof have been satisfied as of such date, the
Banks shall fund on such date the difference between the outstanding principal
amount of the Term Loan as of such date and $7,500,000.
(cc) Schedule 1 to the Credit Agreement is amended by deleting such Schedule
1 and restating it in its entirety in the form of Schedule 1 attached hereto.
2. Amendment Fee. The Borrower has paid to the Agent for the pro data
accounts of the Banks prior to the execution of this Amendment an
amendment fee of $75,000.
3. Conditions to Effectiveness. This Amendment shall be effective
upon receipt by the
Agent of:
(a) this Amendment duly and properly executed and delivered by the
Borrower, the Banks and the Agent;
(b) evidence that all corporate action necessary for the valid
execution, delivery and
performance by the Borrower of this Amendment and the Credit Agreement as
amended hereby has been duly and effectively taken, satisfactory to the Agent;
(c) a certificate of an authorized officer of the Borrower as to no
amendments or supplements to the charter documents of the Borrower and no
changes to the Perfection Certificate previously delivered to the Agent;
(d) a duly executed Assignment and Acceptance between BTM Capital
Corporation and Norwest Business Credit, Inc. ("Norwest"); and
(e) a Second Amended and Restated Revolving Credit Note in the
principal amount
of $13,381,820 payable to BKB, a Second Amended and Restated Term Note in the
principal amount of $5,018,182.50 payable to BKB, a Revolving Credit Note in
the principal amount of $6,618,180 payable to Norwest and a Term Note in the
principal amount of $2,481,817.50 payable to Norwest.
4. Condition Subsequent. The Borrower shall (a) deliver to the
Agent no later than
November 6, 1997, evidence of all filings or other action necessary to perfect
the Agent's security interest in the assets of the Borrower located in Canada;
and (b) use its best efforts to obtain a landlord consent and estoppel
certificate, in form and substance satisfactory to the Agent, with respect to
each property leased by the Borrower located in Canada. Failure to deliver the
foregoing documents or certificates described in clause (a) on or prior to
November 6, 1997 shall constitute an Event of Default under the Credit
Agreement.
5. Representations and Warranties. The Borrower, hereby
represents and warrants to the
Bank as follows:
(a) Representations and Warranties in Credit Agreement. The
representations and
warranties of the Borrower contained in the Credit Agreement (i) were true and
correct in all material respects when made, and (ii) except to the extent such
representations and warranties by their terms are made solely as of a prior
date, continue to be true and correct in all material respects on the date
hereof.
(b) Ratification, Etc. Except as expressly provided by this Amendment, the
Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Amendment shall be read and construed as a single
agreement. All references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the Credit
Agreement as amended hereby.
(c) Authority, Etc. The execution and delivery by the Borrower of this
Amendment
and the performance by the Borrower of all of its agreements and obligations
under the Credit Agreement as amended hereby are within the corporate authority
of the Borrower and have been duly authorized by all necessary corporate action
on the part of the Borrower.
(d) Enforceability of Obligations. This Amendment and the Credit Agreement
as amended hereby constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their terms.
(e) No Default. After giving effect to this Amendment, no Default or Event
of Default has occurred and is continuing.
6. No Other Amendments or Waivers. Except as expressly provided
in this Amendment,
all of the terms and conditions of the Credit Agreement and the other Loan
Documents remain in full force and effect.
7. Expenses. Pursuant to o17 of the Credit Agreement, all costs
and expenses incurred or
sustained by the Agent in connection with this Amendment, including the fees
and disbursements of legal counsel for the Agent in producing, reproducing and
negotiating the Amendment, will be for the account of the Borrower whether or
not the transactions contemplated by this Amendment are consummated.
8. Execution in Counterparts. This Amendment may be executed in
any number of counterparts, each of which shall be deemed an original,
but which together shall constitute one instrument.
9. Miscellaneous. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
The captions in this Amendment are for convenience of reference only and shall
not define or limit the provisions hereof.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment under seal as of the date first set forth above.
ARROW AUTOMOTIVE INDUSTRIES, INC.
By: /s/James F. Fagan
Name: James F. Fagan
Title: Executive Vice President
BANKBOSTON, N.A., f/k/a
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
By: /s/ Clifford J. Lusso
Clifford J. Lusso, Director
NORWEST BUSINESS CREDIT, INC.
By: /s/ W. David McIlroy
Name: W. David McIlroy
Title Vice President
SCHEDULE 1
<TABLE>
<CAPTION>
Revolving Commitment
Credit Loan Percentage
Banks Commitment Term Loan Of All Loans
<S> <C> <C> <C>
BankBoston, N.A., f/k/a
The First National
Bank of Boston
100 Federal Street
Boston, MA 02110
Eurodollar Lending Office:
Same $13,381,820 $5,018,182.50 66.91%
Norwest Business
Credit, Inc.
300 Commercial Street
Boston, MA 02109
Eurodollar Lending Office:
Same $6,618,180 $2,481,817.50 33.09%
Total $20,000,000 $7,500,000 100.00%
-5-
</TABLE>
Exhibit 23.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements (Form S-8 Nos. 2-76091, 2-89977, 33-
47000, and 33-64990) of Arrow Automotive Industries, Inc. of
our report dated September 3, 1997, except for Notes 1 and 7 as
to which the date is October 8, 1997, with respect to the
financial statements and schedule of Arrow Automotive
Industries, Inc. included in the Annual Report (Form 10-K) for
the year ended June 28, 1997.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
October 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> JUN-28-1997
<CASH> 240
<SECURITIES> 0
<RECEIVABLES> 13,063
<ALLOWANCES> 524
<INVENTORY> 30,920
<CURRENT-ASSETS> 45,405
<PP&E> 33,989
<DEPRECIATION> 22,363
<TOTAL-ASSETS> 59,333
<CURRENT-LIABILITIES> 19,155
<BONDS> 16,819
0
0
<COMMON> 297
<OTHER-SE> 19,746
<TOTAL-LIABILITY-AND-EQUITY> 59,333
<SALES> 87,501
<TOTAL-REVENUES> 87,501
<CGS> 74,321
<TOTAL-COSTS> 74,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,364
<INCOME-PRETAX> (11,594)
<INCOME-TAX> (597)
<INCOME-CONTINUING> (10,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,997)
<EPS-PRIMARY> (3.83)
<EPS-DILUTED> (3.83)
</TABLE>
