<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 1997
REGISTRATION NO. 333--21957
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUAKER FABRIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2221 04-1933106
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
941 Grinnell Street, Fall River, Massachusetts 02721
(508) 678-1951
------------------------
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
LARRY A. LIEBENOW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
(508) 678-1951
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies of Communications to:
<TABLE>
<S> <C>
ARNOLD S. JACOBS, ESQ. NEIL GOLD, ESQ.
PROSKAUER ROSE GOETZ & MENDELSOHN LLP FULBRIGHT & JAWORSKI L.L.P.
1585 BROADWAY 666 FIFTH AVENUE
NEW YORK, NEW YORK 10036-8299 NEW YORK, NEW YORK 10103
(212) 969-3000 (212) 318-3000
FAX (212) 969-2900 FAX (212) 752-5958
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
------------------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED MARCH 12, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
3,400,000 Shares
QUAKER LOGO
QUAKER FABRIC CORPORATION
Common Stock
- --------------------------------------------------------------------------------
Of the 3,400,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby, 300,000 are being sold by Quaker Fabric Corporation
("Quaker" or the "Company") and 3,100,000 are being sold by certain selling
stockholders of the Company (the "Selling Stockholders"). The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
See "Principal and Selling Stockholders."
The Common Stock is included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "QFAB." On February 24, 1997, the
last reported sales price for the Common Stock on the Nasdaq National Market was
$16.25 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 8 THROUGH 11 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated offering expenses of $400,000 payable by the
Company.
(3) One of the Selling Stockholders has granted the several Underwriters a
30-day over-allotment option to purchase up to 510,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If all
such additional shares are purchased by the Underwriters, the total Price to
Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and
the total Proceeds to Selling Stockholders will be $ . See
"Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the offices of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about March , 1997.
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
March , 1997
<PAGE> 3
[PHOTOGRAPHS OF FABRIC SAMPLES AND THE COMPANY'S DESIGN STAFF IN THE COMPANY'S
DESIGN STUDIO AND THE PHRASE "MARKET LEADERSHIP -- COMMITMENT TO EXCELLENCE IN
DESIGN"]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise indicated, the information in
this Prospectus assumes that all outstanding options and the Underwriters'
over-allotment option will not be exercised. References to financial or
statistical data for a particular year refer to the Company's corresponding
fiscal year, which is currently a 52 or 53-week period ending on the Saturday
closest to January 1. (For example, "1995" means the fiscal year ended December
30, 1995 and "1996" means the fiscal year ended January 4, 1997.)
THE COMPANY
Quaker is a leading designer, manufacturer and worldwide marketer of woven
upholstery fabrics for residential furniture and one of the largest producers of
Jacquard upholstery fabrics in the world. The Company is also a leading
developer and manufacturer of specialty yarns and management believes it is the
world's largest producer of chenille yarns, which Quaker both sells and uses in
the production of its fabrics. The Company's vertically integrated operations
provide Quaker with important design, cost and delivery advantages. The
Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues have grown from
$123.4 million in 1992 to $198.9 million in 1996, a compound annual growth rate
("CAGR") of 12.7%.
Quaker has been producing upholstery fabric for over fifty years and is a
full service supplier of Jacquard and plain woven upholstery fabric to the
furniture market. Quaker's current product line consists of over 3,000
traditional, contemporary, transitional and country fabric patterns intended to
meet the styling and design, color, texture, quality and pricing requirements of
promotional through middle to higher-end furniture manufacturers, and the
Company introduces approximately 700 new products to the market annually.
Management believes that Jacquard fabrics, with their detailed designs, provide
furniture manufacturers with more product differentiation opportunities than any
other fabric construction on the market. In addition, technological advances in
the speed and flexibility of the Jacquard loom have reduced the cost of
producing Jacquard fabrics, enabling them to compete more effectively with
prints, velvets, flocks, tufts and other plain woven products.
The Company sells its upholstery fabrics to over 600 domestic furniture
manufacturers, including virtually every significant domestic manufacturer of
upholstered furniture, such as Furniture Brands International (Action by Lane,
Broyhill and Thomasville), Klaussner, La-Z-Boy, Lifestyle Furnishings
International (Berkline, Benchcraft and others), Rowe and Simmons. Quaker also
distributes its fabrics internationally. In 1996, fabric sales outside the
United States of $35.7 million represented approximately 20.2% of gross fabric
sales. Quaker's October 1996 introduction of its Whitaker Collection, a branded
line of a select group of the Company's better-end products, has resulted in
incremental sales to a number of well known higher-end furniture manufacturers,
including Baker, Bernhardt, Henredon and Sherrill. Management estimates that
approximately 85% of the Company's fabric sales in recent years have been
manufactured to customer order.
THE INDUSTRY
Total domestic upholstery fabric sales, exclusive of automotive
applications, are estimated to be approximately $2.0 billion annually.
Management estimates the size of the international fabric market to be at least
twice that of the domestic market. Due to the capital intensive nature of the
fabric manufacturing process and the importance of economies of scale in the
industry, the domestic industry is concentrated, with the top 15 upholstery
fabric manufacturers, including Quaker, accounting for over 80% of the total
market. Most of the largest U.S. fabric producers have expanded their export
sales, capitalizing on their size, distribution capabilities, technology
advantages and broad product lines. Management believes that over the last
several years furniture manufacturers have moved toward more highly styled
Jacquard fabrics, at the expense of less distinctive fabrics, such as flocks,
plaids, plains, prints, stripes, tufts and velvets. Within the Jacquard segment,
price is a more important competitive factor in the promotional-end of the
market than it is in the middle to better-end of the market, where fabric
styling and design considerations typically play a more important role.
3
<PAGE> 5
GROWTH STRATEGY
Quaker's strategy to further its growth and financial performance
objectives includes:
Increasing Sales to the Middle to Better-End Segment. To
capitalize on the consolidation trend in the furniture industry, the
Company has positioned itself as a full service supplier of Jacquard
and plain woven fabrics by increasing the breadth and depth of its
product line. Sales of the Company's middle to better-end fabrics,
which the Company first began emphasizing in the early 1990s, have
increased from $66.3 million, or 56.3% of total fabric sales in 1992,
to $121.7 million, or 69.0% of total fabric sales in 1996, a CAGR of
16.4%.
Expanding International Sales. The Company has made worldwide
distribution of its upholstery fabrics a key component of its growth
strategy. Quaker has built an international sales and distribution
network, dedicated significant corporate resources to the development
of fabrics to meet the specific styling and design needs of its
international customers, and put programs in place to simplify the
purchase of product from Quaker. As a result, the Company's
international sales have increased from $18.3 million in 1992 to $35.7
million in 1996, a CAGR of 18.2%.
Capitalizing on the Growth of the Casual Furniture
Segment. Based upon its leading position in the Jacquard market and
its own internally produced chenille yarns, management believes Quaker
is well positioned to benefit from the growth of the casual furniture
segment, where soft, durable, distinctive fabrics, such as Quaker's
Jacquard and other chenilles, are in increasing demand.
Penetrating Related Fabric Markets. Management believes the
superior styling and performance characteristics of the Company's
fabrics provide opportunities to penetrate markets related to Quaker's
core residential fabric business. The Company has specifically
targeted the contract (office and institutional) and recreational
vehicle markets, where management believes Quaker's Jacquard chenille
fabrics will provide the Company with a clear product advantage. The
Company has also targeted additional sales to the decorative jobber
(distributors to the interior design trade) market, where management
believes the Company's recently introduced Whitaker Collection will
have broad appeal.
Growing Specialty Yarn Sales. Quaker is a leading producer of
specialty yarns and management believes it is the world's largest
producer of chenille yarns. Sales of the Company's specialty yarns
have increased from $7.8 million in 1992 to $26.8 million in 1996, a
CAGR of 36.2%. In addition to the popularity of the Company's current
line of specialty yarns, including its proprietary, abrasion-resistant
Ankyra chenille yarns, Quaker regularly creates innovative new
specialty yarns for use in the Company's fabrics and sale to the
Company's growing list of yarn customers. Quaker intends to increase
sales by targeting new markets and applications for its specialty
yarns.
COMPETITIVE STRENGTHS
Management believes that the following competitive strengths distinguish
Quaker from its competitors and that these strengths serve as a solid foundation
for the Company's growth strategy:
Product Design and Development Capabilities. Management believes
that Quaker's reputation for design excellence and product leadership
is, and will continue to be, the Company's most important competitive
strength.
Focus on Jacquard Fabrics. Management believes the detailed,
copyrighted designs of the Company's Jacquard fabrics have enabled it
to compete primarily based on superior styling and design,
contributing to Quaker's strong gross margin performance.
Broad Product Offering. The breadth and depth of Quaker's
product line enables the Company to be a full service supplier of
Jacquard and plain woven fabrics to virtually every significant
domestic manufacturer of upholstered furniture.
4
<PAGE> 6
Vertical Integration. Using Quaker's own specialty yarns in the
production of its fabrics provides the Company with significant
design, cost and delivery advantages.
State-of-the-Art Manufacturing Equipment. Management believes
the Company has one of the most modern, efficient and technologically
advanced manufacturing bases in the industry.
During the past five years, Quaker has invested more than $51 million in
new manufacturing equipment to expand its yarn and fabric production capacity,
increase productivity, improve product quality and produce the more complex
fabrics associated with the Company's successful penetration of the middle to
better-end segment of the upholstery fabric market. During 1997, Quaker plans to
spend approximately $14.4 million, plus the estimated $4.2 million net proceeds
to the Company from this offering, on additional manufacturing equipment to
accelerate the growth of its specialty yarn business, respond to anticipated
increases in demand for its fabric products, and achieve its marketing,
productivity, quality, service and financial objectives.
The Company produces all of its yarn and fabric products in its four
manufacturing plants in Fall River, Massachusetts, where Quaker has over one
million square feet of manufacturing space. In addition to distribution from the
Company's facilities in Fall River, Quaker maintains domestic distribution
centers in High Point, North Carolina, Tupelo, Mississippi, and Los Angeles,
California. To provide better service to its international customers, the
Company also has a distribution center in Mexico and maintains inventory in
Holland.
Quaker's executive offices are located at 941 Grinnell Street, Fall River,
Massachusetts 02721 and the Company's telephone number is (508) 678-1951.
SELLING STOCKHOLDERS
In September 1989, the Company was acquired (the "1989 Acquisition") by a
European company and Nortex Holdings, Inc. ("Nortex Holdings"), a corporation
owned by three officers of the Company, including Larry A. Liebenow, the
President and Chief Executive Officer of the Company. In early 1993, the Company
reacquired all of the European company's interest in Quaker in a management-led
recapitalization (the "1993 Recapitalization"). To finance the 1993
Recapitalization, the Company issued Common Stock and other securities to MLGA
Fund II, L.P. ("MLGA Fund") and other affiliates of Morgan Lewis Githens & Ahn,
Inc., an investment banking firm. MLGA Fund and Nortex Holdings are the Selling
Stockholders and are selling 3,000,000 and 100,000 shares of Common Stock,
respectively. Upon completion of this offering, MLGA Fund and Nortex Holdings
will beneficially own 8.1% (2.0% if the Underwriters' over-allotment option is
exercised in full) and 23.3% of the outstanding Common Stock, respectively. See
"Management" and "Principal and Selling Stockholders."
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........................... 300,000 shares
Common Stock Offered by the Selling Stockholders.............. 3,100,000 shares
Common Stock to be Outstanding after the Offering(1).......... 8,321,097 shares
Use of Proceeds by the Company................................ To acquire production equipment
to expand chenille yarn
manufacturing capacity.
See "Use of Proceeds."
Nasdaq National Market Symbol................................. QFAB
</TABLE>
- ------------------------
(1) Does not include (i) 918,354 shares of Common Stock which may be issued
pursuant to the Company's stock option plans, of which options to purchase
682,848 shares of Common Stock were outstanding on February 24, 1997
(including 330,000 shares which have been granted subject to stockholder
approval), (ii) 5,000 shares of Common Stock which may be issued upon
exercise of an option granted to a director and (iii) 370,359 shares of
Common Stock which may be issued upon exercise of an option issued to Nortex
Holdings (the "Nortex Option"). See "Management -- Benefit Plans."
Ankyra(TM), Quaker(TM) and Whitaker(TM) are trademarks of the Company.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4,
1993(1) 1994 1994 1995 1997(1)
----------- ----------- ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $ 123,414 $ 147,867 $180,842 $173,487 $ 198,856
Cost of products sold........................... 92,855 110,753 133,168 137,083 152,787
-------- -------- -------- -------- --------
Gross margin.................................... 30,559 37,114 47,674 36,404 46,069
Selling, general and administrative expenses.... 18,862 22,292 27,560 26,176 29,121
-------- -------- -------- -------- --------
Operating income................................ 11,697 14,822 20,114 10,228 16,948
Interest expense, net........................... 4,148 4,936 3,863 3,898 4,092
Other expenses, net............................. 479 299 34 98 77
-------- -------- -------- -------- --------
Income before provision for income taxes........ 7,070 9,587 16,217 6,232 12,779
Provision for income taxes...................... 2,925 4,218 6,691 712 4,217
-------- -------- -------- -------- --------
Income before extraordinary item................ 4,145 5,369 9,526 5,520 8,562
Extraordinary item: loss on extinguishment of
debt.......................................... -- (2,550) -- -- --
Net income...................................... 4,145 2,819 9,526 5,520 8,562
Preferred stock dividends....................... 420 70 -- -- --
-------- -------- -------- -------- --------
Net income applicable to common stock........... $ 3,725 $ 2,749 $ 9,526 $ 5,520 $ 8,562
======== ======== ======== ======== ========
Earnings per common share before extraordinary
item(2)....................................... $ 0.55 $ 0.75 $ 1.15 $ 0.67 $ 1.03
======== ======== ======== ======== ========
Weighted average shares outstanding(2).......... 8,536 8,536 8,301 8,293 8,332
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
EBITDA(3)....................................... $ 15,597 $ 19,710 $ 25,920 $ 16,821 $ 24,569
Depreciation and amortization................... 4,379 5,019 5,603 6,462 7,437
Net capital expenditures(4)..................... 5,186 10,558 18,727 13,165 11,979
Unit volume (in yards).......................... 32,228 36,289 41,641 40,761 43,552
Average gross sales price per yard.............. $ 3.66 $ 3.87 $ 4.06 $ 3.88 $ 4.05
</TABLE>
<TABLE>
<CAPTION>
JANUARY 4, 1997
-------------------------
ACTUAL AS ADJUSTED(5)
--------- --------------
BALANCE SHEET DATA: (IN THOUSANDS)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Working capital...................................................................... $ 32,620 $ 32,620
Total assets......................................................................... 148,832 153,039
Long-term debt and capital leases.................................................... 42,235 42,235
Stockholders' equity................................................................. 66,572 70,779
</TABLE>
- ------------------
(1) The fiscal years ended January 2, 1993 and January 4, 1997 were 53-week
periods.
(2) Earnings per share for 1994, 1995 and 1996 is computed using the weighted
average number of common shares and common share equivalents outstanding
during the year. Earnings per share for 1992 and 1993 gives effect to the
1993 Recapitalization and the use of proceeds from the Company's initial
public offering of Common Stock in 1993 (the "1993 Offering") as if both
events had occurred at the beginning of 1992.
(3) Represents income from continuing operations before extraordinary items plus
interest, taxes, depreciation, amortization and other non-cash expenses.
Although the Company has measured EBITDA consistently between the periods
presented, EBITDA as a measure of liquidity is not governed by generally
accepted accounting principles ("GAAP"), and, as such, may not be comparable
to other similarly titled measures of other companies. The Company believes
that EBITDA, while providing useful information, should not be considered in
isolation or as an alternative to either (i) operating income determined in
accordance with GAAP as an indicator of operating performance or (ii) cash
flows from operating activities determined in accordance with GAAP as a
measure of liquidity.
(4) Net capital expenditures reflect assets acquired by purchase and capital
lease.
(5) Adjusted to give effect to the sale of 300,000 shares of Common Stock
offered hereby by the Company at an assumed offering price of $16.25 per
share (the last reported sales price for the Common Stock on the Nasdaq
National Market on February 24, 1997) after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company and
the application of the net proceeds to the Company therefrom to purchase
production equipment. See "Use of Proceeds" and "Capitalization."
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the 1934 Act. Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations; (ii) the Company's financing plans; (iii) the Company's
business and growth strategies; (iv) the use of the proceeds to the Company of
this offering; and (v) the declaration and payment of dividends. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. The accompanying information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," identifies
important factors that could cause such differences.
GENERAL ECONOMIC CONDITIONS. Domestic demand for the Company's upholstery
fabrics is principally a function of consumer demand for, and production levels
of, upholstered furniture which, in turn, fluctuate with U.S. economic
conditions and consumer sentiment. For most individuals, a decision to buy
upholstered furniture represents both a discretionary purchase and a relatively
large expenditure. Accordingly, demand is, in general, higher during periods of
economic strength and lower during periods of economic weakness or uncertainty.
Key economic conditions influencing demand for Quaker's products are housing
starts, sales of existing homes, consumer confidence and spending levels,
population demographics, trends in disposable income, prevailing interest rates
for home mortgages and the availability of consumer credit. Adverse economic
conditions could have a material adverse effect on the Company.
FOREIGN SALES. The Company anticipates that an increasing portion of its
revenues will be derived from foreign and export sales (together "foreign
sales"). In 1996, foreign sales totalled $35.7 million, or 20.2% of the
Company's gross fabric sales. A reduction in the volume of international trade,
fluctuations in currency exchange rates, political instability in any of the
export markets important to the Company, any material restrictions on
international trade, or a downturn in the international economy or the domestic
economy of any of the export markets important to the Company, could have a
material adverse effect on the Company. In addition, the Company's 1996 gross
fabric sales to customers in four foreign countries, including Mexico, were
$27.2 million in the aggregate, representing 76.2% of the Company's total
foreign sales and 15.4% of the Company's gross fabric sales. Beginning in
December 1994, Mexico experienced an economic crisis characterized by exchange
rate instability and currency devaluation, high domestic interest and inflation
rates, negative economic growth, reduced consumer purchasing and high
unemployment. As a result, the Company's sales in Mexico (including sales from
its distribution center in Mexico) were adversely affected in 1995. There can be
no assurance that economic, political or other events in Mexico or any other
foreign market will not have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Growth Strategy."
PRICING AND AVAILABILITY OF RAW MATERIALS. The Company is dependent upon
outside suppliers for all of its raw material needs, including dyeing services,
and is subject to price increases and delays in receiving these materials and
services. The raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying petrochemical market in general.
Historically, the Company has been able to pass through a substantial portion of
any increases in its raw material costs; however, the Company experienced
significant increases in certain raw material prices in 1995 which it was not
able to pass through fully to its customers during 1995 and which contributed to
a reduction in the Company's 1995 gross margin. Similar conditions in the future
could have a material adverse effect on the Company. Although other sources of
supply are available, the Company currently procures approximately one-half of
its raw materials from two major industry suppliers, one of which is the sole
supplier of a filament yarn used in the Company's chenille manufacturing
operations. A shortage or interruption in the supply of any critical component
could have a
8
<PAGE> 10
material adverse effect on the Company. See "Business -- Sources and
Availability of Raw Materials" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION. The markets for the Company's products are highly
competitive. Competitive factors in the upholstery fabric business include
product design, styling, price, customer service and quality. The Company's
products are predominantly Jacquard and plain woven fabrics. The Company's
products compete with other upholstery fabrics and furniture coverings,
including prints, flocks, tufts, velvets and leather. Several of the companies
with which the Company competes have greater financial resources than the
Company. Although the Company has experienced no significant competition in the
United States from imports to date, changes in foreign exchange rates or other
factors could make imported fabrics more competitive with the Company's products
in the future. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent upon the efforts and abilities of Larry A. Liebenow, its
President and Chief Executive Officer, and other members of senior management.
The loss of the services of one or more of these key employees could have a
material adverse effect on the Company. The Company does not have "key man" life
insurance on the life of any member of its senior management. See "Management."
ENVIRONMENTAL MATTERS. The Company's operations are subject to numerous
federal, state and local laws and regulations pertaining to the discharge of
materials into the environment or otherwise relating to the protection of the
environment. The Company's facilities are located in industrial areas, and,
therefore, there is the possibility of incurring environmental liabilities as a
result of historical operations at the Company's sites. Environmental liability
can extend to previously owned or leased properties, properties owned by third
parties, and properties currently owned or leased by the Company. Environmental
liabilities can also be asserted by adjacent landowners or other third parties
in toxic tort litigation. In addition, under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), and
analogous state statutes, liability can be imposed for the disposal of waste at
sites targeted for cleanup by federal and state regulatory authorities.
Liability under CERCLA is strict as well as joint and several. Further, certain
of the Company's manufacturing areas are subject to OSHA's "Comprehensive Cotton
Dust Standard." Environmental laws and regulations are subject to change in the
future, and any failure by the Company to comply with present or future laws or
regulations could subject it to future liabilities or interruption of production
which could have a material adverse effect on the Company. Changes in
environmental regulations could restrict the Company's ability to expand its
facilities or require the Company to incur substantial unexpected other expenses
to comply with such regulations.
In particular, the Company is aware of soil and groundwater contamination
relating to the use of certain underground fuel oil storage tanks at its Fall
River facilities. The Company has notified the Commonwealth of Massachusetts
regarding these releases. The Company's ultimate clean-up costs relating to
these underground storage tanks cannot be predicted with certainty at this time.
In addition, during the fourth quarter of 1993, the Company removed and
encapsulated asbestos at two of its facilities and the Company has an on-going
asbestos management program in place to maintain appropriately the asbestos that
remains present at its facilities. At the Company's former facility in
Claremont, New Hampshire, it has been determined that there is oil-contaminated
soil, as well as groundwater contamination, resulting from a leak during the
mid-1970s from an underground fuel storage tank. The Company has agreed to
indemnify the purchaser for clean-up costs subject to certain limitations. The
Company also has agreed to indemnify the purchaser of the Company's former
facility in Leominster, Massachusetts for certain environmental contingencies.
The Company has accrued reserves for environmental matters based on
information presently available. However, there can be no assurance that these
reserves will be adequate or that the costs associated with environmental
matters will not increase in the future. See "Business -- Environmental
Matters."
SIGNIFICANT STOCKHOLDER. Upon the completion of this offering, Nortex
Holdings, a corporation owned by three officers of the Company, including Larry
A. Liebenow, its President and Chief Executive Officer, will beneficially own
23.3% of the outstanding Common Stock. Accordingly, Nortex Holdings will be in a
position to not only influence the election of the Company's directors but also
influence or determine the
9
<PAGE> 11
outcome of corporate actions requiring stockholder approval. This concentration
of ownership may have the effect of delaying or preventing a change of control
of the Company.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's certificate
of incorporation and bylaws may make it more difficult for a third party to
acquire, or may discourage acquisition bids for, the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
Common Stock. These provisions, among other things, (a) require the affirmative
vote of the holders of at least 66 2/3% of the votes which all the stockholders
would be entitled to cast at any annual election of directors or class of
directors to approve any merger or consolidation of the Company with any other
corporation or a sale, lease, transfer or exchange of all or substantially all
the assets of the Company or the adoption of any plan for the liquidation or
dissolution of the Company; (b) require the affirmative vote of 80% of the
voting power of all the shares of the Company entitled to vote in the election
of directors to remove a director; and (c) require the affirmative vote of 80%
of the voting power of all the shares of the Company to amend or repeal certain
provisions of the certificate of incorporation and the bylaws. Moreover, the
Board of Directors (the "Board") has the authority to issue, at any time,
without further stockholder approval, up to 50,000 shares of preferred stock,
and to determine the price, rights, privileges and preferences of those shares,
which may be senior to the rights of holders of the Common Stock. Such issuance
could adversely affect the holders of Common Stock, and could have the effect of
dissuading a potential acquiror from acquiring outstanding shares of the Common
Stock at a price that represents a premium to the then current trading price.
See "Description of Securities -- Preferred Stock." Under certain conditions,
Section 203 of the General Corporation Law of the State of Delaware (the "DGCL")
would prohibit an "interested stockholder" (in general, a stockholder owning 15%
or more of the Company's outstanding voting stock) from engaging in a "business
combination" with the Company for a period of three years. The Board has adopted
a stockholder rights plan (the "Rights Plan"), the purpose of which is to
protect stockholders against unsolicited attempts to acquire control of the
Company that do not offer a fair price to all stockholders. The Rights Plan may
have the effect of dissuading a potential acquiror from acquiring outstanding
shares of Common Stock at a price that represents a premium to the then current
trading price. The Rights Plan will not apply to certain acquisitions by MLGA
Fund, Nortex Holdings and certain of their transferees. See "Description of
Securities -- Stockholder Rights Plan."
VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the public offering price herein.
Developments in the upholstery and home furnishings industries or changes in
general economic conditions could adversely affect the market price of the
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume volatility. These fluctuations may be unrelated to the
operating performance of particular companies whose shares are traded and may
adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have 8,321,097 shares of Common Stock outstanding. Of these shares,
a total of 5,776,498 shares (6,286,498 shares if the Underwriters'
over-allotment option is exercised in full), including the shares offered
hereby, will be freely tradable without restrictions or further registration
under the Securities Act. The remaining 2,544,599 shares of Common Stock are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act. In general, under Rule 144 as currently in effect, an
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with Rule 144) who has beneficially owned such restricted
securities for at least two years (reduced to one year effective late April
1997) would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the outstanding shares of Common Stock
(approximately 83,211 shares based upon the number of shares outstanding after
this offering) or the reported average weekly trading volume in the
over-the-counter market for the four weeks preceding the sale. Sales under Rule
144 are also subjected to certain manner of sale restrictions and notice
requirements and to the availability of current public information concerning
the Company. Persons who have not been affiliates of the Company for at least
three months and who have held these shares for more than three years (reduced
to two years effective late April 1997) are entitled to sell such restricted
securities without regard to the volume, manner of sale, notice and public
information requirements of Rule 144. All of
10
<PAGE> 12
these restricted securities are currently eligible for sale in the public market
pursuant to Rule 144. Additional shares of Common Stock, including shares
issuable upon exercise of options, will also become eligible for sale in the
public market pursuant to Rule 144 from time to time. The Company has registered
306,348 shares of Common Stock issuable upon the exercise of stock options which
will be available for sale in the open market upon exercise. As of February 24,
1997, an aggregate of 381,247 shares were subject to presently exercisable stock
options and, upon consummation of this offering, options to purchase an
additional 327,083 shares will become exercisable. The Company, its directors
and executive officers and each of the Selling Stockholders, who upon completion
of this offering will beneficially own in the aggregate 3,152,553 shares
(2,642,553 shares if the Underwriters' over-allotment option is exercised in
full), each have agreed (except as to an aggregate of 100,000 shares previously
pledged) that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock or any security convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, for a period of 180 days, in the case of the Company, the
Selling Stockholders and certain of their affiliates, and 90 days, in the case
of other directors and executive officers, after the date of this Prospectus,
without the prior written consent of Prudential Securities Incorporated on
behalf of the Underwriters except for bona fide gifts or transfers effected by
such stockholder other than on any securities exchange or in the
over-the-counter market to donees or transferees that agree to be bound by
similar agreements and except for issuances by the Company and sales by Nortex
Holdings pursuant to the exercise of certain stock options outstanding upon
completion of this offering. Prudential Securities Incorporated may, in its sole
discretion, at any time and without prior notice, release all or any portion of
the shares of Common Stock subject to such agreements. The Company is unable to
predict the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the market
price for the Common Stock and could impair the Company's future ability to
obtain capital through offerings of equity securities. See "Principal and
Selling Stockholders," "Shares Eligible for Future Sale" and "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 300,000 shares of Common
Stock offered hereby by the Company are estimated to be approximately $4.2
million, based on an assumed offering price of $16.25 per share of Common Stock
(the last reported sales price on the Nasdaq National Market for the Common
Stock on February 24, 1997) and after deducting underwriting discounts and
commissions and estimated expenses payable by the Company. The Company intends
to apply its net proceeds to acquire production equipment to expand the
Company's chenille yarn manufacturing capacity. Pending such application, the
Company intends to temporarily repay a portion of the amount outstanding under
the Company's revolving credit facility with a commercial bank (the "Credit
Agreement") or to invest in short-term, investment grade securities,
certificates of deposit or direct or guaranteed obligations of the U.S.
government, or a combination thereof. Indebtedness under the Credit Agreement
has been used for working capital and capital expenditure purposes, is due
December 31, 2000 and bears interest at an effective annual rate of 7.0%. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock being offered by the Selling Stockholders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Principal and Selling Stockholders."
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Common Stock is included in the Nasdaq National Market under the symbol
"QFAB." The following table sets forth the range of the high and low sales
prices of the Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 30, 1995
First Quarter.......................................... $12 3/4 $10 1/4
Second Quarter......................................... 11 7 1/2
Third Quarter.......................................... 11 7 3/4
Fourth Quarter......................................... 9 3/4 8 1/4
FISCAL YEAR ENDED JANUARY 4, 1997
First Quarter.......................................... 9 1/2 5 11/16
Second Quarter......................................... 9 3/4 7 1/4
Third Quarter.......................................... 10 5/8 7
Fourth Quarter......................................... 14 1/2 9 1/4
FISCAL YEAR ENDING JANUARY 3, 1998
First Quarter (through February 24, 1997).............. $19 1/4 $13 1/2
</TABLE>
On February 24, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $16.25 per share. As of February 14, 1997, there
were 49 record owners of the Common Stock.
DIVIDEND POLICY
The Company has not declared or paid dividends on the Common Stock since
prior to the 1993 Offering, does not intend to declare or pay any cash dividends
for the foreseeable future and intends to retain earnings, if any, for the
future operation and expansion of the Company's business. Future cash dividends,
if any, will be at the discretion of the Board and will depend upon, among other
things, the Company's future earnings, operations, capital requirements and
surplus, availability of cash, general financial condition, contractual
restrictions, and such other factors as the Board may deem relevant. Currently,
the Company is restricted in its ability to pay dividends under the terms of the
Credit Agreement and the Series A Notes (as hereinafter defined). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 5 of Notes to
Consolidated Financial Statements.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of January 4, 1997, and as adjusted to give effect to the sale of
the 300,000 shares of Common Stock offered by the Company (at an assumed
offering price of $16.25 per share, the last reported sales price for the Common
Stock on the Nasdaq National Market on February 24, 1997) and the application of
the estimated net proceeds therefrom to purchase production equipment as
described under "Use of Proceeds." This table should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 4, 1997
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt................................ $ 951 $ 951
Current portion of capitalized leases(1)......................... 1,532 1,532
-------- --------
Total current portion of long-term debt and capitalized
leases................................................. $ 2,483 $ 2,483
======== ========
Long-term debt:
Credit Agreement................................................. $ 4,000 $ 4,000
Capitalized leases(1)............................................ 6,504 6,504
6.81% Series A Notes............................................. 30,000 30,000
Other............................................................ 1,731 1,731
-------- --------
Total long-term debt..................................... 42,235 42,235
Stockholders' equity:
Common Stock, par value $.01 per share, 20,000,000 shares
authorized; 8,021,097 shares issued and outstanding; and
8,321,097 shares as adjusted.................................. 80 83
Additional paid-in capital....................................... 41,948 46,152
Retained earnings................................................ 25,959 25,959
Cumulative translation adjustment(2)............................. (1,415) (1,415)
-------- --------
Total stockholders' equity............................... 66,572 70,779
-------- --------
Total capitalization..................................... $108,807 $ 113,014
======== ========
</TABLE>
- ---------------
(1) For information concerning capital lease commitments, see Note 7(b) of Notes
to Consolidated Financial Statements.
(2) For information concerning this item, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 2(i) of
Notes to Consolidated Financial Statements.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain consolidated financial and operating
data of the Company for the periods indicated, which data has been derived from
the Consolidated Financial Statements of the Company and the Notes thereto,
which have been audited by Arthur Andersen LLP, independent public accountants.
This selected financial and operating data should be read in conjunction with
the Consolidated Financial Statements, the Notes thereto and the other financial
information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4,
1993(1) 1994 1994 1995 1997(1)
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $123,414 $147,867 $180,842 $173,487 $198,856
Cost of products sold..................... 92,855 110,753 133,168 137,083 152,787
-------- -------- -------- -------- --------
Gross margin.............................. 30,559 37,114 47,674 36,404 46,069
Selling, general and administrative
expenses................................ 18,862 22,292 27,560 26,176 29,121
-------- -------- -------- -------- --------
Operating income.......................... 11,697 14,822 20,114 10,228 16,948
Interest expense, net..................... 4,148 4,936 3,863 3,898 4,092
Other expenses, net....................... 479 299 34 98 77
-------- -------- -------- -------- --------
Income before provision for income taxes
and extraordinary item.................. 7,070 9,587 16,217 6,232 12,779
Provision for income taxes................ 2,925 4,218 6,691 712 4,217
-------- -------- -------- -------- --------
Income before extraordinary item.......... 4,145 5,369 9,526 5,520 8,562
Extraordinary item: loss on extinguishment
of debt................................. -- (2,550) -- -- --
Net income................................ 4,145 2,819 9,526 5,520 8,562
Preferred stock dividends................. 420 70 -- -- --
-------- -------- -------- -------- --------
Net income applicable to common stock..... $ 3,725 $ 2,749 $ 9,526 $ 5,520 $ 8,562
======== ======== ======== ======== ========
Earnings per common share before
extraordinary item(2)................... $ 0.55 $ 0.75 $ 1.15 $ 0.67 $ 1.03
Extraordinary item........................ -- (0.30) -- -- --
-------- -------- -------- -------- --------
Earnings per common share(2).............. $ 0.55 $ 0.45 $ 1.15 $ 0.67 $ 1.03
======== ======== ======== ======== ========
Weighted average shares outstanding(2).... 8,536 8,536 8,301 8,293 8,332
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
EBITDA(3)................................. $ 15,597 $ 19,710 $ 25,920 $ 16,821 $ 24,569
Depreciation and amortization............. 4,379 5,019 5,603 6,462 7,437
Net capital expenditures(4)............... 5,186 10,558 18,727 13,165 11,979
Unit volume (in yards).................... 32,228 36,289 41,641 40,761 43,552
Average gross sales price per yard........ $ 3.66 $ 3.87 $ 4.06 $ 3.88 $ 4.05
BALANCE SHEET DATA:
Working capital........................... $ 14,477 $ 25,915 $ 30,994 $ 30,780 $ 32,620
Total assets.............................. 94,556 109,908 130,476 138,117 148,832
Long-term debt and capital leases......... 46,747 35,172 43,845 45,118 42,235
Stockholders' equity...................... 18,431 43,574 52,589 57,850 66,572
</TABLE>
- ---------------
(1) The fiscal years ended January 2, 1993 and January 4, 1997 were 53-week
periods.
(2) Earnings per share for 1994, 1995 and 1996 is computed using the weighted
average number of common shares and common share equivalents outstanding
during the year. Earnings per share for 1992 and 1993 gives effect to the
1993 Recapitalization and the use of proceeds from the 1993 Offering as if
both events had occurred at the beginning of 1992.
(3) Represents income from continuing operations before extraordinary items plus
interest, taxes, depreciation, amortization and other non-cash expenses.
Although the Company has measured EBITDA consistently between the periods
presented, EBITDA as a measure of liquidity is not governed by GAAP, and, as
such, may not be comparable to other similarly titled measures of other
companies. The Company believes that EBITDA, while providing useful
information, should not be considered in isolation or as an alternative to
either (i) operating income determined in accordance with GAAP as an
indicator of operating performance or (ii) cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
(4) Net capital expenditures reflect assets acquired by purchase and capital
lease.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the Notes thereto, contained elsewhere in this
Prospectus.
GENERAL
OVERVIEW
Quaker has been producing upholstery fabrics for the home furnishings
market for more than 50 years. Today, Quaker is a leading designer, manufacturer
and worldwide marketer of woven upholstery fabrics for residential furniture
markets and one of the largest producers of Jacquard upholstery fabrics in the
world. Over the last five years, Quaker has achieved sales and net income
(excluding extraordinary items) growth in every year except 1995. Net sales and
net income have grown from $123.4 million and $3.7 million, respectively, in
1992 to $198.9 million and $8.6 million, respectively, in 1996.
During 1995, the Company reported a decrease in net sales and lower gross,
operating and net margins as a result of a convergence of economic, industry and
Company-specific factors. These factors caused the Company's net sales to
decline $7.3 million, to $173.5 million from $180.8 million in 1994. The Company
encountered poor market conditions in Mexico, Canada and the Middle East, each
of which is an important export market for the Company. As a result, 1995
foreign sales decreased by $10.7 million, or 31.6% below 1994 foreign sales
levels. This decline was partially offset by a $2.9 million increase in net yarn
sales, with domestic fabric sales essentially flat.
Significant price increases were also announced by several of the Company's
most important raw material suppliers in early 1995. Such price increases
adversely affected the Company's gross margin, particularly during the latter
part of the year, as the Company was unable to fully pass along these cost
increases to customers during 1995.
The Company generally produces goods to customer order and seeks to operate
its production areas on a five to five and one-half day week, three shift
schedule. During 1995, however, the Company experienced a number of sharp
changes in its order rates which required several significant adjustments in the
Company's production rates. These adjustments adversely affected equipment
utilization rates, quality performance and overtime costs, particularly during
the fourth quarter, contributing to the deterioration in the Company's 1995
gross margin.
In response to the challenges encountered during 1995, management developed
a comprehensive performance improvement plan designed to increase margins and
earnings by growing sales, reducing raw material costs and realizing
manufacturing efficiencies.
(i) To increase sales, the Company strengthened its marketing,
merchandising, design, distribution and new business development functions,
expanded its network of international sales agents, introduced a branded line of
better-end fabrics under its Whitaker label, developed products to meet the
specific styling and design needs of its international and jobber customers,
continued to broaden its product line, focused on opportunities to reduce
delivery lead times and improve customer service, identified new markets and
applications for its specialty yarn products and prepared to enter the contract
(office and institutional) market.
(ii) To reduce raw material costs, the Company identified alternate
suppliers for several of its key raw materials, employed more cost effective raw
materials in certain of its products and implemented a Company-wide program to
reduce waste.
(iii) To improve manufacturing efficiencies, the Company continued to
pursue ISO 9001 certification, invested more than $10.8 million in new
manufacturing equipment in 1996 to eliminate bottlenecks and meet its quality
objectives, changed its new product development process to enhance coordination
between the Company's design and manufacturing areas, reduced set-up times,
provided additional training to the
15
<PAGE> 17
Company's managers and production area employees and implemented a number of
process improvements throughout the Company's manufacturing areas.
Following management's implementation of the Company's 1996 performance
improvement plan, the Company's sales and profitability improved in comparison
to prior periods in each of the last three quarters of 1996.
QUARTERLY OPERATING RESULTS
The following table sets forth certain condensed unaudited consolidated
statements of income data for the eight fiscal quarters ended January 4, 1997,
as well as certain data expressed as a percentage of the Company's total net
sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL 1995(1) FISCAL 1996(1)
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 46,250 $ 41,068 $ 37,984 $ 48,185 $ 43,254 $ 51,025 $ 46,436 $ 58,141
Gross margin.............................. 12,104 8,720 7,344 8,236 9,297 11,312 10,751 14,709
Gross margin percentage................... 26.2% 21.2% 19.3% 17.1% 21.5% 22.2% 23.2% 25.3%
Operating income.......................... 4,969 2,708 1,630 921 2,673 4,014 4,053 6,208
Operating income percentage............... 10.7% 6.6% 4.3% 1.9% 6.2% 7.9% 8.7% 10.7%
Income before provision for income
taxes................................... $ 4,002 $ 1,715 $ 749 $ (234) $ 1,696 $ 2,972 $ 2,984 $ 5,127
-------- -------- -------- -------- -------- -------- -------- --------
Net income................................ $ 2,495 $ 1,307 $ 498 $ 1,220 $ 1,136 $ 1,992 $ 1,999 $ 3,435
======= ======= ======= ======= ======= ======= ======= =======
Earnings per common share................. $ 0.30 $ 0.16 $ 0.06 $ 0.15 $ 0.14 $ 0.24 $ 0.24 $ 0.41
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The data reflected in this table has been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere
in this Prospectus.
While the Company's sales have historically not been subject to significant
seasonality, Quaker's net sales and gross margins are typically slightly
stronger in the second and fourth quarters. In 1995, however, management
believes that relatively poor conditions in both the domestic market and several
of the export markets important to the Company, as well as the Company-specific
factors discussed above, had a more pronounced effect on sales and profitability
than any seasonal variations.
As a result of the sale of shares by MLGA Fund in this offering, vesting of
certain outstanding stock options will be accelerated. This acceleration will
result in the recognition by the Company of additional general and
administrative expenses equal to the unamortized portion of deferred
compensation expense associated with such options, resulting in a non-cash
compensation charge of approximately $500,000 in the fiscal quarter in which
this offering is consummated. This charge would otherwise be recognized as
compensation expense through March 2001. See "Management -- Benefit Plans."
The Company follows industry practice by closing its operating facilities
for a one-to-two week period during July of each year. In 1995 and 1996, this
shut down period, and the resulting effect on sales, occurred in the third
fiscal quarter. In 1997, the first week of the annual shut down period will
occur in the second fiscal quarter.
16
<PAGE> 18
PRODUCT MIX
Over the past several years, Quaker has taken steps to expand both the
breadth and depth of the Company's product line by increasing the number of
higher margin, middle to better-end fabrics in its line and by expanding the
number of fabrics it offers at each price point and in each styling category. As
a result, the Company has added new manufacturers of higher-end furniture to its
customer base and positioned itself as a full service supplier of Jacquard and
plain woven fabrics to all of its customers. The following table sets forth
certain information relating to the changes that have occurred in the Company's
product mix and the average gross sales price of its fabrics since 1994:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales (dollars):
Promotional-end fabrics................. $ 59,763 35.3% $ 57,023 36.0% $ 54,716 31.0%
Middle to better-end fabrics............ 109,427 64.7 101,201 64.0 121,702 69.0
-------- -------- -------- -------- -------- --------
Gross fabric sales.................... $169,190 100.0% $158,224 100.0% $176,418 100.0%
======== ======== ======== ======== ======== ========
Gross fabric sales (yards):
Promotional-end fabrics................. 17,597 42.3% 17,042 41.8% 16,074 36.9%
Middle to better-end fabrics............ 24,044 57.7 23,719 58.2 27,478 63.1
-------- -------- -------- -------- -------- --------
Gross fabric sales.................... 41,641 100.0% 40,761 100.0% 43,552 100.0%
======== ======== ======== ======== ======== ========
Average gross sales price per yard:
Promotional-end fabrics................. $ 3.40 $ 3.35 $ 3.40
Middle to better-end fabrics............ 4.55 4.27 4.43
Average per yard -- all fabrics......... 4.06 3.88 4.05
</TABLE>
GEOGRAPHIC DISTRIBUTION OF SALES
To develop markets for upholstery fabric outside the United States, the
Company has placed substantial emphasis on building both direct exports from the
United States as well as sales from its Mexico City, Mexico distribution center
and from the inventory it maintains in Roosendaal, Holland. The Company's 1996
foreign sales were up by $12.5 million, or 54.0% above 1995. The following table
sets forth certain information about the changes which have occurred in the
geographic distribution of the Company's gross fabric sales since 1994:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales:
Domestic sales.......................... $135,295 80.0% $135,037 85.3% $140,717 79.8%
Foreign sales(1)........................ 33,895 20.0 23,187 14.7 35,701 20.2
-------- -------- -------- -------- -------- --------
Gross fabric sales................ $169,190 100.0% $158,224 100.0% $176,418 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Foreign sales consists of both direct exports from the United States as well
as sales from the Company's Mexico City distribution center and from the
inventory it maintains in Holland.
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<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of the Company's net sales represented by certain income and expense items in
the Company's consolidated statements of income:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of products sold......................................... 73.6 79.0 76.8
------- ------- -------
Gross margin.................................................. 26.4 21.0 23.2
Selling, general and administrative expenses.................. 15.3 15.1 14.7
------- ------- -------
Operating income.............................................. 11.1 5.9 8.5
Interest expense, net......................................... 2.1 2.2 2.1
Other expenses, net........................................... -- 0.1 --
------- ------- -------
Income before provisions for income taxes..................... 9.0 3.6 6.4
Provisions for income taxes................................... 3.7 0.4 2.1
------- ------- -------
Net income.................................................... 5.3% 3.2% 4.3%
====== ====== ======
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales for 1996 increased $25.4 million, or 14.6%, to $198.9
million from $173.5 million in 1995. Both gross fabric sales and gross yarn
sales were higher during the period. Gross fabric sales increased due to
increases in both domestic and foreign fabric sales. Gross fabric sales within
the United States increased 4.2%, to $140.7 million in 1996 from $135.0 million
in 1995. Foreign sales increased 54.0%, to $35.7 million in 1996 from $23.2
million in 1995. This increase was due to improved sales in Mexico, Canada and
the Middle East as well as increased penetration of other international markets.
Gross yarn sales increased 42.0%, to $26.8 million in 1996 from $18.8 million in
1995.
The gross volume of fabric sold increased 6.8%, to 43.6 million yards in
1996 from 40.8 million yards in 1995. The average gross sales price per yard
increased 4.4%, to $4.05 in 1996 from $3.88 in 1995. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 15.8% more yards of middle to better-end fabrics and 5.7% fewer
yards of promotional-end fabrics in 1996 than in 1995. The average gross sales
price per yard of middle to better-end fabrics increased by 3.7%, to $4.43 in
1996 from $4.27 in 1995. The average gross sales price per yard of
promotional-end fabrics increased by 1.5%, to $3.40 in 1996 from $3.35 in 1995.
Gross Margin. The gross margin percentage for 1996 increased to 23.2% from
21.0% for 1995. This percentage growth was primarily attributable to the
Company's performance improvement plan which resulted in increased domestic and
international sales of higher-margin, middle to better-end fabrics, improved
manufacturing efficiencies related to the acquisition of newer, more efficient
manufacturing equipment and more efficient use of the Company's existing
equipment, improved quality performance, decreased raw material costs, and the
effect of spreading overhead over a higher sales base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $29.1 million in 1996 from $26.2 million in
1995 due to increases in sales commissions, labor and fringes, and sampling
expenses associated with the Company's higher net sales for the period. Selling,
general and administrative expenses as a percentage of net sales decreased to
14.7% in 1996 from 15.1% in 1995 due to a significant increase in net sales
without a corresponding increase in overhead.
Interest Expense, Net. Interest expense increased to $4.1 million in 1996
from $3.9 million in 1995. Lower debt levels were offset by higher commitment
fees associated with increased borrowing availability and other financing
charges.
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<PAGE> 20
Effective Tax Rate. The effective tax rate increased to 33.0% in 1996 from
11.4% in 1995. The reduced tax rate for 1995 reflects an adjustment recorded
during the fourth quarter as a result of tax law changes in Massachusetts
enacted in November 1995 which reduced the Company's future deferred tax
liability. See Note 6 of Notes to Consolidated Financial Statements included
elsewhere in this Prospectus.
Net Income. Net income for 1996 increased to $8.6 million, or $1.03 per
share, from $5.5 million, or $0.67 per share, for 1995. For a discussion of
Earnings Per Share, see Note 2(h) of Notes to Consolidated Financial Statements
included elsewhere in this Prospectus.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales for 1995 decreased $7.3 million or 4.1%, to $173.5
million from $180.8 million in 1994. Gross fabric sales declined during the
period, while gross yarn sales increased. The decline in gross fabric sales was
due primarily to a decrease in foreign sales and essentially flat domestic
fabric sales. Foreign sales decreased 31.6%, to $23.2 million in 1995 from $33.9
million in 1994. This decrease was due to (i) a decline in sales into the
Mexican market resulting from the devaluation of the Mexican peso in December
1994 and the ensuing recession in Mexico and (ii) a reduction in the amount of
business the Company was able to do in Canada and the Middle East due to general
economic conditions in those markets. Gross fabric sales within the United
States remained approximately the same at $135.0 million. Gross yarn sales
increased 15.0%, to $18.8 million in 1995 from $16.4 million in 1994.
The gross volume of fabric sold decreased 2.1%, to 40.8 million yards for
1995 from 41.6 million yards for 1994. The average gross sales price per yard
declined 4.4%, to $3.88 for 1995 from $4.06 for 1994. This decrease was
principally due to a decrease in foreign sales, which have higher than average
selling prices and an increase in the volume of seconds sold in the off-quality
market. The Company sold 1.4% fewer yards of middle to better-end fabrics and
3.1% fewer yards of promotional-end fabrics in 1995 as in 1994. The average
gross sales price per yard of middle to better-end fabrics decreased by 6.2%, to
$4.27 in 1995 from $4.55 in 1994. The average gross sales price per yard of
promotional-end fabric decreased by 1.5%, to $3.35 in 1995 from $3.40 in 1994.
Gross Margin. The gross margin percentage for 1995 decreased to 21.0% from
26.4% for 1994. The decrease in gross profit margin was primarily due to (i)
lower absorption of fixed overhead costs because of lower sales and production
volume, (ii) a reduction in the Company's manufacturing efficiencies and quality
performance, (iii) increased raw material prices which were not fully passed on
to customers during 1995, and (iv) a reduction in volume of foreign sales which
carry higher than average gross margins. During 1995, the Company experienced
sharp changes in order demand. Since finished goods generally are manufactured
to a specific customer order, these changes required significant decreases and
increases in the Company's production rates. These changes in production rates
adversely affected the Company's gross margin as manufacturing efficiencies and
quality performance suffered. Additionally, the Company incurred significant
costs (principally overtime) associated with increasing production rates during
the fourth quarter of 1995 to meet increased order demand.
Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased to $26.2 million for 1995 from $27.6 million
for 1994. Selling, general and administrative expenses as a percentage of net
sales decreased to 15.1% in 1995 from 15.3% in 1994. The decrease in selling,
general and administrative expenses was primarily due to reductions in sales
commissions, freight and other variable costs related to the Company's lower
sales volume. The decrease as a percentage of net sales was due to a reduction
in fixed costs, such as expenses associated with the Company's Mexico City
distribution center.
Interest Expense, Net. Interest expense remained approximately the same,
at $3.8 million each year, as interest rates in 1995 were slightly lower but
borrowing levels were slightly higher.
Effective Tax Rate. The effective tax rate decreased to 11.4% for 1995
from 41.3% for 1994. This decrease was partially attributable to tax benefits
related to the foreign sales corporation established by the Company during the
second quarter of 1994 and to lower state income taxes due to investment tax
credits associated with the Company's capital expenditure program. Additionally,
the reduced tax rate for 1995
19
<PAGE> 21
reflects an adjustment recorded during the fourth quarter as a result of tax law
changes in Massachusetts enacted in November 1995 which reduced the Company's
future deferred tax liability. See Note 6 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
Net Income. Net income for 1995 decreased to $5.5 million, or $0.67 per
share, from $9.5 million, or $1.15 per share, for 1994. For a discussion of
"Earnings Per Share," see Note 2(h) of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital
requirements through a combination of internally generated funds, borrowings,
and equipment leasing. The Company's capital requirements have arisen
principally in connection with the purchase of equipment to expand production
capacity and improve the Company's quality and productivity performance and with
an increase in the Company's working capital needs related to its sales growth.
The primary source of the Company's liquidity and capital resources has
been operating cash flow. The Company's net cash provided by operating
activities was $11.1 million, $12.0 million and $14.8 million in 1994, 1995 and
1996, respectively. The Company has supplemented its operating cash flow with
borrowings and equipment leases. Net borrowings (repayments) and equipment
leases were $5.5 million in 1994, $1.3 million in 1995 and $(2.5) million in
1996.
Over the last five years, the Company has placed in service new
manufacturing equipment with an aggregate cost of $51.0 million. Capital
expenditures in 1995 and 1996 were $13.2 million and $12.0 million,
respectively. Capital expenditures during 1996 were funded by operating cash
flow. Management anticipates that capital expenditures will total approximately
$22.1 million in 1997, consisting of $14.4 million, plus the estimated $4.2
million net proceeds to the Company from this offering, primarily for new
production equipment to expand chenille yarn capacity, increase weaving
capacity, and support the Company's marketing, productivity, quality, service
and financial performance objectives and $3.5 million to upgrade the Company's
management information systems. Management believes that the net proceeds to the
Company from this offering, together with operating income and borrowings under
the Company's Credit Agreement, will provide sufficient funding for the
Company's capital expenditures and working capital needs for the foreseeable
future.
As discussed in Note 5 of Notes to Consolidated Financial Statements, the
Company issued $30.0 million of 6.81% Series A Senior Notes due December 15,
2002 (the "Series A Notes") during 1995. Proceeds from the Series A Notes were
used to reduce borrowings under the Credit Agreement. The Series A Notes bear
interest at a fixed rate of 6.81% during the entire term, with no principal
payments due until December 15, 1998.
Additionally, the Company amended the Credit Agreement during 1995 to (i)
increase the revolving credit facility to $50.0 million, (ii) extend the
maturity date to December 31, 2000, and (iii) reduce the interest rate. As of
January 4, 1997, the Company had $4.0 million outstanding under the Credit
Agreement and unused availability of $45.5 million, net of outstanding letters
of credit.
The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Series A Notes, including, but not
limited to, maintenance of certain financial tests and ratios (including
interest coverage ratios, net worth related ratios, and net worth requirements);
limitations on certain business activities of the Company; restrictions on the
Company's ability to declare and pay dividends, incur additional indebtedness,
create certain liens, incur capital lease obligations, make certain investments,
engage in certain transactions with stockholders and affiliates, make capital
expenditures in excess of certain specified amounts, and purchase, merge, or
consolidate with or into any other corporation. The Company is currently in
compliance with all of the affirmative and negative covenants in the Credit
Agreement and the Series A Notes and management believes the Company's continued
compliance will not prevent the Company from operating in the normal course of
business.
20
<PAGE> 22
INFLATION
The Company does not believe that inflation has had a significant impact on
the Company's results of operations for the periods presented. Historically, the
Company believes it has been able to minimize the effects of inflation by
improving its manufacturing and purchasing efficiency, by increasing employee
productivity, by reflecting the effects of inflation in the selling prices of
the new products it introduces each year and, to a lesser degree, by increasing
the selling prices of those products which have been included in the Company's
product line for more than one year.
FOREIGN CURRENCY TRANSLATION
All of the Company's sales are denominated in U.S. dollars except sales
through the Company's Mexico City distribution center. These sales are
denominated in pesos and are, therefore, subject to currency fluctuations.
Accounts receivable in pesos at January 4, 1997 were $1.7 million.
Mexico has been designated as a "highly inflationary country" for purposes
of applying Statement of Financial Standards No. 52, Foreign Currency
Translation. Accordingly, in 1997 the Company will record translation gains and
losses in the income statement rather than as a separate component of equity.
See Note 2(i) of Notes to Consolidated Financial Statements included elsewhere
in this Prospectus.
21
<PAGE> 23
BUSINESS
GENERAL
Quaker is a leading designer, manufacturer and worldwide marketer of woven
upholstery fabrics for residential furniture and one of the largest producers of
Jacquard upholstery fabrics in the world. The Company is also a leading
developer and manufacturer of specialty yarns and management believes it is the
world's largest producer of chenille yarns, which Quaker both sells and uses in
the production of its fabrics. The Company's vertically integrated operations
provide Quaker with important design, cost and delivery advantages. The
Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues have grown from
$123.4 million in 1992 to $198.9 million in 1996, a compound annual growth rate
("CAGR") of 12.7%.
Quaker has been producing upholstery fabric for over fifty years and is a
full service supplier of Jacquard and plain woven upholstery fabric to the
furniture market. Quaker's current product line consists of over 3,000
traditional, contemporary, transitional and country fabric patterns intended to
meet the styling and design, color, texture, quality and pricing requirements of
promotional through middle to higher-end furniture manufacturers, and the
Company introduces approximately 700 new products to the market annually.
Management believes that Jacquard fabrics, with their detailed designs, provide
furniture manufacturers with more product differentiation opportunities than any
other fabric construction on the market. In addition, technological advances in
the speed and flexibility of the Jacquard loom have reduced the cost of
producing Jacquard fabrics, enabling them to compete more effectively with
prints, velvets, flocks, tufts and other plain woven products.
The Company sells its upholstery fabrics to over 600 domestic furniture
manufacturers, including virtually every significant domestic manufacturer of
upholstered furniture, such as Furniture Brands International (Action by Lane,
Broyhill and Thomasville), Klaussner, La-Z-Boy, Lifestyle Furnishings
International (Berkline, Benchcraft and others), Rowe and Simmons. Quaker also
distributes its fabrics internationally. In 1996, fabric sales outside the
United States of $35.7 million represented approximately 20.2% of gross fabric
sales. Quaker's October 1996 introduction of its Whitaker Collection, a branded
line of a select group of the Company's better-end products, has resulted in
incremental sales to a number of well known higher-end furniture manufacturers,
including Baker, Bernhardt, Henredon and Sherrill. Management estimates that
approximately 85% of the Company's fabric sales in recent years have been
manufactured to customer order.
THE INDUSTRY
Total domestic upholstery fabric sales, exclusive of automotive
applications, are approximately $2.0 billion annually. Management estimates the
size of the international fabric market to be at least twice that of the
domestic market. Due to the capital intensive nature of the fabric manufacturing
process and the importance of economies of scale in the industry, the domestic
industry is concentrated, with the top 15 upholstery fabric manufacturers,
including Quaker, accounting for over 80% of the total market. Most of the
largest U.S. fabric producers have expanded their export sales, leveraging their
size, distribution capabilities, technology advantages and broad product lines.
Demand for upholstery fabric is a function of demand for upholstered
furniture. The upholstered furniture market has grown from $5.4 billion in 1991
to $7.4 billion in 1995. Total upholstered furniture demand is affected by
population growth and demographics, consumer confidence, disposable income,
geographic mobility, housing starts, and home sales. Although the domestic
residential furniture industry is cyclical, periods of decline have been
relatively brief, with industry shipments decreasing in only two years since
1975.
The upholstery fabric covering a sofa, chair, or other piece of furniture
is one of the most significant factors influencing a furniture buyer's
selection. Purchase decisions are based primarily on the consumer's evaluation
of aesthetics, comfort, durability, quality and price. As a result, the fabric
decisions a furniture manufacturer makes play a critical role in its ability to
gain a product differentiation advantage at the retail level.
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<PAGE> 24
Management believes the long-term outlook for its upholstery fabric sales
will be influenced by certain trends:
(i) As "baby boomers" mature to the 35-64 year age group over the next decade,
they will be reaching their highest earnings power. This age group
includes the largest consumers of residential furniture.
(ii) Over the last several years, furniture manufacturers have moved toward
more highly styled Jacquards, at the expense of less distinctive fabrics,
such as flocks, plaids, plains, prints, stripes, tufts and velvets.
(iii) Consolidation in the furniture industry is resulting in fewer, but larger,
customers for upholstery fabric manufacturers. These larger customers
typically prefer to purchase their fabric requirements from a small number
of vendors able to provide a broad range of product choices, handle their
volume requirements and offer focused, customized service.
(iv) Homes are decorated more casually today than they were a decade ago,
resulting in a trend toward more comfortable furniture, as well as "motion
furniture." Historically, motion furniture was typically covered with less
expensive flock, plain, tufted or velvet fabrics. The development of
softer, more durable and highly styled Jacquards has allowed motion
furniture manufacturers to improve their profit margins by differentiating
their products.
(v) Pushed by consumers demanding immediate product delivery, the furniture
industry has increased its focus on just-in-time manufacturing methods and
shorter delivery lead times.
(vi) Both consumers and furniture manufacturers have placed increased emphasis
on product quality, enabling fabric manufacturers with effective quality
control systems to gain a competitive advantage.
(vii) Technological advances in the speed and flexibility of the Jacquard loom
have reduced the cost of producing Jacquard fabrics, enabling them to
compete more effectively with prints, velvets, flocks, tufts and other
plain woven products.
GROWTH STRATEGY
The Company's strategy to further its growth and financial performance
objectives includes:
Increasing Sales to the Middle to Better-End Segment. To capitalize on the
consolidation trend in the furniture industry, the Company has positioned itself
as a full service supplier of Jacquard and plain woven fabrics. The Company has
expanded its fabric line by increasing both the number of products it offers at
each price point and in each styling category, as well as the number of middle
to better-end fabrics in its line. This has enabled the Company to sell more
product to its existing customers, add new higher-end furniture manufacturers to
its customer base, and provide all of its customers with a greater selection. In
1996, to generate additional business from manufacturers of higher-end
upholstered furniture, Quaker began offering a select group of its middle to
better-end products exclusively to those customers under its Whitaker label.
Sales of the Company's middle to better-end fabrics, which Quaker first began
emphasizing in the early 1990s, have increased from $66.3 million, or 56.3% of
total fabric sales in 1992, to $121.7 million, or 69.0% of total fabric sales in
1996, a CAGR of 16.4%.
Expanding International Sales. The Company has made worldwide distribution
of its upholstery fabrics a key component of its growth strategy. Quaker has
built an international sales and distribution network, dedicated significant
corporate resources to the development of fabrics to meet the specific styling
and design needs of its international customers, and put programs in place to
simplify the purchase of product from Quaker. As a result, the Company's
international sales have increased from $18.3 million in 1992 to $35.7 million
in 1996, a CAGR of 18.2%.
Capitalizing on the Growth of the Casual Furniture Segment. Based upon its
leading position in the Jacquard market and its own internally produced chenille
yarns, management believes Quaker is well
23
<PAGE> 25
positioned to benefit from the growth of the casual furniture segment, where
soft, durable, distinctive fabrics, such as Quaker's Jacquard and other
chenilles, are in increasing demand. The Company believes its soft, highly
styled Jacquard chenille fabrics, including its Ankyra-based fabrics, are
particularly well suited to meet the needs of this market segment. The styling
advantages of the Company's more durable Jacquard chenille fabrics allow the
Company to compete effectively with flocks, velvets and tufted fabrics which
have traditionally enjoyed strong positions in this market segment.
Penetrating Related Fabric Markets. Management believes the superior
styling and performance characteristics of the Company's fabrics provide
opportunities to penetrate markets related to Quaker's core residential fabric
business. The Company has specifically targeted the contract (office and
institutional) and recreational vehicle markets, where management believes
Quaker's Jacquard chenille fabrics will provide the Company with a clear product
advantage. The Company has also targeted additional sales to the decorative
jobber (distributors to the interior design trade) market where management
believes the Company's recently introduced Whitaker Collection will have broad
appeal.
Growing Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns and management believes it is the world's largest producer of chenille
yarns. Sales of the Company's specialty yarns have increased from $7.8 million
in 1992 to $26.8 million in 1996, a CAGR of 36.2%. In addition to the popularity
of the Company's current line of specialty yarns, including its proprietary,
abrasion-resistant Ankyra chenille yarns, Quaker regularly creates innovative
new specialty yarns for use in the Company's fabrics and sale to the Company's
growing list of yarn customers. Quaker intends to increase sales by targeting
new markets and applications for its specialty yarns.
COMPETITIVE STRENGTHS
Management believes that the following competitive strengths distinguish
Quaker from its competitors and that these strengths serve as a solid foundation
for the Company's growth strategy:
Product Design and Development Capabilities. Management believes that
Quaker's reputation for design excellence and product leadership is, and will
continue to be, the Company's most important competitive strength. Each year the
Company adds approximately 700 new products to its line to meet the styling and
design, color, texture, quality and pricing requirements of furniture
manufacturers selling into both the promotional and middle to better-end
segments of the retail furniture market. Substantially all of the Company's
products are developed by the Company's in-house design staff using CAD
equipment to shorten the new product development cycle.
Focus on Jacquard Fabrics. Quaker is one of the largest producers of
Jacquard fabrics in the world. Management believes the detailed, copyrighted
designs of its Jacquard fabrics have enabled it to compete primarily based on
superior styling and design, contributing to Quaker's strong gross margin
performance.
Broad Product Offering. Over the past several years, the Company has taken
steps to expand both the breadth and depth of the Company's product line to
enable the Company to be a full service provider of Jacquard and plain woven
fabrics to its customers. The Company currently offers a product line consisting
of over 3,000 fabric patterns. As a result, the Company's customer base includes
virtually every significant domestic manufacturer of upholstered furniture.
Vertical Integration. Quaker is vertically integrated, beginning with the
production of specialty yarns. Quaker's ability to both design and manufacture
approximately 70% of its filling yarn requirements provides the Company with
significant design, cost and delivery advantages. The Company intends to
continue to increase these advantages through additional investments in
specialty yarn manufacturing equipment.
State-of-the-Art Manufacturing Equipment. Over the past five years, Quaker
has invested in excess of $51 million in new manufacturing equipment. Management
believes the Company now has one of the most modern, efficient and
technologically advanced manufacturing bases in the industry. Quaker intends to
spend approximately $14.4 million, plus the estimated $4.2 million net proceeds
to the Company of this offering, on additional manufacturing equipment during
1997, primarily to expand chenille manufacturing capacity,
24
<PAGE> 26
increase capacity in its weaving and fabric finishing areas and support its
marketing, productivity, quality, service and financial objectives.
PRODUCTS
The Company offers a broad assortment of contemporary, traditional,
transitional and country fabrics to manufacturers of both promotional-end and
middle to better-end furniture at prices ranging from $2.50 to $18.00 per yard.
While most of the Company's fabrics are sold under the Quaker label, the Company
began marketing a select group of its middle to better-end fabrics under its
Whitaker label in October 1996. In 1996 the Company's promotional-end fabric
line and its middle to better-end fabric line had average gross sales prices of
$3.40 per yard and $4.43 per yard, respectively, compared to $3.35 and $4.27,
respectively, in 1995. The average gross sales price per yard of the Company's
fabrics was $4.05 in 1996, compared to $3.88 in 1995.
Quaker's product line consists of low to medium pick (from 6 through 14
picks per inch) woven fabrics, purchased primarily by manufacturers of
promotional-end furniture; and medium to high pick (from 15 through 60 picks per
inch) woven fabrics, purchased primarily by manufacturers of middle to
higher-end furniture. In the textile industry, "picks per inch" refers to the
number of times the filling, or weft, yarn in a fabric crosses the warp yarn in
that fabric. Lower pick fabrics generally require the use of bulkier filling
yarns in order to effectively "fill" each inch of space to be "covered" and,
therefore, most lower pick fabrics have less well-defined designs and a
considerable amount of "texture" to them. Conversely, the higher pick content of
the Company's middle to better-end fabrics makes it possible for these fabrics
to have more well-defined design features and to present a smoother, finer, more
sophisticated appearance than its promotional-end fabrics.
Quaker's product line is focused on fabrics with complex designs referred
to in the industry as "Jacquards," because of the special Jacquard equipment, or
heads, required to produce them, and also includes a broad assortment of
striped, plaid, and plain fabrics. All of Quaker's looms are equipped with
Jacquard heads. The use of these heads makes it possible to vary the pattern,
color, and texture of both the filling and warp yarns in a fabric. Fabrics
manufactured on looms without Jacquard heads have a much more limited range of
possible designs.
Quaker's product offerings are noted for their wide use of chenille yarns,
which have a soft, velvet-like feel. To take advantage of casual furniture
trends, and to capitalize on the rapid growth of the motion furniture market,
Quaker developed a soft chenille yarn with superior abrasion resistance to
compete effectively with flocks, velvets and tufted fabrics. The Company markets
the line of chenille fabrics it produces using these yarns under its Ankyra
label. Through a licensing agreement with Monsanto Company, a number of the
Company's Ankyra-based chenille fabrics, as well as certain other fabrics in its
line, have been "Wear-Dated" by Monsanto.
The Company has taken steps to expand both the breadth and depth of the
Company's product portfolio by increasing the number of fabrics designed to meet
the needs of manufacturers of middle to higher-end upholstered furniture
products, and expanding the number of fabrics and styles offered at each price
point and in each styling category to provide all of the Company's customers
with more product choices. Quaker's broad product line is very important from a
competitive standpoint. It enhances the ability of the Company's customers to
meet most of their fabric needs through one full-service supplier while, at the
same time, allowing them to purchase fabrics in a wide enough range of designs
to enable them to differentiate their own new lines of upholstered furniture
from those of their competitors. In 1996, to generate additional business from
manufacturers of higher-end upholstered furniture, the Company began offering a
select group of its middle to better-end products exclusively to those customers
under its Whitaker label. Sales of the Company's middle to better-end fabrics
have increased from $66.3 million, or 56.3% of total fabric sales in 1992, to
$121.7 million, or 69.0% of total fabric sales in 1996.
NEW PRODUCT DEVELOPMENT AND DESIGN
Although management believes fashion trends in the upholstery industry do
not change significantly from year to year, consumer tastes in upholstery fabric
do change over time. Therefore, it is important to identify
25
<PAGE> 27
emerging fashion needs and to develop new products responsive to those needs.
Management believes Quaker's design staff has an established reputation for
design excellence and product leadership.
The Company's design department has overall responsibility for the
development of new upholstery fabric patterns for sale by the Company. Although
the Company purchases artwork from independent artists, the Company's staff of
professional designers and designer technicians creates the majority of the
designs on which the Company's fabric patterns are based and also determines the
construction of those patterns. The design department uses state-of-the-art CAD
equipment to reduce the new product development cycle.
The development of each new fabric line requires four to five months. The
first step in the new product development process is the preparation of a
merchandising plan for the line. The Company's merchandising plans are based on
extensive input from Quaker's sales representatives, senior managers, and major
customers and provide both a broad outline of the number of new products to be
included within each major styling category (e.g., contemporary, traditional,
transitional, and country), as well as the number of new products to be created
for sale at each of the major price points within those styling categories.
In addition, because of the design, cost, and delivery advantages of
Quaker's vertically integrated manufacturing operations, substantial emphasis is
placed on making maximum use of the Company's internally produced yarns during
the fabric development process. After each new fabric merchandising plan is
developed, members of the Company's fabric design and yarn development staffs
meet to identify the design staff's yarn requirements for the Company's next
fabric line and many of Quaker's proprietary yarns trace their origins to this
design-driven process. Quaker's engineering and manufacturing staffs also play a
key role in the new product development process by reviewing each proposed new
product to evaluate its impact on the Company's raw material costs, equipment
utilization rates and quality performance. Although some plain, striped and
plaid fabrics remain in the Company's product line for 10 years or more, a
successful product typically has a life of two to three years.
Quaker's design staff also regularly creates custom patterns for customers
seeking to differentiate their products for distribution purposes, hit a certain
price point at the retail level, or meet a particular styling need in the market
they serve. These patterns, which are not part of Quaker's "open line," are
known in the industry as "Specials."
SALES AND MARKETING
UPHOLSTERY FABRICS
Net fabric sales during 1996 were $171.9 million, or approximately 86.4% of
the Company's net sales. The Company sells its upholstery fabrics to over 600
furniture manufacturers worldwide, including substantially all of the largest
domestic manufacturers of upholstered furniture. Fabric sales to the Company's
top 25 customers accounted for approximately 40.8% of 1996 net sales. None of
the Company's customers accounted for more than 5% of net sales during 1996.
The Company uses a direct marketing force of 19 sales representatives, two
of whom are based in Quaker's Mexico City distribution center, to market its
fabrics in the United States and Mexico. All such sales representatives are paid
on a commission basis and represent the Company exclusively. Quaker's fabrics
are distributed internationally through a network of 27 independent commissioned
agents appointed to represent the Company in Europe, the Far East, Australia,
New Zealand, the Middle East, and Central and South America. All agents located
outside the United States are supervised by the Company's staff of four
full-time export sales managers with offices at the Company's headquarters.
Quaker's United States customers market their products through two annual
national furniture industry trade shows held in April and October in High Point,
North Carolina, as well as through various regional shows. These shows provide
most of Quaker's customers with the opportunity to introduce their new furniture
lines to their major retail customers in a single setting. Quaker's design and
marketing process is closely linked to these trade shows. The Company develops
two major lines for introduction to the Company's customers at the Showtime
Fabric Fairs held in High Point in January and July of each year. Almost all
major U.S. furniture manufacturers attend Showtime to begin selecting fabric for
the new lines of sofas and other
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upholstered furniture products that they will exhibit at the April and October
High Point Furniture Markets. The Company also introduces two less extensive
lines in April and October of each year to respond to competitive opportunities
identified at the January and July Showtime trade shows.
Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, Dubai, Germany,
Italy, and Mexico, as well as certain trade shows in the United States aimed at
the international market. Foreign sales of fabric accounted for approximately
20.2% of Quaker's gross fabric sales during 1996.
In addition to distribution from the Company's facilities in Fall River,
Massachusetts, Quaker maintains four distribution centers from which its
customers may purchase the Company's products directly. These facilities are
located in Los Angeles, California; Mexico City, Mexico; High Point, North
Carolina; and Verona, Mississippi. The Company also maintains inventory in
Roosendaal, Holland.
SPECIALTY YARNS
Net yarn sales during 1996 were $25.7 million, or approximately 12.9% of
the Company's net sales. The Company designs, manufactures and markets several
types of specialty yarns, including fancy spun, fancy twisted, taslan, and
chenille. Quaker is a leading developer and manufacturer of specialty yarns and
management believes it is the world's largest producer of chenille yarn, a soft
pile yarn which produces a velvet-like fabric. Chenille yarns, and fabrics made
out of chenille yarns, have become increasingly popular over the past several
years, in part, as a result of the recent trend toward softer, more casual home
furnishings and apparel. The Company's specialty yarns are sold under the name
of Nortex Yarns to manufacturers of home furnishings products, principally
weavers of upholstery fabric, throws, afghans and other products, as well as
manufacturers of sweaters and other apparel. The Company has approximately 55
yarn customers.
Management believes the technical expertise of Quaker's yarn development
staff provides the Company with an important competitive advantage by enabling
Quaker to create and market innovative specialty yarns to meet its customers'
styling and performance criteria. For example, the creation of Quaker's line of
Ankyra chenille yarns was an important product breakthrough for both Quaker and
its yarn customers. Historically, chenille yarns have had difficulty meeting the
durability standards required for use in fabrics which are likely to be
subjected to heavy wear, such as car seats and certain home furnishings
products. Quaker's yarn development staff created a finished chenille yarn with
superior abrasion resistance and the Company was recently notified that the
United States Patent and Trademark Office had approved its application for
patent protection of the Company's Ankyra process.
Quaker's Ankyra technology has enabled the Company to expand the sale of
its chenille yarns to makers of end products for which both softness and
durability are important. Management believes that this will prove to be a
source of further growth in the Company's yarn sales. In addition, the Company
believes that a number of the other specialty yarns developed by Quaker's yarn
development technicians have significant revenue potential and that important
market opportunities exist for all of its specialty yarns outside the United
States.
MANUFACTURING
All of Quaker's fabrics and yarns are manufactured at the Company's four
Fall River, Massachusetts manufacturing facilities and management estimates that
approximately 85% of the Company's fabric sales in recent years have been
manufactured to customer order. The Company's objective is to operate its
production facilities on a five to five and one half-day week, three-shift
schedule. However, during periods of heaviest demand, Quaker operates some or
all of its production areas on seven-day, three-shift schedules.
The Company's vertically integrated manufacturing process begins with the
production of specialty yarns, primarily for use in the production of the
Company's fabrics, but also for sale to manufacturers of home furnishings
products and apparel in the United States. Although the Company purchases all of
its commodity yarns, most of the Company's weft, or filling, yarn needs are met
through internal production. The next stage of the fabric manufacturing process
involves the preparation of beams of warp yarn. The beams are then sent to the
Company's weave rooms, where looms are used to weave the warp and filling yarns
together. The final steps in the fabric production process include the
application of a latex backing, to enhance the durability and
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performance characteristics of the end product, as well as a stain-resistant
finish upon customer request, and a final product quality inspection prior to
shipment to the Company's customers.
Quaker has added approximately 200 new looms to its manufacturing base
since the 1989 Acquisition and the addition of these newer looms has increased
both production capacity and efficiency, without a proportionate increase in
labor costs. All of the Company's looms are equipped with Jacquard heads,
maximizing the Company's ability to design its products to meet customer needs,
without being limited by equipment-related design constraints.
The Company's fabrics are generally shipped directly to its customers on an
FOB Fall River or FOB warehouse basis. The Company also supplies its
distribution centers with an appropriate selection of fabrics for customers
needing immediate delivery.
From the 1989 Acquisition through 1996, the Company placed in service
manufacturing equipment with an aggregate cost of approximately $62 million to
increase capacity, improve manufacturing efficiencies, and support the Company's
marketing, quality and delivery objectives. The Company plans to purchase during
1997 an additional $14.4 million, plus the estimated $4.2 million net proceeds
to the Company from this offering, of manufacturing equipment. Management
believes that during each of the next several years additional capital equipment
will be needed to meet anticipated demand for the Company's products.
QUALITY ASSURANCE
Management believes that product quality is a significant competitive
factor in both the domestic and international fabric markets and has established
aggressive performance objectives for the Company in this area. Quaker's quality
initiatives include:
- The introduction of a revised group incentive program in certain of its
production departments to factor quality into the overall compensation
programs in these areas.
- Inspection of all incoming raw materials to ensure they meet the
Company's product specifications and to provide prompt feedback to
vendors when defects are discovered so that corrective actions may be
undertaken immediately.
- The assignment of additional quality control staff to each of the
Company's weaving areas and to various other quality-critical production
departments to identify defects early in the manufacturing process.
- A final quality inspection of the Company's yarn and fabric products
before they are released for shipment.
- The use of statistical process control reports to provide continuous
monitoring of the Company's performance against industry standards and
its own internal quality standards.
- Progress toward ISO 9001 certification.
In addition to these measures, the built-in quality control features and
more precise settings on the new production equipment the Company has placed in
service since 1990 have also played an important role in the Company's efforts
to provide defect-free products to its customers.
Primarily as a result of the Company-wide quality improvement program
implemented in early 1996, the Company's quality-related return rate, as a
percentage of total yards shipped, improved from 0.8% in 1995 to 0.6% in 1996,
and the Company's sales of second-quality fabric decreased by 45.3%, from $3.9
million in 1995 to $2.2 million in 1996.
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TECHNOLOGY
As part of Quaker's overall strategy to improve productivity and achieve a
service advantage over its competitors, the Company strives to introduce new
technologies into its operations whenever possible. Quaker's efforts in this
area include: (i) the use of its MRP II system to provide computer support to
the Company's manufacturing operations; (ii) the use of CAD equipment to reduce
the time required to bring its new products to market, including the design of
"Specials"; (iii) the use of bar-coding systems to improve both the efficiency
of its own manufacturing operations and service to its customers; and (iv) the
use of electronic Jacquard heads and other production equipment equipped with
microprocessors to improve manufacturing efficiencies and reduce unit costs.
During 1996, the Company completed a comprehensive re-evaluation of its
data processing systems and developed a long-range information systems plan
intended to meet the Company's future management information needs and to
provide new and innovative technology solutions to the Company's customers. As a
result of this study, Quaker is in the process of upgrading its MRP II system to
an Enterprise Resource Planning ("ERP") system, with a full conversion to ERP
expected during 1998. Management believes that the installation of the Company's
new ERP system will enhance Quaker's ability to meet its quality and service
objectives by: (i) providing Quaker's customers with direct access to the system
to check the status of their orders; (ii) reducing delivery lead times by
improving the Company's ability to accurately forecast its raw material
requirements, provide better and more timely information to its vendors and
schedule its production operations more efficiently; and (iii) providing
computerized support to the Company's quality control system and ISO 9001
certification efforts.
The Company's CAD equipment is used not only to develop new fabric designs
but also to prepare plastic Jacquard cards for use with the Company's mechanical
Jacquard heads, and computer disks for use with Quaker's newer electronic
Jacquard heads. These plastic cards and computer disks contain precise
instructions about the construction of the particular fabric pattern to be
woven; however, the use of computer disks substantially reduces the amount of
equipment downtime required for style changes, resulting in improved
manufacturing efficiencies. See "Business -- New Product Development and
Design."
The Company first introduced bar-coding technology in certain of its
operations in 1993. In 1997, Quaker plans to introduce bar-coding technology in
the balance of its manufacturing areas so that material movement can be traced
electronically from receiving to shipping.
Much of the new equipment Quaker has added to its manufacturing base since
the 1989 Acquisition is equipped with microprocessors and other electronic
controls. In particular, all the Jacquard heads purchased by the Company since
1993 are electronic, substantially reducing the amount of time it takes to
change from the production of one fabric pattern to the next, and contributing
to improved productivity in Quaker's manufacturing areas.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Quaker's raw materials consist principally of polypropylene, polyester,
acrylic, cotton and rayon fibers and yarns for use in its yarn manufacturing and
fabric weaving operations, and latex to backcoat its finished fabrics. In
addition, Quaker purchases commission dyeing services from various dyehouses
which dye, to the Company's specifications, certain of the yarns the Company
produces internally and purchases from other manufacturers. Substantially all of
the raw materials used by the Company are purchased from primary producers with
manufacturing operations in the United States. The Company is dependent upon
outside suppliers for its raw material needs, including dyeing services, and is
subject to price increases and delays in receiving these materials and services.
The Company's raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying market for petrochemicals in
general. Historically, the Company has been able to pass through a substantial
portion of any increases in its raw material costs; however, the Company
experienced significant increases in certain raw material prices in 1995 which
it was not able to pass through fully to its customers during 1995 and which
contributed to a reduction in the Company's 1995 gross margin.
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Future price levels of raw materials will depend upon supply and demand
conditions, the general inflation rate, and overall economic conditions.
Although other sources are available, the Company currently procures
approximately one-half of its raw material components from two major industry
suppliers, one of which is the sole supplier of a filament yarn used in the
Company's chenille manufacturing operations. Generally, Quaker has not
experienced any significant difficulty in meeting its raw material needs,
expects that it will be able to obtain adequate amounts to meet future
requirements, and seeks to identify alternate sources for all critical raw
material components.
COMPETITION
The markets for the Company's products are highly competitive. Competitive
factors in the upholstery fabric business include product design, styling,
price, customer service and quality. Price is a more important competitive
factor in the promotional-end of the market than it is in the middle to
better-end of market, where competition is weighted more heavy toward fabric
styling and design considerations. Although the Company has experienced no
significant competition in the United States from imports to date, changes in
foreign exchange rates or other factors could make imported fabrics more
competitive with the Company's products in the future.
The Company's principal competitors include: Burlington House Upholstery
Division of Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation,
the Mastercraft Division of Collins & Aikman Corporation and Valdese Weavers,
Inc. Several of the companies with which the Company competes have greater
financial resources than the Company. The Company's products compete with other
upholstery fabrics and furniture coverings, including prints, flocks, tufts,
velvets and leather.
BACKLOG
As of January 4, 1997, the Company had orders pending for approximately
$29.1 million of fabric and yarn compared to $24.5 million as of December 30,
1995. The Company's backlog position at any given time may not be indicative of
the Company's long-term performance.
TRADEMARKS, PATENTS, COPYRIGHTS
The Company seeks copyright protection for all new fabric designs it
creates, and management believes that the copyrights owned by the Company serve
as a deterrent to those industry participants which might otherwise seek to
replicate the Company's unique fabric designs. In June 1995, the Company
introduced a new collection of fabrics featuring Quaker's proprietary Ankyra
chenille yarns. The Company has recently been notified that the United States
Patent and Trademark Office has approved its application for patent protection
of the proprietary manufacturing process developed by Quaker to produce these
yarns. Quaker has also filed an application with the United States Patent and
Trademark Office for registration of its Whitaker mark.
INSURANCE
The Company maintains general liability and property insurance. The costs
of insurance coverage vary generally and the availability of certain coverages
has fluctuated in recent years. While the Company believes that its present
insurance coverage is adequate for its current operations, there can be no
assurance that the coverage is sufficient for all future claims or will continue
to be available in adequate amounts or at reasonable rates.
EMPLOYEES
The Company is the largest manufacturer, and the second largest private
sector employer, in Fall River, Massachusetts. As of January 5, 1997, Quaker
employed 1,647 persons, including 1,339 production employees, 111 technical and
clerical employees, and 197 exempt employees and commissioned sales
representatives. The Company's employees are not represented by a labor union.
In October 1994, the Teamsters Local 251, headquartered in East Providence,
Rhode Island, filed an election petition. In
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November 1994, the union withdrew its election petition. Management believes
that employee relations are good.
PROPERTIES
Quaker is headquartered in Fall River, Massachusetts where it currently has
four facilities, three used primarily for manufacturing purposes, including
warehouse space. The fourth facility houses the Company's executive,
administrative and design areas as well as certain manufacturing operations. The
Company has three distribution centers in the United States and one in Mexico.
The table below sets forth certain information relating to the Company's current
facilities:
<TABLE>
<CAPTION>
APPROXIMATE
ENCLOSED AREA
LOCATION PRIMARY USE (SQUARE FEET) OWNERSHIP
- --------------------------------------------------- ----------------------------------- --------
<S> <C> <C> <C>
Grinnell Street, Fall River........................ Manufacturing 728,000 Owned
Quequechan Street, Fall River...................... Manufacturing 244,000 Owned
Davol Street, Fall River........................... Offices/Manufacturing 245,000 Owned
Ferry Street, Fall River........................... Manufacturing 193,000 Owned
Verona, Mississippi................................ Distribution Center 20,000 Owned
City of Industry, California....................... Distribution Center 17,286 Leased(1)
Mexico City, Mexico................................ Distribution Center 9,000 Leased(2)
High Point, North Carolina......................... Distribution Center 8,500 Leased(3)
</TABLE>
- ---------------
(1) Lease expires October 1, 2001.
(2) Lease expired February 5, 1997. The Company is in the process of negotiating
a renewal.
(3) Lease expires July 31, 2001.
The Company also maintains inventory at a public warehouse in Roosendaal,
Holland. Quaker has sales offices in Fall River, Massachusetts; Mexico City,
Mexico; Hickory and High Point, North Carolina; Chicago, Illinois; Tupelo,
Mississippi; and Los Angeles, California. All of the Company's sales offices,
except the one in Fall River, Massachusetts, are leased.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state, and local
laws and regulations pertaining to the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company's facilities are located in industrial areas and, therefore, there is
the possibility of incurring environmental liabilities as a result of historic
operations at the Company's sites. Environmental liability can extend to
previously owned or leased properties, properties owned by third parties, and
properties currently owned or leased by the Company. Environmental liabilities
can also be asserted by adjacent landowners or other third parties in toxic tort
litigation. In addition, under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and analogous
state statutes, liability can be imposed for the disposal of waste at sites
targeted for cleanup by federal and state regulatory authorities. Liability
under CERCLA is strict as well as joint and several. Further, certain of the
Company's manufacturing areas are subject to OSHA's "Comprehensive Cotton Dust
Standard." Environmental laws and regulations are subject to change in the
future, and any failure by the Company to comply with present or future laws or
regulations could subject it to future liabilities or interruption of production
which could have a material adverse effect on the Company. In addition, changes
in environmental regulations could restrict the Company's ability to expand its
facilities or require the Company to incur substantial unexpected other expenses
to comply with such regulations.
In particular, the Company is aware of soil and groundwater contamination
relating to the use of certain underground fuel oil storage tanks at its Fall
River facilities. The Company has notified the Commonwealth of Massachusetts
regarding these releases. The Company's ultimate clean-up costs relating to
these underground storage tanks cannot be predicted with certainty at this time.
In addition, during the fourth quarter of 1993 the
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Company removed and encapsulated asbestos at two of its facilities and the
Company has an on-going asbestos management program in place to appropriately
maintain the asbestos that remains present at its facilities. At Quaker's former
facility in Claremont, New Hampshire, it has been determined that there is oil-
contaminated soil, as well as groundwater contamination, resulting from a leak
during the mid-1970s from an underground fuel storage tank. The Company has
agreed to indemnify the purchaser for clean-up costs subject to certain
limitations. The Company has also agreed to indemnify the purchaser of the
Company's former facility in Leominster, Massachusetts, for certain
environmental contingencies.
The Company has accrued reserves for environmental matters based on
information presently available. Based on this information and the Company's
established reserves, the Company does not believe that these environmental
matters will have a material adverse effect on either the Company's financial
condition or results of operations. However, there can be no assurance that
these reserves will be adequate or that the costs associated with environmental
matters will not increase in the future.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
legal proceedings incidental to its business, which, in the opinion of
management, are immaterial in amount or are expected to be covered by the
Company's insurance carriers.
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MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ---- -------------------------------------------------
<S> <C> <C>
Larry A. Liebenow(1)(2)................... 53 President, Chief Executive Officer, and Director
Anthony Degomes(2)........................ 56 Vice President--New Business Development
James A. Dulude........................... 41 Vice President--Manufacturing
Thomas J. Finneran........................ 56 Vice President--Sales
Cynthia L. Gordan......................... 49 Vice President, Secretary, and General Counsel
Paul J. Kelly............................. 52 Vice President--Finance and Treasurer
Thomas H. Muzekari........................ 56 Vice President--Marketing
M. Beatrice Spires........................ 35 Vice President--Styling and Design
J. Duncan Whitehead(2).................... 54 Vice President--Technology and Development, and
Yarn Sales
Sangwoo Ahn(1)(3)......................... 58 Chairman of the Board
Perry J. Lewis(1)(3)...................... 59 Director
Eriberto R. Scocimara(4).................. 61 Director
Ira Starr(3)(4)........................... 37 Director
</TABLE>
- -------------------
(1) Member of Compensation Committee.
(2) Affiliated with Nortex Holdings.
(3) Affiliated with Morgan Lewis Githens & Ahn, Inc.
(4) Member of Audit Committee.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There are no family relationships among any
of the Company's directors or executive officers.
Larry A. Liebenow. Mr. Liebenow has served as President, Chief Executive
Officer, and a Director of the Company since September 1989. From July 1983
until September 1989, Mr. Liebenow was Chairman of the Board and President of
Nortex International, Inc., a manufacturer and distributor of specialty yarns
which was merged into the Company in the 1989 Acquisition ("Nortex
International"). From September 1971 to July 1983, Mr. Liebenow served as the
Chief Operating Officer of Grupo Pliana, S.A., a Mexican yarn and upholstery
fabric manufacturing concern. Mr. Liebenow is also a trustee of Eastern
Utilities Associates; a Director of the U.S. Chamber of Commerce, Chairman of
its Western Hemisphere Task Force and a member of its International Policy
Committee; and a Director of the American Textile Manufacturers Institute.
Anthony Degomes. Mr. Degomes has been employed by the Company since
September 1989 and has served as Vice President -- New Business Development
since March 1996. Mr. Degomes served as Vice President -- Styling and Design of
the Company from September 1991 to March 1996. From December 1990 to September
1991, Mr. Degomes served as the Company's Director of Styling and Design. From
September 1989 to November 1990, Mr. Degomes served as the Vice
President -- Styling, Design and Development of the Company's Nortex Division.
From March 1984 to September 1989, Mr. Degomes served as the Vice President in
charge of Styling and Development for Nortex International.
James A. Dulude. Mr. Dulude has been employed by the Company since May
1986 and has served as Vice President -- Manufacturing since August 1995. Mr.
Dulude served as Vice President -- Purchasing, Planning and MIS from November
1990 to August 1995. Mr. Dulude served as the Company's Director of Purchasing
and Planning from May 1989 to November 1990, Director of Planning and Scheduling
from July 1988 to May 1989, and Director of Information Systems from May 1986 to
July 1988.
Thomas J. Finneran. Mr. Finneran has been employed by the Company since
January 1982, and has served as Vice President -- Sales since March 1996. Mr.
Finneran served as Vice President -- Marketing
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from July 1988 to March 1996 and Vice President -- Sales from January 1982 to
July 1988. From 1973 to January 1982, Mr. Finneran was responsible for sales and
marketing of velvets, Jacquard and dobbie product lines at Joan Fabrics
Corporation.
Cynthia L. Gordan. Ms. Gordan has been employed by the Company since March
1988 and has served as Vice President, Secretary, and General Counsel of the
Company since March 1989. Ms. Gordan is also responsible for the Company's Risk
Management, Investor Relations and Human Resources functions. From April 1986 to
November 1987, Ms. Gordan served as a Senior Associate in the Corporate
Department of the Chicago law firm of Katten Muchin & Zavis. From November 1981
to April 1986, Ms. Gordan was employed by The General Electric Company where she
served first as the Vice President and General Counsel of General Electric's
life, property and casualty insurance affiliates in Providence, Rhode Island,
and later as the strategic planner and acquisition specialist for a division of
General Electric Capital Corporation.
Paul J. Kelly. Mr. Kelly has served as Vice President -- Finance,
Treasurer and Chief Financial Officer of the Company since December 1989, and
since November 1993 has also had responsibility for working with industry and
institutional equity research analysts. From January 1988 to December 1989, Mr.
Kelly was the co-founder and President of International Business Brokers and
Consultants Ltd., a business broker and consulting firm. From December 1977 to
December 1987, Mr. Kelly served as Chief Financial Officer of Ferranti Ocean
Research Equipment, Inc., an international manufacturing concern. From February
1973 to December 1977, he was a certified public accountant with Arthur Andersen
& Co.
Thomas Muzekari. Mr. Muzekari has served as Vice President -- Marketing
since March 1996. From September 1989 until February 1996, Mr. Muzekari was the
Vice President -- Marketing for the Velvet Division of Collins & Aikman Group,
Inc. ("C&A").
M. Beatrice Spires. Ms. Spires has been employed by the Company since
September 1995 and has served as Vice President -- Styling and Design since
March 1996. From September 1995 to March 1996, Ms. Spires served as Quaker's
Director of Design. From July 1992 to September 1995, Ms. Spires was Vice
President -- Merchandising for the Velvet Division of C&A.
J. Duncan Whitehead. Mr. Whitehead has served as Vice
President -- Technology and Development, and Yarn Sales since December 1996. Mr.
Whitehead served as Vice President -- Research and Technology, and Yarn Sales
from August 1995 to December 1996. Mr. Whitehead served as Vice
President -- Yarn Sales and Development from May 1990 to August 1995. From
September 1989 to May 1990, Mr. Whitehead was the Vice President -- Sales and
Marketing for the Company's Nortex Division. From July 1983 to September 1989,
Mr. Whitehead served as Vice President of Sales and Marketing for Nortex
International.
Sangwoo Ahn. Mr. Ahn has served as a director of the Company since March
12, 1993 and Chairman of the Board since May 19, 1993. Mr. Ahn has served as a
general partner of MLGAL Partners, L.P. ("MLGAL"), the general partner of MLGA
Fund since 1987 and as a managing director of its affiliate, Morgan Lewis
Githens & Ahn, Inc., an investment banking firm, since 1982. Mr. Ahn also serves
as a director of Gradall Industries, Inc., Kaneb Services, Inc., Kaneb Pipe Line
Partners, L.P., ITI Technologies Inc., PAR Technology Corp., and Stuart
Entertainment, Inc.
Perry J. Lewis. Mr. Lewis has served as a director of the Company since
March 12, 1993. Since 1987, Mr. Lewis has served as a general partner of MLGAL
and as a managing director of its affiliate, Morgan Lewis Githens & Ahn, Inc.,
since 1982. Mr. Lewis also serves as a director of Aon Corporation, Evergreen
Media Corporation, Stuart Entertainment, Inc., ITI Technologies, Inc., and
Gradall Industries, Inc.
Eriberto R. Scocimara. Mr. Scocimara has served as a director of the
Company since December 14, 1993. Since April 1, 1994, Mr. Scocimara has been the
President and Chief Executive Officer of the Hungarian-American Enterprise Fund,
a private tax-exempt Delaware corporation established pursuant to Federal law
for the purpose of promoting private enterprise in Hungary. Mr. Scocimara has
been the President and Chief Executive Officer of Scocimara & Company, Inc., a
financial consulting firm, and a general partner of Rockwood Holdings
International, a partnership organized for the purpose of acquiring and
operating small companies, since 1984. Since 1990, he has also been a partner of
The Contrarian Group, an investment and
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<PAGE> 36
management company. Mr. Scocimara also serves as a director of Carlisle
Corporation, Harrow Corporation, Roper Industries, Inc., and several privately
owned companies.
Ira Starr. Mr. Starr has served as a director of the Company since March
12, 1993. Mr. Starr served as a Vice President of Morgan Lewis Githens & Ahn,
Inc. from May 1988 to December 1993 and has been a managing director since
January 1994. Mr. Starr also serves as a director of Haynes International, Inc.
and Stuart Entertainment, Inc.
In connection with the 1993 Recapitalization, the stockholders of the
Company entered into a stockholders agreement (the "Stockholders Agreement")
pursuant to which Nortex Holdings granted MLGA Fund, for so long as MLGA Fund
beneficially owns at least 20% of the outstanding Common Stock, a proxy with
respect to such number of shares of Common Stock owned by Nortex Holdings as
would enable MLGA Fund to vote a majority of the outstanding shares of Common
Stock. The Stockholders Agreement also provides that, for so long as the proxy
is outstanding, MLGA Fund will vote its shares of Common Stock, and the shares
of Common Stock subject to the proxy, to cause Mr. Liebenow to continue to serve
as a director of the Company. The Stockholders Agreement will terminate upon
consummation of this offering. There are no other arrangements or understandings
between any director and any other person as to his election as Director.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
The Company's President, Secretary and Treasurer are elected annually by the
Board at its first meeting following the annual meeting of stockholders. All
other executive officers hold office until their successors are chosen and
qualified.
Pursuant to Section 145 of the DGCL, Article NINTH of the Company's
certificate of incorporation provides that the Company shall indemnify its
directors and officers against liability for certain of their acts. Article
EIGHTH of the Company's certificate of incorporation provides that, except to
the extent prohibited by the DGCL, no director of the Company shall be liable to
the Company for monetary damages for breach of his fiduciary duty as a director.
In addition, the Company has entered into indemnification agreements with
certain of its directors indemnifying such persons against judgments and other
expenses incurred in connection with pending or threatened litigation resulting
from that director's position with the Company. The Company also provides its
directors and officers with coverage under a director's and officer's liability
insurance policy.
COMMITTEES
The Board has established an Audit Committee consisting of two directors
and a Compensation Committee consisting of three directors. The Audit Committee,
currently composed of Messrs. Scocimara and Starr, meets periodically with
management and the Company's independent accountants to determine the adequacy
of internal controls and other financial reporting matters. The Compensation
Committee, currently composed of Messrs. Ahn, Lewis and Liebenow, reviews
general policy matters relating to compensation and benefits of employees
generally and has responsibility for reviewing and approving compensation and
benefits for all officers of the Company. The Compensation Committee also
administers the Company's stock option plans.
DIRECTORS' REMUNERATION
With the exception of Mr. Scocimara, directors of the Company do not
receive a fee for serving as directors. For his services as a director of the
Company, Mr. Scocimara is paid a $15,000 annual retainer and is entitled to
receive a $1,000 fee for each Board and Committee meeting attended. It is
anticipated that following the consummation of this offering, Messrs. Ahn, Lewis
and Starr will be paid for their services as directors. All directors are
reimbursed for all out-of-pocket expenses incurred by them in connection with
their attendance at Board meetings.
Effective July 28, 1995, the Company granted to Mr. Scocimara an option
(the "Director's Option"), exercisable at any time prior to April 18, 2005, to
purchase 5,000 shares of Common Stock at an exercise price of $11.00 per share.
The Director's Option provides that it will vest in equal annual installments
over a three-
35
<PAGE> 37
year period. For a period of three months following the termination of
directorship for any reason except for cause (as defined in the Director's
Option), the optionholder may exercise that portion of the option which was
otherwise exercisable on the date of termination. Upon termination of the
directorship for cause, all unexercised options would be forfeited.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Liebenow, Ahn and Lewis. Mr.
Liebenow, who is President, Chief Executive Officer and a director of the
Company, participates in all discussions and decisions regarding salaries,
benefits and incentive compensation for all employees of the Company, except
discussions and decisions relating to his own salary, benefits and incentive
compensation.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
the Company for services rendered during 1994, 1995 and 1996 to the Chief
Executive Officer of the Company and to each of the four other most highly
compensated executive officers of the Company whose total cash compensation for
1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
- ------------------------------------------------------------------- ----- --------- -------- ----------------
<S> <C> <C> <C> <C>
Larry A. Liebenow.................................................. 1996 575,000 60,000(2) 44,982(3)
President and Chief 1995 574,519 -- 43,857(4)
Executive Officer 1994 550,000 75,000(5) 41,501(6)
Thomas J. Finneran................................................. 1996 272,885 25,000(7) 16,150(3)
Vice President -- Sales 1995 260,000 -- 15,550(4)
1994 252,885 38,500(8) 15,000(6)
Anthony Degomes.................................................... 1996 205,000 25,000(7) 24,594(3)
Vice President -- New Business Development 1995 202,500 -- 23,572(4)
1994 187,500 38,500(8) 21,662(6)
Cynthia L. Gordan.................................................. 1996 170,000 25,000(7) 10,600(3)
Vice President, Secretary and 1995 163,654 -- 10,150(4)
General Counsel 1994 147,308 38,500(8) 9,000(6)
J. Duncan Whitehead ............................................... 1996 170,000 25,000(7) 23,867(3)
Vice President -- Technology and 1995 155,961 -- 22,370(4)
Development, and Yarn Sales 1994 140,000 38,500(8) 21,389(6)
</TABLE>
- ---------------
(1) The aggregate amount of other annual compensation paid to each of the named
executive officers during 1994, 1995 and 1996 was less than $50,000 and also
less than 10% of the total annual salary and bonus paid to each.
(2) Consists of a bonus paid in 1997 attributable to 1996 operations pursuant to
the terms of the Employment Agreement (as hereinafter defined).
(3) Includes the Company's payment of $34,500, $15,750, $12,300, $10,200 and
$9,300 to cover insurance premiums on the split dollar insurance policies
being used to informally fund the Company's obligations to Messrs. Liebenow,
Finneran and Degomes, Ms. Gordan and Mr. Whitehead, respectively, under the
Company's Retirement Plan (as hereinafter defined); the Company's
contribution of $400 to each of Messrs. Liebenow's and Finneran's, Ms.
Gordan's and Mr. Whitehead's accounts under the Company's 401(k) plan; and
the Company's payment of $10,082, $12,294 and $14,167 in insurance premiums
due with respect to certain personal life and disability insurance policies
owned by Messrs. Liebenow, Degomes and Whitehead, respectively.
(4) Includes the Company's payment of $33,375, $15,150, $11,850, $9,750 and
$8,550 to cover insurance premiums on the split dollar insurance policies
used to informally fund the Company's obligations to Messrs. Liebenow,
Finneran and Degomes, Ms. Gordan and Mr. Whitehead, respectively, under the
Company's Retirement Plan; the Company's contribution of $400 to each of
Messrs. Liebenow's,
36
<PAGE> 38
Finneran's and Whitehead's and Ms. Gordan's accounts under the Company's
401(k) plan; and the Company's payment of $10,082, $11,722 and $13,420 in
insurance premiums due with respect to certain personal life and disability
insurance policies owned by Messrs. Liebenow, Degomes and Whitehead,
respectively.
(5) Consists of a bonus paid in 1995 attributable to 1994 operations pursuant to
the terms of the Employment Agreement.
(6) Includes the Company's payment of $31,500, $15,000, $10,350, $8,700 and
$8,130 to cover insurance premiums on the split dollar insurance policies
being used to informally fund the Company's obligations to Messrs. Liebenow,
Finneran and Degomes, Ms. Gordan and Mr. Whitehead, respectively, under the
Company's Retirement Plan; the Company's contribution of $300 to each of
Messrs. Liebenow's and Whitehead's and Ms. Gordan's accounts under the
Company's 401(k) plan; and the Company's payment of $9,701, $11,312 and
$12,959 in insurance premiums due with respect to certain personal life and
disability insurance policies owned by Messrs. Liebenow, Degomes and
Whitehead, respectively.
(7) Consists of a bonus paid in 1997 attributable to 1996 operations.
(8) Consists of payments made in 1995 to such officer pursuant to the Company's
1994 EIC Plan (as hereinafter defined).
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the fiscal
year-end value of unexercised options held by the executives named in the
Summary Compensation Table. No options were exercised by these executives in
1996.
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF THE VALUE OF THE
SECURITIES SECURITIES UNEXERCISED IN- UNEXERCISED IN-
UNDERLYING UNDERLYING THE-MONEY THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END(#) FY-END($)(1) FY-END($)(1)
----------------- ----------------- ----------------- -----------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Larry A. Liebenow......................... 148,751(2) 99,167(2) $ 1,885,419 $ 1,256,946
Thomas J. Finneran........................ 31,852(3) 21,235(3) $ 310,716 $ 250,892
7,489(4) -- 46,469 --
------- ------ --------- ---------
39,341 21,235 $ 357,185 $ 250,892
======= ====== ========= =========
Anthony Degomes........................... 30,466(2) 20,310(2) $ 386,157 $ 257,429
Cynthia L. Gordan......................... 31,852(3) 21,235(3) $ 310,716 $ 250,892
7,489(4) -- 46,469 --
------- ------ --------- ---------
39,341 21,235 $ 357,185 $ 250,892
======= ====== ========= =========
J. Duncan Whitehead....................... 42,999(2) 28,666(2) $ 545,008 $ 363,329
------- ------ --------- ---------
</TABLE>
- ---------------
(1) Based on a closing sales price of $13.875 per share as quoted on the Nasdaq
National Market on January 3, 1997, the last trading date in fiscal 1996.
(2) Represents the indicated person's proportionate interest (based upon
ownership of Nortex Holdings shares) in the Nortex Option. The exercise
price of the shares covered by each option is $1.20 per share and the Nortex
Option covers a total of 370,359 shares of Common Stock. The unvested
portion of the Nortex Option will vest upon the consummation of this
offering.
(3) Represents options granted by the Company to certain executive officers of
the Company (the "1993 Stock Option Plan"). The exercise price of the shares
covered by each option is $4.12 per share as to 60% of the shares
purchasable upon exercise of the option and $2.06 per share as to 40% of the
shares purchasable upon exercise of the option. Pursuant to the 1993 Stock
Option Plan, all unvested options granted thereunder will vest upon the
consummation of this offering.
(4) Represents options with an exercise price of $7.67 per share granted by
Nortex Holdings to certain executive officers of the Company (the "Holdings
Options").
37
<PAGE> 39
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
The Company is a party to an Employment Agreement, amended as of February
24, 1997 (the "Employment Agreement"), with Larry A. Liebenow pursuant to which
Mr. Liebenow serves as President and Chief Executive Officer of the Company on a
full-time basis for the period ending March 12, 2002, subject to an automatic
three-year extension unless terminated by the Company upon one year's prior
notice. Mr. Liebenow may terminate the Employment Agreement at any time upon
three months' prior notice. The Employment Agreement provides for a base salary
of $600,000 (effective January 1, 1997), subject to annual increases as may be
determined by the Board, as well as certain benefits and reimbursement of
expenses. The Employment Agreement provides for annual bonuses in such amounts
as the Board shall determine. Pursuant to the Employment Agreement, the Company
has the right to terminate Mr. Liebenow's employment only for cause (as defined
in the Employment Agreement). Upon voluntary termination of employment by Mr.
Liebenow, termination of his employment for cause (other than conviction of a
crime involving moral turpitude) or termination of his employment for any other
reason (other than conviction of a crime involving moral turpitude), Mr.
Liebenow will receive a lump sum payment equal to three times his prior year's
base salary plus any bonus paid or payable with respect to the prior year. If
the Employment Agreement had terminated as of February 24, 1997, Mr. Liebenow
would have been entitled to receive $1,905,000. The Employment Agreement also
provides for the continuation of his salary through March 12, 2002 in the event
Mr. Liebenow dies or becomes disabled or incapacitated. In addition, the
Employment Agreement prohibits Mr. Liebenow from disclosing or using any
confidential information of the Company or competing with the Company during the
period of his employment and for one year thereafter.
The Company has entered into severance agreements with three of its
executive officers, including Mr. Finneran and Ms. Gordan. Pursuant to these
agreements, in the event Mr. Finneran's employment is terminated without cause,
Mr. Finneran will be entitled to receive an amount equal to one year's base
salary (based on his highest annual base salary) payable monthly in arrears and,
for the one year period following his termination date, will be further entitled
to continue to participate in each of the fringe benefit programs offered by the
Company to its employees generally. In the event Ms. Gordan or the other Company
officer with a similar agreement, is terminated without cause, Ms. Gordan and
such other officer will be entitled to receive an amount equal to six months'
base salary (based on their respective highest annual base salaries) payable
monthly in arrears and, for the six month period following his or her
termination date, will be further entitled to continue to participate in each of
the fringe benefit programs offered by the Company to its employees generally.
If the employment relationship of each executive officer with a severance
agreement had terminated on January 4, 1997, Mr. Finneran and Ms. Gordan would
have been entitled to receive $270,000, and $85,000 respectively, and the three
executive officers as a group would have been entitled to receive $440,000.
BENEFIT PLANS
1993 STOCK OPTION PLAN
Effective April 13, 1993, the Company established the 1993 Stock Option
Plan in which officers and other key employees of the Company may participate.
Options granted under the 1993 Stock Option Plan are nonqualified options. The
1993 Stock Option Plan provides for the issuance of options to purchase up to
318,354 shares of Common Stock, subject to adjustment under certain
circumstances. The 1993 Stock Option Plan is intended to provide participating
employees with a more direct stake in the success of the Company and to support
the Company's efforts to attract and retain qualified employees.
The 1993 Stock Option Plan is administered by the Compensation Committee of
the Board of the Company. A subcommittee of the Compensation Committee,
consisting solely of non-employee directors, determines, subject to the
provisions of the Plan and such limitations as the Board may from time to time
38
<PAGE> 40
impose, the persons to whom, and the time or times at which, grants shall be
made, the number of shares of Common Stock subject to an option, and other terms
and provisions of the options.
The exercise price of the shares of Common Stock covered by each option is
$4.12 per share as to 60% of the shares purchasable upon exercise of the option
and $2.06 per share as to 40% of the shares purchasable upon exercise of the
option. The 1993 Stock Option Plan provides that each option will vest in equal
annual installments over a five-year period, with that portion of the option
with the higher exercise price vesting first. For a period of the lesser of
three months or the remaining term of the option following the termination of
employment for any reason other than voluntary termination or termination for
cause (as defined in the 1993 Stock Option Plan), an optionholder may exercise
any unexercised options to the extent such options are then exercisable. Upon
termination of employment for cause, all unexercised options are forfeited.
Options may not be exercised after the tenth anniversary of the date of grant.
Upon the occurrence of a change in control of the Company (as defined in the
1993 Stock Option Plan) all options granted will become immediately exercisable
in full.
As of January 4, 1997, there were outstanding options under the 1993 Stock
Option Plan to purchase an aggregate of 306,348 shares of Common Stock at a
weighted average exercise price of $3.29 per share, including options to
purchase 53,087 shares held by each of Mr. Finneran and Ms. Gordan each at a
weighted average exercise price of $3.29.
Pursuant to the change in control provisions of the 1993 Stock Option Plan,
all unvested options granted thereunder will vest upon the consummation of this
offering.
1996 STOCK OPTION PLAN
Effective April 26, 1996, the Company established the 1996 Stock Option
Plan in which key middle management employees of the Company may participate.
Options granted under the 1996 Stock Option Plan are nonqualified options. The
1996 Stock Option Plan provides for the issuance of options to purchase up to
100,000 shares of Common Stock, subject to adjustment under certain
circumstances. The 1996 Stock Option Plan is intended to provide participating
employees with a more direct stake in the success of the Company and to support
the Company's efforts to attract and retain qualified employees.
The 1996 Stock Option Plan is administered by the Compensation Committee of
the Board of the Company. The Compensation Committee determines, subject to the
provisions of the Plan and such limitations as the Board may from time to time
impose, the persons to whom, and the time or times at which, grants shall be
made, the number of shares of Common Stock subject to an option, and other terms
and provisions of the options.
The exercise price of the shares of Common Stock covered by each option is
not less than the fair market value of the Common Stock at the date of grant.
The 1996 Stock Option Plan provides that each option will vest in equal annual
installments over a five-year period. For a period of the lesser of three months
or the remaining term of an option following the termination of employment
because of an optionholder's death, disability (as defined in the 1996 Stock
Option Plan) or retirement (as defied in the 1996 Stock Option Plan), an
optionholder may exercise any unexercised options to the extent such options are
then exercisable. Upon termination of employment for reasons other than death,
disability or retirement, all unexercised options are forfeited. Options may not
be exercised after the tenth anniversary of the date of grant. Upon the
occurrence of certain business combinations all options granted will become
immediately exercisable in full.
As of January 4, 1997 under the 1996 Stock Option Plan, there were
outstanding options to purchase an aggregate of 46,500 shares of Common Stock at
a weighted average exercise price of $8.25 per share.
No portion of the options granted under the 1996 Stock Option Plan will
vest as a result of this offering.
1997 STOCK OPTION PLAN
Effective February 24, 1997, the Company established the 1997 Stock Option
Plan (subject to stockholder approval) in which officers and other key employees
of the Company may participate. Options
39
<PAGE> 41
granted under the 1997 Stock Option Plan are nonqualified options. The 1997
Stock Option Plan provides for the issuance of options to purchase up to 500,000
shares of Common Stock, subject to adjustment under certain circumstances. The
1997 Stock Option Plan is intended to provide participating employees with a
more direct stake in the success of the Company and to support the Company's
efforts to attract and retain qualified employees.
The 1997 Stock Option Plan is administered by the Compensation Committee of
the Board of the Company. A sub-committee of the Compensation Committee,
consisting solely of non-employee directors, determines, subject to the
provisions of the Plan and such limitations as the Board may from time to time
impose, the persons to whom, and the time or times at which, grants shall be
made, the number of shares of Common Stock subject to an option, and other terms
and provisions of the options.
The exercise price of the shares of Common Stock covered by each option
will be not less than the fair market value of the Common Stock at the date of
grant, except as described below. The 1997 Stock Option Plan provides that each
option will vest in equal annual installments over a five-year period. For a
period of the lesser of three months (one year in the case of death) or the
remaining term of an option, following the termination of employment for any
reason other than voluntary termination or termination for cause (as defined in
the 1997 Stock Option Plan), an optionholder may exercise any unexercised
options to the extent such option is then exercisable. Upon termination of
employment for cause, all unexercised options are forfeited. Options may not be
exercised after the tenth anniversary of the date of grant. Upon the occurrence
of a change in control of the Company (as defined in the 1997 Stock Option Plan)
all options granted will become immediately exercisable in full, except as
otherwise provided in an option agreement.
As of February 24, 1997, there were outstanding, subject to stockholder
approval, options under the 1997 Stock Option Plan to purchase an aggregate of
330,000 shares of Common Stock. Of these options, 90,000 have been granted to
Mr. Liebenow, 30,000 to Mr. Finneran, 30,000 to Mr. Degomes, 30,000 to Ms.
Gordon, and 30,000 to Mr. Whitehead. The exercise price of all of these options
will be the fair market value of the Common Stock on the date of stockholder
approval. The Company intends to seek stockholder approval for the 1997 Stock
Option Plan at its annual meeting to be held in May 1997.
No portion of the options granted under the 1997 Stock Option Plan will
vest as a result of this offering.
NORTEX OPTION
Effective as of April 13, 1993, the Company granted to Nortex Holdings the
Nortex Option, exercisable at any time prior to April 13, 2003, to purchase
370,359 shares of Common Stock, subject to adjustment under certain
circumstances. The Nortex Option provides that it will vest over a five-year
period. Upon the occurrence of a change in control of the Company (as defined in
the Nortex Option), the Nortex Option will become immediately exercisable in
full. The exercise price of the shares of Common Stock covered by the Nortex
Option is $1.20 per share and may be paid in cash or by delivery of a seven-year
promissory note (non-recourse to the stockholders of Nortex Holdings) which will
bear interest at the federal Mid-Term Rate (as promulgated by the United States
Secretary of the Treasury) for the month of issuance of the note and be secured
by a pledge of the Common Stock purchased pursuant thereby. Messrs. Liebenow,
Whitehead and Degomes own 66.94%, 19.35% and 13.71%, respectively, of the
outstanding Nortex Holdings common stock.
The unvested portion of the Nortex Option will vest upon the consummation
of this offering.
HOLDINGS OPTIONS
Effective as of April 13, 1993, Nortex Holdings granted the Holdings
Options to certain executive officers of the Company, exercisable at any time
prior to April 13, 2003, to purchase 29,956 shares of Common Stock held by
Nortex Holdings, subject to adjustment under certain circumstances. The Holdings
Options are fully vested. The exercise price of the shares of Common Stock
covered by the Holdings Options is $7.67 per share.
40
<PAGE> 42
For a period of three months following the termination of employment for
any reason other than voluntary termination or termination for cause (as defined
in the Holdings Options), an optionholder may exercise any unexercised options
to the extent such options are then exercisable. Upon termination of employment
for cause, all unexercised options will be forfeited. Pursuant to the Holdings
Options, Mr. Finneran and Ms. Gordan each received options to purchase 7,489
shares of Common Stock.
MEDICAL EXPENSE REIMBURSEMENT PLAN
Since April 1, 1990, the Company has maintained a Medical Expense
Reimbursement Plan (the "Medical Plan") for the benefit of its executive
officers. Pursuant to the Medical Plan, executive officers of the Company
receive reimbursement for all medical expenses up to the plan limit, incurred by
them or their dependents, to the extent such expenses are not covered under the
group medical plan available generally to all Company employees. The
reimbursement limitation under the Medical Plan for each plan participant is
$10,000 per year.
INCENTIVE COMPENSATION PLAN
The Company's annual executive incentive compensation plans (the "EIC
Plans"), in which all the Company's Vice Presidents participate, are designed to
encourage the executives to work effectively together as a team and to establish
a clear relationship between the Company's financial performance and overall
executive compensation levels. The Compensation Committee bases the formula for
the EIC Plan bonus pools on a percentage (which, in the last three years has
ranged from 3 to 7%) of the amount by which the Company's Adjusted Pre-tax
Income during the applicable EIC Plan year exceeds the preceding year's Adjusted
Pre-tax Income, subject to a maximum bonus paid equal to 25% of the aggregate
base salaries paid to all EIC Plan participants during the applicable EIC Plan
year. Each EIC Plan participant's actual allocable share of the bonus pool is
determined by Quaker's President and reviewed by the Compensation Committee. The
formulas resulted in no bonus pools for EIC Plan years 1995 and 1996, and a
bonus pool of approximately $260,000 for 1994. No payments are permitted under
the EIC Plan to participants who resigned or were terminated for cause during
the applicable EIC Plan year. Pro rata distributions would have been made with
respect to any participant who died, became disabled, retired, or whose
employment was terminated without cause during the applicable EIC Plan year.
It is anticipated that the Company will continue, annually, to establish
executive incentive compensation plans similar to those described above.
DEFERRED COMPENSATION PLAN
On July 16, 1992, the Company established a Deferred Compensation Plan (the
"Retirement Plan"), for the benefit of all of the Company's executive officers.
Pursuant to the provisions of the Retirement Plan, the Company has agreed to
provide certain benefits to each plan participant based on the value of
accumulated contributions made under the Retirement Plan on their behalf and
split-dollar variable life insurance contracts insuring the lives of each plan
participant have been purchased to informally fund its obligations under the
Retirement Plan. Among the benefits provided to each plan participant are a
pre-retirement death benefit, a monthly retirement benefit payable over a
15-year period beginning at age 65 for a participant who terminates employment
after attaining age 55 and completing at least five years of plan participation,
and certain other amounts payable pursuant to the provisions of the Retirement
Plan in the event a plan participant's employment with the Company is terminated
prior to attaining age 55 and completing five years of plan participation. The
Company has established an irrevocable "grantor" trust for the purpose of
accumulating the amounts needed to pay benefits under the Retirement Plan and to
hold the variable life insurance contracts. The Company has agreed to make
annual contributions to the trust in an amount equal to 6% of the base salaries
of all plan participants (or such higher amount as the Board of Directors may
determine). The assets of the trust will be considered to be assets of the
Company for purposes of satisfying the claims of the Company's general
creditors.
41
<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
In September 1989, the Company was acquired by a European company and
Nortex Holdings, a corporation owned by three officers of the Company, including
Larry A. Liebenow, the President and Chief Executive Officer of the Company. In
early 1993, the Company reacquired all of the European company's interest in
Quaker in the 1993 Recapitalization. To finance the 1993 Recapitalization, the
Company issued Common Stock and other securities to MLGA Fund and other
affiliates of Morgan Lewis Githens & Ahn, an investment banking firm. See
"Management."
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of February 1, 1997 and as adjusted to reflect the
completion of this offering, by (i) each of the Company's directors and
executive officers, (ii) all directors and executive officers of the Company as
a group, (iii) each person who is known by the Company to own beneficially more
than five percent of the outstanding shares of the Common Stock and (iv) each of
the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------- SHARES ---------------------
NAME NUMBER PERCENT OFFERED(1) NUMBER PERCENT
- ------------------------------------ --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
MLGA Fund II, L.P.(2) .............. 3,674,798 45.8% 3,000,000 674,798 8.1%
Nortex Holdings, Inc.(3)............ 2,123,552 25.3 100,000 2,023,552 23.3
Larry A. Liebenow(4)(5)............. 2,123,552 25.3 100,000 2,023,552 23.3
Anthony Degomes(5)(6)............... 2,123,552 25.3 100,000 2,023,552 23.3
J. Duncan Whitehead(5)(7)........... 2,123,952 25.3 100,000 2,023,952 23.3
Sangwoo Ahn(8)(9)................... 3,735,652 46.6 3,000,000 735,652 8.8
Perry J. Lewis(8)(10)............... 3,705,652 46.2 3,000,000 705,652 8.5
Eriberto R. Scocimara(11)........... 5,000 * 0 5,000 *
Ira Starr(12)....................... 13,235 * 0 13,235 *
James A. Dulude(5)(13).............. 60,776 * 0 60,776 *
Thomas J. Finneran(5)(14)........... 60,576 * 0 60,576 *
Cynthia L. Gordan(5)(14)............ 60,576 * 0 60,576 *
Paul J. Kelly(5)(15)................ 67,932 * 0 67,932 *
Thomas H. Muzekari(5)(16)........... 47,000 * 0 47,000 *
M. Beatrice Spires(5)(16)........... 47,000 * 0 47,000 *
All executive officers and directors
as a group (13 persons)........... 6,252,553 71.6 3,100,000 3,152,553 34.9
</TABLE>
- ---------------
* Less than 1%
(1) Assuming the several Underwriters exercise the over-allotment option in
full, MLGA Fund will sell an additional 510,000 shares of Common Stock,
reducing its beneficial ownership to 164,798 shares of Common Stock or 2.0%
of the outstanding shares.
(2) Consists of shares of Common Stock owned directly by MLGA Fund. Does not
include shares owned by Nortex Holdings as to which MLGA Fund has been
granted a proxy. See "Management." The address of MLGA Fund is Two
Greenwich Plaza, Greenwich, Connecticut 06830. The general partners of
MLGAL, including Sangwoo Ahn and Perry J. Lewis, who are directors of the
Company, may be deemed to beneficially own the shares of Common Stock owned
directly by MLGA Fund. Messrs. Ahn and Lewis disclaim beneficial ownership
of such shares.
(3) Consists of (i) 1,753,193 shares of Common Stock owned directly by Nortex
Holdings and (ii) 370,359 shares which Nortex Holdings has the right to
acquire upon exercise of the Nortex Option (see "Management--Benefit
Plans--Nortex Option"). Nortex Holdings has granted a proxy to MLGA Fund
which will entitle MLGA Fund to vote certain of its shares, which proxy
will terminate upon consummation of this offering, and has granted options
to purchase 29,956 shares of Common Stock to
42
<PAGE> 44
(footnotes from previous page)
certain executive officers of the Company. See "Management--Benefit
Plans--Holdings Option." The address of Nortex Holdings is 941 Grinnell
Street, Fall River, Massachusetts 02721.
(4) Consists of shares of Common Stock beneficially owned by Nortex Holdings.
See footnote (3). Mr. Liebenow is the President, a director and the
majority stockholder of Nortex Holdings and, as such, may be deemed to
beneficially own the shares owned by Nortex Holdings. Mr. Liebenow has a
non-binding understanding with the Underwriters pursuant to which he is to
reinvest in Common Stock the after-tax net proceeds of this offering
attributable to his proportionate interest in Nortex Holdings (either
directly or indirectly through repurchase of Nortex Holdings securities
held by other Nortex Holdings stockholders).
(5) The address for the named individual is c/o Quaker Fabric Corporation, 941
Grinnell Street, Fall River, Massachusetts 02721.
(6) Consists of shares of Common Stock beneficially owned by Nortex Holdings.
See footnote (3). Mr. Degomes is an officer, director and stockholder of
Nortex Holdings and, as such, may be deemed to beneficially own the shares
owned by Nortex Holdings.
(7) Consists of (i) the shares of Common Stock beneficially owned by Nortex
Holdings and (ii) 400 shares of Common Stock held by Mr. Whitehead's
children. See footnote (3). Mr. Whitehead is an officer, director and
stockholder of Nortex Holdings and, as such, may be deemed to beneficially
own the shares owned by Nortex Holdings.
(8) Includes 3,674,798 shares owned directly by MLGA Fund. The general partner
of MLGA Fund is MLGAL. Messrs. Lewis and Ahn are general partners of MLGAL
and may be deemed to beneficially own these shares. Messrs. Lewis and Ahn
disclaim any beneficial interest in all shares beneficially owned by MLGA
Fund. The address for Messrs. Ahn and Lewis is c/o Morgan Lewis Githens &
Ahn, Inc., Two Greenwich Plaza, Greenwich, Connecticut 06830.
(9) Includes 50,854 shares of Common Stock owned directly by Mr. Ahn and 10,000
shares of Common Stock held by his children.
(10) Includes 30,854 shares of Common Stock owned directly by Mr. Lewis.
(11) Consists of shares of Common Stock which Mr. Scocimara has the right to
acquire upon the exercise of the Director's Option. See
"Management -- Directors' Remuneration." Mr. Scocimara's address is c/o
Hungarian-American Enterprise Fund, 666 Steamboat Road, Greenwich,
Connecticut 06830.
(12) Consists of 13,235 shares of Common Stock owned directly by Mr. Starr. The
address for Mr. Starr is c/o Morgan Lewis Githens Ahn, Inc., Two Greenwich
Plaza, Greenwich, Connecticut 06830.
(13) Consists of 60,576 shares of Common Stock which Mr. Dulude has the right to
acquire upon the exercise of options granted under the 1993 Stock Option
Plan and the Holdings Options and 200 shares of Common Stock held by his
children.
(14) Consists solely of shares of Common Stock which the individual has the
right to acquire upon the exercise of options granted under the 1993 Stock
Option Plan and the Holdings Options.
(15) Consists of 7,356 shares of Common Stock held by Mr. Kelly and 60,576
shares of Common Stock which Mr. Kelly has the right to acquire upon the
exercise of options granted under the 1993 Stock Option Plan and the
Holdings Options.
(16) Consists solely of shares of Common Stock which the individual has the
right to acquire upon the exercise of options granted under the 1993 Stock
Option Plan.
Except as noted in the footnotes, the Company believes the beneficial
holders listed in the table above have sole voting and investment power
regarding the shares shown as being beneficially owned by them. Except as noted
in the footnotes, none of such shares is known by the Company to be shares with
respect to which the beneficial owner has the right to acquire such shares.
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<PAGE> 45
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, of which 8,021,097 were outstanding
on January 4, 1997, and 50,000 shares of preferred stock, par value $.01 per
share, none of which is outstanding. As of February 14, 1997, there were 49
holders of record of the Common Stock.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote for each
outstanding share of Common Stock owned by him on each matter property submitted
to the stockholders for their vote. Nortex Holdings has granted a proxy with
respect to certain of its shares, which proxy will terminate upon consummation
of this offering. See "Management."
Except as may be limited by the terms and provisions of any class of
preferred stock which may be authorized by the Board in the future and the terms
of the Credit Agreement and the Series A Notes, holders of Common Stock are
entitled to any dividend declared by the Board out of funds legally available
for such purpose. See "Dividend Policy." Subject to the liquidation preference
of any class of preferred stock which may be authorized by the Board in the
future, holders of Common Stock are entitled to receive on a pro rata basis all
remaining assets of the Company available for distribution to the holders of
Common Stock in the event of the liquidation, dissolution, or winding up of the
Company.
Holders of Common Stock have no preemptive or other subscription rights,
and there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of Common Stock are, and
the shares of Common Stock to be sold in this offering will be, upon issuance
and payment therefor, fully paid and nonassessable.
PREFERRED STOCK
The certificate of incorporation of the Company authorizes the issuance of
50,000 shares of preferred stock. The Board, within the limitations and
restrictions contained in the certificate of incorporation and without further
action by the Company's stockholders, has the authority to issue shares of
preferred stock from time to time in one or more series and to fix the number of
shares and the relative rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preferences and any other preferences, special
rights, and qualifications of any such series. If shares of preferred stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
entitled to vote and by the creation of class or series voting rights. In
addition, any further issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change of control of
the Company and may adversely affect the rights of holders of Common Stock.
There are no shares of preferred stock currently issued and outstanding and the
Company has no present plans to issue any shares of preferred stock or to
establish or designate any series of preferred stock.
STOCKHOLDER RIGHTS PLAN
The Board has adopted the Rights Plan to give it increased power to
negotiate in the best interests of the Company with certain potential acquirors
and to discourage appropriation of control of the Company at a price that is
unfair to its stockholders. It is not intended to prevent fair offers for
acquisition of control determined by the Board to be in the best interests of
the Company and its stockholders, nor is it intended to prevent a person or
group from obtaining representation on or control of the Board through a proxy
contest, or to relieve the Board of its fiduciary duty to consider any proposal
for acquisition of the Company in good faith.
The Rights Plan provides for the distribution of one "Right" as a dividend
on each outstanding share of the Common Stock. The distribution will be made to
all holders of record on a date prior to consummation of this offering. Rights
will generally be issued with respect to each share of Common Stock issued after
such record date, including the shares to be issued in this offering. Each Right
shall entitle the holder to purchase one-tenth of a share of Common Stock. The
Rights generally become exercisable upon certain triggering events involving the
acquisition of 15% or more of the outstanding Common Stock or ten days after the
44
<PAGE> 46
initiation of a tender or exchange offer, and the exercise price is based on the
estimated long-term value of the Common Stock. The exercise of these rights
becomes economically attractive upon the triggering of certain "Flip-In" or
"Flip-Over" provisions. The Flip-In provisions will permit their holders to
purchase shares of Common Stock at a discounted rate, resulting in substantial
dilution of an acquiror's voting and economic interests in the Company. The
Flip-Over element of the Rights Plan involves certain mergers or significant
asset purchases, which trigger certain rights to purchase shares of the
acquiring or surviving company at a discount. The Rights Plan contains a
"Permitted Offer" exception to allow offers determined by the Board to be in the
best interests of the Company and its stockholders to take place free of the
dilutive effects of the Rights Plan's mechanisms.
The Board retains the right (at all times prior to acquisition of 15% of
the Common Stock by an acquiror) to discontinue the Rights Plan through
redemption of all Rights or to amend the Rights Plan in any respect.
The Rights Plan will not apply to certain acquisitions by MLGA Fund, Nortex
Holdings and certain of their transferees.
CERTAIN PROVISIONS
Provisions of the Company's certificate of incorporation and bylaws and of
Delaware law may make it more difficult for a third party to acquire, or may
discourage acquisition bids for, the Company and could limit the price that
certain investors may be willing to pay in the future for shares of Common
Stock.
Restrictions on Certain Business Combinations. The Company's certificate
of incorporation requires the affirmative vote of the holders of at least
66 2/3% of the votes which all the stockholders would be entitled to cast at any
annual election of directors or class of directors to approve any merger or
consolidation of the Company with any other corporation or a sale, lease,
transfer or exchange of all or substantially all the assets of the Company or
the adoption of any plan for the liquidation or dissolution of the Company.
Removal of Directors. The Company's bylaws require the affirmative vote of
80% of the voting power of all the shares of the Company entitled to vote in the
election of directors to remove a director. Following the offering, Nortex
Holdings, which is owned by three officers of the Company including Mr.
Liebenow, will hold 23.3% of the outstanding Common Stock.
Vote Required to Amend or Repeal Certain Provisions of the Company's
Certificate of Incorporation and Bylaws. The Company's certificate of
incorporation requires the affirmative vote of 80% of the voting power of all
the shares of the Company, to amend or repeal certain provisions of the
certificate of incorporation and bylaws. Following the offering, Nortex
Holdings, which is owned by three officers of the Company including Mr.
Liebenow, will hold 23.3% of the outstanding Common Stock.
Requirements for Advance Notification of Stockholder Nomination and
Proposals. The Company's bylaws establish advance notice procedures with regard
to stockholder proposals and the nomination, other than by or at the direction
of the Board or a committee thereof, of candidates for election as directors.
Director's Liability. The Company's certificate of incorporation provides
that to the fullest extent permitted by the DGCL, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under current Delaware law, liability of
a director may not be limited: (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases, and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's
certificate of incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek non-monetary relief such as an injunction or recision
in the event of a breach of a director's duty of care. In addition, the
Company's certificate of incorporation provides that the Company shall indemnify
its directors and executive officers to the fullest extent permitted by Delaware
law.
45
<PAGE> 47
Section 203 of the DGCL. The Company as a Delaware corporation, is subject
to Section 203 of the DGCL. In general, Section 203 prevents an "interested
stockholder" (defined as a person who is the owner of 15% or more of a
corporation's voting stock, or who, as an affiliate or associate of a
corporation, was the owner of 15% or more of that corporation's voting stock
within the prior three years) from engaging in a "business combination" (as
defined under the DGCL) with a Delaware corporation for three years following
the date such person became an interested stockholder unless: (i) before such
person became an interested stockholder the board of directors of the
corporation approved the transaction or the business combination in which the
interested stockholder became an interested stockholder, (ii) upon consummation
of the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation and shares held by certain employee stock ownership plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer), or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the corporation not owned by the "interested stockholder." A "business
combination" generally includes mergers, stock or asset sales and other
transactions resulting in a financial benefit to the "interested stockholders."
TRANSFER AGENT
The transfer agent for the Common Stock is The First National Bank of
Boston.
46
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 8,321,097 shares of
Common Stock outstanding. Of these shares, a total of 5,776,498 shares
(6,286,498 shares if the Underwriters' over-allotment option is exercised in
full), including all of the shares of Common Stock sold in this offering, will
be freely tradable without restriction or limitation under the Securities Act.
The remaining 2,544,599 shares are "restricted securities" within the meaning of
Rule 144 adopted under the Securities Act (the "Restricted Securities"). The
Restricted Securities were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and may not be sold except in compliance with the registration requirements
of the Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act.
All of the Restricted Securities are currently eligible for sale in the
public market pursuant to Rule 144. In general, under Rule 144 as currently in
effect, any affiliate of the Company or any person (or persons whose shares are
aggregated in accordance with Rule 144) who has beneficially owned such
Restricted Securities for at least two years (reduced to one year effective late
April 1997) would be entitled to sell a number of shares that does not exceed
the greater of 1.0% of the outstanding shares of Common Stock (approximately
83,211 shares based upon the number of shares outstanding after this offering)
or the reported average weekly trading volume in the over-the-counter market for
the four weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale restrictions and notice requirements and to the
availability of current public information concerning the Company. Persons who
have not been affiliates of the Company and who have held their shares for more
than three years (reduced to two years effective late April 1997) are entitled
to sell Restricted Securities without regard to the volume, manner of sale,
notice and public information requirements of Rule 144.
As of February 24, 1997, outstanding options to purchase 1,028,951 shares
of Common Stock were held by certain officers, directors and employees of the
Company and Nortex Holdings pursuant to the Nortex Option, the Director's Option
and the Company's stock option plans and an aggregate of 235,506 shares were
available for the grant of future options under the Company's stock option
plans. The Company has registered 306,348 shares of Common Stock issuable upon
the exercise of stock options which will be available for sale in the open
market on exercise. As of February 24, 1997, an aggregate of 381,247 shares were
subject to presently exercisable stock options and, upon consummation of this
offering, options to purchase an additional 327,083 shares will become
exercisable.
The Company, its executive officers and directors and each of the Selling
Stockholders (who, upon completion of this offering, will beneficially own in
the aggregate 3,152,553 shares of Common Stock, or 2,642,553 shares if the
Underwriters' over-allotment option is exercised in full) each have agreed
(except as to an aggregate of 100,000 shares previously pledged) that they will
not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant or any option to
purchase or other sale or disposition) of any shares of Common Stock or other
capital stock of the Company or any securities convertible into, or exercisable
or exchangeable for, any shares of Common Stock or other capital stock of the
Company, or any right to purchase or acquire Common Stock or other capital stock
of the Company, for a period of 180 days, in the case of the Company, the
Selling Stockholders and certain of their affiliates, and 90 days, in the case
of other directors and officers, after the date of this Prospectus, without the
prior consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except for bona fide gifts or transfers effected by such
stockholders other than on any securities exchange or in the over-the-counter
market to donees or transferees that agree to be bound by similar agreements and
except for issuances by the Company and sales by Nortex Holdings pursuant to the
exercise of certain stock options outstanding upon completion of this offering.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without prior notice, release all or any portion of the shares of Common Stock
subject to such agreements.
The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities.
47
<PAGE> 49
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, The Robinson-Humphrey Company, Inc. and Wheat, First
Securities, Inc. are acting as representatives of the Underwriters (the
"Representatives"), severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth below
opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated....................................
The Robinson-Humphrey Company, Inc. ..................................
Wheat, First Securities, Inc. ........................................
---------
Total....................................................... 3,400,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the public offering, the
offering price and the concession may be changed by the Representatives.
MLGA Fund, as a Selling Stockholder, has granted the Underwriters an
over-allotment option, exercisable for 30 days from the date of this Prospectus,
to purchase up to 510,000 additional shares of Common Stock at the public
offering price, less underwriting discounts, as set forth on the cover page of
this Prospectus. The Underwriters may exercise such option solely for the
purpose of covering over-allotments incurred in the sale of the shares of Common
Stock offered hereby. To the extent such option to purchase is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to 3,400,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
The Company, its directors and executive officers and each of the Selling
Stockholders who, upon completion of this offering, will beneficially own in the
aggregate 3,152,553 shares (2,642,553 shares if the Underwriters' over-allotment
option is exercised in full), have agreed (except as to 100,000 shares
previously pledged) not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, or any right to purchase or acquire Common Stock or other
capital stock of the Company for a period of 180 days, in the case of the
Company, the Selling Stockholders and certain of their affiliates, and 90 days
in the case of other directors and executives officers, after the date of this
Prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for bona fide gifts or
transfers effected by such stockholders other than on any securities exchange or
in the over-the-counter market to donees or transferees that agree to be bound
by similar agreements and except for issuances by the Company and sales by
Nortex Holdings pursuant to the exercise of certain stock options
48
<PAGE> 50
outstanding upon completion of this offering. Prudential Securities Incorporated
may, in its sole discretion, at any time and without prior notice, release all
or any portion of the shares of Common Stock subject to such agreements.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers of sales of the
Common Stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering then
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
510,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Prudential Life Insurance Company of America ("The Prudential"), an
affiliate of Prudential Securities Incorporated, is a limited partner of the
MLGA Fund and holds an approximately 16.9% interest in MLGA Fund's holdings of
Common Stock. MLGA Fund is selling 3,000,000 shares of Common Stock in this
offering (3,510,000 shares if the Underwriters' over-allotment option is
exercised in full). As a result, an affiliate of Prudential Securities
Incorporated will receive more than 10% of the proceeds of this offering. In
addition, The Prudential and one or more of its affiliates hold the entire $30.0
million in principal amount of the Company's Series A Notes.
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"), due to the ownership interest in the Company of The Prudential,
the Company may be deemed to be an affiliate of Prudential Securities
Incorporated. Accordingly, the public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with the requirement, Wheat, First Securities, Inc. is serving in
such role and will recommend a price in compliance with the requirements of the
Conduct Rules. Wheat, First Securities, Inc., in its role as qualified
independent underwriter, has performed a due diligence investigation and has
reviewed and participated in the preparation of this Prospectus and the
registration statement of which this Prospectus forms a part. In accordance with
the NASD Conduct Rules, no NASD member participating in the distribution is
permitted to confirm sales to accounts over which it exercises discretionary
authority without prior specific written consent.
Wheat, First Securities, Inc., one of the several Underwriters of this
offering, acted as placement agent for the Company's sale of the Series A Notes
and received a customary commission in connection therewith.
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<PAGE> 51
LEGAL MATTERS
Certain matters with respect to the legality of the shares of Common Stock
offered hereby will be passed upon for the Company by Proskauer Rose Goetz &
Mendelsohn LLP, New York, New York. Certain legal matters relating to this
offering will be passed upon for the Underwriters by Fulbright & Jaworski
L.L.P., New York, New York. Certain members of Proskauer Rose Goetz & Mendelsohn
LLP have acted as counsel to Nortex Holdings and its affiliates in certain
matters, including acting as counsel to Nortex Holdings and Mr. Liebenow in the
1993 Recapitalization.
EXPERTS
The consolidated financial statements and financial statement schedules
appearing elsewhere in this Prospectus and Registration Statement, to the extent
and for the periods indicated in their reports, have been audited by Arthur
Andersen LLP as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
ADDITIONAL INFORMATION
The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a World Wide Web site, containing such
reports, proxy statements and other information regarding the Company, at
"http://www.sec.gov." In addition, such reports, proxy statements and other
information concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
50
<PAGE> 52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets -- December 30, 1995 and January 4, 1997.................. F-3
Consolidated Statements of Income -- For the years ended December 31, 1994, December
30, 1995 and January 4, 1997........................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity -- For the years ended
December 31, 1994, December 30, 1995 and January 4, 1997............................ F-5
Consolidated Statements of Cash Flows -- For the years ended December 31, 1994,
December 30, 1995 and January 4, 1997............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO QUAKER FABRIC CORPORATION:
We have audited the accompanying consolidated balance sheets of Quaker
Fabric Corporation (a Delaware corporation) and subsidiaries as of January 4,
1997 and December 30, 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years ended
January 4, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Quaker
Fabric Corporation and subsidiaries as of January 4, 1997 and December 30, 1995,
and the results of their operations and their cash flows for each of the three
years ended January 4, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 1997
F-2
<PAGE> 54
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 200 $ 385
Accounts receivable, less allowances of $1,985 and $2,052 at
December 30, 1995 and January 4, 1997, respectively, for
doubtful accounts and sales returns and allowances........... 24,211 26,261
Inventories................................................... 23,156 27,737
Prepaid and refundable income taxes........................... 1,702 694
Prepaid expenses and other current assets..................... 2,371 2,837
-------- ---------
Total current assets..................................... 51,640 57,914
Property, plant and equipment, net of depreciation and
amortization..................................................... 79,156 84,045
Other assets:
Goodwill, net of amortization................................. 6,589 6,397
Deferred financing costs...................................... 461 322
Other assets.................................................. 271 154
-------- ---------
Total assets............................................. $138,117 $ 148,832
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt....................................... $ 878 $ 951
Current portion of capital lease obligations.................. 1,249 1,532
Accounts payable.............................................. 14,127 14,384
Accrued expenses and taxes.................................... 4,606 8,427
-------- ---------
Total current liabilities................................ 20,860 25,294
Long-term debt, less current portion............................... 37,082 35,731
Capital lease obligations, less current portion.................... 8,036 6,504
Deferred income taxes.............................................. 10,523 11,649
Other long-term liabilities........................................ 3,766 3,082
Commitments and contingencies
Redeemable preferred stock:
Series A convertible, $.01 par value per share, liquidation
preference $1,000 per share, 50,000 shares authorized, none
issued....................................................... -- --
Stockholders' equity:
Common stock, $.01 par value per share, 20,000,000 shares
authorized; 8,021,097 shares issued and outstanding at
January 4, 1997 and December 30, 1995........................ 80 80
Additional paid-in capital.................................... 41,687 41,948
Retained earnings............................................. 17,397 25,959
Cumulative translation adjustment............................. (1,314) (1,415)
-------- ---------
Total stockholders' equity............................... 57,850 66,572
-------- ---------
Total liabilities and stockholders' equity............... $138,117 $ 148,832
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 55
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net sales............................................ $180,842 $173,487 $ 198,856
Cost of products sold................................ 133,168 137,083 152,787
-------- -------- --------
Gross margin......................................... 47,674 36,404 46,069
Selling, general and administrative expenses......... 27,560 26,176 29,121
-------- -------- --------
Operating income..................................... 20,114 10,228 16,948
Other expenses:
Interest expense, net.............................. 3,863 3,898 4,092
Other, net......................................... 34 98 77
-------- -------- --------
Income before provision for income taxes............. 16,217 6,232 12,779
Provision for income taxes........................... 6,691 712 4,217
-------- -------- --------
Net income........................................... $ 9,526 $ 5,520 $ 8,562
======== ======== ========
Earnings per common share............................ $ 1.15 $ 0.67 $ 1.03
======== ======== ========
Weighted average shares outstanding.................. 8,301 8,293 8,332
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............ $80 $41,143 $ 2,351 $ -- $43,574
Stock option compensation
expense........................ -- 237 -- -- 237
Net income........................ -- -- 9,526 -- 9,526
Foreign currency translation
adjustment..................... -- -- -- (748) (748)
--- ------- ------- ------- -------
Balance, December 31, 1994.......... $80 $41,380 $11,877 $ (748) $52,589
Stock option compensation
expense........................ -- 229 -- -- 229
Net income........................ -- -- 5,520 -- 5,520
Issuance of 10,618 shares of
common stock under stock option
plan........................... -- 78 -- -- 78
Foreign currency translation
adjustment..................... -- -- -- (566) (566)
--- ------- ------- ------- -------
Balance, December 30, 1995.......... $80 $41,687 $17,397 $(1,314) $57,850
Stock option compensation
expense........................ -- 261 -- -- 261
Net income........................ -- -- 8,562 -- 8,562
Foreign currency translation
adjustment..................... -- -- -- (101) (101)
--- ------- ------- ------- -------
Balance, January 4, 1997............ $80 $41,948 $25,959 $(1,415) $66,572
=== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 57
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 9,526 $ 5,520 $ 8,562
Adjustments to reconcile net income to net cash provided
by operating activities -- Depreciation and
amortization......................................... 5,603 6,462 7,437
Stock option compensation expense.................... 237 229 261
Deferred income taxes................................ 1,546 (253) 1,126
Changes in operating assets and liabilities --
Accounts receivable.................................. (3,394) 1,398 (2,050)
Inventories.......................................... (4,970) (871) (4,581)
Prepaid expenses and other current assets............ 231 (1,374) 657
Accounts payable and accrued expenses................ 1,321 1,158 4,078
Other long-term liabilities.......................... 999 (245) (684)
-------- -------- --------
Net cash provided by operating activities............ 11,099 12,024 14,806
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment.............. (18,727) (13,165) (11,979)
Sale of equipment....................................... 2,795 212 --
-------- -------- --------
Net cash used for investing activities............... (15,932) (12,953) (11,979)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of short-term and long-term
debt................................................. 33,900 34,500 --
Repayments of debt...................................... (27,128) (31,912) (1,278)
Repayments of capital leases............................ (962) (1,171) (1,249)
Capitalization of financing costs....................... (345) (135) (14)
Issuance of common stock under stock option plan........ -- 78 --
-------- -------- --------
Net cash provided (used) by financing activities..... 5,465 1,360 (2,541)
-------- -------- --------
Effect of exchange rates on cash.......................... (748) (566) (101)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (116) (135) 185
Cash and cash equivalents, beginning of period............ 451 335 200
-------- -------- --------
Cash and cash equivalents, end of period.................. $ 335 $ 200 $ 385
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for --
Interest............................................. $ 3,787 $ 4,043 $ 3,916
Income taxes......................................... $ 3,367 $ 1,881 $ 829
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligations incurred for new
equipment.......................................... $ 2,795 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 58
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. OPERATIONS
Quaker Fabric Corporation and subsidiaries (the "Company" or "Quaker")
designs, manufactures and markets woven upholstery fabrics for residential
furniture markets and specialty yarns for use in the production of its own
fabrics and for sale to manufacturers of home furnishings and other products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Quaker Fabric Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
(b) Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 1 of each
year. The fiscal years ended December 31, 1994 and December 30, 1995 contained
52 weeks while the fiscal year ended January 4, 1997 contained 53 weeks.
(c) Inventories
Inventories are stated at the lower of cost or market and include
materials, labor and overhead. Cost is determined by the last-in, first-out
(LIFO) method. Inventories consist of the following at December 30, 1995 and
January 4, 1997:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ----------
<S> <C> <C>
Raw materials.......................................... $ 10,028 $ 11,127
Work-in-process........................................ 8,087 8,421
Finished goods......................................... 5,591 8,280
------- -------
Inventory at FIFO.................................... 23,706 27,828
LIFO reserve........................................... 550 91
------- -------
Inventory at LIFO.................................... $ 23,156 $ 27,737
======= =======
</TABLE>
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation on property and equipment on a straight-line basis over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements............................. 32-39 years
Machinery and equipment................................ 5-20 years
Furniture and fixtures................................. 10 years
Motor vehicles......................................... 4-5 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated life of the assets or the remaining lease term.
F-7
<PAGE> 59
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(e) Goodwill
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired. Goodwill is amortized on a straight-line basis
over 40 years. Accumulated amortization is $1,121 and $1,314 at December 30,
1995 and January 4, 1997, respectively. Amortization expense was approximately
$193 for both years. The Company's policy is to evaluate annually whether the
useful life of goodwill should be revised or whether the remaining balance has
been impaired. When evaluating impairment, the Company uses an estimate of
future operating income over the remaining goodwill life to measure whether the
goodwill is recoverable.
(f) Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
(g) Deferred Financing Costs
Financing costs related to certain loans and capital leases have been
capitalized and are being amortized over the life of the related loan or capital
lease. Accumulated amortization was $159 and $313 as of December 30, 1995 and
January 4, 1997, respectively.
(h) Earnings Per Common Share
Earnings per common share for the years ended December 31, 1994, December
30 1995 and January 4, 1997 are computed using the weighted average number of
common shares and common share equivalents outstanding during the year.
(i) Foreign Currency Translation
The assets and liabilities of the Company's Mexican operations are
translated at period-end exchange rates, and statement of income accounts are
translated at weighted average exchange rates. In 1994, 1995 and 1996, the
resulting translation adjustments are included in the consolidated balance sheet
as a separate component of equity, "Cumulative Translation Adjustment," and
foreign currency transaction gains and losses are included in the consolidated
statements of income. In 1997 Mexico has been designated a "highly inflationary
country" and accordingly, in the future the Company will record translation
gains and losses in the income statement rather than as a separate component of
equity.
(j) Impairment of Long-Lived Assets
The Company periodically assesses the realizability of its long-lived
assets in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Based on its review, the Company does not believe that any
material impairment of its long-lived assets has occurred.
(k) Use of Estimates in the Preparation of Financial Statements
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the
F-8
<PAGE> 60
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
reported amounts of income and expenses during the reporting periods. Operating
results in the future could vary from the amounts derived from management's
estimates and assumptions.
(l) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, current maturities of long-term debt, accounts
payable and long-term debt. The carrying amount of these financial instruments
as of January 4, 1997, approximate fair value due to the short term nature of
these instruments and the recent nature of the amendments made to the Credit
Agreement.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ -----------
<S> <C> <C>
Land................................................ $ 236 $ 236
Buildings and improvements.......................... 17,046 17,559
Leasehold improvements.............................. 283 309
Machinery and equipment............................. 85,191 94,541
Furniture and fixtures.............................. 1,193 1,292
Motor vehicles...................................... 289 330
Construction in progress............................ 470 1,899
-------- ---------
104,708 116,166
Less -- Accumulated depreciation and amortization... 25,552 32,121
-------- ---------
$ 79,156 $ 84,045
======== =========
</TABLE>
Included in machinery and equipment is equipment under capital lease of
$12,644 as of December 30, 1995 and January 4, 1997. The Company is depreciating
this equipment over its economic useful lives of 15 to 20 years, which is
greater than the lease terms, because the Company intends to exercise its option
to purchase the equipment at the end of the initial lease terms at fair market
value.
4. ACCRUED EXPENSES AND TAXES
Accrued expenses and taxes consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ------------
<S> <C> <C>
Accrued workers' compensation.................... $ 1,230 $ 1,500
Accrued medical insurance........................ 450 1,766
Accrued other, including taxes................... 2,926 5,161
-------- --------
$ 4,606 $ 8,427
======== ========
</TABLE>
F-9
<PAGE> 61
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ------------
<S> <C> <C>
6.81% Series A Notes due December 15, 2002....... $ 30,000 $ 30,000
Unsecured credit facility payable to several
banks.......................................... 4,400 4,000
9.73% Note payable in monthly principal and
interest installments of $81 through August
1999, secured by certain equipment............. 3,003 2,287
Notes payable in monthly principal installments
of $13 plus interest until July 1998 and $6
plus interest from August 1998 to July 2000,
interest at prime plus 1% (9.75% at December
30, 1995 and 9.25% at January 4, 1997), secured
by certain equipment........................... 557 395
---------- ----------
37,960 36,682
Less -- Current portion.......................... 878 951
---------- ----------
$ 37,082 $ 35,731
========== ==========
</TABLE>
The Series A Notes are unsecured and bear interest at a fixed rate of 6.81%
payable semiannually. The Series A Notes may be prepaid in whole or in part
prior to maturity, at the Company's option, subject to a yield maintenance
premium, as defined. Required principal payments of the Series A Notes are as
follows:
<TABLE>
<S> <C>
December 15, 1998.......................................... $ 2,500
December 15, 1999.......................................... 8,500
December 15, 2000.......................................... 8,500
December 15, 2001.......................................... 8,000
December 15, 2002.......................................... 2,500
-------
$30,000
=======
</TABLE>
Under the terms of the Credit Agreement, the Company may borrow up to
$50,000 through December 31, 2000. Advances made under the Credit Agreement bear
interest at either the prime rate or the Eurodollar (Libor) rate plus an
"Applicable Margin." The Applicable Margin on advances is adjusted quarterly
based on the Company's Leverage Ratio as defined in the Credit Agreement. The
Applicable Margin for Eurodollar (Libor) advances may range from 0.625% to 1.5%.
The Company is also required to pay certain fees including a commitment fee
which will vary based on the Company's Leverage Ratio. As of January 4, 1997,
the commitment fee is 0.375% of the unused portion of the Credit Agreement which
was $45,528, net of outstanding letters of credit. As of January 4, 1997, the
Company had $4,000 outstanding under the Credit Agreement at an effective
interest rate of 7.0%. As of December 30, 1995, the Company had $4,400
outstanding under the Credit Agreement at an effective interest rate of 6.9%.
The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Series A Notes. Among other things,
the Credit Agreement and the Series A Notes require the Company to satisfy
certain financial tests and ratios (including interest coverage ratios, leverage
ratios, and net worth requirements). The Credit Agreement and the Series A Notes
also impose limitations on the Company's ability to incur additional
indebtedness, create certain liens, incur capital lease obligations, declare and
pay dividends, make certain investments, make capital expenditures, and
purchase,
F-10
<PAGE> 62
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
merge or consolidate with or into any other corporation. As of January 4, 1997,
the Company is in full compliance with all debt covenants.
As of January 4, 1997, total debt principal payments for each of the next
five fiscal years and thereafter are as follows:
<TABLE>
<S> <C>
1997....................................................... $ 951
1998....................................................... 3,495
1999....................................................... 9,200
2000....................................................... 12,536
2001....................................................... 8,000
Thereafter................................................. 2,500
-------
$36,682
=======
</TABLE>
6. INCOME TAXES
Income before provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Domestic...................................... $ 15,788 $ 6,184 $ 12,200
Foreign....................................... 429 48 579
------ ------- -------
$ 16,217 $ 6,232 $ 12,779
====== ======= =======
</TABLE>
The following is a summary of the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Federal
Current..................................... $ 4,470 $ 725 $ 2,510
Deferred.................................... 678 1,703 1,300
------ ------- -------
$ 5,148 $ 2,428 $ 3,810
------ ------- -------
State
Current..................................... $ 675 $ 187 $ 573
Deferred.................................... 840 (1,903) (166)
------ ------- -------
$ 1,515 $ (1,716) $ 407
------ ------- -------
Foreign
Current..................................... $ -- $ -- $ --
Deferred.................................... 28 -- --
------ ------- -------
$ 28 $ -- $ --
------ ------- -------
$ 6,691 $ 712 $ 4,217
====== ======= =======
</TABLE>
F-11
<PAGE> 63
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A reconciliation between the provision for income taxes before
extraordinary item computed at U.S. federal statutory rates and the amount
reflected in the accompanying consolidated statements of income is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Computed expected tax provision............... $ 5,676 $ 2,119 $ 4,345
Increase in taxes resulting from:
Amortization of goodwill................. 67 67 67
State income taxes, net of federal
benefit................................ 1,354 385 583
Decrease in taxes resulting from:
State investment tax credits, net of
federal provision...................... (369) (452) (319)
Reversal of state deferred taxes due to
change in tax law, net of federal
provision.............................. -- (1,050) --
Foreign sales corporation benefit........ (150) (270) (245)
Other.................................... 113 (87) (214)
------ ------- -------
$ 6,691 $ 712 $ 4,217
====== ======= =======
</TABLE>
At January 4, 1997, the Company had net operating loss carryforwards of
approximately $2,451 for federal income tax purposes available to offset future
taxable income. These carryforwards expire from 2001 to 2005. Additionally, the
Company has available for use $1,142 of tax credit carryforwards, of which
approximately $696 expire from 1999 to 2005. The remaining tax credit
carryforwards have no expiration dates. The timing and use of the net operating
loss carryforwards and the tax credit carryforwards are limited under federal
income tax legislation.
In November 1995, the Massachusetts legislature amended the apportionment
formula for corporate income tax purposes and adopted a single sales factor
formula. The effect of this new apportionment formula will be phased in over a
five year period beginning in 1996. In accordance with SFAS 109, the Company has
recorded the effect of this tax law change on deferred taxes as a reduction of
state deferred tax liability of $1,050, net of federal taxes, as of December 30,
1995.
F-12
<PAGE> 64
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The significant items comprising the domestic deferred tax asset/liability
are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 JANUARY 4, 1997
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- -------- ------- --------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards.............. $ 259 $ 889 $ 259 $ 599
Tax credit carryforwards...................... 773 1,660 191 951
Receivable reserves........................... 714 -- 718 --
Other......................................... 379 1,065 1,311 1,123
------- -------- ------- --------
Total assets............................... $ 2,125 $ 3,614 $ 2,479 $ 2,673
------- -------- ------- --------
Liabilities:
Property basis differences.................... $ -- $(14,332) $ -- $(14,832)
Inventory basis differences................... (1,427) -- (1,292) --
------- -------- ------- --------
Total liabilities.......................... $(1,427) $(14,332) $(1,292) $(14,832)
------- -------- ------- --------
Net assets (liabilities)................... $ 698 $(10,718) $ 1,187 $(12,159)
======= ======== ======= ========
</TABLE>
The significant items comprising the foreign deferred tax asset/liability
are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 JANUARY 4, 1997
--------------------- ---------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards................. $ -- $ 195 $ -- $ 510
Liabilities:
Inventory........................................ $(195) $ -- $(506) $ --
----- ---- ----- ----
Net assets (liabilities)...................... $(195) $ 195 $(506) $ 510
===== ==== ===== ====
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
(a) Litigation and Environmental Cleanup Matters
The Company is engaged in various claims and legal proceedings including
certain routine environmental cleanup matters. In the opinion of management, the
final resolution of these claims and proceedings is not expected to materially
affect the accompanying consolidated financial statements.
F-13
<PAGE> 65
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(b) Leases
The Company leases certain facilities and equipment under operating lease
agreements and capital lease agreements that expire at various dates from the
current year to the year 2002. As of January 4, 1997, the aggregate minimum
future commitments under leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
LEASES LEASES LEASES
--------- --------- ---------
<S> <C> <C> <C>
1997................................................. $ 2,145 $ 656 $ 2,801
1998................................................. 1,651 426 2,077
1999................................................. 2,240 330 2,570
2000................................................. 1,094 209 1,303
2001................................................. 2,080 104 2,184
Thereafter........................................... 725 -- 725
------ ------ -------
$ 9,935 $ 1,725 $11,660
====== =======
Less -- Amount representing interest................. 1,899
------
$ 8,036
Less -- Current portion.............................. 1,532
------
$ 6,504
======
</TABLE>
Rent expense for the years ended December 31, 1994, December 30, 1995, and
January 4, 1997, was $1,503, $1,561, and $1,276, respectively.
(c) Letters of Credit
In the normal course of its business activities, the Company is required
under certain contracts to provide letters of credit which may be drawn down in
the event the Company fails to perform under the contracts. As of December 30,
1995 and January 4, 1997, the Company has issued or agreed to issue letters of
credit totaling $639, and $472 respectively.
(d) Employment Contract
The Company has an employment agreement, dated as of March 12, 1993 (the
Employment Agreement), with Larry A. Liebenow pursuant to which Mr. Liebenow
will continue to serve as President and Chief Executive Officer of the Company
on a full-time basis for the five-year period ending March 12, 1998, subject to
an automatic three-year extension, unless terminated by the Company upon one
year's prior notice. The Employment Agreement provides for an initial base
salary of $550, subject to such annual increases as may be determined by the
Board of Directors, as well as certain benefits and reimbursement of expenses.
If the Employment Agreement had terminated as of January 4, 1997, Mr. Liebenow
would have been entitled to receive $572 (in the event of a voluntary
termination or termination for cause) or $1,725 (in the event of a termination
for any other reason, and assuming the Company elected to make a lump-sum
payment).
(e) Trade Acceptance
The Company is contingently liable to a bank for a trade acceptance of
$1,440 as of January 4, 1997.
F-14
<PAGE> 66
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
8. STOCK OPTIONS
In 1993, options to purchase a total of 635,795 shares of common stock were
granted to certain officers. The options vest over five years and are
exercisable for ten years. The difference of $1,186 between fair market value at
the grant date and the exercise price for these options is being charged to
compensation expense over five years. During 1995, options to purchase 5,000
shares of common stock were granted to a director of the Company. These options
vest over three years and are exercisable for ten years.
During 1996 options to purchase 94,000 shares of common stock were granted
to certain officers. These options vest over five years and are exercisable for
ten years. Options for 56,400 shares were granted at $4.12 per share and 37,600
were granted at $2.06 per share. The fair market value of the common stock on
the grant date was $7.00 per share. The difference of $348 between the fair
market value at grant date and exercise price is being charged to compensation
expense over five years. However, these options and those in the preceding
paragraph vest immediately upon a change in control, as defined, of the Company.
The offering contemplated by this Prospectus meets the change in control
definition. Accordingly, the unamortized portion of the deferred compensation
will be accelerated and recorded immediately upon the closing of this offering.
Also during 1996, the Company adopted the 1996 stock option plan for key
middle management employees. Options are granted at not less than fair market
value, vest over a five year period, and are exercisable for ten years. 100,000
shares are reserved under this plan. During 1996, options for 48,000 shares were
granted at $8.25 per share and options for 1,500 shares were canceled.
During 1996, the Company recorded $261 as stock option compensation
expense. The following table summarizes all option activity as of January 4,
1997:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- ---------------
<S> <C> <C> <C> <C>
Outstanding, January 1, 1994................................. 635,795 $1.20 - 4.12
Cancelled.................................................. (42,470) $2.06 - 4.12
------- ---------------
Outstanding, December 31, 1994............................... 593,325 $1.20 - 4.12
Granted.................................................... 5,000 $ 11.00
Exercised.................................................. (10,618) $ 4.12
------- ---------------
Outstanding, December 30, 1995............................... 587,707 $1.20 - 11.00
Granted.................................................... 142,000 $2.06 - 8.25
Cancelled.................................................. (1,500) $8.25
------- ---------------
Outstanding, January 4, 1997................................. 728,207 $1.20 - 11.00
======= ===============
Exercisable, January 4, 1997................................. 351,289
========
Weighted Average Option Price of Options Exercisable......... $2.01
======
Weighted Average Option Price of All Options................. $2.60
======
</TABLE>
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation costs for those plans using
the method of accounting prescribed by APB Opinion 25. Entities electing to
remain with the accounting in APB Opinion 25 must make pro forma disclosures of
net income and, if presented, earnings per share as if the fair value based
method of accounting defined in SFAS 123 has been applied.
F-15
<PAGE> 67
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25. Had compensation cost for these plans been determined
consistent with FASB Statement No. 123, the Company's net income and earnings
per share would not have been materially different from the amounts reported.
Because the Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
costs may not be representative of that to be expected in future years.
Set forth below is a summary of options granted in 1995 and 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE OPTIONS PER SHARE
---------------- ----------- FAIR VALUE
EXERCISE PRICES OPTIONS EXERCISE PRICE REMAINING LIFE EXERCISABLE OF OPTIONS
- --------------- ------- ---------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$2.06-$4.12 94,000 $ 3.30 10 Years 0 $ 5.95
$8.25 46,500 $ 8.25 10 Years 0 $ 6.31
$11.00 5,000 $11.00 9 Years 1,665 $ 6.24
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for the 1995 and 1996 grants: Risk free interest rate of 6.44%,
expected dividend yield at zero, expected lives of 10 years and expected
volatility of 60.1%.
9. EXPORT SALES
Export sales from the United States to unaffiliated customers were $24,300
in 1994, $19,500 in 1995, and $30,100 in 1996.
10. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITOR'S REPORT
On February 24, 1997 the Company's Board of Directors approved a new
Stockholder Rights Plan. See page 44 of this Prospectus for a description of the
plan.
Also on February 24, 1997 the Company's Board of Directors approved an
amendment to the President and Chief Executive Officer's employment agreement.
See page 38 of this Prospectus for a description of the amendment.
F-16
<PAGE> 68
[PHOTOGRAPHS OF THE COMPANY'S PRODUCTION EQUIPMENT AND OF ONE OF THE COMPANY'S
FABRIC PRODUCTS BEING PRODUCED AND THE PHRASE "VERTICAL INTEGRATION--THE
CORNERSTONE TO INNOVATION IN YARN AND FABRIC"]
<PAGE> 69
============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Use of Proceeds........................... 11
Price Range of Common Stock............... 12
Dividend Policy........................... 12
Capitalization............................ 13
Selected Consolidated Financial and
Operating Data.......................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 15
Business.................................. 22
Management................................ 33
Principal and Selling Stockholders........ 42
Description of Securities................. 44
Shares Eligible for Future Sale........... 47
Underwriting.............................. 48
Legal Matters............................. 50
Experts................................... 50
Additional Information.................... 50
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
============================================================
============================================================
3,400,000 Shares
[QUAKER LOGO]
Common Stock
------------------------
PROSPECTUS
------------------------
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
March , 1997
============================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
An estimate of the fees and expenses of issuance and distribution (other
than underwriting discounts and commissions) of the Common Stock offered hereby
(all of which will be paid by the Company) is as follows:
<TABLE>
<S> <C>
SEC registration fee................................................... $ 19,402
NASD filing fee........................................................ 7,147
Nasdaq listing fee..................................................... 6,000
Printing and engraving expenses........................................ 100,000
Legal fees and expenses................................................ 150,000
Blue sky fees and expenses (including fees of counsel)................. 5,000
Accounting fees and expenses........................................... 100,000
Transfer agent fees.................................................... 1,000
Miscellaneous expenses................................................. 11,451
-----------
Total............................................................. $ 400,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") grants each corporation organized thereunder the power to indemnify its
officers and directors against liability for certain of their acts. Article
NINTH of the Company's certificate of incorporation provides that the Company
shall indemnify any person who was or is a party to any action by reason of the
fact that he is or was or has agreed to become a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise against any liability incurred by him in connection with such action,
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Company, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Company and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. Article EIGHTH of the Company's certificate of incorporation provides,
except to the extent prohibited by the DGCL, that no director of the Company
shall be liable to the Company for monetary damages for breach of fiduciary duty
as a director. In addition, the Company has entered into indemnification
agreements with certain of its directors indemnifying such persons against
judgments and other expenses incurred in connection with pending or threatened
litigation resulting from that director's position with the Company. The Company
also provides its directors and officers with coverage under a directors' and
officers' liability insurance policy.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters and
their controlling persons on the other hand against certain liabilities in
connection with this offering, including liabilities under the Securities Act of
1933.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 29, 1995, the Company issued and sold $30.0 million principal
amount of 6.81% Series A Senior Notes due December 15, 2002 (the "Series A
Notes") to The Prudential Insurance Company of America and Pruco Life Insurance
Company. The aggregate offering price for the Series A Notes was $30.0 million,
all of which was paid in cash. Based in part on representations made by the
purchasers, the Company believes the sale of the Series A Notes was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof.
II-1
<PAGE> 71
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1 -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of the Company, as amended.(1)
3.2 -- By-laws of the Company.(1)
5 -- Opinion of Proskauer Rose Goetz & Mendelsohn LLP.
10.1 -- Loan and Security Agreement, dated as of October 31, 1990, between the
Company and Continental Bank N.A., as amended by Amendments Nos. 1 through 9
thereto.(1)
10.2 -- Securities Purchase Agreement, dated April 13, 1993, among the Company, MLGA
Fund II, L.P. and MLGAL Partners, as amended by Amendment No. 1 thereto.(1)
10.3 -- Subscription Agreement, dated March 12, 1993, among the Company and MLGA
Fund II, L.P., Nortex Holdings, Inc., QFC Holdings Corporation, and Larry
Liebenow.(1)
10.4 -- Shareholders Agreement, dated March 12, 1993, by and among the Company,
Larry A. Liebenow, Ira Starr, and Sangwoo Ahn.(1)
10.5 -- Employment Agreement, dated as of March 12, 1993, between the Company and
Larry A. Liebenow.(1)
10.6 -- Director Indemnification Contract, dated October 18, 1989, between the
Company and Larry A. Liebenow.(1)
10.7 -- Director Indemnification Contract, dated October 18, 1989, between the
Company and Roberto Pesaro.(1)
10.8 -- Director Indemnification Contract, dated April 15, 1992, between the Company
and Samuel A. Plum.(1)
10.9 -- Director Indemnification Contract, dated May 2, 1991, between the Company
and Andrea Gotti-Lega.(1)
10.10 -- Severance Contract, dated August 15, 1988, between the Company and Thomas J.
Finneran.(1)
10.11 -- Severance Contract, dated May 26, 1989, between the Company and James
Dulude.(1)
10.12 -- Severance Contract, dated December 1, 1988, between the Company and Cynthia
Gordan.(1)
10.13 -- Equipment Financing Lease Agreement, dated September 18, 1992, between
Quaker Fabric Corporation of Fall River ("QFR") and United States Leasing
Corporation.(1)
10.14 -- Equipment Financing Lease Agreement, dated September 29, 1992, between QFR
and KeyCorp Leasing pursuant to a Notice of Assignment from U.S. Leasing.(1)
10.15 -- Equipment Financing Lease Agreement, dated February 16, 1989, between QFR
and Key Financial Services, Inc.(1)
10.16 -- Equipment Financing Lease Agreement, dated September 22, 1992, between QFR
and Dana Commercial Credit Corporation (Fleet National Bank).(1)
10.17 -- Equipment Financing Lease Agreement, dated October 8, 1992, between QFR and
Capital Associates International, Inc.(1)
10.18 -- Equipment Financing Loan Agreement, dated August 31, 1992, between QFR and
HCFS Business Equipment Corporation.(1)
10.19 -- Equipment Financing Lease Agreement, dated September 13, 1991, between QFR
and Sovran Leasing and Finance Corp/NationsBanc Leasing Corp.(1)
10.20 -- Equipment Financing Lease Agreement, dated December 18, 1990, between QFR
and IBM Credit Corporation.(1)
10.21 -- Equipment Financing Lease Agreement, dated May 5, 1993, between QFR and The
CIT Group.(1)
10.22 -- Equipment Financing Lease Agreement, dated June 30, 1993, between QFR and
AT&T Commercial Finance Corporation.(1)
10.23 -- Chicago, Illinois Showroom Lease, dated July 1, 1994, between the Company
and LaSalle National Bank, Trustee.
10.24 -- Hickory, North Carolina Showroom Lease, dated July 5, 1995, between the
Company and Hickory Furniture Mart, Inc.(6)
</TABLE>
II-2
<PAGE> 72
<TABLE>
<S> <C>
10.25 -- High Point, North Carolina Showroom Lease, dated May 15, 1995, between the
Company and Market Square Limited Partnership.
10.26 -- Los Angeles, California Showroom Lease, dated September 23, 1992, between
the Company and The L.A. Mart.(1)
10.27 -- Tupelo, Mississippi Showroom Lease, dated August 19, 1996, between the
Company and Tupelo Furniture Market.(6)
10.28 -- Mexico City, Mexico Warehouse Lease, dated June 6, 1993, between Quaker
Fabric Mexico, S.A. de C.V. and Irene Font Byrom.(1)
10.29 -- Licensing Agreement, dated May 17, 1990, between the Company as Licensee and
General Electric Company.(1)
10.30 -- Licensing Agreement, dated September 24, 1990, between the Company as
Licensee and Amoco Fabrics and Fibers Company.(1)
10.31 -- Software Licensing Agreement, dated October 29, 1987, between the Company as
Licensee and System Software Associates.(1)
10.32 -- Licensing Agreement, dated June 5, 1974, between the Company and E.I. DuPont
de Nemours & Company, Inc.(1)
10.33 -- Licensing Agreement, dated October 17, 1988, between the Company as Licensee
and Monsanto Company.(1)
10.34 -- Licensing Agreement, dated July 28, 1987, between the Company as Licensee
and Phillips Fibers Corporation.(1)
10.35 -- Software Licensing Agreement, dated July 7, 1988, between the Company as
Licensee and Software 2000, Inc.(1)
10.36 Licensing Agreement, dated February 1, 1977, between the Company as Licensee
and 3M.(1)
10.37 -- Software Licensing Agreement, dated April 8, 1992, between the Company as
Licensee and Premenos Corporation.(1)
10.38 -- Software Licensing Agreement, dated March 19, 1993, between the Company as
Licensee and Sophis U.S.A., Inc.(1)
10.39 -- Quaker Fabric Corporation 1993 Stock Option Plan and Form of Option
Agreement thereunder.(1)
10.40 -- Option to Purchase Common Stock issued to Nortex Holdings, Inc., effective
April 13, 1993.(1)
10.41 -- Amendment No. 1, dated as of October 25, 1993, to Shareholders Agreement,
dated March 12, 1993, by and among the Company, Nortex Holdings, Inc., MLGA
Fund II, L.P., MLGAL Partners, W. Wallace McDowell, Jr., William Ughetta,
and Ira Starr.(1)
10.42 -- Quaker Fabric Corporation Deferred Compensation Plan and related Trust
Agreement.(2)
10.43 -- Form of Split Dollar Agreement with Senior Officers.(2)
10.44 -- Credit Agreement, dated as of June 29, 1994, by and among the Company,
Continental Bank N.A. and The First National Bank of Boston.(3)
10.45 -- Equipment Schedule No. 5, dated as of September 14, 1994, to Master Lease
Agreement, dated as of May 5, 1993, between QFR and the CIT Group/Equipment
Financing, Inc.(4)
10.46 -- Commission and Sales Agreement, dated as of April 25, 1994, between QFR and
Quaker Fabric Foreign Sales Corporation.(4)
10.47 -- Stock Option Agreement, dated as of July 28, 1995, between the Company and
Eriberto R. Scocimara.(5)
10.48 -- Amended and Restated Credit Agreement, dated December 18, 1995, among the
Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de
C.V., The First National Bank of Boston, and Fleet National Bank.(5)
10.49 -- Note Purchase and Private Shelf Agreement, dated December 18, 1995, among
the Company, The Prudential Insurance Company of America, and Pruco Life
Insurance Company.(5)
</TABLE>
II-3
<PAGE> 73
<TABLE>
<S> <C>
10.50 -- Guarantee Agreement, dated as of December 18, 1995, among the Company, The
Prudential Insurance Company of America, and Pruco Life Insurance
Company.(5)
10.51 -- Amendment Agreement No. 1, dated as of March 21, 1996, to that certain
Amended and Restated Credit Agreement, dated as of December 18, 1995, among
the Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de
C.V., The First National Bank of Boston, and Fleet National Bank.(5)
10.52 -- 1996 Stock Option Plan for Key Employees of QFR, dated April 26, 1996.(6)
10.53 -- Amendment Agreement No. 2, dated as of October 21, 1996, to that certain
Amended and Restated Credit Agreement, dated as of December 18, 1995, among
the Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de
C.V., The First National Bank of Boston, and Fleet National Bank.(6)
10.54 -- Software License Agreement dated October 31, 1996 between the Company and
System Software Associates Inc.(6)
10.55 -- Medical Expense Reimbursement Plan(6)
10.56 -- High Point, North Carolina Warehouse Lease, dated April 1, 1996 between QFR
and C&M Investments of High Point, Inc.(6)
10.57 -- Standard Industrial Lease Agreement, dated May 10, 1996, between CIIF
Associates II Limited Partnership and QFR.(6)
10.58 -- Form of Rights Agreement dated March 4, 1997 between the Company and The First
National Bank of Boston relating to the Company's Stockholder Rights Plan.
10.59 -- 1997 Stock Option Plan.
10.60 -- Form of Amendment, dated as of February 24, 1997, to Employment Agreement
between the Company and Larry A. Liebenow.
21 -- Subsidiaries.(5)
23.1 -- Consent of Arthur Andersen LLP.(6)
23.2 -- Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion to be
filed as Exhibit 5).
24 -- Power of Attorney.(6)
27 -- Financial Data Schedule.(6)
</TABLE>
- ---------------
+ To be filed by amendment.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-69002, initially filed with the Securities and
Exchange Commission on September 17, 1993, as amended.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
for the quarterly period ended July 2, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
(6) Previously filed.
(b) Financial Statement Schedules
The following financial statement schedule of the Company included herein
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Registration Statement.
Report of Independent Public Accountants on Supplemental Schedule to the
Consolidated Financial Statements
Schedule II -- Valuation and Qualifying Accounts
All other schedules for the Company are omitted because either they are not
applicable or the required information is shown in the financial statements or
notes thereto.
II-4
<PAGE> 74
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fall River, State of Massachusetts on March 11, 1997.
QUAKER FABRIC CORPORATION
By:
------------------------------------
Larry A. Liebenow
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, Amendment No. 2 to the
Registration Statement has been signed by the persons whose signatures appear
below in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- ---------------
<C> <S> <C>
President, Chief Executive March 11, 1997
- ------------------------------------------ Officer, and Director
(LARRY A. LIEBENOW) (principal executive officer)
Vice President -- Finance and March 11, 1997
- ------------------------------------------ Treasurer (principal financial
(PAUL J. KELLY) and accounting officer)
* Director March 11, 1997
- ------------------------------------------
(SANGWOO AHN)
* Director March 11, 1997
- ------------------------------------------
(PERRY J. LEWIS)
* Director March 11, 1997
- ------------------------------------------
(ERIBERTO R. SCOCIMARA)
* Director March 11, 1997
- ------------------------------------------
(IRA STARR)
*
- ------------------------------------------
LARRY A. LIEBENOW, ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE> 76
SCHEDULE II
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND JANUARY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
BALANCE AT PROVISIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT END
DESCRIPTIONS OF PERIOD OPERATIONS ALLOWANCES OF PERIOD
- ------------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Bad Debt Reserve............................... $1,650 $1,417 $ (1,883) $ 1,184
Sales Returns & Allowances Reserve............. 400 4,938 (4,608) 730
Year Ended December 30, 1995
Bad Debt Reserve............................... $1,184 $1,878 $ (1,706) $ 1,356
Sales Returns & Allowances Reserve............. 730 4,218 (4,319) 629
Year Ended January 4, 1997
Bad Debt Reserve............................... $1,356 $ 921 $ (1,002) $ 1,275
Sales Returns & Allowances Reserve............. 629 4,923 (4,775) 777
</TABLE>
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS
To Quaker Fabric Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Quaker Fabric Corporation and
subsidiaries' included in this Registration Statement and have issued our report
thereon dated February 11, 1997. Our audit was made for the purpose of forming
an opinion on those financial statements taken as a whole. The schedule listed
in the index in Item 16(b) is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states, in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 1997
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- ---------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement.........................................
3.1 -- Certificate of Incorporation of the Company, as amended.(1)............
3.2 -- By-laws of the Company.(1).............................................
5 -- Opinion of Proskauer Rose Goetz & Mendelsohn LLP.......................
10.1 -- Loan and Security Agreement, dated as of October 31, 1990, between the
Company and Continental Bank N.A., as amended by Amendments Nos. 1
through 9 thereto.(1)..................................................
10.2 -- Securities Purchase Agreement, dated April 13, 1993, among the Company,
MLGA Fund II, L.P. and MLGAL Partners, as amended by Amendment No. 1
thereto.(1)............................................................
10.3 -- Subscription Agreement, dated March 12, 1993, among the Company and
MLGA Fund II, L.P., Nortex Holdings, Inc., QFC Holdings Corporation,
and Larry Liebenow.(1).................................................
10.4 -- Shareholders Agreement, dated March 12, 1993, by and among the Company,
Larry A. Liebenow, Ira Starr, and Sangwoo Ahn.(1)......................
10.5 -- Employment Agreement, dated as of March 12, 1993, between the Company
and Larry A. Liebenow.(1)..............................................
10.6 -- Director Indemnification Contract, dated October 18, 1989, between the
Company and Larry A. Liebenow.(1)......................................
10.7 -- Director Indemnification Contract, dated October 18, 1989, between the
Company and Roberto Pesaro.(1).........................................
10.8 -- Director Indemnification Contract, dated April 15, 1992, between the
Company and Samuel A. Plum.(1).........................................
10.9 -- Director Indemnification Contract, dated May 2, 1991, between the
Company and Andrea Gotti-Lega.(1)......................................
10.10 -- Severance Contract, dated August 15, 1988, between the Company and
Thomas J. Finneran.(1).................................................
10.11 -- Severance Contract, dated May 26, 1989, between the Company and James
Dulude.(1).............................................................
10.12 -- Severance Contract, dated December 1, 1988, between the Company and
Cynthia Gordan.(1).....................................................
10.13 -- Equipment Financing Lease Agreement, dated September 18, 1992, between
Quaker Fabric Corporation of Fall River ("QFR") and United States
Leasing Corporation.(1)................................................
10.14 -- Equipment Financing Lease Agreement, dated September 29, 1992, between
QFR and KeyCorp Leasing pursuant to a Notice of Assignment from U.S.
Leasing.(1)............................................................
10.15 -- Equipment Financing Lease Agreement, dated February 16, 1989, between
QFR and Key Financial Services, Inc.(1)................................
10.16 -- Equipment Financing Lease Agreement, dated September 22, 1992, between
QFR and Dana Commercial Credit Corporation (Fleet National Bank).(1)...
10.17 -- Equipment Financing Lease Agreement, dated October 8, 1992, between QFR
and Capital Associates International, Inc.(1)..........................
10.18 -- Equipment Financing Loan Agreement, dated August 31, 1992, between QFR
and HCFS Business Equipment Corporation.(1)............................
10.19 -- Equipment Financing Lease Agreement, dated September 13, 1991, between
QFR and Sovran Leasing and Finance Corp/NationsBanc Leasing Corp.(1)...
10.20 -- Equipment Financing Lease Agreement, dated December 18, 1990, between
QFR and IBM Credit Corporation.(1).....................................
10.21 -- Equipment Financing Lease Agreement, dated May 5, 1993, between QFR and
The CIT Group.(1)......................................................
10.22 -- Equipment Financing Lease Agreement, dated June 30, 1993, between QFR
and AT&T Commercial Finance Corporation.(1)............................
</TABLE>
<PAGE> 79
<TABLE>
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EXHIBITS
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<S> <C> <C> <C>
10.23 -- Chicago, Illinois Showroom Lease, dated July 1, 1994, between the
Company and LaSalle National Bank, Trustee.............................
10.24 -- Hickory, North Carolina Showroom Lease, dated July 5, 1995, between the
Company and Hickory Furniture Mart, Inc.(6)............................
10.25 -- High Point, North Carolina Showroom Lease, dated May 15, 1995, between
the Company and Market Square Limited Partnership. ....................
10.26 -- Los Angeles, California Showroom Lease, dated September 23, 1992,
between the Company and The L.A. Mart.(1)..............................
10.27 -- Tupelo, Mississippi Showroom Lease, dated August 19, 1996, between the
Company and Tupelo Furniture Market.(6)................................
10.28 -- Mexico City, Mexico Warehouse Lease, dated June 6, 1993, between Quaker
Fabric Mexico, S.A. de C.V. and Irene Font Byrom.(1)...................
10.29 -- Licensing Agreement, dated May 17, 1990, between the Company as
Licensee and General Electric Company.(1)..............................
10.30 -- Licensing Agreement, dated September 24, 1990, between the Company as
Licensee and Amoco Fabrics and Fibers Company.(1)......................
10.31 -- Software Licensing Agreement, dated October 29, 1987, between the
Company as Licensee and System Software Associates.(1).................
10.32 -- Licensing Agreement, dated June 5, 1974, between the Company and E.I.
DuPont de Nemours & Company, Inc.(1)...................................
10.33 -- Licensing Agreement, dated October 17, 1988, between the Company as
Licensee and Monsanto Company.(1)......................................
10.34 -- Licensing Agreement, dated July 28, 1987, between the Company as
Licensee and Phillips Fibers Corporation.(1)...........................
10.35 -- Software Licensing Agreement, dated July 7, 1988, between the Company
as Licensee and Software 2000, Inc.(1).................................
10.36 Licensing Agreement, dated February 1, 1977, between the Company as
Licensee and 3M.(1)....................................................
10.37 -- Software Licensing Agreement, dated April 8, 1992, between the Company
as Licensee and Premenos Corporation.(1)...............................
10.38 -- Software Licensing Agreement, dated March 19, 1993, between the Company
as Licensee and Sophis U.S.A., Inc.(1).................................
10.39 -- Quaker Fabric Corporation 1993 Stock Option Plan and Form of Option
Agreement thereunder.(1)...............................................
10.40 -- Option to Purchase Common Stock issued to Nortex Holdings, Inc.,
effective April 13, 1993.(1)...........................................
10.41 -- Amendment No. 1, dated as of October 25, 1993, to Shareholders
Agreement, dated March 12, 1993, by and among the Company, Nortex
Holdings, Inc., MLGA Fund II, L.P., MLGAL Partners, W. Wallace
McDowell, Jr., William Ughetta, and Ira Starr.(1)......................
10.42 -- Quaker Fabric Corporation Deferred Compensation Plan and related Trust
Agreement.(2)..........................................................
10.43 -- Form of Split Dollar Agreement with Senior Officers.(2)................
10.44 -- Credit Agreement, dated as of June 29, 1994, by and among the Company,
Continental Bank N.A. and The First National Bank of Boston.(3)........
10.45 -- Equipment Schedule No. 5, dated as of September 14, 1994, to Master
Lease Agreement, dated as of May 5, 1993, between QFR and the CIT
Group/Equipment Financing, Inc.(4).....................................
10.46 -- Commission and Sales Agreement, dated as of April 25, 1994, between QFR
and Quaker Fabric Foreign Sales Corporation.(4)........................
10.47 -- Stock Option Agreement, dated as of July 28, 1995, between the Company
and Eriberto R. Scocimara.(5)..........................................
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBITS
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<S> <C> <C> <C>
10.48 -- Amended and Restated Credit Agreement, dated December 18, 1995, among
the Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico,
S.A. de C.V., The First National Bank of Boston, and Fleet National
Bank.(5)...............................................................
10.49 -- Note Purchase and Private Shelf Agreement, dated December 18, 1995,
among the Company, The Prudential Insurance Company of America, and
Pruco Life Insurance Company.(5).......................................
10.50 -- Guarantee Agreement, dated as of December 18, 1995, among the Company,
The Prudential Insurance Company of America, and Pruco Life Insurance
Company.(5)............................................................
10.51 -- Amendment Agreement No. 1, dated as of March 21, 1996, to that certain
Amended and Restated Credit Agreement, dated as of December 18, 1995,
among the Company, QFR, Quaker Textile Corporation, Quaker Fabric
Mexico, S.A. de C.V., The First National Bank of Boston, and Fleet
National Bank.(5)......................................................
10.52 -- 1996 Stock Option Plan for Key Employees of QFR, dated April 26,
1996.(6)...............................................................
10.53 -- Amendment Agreement No. 2, dated as of October 21, 1996, to that
certain Amended and Restated Credit Agreement, dated as of December 18,
1995, among the Company, QFR, Quaker Textile Corporation, Quaker Fabric
Mexico, S.A. de C.V., The First National Bank of Boston, and Fleet
National Bank.(6)
10.54 -- Software License Agreement dated October 31, 1996 between the Company
and System Software Associates Inc.(6)
10.55 -- Medical Expense Reimbursement Plan(6)..................................
10.56 -- High Point, North Carolina Warehouse Lease, dated April 1, 1996 between
QFR and C&M Investments of High Point, Inc.(6).........................
10.57 -- Standard Industrial Lease Agreement, dated May 10, 1996, between CIIF
Associates II Limited Partnership and QFR.(6)..........................
10.58 -- Form of Rights Agreement dated March 4, 1997 between the Company and
The First National Bank of Boston relating to the Company's Stockholder
Rights Plan. ..........................................................
10.59 -- 1997 Stock Option Plan. ...............................................
10.60 -- Form of Amendment, dated as of February 24, 1997, to Employment
Agreement between the Company and Larry A. Liebenow. ..................
21 -- Subsidiaries.(5).......................................................
23.1 -- Consent of Arthur Andersen LLP.(6).....................................
23.2 -- Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion
to be filed as Exhibit 5). ............................................
24 -- Power of Attorney.(6)..................................................
27 -- Financial Data Schedule.(6)............................................
</TABLE>
- ---------------
+ To be filed by amendment.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-69002, initially filed with the Securities and
Exchange Commission on September 17, 1993, as amended.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
for the quarterly period ended July 2, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
(6) Previously filed.
<PAGE> 1
EXHIBIT 1
QUAKER FABRIC CORPORATION
3,400,000 Shares*
Common Stock
UNDERWRITING AGREEMENT
________ ___, 1997
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
Quaker Fabric Corporation, a Delaware corporation (the "Company"), MLGA
Fund II, L.P. (the "MLGA Fund"), Nortex Holdings, Inc. ("Nortex Holdings" and
together with the MLGA Fund, the "Selling Securityholders") and Larry A.
Liebenow, J. Duncan Whitehead and Anthony Degomes (together, the "Nortex
Owners") hereby confirm their agreement with the several underwriters named in
Schedule 1 hereto (the "Underwriters"), for whom you have been duly authorized
to act as representatives (in such capacities, the "Representatives"), as set
forth below. If you are the only Underwriters, all references herein to the
Representatives shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters an aggregate of
300,000 shares (the "Company Firm Securities") of the Company's Common Stock,
par value $0.01 per share ("Common Stock"), the MLGA Fund proposes to sell to
the several Underwriters 3,000,000 authorized and outstanding shares of Common
Stock and Nortex Holdings proposes to sell to the several Underwriters 100,000
authorized and outstanding shares of Common Stock (the "Selling Securityholder
Firm Securities" and together with the Company Firm Securities, the "Firm
Securities"). The MLGA Fund also proposes to sell to the several Underwriters
not more than 510,000 additional shares of Common Stock if requested by the
Representatives as provided in Section 3 of this Agreement. Any and all shares
of Common Stock to be purchased by the Underwriters pursuant to such option are
referred to herein as the "Option Securities," and the Firm Securities and any
Option Securities are collectively referred to herein as the "Securities".
2. Representations and Warranties. (a) The Company represents and
warrants to, and agrees with, each of the several Underwriters that:
- --------
* Plus an option to purchase from MLGA Fund II, L.P. up to 510,000 additional
shares to cover over-allotments.
<PAGE> 2
(i) A registration statement on Form S-1 (File No. 333-21957)
with respect to the Securities, including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Act"), and one or more amendments to such registration statement may
have been so filed. After the execution of this Agreement, the Company
will file with the Commission either (A) if such registration statement,
as it may have been amended, has been declared by the Commission to be
effective under the Act, either (1) if the Company relies on Rule 434
under the Act, a Term Sheet (as hereinafter defined) relating to the
Securities, that shall identify the Preliminary Prospectus (as hereinafter
defined) that it supplements containing such information as is required or
permitted by Rules 434, 430A and 424(b) under the Act or (2) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form
most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A
under the Act or permitted by Rule 424(b) under the Act, and in the case
of either clause (A)(1) or (A)(2) of this sentence as have been provided
to and approved by the Representatives prior to the execution of this
Agreement, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved
by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering
certain additional Securities, which registration shall be effective upon
filing with the Commission. As used in this Agreement, the term "Original
Registration Statement" means the registration statement initially filed
relating to the Securities, as amended at the time when it was or is
declared effective, including (A) all financial schedules and exhibits
thereto, (B) all exhibits incorporated by reference therein, and (C) and
including any information omitted therefrom pursuant to Rule 430A under
the Act and included in the Prospectus (as hereinafter defined); the term
"Rule 462(b) Registration Statement" means any registration statement
filed with the Commission pursuant to Rule 462(b) under the Act (including
the Registration Statement and any Preliminary Prospectus or Prospectus
incorporated therein at the time such Registration Statement becomes
effective); the term "Registration Statement" includes both the Original
Registration Statement and any Rule 462(b) Registration Statement; the
term "Preliminary Prospectus" means each prospectus subject to completion
filed with such registration statement or any amendment thereto (including
the prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective); the term "Prospectus" means:
(1) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Securities that is first filed pursuant to
Rule 424(b)(7) under the Act, together with the Preliminary
Prospectus identified therein that such Term Sheet supplements;
<PAGE> 3
(2) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule
424(b) under the Act; or
(3) if the Company does not rely on Rule 434 under the Act and
if no prospectus is required to be filed pursuant to Rule 424(b)
under the Act, the prospectus included in the Registration
Statement;
and the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Act. Any reference herein to the "date"
of a Prospectus that includes a Term Sheet shall mean the date of such
Term Sheet.
(ii) The Commission has not issued any order preventing or
suspending use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission it (A) contained all statements
required to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (B) did not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, it (A) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading.
When the Prospectus or any Term Sheet that is a part thereof or any
amendment or supplement to the Prospectus is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or part thereof or such
amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective) and on the
Firm Closing Date and any Option Closing Date (both as hereinafter
defined), the Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing provisions of
this paragraph (ii) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for
use therein.
<PAGE> 4
(iii) If the Company has elected to rely on Rule 462(b) and
the Rule 462(b) Registration Statement has not been declared effective,
(A) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to Rule 462(b)
and has received confirmation of its receipt and (B) the Company has given
irrevocable instructions for transmission of the applicable filing fee in
connection with the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 promulgated under the Act or the Commission has
received payment of such filing fee.
(iv) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good
standing under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified does not amount to a material liability or disability to the
Company and its subsidiaries, taken as a whole.
(v) The Company and each of its subsidiaries have full
corporate power to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full corporate power to enter
into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.
(vi) The issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and, except as otherwise set forth in the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus, are owned beneficially by the Company free and
clear of any security interests, liens, encumbrances, equities or claims,
[except for shares of [Mexican subsidiary] owned by directors of such
corporation.]
(vii) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus. All of the issued
shares of capital stock of the Company, including the Selling
Securityholder Firm Securities and the Option Securities, have been duly
authorized and validly issued and are fully paid and nonassessable. The
Company Firm Securities have been duly authorized and at the Firm Closing
Date, after payment therefor in accordance herewith, will be validly
issued, fully paid and nonassessable. No holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or
other rights to subscribe for any of the Securities, and no holder of
securities of the Company has any right which has not been fully exercised
or waived to require the Company to register the offer or sale of any
securities owned by such holder under the Act in the public offering
contemplated by this agreement.
<PAGE> 5
(viii) The capital stock of the Company conforms to the
description thereof contained in the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus.
(ix) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there are no outstanding (A) securities or obligations of the Company or
any of its subsidiaries convertible into or exchangeable for any capital
stock of the Company or any such subsidiary, (B) warrants, rights or
options to subscribe for or purchase from the Company or any such
subsidiary any such capital stock or any such convertible or exchangeable
securities or obligations, or (C) obligations of the Company or any such
subsidiary to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or
options.
(x) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) fairly present the financial
position of the Company and its consolidated subsidiaries and the results
of operations and changes in financial condition as of the dates and
periods therein specified. Such financial statements and schedules have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
noted therein). The selected financial and operating data set forth under
the caption "Selected Consolidated Financial and Operating Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the
Prospectus (or such Preliminary Prospectus), the information included
therein.
(xi) Arthur Andersen LLP, which has certified the financial
statements of the Company and its consolidated subsidiaries and delivered
its report with respect to the audited consolidated financial statements
and schedules included in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), are independent public accountants as required by the Act and
the applicable rules and regulations thereunder.
(xii) The execution and delivery of this Agreement have been
duly authorized by the Company and this Agreement has been duly executed
and delivered by the Company, and is the valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
(xiii) No legal or governmental proceedings are pending to
which the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus
and are not described therein (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), and no such proceedings have been
threatened against the Company or any of its subsidiaries or with respect
to any of their respective properties;
<PAGE> 6
and no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement that is not described therein (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or
filed as required.
(xiv) The issuance, offering and sale of the Company Firm
Securities to the Underwriters by the Company pursuant to this Agreement,
the compliance by the Company with the other provisions of this Agreement
and the consummation of the other transactions herein contemplated do not
(A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, such as may be required under state securities or blue sky
laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (B) conflict with or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties are bound, or the charter documents
or by-laws of the Company or any of its subsidiaries, or any statute or
any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or any
of its subsidiaries.
(xv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus, neither the Company nor any of its subsidiaries has sustained
any material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding and there has not been any material
adverse change, or any development involving a prospective material
adverse change, in the condition (financial or otherwise), management,
business prospects, net worth, or results of the operations of the Company
or any of its subsidiaries, except in each case as described in or
contemplated by the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(xvi) The Company has not, directly or indirectly, (A) taken
any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Securities or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale of
Securities under this Agreement).
<PAGE> 7
(xvii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus), (A) the Company and its subsidiaries have not incurred any
material liability or obligation, direct or contingent, other than in the
ordinary course of business, nor entered into any material transaction not
in the ordinary course of business; (B) the Company has not purchased any
of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (C) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company and its consolidated subsidiaries, except in
each case as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(xviii) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and
marketable title to all personal property owned by each of them, in each
case free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such properties taken as a whole and do not
materially interfere with the use made or proposed to be made of such
properties by the Company or such subsidiary, and any real property and
buildings held under lease by the Company or any such subsidiary are held
under valid, subsisting and enforceable leases, with such exceptions as
are not material and do not materially interfere with the use made or
proposed to be made of such property and buildings by the Company or such
subsidiary, in each case except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xix) No labor dispute with the employees of the Company or
any of its subsidiaries exists or is threatened or imminent that could
reasonably be expected to result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus).
(xx) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently employed by them
in connection with their respective businesses, and neither the Company
nor any such subsidiary has received any notice of infringement of or
conflict with asserted rights of any third party with respect to any of
the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material
adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
<PAGE> 8
(xxi) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and
customary in the businesses in which they are engaged; neither the Company
nor any such subsidiary has been refused any insurance coverage sought or
applied for; and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a
cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole, except
as described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(xxii) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from the
Company or from transferring any of such subsidiary's property or assets
to the Company or any other subsidiary of the Company, except as described
in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxiii) The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess any
certificate, authorization or permit would not materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company and its subsidiaries, taken
as a whole, and neither the Company nor any such subsidiary has received
any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(xxiv) Each of the Company and its subsidiaries has timely
filed all foreign, federal, state and local tax returns that are required
to be filed or has requested extensions thereof (except in any case in
which the failure so to file would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
<PAGE> 9
(xxv) Neither the Company nor any of its subsidiaries is in
violation of any foreign, federal or state law or regulation relating to
occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and its
subsidiaries have received all permits, licenses or other approvals
required of them under applicable foreign, federal and state occupational
safety and health and environmental laws and regulations to conduct their
respective businesses, and the Company and each such subsidiary is in
compliance in all material respects with all terms and conditions of any
such permit, license or approval, except any such violation of law or
regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the
aggregate, result in a material adverse change in the condition (financial
or otherwise), business prospects, net worth or results of operations of
the Company and its subsidiaries, taken as a whole, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxvi) Each certificate signed by any officer of the Company
and delivered to the Representatives or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(xxvii) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(xxviii) There are no holders of securities of the Company,
who, by reason of the filing of the Registration Statement, have the right
(and have not waived such right) to request the Company to register under
the Act, or to include in the Registration Statement, securities held by
them.
(xxix) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (C) access to assets is permitted only in accordance
with management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxx) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage,
<PAGE> 10
deed of trust, lease or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties is bound or may be
affected in any material adverse respect with regard to property, business
or operations of the Company and its subsidiaries.
(xxxi) The Company has made all filings required to be made by
it under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(xxxii) The Company has not distributed and, prior to the
later of (A) the Closing Date and (B) the completion of the distribution
of the Securities, will not distribute any offering material in connection
with the offering and sale of the Securities other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or other materials, if
any permitted by the Act.
(b) Each Selling Securityholder represents and warrants to, and
agrees with, each of the several Underwriters that:
(i) Such Selling Securityholder has full corporate or limited
partnership power to enter into this Agreement and to sell, assign,
transfer and deliver to the Underwriters the Securities to be sold by such
Selling Securityholder hereunder in accordance with the terms of this
Agreement; the execution and delivery of this Agreement have been duly
authorized by all necessary corporate or limited partnership action of
such Selling Securityholder; and this Agreement has been duly executed and
delivered by such Selling Securityholder.
(ii) Such Selling Securityholder is the lawful owner of the
Securities to be sold by such Selling Securityholder hereunder and upon
sale and delivery of, and payment for, such Securities, as provided
herein, such Selling Securityholder will convey good and marketable title
to such Securities, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
(iii) Such Selling Securityholder has not, directly or
indirectly, (i) taken any action designed to cause or result in, or that
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities or (ii) since the
filing of the Registration Statement (A) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of, the Securities or (B)
paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company (except for the
sale of Securities by the Selling Securityholders under this Agreement).
(iv) To the extent that any statements or omissions are made
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity
with
<PAGE> 11
written information furnished to the Company by such Selling
Securityholder specifically for use therein, such Preliminary Prospectus
did, and the Registration Statement and the Prospectus and any amendments
or supplements thereto, when they become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they are made, not misleading. Such
Selling Securityholder has reviewed the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and the information regarding such Selling
Securityholder set forth therein under the caption "Principal and Selling
Stockholders" is complete and accurate.
(v) The sale by such Selling Securityholder of Securities
pursuant hereto is not prompted by any adverse information concerning the
Company that is not set forth in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(vi) The sale of the Securities to the Underwriters by such
Selling Securityholder pursuant to this Agreement, the compliance by such
Selling Securityholder with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, such as may be required under state securities or blue sky
laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under any indenture, mortgage, deed of trust, lease
or other agreement or instrument to which such Selling Securityholder or
any of its subsidiaries is a party or by which such Selling Securityholder
or any of its subsidiaries or any of their respective properties are
bound, or the charter documents or by-laws of such Selling Securityholder
or any of its subsidiaries or any statute or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Securityholder or any of its
subsidiaries.
(vii) Such Selling Securityholder has not distributed and,
prior to the later of (A) the Closing Date and (B) the completion of the
distribution of the Securities, will not distribute any offering material
in connection with the offering and sale of the Securities other than the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
other materials, if any permitted by the Act.
<PAGE> 12
(c) Each Nortex Owner represents and warrants to, and agrees with,
each of the several Underwriters that the representations and warranties of
Nortex Holdings in Section 2(b) hereof are true and correct in all respects.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the number of Firm Securities set forth next to its name on
Schedule 1 hereto to the Underwriters, and each Selling Securityholder,
severally and not jointly, agrees to sell the number of Firm Securities set
forth next to its name on Schedule 1 hereto to the Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company and
the Selling Securityholders, at a purchase price of $________ per share, the
number of Firm Securities set forth opposite the name of such Underwriter in
Schedule 2 hereto. The number of Firm Securities to be purchased from the
Company and each Selling Securityholder, respectively (as adjusted by the
Representatives to avoid fractions), by each of the Underwriters shall be
determined by multiplying the aggregate number of such Firm Securities to be
sold by the Company or such Selling Securityholder, as the case may be, as set
forth opposite the name of such Underwriter on Schedule 2 hereto and the
denominator of which is the total number of Firm Securities set forth on
Schedule 2 hereto. One or more certificates in definitive form for the Firm
Securities that the several Underwriters have agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Representatives request upon notice to the Company and the Selling
Securityholders at least 48 hours prior to the Firm Closing Date, shall be
delivered by or on behalf of the Company and the Selling Securityholders to the
Representatives for the respective accounts of the Underwriters, against payment
by or on behalf of the Underwriters of the purchase price therefor by wire
transfer in same-day funds to the respective accounts of the Company and the
Selling Securityholders. Such delivery of and payment for the Firm Securities
shall be made at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue,
New York, New York 10103 at 9:30 A.M., New York time, on March ___, 1997, or at
such other place, time or date as the Representatives, the Company and the
Selling Securityholders may agree upon or as the Representatives may determine
pursuant to Section 10 hereof, such time and date of delivery against payment
being herein referred to as the "Firm Closing Date." Each of the Company and the
Selling Securityholders severally will make such certificate or certificates for
the Firm Securities to be sold by it available for checking and packaging by the
Representatives at the offices in New York, New York of the Company's transfer
agent or registrar or of Prudential Securities Incorporated at least 24 hours
prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the MLGA Fund hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within thirty days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock
<PAGE> 13
Exchange is open for trading). The Underwriters shall not be under any
obligation to purchase any of the Option Securities prior to the exercise of
such option. The Representatives may from time to time exercise the option
granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the MLGA Fund and the Company setting forth the aggregate number of
Option Securities as to which the several Underwriters are then exercising the
option and the date and time for delivery of and payment for such Option
Securities. Any such date of delivery shall be determined by the Representatives
but shall not be earlier than two business days or later than five business days
after such exercise of the option and, in any event, shall not be earlier than
the Firm Closing Date. The time and date set forth in such notice, or such other
time on such other date as the Representatives, the MLGA Fund and Company may
agree upon or as the Representatives may determine pursuant to Section 10
hereof, is herein called the "Option Closing Date" with respect to such Option
Securities. Upon exercise of the option as provided herein, the MLGA Fund shall
become obligated to sell to each of the several Underwriters, and, subject to
the terms and conditions herein set forth, each of the Underwriters (severally
and not jointly) shall become obligated to purchase from the MLGA Fund, the same
percentage of the total number of the Option Securities as to which the several
Underwriters are then exercising the option as such Underwriter is obligated to
purchase of the aggregate number of Firm Securities, as adjusted by the
Representatives in such manner as they deem advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) Each of the Company and the Selling Securityholders hereby
acknowledges that the wire transfer by or on behalf of the Underwriters of the
purchase price for any Shares does not constitute closing of a purchase and sale
of the Shares. Only execution and delivery of a receipt for Shares by the
Underwriters indicates completion of the closing of a purchase of the Shares
from the Company and the Selling Securityholders. Furthermore, in the event that
the Underwriters wire funds to the Company and the Selling Securityholders prior
to the completion of the closing of a purchase of Shares, each of the Company
and the Selling Securityholders hereby acknowledges that until the Underwriters
execute and deliver a receipt for the Shares, by facsimile or otherwise, the
Company and the Selling Securityholders will not be entitled to the wired funds
and shall return the wired funds to the Underwriters as soon as practicable (by
wire transfer of same-day funds) upon demand. In the event that the closing of a
purchase of Shares is not completed and the wire funds are not returned by the
Company or the Selling Securityholders to the Underwriters on the same day the
wired funds were received by the Company and the Selling Securityholders, each
of the Company and the Selling Securityholders severally agree to pay to the
Underwriters in respect of each day the wire funds are not returned by it, in
same-day funds, interest on the amount of such wire funds in an amount
representing the Underwriters' cost of financing as reasonably determined by
Prudential Securities Incorporated.
<PAGE> 14
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such Underwriter
or Underwriters from any of its or their obligations hereunder.
4. Independent Underwriter. (a) The Company hereby confirms its engagement
of the services of Wheat, First Securities, Inc. as, and Wheat, First
Securities, Inc. hereby confirms its agreement with the Company to render
services as, a "qualified independent underwriter" (in such capacity, the
"Independent Underwriter") within the meaning of Rule 2720 of the Conduct Rules
("Rule 2720") of the National Association of Securities Dealers, Inc. with
respect to the offering and sale of the Securities.
(b) The Independent Underwriter hereby represents and warrants to,
and agrees with, the Company, Prudential Securities Incorporated, and the other
Underwriters that with respect to the offering and sale of Securities as
described in the Prospectus:
(i) the Independent Underwriter is a "qualified independent
underwriter" within the meaning of Rule 2720;
(ii) the Independent Underwriter has participated in the
preparation of the Registration Statement and the Prospectus and has
exercised the usual standards of "due diligence" with respect thereto;
(iii) the Independent Underwriter has undertaken the legal
responsibilities and liabilities of an underwriter under the Act,
including those contained in Section 11 thereof, subject to the
limitations on such liabilities set forth herein (including without
limitation, the nature of Wheat, First Securities Inc.'s underwriting
commitment as several and not joint). It is specifically understood,
however, that Wheat, First Securities, Inc. will bear such legal
responsibilities and liabilities only to the extent, if any, that a court
of competent jurisdiction rules in a judgment which has become final, and
not subject to further appeal, that Wheat, First Securities, Inc., as
Independent Underwriter, bears the legal responsibilities and liabilities
of an "underwriter";
(iv) based upon, among other factors, the information set
forth in the Prospectus and its review of such other documents and the
taking of such other actions as the Independent Underwriter, in its sole
discretion, has deemed necessary or appropriate for the purposes of
delivering its recommendation hereunder, the Independent Underwriter
recommends, as of the date of the execution and delivery of this
Agreement, that the public offering price for the Securities not exceed
the amount of $________ per share, which price should in no way be
considered or relied upon except as set forth therein and in the letter
referred to in clause (v) below; and
<PAGE> 15
(v) the Independent Underwriter will furnish to the other
Underwriters on the date hereof a letter, dated the date hereof,
substantially to the effect set forth in Schedule 3 hereto.
(c) The Company, the Independent Underwriter and the other
Underwriters agree to comply in all material respects with all of the
requirements of Rule 2720 applicable to them in connection with the offering and
sale of the Securities. The Company agrees to cooperate with Underwriters to
enable the Underwriters to comply with Rule 2720 and the Independent Underwriter
to perform the services contemplated by this Agreement.
(d) The Independent Underwriter hereby consents to the references to
it as set forth under the caption "Underwriting" in the Prospectus.
5. Offering by the Underwriters. Upon your authorization of the release of
the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
6. Covenants. (a) The Company covenants and agrees with each of the
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
possible. If required, the Company will file the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time period
required by Rules 434 and 424(b) under the Act. During any time when a
prospectus relating to the Securities is required to be delivered under
the Act, the Company (A) will comply with all requirements imposed upon it
by the Act and the Exchange Act and the respective rules and regulations
of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in accordance with
the provisions hereof and of the Prospectus, as then amended or
supplemented, and (B) will not file with the Commission the prospectus,
Term Sheet or the amendment referred to in the second sentence of Section
2(a) hereof, any amendment or supplement to such Prospectus, Term Sheet or
any amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives shall not previously
have been advised and furnished with a copy for a reasonable period of
time prior to the proposed filing and as to which filing the
Representatives shall not have given their consent, which consent will not
be unreasonably withheld. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the
Commission, promptly upon request by the Representatives or counsel for
the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Securities by the
several Underwriters, and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the
Representatives, promptly after
<PAGE> 16
receiving notice thereof, of the time when the Registration Statement or
any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Representatives of each such filing
or effectiveness.
(ii) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (A) the issuance
by the Commission of any stop order suspending the effectiveness of the
Original Registration Statement or any Rule 462(b) Registration Statement
or any amendment thereto or any order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, (B) the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, (C) the institution,
threatening or contemplation of any proceeding for any such purpose or (D)
any request made by the Commission for amending the Original Registration
Statement or any Rule 462(b) Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company
will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued, to obtain the withdrawal thereof as
promptly as possible.
(iii) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky laws of
such jurisdictions as the Representatives may reasonably designate and to
continue such qualifications in effect for as long as may be necessary to
complete the distribution of the Securities, provided, however, that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to execute a general consent to service of process
in any jurisdiction.
(iv) If, at any time prior to the later of (A) the final date
when a prospectus relating to the Securities is required to be delivered
under the Act or (B) the Option Closing Date, any event occurs as a result
of which the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act, the Exchange Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify
the Representatives thereof and, subject to Section 6(a) hereof, will
prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to
the Prospectus that corrects such statement or omission or effects such
compliance.
(v) The Company will, without charge, provide (A) to the
Representatives and to counsel for the Underwriters a conformed copy of
the registration statement originally filed with respect to the Securities
and each amendment thereto (in each case including exhibits thereto) or
any Rule 462(b) Registration Statement, certified by the Secretary or an
Assistant Secretary of the Company to be true and complete copies thereof
as filed with the
<PAGE> 17
Commission by electronic transmission, (B) to each other Underwriter, a
conformed copy of such registration statement or any Rule 462(b)
Registration Statement and each amendment thereto (in each case without
exhibits thereto) and (C) so long as a prospectus relating to the
Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto as the Representatives may reasonably request; without
limiting the application of clause (C) of this sentence, the Company, not
later than (A) 6:00 PM, New York City time, on the date of determination
of the public offering price, if such determination occurred at or prior
to 10:00 A.M., New York City time, on such date or (B) 2:00 PM, New York
City time, on the business day following the date of determination of the
public offering price, if such determination occurred after 10:00 A.M.,
New York City time, on such date, will deliver in New York City to the
Underwriters, without charge, as many copies of the Prospectus and any
amendment or supplement thereto as the Representatives may reasonably
request for purposes of confirming orders that are expected to settle on
the Firm Closing Date.
(vi) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(vii) The Company will apply the net proceeds from the sale of
the Company Firm Securities as set forth under "Use of Proceeds" in the
Prospectus.
(viii) The Company will not, directly or indirectly, without
the prior written consent of Prudential Securities Incorporated, on behalf
of the Underwriters, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or
any securities convertible into, or exchangeable or exercisable for,
shares of Common Stock for a period of 180 days after the date hereof,
except pursuant to this Agreement and except for issuances pursuant to the
exercise of outstanding employee stock options or pursuant to options
granted under the Company's stock option plans.
(ix) The Company will not, directly or indirectly, (A) take
any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or (B) (1) sell, bid for, purchase, or
pay anyone any compensation for soliciting purchases of, the Securities or
(2) pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company (except for the
sale of Securities by the Selling Securityholders under this Agreement).
(x) The Company will obtain the agreements described in
Section 7(h) hereof prior to the Firm Closing Date.
<PAGE> 18
(xi) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price
of the Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor,
publication or event.
(xii) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees in
accordance with Rule 111 promulgated under the Act by the earlier of (A)
10:00 P.M. Eastern time on the date of this Agreement and (B) the time
confirmations are sent or given, as specified by Rule 462(b)(2).
(xiii) The Company will ensure that the Securities remain
included for quotation on the Nasdaq National Market following the Firm
Closing Date.
(b) Each of the Selling Securityholders and the Nortex Owners
severally covenants and agrees with each of the Underwriters that:
(i) Such person will not, directly or indirectly, (A) take any
action designed to cause or result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities or (B) (1) sell, bid for, purchase, or
pay anyone any compensation for soliciting purchases of, the Securities or
(2) pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company (except for the
sale of Securities under this Agreement).
(ii) Such person will not, directly or indirectly, without the
prior written consent of Prudential Securities Incorporated, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any Securities legally or beneficially owned by such
person or any securities convertible into, or exchangeable or exercisable
for, Securities for a period of 180 days after the date hereof, except for
(a) up to 29,956 shares that may be sold by Nortex Holdings pursuant to
the Holdings Option (as defined in the Prospectus) and (b) _______ shares
subject to a pledge granted by Nortex Holdings.
(iii) As soon as such person is advised thereof, such person
will advise the Representatives (and immediately thereafter confirm such
advise in writing), (i) of receipt by such person or by any representative
or agent of such person, of any communication from the Commission relating
to the Registration
<PAGE> 19
Statement, the Prospectus or any Preliminary Prospectus, or any notice or
order of the Commission relating to the Company or such person in
connection with the transactions contemplated by this Agreement and (ii)
of the happening of any event which makes or may make any statement made
in the Registration Statement, the Prospectus or any Preliminary
Prospectus relating to such person untrue or that requires the making of
any change in the Registration Statement, Prospectus or Preliminary
Prospectus, as the case may be, in order to make such statement, in light
of the circumstances in which it was made, not misleading.
7. Expenses. The Company will pay all costs and expenses incident to the
performance of its obligations and those of the Selling Securityholders under
this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 12 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) preparation,
issuance and delivery to the Underwriters of any certificates evidencing the
Securities, including transfer agent's and registrar's fees, (v) the
qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) the
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities approved by the
Company (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters). If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 8 hereof is not satisfied,
because this Agreement is terminated pursuant to Section 12 hereof or because of
any failure, refusal or inability on the part of the Company, any Selling
Securityholder or any Nortex Owner to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
counsel fees and disbursements) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities. The Company
shall not in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
8. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company, the Selling Securityholders and
the Nortex Owners contained herein as of the date hereof and as of the Firm
Closing Date, as if made on
<PAGE> 20
and as of the Firm Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance by
the Company, the Selling Securityholders and the Nortex Owners of their
respective covenants and agreements hereunder and to the following additional
conditions:
(a) If the Original Registration Statement or any amendment thereto
filed prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
and, if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have been declared effective not later than the
earlier of (i) 11:00 A.M., New York time, on the date on which the amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case may be, containing information regarding
the initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Representatives, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Proskauer Rose Goetz & Mendelsohn LLP, counsel for the
Company, to the effect that:
(i) the Company and each of its subsidiaries listed in Exhibit
22 to the Registration Statement (the "Subsidiaries") have been duly
organized and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good
standing under the laws of the jurisdictions listed on Schedule 4 to this
Agreement;
(ii) the Company and each of the Subsidiaries have corporate
power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus, and the Company has corporate power to enter into this
Agreement and to carry out all the terms and provisions hereof to be
carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially by the Company, to such
counsel's knowledge free and clear of any adverse claims (within the
meaning of Section 8-302 of the New York Uniform Commercial Code);
<PAGE> 21
(iv) the Company has authorized, issued and outstanding
capital stock as set forth in the Prospectus; all of the issued shares of
capital stock of the Company, including the Selling Securityholder Firm
Securities and the Option Securities, have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued in
compliance with all applicable federal and state securities laws and were
not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities created by statute or the
Company's certificate of incorporation; the Company Firm Securities have
been duly authorized by all necessary corporate action of the Company and,
when issued and delivered to and paid for by the Underwriters pursuant to
this Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly included for trading on the Nasdaq National
Market; no holders of outstanding shares of capital stock of the Company
are entitled under statute or the Company's certificate of incorporation
as such to any preemptive or other rights to subscribe for any of the
Securities; and, to such counsel's knowledge, no holders of securities of
the Company are entitled to have such securities registered under the
Registration Statement;
(v) the statements set forth under the heading "Description of
Securities" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company, provide
a fair summary of such provisions; and the statements set forth under the
headings "Business - Trademarks, Patents, Copyrights", "Business --
Environmental Matters", "Business -- Legal Proceedings" and "Description
of Securities" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, provide a fair summary of such legal matters, documents and
proceedings;
(vi) the execution and delivery of this Agreement have been
duly authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(vii) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or any of the
Subsidiaries is a party or to which the property of the Company or any of
the Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein,
and, to the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with respect
to any of their respective properties and (B) no contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement or
incorporated therein by reference that is not described therein or filed
or incorporated as required;
(viii) the issuance, offering and sale of the Securities to
the Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or
qualification of or with any governmental
<PAGE> 22
authority, except such as have been obtained and such as may be required
under state securities or blue sky laws, or (B) conflict with or result in
a breach or violation of any of the terms and provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of the Subsidiaries, or
any statute or any judgment, decree, order, rule or regulation of any
court or other governmental authority or any arbitrator known to such
counsel and applicable to the Company or any of the Subsidiaries;
(ix) the records of the United States Patent and Trademark
office indicate that the Company is the owner of U.S. Patent no. _____; to
the knowledge of such counsel, there are no asserted or unasserted claims
of any person relating to the scope or ownership of such patent, nor liens
which have been filed against the patent; and in the course of such
counsel's review such counsel noted no material defect of form in the
preparation or filing of the application for such patent;
(x) the Registration Statement is effective under the Act; any
required filing of the Prospectus, or any Term Sheet that constitutes a
part thereof, pursuant to Rules 434 and 424(b) has been made in the manner
and within the time period required by Rules 434 and 424(b); and to the
best knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement or any amendment thereto has been issued,
and no proceedings for that purpose have been instituted or threatened or
by the Commission;
(xi) the Registration Statement originally filed with respect
to the Securities and each amendment thereto, any Rule 462(b) Registration
Statement and the Prospectus (in each case, other than the financial
statements and other financial information contained therein, as to which
such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act, the Exchange Act and
the rules and regulations of the Commission thereunder; and
(xii) if the Company elects to rely on Rule 434, the
Prospectus is not "materially different", as such term is used in Rule
434, from the prospectus included in the Registration Statement at the
time of its effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to
Rule 430A).
Such counsel shall also deliver a separate letter to the effect that they
have no reason to believe that the Registration Statement, as of its effective
date, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or the date of
such opinion, included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in
<PAGE> 23
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of New York, the
General Corporation Law of the State of Delaware or the United States, to the
extent satisfactory in form and scope to counsel for the Underwriters, upon the
opinion of [insert name of local counsel]. The foregoing opinion shall also
state that the Underwriters are justified in relying upon such opinion of
[insert name of local counsel], and copies of such opinion shall be delivered to
the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Selling Securityholders and the Nortex Owners shall have
furnished to the Representatives the opinion of Proskauer Rose Goetz &
Mendelsohn LLP, counsel for the Selling Securityholders and the Nortex Owners,
dated the Closing Date, to the effect that:
(i) each Selling Securityholder has full corporate power or
partnership authority to enter into this Agreement and to sell, transfer
and deliver the Securities being sold by such Selling Securityholder
hereunder in the manner provided in this Agreement; the execution and
delivery of this Agreement have been duly authorized by all necessary
corporate or partnership action of each Selling Securityholder; this
Agreement has been duly executed and delivered by each Selling
Securityholder and Nortex Owner;
(ii) the delivery by each Selling Securityholder to the
several Underwriters of certificates for the Securities being sold
hereunder by such Selling Securityholder against payment therefor as
provided herein, will convey good and marketable title to such Securities
to the several Underwriters, free and clear of all security interests,
liens, encumbrances, equities, claims or other defects; and
(iii) the sale of the Securities to the Underwriters by each
Selling Securityholder pursuant to this Agreement, the compliance by each
Selling Securityholder and Nortex Owner with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under state
securities or blue sky laws, or (ii) conflict with or result in a breach
or violation of any of the terms and provisions of, or constitute a
default under any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which such Selling Securityholder or any of its
subsidiaries is a party or by which such Selling Securityholder or any of
its subsidiaries or any of their respective properties are bound, or the
charter documents, by-laws or partnership agreement of such Selling
Securityholder or
<PAGE> 24
any of its subsidiaries or any statute or, to the knowledge of such
counsel, any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to such Selling
Securityholder or any of its subsidiaries or any Nortex Owner.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
of the Company and public officials and, as to matters involving the application
of laws of any jurisdiction other than the State of New York, the General
Corporation Law of the State of Delaware or the United States, to the extent
satisfactory in form and scope to counsel for the Underwriters, upon the opinion
of [insert name of local counsel]. The foregoing opinion shall also state that
the Underwriters are justified in relying upon such opinion of [insert name of
local counsel], and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (c) shall include any amendment or supplement thereto at the date of
such opinion.
(d) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Fulbright & Jaworski L.L.P., New York, New York, counsel
for the Underwriters, with respect to the issuance and sale of the Firm
Securities, the Registration Statement and the Prospectus, and such other
related matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they may reasonably
request for the purpose of enabling them to pass upon such matters.
(e) The Representatives shall have received from Arthur Andersen LLP
a letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the Act,
the Exchange Act and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the Registration
Statement and the Prospectus comply in form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations;
(iii) on the basis of a reading of the latest available
interim unaudited financial statements of the Company, carrying out
certain specified procedures (which do not constitute an examination made
in accordance with generally accepted auditing standards) that would not
necessarily reveal matters of significance with respect to the comments
set forth in this paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of the
Company and each of its consolidated subsidiaries, and inquiries of
certain officials of the Company and its consolidated subsidiaries who
have responsibility for financial and accounting matters, nothing came to
<PAGE> 25
their attention that caused them to believe that at a specific date not
more than five business days prior to the date of such letter, there were
any changes in the capital stock or long-term debt of the Company and its
consolidated subsidiaries or any decreases in net current assets or
stockholders' equity of the Company and its consolidated subsidiaries, in
each case compared with amounts shown on the January 4, 1997 consolidated
balance sheet included in the Registration Statement and the Prospectus,
or for the period from January 5, 1997 to such specified date in net
sales, net income and earnings per share of the Company and its
consolidated subsidiaries were not at least 115%, 200% and 200%,
respectively, of the comparable amounts for the comparable period in the
prior year, except in all instances for changes, decreases or increases
set forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records
of the Company and its consolidated subsidiaries and are included in the
Registration Statement and the Prospectus under the captions "Prospectus
Summary," "Risk Factors," "The Company," "Use of Proceeds,"
"Capitalization," "Selected Consolidated Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business," "Management," "Principal and Selling
Stockholders," "Certain Transactions" and "Description of Securities," and
have compared such amounts, percentages and financial information with
such records of the Company and its consolidated subsidiaries and with
information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (e) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(f) The Representatives shall have received a certificate, dated the
Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company, on behalf of the Company, to the
effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading,
and the Prospectus,
<PAGE> 26
as amended or supplemented as of the Firm Closing Date, does not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company
has performed all covenants and agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Firm Closing
Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the
best of the Company's knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has sustained any material
loss or interference with their respective businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition (financial or otherwise), management, business prospects, net
worth or results of operations of the Company or any of its subsidiaries,
except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
(g) The Representatives shall have received a certificate from each
Selling Securityholder, signed by the principal executive officer and the
principal financial or accounting officer of such Selling Securityholder, and
each Nortex Owner, dated the Closing Date, to the effect that:
(i) the representations and warranties of such Selling
Securityholder or Nortex Owner in this Agreement are true and correct as
if made on and as of the Closing Date;
(ii) to the extent that any statements or omissions are made
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company by such Selling
Securityholder or Nortex Owner specifically for use therein, the
Registration Statement, as amended as of the Closing Date, does not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, and
the Prospectus, as amended or supplemented as of the Closing Date, does
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
(iii) such Selling Securityholder or Nortex Owner has
performed all covenants and agreements on its or his part to be performed
or satisfied at or prior to the Closing Date.
<PAGE> 27
(h) The Representatives shall have received from each person who is
a director or officer of the Company, and from each affiliate of Morgan Lewis
Githens & Ahn, Inc. that owns shares of Common Stock, an agreement to the effect
that such person will not, directly or indirectly, without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of an option to purchase or other sale or
disposition) of any shares of Common Stock or any securities convertible into,
or exchangeable or exercisable for, shares of Common Stock for a period of 180
days after the date of this Agreement; provided, however, that the period for
any officer of the Company who is not a Nortex Owner shall be 90 days.
(i) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company, the Selling Securityholders and the Nortex Owners.
(j) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company, the Selling Securityholders and the
Nortex Owners shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives and counsel for the Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
9. Indemnification and Contribution.
(a) The Company and Larry A. Liebenow ("Liebenow"), jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by
the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
<PAGE> 28
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or necessary
to make the statements therein not misleading or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including without
limitation, slides, videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company and Liebenow
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and
provided, further, that the Company and Liebenow will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(a)(iv) and (v) of this Agreement.
Notwithstanding anything to the contrary in this paragraph (a), including the
joint and several nature of the obligations of the Company and Liebenow, each
Underwriter and each person who controls such Underwriter agrees not to assert
its rights to indemnity under this paragraph (a) against Liebenow for losses,
claims, damages or liabilities (or actions in respect thereof) unless and until
(i) such Underwriter or controlling person has requested indemnification and
reimbursement from the Company for such losses, claims, damages or liabilities
(including any legal or other expenses reasonably incurred) and (ii) the Company
does not within 30 days of such request (A) agree to so indemnify such
Underwriter or controlling person and (B)
<PAGE> 29
reimburse in full such Underwriter or controlling person for any such losses,
damages or liabilities (including legal and other expenses) incurred. In the
event that litigation between the parties with respect to this paragraph (a)
results in a joint or joint and several judgment against the Company and
Liebenow, each Underwriter, and each person who controls such Underwriter,
agrees that it will not attempt to enforce such judgment against Liebenow unless
and until any part of such judgment shall remain unsatisfied by the Company for
more than 30 days. This indemnity agreement will be in addition to any liability
which the Company or Liebenow may otherwise have. The Company will not, without
the prior written consent of the Underwriter or Underwriters purchasing, in the
aggregate, more than fifty percent (50%) of the Securities, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not any such Underwriter or any person who controls any
such Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional release of all
of the Underwriters and such controlling persons from all liability arising out
of such claim, action, suit or proceeding.
(b) Each Selling Securityholder and the Nortex Owners severally
agree to indemnify and hold harmless the Company, each of its directors, each of
its officers who signs the Registration Statement, each Underwriter and each
person who controls the Company or any Underwriter within the meaning of the Act
or the Exchange Act and each other Selling Securityholder or Nortex Owner
against any losses, claims, damages or liabilities to which the Company, any
such director, officer, such Underwriter or any such controlling person may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement made
by such Selling Securityholder or such Nortex Owner in Section 2 of this
Agreement, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application or (iii) the omission or the alleged omission to state
therein a material fact required to be stated in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or necessary to make the
statements therein not misleading, provided, that, with respect to clauses (ii)
and (iii), in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Selling Securityholder or Nortex Owner for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company, any such director, officer, such Underwriter or any such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or any action in respect thereof. This indemnity agreement
will be in addition to any liability which any Selling Securityholder or Nortex
Owner may otherwise have. Each Selling Securityholder or Nortex Owner will not,
without the prior written consent of the Underwriter or Underwriters purchasing,
in the aggregate, more than fifty percent (50%) of the Securities, settle or
comprise or consent to the entry of any
<PAGE> 30
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of all of the Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding.
(c) The Company also agrees to indemnify and hold harmless Wheat,
First Securities, Inc. and each person, if any, who controls Wheat, First
Securities, Inc. within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments incurred as a result of Wheat, First Securities,
Inc.'s participation as a "qualified independent underwriter" within the meaning
of Rule 2720 in connection with the offering of the Securities, except for any
losses, claims, damages, liabilities and judgments resulting from Wheat, First
Securities, Inc.'s, or such controlling person's, willful misconduct or gross
negligence.
(d) Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each Selling Securityholder, each Nortex
Owner and each person, if any, who controls the Company, such Selling
Securityholder or Nortex Owner within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which the Company, any such director or officer of the Company,
such Selling Securityholder, such Nortex Owner or any such controlling person of
the Company, such Selling Securityholder or such Nortex Owner may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application or (ii) the omission or the alleged omission to state therein
a material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such director, officer or
controlling person, such Selling Securityholder or such Nortex Owner in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9,
<PAGE> 31
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 9. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
9, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.
(f) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other
<PAGE> 32
relevant equitable considerations. The relative benefits received by the
Company, the Selling Securityholders and the Nortex Owners on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total proceeds from the offering (before deducting expenses) received by the
Company and the Selling Securityholders bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Selling Securityholders, the Nortex Owners or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company, the Selling Securityholders, the
Nortex Owners and the Underwriters agree that it would not be equitable if the
amount of such contribution were determined by pro rata or per capita allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (f). Notwithstanding any
other provision of this paragraph (f), no Underwriter shall be obligated to make
contributions hereunder that in the aggregate exceed the total public offering
price of the Securities purchased by such Underwriter under this Agreement, less
the aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Prudential Securities Incorporated Master
Agreement Among Underwriters. For purposes of this paragraph (f), each person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company or any Selling Securityholder within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company or such Selling Securityholder, as the case may be.
(g) The liability of each Selling Securityholder under this Section
9 shall not exceed an amount equal to the public offering price of the
Securities sold by such Selling Securityholder to the Underwriters and the
aggregate liability of Nortex Owners under this Section 9 shall not exceed an
amount equal to the public offering price of the Securities sold by Nortex
Holdings; provided, however, that if Nortex Holdings shall distribute all of the
proceeds of the sale of Securities pursuant to this Agreement to the Nortex
Owners, Nortex Holdings shall have no liability under this Section 9 and the
liability of each Nortex Owner shall be equal to the amount of such proceeds
distributed to him. Notwithstanding the provisions of this Section 9, Liebenow
shall have no liability under this Section 9 if, within seven months after the
Closing Date, he shall purchase additional shares of Nortex Holdings from the
other Nortex Owners for an aggregate purchase price equal to the net proceeds
from the sale of securities by Nortex Holdings distributed to him, after
deducting taxes paid at the
<PAGE> 33
highest marginal federal and state ordinary income tax rates paid by Liebenow
with respect to 1997.
10. Default of Underwriters. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 11 hereof. In the event of any default by one or more Underwriters as
described in this Section 10, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
11. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Selling Securityholders, the Nortex Owners and the several Underwriters set
forth in this Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Securityholders, the Nortex Owners, any Underwriter or
any controlling person referred to in Section 9 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 7 and 9 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
12. Termination. (a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and the Selling Securityholders given
prior to the Firm Closing Date or the related Option Closing Date, respectively,
in the event that the
<PAGE> 34
Company or the Selling Securityholders shall have failed, refused or been unable
to perform all obligations and satisfy all conditions on their part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to the
Firm Closing Date or such Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in the
sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or inadvisable
to proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the date
hereof.
(b) Termination of this Agreement pursuant to this Section 12 shall
be without liability of any party to any other party except as provided in
Section 11 hereof.
13. Information Supplied by Underwriters. The stabilization legends in the
inside front cover page of the Preliminary Prospectus and the statements set
forth in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriters) constitute the only information
furnished by any Underwriter through the Representatives to the Company for the
purposes of Sections 2(b) and 9 hereof. The Underwriters confirm that such
statements (to such extent) are correct.
14. Notices. All communications hereunder shall be in writing and, if sent
to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile
<PAGE> 35
transmission and confirmed in writing to Prudential Securities Incorporated, One
New York Plaza, New York, New York 10292, Attention: Equity Transactions Group;
if sent to the Company, Nortex Holdings or the Nortex Owners, shall be delivered
or sent by mail, telex or facsimile transmission and confirmed in writing to the
Company, Nortex Holdings or the Nortex Owners at 941 Grinnell Street, Fall
River, Massachusetts 02721; with a copy of Proskauer Rose Goetz & Mendelsohn
LLP, 1585 Broadway, New York, New York 10036, Attention: Arnold S. Jacobs, Esq.
and if sent to the MLGA Fund, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to the MLGA Fund c/o Morgan
Lewis Githens & Ahn at Two Greenwich Plaza, Greenwich, Connecticut 06830 with a
copy of Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York
10036, Attention: Arnold S.
Jacobs, Esq.
15. Successors. This Agreement shall inure to the benefit of and shall be
binding upon the several Underwriters, the Company, the Selling Securityholders,
the Nortex Owners and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company, the Selling
Securityholders and the Nortex Owners contained in Section 9 of this Agreement
shall also be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Underwriters contained in Section 9
of this Agreement shall also be for the benefit of the directors of the Company,
the officers of the Company who have signed the Registration Statement and any
person or persons who control the Company or a Selling Securityholder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, the Selling
Securityholders and the Nortex Owners. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
16. Applicable Law. The validity and interpretation of this Agreement, and
the terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
17. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Company, each Selling
Securityholder and each Nortex Owner accepts for itself and in connection with
its properties, generally and unconditionally, the nonexclusive jurisdiction of
the aforesaid courts and waives any defense of forum non conveniens and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Each Selling Securityholder and each Nortex Owner
designates and appoints Larry A. Liebenow, and such other persons as may
hereafter be selected by the Selling Securityholder or Nortex Owner irrevocably
agreeing in writing to so serve, as its agent to receive on its behalf service
of all process in any such proceedings in any such court, such service being
hereby acknowledged by
<PAGE> 36
each Selling Securityholder and Nortex Owner to be effective and binding service
in every respect. A copy of any such process so served shall be mailed by
registered mail to the Selling Securityholder or Nortex Owner at its or his
address provided in Section 14 hereof; provided, however, that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of such process. If any agent appointed by a Selling
Securityholder or Nortex Owner refuses to accept service, the Selling
Securityholder or Nortex Owner hereby agrees that service of process sufficient
for personal jurisdiction in any action against the Selling Securityholder or
Nortex Owner in the State of New York may be made by registered or certified
mail, return receipt requested, to the Selling Securityholder or Nortex Owner at
its or his address provided in Section 14 hereof, and the Selling Securityholder
or Nortex Owner hereby acknowledges that such service shall be effective and
binding in every respect. Nothing herein shall affect the right to serve process
in any other manner permitted by law or shall limit the right of any Underwriter
to bring proceedings against any Selling Securityholder or Nortex Owner in the
courts of any other jurisdiction.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and each of the
several Underwriters.
Very truly yours,
QUAKER FABRIC CORPORATION
By ________________________
President
MLGA FUND II, L.P.
By MLGAL Partners, L.P., its General Partner
By ________________________
General Partner
NORTEX HOLDINGS, INC.
By ________________________
President
___________________________
Larry A. Liebenow
<PAGE> 37
___________________________
Anthony Degomes
___________________________
J. Duncan Whitehead
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT, FIRST SECURITIES, INC.
By PRUDENTIAL SECURITIES INCORPORATED
By _____________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
<PAGE> 38
SCHEDULE 1
Total Number of Maximum Number of
Firm Securities Option Securities
to be Sold to be Sold
------
Quaker Fabric Corporation 300,000
MLGA Fund II, L.P. 3,000,000 510,000
Nortex Holdings, Inc. 100,000 ------
<PAGE> 39
SCHEDULE 2
UNDERWRITERS
Number of Firm
Securities to
Underwriter be Purchased
Prudential Securities Incorporated................................
The Robinson-Humphrey Company, Inc................................
Wheat, First Securities, Inc. ....................................
----------
Total.............................. 3,400,000
==========
<PAGE> 40
SCHEDULE 3
Form of Pricing Opinion
Prudential Securities Incorporated
One New York Plaza
New York, New York
Quaker Fabric Corporation
941 Grinnell Street
Fall River, Massachusetts 02721
Pricing Opinion
Ladies and Gentlemen:
Quaker Fabric Corporation, a Delaware corporation (the "Corporation"), has filed
with the Securities and Exchange Commission a registration statement on Form S-1
(Reg. No. 333-21957) relating to the offering of 3,400,000 shares of common
stock (plus up to 510,000 shares of common stock subject to the underwriters'
over-allotment option), par value $.01 per share (the "Common Stock"), of which
300,000 are being sold by the Corporation and 3,100,000 are being sold by
certain selling stockholders of the Corporation (the "Selling Stockholders").
Wheat, First Securities, Inc. is acting as one of the several underwriters of
the offering to the public of the Common Stock (the "Offering"). The Prudential
Life Insurance Company of America ("The Prudential"), an affiliate of Prudential
Securities Incorporated, one of the several underwriters of the Offering, is a
limited partner of MLGA Fund II, L.P. ("MLGA Fund"), one of the Selling
Stockholders, and holds an approximately 16.9% interest in MLGA Fund's holdings
of Common Stock. MLGA Fund is selling 3,000,000 shares of Common Stock in this
offering (3,510,000 shares if the underwriters' over-allotment option is
exercised in full). As a result, an affiliate of Prudential Securities
Incorporated will receive more than 10% of the proceeds of this offering. In
addition, The Prudential and one or more of its affiliates hold the entire
$30,000,000 in principal amount of the Corporation's Series A Notes.
Under the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD"), due to the ownership interest in the Corporation of The Prudential,
the Corporation may be deemed to be an affiliate of Prudential Securities
Incorporated. Accordingly, the public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
We have been retained as a Qualified Independent Underwriter to recommend to you
the maximum offering price for the Common Stock as required by the NASD Conduct
Rules.
We have participated in the preparation of the Registration Statement and the
Prospectus (as such terms are defined in the Agreement) and have exercised the
usual standards of "due diligence" with respect thereto. Assuming that the
Offering is commenced on March ___, 1997, we recommend that the offering price
of the
<PAGE> 41
Common Stock be no higher than $____, which price should in no event be
considered or relied upon as an indication of the actual value of the Common
Stock.
Our recommendations are based on economic, market, financial and other
conditions as they exist at the date hereof and on other conditions and
circumstances relating to the Corporation as described in the Registration
Statement. Changes in the conditions and circumstances relating to the
Corporation from those described in the Registration Statement and events
occurring after the date hereof, including changes in the markets in which the
Corporation operates, could materially affect the conclusions stated in this
letter. We shall not be obligated or required to reaffirm or revise these
recommendations or otherwise to comment on any events occurring after the date
hereof or on any change to the conditions or circumstances relating to the
Corporation from those so described.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
By:______________________________________
Name:
Title:
<PAGE> 42
Schedule 4
Subsidiaries
<PAGE> 1
Exhibit 5
PROSKAUER ROSE GOETZ & MENDELSOHN LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036-8299
March 11, 1997
The Board of Directors
Quaker Fabric Corporation
1082 Davol Street
Fall River, MA 02721
Ladies and Gentlemen:
You have requested our opinion in connection with the filing by Quaker
Fabric Corporation, a Delaware corporation (the "Company"), with the Securities
and Exchange Commission of a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to 3,910,000 shares of common stock, $.01 par value per
share, of the Company (the "Common Stock"). The Registration Statement relates
to the proposed issuance of 300,000 shares of Common Stock by the Company (the
"Company Shares") and the proposed sale of 3,610,000 shares by certain
stockholders (the "Selling Stockholder Shares").
We have examined such records, documents and other instruments as we
have deemed relevant and necessary as a basis for the opinions hereinafter set
forth. We have also assumed without investigation the authenticity of any
document submitted to us as an original, the conformity to originals of any
document submitted to us as a copy, the authenticity of the originals of such
latter documents, the genuiness of all signatures and the legal capacity of
natural persons signing such documents.
Based upon the foregoing, it is our opinion that (a) the Company Shares
(to the extent issued and sold by the Company) have been duly authorized and,
when issued and delivered in accordance with the underwriting agreement as
described in the Registration Statement, will be legally issued, fully paid and
nonassessable and that (b) the Selling Stockholder Shares have been duly
authorized and are legally issued, fully paid and nonassessable.
<PAGE> 2
The Board of Directors
March 11, 1997
Page 2
The foregoing opinion relates only to the General Corporation
Law of the State of Delaware and does not purport to express any opinion on the
laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the prospectus contained in the Registration
Statement. In so doing, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ PROSKAUER ROSE GOETZ &
MENDELSOHN LLP
<PAGE> 1
EXHIBIT 10.23
THE MERCHANDISE MART
This Lease made on July 1, 1994 between LASALLE NATIONAL TRUST N.A. not
individually but as Trustee under a Trust Agreement dated May 27, 1981, and
known as Trust No. 104000 ("Landlord") and QUAKER FABRIC CORPORATION OF FALL
RIVER, a corporation organized and existing under the laws of the Commonwealth
of Massachusetts ("Tenant").
Witnesseth
1. DEMISED PREMISES; TERM. Landlord does hereby demise and lease to
Tenant, and Tenant accepts that certain space shown hatched on Exhibit
"A" which is attached hereto and made a part hereof, commonly described as
Room(s) 483, 484, 485 and 486 ("Premises") on the fourth floor(s)
of The Merchandise Mart, a building located at Merchandise Mart Plaza
("Building") constructed on property bounded by West Kinzie Street, North
Orleans Street, the Chicago River, and North Wells Street in Chicago, Illinois
(such land and Building hereinafter referred to, together with all present and
future casements, additions, improvements and other rights appurtenant thereto,
as the "Property"), for a term beginning July 1, 1994 and ending June
30, 1997 ("Term"), unless sooner terminated as provided herein, subject
to the terms, covenants and agreements herein contained.
2. USE. Tenant will used and occupy the Premises for the sale and
display of fabrics at wholesale only and office use and for no other use
or purpose. Tenant will not use or permit upon the Premises anything that will
invalidate any policies of insurance now or hereafter carried on the Building or
that will increase the rate of insurance on the Premises or on the Building.
Tenant will pay all extra insurance premiums on the Building which may be caused
by the use which Tenant shall make of the Premises (other than a use stated in
the first sentence hereof). Tenant will not (a) use or permit upon the Premises
anything that may be dangerous to life or limb; (b) in any manner deface or
injure the Building or any part thereof or overload the floors of the Premises;
or (c) do anything or permit anything to be done upon the Premises in any way
tending to create a nuisance or tending to disturb any other tenant in the
Building or the occupants of neighboring property, or tending to injure the
reputation of the Building. Tenant shall further not carry-on or permit any
activities which might: (1) involve the storage, use or disposal of medical or
hazardous waste substances or the creation of an environmental hazard; or (2)
impair or interfere with (i) the structure of the Building or the operation of
Building systems, (ii) the character, reputation or appearance of the Building
as a first-class building, (iii) the furnishing of services (including
utilities, telephone and communications) to any portion of the Building, or (iv)
the enjoyment by an other occupants of the Building or the benefits of such
occupancy (for example, free of noise, odors or vibration emanating from the
Premises). The Premises shall not be used for the purposes of any so called
"office suites", schools, employment agencies or medical treatment facilities.
Unless the Premises shall be closed because of needed repairs, revisions or
decorating, Tenant shall otherwise keep the same open, fully lighted and
available for business activity during each and every day of the Term hereby
demised, Saturdays, Sundays and holidays as established by Landlord from time to
time only excepted, and the same shall be kept open by Tenant each day for
business during the customary business hours established in the Building which
are currently from 9:00 A.M. to 5:00 P.M. and during such additional hours
(including Saturdays, Sundays and holidays established by Landlord from time to
time) during market exhibitions in the Building when
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such exhibitions include a type of merchandise sold by Tenant in the Premises.
Tenant will fully and promptly comply, and operate the Premises in conformity,
with all applicable federal, state and municipal laws, ordinances, codes,
regulations and requirements respecting the Premises or Tenant's use or
occupancy thereof, and activities therein, and Tenant will not use the Premises
for lodging or sleeping purposes, nor conduct or permit to be conducted on the
Premises any business or activity which is contrary to the provisions of this
Lease or to any applicable governmental laws, ordinances, codes, regulations and
requirements. Tenant shall promptly pay all taxes of whatever kind which are
imposed upon Tenant but which are to be collected by Landlord. Tenant shall at
no time sell food on or from the Premises. Tenant shall at no time sell (within
the meaning of the Illinois Liquor Control Act, as now or hereafter amended)
alcoholic liquor on or from the Premises, provided, however, that Tenant may
occasionally give complimentary food and alcoholic liquor to its guests on the
Premises, on condition that Tenant shall comply with all applicable governmental
requirements, and on further condition that, prior to the giving of such
alcoholic liquor, Tenant shall procure and maintain continuously thereafter (or
cause to be procured and maintained continuously thereafter) in force a policy
of host liquor liability insurance or Dram Shop liability insurance, as set
forth in Article 25 hereof.
3. BASE RENT. Tenant shall pay to Landlord an annual base rent ("Base
Rent") for the Premises as shown below for each respective period in equal
monthly installments during each respective period as follows:
<TABLE>
<CAPTION>
ANNUAL MONTHLY
PERIOD BASE RENT INSTALLMENT
------ --------- -----------
<S> <C> <C>
7/1/94-6/30/97 $31,032.00 $2,586.00
- --------------------------------------- -------------------------- ----------------------------
- --------------------------------------- -------------------------- ----------------------------
- --------------------------------------- -------------------------- ----------------------------
- --------------------------------------- -------------------------- ----------------------------
- --------------------------------------- -------------------------- ----------------------------
- --------------------------------------- -------------------------- ----------------------------
</TABLE>
Tenant shall pay each installment in advance on the first day of every calendar
month of the Term, except for the first month's rent which is due and payable on
execution of this Lease. All such payments shall be made payable to Landlord or
Landlord's agent and shall be made at the office of the Building or at such
other places and to such other parties as Landlord shall from time to time by
written notice appoint. Base Rent shall be payable without any prior demand
therefor and without any deductions or set-offs whatsoever. If the Term
commences on a day other than the first day of the calendar month, or ends on a
day other than the last day of the calendar month, the Base Rent for such
fractional month shall be prorated on the basis of 1/360th of the annual Base
Rent for each day of such fractional month.
4. RENT ADJUSTMENTS. Landlord and Tenant agree that the following rent
adjustments shall be made with respect to each calendar year of the Term, or
portion thereof, including the calendar year in which this Lease begins and the
calendar year in which this Lease terminates, after the Base Year (which Base
Year for purposes of this Lease shall be the calendar year ending on the
December 31st immediately prior to the commencement date of the Term hereof).
For purposes of such rent adjustments, Tenant's Proportionate Share is agreed to
be .055 %.
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<PAGE> 3
(A) Tenant shall pay to Landlord as additional rent an amount equal to
Tenant's Proportionate Share of the amount by which Ownership Taxes paid in any
calendar year after the Base Year exceed ownership Taxes paid in the Base Year.
"Ownership Taxes" shall mean all taxes, assessments, impositions and
governmental charges of every kind and nature which Landlord shall pay in a
calendar year because of or in any way connected with the ownership, leasing,
management, and operation of the Building and the Property, subject to the
following:
(1) the amount of ad valorem real and personal property tax
against Landlord's real and personal property to be included in Ownership Taxes
shall be the amount shown by the latest available tax bills required to be paid
in the calendar year in respect of which Ownership Taxes are being determined.
The amount of any tax refund shall be deducted from Ownership Taxes in the
calendar year they are received by Landlord;
(2) the amount of special taxes and special assessments to be
included shall be limited to the amount of the installments (plus any interest,
other than penalty interest, payable thereon) of such special tax or special
assessment required to be paid during the calendar year in respect of which
Ownership Taxes are being determined;
(3) there shall be excluded from Ownership Taxes all income
taxes [except for a specific tax or excise on rents or other income from the
Property (or on the value of leases thereon) or a specific gross receipts tax or
excise on rents or other income from the Property (or on the value of leases
thereon)], excess profit taxes, franchise, capital stock and inheritance or
estate taxes, except to the extent that any such tax is in lieu of, in
substitution for, or a supplement to, in whole or in part, any tax included in
Ownership Taxes. Ownership Taxes shall also exclude all taxes, assessments,
charges, costs and disbursements paid in connection with that portion of the
Building used for hotel purposes (including the stairs and corridors for hotel
elevators); and
(4) Ownership Taxes shall also include, in the calendar year
paid, all fees, costs and expenses (including reasonable attorneys' fees)
incurred by Landlord in contesting or attempting to reduce or limit any
Ownership Taxes, regardless of whether any such reduction or limitation is
obtained.
(B) Tenant shall also pay to Landlord as additional rent an amount
equal to Tenant's Proportionate Share of the amount by which Operating Expenses
for any calendar year after the Base Year exceed Operating Expenses for the Base
Year. Operating Expenses shall mean all expenses, costs and disbursements of
every kind and nature paid, incurred, or otherwise arising in respect of a
calendar year because of or in any way connected with the ownership, management,
maintenance, repair, leasing and operation of the Building and the Property.
There shall be excluded from Operating Expenses: (1) costs of alterations of
tenant spaces; (2) depreciation; (3) principal and interest payments on
mortgages, and financing or refinancing expenses; (4) return on investment; (5)
Ownership Taxes with the respect to which Tenant is liable for its Proportionate
Share pursuant to the preceding paragraph (A); and (6) the cost of capital
improvements and capital equipment with the exception of governmental
requirements noted below. In the event Landlord makes any capital improvements
or installs any capital equipment during the Term hereof which results in a
reduction of limitation in Operating Expenses, the Operating Expenses for the
Base Year may be comparably reduced as determined by Landlord. In the event
Landlord makes any capital improvements or installs any capital equipment during
the Term hereof required to comply with any governmental rules, regulations or
requirements applicable from time to time to the Building or to the Property,
the costs thereof, as depreciated, may be included in Operating Expenses. If the
Building shall not have been fully occupied by tenants at any time during the
Base Year or any succeeding calendar year,
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<PAGE> 4
the Operating Expenses for such year may be equitably adjusted to reflect the
Operating Expenses though the Building had been fully occupied throughout such
year.
(C) If the twelve (12) month average of the Consumer Price Index for
All Urban Consumers (All Items And Commodity Groups-Chicago-Gary-Lake County,
IL-IN-WI) (1982-84=100), or such other successor or substitute area index as may
be applicable to the Chicago Metropolitan Area, as appropriately adjusted, for
the Base Year ("Base CPI") shall be less than the twelve (12) month average of
the Consumer Price Index for any calendar year subsequent to the Base Year,
Tenant shall pay Landlord as additional rent for any such subsequent calendar
year or portion thereof upon written invoice from Landlord an amount (the "CPI
Adjustment") equal to the product obtained by multiplying thirty-three and
one-third percent (33 1/3%) of the annual Base Rent in such subsequent year by
the percentage by which the twelve (12) month average of the Consumer Price
Index for such subsequent year exceeds the Base CPI.
If the manner in which the Consumer Price Index is determined by the
Department of Labor shall be substantially revised, and the effect of that
revision can be reasonably determined or approximated, an adjustment shall be
made in such revised index or if the underlying Base Year index in order to
produce results equivalent, as nearly as possible, to those which would have
been obtained if the Consumer Price Index had not been so revised. If the
1982-84 average shall no longer be used as an index of 100, or if any component
of the Consumer Price Index is changed in a material degree, such change shall
constitute a substantial revision. If the Consumer Price Index shall become
unavailable to the public because publication is discontinued, or otherwise,
Landlord will substitute therefor a comparable index based upon changes in the
cost of living or purchasing power of the consumer dollar published by any other
governmental agency or, if no such index then be available, a comparable index
published by a major bank or other financial institution or by a university or a
recognized financial publication.
(D) In order to provide for current payments on account of increases in
Ownership Taxes and Operating Expenses over the Base Year and increases in the
Consumer Price Index over the Base CPI, Tenant agrees, at Landlord's request, to
pay on account to Landlord for each calendar year of the Term or portion thereof
commencing on the 1st day of January immediately following the commencement date
of the Term hereof, Tenant's share of adjustments due for such ensuing calendar
year or portion thereof, as estimated by Landlord from time to time, in equal
monthly installments, commencing on the first day of the month following the
month in which Landlord notifies Tenant of the amount of such estimated rent
adjustments or revisions thereto. The installments of estimated rent adjustments
payable for each month of the current calendar year prior to the adjustments or
revisions thereto. The installments of estimated rent adjustments payable for
each month of the current calendar year prior to the date of receipt of
Landlord's estimate shall be due and payable within thirty (30) days after the
receipt of such estimate. If, as finally determined (whether in the succeeding
calendar year at the time of delivery of the statement provided for in paragraph
(E) hereof, or in the current calendar year when the final amount of any portion
of Ownership Taxes becomes known to Landlord), such rent adjustments shall be
greater than or less than the aggregate of all installments so paid on account
to Landlord prior to receipt of an invoice from Landlord, then Tenant upon
receipt of such invoice shall pay to Landlord within ten (10) days immediately
following such notification the amount of such underpayment, or, provided Tenant
is not in default hereunder, Landlord shall credit Tenant for the amount of such
overpayment, as the case may be. It is the intention hereunder to estimate from
time to time the amount of increases in Ownership Taxes and Operating Expenses
and the Consumer Price Index for each year and then to finally determine such
rent adjustments at the end of such calendar year or as soon thereafter as
possible based upon actual increases in Ownership Taxes and Operating Expenses
and the Consumer Price Index for such year.
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<PAGE> 5
(E) Landlord agrees to keep books and records showing the Ownership
Taxes and Operating Expenses in accordance with a system of accounts and
accounting practices consistently maintained on a year-to-year basis in
compliance with such provisions of this Lease as may affect such accounts.
Landlord shall deliver to Tenant after the close of each year (including the
calendar year in which this Lease begins and the calendar year in which this
Lease terminates), a statement by an officer of Landlord's agent and containing
(1) the agent's statement that the books and records covering the operation of
the Building have been maintained in accordance with the requirements of this
paragraph (E), (2) the amounts by which the Operating Expenses and Ownership
Taxes for such calendar year exceed the Operating Expenses and Ownership Taxes,
respectively, for the Base Year, (3) the total rent adjustments owing to
Landlord due to increases in the Consumer Price Index over the Base CPI, (4) the
total of the estimated rent adjustments previously paid by Tenant during such
calendar year, and (5) the amount of any excess or deficiency with respect to
such calendar year. Failure or delay in delivering any such statement or
accompanying invoice, or failure or delay in computing the rent adjustments
pursuant to this Article 4, shall not be deemed a waiver by Landlord of its
right to deliver such items nor shall any such failure or delay be deemed a
release of Tenant's obligations with respect to any such statement or invoice,
or constitute a default hereunder. All rent adjustments payable hereunder shall
be made without any deductions or set-offs whatsoever.
(F) The obligation of Tenant with respect to the payment of Base Rent
and rent adjustments due hereunder shall survive the expiration or termination
of this Lease. Any payment, refund, or credit made pursuant to this Article
shall be made without prejudice to any right of Tenant to dispute, or of
Landlord to correct, any items as billed pursuant to the provisions hereof. In
the event that this Lease shall have been in effect for less than the full
calendar year immediately preceding Tenant's receipt of the invoices provided
for in paragraphs (D) and (E) hereof, the rent adjustment shall be pro rata. In
no event shall any rent adjustment result in a decrease in the Base Rent payable
from time to time hereunder.
5. CONDITION OF PREMISES. Tenant's entry into possession of all or any
part of the Premises shall be conclusive evidence as against Tenant that such
part of the Premises was in good order and satisfactory condition when Tenant
took possession. Tenant acknowledges that no promise of Landlord or its agents
to alter, remodel or improve the Premises or the Building and no representation
respecting the condition of the Premises or the Building have been made by
Landlord or its agents to Tenant other than as may be contained herein.
6. POSSESSION. In the event that possession of the Premises shall not
be delivered to Tenant on the date above fixed for the commencement of the Term,
this Lease shall nevertheless continue in full force and effect, and no
liability shall arise against Landlord out of any such delay beyond that
abatement of rent until possession of the Premises is delivered to Tenant;
provided, however, that there shall be no abatement of rent if the Premises are
not delivered to Tenant due to any delay caused by, or resulting from the fault
of, Tenant. If Tenant, with Landlord's permission, shall enter possession of all
or any part of the Premises prior to the date fixed above for the first day of
the Term, all of the covenants and conditions of this Lease shall be binding
upon the parties hereto in respect of such possession the same as if the first
day of the Term had been fixed as of the date when Tenant entered such
possession and Tenant shall pay to Landlord as rent for the period prior to the
first day of the Term a proportionate amount of the Base Rent as set forth
above. It is expressly understood that Tenant's obligation to pay rent commences
on the date that possession of the Premises is delivered to Tenant and no
liability, by abatement of rent or otherwise, shall arise against Landlord as a
result of delays in occupancy caused by decoration or other work in the
Premises, done by Landlord or Tenant, under the Lease or any other agreement.
5
<PAGE> 6
7. REPAIRS. Tenant will, at its own expense and subject to the
provisions of Article 8 of this Lease, keep the Premises in good repair and
tenantable condition at all times during the Term of this Lease, and Tenant
shall promptly and adequately repair all damages to the Premises (except for
reasonable wear and tear and as otherwise provided in Article 25 of this Lease)
and replace or repair all damaged or broken glass (including any glass demising
walls and signs thereon), fixtures and appurtenances, under the direct
supervision and with the approval of Landlord, and within any reasonable period
of time specified by Landlord. If Tenant does not do so, or at Landlord's
election, Landlord may, but need not, make such repairs or replacements and the
amount paid by Landlord for such repairs and replacements (including landlord's
overhead and profit and the cost of general conditions which amount shall not
exceed ______) shall be deemed additional rent reserved under this Lease due and
payable forthwith. Landlord may, but shall not be required so to do, enter the
Premises at all reasonable times to make such repairs or alterations,
improvements and additions, including but not limited to ducts and all other
facilities for air conditioning service, as Landlord shall desire or deem
necessary for the safety, preservation or improvement of the Premises or the
Building or any equipment located in the Building, or as Landlord may be
required to do by the City of Chicago or by the order or decree of any court or
by any other governmental authority.
In the event Landlord or its agents or contractors shall elect or be
required to make repairs, alterations, improvements or additions to the Premises
or the Building or any equipment located in the Building, Landlord shall be
allowed to take into and upon the Premises all material that may be required to
make such repairs, alterations, improvements or additions and, during the
continuance of any of said work, to temporarily close doors, entryways, public
space and corridors in the Building and to interrupt or temporarily suspend
Building services and facilities without being deemed or held guilty of eviction
of Tenant or for damages to Tenant's property, business or person, and the rent
reserved herein shall in no way abate while said repairs, alterations,
improvements or additions are being made, and Tenant shall not be entitled to
maintain any set-off or counterclaim for damages of any kind against Landlord by
reason thereof. Landlord may, at its option, make all repairs, alterations,
improvements and additions in and about the Building and the Premises during
ordinary business hours, but if Tenant desires to have the same done during any
other hours Tenant shall pay for all overtime and additional expenses resulting
therefrom.
8. ALTERATIONS. Tenant shall not, without the prior written consent of
Landlord in each instance obtained, make any repairs, replacements, alterations,
improvements or additions (collectively "Improvements") to the Premises. In the
event Tenant desires to make any Improvements, Tenant shall first seek
Landlord's consent therefor, and Landlord's consent to any such Improvements
shall be conditioned upon such requirements as Landlord deems appropriate,
including without limitation, the submission of detailed plans and
specifications. All such Improvements shall be done at Tenant's expense by
employees or agents of Landlord or contractors hired by Landlord except to the
extent Landlord gives its prior written consent to Tenant hiring its own
contractors, and, in either event, Tenant shall pay to Landlord or its agent a
charge for supervision, general conditions, overhead, Landlord's profit and
other costs and expenses incurred by Landlord in connection with such work, as
established by Landlord from time to time.
In the event that Tenant uses its own contractors for the Improvements
Landlord may, without limitation, require Tenant to: (a) comply with such
construction standards or procedures as may be applicable from time to time for
construction activities in the Building; (b) demonstrate that the construction
of such Improvements will not jeopardize labor harmony; (c) submit satisfactory
insurance certificates; (d) obtain all necessary permits; (e) furnish
satisfactory security for the payment of all costs to be incurred in connection
with the Improvements; and (f) upon completing any such Improvements, furnish
Landlord with contractors' affidavits and full and final waivers of lien and
receipted bills covering all labor and material
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<PAGE> 7
expended and used. There are some asbestos-containing materials ("ACM") in some
areas of the Building. Landlord has adopted and implemented an abatement and
operations and maintenance program ("O & M Program"), a copy of which is
available for review by Tenant, which sets forth certain procedures to be
followed in connection with any Improvements to be made in the Building, in
order to prevent disturbance to any ACM that may be encountered. Tenant
acknowledges, and hereby expressly agrees to cause its agents, employees and
contractors to comply at all times with, the O & M Program (as amended from time
to time).
All Improvements shall comply with all insurance requirements and with
all applicable governmental laws, requirements, codes, ordinances and
regulations. All Improvements shall be constructed in a good and workmanlike
manner and only good grades of material shall be used. Except for Landlord's
negligence, Tenant shall protect, defend, indemnify and hold Landlord, the
Building and the Property, Landlord's beneficiaries, and their respective
officers, directors, beneficiaries, partners, agents and employees harmless from
any and all liabilities of every kind and description which may arise out of or
in connection with such Improvements.
All Improvements made by Landlord or Tenant in or upon the Premises
whether temporary or permanent in character, including but not limited to wall
coverings, carpeting and other floor covering, lighting installations, built-in
or attached shelving, cabinetry, and mirrors, shall become Landlord's property
and shall remain upon the Premises at the termination of this Lease by lapse of
time or otherwise without compensation to Tenant [excepting only Tenant's
movable office furniture, trade fixtures (other than attached or installed
lighting equipment), and office equipment]; provided, however, that Landlord
shall have the right to require Tenant to remove such Improvements at Tenant's
sole cost and expense in accordance with the provisions of Article 16 of this
Lease.
9. SERVICES. Landlord shall provide the following services on all days
during the Term of this Lease excepting Sundays and holidays established by
Landlord from time to time, unless otherwise stated:
(A) Heat will be furnished whenever such heat shall, in
Landlord's judgment, be required for the comfortable occupation of the Premises.
(B) Adequate elevator service will be furnished daily as
determined by Landlord.
(C) Conditioned air will be furnished to the Premises at such
time or times as Landlord's air conditioning system is in operation for the
furnishing of conditioned air to Landlord's other tenants. Landlord represents
that it customarily operates said air conditioning equipment when required for
the purpose of furnishing cooled air during the period commencing on or about
the fifteenth day of May and ending on or about the fifteenth day of October in
each year. Whenever heat-generating machines, equipment or lighting fixtures
installed by Tenant affect the temperature otherwise maintained by Landlord in
the Premises, or whenever the electrical load in the Premises exceeds four and
one-half (4.5) watts per square foot, Landlord shall be relieved of
responsibility for maintaining air conditioning in the Premises, and in such
event Landlord further reserves the right at its option to (1) require Tenant to
discontinue use of such heat-generating machines, equipment, lighting fixtures
or excessive electrical load, or (2) install supplementary air conditioning
units in the Premises, the cost, installation, operation and maintenance of
which shall be paid by Tenant to Landlord at such rates as Landlord charges from
time to time in the Building. Tenant agrees that at all times it will cooperate
with Landlord and abide by all regulations and
7
<PAGE> 8
requirements which Landlord may prescribe for the proper functioning of the
ventilating and air conditioning systems.
(D) Electricity will be furnished so long as Landlord shall
furnish electric current for light or power to all tenants of the Building
during the Term of this Lease. Tenant agrees to purchase such electric current
from Landlord only, and to pay Landlord for such electric current consumed
(measured by a meter or meters installed by Landlord) at the charges from time
to time customary in the Building. the charges shall be based upon the amount of
current consumed and also the maximum demand of Tenant, both measured and
computed in the manner from time to time customary in the Building. Landlord,
upon giving Tenant not less than thirty (30) days' prior written notice, may
discontinue supplying electric current to Tenant upon connecting the Premises
with another source of supply of electric current. Upon the effective date of
such discontinuance, Tenant agrees to pay Landlord for each month of the
remaining Term of this Lease, as additional rent a sum equal to three cents
($0.03) per rentable square foot of floor space contained in the Premises.
Tenant shall not install or operate any electrical equipment or fixtures that
overload lines servicing the Premises or which exceed the designated electrical
load for the Premises specified in Paragraph (B) above.
(E) Additional services (including after-hour cooling and
ventilation and the provision of water) may be provided on terms and conditions
as may be mutually agreed upon by Landlord and Tenant.
Tenant shall apply to the applicable utility company or municipality
for gas, electricity, telephone and all other utility services, other than those
provided by Landlord, required by Tenant for use in the Premises in accordance
with Article 2 hereof and, subject to Article 8 hereof, Tenant shall be
responsible for the connection and installation of same.
All charges for any services shall be deemed rent reserved under this
Lease and shall be due and payable at the same time as the installment of rent
with which they are billed, or, if billed separately, shall be due and payable
within ten (10) days after such billing. In the event Tenant shall fail to make
payment for such services Landlord may, in addition to all other remedies which
Landlord may have for the non-payment of rent and without notice to Tenant,
discontinue any or all such services (including, without limitation, electric
current for light and power in the Premises), and such discontinuance shall not
be held or pleaded as an eviction or as a disturbance in any manner whatsoever
of Tenant's possession, or relieve Tenant from the payment of rent when due, or
vary or change any other provision of this Lease or render Landlord liable for
damages of any kind whatsoever.
Tenant agrees that neither Landlord nor its beneficiaries nor any of
their respective agents, partners or employees, shall be liable to Tenant, or
any of Tenant's employees, agents, customers or invitees or anyone claiming
through, by or under Tenant, for any damages, injuries, losses, expenses, claims
or causes of action, because of any interruption, diminution, delay or
discontinuance at any time in the furnishing of any of the above services or
operating, maintaining, repairing or supervising the Property when such
interruption, diminution, delay or discontinuance is occasioned, in whole or in
part, by repairs, renewals, improvements or additions, by any strike, lockout or
other labor trouble, by inability to secure gas, electricity, water or other
fuel at the Building, by any accident or casualty whatsoever, by act or default
of Tenant or other parties, or by any other cause beyond Landlord's reasonable
control; nor shall any such interruption, diminution, delay or discontinuance be
deemed an eviction or disturbance of Tenant's use or possession of the Premises
or any part thereof; nor shall any such interruption, diminution, delay or
discontinuance relieve Tenant from full performance of Tenant's obligations
under this Lease.
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<PAGE> 9
10. COVENANT AGAINST LIENS. Tenant agrees to pay promptly for any work
done or materials furnished by or on behalf of Tenant in or about the Premises
or to all or any part of the Property and nothing in this Lease contained shall
authorize or empower Tenant to do any act which shall in any way encumber the
title of Landlord in and to the Premises or to the Property, nor shall the
interest or estate of Landlord therein be in any way subject to any claims by
way of lien or encumbrance whether claimed by operation of law or by virtue of
any express or implied contract of Tenant, and any claim to a lien upon the
Premises or the Property arising from any act or omission of Tenant shall accrue
only against Tenant and shall in all respects be subordinate to the title and
rights of Landlord to the Premises and the Property. Tenant covenants and agrees
not to suffer or permit any lien or encumbrance to be placed against the
Premises, the Building or the Property with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises and, in case of any such lien or encumbrance attaching, or claim
thereof being asserted, Tenant agrees to cause it to be immediately released and
removed of record. If Tenant has not removed any such lien or encumbrance within
fifteen (15) days after notice to Tenant by Landlord, such failure shall
constitute a default hereunder and, in addition to all other remedies available
herein, Landlord may, but shall not be obligated to, pay the amount necessary to
remove the lien or encumbrance, without being responsible for making any
investigation as to the validity thereof, and the amount so paid together with
all costs and expenses, including reasonable attorneys' fees, incurred in
connection therewith shall be deemed additional rent reserved under this Lease
due and payable forthwith.
11. WAIVER OF CLAIMS. Subject to the provisions of Article 25 hereof,
and except for the negligence of Landlord, Tenant agrees that Landlord,
Landlord's beneficiaries and their respective officers, directors,
beneficiaries, partners, agents, and employees shall not be liable for (nor
shall rent abate as a result of) any direct or consequential damage (including,
without limitation, damages claimed for actual or constructive eviction) either
to person or property sustained by Tenant or other person, due to the Building,
the Property, or any part thereof or any appurtenances thereof becoming out of
repair, or due to the happening of any accident in or about the Building or the
Property, or due to any act or neglect of any tenant or occupant of the Building
or the Property, or any other person. This provision shall apply particularly
(but not exclusively) to damage caused by fire, explosion, water, snow, frost,
steam, sewerage, illuminating gas, sewer gas or odors, or by the bursting or
leaking of pipes, plumbing fixtures, or sprinkler system; without distinction as
to the person whose act or neglect was responsible for the damage and whether
the damage was due to any of the causes specifically enumerated above or to some
other cause of an entirely different kind. Tenant further agrees that all
personal property upon the Premises or brought or caused to be brought within
the Building by Tenant shall be at the risk of Tenant only and that Landlord
shall not be liable for any damage thereto or any theft thereof. Subject to the
provisions of Article 25 hereof, and except for the negligence of Landlord,
Tenant shall protect, indemnify, defend and save Landlord, its beneficiaries and
their respective officers, directors, agents, beneficiaries, partners, and
employees harmless from and against any and all liabilities, damages, costs,
claims, obligations and expenses arising out of or in connection with Tenant's
use or occupancy of the Premises or Tenant's activities in or about the Building
or the Property, or arising from any act or negligence of Tenant or its agents,
contractors, servants, employees or invitees.
12. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, (a) assign, convey, mortgage, pledge or otherwise
transfer this Lease, or any part thereof, or any interest hereunder; (b) permit
any assignment of this Lease, or any part thereof, by operation of law; (c)
sublet the Premises or any part thereof; or (d) permit the use of the Premises,
or any part thereof, by any parties other than Tenant, its agents and employees.
Tenant shall, by notice in writing, advise Landlord of its desire from, on and
after a stated date (which shall not be less than thirty (30) days after
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<PAGE> 10
the date of Tenant's notice), to assign this Lease, or any part thereof, or to
sublet any part or all of the Premises for the balance or any part of the Term.
Tenant's notice shall: state the name and address of the proposed assignee or
subtenant and provide such financial information on the proposed assignee or
subtenant as requested by Landlord; include all of the terms of the proposed
assignment or sublease (whether contained in such assignment or sublease or in
separate agreements) and state the consideration therefor; and include a true
and complete and fully-executed copy of the proposed assignment or sublease and
any and all other agreements relating thereto. In such event, Landlord shall
have the right, to be exercised by giving written notice to Tenant within thirty
(30) days after receipt of Tenant's notice, to recapture the space described in
Tenant's notice and such recapture notice shall, if given, cancel and terminate
this Lease with respect to the space therein described as of the date stated in
Tenant's notice. If Tenant's notice shall cover all of the Premises, and
Landlord shall have exercised its foregoing recapture right, the Term of this
Lease shall expire and end on the date stated in Tenant's notice as fully and
completely as if that date had been herein definitely fixed for the expiration
of the Term. If, however, this Lease be cancelled with respect to less than the
entire Premises, Base Rent and rent adjustments reserved herein shall be
adjusted on the basis of the number of rentable square feet retained by Tenant
in proportion to the number of rentable square feet contained in the Premises,
as described in this Lease, and this Lease as so amended shall continue
thereafter in full force and effect.
If Landlord, upon receiving Tenant's notice with respect to any such
space, shall not exercise its right to recapture as aforesaid, and if Tenant is
not in default under the terms of this Lease, Landlord will not unreasonably
withhold its consent to Tenant's assignment of the Lease or subletting such
space to the party identified in Tenant's notice and upon the terms set forth in
Tenant's notice, provided, however, that in the event Landlord consents to any
such assignment or subletting, and as a condition thereto, Tenant shall pay to
Landlord ninety per cent (90%) of all profit derived by Tenant from such
assignment or subletting. For purposes of the foregoing, profit shall be deemed
to include, but shall not be limited to, the amount paid or payable to Tenant or
any other party to effect or to induce Tenant or any third party to enter into
any such transaction, and the amount of all rent and other consideration of
whatever nature payable by such assignee or sublessee or a third party in excess
of the Base Rent and rent adjustments payable by Tenant under this Lease. If a
part of the consideration for such assignment or subletting shall be payable
other than in cash, the payment to Landlord of its share of such non-cash
consideration shall be in such form as is satisfactory to Landlord.
Tenant shall and hereby agrees that it will furnish to Landlord upon
request from Landlord a complete statement, certified by an independent
certified public accountant, setting forth in detail the computation of all
profit derived and to be derived from such assignment or subletting, such
computation to be made in accordance with generally accepted accounting
principles. Tenant agrees that Landlord or its authorized representatives shall
be given access at all reasonable times to the books, records and papers of
Tenant relating to any such assignment or subletting, and Landlord shall have
the right to make copies thereof. The percentage of profit due Landlord
hereunder shall be paid to Landlord within two (2) days of receipt of each
payment of profit made from time to time by such assignee or sublessee to
Tenant.
For purposes of the foregoing, (a) if Tenant is a partnership, any
change in the partners of Tenant, or (b) if Tenant is a corporation the voting
stock of which is not listed on a nationally recognized security exchange, any
transfer of any or all of the shares of stock of Tenant by sale, assignment,
operation of law or otherwise resulting in a change in the present control of
such corporation by the person or persons owning a majority of such shares as of
the date of this Lease, or (c) the transfer of all or substantially all of the
assets of Tenant, shall be deemed to be an assignment within the meaning of this
Article 12.
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Landlord's consent to any assignment or sublease shall not operate as a
consent to any subsequent assignment or sublease or as a waiver of Landlord's
right to require Tenant to seek Landlord's approval of all subsequent
assignments and subleases. Any subletting or assignment hereunder shall not
release or discharge Tenant of or from any liability, whether past, present or
future, under this Lease, and Tenant shall continue fully liable thereunder. Any
subtenant or assignee shall agree in a form satisfactory to Landlord to comply
with and be bound by all of the terms, covenants, conditions, provisions and
agreements of this Lease to the extent of the space sublet or assigned, and
Tenant shall deliver to Landlord promptly after execution, an executed copy of
each such sublease or assignment and an agreement of compliance by each such
subtenant or assignee. Tenant agrees to pay to Landlord, on demand, all
reasonable costs incurred by Landlord (including fees paid to consultants,
brokers, accountants and attorneys) in connection with any request by Tenant for
Landlord to consent to any assignment or subletting by Tenant. Any sale,
assignment, mortgage, transfer, or subletting of this Lease which is not in
compliance with the provisions of this Article shall be of no effect and void.
Notwithstanding any requirement for Landlord to consider, solicit or obtain a
sublease or assignment, whether statutory or otherwise, Landlord and Tenant
expressly agree that Landlord's obligation with respect to such sublease or
assignment shall arise only when Tenant submits such sublease or assignment to
Landlord in the manner set out in this Article 12.
13. EXPENSES OF ENFORCEMENT. Tenant shall pay all reasonable attorneys'
fees and expenses of Landlord incurred in enforcing any of the obligations of
Tenant under this Lease. In case Landlord shall, without fault on its part, be
made a party to any litigation commenced by or against Tenant, then Tenant shall
pay all cost, expense and reasonable attorney's fees incurred or paid by
Landlord in connection with such litigation.
14. LANDLORD'S LIEN. Landlord shall have a first lien upon any and all
rents from permitted subtenants or assignees of Tenant (if any), upon the
interest of Tenant under this Lease and upon all the goods and chattels of
Tenant which may at any time be affixed to the Premises, to secure the payment
of all money due under this Lease.
15. LANDLORD'S REMEDIES. If default shall be made in the payment of the
rent or any installment thereof or in the payment of any other sum required to
be paid by Tenant under this Lease, or under the terms of any other lease or
agreement between Landlord and Tenant, and such default shall continue for ten
(10) days after written notice to Tenant or if default shall be made in the
performance of any of the other covenants or conditions which Tenant is required
to observe and perform hereunder or under any other lease or agreement between
Landlord and Tenant and such default shall continue for thirty (30) days after
written notice to Tenant or if the interest of Tenant in this Lease shall be
levied on under execution or other legal process, or if any petition shall be
filed by or against Tenant to declare Tenant a bankrupt or to delay, reduce or
modify Tenant's debts or obligations or if any petition shall be filed or other
action taken to reorganize or modify Tenant's capital structure, if Tenant be a
corporation or other entity, or if Tenant be declared insolvent according to law
or if any assignment of Tenant's property shall be made for the benefit of
creditors or if a receiver or trustee is appointed for Tenant or its property or
if Tenant shall abandon or vacate the Premises during the Term of this Lease,
then Landlord may treat the occurrence of any one or more of the foregoing
events as a breach of this Lease, and thereupon at its option may, without
notice or demand of any kind to Tenant or any other person, have any one or more
of the following described remedies in addition to all other rights and remedies
provided at law or in equity:
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(a) Landlord may terminate this Lease and the Term created
hereby, in which event Landlord may forthwith repossess the Premises and be
entitled to recover forthwith as damages a sum of money equal to the value of
the rent provided to be paid by Tenant for the balance of the stated Term of the
Lease, less the fair rental value of the Premises for such period, and any other
sum of money and damages owed by Tenant to Landlord.
(b) Landlord may terminate Tenant's right of possession and
may repossess the Premises by forcible entry and detainer suit, or otherwise,
without demand or notice of any kind to Tenant and without terminating this
Lease, in which event Landlord may, but shall be under no obligation so to do,
relet all or any part of the Premises for such rent and upon such terms as shall
be satisfactory to Landlord (including the right to relet the Premises for a
term greater or lesser than that remaining under the Term of this Lease and the
right to relet the Premises as a part of a larger area and the right to change
the character or use made of the Premises). For the purpose of such reletting,
Landlord may make such repairs, changes, alterations or additions in or to the
Premises as may be necessary or convenient. If Landlord shall fail or refuse to
relet the Premises, then Tenant shall pay to Landlord as damages a sum equal to
the amount of the rent reserved in this Lease for such period or periods. If the
Premises are relet and a sufficient sum shall not be realized from such
reletting after paying all of the costs and expenses of such repairs, changes,
alterations and additions and the expense of such reletting and the collection
of the rent accruing therefrom, to satisfy the rent above provided to be paid.
Tenant shall satisfy and pay any such deficiency upon demand therefor from time
to time; and Tenant agrees that Landlord may file suit to recover any sums
falling due under the terms of this paragraph from time to time and that any
suit or recovery of any portion due Landlord hereunder shall be no defense to
any subsequent action brought for any amount not theretofore reduced to judgment
in favor of Landlord.
16. SURRENDER OF POSSESSION. On or before the date this Lease and the
Term hereby created terminate, or on or before the date Tenant's right of
possession terminates, whether by lapse of time or at the option of Landlord,
Tenant will: (a) restore the Premises to the same condition they were in at the
beginning of the Term (except for reasonable wear and tear and as otherwise
provided in Article 25 of this Lease) and remove those alterations, improvements
and additions installed by or for the benefit of Tenant (including tenant
improvements acquired by Tenant from former tenants or existing in the Premises
as of the date such space is leased to, or occupied by, Tenant) which Landlord
shall request Tenant to remove; (b) remove from the Premises and the Building
all of Tenant's personal property; and (c) surrender possession of the Premises
to Landlord. If Tenant shall fail or refuse to restore the Premises to the
above-described condition on or before the above-specified date, Landlord may
enter into and upon the Premises and put the Premises in such condition, and
recover from Tenant Landlord's cost of so doing. Without limiting the generality
of the foregoing, Tenant agrees to pay Landlord, upon demand, the cost of
restoring the walls, ceilings and floors of the Premises to the same condition
that existed prior to the date of the commencement of any alterations,
improvements, or additions made by or for Tenant's occupancy (or a prior
tenant's occupancy if such alterations, improvements or additions were acquired
by Tenant from a former tenant) of the Premises. If Tenant shall fail or refuse
to comply with Tenant's duty to remove all personal property from the Premises
and the Building on or before the above-specified date, the parties hereto agree
and stipulate that Landlord may, at its election: (1) treat such failure or
refusal as an offer by Tenant to transfer title to such personal property to
Landlord, in which event title thereto shall thereupon pass under this Lease as
a bill of sale to and vest in Landlord absolutely without any cost either by
set-off, credit allowance or otherwise, and Landlord may remove, sell, retain,
donate, destroy, store, discard, or otherwise dispose of all or any part of said
personal property in any manner that Landlord shall choose; or (2) treat such
failure or refusal as conclusive evidence, on which Landlord and any third party
shall be entitled absolutely to rely and act, that Tenant has forever abandoned
such personal property, and
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without accepting title thereto, Landlord may at Tenant's expense enter into and
upon the Premises and remove, sell, retain, donate, destroy, store, discard or
otherwise dispose of all or any part thereof in any manner that Landlord shall
choose without incurring liability to Tenant or to any other person. In no event
shall Landlord ever become or accept or be charged with the duties of a bailee
(either voluntary or involuntary) of any personal property; and the failure of
Tenant to remove all personal property from the Premises and the Building shall
forever bar Tenant from bringing any action or from asserting any liability
against Landlord with respect to any such property which Tenant fails to remove.
If Tenant shall fail or refuse to surrender possession of the Premises to
Landlord on or before the above-specified date, Landlord may forthwith re-enter
the Premises and repossess itself thereof as of its former state and remove all
persons and effects therefrom, using such force as may be necessary, without
being guilty of any manner of trespass or forcible entry or detainer.
17. HOLDOVER. Tenant will pay to Landlord an amount equal to double the
sum of the annual Base Rent plus rent adjustments as provided in Section 9-202
of Chapter 110 of the Illinois Revised Statutes, or any corresponding provision
of a successor statute, and in addition thereto, all actual damages, whether
direct or consequential, sustained by Landlord, for all the time Tenant shall
retain possession of the Premises or any part thereof after the termination of
this Lease, whether by lapse of time or otherwise, but the provisions of this
Article shall not operate as a waiver by the Landlord of any right of re-entry
hereinbefore provided. At the option of Landlord, expressed in a written notice
to Tenant and not otherwise, such holding over shall constitute a renewal of the
Lease for a period of one (1) year with the Base Rent for such period in an
amount equal to the greater of the annual Base Rent plus rent adjustments
payable hereunder or the then prevailing rental rates for similar space in the
Building.
18. MERCHANDISE APPROVAL. Tenant shall not at any time during the Term
of this Lease offer for sale, display for sale, or sell (or cause, authorize or
permit any agent, representative or employee of Tenant so to do) in the Premises
any line of merchandise, except as provided in Article 2 above, without first
obtaining the written consent of Landlord.
19. NOTICE. In every case where it shall be necessary or desirable for
Tenant to give or serve upon Landlord any notice or demand, Tenant shall give
the requisite notice either (a) by delivering or causing to be delivered to
Landlord a written or printed copy of such notice or demand, or (b) by sending a
written or printed copy of such notice or demand by mail, postage prepaid,
addressed to Landlord at the address to which rental payments are made pursuant
to Article 3 hereof, and in either case by also delivering or sending a copy of
such notice or demand to the President of Landlord's agent at the Office of the
Building. In every case where under the provisions of this Lease it shall be
necessary or desirable for Landlord to give or serve upon Tenant any notice or
demand it shall be sufficient either (a) to deliver or cause to be delivered to
Tenant a written or printed copy of such notice or demand, or (b) to send a
written or printed copy of said notice or demand by mail, postage prepaid,
addressed to Tenant at the Premises, or (c) to leave a written or printed copy
of said notice or demand upon the Premises or post the same upon any door
leading into the Premises.
20. NO SOLICITATION. Tenant shall not by itself or through any officer,
salesman, employee, agent, advertisement or otherwise solicit business in the
vestibules, entrances, elevator lobbies, corridors, hallways, elevators or other
common areas of the Building.
21. CONDEMNATION. If the whole or any part of the Premises or Building
shall be taken or condemned by any competent authority for any public use or
purpose or if any adjacent property or street shall be condemned or improved in
such manner as to require the use of any part of the Premises
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or Building, the Term of this Lease, at the option of Landlord, shall end upon
the date when the possession of the part so taken shall be required for such use
or purpose and Landlord shall be entitled to receive the entire award, if any,
without any payment to Tenant. Current rent shall be apportioned as of the date
of such termination.
22. NONWAIVER. No waiver of any condition expressed in this Lease shall
be implied by any neglect of Landlord to enforce any remedy on account of the
violation of such condition if such violation be continued or repeated
subsequently, and no express waiver shall affect any condition other than the
one specified in such waiver and that one only for the time and in the manner
specifically stated. The receipt and acceptance by Landlord of a sum of money
which is less than the amount due and owing shall not, regardless of any
endorsements or instructions to the contrary, constitute an accord and
satisfaction. No receipt of moneys by Landlord from Tenant after the termination
in any way of the Term hereof or of Tenant's right of possession hereunder or
after the giving of any notice shall reinstate, continue or extend the Term or
affect any notice given to Tenant prior to the receipt of such moneys, it being
agreed that after the service of notice or the commencement of a suit or after
final judgment for possession of the Premises Landlord may receive and collect
any rent due, and the payment of such rent shall not waive or affect such
notice, suit or judgment.
23. WAIVER OF NOTICE. Except as provided in Article 15 hereof, Tenant
hereby expressly waives the service of any other notice of intention to
terminate this Lease or to re-enter the Premises and waives the service of any
demand for payment of rent or for possession and waives the service of any other
notice or demand prescribed by any statute or other law.
24. FIRE OR CASUALTY. If the Premises or the Building (including
machinery and equipment used in its operation) shall be destroyed or damaged by
fire or other casualty and if the Premises or Building may be repaired and
restored within ninety (90) days (plus such additional time during which
Landlord may be prevented or delayed from completing the repairs for causes
beyond its reasonable control, including without limitation, adjustments on
insurance policies), after such damage then Landlord shall have the option to
(a) repair and restore the same with reasonable promptness; or (b) elect to
demolish the Building or cease its operation, in which event this Lease shall
automatically be cancelled and terminated as of the date of such damage. In the
event any such damage not caused by the act or neglect of Tenant, its agents,
servants, employees, guests, licensees or invitees renders the Premises
untenantable and if this Lease shall not be cancelled and terminated by reason
of such damage, then rent shall abate during the period beginning with the date
of such fire or other casualty and ending with the date Landlord's work is
substantially completed, abatement to be in an amount bearing the same ratio to
the total amount of rent for such period as the untenantable portion of the
Premises bears to the entire Premises. Landlord's work shall not include, and
Landlord shall have no duty relating to, the repair or restoration of Tenant's
fixtures or tenant improvements (including tenant improvements acquired by
Tenant from former tenants or existing in the Premises as of the date such space
is leased to, or occupied by, Tenant), including, but not limited to, special
wall and floor coverings, special lighting fixtures, built-in cabinets and
bookshelves and glass demising walls.
If such damage renders the Premises untenantable, in whole or in part,
and if, in Landlord's judgment, such damage cannot reasonably be repaired and
restored within ninety (90) days (plus such additional time during which
Landlord may be prevented or delayed from completing the repairs for causes
beyond its reasonable control, including without limitation, adjustments on
insurance policies), either party shall have the right to cancel and terminate
this Lease as of the date of such damage, provided, however, that Tenant may not
elect to terminate this Lease if such damage was caused by the act or neglect of
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Tenant, its agents, servants, employees, guests, licensees or invitees. Any
right to terminate or any other option provided for any party in this Article 24
must be exercised by written notice to the other party served within one hundred
(100) days after such damage shall have occurred.
25. INSURANCE. In consideration of the leasing of the Premises at the
rental stated in Articles 3 and 4, Landlord and Tenant agree to provide
insurance and allocate the risk of loss as follows:
Tenant, at its sole cost and expense, agrees to purchase and keep in
force and effect during the Term hereof (a) Property Insurance on its
merchandise, inventory, tenant improvements (including tenant improvements
acquired by Tenant from former tenants or existing in the Premises as of the
date such space is leased to, or occupied by, Tenant), contents, furniture,
fixtures, equipment and other personal property located in the Building,
protecting Landlord and Tenant from damage or other loss caused by those perils
customarily covered by an all risk policy, and in any event including without
limitation, fire or other casualty, vandalism, theft, sprinkler leakage, water
damage (however caused), explosion, malfunction and failures of heating and
cooling or similar apparatus, perils covered by extended coverage, and other
similar perils in amounts not less than the full insurable replacement value of
such property, and (b) broad form Comprehensive General Liability Insurance,
including blanket contractual liability, host liquor liability (if alcoholic
liquor within the meaning of the Illinois Liquor Control Act will be given to
guests), personal injury liability, and broad form property damage liability
coverages, with limits of not less than Three Million Dollars ($3,000,000) for
personal injury, bodily injury, sickness, disease or death or for damage or
injury to or destruction of property (including the loss of use thereof) for any
one occurrence. Tenant's Property Insurance policy shall provide that it is
specific and not contributory and shall contain a clause pursuant to which the
insurance carrier waives all rights of subrogation against Landlord with respect
to losses payable under such policy. If the potential for Dram Shop liability
shall arise due to Tenant's activities pursuant to Article 2 of this Lease, the
Tenant shall procure and maintain policy of Dram Shop liability insurance before
undertaking such activities. Tenant's Property Insurance policy, its
Comprehensive General Liability policy and, if required, its Dram Shop liability
policy, shall each name Landlord, its beneficiaries, and their respective
officers, directors, beneficiaries, partners, agents, and employees as
additional insureds. All such insurance shall be provided by insurers of
recognized responsibility.
Landlord agrees to purchase and keep in force and effect insurance on
the Building against fire and such other risks as may be included in extending
coverage insurance from time to time available in an amount not less than the
greater of 80 per cent of the full insurable value of the Building or the amount
sufficient to prevent Landlord from becoming a co-insurer under the terms of the
applicable policies and shall contain a clause pursuant to which the insurance
carriers waive all rights of subrogation against the Tenant, its agents,
servants and employees, with respect to losses payable under such policies.
By this Article, Landlord and Tenant intend that the risk of loss or
damage as described above be borne by responsible insurance carriers to the
extent above provided and Landlord and Tenant hereby release each other and
agree to look solely to, and seek recovery only from, their respective insurance
carrier in the event of a loss of a type described above to the extent that such
coverage is agreed to be provided hereunder. For this purpose any applicable
deductible amount shall be treated as though it were recoverable under such
policies. Landlord and Tenant agree that applicable portions of all moneys
collected from such insurance shall be used toward full compliance with the
obligations of Landlord and Tenant under this Lease in connection with damage
resulting from fire or other casualty.
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26. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall have the
following rights, exercisable without notice and without liability to Tenant for
damages or injury to property, person or business and without effecting an
eviction, constructive or actual, or disturbance of Tenant's use or possession
or giving rise to any claim for set-off or abatement of rent:
(A) To change the Building's name or street address.
(B) To install, affix and maintain any and all signs on the
exterior and interior of the Building.
(C) To designate and approve, prior to installation, all types
of window shades, blinds, drapes, awnings, window ventilators and other similar
equipment, and to control all internal lighting that may be visible from the
exterior of the Building.
(D) To reserve to Landlord the exclusive right to designate,
limit, restrict and control any business or any service in or to the Building
and its tenants.
(E) To grant to anyone the exclusive right to conduct any
business or render any service in or to the Building, provided such exclusive
right shall not operate to exclude Tenant from the use expressly permitted
herein.
(F) To prohibit the placing of vending or dispensing machines
of any kind in or about the Premises without the prior written permission of
Landlord.
(G) To show the Premises to prospective tenants at reasonable
hours during the last twelve (12) months of the Term and if vacated during such
year to prepare the Premises for re-occupancy.
(H) To approve the weight, size and location of safes and
other heavy equipment and bulky articles in and about the Premises and the
Building (so as not to exceed the legal live load), and to require all such
items and furniture and similar items to be moved into and out of the Building
and Premises only at such times and in such manner as Landlord shall direct in
writing. Any damages done to the Building or to other tenants in the Building by
taking in or putting out safes, furniture, and other articles or from
overloading the floor in any way shall be paid by Tenant. Furniture, boxes,
merchandise or other bulky articles shall be transported within the Building
only upon or by vehicles equipped with rubber tires and shall be carried only in
a freight elevator, at such times as the building manager shall fix. Movements
of Tenant's property into or out of the Building and within the Building are
entirely at the risk and responsibility of Tenant and Landlord reserves the
right to require permits before allowing any such property to be moved into or
out of the Building. Landlord reserves the right to regulate the movement of,
and to inspect, before allowing any such property to be moved into or out of the
Building. Landlord reserves the right to regulate the movement of, and to
inspect, all property and packages brought into or out of the Building to
enforce compliance with the terms of this Lease and to regulate delivery and
service of supplies and the usage of loading docks, receiving areas and freight
elevators.
(I) To have access for the Landlord and other Tenants of the
Building to any mail chutes located on the Premises according to the rules of
the United States Postal Service.
(J) To close the Building after regular working hours and on
Saturdays, Sundays and holidays established by Landlord from time to time
subject, however, to Tenant's right to admittance under
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such regulations as Landlord may prescribe from time to time, which may include,
by way of example but not of limitation, that persons entering or leaving the
Building identify themselves to a security officer by registration or otherwise
and that said persons establish their right to enter or leave the Building.
(K) To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, the
Property, and the Premises, or any part thereof, and for such purposes to enter
upon the Premises, and, during the continuance of any of said work, to
temporarily close doors, entryways, public space and corridors in the Building
or the Property and to interrupt or temporarily suspend Building services and
facilities, all without abatement of rent or affecting any of Tenant's
obligations hereunder, so long as the Premises are reasonably accessible for the
use provided under this Lease.
(L) To change the arrangement, configuration, size or location
of entrances, passageways, doors and doorways, corridors, stairs, toilets and
other public service portions of the Building and the Property not contained
within the Premises or any part thereof.
(M) To change the character or use of any part of the Building
or the Property.
(N) To use for itself the roof, the exterior portions of the
Premises and such areas within the Premises required for structural columns and
their enclosures and the installation of utility lines, Building systems and
other installations required to service the Building, the Property or tenants or
occupants thereof and to maintain and repair same, no rights being hereby
conferred upon Tenant, and, unless otherwise specifically provided herein, to
exercise for itself all rights to the land and improvements below the floor
level of the Premises or the air rights above the Premises and to the land and
improvements located on and within the public areas. Neither Tenant nor its
employees, invitees, guests and agents shall, without obtaining in each instance
the prior written consent of Landlord, which consent shall be conditioned upon
such requirements as Landlord deems appropriate, (1) go above or through
suspended ceilings, (2) remove any ceiling tiles or affix anything thereto,
remove anything therefrom or cut into or alter the same in any way, (3) enter
fan rooms or other mechanical spaces, or (4) open doors or remove panels
providing access to utility lines, Building systems or other installations
required to service tenants.
(O) At any time hereafter, provided Landlord shall first give
Tenant at least forty-five (45) days' written notice thereof, to substitute for
the Premises other premises in the Building (herein referred to as "the new
premises"), in which event the new premises will be deemed to be the Premises
for all purposes under this Lease, provided: the new premises shall be similar
to the Premises in size and configuration and shall be usable for Tenant's
purposes, and such change shall be made in order to install a necessary Building
system or in the sole discretion of Landlord to alter, improve or replace common
areas or elements of the Building. If Tenant is already in occupancy of the
Premises, then, in addition (1) Landlord shall pay the expense of Tenant for
moving the Premises to the new premises and improving the new premises so that
they are substantially similar to the Premises; and (2) such move shall be made
during evenings, weekends, or otherwise so as to avoid unreasonable
inconvenience to Tenant.
(P) To enter the Premises for the purpose of inspecting them
for general condition and state of repair or effecting repairs or modifications
for the benefit of Landlord, Tenant, or other tenants of the Building. The
holder of any mortgage of the Landlord's interest in the Property, its agents or
designees shall have the same right of entry for inspection as Landlord.
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27. RULES AND REGULATIONS. Tenant agrees to observe the reservations to
Landlord in Article 26 hereof and agrees, for itself, its employees, agents,
servants, clients, customers, invitees, licensees and guests to observe and
comply, at all times, with the following rules and regulations and with such
reasonable modifications thereof and additions thereto as Landlord may make for
the Building, and that failure to observe and comply with such reservations,
rules and regulations shall constitute a default under this Lease.
(A) No sign, picture, advertisement or notice, typewritten or
otherwise, shall be displayed, inscribed, painted or affixed on any part of the
outside or inside of the Building, or on or about the Premises hereby demised,
except on glass of the doors and windows of the Premises and on the directory
board of the Building and then only of such nature, color, size, style and
material as shall be first approved by Landlord in writing.
(B) Tenant shall not, without Landlord's prior written
consent, install or operate any heating device, refrigerating or air
conditioning equipment, steam or internal combustion engine, boiler, stove,
machinery or mechanical devices upon the Premises or carry on any mechanical or
manufacturing business thereon, or use or permit to be brought into the Building
flammable fluids such as gasoline, kerosene, benzene, or naphtha or use any
illumination other than electric lights. All equipment, fixtures, lamps and
bulbs shall be compatible with, and not exceed the capacity of, the Building's
electrical system. No explosives, firearms, radioactive or toxic or hazardous
substances or materials, or other articles deemed extra hazardous to life, limb
or property shall be brought into the Building or the Premises.
(C) Tenant shall not make noises, cause disturbances or
vibrations, or use or operate any electrical or electronic devices or other
devices that emit sound or other waves or disturbances, or create odors or
noxious fumes, any of which may be offensive to other tenants and occupants of
the Building or that would interfere with the operation of any device or
equipment or radio or television broadcasting or reception from or within the
Building or elsewhere, and shall not place or install any projections, antennae,
aerials or similar devices inside or outside of the Premises.
(D) All janitor work and the caring for the Premises, except
the exterior washing of windows, shall be paid for by Tenant. Any person or
person employed by Tenant to do janitor work, or care for the Premises shall be
subject to and under the control and direction of the building manager while in
the Building and outside of the Premises, but not as agent of Landlord. Tenant
shall be responsible, at its sole cost and expense, for the removal of refuse
and rubbish from the Premises and the Building. Such refuse and rubbish shall be
stored and transported in containers acceptable to Landlord and shall be
deposited in locations acceptable to Landlord.
(E) Tenant shall at its expense provide artificial light for
employees of Landlord while doing work and making repairs or alterations in the
Premises.
(F) All telegraph, telephone, and electric connections which
Tenant may desire shall be first approved by Landlord in writing, before the
same are installed, and the location of all wires and the work in connection
therewith shall be subject to the direction of Landlord. Landlord reserves the
right to designate and control the entity or entities providing telephone or
other communication cable installation, repair and maintenance in the Building
and to restrict and control access to telephone cabinets. In the event Landlord
designates a particular vendor or vendors to provide such cable installation,
repair and maintenance for the Building, Landlord agrees to abide by and
participate in such program.
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(G) Tenant must list all furniture and fixtures to be taken
from the Building upon a form furnished by Landlord. Such list shall be
presented at the office of the Building for approval before acceptance by the
security officer or elevator operator.
(H) Tenant, its customers, invitees, licensees, agents,
servants, employees and guests shall not encumber or obstruct sidewalks,
entrances, passages, courts, corridors, vestibules, hall elevators, stairways or
other common areas in or about the Building.
(I) No bicycle or other vehicle and no animal shall be allowed
in the showrooms, offices, halls, corridors or any other parts of the Building.
(J) Tenant shall not allow anything to be placed against or
near the glass in the partitions between the Premises and the halls or corridors
of the Building which shall diminish the light in the halls or corridors.
(K) Tenant shall not allow anything to be placed on the outer
window ledges of the Premises, nor shall anything be thrown by Tenant or its
employees out of the windows of the Building. Tenant shall keep all windows
closed.
(L) No additional locks shall be placed upon any doors of the
Premises and no locks shall be changed without the prior written consent of
Landlord. Tenant will not permit any duplicate keys to be made (all necessary
keys will be furnished by Landlord), but if more than two keys for any door lock
are desired, the additional number must be paid for by Tenant. Upon termination
of this Lease, Tenant shall surrender all keys of the Premises and of the
Building and give to Landlord the explanation of the combination of all locks or
safes or vault doors in the Premises.
(M) The building manager shall at all times keep a pass key
and be allowed admittance to the Premises to cover any emergency, fire or other
casualty that may arise and in other appropriate instances. Landlord and
Landlord's agents shall have the right to enter the Premises at all reasonable
hours to examine the same.
(N) Unless otherwise advised by Landlord, neither Tenant nor
its employees shall undertake to regulate the radiator controls or thermostats.
Tenant shall report to the office of the Building whenever such thermostats or
radiator controls are not working properly or satisfactorily.
(O) If Tenant desires shades or venetian blinds for outside
windows, they must be furnished and installed at the expense of Tenant, and must
be of such type, color, material and make as may be prescribed by Landlord.
(P) Tenant assumes full responsibility for protecting its
space from weather, theft, robbery and pilferage, which includes keeping doors
locked and other means of entry into the Premises closed and secured.
(Q) Tenant shall not peddle, canvass, solicit or distribute
handbills or flyers on or about the Property except as specifically authorized
by Landlord. Peddlers, solicitors and beggars shall be reported to the office of
the Building or as Landlord otherwise requests.
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(R) Tenant shall not sell food of any kind or cook in the
Building. Tenant may serve complimentary foods to its guests provided that it
shall first comply with all applicable laws, ordinances, codes and regulations.
(S) Water on the Premises shall not be wasted by Tenant or its
employees by tying or wedging back the faucets of the washbowls or otherwise.
(T) Tenant shall use neither the name of the Building (except
as the address of its business) nor pictures of the Building in advertising or
other publicity or for any other purpose without Landlord's prior written
consent.
(U) In the event Tenant designates non-smoking areas in the
Premises, Tenant shall also designate sufficient smoking areas within the
Premises for its employees, and in no event shall Tenant allow its employees to
use the public areas of the Building as smoking areas.
Landlord reserves the right to make such other and further
reasonable rules and regulations as in Landlord's judgment may from time to time
be needful for the safety, care and cleanliness of the Premises and the prudent
operation of the Building and for the preservation of good order therein.
28. MISCELLANEOUS. Tenant and Landlord further covenant with each other
that:
(A) All rights and remedies of Landlord under this Lease shall
be cumulative, and none shall exclude any other rights and remedies allowed by
law.
(B) The word "Tenant" wherever used herein shall be construed
to mean tenants in all cases where there is more than one tenant, and the
necessary grammatical changes required to make the provisions hereof apply
either to corporations or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed. If there is more than one
tenant, all obligations and liabilities hereunder imposed upon Tenant shall be
joint and several.
(C) This Lease and the rights of Tenant hereunder shall be and
are subject and subordinate at all times to any ground leases or master leases
and to the lien of any mortgages or deeds of trust now or hereafter in force
against the Property or the Building, or both of them, and to all advances made
or hereafter to be made upon the security thereof, and to all renewals,
modifications, amendments, consolidations, replacements and extensions thereof.
Any mortgagee or beneficiary under a deed of trust, however, may elect to have
this Lease be superior to its mortgage or deed of trust. This provision is
self-operative and no further instrument or subordination or priority shall be
required. In confirmation of such subordination or priority, Tenant shall
promptly execute such further instrument as may be requested by Landlord and in
the event Tenant fails to do so within ten (10) days after demand in writing
Tenant hereby irrevocably appoints Landlord as attorney-in-fact for Tenant with
full power and authority to execute and deliver in the name of Tenant any such
instruments.
(D) Each of the provisions of this Lease shall extend to and
shall, as the case may require, bind or inure to the benefit of, not only
Landlord and Tenant, but also their respective heirs, legal representatives,
successors and assigns, provided, this clause shall not permit any assignment
contrary to the provisions of Article 12 hereof.
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<PAGE> 21
(E) All of the representations and obligations of Landlord are
contained herein and no modification, waiver or amendment of this Lease or any
of its conditions or provisions shall be binding upon Landlord unless in writing
signed by a duly authorized officer of Landlord's agent.
(F) All amounts due and payable from Tenant under this Lease
or under any work order or other agreement relating to the Premises shall be
considered as rent and, if unpaid when due, shall bear interest from such date
until paid at the maximum legal rate of interest allowable on the date first
above written.
(G) Submission of this instrument for examination shall not
bind Landlord in any manner, and no lease or obligation on Landlord shall arise
until this instrument is signed and delivered by Landlord and Tenant.
(H) No rights to light or air over any property, whether
belonging to Landlord or any other persons, are granted to Tenant by this Lease.
(I) The laws of the State of Illinois shall govern the
validity, performance and enforcement of this Lease. The invalidity or
unenforceability of any provision of this Lease shall not affect or impair any
other provision.
(J) Landlord's title is and always shall be paramount to the
title of Tenant. Nothing herein contained shall empower Tenant to commit or
engage in any act which can, shall or may encumber the title of Landlord.
(K) In case Landlord or any successor owner of the Property or
the Building shall convey or otherwise dispose of any portion thereof to another
person, such other person shall in its own name thereupon be and become Landlord
hereunder and shall assume fully in writing and be liable upon all liabilities
and obligations of this Lease to be performed by Landlord which first arise
after the date of conveyance, and such original Landlord or successor owner
shall, from and after the date of conveyance, be free of all liabilities and
obligations not then incurred.
(L) Neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in violation of
this provision shall constitute a material breach of this Lease.
(M) Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the relationship
of principal and agent, partnership, joint venture or any association or
relationship between Landlord and Tenant other than that of landlord and tenant.
(N) Landlord shall have the right to apply payments received
from Tenant pursuant to this Lease (regardless of Tenant's designation of such
payments) to satisfy any obligations of Tenant hereunder, in such order and
amounts as Landlord in its sole discretion may elect.
(O) All indemnities, covenants and agreements of Tenant
contained herein which inure to the benefit of Landlord shall be construed to
inure also to the benefit of Landlord's beneficiaries, and their respective
officers, directors, beneficiaries, partners, agents and employees.
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29. ATTORNMENT. Upon request of the holder of any note secured
by a mortgage or deed of trust on the Building or Property, Tenant will agree in
writing that no action taken by such holder to enforce said mortgage or deed of
trust shall terminate this Lease or invalidate or constitute a breach of any of
the provisions hereof and Tenant will attorn to such mortgagee or holder, or to
any purchaser of the Property or Building, at any foreclosure sale or sale in
lieu of foreclosure, for the balance of the Term of this Lease and on all other
terms and conditions herein set forth.
30. ESTOPPEL CERTIFICATE. Tenant agrees that from time to time
upon not less than 10 (10) days' prior request by Landlord, Tenant or Tenant's
duly authorized representative having knowledge or the following facts shall
deliver to Landlord a statement in writing certifying (a) that this Lease is
unmodified and in full force and effect (or if there have been modifications
that the Lease as modified is in full force and effect); (b) the dates to which
the rent, rent adjustments and other charges have been paid; (c) that neither
Landlord nor Tenant is in default under any provision of this Lease, or, if in
default, the nature thereof in detail; and (d) that there are no offsets or
defenses to the payment of Base Rent, additional rent or any other sums payable
under this Lease, or if there are any such offsets or defenses, specifying such
in detail. In the event Tenant fails to deliver such statement to Landlord
within such 10-day period, Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for Tenant with full power and authority to execute and deliver
in the name of Tenant any such statement, which statement shall be binding upon
Tenant and may be relied upon by Landlord and any third party.
31. BROKERS. Tenant represents and warrants to Landlord that
neither it nor its officers or agents nor anyone acting on its behalf has dealt
with any real estate broker in the negotiation or making of this Lease, and
Tenant agrees to indemnify and hold harmless Landlord from the claim or claims
of any broker or brokers claiming to have interested Tenant in the Building or
Premises or claiming to have caused Tenant to enter into this Lease.
32. TRUSTEE CLAUSE. It is expressly understood and agreed that
this Lease is executed on behalf of LASALLE NATIONAL TRUST N.A., not personally
but as Trustee as aforesaid, in the exercise of the power and authority
conferred upon and invested in it as such Trustee, and under the direction of
the beneficiaries of a certain Trust Agreement dated May 27, 1981, and known as
Trust No. 104000. It is further expressly understood and agreed that LASALLE
NATIONAL TRUST N.A., as Trustee aforesaid, has no right or power whatsoever to
manage, control or operate said real estate in any way or to any extent and is
not entitled at any time to collect or receive for any purpose, directly or
indirectly, the rents, issues, profits or proceeds of said real estate or any
lease or sale or any mortgage or any disposition thereof. Nothing in this Lease
contained shall be construed as creating any personal liability or personal
responsibility of the Trustee or any of the beneficiaries of the Trust, or any
of their respective officers, directors, beneficiaries, partners, agents, and
employees, and in particular, without limiting the generality of the foregoing,
there shall be no personal liability to pay any indebtedness accruing hereunder
or to perform any covenant, either expressly or impliedly herein contained, or
to keep, preserve or sequester any property of said Trust or for said Trustee to
continue as said Trustee; and that so far as the parties herein are concerned
the owner of any indebtedness or liability accruing hereunder shall look solely
to and attempt to collect solely from the trust estate from time to time subject
to the provisions of said Trust Agreement for payment thereof, Tenant hereby
expressly waiving and releasing said personal liability and personal
responsibility for the Trustee and any of the beneficiaries of the Trust, and
any of their respective officers, directors, beneficiaries, partners, agents and
employees on behalf of itself and all persons claiming by, through or under
Tenant.
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33. RIDERS. All riders attached to this Lease and signed by
Landlord and Tenant are made a part hereof and are incorporated herein by
reference.
IN TESTIMONY WHEREOF, the parties hereto have caused this
instrument to be executed in duplicate as of the day and year first above
written.
TENANT: LANDLORD
QUAKER FABRIC CORPORATION LASALLE NATIONAL TRUST N.A., not
OF FALL RIVER individually but as Trustee under a Trust
Agreement dated May 27, 1981, and known as
Trust No. 104000, as aforesaid.
/s/ , V.P. By: /s/
_________________________ _______________________________________
Vice President
_______________________________ ___________________________
CERTIFICATE
(IF TENANT IS A CORPORATION)
I, Cynthia L. Gordon, ____________ Secretary of Quaker Fabric Corporation of
Fall River, Tenant, hereby certify that the foregoing Lease has been authorized
by all necessary corporate action on behalf of Tenant, the officer(s) executing
the foregoing Lease on behalf of Tenant was/were duly authorized to act in
his/their capacities as Vice President and ______________________________ and
his/their action(s) are the action of Tenant.
/s/
________________________________________
______________________________ Secretary
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Rider No. 1 attached to and made a part of a Lease dated July 1, 1994, by and
between LaSalle National Trust N.A., successor Trustee to LaSalle National Bank,
not individually but as Trustee under a Trust Agreement dated May 27, 1981, as
amended, and known as Trust No. 104000 (hereinafter "Landlord") and Quaker
FABRIC CORPORATION OF FALL RIVER, a Commonwealth of Massachusetts corporation
(hereinafter "Tenant").
35. Article 4 of the Lease is hereby amended by adding the following
thereto:
"Notwithstanding anything to the contrary herein contained, it is
understood and agreed that the rent adjustments payable by Tenant
pursuant to Article 4 shall be based only upon Ownership Taxes and
Operating Expenses allocable to the "Non-Retail Section" of the
Building. For purposes hereof, the "Non-Retail Section" of the Building
means the entire Building and Property exclusive of the "Retail
Center". The "Retail Center" consists of the first and second floors of
the Building, excluding those portions of the first and second floors
of the Building occupied by (a) the cores for elevators, escalators and
stairways, and (b) areas utilized by structural columns and all utility
lines and other installations required to service other components of
the Building. In determining the Ownership Taxes and Operating Expenses
with respect to the Non-Retail Section of the Building in accordance
with the provisions of Article 4, the parties acknowledge that Landlord
shall make a reasonable allocation between the Non-Retail Section of
the Building and the Retail Center of those items which pertain to the
entire Building or which are shared or purchased on a buildingwide
basis and Landlord may, but need not, make such allocation on the basis
of relative size or use. Landlord shall provide Tenant with a written
explanation of the basis on which such allocation is made."
TENANT: LANDLORD
QUAKER FABRIC CORPORATION LASALLE NATIONAL TRUST N.A.,
OF FALL RIVER successor Trustee to LASALLE NATIONAL
BANK, not individually but as Trustee under
a Trust Agreement dated May 27, 1981, as
amended, and known as Trust No. 104000,
By: /s/ as aforesaid.
-----------------------------
Attest: /s/ By: /s/
------------------------- --------------------------------------
Vice President
--------------------------
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<PAGE> 25
Rider No. 2 attached to and made a part of a Lease dated July 1, 1994, by and
between LaSalle National Trust N.A., successor Trustee to LaSalle National Bank,
not individually but as Trustee under a Trust Agreement dated May 27, 1981, as
amended, and known as Trust No. 104000 (hereinafter "Landlord") and QUAKER
FABRIC CORPORATION OF FALL RIVER, a Commonwealth of Massachusetts corporation
(hereinafter "Tenant").
36. Article 15 of the Lease is hereby amended by adding the following
thereto at the end thereof:
"Notwithstanding the foregoing, in the event of a default by Tenant
hereunder, Landlord shall make reasonable efforts to attempt to
mitigate its damages as required by law, provided that any costs
incurred by Landlord in connection with such mitigation shall be repaid
by Tenant."
37. Notwithstanding the provisions of Article 21, if the whole or any
material part of the Premises shall be taken or condemned by any
competent authority for any public use or purpose, and the balance of
the Premises is rendered unsuitable for the Tenant's purposes, the Term
of this Lease, at the option of Tenant and upon thirty (30) days'
written notice from Tenant to Landlord, shall end upon the date the
part of the Premises so taken shall be required for such use or purpose
without apportionment of the award or damages. Current rent shall be
apportioned as of the date of such taking.
38. Article 26(0) of the Lease is hereby modified by adding the following
thereto at the end thereof:
"It is further agreed that any such relocation shall only be to another
space on the same floor as the Premises or to another floor which
serves the same segment of the industry as that which Tenant serves."
TENANT: LANDLORD
QUAKER FABRIC CORPORATION LASALLE NATIONAL BANK, not
OF FALL RIVER individually but as Trustee under a Trust
Agreement dated May 27, 1981, and known
as Trust No. 104000
By: /s/
------------------------------
Thomas J. Finneran By: /s/
----------------------------------
SR. VICE PRESIDENT
Attest: /s/
--------------------------
25
<PAGE> 1
Exhibit 10.25
NORTH CAROLINA
GUILFORD COUNTY
LEASE AGREEMENT
THIS LEASE made and entered into this 15th day of May, 1995, by and
between MARKET SQUARE LIMITED PARTNERSHIP hereinafter referred to as "Landlord",
and QUAKER FABRIC CORPORATION OF FALL RIVER, hereinafter referred to as
"Tenant";
WITNESSETH:
That in consideration of the mutual covenants, promises and conditions
hereinafter set forth, and the rentals agreed by Tenant to be paid to Landlord,
Landlord does hereby rent, demise and lease to Tenant and Tenant hereby takes
and leases from Landlord certain office premises in Market Square Tower, located
on the southeast corner of Lindsay and High Streets, High Point, North Carolina;
and in consideration whereof the Landlord and Tenant mutually agree as follows:
1. Premises, Rent and Term: The premises leased to Tenant, the monthly
rent payable by Tenant and the term of this Lease are all specified in Schedule
"A", which schedule is attached hereto and incorporated herein by reference. As
to any conflict between the terms or conditions set forth herein and those set
forth in Schedule "A" (or in any written agreement which is expressly referred
to therein or attached hereto) the terms set forth in Schedule "A" shall apply
and control.
2. Occupancy:
A. The commencement date of this Lease shall be the
date as set forth and shown in Schedule A attached hereto.
B. No delays by Landlord in rendering the premises ready for
occupancy shall be deemed cause for Tenant's revocation of this Lease or grounds
for any suit for damages or other legal or equitable relief unless such delays
are attributable to Landlord's negligence or other misfeasance under which
circumstances Tenant, after first giving Landlord thirty (30) days written
notice of its intention so to do and the opportunity during such interval to
complete the premises, may terminate Tenant's obligations hereunder if the
premises are not rendered ready for occupancy within the thirty day period.
Tenant may not hold Landlord accountable in any event for any damages or other
monetary relief or restitution by reason of any delay in rendering the premises
ready for occupancy.
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3. Interior Improvements: Landlord shall provide Tenant with the number of
square feet of space specified in Schedule A as a shell structure. The shell
structure shall include finished and painted exterior and interior walls, a
finished ceiling, any necessary interior doors, floor covering, HVAC ducts and
returns, and lighting. In the absence of written agreement to the contrary, any
additional upfitting or interior improvements shall be the sole responsibility
of the Tenant, at the Tenant's expense. Tenant shall submit to Landlord plans
and specifications for any upfitting or improvements (including any
modifications or changes to existing improvements), and Tenant must receive from
Landlord written approval of the plans and specifications prior to beginning any
construction on the premises.
4. Landlord's Services: So long as Tenant is not in default under the
terms and provisions of this Lease, and subject to the regulations of the
building wherein the demised premises are situate, Landlord shall provide
certain services to Tenant. As additional monthly rent, Tenant agrees to pay
Tenant's proportionate share of the expense of the services provided by
Landlord, which are as follows:
A. Utilities. Landlord shall provide electric current, lighting,
heating and air conditioning and water and sewer during proper seasons and as
reasonably required, but in the event Tenant shall install any unusual or
extraordinary electrical equipment or fixtures resulting in extra operational
cost to Landlord, then Landlord may require Tenant to pay for the additional
electric current required to operate such equipment, and such charges shall be
considered additional rent payable on regular rental installment due dates.
B. Cleaning. Landlord shall cause the demised premises to be
cleaned, including the removal of refuse and rubbish, once daily in the evening,
Monday through Friday, except on legal holidays.
C. Repairs. Landlord shall keep and maintain the building in which
the leased premises are located and its common or public fixtures,
appurtenances, systems and facilities in good working order and repair; make all
interior and exterior structural repairs as and when needed; and repair or
replace all building materials, fixtures and equipment required for the normal
use of the leased premises by Tenant; provided, however, that the cost of any
such repairs required as a result of the negligence or willful act of Tenant,
its customers, licensees, agents, servants, and employees shall be borne by
Tenant and shall be payable with the next rental payment after notification by
Landlord, and provided further that nothing herein contained shall be construed
to impose upon Landlord the obligation to renovate or redecorate the demised
premises. For purposes of this Paragraph 4.C., repairs shall not include
expenditures which are in the nature of additions or
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<PAGE> 3
substantial alterations to the building in which the demised premises are
located.
The Landlord shall not be liable for delay or failure to supply any such
services due to unusual circumstances or from causes beyond the control of
Landlord, and Tenant shall not be entitled to any abatement of rent for
Landlord's failure to supply such services.
5. Landlord's Liability: It is agreed that Landlord shall not be liable
and is hereby expressly relieved from liability for injury, loss or damage to
the person or property of Tenant in or about the leased premises, or of Tenant's
agents, employees, visitors or any person claiming by or through Tenant whether
caused by leaks, breaks, or overflows of roof, pipes, drains, or plumbing
fixtures, defects in sewer or air conditioning equipment, imperfect wiring or
construction, by snow, ice or other elements, or by any other tenant of the
building in which the leased premises is located, or by theft or pilferage, or
by any other thing whatsoever, unless caused by willful default of Landlord or
Landlord's gross negligence, nor shall Landlord be liable for any damages caused
by interruption or failure of any of the services referred to in Paragraph 4,
nor shall any deduction or rebate be claimed or allowed in the rent hereby
reserved by reason of such interruption or failure of said services, unless
caused by willful default of Landlord or Landlord's gross negligence. Tenant
shall give to Landlord prompt written notice of any accident to, or defect in
the premises, including the water pipes, wiring, stairwells, air conditioning
and heating equipment, and, upon receipt of such notice, Landlord shall remedy
same with reasonable diligence.
6. Care of Premises: The Tenant agrees to take good care of the leased
premises, fixtures, and appurtenances; to suffer no waste or injury thereto; and
to pay for all repairs to the premises, fixtures and appurtenances necessitated
by the fault of Tenant, its employees, agents, customers or guests. At the end
of the term Tenant will surrender the leased premises in as good condition as
Tenant obtained the same at the commencement of the term, reasonable wear and
tear excepted.
7. Alterations: The Tenant will not, without Landlord's prior written
consent, make any alterations, additions to, or improvements in the leased
premises, and all additions or improvements made by Tenant, except only movable
office furniture and equipment, shall become the property of Landlord at the
termination of this Lease or upon Landlord's earlier lawful occupancy of the
premises. Tenant will not deface or permit the defacing of any part of the
leased premises nor of the building in which the same are located, and will not
do or suffer anything to be done on the leased premises which will increase the
rate of fire or other insurance hazards on the building.
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<PAGE> 4
8. Assignment: The Tenant will not assign or sublet the leased premises
nor any part thereof without Landlord's prior written consent, which consent
shall not unreasonably be withheld or delayed. Should Landlord consent to the
assignment of this Lease or the subletting of the demised premises, in whole or
in part, Tenant shall remain bound hereunder and does hereby absolutely
guarantee the payment of, and covenants to pay, the rent reserved hereunder
until the expiration of the term hereof and no failure of Landlord to promptly
collect from any such assignees or subtenants any rentals and other sums to
become due to Landlord hereunder, and no extension of time for the payment of
such rentals or other sums shall release Tenant from its obligation to pay same
to Landlord. Any lawful levy, sale or execution or other legal possession, or
any assignment for the benefit of creditors, or any Tenant bankruptcy or
insolvency shall be deemed an assignment within the meaning of this Lease.
9. Destruction or Damage: In the event the Market Square Tower is damaged
or destroyed by fire or other casualty, Landlord shall have the option of
determining whether the same shall be repaired or rebuilt and shall notify
Tenant in writing of its election within thirty days after the date on which the
damage or destruction shall occur. If Landlord shall fail to notify Tenant of
its decision within the specified time Landlord shall be conclusively deemed to
have elected not to repair or reconstruct.
If Landlord shall elect not to repair or reconstruct, this Lease shall be
terminated and of no further force or effect from and after the date of the
damage or destruction, or from the date on which Tenant is dispossessed, or
surrenders possession, whichever is later, but all monetary obligations of the
parties to each other existing at the date of termination shall survive said
termination and be promptly paid to the others.
If Landlord shall elect to repair or reconstruct, this Lease shall
continue in full force and effect unless the extent of the damage to the leased
premises is sufficient to deprive Tenant of its use and enjoyment of said
premises for ninety days or more, in which event Tenant shall have the right to
terminate this Lease by so notifying Landlord of such fact within fourteen days
after receiving Landlord's statement of its election to repair. If Tenant shall
elect to so terminate, the cancellation shall be effective as of the date and
under the terms specified in the preceding paragraph.
If Tenant's possession and/or use of the demised premises shall be
interrupted or substantially impaired due to damage caused by fire or other
casualty, there shall be an abatement of rentals for the period in which, and to
the extent which, Tenant is unable to occupy said premises.
10. Eminent Domain: Landlord may at its option terminate the estate hereby
granted from the time the title to, or right to possession of, a significant
portion of Landlord's property shall vest in or be taken by public authority;
and Landlord shall be entitled to any and all awards whatsoever which may be
paid or made
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<PAGE> 5
in connection with such public taking. Tenant may so terminate only if the
taking results in a violation of the terms of this Lease which default or
violation cannot or will not be cured by Landlord, but Tenant shall be entitled
to an abatement of rentals for any period during which Tenant is temporarily
dispossessed on account of the condemnation.
11. Renewal and/or Holding Over:
A. Renewal of this Lease may be made only by mutual consent of
Landlord and Tenant, under such terms and conditions as may be negotiated at the
time of renewal. Tenant shall give Landlord in writing no less than 210 days
advance notice of Tenant's desire to renew this Lease.
B. Any holding over after expiration of the term hereof without the
consent of Landlord shall be construed to create a tenancy from month to month.
In such event, the rental rate shall be fifty percent (50%) above the then
current offering rate for space of comparable size, and such tenancy shall
otherwise be subject to the terms and conditions of this Lease.
12. Rules and Regulations: In consideration of the several covenants
contained in this Lease, it is mutually covenanted and agreed that the rules and
regulations relating to the use of the building in which the leased premises are
located and which are annexed hereto as part hereof, marked Schedule "B" are
agreed to by Tenant, and Tenant agrees to be bound by the same, and also
covenants to be bound by such further rules and regulations, or amendments and
modifications thereof, as may from time to time be made by Landlord, and deemed
by it to be necessary for the safety, care, cleanliness and economical
management of the premises, and for the preservation of good order therein. Any
failure on the part of Tenant, its servants, employees, agents, and invitees to
comply with each and every term of this Lease, or with any of said rules and
regulations, at Landlord's option, shall work a forfeiture of this Lease and of
all rights of Tenant hereunder; and thereupon Landlord, its agents or attorneys
shall have the right to re-enter said premises and remove Tenant therefrom, and
to take all necessary steps to collect any rent due hereunder up to the time of
said forfeiture or cancellations. Landlord agrees to consistently enforce all
such rules and regulations against all Tenants of the building.
13. Right of Entry: Landlord, or any of its authorized agents or
representatives, shall be entitled to enter the demised premises at any
reasonable time to inspect the premises; to perform any repairs, alterations or
changes required or permitted to be performed under this Lease; and during the
final 210 day period of this Lease to exhibit the premises to any prospective
tenant, mortgagee, or investor. Landlord agrees that, to the extent possible,
Landlord will not unreasonably interfere with, the
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<PAGE> 6
operation of Tenant's business in the exercise of Landlord's rights under this
Section.
14. Default: Tenant covenants that if the rent reserved by this Lease or
any part thereof shall be unpaid when due, or if the premises shall become
vacant or actually unoccupied during the term, or if Tenant shall fail to
perform any of the conditions, covenants, provisions and agreements contained
herein, or if a petition in bankruptcy shall be filed by Tenant, or if Tenant
shall be adjudged bankrupt or insolvent by any court, or if a receiver or
trustee in bankruptcy or a receiver of the property of Tenant shall be appointed
in any suit, action or proceeding, or if Tenant shall make an assignment for the
benefit of creditors, or if an execution shall be issued against Tenant, or if
Tenant's leasehold interest herein shall be levied upon, or if Tenant's
leasehold interest herein shall by operation of law pass to any person other
than Tenant, then, in such events, Landlord may, subject to the applicable
provisions of the laws of the State of North Carolina, at its option, without
notice to Tenant or to any assignee, transferee, trustee, receiver or other
person or persons, with force or otherwise retake and recover possession of said
premises and terminate this Lease and the term herein and hereby granted and
demised; or, in each and every such case, Landlord at its option without notice
to Tenant, or to any assignee, transferee, trustee, receiver or other person or
persons, with force or otherwise, may enter said premises and relet the same as
it may see fit, without avoiding or terminating this Lease and for the purpose
of such reletting Landlord may make such repairs in or to said premises as
Landlord may deem necessary for the purpose of such reletting, and if a
sufficient sum shall not be realized from such reletting after paying the costs,
expenses and charges of such reletting and of the repairs in and to said
premises to equal the rent hereinbefore covenanted to be paid by Tenant, then
Tenant shall pay any deficiency thereby upon demand therefor and such deficiency
shall be considered, construed and taken to be a debt provable in bankruptcy or
receivership. On default, as herein defined, Landlord shall have the further
right to take possession of any furniture or other property on said premises,
and to sell the same at public or private sale without notice, and to apply the
same to the payment of the rent due by these presents, holding the Tenant liable
for the deficiency, if any.
15. Taxes and Insurance:
A. In the event that the amount of real estate taxes, special
assessments, or any governmental charges which may be levied or assessed against
the land upon which the building stands and upon the building containing the
leased premises attributable to any tax year following the base year during the
term of this Lease or any renewals, shall exceed the amount of taxes on the real
property attributable to the base year, then Tenant shall pay to Landlord
Tenant's pro rate share of the increase in taxes. In addition, Tenant shall pay
Landlord its proportionate share of any
6
<PAGE> 7
increase in the insurance expenses required for the operation of the Market
Square Complex that accrue during the term of this lease. The Tenant's pro rata
share in any calendar year shall be determined by multiplying the amount by
which the taxes and insurance for said calendar year exceed the taxes and
insurance charged in the base year by a percentage determined by dividing
Tenant's net leasable space by the total net leasable space in the building. For
purposes of this Section the base year shall mean and refer to the year 1985. It
is hereby understood and agreed that should Tenant not have been in possession
of the leased premises for the entire year in which taxes and insurance exceed
those in the base year, Tenant's liability for such extra taxes and insurance
shall be pro rata. The Tenant's obligation to Landlord as set forth herein is to
survive the expiration date of this Lease and the expiration date of any renewal
term hereof. Any payments required by such increase in taxes and insurance shall
be paid within 30 days of receipt of a statement therefor from Landlord.
B. Landlord shall pay all real estate and ad valorem taxes and any
special assessments upon the premises imposed by lawful authority provided,
however, Landlord shall be reimbursed by Tenant as additional rent for such
amount as may be required by the preceding paragraph for Tenant's proportionate
share thereof; and the Tenant shall pay all ad valorem taxes upon its property,
merchandise, inventory, and equipment and any other taxes or levies assessed or
charged against the Tenant as a result of its use and occupancy of the premises
or improvements thereto made by Tenant, provided, however, Tenant shall pay as
additional rent such amounts as may be required by the preceding paragraph.
16. Strict Observance: The failure of either party to insist in any
instance on strict performance of any covenant hereof, or the Building Rules and
Regulations, or to exercise any option herein contained, shall not be construed
as a waiver of such covenant or option in any instance. The receipt of any sum
paid by Tenant to Landlord after breach of any conditions, covenant, term or
provision herein contained shall not be deemed a waiver of such breach but shall
be taken, considered and construed as payment for use and occupation and not as
rent, unless such breach shall be expressly waived in writing by Landlord. No
modifications of any provision hereof and no cancellation or surrender hereof
shall be valid unless in writing, and signed by both parties.
17. Subordination: This Lease is subject and subordinate to all security
liens, mortgages and deeds of trust which may now or hereafter affect the
demised premises, the building or the real property upon which said building is
located, and subordinate to all renewals, modifications, consolidations,
replacements and extensions thereof. The Tenant shall execute promptly any
certificate or other form of instrument confirming said subordination that
Landlord may request; provided, however, Landlord hereby represents and warrants
that there are no
7
<PAGE> 8
provisions of such instruments which would impair Tenant's rights under
Paragraph 22 hereof.
18. Notice: Any notice required hereunder shall be in writing. Any notice
required hereunder to be given by Landlord to Tenant shall be deemed to have
been given at the time such notice is mailed, by certified or registered mail,
postage prepaid, and addressed to Tenant at 941 Grinnell Street, Fall River,
Massachusetts 02721, Attention: President; and if to be given by Tenant to
Landlord, it shall be deemed to have been given at the time such notice is
mailed, by certified or registered mail, postage prepaid, addressed to Landlord
at Post Office Box 926, High Point, North Carolina, 27261, or at the last known
post office address thereof, or mailed to such agent at such other address as
Landlord may from time to time designate in writing.
19. Rights: The rights of Landlord under this Lease shall be cumulative,
and failure on the part of Landlord to exercise promptly any rights given
hereunder shall not operate to forfeit any of said rights or be deemed a waiver
thereof.
20. Relocation: Landlord reserves the right to move Tenant to other space
in the building on ninety (90) days notice, provided the space to which Landlord
is proposing to move Tenant is within a portion of the building containing a
fabric showroom environment. Tenant shall have the option within fifteen (15)
days from the date said notice is given to agree with Landlord upon new space,
but if Landlord and Tenant do not so agree within said fifteen (15) days, then
this Lease shall become null and void and of no further effect at the expiration
of ninety (90) days from the date said notice is given. Landlord agrees to pay
the expenses of moving Tenant to the new space in said building to the extent
the same are fair and reasonable.
21. Binding Effect: All rights and liabilities herein given to or imposed
on either of the parties hereto shall extend to the heirs, executors,
administrators, successors and assigns of such parties, except that an assignee
of Landlord's interest in the Lease for security purposes shall not be liable
for the performance of Landlord's obligations unless and until such assignee
becomes the owner of the building and then only for so long as such assignee is
such owner; and except that in the event Landlord shall sell, or assign all of
its interest in the Market Square Tower to any person, firm or corporation and
such transferee or assignee assumes the Landlord's obligations under this Lease,
then in that event Market Square Limited Partnership shall not thereafter be
liable for the performance of Landlord's obligations under this Lease.
22. Quiet Enjoyment: Subject to the terms, conditions and covenants of
this Lease, Landlord agrees that Tenant shall and may peaceably have, hold and
enjoy the premises above described, without hindrance or molestation by
Landlord.
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<PAGE> 9
23. Liability Insurance: Tenant shall during the entire term hereof keep
in full force and effect a policy of public liability and property damage
insurance with respect to the premises, in which the limits of public liability
shall be no less than $300,000 per person and $500,000 per accident, and in
which the property damage liability shall be not less than $50,000. The policy
shall name Landlord, any person, firm or corporations designated by Landlord as
its Agent, and Tenant as the insured, and shall contain a clause that the
insurer will not cancel or change the insurance without first giving Landlord
ten (10) days prior written notice. The insurance shall be in an insurance
company approved by the State of North Carolina, and Tenant will furnish to
Landlord or its agent a copy of said policy or endorsement.
24. Denial of Subrogation Rights: Neither the Landlord nor the Tenant
shall be liable to the other for any business interruption or any loss or damage
to property or injury to or death of persons occurring on the leased property or
the adjoining property, or in any manner growing out of or connected with the
Tenant's use and occupation of the leased property, or the condition thereof, or
of the adjoining property, whether or not caused by the negligence or other
fault of the Landlord or the Tenant or of their respective agents, employees,
subtenants, licensees, or assignees. This release shall apply only to the extent
that such business interruption, loss or damage to property, or injury to or
death of persons is covered by insurance. Nothing in this paragraph shall be
construed to impose any other or greater liability upon either the Landlord or
the Tenant than would have existed in the absence of this paragraph. This
release shall be in effect only so long as the applicable insurance policies
contain a clause to the effect that this release shall not affect the right of
the insured to recover under such policies. Such clauses shall be obtained by
the parties whenever possible.
25. Estoppel Certificate: The Tenant shall from time to time, upon not
less than ten (10) days' prior written request by Landlord, deliver to Landlord
a statement in writing certifying; (a) that this Lease is unmodified and in full
force and effect, or if there have been any modifications, that the Lease as
modified is in full force and effect; (b) the dates to which rent and other
charges have been made; and (c) that Landlord is not in default of any provision
of this Lease, or, if in default, a detailed description thereof. Failure to
deliver the certificate within ten (10) days shall be conclusive upon Tenant for
the benefit of Lessor and its successors that this Lease is in full force and
effect and has not been modified, except as may be represented by Landlord.
26. Special Provisions. Tenant hereby agrees not to look to the mortgagee,
as mortgagee, mortgagee in possession, or successor in title to the property,
for accountability for any security deposit required by the Landlord
hereinunder, unless said sums have actually been received by said mortgagee as
security for the Tenant's performance of this lease.
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<PAGE> 10
Tenant hereby agrees not to handle, store or dispose of any hazardous or
toxic waste or substance upon the premises which is prohibited by any federal,
state or local statutes, ordinances or regulations. Tenant hereby covenants to
indemnify and hold Landlord, its successors and assigns, harmless from any loss,
damage, claims, costs, liabilities or cleanup costs arising out of Tenant's use,
handling, storage or disposal of any such hazardous or toxic wastes or
substances on the premises.
27. Entire Agreement: This Lease is the entire agreement of the parties,
and there are no terms, conditions, representations, warranties, or agreements
relative to Tenant's use and occupancy of the demised premises except those
specifically contained herein or attached hereto and specifically made a part
hereof.
TENANT
QUAKER FABRIC CORPORATION OF FALL RIVER
By: /s/
--------------------------------
Title: (Vice) President
ATTEST:
/s/
- ----------------------------
Secretary
LANDLORD
MARKET SQUARE LIMITED PARTNERSHIP
By: /s/
---------------------------------
General Partner
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SCHEDULE "A"
MARKET SQUARE LIMITED PARTNERSHIP
PARTIES:
Landlord - Market Square Limited Partnership
305 West High Street
High Point, NC 27261
Tenant - QUAKER FABRIC CORP OF FALL RIVER
941 Grinnell Street
Fall River, MA 02721
DESCRIPTION OF LEASED PREMISES:
Building - Market Square Tower
corner of Lindsay and High Streets
High Point, NC
Area/Floor - 10th Floor
Space for Rental
Computation - 3838 square feet x 20 % common area for a
total of 4606 square feet.
LEASE AND TERM AND RENTAL:
Initial Term - 5 years and 0 months beginning on
April 1, 1995 and ending at the
close of business on March 31, 2000
Rental - Initial term basic rental 3838 sq.
ft. at $11.50 per sq. ft. per year.
Tenant share of common area 768 sq.
ft. at $11.50 per sq. ft. per year.
The Annual Rental is $ 52,969.00 payable in
monthly installments of $4,414.08 beginning
April 1, 1995. All rental payments to be
made to Market Square Limited Partnership,
305 West High Street, High Point, North
Carolina, 27261, or to any party which the
Landlord may subsequently direct, on or
before the first day of each month.
OTHER INFORMATION:
Leased premises shall be used solely for or as office space and/or fabric
showroom unless written approval for other or additional use is granted by
Landlord.
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EXECUTION OF LEASE:
THIS LEASE IS SUBJECT TO BOTH THE PROVISIONS STATED ABOVE AND THOSE SET
FORTH IN THE BODY OF THE LEASE, and is duly executed by Landlord and Tenant the
day and year first therein mentioned.
TENANT
QUAKER FABRIC CORPORATION OF FALL RIVER
By: /s/
------------------------------
Title: (Vice) President
(Corporate Seal)
ATTEST:
By: /s/
---------------------------
Secretary
LANDLORD
MARKET SQUARE LIMITED PARTNERSHIP
By: /s/
-------------------------------
General Partner
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SCHEDULE "B"
MARKET SQUARE TOWER
High Point, North Carolina
RULES AND REGULATIONS
The following rules and regulations have been adopted by the Landlord for
the care, protection and benefit of the building and for the general comfort and
welfare of the Tenants.
1. The sidewalks, parking facilities, entrances, halls, passages and
stairways shall not be obstructed by the Tenant or used by him for any purpose
other than entrance and exit to and from the building and Tenant's premises,
2. Restroom facilities, water fountains and janitor sinks shall not be
used for any purposes other than those for which they were designed.
3. No sign, advertisement or notice shall be inscribed, painted or
attached on or to any part of the outside or entrance to Tenant's space except
those specifically provided or approved by the Landlord. Landlord may require
Tenant to remove or may remove at Tenant's expense any advertisement or notice
Landlord deems, in its sole discretion, to be undesirable.
4. The Tenant shall not do anything in the premises, or bring or keep
anything therein, which shall in any way conflict with any law, ordinance, rule
or regulation affecting the occupancy and use of the premises, which is or may
hereafter be enacted or promulgated by any public authority or by the Board of
Fire Underwriters.
5. In order to insure proper use and care of the premises, neither the
Tenant nor any employee of the Tenant shall:
(a) Keep animals or birds on the premises.
(b) Use the premises as sleeping apartments.
(c) Maintain or utilize bicycles or other vehicles on the
premises.
(d) Make improper noises or disturbances of any kind without first
securing consent of Landlord.
(e) Engage in or permit games of chance or any form of gambling or
immoral conduct in or about the leased premises.
(f) Mark or defile toilet rooms, walls, windows, doors or any
part of the building.
(g) Allow any furniture, packages or articles of any kind to remain in
corridors except for short periods incidental to moving same in or
out of the building or to cleaning or rearranging occupancy of
leased space.
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(h) Deposit waste paper, dirt or other substances in corridors,
stairways, toilets, rest rooms, or any other part of the building
not leased to him.
(i) Fasten any article, drill holes, drive nails or screws into walls,
floors, doors or partitions, or otherwise mar or deface any of them
by paint, paper or otherwise, unless written consent is first
obtained from the Landlord.
(j) Operate any machinery within the building except customary motor
driven office equipment, such as dictaphones, calculators, electric
typewriters, and the like. Special electrical or other motor driven
equipment used in the trade or profession of the Tenant may be
operated only with the prior written consent of the Landlord.
(k) Tamper or interfere in any way with windows, doors, locks, air
conditioning controls, heating, lighting, electric or plumbing
fixtures.
(l) Leave premises unoccupied without locking all doors, extinguishing
lights and turning off all water outlets.
(m) Install or operate vending machines of any kind in the leased
premises without written consent of Landlord.
6. The Landlord shall have the right to prohibit any advertising by the
Tenant which, in its opinion, tends to damage the reputation of the building or
its desirability as a building for offices, and upon written notice from
Landlord, the Tenant shall discontinue any such advertising.
7. Tenant shall not use or keep in the office space any explosives,
petroleum products, or chemicals without Landlord's prior written consent other
than those in normal use to maintain Tenant's office equipment.
8. The Landlord reserves the right to designate the time when and method
whereby freight, furniture, safes, goods, merchandise and other articles may be
brought into, moved or taken from the building and the premises leased by the
Tenant; and workmen employed, designated or approved by the Landlord must be
employed by Tenants for repairs, painting, material moving and other similar
work that may be done on the premises.
9. The Landlord shall not be responsible for damage to furniture caused by
janitor or any other servant personnel, nor for any loss of property from the
premises, however occurring unless caused by the willful action or gross
negligence of such janitor or other servant personnel employed by and acting on
behalf of Landlord. The Tenant will reimburse the Landlord for the cost of
repairing any damage to the leased premises or other part of the building caused
by the Tenant or the agents or employees of the Tenant, including replacing any
glass broken.
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10. The Landlord shall furnish a reasonable number of door keys for the
needs of the Tenant, which shall be surrendered on termination of the Lease, and
reserves the right to require a deposit to insure their return at termination of
lease. The Tenant shall obtain keys only from the Landlord, shall not obtain
duplicate keys from any outside source and shall not alter the locks or effect
any substitution.
11. The Tenant shall not install in the leased premises any metal safes or
permit any concentration of excessive weight in any portion thereof without
first having obtained the written permission of Landlord.
12. The Landlord reserves the right at all times to exclude bootblacks,
newsboys, loiterers, vendors, solicitors and peddlers, from the building, and to
require registration, satisfactory identification and credentials from all
persons seeking access to any part of the building outside of ordinary business
hours. The Landlord will exercise its best judgment in the execution of such
control but shall not be held liable for the granting or refusal of such access.
13. The attaching of wires to the outside of the building is absolutely
prohibited, and no wires shall be run or installed in any part of the building
without the Landlord's permission and direction.
14. Requests for services of janitors or other building employees must be
made at the office of the Building Manager.
15. The Landlord shall have the right to modify these rules and to make
such other and further reasonable rules and regulations as in the judgment of
the Landlord, may from time to time be necessary for the safety, care and
cleanliness of the premises and for the preservation of good order there in,
effective five (5) days after all Tenants have been given written notice
thereof.
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<PAGE> 1
EXHIBIT 10.58
RIGHTS AGREEMENT
DATED AS OF
MARCH 4, 1997
BETWEEN
QUAKER FABRIC CORPORATION
AND
THE FIRST NATIONAL BANK OF BOSTON
AS RIGHTS AGENT
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Issue of Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4. Form of Right Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6. Transfer, Split-up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . . . . . . . . . . . . 8
Section 8. Cancellation and Destruction of Right Certificates . . . . . . . . . . . . . . . . . . . . . . 10
Section 9. Reservation and Availability of Common Shares . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 10. Common Shares Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights . . . . . . . . . 12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . . . . . . . . . . . . . 19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . 19
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 17. Right Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . 23
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . 24
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 22. Issuance of New Right Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 23. Redemption and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
i
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<TABLE>
<S> <C> <C>
Section 28. Determination and Actions by the Board of Directors of the Corporation, etc. . . . . . . . . 32
Section 29. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 30. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 31. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
ii
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Defined Term Cross Reference Sheet
Acquiring Person............................................. Section 1(a)
Act.......................................................... Section 1(b)
Adjustment Shares............................................ Section 11(a)(ii)
Affiliate.................................................... Section 1(c)
Agreement.................................................... Preface
Associate.................................................... Section 1(c)
Beneficial Owner............................................. Section 1(d)
beneficially own............................................. Section 1(d)
Board of Directors........................................... Section 1(e)
Business Day................................................. Section 1(f)
common share equivalent...................................... Section 11(a)(iii)
Close of business............................................ Section 1(g)
Common Shares................................................ Section 1(h)
Corporation.................................................. Preface
Current per share market price............................... Section 11(d)
Current Value................................................ Section 11(a)(iii)
Distribution Date............................................ Section 3
equivalent common shares..................................... Section 11(b)
Exchange Act................................................. Section 1(j)
Exchange Ratio............................................... Section 24(a)
Final Expiration Date........................................ Section 7(a)
Permitted Offer.............................................. Section 1(l)
Person....................................................... Section 1(m)
Principal Party.............................................. Section 13(b)
Proposing Person............................................. Section 1(n)
Purchase Price............................................... Section 4(a)
Qualified Person............................................. Section 1(o)
Record Date.................................................. Preface
Redemption Date.............................................. Section 7(a)
Redemption Price............................................. Section 23(a)
Right........................................................ Preface
Right Certificate............................................ Section 3(a)
Rights Agent................................................. Preface
Rights Agreement............................................. Section 3(c)
Section 11(a)(ii) Event...................................... Section 1(q)
Section 13 Event............................................. Section 1(r)
Security..................................................... Section 11(d)
Shares Acquisition Date...................................... Section 1(s)
Spread....................................................... Section 11(a)(iii)
Subsidiary................................................... Section 1(t)
Substitution Period.......................................... Section 11(a)(iii)
Summary of Rights............................................ Section 3(b)
then outstanding............................................. Section 1(d)
Trading Day.................................................. Section 11(d)
Transfer..................................................... Section 1(u)
Triggering Event............................................. Section 1(v)
Voting securities............................................ Section 13(a)
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<PAGE> 5
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of March 4, 1997 (the "Agreement"), between
Quaker Fabric Corporation, a Delaware corporation (the "Corporation") and The
First National Bank of Boston (the "Rights Agent").
The Board of Directors of the Corporation has authorized and declared a
dividend of one right (a "Right") for each Common Share (as hereinafter
defined) of the Corporation outstanding at the close of business on March 14,
1997 (the "Record Date"), each Right representing the right to purchase one
one-tenth of a Common Share, upon the terms and subject to the conditions
herein set forth, and has further authorized and directed the issuance of one
Right with respect to each Common Share that shall become outstanding between
the Record Date and the earliest of the Distribution Date, the Redemption Date
or Final Expiration Date (as such terms are hereinafter defined); provided,
however, that Rights may be issued with respect to Common Shares that shall
become outstanding after the Distribution Date and prior to the earlier of the
Redemption Date and the Final Expiration Date in accordance with the provisions
of Section 22 of this Agreement.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 15% or more of the then outstanding Common Shares (other than as a
result of a Permitted Offer (as hereinafter defined)) or was such a Beneficial
Owner at any time after the date hereof, whether or not such person continues
to be the Beneficial Owner of 15% or more of the then outstanding Common
Shares. Notwithstanding the foregoing, (A) the term "Acquiring Person" shall
not include (i) the Corporation, (ii) any Subsidiary of the Corporation, (iii)
any employee benefit plan of the Corporation or of any Subsidiary of the
Corporation, (iv) any Person or entity organized, appointed or established by
the Corporation for or pursuant to the terms of any such plan, (v) any
Qualified Person, and (B) no Person shall become an "Acquiring Person":
(i) as a result of the acquisition of Common Shares by the
Corporation which, by reducing the number of Common Shares outstanding,
increases the proportional number of shares beneficially owned by such Person
together with all Affiliates and Associates of such Person; provided that if
(1) a Person would be or become an Acquiring Person (but for the operation of
this subclause (i)) as a result of the acquisition of Common Shares by the
Corporation, and (2) after such share acquisition by the Corporation, such
Person, or an Affiliate or Associate of such Person, becomes the Beneficial
Owner of any additional Common Shares, then such Person shall be deemed an
Acquiring Person; or
(ii) if the Board of Directors determines in good faith that a
Person who would otherwise be an "Acquiring Person" has become such
inadvertently, and such Person (A) does not attempt to exercise any control
over the business affairs or management of the Corporation, including by means
of a proxy solicitation, and (B) divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring Person", then such Person shall not be deemed an "Acquiring Person"
for any purposes of this Agreement.
<PAGE> 6
(b) "Act" shall mean the Securities Act of 1933, as amended and as in
effect on the date of this Agreement.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights (other the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations promulgated under the Exchange Act and (2)
is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) relating to the acquisition, holding, voting (except to
the extent contemplated by the proviso to Section 1(d)(ii)(B)) or disposing of
any securities of the Corporation.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding", when used with
reference to a Person's Beneficial Ownership of securities of the Corporation,
shall mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such Person would be deemed to own beneficially hereunder.
(e) "Board of Directors" shall mean the Board of Directors of the
Corporation from time to time.
(f) "Business Day" shall mean any day other than a Saturday, Sunday,
federal holiday or day on which commercial banks are authorized or required to
close in New York City.
(g) "Close of business" on any given date shall mean 5:00 p.m., New
York time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 p.m., New York time, on the next succeeding Business Day.
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<PAGE> 7
(h) "Common Shares" when used with reference to the Corporation
shall mean the shares of Common Stock, par value $.01, of the Corporation or,
in the event of a subdivision, combination or consolidation with respect to
such shares of Common Stock, the shares of Common Stock resulting from such
subdivision, combination or consolidation. "Common Shares" when used with
reference to any Person other than the Corporation shall mean the capital stock
(or equity interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or Persons
which ultimately control such first-mentioned Person.
(i) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(k) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Permitted Offer" shall mean a tender or exchange offer which
is for all outstanding Common Shares at a price and on terms determined, prior
to the purchase of shares under such tender or exchange offer, by the Board of
Directors to be adequate (taking into account all factors that such directors
deem relevant) and otherwise in the best interests of the Corporation and its
stockholders (other than the Person or any Affiliate or Associate thereof on
whose basis the offer is being made) taking into account all factors that such
directors may deem relevant.
(m) "Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of such entity.
(n) "Proposing Person" shall mean any Person proposing or
attempting to effect a business combination, tender offer, exchange offer or
similar transaction with the Corporation or its stockholders, including,
without limitation, a merger, tender offer or exchange offer, sale of all or
substantially all of the Corporation's assets, or liquidation of the
Corporation's assets.
(o) "Qualified Person" shall mean any Person who, together with all
Affiliates of such Person, as of the date hereof, is the Beneficial Owner of
20% or more of the outstanding Common Shares or any Person (other than a Person
who is then an Acquiring Person) who acquires 15% or more of the then
outstanding Common Shares from such a Person who, immediately prior to such
acquisition, continues to be a Qualified Person; provided, however, that a
Qualified Person shall cease to be a Qualified Person if such Person ceases to
be the Beneficial Owner of at least 5% of the outstanding Common Shares.
(p) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(q) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) hereof.
(r) "Section 13 Event" shall mean any event described in clause
(x), (y) or (z) of Section 13(a) hereof.
(s) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report
3
<PAGE> 8
filed pursuant to the Exchange Act) by the Corporation or an Acquiring Person
that an Acquiring Person has become such; provided, that, if such Person is
determined not to have become an Acquiring Person pursuant to Section 1(a)(ii)
hereof, then no Shares Acquisition Date shall be deemed to have occurred.
(t) "Subsidiary" of any Person shall mean any corporation or other
Person of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly, or indirectly, by such Person.
(u) "Transfer" shall mean any sale, assignment, transfer or other
disposition.
(v) "Triggering Event" shall mean any Section 11(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Corporation hereby
appoints the Rights Agent to act as agent for the Corporation in accordance
with the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable, upon ten (10) days' prior written
notice to the Rights Agent. The Rights Agent shall have no duty to supervise,
and shall in no event be liable for the acts or omissions of any such co-Rights
Agent
Section 3. Issue of Right Certificates. (a) Until the earlier of
(i) the Shares Acquisition Date or (ii) the close of business on the tenth day
(or such later date as may be determined by action of the Corporation's Board
of Directors) after the date of the commencement by any Person (other than the
Corporation, any Subsidiary of the Corporation, any Qualified Person, any
employee benefit plan of the Corporation or of any Subsidiary of the
Corporation or any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of such plan) of a tender or exchange
offer the consummation of which would result in any Person becoming an
Acquiring Person (including, in the case of both (i) and (ii), any such date
which is after the date of this Agreement and prior to the issuance of the
Rights), the earlier of such dates being herein referred to as the
"Distribution Date", (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also
be deemed to be Right Certificates) and not by separate Right Certificates, and
(y) the right to receive Rights Certificates will be transferable only in
connection with the transfer of the underlying Common Shares (including a
transfer to the Corporation); provided, however, that if a tender offer is
terminated prior to the occurrence of a Distribution Date, then no Distribution
Date shall occur as a result of such tender offer. As soon as practicable after
the Distribution Date, the Corporation will prepare and execute, the Rights
Agent will countersign and the Corporation will send or cause to be sent by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Distribution Date, at the address of such holder
shown on the records of the Corporation, a Right Certificate, substantially in
the form of Exhibit A hereto (a "Right Certificate"), evidencing one Right for
each Common Share so held. As of and after the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) As promptly as practicable following the Record Date, the
Corporation will send a copy of a Summary of Rights to Purchase Common Shares
in the form of Exhibit B hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Corporation. With respect to certificates for Common Shares outstanding
as of the Record Date, until the Distribution Date, the Rights will be
evidenced by such certificates registered in the names of the holders thereof
together with a copy of the
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<PAGE> 9
Summary of Rights attached thereto. Until the Distribution Date (or the earlier
of the Redemption Date or the Final Expiration Date), the surrender for
transfer of any certificate for Common Shares outstanding on the Record Date
shall also constitute the transfer of the Rights associated with such Common
Shares.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the
last sentence of this paragraph (c)) after the Record Date but prior to the
earliest of the Distribution Date, and the Redemption Date or the Final
Expiration Date shall be deemed also to be certificates for Rights, and shall
bear the following legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between Quaker
Fabric Corporation and The First National Bank of Boston, dated as of
March 4, 1997 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Quaker Fabric Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by
this certificate. Quaker Fabric Corporation will mail to the holder of
this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances set
forth in the Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and certain related
persons, whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend,
until the Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute
the transfer of the Rights associated with the Common Shares represented
thereby. In the event that the Corporation purchases or acquires any Common
Shares after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Shares shall be deemed canceled and retired so that
the Corporation shall not be entitled to exercise any Rights associated with the
Common Shares which are no longer outstanding.
Section 4. Form of Right Certificate. (a) The Right Certificates
(and the forms of election to purchase and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of
tenths of a Common Share as shall be set forth therein at the price per Common
Share set forth therein (the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
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<PAGE> 10
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights which are null and void pursuant to Section 7(e)
of this Agreement and any Right Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:
The Rights represented by this Right Certificate
are or were beneficially owned by a Person who was or
became an Acquiring Person or an Affiliate or Associate
of an Acquiring Person (as such terms are defined in the
Rights Agreement). Accordingly, this Right Certificate
and the Rights represented hereby are null and void.
The provisions of Section 7(e) of this Rights Agreement shall be
operative whether or not the foregoing legend is contained on any such Right
Certificate.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Corporation by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Corporation's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Corporation, either manually or by
facsimile signature. The Right Certificates shall be countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Corporation who shall have signed any of the Right
Certificates shall cease to be such officer of the Corporation before
countersignature by the Rights Agent and issuance and delivery by the
Corporation, such Right Certificates may nevertheless be countersigned by the
Rights Agent and issued and delivered by the Corporation with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Corporation; and any Right Certificate may be signed on
behalf of the Corporation by any person who, at the actual date of the execution
of such Right Certificate, shall be a proper officer of the Corporation to sign
such Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office designated as the appropriate place for surrender of
such Right Certificate or transfer, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the
certificate number and the date of each of the Right Certificates.
Section 6. Transfer, Split-up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any
time after the close of business on the Distribution Date, and at or prior to
the close of business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be
transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates, entitling the registered holder to purchase a like number
of Common Shares (or, following a Section 13 Event, other securities, as the
case may be) as the Right Certificate or Right Certificates surrendered then
entitled such holder (or former holder in the case of a transfer) to purchase.
Any registered holder desiring to transfer, split up, combine or exchange any
Right Certificate or Right Certificates shall make such request in writing
delivered to the Rights Agent, and shall surrender the Right Certificate or
Right Certificates to be transferred, split up, combined or exchanged at the
office of the Rights Agent designated for such purpose. Neither the Rights
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<PAGE> 11
Agent nor the Corporation shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the
Corporation shall reasonably request. Thereupon the Rights Agent shall, subject
to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to
the Person entitled thereto a Right Certificate or Right Certificates, as the
case may be, as so requested. The Corporation may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
Upon receipt by the Corporation and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the
Corporation's request, reimbursement to the Corporation and the Rights Agent of
all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate if mutilated, the Corporation
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for countersignature and delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent designated for
such purpose, together with payment of the aggregate Purchase Price for the
total number of Common Shares (or other securities, as the case may be) as to
which such surrendered Rights are exercised, at or prior to the earliest of (i)
the close of business on March 3, 2007 (the "Final Expiration Date"), or (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date").
(b) The purchase price (the "Purchase Price") per whole Common
Share at which a holder of Rights may purchase Common Shares or (subject to
Section 14 hereof) fractions thereof upon exercise of such Rights shall
initially be $68.00, shall be subject to adjustment from time to time as
provided in Sections 11 and 13(a) hereof, and shall be payable in accordance
with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly
executed, accompanied by payment of the Purchase Price for the Common Shares (or
other securities, as the case may be) to be purchased and an amount equal to
any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 6 hereof by certified check, cashier's
check or money order payable to the order of the Corporation, the Rights Agent
shall thereupon promptly (i)(A) requisition from any transfer agent of the
Common Shares certificates for the number of Common Shares to be purchased and
the Corporation hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Corporation, in its sole discretion, shall
have elected to deposit the Common Shares issuable upon exercise of the Rights
hereunder into a depositary, requisition from the depositary agent depositary
receipts representing such number of Common Shares as are to be purchased (in
which case certificates for the Common Shares represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Corporation will direct the depositary agent to comply with such requests, (ii)
when appropriate, requisition from the Corporation the amount of cash to be paid
in lieu of issuance of
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<PAGE> 12
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder, and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the order of
the registered holder of such Right Certificate. In the event that the
Corporation is obligated to issue other securities of the Corporation pursuant
to Section 11(a) hereof, the Corporation will make all arrangements necessary
so that such other securities are available for distribution by the Rights
Agent, if and when appropriate.
In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11(a)(ii), the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) of the
Rights Agreement and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Right Certificate
or to his duly authorized assigns, subject to the provisions of Section 14
hereof, or the Rights Agent shall place an appropriate notation on the Right
Certificate with respect to those Rights exercised.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has a continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise. The Corporation shall use all reasonable efforts to
insure that the provisions of this Section 7(e) and Section 4(b) hereof are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Corporation shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered holder
shall have (i) completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of
the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates thereof as the Corporation shall reasonably request.
<PAGE> 13
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise (other than an exercise
pursuant to Section 11(a)(ii)), transfer, split up, combination or exchange
shall, if surrendered to the Corporation or to any of its agents, be delivered
to the Rights Agent for cancellation or in canceled form, or, if surrendered to
the Rights Agent, shall be canceled by it, and no Right Certificates shall be
issued in lieu thereof except as expressly permitted by any of the provisions
of this Rights Agreement. The Corporation shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any other Right Certificate purchased or acquired by the Corporation otherwise
than upon the exercise thereof. The Rights Agent shall deliver all canceled
Right Certificates to the Corporation, or shall, at the written request of the
Corporation, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Corporation.
Section 9. Reservation and Availability of Common Shares. The
Corporation covenants and agrees that at all times after the occurrence of a
Section 11(a)(ii) Event it will, to the extent reasonably practicable, cause to
be reserved and kept available out of its authorized and unissued Common Shares
(and/or other securities), or any authorized and issued Common Shares (and/or
other securities) held in its treasury, the number of Common Shares (and/or
other securities, as the case may be) that will be sufficient to permit the
exercise in full of all outstanding Rights pursuant to this Agreement.
So long as the Common Shares (or other securities, as the case may be)
issuable upon the exercise of the Rights may be listed on any national
securities exchange, or admitted for quotation on any on a quotation system
sponsored by a registrant national securities association, the Corporation
shall use its best efforts to cause, from and after such time as the Rights
become exercisable, all shares reserved for such issuance to be listed on such
exchange or admitted for quotation on such system, as the case may be upon
official notice of issuance upon such exercise.
The Corporation covenants and agrees that it will take all such action
as may be necessary to ensure that all Common Shares (or other securities, as
the case may be) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares or other securities (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and non-assessable shares or securities.
The Corporation further covenants and agrees that it will pay when due
and payable any and all U.S. federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Common Shares (or other securities, as the case may be) upon the
exercise of Rights. The Corporation shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Common Shares (or other securities,
as the case may be) in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise, or to issue or to
deliver any certificates or depositary receipts for Common Shares (or other
securities, as the case may be) upon the exercise of any Rights, until any such
tax shall have been paid (any such tax being payable by the holder of such
Right Certificate at the time of surrender) or until it has been established to
the Corporation's reasonable satisfaction that no such tax is due.
The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date (or, if required by law, at
such earlier time following the Distribution Date as so required), a
registration statement under the Act, with respect to the securities
purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the
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requirements of the Act and the rules and regulations thereunder) until the
date of the expiration of the rights provided by Section 11(a)(ii). The
Corporation will also take such action as may be appropriate under the blue sky
laws of the various states.
Section 10. Common Shares Record Date. Each Person in whose name any
certificate for Common Shares (or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the Common Shares (or other securities, as the
case may be) represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that, if the date of such surrender and
payment is a date upon which the Common Shares (or other securities, as the
case may be) transfer books of the Corporation are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Common Shares (or
other securities, as the case may be) transfer books of the Corporation are
open.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Corporation shall at any time after the date
of this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares into a smaller number of Common Shares or (D) issue
any shares of its capital stock in a reclassification of the Common Shares
(including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e) hereof, (x)
the Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or reclassification,
and (y) the number and kind of shares of capital stock issuable on such date,
shall be proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number and kind of
shares of capital stock which, if such Right had been exercised immediately
prior to such date and at a time when the Common Shares transfer books of the
Corporation were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration
to be paid upon the exercise of any Rights be less than the aggregate par value
of the shares of capital stock of the Corporation issuable upon exercise of
such Rights. Notwithstanding anything to the contrary in the preceding
sentence, in the event that any time after the date of this Agreement and prior
to the Distribution Date the Corporation shall take any action described in
clause (A), (B) or (C) of the preceding sentence, then in any such case no
adjustment shall be made pursuant to the immediately preceding sentence and (i)
the number of Common Shares receivable after such event upon exercise of any
Right shall be adjusted by multiplying the number of Common Shares so
receivable immediately prior to such event by a fraction, the numerator of
which shall be the number of Common Shares outstanding immediately prior to
such event and the denominator of which shall be the number of Common Shares
outstanding immediately after such event (except that in the case of the
declaration of a stock dividend the denominator shall be the number of shares
outstanding immediately after payment of such dividend, excluding any shares
issued after the record date other than in connection with such dividend), and
(ii) each Common Share outstanding immediately after such event shall have
associated with respect to it that number of Rights that each Common Share
outstanding immediately prior to such event had associated with respect to it.
If an event occurs which would require an adjustment under both Section
11(a)(i) and Section 11(a)(ii), the
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adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii).
If an event occurs which would require an adjustment under both Section
11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii).
(ii) In the event any Person, alone or together with its Affiliates
and Associates, shall become an Acquiring Person, then proper provision shall
be made so that each holder of a Right (except as provided below and in Section
7(e) hereof) thereafter shall be entitled to receive, upon exercise thereof at
a price equal to the then current Purchase Price for a whole Common Share, in
accordance with the terms of this Agreement, such number of Common Shares as
shall equal the result obtained by (x) multiplying the then current Purchase
Price per whole Common Share by the number of one-tenths of a Common Share for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event (e.g., if a Right was exercisable immediately prior to
a Section 11(a)(ii) Event for two one-tenths of a share of Common Stock and the
Purchase Price per whole Common Share was $[X], the product would be $[2X], and
dividing that product by (y) 50% of the then current per share market price of
the Common Shares (determined pursuant to Section 11(d) hereof) on the date of
such first occurrence (such number of shares being referred to as the
"Adjustment Shares"); provided, however, that if the transaction that would
otherwise give rise to the foregoing adjustment is also subject to the
provisions of Section 13 hereof, then only the provisions of Section 13 hereof
shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii).
(iii) In the event that the number of Common Shares that are authorized
by the Corporation's certificate of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing Section 11(a)(ii), the Corporation shall (A) determine the excess
of (1) the value of the Adjustment Shares based on the "current per share
market price" determined pursuant to Section 11(d) (the "Current Value") over
(2) the Purchase Price (such excess being hereinafter referred to as the
"Spread"), and (B) in respect of each Right, make adequate provision to
substitute for the Adjustment Shares, upon payment of the applicable Purchase
Price, (1) cash, (2) a reduction in the Purchase Price, (3) other equity
securities of the Corporation (including, without limitation, shares, or units
of shares, of preferred stock that the Board of Directors of the Corporation
has determined to have the same value as the Common Shares (such shares of
preferred stock being referred to herein as "common share equivalents")), (4)
debt securities of the Corporation, (5) other assets or (6) any combination of
the foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors of the Corporation
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Corporation; provided, however, that
if the Corporation shall not have made adequate provision to deliver value
pursuant to clause (B) above within 30 days following the first occurrence of a
Section 11(a)(ii) Event, then the Corporation shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, Common Shares (to the extent available) and, if necessary,
cash, that in the aggregate are equal to the Spread. If the Board of Directors
of the Corporation shall determine in good faith that it is likely that
sufficient additional shares of Common Shares could be authorized for issuance
upon exercise in full of the Rights, the 30-day period set forth above may be
extended to the extent necessary, but not to more than 120 days following the
first occurrence of a Section 11(a)(ii) Trigger Date so that Corporation may
seek stockholder approval for the authorization of such additional shares of
Common Shares (such period, as it may be extended, being hereinafter referred
to as the "Substitution Period"). To the extent the Corporation determines that
some action need be taken pursuant to the first and/or second sentences of
this Section 11(a)(iii), the Corporation (x) shall provide, subject to Section
7(e) hereof, that such action shall apply uniformly to all outstanding
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<PAGE> 16
Rights and (y) may suspend the exercisability of the Rights until the expiration
of the Substitution Period to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant to
such first sentence and to determine the value thereof. In the event of any such
suspension, the Corporation shall deliver notice to the Rights Agent and issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as notice to the Rights Agent and a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of the Common Shares shall be the current
market price (as determined pursuant to Section 11(d) hereof) per Common Share
on the date of the first occurrence of a Section 11(a)(ii) Trigger Date and the
value of any common share equivalent shall be deemed to have the same value as a
Common Share on such date.
(b) In case the Corporation shall fix a record date for the
issuance of rights (other than the Rights), options or warrants to all holders
of Common Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Common Shares (or shares
having the same rights and privileges as the Common Shares ("equivalent common
shares")) or securities convertible into Common Shares or equivalent common
shares at a price per Common Share or equivalent common share (or having a
conversion price per share, if a security convertible into Common Shares or
equivalent common shares) less than the then current per share market price of
the Common Shares (as determined pursuant to Section 11(d) hereof) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number of
Common Shares outstanding on such record date plus the number of Common Shares
which the aggregate offering price of the total number of Common Shares and/or
equivalent common shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current per share market price, and the denominator of which shall be
the number of Common Shares outstanding on such record date plus the number of
additional Common Shares and/or equivalent common shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of Rights be less than the
aggregate par value of the shares of capital stock of the Corporation issuable
upon exercise of such Rights. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent. Common Shares owned by
or held for the account of the Corporation shall not be deemed outstanding for
the purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights,
options or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(c) In case the Corporation shall fix a record date for the making
of a distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Common Shares) or subscription rights or warrants (excluding
those referred to in Section 11(b) hereof), the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the then current per share market price (as determined pursuant
to Section 11(d) hereof) of the Common Shares on such record date, less the fair
market value (as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights
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<PAGE> 17
Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one Common
Share and the denominator of which shall be such current per share market price
of the Common Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of any Rights be less than the
aggregate par value of the shares of capital stock of the Corporation to be
issued upon exercise of such Rights. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) For the purpose of any computation hereunder, the "current
per share market price" of any security (a "Security" for the purpose of this
Section 11(d)), including, without limitation the Common Shares, on any date
shall be deemed to be the average of the daily closing prices per share of such
Security for the thirty (30) consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided, however, that in
the event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security of
(A) a dividend or distribution on such Security payable in shares of such
Security or securities convertible into such shares, or (B) any subdivision,
combination or reclassification of such Security and prior to the expiration of
thirty (30) Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors. If on any such date no such
market maker is making a market in the Security, the fair value of the Security
on such date as determined in good faith by the Board of Directors shall be
used. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(e) Notwithstanding anything herein to the contrary (except the
last sentence of this Section 11(e)), no adjustment in the Purchase Price shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price; provided, however, that any adjustments which
by reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
ten-thousandth of a Common Share or any other share or security as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three (3) years from the date of the transaction which mandates such adjustment
or (ii) the Final Expiration Date.
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(f) If as a result of an adjustment made pursuant to Section
11(a)(i) or 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation other
than Common Shares, thereafter the number of other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Shares contained in Section 11(a) through (c), inclusive,
and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Common
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Corporation subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.
(h) Unless the Corporation shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price that number of
Common Shares (calculated to the nearest ten-thousandth of a Common Share)
obtained by (i) multiplying (x) the number of Common Shares covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Corporation may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of Common Shares purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of Common Shares for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to the adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Corporation shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be at least
ten (10) days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Corporation shall, as promptly as
practicable, cause to be distributed to holders of record of Right Certificates
on such record date Right Certificates evidencing, subject to Section 14
hereof, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Corporation, shall cause to
be distributed to such holders of record in substitution and replacement for
the Rights Certificates held by such holders prior to the date of adjustment,
and upon surrender thereof, if required by the Corporation, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of Common Shares issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express
the Purchase Price and the number of Common Shares which were expressed in the
initial Right Certificates issued hereunder.
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(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the aggregate par value, if any, of the number of
Common Shares or other securities issuable in respect of the Purchase Price
upon exercise of a Right, the Corporation shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue such number of fully paid and non-assessable
Common Shares or other securities at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such record
date the Common Shares or other securities of the Corporation, if any, issuable
upon such exercise over and above the Common Shares or other securities of the
Corporation, if any, issuable upon exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, the Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(m) Notwithstanding anything in this Section 11 to the contrary, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that (i) any consolidation or subdivision of the Common Shares, (ii)
issuance wholly for cash of Common Shares at less than the current market
price, (iii) issuance wholly for cash of Common Shares or securities which by
their terms are convertible into or exchangeable for Common Shares, (iv) stock
dividends, or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Corporation to holders of its Common Shares
shall not be taxable to such shareholders.
(n) The Corporation covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than
a Qualified Person or a Subsidiary of the Corporation in a transaction which
does not violate Section 11(o) hereof), (ii) merge with or into any other
Person (other than a Qualified Person or a Subsidiary of the Corporation in a
transaction which does not violate Section 11(o) hereof), or (iii) sell or
transfer (or permit any Subsidiary to sell or transfer), in one transaction, or
a series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Corporation and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Corporation
and/or its Subsidiaries and/or a Qualified Person in one or more transactions
each of which does not violate Section 11(o) hereof), if (x) at the time of or
immediately after such consolidation, merger, sale or transfer there are any
charter or by-law provisions or any rights, warrants or other instruments or
securities outstanding or agreements in effect or other actions taken, which
would materially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates. The Corporation shall not
consummate any such consolidation, merger, sale or transfer unless prior
thereto the Corporation and such other Person shall have executed and delivered
to the Rights Agent a supplemental agreement evidencing compliance with this
Section 11(n).
(o) The Corporation covenants and agrees that, after the Distribution
Date, it will not, except as permitted by section 23 or Section 27 hereof, take
(or permit any Subsidiary to take) any action the purpose of which is to, or if
at the time such action is taken it is reasonably foreseeable that the effect
of such action is to materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.
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(p) The exercise of Rights under Section 11(a)(ii) shall only result
in the loss of rights under Section 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights represented by the Rights under this
Rights Agreement, including the rights represented by Section 13.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Corporation shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares a copy of such certificate and (c) mail a brief summary thereof to each
holder of a Right Certificate in accordance with Section 26 hereof, provided,
however, that in the event that at any time prior to the Distribution Date the
Company shall take any action described in clause (A), (B) or (C) of Section
11(a)(i), then the Company shall not be required to satisfy the obligations set
forth in clauses (a), (b) and (c) above. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of such adjustment unless
and until it shall have received such certificate. Notwithstanding anything in
the foregoing to the contrary, prior to the earlier to occur of the
Distribution Date and the Share Acquisition Date, the Company may, in its
discretion, satisfy the obligation set forth in clause (c) above by including
such summary in its next regular report to shareholders.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. (a) In the event that, on or following the Shares Acquisition
Date, directly or indirectly, (x) the Corporation shall consolidate with, or
merge with and into, any Person, (y) the Corporation shall consolidate with, or
merge with, any Person, and the Corporation shall be the continuing or surviving
corporation of such consolidation or merger (other than, in a case of any
transaction described in (x) or (y), a merger or consolidation which would
result in all of the securities generally entitled to vote in the election of
directors ("voting securities") of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into securities of the surviving entity) all of the voting securities
of the Corporation or such surviving entity outstanding immediately after such
merger or consolidation and the holders of such securities not having changed as
a result of such merger or consolidation, or (z) the Corporation shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any Person (other than
the Corporation or any Subsidiary of the Corporation in one or more transactions
each of which does not violate Section(11)(o) hereof), then, and in each such
case, proper provision shall be made so that (i) each holder of a Right, except
as provided in Section 7(e) hereof, shall thereafter have the right to receive,
upon the exercise thereof at a price equal to the then current Purchase Price
for a whole Common Share, in accordance with the terms of this Agreement and in
lieu of Common Shares, such number of freely tradeable Common Shares of the
Principal Party (as hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by (A) multiplying the then current Purchase Price for a
whole Common Share by a number of one-tenths of a Common Share for which a Right
is then exercisable (without taking into account any adjustment previously made
pursuant to Section 11(a)(ii)) and dividing that product by (B) 50% of the then
current per share market price of the Common Shares of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such Section 13 Event; (ii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Section 13 Event, all the obligations and
duties of the Corporation pursuant to this Agreement; (iii) the term
"Corporation" shall thereafter be deemed to refer to such Principal Party, it
being specifically intended that the provisions of Section 11 hereof shall apply
only to such Principal Party following the first occurrence of a
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<PAGE> 21
Section 13 Event; and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to the Common Shares
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in such
merger or consolidation, and if no securities are so issued, the Person that
is the other party to such merger or consolidation (including, if applicable,
the Corporation if it is the surviving corporation); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any of the foregoing
cases, (1) if the Common Shares of such Person are not at such time and have not
been continuously over the preceding twelve (12) month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
Common Shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Corporation shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
its authorized Common Shares which have not been issued or reserved for issuance
to permit the exercise in full of the Rights in accordance with this Section 13
and unless prior thereto the Corporation and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
for the terms set forth in paragraphs (a) and (b) of this Section 13 and further
providing that, as soon as practicable after the date of any consolidation,
merger, sale or transfer mentioned in paragraph (a) of Section 13, the Principal
Party at its own expense shall:
(i) prepare and file a registration statement under the Act with
respect to the Rights and the securities purchasable upon exercise of the Rights
on an appropriate form, and use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain effective (with a prospectus at all times meeting the requirements of
the Act) until the Final Expiration Date;
(ii) use its best efforts to qualify or register the rights and the
securities purchasable upon exercise of the Rights under the blue sky laws of
such jurisdictions as may be necessary or appropriate; and
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(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. The rights under this
Section 13 shall be in addition to the rights to exercise Rights and
adjustments under Section 11(a)(ii) and shall survive any exercise thereof.
(d) Notwithstanding anything in this Agreement to the contrary, Section
13 shall not be applicable to a transaction described in subparagraph (x) or
(y) of Section 13(a) if: (A)(i) such transaction is consummated with a Person
or Persons which acquired Common Shares pursuant to a Permitted Offer (or a
wholly owned Subsidiary of any such Person or Persons); (ii) the price per
Common Share offered in such transaction is not less than the price per Common
Share paid to all holders of Common Shares whose shares were purchased pursuant
to such Permitted Offer; and (iii) the form of consideration offered in such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer; or (B) such transaction is consummated with a Qualified
Person. Upon consummation of any such transaction contemplated by this Section
13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The Corporation
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors.
If on any such date no such market maker is making a market in the Rights, the
fair value of the Rights on such date as determined in good faith by the Board
of Directors shall be used.
(b) The Corporation shall not be required to issue fractions of Common
Shares upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of fractional Common Shares, the Corporation
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Common Share. For the purposes of
this Section 14(b), the current market value of a Common Share shall be the
closing price of a Common Share (as determined pursuant to Section 11(d)
hereof) for the Trading Day immediately prior to the date of such exercise.
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(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional share upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Shares); and any registered holder of any Right Certificate (or,
prior the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation to enforce, or otherwise act in respect of, his right
to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holder of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate form fully executed;
(c) subject to Section 6 and Section 7(f) hereof, the Corporation and
the Rights Agent may deem and treat the person in whose name the Right
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificate or the associated Common Shares certificate made by anyone
other than the Corporation or the Rights Agent) for all purposes whatsoever,
and neither the Corporation nor the Rights Agent, subject to the last sentence
of Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Corporation nor the Rights Agent shall have any liability to any holder of a
Right or a beneficial interest in a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by reason of
any preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation; provided,
however, the Corporation must use its best efforts to have any such order,
decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Common Shares or any
other securities of the Corporation which may
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at any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights of
a stockholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in Section
25 hereof), or to receive dividends or other distributions or to exercise any
preemptive or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. Concerning the Rights Agent. The Corporation agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of it duties hereunder. The Corporation also agrees to indemnify the Rights
Agent for, and to hold it harmless against, any loss, liability, or expense,
incurred without gross negligence, bad faith or willful misconduct on the part
of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises. In no event shall the Rights Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Rights Agent has been advised of the likelihood
of such loss or damage and regardless of the form of action. The indemnity
provided for herein shall survive the expiration of the Rights, the resignation
or removal of the Rights Agent and the termination of this Agreement.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of, any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate delivered to the Rights Agent pursuant to Sections 6 and 7 of this
certificate for Common Shares or for other securities of the Corporation,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the stock
transfer or all or substantially all of the corporate trust business of the
Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of a predecessor Rights
Agent and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in
the Right Certificates and in this Agreement.
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In case at any time the name of the Rights Agent shall be changed at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, the Rights Agent
may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
only those duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Corporation), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Treasurer
or the Secretary of the Corporation and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature on such Right Certificates) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Corporation of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e) hereof) or any
adjustment required under the provisions of Section 11 or Section 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after receipt of the certificate described in Section 12 hereof); nor shall it
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Common Shares will,
when issued, be validly authorized and issued, fully paid and non-assessable.
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<PAGE> 26
(f) The Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered by it in good
faith or lack of action in accordance with instructions of any such officer or
for any delay in acting while waiting for those instructions. Any application
by the Rights Agent for written instructions from the Corporation may, at the
option of the Rights Agent, set forth in writing any action proposed to be
taken or omitted by the Rights Agent under this Rights Agreement and the date
on or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any
such application on or after the date specified in such application (which date
shall not be less than five Business Days after the date any officer of the
Corporation actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instruction in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or
lend money to the Corporation or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Corporation or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Corporation resulting from any
such act, default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes in good faith that repayment of such funds or adequate
indemnification against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise of transfer without first consulting with the
Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Corporation and to the
transfer agent of the Common Shares by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Right Certificates
by first-class mail. The Corporation may remove the Rights Agent or any
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successor Rights Agent upon sixty (60) days' notice in writing, mailed to the
Rights Agent or any successor Rights Agent, as the case may be, and to the
transfer agent of the Common Shares by registered or certified mail, and,
subsequent to the Distribution Date, to holders of the Right Certificates by
fist-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Corporation shall appoint a successor
to the Rights Agent. If the Corporation shall fail to make such appointment
within a period of thirty (30) days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Corporation), then the registered holder of any Right Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Corporation or by such a
court, shall be a corporation organized and doing business under the laws of the
United States or of the State of New York (or of any other state of the United
States so long as such corporation is authorized to do business as a banking
institution in the State of New York), in good standing, having an office in the
State of New York, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50,000,000. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Corporation shall file notice thereof in writing with the
predecessor Rights Agent and the transfer agent of the Common Shares, and,
subsequent to the Distribution Date, mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the successor
Rights Agent or the appointment of the Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable upon exercise of the Rights
made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the earlier of the Redemption Date
and the Final Expiration Date, the Corporation (a) shall with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Corporation, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance of sale, provided, however, that (i)
the Corporation shall not be obligated to issue any such Right Certificates if,
and to the extent that, the Corporation shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences
to the Corporation or the Person to whom such Right Certificate would be
issued, and (ii) no Right Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof.
Section 23. Redemption and Termination. (a) The Board of Directors
may, at its option, redeem all but not less than all the then outstanding
Rights at a redemption price of
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$0.01 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"), at any time prior to the earlier of (x) the time that any Person
becomes an Acquiring Person, or (y) the Final Expiration Date. The Corporation
may, at its option, pay the Redemption Price either in Common Shares (based on
the "current per share market price," as defined in Section 11(d) hereof, of
the Common Shares at the time of redemption) or cash; provided that if the
Corporation elects to pay the Redemption Price in Common Shares, the
Corporation shall not be required to issue any fractional Common Shares and the
number of Common Shares issuable to each holder of Rights shall be rounded down
to the next whole share. The redemption of the Rights by the Board of Directors
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price for each Right
so held. The Corporation shall promptly give notice of any such redemption to
the Rights Agent and the holders of Rights in the manner set forth in Section
26, provided, however, that the failure to give, or any defect in, any such
notice shall not affect the validity of such redemption. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Corporation nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than specifically
set forth in this Section 23 and other than in connection with the purchase of
Common Shares prior to the Distribution Date.
Section 24. Exchange. (a) Subject to Section 24(d), the Board of
Directors may, at its option, at any time after the time that any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) and Section 11(a)(ii) hereof) for
Common Shares of the Corporation at an exchange ratio of one Common Share (or a
lesser ratio as determined by the Board of Directors, if the Corporation does
not have sufficient authorized and unreserved Common Shares) per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Corporation, any
Subsidiary of the Corporation, any Qualified Person, any employee benefit plan
of the Corporation or any such Subsidiary, any entity holding Common Shares for
or pursuant to the terms of any such plan or any trustee, administrator or
fiduciary of such a plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of
the Corporation ordering the exchange of any Rights pursuant to subsection (a)
of this Section 24 and without any further action and without any notice, the
right to exercise such rights shall terminate and the only right thereafter of
a holder of such Rights shall be to receive that number of Common Shares equal
to the number of such rights held by such holder multiplied by the Exchange
Ratio. The Corporation shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice
shall not affect the validity of such exchange. The Corporation promptly shall
mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights
Agent. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the
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holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Shares for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 7(e)) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued (and not reserved for
issuance other than upon exercise of the Rights) to permit any exchange of
Rights as contemplated in accordance with this Section 24, the (i) Corporation
shall take all such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights, or (ii) the Board of Directors
may determine to exchange Common Shares for then outstanding and exercisable
Rights at such exchange ratio of less than one Common Share per Right,
appropriately adjusted as set forth in Section 24(a) above, so that all (and
not less than all) Common Shares issued but not outstanding or authorized but
unissued (and not reserved for issuance other than upon exercise of the Rights)
are issued in the exchange contemplated by this Section 24.
(d) In any exchange pursuant to this Section 24, the Corporation,
at its option, may substitute common stock equivalents (as defined in Section
11(a)(iii)) for shares of Common Stock exchangeable for Rights, at the initial
rate of one common stock equivalent for each share of Common Stock, as
appropriately adjusted to reflect adjustments in dividend liquidation and
voting rights of common stock equivalents pursuant to the terms thereof, so
that each Common Stock equivalent delivered in lieu of each share of Common
Stock shall have essentially the same dividend, liquidation and voting rights
as one share of Common Stock.
Section 25. Notice of Certain Events. (a) In case the Corporation
shall propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of its Common Shares or to make
any other distribution to the holders of its Common Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Common
Shares rights or warrants to subscribe for or to purchase any additional Common
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Common Shares (other than
a reclassification involving only the subdivision of outstanding Common Shares),
(iv) to effect any consolidation or merger into or with any other Person (other
than a Subsidiary of the Corporation in a transaction which does not violate
Section 11(o) hereof), or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer) in one or
more transactions, of 50% or more of the assets or earning power of the
corporation and its subsidiaries (taken as a whole) to any other Person or
Persons (other than the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate Section 11(o) hereof), or (v)
to effect the liquidation, dissolution or winding up of the Corporation, then,
in each such case, the Corporation shall give to each holder of the Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action to the extent feasible and file a certificate with the Rights Agent to
that effect, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is to take place and the date of participation
therein by the holders of the Common Shares, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the Common Shares for purposes of such action, and in
the case of any such other action, at least twenty (20) days prior to the date
of the taking of such proposed action or the date of participation therein by
the holders of the Common Shares, whichever shall be the earlier.
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(b) Notwithstanding anything in this Agreement to the
contrary,prior to the Distribution Date a filing by the Corporation with the
Securities and Exchange Commission shall constitute sufficient notice to the
holders of the securities of the Corporation, including the Rights, for
purposes of this Agreement and no other notice need be given to such holders.
(c) If a Triggering Event shall occur, then (i) the Corporation
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of the occurrence
of such event, which notice shall describe such event and the consequences of
such event to holders of Rights under Section 11(a)(ii) or Section 13 hereof,
as the case may be, and (ii) all references in the preceding paragraph (a) to
Common Shares shall be deemed thereafter to refer also, if appropriate, to
capital stock equivalents, as provided for in Section 11(a)(iii).
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Corporation shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Rights Agent) as follows:
Quaker Fabric Corporation
941 Grinnell Street
Fall River, MA 02721
Attention: Chief Executive Officer
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Corporation or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Corporation) as follows:
The First National Bank of Boston
P.O. Box 1865
Boston, MA 02105-1865
Attention: President
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares, shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as
shown on the registry books of the Corporation.
Section 27. Supplements and Amendments. Prior to the Distribution
Date, the Corporation and the Rights Agent shall, if the Board of Directors so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing Common Shares. From and
after the Distribution Date, the Corporation and the Rights Agent shall, if the
Board of Directors so directs, supplement or amend this Agreement without the
approval of any holders of Right Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder or (iv) to change or supplement
the provisions hereunder in any manner which the Board of Directors may deem
necessary or desirable and which shall not adversely effect the interests of
the holders of Right Certificates (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, however, that this
Agreement may not be supplemented or amended to
26
<PAGE> 31
lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating
to when the Rights may be redeemed at such time as the Rights are not then
redeemable; or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from
an appropriate officer of the Corporation which states that the proposed
supplement or amendment is in compliance with the terms of this Section 27,
the Rights Agent shall execute such supplement or amendment, provided that
such supplement or amendment does not adversely affect the rights or obligations
of the Rights Agent under Section 18 or Section 20 of this Agreement. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
Section 28. Determination and Actions by the Board of Directors of
the Corporation, etc. The Board of Directors shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors, or the Corporation, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders of
Right Certificates). For all purposes of this Agreement, any calculation of the
number of Common Shares or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(l)(i) of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y)
below, all omissions with respect to the foregoing) which are done or made by
the Board of Directors in good faith, shall (x) be final, conclusive and
binding on the Corporation, the Rights Agent, the holders of the Right
Certificates and all other parties, and (y) not subject the Board to any
liability to the holders of the Right Certificates.
Section 29. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agents shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 30. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Corporation, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Corporation, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement, each Right and each
Right Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
27
<PAGE> 32
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the date and year first above written.
QUAKER FABRIC CORPORATION
By: _______________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: _______________________________
Name:
Title:
28
<PAGE> 33
Exhibit A
[Form of Right Certificate]
No. R- ____________________Rights
NOT EXERCISABLE AFTER THE EARLIER OF MARCH 3, 2007 AND THE DATE ON WHICH THE
RIGHTS EVIDENCED HEREBY ARE REDEEMED OR EXCHANGED BY THE COMPANY AS SET FORTH
IN THE RIGHTS AGREEMENT. AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED
TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BE NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHT
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHT CERTIFICATE AND THE
RIGHTS REPRESENTED HEREBY MAY BE OR MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.]*
RIGHT CERTIFICATE
QUAKER FABRIC CORPORATION
This Right Certificate certifies that _______________, or registered
assigns, is the registered holder of the number of Rights set forth above, each
of which entitles the holder (upon the terms and subject to the conditions set
forth in the Rights Agreement dated as of March 4, 1997 (the "Rights
Agreement") between Quaker Fabric Corporation, a Delaware corporation (the
"Company"), and The First National Bank of Boston (the "Rights Agent")) to
purchase from the Company, at any time after the Distribution Date and prior to
the Expiration Date, one one-tenth of a fully paid, nonassessable share of the
Common Stock, par value $0.01 (the "Common Shares"), of the Company at a
purchase price of $68.00 per whole Common Share (the "Purchase Price"), payable
in lawful money of the United States of America, upon surrender of this Right
Certificate, with the form of election to purchase and related certificate duly
executed, and payment of the Purchase Price at an office of the Rights Agent
designated for such purpose.
Terms used herein and not otherwise defined herein have the meanings
assigned to them in the Rights Agreement.
The number of Rights evidenced by this Right Certificate (and the
number and kind of shares issuable upon exercise of each Right) and the
Purchase Price set forth above are as of March __, 1997, and may have been or
in the future be adjusted as a result of the occurrence of certain events, as
more fully provided in the Rights Agreement.
Upon the occurrence of a Section 11(a)(ii) Event, if the Rights
evidenced by this Right Certificate are beneficially owned by (a) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (b) a transferee of
a Acquiring Person (or any such Associate or Affiliate thereof) who becomes a
transferee after the Acquiring Person becomes such, or (c) under certain
circumstances specified in the Rights Agreement, a transferee of an Acquiring
Person (or any such Associate or Affiliate thereof) who becomes a transferee
prior to or concurrently with the
_______________________
*If applicable, insert this portion of the legend and delete the preceding
sentence.
A-1
<PAGE> 34
Acquiring Person becoming such, such Rights shall become null and void without
any further action, and no holder hereof shall have any rights whatsoever with
respect to such Rights, whether under any provision of the Rights Agreement or
otherwise.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Upon surrender at the principal office or offices of the Rights Agent
designated for such purpose and subject to the terms and conditions set forth in
the Rights Agreement, any Rights Certificate or Certificates may be transferred
or exchanged for another Rights Certificate or Certificates evidencing a like
number of Rights as the Rights Certificate or Certificates surrendered.
Subject to the provisions of the Rights Agreement, the Board of
Directors of the Company may, at its option,
(a) at any time prior to the earlier of (i) the time that
any person becomes an Acquiring Person or (ii) the Final Expiration
Date, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right (subject to adjustment); or
(b) at any time after the time that any Person becomes an
Acquiring Person (but before such Person, together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding), exchange all or part of the
then outstanding Rights (other than Rights held by the Acquiring Person
and certain related Persons) for Common Shares at an exchange ratio of
one Common Share per Right (subject to adjustment).
No fractional Common Shares will be issued upon the exercise of any
Right or Rights evidenced hereby, but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Right Certificate or Certificates for the number of whole Rights not
exercised, or the Rights Agent shall place an appropriate notation on this Right
Certificate with respect to those Rights exercised.
No holder of this Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital stock
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or, to receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in the
Rights Agreement.
A-2
<PAGE> 35
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal by its authorized officers.
Dated as of _______________, 199_ QUAKER FABRIC CORPORATION
By:_____________________________
President and Chief Executive
Officer
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON
as Rights Agent
By:______________________________
Authorized Signature
A-3
<PAGE> 36
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed if the registered holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
-------------------------------------------------------------
hereby sells, assigns and transfers unto
--------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
- -------------------------------------------------------------------------------
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to
-----------------
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: , 19
------------- --
--------------------------------
Signature
Signature Guaranteed:
A-4
<PAGE> 37
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate _____ are _____
are not being assigned by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it _____ did _____ did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person;
(3) the action requested by the undersigned is not prohibited by
the provisions of the Rights Agreement, including, without limitation, the
provisions relating to the (i) transfer, split-up, combination and exchange of
rights which are null and void or (ii) exercise by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person of any Right which by its terms
is null and void.
Dated: __________________, 19 ___ _____________________________________
Signature
____________________
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
____________________
A-5
<PAGE> 38
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder desires to exercise Rights represented
by the Right Certificate.)
To: QUAKER FABRIC CORPORATION
The undersigned hereby irrevocably elects to exercise ________ Rights
represented by this Right Certificate to purchase shares of Common Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such securities be issued in the
name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights specified above shall not be all the Rights
evidenced by this Right Certificate, the Rights Agent shall place an
appropriate notation on this Right Certificate with respect to those Rights
exercised or a new Right Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
Dated: ___________, 19__
________________________________
Signature
Signature Guaranteed:
A-6
<PAGE> 39
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate __ are __ are not
being exercised by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
__ did __ did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person;
(3) the exercise of the Rights evidenced by this Right Certificate is
not prohibited by the terms of the Rights Agreement, including, without
limitation, the provisions relating to the exercise by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person of any Right which by its terms
if null and void.
Dated: ____________, 19__
____________________________________
Signature
________________
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
________________
A-7
<PAGE> 40
Exhibit B
SUMMARY OF RIGHTS TO PURCHASE SHARES
On February 24, 1997, the Board of Directors of Quaker Fabric
Corporation (the "Corporation") declared a dividend distribution of one right
(a "Right") to purchase one one-tenth of a share of the Common Stock, $.01 par
value, of the Corporation (the "Common Shares") for each outstanding share of
Common Stock, payable to the stockholders of record on March 14, 1997 (the
"Record Date"). The Board of Directors also authorized and directed the issuance
of one Right with respect to each Common Share issued thereafter until the
Distribution Date (as defined below) and, in certain circumstances, with respect
to Common Shares issued after the Distribution Date. Except as set forth below,
each Right, when it becomes exercisable, entitles the registered holder to
purchase from the Corporation one one-tenth of a Common Share at a price of
$68.00 per whole Common Share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Corporation and The First National Bank of
Boston, as Rights Agent (the "Rights Agent"), dated as of March 4, 1997.
Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares upon the earliest
to occur of (i) a person or group of affiliated or associated persons having
acquired beneficial ownership of 15% or more of the outstanding Common Shares
(except pursuant to a Permitted Offer, as hereinafter defined) other than any
Person who, as of the date hereof, beneficially owns 20% or more of the
outstanding Common Shares or any Person (other than a Person who is then an
Acquiring Person) who acquires 15% or more of the outstanding Common Shares from
such a Person who, immediately prior to such acquisition, continues to be a
Person who beneficially owns 20% or more of the outstanding Common Shares
("Qualified Persons"); provided that a Qualified Person shall cease to be a
Qualified Person if such Person ceases to beneficially own at least 5% of the
outstanding Common Shares; or (ii) commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in a person (other than a Qualified Person) or group becoming an
Acquiring Person (as hereinafter defined) (the earliest of such dates being
called the "Distribution Date"). A person or group whose acquisition of Common
Shares causes a Distribution Date pursuant to clause (i) above is an "Acquiring
Person." The date that a person or group becomes an Acquiring Person is the
"Shares Acquisition Date." A person who acquires Common Shares pursuant to a
tender or exchange offer which is for all outstanding Common Shares at a price
and on terms which a majority of the Board of Directors determines (prior to
acquisition) to be adequate and in the best interests of the Corporation and its
stockholders (other than such person, its affiliates and associates) (a
"Permitted Offer") will not be deemed to be an Acquiring Person and such
person's ownership will not constitute a Distribution Date.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date upon the transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares outstanding as of the Record Date, even without such notation or a
copy of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the
B-1
<PAGE> 41
Common Shares represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date (and to each initial record
holder of certain Common Shares issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date, and will
expire at the close of business on March 3, 2007, unless earlier redeemed by
the Corporation as described below.
In the event that any person becomes an Acquiring Person, each holder
of Rights (other than Rights that have become void as described below) will
thereafter have the right (the "Flip-In Right") to receive, upon exercise of
such Rights, the number of Common Shares (or, in certain circumstances, other
securities of the Corporation) having a value (immediately prior to such
triggering event) equal to two times the aggregate exercise price of such
Rights. The Board, at its option, may exchange each Right (other than those
that have become void as described below) for one Common Share in lieu of the
Flip-In Right, provided no person is the beneficial owner of 50% or more of the
Common Shares at the time of such exchange. Notwithstanding the foregoing,
following the occurrence of the event described above, all Rights that are or
(under certain circumstances specified in the Rights Agreement) were
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Shares Acquisition Date,
(i) the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Shares
immediately prior to the consummation of the transaction are not the holders of
all of the surviving corporation's voting power, or (ii) more than 50% of the
Corporation's assets or earning power is sold or transferred, then each holder
of Rights (except Rights which previously have been voided as set forth above)
shall thereafter have the right (the "Flip-Over Right") to receive, upon
exercise of such Rights, common shares of the acquiring company having a value
equal to two times the aggregate exercise price of the Rights; provided,
however, that the Flip Over Right shall not apply to (A) any transaction
described in clause (i) if (x) such transaction is with a person or persons (or
a wholly owned subsidiary of any such person or persons) that acquired Common
Shares pursuant to a Permitted Offer and (y) the price and form of
consideration offered in such transaction is the same as that paid to all
holders of Common Shares whose shares were purchased to the Permitted Offer or
(B) any transaction described in clause (i) or clause (ii) if such transaction
is with a Qualified Person. The holder of a Right will continue to have the
Flip-Over Right whether or not such holder exercises or surrenders the Flip-In
Right.
The Purchase Price payable, and the number of Common Shares or other
securities issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Common Shares, (ii) upon
the grant to holders of the Common Shares of certain rights or warrants to
subscribe for or purchase Common Shares at a price, or securities convertible
into Common Shares with a conversion price, less than the then current market
price of the Common Shares, or (iii) upon the distribution to holders of the
Common Shares of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Common Shares will be issued and, in lieu
thereof, an adjustment in cash will be made
B-2
<PAGE> 42
based on the market price of the Common Shares on the last trading day prior to
the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Corporation may
redeem the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"), which redemption shall be effective at such time, on such
basis and with such conditions as the Board of Directors may establish in its
sole discretion. The Corporation may, at its option, pay the Redemption Price
in Common Shares.
All of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Distribution Date. After the Distribution Date,
the provisions of the Rights Agreement may be amended by the Board in order to
cure any ambiguity, defect or inconsistency, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or, subject to certain limitations, to shorten or
lengthen any time period under the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Corporation, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders of the Corporation, stockholders may,
depending upon the circumstances, recognize taxable income should the Rights
become exercisable or upon the occurrence of certain events thereafter.
B-3
<PAGE> 1
Exhibit 10.59
QUAKER FABRIC CORPORATION
1997 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I. PURPOSE......................................... 1
ARTICLE II. DEFINITIONS..................................... 1
ARTICLE III. ADMINISTRATION.................................. 3
ARTICLE IV. SHARE AND OTHER LIMITATIONS..................... 6
ARTICLE V. ELIGIBILITY..................................... 8
ARTICLE VI. STOCK OPTION GRANTS............................. 8
ARTICLE VII. NON-TRANSFERABILITY............................. 11
ARTICLE VIII. CHANGE OF CONTROL PROVISIONS.................... 11
ARTICLE IX. TERMINATION OR AMENDMENT OF THE PLAN............ 13
ARTICLE X. UNFUNDED PLAN................................... 14
ARTICLE XI. GENERAL PROVISIONS.............................. 14
ARTICLE XII. EFFECTIVE DATE OF PLAN.......................... 17
ARTICLE XIII. TERM OF PLAN.................................... 17
ARTICLE XIV. NAME OF PLAN.................................... 17
i
<PAGE> 3
QUAKER FABRIC CORPORATION
1997 STOCK OPTION PLAN
ARTICLE I.
PURPOSE
The purposes of the Quaker Fabric Corporation 1997 Stock Option Plan
(the "Plan") are to enhance the profitability and value of Quaker Fabric
Corporation (the "Company") for the benefit of its stockholders by enabling the
Company to grant Stock Options to officers and key employees of the Company and
its Designated Subsidiaries and to create a means to raise the level of stock
ownership by such officers and key employees in order to attract, retain and
reward such officers and key employees. The Plan is effective as of the date set
forth in Article XII.
ARTICLE II.
DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings:
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Cause" shall mean the occurrence of any of the following
circumstances, as determined by the Committee in its sole discretion:
(i) habitual neglect by a Participant with respect to his obligations
and duties, which continues after a written notice specifically
identifying such conduct is delivered to the Participant, (ii)
dishonesty, gross negligence or misconduct in connection with a
Participant's employment with the Company or its Designated
Subsidiaries, or (iii) breach of fiduciary duty to the Company or its
Designated Subsidiaries by a Participant.
2.3 "Change of Control" shall have the meaning set forth in
Article VIII.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.5 "Committee" shall mean a committee of the Board appointed
from time to time by the Board, which committee shall be intended to
consist of two (2) or more non-employee directors, each of whom shall
be, to the extent required by Rule 16b-3 promulgated under Section
16(b) of the Exchange Act as then in effect or any successor
<PAGE> 4
provisions ("Rule 16b-3"), a "non-employee director" as defined in Rule
16b-3 and, to the extent required by the exception for
performance-based compensation under Section 162(m) of the Code and any
regulations thereunder ("Section 162(m) of the Code"), an "outside
director" as defined under Section 162(m) of the Code. Notwithstanding
the foregoing, if and to the extent that no Committee exists which has
the authority to administer the Plan, the functions of the Committee
shall be exercised by the Board. If for any reason the appointed
Committee does not meet the requirements of Rule 16b-3 or Section
162(m) of the Code, such noncompliance with the requirements of Rule
16b- 3 or Section 162(m) of the Code shall not affect the validity of
the awards, grants, interpretations or other actions of the Committee.
2.6 "Common Stock" means the Common Stock, $.01 par value per
share, of the Company.
2.7 "Designated Subsidiary" shall mean any subsidiary
corporation of the Company within the meaning of Section 424(f) of the
Code.
2.8 "Disability" shall mean a Participant's inability to
perform his duties for a period of more than six (6) consecutive months
as a result of an incapacity due to a physical or mental illness, as
determined by the Committee in its sole discretion.
2.9 "Effective Date" shall mean the effective date of the Plan
as defined in Article XII.
2.10 "Eligible Employees" shall mean the employees of the
Company and its Designated Subsidiaries who are eligible pursuant to
Section 5.1 to be granted Stock Options under the Plan.
2.11 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
2.12 "Fair Market Value" for purposes of the Plan, unless
otherwise required by any applicable provision of the Code or any
regulations issued thereunder, shall mean, as of any date, the last
sales price reported for the Common Stock on the applicable date (i) as
reported on the principal national securities exchange on which it is
then traded, or (ii) if not traded on any such national securities
exchange, as quoted on an automated quotation system sponsored by the
National Association of Securities Dealers. For purposes of the grant
of any Stock Option, the applicable date shall be the date for which
the last sales price is available at the time of grant. If the Common
Stock is not readily tradable on a national securities exchange or
automated quotation system sponsored by the National Association of
Securities Dealers, its Fair Market Value shall be set in good faith by
the Committee on the advice of a registered investment adviser (as
defined under the Investment Advisers Act of 1940).
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2.13 "Participant" shall mean any Eligible Employee of the
Company or its Designated Subsidiaries who has been granted a Stock
Option pursuant to Article VI.
2.14 "Retirement" shall mean a Termination of Employment
without Cause from the Company and/or a Designated Subsidiary by a
Participant who has attained (i) at least age sixty-five (65), or (ii)
such earlier date after age fifty-five (55) as approved by the Board
with regard to such Participant.
2.15 "Stock Option" or "Option" shall mean any Stock Option to
purchase shares of Common Stock granted to an Eligible Employee
pursuant to Article VI.
2.16 "Termination of Employment" shall mean (i) a termination
of service (for reasons other than a military or personal leave of
absence granted by the Company) of a Participant from the Company and
its Designated Subsidiaries, or (ii) when an entity which is employing
a Participant ceases to be a Designated Subsidiary unless the
Participant thereupon becomes employed by the Company or another
Designated Subsidiary.
2.17 "Transfer" or "Transferred" shall mean anticipate,
alienate, attach, sell, assign, pledge, encumber, charge or otherwise
transfer.
2.18 "Withholding Election" shall have the meaning set forth
in Section 11.4.
ARTICLE III.
ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by
the Committee.
3.2 Awards. The Committee shall have full authority to grant Stock
Options to Eligible Employees, pursuant to the terms of the Plan. In particular,
the Committee shall have the authority:
(a) to select the Eligible Employees to whom Stock Options may
from time to time be granted hereunder;
(b) to determine whether and to what extent Stock Options are
to be granted hereunder to one or more Eligible Employees;
(c) to determine, in accordance with the terms of the Plan,
the number of shares of Common Stock to be covered by each Stock Option
granted to an Eligible Employee;
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(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Stock Option granted hereunder to an
Eligible Employee (including, but not limited to, the share price, any
restriction or limitation, any vesting schedule or acceleration
thereof, or any forfeiture restrictions or waiver thereof and the
shares of Common Stock relating thereto, based on such factors, if any,
as the Committee shall determine, in its sole discretion);
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash and/or Common Stock under Subsection
6.2(d);
(f) to determine whether, to what extent and under what
circumstances to provide loans (which shall be on a recourse basis and
shall bear a reasonable rate of interest) to Eligible Employees in
order to exercise Stock Options under the Plan; and
(g) to determine whether to require Eligible Employees, as a
condition of the granting of any Stock Option, to not sell or otherwise
dispose of shares acquired pursuant to the exercise of an Option for a
period of time as determined by the Committee, in its sole discretion,
following the date of the acquisition of such Option.
3.3 Guidelines. Subject to Article IX hereof, the Committee shall have
the authority to adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan and perform all acts, including the delegation
of its administrative responsibilities, as it shall, from time to time, deem
advisable; to construe and interpret the terms and provisions of the Plan and
any Stock Option issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any agreement relating thereto in the manner and to the extent it
shall deem necessary to carry the Plan into effect but only to the extent any
such action would be permitted under the applicable provisions of both Rule
16b-3 and Section 162(m) of the Code. The Committee may adopt special guidelines
and provisions for persons who are residing in, or subject to, the taxes of,
countries other than the United States to comply with applicable tax and
securities laws. To the extent applicable, the Plan is intended to comply with
Section 162(m) of the Code and the applicable requirements of Rule 16b-3 and
shall be limited, construed and interpreted in a manner so as to comply
therewith.
3.4 Decisions Final. Any decision, interpretation or other action made
or taken in good faith by or at the direction of the Company, the Board, or the
Committee (or any of its members) arising out of or in connection with the Plan
shall be within the absolute discretion of all and each of them, as the case may
be, and shall be final, binding and conclusive on the Company and all employees
and Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5 Reliance on Counsel. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or other counsel,
with respect to its
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obligations or duties hereunder, or with respect to any action or proceeding or
any question of law, and shall not be liable with respect to any action taken or
omitted by it in good faith pursuant to the advice of such counsel.
3.6 Procedures. If the Committee is appointed, the Board of Directors
shall designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company, at such
times and places as it shall deem advisable. A majority of the Committee members
shall constitute a quorum. All determinations of the Committee shall be made by
a majority of its members. Any decision or determination reduced to writing and
signed by all the Committee members in accordance with the By-Laws of the
Company, shall be fully as effective as if it had been made by a vote at a
meeting duly called and held. The Committee shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
3.7 Designation of Consultants/Liability.
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration of
the Plan and may grant authority to employees to execute agreements or
other documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants
and agents as it may deem desirable for the administration of the Plan
and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or
agent. Expenses incurred by the Committee or Board in the engagement of
any such counsel, consultant or agent shall be paid by the Company. The
Committee, its members and any person designated pursuant to paragraph
(a) above shall not be liable for any action or determination made in
good faith with respect to the Plan. To the maximum extent permitted by
applicable law, no officer of the Company or member or former member of
the Committee or of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock
Options granted under it. To the maximum extent permitted by applicable
law or the Certificate of Incorporation or By-Laws of the Company and
to the extent not covered by insurance, each officer and member or
former member of the Committee or of the Board shall be indemnified and
held harmless by the Company against any cost or expense (including
reasonable fees of counsel reasonably acceptable to the Company) or
liability (including any sum paid in settlement of a claim with the
approval of the Company), and advanced amounts necessary to pay the
foregoing at the earliest time and to the fullest extent permitted,
arising out of any act or omission to act in connection with the Plan,
except to the extent arising out of such officer's, member's or former
member's own fraud or bad faith. Such indemnification shall be in
addition to any rights of indemnification the officers, directors or
members or former officers, directors or members may have under
applicable law or under the Certificate of Incorporation or By-Laws of
the Company or Designated Subsidiary. Notwithstanding
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anything else herein, this indemnification will not apply to the
actions or determinations made by an individual with regard to Stock
Options granted to him under the Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1 Shares.
(a) General Limitation. The aggregate number of shares of
Common Stock which may be issued under the Plan with respect to which
Stock Options may be granted shall not exceed five hundred thousand
(500,000) shares (subject to any increase or decrease pursuant to
Section 4.2) which may be either authorized and unissued Common Stock
or Common Stock held in or acquired for the treasury of the Company or
both. If any Stock Option granted under the Plan expires, terminates or
is cancelled for any reason without having been exercised in full or if
the Company repurchases any Option pursuant to Section 6.2(e) or shares
of Common Stock issued upon exercise of an Option, the number of shares
of Common Stock underlying the repurchased Option, and/or the number of
shares of Common Stock underlying any unexercised Option shall again be
available under the Plan.
(b) Individual Participant Limitations. The maximum number of
shares of Common Stock subject to any Option which may be granted under
the Plan to each Participant shall not exceed one hundred thousand
(100,000) shares (subject to any increase or decrease pursuant to
Section 4.2) during each calendar year during the term of the Plan. To
the extent that shares of Common Stock for which Options are permitted
to be granted to a Participant pursuant to Section 4.1(b) during a
calendar year are not covered by a grant of an Option to a Participant
issued in such calendar year, such shares of Common Stock shall
automatically increase the number of shares available for grant of
Options to such Participant in the subsequent calendar years during the
term of the Plan.
4.2 Changes.
(a) The existence of the Plan and the Stock Options granted
hereunder shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the
Company or its Designated Subsidiaries, any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting Common Stock,
the dissolution or liquidation of the Company or its Designated
Subsidiaries, any sale or transfer of all or part of its assets or
business or any other corporate act or proceeding.
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(b) In the event of any such change in the capital structure
or business of the Company by reason of any stock dividend or
distribution, stock split or reverse stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination or
exchange of shares, distribution with respect to its outstanding Common
Stock of capital stock other than Common Stock, reclassification of its
capital stock, issuance of warrants or options to purchase any Common
Stock or securities convertible into Common Stock, or any similar
change affecting the Company's capital structure or business, then the
aggregate number and kind of shares which thereafter may be issued
under the Plan, the number and kind of shares or other property
(including cash) to be issued upon exercise of an outstanding Option
granted under the Plan and the purchase price thereof shall be
appropriately adjusted consistent with such change in such manner as
the Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, Participants
under the Plan, and any such adjustment determined by the Committee in
good faith shall be binding and conclusive on the Company and all
Participants and employees and their respective heirs, executors,
administrators, successors and assigns.
(c) Fractional shares of Common Stock resulting from any
adjustment in Options pursuant to Section 4.2(a) or (b) shall be
aggregated until, and eliminated at, the time of exercise by
rounding-down for fractions less than one-half (1/2) and rounding-up
for fractions equal to or greater than one-half (1/2). No cash
settlements shall be made with respect to fractional shares eliminated
by rounding. Notice of any adjustment shall be given by the Committee
to each Participant whose Option has been adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
(d) In the event of a merger or consolidation in which the
Company is not the surviving entity or in the event of any transaction
that results in the acquisition of substantially all of the Company's
outstanding Common Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale
or transfer of all or substantially all of the Company's assets (all of
the foregoing being referred to as "Acquisition Events"), then the
Committee may, in its sole discretion, terminate all outstanding
Options of Eligible Employees, effective as of the date of the
Acquisition Event, by delivering notice of termination to each such
Participant at least twenty (20) days prior to the date of consummation
of the Acquisition Event; provided, that during the period from the
date on which such notice of termination is delivered to the
consummation of the Acquisition Event, each such Participant shall have
the right to exercise in full all of his Options that are then
outstanding (without regard to any limitations on exercisability
otherwise contained in the Option) but contingent on occurrence of the
Acquisition Event, and, provided that, if the Acquisition Event does
not take place within a specified period after giving such notice for
any reason whatsoever, the notice and exercise shall be null and void.
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If an Acquisition Event occurs, to the extent the Committee
does not terminate the outstanding Options pursuant to this Section
4.2(d), then the provisions of Section 4.2(b) shall apply.
4.3 Purchase Price. Notwithstanding any provision of the Plan to the
contrary, if authorized but previously unissued shares of Common Stock are
issued under the Plan, such shares shall not be issued for a consideration which
is less than par value.
ARTICLE V.
ELIGIBILITY
Officers and key employees of the Company and its Designated
Subsidiaries are eligible to be granted Stock Options under the Plan.
Eligibility under the Plan shall be determined by the Committee in its sole
discretion.
ARTICLE VI.
STOCK OPTION GRANTS
6.1 Options. Stock Options granted hereunder shall be non-qualified
Options and are not intended to be incentive stock options that satisfy the
requirements of Section 422 of the Code.
6.2 Terms of Options. Options granted under the Plan shall be subject
to the following terms and conditions, and, shall be in such form and contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable:
(a) Option Price. The purchase price per share subject to a
Stock Option shall be determined by the Committee at the time of grant
but shall not be less than the par value of a share of Common Stock
and, for Stock Options intended to qualify as performance-based
compensation under Section 162(m) of the Code, shall not be less than
one hundred percent (100%) of the Fair Market Value of a share of
Common Stock.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Stock Option shall be exercisable more than
ten (10) years after the date the Option is granted.
(c) Exercisability. Unless otherwise determined by the
Committee at grant, twenty percent (20%) of each Stock Option, subject
to the terms and conditions
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contained herein and the respective Stock Option agreement, shall vest
and become exercisable on each anniversary of the date of grant of the
Option, provided that the Participant remains continuously employed by
the Company and/or its Designated Subsidiaries through the applicable
vesting date. If any Stock Option is exercisable subject to certain
limitations (including, without limitation, that it is exercisable only
in installments or within certain time periods), the Committee may
waive such limitations on the exercisability at any time at or after
grant in whole or in part (including, without limitation, the Committee
may waive the installment exercise provisions or accelerate the time at
which Options may be exercised), based on such factors, if any, as the
Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise and waiting period provisions apply under subsection (c)
above, Stock Options may be exercised in whole or in part at any time
during the Option term, by giving written notice of exercise to the
Company specifying the number of shares to be purchased, accompanied by
payment in full of the purchase price. Common Stock purchased pursuant
to the exercise of a Stock Option shall be paid for at the time of
exercise as follows: (i) in cash or by check, bank draft or money order
payable to the order of Company; (ii) if the Common Stock is traded on
a national securities exchange or quoted on a national quotation system
sponsored by the National Association of Securities Dealers, through
the delivery of irrevocable instructions to a broker to deliver
promptly to the Company an amount equal to the purchase price; or (iii)
on such other terms and conditions as may be acceptable to the
Committee (which may include payment in full or part in the form of
Common Stock owned by the Participant (and for which the Participant
has good title free and clear of any liens and encumbrances) based on
the Fair Market Value of the Common Stock on the payment date as
determined by the Committee or the surrender of vested Options owned by
the Participant). No shares of Common Stock shall be issued until
payment, as provided herein, therefor has been made or provided for.
(e) Buy Out and Settlement Provisions. The Committee may at
any time on behalf of the Company offer to buy out an Option previously
granted, based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time that such
offer is made.
(f) Form, Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the limitations of the
Plan, an Option shall be evidenced by such form of Stock Option
agreement as is approved by the Committee, and the Committee may
modify, extend or renew outstanding Options granted under the Plan, or
accept the surrender of outstanding Options (up to the extent not
theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised).
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(g) Other Terms and Conditions. Options may contain such other
provisions, which shall not be inconsistent with any of the foregoing
terms of the Plan, as the Committee shall deem appropriate including,
without limitation, permitting "reloads" such that the same number of
Options are granted as the number of Options exercised, shares used to
pay for the exercise price of Options or shares used to pay withholding
taxes ("Reloads"). With respect to Reloads, the exercise price of the
new Stock Option shall be the Fair Market Value on the date of the
"reload" and the term of the Stock Option shall be the same as the
remaining term of the Options that are exercised, if applicable, or
such other exercise price and term as determined by the Committee.
6.3 Termination of Employment. The following rules apply with regard to
Options upon the Termination of Employment of a Participant:
(a) Termination by Reason of Death. If a Participant's
Termination of Employment is by reason of death, any Stock Option held
by such Participant, unless otherwise determined by the Committee at
grant or, if no rights of the Participant's estate are reduced,
thereafter, may be exercised, to the extent exercisable at the
Participant's death, by the legal representative of the estate at any
time within a period of one (1) year from the date of such death, but
in no event beyond the expiration of the stated term of such Stock
Option.
(b) Termination by Reason of Disability or Retirement. If a
Participant's Termination of Employment is by reason of Disability or
Retirement, any Stock Option held by such Participant, unless otherwise
determined by the Committee at grant or, if no rights of the
Participant are reduced, thereafter, may be exercised, to the extent
exercisable at the Participant's termination, by the Participant at any
time within a period of one (1) year from the date of such termination,
but in no event beyond the expiration of the stated term of such Stock
Option; provided, however, that, if the Participant dies within such
exercise period, any unexercised Stock Option held by such Participant
shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one (1) year (or such
other period as the Committee may specify at grant or, if no rights of
the Participant's estate are reduced, thereafter) from the date of such
death, but in no event beyond the expiration of the stated term of such
Stock Option.
(c) Involuntary Termination Without Cause. If a Participant's
Termination of Employment is by involuntary termination without Cause,
any Stock Option held by such Participant, unless otherwise determined
by the Committee at grant or, if no rights of the Participant are
reduced, thereafter, may be exercised, to the extent exercisable at
termination, by the Participant at any time within a period of ninety
(90) days from the date of such termination, but in no event beyond the
expiration of the stated term of such Stock Option.
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(d) Voluntary Termination. If a Participant's Termination of
Employment is voluntary and occurs prior to, or more than ninety (90)
days after, the occurrence of an event which would be grounds for
Termination of Employment by the Company for Cause (without regard to
any notice or cure period requirements), any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant or,
if no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at termination, by the Participant
at any time within a period of thirty (30) days from the date of such
termination, but in no event beyond the expiration of the stated term
of such Stock Option.
(e) Termination for Cause. Unless otherwise determined by the
Committee at grant or, if no rights of the Participant are reduced,
thereafter, if a Participant's Termination of Employment (i) is for
Cause or (ii) is a voluntary termination (as provided in subsection (d)
above) within ninety (90) days after an event which would be grounds
for a Termination of Employment for Cause, any Stock Option held by
such Participant shall thereupon terminate and expire as of the date of
termination.
ARTICLE VII.
NON-TRANSFERABILITY
No Stock Options shall be Transferable by a Participant otherwise than
by will or by the laws of descent and distribution. All Stock Options shall be
exercisable, during the Participant's lifetime, only by the Participant.
Notwithstanding the foregoing, the Committee may determine at the time of grant
or thereafter that a Stock Option that is otherwise not Transferable pursuant to
this Article VII is Transferable in whole or in part and in such circumstances,
and under such conditions, as specified by the Committee.
ARTICLE VIII.
CHANGE OF CONTROL PROVISIONS
8.1 Benefits. In the event of a Change of Control of the Company (as
defined below), except as otherwise provided by the Committee upon the grant of
a Stock Option, the Participant shall be entitled to the following benefits:
(a) Subject to paragraph (b) below, all outstanding Stock
Options granted prior to the Change of Control shall be fully vested
and immediately exercisable in their entirety. The Committee, in its
sole discretion, may provide for the purchase of any such Stock Options
by the Company or its Designated Subsidiary for an amount of cash equal
to the excess of the Change of Control price (as defined below) of the
shares of Common Stock covered by such Stock Options, over the
aggregate exercise price of
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such Stock Options. For purposes of this Section 8.1, Change of Control
price shall mean the higher of (i) the highest price per share of
Common Stock paid in any transaction related to a Change of Control of
the Company, or (ii) the highest Fair Market Value per share of Common
Stock at any time during the sixty (60) day period preceding a Change
of Control.
(b) Notwithstanding anything to the contrary herein, unless
the Committee provides otherwise, at the time an Option is granted to a
Participant hereunder, no acceleration of exercisability shall occur
with respect to such Option if the Committee reasonably determines in
good faith, prior to the occurrence of the Change of Control, that the
Options shall be honored or assumed, or new rights substituted therefor
(each such honored, assumed or substituted option hereinafter called an
"Alternative Option"), by a Participant's employer (or the parent or a
subsidiary of such employer) immediately following the Change of
Control, provided that any such Alternative Option must meet the
following criteria:
(i) the Alternative Option must be based on stock which is
traded on an established securities market, or which will be so traded
within thirty (30) days of the Change of Control;
(ii) the Alternative Option must provide such Participant with
rights and entitlements substantially equivalent to or better than the
rights, terms and conditions applicable under such Option, including,
but not limited to, an identical or better exercise schedule; and
(iii) the Alternative Option must have economic value
substantially equivalent to the value of such Option (determined at the
time of the Change of Control).
8.2 Change of Control. A "Change of Control" shall mean the occurrence
of any of the following:
(i) any person (as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof), excluding the
Company, any subsidiary of the Company, any employee benefit plan
sponsored or maintained by the Company or its subsidiaries (including
any trustee of any such plan acting in his capacity as trustee),
becoming the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing twenty-five
percent (25%) of the total combined voting power of the Company's then
outstanding securities;
(ii) the merger, consolidation or other business combination
of the Company (a "Transaction"), other than a Transaction involving
only the Company and one or more of its subsidiaries, or a Transaction
immediately following which the stockholders of the Company immediately
prior to the Transaction continue to have a majority of the voting
power in the resulting entity and no person is the beneficial owner of
securities
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of the resulting entity representing more than twenty-five percent
(25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning
on or after the Effective Date, the persons who were members of the
Board immediately before the beginning of such period (the "Incumbent
Directors") ceasing (for any reason other than death) to constitute at
least a majority of the Board or the board of directors of any
successor to the Company, provided that, any director who was not a
director as of the Effective Date shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or
on the recommendation of or with the approval of, at least two-thirds
of the directors who then qualified as Incumbent Directors either
actually or by prior operation of the foregoing unless such election,
recommendation or approval occurs as a result of an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act or any successor
provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board;
or
(iv) the approval by the stockholders of the Company of any
plan of complete liquidation of the Company or an agreement for the
sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to a
person or persons who beneficially own, directly or indirectly, at
least fifty percent (50%) or more of the combined voting power of the
outstanding voting securities of the Company at the time of such sale.
ARTICLE IX.
TERMINATION OR AMENDMENT OF THE PLAN
Notwithstanding any other provision of the Plan, the Board may at any
time, and from time to time, amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely, retroactively or
otherwise; provided, however, that, unless otherwise required by law or
specifically provided herein, the rights of a Participant with respect to Stock
Options granted prior to such amendment, suspension or termination, may not be
impaired without the consent of such Participant and, provided further, without
the approval of the stockholders of the Company solely to the extent required by
the applicable provisions of Section 162(m) of the Code no amendment may be made
which would (i) increase the maximum individual Participant limitations under
Section 4.1(b); (ii) change the classification of employees eligible to receive
Stock Options under the Plan; (iii) extend the maximum option period under
Section 6.2; or (iv) require stockholder approval in order for the Plan to
continue to comply with the applicable provisions of Section 162(m) of the Code.
In no event may the Plan be amended without the approval of the stockholders of
the Company in accordance with the applicable laws of the State of Delaware to
increase the aggregate number of shares of Common Stock that may be issued under
the Plan or to make any other amendment that would
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require stockholder approval under the rules of any exchange or system on which
the Company's securities are listed or traded at the request of the Company.
The Committee may amend the terms of any Stock Options theretofore
granted, prospectively or retroactively, but, subject to Article IV above or as
otherwise specifically provided herein, no such amendment or other action by the
Committee shall impair the rights of any holder without the holder's consent.
ARTICLE X.
UNFUNDED PLAN
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments as to which a Participant
has a fixed and vested interest but which are not yet made to a Participant by
the Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
ARTICLE XI.
GENERAL PROVISIONS
11.1 Legend. The Committee may require each person receiving shares
pursuant to the exercise of a Stock Option under the Plan to represent to and
agree with the Company in writing that the Participant is acquiring the shares
without a view to distribution thereof. In addition to any legend required by
the Plan, the certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed or any national securities association system upon whose
system the Stock is then quoted, any applicable Federal or state securities law,
and any applicable corporate law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
11.2 Other Plans. Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
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11.3 No Right to Employment. Neither the Plan nor the grant or exercise
of any Stock Options hereunder shall give any Participant or other employee any
right with respect to continuance of employment by the Company or any
subsidiary, nor shall they be a limitation in any way on the right of the
Company or any subsidiary by which an employee is employed to terminate his
employment at any time.
11.4 Withholding of Taxes. The Company shall have the right to deduct
from any payment to be made to a Participant, or to otherwise require, prior to
the issuance or delivery of any shares of Common Stock or the payment of any
cash hereunder, payment by the Participant of, any Federal, state or local taxes
required by law to be withheld. The Committee may permit any such withholding
obligation with regard to any Participant to be satisfied by reducing the number
of shares of Common Stock otherwise deliverable or by delivering shares of
Common Stock already owned.
11.5 Listing and Other Conditions.
(a) As long as the Common Stock is listed on a national
securities exchange or system sponsored by a national securities
association, the issue of any shares of Common Stock pursuant to the
exercise of an Option shall be conditioned upon such shares being
listed on such exchange or system. The Company shall have no obligation
to issue such shares unless and until such shares are so listed, and
the right to exercise any Option with respect to such shares shall be
suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock pursuant to
the exercise of an Option is or may in the circumstances be unlawful or
result in the imposition of excise taxes on the Company under the
statutes, rules or regulations of any applicable jurisdiction, the
Company shall have no obligation to make such sale or delivery, or to
make any application or to effect or to maintain any qualification or
registration under the Securities Act of 1933, as amended, or otherwise
with respect to shares of Common Stock, and the right to exercise any
Option shall be suspended until, in the opinion of said counsel, such
sale or delivery shall be lawful or will not result in the imposition
of excise taxes on the Company.
(c) Upon termination of any period of suspension under this
Section 11.5, any Stock Option affected by such suspension which shall
not then have expired or terminated shall be reinstated as to all
shares available before such suspension and as to shares which would
otherwise have become available during the period of such suspension,
but no such suspension shall extend the term of any Option.
11.6 Governing Law. The Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
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11.7 Construction. Wherever any words are used in the Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
11.8 Other Benefits. No Stock Option granted or exercised under the
Plan shall be deemed compensation for purposes of computing benefits under any
retirement plan of the Company or its subsidiaries nor affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation.
11.9 Costs. The Company shall bear all expenses included in
administering the Plan, including expenses of issuing Common Stock pursuant to
the exercise of any Stock Options hereunder.
11.10 No Right to Same Benefits. The provisions and terms of Options
need not be the same with respect to each Participant, and the Options granted
to individual Participants need not be the same in subsequent years.
11.11 Death/Disability. The Committee may in its discretion require the
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Option. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
11.12 Section 16(b) of the Exchange Act. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with all exemptive conditions
under Rule 16b-3. The Committee may establish and adopt written administrative
guidelines, designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan and the transaction of business thereunder.
11.13 Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
11.14 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
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ARTICLE XII.
EFFECTIVE DATE OF PLAN
The Plan has been adopted by the Board effective as of February 26,
1997, subject to and conditioned upon the approval of the Plan by the
stockholders of the Company in accordance with the laws of the State of Delaware
and the requirements of any applicable national securities exchange or automated
quotation system.
ARTICLE XIII.
TERM OF PLAN
No Stock Option shall be granted pursuant to the Plan on or after
February 27, 2007 (or such earlier termination of the Plan), but Stock Options
granted prior to such date may extend beyond that date.
ARTICLE XIV.
NAME OF PLAN
The Plan shall be known as the "Quaker Fabric Corporation 1997 Stock
Option Plan."
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Exhibit 10.60
FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, dated as of February 24, 1997, to the
Employment Agreement made the 12th day of March 1993, between QUAKER FABRIC
CORPORATION, a Delaware corporation with its principal office at 941 Grinnell
Street, Fall River, Massachusetts 02721 (the "Company"), and LARRY A. LIEBENOW,
residing at 66 Cooke Street, Providence, Rhode Island 02906 ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been employed by the Company as its
President and Chief Executive Officer pursuant to an Employment Agreement, dated
as of March 12, 1993 (the "Initial Agreement");
WHEREAS, the Company wishes to continue the employment of
Employee as President and Chief Executive Officer of the Company and Employee
desires to continue such employment; and
WHEREAS, the parties wish to amend certain of the terms of the
Initial Agreement as set forth in this Amendment.
NOW THEREFORE, in consideration of the mutual covenants and
mutual promises herein contained, and other good and valuable consideration, it
is hereby covenanted and agreed by and between the parties hereto as follows:
1. Section 2(a) of the Initial Agreement is amended and
restated in its entirety as follows:
(a) The Term of this Agreement shall continue until
March 12, 2002, subject to extension and termination as provided herein. The
Term shall be automatically extended for an additional three years to March 12,
2005, unless the Company notifies Employee in writing, received by Employee by
March 12, 2001, that the additional three year period will not be included in
the Term. Moreover, the Term shall be extended for additional periods of three
years each, after March 12, 2005, unless the Company notifies Employee in
writing, received by Employee at least one year prior to the commencement of
each three year extension period, that the three year extension period will not
be included in the Term. For
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example, the Term shall be extended for a period of three years after March 12,
2005, which shall be to March 12, 2008, unless the Company notifies Employee in
writing, received by Employee by March 12, 2004, that the three year period
shall not be added to the Term. The Term of this Agreement shall include the
current period plus each three year extension period.
2. Sections 3(a), 3(b) and 3(e) of the Initial Agreement are
amended and restated in their entirety as follows:
(a) For the services to be rendered by Employee to
the Company during the Term, the Company agrees to pay Employee a base salary
(the "Base Salary") payable in equal installments on the regular payroll dates
of the Company at the annual rate of $600,000.00 per annum, retroactive to
January 1, 1997. The Base Salary to be paid to Employee by the Company during
each calendar year of the Term shall be the Base Salary paid for the prior
calendar year, plus such increase as may be agreed upon at the beginning of each
calendar year.
(b) Employee shall also be entitled to receive an
annual bonus in such amount as may be determined by the Board of Directors.
(e) The parties agree that Employee shall be entitled
(i) to six weeks vacation annually during the Term of this Agreement, (ii) to
continue to participate in the Company's non-qualified deferred compensation
plan, and (iii) to the other fringe benefits, such as medical plan, life
insurance, profit sharing, executive stock option plan etc., provided by the
Company to its senior executives. The life insurance coverage provided by the
Company to Employee (which shall be in addition to such coverage as is generally
provided by the Company to its senior executives), for the benefit of
beneficiaries designated by Employee, shall be for an annual insurance premium
of not less than $7,000. The Company also agrees to pay for the country club
dues of Employee at one country club of his choice.
3. Sections 6(b), (c) and (d) of the Initial Agreement are
hereby amended and restated in their entirety as follows:
(b) Upon voluntary termination of employment by
Employee or termination of employment for cause (other than pursuant to Section
2(b)(v)), Employee shall be entitled to receive a lump sum payment equal to
three times Employee's prior year's Base Salary plus any bonus paid or payable
with respect to such prior year.
(c) Upon termination of employment of Employee for
any other reason (other than pursuant to Section 2(b)(v)), Employee shall be
entitled to receive a lump sum payment equal to three times Employee's prior
year's Base Salary plus any bonus paid or payable with respect to such prior
year.
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(d) Any payments required to be made pursuant to this
Section 6 shall be made (or, in the case of installment payments, shall
commence) on the effective date of the termination of employment of Employee.
4. Except as specifically set forth herein, the Initial
Agreement shall remain unchanged and in full force and effect, and each
reference to the Agreement and words of similar import in the Initial Agreement
shall be a reference to the Initial Agreement as amended hereby, and as the same
may be further amended, supplemented and otherwise modified in accordance with
the provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands
and caused this Amendment No. 1 to be executed as of the day and year first
above written.
QUAKER FABRIC CORPORATION
(Company)
By:_____________________________
Cynthia L. Gordan,
Vice President
________________________________
Larry A. Liebenow, Employee
3
