<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
QUAKER FABRIC CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
LARRY A. LIEBENOW, PRESIDENT AND CEO
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1997
------------------------
To: The Stockholders of QUAKER FABRIC CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
QUAKER FABRIC CORPORATION (the "Company") will be held at the corporate offices
of The First National Bank of Boston, 100 Federal Street, Second Floor, Boston,
MA 02110, on May 21, 1997 at 10:00 a.m. for the following purposes:
1. To elect four directors to serve until the next Annual Meeting of
Stockholders and until their successors shall have been elected and
qualified;
2. To ratify the selection of Arthur Andersen LLP as independent
auditors for the Company for the fiscal year ending January 4, 1997; and
3. To approve the 1997 Stock Option Plan, which provides for the grant
of options to purchase up to 500,000 shares of Common Stock.
4. To transact such other business as may properly be brought before
the meeting and all adjournments thereof.
The Board of Directors has fixed the close of business on April 1, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at this meeting. The stock transfer books will not be closed.
By Order of the Board of Directors,
CYNTHIA L. GORDAN
Vice President, Secretary and
General Counsel
Fall River, Massachusetts
April 15, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN,
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE.
EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND
THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO ATTEND AND VOTE AT THE MEETING,
YOU MUST OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE, A PROXY ISSUED IN YOUR
NAME.
<PAGE> 3
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS -- MAY 21, 1997
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Quaker Fabric Corporation (the "Company" or
"Quaker") for the Annual Meeting of Stockholders to be held on May 21, 1997 at
10:00 a.m., local time, at the corporate offices of The First National Bank of
Boston, 100 Federal Street, Second Floor, Boston, MA 02110. This Proxy Statement
and the enclosed form of proxy were first sent to stockholders commencing on or
about April 15, 1997. A copy of the Company's Annual Report for the fiscal year
ended January 4, 1997 ("Fiscal 1996") is being sent to stockholders together
with this Proxy Statement.
The cost of this solicitation will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally, or by telephone or
telegram, by directors, officers and employees of the Company who will receive
no additional compensation therefor. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to beneficial owners of shares held of record by such persons, and the
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred by them in so doing.
A stockholder who executes the accompanying form of proxy may revoke it (i)
by written notice of revocation or a later dated proxy sent to the Company at
941 Grinnell Street, Fall River, Massachusetts 02721, Attn: Cynthia L. Gordan,
Vice President, Secretary and General Counsel, and received by the Company prior
to the vote, or (ii) by personal attendance and withdrawal of the proxy at the
Annual Meeting of Stockholders. All shares represented by valid proxies received
pursuant to the solicitation and prior to the meeting and not revoked before
they are exercised will be voted, and, if a choice is specified with respect to
any matter to be acted upon, the shares will be voted in accordance with such
specification.
VOTING SECURITIES OUTSTANDING
Only stockholders of record at the close of business on April 1, 1997 will
be entitled to vote at the Annual Meeting of Stockholders. As of April 1, 1997,
the Company had outstanding 8,321,097 shares of Common Stock, par value $0.01
per share (the "Common Stock"), which are the only outstanding voting securities
of the Company.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table describes, as of April 1, 1997, shares of the Company's
Common Stock held by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock (and the respective addresses of such beneficial owners), (ii) each
director and nominee for director of the Company, (iii) each of the executive
officers named in the Summary Compensation Table, and (iv) all current directors
and officers of the Company as a group, based on information furnished by the
respective entities and individuals.
<TABLE>
<CAPTION>
NAME SHARES PERCENT
--------------------------------------------------------------- --------- -------
<S> <C> <C>
MLGA Fund II, L.P.(1).......................................... 674,798 8.1%
Nortex Holdings, Inc.(2)....................................... 2,023,552 23.3
Anthony Degomes(3)(4).......................................... 2,023,552 23.3
Larry A. Liebenow(4)(5)........................................ 2,023,552 23.3
J. Duncan Whitehead(4)(6)...................................... 2,023,952 23.3
Sangwoo Ahn(7)(8).............................................. 735,652 8.8
Thomas J. Finneran(4)(9)....................................... 60,576 *
Cynthia L. Gordan(4)(9)........................................ 60,576 *
Perry J. Lewis(7)(10).......................................... 705,652 8.5
Jerry I. Porras(11)............................................ 0 *
Ira Starr(12).................................................. 13,235 *
Eriberto R. Scocimara(13)...................................... 5,000 *
All executive officers and directors as a group (13 persons)... 3,152,553 34.9
</TABLE>
- ---------------
* Less than 1%
(1) Consists of shares of Common Stock owned directly by MLGA Fund II, L.P.
(the "MLGA Fund"). The address of MLGA Fund is Two Greenwich Plaza,
Greenwich, Connecticut 06830. The general partners of MLGAL Partners, L.P.
("MLGAL"), the general partner of MLGA Fund, 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 and beneficially
by MLGA Fund. Messrs. Ahn and Lewis disclaim beneficial ownership of such
shares. The address for Messrs. Ahn and Lewis is c/o Morgan Lewis Githens &
Ahn, Two Greenwich Plaza, Greenwich, Connecticut 06830.
(2) Consists of (i) 1,653,193 shares of Common Stock owned directly by Nortex
Holdings, Inc. ("Nortex Holdings") and (ii) 370,359 shares which Nortex
Holdings has the right to acquire upon exercise of the Nortex Option (as
hereinafter defined). The address of Nortex Holdings is 941 Grinnell
Street, Fall River, Massachusetts 02721.
(3) Consists of shares of Common Stock beneficially owned by Nortex Holdings.
See footnote (2). Mr. Degomes owns 13.7% of the outstanding shares of
Nortex Holdings and is also an officer and director of Nortex Holdings and,
as such, may be deemed to beneficially own the shares owned by Nortex
Holdings.
(4) The address for the named individual is c/o Quaker Fabric Corporation, 941
Grinnell Street, Fall River, Massachusetts 02721.
(5) Consists of shares of Common Stock beneficially owned by Nortex Holdings.
See footnote (2). Mr. Liebenow owns 66.9% of the outstanding shares of
Nortex Holdings and is also the President and a director of Nortex Holdings
and, as such, may be deemed to beneficially own the shares owned by Nortex
Holdings.
(footnotes continued on next page)
2
<PAGE> 5
(footnotes continued from previous page)
(6) 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 (2). Mr. Whitehead owns 19.4% of the outstanding
shares of Nortex Holdings and is also an officer and director of Nortex
Holdings and, as such, may be deemed to beneficially own the shares owned
by Nortex Holdings.
(7) Includes 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.
(8) Includes 50,854 shares of Common Stock owned directly by Mr. Ahn and 10,000
shares of Common Stock held by his children. Mr. Ahn disclaims beneficial
ownership of the shares owned by his children.
(9) 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 (as hereinafter defined) and the Holdings Options (as
hereinafter defined).
(10) Includes 30,854 shares of Common Stock owned directly by Mr. Lewis.
(11) The address for the named individual is c/o Stanford University Graduate
School of Business, Stanford, California 94305.
(12) Consists of 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 solely of shares which Mr. Scocimara has the right to acquire upon
the exercise of options granted under the Stock Option Plan (as hereinafter
defined). The address for Mr. Scocimara is c/o Hungarian-American
Enterprise Fund, 666 Steamboat Road, Greenwich, Connecticut 06830.
------------------------
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.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who beneficially own more than 10%
of the Company's Common Stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during Fiscal 1996 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
10% beneficial owners were met.
VOTING OF PROXIES
Each stockholder is entitled to cast, in person or by proxy, one vote for
each share of Common Stock held by such stockholder at the close of business on
April 1, 1997. Stockholders do not have cumulative voting rights in the election
of directors.
On all matters submitted to the vote of the stockholders as described
herein, a plurality (as to the election of the directors) and a simple majority
(as to other matters) of the votes cast at the Annual Meeting will be
3
<PAGE> 6
determinative. All proxies in the form enclosed received by management,
including those as to which no preference is indicated, will be voted, in the
absence of instructions to the contrary, for election of the nominees listed
under the next heading as directors of the Company to hold office until the next
Annual Meeting of Stockholders and until their successors shall be duly elected
and qualified, for ratification of the appointment of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year ending January 3, 1998
("Fiscal 1997"), for approval of the 1997 Stock Option Plan, and with respect to
such other business as may properly come before the meeting (or any adjournment
thereof) in accordance with the judgment of the persons designated in the proxy.
In the unanticipated event that any of the persons nominated as director cannot
be a candidate at the Annual Meeting, all such proxies received will be voted in
favor of such substituted nominee as shall be designated by the Board of
Directors.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on all
proposals except the election of directors and will be counted as present for
purposes of determining the existence of a quorum regarding the item on which
the abstention is noted. Pursuant to the NASD Rules of Fair Practice, brokers
who hold shares in street name have the authority, in limited circumstances, to
vote on certain items when they have not received instructions from beneficial
owners. A broker will only have such authority if (i) the broker holds the
shares as executor, administrator, guardian, trustee, or in similar
representative or fiduciary capacity with authority to vote, or (ii) the broker
is acting pursuant to the rules of any national securities exchange to which the
broker is also a member. Under applicable Delaware law, a broker non-vote will
have no effect on the outcome of the election of directors.
PROPOSAL 1.
ELECTION OF DIRECTORS
A Board of four directors is to be elected at the Annual Meeting. The Board
of Directors proposes the election of the following four nominees to serve until
the next Annual Meeting and until their successors are duly elected and
qualified:
<TABLE>
<CAPTION>
BEGINNING
YEAR OF SERVICE
NAME AGE POSITIONS/OFFICE AS DIRECTOR
- ------------------------------ --- -------------------------------------------------- ---------------
<S> <C> <C> <C>
Sangwoo Ahn................... 58 Chairman of the Board of Directors 1993
Larry A. Liebenow............. 53 Director, President, and Chief Executive Officer 1989
Jerry I. Porras............... 58 Director 1997
Eriberto R. Scocimara......... 61 Director 1993
</TABLE>
All of the nominees except Mr. Porras are at present members of the Board
of Directors. The Board has no reason to believe that any of the foregoing
nominees will not serve if elected, but if any of them should become unavailable
to serve as a director or are withdrawn from nomination, and if the Board of
Directors shall designate a substitute nominee, the persons named as proxy
holders will vote for the substitute.
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 and 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.
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. ("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 member of Eastern Utilities Associates' Board of Trustees.
4
<PAGE> 7
Jerry Ignacio Porras. Mr. Porras is a professor at Stanford University's
Graduate School of Business, where he has taught varied courses on
organizational behavior and change for the last twenty-five years. Since 1970,
Mr. Porras has been the president of Jerry I. Porras Associates, Inc., a
consulting firm which advises a wide variety of public and private
organizations. Mr. Porras is also a co-owner of Stream Analytics, Inc., a
software firm which develops applications for organizational diagnosis and
change management.
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 since 1984. Mr. Scocimara also serves as a director of
Carlisle Companies Incorporated, Cofinec, Euronet Services, Inc. and Roper
Industries, Inc.
During Fiscal 1996, the Board of Directors held six meetings. Each continuing
director nominated by management for re-election attended at least 75% of the
aggregate of such meetings and the meetings of all committees of which each is a
member.
COMMITTEES
The Board has established an Audit Committee and a Compensation Committee.
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, the current 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 Messrs. Ahn and Porras will be paid fees for their services as
directors, effective May 21, 1997, and will also be granted options to purchase
Common Stock, as of that date, on terms and conditions substantially similar to
those of the Director's Option (as hereinafter defined). 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-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.
5
<PAGE> 8
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, 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
6
<PAGE> 9
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 options granted by the Company to
Nortex Holdings (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.
(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.
(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"). The Holdings Options cover a total of 29,956 shares of Common
Stock currently held by Nortex Holdings.
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.
7
<PAGE> 10
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 could participate.
Options granted under the 1993 Stock Option Plan were nonqualified options and
the exercise price of the shares of Common Stock covered by each option granted
under the Plan was $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. 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.
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. The 1993 Stock Option Plan provided
that upon the occurrence of a change in control of the Company (as defined in
the 1993 Stock Option Plan) all options granted under the 1993 Stock Option Plan
would become immediately exercisable in full. On March 24, 1997, the Company
consummated a public offering of its Common Stock, pursuant to which the Company
sold 300,000 shares of Common Stock and certain stockholders of the Company sold
an aggregate of 3,100,000 shares of Common Stock ("the 1997 Offering"). As a
result of the 1997 Offering, the change in control provisions of the 1993 Stock
Option Plan
8
<PAGE> 11
were triggered and all unvested options granted under the 1993 Stock Option Plan
became immediately exercisable in full.
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 defined 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.
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. As a result of the 1997 Offering, the
change in control provisions of the Nortex Option were triggered and all
unvested options granted under the Nortex Option became immediately exercisable
in full.
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 pool 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
9
<PAGE> 12
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, 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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
The Company's executive compensation program is based on the philosophy
that a performance-based program that encourages ownership in the Company and
provides management with meaningful economic incentives to improve the Company's
financial performance will ensure both an annual and a long-term perspective by
the management team. With this in mind, the program objectives are:
- To provide a competitive compensation program in order to attract,
motivate, reward, and retain qualified personnel for positions of
substantial responsibility.
- To serve as a management tool in focusing and directing the energies and
efforts of key executives toward achieving individual and corporate
objectives.
- To provide a long-term incentive for the executive to continue providing
service to the Company by linking the success and prosperity of the
individual to the success and prosperity of the Company.
The Compensation Committee achieves these objectives through annual
performance reviews and related adjustments to the base salaries of the
Company's executives, through cash bonuses awarded pursuant to the Company's
annual incentive compensation plans, and through the Retirement Plan and stock
option plans.
Generally, when new executives are recruited by the Company, salary offers
are based upon a review of the current salaries of the candidates, an assessment
of their relative qualifications and a judgment of what salary would be required
to hire a selected candidate. Thereafter, annual increases in each executive's
salary
10
<PAGE> 13
are based upon the Company's overall performance, as well as upon an evaluation
of the executive's individual performance. The performance measures used for
performance evaluation purposes include both subjective measures, such as the
attainment of agreed-upon departmental or corporate objectives, and various
quantitative measures, such as the attainment of sales, productivity, or expense
goals.
In addition, while the performance measures used to evaluate each
executive's performance vary from executive to executive, depending upon the
executive's specific corporate responsibilities, they are, in every case, a
function of the Company's strategy, business plan, and operating objectives for
the year. For example, the performance criteria used to measure the performance
of the Company's vice president of manufacturing include, but are not limited
to, production in accordance with the Company's manufacturing plan for the
period, operation of the Company's manufacturing equipment at overall efficiency
levels consistent with the Company's productivity and cost of goods sold goals,
maintaining departmental staffing levels at or below the Company's employment
level objectives, and the selection and maintenance of equipment and facilities
appropriate to the production of the Company's products.
The annual salary increases awarded to the Company's executives are
generally higher, on a percentage basis, in years when the Company's overall
performance has been good, such as Fiscal 1994, and lower in those years when
the Company's overall performance has not been as good. In this regard, most of
the Company's executives participated in a general corporate wage freeze from
October 1990 to April 1992, and another wage freeze applicable only to the
Company's executives from March 1996 through March 1997, during which periods
there were no increases made to the base salaries of the Company's Vice
Presidents.
In addition, the Compensation Committee takes various external factors into
consideration when reviewing the annual increases to be awarded to the Company's
executives. These external factors include an evaluation of general economic
conditions, the rate of inflation, and market demand for executives with skills
comparable to those of the Company's senior managers.
The Company's annual executive incentive compensation plans are designed to
encourage the Company's executives to work effectively together as a team to
maximize the Company's profitability. The 1996 Executive Incentive Compensation
Plan (the "1996 EIC Plan") provided for a bonus pool equal to 3% of the amount
by which the Company's 1996 Adjusted Pre-Tax Income exceeded the Company's 1995
Adjusted Pre-Tax Income, subject to a maximum contribution equal to 25% of the
aggregate base salaries paid to all 1996 EIC Plan participants during 1996. The
bonus paid to each individual executive would have been dependent upon the
Compensation Committee's evaluation of his or her individual performance during
the period; however, based on the formula in the 1996 EIC Plan, no bonus pool
resulted in 1996.
The Retirement Plan provides a benefit which vests over five years and is
based on accumulated contributions to the Plan over the executive's entire
period of service. The level of contributions for any year is determined by a
formula based on the executive's base salary for that year. This Plan is
intended to provide each executive with an incentive to remain with the Company
and to perform in a manner which will result in continuing salary increases.
The stock option plans offer the Company's executives an incentive to
perform in a manner which will result in an increasing price for the Company's
stock, since the value of the options granted pursuant to these plans is
directly related to the value of the Company's common stock. Options vest over a
period of five years and, therefore, provide each executive with an incentive to
remain with the Company. In determining the persons who are to receive options,
the Compensation Committee considers the person's position, responsibilities,
years of service, and accomplishments, as well as the individual's present and
future value to the Company, the anticipated length of his future service, and
other relevant factors. Options were granted to the Company's executives under
the 1993 Stock Option Plan and the 1997 Plan (as hereinafter defined) to provide
each with a direct stake in the success of the Company and to support the
Company's efforts to attract and retain qualified employees.
Pursuant to the terms of the Employment Agreement, the Company's
Compensation Committee reviews Mr. Liebenow's salary annually and concurrently
determines what cash bonus, if any, should be paid to him with respect to the
Company's performance during the fiscal year immediately preceding the review
date.
11
<PAGE> 14
These reviews take place shortly after the Company's audited financial
statements for the prior fiscal year become available and the salary increases
and bonuses awarded to Mr. Liebenow are based on the Compensation Committee's
evaluation of the Company's operating and financial performance under Mr.
Liebenow's leadership during the review period, as measured by revenues and net
income for the review period compared to (i) the business plan for the review
period and, (ii) revenues and net income for the period immediately prior to the
review period. Mr. Liebenow's base salary for Fiscal 1996 was the same as his
base salary for Fiscal 1995. In February 1997, Mr. Liebenow's base salary was
increased in accordance with the criteria set forth above and his bonus for
Fiscal 1996 was determined by the Compensation Committee and deemed to be
appropriate, from a total compensation standpoint, in light of the Company's
financial performance during the period.
Compensation Committee
SANGWOO AHN
PERRY J. LEWIS
LARRY A. LIEBENOW
12
<PAGE> 15
PERFORMANCE GRAPH
The Performance Graph below shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF
QUAKER FABRIC CORPORATION
WITH
THE NASDAQ MARKET INDEX (NMS INDUSTRIALS) AND A PEER GROUP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD QUAKER FABRIC PEER GROUP NASDAQ MARKET
(FISCAL YEAR COVERED) CORP INDEX INDEX
<S> <C> <C> <C>
11/16/93 100.00 100.00 100.00
01/01/94 116.67 109.00 103.36
12/31/94 106.25 71.86 108.52
12/30/95 72.92 75.61 140.76
01/04/97 115.63 70.75 174.92
</TABLE>
<TABLE>
<CAPTION>
11/16/93 01/01/94 12/31/94 12/30/95 01/04/97
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Quaker Fabric Corporation ................ $ 100 $116.67 $106.25 $ 72.92 $115.63
Peer Group................................ 100 109.00 71.86 75.61 70.75
NASDAQ.................................... 100 103.36 108.52 140.76 174.92
</TABLE>
The above graph compares the cumulative total stockholder return for the
Company's Common Stock for the period beginning November 16, 1993 (the first
trading day following the Company's initial public offering) and ending January
4, 1997 with the comparable returns of two indexes. The first index is the
NASDAQ Market Index (NMS Industrials) and the second is a peer group consisting
of four companies (Burlington Industries Equity, Inc. (NYSE symbol "BUR"),
Collins & Aikman Corporation (NYSE symbol "CKC") (beginning on July 7, 1994),
Culp Inc. (NASDAQ symbol "CULP"), and Johnston Industries, Inc. (NYSE symbol
"JII")), which were formed for purposes similar to that of the Company.
For the purposes of this comparison, the cumulative total stockholder
returns of each issuer within the peer group has been weighted according to the
respective issuer's stock market capitalization at the beginning of the period
(November 16, 1993). This comparison assumes $100 invested on November 16, 1993
in the Company's Common Stock and $100 invested in each of the indexes. This
comparison also assumes that all dividends have been reinvested.
13
<PAGE> 16
CERTAIN TRANSACTIONS
Until June, 1993, the Company leased certain real estate in Mooresville,
North Carolina from LDT, Inc. ("LDT"), a company owned by Messrs. Liebenow,
Degomes, and Whitehead, each of whom is an officer of the Company, pursuant to a
net lease expiring in April 2008, which lease the Company acquired from Nortex
International in September 1989. The Company, which had guaranteed LDT's
obligations under the mortgage on this property, remained contingently liable on
the mortgage until October 18, 1995 when the mortgage was satisfied. LDT had
agreed to indemnify the Company with respect to any liability on the mortgage.
PROPOSAL 2.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen LLP,
independent accountants, to be the independent auditors of the accounts of the
Company for Fiscal 1997 and recommends to stockholders that they vote for
ratification of that appointment.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
PROPOSAL 3.
APPROVAL OF THE QUAKER FABRIC CORPORATION
1997 STOCK OPTION PLAN
The Board of Directors of the Company has adopted the 1997 Stock Option
Plan (the "1997 Plan"), subject to stockholder approval at the Annual Meeting of
Stockholders. The 1997 Plan is intended to provide participating officers and
key 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
following description is qualified in its entirety by the provisions of the 1997
Plan, a copy of which is annexed hereto as Appendix A.
The 1997 Plan provides for the grant of nonqualified stock options to
officers and key employees of the Company and its subsidiaries. Grants of
incentive stock options are not permitted. The 1997 Plan provides for the grant
of options to purchase up to 500,000 shares of Common Stock subject to
adjustment to reflect certain corporate transactions. Shares subject to any
option which terminates or expires unexercised shall be available for subsequent
grants. The maximum number of shares with respect to which options may be
granted to a person under the 1997 Plan during any calendar year may not exceed
100,000 (subject to adjustment to reflect certain corporate transactions). To
the extent that shares of Common Stock for which stock options are permitted to
be granted to an individual during a calendar year are not covered by a stock
option grant in such calendar year, such shares shall automatically increase the
number of shares available for the grant of stock options to such individual in
subsequent calendar years.
The 1997 Plan is administered by a sub-committee of the Compensation
Committee of the Board of Directors (the "Committee"), which is intended to be
comprised solely of two or more directors qualifying as "outside directors"
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and "non-employee" directors under Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Committee will have full
authority and discretion, subject to the terms of the 1997 Plan, to determine
those individuals eligible to receive stock options, the number of shares of
Common Stock covered by stock options, and the terms and conditions, not
inconsistent with the 1997 Plan, of stock options. Terms and conditions of
awards will be set forth in written stock option agreements.
The Board of Directors may amend or terminate the 1997 Plan, except that no
amendment may, without approval of the stockholders of the Company, (i) increase
the maximum individual number of shares of Common Stock with respect to which
options may be granted in any calendar year (except to account for certain
corporate transactions), (ii) change the classification of employees eligible to
receive options, (iii) extend the maximum option period, or (iv) require
stockholder approval in order for the 1997 Plan to continue
14
<PAGE> 17
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 to increase the aggregate number of shares of Common Stock that may be
issued under the 1997 Plan. In addition, subject to the provisions of the 1997
Plan, no amendment may adversely affect the rights of an optionee or other
person holding an option theretofore granted without the consent of the optionee
or such other person, as the case may be. No new options may be granted under
the 1997 Plan on or after the tenth anniversary of its effective date (i.e.
after February 24, 2007.)
The exercise price of options granted under the 1997 Plan shall not be less
than the par value of the Common Stock, or for options intended to qualify as
performance-based under Section 162(m) of the Code, shall not be less than 100%
of the fair market value of the Common Stock on the date of grant. The 1997 Plan
provides that, unless the Committee determines otherwise at grant each option
will vest in equal annual installments over a five-year period. Unless otherwise
determined by the Committee for a period of the lesser of ninety days (or one
year in the case of death, disability (as defined in the 1997 Plan) or
retirement (as defined in the 1997 Plan)) 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 Plan), an
optionholder may exercise any unexercised option to the extent such option is
then exercisable. Unless otherwise determined by the Committee, for a period of
the lesser of thirty days or the remaining term of an option following a
voluntary termination of employment, an optionholder may exercise any
unexercised option to the extent such option is then exercisable. Unless the
Committee determines otherwise at grant upon termination of employment for
cause, all unexercised options are forfeited. The options are exercisable for
not more than ten years from the date of grant. Upon the occurrence of a change
in control of the Company (as defined in the 1997 Plan), all options granted
will become immediately exercisable in full, except as otherwise provided in an
option agreement or as otherwise determined by the Committee.
On February 24, 1997, the Committee decided, pursuant to the 1997 Plan and
subject to the stockholders' approval of the 1997 Plan, to grant Mr. Liebenow a
stock option to purchase 90,000 shares of Common Stock on the date of
stockholder approval and to also grant stock options to each of Messrs.
Finneran, Degomes and Whitehead and Ms. Gordan to purchase 30,000 shares of
Common Stock on the date of stockholder approval. In the aggregate, options to
purchase 330,000 shares of Common Stock have been granted to officers, subject
to stockholder approval. The exercise price of these options will be the fair
market value of the Common Stock on the date of grant (i.e., the date of
stockholder approval).
In general, holders of options will immediately upon exercise of an option
realize ordinary income on the excess of fair market value of the Common Stock
acquired upon the date of exercise over the exercise price. Subject to the
possible application of Section 162(m) of the Code (as described below), the
Company will be entitled to a tax deduction equal to the amount of ordinary
income realized by an optionholder at the time the optionholder recognizes such
income.
Upon the sale of shares of Common Stock received upon the exercise of an
option, the holder will realize a capital gain (or loss) based on the difference
between the sale price and the fair market value on the exercise date. The gain
or loss will be long-term or short-term depending on whether the shares have
been held for more than one year prior to sale.
In addition, (i) any officers and directors of the company subject to
Section 16(b) of the Exchange Act may be subject to special tax rules regarding
the income tax consequences concerning their stock options, (ii) any entitlement
to a tax deduction on the part of the Company is subject to the applicable tax
rules (including, without limitation, Section 162(m) of the Code regarding the
$1 million limitation on deductible compensation), and (iii) in the event the
vesting of any stock options is accelerated because a change of control, such
vesting shall be treated as payments relating to the stock options (or a portion
thereof), which either alone or together with certain other payments, may
constitute parachute payments under Section 280G of the Code and may also be
nondeductible by the Company and subject to excise taxes.
In general, Section 162(m) of the Code denies a publicly held corporation a
deduction for federal income tax purposes for certain compensation in excess of
$1 million per year paid to its chief executive officer and four other most
highly compensated executive officers who are employed at the end of the taxable
year,
15
<PAGE> 18
subject to certain exceptions. Options will generally qualify under the
performance-based compensation exception to the deduction limitation of Code
Section 162(m) if (i) they are granted under a plan that states the maximum
number of shares with respect to which options may be granted to any employee
during a specified period, (ii) the plan under which the options are granted is
approved by stockholders and is administered by a committee comprised solely of
outside directors, and (iii) the exercise price of the options is no less than
the fair market value of the common stock on the date of grant. While the 1997
Plan is intended to satisfy these requirements, stock options may be granted
pursuant to the 1997 Plan which are subject to the Section 162(m) deduction
limitation.
OTHER MATTERS
As of the date of this Proxy Statement, the Company is not aware of any
other matters to be brought before the Annual Meeting. However, if other matters
do come before the meeting, it is the intention of the persons named in the
accompanying form of proxy to vote such proxy in accordance with their judgment
on such matters.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any stockholder of the Company who desires to present a proposal at the
1998 Annual Meeting of Stockholders for inclusion in the proxy statement and
form of proxy relating to that meeting must submit the proposal to the Company
at its principal executive offices on or before December 15, 1997.
By Order of the Board of Directors
CYNTHIA L. GORDAN,
Vice President, Secretary and
General Counsel
April 15, 1997
16
<PAGE> 19
1234-PS-97
<PAGE> 20
APPENDIX A
QUAKER FABRIC CORPORATION
1997 STOCK OPTION PLAN
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. PURPOSE............................................................ A-1
ARTICLE II. DEFINITIONS........................................................ A-1
ARTICLE III. ADMINISTRATION..................................................... A-2
ARTICLE IV. SHARE AND OTHER LIMITATIONS........................................ A-4
ARTICLE V. ELIGIBILITY........................................................ A-5
ARTICLE VI. STOCK OPTION GRANTS................................................ A-5
ARTICLE VII. NON-TRANSFERABILITY................................................ A-7
ARTICLE VIII. CHANGE OF CONTROL PROVISIONS....................................... A-8
ARTICLE IX. TERMINATION OR AMENDMENT OF THE PLAN............................... A-9
ARTICLE X. UNFUNDED PLAN...................................................... A-9
ARTICLE XI. GENERAL PROVISIONS................................................. A-10
ARTICLE XII. EFFECTIVE DATE OF PLAN............................................. A-11
ARTICLE XIII. TERM OF PLAN....................................................... A-11
ARTICLE XIV. NAME OF PLAN....................................................... A-11
</TABLE>
A-i
<PAGE> 22
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 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.
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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 Article 5 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).
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;
(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
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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 Section 6.2(d); and
(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.
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 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
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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 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.
(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,
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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.
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.
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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 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).
(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
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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.
(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
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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 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), Nortex Holdings, Inc., Larry
A. Liebenow (or his estate, beneficiaries or heirs), Anthony Degomes
(insofar as his shares of Common Stock are beneficially owned by Nortex
Holdings, Inc.) and J. Duncan Whitehead (insofar as his shares of Common
Stock are beneficially owned by Nortex Holidings, Inc.), 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 other than Nortex Holdings, Inc. Larry A.
Liebenow (or his estate, beneficiaries or heirs), Anthony Degomes (insofar
as his shares of Common Stock are beneficially owned by Nortex Holdings,
Inc.) or J. Duncan Whitehead
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(insofar as his shares or Common Stock are beneficially owned by Nortex
Holdings, Inc.) is the beneficial owner of securities 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 a majority 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 Nortex Holdings, Inc. or
Larry A. Liebenow (or his estate, beneficiaries or heirs) or 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 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.
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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.
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 be obligated to list such shares on a national
securities exchange or system sponsored by a national securities
association. 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).
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
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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 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 provision 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.
ARTICLE XII.
EFFECTIVE DATE OF PLAN
The Plan has been adopted by the Board effective as of February 24, 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
24, 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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DETACH HERE
P R O X Y
QUAKER FABRIC CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1997
The undersigned stockholder of QUAKER FABRIC CORPORATION (the
"Company") hereby appoints Larry A. Liebenow and Cynthia L. Gordan, and either
of them the attorneys and proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all the shares of Common
Stock of the Company which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company, to be held at the corporate offices of
The First National Bank of Boston, 100 Federal Street, Second Floor, Boston, MA
02110 on May 21, 1997 at 10:00 A.M. and at all adjournments thereof, hereby
revoking any proxy heretofore given with respect to such stock: and the
undersigned authorizes and instructs said proxies to vote as follows on the
reverse side.
NOTE: PROXIES THAT ARE MARKED ABSTAIN WILL BE COUNTED AS PRESENT AT
THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE /SEE REVERSE/
/ SIDE /
DETACH HERE
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED
AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
DIRECTORS NAMED IN PROPOSAL 1, FOR PROPOSAL 2, FOR PROPOSAL 3, AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS RESPECTING SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF DIRECTORS:
Nominees: Sangwoo Ahn, Larry A. Liebenow, Jerry I. Porras,
Eriberto R. Scocimare.
FOR / / WITHHELD / /
/ / ___________________________________
INSTRUCTIONS TO WITHHOLD AUTHORITY MARK HERE
TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), FOR ADDRESS
WRITE THAT NOMINEE'S NAME IN THE SPACE CHANGE AND / /
PROVIDED ABOVE. NOTE BELOW
2. PROPOSAL TO APPROVE THE APPOINTMENT OF ARTHUR ANDERSEN LLP as independent
auditors of the Company for fiscal 1997.
FOR / / AGAINST / / ABSTAIN / /
3. PROPOSAL TO APPROVE THE 1997 STOCK OPTION PLAN, which provides for the grant
of options to purchase up to 500,000 shares of Common Stock.
FOR / / AGAINST / / ABSTAIN / /
4. In their discretion the holders of this proxy are authorized to vote upon
such other matters as may properly come before the meeting.
Please date and sign exactly as your name(s) appear(s) hereon. If shares are
held jointly, each joint owner must sign. Executors, administrators, trustees,
etc., should so indicate when signing and when more than one executor, etc. is
named, a majority must sign. If signing for a corporation, please sign full
corporate name by duly authorized officer.
