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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
QUAKER FABRIC CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-1933106
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
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(ADDRESS PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (508) 678-1951
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirements for the past 90 days. YES: X NO:
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
---
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant, computed by reference to the closing sales
price as quoted on NASDAQ on March 24, 1998 was approximately $174.3 million.
As of March 24, 1998, 8,401,407 shares of Registrant's common stock, par
value $0.01 per share were outstanding.
Documents Incorporated by Reference
Description of document Part of the Form 10-K
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Portions of the Proxy Statement to be used in Part III (Item 10 through
connection with the Registrant's 1998 Annual Item 13) and Part IV
Meeting of Stockholders.
1997 Annual Report to Shareholders Part II (Item 5 through Item 8)
Exhibit Index on Page 20
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PART I
ITEM 1. BUSINESS
OVERVIEW
Quaker is a leading designer, manufacturer and worldwide marketer of
woven upholstery fabrics for residential furniture and one of the largest
producers of Jacquard upholstery fabrics in the world. The Company is also a
leading developer and manufacturer of specialty yarns and management believes it
is the world's largest producer of chenille yarns, which Quaker both sells and
uses in the production of its fabrics. The Company's vertically integrated
operations provide Quaker with important design, cost and delivery advantages.
The Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues have grown from
$123.4 million in 1992 to $219.2 million in 1997, a compound annual growth rate
("CAGR") of 12.2%.
Quaker has been producing upholstery fabric for over fifty years and is
a full-service supplier of Jacquard and plain woven upholstery fabric to the
furniture market. Quaker's current product line consists of over 3,000
traditional, contemporary, transitional and country fabric patterns intended to
meet the styling and design, color, texture, quality and pricing requirements of
promotional through middle to higher-end furniture manufacturers, and the
Company introduces approximately 700 new products to the market annually.
Management believes that Jacquard fabrics, with their detailed designs, provide
furniture manufacturers with more product differentiation opportunities than any
other fabric construction on the market. In addition, technological advances in
the speed and flexibility of the Jacquard loom have reduced the cost of
producing Jacquard fabrics, enabling them to compete more effectively with
prints, velvets, flocks, tufts and other plain woven products.
The Company sells its upholstery fabrics to over 600 domestic furniture
manufacturers, including virtually every significant domestic manufacturer of
upholstered furniture. Quaker also distributes its fabrics internationally. In
1997, fabric sales outside the United States of $39.7 million represented
approximately 20.9% of gross fabric sales. Quaker's October 1996 introduction of
its Whitaker Collection, a branded line of a select group of the Company's
better-end products, has resulted in incremental sales to a number of well known
higher-end furniture manufacturers. Management estimates that approximately 85%
of the Company's fabric sales in recent years have been manufactured to customer
order.
During the past five years, Quaker has invested more than $66 million in
new manufacturing equipment to expand its yarn and fabric production capacity,
increase productivity, improve product quality and produce the more complex
fabrics associated with the Company's successful penetration of the middle to
better-end segment of the upholstery fabric market. During 1998, Quaker plans to
spend approximately $45 million on additional manufacturing equipment to
accelerate the growth of its specialty yarn business, respond to anticipated
increases in demand for its fabric products, and further its marketing,
productivity, quality, service and financial objectives.
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The Company produces all of its yarn and fabric products in its six
manufacturing plants in Fall River, Massachusetts, where Quaker has over one
million square feet of manufacturing space. In addition to distribution from the
Company's facilities in Fall River, Quaker maintains domestic distribution
centers in High Point, North Carolina, Tupelo, Mississippi, and Los Angeles,
California. To provide better service to its international customers, the
Company also has a distribution center in Mexico and maintains inventory in
Holland.
HISTORY
In March and April of 1997, the Company consummated an underwritten public
offering of 3,400,000 shares of Common Stock, of which 300,000 shares were sold
by the Company and 3,276,000 shares were sold by selling stockholders (the
"Offering"), including 176,000 shares sold by one of the selling stockholders
pursuant to an over-allotment option granted to the underwriters. The price to
the public per share of Common Stock was $13.50.
THE INDUSTRY
Total domestic upholstery fabric sales, exclusive of automotive
applications, are estimated to be approximately $2.0 billion annually.
Management estimates the size of the international fabric market to be at least
twice that of the domestic market. Due to the capital intensive nature of the
fabric manufacturing process and the importance of economies of scale in the
industry, the domestic industry is concentrated, with the top 15 upholstery
fabric manufacturers, including Quaker, accounting for over 80% of the total
market. Most of the largest U.S. fabric producers have expanded their export
sales, capitalizing on their size, distribution capabilities, technology
advantages and broad product lines. Management believes that over the last
several years furniture manufacturers have moved toward more highly styled
Jacquard fabrics, at the expense of less distinctive fabrics, such as flocks,
plaids, plains, prints, stripes, tufts and velvets. Within the Jacquard segment,
price is a more important competitive factor in the promotional-end of the
market than it is in the middle to better-end of the market, where fabric
styling and design considerations typically play a more important role.
Demand for upholstery fabric is a function of demand for upholstered
furniture. The upholstered furniture market has grown from $5.4 billion in 1991
to $8.7 billion in 1997. Total upholstered furniture demand is affected by
population growth and demographics, consumer confidence, disposable income,
geographic mobility, housing starts, and home sales. Although the domestic
residential furniture industry is cyclical, periods of decline have been
relatively brief, with industry shipments decreasing in only two years since
1975.
The upholstery fabric covering a sofa, chair, or other piece of
furniture is one of the most significant factors influencing a furniture buyer's
selection. Purchase decisions are based primarily on the consumer's evaluation
of aesthetics, comfort, durability, quality and price. As a result, the fabric
decisions a furniture manufacturer makes play a critical role in its ability to
gain a product differentiation advantage at the retail level.
Management believes the long-term outlook for the Company's upholstery
fabric sales will be influenced by certain trends:
(i) Consolidation in the furniture industry is resulting in fewer, but
larger, customers for upholstery fabric manufacturers. These larger
customers typically prefer to purchase their fabric requirements from a
small number of vendors able to provide a broad range of product
choices, handle their volume requirements and offer focused, customized
service.
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(ii) Homes are decorated more casually today than they were a decade ago,
resulting in a trend toward more comfortable furniture, as well as
"motion furniture." Historically, motion furniture was typically covered
with less expensive flock, plain, tufted or velvet fabrics. The
development of softer, more durable and highly styled Jacquards has
allowed motion furniture manufacturers to improve their profit margins
by differentiating their products.
(iii) Pushed by consumers demanding immediate product delivery, the furniture
industry has increased its focus on just-in-time manufacturing methods
and shorter delivery lead times.
(iv) Both consumers and furniture manufacturers have placed increased
emphasis on product quality, enabling fabric manufacturers with
effective quality control systems to gain a competitive advantage.
(v) Technological advances in the speed and flexibility of the Jacquard loom
have reduced the cost of producing Jacquard fabrics, enabling them to
compete more effectively with prints, velvets, flocks, tufts and other
plain woven products.
STRATEGY
Quaker's strategy to further its growth and financial performance
objectives includes:
Increasing Sales to the Middle to Better-End Segment. To capitalize on
the consolidation trend in the furniture industry, the Company has positioned
itself as a full-service supplier of Jacquard and plain woven fabrics by
increasing the breadth and depth of its product line. Sales of the Company's
middle to better-end fabrics, which the Company first began emphasizing in the
early 1990s, have increased from $66.3 million, or 56.3% of total fabric sales
in 1992, to $132.8 million, or 69.8% of total fabric sales in 1997, a CAGR of
14.9%.
Expanding International Sales. The Company has made worldwide
distribution of its upholstery fabrics a key component of its growth strategy.
Quaker has built an international sales and distribution network, dedicated
significant corporate resources to the development of fabrics to meet the
specific styling and design needs of its international customers, and put
programs in place to simplify the purchase of product from Quaker. As a result,
the Company's international sales have increased from $18.3 million in 1992 to
$39.7 million in 1997, a CAGR of 16.7%.
Capitalizing on the Growth of the Casual Furniture Segment. Based upon
its leading position in the Jacquard market and its own internally produced
chenille yarns, management believes Quaker is well positioned to benefit from
the growth of the casual furniture segment, where soft, durable, distinctive
fabrics, such as Quaker's Jacquard and other chenilles, are in increasing
demand.
Penetrating Related Fabric Markets. Management believes the superior
styling and performance characteristics of the Company's fabrics provide
opportunities to penetrate markets related to Quaker's core residential fabric
business. The Company has specifically targeted the contract (office and
institutional) and recreational vehicle markets, where management believes
Quaker's Jacquard chenille fabrics will provide the Company with a clear product
advantage. The Company has also targeted additional sales to the decorative
jobber (distributors to the interior design trade) market, where management
believes the Company's recently introduced Whitaker Collection will have broad
appeal.
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Growing Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns and management believes it is the world's largest producer of chenille
yarns. Approximately 82% of the chenille yarn manufactured by the Company is
used in the production of the Company's fabric. The balance is sold to apparel
and home textile firms throughout the United States through Quaker's yarn sales
division, Nortex Yarns. Sales of the Company's specialty yarns have increased
from $7.8 million in 1992 to $33.0 million in 1997, a CAGR of 33.3%. In addition
to the popularity of the Company's current line of specialty yarns, including
its proprietary, abrasion-resistant Ankyra chenille yarns, Quaker's yarn design
and development staff regularly creates innovative new specialty yarns for use
in the Company's fabrics and sale to the Company's growing list of yarn
customers. Quaker intends to increase sales by targeting new markets and
applications for its specialty yarns.
Considering Acquisition Opportunities. Although all of Quaker's growth
to date has been the result of internal initiaves, the Company has evaluated a
number of acquisition candidates in the past and will continue to consider
acquisition opportunities in the future. An ideal acquisition candidate would
either support the Company's new market development objectives or offer a unique
and complementary product, manufacturing or technical capability.
COMPETITIVE STRENGTHS
Management believes that the following competitive strengths distinguish
Quaker from its competitors and that these strengths serve as a solid foundation
for the Company's growth strategy:
Product Design and Development Capabilities. Management believes that
Quaker's reputation for design excellence and product leadership is, and will
continue to be, the Company's most important competitive strength.
Focus on Jacquard Fabrics. Management believes the detailed, copyrighted
designs of the Company's Jacquard fabrics have enabled it to compete primarily
based on superior styling and design, contributing to Quaker's strong gross
margin performance.
Broad Product Offering. The breadth and depth of Quaker's product line
enables the Company to be a full-service supplier of Jacquard and plain woven
fabrics to virtually every significant domestic manufacturer of upholstered
furniture.
Vertical Integration. Using Quaker's own specialty yarns in the production
of its fabrics provides the Company with significant design, cost and delivery
advantages.
State-of-the-Art Manufacturing Equipment. Management believes the Company
has one of the most modern, efficient and technologically advanced manufacturing
bases in the industry.
PRODUCTS
The Company offers a broad assortment of contemporary, traditional,
transitional and country fabrics to manufacturers of both promotional-end and
middle to better-end furniture at prices ranging from $2.50 to $17.50 per yard.
While most of the Company's fabrics are sold under the Quaker label, the Company
began marketing a select group of its middle to better-end fabrics under its
Whitaker label in October 1996. In 1997, the Company's promotional-end fabric
line and its middle to better-end fabric line had average gross sales prices of
$3.41 per yard and $4.72 per yard, respectively, compared
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to $3.40 and $4.43,respectively, in 1996. The average gross sales price per
yard of the Company's fabrics was $4.23 in 1997, compared to $4.05 in 1996.
Quaker's product line consists of low to medium pick (from 8 through 14
picks per inch) woven fabrics, purchased primarily by manufacturers of
promotional-end furniture; and medium to high pick (from 15 through 60 picks per
inch) woven fabrics, purchased primarily by manufacturers of middle to
higher-end furniture. In the textile industry, "picks per inch" refers to the
number of times the filling, or weft, yarn in a fabric crosses the warp yarn in
that fabric. Lower pick fabrics generally require the use of bulkier filling
yarns in order to effectively "fill" each inch of space to be "covered" and,
therefore, most lower pick fabrics have less well-defined designs and a
considerable amount of "texture" to them. Conversely, the higher pick content of
the Company's middle to better-end fabrics makes it possible for these fabrics
to have more well-defined design features and to present a smoother, finer, more
sophisticated appearance than its promotional-end fabrics.
Quaker's product line is focused on fabrics with complex designs
referred to in the industry as "Jacquards," because of the special Jacquard
equipment, or heads, required to produce them, and also includes a broad
assortment of striped, plaid, and plain fabrics. All of Quaker's looms are
equipped with Jacquard heads. The use of these heads makes it possible to vary
the pattern, color, and texture of both the filling and warp yarns in a fabric.
Fabrics manufactured on looms without Jacquard heads have a much more limited
range of possible designs.
Quaker's product offerings are noted for their wide use of chenille
yarns, which have a soft, velvet-like feel. To take advantage of casual
furniture trends, and to capitalize on the rapid growth of the motion furniture
market, Quaker developed a soft chenille yarn with superior abrasion resistance
to compete effectively with flocks, velvets and tufted fabrics. The Company
markets the line of chenille fabrics it produces using these yarns under its
Ankyra label. Through a licensing agreement with Monsanto Company, a number of
the Company's Ankyra-based chenille fabrics, as well as certain other fabrics in
its line, have been "Wear-Dated" by Monsanto.
The Company has taken steps to expand both the breadth and depth of the
Company's product portfolio by increasing the number of fabrics designed to meet
the needs of manufacturers of middle to higher-end upholstered furniture
products, and expanding the number of fabrics and styles offered at each price
point and in each styling category to provide all of the Company's customers
with more product choices. Quaker's broad product line is very important from a
competitive standpoint. It enhances the ability of the Company's customers to
meet most of their fabric needs through one full-service supplier while, at the
same time, allowing them to purchase fabrics in a wide enough range of designs
to enable them to differentiate their own new lines of upholstered furniture
from those of their competitors. In 1996, to generate additional business from
manufacturers of higher-end upholstered furniture, the Company began offering a
select group of its middle to better-end products exclusively to those customers
under its Whitaker label. Sales of the Company's middle to better-end fabrics
have increased from $66.3 million, or 56.3% of total fabric sales in 1992, to
$132.8 million, or 69.8% of total fabric sales in 1997.
NEW PRODUCT DEVELOPMENT AND DESIGN
Although management believes fashion trends in the upholstery industry
do not change significantly from year to year, consumer tastes in upholstery
fabric do change over time. Therefore, it is important to identify emerging
fashion needs and to develop new products responsive to those needs. Management
believes Quaker's design staff has an established reputation for design
excellence and product leadership.
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The Company's design department has overall responsibility for the
development of new upholstery fabric patterns for sale by the Company. Although
the Company purchases artwork from independent artists, the Company's staff of
professional designers and designer technicians creates the majority of the
designs on which the Company's fabric patterns are based and also determines the
construction of those patterns. The design department uses state-of-the-art CAD
equipment to reduce the new product development cycle.
The development of each new fabric line requires four to five months.
The first step in the new product development process is the preparation of a
merchandising plan for the line. The Company's merchandising plans are based on
extensive input from Quaker's sales representatives, senior managers, and major
customers and provide both a broad outline of the number of new products to be
included within each major styling category (e.g., contemporary, traditional,
transitional, and country), as well as the number of new products to be created
for sale at each of the major price points within those styling categories.
In addition, because of the design, cost, and delivery advantages of
Quaker's vertically integrated manufacturing operations, substantial emphasis is
placed on making maximum use of the Company's internally produced yarns during
the fabric development process. After each new fabric merchandising plan is
developed, members of the Company's fabric design and yarn development staffs
meet to identify the design staff's yarn requirements for the Company's next
fabric line and many of Quaker's proprietary yarns trace their origins to this
design-driven process. Quaker's engineering and manufacturing staffs also play a
key role in the new product development process by reviewing each proposed new
product to evaluate its impact on the Company's raw material costs, equipment
utilization rates and quality performance. Although some plain, striped and
plaid fabrics remain in the Company's product line for 10 years or more, a
successful product typically has a life of two to three years.
Quaker's design staff also regularly creates custom patterns for
customers seeking to differentiate their products for distribution purposes, hit
a certain price point at the retail level, or meet a particular styling need in
the market they serve. These patterns, which are not part of Quaker's "open
line," are known in the industry as "Specials."
SALES AND MARKETING
UPHOLSTERY FABRICS
Net fabric sales during 1997 were $186.7 million, or approximately 85.1%
of the Company's net sales. The Company sells its upholstery fabrics to over 600
furniture manufacturers worldwide, including substantially all of the largest
domestic manufacturers of upholstered furniture. Fabric sales to the Company's
top 25 customers accounted for approximately 38.6% of 1997 net sales. None of
the Company's customers accounted for more than 5% of net sales during 1997.
The Company uses a direct marketing force of 21 sales representatives,
four of whom are based in Quaker's Mexico City distribution center, to market
its fabrics in the United States and Mexico. All such sales representatives are
paid on a commission basis and represent the Company exclusively. Quaker's
fabrics are distributed internationally through a network of 25 independent
commissioned agents appointed to represent the Company in Europe, the Far East,
Australia, New Zealand, the Middle East, and Central and South America. All
agents located outside the United States
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are supervised by the Company's staff of two full-time export sales managers.
Quaker's United States customers market their products through two
annual national furniture industry trade shows held in April and October in High
Point, North Carolina, as well as through various regional shows. These shows
provide most of Quaker's customers with the opportunity to introduce their new
furniture lines to their major retail customers in a single setting. Quaker's
design and marketing process is closely linked to these trade shows. The Company
develops two major lines for introduction to the Company's customers at the
Showtime Fabric Fairs held in High Point in January and July of each year.
Almost all major U.S. furniture manufacturers attend Showtime to begin selecting
fabric for the new lines of sofas and other upholstered furniture products that
they will exhibit at the April and October High Point Furniture Markets. The
Company also introduces two less extensive lines in April and October of each
year to respond to competitive opportunities identified at the January and July
Showtime trade shows.
Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, Dubai, Germany,
Italy, and Mexico, as well as certain trade shows in the United States aimed at
the international market. Foreign sales of fabric accounted for approximately
20.9% of Quaker's gross fabric sales during 1997.
In addition to distribution from the Company's facilities in Fall River,
Massachusetts, Quaker maintains four distribution centers from which its
customers may purchase the Company's products directly. These facilities are
located in Los Angeles, California; Mexico City, Mexico; High Point, North
Carolina; and Verona, Mississippi. The Company also maintains inventory in
Roosendaal, Holland.
SPECIALTY YARNS
Net yarn sales during 1997 were $31.7 million, or approximately 14.5% of
the Company's net sales. The Company designs, manufactures and markets several
types of specialty yarns, including fancy spun, fancy twisted, taslan, and
chenille. Quaker is a leading developer and manufacturer of specialty yarns and
management believes it is the world's largest producer of chenille yarn, a soft
pile yarn which produces a velvet-like fabric. Chenille yarns, and fabrics made
out of chenille yarns, have become increasingly popular over the past several
years, in part, as a result of the recent trend toward softer, more casual home
furnishings and apparel. The Company's specialty yarns are sold under the name
of Nortex Yarns to manufacturers of home furnishings products, principally
weavers of upholstery fabric, throws, afghans and other products, as well as
manufacturers of sweaters and other apparel. The Company has approximately 55
yarn customers.
Management believes the technical expertise of Quaker's yarn development
staff provides the Company with an important competitive advantage by enabling
Quaker to create and market innovative specialty yarns to meet its customers'
styling and performance criteria. For example, the creation of Quaker's line of
Ankyra chenille yarns was an important product breakthrough for both Quaker and
its yarn customers. Historically, chenille yarns have had difficulty meeting the
durability standards required for use in fabrics which are likely to be
subjected to heavy wear, such as car seats and certain home furnishings
products. Quaker's yarn development staff created a finished chenille yarn with
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superior abrasion resistance, and the United States Patent and Trademark Office
has issued a patent to protect the Company's Ankyra process.
Quaker's Ankyra technology has enabled the Company to expand the sale of
its chenille yarns to makers of end products for which both softness and
durability are important. Management believes that this will prove to be a
source of further growth in the Company's yarn sales. In addition, the Company
believes that a number of the other specialty yarns developed by Quaker's yarn
development technicians have significant revenue potential and that important
market opportunities exist for all of its specialty yarns outside the United
States.
MANUFACTURING
All of Quaker's fabrics and yarns are manufactured at the Company's six
Fall River, Massachusetts manufacturing facilities and management estimates that
approximately 85% of the Company's fabric sales in recent years have been
manufactured to customer order. The Company's objective is to operate its
production facilities on a five to five and one half-day week, three-shift
schedule. However, during periods of heaviest demand, Quaker operates some or
all of its production areas on seven-day, three-shift schedules.
The Company's vertically integrated manufacturing process begins with
the production of specialty yarns, primarily for use in the production of the
Company's fabrics, but also for sale to manufacturers of home furnishings
products and apparel in the United States. Although the Company purchases all of
its commodity yarns, most of the Company's weft, or filling, yarn needs are met
through internal production. The next stage of the fabric manufacturing process
involves the preparation of beams of warp yarn. The beams are then sent to the
Company's weave rooms, where looms are used to weave the warp and filling yarns
together. The final steps in the fabric production process include the
application of a latex backing, to enhance the durability and performance
characteristics of the end product, as well as a stain-resistant finish upon
customer request, and a final product quality inspection prior to shipment to
the Company's customers.
Quaker has added approximately 210 new looms to its manufacturing base
since 1989 and plans to add 100 additional looms during 1998. All of the
Company's looms are equipped with Jacquard heads, maximizing the Company's
ability to design its products to meet customer needs, without being limited by
equipment-related design constraints.
The Company's fabrics are generally shipped directly to its customers on
an FOB Fall River or FOB warehouse basis. The Company also supplies its
distribution centers with an appropriate selection of fabrics for customers
needing immediate delivery.
During the past five years, the Company placed in service more than
$66.0 million of new manufacturing equipment to increase capacity, improve
manufacturing efficiencies, and support the Company's marketing, quality and
delivery objectives. During 1998, the Company plans to purchase approximately
$45.0 million of manufacturing equipment. Management believes that during each
of the next several years additional capital equipment will be needed to meet
anticipated demand for the Company's products.
The Company is temporarily outsourcing a small amount of its
manufacturing requirements to provide better service to its customers until the
new looms included in the current capacity expansion plan are added.
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QUALITY ASSURANCE
Management believes that product quality is a significant competitive
factor in both the domestic and international fabric markets and has established
aggressive performance objectives for the Company in this area. Quaker's quality
initiatives include:
The introduction of a revised group incentive program in certain of
its production departments to factor quality into the overall
compensation programs in these areas.
Inspection of incoming raw materials to ensure they meet the
Company's product specifications and to provide prompt feedback to
vendors when defects are discovered so that corrective actions may be
undertaken immediately.
Task teams led by a quality council to solve process issues, using
the Company's ISO 9001 framework to guaranty permanent implementation
once solutions are identified.
The assignment of quality control staff to each of the Company's
weaving areas and to various other quality-critical production
departments to identify defects early in the manufacturing process.
A final quality inspection of the Company's yarn and fabric products
before they are released for shipment.
The use of statistical process control reports to provide continuous
monitoring of the Company's performance against industry standards
and its own internal quality standards.
ISO 9001 certification on a Company-wide basis.
In addition to these measures, the built-in quality control features and
more precise settings on the new production equipment the Company has placed in
service since 1990 have also played an important role in the Company's efforts
to provide defect-free products to its customers.
Primarily as a result of the Company-wide quality improvement program
implemented in early 1996, the Company's quality-related return rate, as a
percentage of total yards shipped, improved from 0.6% in 1996 to 0.4% in 1997,
and the Company's sales of second-quality fabric decreased by 38.1%, from $2.2
million in 1996 to $1.3 million in 1997.
TECHNOLOGY
As part of Quaker's overall strategy to improve productivity and achieve
a service advantage over its competitors, the Company strives to introduce new
technologies into its operations whenever possible. Quaker's efforts in this
area include: (i) the use of its MRP II system to provide computer support to
the Company's manufacturing operations; (ii) the use of CAD equipment to reduce
the time required to bring its new products to market, including the design of
"Specials"; (iii) the use of bar-coding systems to improve both the efficiency
of its own manufacturing operations and service to its customers; and (iv) the
use of electronic Jacquard heads and other production equipment equipped with
microprocessors to improve manufacturing efficiencies and reduce unit costs.
During 1996, the Company completed a comprehensive re-evaluation of its
data processing systems and developed a long-range information systems plan
intended to meet the Company's future
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management information needs and to provide new and innovative technology
solutions to the Company's customers. As a result of this study, Quaker is in
the process of upgrading its MRP II system to an Enterprise Resource Planning
("ERP") system, with a full conversion to ERP expected during 1998. Management
believes that the installation of the Company's new ERP system will enhance
Quaker's ability to meet its quality and service objectives by: (i) providing
Quaker's customers with direct access to the system to check the status of their
orders; (ii) reducing delivery lead times by improving the Company's ability to
accurately forecast its raw material requirements, provide better and more
timely information to its vendors and schedule its production operations more
efficiently; and (iii) providing computerized support to the Company's quality
control system.
The Company's CAD equipment is used not only to develop new fabric
designs but also to prepare plastic Jacquard cards for use with the Company's
mechanical Jacquard heads, and computer disks for use with Quaker's newer
electronic Jacquard heads. These plastic cards and computer disks contain
precise instructions about the construction of the particular fabric pattern to
be woven; however, the use of computer disks substantially reduces the amount of
equipment downtime required for style changes, resulting in improved
manufacturing efficiencies. See "Business -- New Product Development and
Design."
The Company first introduced bar-coding technology in certain of its
operations in 1993. In 1998, Quaker plans to introduce bar-coding technology in
the balance of its manufacturing areas so that material movement can be traced
electronically from receiving to shipping.
Much of the new equipment Quaker has added to its manufacturing base
over the past five years is equipped with microprocessors and other electronic
controls. In particular, all the Jacquard heads purchased by the Company since
1993 are electronic, substantially reducing the amount of time it takes to
change from the production of one fabric pattern to the next, and contributing
to improved productivity in Quaker's manufacturing areas.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Quaker's raw materials consist principally of polypropylene, polyester,
acrylic, cotton and rayon fibers and yarns for use in its yarn manufacturing and
fabric weaving operations, and latex to backcoat its finished fabrics. In
addition, Quaker purchases commission dyeing services from various dyehouses
which dye, to the Company's specifications, certain of the yarns the Company
produces internally and purchases from other manufacturers. Substantially all of
the raw materials used by the Company are purchased from primary producers with
manufacturing operations in the United States. The Company is dependent upon
outside suppliers for its raw material needs, including dyeing services, and is
subject to price increases and delays in receiving these materials and services.
The Company's raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying market for petrochemicals in
general. Historically, the Company has been able to pass through a substantial
portion of any increases in its raw material costs; however, the Company
experienced significant increases in certain raw material prices in 1995 which
it was not able to pass through fully to its customers during 1995 and which
contributed to a reduction in the Company's 1995 gross margin. During 1997, the
Company experienced no significant increases in raw material prices.
Future price levels of raw materials will depend upon supply and demand
conditions, the general inflation rate, and overall economic conditions.
Although other sources are available, the Company currently procures
approximately one-half of its raw material components from two major industry
suppliers, one of which is the sole supplier of a filament yarn used in the
Company's chenille
11
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manufacturing operations. Generally, Quaker has not experienced any
significant difficulty in meeting its raw material needs, expects that it will
be able to obtain adequate amounts to meet future requirements, and seeks to
identify alternate sources for all critical raw material components.
COMPETITION
The markets for the Company's products are highly competitive.
Competitive factors in the upholstery fabric business include product design,
styling, price, customer service and quality. Price is a more important
competitive factor in the promotional-end of the market than it is in the middle
to better-end of market, where competition is weighted more heavy toward fabric
styling and design considerations. Although the Company has experienced no
significant competition in the United States from imports to date, changes in
foreign exchange rates or other factors could make imported fabrics more
competitive with the Company's products in the future.
The Company's principal competitors include: Burlington House Upholstery
Division of Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation and
its Mastercraft Division, and Valdese Weavers, Inc. Several of the companies
with which the Company competes have greater financial resources than the
Company. The Company's products compete with other upholstery fabrics and
furniture coverings, including prints, flocks, tufts, velvets and leather.
BACKLOG
As of January 3, 1998, the Company had orders pending for approximately
$53.4 million of fabric and yarn compared to $29.1 million as of January 4,
1997. The Company's backlog position at any given time may not be indicative of
the Company's long-term performance.
TRADEMARKS, PATENTS, COPYRIGHTS
The Company seeks copyright protection for all new fabric designs it
creates, and management believes that the copyrights owned by the Company serve
as a deterrent to those industry participants which might otherwise seek to
replicate the Company's unique fabric designs. In June 1995, the Company
introduced a new collection of fabrics featuring Quaker's proprietary Ankyra
chenille yarns. In 1997, the United States Patent and Trademark Office issued a
patent to the Company protecting the proprietary manufacturing process developed
by Quaker to produce these yarns. Quaker has also applied to register its
Whitaker mark with the U.S. Patent and Trademark Office. A logo form of the "W"
mark is registered with the U.S. Patent and Trademark Office.
INSURANCE
The Company maintains general liability and property insurance. The
costs of insurance coverage vary generally and the availability of certain
coverages has fluctuated in recent years. While the Company believes that its
present insurance coverage is adequate for its current operations, there can be
no assurance that the coverage is sufficient for all future claims or will
continue to be available in adequate amounts or at reasonable rates.
EMPLOYEES
The Company is the largest manufacturer, and the largest private sector
employer, in Fall River, Massachusetts. As of January 4, 1998, Quaker employed
1,945 persons, including 1,593 production employees, 131 technical and clerical
employees, and 221 exempt employees and
12
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commissioned sales representatives. The Company's employees are not
represented by a labor union, and management believes that employee relations
are good.
13
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ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT (See Item 10 herein)
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Larry A. Liebenow............54 President, Chief Executive Officer, and Director 1989
Anthony Degomes..............57 Vice President - New Business Development 1991
James A. Dulude..............42 Vice President - Manufacturing 1990
Thomas J. Finneran...........58 Vice President - Sales 1982
Cynthia L. Gordan............50 Vice President, Secretary, and General Counsel 1989
Thomas Muzekari..............57 Vice President - Marketing 1996
Beatrice Spires..............36 Vice President - Styling and Design 1996
Paul J. Kelly................53 Vice President - Finance and Treasurer 1989
J. Duncan Whitehead..........55 Vice President - Technology and Dev., and Yarn Sales 1990
</TABLE>
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.
Anthony Degomes. Mr. Degomes has been employed by the Company since
September 1989 and has served as Vice President - New Business Development since
March 1996. Mr. Degomes served as Vice President - Styling and Design of the
Company from September 1991 to March 1996. From December 1990 to September 1991,
Mr. Degomes served as the Company's Director of Styling and Design. From
September 1989 to November 1990, Mr. Degomes served as the Vice President -
Styling, Design and Development of the Company's Nortex Division. From March
1984 to September 1989, Mr. Degomes served as the Vice President in charge of
Styling and Development for Nortex International.
James A. Dulude. Mr. Dulude has been employed by the Company since May 1986
and has served as Vice President - Manufacturing since August 1995. Mr. Dulude
served as Vice President - Purchasing, Planning and MIS from November 1990 to
August 1995. Mr. Dulude served as the Company's Director of Purchasing and
Planning from May 1989 to November 1990, Director of Planning and Scheduling
from July 1988 to May 1989, and Director of Information Systems from May 1986 to
July 1988.
Thomas J. Finneran. Mr. Finneran has been employed by the Company since
January 1982, and has served as Vice President - Sales since March 1996. Mr.
Finneran served as Vice President - Marketing from July 1988 to March 1996 and
Vice President - Sales from January 1982 to July 1988. From 1973 to January
1982, Mr. Finneran was responsible for sales and marketing of velvets, Jacquard
and dobbie product lines at Joan Fabrics Corporation.
Cynthia L. Gordan. Ms. Gordan has been employed by the Company since
March 1988 and has served as Vice President, Secretary, and General Counsel of
the Company since March 1989. Ms. Gordan is also responsible for the Company's
Risk Management, Investor Relations and Human Resources functions. From April
1986 to November 1987, Ms. Gordan served as a Senior Associate in the Corporate
Department of the Chicago law firm of Katten Muchin & Zavis. From November 1981
to April 1986, Ms. Gordan was employed by The General Electric Company where she
served
14
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first as the Vice President and General Counsel of General Electric's life,
property, and casualty insurance affiliates in Providence, Rhode Island,
and later as the strategic planner and acquisition specialist for a division of
General Electric Capital Corporation.
Paul J. Kelly. Mr. Kelly has served as Chief Financial Officer of the
Company since December 1989, and since November 1993 has also had responsibility
for working with industry and institutional analysts. From January 1988 to
December 1989, Mr. Kelly was the co-founder and President of International
Business Brokers and Consultants Ltd., a business broker and consulting firm.
From December 1977 to December 1987, Mr. Kelly served as Chief Financial Officer
of Ferranti Ocean Research Equipment, Inc., an international manufacturing
concern. From February 1973 to December 1977, he was a certified public
accountant with Arthur Andersen & Co.
Thomas Muzekari. Mr. Muzekari has served as Vice President - Marketing
since March 1996. From September 1989 until February 1996, Mr. Muzekari was the
Vice President - Marketing for Collins & Aikman's Velvet Division.
M. Beatrice Spires. Ms. Spires has been employed by the Company since
September 1995 and has served as Vice President - Styling and Design since March
1996. From September 1995 to March 1996, Ms. Spires served as Quaker's Director
of Design. From July 1992 to September 1995, Ms. Spires was Vice President -
Merchandising for Collins & Aikman's Velvet Division. From September 1991 to
July 1992, Ms. Spires was Merchandising Manager at Collins & Aikman.
J. Duncan Whitehead. Mr. Whitehead has served as Vice President -
Technology and Development, and Yarn Sales since August 1995. Mr. Whitehead
served as Vice President - Yarn Sales and Development from May 1990 to August
1995. From September 1989 to May 1990, Mr. Whitehead was the Vice President -
Sales and Marketing for the Company's Nortex Division. From July 1983 to
September 1989, Mr. Whitehead served as Vice President of Sales and Marketing
for Nortex International.
The Company's President, Secretary, and Treasurer are elected annually
by the Board at its first meeting following the annual meeting of stockholders.
All other executive officers hold office until their successors are chosen and
qualified.
15
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ITEM 2. PROPERTIES
PROPERTIES
Quaker is headquartered in Fall River, Massachusetts where it currently
has eight facilities, seven of which are used primarily for manufacturing and
warehousing purposes. The eighth facility houses the Company's executive,
administrative and design areas as well as certain manufacturing operations. The
Company has three distribution centers in the United States and one in Mexico.
The table below sets forth certain information relating to the Company's current
facilities:
<TABLE>
<CAPTION>
LOCATION STATUS PURPOSE BUILDING AREA(SF) OWNERSHIP
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Grinnell Street, Fall River.........Active Manufacturing 728,000 Owned
Quequechan Street, Fall River.......Active Manufacturing 244,000 Owned
Davol Street, Fall River............Active Offices/Warehouse 245,000 Owned
Ferry Street, Fall River............Active Manufacturing 193,000 Owned
Graham Road, Fall River.............Active Manufacturing 52,000 Leased(1)
Airport Road, Fall River............Active Manufacturing 28,000 Leased(2)
Fr. DeValles Blvd., Fall River......Active Warehouse 23,408 Leased(3)
Lewiston Street, Fall River.........Active Manufacturing 61,762 Leased(4)
Verona, Mississippi.................Active Distribution Center 20,000 Owned
City of Industry, California........Active Distribution Center 17,286 Leased(5)
Mexico City, Mexico.................Active Distribution Center 9,000 Leased(6)
High Point, North Carolina..........Active Distribution Center 8,500 Leased(7)
</TABLE>
(1) Lease expires July 31, 2002
(2) Lease expires October 22, 1999
(3) Lease expires December 15, 1998
(4) Lease expires March 29, 2000
(5) Lease expires October 1, 2001
(6) Lease expires February 5, 2000
(7) Lease expires July 31, 2001
The Company also maintains inventory at a public warehouse in
Roosendaal, Holland. Quaker has sales offices in Fall River, Massachusetts;
Mexico City, Mexico; Hickory and High Point, North Carolina; Chicago, Illinois;
Tupelo, Mississippi; and Los Angeles, California. All of the Company's sales
offices, except the one in Fall River, Massachusetts, are leased.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state, and
local laws and regulations pertaining to the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company's facilities are located in industrial areas and, therefore, there is
the possibility of incurring environmental liabilities as a result of historic
operations at the Company's sites. Environmental liability can extend to
previously owned or leased properties, properties owned by third parties, and
properties currently owned or leased by the Company. Environmental liabilities
can also be asserted by adjacent landowners or other third parties in toxic tort
litigation. In addition, under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and analogous
state statutes, liability can be imposed for the disposal of waste at sites
targeted for cleanup by federal and state regulatory authorities. Liability
under CERCLA is strict as well as joint and several. Further, certain of the
Company's manufacturing areas are subject to OSHA's "Comprehensive Cotton Dust
Standard." Environmental laws and
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regulations are subject to change in the future, and any failure by the Company
to comply with present or future laws or regulations could subject it to
future liabilities or interruption of production which could have a material
adverse effect on the Company. In addition, changes in environmental regulations
could restrict the Company's ability to expand its facilities or require the
Company to incur substantial unexpected other expenses to comply with such
regulations.
In particular, the Company is aware of soil and groundwater
contamination relating to the use of certain underground fuel oil storage tanks
at its Fall River facilities. The Company has notified the Commonwealth of
Massachusetts regarding these releases. The Company's ultimate clean-up costs
relating to these underground storage tanks cannot be predicted with certainty
at this time. In addition, during the fourth quarter of 1993 the Company removed
and encapsulated asbestos at two of its facilities and the Company has an
on-going asbestos management program in place to appropriately maintain the
asbestos that remains present at its facilities. At Quaker's former facility in
Claremont, New Hampshire, it has been determined that there is oil-contaminated
soil, as well as groundwater contamination, resulting from a leak during the
mid-1970s from an underground fuel storage tank. The Company has agreed to
indemnify the purchaser for clean-up costs subject to certain limitations. The
Company has also agreed to indemnify the purchaser of the Company's former
facility in Leominster, Massachusetts, for certain environmental contingencies.
The Company has accrued reserves for environmental matters based on
information presently available. Based on this information and the Company's
established reserves, the Company does not believe that these environmental
matters will have a material adverse effect on either the Company's financial
condition or results of operations. However, there can be no assurance that
these reserves will be adequate or that the costs associated with environmental
matters will not increase in the future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
legal proceedings incidental to its business, which, in the opinion of
management, are immaterial in amount or are expected to be covered by the
Company's insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the captions "Summary Quarterly
Financial Data," and "Liquidity and Capital Resources" on pages 31 and 29 to 30,
respectively, of Quaker's 1997 Annual Report, filed as Exhibit 13 hereto, is
incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data,"
on page 12 of Quaker's 1997 Annual Report, filed as Exhibit 13 hereto, is
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," on pages 26 to
30 of Quaker's 1997 Annual Report, filed as Exhibit 13 hereto, is incorporated
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the captions, "Consolidated Balance
Sheets," "Consolidated Statements of Income," "Consolidated Statements of
Changes in Stockholders' Equity," "Consolidated Statements of Cash Flows,"
"Summary Quarterly Financial Data," "Notes to Consolidated Financial
Statements," and "Report of Independent Public Accountants," on pages 13 to 25,
and 31 of Quaker's 1997 Annual Report, filed as Exhibit 13 hereto, is
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors of the Company required
by this item will be included in the Company's definitive proxy statement for
its 1998 Annual Meeting of Stockholders (the "Proxy Statement") to be filed
pursuant to Regulation 14A, and such information is incorporated herein by
reference. The information with respect to the executive officers of the Company
required by this item is set forth in Item 1A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K
(i) Financial Statements (incorporated by reference, see Item 8)
Consolidated Balance Sheets --January 3, 1998 and January 4, 1997
Consolidated Statements of Income -- For the years ended January 3, 1998
and January 4, 1997
Consolidated Statements of Changes in Stockholders' Equity -- For the
years ended January 3, 1998, January 4, 1997, and December 30,
1995
Consolidated Statements of Cash Flows -- For the years ended
January 3, 1998, January 4, 1997, and December 30, 1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(ii) Financial Statement Schedules
The following financial statement schedule of the Company
included herein should be read in conjunction with the audited
financial statements incorporated by reference in this Form 10-K.
Schedule II - Valuation and Qualifying Accounts
All other schedules for the Company are omitted because either
they are not applicable or the required information is shown in
the financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
3(i) - Certificate of Incorporation of the Company, as amended.(1)
3(ii) - By-laws of the Company.(1) 10.1 -Loan and Security
Agreement, dated as of October 31, 1990, between
the Company and Continental Bank N.A., as amended
by Amendments Nos. 1 through 9 thereto.(1)
10.2 - Securities Purchase Agreement, dated April 13, 1993, among
the Company, MLGA Fund II, L.P. and MLGAL Partners, as
amended by Amendment No. 1 thereto.(1)
10.3 - Subscription Agreement, dated March 12, 1993, among the
Company and MLGA Fund II, L.P., Nortex Holdings, Inc., QFC
Holdings Corporation, and Larry Liebenow.(1)
10.4 - Shareholders Agreement, dated March 12, 1993, by and among
the Company, Larry Liebenow, Ira Starr, and Sangwoo Ahn.(1)
10.5 - Employment Agreement, dated as of March 12, 1993, between
the Company and Larry A. Liebenow.(1)
10.6 - Director Indemnification Contract, dated October 18, 1989,
between the Company and Larry A. Liebenow.(1)
10.7 - Director Indemnification Contract, dated October 18, 1989,
between the Company and Roberto Pesaro.(1)
10.8 - Director Indemnification Contract, dated April 15, 1992,
between the Company and Samuel A. Plum.(1)
10.9 - Director Indemnification Contract, dated May 2, 1991,
between the Company and Andrea Gotti-Lega.(1)
10.10 - Severance Contract, dated August 15, 1988, between the
Company and Thomas J. Finneran.(1)
10.11 - Severance Contract, dated May 26, 1989, between the
Company and James Dulude.(1)
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10.12 - Severance Contract, dated December 1, 1988, between the
Company and Cynthia Gordan.(1)
10.13 - Equipment Financing Lease Agreement, dated
September 18, 1992, between QFR and United States Leasing
Corporation.(1)
10.14 - Equipment Financing Lease Agreement, dated September 29,
1992, between QFR and KeyCorp Leasing pursuant to a Notice
of Assignment from U.S. Leasing.(1)
10.15 - Equipment Financing Lease Agreement, dated February 16,
1989, between QFR and Key Financial Services, Inc.(1)
10.16 - Equipment Financing Lease Agreement, dated September 22,
1992, between QFR and Dana Commercial Credit Corporation
(Fleet National Bank).(1)
10.17 - Equipment Financing Lease Agreement, dated October 8,
1992, between QFR and Capital Associates International,
Inc.(1)
10.18 - Equipment Financing Loan Agreement, dated August 31, 1992,
between QFR and HCFS Business Equipment Corporation.(1)
10.19 - Equipment Financing Lease Agreement, dated September 13,
1991, between QFR and Sovran Leasing and Finance
Corp/NationsBanc Leasing Corp.(1)
10.20 - Equipment Financing Lease Agreement, dated December 18,
1990, between QFR and IBM Credit Corporation.(1)
10.21 - Equipment Financing Lease Agreement, dated May 5, 1993,
between QFR and The CIT Group.(1)
10.22 - Equipment Financing Lease Agreement, dated June 30, 1993,
between QFR and AT&T Commercial Finance Corporation.(1)
10.23 - Chicago, Illinois Showroom Lease, dated July 1, 1989,
between the Company and LaSalle National Bank, Trustee.(1)
10.24 - Hickory, North Carolina Showroom Lease, dated June 15, 1993,
between the Company and Hickory Furniture Mart, Inc.6
10.25 - High Point, North Carolina Showroom Lease, dated November 6,
1991, between the Company and Market Square Limited
Partnership.(1)
10.26 - Los Angeles, California Showroom Lease, dated September 23,
1992, between the Company and The L.A. Mart.(1)
10.27 - Tupelo, Mississippi Showroom Lease, dated December 14, 1992,
between the Company and Mississippi Furniture Market, Inc.6
10.28 - Mexico City, Mexico Warehouse Lease, dated June 6, 1993,
between Quaker Fabric Mexico, S.A. de C.V. and Irene Font
Byrom.(1)
10.29 - Licensing Agreement, dated May 17, 1990, between the
Company as Licensee and General Electric Company.(1)
10.30 - Licensing Agreement, dated September 24, 1990, between the
Company as Licensee and Amoco Fabrics and Fibers Company.(1)
10.31 - Software Licensing Agreement, dated October 29, 1987,
between the Company as Licensee and System Software
Associates.(1)
10.32 - Licensing Agreement, dated June 5, 1974, between the
Company and E.I. DuPont de Nemours & Company, Inc.(1)
10.33 - Licensing Agreement, dated October 17, 1988, between the
Company as Licensee and Monsanto Company.(1)
10.34 - Licensing Agreement, dated July 28, 1987, between the
Company as Licensee and Phillips Fibers Corporation.(1)
10.35 - Software Licensing Agreement, dated July 7, 1988, between
the Company as Licensee and Software 2000, Inc.(1)
10.36 - Licensing Agreement, dated February 1, 1977, between the
Company as Licensee and 3M.(1)
10.37 - Software Licensing Agreement, dated April 8, 1992, between
the Company as Licensee and Premenos Corporation.(1)
10.38 - Software Licensing Agreement, dated March 19, 1993,
between the Company as Licensee and Sophis U.S.A., Inc.(1)
10.39 - Quaker Fabric Corporation 1993 Stock Option Plan and Form of
Option Agreement thereunder.(1)
10.40 - Option to Purchase Common Stock issued to Nortex Holdings,
Inc., effective April 13, 1993.(1)
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10.41 - Amendment No. 1, dated as of October 25, 1993, to
Shareholders Agreement, dated March 12, 1993, by and among
the Company, Nortex Holdings, Inc., MLGA Fund II, L.P., MLGAL
Partners, W. Wallace McDowell, Jr., William Ughetta, and Ira
Starr.(1)
10.42 - Quaker Fabric Corporation Deferred Compensation Plan and
related Trust Agreement.(2)
10.43 - Form of Split Dollar Agreement with Senior Officers.(2)
10.44 - Credit Agreement, dated as of June 29, 1994, by and among
the Company, The First National Bank of Boston, and
Continental Bank, N.A.(3)
10.45 - Equipment Schedule No. 5, dated as of September 14, 1994,
to Master Lease Agreement, dated as of May 5, 1993, between
QFR and the CIT Group/Equipment Financing, Inc.(4)
10.46 - Commission and Sales Agreement, dated as of April 25, 1994,
between QFR and Quaker Fabric Foreign Sales Corporation.(4)
10.47 - Stock Option Agreement, dated as of July 28, 1995, between
the Company and Eriberto R. Scocimara.(5)
10.48 - Amended and Restated Credit Agreement, dated December 18,
1995, among the Company, QFR, Quaker Textile Corporation,
Quaker Fabric Mexico, S.A. de C.V., The First National Bank
of Boston, and Fleet National Bank.(5)
10.49 - Note Purchase and Private Shelf Agreement, dated December 18,
1995, among the Company, Prudential Insurance Company of
America, and Pruco Life Insurance Company.(5)
10.50 - Guarantee Agreement, dated as of December 18, 1995, among the
Company, The Prudential Insurance Company of America, and
Pruco Life Insurance Company.(5)
10.51 - Amendment Agreement No. 1, dated as of March 21, 1996, to
that certain Amended and Restated Credit Agreement, dated as
of December 18, 1995, among the Company, QFR, Quaker Textile
Corporation, Quaker Fabric Mexico, S.A. de C.V., The First
National Bank of Boston, and Fleet National Bank.(5)
10.52 - 1996 Stock Option Plan for Key Employees of QFR, dated April
26, 1996.(6)
10.53 - Amendment Agreement No. 2, dated as of October 21, 1996,
to that certain Amended and Restated Credit Agreement, dated
as of December 18, 1995, among the Company, QFR, Quaker
Textile Corporation, Quaker Fabric Mexico, S.A. de C.V., The
First National Bank of Boston, and Fleet National Bank.(6)
10.54 - Software License Agreement dated October 31, 1996 between the
Company and System Software Associates Inc.(6)
10.55 - Medical Expense Reimbursement Plan.(6)
10.56 - High Point, North Carolina Warehouse Lease, dated April 1,
1996 between QFR and C&M Investments of High Point, Inc.(6)
10.57 - Standard Industrial Lease Agreement, dated May 10, 1996,
between CIIF Associates II Limited Partnership and QFR.(6)
10.58 - Rights Agreement dated March 4, 1997 between the Company
and The First National Bank of Boston relating to the
Company's Stockholder Rights Plan.(6)
10.59 - 1997 Stock Option Plan.(6)
10.60 - Amendment, dated as of February 24, 1997, to Employment
Agreement between the Company and Larry A. Liebenow.(6)
10.61 - Amendment No. 4, dated as of December 19, 1997 to the Amended
and Restated Credit Agreement, dated as of December 18,
1995, by and among QFR, Quaker Textile Corp., Quaker Fabric
Mexico, S.A. de C.V., the Company, BankBoston and Fleet
National Bank.
10.62 - Employee Stock Purchase Plan, dated as of October 1, 1997.
10.63 - Note Purchase Agreement dated October 10, 1997 among QFR,
The Prudential Insurance Company of America, and Pruco Life
Insurance Company.
10.64 - Guaranty Agreement, dated as of October 10, 1997, by the
Company in favor of the Prudential Insurance Company of
America and PrucoLife Insurance Company.
10.65 - Commercial Lease between QFR and Clocktower Enterprises,
Inc., dated as of August 1, 1997.
10.66 - Lease between Robbins Manufacturing Co., Inc. and QFR, dated
as of October 22, 1997.
10.67 - Lease between Tilly Realty Associates and QFR, dated as of
December 9, 1997.
10.68 - Lease between 1 Lewiston Street, LLC and QFR, dated as of
March 16, 1998.
13 - 1997 annual report to security holders. Included in this
exhibit are those portions of the annual report to security
holders which are expressly incorporated by reference in this
filing.
21 - Subsidiaries.(5)
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23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
- --------------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-69002, initially filed with the Securities and
Exchange Commission on September 17, 1993, as amended.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 2, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 333-21957, initially filed with the Securities
and Exchange Commission on February 25, 1997, as amended.
23
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 1998.
QUAKER FABRIC CORPORATION
By /s/ Larry A. Liebenow
----------------------
LARRY A. LIEBENOW
CHIEF EXECUTIVE OFFICER,
PRESIDENT, AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Larry A. Liebenow Chief Executive Officer, March 30, 1998
- --------------------- President, and Director
(Larry A. Liebenow)
/s/ Paul J. Kelly Vice President -- Finance (Chief March 30, 1998
- ----------------- Financial and Accounting
(Paul J. Kelly) Officer)
/s/ Sangwoo Ahn Chairman of the Board March 30, 1998
- ---------------
(Sangwoo Ahn)
/s/ Jerry I. Porras Director March 30, 1998
- -------------------
(Jerry I. Porras)
/s/ Eriberto R. Scocimara Director March 30, 1998
- -------------------------
(Eriberto R. Scocimara)
</TABLE>
24
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS
To Quaker Fabric Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Quaker Fabric
Corporation and subsidiaries' Annual Report to Shareholders incorporated by
reference in this Form 10-K and have issued our report thereon dated
February 10, 1998. Our audit was made for the purpose of forming an opinion on
those financial statements taken as a whole. The schedule listed in the index in
Item 14(a) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 1998
<PAGE>
<PAGE>
SCHEDULE II
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 30, 1995, January 4, 1997 and January 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Balance at Provisions Deductions Balance
Beginning Charged to from at end
Descriptions of Period Operations Allowances of Period
------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 30, 1995
Bad Debt Reserve $1,184 $1,878 ($1,706) $1,356
Sales Returns & Allowances Reserve 730 4,218 (4,319) 629
Year Ended January 4, 1997
Bad Debt Reserve $1,356 $921 ($1,002) $1,275
Sales Returns & Allowances Reserve 629 4,923 (4,775) 777
Year Ended January 3, 1998
Bad Debt Reserve $1,275 $55 ($425) $905
Sales Returns & Allowances Reserve 777 4,256 (4,459) 574
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.............................. 'SS'
The trademark symbol shall be expressed as............................ 'tm'
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
Quaker Fabric Corporation is a leading manufacturer of woven upholstery fabrics
for residential furniture markets in the United States and abroad. The company's
broad product line includes over 3,000 individual patterns, and Quaker's
manufacturing operations are vertically integrated, beginning with the
production of yarns for use in the manufacture of its fabrics and continuing
through fabric weaving and finishing. The company also sells a portion of the
yarn it produces to manufacturers of home furnishings products and apparel
throughout the United States.
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
------------------------------------------
Fiscal Fiscal Percent
1997 1996 Change
-------------------------------------------
<S> <C> <C> <C>
Net sales ......................... $219,174 $198,856 10.2%
Operating income .................. 19,462 16,948 14.8%
Net income ........................ 11,113 8,562 29.8%
Earnings per common share-diluted.. 1.28 1.03 24.3%
Working capital ................... 42,634 32,620 30.7%
Funded debt ....................... 54,934 44,718 22.8%
Shareholders'equity ............... 82,313 66,572 23.6%
</TABLE>
[GRAPH]
1
<PAGE>
<PAGE>
TO OUR SHAREHOLDERS
Our 1997 financial performance reflects significant gains over 1996. Net sales
increased to almost $220.0 million, up 10.2%. Operating income increased to
$19.5 million, up 14.8%. Net income increased to $11.1 million, up 29.8%.
Diluted earnings per share increased to $1.28, up 24.3%. And basic earnings per
share increased to $1.34, up 25.2%.
In addition to record revenues and net income, 1997 was a year of
important accomplishments and important investments in the future. We
significantly strengthened our product leadership position, developed and
successfully introduced our new line of Quaker Plush'tm' fabrics, achieved ISO
9001 certification on a company-wide basis, and absorbed a significant portion
of the front-end costs of two critically important ongoing strategic initiatives
- -- penetration of the office furniture market and implementation of an
aggressive, two-year, $66.0 million capacity expansion program needed to respond
to strong and growing demand for our products. This year promises to be equally
significant as we continue to build Quaker's long-term value by making the most
of the extraordinary opportunities we have created.
From a product line and distribution standpoint, we are in excellent
shape. Record order rates for our fabrics and yarns during the second half of
last year, and continuing into this year, indicate that we are offering both our
domestic and export customers precisely what they are looking for, when it comes
to product styling and design. The uniqueness of our new Quaker Plush products
has made them an enormous success. And all of our fabrics, from our Quaker'tm'
label products to our better-end Whitaker Collection'tm' fabrics, are selling
well.
Unprecedented demand for our products confirms our status as the
industry standard setter when it comes to product innovation, but it has
presented two major challenges for us. First, capacity constraints have caused
our production backlog to increase by more than 80% when compared to this time
last year. As a result, our delivery lead times are now considerably longer than
we like to see them. While our customers have evidenced a willingness to make
the "product/delivery tradeoff" required over the short-term, moving the new
equipment included in our capacity expansion plan into production as quickly as
our equipment suppliers can manufacture it has become our number one priority.
Second, the costs associated with building our capacity and keeping our
customers as happy as possible in the meantime have put, and are continuing to
put, pressure on our margins. Although still high by industry standards, our
margins declined during the second half of last year -- with the cost of
preparing for the arrival of new equipment, heavy hiring, training and overtime
costs, and some deterioration in our manufacturing efficiencies as our newest
employees moved through their learning curves all taking their toll. We
anticipate that these same factors, as well as the cost of temporarily
outsourcing a small amount of our manufacturing requirements to provide better
service to our customers, will continue to put pressure on our profitability
indices over the near term.
Implementation of our capacity expansion plan began early last year and
is essentially on schedule. This program is the largest in the history of the
company and the first time we have had to not only add a significant number of
new people to our organization but also fold
2
<PAGE>
<PAGE>
additional facilities into our operations. Most of the yarn manufacturing
equipment included in the plan was in place by year end -- restoring the balance
for the foreseeable future between our yarn manufacturing and fabric weaving
areas. And the critical weaving equipment needed to significantly ramp up our
fabric production rates began arriving in January of this year and will all be
in production by the end of the first half.
During the balance of this year, in addition to building our production
capacity, we will continue to focus on consolidating our leadership position in
the new product design and development area, further strengthening our marketing
programs and domestic and international distribution systems, and improving our
operating and financial performance.
In addition, this July, we will be converting to a new Enterprise
Resource Planning system which will both provide additional computerized support
to our operations and address the Year 2000 issue. This new software system, in
combination with our ISO 9001 program, will play an important role in the
overall effort we are making to reduce our delivery lead times, achieve our
productivity and quality goals and forge more effective partnerships with our
customers and suppliers.
Temporary growing pains aside, we have made significant improvements in
the company's financial performance and are building an integrated, cohesive
organization with the vision needed to see new business opportunities -- and the
skills needed to capitalize on them. Given the enormous opportunities our
products and distribution systems have created for us -- around the world -- we
believe we must continue to move aggressively -- to seize the moment. And that
is precisely what we are doing.
Sincerely,
/s/ Larry A. Liebenow /s/ Sangwoo Ahn
- ---------------------------------- ------------------------
Larry A. Liebenow Sangwoo Ahn
President and Chief Executive Officer Chairman of the Board
3
<PAGE>
<PAGE>
THE COMPANY
Quaker makes upholstery fabric -- exciting and different upholstery fabric. In
fact, we are one of the largest and most successful upholstery fabric
manufacturers in the United States. We are also the world's largest producer of
chenille yarn -- a soft, velvet-like yarn which has become increasingly
important in our industry over the past several years -- largely because of how
we have used it to develop and style our fabrics. Our operations are vertically
integrated -- from specialty yarn manufacturing through fabric weaving and
finishing -- providing us with important design, cost and delivery advantages.
Last year, we sold almost $220.0 million of fabric and yarn -- giving us a
compound annual growth rate of 10.3% over the last four years.
We have positioned ourselves as a supplier of choice to virtually every
significant furniture manufacturer in America. Our export operations are also a
key component of our strategy, and over 20% of our 1997 fabric sales were made
outside the United States. We've invested more than $66.0 million in Quaker's
manufacturing base over the past five years to support our growth -- respond to
strong demand for our products -- and reduce our manufacturing costs, giving us
one of the most modern, vertically integrated manufacturing operations in the
industry.
Our strategy has enabled us to more than double our sales between 1991
and 1997 -- achieve one of the highest gross margins in this business -- and
generate strong cash flows. But, most important, the Quaker story is about
growth -- the company's dramatic growth over the past few years -- and the new
markets we have entered, the new products we have introduced and the worldwide
distribution system we have developed which we believe will result in further
growth for us in the future.
PRODUCTS
Product drives our business, and Jacquard fabrics form the core of our product
line. If you look closely at the photographs included in this annual report,
you can see that the detailed design features of our fabrics are woven right
into them. This is the distinguishing feature of Jacquards. Every one of
our Jacquard designs is unique and copyrighted. That's why our fabrics are not
commodities and why our copyrights are one of our most important assets.
Our product line is very broad. We have over 3,000 fabric patterns in
our line -- covering all of the important price points and styles, including a
significant number of plain fabrics to complement our Jacquard designs -- and we
introduce over 700 new fabric designs to the market every year.
Our Whitaker Collection'tm' fabrics offer our higher-end customers a
differentiated product. Some of our Whitaker Collection fabrics feature our
Ankyra'tm' chenille yarns. These yarns represent just one of the advantages of
vertical integration. With them, we've been able to construct durable,
abrasion-resistant chenille fabrics -- opening up new opportunities for us --
and for our customers.
4
<PAGE>
<PAGE>
[PHOTO PAGE]
5
<PAGE>
<PAGE>
[PHOTO PAGE]
6
<PAGE>
<PAGE>
THE COMPANY (CONTINUED)
The new line of Quaker Plush'tm' fabrics we introduced last year also
brought something distinctly different to the market -- affordable fabrics which
were rich in appearance -- durable -- and extraordinarily soft. Their uniqueness
has resulted in enormous demand.
The innovative, specialty yarns we design and make contribute to the
distinctive look of our products, and we produce almost all of the specialty
yarns we need to weave our fabrics. In addition, we have taken our yarn
expertise and turned it into a business of its own by marketing our specialty
yarns to manufacturers of home furnishings and apparel products throughout the
United States. Like our fabrics, our yarns compete primarily on their styling
and performance, contributing to our strong margin and profit performance.
VERTICAL INTEGRATION
Vertical integration plays a major role in our ability to maintain our status as
a design leader on the fabric side of our business. And using our own specialty
yarns to produce our fabrics provides us with cost and delivery advantages as
well.
The company is also vertically integrated in terms of its fabric
finishing operations. Finishing our own fabrics not only allows us to control
the quality of the process -- but also provides us with additional design, cost
and delivery advantages. Our Quaker Plush products are a good example of this.
The unique look and softer feel of these products come from the technical
expertise we brought to bear on the development of a special finishing process
for them.
CUSTOMERS
Our long list of customers reflects who we are as a company and the work we have
done to identify new markets for our products. Our customer base includes
virtually every significant domestic furniture manufacturer. We have also made a
commitment to the international market -- and a significant part of our growth
over the past few years is attributable to the work we've done to make Quaker a
truly global player.
CUSTOMER SERVICE AND PRODUCT QUALITY
Our customers want a total package from us that includes not only outstanding
designs but also quality products and superior service. One of the things we do
for our key customers is create special designs exclusively for them. We also
have a comprehensive quality control program in place to build quality directly
into our products -- and, last December, we achieved ISO 9001 certification on a
company-wide basis, from new product design to product shipment.
Prompt delivery is important to our customers. They can have immediate
delivery on any of the products we have in inventory at our distribution centers
in North Carolina, Mississippi, California, and Mexico. Our objective is to get
the rest of our products to our customers within four to six weeks. However,
capacity constraints and unprecedented
7
<PAGE>
<PAGE>
THE COMPANY (CONTINUED)
demand for our products have caused our production backlog to increase to record
levels, and our delivery lead times are now longer than we like to see them. We
are working to address this problem by moving the new equipment included in our
capacity expansion plan into production as quickly as our equipment suppliers
can deliver it to us.
COMPETITIVE STRENGTHS
Product excellence and vertical integration are Quaker's two most important
competitive strengths. It is our expertise in the new product development area
- -- including our technical expertise -- which has allowed us to differentiate
our products -- develop the broad product line needed to be a full service
supplier to our customers -- and grow faster than our competitors.
But our vertically integrated operations are also absolutely critical.
They give our designers unique tools to style with. And our modern, efficient
manufacturing base gives us the productivity levels and unit cost advantages we
need to offer our products at competitive prices.
Each of these strengths is just as important to us in the international
market as it is in the United States -- and we've built a worldwide distribution
system over the last several years to take full advantage of that. And all of
these strengths, taken together, make us a superior performer in this industry
- -- have resulted in industry-leading margins and value to our customers in the
past -- and promise exciting growth opportunities for us in the future.
GROWTH STRATEGY
Quaker's growth strategy is intended to produce sustained, superior growth over
the long term by taking full advantage of our competitive strengths. The key
components of our strategy include:
INCREASING SALES TO THE MIDDLE- TO BETTER-END SEGMENT In 1990, we decided
to begin designing fabrics for the middle- to better-end of the market,
without giving up our strong position with our high volume, promotional-end
customers. Our objective was to reposition Quaker as a full service
supplier to the entire domestic residential fabric market. Sales of
Quaker's middle- to better-end fabrics have increased rapidly, from about
$66.0 million in 1992 -- to almost $133.0 million last year, for a compound
annual growth rate of almost 15%. Without neglecting our promotional-end
customers -- who continue to demand large volumes of "fashion forward"
Quaker fabrics at value prices -- the new products we have introduced for
the middle- to better-end of the market have moved us into a leadership
position in that segment as well.
EXPANDING INTERNATIONAL SALES Just as we did with the expansion of our
sales to the middle- and better-end of the market, we decided to leverage
our design and manufacturing strengths to begin penetrating promising
markets around the globe. The advantages were clear -- diversifying market
risks and gaining the opportunity for increased
8
<PAGE>
<PAGE>
THE COMPANY (CONTINUED)
sales, at higher margins. Last year we sold almost $40.0 million of fabric
outside the United States, and we remain convinced that the export market
offers significant revenue and profit potential for us.
CAPITALIZING ON CASUAL FURNITURE GROWTH Today's consumers are looking for
soft, comfortable, livable furniture -- resulting in tremendous growth in
casual furniture sales over the past few years. Quaker is well positioned
to benefit from the rapid growth of this furniture segment -- where soft,
durable, distinctive fabrics, such as Quaker's Ankyra and Quaker Plush
chenilles, are in strong demand.
PENETRATING RELATED MARKETS The superior styling and performance of our
fabrics and yarns provide opportunities to penetrate markets closely
related to our core residential fabric business. Our Whitaker Collection
and Quaker Plush products have been well received in the jobber market. The
company's Ankyra yarns are opening up exciting new opportunities for us in
the office furniture market, where durability and abrasion resistance are
critical. And there are other markets out there that are a natural fit for
a company like Quaker.
GROWING SPECIALTY YARN SALES We also plan to continue growing our specialty
yarn business. Our outside yarn sales have increased from about $10.0
million in 1993 to almost $33.0 million last year, a CAGR of almost 35%.
We're convinced that our position as the largest chenille yarn producer in
the world, combined with our broad range of novelty spun yarns, will enable
us to continue developing new markets and applications for all of our yarn
products.
CONSIDERING ACQUISITION OPPORTUNITIES Although our growth to date has been
the result of internal initiatives, we are alert to acquisition
opportunities which would either support our new market development
objectives -- or bring some unique and complementary product, manufacturing
or technical capability to Quaker.
TAKING CARE OF TODAY -- PREPARING FOR TOMORROW
Our operating strategy last year was to take care of today and prepare for
tomorrow as efficiently and profitably as possible. "Taking care of today" meant
that we needed to make and ship as much product as we could to respond to order
rates that were more than 15% ahead of 1996 during 1997 as a whole -- more than
40% ahead during the fourth quarter. And we needed to move the new manufacturing
equipment included in our capacity expansion plan into production fast -- to
support our long-term growth. Our challenge this year is to capture the
opportunities our strong product line and worldwide distribution system have
given us by using our increased capacity to generate additional sales and
profits -- because we believe no other company in our industry today is as well
positioned as Quaker to continue growing and prosperi ng over the long-term.
9
<PAGE>
<PAGE>
[PHOTO PAGE]
10
<PAGE>
<PAGE>
[PHOTO PAGE]
11
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share and per yard data)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
The following table sets forth certain consolidated financial and operating data
of the Company for the periods indicated, which data has been derived from the
Consolidated Financial Statements of the Company and the Notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants. This
selected financial and operating data should be read in conjunction with the
Consolidated Financial Statements, the Notes thereto and the other financial
information included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------
January 3, January 4, December 30, December 31, January 1,
1998 1997(1) 1995 1994 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ..................................... $ 219,174 $ 198,856 $ 173,487 $ 180,842 $ 147,867
Cost of products sold ......................... 167,401 152,787 137,083 133,168 110,753
--------------------------------------------------------------------
Gross margin .................................. 51,773 46,069 36,404 47,674 37,114
Selling, general and
administrative expenses...................... 32,311 29,121 26,176 27,560 22,292
--------------------------------------------------------------------
Operating income .............................. 19,462 16,948 10,228 20,114 14,822
Interest expense, net ......................... 3,700 4,092 3,898 3,863 4,936
Other expenses, net ........................... 65 77 98 34 299
--------------------------------------------------------------------
Income before provision
for income taxes and
extraordinary item .......................... 15,697 12,779 6,232 16,217 9,587
Provision for income taxes .................... 4,584 4,217 712 6,691 4,218
--------------------------------------------------------------------
Income before
extraordinary item .......................... 11,113 8,562 5,520 9,526 5,369
Extraordinary item: loss on
extinguishment of debt ...................... -- -- -- -- (2,550)
Net income .................................... 11,113 8,562 5,520 9,526 2,819
Preferred stock dividends ..................... -- -- -- -- 70
--------------------------------------------------------------------
Net income applicable to
common stock ................................ $ 11,113 $ 8,562 $ 5,520 $ 9,526 $ 2,749
Earnings per common share
before extraordinary item(2)--diluted ....... $ 1.28 $ 1.03 $ 0.67 $ 1.15 $ 0.75
Extraordinary item ............................ -- -- -- -- (0.30)
--------------------------------------------------------------------
Earnings per common share(2)--diluted ......... $ 1.28 $ 1.03 $ 0.67 $ 1.15 $ 0.45
--------------------------------------------------------------------
Weighted average shares outstanding(2)......... 8,681 8,332 8,293 8,301 8,536
--------------------------------------------------------------------
Earnings per common share--basic(2)............ $ 1.34 $ 1.07 $ 0.69 $ 1.19 $ 0.34
--------------------------------------------------------------------
Weighted average shares
outstanding-basic(2)........................... 8,274 8,021 8,021 8,010 8,010
--------------------------------------------------------------------
ELECTED OPERATING DATA:
EBITDA(3)...................................... $ 28,479 $ 24,569 $ 16,821 $ 25,920 $ 19,710
Depreciation and amortization ................. 8,511 7,437 6,462 5,603 5,019
Net capital expenditures(4).................... 25,484 11,979 13,165 18,727 10,558
Unit volume (in yards) ........................ 44,976 43,552 40,761 41,641 36,289
Average gross sales price per yard ............ $ 4.23 $ 4.05 $ 3.88 $ 4.06 $ 3.87
BALANCE SHEET DATA:
Working capital ............................... $ 42,634 $ 32,620 $ 30,780 $ 30,994 $ 25,915
Total assets .................................. 178,088 148,832 138,117 130,476 109,908
Long-term debt, net of current
portion, and capital leases .................. 52,772 42,235 45,118 43,845 35,172
Stockholders' equity .......................... 82,313 66,572 57,850 52,589 43,574
</TABLE>
(1) The fiscal year ended January 4, 1997 was a 53-week period.
(2) Earnings per share for Fiscal 1994, 1995, 1996 and 1997 is computed using
the weighted average number of common shares and common share equivalents
outstanding during the year. Earnings per share for Fiscal 1993 gives effect to
the 1993 Recapitalization and the use of proceeds from the 1993 Offering as if
both events had occurred at the beginning of 1993.
(3) Represents income from continuing operations before extraordinary items plus
interest, taxes, depreciation, amortization and other non-cash expenses.
Although the Company has measured EBITDA consistently between the periods
presented, EBITDA as a measure of liquidity is not governed by GAAP and, as
such, may not be comparable to other similarly titled measures of other
companies. The Company believes that EBITDA, while providing useful information,
should not be considered in isolation or as an alternative to either (i)
operating income determined in accordance with GAAP as an indicator of operating
performance or (ii) cash flows from operating activities determined in
accordance with GAAP as a measure of liquidity.
(4) Net capital expenditures reflect assets acquired by purchase and capital
lease.
12
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
January 3, January 4,
1998 1997
--------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash ..................................................................... $ 234 $ 385
Accounts receivable, less allowances of $1,479 and $2,052 at
January 3, 1998 and January 4, 1997, respectively,
for doubtful accounts and sales returns and allowances ................ 32,996 26,261
Inventories .............................................................. 32,176 26,957
Prepaid income taxes ..................................................... 25 694
Prepaid expenses and other current assets ................................ 4,688 3,617
--------------------------
Total current assets ................................................. 70,119 57,914
Property, plant and equipment, net of depreciation and amortization ............ 101,307 84,045
Other assets:
Goodwill, net of amortization ............................................ 6,204 6,397
Deferred financing costs ................................................. 251 322
Other assets ............................................................. 207 154
--------------------------
Total assets ......................................................... $ 178,088 $ 148,832
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt .................................................. $ 995 $ 951
Current portion of capital lease obligations ............................. 1,167 1,532
Accounts payable ......................................................... 18,203 14,384
Accrued expenses and taxes ............................................... 7,120 8,427
--------------------------
Total current liabilities ............................................ 27,485 25,294
Long-term debt, less current portion ........................................... 47,436 35,731
Capital lease obligations, less current portion ................................ 5,336 6,504
Deferred income taxes .......................................................... 13,771 11,649
Other long-term liabilities .................................................... 1,747 3,082
Commitments and contingencies
Redeemable preferred stock:
Series A convertible, $.01 par value per share, liquidation
preference $1,000 per share, 50,000 shares authorized, none issued -- --
Stockholders' equity:
Common stock, $.01 par value per share, 20,000,000 shares authorized;
8,400,684 and 8,021,097 shares issued and outstanding at January 3
1998 and January 4, 1997, respectively ..................... 84 80
Additional paid-in capital ............................................... 46,572 41,948
Retained earnings ........................................................ 37,072 25,959
Cumulative translation adjustment ........................................ (1,415) (1,415)
--------------------------
Total stockholders' equity ........................................ 82,313 66,572
--------------------------
Total liabilities and stockholders' equity ........................ $ 178,088 $ 148,832
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------
January 3, January 4, December 30,
1998 1997 1995
-----------------------------------
<S> <C> <C> <C>
Net sales ...................................................... $219,174 $198,856 $173,487
Cost of products sold .......................................... 167,401 152,787 137,083
-----------------------------------
Gross margin ................................................... 51,773 46,069 36,404
Selling, general and administrative expenses ................... 32,311 29,121 26,176
-----------------------------------
Operating income ............................................... 19,462 16,948 10,228
Other expenses:
Interest expense, net ........................................ 3,700 4,092 3,898
Other, net ................................................... 65 77 98
-----------------------------------
Income before provision for income taxes ....................... 15,697 12,779 6,232
Provision for income taxes ..................................... 4,584 4,217 712
-----------------------------------
Net income ..................................................... 11,113 8,562 5,520
-----------------------------------
Earnings per common share - basic .............................. $ 1.34 $ 1.07 $ 0.69
-----------------------------------
Earnings per common share - diluted ............................ $ 1.28 $ 1.03 $ 0.67
-----------------------------------
Weighted average shares outstanding - basic .................... 8,274 8,021 8,021
-----------------------------------
Weighted average shares outstanding - diluted .................. 8,681 8,332 8,293
-----------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional Cumulative Total
Common Paid-in Retained Translation Stockholders'
Stock Capital Earnings Adjustment Equity
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .................... $ 80 $41,380 $11,877 (748) $ 52,589
Stock option compensation expense ....... -- 229 -- -- 229
Net income .............................. -- -- 5,520 -- 5,520
Issuance of 10,618 shares of common stock
under stock option plan ......... -- 78 -- -- 78
Foreign currency translation adjustment . -- -- -- (566) (566)
--------------------------------------------------------------
Balance, December 30, 1995 .................... $ 80 $41,687 $17,397 $ (1,314) $ 57,850)
Stock option compensation expense ....... -- 261 -- -- 261
Net income .............................. -- -- 8,562 -- 8,562
Foreign currency translation adjustment . -- -- -- (101) (101)
--------------------------------------------------------------
Balance, January 4, 1997 ...................... $ 80 $41,948 $25,959 $(1,415) $ 66,572
Stock option compensation expense ....... -- 571 -- -- 571
Net income .............................. -- -- 11,113 -- 11,113
Proceeds from sale of 300,000 shares
of common stock, net of expenses....... 3 3,264 -- -- 3,267
Proceeds from stock options exercised,
including tax benefits ............... 1 789 -- -- 790
--------------------------------------------------------------
BALANCE, JANUARY 3, 1998 ...................... $ 84 $46,572 $37,072 $(1,415) $ 82,313
===============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
January 3, January 4, December 30,
1998 1997 1995
------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $11,113 $8,562 $ 5,520
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization .................................. 8,511 7,437 6,462
Stock option compensation expense .............................. 571 261 229
Deferred income taxes .......................................... 1,570 1,134 (200)
Changes in operating assets and liabilities--
Accounts receivable ............................................ (6,735) (2,050) 1,398
Inventories .................................................... (5,219) (4,581) (871)
Prepaid expenses and other current assets ...................... (455) 657 (1,374)
Accounts payable and accrued expenses .......................... 2,512 4,078 1,158
Deferred income taxes .......................................... 552 (8) (53)
Other long-term liabilities .................................... (1,335) (684) (245)
------------------------------------------------
Net cash provided by operating activities ................ 11,085 14,806 12,024
------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment ....................... (25,484) (11,979) (13,165)
Sale of equipment ................................................ -- -- 212
------------------------------------------------
Net cash used for investing activities ................... (25,484) (11,979) (12,953)
------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of short-term and long-term debt .......... 45,000 -- 34,500
Repayments of debt ............................................... (33,251) (1,278) (31,912)
Repayments of capital leases ..................................... (1,533) (1,249) (1,171)
Capitalization of financing costs ................................ (25) (14) (135)
Proceeds from issuance of common stock, net of
offering expenses ............................................. 3,267 -- --
Proceeds from exercise of common stock options ................... 790 -- 78
------------------------------------------------
Net cash provided (used) by financing activities ......... 14,248 (2,541) 1,360
Effect of exchange rates on cash ....................................... -- (101) (566)
------------------------------------------------
Net increase (decrease) in cash and cash equivalents ................... (151) 185 (135)
Cash and cash equivalents, beginning of period ......................... 385 200 335
------------------------------------------------
Cash and cash equivalents, end of period ............................... $ 234 $ 385 $ 200
================================================
Supplemental disclosure of cash flow information:
Cash paid for--
Interest ................................................... $ 3,108 $ 3,916 $ 4,043
Income taxes ............................................... $ 3,648 $ 829 $ 1,881
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
1. OPERATIONS
Quaker Fabric Corporation and subsidiaries (the "Company" or "Quaker") designs,
manufactures and markets woven upholstery fabrics for residential furniture
markets and specialty yarns for use in the production of its own fabrics and for
sale to manufacturers of home furnishings and other products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Quaker Fabric Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
(B) FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest to January 1 of each
year. The fiscal years ended January 3, 1998 and December 30, 1995 contained 52
weeks while the fiscal year ended January 4, 1997 contained 53 weeks.
(C) INVENTORIES
Inventories are stated at the lower of cost or market and include materials,
labor and overhead. Cost is determined by the last-in, first-out (LIFO) method.
Inventories consist of the following at January 3, 1998 and January 4, 1997:
<TABLE>
<CAPTION>
January 3, January 4,
1998 1997
-----------------------
<S> <C> <C>
Raw materials ............ $14,430 $11,127
Work-in-process .......... 9,917 8,421
Finished goods ........... 8,092 7,500
-----------------------
Inventory at FIFO....... 32,439 27,048
LIFO reserve.............. 263 91
-----------------------
Inventory at LIFO....... $32,176 $26,957
=======================
</TABLE>
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides for
depreciation on property and equipment on a straight-line basis over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements............ 32-39 years
Machinery and equipment............... 3-20 years
Furniture and fixtures................ 10 years
Motor vehicles ....................... 4-5 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated life of the assets or the remaining lease term.
(E) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired. Goodwill is amortized on a straight-line basis
over 40 years. Accumulated amortization is $1,507 and $1,314 at January 3, 1998
and January 4, 1997, respectively. Amortization expense was approximately $193
for both years. The Company's policy is to evaluate annually whether the useful
life of goodwill should be revised or whether the remaining balance has been
impaired. When evaluating impairment, the Company uses an estimate of future
operating income over the remaining goodwill life to measure whether the
goodwill is recoverable.
(F) INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
(G) DEFERRED FINANCING COSTS
Financing costs related to certain loans and capital leases have been
capitalized and are being amortized over the life of the related loan or capital
lease. Accumulated amortization was $409 and $313 as of January 3, 1998 and
January 4, 1997, respectively.
17
<PAGE>
<PAGE>
(H) EARNINGS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," effective December 15, 1997. Basic income per common
share is computed by dividing net income by the weighted average number of
common shares outstanding during the period. For diluted income per share, the
denominator also includes dilutive outstanding stock options determined using
the treasury stock method. The following table reconciles weighted average
common shares outstanding to weighted average shares outstanding and dilutive
potential common shares.
<TABLE>
<CAPTION>
-----------------------------------------
January 3, January 4, December 30,
1998 1997 1995
-----------------------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding ....... 8,274 8,021 8,021
Dilutive potential common shares ................. 407 311 272
-----------------------------------------
Weighted average common shares outstanding
and dilutive potential common shares ............ 8,681 8,332 8,293
-----------------------------------------
</TABLE>
(I) FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's Mexican operations are translated at
period-end exchange rates, and statement of income accounts are translated at
weighted average exchange rates. Prior to 1997, the resulting translation
adjustments are included in the consolidated balance sheet as a separate
component of equity, "Cumulative Translation Adjustment," and foreign currency
transaction gains and losses are included in the consolidated statements of
income. In 1997, Mexico was designated a "highly inflationary country" and
accordingly, the Company recorded translation gains and losses in the income
statement rather than as a separate component of equity. In accordance with SFAS
No. 52, Foreign Currency Translation, the translation adjustments for periods
prior to Fiscal 1997 remain as a separate component of equity.
(J) IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the realizability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." Based on its review, the
Company does not believe that any material impairment of its long-lived assets
has occurred.
(K) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the reporting periods.
Operating results in the future could vary from the amounts derived from
management's estimates and assumptions.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and cash equivalents,
accounts receivable, current maturities of long term debt, accounts payable, and
long term debt. The carrying amount of these financial instruments as of January
3, 1998 approximates fair value due to the short term nature and terms of these
instruments.
(M) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with the presentation of the Fiscal 1997 Financial
Statements.
18
<PAGE>
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 3, January 4,
1998 1997
----------------------
<S> <C> <C>
Land ................................................. $ 236 $ 236
Buildings and improvements ........................... 18,408 17,559
Leasehold improvements ............................... 485 309
Machinery and equipment .............................. 112,927 94,541
Furniture and fixtures ............................... 1,428 1,292
Motor vehicles ....................................... 331 330
Construction in progress ............................. 5,201 1,899
----------------------
139,016 116,166
Less-- Accumulated depreciation and amortization ..... 37,709 32,121
----------------------
$101,307 $ 84,045
======================
</TABLE>
Included in machinery and equipment is equipment under capital lease of $11,419
as of January 3, 1998 and $12,644 as of January 4, 1997. The Company is
depreciating the equipment over economic useful lives of 15 to 20 years, which
is greater than the lease terms, because the Company intends to exercise its
option to purchase the equipment at the end of the initial lease terms at fair
market value.
4. ACCRUED EXPENSES AND TAXES
Accrued expenses and taxes consisted of the following:
<TABLE>
<CAPTION>
January 3, January 4,
1998 1997
----------------------
<S> <C> <C>
Accrued workers' compensation .................... $1,300 $1,500
Accrued medical insurance ........................ 1,492 1,766
Accrued other, including taxes ................... 4,328 5,161
----------------------
$7,120 $8,427
======================
</TABLE>
5. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
January 3, January 4,
1998 1997
-----------------------
<C> <C> <C>
7.18% Senior Notes due October 10, 2007 ............................ $30,000 $ --
7.09% Senior Notes due October 10, 2005 ............................ 15,000 --
6.81% Series A Notes due December 15, 2002 ......................... -- 30,000
Unsecured credit facility payable to several banks ................. 1,700 4,000
9.73% Note payable in monthly principal and
interest installments of $81 through August
1999, secured by certain equipment .............................. 1,498 2,287
Notes payable in monthly principal installments of $13 plus interest
until July 1998 and $6 plus interest from August 1998 to
July 2000, interest at prime plus 1% (9.50% at January 3, 1998
and 9.25% at January 4, 1997), secured by certain equipment ..... 233 395
-----------------------
48,431 36,682
Less-- Current portion ............................................. 995 951
-----------------------
$47,436 $35,731
========================
</TABLE>
19
<PAGE>
<PAGE>
On October 10, 1997, the Company issued $30,000 of 7.18% Senior Notes and
$15,000 of 7.09% Senior Notes (the "Senior Notes"). The Senior Notes were issued
as part of a revision to the 6.81% Series A Note Agreement that increased the
Company's borrowings by $15,000 and replaced the 6.81% Series A Notes with the
Senior Notes. The Senior Notes are unsecured and bear interest at a fixed rate
of 7.18% and 7.09%, payable semiannually. The Senior Notes may be prepaid in
whole or in part prior to maturity, at the Company's option, subject to a yield
maintenance premium, as defined. Required principal payments of the Senior Notes
are as follows:
<TABLE>
<CAPTION>
7.18% Note 7.09% Note
<S> <C> <C>
October 10, 2003......... $ -- $ 5,000
October 10, 2004......... -- 5,000
October 10, 2005......... -- 5,000
October 10, 2006......... 15,000 --
October 10, 2007......... 15,000 --
-----------------------
$30,000 $15,000
-----------------------
-----------------------
</TABLE>
Under the terms of the unsecured credit facility (the "Credit Agreement"), the
Company may borrow up to $50,000 through December 31, 2002. Advances made under
the Credit Agreement bear interest at either the prime rate or the Eurodollar
(Libor) rate plus an "Applicable Margin." The Applicable Margin on advances is
adjusted quarterly based on the Company's Leverage Ratio as defined in the
Credit Agreement. The Applicable Margin for Eurodollar (Libor) advances may
range from 0.625% to 1.5%. The Company is also required to pay certain fees
including a commitment fee which will vary based on the Company's Leverage
Ratio. As of January 3, 1998, the commitment fee is 0.375% of the unused portion
of the Credit Agreement which was $48,027, net of $273 of outstanding letters of
credit. As of January 3, 1998, the Company had $1,700 outstanding under the
Credit Agreement at an effective interest rate of 8.5%. As of January 4, 1997,
the Company had $4,000 outstanding under the Credit Agreement at an effective
interest rate of 7.0%.
The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Senior Notes. Among other things,
the Credit Agreement and the Senior Notes require the Company to satisfy certain
financial tests and ratios (including interest coverage ratios, leverage ratios,
and net worth requirements.) The Credit Agreement and the Senior Notes also
impose limitations on the Company's ability to incur additional indebtedness,
create certain liens, incur capital lease obligations, declare and pay
dividends, make certain investments, make capital expenditures, and purchase,
merge or consolidate with or into any other corporation. As of January 3, 1998,
the Company is in compliance with all debt covenants.
As of January 3, 1998, debt principal payments for each of the next five fiscal
years and thereafter are as follows:
<TABLE>
<S> <C>
1998............... $ 995
1999............... 700
2000............... 1,736
2001............... --
2002............... --
Thereafter......... 45,000
---------
$48,431
----------
----------
</TABLE>
6. INCOME TAXES
Income before provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 3, January 4, December 30,
1998 1997 1995
------------------------------------------
<S> <C> <C> <C>
Domestic...................... $14,471 $12,200 $ 6,184
Foreign ...................... 1,226 579 48
------------------------------------------
$15,697 $12,779 $ 6,232
------------------------------------------
------------------------------------------
</TABLE>
20
<PAGE>
<PAGE>
The following is a summary of the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 3, January 4, December 30,
1998 1997 1995
----------------------------------------
<S> <C> <C> <C>
Federal
Current ........................ $ 2,544 $ 2,510 $ 725
Deferred ....................... 1,341 1,300 1,703
----------------------------------------
$ 3,885 $ 3,810 $ 2,428
----------------------------------------
State
Current ........................ $ 410 $ 573 $ 187
Deferred ......,,,,,............ (195) (166) (1,903)
----------------------------------------
$ 215 $ 407 $(1,716)
----------------------------------------
Foreign
Current ........................ $ 60 $ -- $ --
Deferred ....................... 424 -- --
----------------------------------------
$ 484 $ -- $ --
----------------------------------------
$ 4,584 $ 4,217 $ 712
----------------------------------------
----------------------------------------
</TABLE>
A reconciliation between the provision for income taxes before extraordinary
item computed at U.S. federal statutory rates and the amount reflected in the
accompanying consolidated statements of income is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
January 3, January 4, December 30,
1998 1997 1995
--------------------------------------------
<S> <C> <C> <C>
Computed expected tax provision ................................ $ 5,494 $ 4,345 $ 2,119
Increase in taxes resulting from:
Amortization of goodwill .............................. 67 67 67
State and foreign income taxes, net
of federal benefit .................................. 893 583 385
Decrease in taxes resulting from:
State investment tax credits,
net of federal provision ............................ (1,075) (319) (452)
Reversal of state deferred taxes due
to change in tax law, net of federal provision....... -- -- (1,050)
Reversal of tax reserves no longer required..... ...... (1,081) (308) (48)
Foreign sales corporation benefit ..................... (485) (245) (270)
Valuation allowance ................................... 750 -- --
Other ................................................. 21 94 (39)
--------------------------------------------
$ 4,584 $ 4,217 $ 712
============================================
</TABLE>
At January 3, 1998, the Company had net operating loss carryforwards of
approximately $1,712 for federal income tax purposes available to offset future
taxable income which have been benefitted for financial reporting purposes.
These carryforwards expire from 2001 to 2005. Additionally, the Company has
available for use $951 of federal tax credit carryforwards, of which
approximately $696 expire from 1999 to 2005. The remaining tax credit
carryforwards have no expiration dates. The timing and use of the net operating
loss carryforwards and the tax credit carryforwards are limited under federal
income tax legislation. In addition, the Company has approximately $2,000
of state investment tax credits. These tax credits have no expiration date;
however, the timing and use of these credits is limited under the applicable
state income tax legislation.
In November 1995, the Massachusetts legislature amended the apportionment
formula for corporate income tax purposes and adopted a single sales factor
formula. The effect of this new apportionment formula will be phased in over a
five year period beginning in 1996. In accordance with SFAS 109, the Company has
recorded the effect of this tax law change on deferred taxes as a reduction of
state deferred tax liability of $1,050, net of federal taxes, as of December 30,
1995.
21
<PAGE>
<PAGE>
The significant items comprising the domestic deferred tax asset/liability are
as follows:
<TABLE>
<CAPTION>
January 3, 1998 January 4, 1997
-------------------------------------------------------------------
Current Long-term Current Long-term
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards .......................... $ 270 $ 355 $ 259 $ 599
Tax credit carryforwards .................................. 192 2,817 191 951
Receivable reserves ....................................... 197 -- 718 --
Other ............................................... 1,112 1,245 1,311 1,123
------------------------------------------------------------------
Total assets ........................................ $ 1,771 $ 4,417 $ 2,479 $ 2,673
Valuation allowance ................................. -- (750) -- --
------------------------------------------------------------------
Total assets, net of valuation allowance .................. $ 1,771 $ 3,667 $ 2,479 $ 2,673
------------------------------------------------------------------
Liabilities:
Property basis differences ............................... $ -- $(17,582) $ -- $(14,832)
Inventory basis differences .............................. (1,177) -- (1,292) --
------------------------------------------------------------------
Total liabilities ................................. $ (1,177) $(17,582) $ (1,292) $(14,832)
------------------------------------------------------------------
Net assets (liabilities) ....................... $ 594 $(13,915) $ (1,187) $(12,159)
==================================================================
</TABLE>
The Company has provided a valuation allowance for a portion of certain state
tax credits that may not be realized. The significant items comprising the
foreign deferred tax asset/liability are as follows:
<TABLE>
<CAPTION>
January 3, 1998 January 4, 1997
----------------------------------------------------------
Current Long-term Current Long-term
----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards ............... $-- $ 144 $-- $ 510
Liabilities:
Inventory ...................................... $(569) $-- $(506) $ --
-----------------------------------------------------------
Net assets (liabilities) ............... $(569) $ 144 $(506) $ 510
===========================================================
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
(A) LITIGATION AND ENVIRONMENTAL CLEANUP MATTERS
The Company is engaged in certain routine environmental cleanup matters. In the
opinion of management, the costs associated with these cleanup matters are not
expected to materially affect the Company's financial condition, results of
operations or liquidity.
(B) LEASES
The Company leases certain facilities and equipment under operating lease
agreements and capital lease agreements that expire at various dates from the
current year to the year 2002. As of January 3, 1998, the aggregate minimum
future commitments under leases are as follows:
<TABLE>
<CAPTION>
Capital Operating Total
Leases Leases Leases
------------------------------------------
<S> <C> <C> <C>
1998............................ $ 1,651 $ 937 $ 2,588
1999............................ 2,240 703 2,943
2000............................ 1,094 443 1,537
2001............................ 2,080 343 2,423
2002............................ 725 155 880
Thereafter...................... -- 39 39
---------------------------------------
$ 7,790 $ 2,620 $10,410
-----------------------
Less -- Amount representing
interest................... 1,287
---------
$ 6,503
Less-- Current portion.......... 1,167
---------
$ 5,336
---------
</TABLE>
Rent expense for operating leases for the years ended January 3, 1998, January
4, 1997 and December 30, 1995 was $953, $1,276 and $1,561, respectively.
(C) LETTERS OF CREDIT
In the normal course of its business activities, the Company is required under
certain contracts to provide letters of credit which may be drawn down in the
event the Company fails to perform under the contracts. As of January 3, 1998
and January 4, 1997, the Company has issued or agreed to issue letters of credit
totaling $273 and $472, respectively.
22
<PAGE>
<PAGE>
(D) EMPLOYMENT CONTRACT
In 1997, the Company's Board of Directors approved an amendment to the President
and Chief Executive Officer's Employment Agreement (the "Employment Agreement").
The Employment Agreement provides for Mr. Liebenow to continue to serve as
President and Chief Executive Officer of the Company on a full-time basis
through March 12, 2002, subject to an automatic three-year extension, unless
terminated by the Company upon one year's prior notice. The Employment Agreement
provides for an initial base salary of $600, subject to such annual increases as
may be determined by the Board of Directors, as well as certain benefits and
reimbursement of expenses. If the Employment Agreement had terminated as of
January 3, 1998, Mr. Liebenow would have been entitled to receive $1,980 (in the
event of a voluntary termination, termination for cause or for any other
reason).
8. STOCK OPTIONS
In 1993, the Company adopted the 1993 Stock Option Plan for Company officers,
and options to purchase a total of 635,795 shares of common stock were granted
to certain officers that year. The difference of $1,186 between the fair market
value at the grant date and the exercise price of these options was charged to
compensation expense over five years. During 1996, additional options to
purchase 94,000 shares of common stock were granted to certain officers under
the 1993 Stock Option Plan. The difference of $348 between the fair market value
at the grant date and the exercise price of these options was charged to
compensation expense over five years. The 1993 Stock Option Plan provided that
all options granted under the plan would vest over five years and be exercisable
for ten years except in the event of a change in control, in which case all
outstanding options granted pursuant to the plan would vest immediately. Upon
the consummation of the Company's public offering of common stock in 1997, all
previously unvested options granted under the 1993 Stock Option Plan became
immediately exercisable in full, and the amount of unamortized compensation
expense of $480 was recorded as a charge to the statement of income at that
time.
During 1996, the Company adopted the 1996 Stock Option Plan for key middle
managment employees. Options are granted at not less than fair market value,
vest over a five year period, and are exercisable for ten years. A total of
100,000 shares are reserved under this plan, and options to purchase 87,300
shares have been granted.
During 1997, the Company adopted the 1997 Stock Option Plan. Options to purchase
330,000 shares of common stock were granted to certain officers under the 1997
Stock Option Plan. These options vest over five years, and are exercisable for
ten years. A total of 500,000 shares are reserved under this plan.
During 1995, options to purchase 5,000 shares of common stock were granted to a
director of the Company. These options vest over three years and are exercisable
for ten years. During 1997, options to purchase an aggregate of 10,000 shares of
common stock were granted to two directors of the Company. These options vest
over three years and are exercisable for ten years.
During 1997, the Company recorded $571 as stock option compensation expense.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which sets forth a fair-value-based
method of recognizing stock-based compensation expense. As permitted under SFAS
No. 123, the Company has elected to continue to apply APB No. 25 to account for
its stock-based compensation plans. Had compensation cost for awards granted in
Fiscal 1997 and Fiscal 1996 under the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method set forth in SFAS No. 123, the effect on the Company's net income and
earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Net income
As reported ....................................... $11,113 $8,562 $5,520
Pro forma ......................................... $10,787 $8,500 $5,513
Earnings per common share - diluted
As reported ....................................... $ 1.28 $ 1.03 $ 0.67
Pro forma ......................................... $ 1.24 $ 1.02 $ 0.67
</TABLE>
Compensation expense for options is reflected over the vesting period;
therefore, future compensation expense may be greater as additional options are
granted.
23
<PAGE>
<PAGE>
The fair value of each option grant was estimated on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Volatility ............................. 44.83% 60.13% 60.13%
Risk-free interest rate................. 6.69% 6.44% 7.25%
Expected life of options................ 6.48 years 10 years 10 years
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions used
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
STOCK OPTION ACTIVITY
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Avg. Exercise Number Avg. Exercise Number Avg. Exercise
of Shares Price of Shares Price of Shares Price
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year .............. 728,207 $ 2.60 587,707 $2.04 593,325 $ 2.00
Granted ........................... 391,000 $14.96 142,000 $4.97 5,000 $ 11.00
Exercised ......................... (79,587) $ 4.25 -- -- (10,618) $ 4.12
Forfeited ......................... (7,700) $ 8.87 (1,500) $8.25 -- --
Expired ........................... -- -- -- -- -- --
Options outstanding,
end of year .................... 1,031,920 $ 7.11 728,207 $2.60 587,707 $ 2.04
Options exercisable ............... 608,470 $ 2.00 351,284 $2.01 233,083 $ 1.96
Options available for grant ....... 180,200 -- 53,400 -- 94,000 --
Weighted average fair value
per share of options granted.... -- $ 8.25 -- $ 6.07 -- $ 6.24
</TABLE>
A summary of the status of the Company's stock options as of January 3, 1998 is
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Range of Weighted Avg. Weighted Avg.
Exercise Number of Remaining Exercise
Prices Shares Contractual Life Price
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 Plan................. $ 1.20- 4.12 599,620 5.70 $ 1.89
1996 Plan ................ $ 8.25-13.00 87,300 8.90 $10.97
1997 Plan................. 15.25 330,000 9.40 $15.25
Directors................. $11.00-15.25 15,000 8.80 $13.83
</TABLE>
9. EXPORT SALES
Export sales from the United States to unaffiliated customers by major
geographical area were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 3, January 4, December 30,
1998 1997 1995
------------------------------------------
<S> <C> <C> <C>
North America (excluding USA) ....... $11,900 $ 9,900 $ 8,500
Middle East ......................... 11,300 13,000 5,800
South America ....................... 1,800 700 200
Europe .............................. 2,900 2,500 1,800
All other areas ..................... 4,600 4,000 3,200
------------------------------------------
$32,500 $30,100 $19,500
==========================================
</TABLE>
10. 401(k) PLAN
The Company has established a 401(k) plan (the "401(k) Plan") for eligible
employees of the Company who may contribute up to 15% of their annual salaries
(up to $9,500) to the 401(k) Plan. All contributions made by an employee are
fully vested and are not subject to forfeiture. Each year the Company
contributes on behalf of each participating employee an amount equal to 100% of
the first $200 contributed by each employee and 25% of the next $800 contributed
by such employee, for a maximum annual Company contribution of $400 per
employee. An employee is fully vested in the contributions made by the Company
upon his or her completion of five years of participation in the 401(k) Plan.
24
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO QUAKER FABRIC CORPORATION:
We have audited the accompanying consolidated balance sheets of Quaker Fabric
Corporation (a Delaware corporation) and subsidiaries as of January 3, 1998 and
January 4, 1997, and the related statements of income, changes in stockholders'
equity and cash flows for each of the three years ended January 3, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Quaker Fabric
Corporation and subsidiaries as of January 3, 1998 and January 4, 1997, and the
results of their operations and their cash flows for each of the three years
ended January 3, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Anderson LLP
Boston, Massachusetts
February 10, 1998
25
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following analysis of the financial condition and results of operations of
the Company should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this report.
GENERAL
OVERVIEW
Quaker has been producing upholstery fabrics for the residential furniture
market for more than 50 years. Today, Quaker is a leading designer, manufacturer
and worldwide marketer of woven upholstery fabrics and one of the largest
producers of Jacquard upholstery fabrics in the world. The Company also
manufactures specialty yarns, most of which are used in the production of the
Company's fabric products. The balance is sold to manufacturers of apparel and
home furnishings products throughout the United St ates. Over the last five
years, Quaker has achieved sales and net income (excluding extraordinary items)
growth in every year except 1995. Net sales and net income have grown from
$147.9 million and $2.8 million, respectively, in 1993, to $219.2 million and
$11.1 million, respectively, in 1997.
During 1995, the Company reported a decrease in net sales and lower gross,
operating and net margins as a result of a convergence of economic, industry and
Company-specific factors. These factors caused the Company's net sales to
decline $7.3 million, to $173.5 million from $180.8 million in 1994. The Company
encountered poor market conditions in Mexico, Canada and the Middle East, each
of which is an important export market for the Company. As a result, 1995
foreign sales decreased by $10.7 million, or 31.6% below 1994 foreign sales
levels. This decline was partially offset by a $2.9 million increase in net yarn
sales, with domestic fabric sales essentially flat.
Also, in early 1995, significant price increases were announced by several of
the Company's most important raw material suppliers. Such price increases
adversely affected the Company's gross margin, particularly during the latter
part of the year as the Company was unable to fully pass along these cost
increases to customers during 1995.
Finally, during 1995, the Company experienced a number of sharp changes in its
order rates which required several significant adjustments in the Company's
production rates. These adjustments adversely affected equipment utilization
rates, quality performance and overtime costs, contributing to the deterioration
in the Company's 1995 gross margin.
In response to the challenges encountered during 1995, management developed a
comprehensive performance improvement plan designed to increase margins and
earnings by growing sales, reducing raw material costs and improving
manufacturing efficiencies. Following management's implementation of this plan,
the Company's sales and profitability improved in comparison to prior periods in
each of the last three quarters of 1996 and during the first three quarters of
1997.
However, during the second half of 1997, record order rates for the Company's
fabric and yarn products caused the Company's production backlog and delivery
lead times to increase significantly. To respond to this strong and growing
demand for the Company's products and to support its new market development
efforts, during the third quarter of 1997 Quaker began implementing an
aggressive capacity expansion plan involving the installation of more than $50.0
million of new manufacturing equipment between the beginning of the third
quarter of 1997 and the end of the second quarter of 1998.
Period costs associated with the implementation of this plan, including the cost
of identifying and preparing the space needed to house the new equipment
included in the plan, costs related to the hiring and training of the more than
350 new employees needed to run this new equipment, and some deterioration in
the Company's productivity and internal quality performance resulting from the
addition of these new employees adversely affected the Company's margin
performance during the third and fourth quarters of 1997. In addition, heavy
overtime expenses associated with operating almost all of the Company's
manufacturing areas on a six and one-half day per week schedule, to meet
customer demand despite existing capacity constraints, also put pressure on the
Company's margins during the second half of 1997. As a result, the Company's
gross margin percentages fell to 23.0% and 22.3% during the third and fourth
quarters of 1997, respectively, compared to 23.2% and 25.3%, respectively,
during the comparable periods of 1996. These cost factors, as well as costs
associated with the Company's decision to temporarily outsource a small amount
of its manufacturing requirements until all of the equipment included in the
Company's capacity expansion plan is moved into production, are expected to
continue to exert downward pressure on the Company's margins over the near-term.
Externally, current market conditions are generally favorable both domestically
and in the major foreign markets important to the Company. There do not appear
to be any significant raw material price increases on the horizon, and the
economies of most of the countries Quaker is currently exporting to are stable
or growing. The Company has not
26
<PAGE>
<PAGE>
done much business in the Far East historically, so the economic problems
currently occurring there are not a direct threat -- and there is no indication
that alternative competitive product is coming into the United States market. On
the domestic front, management believes that a strong economy characterized by
low interest and unemployment rates, high consumer confidence levels, modest
inflation rates and a general uptick in housing starts underpins the strong
specific demand for Quaker's products.
QUARTERLY OPERATING RESULTS
The following table sets forth certain condensed unaudited consolidated
statements of income data for the eight fiscal quarters ended January 3, 1998,
as well as certain data expressed as a percentage of the Company's total net
sales for the periods indicated:
<TABLE>
<CAPTION>
Fiscal 1997(1) Fiscal 1996(1)
-------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... $53,198 $ 52,475 $55,130 $58,371 $43,254 $51,025 $46,436 $58,141
Gross margin ...................... 13,099 13,006 12,656 13,012 9,297 11,312 10,751 14,709
Gross margin
percentage ...................... 24.6% 24.8% 23.0% 22.3% 21.5% 22.2% 23.2% 25.3%
Operating income .................. 4,631 5,020 4,873 4,938 2,673 4,014 4,053 6,208
Operating income
percentage ...................... 8.7% 9.6% 8.8% 8.5% 6.2% 7.9% 8.7% 10.7%
Income before
provision for
income taxes .................... $3,747 $ 4,181 $ 3,925 $ 3,844 $ 1,696 $ 2,972 $ 2,984 $ 5,127
-------------------------------------------------------------------------
Net income ........................ $2,510 $ 2,801 $ 3,080 $ 2,722 $ 1,136 $ 1,992 $ 1,999 $ 3,435
-------------------------------------------------------------------------
Earnings per common
share-basic ...................... $ 0.31 $ 0.34 $ 0.37 $ 0.32 $ 0.14 $ 0.25 $ 0.25 $ 0.43
-------------------------------------------------------------------------
Earnings per common
share-diluted ................... $ 0.30 $ 0.32 $0.35 $ 0.31 $ 0.14 $ 0.24 $ 0.24 $ 0.41
-------------------------------------------------------------------------
</TABLE>
(1) The data reflected in this table has been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for the fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this report.
The Company follows industry practice by closing its operating facilities for a
one-to-two week period during July of each year. In 1995 and 1996, this shutdown
period, and the resulting effect on sales, occurred in the third fiscal quarter.
In 1997, the first week of the annual shutdown period occurred in the second
fiscal quarter.
PRODUCT MIX
Over the past several years, Quaker has taken steps to expand both the breadth
and depth of the Company's product line by increasing the number of higher
margin, middle to better-end fabrics in its line and by expanding the number of
fabrics it offers at each price point and in each styling category. As a result,
the Company has added new manufacturers of higher-end furniture to its customer
base and positioned itself as a full service supplier of Jacquard and plain
woven fabrics to all of its customers. The following table sets forth certain
information relating to the changes that have occurred in the Company's product
mix and the average gross sales price of its fabrics since 1995:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------
Percent Percent Percent
of of of
Amount Sales Amount Sales Amount Sales
------------------------------------------------------------------------------
(in thousands, except per yard data)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales (dollars):
Promotional-end fabrics .......... $ 57,395 30.2% $54,716 31.0% $ 57,023 36.0%
Middle to better-end fabrics ..... 132,788 69.8 121,702 69.0 101,201 64.0
------------------------------------------------------------------------------
Gross fabric sales ............. $190,183 100.0% $176,418 100.0% $158,224 100.0%
------------------------------------------------------------------------------
Gross fabric sales (yards):
Promotional-end fabrics .......... 16,822 37.4% 16,074 36.9% 17,042 41.8%
Middle to better-end fabrics ..... 28,154 62.6 27,478 63.1 23,719 58.2
------------------------------------------------------------------------------
Gross fabric sales ............. 44,976 100.0% 43,552 100.0% 40,761 100.0%
------------------------------------------------------------------------------
Average gross sales price per yard:
Promotional-end fabrics .......... $ 3.41 $ 3.40 $ 3.35
Middle to better-end fabrics ..... 4.72 4.43 4.27
Average per yard-- all fabrics . 4.23 4.05 3.88
</TABLE>
27
<PAGE>
<PAGE>
GEOGRAPHIC DISTRIBUTION OF SALES
To develop markets for upholstery fabric outside the United States, the Company
has placed substantial emphasis on building both direct exports from the United
States as well as sales from its Mexico City, Mexico distribution center. The
Company's 1997 foreign sales were up by $4.0 million, or 11.1% above 1996. The
following table sets forth certain information about the changes which have
occurred in the geographic distribution of the Company's gross fabric sales
since 1995:
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------
Percent Percent Percent
of of of
Amount Sales Amount Sales Amount Sales
---------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales:
Domestic sales ........... $150,525 79.1% $140,717 79.8% $135,037 85.3%
Foreign sales(1).......... 39,658 20.9 35,701 20.2 23,187 14.7
---------------------------------------------------------------
Gross fabric sales..... $190,183 100.0% $176,418 100.0% $158,224 100.0%
---------------------------------------------------------------
</TABLE>
(1) Foreign sales consists of both direct exports from the United States as well
as sales from the Company's Mexico City distribution center.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages of
the Company's net sales represented by certain income and expense items in the
Company's consolidated statements of income:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------
1997 1996 1995
-------------------------
<S> <C> <C> <C>
Net sales ........................................ 100.0% 100.0% 100.0%
Cost of products sold ............................ 76.4 76.8 79.0
-------------------------
Gross margin ..................................... 23.6 23.2 21.0
Selling, general and administrative expenses ..... 14.7 14.7 15.1
-------------------------
Operating income ................................. 8.9 8.5 5.9
Interest expense, net ............................ 1.7 2.1 2.2
Other expenses, net .............................. -- -- 0.1
-------------------------
Income before provisions for income taxes ........ 7.2 6.4 3.6
Provisions for income taxes ...................... 2.1 2.1 0.4
-------------------------
Net income ....................................... 5.1% 4.3% 3.2%
-------------------------
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales for 1997 increased $20.3 million, or 10.2%, to $219.2
million from $198.9 million in 1996. Both gross fabric sales and gross yarn
sales were higher during the period. Gross fabric sales increased due to
increases in both domestic and foreign fabric sales. Gross fabric sales within
the United States increased 7.0%, to $150.5 million in 1997 from $140.7 million
in 1996. Foreign sales increased 11.1%, to $39.7 million in 1997 from $35.7
million in 1996. This increase was due to improved sales in Mexico and Canada as
well as increased penetration of other international markets. Gross yarn sales
increased 23.3%, to $33.0 million in 1997 from $26.8 million in 1996.
The gross volume of fabric sold increased 3.3%, to 45.0 million yards in 1997
from 43.6 million yards in 1996. The average gross sales price per yard
increased 4.4%, to $4.23 in 1997 from $4.05 in 1996. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 2.5% more yards of middle to better-end fabrics and 4.7% more yards
of promotional-end fabrics in 1997 than in 1996. The average gross sales price
per yard of middle to better-end fabrics increased by 6.5%, to $4.72 in 1997
from $4.43 in 1996. The average gross sales price per yard of promotional-end
fabrics increased by 0.3%, to $3.41 in 1997 from $3.40 in 1996.
Gross Margin. The gross margin percentage for the first half of 1997 increased
to 24.7% as compared to 21.9% for the first half of 1996. The increase in the
gross margin percentage was due to 1.) increased sales volume in the
higher-margin middle to better-end and foreign/export fabric categories, 2.)
lower manufacturing costs resulting from improved manufacturing efficiencies,
and 3.) improved manufacturing quality performance resulting in a decrease in
sales of second quality fabric. For the second half of 1997, the gross margin
percentage was 22.6% as compared to 24.3% in 1996. This decrease is attributable
to the effects of the capacity expansion program initiated during the third
quarter of 1997. The adverse effects on gross margin included higher training
costs, reorganization of manufacturing facilities and operations, internal
quality slippage, and higher overtime.
28
<PAGE>
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $32.3 million in 1997 from $29.1 million in
1996 due to increases in sales commissions, labor and fringes, and freight
expenses associated with the Company's higher net sales for the period. Selling,
general and administrative expenses as a percentage of net sales were 14.7% in
1997 and 1996.
Interest Expense, Net. Interest expense decreased to $3.7 million in 1997 from
$4.1 million in 1996. Lower capital loans and term debt obligations and lower
fees were the primary reasons for this decrease.
Effective Tax Rate. The effective tax rate decreased to 29.2% in 1997 from 33.0%
in 1996. The decrease in the effective tax rate was due to the reversal of tax
reserves no longer required and the increase in the foreign sales corporation
benefit partiallly offset by an increase in state and foreign income taxes. See
Note 6 of Notes to Consolidated Financial Statements included elsewhere in this
report.
FISCAL 1996 COMPARED TO FISCAL 1995 NET SALES.
Net Sales. Net sales for 1996 increased $25.4 million, or 14.6%, to $198.9
million from $173.5 million in 1995. Both gross fabric sales and gross yarn
sales were higher during the period. Gross fabric sales increased due to
increases in both domestic and foreign fabric sales. Gross fabric sales within
the United States increased 4.2%, to $140.7 million in 1996 from $135.0 million
in 1995. Foreign sales increased 54.0%, to $35.7 million in 1996 from $23.2
million in 1995. This increase was due to improved sales in Mexico, Canada
and the Middle East as well as increased penetration of other international
markets. Gross yarn sales increased 42.0%, to $26.8 million in 1996 from
$18.8 million in 1995.
The gross volume of fabric sold increased 6.8%, to 43.6 million yards in 1996
from 40.8 million yards in 1995. The average gross sales price per yard
increased 4.4%, to $4.05 in 1996 from $3.88 in 1995. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 15.8% more yards of middle to better-end fabrics and 5.7% fewer
yards of promotional-end fabrics in 1996 than in 1995. The average gross sales
price per yard of middle to better-end fabrics increased by 3.7%, to $4.43 in
1996 from $4.27 in 1995. The average gross sales price per yard of
promotional-end fabrics increased by 1.5%, to $3.40 in 1996 from $3.35 in 1995.
Gross Margin. The gross margin percentage for 1996 increased to 23.2% from 21.0%
for 1995. This increase was primarily attributable to the Company's performance
improvement plan which resulted in increased domestic and international sales of
higher-margin, middle to better-end fabrics, improved manufacturing efficiencies
related to the acquisition of newer, more efficient manufacturing equipment and
more efficient use of the Company's existing equipment, improved quality
performance, decreased raw material costs, and the effect of spreading overhead
over a higher sales base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $29.1 million in 1996 from $26.2 million in
1995 due to increases in sales commissions, labor and fringes, and sampling
expenses associated with the Company's higher net sales for the period. Selling,
general and administrative expenses as a percentage of net sales decreased to
14.7% in 1996 from 15.1% in 1995 due to a significant increase in net sales
without a corresponding increase in overhead.
Interest Expense, Net. Interest expense increased to $4.1 million in 1996 from
$3.9 million in 1995. Lower debt levels were offset by higher commitment fees
associated with increased borrowing availability and other financing charges.
Effective Tax Rate. The effective tax rate increased to 33.0% in 1996 from 11.4%
in 1995. The reduced tax rate for 1995 reflects an adjustment recorded during
the fourth quarter as a result of tax law changes in Massachusetts enacted in
November 1995 which reduced the Company's future deferred tax liability. See
Note 6 of Notes to Consolidated Financial Statements included elsewhere in this
report.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital requirements
through a combination of internally generated funds, borrowings, and equipment
leasing. The Company's capital requirements have arisen principally in
connection with the purchase of equipment to expand production capacity and
improve the Company's quality and productivity performance and with an increase
in the Company's working capital needs related to its sales growth.
The primary source of the Company's liquidity and capital resources has been
operating cash flow. The Company's net cash provided by operating activities was
$12.0 million, $14.8 million and $11.1 million in 1995, 1996 and 1997,
respectively. The Company has supplemented its operating cash flow with
borrowings. Net borrowings (repayments) were $1.3 million in 1995, ($2.5)
million in 1996 and $10.2 million in 1997. The Company also raised $3.3 million
from the offering of 300,000 new shares in 1997.
29
<PAGE>
<PAGE>
Over the last five years, the Company has placed in service new manufacturing
equipment with an aggregate cost of $66.0 million. Capital expenditures in 1996
and 1997 were $12.0 million and $25.5 million, respectively. Capital
expenditures during 1997 were funded by operating cash flow, borrowings and
proceeds from the 1997 Offering. Management anticipates that capital
expenditures will total approximately $54.0 million in 1998, consisting of $45.0
million primarily for new production equipment to expand chenille yarn capacity,
increase weaving capacity, and support the Company's marketing, productivity,
quality, service and financial performance objectives. Management believes that
operating income and borrowings under the Credit Agreement, will provide
sufficient funding for the Company's capital expenditures and working capital
needs for the foreseeable future.
During 1997, the Company began implementation of a major computer system
upgrade. Full conversion to the new Enterprise Resource Planning system is
expected during 1998. The total project cost is approximately $4.5 million. See
"Year 2000" below.
As discussed in Note 5 of Notes to Consolidated Financial Statements, the
Company issued $45.0 million of Senior Notes due October 2005 and 2007 (the
"Senior Notes") during 1997. Proceeds from the Senior Notes were used to replace
the 6.81% Series A Notes and reduce borrowings under the Credit Agreement. The
Senior Notes bear interest at a fixed rate of 7.09% on $15.0 million and 7.18%
on $30.0 million. Annual principal payments begin on October 10, 2003 with a
final payment due October 10, 2007.
The Company also has a $50.0 million Credit Agreement with a bank which expires
December 31, 2002. As of January 3, 1998, the Company had $1.7 million
outstanding under the Credit Agreement and unused availability of $48.0 million,
net of outstanding letters of credit.
The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Senior Notes, including, but not
limited to, maintenance of certain financial tests and ratios (including
interest coverage ratios, net worth related ratios, and net worth requirements);
limitations on certain business activities of the Company; restrictions on the
Company's ability to declare and pay dividends, incur additional indebtedness,
create certain liens, incur capital lease obligations, make certain investments,
engage in certain transactions with stockholders and affiliates, make capital
expenditures in excess of certain specified amounts, and purchase, merge, or
consolidate with or into any other corporation. The Company is currently in
compliance with all of the affirmative and negative covenants in the Credit
Agreement and the Senior Notes and management believes the Company's continued
compliance will not prevent the Company from operating in the normal course of
business.
INFLATION
The Company does not believe that inflation has had a significant impact on the
Company's results of operations for the periods presented. Historically, the
Company believes it has been able to minimize the effects of inflation by
improving its manufacturing and purchasing efficiency, by increasing employee
productivity, by reflecting the effects of inflation in the selling prices of
the new products it introduces each year and, to a lesser degree, by increasing
the selling prices of those products which have been included in the Company's
product line for more than one year.
FOREIGN CURRENCY TRANSLATION
All of the Company's sales are denominated in U.S. dollars except sales through
the Company's Mexico City distribution center. These sales are denominated in
pesos and are, therefore, subject to currency fluctuations. Accounts receivable
in pesos at January 3, 1998 were $2.4 million.
Mexico has been designated as a "highly inflationary country" for purposes of
applying Statement of Financial Standards No. 52, Foreign Currency Translation.
Accordingly, in 1997 the Company recorded translation gains and losses in
the income statement rather than as a separate component of equity. See
Note 2(i) of Notes to Consolidated Financial Statements included elsewhere in
this report.
YEAR 2000
During 1996, the Company began a project to review all of its computer systems.
Among the considerations at that time was what impact, if any, would the year
2000 have on computer systems. In late 1996, the Company made a commitment to
purchase and install a new computer system to meet its current and projected
needs. In addition to providing new systems applications, the software complies
with the year 2000 requirement.
The process of implementing the new software package began in 1997 and is
expected to be completed during 1998. Management believes that subject to the
successful implementation of this new software package, the year 2000 issue will
not have a material adverse impact on the Company's operations.
-----------------------------------------
30
<PAGE>
<PAGE>
SUMMARY QUARTERLY FINANCIAL DATA
(Unaudited)
The following is a summary of the results of operations for each of the quarters
within the years ended January 3, 1998 and January 4, 1997.
In thousands, except per share data
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------
NET SALES ......................... $53,198 $52,475 $55,130 $58,371
GROSS MARGIN ...................... 13,099 13,006 12,656 13,012
OPERATING INCOME .................. 4,631 5,020 4,873 4,938
NET INCOME (LOSS) ................. $ 2,510 $ 2,801 $ 3,080 $ 2,722
EARNINGS PER COMMON SHARE-BASIC ... $ 0.31 $ 0.34 $ 0.37 $ 0.32
EARNINGS PER COMMON SHARE-DILUTED.. $ 0.30 $ 0.32 $ 0.35 $ 0.31
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------
Net sales ......................... $43,254 $51,025 $46,436 $58,141
Gross margin ...................... 9,297 11,312 10,751 14,709
Operating income .................. 2,673 4,014 4,053 6,208
Net income (loss) ................. $ 1,136 $ 1,992 $ 1,999 $ 3,435
Earnings per common share-basic.... $ 0.14 $ 0.25 $ 0.25 $ 0.43
Earnings per common share-diluted.. $ 0.14 $ 0.24 $ 0.24 $ 0.41
----------------------
The following summarizes common stock prices for the years ended January 3,
1998 and January 4, 1997.
Price per Share
1997 High Low
- ---------------------------------------------------------------------
FIRST QUARTER ............................ $18.50 $13.00
SECOND QUARTER ........................... $17.00 $13.00
THIRD QUARTER ............................ $23.88 $15.00
FOURTH QUARTER ........................... $24.25 $17.00
Price per Share
1997 High Low
- ---------------------------------------------------------------------
First Quarter ............................ $ 9.50 $ 5.69
Second Quarter ........................... $ 9.75 $ 7.25
Third Quarter ............................ $10.63 $ 7.00
Fourth Quarter ........................... $14.50 $ 9.25
(1) The Company's common stock is traded over the counter and is quoted on the
Nasdaq National Market under the symbol "QFAB."
(2) No dividends have been paid on the Company's common stock.
(3) As of March 17, 1998, there were approximately 49 record holders of common
stock.
(4) The Company's Credit Agreement and Senior Notes contain restrictive
covenants which limit the Company's ability to declare and pay dividends. Under
the most restrictive of these covenants, $17.5 million was available for the
payment of dividends as of January 3, 1998.
31
<PAGE>
<PAGE>
GENERAL INFORMATION
DIRECTORS
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SANGWOO AHN, Chairman DR. JERRY I. PORRAS
Partner Lane Professor of Organizational
Morgan Lewis Githens & Ahn Behavior and Change
Stanford University Graduate
LARRY A. LIEBENOW School of Business
President and CEO
Quaker Fabric Corporation ERIBERTO R. SCOCIMARA
President and Chief Executive Officer
Hungarian-American Enterprise Fund
COMMITTEES
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AUDIT COMMITTEE COMPENSATION COMMITTEE
Sangwoo Ahn Sangwoo Ahn
Eriberto R. Scocimara Larry A. Liebenow
Jerry I. Porras
STOCK OPTION COMMITTEE
Sangwoo Ahn
Jerry I. Porras
OFFICERS
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LARRY A. LIEBENOW PAUL J. KELLY
President and Chief Vice President - Finance,
Executive Officer Treasurer and Chief Financial Officer
ANTHONY DEGOMES THOMAS MUZEKARI
Vice President Vice President
New Business Development Marketing
JAMES A. DULUDE BEATRICE SPIRES
Vice President Vice President
Manufacturing Styling and Design
THOMAS J. FINNERAN J. DUNCAN WHITEHEAD
Vice President Vice President
Sales Technology and Development,
and Yarn Sales
CYNTHIA L. GORDAN
Vice President, Secretary
and General Counsel
CORPORATE DATA
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CORPORATE OFFICE INDEPENDENT AUDITORS
Quaker Fabric Corporation Arthur Andersen LLP
941 Grinnell Street 225 Franklin Street
Fall River, Massachusetts 02721 Boston, Massachusetts 02110
(508) 678-1951
LEGAL COUNSEL
ANNUAL MEETING Proskauer Rose Goetz & Mendelsohn LLP
11:00 a.m., May 28, 1998 1585 Broadway
Bank of Boston New York, New York 10036
100 Federal Street
Boston, Massachusetts 02105 FORM 10-K
The Company's Form 10-K Report,
TRANSFER AGENT AND REGISTRAR as filed with the Securities and
First National Bank of Boston Exchange Commission, is available
150 Royall Street to stockholders without charge
Canton, Massachusetts 02021 upon request to the Corporate Office,
(781) 575-3170 Attn: Corporate Secretary.
NASDAQ (National Market System)
Trading Symbol - QFAB
32
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EXHIBIT 10.61
AMENDMENT AGREEMENT NO. 4
to that certain
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 18, 1995
This AMENDMENT AGREEMENT NO. 4 (the "Amendment"), dated as of December
19, 1997, is by and among (a) QUAKER FABRIC CORPORATION OF FALL RIVER, a
Massachusetts corporation (the "Company"), QUAKER TEXTILE CORPORATION, a
Massachusetts corporation ("Quaker Textile") and QUAKER FABRIC MEXICO, S.A. de
C.V., a Mexican corporation ("Quaker Mexico", and along with the Company and
Quaker Textile, the "Borrowers"), (b) QUAKER FABRIC CORPORATION, a Delaware
corporation (the "Parent"), (c) BANKBOSTON, N.A. (f/k/a The First National Bank
of Boston) and such other banking institutions that are or may become parties to
the Credit Agreement referred to below (collectively, the "Banks") and (d)
BANKBOSTON, N.A. (f/k/a The First National Bank of Boston) as agent for the
Banks (the "Agent").
WHEREAS, the Borrowers, the Parent, the Banks and the Agent are parties
to that certain Amended and Restated Credit Agreement dated as of December 18,
1995 (as amended, restated, modified or supplemented and in effect from time to
time, the "Credit Agreement"), pursuant to which the Banks, upon certain terms
and conditions, have agreed to make loans to the Borrowers; and
WHEREAS, the Borrowers and the Parent have requested that the Banks
agree, and the Banks have agreed, on the terms and subject to the conditions set
forth herein, to amend certain provisions of the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
`SS'1. DEFINED TERMS. Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
`SS'2. AMENDMENT TO SECTION 1.01 OF CREDIT AGREEMENT. Section 1.01 of the
Credit Agreement is hereby amended by deleting the definition of Maturity Date
and inserting the following new definition of Maturity Date in place thereof:
"Maturity Date" means December 31, 2002, or, if earlier, to the
extent a Change in Control occurs, the date which is eighteen
months after the date upon which such Change in Control occurs.
`SS'3. AFFIRMATION OF THE COMPANY AND THE PARENT. (a) The Company, as
guarantor of the Company Guaranteed Obligations pursuant to Article IIB of the
Credit Agreement, hereby acknowledges that it has read and is aware of the
provisions of this Amendment. The Company hereby reaffirms its absolute and
unconditional guaranty of
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the payment and performance of the Company Guaranteed Obligations under the
Credit Agreement as amended by this Amendment.
(b) The Parent, as guarantor of the Parent Guaranteed Obligations
pursuant to Article IIA of the Credit Agreement, hereby acknowledges that it has
read and is aware of the provisions of this Amendment. The Parent hereby
reaffirms its absolute and unconditional guaranty of the payment and performance
of the Parent Guaranteed Obligations under the Credit Agreement as amended by
the Amendment.
`SS'4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers and
the Parent hereby represents and warrants to the Agent and the Banks as follows:
(a) Representations and Warranties in the Credit Agreement. The
representations and warranties of the Borrowers and the Parent contained in the
Credit Agreement were true and correct when made and continue to be true and
correct on and as of the date hereof as if made on the date hereof except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and to the extent that such representations and warranties
relate expressly to an earlier date. No Default or Event of Default has occurred
and is continuing.
(b) Corporate Existence and Standing; Authorization and Validity; No
Conflict; Government Consent. Each of the Borrowers and the Parent hereby
confirms that the representations and warranties of the Borrowers and the Parent
contained in Section 4.01, 4.02 and 4.03 of the Credit Agreement are true and
correct on and as of the date hereof as if made on the date hereof. Each such
representation is hereby ratified, affirmed and incorporated herein by
reference, with the same force and effect as if set forth herein in its
entirety.
`SS'5. EFFECTIVENESS. This Amendment shall be effective upon the
execution and delivery of a fully executed copy of this Amendment to
the Agent by each of the Borrowers, the Parent, the Banks and the Agent.
`SS'6. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL
AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
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-3-
(d) The Borrowers hereby agree to pay to the Agent, on demand, all
reasonable out-of-pocket costs and expenses incurred or sustained by the Agent
in connection with the preparation of this Amendment (including reasonable legal
fees).
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-4-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an instrument under seal as of the date first written above.
QUAKER FABRIC CORPORATION
OF FALL RIVER
By: /s/ Paul J. Kelly
-----------------------------------------
Title: Vice President--Finance
QUAKER TEXTILE CORPORATION
By: /s/ Paul J. Kelly
-----------------------------------------
Title: Vice President--Finance
QUAKER FABRIC MEXICO, S.A. de C.V.
By: /s/ Paul J. Kelly
-----------------------------------------
Title: Vice President--Finance
QUAKER FABRIC CORPORATION
By: /s/ Paul J. Kelly
-----------------------------------------
Title: Vice President--Finance
BANKBOSTON, N.A. (F/K/A THE FIRST NATIONAL
BANK OF BOSTON), AS AGENT, AS ISSUING
BANK AND AS A BANK
By: /s/ Christopher S. Allen
-----------------------------------------
Director
FLEET NATIONAL BANK
By: /s/ Douglas E. Scala
-----------------------------------------
Title: Vice President
By: /s/ Donald J. Cavanagh
-----------------------------------------
Title: Banking Officer
<PAGE>
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QUAKER FABRIC CORPORATION
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EMPLOYEE STOCK PURCHASE PLAN
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EFFECTIVE OCTOBER 1, 1997
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION
- --------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
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EFFECTIVE OCTOBER 1, 1997
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1. Administration..................................................................................1
2. Eligibility.....................................................................................3
3. Participation...................................................................................3
4. Deductions......................................................................................4
5. Deduction Changes and Plan Withdrawals..........................................................4
6. Purchase of Shares..............................................................................6
7. Dividends.......................................................................................6
8. Stock...........................................................................................7
9. Issuance of Certificates........................................................................7
10. Registration of Certificates....................................................................7
11. Rights as a Stockholder.........................................................................7
12. Retirement, Death, Disability, Section 16 Applicability, Leave of Absence or Other
Termination of Employment.......................................................................7
13. Withholding.....................................................................................9
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section Title Page
- ------- ----- ----
14. Rights Not Transferable.........................................................................9
15. Designation of Beneficiary.....................................................................10
16. Application of Funds...........................................................................10
17. Adjustment in Case of Changes Affecting Common Stock...........................................10
18. Amendment of the Plan..........................................................................10
19. Termination of the Plan........................................................................10
20. Governmental Regulations.......................................................................11
21. Plan Share Purchases...........................................................................11
22. No Employment Rights...........................................................................11
23. Notices........................................................................................11
24. Severability of Provisions.....................................................................11
25. Headings and Captions..........................................................................12
26. Approval of Board..............................................................................12
27. Controlling Law................................................................................12
</TABLE>
ii
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QUAKER FABRIC CORPORATION
- --------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
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EFFECTIVE OCTOBER 1, 1997
The purpose of the Quaker Fabric Corporation Employee Stock Purchase
Plan (the "Plan") is to encourage and facilitate employee stock
ownership by providing a continuing opportunity to purchase the common
stock, par value $.01, (the "Common Stock") of Quaker Fabric Corporation
(the "Company") at a discount through payroll deductions. The Plan is
not intended to be qualified under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
1. ADMINISTRATION
(a) The Plan shall be administered by the Compensation Committee of
the Board of Directors of the Company (the "Board") or such other
committee consisting of directors or other persons as may be
appointed by the Board (the "Committee").
(b) The Committee shall have full authority to interpret the Plan; to
establish, amend, and rescind rules for carrying out the Plan; to
administer the Plan; and to make all other determinations and to
take such steps in connection with the Plan as the Committee, in
its sole discretion, deems necessary or desirable for
administering the Plan.
(c) The Committee may designate other employees of the Company and
professional advisors to assist the Committee in the
administration of the Plan and may grant authority to such other
employees to execute agreements or other documents on behalf of
the Committee.
(d) The Committee may employ such legal counsel, consultants,
brokers 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, broker or agent. The Committee, its
members and any person designated pursuant to paragraph
(c) above shall not be liable for any action or determination
made in good faith with respect to the Plan. The Company or
an Affiliate (as defined in section 2), as the case may be,
shall, to the fullest extent permitted by law and the certificate
of incorporation and bylaws of the Company or an Affiliate and,
to
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the extent not covered by insurance, indemnify each director,
officer or employee of the Company or an Affiliate (including
the heirs, executors, administrators and other personal
representatives of such person) and each member of the Committee
against all expenses, costs, liabilities and losses (including
attorneys' fees, judgments, fines, excise taxes or penalties,
and amounts paid or to be paid in settlement) actually and
reasonably incurred by such person in connection with any
threatened, pending or actual suit, action or proceeding (whether
civil, criminal, administrative or investigative in nature or
otherwise) in which such person may be involved by reason of the
fact that he or she is or was serving this Plan in any capacity
at the request of the Company, except in instances where any such
person engages in willful neglect or fraud. Such right of
indemnification shall include the right to be paid by the Company
for expenses incurred or reasonably anticipated to be incurred
in defending any such suit, action or proceeding in advance
of its disposition; provided, however, that the payment
of expenses in advance of the settlement or final disposition of
a suit, action or proceeding, shall be made only upon delivery to
the Company of an undertaking by or on behalf of such person to
repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified hereunder.
Such indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or
employee or under the certificate of incorporation or the bylaws
of the Company or an Affiliate. Expenses incurred by the
Committee or the Board in the engagement of any such counsel,
consultant or agent shall be paid by the Company.
(e) Except with respect to brokerage fees and commissions charged for
the sale of shares of Common Stock and any fees charged for
certificates of shares of Common Stock, all other costs, fees and
expenses involved in administering the Plan as provided herein,
or incident thereto, including without limitation, brokerage fees
and commissions charged for the purchase of shares of Common
Stock, shall be borne by the Company. Employees shall be fully
responsible for (i) any brokerage fees and commissions charged
for the sale of shares of Common Stock (ii) any fees for
certificates of shares of Common Stock and (iii) any taxes owed
by them as a result of participation in the Plan, including
without limitation, taxes owed on the discount given hereunder.
(f) All determinations by the Committee with respect to the
administration of the Plan shall be in the sole discretion of the
Committee based on this Plan document and other relevant
documents, and all such determinations shall be final and binding
upon all interested parties, including the employee, the
employee's executor, administrator or other personal
representative or designated beneficiary, and the Company.
2
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(g) The Committee shall designate an agent (the "Agent") to
administer the Plan, purchase and sell shares of Common Stock in
accordance with the Plan, keep records, send statements of
account to employees and to perform other duties relating to the
Plan, as the Committee may request from time to time.
2. ELIGIBILITY
All regular employees (as defined in accordance with the Company's or
Affiliate's policies) of the Company or of any Affiliate designated by
the Board to participate in the Plan, who are employed within the United
States shall be eligible to participate in the Plan after completing 90
days of continuous service with the Company or an Affiliate in
accordance with the terms hereof and such rules as may be prescribed
from time to time ("Eligible Employees"). Temporary employees, seasonal
employees, employees employed by the Company or an Affiliate outside of
the United States, independent contractors (even if such persons are
retroactively reclassified by the Internal Revenue Service as common law
employees for the period during which the Company or Affiliate treated
the individuals as independent contractors), persons subject to Section
16 of the Securities Exchange Act of 1934 (the "Exchange Act"), and
employees whose employment is governed by the terms of a collective
bargaining agreement between employee representatives (within the
meaning of Code Section 7701(a)(46)) and the Company or an Affiliate
(except to the extent that the collective bargaining agreement expressly
provides for the inclusion of such employees) are not eligible to
participate in the Plan. "Affiliate" shall mean a subsidiary corporation
as defined under Code Section 424(f).
3. PARTICIPATION
An Eligible Employee may participate in the Plan by completing and
forwarding payroll deduction authorization form to the Company's Human
Resources Department. The form shall authorize a payroll deduction from
the Eligible Employee's compensation each payroll period, which shall
become effective on the payroll date coincident with or next following
the first Entry Date following the ten (10) day period (or such other
time period as the Human Resources Department may from time to time set)
after the Human Resources Department receives the form from the Eligible
Employee. Notwithstanding the foregoing, any employee who is an Eligible
Employee on the Effective Date and who elects to participate in the Plan
commencing on the Effective Date, may participate in the Plan as soon as
practicable without regard to the specified Entry Date. "Entry Date"
shall mean January 1, April 1, July 1 and October 1 of each calendar
year or the next business day following such date.
3
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4. DEDUCTIONS
The Company shall maintain payroll deduction accounts for all Eligible
Employees who participate in the Plan. An Eligible Employee may
authorize a payroll deduction in a designated percentage (in whole
percentages) of the Eligible Employee's Compensation that he or she
receives each payroll period or in a designated dollar amount (in
increments of ten dollars ($10)), up to a maximum of the lesser of ten
percent (10%) of Compensation or ten thousand dollars ($10,000) per
year. To the extent that an Eligible Employee does not participate
during a full calendar year, the foregoing annual maximum limitations
shall be prorated by multiplying the limit by a fraction, the numerator
of which is the number of complete payroll periods that the Eligible
Employee participates in the Plan and the denominator of which is the
total number of payroll periods in the calendar year. Amounts deducted
shall equal at least one percent (1%) of Compensation for each complete
payroll period. In no event shall interest be credited to Eligible
Employees' accounts.
"Compensation" means all cash wages paid to an Eligible Employee by the
Company or an Affiliate, including salary, overtime, commissions,
bonuses, incentive compensation, and other lump sum payments.
Compensation shall include amounts contributed by salary reduction to a
plan subject to Section 125 or 401(k) of the Code. Compensation shall
not include any imputed income or contributions by the Company or an
Affiliate to, or benefits paid under, any stock option plan (whether by
grant or exercise of an option or sale of Common Stock relating
thereto), any pension, profit-sharing, fringe benefit, group insurance
or other employee welfare plan heretofore or hereafter adopted or any
deferred compensation arrangement or amounts paid or accrued as
severance pay.
5. DEDUCTION CHANGES AND PLAN WITHDRAWALS
(a) Change of Election. An Eligible Employee may increase or decrease
his or her payroll deduction, effective as of the payroll date
coincident with or next following the Entry Date, by timely
filing a new payroll deduction authorization form with the Human
Resources Department at least ten (10) days (or such other period
of time as the Human Resources Department may from time to time
prescribe) prior to such Entry Date.
(b) Hardship Withdrawals. In the event an Eligible Employee makes a
hardship withdrawal of employee deferral (401(k)) contributions
under any plan maintained by the Company or an Affiliate which is
qualified under Section 401(a) of the Code that contains a
Section 401(k) feature (the "Company 401(k) Plan"), such Eligible
Employee's payroll deductions and the purchase of shares of
Common Stock shall be suspended until the first payroll period
4
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coincident with or following the Entry Date commencing after the
twelve (12) month period after such hardship withdrawal. If an
Eligible Employee who elects a hardship withdrawal under the
Company's 401(k) Plan has a cash balance accumulated in his or
her account at the time of withdrawal that has not already been
applied to purchase shares of Common Stock, such cash balance
shall be returned to the employee as soon as administratively
practicable.
(c) Voluntary Suspension. An Eligible Employee may at any time upon
ten (10) days' notice to the Human Resources Department (or such
other period of time as the Human Resources Department may from
time to time prescribe), and for any reason, suspend
participation in the Plan, which shall become effective on the
first payroll date coincident with or next following the ten (10)
day period (or such other period of time as the Human Resources
Department may from time to time prescribe). Any cash balance
accumulated in his or her account that has not already been
applied to purchase shares shall be returned to the Eligible
Employee as soon as administratively feasible. An Eligible
Employee who suspends participation may thereafter begin
participation again on any Entry Date following the date of
suspension, provided that the Eligible Employee notifies the
Company's Human Resources Department no later than the tenth
(10th) day prior to the Entry Date (or such other time period as
the Human Resources Department may from time to time set).
(d) Automatic Suspension. An Eligible Employee's participation in the
Plan with regard to future payroll deductions shall be
automatically suspended upon any of the following events:
(i) the employee is no longer an Eligible Employee;
(ii) the employee becomes Disabled;
(iii) the employee is on a Leave of Absence;
(iv) the employee elects to receive a hardship withdrawal as
described in Section 5(b) above;
(v) the employee retires;
(vi) the employee dies;
(vii) the employee terminates employment for any other
reason; or
5
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(viii) the employee (or any other person whose stock would be
attributed to such employee pursuant to Section 424(d)
of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%)
or more of the total combined voting power or value of
all classes of stock of the Company or an Affiliate or
a parent corporation, as defined under Section 424(e)
of the Code.
"Disability" or "Disabled" shall mean a permanent and total disability
as defined under Section 22(e)(3) of the Code. A "Leave of Absence"
shall be determined by the usual policies of the Company or Affiliate
and shall not include vacation time.
6. PURCHASE OF SHARES
Amounts credited to an Eligible Employee's account as of the last
trading day of each calendar quarter shall be applied to purchase fully
paid and non-assessable whole and/or fractional shares of Common Stock
for the account of that Eligible Employee at a purchase price equal to
eighty-five percent (85%) of Fair Market Value as of the day of
purchase. The purchase shall occur on the first Entry following the
calendar quarter in which payroll deductions were credited to an
Eligible Employee's account. Notwithstanding the foregoing, the Board of
Directors of the Company, in its sole discretion, may set the purchase
price at an amount that exceeds eighty-five percent (85%) of the Fair
Market Value as of the day of purchase. If all or any portion of the
shares cannot reasonably be purchased on the first Entry Date following
the calendar quarter in which payroll deductions were credited to an
account in the sole discretion of the Committee because of availability
or any other reason, such purchase shall be made as soon thereafter as
feasible. The Eligible Employee's account shall be charged for the
amount of the purchase, and the ownership of such share or shares shall
be appropriately evidenced on the books of the Company. "Fair Market
Value" shall mean the actual purchase price of a share of Common Stock
on a particular date, net of commissions.
7. DIVIDENDS
Cash dividends, if any, on shares of Common Stock acquired through the
Plan for which certificates have not been issued to the Eligible
Employee will be automatically paid by check directly to the Eligible
Employee by the Company's transfer agent. Cash dividends on shares of
Common Stock acquired through the Plan for which certificates have been
issued will not be administered by the Plan.
8. STOCK
The maximum number of shares of Common Stock which shall be available or
reserved for sale under the Plan shall be 100,000. Purchases of Common
Stock
6
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under the Plan shall be made by the Agent on the open market, or
in the sole discretion of the Committee, may be made by the Company's
delivery of treasury shares or newly-issued and authorized shares to the
Plan, upon such terms as the Committee may approve.
9. ISSUANCE OF CERTIFICATES
Certificates for whole shares of Common Stock shall not be issued to
Eligible Employees unless and until requested. A fee fixed by the Agent
may be charged for certificates of shares of Common Stock and for the
replacement of lost certificates. Certificates for a fractional share
shall not be issued under any circumstance. If an Eligible Employee
requests certificates for whole shares of Common Stock, any fractional
share of Common Stock shall remain in the Eligible Employee's account
during his or her employment, unless he or she requests cash in lieu of
the fractional share.
10. REGISTRATION OF CERTIFICATES
If an Eligible Employee requests a certificate, certificates may be
registered only in the name of the Eligible Employee.
11. RIGHTS AS A STOCKHOLDER
None of the rights or privileges of a stockholder of the Company shall
exist with respect to shares of Common Stock purchased under the Plan
unless and until such shares shall have been appropriately evidenced on
the books of the Company.
12. RETIREMENT, DEATH, DISABILITY, SECTION 16 APPLICABILITY, LEAVE OF
ABSENCE OR OTHER TERMINATION OF EMPLOYMENT
(a) Termination of Employment of Application of Section 16 of the
Exchange Act (Other Than Disability or Leave of Absence Prior to
Termination of Employment). Subject to such notice requirements
as the Committee may from time to time prescribe, in the event of
an Eligible Employee's retirement, death, or other termination of
employment or in the event an Eligible Employee becomes subject
to the requirements of Section 16 of the Exchange Act: (i) no
further payroll deductions shall be taken from any payroll checks
paid to such Eligible Employee on or after his or her
retirement, death or other termination of employment or date upon
which he or she became subject to the requirements of Section 16
of the Exchange Act; (ii) no further shares of Common Stock shall
be purchased for the account of the Eligible Employee; (iii) any
cash balance accumulated in the Eligible Employee's account shall
be paid to the Eligible Employee or, in the event of the Eligible
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Employee's death, to the Eligible Employee's estate; and (iv) any
dividends paid on shares of Common Stock on or after such
Eligible Employee's retirement, death, other termination of
employment or date upon which he or she became subject to the
requirements of Section 16 of the Exchange Act shall be
distributed to such Eligible Employee as a cash dividend. Nothing
in this paragraph shall be deemed to prevent an Eligible Employee
who becomes ineligible due to retirement, other termination of
employment or applicability of Section 16 of the Exchange Act
from becoming eligible again under Section 2.
(b) Disability or Leave of Absence Prior to Termination of
Employment. Subject to such notice requirements as the Committee
may from time to time prescribe, in the event of an Eligible
Employee's Disability or Leave of Absence, payroll deductions
shall only be taken from pay that is due and owing to the
Eligible Employee. To the extent that any cash balance has
accumulated in the Eligible Employee's account, such balance
shall be used to purchase shares of Common Stock on the first
Entry Date following the calendar quarter in which payroll
deductions were credited to the account, or such other day as the
Committee determines. With respect to an Eligible Employee who
becomes ineligible to participate due to a Disability or Leave of
Absence, shares of Common Stock held in such Eligible Employee's
accounts shall continue to be held in the Eligible Employee's
account unless he or she elects otherwise under paragraph (c)
below. In the event that such employee's Disability or Leave of
Absence ends and such employee returns to work as an Eligible
Employee, payroll deductions shall resume automatically in
accordance with his or her most recent authorization form in
effect prior to the Disability or Leave of Absence, unless he or
she elects otherwise. Paragraph (a) above shall apply to any
termination of employment following an Eligible Employee's
Disability or Leave of Absence.
(c) Treatment of Common Stock Upon Termination of Employment. With
respect to Eligible Employees who are not persons subject to
Section 16 of the Exchange Act, such Eligible Employees shall
elect one (or a combination) of the following alternatives upon
termination of employment (other than Disability or Leave of
Absence):
(i) the Eligible Employee may request the Agent to sell all
or a portion of shares of Common Stock for which
certificates have not been issued to him or her and
receive cash for such shares, subject to any brokerage
fees or commissions; or
8
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(ii) receive certificates, without charge, for all or a
portion of the whole shares of Common Stock and cash in
lieu of any fractional shares of Common Stock.
If such Eligible Employee does not make an election regarding the
treatment of his or her shares within the time period prescribed
by the Committee, such Eligible Employee shall automatically
receive certificates, without charge, for all whole shares of
Common Stock and cash in lieu of any fractional shares of Common
Stock.
An Eligible Employee who becomes ineligible to participate due to
Disability or Leave of Absence may elect one (or a combination)
of the above alternatives at any time on or after his or her
Disability or Leave of Absence.
(d) Treatment of Common Stock Upon Application of Section 16 of the
Exchange Act or Section 5(vii) of the Plan. If an Eligible
Employee becomes subject to Section 16 of the Exchange Act or
Section 5(d)(vii) of the Plan, the employee shall receive, at
such time he or she becomes subject to Section 16 of the Exchange
Act or Section 5(d)(vii) of the Plan, certificates, without
charge, for all of the whole shares of Common Stock and cash in
lieu of any fractional shares of Common Stock.
13. WITHHOLDING
The Company shall have the right to make such provisions as it deems
necessary or appropriate to satisfy any obligations to withhold federal,
state or local income or other taxes incurred by reason of the issuance
of shares of Common Stock pursuant to the Plan.
14. RIGHTS NOT TRANSFERABLE
Rights under the Plan are not transferable by an Eligible Employee other
than by will or the laws of descent and distribution, and are
exercisable during the Eligible Employee's lifetime only by the Eligible
Employee or his or her guardian or legal representative.
15. DESIGNATION OF BENEFICIARY
An Eligible Employee participating in the Plan may file, on forms
supplied by and delivered to the Company, a written designation of a
beneficiary who is to receive any shares of Common Stock and cash
remaining in such Eligible Employee's account under the Plan in the
event of Eligible Employee's death. Such designation
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of beneficiary may be changed by the Eligible Employee at any time by
written notice. If an Eligible Employee participating in the Plan is
married on the date of death and no beneficiary had been designated by
the Eligible Employee prior to the Eligible Employee's death, the
Eligible Employee's spouse will be presumed to be his beneficiary. If an
Eligible Employee participating in the Plan is not married on the date
of death and no beneficiary had been designated by the Eligible Employee
prior to the Eligible Employee's death, the Eligible Employee's
beneficiary shall be Eligible Employee's estate.
16. APPLICATION OF FUNDS
All funds received or held by the Company under the Plan may be used for
any corporate purpose.
17. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK
In the event of any change affecting Common Stock, such as stock splits
or stock dividends, such adjustment shall be made as may be deemed
equitable by the Board to give proper effect to such event and as
required by applicable law.
18. AMENDMENT OF THE PLAN
The Board may at any time, or from time to time, amend the Plan in any
respect.
19. TERMINATION OF THE PLAN
The Plan and all rights of employees under the Plan shall terminate at
any time at the discretion of the Board. Upon termination of the Plan,
(a) certificates for whole shares of Common Stock held in an Eligible
Employee's account under the Plan shall be issued, without charge; (b) a
cash payment shall be made in lieu of any fractional shares of Common
Stock; and (c) all cash balances accumulated in the accounts of Eligible
Employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS
The Company's obligation to sell and deliver Common Stock under the Plan
is subject to all applicable laws and regulations, including the receipt
of any approval of any governmental authority or stock exchange required
in connection with the authorization, issuance, or sale of such shares
of Common Stock.
21. PLAN SHARE PURCHASES
Purchases of outstanding shares of Common Stock may be made pursuant to
and on behalf of the Plan, upon such terms as the Committee may approve,
for delivery
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under the Plan. Shares delivered under the Plan may also be treasury
shares or newly issued shares.
22. NO EMPLOYMENT RIGHTS
The establishment and operation of this Plan shall not confer any legal
rights upon any employee or other person for a continuation of
employment, nor shall it interfere with the rights of the Company or an
Affiliate to discharge any employee and to treat him or her without
regard to the effect which that treatment might have upon him or her as
an Eligible Employee or potential Eligible Employee under the Plan.
23. NOTICES
Each Eligible Employee shall be responsible for furnishing the Agent and
the Human Resources Department with the current and proper address for
the mailing of notices and the delivery of other information. Any notice
required or permitted to be given shall be deemed given if directed to
the person to whom addressed at such address and mailed by regular
United States mail, first-class and prepaid. If any item mailed to such
address is returned as undeliverable to the addressee, mailing will be
suspended until the Eligible Employee furnishes the proper address.
24. SEVERABILITY OF PROVISIONS
If any provision of the Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other
provisions hereof, and the Plan shall be construed and enforced as if
such provisions had not been included.
25. 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.
26. APPROVAL OF BOARD
The Plan shall not be effective unless and until approved by the Board.
27. CONTROLLING LAW
This Plan shall be construed and enforced according to the laws of the
State of Delaware (without giving effect to conflict of law rules).
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QUAKER FABRIC CORPORATION
OF FALL RIVER
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
As of October 10, 1997
The Prudential Insurance Company of America
("Prudential")
Pruco Life Insurance Company ("Pruco")
Each Prudential Affiliate (as hereinafter defined)
which becomes bound by the provisions of this
Agreement as hereinafter provided (together with
Prudential and Pruco, the "Purchasers")
c/o Prudential Capital Group
One Gateway Center, 11th Floor
Newark, New Jersey 07102
Ladies and Gentlemen:
The undersigned, Quaker Fabric Corporation of Fall River (herein called
the "COMPANY"), hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF NOTES. The Company will authorize the
issue of its senior promissory notes, to be dated the date of issue thereof, in
the aggregate principal amount of (a) $15,000,000, to mature October 10, 2005,
to bear interest on the unpaid balance thereof until the principal thereof shall
have become due and payable at the rate of 7.09% per annum (the "7.09% Notes")
and on overdue payments at the rate specified therein, and to be substantially
in the form of Exhibit A-1 attached hereto, and (b) $30,000,000, to mature
October 10, 2007, to bear interest on the unpaid balance thereof from the date
thereof until the principal thereof shall have become due and payable at the
rate of 7.18% per annum (the "7.18% Notes") and on overdue payments at the rate
specified therein, and to be substantially in the form of Exhibit A-2 attached
hereto. The term "Notes" as used herein shall include each such senior
promissory note delivered pursuant to any provision of this Agreement and each
such senior promissory note delivered in substitution or exchange for any other
Note pursuant to any such provision.
2. PURCHASE AND SALE OF NOTES. The Company hereby agrees to sell to
Prudential and Pruco and, subject to the terms and conditions herein set forth,
Prudential and Pruco agree to purchase from the Company Notes in the aggregate
principal amount of
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$45,000,000 at 100% of such aggregate principal amount. The Company will deliver
to each of Prudential and Pruco, at the offices of Prudential Capital Group at
One Gateway Center, 11th Floor, Newark, New Jersey 07102, one or more Notes
registered in its name, evidencing the aggregate principal amount of Notes to be
purchased by Prudential and Pruco and in the denomination or denominations
specified in the Purchaser Schedule attached hereto, against payment of the
purchase price thereof by transfer of immediately available funds for credit to
the Company's account #511-91331 at BankBoston, N.A., Boston, Massachusetts, ABA
routing number 011000390 on the date of closing, which shall be October 10, 1997
or any other date on or before October 10, 1997 upon which the Company and you
may mutually agree (herein called the "CLOSING" or the "DATE OF CLOSING").
3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the
Notes to be purchased by you hereunder is subject to the satisfaction, on or
before the date of closing, of the following conditions:
3A. EXECUTION AND DELIVERY OF DOCUMENTS. The Company shall have
delivered, or cause to be delivered, to you duly executed, original or certified
copies of the following documents, each to be dated the date of closing unless
otherwise indicated:
(i) the Note(s) in substantially the form of Exhibits A-1 and A-2
attached hereto.
(ii) a favorable opinion of Cynthia L. Gordon, General Counsel of the
Company and the Guarantor (or such other counsel designated by the
Company and the Guarantor and acceptable to you) satisfactory to you
and substantially in the form of Exhibit B attached hereto and as to
such other matters as you may reasonably request. Each of the Company
and the Guarantor hereby directs each such counsel to deliver such
opinion, agrees that the issuance and sale of any Notes will constitute
a reconfirmation of such direction, and understands and agrees that you
will and are hereby authorized to rely on such opinion.
(iii) the Certificate of Incorporation of the Company and the
Guarantor, each certified as of a recent date by the Secretaries of
State of the State of Delaware and the Commonwealth of Massachusetts,
respectively, and the Bylaws of the Company and the Guarantor certified
by their respective Secretaries.
(iv) an incumbency certificate signed by the Secretary or an Assistant
Secretary and one other officer (who is not signing any other document
or agreement in connection herewith) of each of the Company and the
Guarantor certifying as to the names, titles and true signatures of the
officers of the Company and the Guarantor authorized to sign this
Agreement and the Notes and the other documents to be delivered
hereunder.
(v) certificate of the Secretary of the Company and the Guarantor (A)
attaching resolutions of the Board of Directors of the Company and the
Guarantor evidencing approval of the transactions contemplated by this
Agreement and the Guaranty and the
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issuance of the Notes and the Guaranty and the execution, delivery and
performance thereof, and authorizing certain officers to execute and
deliver the same, and certifying that such resolutions were duly and
validly adopted at a meeting duly held and such resolutions have not
since been amended, revoked or rescinded, (B) certifying that no
dissolution or liquidation proceedings as to the Company or the
Guarantor have been commenced or are contemplated, and (C) identifying
and attaching any proposed or effected amendments to or changes in the
Certificate of Incorporation of the Company and the Guarantor since the
date of the certified copies thereof provided pursuant to clause (iii)
above or, if none, so certifying.
(vi) an Officer's Certificate of the Company and the Guarantor
certifying that (A) the representations and warranties contained in
paragraph 8 shall be true on and as of the date of closing, except to
the extent of changes caused by the transactions herein contemplated;
(B) there shall exist on the date of closing no Event of Default or
Default; and (C) no condition, event or act that has or would
materially and adversely affect its business, property or assets,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole has occurred since July 5, 1997 nor is
threatened or reasonably likely to occur.
(vii) good standing certificates as to (A) the Company, from the
Commonwealth of Massachusetts and (B) the Guarantor, from the State of
Delaware.
(viii) certified copies of Requests for Information or Copies (Form
UCC-11) or equivalent reports listing all effective financing
statements which name the Company, the Guarantor or any Subsidiary
(under its present name and previous names) as debtor and which are
filed in the offices of the Secretaries of State of the Commonwealth of
Massachusetts and the State of Delaware together with copies of such
financing statements.
(ix) Additional documents or certificates with respect to such legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as may be reasonably requested by you.
3B. OPINION OF PURCHASER'S SPECIAL COUNSEL. You shall have received
from Robert S.M. Lawrence, Assistant General Counsel of Prudential or such other
counsel who is acting as special counsel for it in connection with this
transaction, a favorable opinion satisfactory to you as to such matters incident
to the matters herein contemplated as it may reasonably request.
3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Notes to be purchased by you on the date of closing on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, Section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
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subject you to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and you
shall have received such certificates or other evidence as you may request to
establish compliance with this condition.
3D. PAYMENT OF STRUCTURING FEE. The Company shall have paid you a
structuring fee of $22,500.
3E. GUARANTY. The Guaranty shall have been duly authorized, executed
and delivered by the Guarantor, each Purchaser shall have received a fully
executed counterpart thereof, and on the closing day, the Guaranty shall be in
full force and effect.
3F. PLEDGE AGREEMENT. The Pledge Agreement shall have been duly
authorized, executed and delivered by the parties thereto, each Purchaser shall
have received a fully executed counterpart thereof, and on the closing day, the
Pledge Agreement shall be in full force and effect.
4. PREPAYMENTS. The Notes shall be subject to prepayment with respect
to the required prepayments specified in paragraph 4A and the optional
prepayments permitted by paragraph 4B.
4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without Yield-Maintenance
Amount, (i) with respect to the 7.18% Notes, the sum of $15,000,000 on October
10, 2006 and (ii) with respect to the 7.09% Notes, the sum of $5,000,000 on
October 10 in each of the years 2003 and 2004, and such principal amounts of the
Notes, together with interest thereon to the prepayment dates, shall become due
on such prepayment dates. The remaining principal amount of the Notes, together
with interest accrued thereon, shall become due on the maturity date of the
Notes.
4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall
be subject to prepayment, in whole at any time or from time to time in part (in
integral multiples of $100,000 and in a minimum amount of $1,000,000), at the
option of the Company, at 100% of the principal amount so prepaid plus interest
thereon to the prepayment date and the Yield-Maintenance Amount, if any, with
respect to each Note. Any partial prepayment of the Notes pursuant to this
paragraph 4B shall be applied in satisfaction of required payments of principal
in inverse order of their scheduled due dates.
4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of
each Note irrevocable written notice of any prepayment pursuant to paragraph 4B
not less than 10 Business Days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes held by
such holder, to be prepaid on such date and stating that such prepayment is to
be made pursuant to paragraph 4B. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the prepayment date and together with the Yield-
Maintenance Amount, if any, with respect thereto, shall become due and payable
on such prepayment date. The Company
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shall, on or before the day on which it gives written notice of any prepayment
pursuant to paragraph 4B, give telephonic notice of the principal amount of the
Notes to be prepaid and the prepayment date to each Significant Holder which
shall have designated a recipient of such notices in the Purchaser Schedule
attached hereto or by notice in writing to the Company.
4D. APPLICATION OF REQUIRED PREPAYMENTS. In the case of each prepayment
of less than the entire unpaid principal amount of all outstanding Notes
pursuant to paragraphs 4A or 4B the amount to be prepaid shall be applied pro
rata to all outstanding Notes according to the respective unpaid principal
amounts thereof.
4E. NO ACQUISITION OF NOTES. The Company shall not, and shall not
permit any of its Subsidiaries of Affiliates to, prepay or otherwise retire in
whole or in part prior to their stated final maturity (other than by prepayment
pursuant to paragraphs 4A or 4B upon acceleration of such final maturity
pursuant to paragraph 7A), or purchase or otherwise acquire, directly or
indirectly, Notes held by any holder.
5. AFFIRMATIVE COVENANTS.
5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to
Prudential (on behalf of Pruco and any Prudential Affiliate which may become a
party to this Agreement) and to each Significant Holder in triplicate:
(i) as soon as practicable and in any event within 60 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidating and consolidated statements
of income and cash flows and a consolidated statement of shareholders'
equity of the Company and its Subsidiaries for the period from the
beginning of the current fiscal year to the end of such quarterly
period, and a consolidating and consolidated balance sheet of the
Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable
detail and certified by an authorized financial officer of the Company,
subject to changes resulting from year-end adjustments; provided,
however, that delivery pursuant to clause (iii) below of copies of the
Quarterly Report on Form 10-Q of the Guarantor for such quarterly
period filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (i) with respect to
consolidated statements;
(ii) as soon as practicable and in any event within 95 days
after the end of each fiscal year, consolidating and consolidated
statements of income and cash flows and a consolidated statement of
shareholders' equity of the Company and its Subsidiaries for such year,
and a consolidating and consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, setting forth in each case
in comparative form corresponding consolidated figures from the
preceding annual audit, all in reasonable detail and satisfactory in
form to the Required Holder(s) and, as to the consolidated
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statements, reported on by independent public accountants of recognized
national standing selected by the Company whose report shall be without
limitation as to the scope of the audit and satisfactory in substance
to the Required Holder(s) and, as to the consolidating statements,
certified by an authorized financial officer of the Company; provided,
however, that delivery pursuant to clause (iii) below of copies of the
Annual Report on Form 10-K of the Guarantor for such fiscal year filed
with the Securities and Exchange Commission shall be deemed to satisfy
the requirements of this clause (ii) with respect to consolidated
statements;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as the
Company or the Guarantor shall send to its public stockholders and
copies of all registration statements (without exhibits) and all
reports which it files with the Securities and Exchange Commission (or
any governmental body or agency succeeding to the functions of the
Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other
report submitted to the Company, the Guarantor or any Subsidiary by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Company, the Guarantor
or any Subsidiary; and
(v) with reasonable promptness, such other financial data as
such Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Subsidiaries with the provisions of paragraphs 6A through
and including 6H and stating that there exists no Event of Default or Default,
or, if any Event of Default or Default exists, specifying the nature and period
of existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of financial statements required by clause
(ii) above, the Company will deliver to each Significant Holder a certificate of
such accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof. Such
accountants, however, shall not be liable to anyone by reason of their failure
to obtain knowledge of any Event of Default or Default which would not be
disclosed in the course of an audit conducted in accordance with generally
accepted auditing standards. The Company also covenants that immediately and in
no event, later than 5 Business Days after any Responsible Officer obtains
knowledge of an Event of Default or Default, it will deliver to each Significant
Holder an Officer's Certificate specifying the nature and period of existence
thereof and what action the Company has taken, is taking or proposes to take
with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company and the Guarantor
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covenant that they will, upon the request of the holder of any Note, provide
such holder, and any qualified institutional buyer designated by such holder,
such financial and other information as such holder may reasonably determine to
be necessary in order to permit compliance with the information requirements of
Rule 144A under the Securities Act in connection with the resale of Notes,
except at such times as the Company or the Guarantor are subject to and in
compliance with the reporting requirements of section 13 or 15(d) of the
Exchange Act. For the purpose of this paragraph 5B, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that (i) as long as
no Default or Event of Default has occurred, once each fiscal quarter it will
permit any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and inspect any of the properties of the
Company and its Subsidiaries, to examine the corporate books and financial
records of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Company and its independent
public accountants, and (ii) if a Default or Event of Default has occurred or is
continuing, it will permit any Person designated by any Significant Holder in
writing, at the Company's expense, to visit and inspect any of the properties of
the Company and its Subsidiaries, to examine the corporate books and financial
records of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Company and its independent
public accountants, all at such reasonable times and as often as such
Significant Holder may reasonably request.
5D. COVENANT TO SECURE NOTE EQUALLY. The Company covenants that, if it
or any Subsidiary shall create or assume any Lien upon any of its property or
assets, whether now owned or hereafter acquired, other than Liens permitted by
the provisions of paragraph 6G (unless prior written consent to the creation or
assumption thereof shall have been obtained pursuant to paragraph 11C), it will
make or cause to be made effective provision whereby the Notes will be secured
by such Lien equally and ratably with any and all other Debt thereby secured so
long as any such other Debt shall be so secured; provided that the creation and
maintenance of such equal and ratable Lien shall not in any way limit or modify
the right of the holders of the Notes to enforce the provisions of paragraph 6G.
5E. MAINTENANCE OF BUSINESS. The Company covenants that it will not and
will not permit any Subsidiary to engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis, which would then
be engaged in by the Company and its Subsidiaries would be substantially changed
from the general nature of the business engaged in by the Company and its
Subsidiaries on the date of this Agreement.
6. NEGATIVE COVENANTS. So long as any Note or amount owing under this
Agreement shall remain unpaid, the Company covenants that:
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6A. INCURRENCE OF DEBT. The Company will not, and will not permit any
Subsidiary to, incur, assume, or in any manner become liable with respect to any
Debt except
(i) Debt represented by the Notes;
(ii) Current Debt outstanding on the date of this Agreement;
(iii) Funded Debt outstanding on the date of this Agreement
listed on Schedule 6A;
(iv) Funded Debt of any Subsidiary owing to the Company or a
Wholly- Owned Subsidiary, or Funded Debt of the Company owing to any
Wholly-Owned Subsidiary; and
(v) other Debt of the Company or any Subsidiary provided that,
after giving effect to the amount of Debt proposed to be created,
incurred or assumed and to the application of proceeds thereof required
under the terms on which it is created, incurred or assumed, Debt of
the Company and its Subsidiaries, on a consolidated basis, does not
exceed 400% of Consolidated EBITDA for the preceding four fiscal
quarters taken as one accounting period, provided further that, any
incurrence of Debt under the Revolving Credit Facility which does not
result in the aggregate balance outstanding under the Revolving Credit
Facility to exceed $5,000,000 shall not be subject to the provisions of
this clause (v).
6B. PRIORITY DEBT. The Company will not permit Priority Debt at any
time to exceed 20% of Consolidated Capital.
6C. MAINTENANCE OF TANGIBLE NET WORTH. The Company will not permit
Consolidated Tangible Net Worth at any time to be less than the sum of (a)
$45,000,000, (b) 50% of the sum of Consolidated Net Income Available for Net
Worth for the period from December 31, 1995 to and including the last day of the
fiscal year most recently ended prior to the measurement date and (c) the
aggregate amount of any net proceeds of private or public placement(s) of equity
securities by the Company.
6D. MAINTENANCE OF FIXED CHARGE COVERAGE. The Company will not permit
the Fixed Charge Ratio at any time to be less than 1.50 to 1.00.
6E. CONSOLIDATIONS AND MERGERS. The Company will not and will not
permit any Subsidiary to merge or consolidate with or into any Person, except as
follows:
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(i) any Subsidiary may merge into the Company, provided that
the Company shall be the surviving corporation;
(ii) any Subsidiary may merge with or into any other
Wholly-Owned Subsidiary; and
(iii) the Company may merge with any corporation provided that
the surviving or continuing corporation (a) is a corporation organized
under the laws of any state of the United States, (b) expressly assumes
the punctual payments under the Notes and the observance of all the
covenants contained in this Agreement in form and substance
satisfactory to the Required Holder(s), (c) at the time of such
consolidation or merger and after giving effect thereto no Default or
Event of Default shall have occurred and be continuing, and (d) after
giving effect to such consolidation or merger the surviving or
continuing corporation would be permitted to incur at least $1.00 of
additional Debt under the provisions of paragraph 6A(v).
6F. SALE OF ASSETS. The Company will not and will not permit any
Subsidiary to sell, lease, transfer or otherwise dispose (any such sale, lease,
transfer or disposition, a "Disposition") of any assets (including, without
limitation, except as permitted by paragraph 6I, shares of capital stock or Debt
of a Subsidiary), except
(i) sales of inventory in the ordinary course of business;
(ii) Dispositions of assets between Wholly-Owned Subsidiaries
and Dispositions between any Wholly-Owned Subsidiary and the Company;
(iii) Dispositions of assets that are obsolete, worn out or
are no longer useful in the Company's or any Subsidiary's business; and
(iv) the Company and its Subsidiaries may Dispose of their
respective assets for consideration provided that, after giving effect
thereto
(a) no Default or Event of Default exists, and
(b) the aggregate book value of, or if higher, the
fair market value (in each case determined at the time of the
Disposition) of all assets which have been Disposed of
pursuant to this clause (b) during any fiscal year shall not
have constituted more than 20% of Consolidated Assets as at
the end of the immediately preceding full fiscal year of the
Company, and
(c) the portions of Consolidated Net Income which
were contributed during the preceding fiscal year of the
Company most recently ended prior to the date of such
Disposition by all assets which have been Disposed of pursuant
to this
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clause (c) during any fiscal year shall not have constituted
more than 20% of Consolidated Net Income during any such
preceding fiscal year,
provided further that the Company or any Subsidiary may Dispose of
assets in excess of 20% of Consolidated Assets (as calculated in clause
(b)) or which have contributed in excess of 20% of Consolidated Net
Income (as calculated in clause (c)) if the Company shall, prior to or
contemporaneously with such Disposition, deliver an Officer's
Certificate to each holder of Notes certifying that the Company will
apply the proceeds of the assets which are in excess of 20% of
Consolidated Assets (as calculated in clause (b)) or which have
contributed in excess of 20% of Consolidated Net Income (as calculated
in clause (c)), within 180 days after such Disposition to purchase
assets of at least equivalent value to be used in the business of the
Company or any Subsidiary.
6G. LIENS. The Company will not, and will not permit any Subsidiary to,
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any property or asset (including any documents or instrument in
respect of goods or accounts receivable) of the Company or any Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom (whether or not provision is made for the equal and ratable securing
of the Notes in accordance with paragraph 5D), except:
(i) Liens existing on property or assets of the Company or any
Subsidiary as of the date of this Agreement that are described in
Schedule 6G to this Agreement;
(ii) Liens for taxes, assessments or other governmental
charges (a) not then due or payable or (b) or which can be paid without
penalty, or (c) the validity of which is being contested in good faith
and by proper proceedings and with respect to which adequate reserves
are maintained in accordance with GAAP;
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary course
of business which secure payment of obligations not more than 60 days
past due or which are being contested in good faith and by proper
proceedings and with respect to which adequate reserves are maintained
in accordance with GAAP;
(iv) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure (or to obtain letters of credit or surety or
performance bonds which secure) the performance of bids, tenders,
statutory obligations, in each case not incurred in connection with the
borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of property;
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(v) any attachment of judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not
have been discharged within 60 days after the expiration of any such
stay, or Liens securing surety, supersedeas or appeal bonds, or bonds
otherwise resulting from litigation or legal proceedings;
(vi) Liens consisting of encumbrances in the nature of zoning
restrictions, easements, rights and restrictions on the use of real
property, which in any case do not materially detract from the value of
such property or impair the Company's or any Subsidiary's use thereof;
(vii) any Lien created to secure all or any part of the
purchase price, or to secure Indebtedness incurred or assumed to pay
all of the purchase price, of property acquired by the Company after
the date of this Agreement, provided that (a) any such Lien shall be
confined solely to the item or items of property so acquired and, if
required by the terms of the instrument originally creating such Lien,
other property which is an improvement to or is acquired for specific
use in connection with such acquired property or which is real property
being improved by such acquired property, (b) the principal amount of
the Indebtedness secured by any such Lien shall at no time exceed an
amount equal to 100% of the lesser of (x) the cost to the Company of
the property so acquired and (y) the fair market value of such property
(as determined in good faith by the Board or chief executive officer of
the Company) at the time of such acquisition, and (c) any such Lien
shall be created, in the case of property, at the time of its
acquisition or within 180 days after its acquisition, or, in the case
of improvements, at the time of their completion or within 180 days
after their completion;
(viii) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Company or its
becoming a Subsidiary, or any Lien existing on any property acquired by
the Company or any Subsidiary at the time such property is so acquired
(whether or not the Indebtedness secured thereby shall have been
assumed), provided that no such Lien shall have been created or assumed
in contemplation of such consolidation or merger or such Person's
becoming a Subsidiary or such acquisition of property, and provided
further that each such Lien shall at all times be confined solely to
the item or items of property so acquired and, if required by the terms
of the instrument originally creating such Lien, other property which
is an improvement to or is acquired for specific use in connection with
such acquired property;
(ix) Liens securing Recourse Obligations, provided that the
aggregate amount of Recourse Obligations secured thereby does not
exceed $1,000,000;
(x) Liens on the stock of Subsidiaries permitted by paragraph
6L; and
(xi) other Liens not otherwise permitted by clauses (i)
through (x) of this
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paragraph 6G, provided that the Indebtedness secured by such Lien shall
be permitted by paragraph 6A and such Indebtedness, when aggregated
with Indebtedness securing Liens permitted by clauses (i), (vii) and
(viii) of this paragraph 6G and all other Priority Debt, does not
exceed 20% of Consolidated Capital, and provided further that such
Indebtedness (other than with respect to clause (vii) of this paragraph
6G) does not exceed the book value, or if less, the fair market value
of the property subject to such Lien at the time such Lien is incurred.
6H. RESTRICTED INVESTMENTS. The Company will not make or permit any
Subsidiary to make any Investment, except:
(i) loans or advances to any Subsidiary or the Company;
(ii) stock, obligations or securities of a Subsidiary or a
corporation which immediately after such purchase or acquisition will
be a Subsidiary;
(iii) notes receivable and securities received in connection
with the insolvency or inability to pay of any of the Company's account
debtors in the aggregate amount not to exceed at the time received the
greater of (a) $3,000,000 or (b) 10% of the outstanding face amount of
the Company's accounts receivable at such time;
(iv) Investments acquired solely in exchange for capital stock
(other than mandatorily redeemable preferred stock) of the Company;
(v) demand deposit accounts maintained in the ordinary course
of business;
(vi) the following investments, provided they are payable in
the United States in United States dollars:
(a) commercial paper of a United States issuer due
within 270 days of acquisition and rated A-1 or better by
Standard & Poor's Corporation or P-1 or better by Moody's
Investors Service, Inc., or, if any such rating agency shall
change its rating system, the equivalent rating to A-1 or P-1,
as the case may be;
(b) certificates of deposits or repurchase agreements
due within one year from the date of acquisition of commercial
banks organized under the laws of the United States, whose
deposits are at all times insured by the Federal Deposit
Insurance Corporation, having combined capital and surplus in
excess of $500,000,000 and a long-term deposit rating of A or
better from either Standard & Poor's Corporation or Moody's
Investors Service, Inc.; or
(c) marketable direct obligations of the United
States Government or obligations of any instrumentality or
agency thereof maturing one year or less after
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acquisition, the payment of the principal and interest of
which is unconditionally guaranteed by the United States; or
(vii) other investments not listed above, provided, that in no
event shall the aggregate amount of investments made pursuant to this
clause (vii) exceed at any time 15% of Consolidated Capital.
6I. RESTRICTIONS ON SUBSIDIARIES. The Company will not permit any
Subsidiary to issue, sell or dispose of any shares of its stock of any class
except to the Company or a Wholly-Owned Subsidiary.
6J. DIVIDENDS AND PURCHASE OF STOCK. At any time when a Default has
occurred and is continuing, the Company will not declare any dividends (except
dividends payable solely in shares of its capital stock) on any shares of any
class of its capital stock, or make any distributions or apply any of its
property or assets to the purchase, redemption or other retirement of, or set
apart any sum for the payment of any dividends on, any class of capital stock of
the Company.
6K. TRANSACTIONS WITH AFFILIATES. The Company will not and will not
permit any Subsidiary to effect any transaction with any Affiliate or Subsidiary
by which any asset or services of the Company or a Subsidiary is transferred to
such Affiliate or Subsidiary, or from such Affiliate or Subsidiary, or enter
into any other transaction with an Affiliate or Subsidiary on terms less
favorable to the Company or any Subsidiary than those that could be obtained in
an arm's-length transaction.
6L. PLEDGE OF SUBSIDIARY STOCK. Notwithstanding any provision contained
in this Agreement to the contrary, the Company will not and will not permit any
Subsidiary to grant a Lien on the stock of any Subsidiary, except that the
Company may pledge the stock of any Subsidiary, provided that, contemporaneous
with any such pledge, the Company shall cause all obligations owing to the
holders of Notes (including any Shelf Note) to be equally and ratably secured
and shall execute and deliver to each holder of Notes a duly executed Pledge
Agreement in the form attached hereto as Exhibit F.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or
Yield- Maintenance Amount payable with respect to any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any interest on
any Note for more
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than 5 days after the date due; or
(iii) (A) the Company or any Subsidiary defaults (whether as
primary obligor or as guarantor or other surety) in any payment of
principal of or interest on any other obligation for money borrowed (or
any Capitalized Lease Obligation, any obligation under a conditional
sale or other title retention agreement, any obligation issued or
assumed as full or partial payment for property whether or not secured
by a purchase money mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit) beyond any period of
grace provided with respect thereto, or (B) the Company or any
Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement
shall occur and be continuing) and the effect of such failure or other
event is to cause, or to permit the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause,
such obligation to become due (or to be repurchased by the Company or
any Subsidiary) prior to any stated maturity (provided that if any such
default (other than a payment default) shall have occurred with respect
to any Debt incurred under the Revolving Credit Facility, it shall not
be a Default under this clause (B) until the earliest of (x) the
acceleration of any Debt under the Revolving Credit Facility, (y) 30
days after the occurrence of such default with respect to the Revolving
Credit Facility, or (z) any default under clause (A) hereof), and
provided that the aggregate amount of all obligations as to which such
a payment default shall occur and be continuing or such a failure or
other event causing or permitting acceleration (or resale to the
Company or any Subsidiary) shall occur and be continuing exceeds
$5,000,000; or
(iv) any representation or warranty made by or on behalf of
the Company or any of its officers herein or in any other writing
furnished in connection with or pursuant to this Agreement or the
transactions contemplated hereby shall be false in any material respect
on the date as of which made; or
(v) the Company fails to perform or observe any agreement
contained in paragraph 6; or
(vi) the Company fails to perform or observe any other
agreement, term or condition contained herein and such failure shall
not be remedied within 30 days after any Responsible Officer obtaining
actual knowledge thereof; or
(vii) the Company, the Guarantor or any Significant Subsidiary
makes an assignment for the benefit of creditors or is generally not
paying its debts as such debts become due; or
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(viii) any decree or order for relief in respect of the
Company, the Guarantor or any Significant Subsidiary is entered under
any bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law,
whether now or hereafter in effect (herein called the "Bankruptcy
Law"), of any jurisdiction; or
(ix) the Company, the Guarantor or any Significant Subsidiary
petitions or applies to any tribunal for, or consents to, the
appointment of, or taking possession by, a trustee, receiver,
custodian, liquidator or similar official of the Company or any
Significant Subsidiary, or of any substantial part of the assets of the
Company, the Guarantor or any Significant Subsidiary, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than proceedings for the voluntary liquidation and
dissolution of a Subsidiary that is not a Significant Subsidiary)
relating to the Company, the Guarantor or any Significant Subsidiary
under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company, the Guarantor or any
Significant Subsidiary and the Company, the Guarantor or such
Significant Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any such
proceedings, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any Significant Subsidiary decreeing
a split-up of the Company or such Significant Subsidiary which requires
the divestiture of Significant Assets, or the divestiture of the stock
of a Significant Subsidiary, and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
(xiii) one or more final judgments in an aggregate amount in
excess of $1,000,000 is rendered against the Company or any Significant
Subsidiary and, within 90 days after entry thereof, any such judgment
is not discharged or execution thereof stayed pending appeal, or within
90 days after the expiration of any such stay, any such judgment is not
discharged; or
(xiv) the Guaranty or the Pledge Agreement, for any reason
other than satisfaction in full of the obligations of the Company
hereunder and under the Notes, ceases to be in full force and effect or
is declared null and void, or the validity or enforceability
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thereof is contested in a judicial proceeding or the Guarantor or
Pledgor denies that it has any further liability under the Guaranty or
the Pledge Agreement, as the case may be.
(xv) the Company or any ERISA Affiliate, in its capacity as an
employer under a Multiemployer Plan, makes a complete or partial
withdrawal from such Multiemployer Plan resulting in the incurrence by
such withdrawing employer of a withdrawal liability in an amount
exceeding $1,000,000;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option during the continuance of such
Event of Default, by notice in writing to the Company, declare all of the Notes
held by such holder to be, and all of the Notes held by such holder shall
thereupon be and become, immediately due and payable at par, together with
interest accrued thereon, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company, (b) if such event is
an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A
with respect to the Company, all of the Notes at the time outstanding shall
automatically become immediately due and payable, together with interest accrued
thereon and the Yield-Maintenance Amount, if any, with respect to each Note,
without presentment, demand, protest or notice of any kind, all of which are
hereby waived by the Company, and (c) with respect to any other event
constituting an Event of Default, the Required Holder(s) may at its or their
option, by notice in writing to the Company, declare all of the Notes to be, and
all of the Notes shall thereupon be and become, immediately due and payable
together with interest accrued thereon and together with the Yield-Maintenance
Amount, if any, with respect to each Note, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the
Notes shall have been declared immediately due and payable pursuant to paragraph
7A, the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount at the rate
specified in the Notes, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded
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and annulled pursuant to paragraph 7B, the Company shall forthwith give written
notice thereof to the holder of each Note at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and
be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company, as of the
date hereof, represents, covenants and warrants as follows:
8A. ORGANIZATION. The Company is a corporation duly organized and
existing in good standing under the laws of the Commonwealth of Massachusetts,
each Subsidiary is duly organized and existing in good standing under the laws
of the jurisdiction in which it is incorporated, and the Company and each
Subsidiary has the corporate power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.
8B. FINANCIAL STATEMENTS. The Company has furnished you with the
following financial statements, certified by a principal financial officer of
the Company: (i) consolidating and consolidated balance sheets of the Company
and its Subsidiaries as at the last day of each fiscal year in each of the three
fiscal years of the Company most recently completed prior to the date as of
which this representation is made or reaffirmed in writing to such Purchaser
(other than the fiscal year completed within 90 days prior to the date this
representation is reaffirmed for which audited financial statements have not
been released) and consolidating and consolidated statements of income and a
consolidated statement and cash flows of shareholders' equity of the Company and
its Subsidiaries for each such year, such consolidated statements reported on by
Arthur Andersen L.L.P. (or such other independent public accountants of
recognized national standing selected by the Company) and (ii) consolidating and
consolidated balance sheets of the Company and its Subsidiaries as at the end of
the quarterly period (if any) most recently completed prior to the date this
representation is made or reaffirmed (other than quarterly periods completed
within 60 days prior to such date for which financial statements have not been
released) and the comparable quarterly period in the preceding fiscal year and
consolidating and consolidated statements of income and a consolidated
statements and cash flows of shareholders' equity for the periods from the
beginning of the fiscal years in which such quarterly periods are included to
the end of such quarterly periods, prepared by the Company. Such financial
statements (including any related schedules and/or notes) are true and correct
in all material respects (subject, as to interim statements, to changes
resulting from audits and year-end
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adjustments), have been prepared in accordance with GAAP consistently followed
throughout the periods involved and show all liabilities, direct and contingent,
of the Company and its Subsidiaries required to be shown in accordance with such
principles. The balance sheets fairly present the condition of the Company and
its Subsidiaries as at the dates thereof, and the statements of income,
stockholders' equity and cash flows fairly present the results of the operations
of the Company and its Subsidiaries and their cash flows for the periods
indicated. There has been no material adverse change in the business, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole since July 5, 1997.
8C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which might result in any material adverse change in the
business, property or assets, condition (financial or otherwise) or operations
of the Company and its Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries
has outstanding any Debt except as permitted by paragraph 6A. There exists no
default under the provisions of any instrument evidencing such Debt or of any
agreement relating thereto which could have a material adverse effect on the
business, condition (financial or otherwise) or operations of the Company and
its Subsidiaries taken as a whole.
8E. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries
has good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the
balance sheet as at referred to in paragraph 8B (other than properties and
assets disposed of in the ordinary course of business), subject to no Lien of
any kind except Liens permitted by paragraph 6G. All leases necessary in any
material respect for the conduct of the respective businesses of the Company and
its Subsidiaries are valid and subsisting and are in full force and effect.
8F. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the knowledge of the
officers of the Company, are required to be filed, and each has paid all taxes
as shown on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting principles.
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, property or assets, condition (financial or otherwise) or
operations of the Company and its Subsidiaries taken as a whole. Neither the
execution nor delivery of this Agreement or the Notes, nor the offering,
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issuance and sale of the Notes, nor fulfillment of nor compliance with the terms
and provisions hereof and of the Notes will conflict with, or result in a breach
of the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of the Company or any of its Subsidiaries pursuant to,
the charter or by-laws of the Company or any of its Subsidiaries, any award of
any arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any of its Subsidiaries is subject. Neither the Company nor any
of its Subsidiaries is a party to, or otherwise subject to any provision
contained in, any instrument evidencing Indebtedness of the Company or such
Subsidiary, any agreement relating thereto or any other contract or agreement
(including its charter) which limits the amount of, or otherwise imposes
restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Notes except as set forth in the agreements listed in Schedule
8G attached hereto.
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than institutional investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
8I. USE OF PROCEEDS. The proceeds of sale of the Notes will be used (i)
to repay (a) all outstanding notes issued pursuant to the Note Purchase and
Private Shelf Agreement, dated December 18, 1995, by and between the Company and
Prudential, and (b) the outstanding balance of the Revolving Credit Facility
debt, and (ii) for general corporate purposes. None of such proceeds will be
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of such Regulation G. Neither the Company nor any Subsidiary owns or has
any present intention of acquiring any "margin stock" as defined in Regulation G
(12 CFR Part 207) of the Board of Governors of the Federal Reserve System
(herein called "margin stock"). Neither the Company nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Notes to violate Regulation G, Regulation T or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Exchange Act, in
each case as in effect now or as the same may hereafter be in effect.
8J. ERISA. (i) No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan (other than a Multiemployer Plan).
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(ii) No liability to the PBGC has been or is expected by the Company or
any ERISA Affiliate to be incurred with respect to any Plan (other than a
Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which
is or would be materially adverse to the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries taken as a whole.
(iii) Neither the Company, any Subsidiary nor any ERISA Affiliate has
incurred or presently expects to incur any withdrawal liability under Title IV
of ERISA with respect to any Multiemployer Plan which is or would be materially
adverse to the business, condition (financial or otherwise) or operations of the
Company and its Subsidiaries taken as a whole.
(iv) The execution and delivery of this Agreement and the issuance and
sale of the Notes will be exempt from, or will not involve any transaction which
is subject to, the prohibitions of section 406 of ERISA and will not involve any
transaction in connection with which a penalty could be imposed under section
502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code.
The representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of your representation in paragraph
9B.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
other action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the offering,
issuance, sale or delivery of the Notes or fulfillment of or compliance with the
terms and provisions hereof or of the Notes.
8L. COMPLIANCE WITH LAWS. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all federal, state, local and regional statutes, laws, ordinances
and judicial or administrative orders, judgments, rulings and regulations,
including those relating to protection of the environment except, in any such
case, where failure to comply would not result in a material adverse effect on
the business, condition (financial or otherwise) or operations of the Company
and its Subsidiaries taken as a whole.
8M. ENVIRONMENTAL COMPLIANCE. The Company and each Subsidiary and all
of their respective properties and facilities have complied at all times and in
all material respects with all applicable material Environmental and Safety Laws
except, in any such case, where failure to comply would not result in a material
adverse effect on the business, condition (financial or otherwise) or operations
of the Company and its Subsidiaries taken as a whole.
8N. DISCLOSURE. Neither this Agreement nor any other document,
certificate or
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statement furnished to you by or on behalf of the Company in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading. There is no fact peculiar to the Company or any of its Subsidiaries
which materially adversely affects or in the future may (so far as the Company
can now foresee) materially adversely affect the business, property or assets,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole and which has not been set forth in this Agreement
or in the other documents, certificates and statements furnished to you by or on
behalf of the Company prior to the date hereof in connection with the
transactions contemplated hereby.
8O. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any
Notes will be used to finance a Hostile Tender Offer.
9. REPRESENTATIONS OF THE PURCHASER. Each Purchaser represents
as follows:
9A. NATURE OF PURCHASE. You are not acquiring the Notes to be purchased
by you hereunder with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act, provided that the disposition
of your property shall at all times be and remain within your control.
9B. REGISTRATION OF NOTES. Such Purchaser understands that the Notes
have not been registered under the Securities Act and may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
from registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
9C. SOURCE OF FUNDS. The source of the funds being used by you to pay
the purchase price of the Notes constitutes assets: (i) allocated to the
"insurance company general account" of such Purchaser (as such term in defined
under Section V of the United States Department of Labor's Prohibited
Transaction Class Exemption ("PTCE") 95-60), and as of the date of the purchase
of the Notes such Purchaser satisfies all of the applicable requirements for
relief under Sections I and IV of PTCE 95-60; (ii) allocated to a separate
account maintained by such Purchaser in which no employee benefit plan, other
than employee benefit plans identified on a list which has been furnished by
such Purchaser to the Company, participates to the extent of 10% or more; or
(iii) of an investment fund, the assets of which do not include assets of any
employee benefit plan within the meaning of ERISA. For the purpose of this
paragraph 9B, the terms "SEPARATE ACCOUNT" and "EMPLOYEE BENEFIT PLAN" shall
have the respective meanings specified in section 3 of ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this
Agreement, the terms defined in paragraphs 10A and 10B (or within the text of
any other paragraph) shall have the respective meanings specified therein and
all accounting matters shall be
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subject to determination as provided in paragraph 10C.
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4B or is
declared to be immediately due and payable pursuant to paragraph 7A, as the
context requires.
"DISCOUNTED VALUE" shall mean, with respect to the Called
Principal of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (as converted to reflect the periodic basis on which interest on the
Notes is payable, if interest is payable other than on a semi-annual basis)
equal to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called
Principal of any Note, [0.50%] over the yield to maturity implied by (i) the
yields reported, as of 10:00 a.m. (New York City time) on the Business Day next
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Access Service (or such other
display as may replace Page 678 on the Telerate Access Service) for actively
traded U.S. Treasury securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or if such yields
shall not be reported as of such time or the yields reported as of such time
shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields
reported, for the latest day for which such yields shall have been so reported
as of the Business Day next preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the
Called Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled Payment
of such Called Principal (but not of interest thereon) by (b) the number of
years (calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and interest
thereon that would be
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due on or after the Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called
Principal of any Note, the date on which such Called Principal is to be prepaid
pursuant to paragraph 4B or is declared to be immediately due and payable
pursuant to paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any
Note, an amount equal to the excess, if any, of the Discounted Value of the
Called Principal of such Note over the sum of (i) such Called Principal plus
(ii) interest accrued thereon as of (including interest due on) the Settlement
Date with respect to such Called Principal. The Yield-Maintenance Amount shall
in no event be less than zero.
10B. OTHER TERMS.
"AFFILIATE" shall mean with respect to any designated entity,
any other entity (a) directly or indirectly controlling or controlled by or
under direct or indirect common control with such designated entity, (b) which
other entity beneficially owns or holds 5% or more of the shares of any class of
the Voting Stock of such designated entity or (c) 5% or more of any class of the
Voting Stock of which is beneficially owned or held by such designated entity.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any entity, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such entity, whether through the ownership of Voting Stock or by contract or
otherwise. Affiliate shall not include Subsidiaries.
"AUTHORIZED OFFICER" shall mean (i) in the case of the
Company, its chief executive officer, its chief financial officer, any vice
president of the Company designated as an "Authorized Officer" of the Company in
the Information Schedule attached hereto or any vice president of the Company
designated as an "Authorized Officer" of the Company for the purpose of this
Agreement in an Officer's Certificate executed by the Company's chief executive
officer or chief financial officer and delivered to Prudential, and (ii) in the
case of Prudential, any officer of Prudential designated as its "Authorized
Officer" in the Information Schedule or any officer of Prudential designated as
its "Authorized Officer" for the purpose of this Agreement in a certificate
executed by one of its Authorized Officers. Any action taken under this
Agreement on behalf of the Company by any individual who on or after the date of
this Agreement shall have been an Authorized Officer of the Company and whom
Prudential in good faith believes to be an Authorized Officer of the Company at
the time of such action shall be binding on the Company even though such
individual shall have ceased to be an Authorized Officer of the Company, and any
action taken under this Agreement on behalf of Prudential by any individual who
on or after the date of this Agreement shall have been an Authorized Officer of
Prudential and whom the Company in good faith believes to be an Authorized
Officer of Prudential at the time of such action shall be binding on Prudential
even though such individual shall have ceased to be an Authorized Officer of
Prudential.
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"BANKRUPTCY LAW" shall have the meaning specified in clause
(viii) of paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday, a
Sunday or, (ii) a day on which commercial banks in New York City are required or
authorized to be closed.
"CAPITAL LEASE" shall mean any lease or rental obligation
which, under GAAP, would be required to be capitalized on the books of the
Company or any Subsidiary, taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"CONSOLIDATED ASSETS" shall mean, on any date of
determination, the net assets of the Company and its Subsidiaries determined on
a consolidated basis.
"CONSOLIDATED CAPITAL" shall mean Consolidated Net Worth plus
Consolidated Debt (less any Guarantees of Debt of Persons other than the Company
or a Subsidiary included therein).
"CONSOLIDATED DEBT" shall mean, on any date of determination,
Debt of the Company and its Subsidiaries on a consolidated basis.
"CONSOLIDATED EBITDA" shall mean Consolidated Net Income
before deducting the amount of interest expenses, taxes, and depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" shall mean, for any period and
without duplication the aggregate of the Net Income of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP,
provided that, Consolidated Net Income shall not include any net income (or net
loss) of a Subsidiary for any periods during which it was not a Subsidiary, or
any net income (or net loss) of any business, properties or assets acquired (by
way of merger, consolidation, purchase or otherwise) by the Company or any
Subsidiary for any period prior to the acquisition thereof. In determining
Consolidated Net Income, any portion of the Net Income of any Subsidiary which
for any reason is unavailable for payment of dividends to the Company or another
Subsidiary, shall be excluded. In case of an acquisition, for purposes of
calculating Consolidated EBITDA and Pretax Income pursuant to paragraph 6A and
paragraph 6D, Net Income will be calculated on a pooling basis from the
Company's and the acquiree's audited financial statements.
"CONSOLIDATED NET INCOME AVAILABLE FOR NET WORTH" shall mean,
with reference to any period, Consolidated Net Income for all fiscal years of
the Company occurring during such period (taken as a cumulative whole),
determined in accordance with generally accepted accounting principles, without
deducting therefrom any deficit or net loss with respect to
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any fiscal year of the Company occurring therein.
"CONSOLIDATED NET WORTH" shall mean on any date of
determination, consolidated stockholders' equity of the Company and its
Subsidiaries determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean on any date of
determination, consolidated stockholders' equity of the Company and its
Subsidiaries determined in accordance with GAAP, minus the book value of the
intangible assets of the Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money (including all obligations,
evidenced by bonds, debentures, notes or other similar instruments) which by its
terms or by the terms of any instrument or agreement relating thereto matures on
demand or within one year from the date of the creation thereof and is not
directly or indirectly renewable or extendible at the option of the debtor to a
date more than one year from the date of the creation thereof, provided that
Indebtedness for borrowed money outstanding under a revolving credit or similar
agreement which obligates the lender or lenders to extend credit over a period
of more than one year shall constitute Funded Debt and not Current Debt, even
though such Indebtedness by its terms matures on demand or within one year from
the date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ENVIRONMENTAL AND SAFETY LAWS" shall mean all laws relating
to pollution, the release or other discharge, handling, disposition or treatment
of Hazardous Materials and other substances or the protection of the environment
or of employee health and safety, including without limitation, CERCLA, the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et. seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 7401 et. seq.), the
Clean Air Act (42 U.S.C. Section 401 et. seq.), the Toxic Substances Control Act
(15 U.S.C. Section 2601 et. seq.), the Occupational Safety and Health Act (29
U.S.C. Section 651 et. seq.) and the Emergency Planning and Community Right-To-
Know Act (42 U.S.C. Section 11001 et. seq.), each as the same may be amended and
supplemented.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member
of the same controlled group of corporations as the Company within the meaning
of section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
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"EVENT OF DEFAULT" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "DEFAULT" shall mean
any of such events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"FIXED CHARGE RATIO" shall mean, on any date of determination,
the ratio of (a) the sum of (i) Pretax Income, plus (ii) interest expense
(including amortization of debt discount and imputed interest on Capitalized
Leases) plus (iii) rental expense of the Company and its Subsidiaries, in each
case during the four fiscal quarters then preceding, taken on a consolidated
basis and determined in accordance with GAAP, over (b) Fixed Charges.
"FIXED CHARGES" shall mean, on the date of determination, the
aggregate amount of interest expense (including amortization of debt discount
and imputed interest on Capitalized Leases) and rental expense of the Company
and its Subsidiaries during the four fiscal quarters then preceding, taken on a
consolidated basis and determined in accordance with GAAP.
"FUNDED DEBT" shall mean, with respect to any Person, (a) all
Indebtedness of such Person for borrowed money (including all obligations
evidenced by bonds, debentures, notes or other similar instruments) which by its
terms or by the terms of any instrument or agreement relating thereto matures,
or which is otherwise payable or unpaid, more than one year from, or is directly
or indirectly renewable or extendible at the option of the debtor to a date more
than one year (including an option of the debtor under a revolving credit or
similar agreement obligating the lender or lenders to extend credit over a
period of more than one year) from, the date of the creation thereof, (b)
Capital Leases, (c) obligations to pay the deferred purchase price of property
or services other than credit on an open account basis customarily extended and
in fact extended in connection with normal purchases of goods and services, and
(d) Guarantees of the foregoing.
"GAAP" shall have the meaning set forth in paragraph 10C.
"GUARANTEE" shall mean, with respect to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with respect to
any indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect of
which such Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or service, regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide
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assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
"GUARANTOR" shall mean Quaker Fabric Corporation, the sole
shareholder of the Company.
"GUARANTY" shall mean the Guaranty Agreement, dated the date
hereof, executed by the Guarantor in favor of the Purchasers.
"HAZARDOUS MATERIALS" shall mean (i) any material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous material," "toxic substances" or any other formulations
intended to define, list or classify substances by reason of their deleterious
properties, (ii) any oil, petroleum or petroleum derived substance, (iii) any
flammable substances or explosives, (iv) any radioactive materials, (v) asbestos
in any form, (vi) electrical equipment that contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of 50 parts per
million, (vii) pesticides or (viii) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental agency
or authority or which may or could pose a hazard to the health and safety of
persons in the vicinity thereof.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of
proceeds of any Note, any offer to purchase, or any purchase of, shares of
capital stock of any corporation or equity interests in any other entity, or
securities convertible into or representing the beneficial ownership of, or
rights to acquire, any such shares or equity interests, if such shares, equity
interests, securities or rights are of a class which is publicly traded on any
securities exchange or in any over-the-counter market, other than purchases of
such shares, equity interests, securities or rights representing less than 5% of
the equity interests or beneficial ownership of such corporation or other entity
for portfolio investment purposes, and such offer or purchase has not been duly
approved by the board of directors of such corporation or the equivalent
governing body of such other entity prior to the date on which the Company makes
the Request for Purchase of such Note.
"INCLUDING" shall mean, unless the context clearly requires
otherwise, "including without limitation".
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"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items (excluding items of contingency reserves or of
reserves for deferred income taxes) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person as of the date on which Indebtedness is to be
determined, (ii) all indebtedness secured by any Lien on, or payable out of the
proceeds or production from, any property or asset owned or held by such Person,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) all indebtedness and other obligations of others with respect to which
such Person has become liable by way of a Guarantee.
"INVESTMENT" shall mean any loans or advances to, or purchases
or acquisitions of the securities or obligations of, any Person or the
assumption of any liability of another Person which, in each case, did not arise
from sales in the ordinary course of business.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, minimum or compensating deposit arrangement, lien (statutory or
otherwise) or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction) or any other
type of preferential arrangement for the purpose, or having the effect, of
protecting a creditor against loss or securing the payment or performance of an
obligation.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NET INCOME" shall mean, with respect to any Person, net
income (or net loss) of such Person determined in accordance with GAAP, but
excluding therefrom:
(a) proceeds of life insurance policies exceeding $250,000 in a
year;
(b) gains arising from (i) the sale or other disposition of
capital assets outside the ordinary course of business to the
extent the aggregate gains from such transactions exceed
losses from such transactions, abandonment's or other
disposition of such assets, (ii) any write-up of assets or
(iii) the acquisition of debt securities for a cost less than
principal and accrued interest;
(c) extraordinary items or transactions of a non-recurring or
non-operating and material nature or arising from gains or
sales relating to the discontinuance of operations;
(d) any portion of the net earnings (included in the determination
of such consolidated net earnings or such consolidated net
loss) of any Subsidiary which for any reason shall be
unavailable for payment of dividends;
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(e) any earnings, prior to the date of acquisition, of any other
person acquired in any manner;
(f) in the case of successor to the Company by consolidation or
merger or a transfer of its assets, any earnings of such
successor or transferee corporation prior to such
consolidation, merger or transfer of assets; and
(g) any deferred credit (or authorization of a deferred credit)
arising from the acquisition in any manner of any other
person.
"NOTES" shall have the meaning specified in paragraph 1.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by an Authorized Officer of the Company.
"PERSON" shall mean and include an individual, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PLAN" shall mean any employee pension benefit plan (as such
term is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"PLEDGE AGREEMENT" shall mean the Collateral Agency and Pledge
Agreement, substantially in the form of Exhibit C attached to this Agreement.
"PRETAX INCOME" shall mean, on any date of determination,
Consolidated Net Income, plus federal, state or other income taxes provisions
recorded by the Company and its Subsidiaries, during the four fiscal quarters
then preceding, taken on a consolidated basis.
"PRIORITY DEBT" shall mean the sum of (a) all Debt of any
Subsidiary (other than Debt owed to the Company or a wholly-owned Subsidiary)
plus (b) Consolidated Debt secured by Liens permitted by paragraph 6G(i), (vii),
(viii) and (xi) (without duplication), plus (c) preferred stock of any
Subsidiary not held by the Company or any wholly-owned Subsidiary, and in the
case of clauses (a) and (b) such Debt is permitted by paragraph 6A.
"PRUDENTIAL" shall mean The Prudential Insurance Company of
America.
"PRUDENTIAL AFFILIATE" shall mean any corporation or other
entity all of the Voting Stock (or equivalent voting securities or interests) of
which is owned by Prudential either directly or through Prudential Affiliates.
"PURCHASERS" shall mean Prudential and [Pruco Life Insurance
Company].
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"RECOURSE OBLIGATIONS" shall mean, at any time, the aggregate
amount that the Company or any Subsidiary may be required to pay to the
purchaser of any accounts receivable or other payment obligation of any Person
to the Company or any Subsidiary pursuant to any sale of accounts receivable or
any factoring arrangement, whether or not such amounts are contingent.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at
least 51% of the aggregate principal amount of the Notes, as the context may
require, from time to time outstanding.
"RESPONSIBLE OFFICER" shall mean the chief executive officer,
chief operating officer, chief financial officer or chief accounting officer of
the Company, general counsel of the Company or any other officer of the Company
involved principally in its financial administration or its controllership
function.
"REVOLVING CREDIT FACILITY" shall mean the Amended and
Restated Credit Agreement, dated as of December 18, 1995, among the Guarantor,
the Company, Quaker Fabric Mexico, S.A. de C.V., Quaker Textile Corporation and
the banking institutions listed on the signature pages thereto, as it may be
amended from time to time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SIGNIFICANT HOLDER" shall mean (i) Prudential, so long as
Prudential or any Prudential Affiliate shall hold any Note, or (ii) any other
holder of at least 5% of the aggregate principal amount of the Notes from time
to time outstanding.
"SUBSIDIARY" shall mean any corporation at least 50% of the
total combined voting power of all classes of Voting Stock of which shall, at
the time as of which any determination is being made, be owned by the Company
either directly or through Subsidiaries.
"SIGNIFICANT SUBSIDIARY" shall mean any Subsidiary (i) whose
assets, as of the last day of the preceding fiscal year, constituted 5% or more
of the total assets of the Company and its Subsidiaries, taken as a whole, or
(ii) that during the preceding fiscal year contributed on a consolidated basis
5% or more of Consolidated Net Income.
"SIGNIFICANT ASSETS" shall mean assets of the Company or any
Subsidiary that as of the last day of the preceding fiscal year, constituted 5%
or more of the total assets of the Company and its Subsidiaries, taken as a
whole, or (ii) that during the preceding fiscal year contributed on a
consolidated basis 5% or more of Consolidated Net Income.
"TRANSFEREE" shall mean any direct or indirect transferee of
all or any part of any Note purchased by any Purchaser under this Agreement.
"VOTING STOCK" shall mean, with respect to any corporation,
any shares of stock
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of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"WHOLLY-OWNED SUBSIDIARY" shall mean any Subsidiary all the
capital stock of which (except qualifying shares) is owned by the Company or any
Wholly-Owned Subsidiary.
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All
references in this Agreement to "generally accepted accounting principles" shall
be deemed to refer to generally accepted accounting principles in effect in the
United States at the time of application thereof. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all unaudited financial statements and certificates and reports as to financial
matters required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with the
most recent audited financial statements delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent
audited financial statements referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any
Purchaser shall hold any Note, it will make payments of principal of, interest
on, and any Yield- Maintenance Amount payable with respect to, such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City local time,
on the date due) to the account or accounts of such Purchaser specified in the
Purchaser Schedule attached hereto or such other account or accounts in the
United States as such Purchaser may from time to time designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. Each Purchaser agrees that, before disposing of any Note, it
will make a notation thereon (or on a schedule attached thereto) of all
principal payments previously made thereon and of the date to which interest
thereon has been paid. The Company agrees to afford the benefits of this
paragraph 11A to any Transferee which shall have made the same agreement as the
Purchasers have made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save
Prudential, each Purchaser and any Transferee harmless against liability for the
payment of, all out-of-pocket expenses arising in connection with such
transactions, including (i) all document production and duplication charges and
the fees and expenses of any special counsel engaged by the Purchasers or any
Transferee in connection with this Agreement, the transactions contemplated
hereby and any subsequent proposed modification of, or proposed consent under,
this Agreement, whether or not such proposed modification shall be effected or
proposed consent granted (provided that the Company shall not be required to pay
any fees or expenses with respect to the closing other than the
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structuring fee referred to in section 3D hereof), and (ii) the costs and
expenses, including attorneys' fees, incurred by any Purchaser or any Transferee
in enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Notes or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or the
transactions contemplated hereby or by reason of any Purchaser's or any
Transferee's having acquired any Note, including without limitation costs and
expenses incurred in any bankruptcy case. The obligations of the Company under
this paragraph 11B shall survive the transfer of any Note or portion thereof or
interest therein by any Purchaser or any Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act, of the Required Holder(s)
of the Notes except that, (i) with the written consent of the holders of all
Notes, and if an Event of Default shall have occurred and be continuing, of the
holders of all Notes, at the time outstanding (and not without such written
consents), the Notes may be amended or the provisions thereof waived to change
the maturity thereof, to change or affect the principal thereof, or to change or
affect the rate or time of payment of interest on or any Yield-Maintenance
Amount payable with respect to the Notes and (ii) without the written consent of
the holder or holders of all Notes at the time outstanding, no amendment to or
waiver of the provisions of this Agreement shall change or affect the provisions
of paragraph 7A or this paragraph 11C insofar as such provisions relate to
proportions of the principal amount of the Notes, or the rights of any
individual holder of Notes, required with respect to any declaration of Notes to
be due and payable or with respect to any consent, amendment, waiver or
declaration. Each holder of any Note at the time or thereafter outstanding shall
be bound by any consent authorized by this paragraph 11C, whether or not such
Note shall have been marked to indicate such consent, but any Notes issued
thereafter may bear a notation referring to any such consent. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a waiver of
any rights of any holder of such Note. As used herein and in the Notes, the term
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES. The Notes are issuable as registered notes without coupons in
denominations of at least $1,000,000, except as may be necessary to reflect any
principal amount not evenly divisible by $1,000,000. The Company shall keep at
its principal office a register in which the Company shall provide for the
registration of Notes and of transfers of Notes. Upon surrender for registration
of transfer of any Note at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Notes of like tenor
and of a like aggregate principal amount, registered in the name of such
transferee or transferees. At the option of the holder of any Note, such Note
may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal office of the Company. Whenever any Notes are
so surrendered for exchange, the Company shall, at its
32
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expense, execute and deliver the Notes which the holder making the exchange is
entitled to receive. Each installment of principal payable on each installment
date upon each new Note issued upon any such transfer or exchange shall be in
the same proportion to the unpaid principal amount of such new Note as the
installment of principal payable on such date on the Note surrendered for
registration of transfer or exchange bore to the unpaid principal amount of such
Note. No reference need be made in any such new Note to any installment or
installments of principal previously due and paid upon the Note surrendered for
registration of transfer or exchange. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and interest on, and any
Yield-Maintenance Amount payable with respect to, such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary. Subject to the preceding
sentence, the holder of any Note may from time to time grant participations in
all or any part of such Note to any Person on such terms and conditions as may
be determined by such holder in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT. All representations and warranties contained herein or made in
writing by or on behalf of the Company in connection herewith shall survive the
execution and delivery of this Agreement and the Notes, the transfer by any
Purchaser of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of any Purchaser or any
Transferee. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
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11G. SUCCESSORS AND ASSIGNS. All covenants and other
agreements in this Agreement contained by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto (including, without limitation, any Transferee)
whether so expressed or not.
11H. INDEPENDENCE OF COVENANTS. All covenants hereunder shall
be given independent effect so that if a particular action or condition is
prohibited by any one of such covenants, the fact that it would be permitted by
an exception to, or otherwise be in compliance within the limitations of,
another covenant shall not avoid the occurrence of a Default or Event of Default
if such action is taken or such condition exists.
11I. NOTICES. All written communications provided for
hereunder (other than communications provided for under paragraph 2) shall be
sent by first class mail or nationwide overnight delivery service (with charges
prepaid) and (i) if to any Purchaser, addressed as specified for such
communications in the Purchaser Schedule attached hereto or at such other
address as any such Purchaser shall have specified to the Company in writing,
(ii) if to any other holder of any Note, addressed to it at such address as it
shall have specified in writing to the Company or, if any such holder shall not
have so specified an address, then addressed to such holder in care of the last
holder of such Note which shall have so specified an address to the Company and
(iii) if to the Company, addressed to it at 941 Grinnell Street, Fall River, MA
02721, Attn: President, provided, however, that any such communication to the
Company may also, at the option of the Person sending such communication, be
delivered by any other means either to the Company at its address specified
above or to any Authorized Officer of the Company. Any communication pursuant to
paragraph 2 shall be made by the method specified for such communication in
paragraph 2, and shall be effective to create any rights or obligations under
this Agreement only if, in the case of a telephone communication, an Authorized
Officer of the party conveying the information and of the party receiving the
information are parties to the telephone call, and in the case of a telecopier
communication, the communication is signed by an Authorized Officer of the party
conveying the information, addressed to the attention of an Authorized Officer
of the party receiving the information, and in fact received at the telecopier
terminal the number of which is listed for the party receiving the communication
in the Information Schedule or at such other telecopier terminal as the party
receiving the information shall have specified in writing to the party sending
such information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or interest on, or Yield-Maintenance Amount payable with respect to, any Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day. If the date for any payment is extended to the next
succeeding Business Day by reason of the preceding sentence, the period of such
extension shall be included in the computation of the interest payable on such
Business Day.
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11K. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11L. DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only and do
not constitute a part of this Agreement.
11M. SATISFACTION REQUIREMENT. If any agreement, certificate
or other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser, to any holder of Notes
or to the Required Holder(s), the determination of such satisfaction shall be
made by such Purchaser, such holder or the Required Holder(s), as the case may
be, in the sole and exclusive judgment (exercised in good faith) of the Person
or Persons making such determination.
11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAW OF THE STATE OF NEW YORK.
11O. SEVERALTY OF OBLIGATIONS. The sales of Notes to the
Purchasers are to be several sales, and the obligations of Prudential and the
Purchasers under this Agreement are several obligations. No failure by
Prudential or any Purchaser to perform its obligations under this Agreement
shall relieve any other Purchaser or the Company of any of its obligations
hereunder, and neither Prudential nor any Purchaser shall be responsible for the
obligations of, or any action taken or omitted by, any other such Person
hereunder.
11P. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
11Q. BINDING AGREEMENT. When this Agreement is executed and
delivered by the Company, Pruco and Prudential, it shall become a binding
agreement between the Company, Pruco and Prudential.
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement between the
Company and you.
Sincerely,
QUAKER FABRIC CORPORATION OF
FALL RIVER
By: /s/ Paul J. Kelly
--------------------------------
Name: Paul J. Kelly
Title: Vice President--Finance
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Kevin J. Kraska
------------------------------
Name: Kevin J. Kraska
Title: Vice President
PRUCO LIFE INSURANCE COMPANY
By: /s/ Kevin J. Kraska
-------------------------------
Name: Kevin J. Kraska
Title: Assistant Vice President
36
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<PAGE>
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, dated as of October 10, 1997 (the "Guaranty
Agreement"), is made by QUAKER FABRIC CORPORATION, a Delaware corporation (the
"Guarantor") in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New
Jersey mutual insurance company, ("Prudential") and Pruco Life Insurance
Company, an Arizona corporation (herein referred to individually as the
"Purchaser" and collectively as the "Purchasers"). Terms not defined herein
shall have the meanings specified in the Note Agreement (as defined below).
WHEREAS, each of the Purchasers has severally agreed to purchase those certain
7.09% Senior Notes due October 10, 2005, in the aggregate principal amount of
$15,000,000 and 7.18% Senior Notes due October 10, 2007, in the aggregate
principal amount of $30,000,000 (collectively, the "Notes") to be issued by
Quaker Fabric Corporation of Fall River (the "Company") pursuant to that certain
Note Purchase Agreement dated as of October 10, 1997, by and between each of the
Purchasers and the Company (the "Note Agreement"); and
WHEREAS, it is a condition to the agreement of the Purchasers to purchase the
Notes that this Guaranty Agreement shall have been executed and delivered by the
Guarantor and shall be in full force and effect;
NOW THEREFORE, in order to induce, and in consideration of, the execution and
delivery of the Note Agreement and the purchase of the Notes by each OF the
Purchasers, the Guarantor hereby covenants, and agrees with, and represents and
warrants to each of the Purchasers as follows:
1. THE GUARANTY. The Guarantor hereby irrevocably and unconditionally
guarantees to each holder from time to time of any of the Notes, the due
and punctual payment in full of (i) the principal of, the Yield-Maintenance
Amount, if any, and interest on, and any other amounts due under, the Notes
when and as the same shall become due and payable (whether at stated
maturity or by required or optional prepayment or by acceleration or
otherwise) and (ii) any other sums which may become due under the terms and
provisions of the Note Agreement and the Notes (all such obligations
described in clauses (i) and (ii) above are herein called the "Guaranteed
Obligations"). The guaranty in the preceding sentence is an absolute,
present, and continuing guaranty of payment and not of collectibility and
is in no way conditional or contingent upon any attempt to collect from the
Company or upon any other action, occurrence or circumstance whatsoever. In
the event that the Company shall fail so to pay any of such! Guaranteed
Obligations, the Guarantor agrees to pay the same when due to the holders
of the Notes entitled thereto, without demand, presentment, protest or
notice of any kind, in lawful money of the United States of America, at the
place for payment specified in the Notes and the Note Agreement. Each
default in payment of principal of, Yield-Maintenance Amount, if any, or
interest
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<PAGE>
on any Note shall give rise to a separate cause of action hereunder and
separate suits may be brought hereunder as each cause of action arises. The
Guarantor hereby agrees that the Notes issued in connection with the Note
Agreement may make reference to this guaranty.
The Guarantor hereby agrees to pay and to indemnify and save the holders of
the Notes harmless from and against any damage, loss, cost or expense
(including attorneys' fees) which such holder may incur or be subject to as
a consequence, direct or indirect, of (i) any breach by the Guarantor or by
the Company of any warranty, covenant, term or condition in, or the
occurrence of any default under, this Guaranty Agreement, the Notes or the
Note Agreement, together with all expenses resulting from the compromise or
defense of any claims or liabilities arising as a result of any such breach
or default, and (ii) any legal action commenced to challenge the validity
of this Guaranty Agreement, the Notes or the Note Agreement.
2. OBLIGATIONS ABSOLUTE. The obligations of the Guarantor hereunder shall be
primary, absolute, irrevocable and unconditional, irrespective of the
validity, regularity or enforceability of the Notes or of the Note
Agreement, shall not be subject to any counterclaim, setoff, deduction or
defense based upon any claim the Guarantor may have against the Company or
any holder of the Notes or otherwise, and shall remain in full force and
effect without regard to, and shall not be released, discharged or in any
way affected by, any circumstance or condition whatsoever (whether or not
the Guarantor shall have any knowledge or notice thereof), including,
without limitation: (a) any amendment, modification of or supplement to the
Note Agreement, the Notes or any other instrument referred to therein
(except that the obligations of the Guarantor hereunder shall apply to the
Note. Agreement, the Notes or such other instruments as so amended,
modified or supplemented) or any assignment or transfer of any thereof or
of any interest therein, or any furnishing, acceptance or release of any
security for the Notes, (b) any waiver, consent, extension, indulgence or
other action or inaction under or in respect of the Notes or in respect of
the Note Agreement; (c) any bankruptcy, insolvency, readjustment,
composition, liquidation or similar proceeding with respect to the Company
or its property; (d) any merger, amalgamation or consolidation of the
Guarantor or of the Company into or with any other corporation or any sale,
lease or transfer of any or all of the assets of the Guarantor or of the
Company to any person; (e) any failure on the part of the Company for any
reason to comply with or perform any of the terms of any other agreement
with the Guarantor, or (f) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. The
Guarantor covenants that its obligations hereunder will not be discharged
except by payment in full of all of the Guaranteed Obligations.
3. WAIVER. The Guarantor unconditionally waives to the fullest extent
permitted by law, (a) notice of acceptance hereof, of any action taken or
omitted in reliance hereon and of any defaults by the Company in the
payment of any amounts due
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under the Notes or the Note Agreement, and of any of the matters referred
to in paragraph 2 hereof, (b) all notices which may be required by statute,
rule of law or otherwise to preserve any of the rights of each holder from
time to time of the Notes against the Guarantor, including, without
limitation, presentment to or demand for payment from the Company or the
Guarantor with respect to any Note, notice to the Company or to the
Guarantor of default or protest for nonpayment or dishonor and the filing
of claims with a court in the event of the bankruptcy of the Company, (b)
any right to the enforcement, assertion or exercise by any holder of the
Notes of any right, power or remedy conferred in this Guaranty Agreement,
the Note Agreement or the Notes, (d) any requirement or diligence on the
part of any holder of the Notes and (e) any other act or omission or thing
or delay to do any other act or thing which might in any manner or to any
extent vary the risk of the Guarantor or which might otherwise operate as a
discharge of the Guarantor.
4. OBLIGATIONS UNIMPAIRED. The Guarantor authorizes the holders of the Notes,
without notice or demand to the Guarantor and without affecting its
obligations hereunder, from time to time (a) to renew, compromise, extend,
accelerate or otherwise change the time for payment of, or otherwise change
the terms of, all or any part of the Notes, the Note Agreement or any other
instrument referred to therein, (b) to take and hold security for the
payment of the Notes, for the performance of this Guaranty Agreement or
otherwise for the indebtedness guaranteed hereby and to exchange, enforce,
waive and release any such security, (c) to apply any such security and to
direct the order or manner of sale thereof as the holders of the Notes in
their sole discretion may determine; (d) to obtain additional or substitute
endorsers or guarantors; (e) to exercise or refrain from exercising any
rights against the Company and others; and (f) to apply any sums, by
whomsoever paid or however realized, to the payment of the principal of,
Yield-Maintenance Amount, if any, and interest on the Notes and any other
Guaranteed Obligation hereunder. The Guarantor waives any right to require
the holders of the Notes to proceed against any additional or substitute
endorsers or guarantors or to pursue or exhaust any security provided by
the Company, the Guarantor or any other person or to pursue any other
remedy available to such holders.
5. SUBROGATION. The Guarantor will not exercise any rights which it may have
acquired by way of subrogation under this Guaranty Agreement, by any
payment made hereunder or otherwise, or accept any payment on account of
such rights, or any rights of reimbursement or indemnity or any rights or
recourse to any security for the Notes or this Guaranty Agreement unless
and until all of the obligations, undertakings or conditions to be
performed or observed by the Company pursuant to the Notes and the Note
Agreement at the time of the Guarantor's exercise of any such right shall
have been performed, observed or paid in full.
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<PAGE>
For a period of one year after the payment in full of the Guaranteed
Obligations, the Guarantor hereby waives (x) all rights of subrogation
which it may at any time otherwise have as a result of this Guaranty
Agreement (whether, statutory or otherwise) to the claims of the holders of
the Notes against the Company or any other guarantor of the Guaranteed
Obligations (each referred to herein as the "Other Party") and all
contractual, statutory or common law rights of reimbursement, contribution
or indemnity from any Other Party which it may, at any time otherwise have
as a result of this Guaranty Agreement; (y) any right to enforce any other
remedy which the holders of the Notes now have or may hereafter have
against any Other Party, any endorser or any other guarantor of all or any
part of the Guaranteed Obligations; and (z) all claims (as such term is
defined in the Bankruptcy Code) it may at any time otherwise have against
any Other Party arising from any transaction whatsoever, including without
limitation its right to assert or enforce any such claims.
6. REINSTATEMENT OF GUARANTY. This Guaranty Agreement shall continue to be
effective, or be reinstated, as the case may be, if and to the extent at
any time payment, in whole or in part, of any of the sums due to any holder
of the Notes for principal, Yield-Maintenance Amount, if any, or interest
on the Notes or any of the other Guaranteed Obligations is rescinded or
must otherwise be restored or returned by such holder upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company, or
upon or as a result of the appointment of a custodian, receiver, trustee or
other officer with similar powers with respect to the Company or any
substantial part of its property, or otherwise, all as though such payments
had not been made. If an event permitting the acceleration of the maturity
of the principal amount of the Notes shall at any time have occurred and be
continuing and such acceleration shall at such time be prevented or the
right of any holder of a Note to receive any payment under any Note shall
at such time be delayed or otherwise affected by reason of the pendency
against the Company of a case or proceeding under a bankruptcy or
insolvency law, the Guarantor agrees that, for purposes of this Guaranty
Agreement and its obligations hereunder, the maturity of such principal
amount shall be deemed to have been accelerated with the same effect as if
the holders of the Notes had accelerated the same in accordance with the
terms of the Note Agreement, and the Guarantor shall forthwith pay such
accelerated principal amount, accrued interest and Yield-Maintenance
Amount, if any, thereon and any other amounts guaranteed hereunder.
7. RANK OF GUARANTY. The Guarantor agrees that its obligations under this
Guaranty Agreement shall rank at least pari passu with all other unsecured
senior obligations of the Guarantor now or hereafter existing.
8. ADDITIONAL COVENANTS OF THE GUARANTOR.
(a) Maintenance of Corporate Existence, Etc. The Guarantor will at all
times do or cause to be done all things necessary to maintain and preserve
its
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corporate existence and the corporate existence of each subsidiary of the
Guarantor, and maintain, preserve and renew its and their licenses, patents
and franchises material to the conduct of the business of the Guarantor and
such subsidiaries taken as a whole, provided that nothing contained in this
Section 8(a) shall (i) require the Guarantor or any such subsidiary (other
than the Company) to maintain, preserve or renew any license, patent or
franchise not necessary or desirable in the conduct of its business, (ii)
prohibit the Guarantor from terminating the corporate existence of a
subsidiary (other than the Company) if in the reasonable opinion of an
officer of the Guarantor such termination is in the best interests of the
Guarantor and is not disadvantageous to the holders of the Notes and such
termination has been approved by the Board of Directors of the Guarantor,
or (iii) prohibit a consolidation or merger by one subsidiary with, or a
conveyance, transfer or lease by one subsidiary to, the Guarantor or
another subsidiary.
(b) Merger, Consolidation. The Guarantor shall not consolidate with or
merge into any other person or convey, transfer or lease all or
substantially all of its assets as an entirety (whether by one transaction
or a series of related transactions) to any person, unless:
(i) the successor entity formed by such consolidation or into
which the Guarantor is merged or the successor entity which acquires
by conveyance, transfer or lease all or substantially all of its
assets as an entirety shall be a solvent entity organized and existing
under the laws of the United States of America, any State thereof or
the District of Columbia and a substantial part of such successor
entity's assets, properties and operations shall be within the United
States;
(ii) such successor entity (or entity to which all or
substantially all of the Guarantor's assets shall have been conveyed,
transferred or leased) shall expressly assume in writing by instrument
or instruments reasonably satisfactory to the Required Holders, in
scope, form and legal effect, the due and punctual payment,
performance and observance of all obligations of the Guarantor under
this Guaranty Agreement, with the same effect as if such entity had
originally been named Guarantor herein or had been a party hereto;
(iii) prior to and immediately after giving effect to such
transaction, no default or Event of Default shall exist under the
Notes or the Note Agreement, or under any other document or instrument
referred to therein; and
(iv) the Guarantor shall have delivered to each of the holders of
the Notes an officer's certificate stating that such consolidation,
merger, conveyance, transfer or lease and the assumption agreement
required by clause (ii) above comply with the provisions of this
Section 8(b).
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<PAGE>
Upon any consolidation or merger, or any conveyance, transfer or
lease of all or substantially all of the assets of the Guarantor as an
entirety in accordance with this Section 8(b), the successor
corporation formed by such consolidation or into which the Guarantor
is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, the Guarantor under this Guaranty
Agreement, with the same effect as of such successor corporation had
been named as the Guarantor herein. No such conveyance, transfer or
lease of all or substantially all of the assets of the Guarantor (or
any successor corporation which shall theretofore have become such in
the manner prescribed in this Section 8(b)) from its obligations
hereunder unless and until the Guarantor (or such successor) shall
dissolve.
(c) The Guarantor's Interest in the Company. The Guarantor shall not
convey or transfer (whether by one transaction or a series of related
transactions) more than fifty percent of its equity ownership interest in
the Company to another person who is not an affiliate of the Guarantor
without first giving each holder of a Note an opinion of counsel,
reasonably satisfactory to the Required Holders, to the effect that such
conveyance or transfer shall not cause this Guaranty Agreement to cease to
be in full force and effect and valid and enforceable.
10. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR.
The Guarantor represents and warrants as follows:
(a) Incorporation, Good Standing and Location. The Guarantor is (i) a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, (ii) duly qualified and authorized to do
business and in good standing in every other jurisdiction where the nature
of its business requires such qualification and (iii) has all requisite
corporate power and authority, and all governmental licenses and permits,
to own and operate its properties and to carry on its businesses as
presently conducted. The Guarantor has the requisite corporate power to
enter into and perform its obligations under this Guaranty Agreement.
(b) Approval and Enforceability of Guaranty Agreement. The execution,
delivery and performance of this Guaranty Agreement have been duly
authorized by all necessary corporate action on the part of the Guarantor.
The Guaranty Agreement has been duty and validly executed and delivered and
constitutes the legal, valid and binding obligation of the Guarantor,
enforceable against it. In accordance with Us terms, subject to (I)
applicable bankruptcy, insolvency, moratorium, reorganization, receivership
and similar laws affecting the rights and remedies of creditors generally,
and (ii) general principles of equity
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<PAGE>
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
10. NOTICES. Unless otherwise specifically provided herein, all notices,
consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof shall be in
writing, and any such communication shall become effective when received,
addressed in the following manner: (a) if to the Guarantor, to 941 Grinnell
Street, Fall River, Massachusetts 02721, Attn: President, or (b) if to any
holder of a Note, to the respective addresses set forth in the Purchasers
Schedule to the Note Agreement; provided, however, that any such addressee
may change its address for communications by notice given as aforesaid to
the other parties hereto.
11. CONSTRUCTION. The section and subsection headings in this Guaranty
Agreement are for convenience of reference only and shall neither be deemed
to be a part of this Guaranty Agreement nor modify, define, expand or limit
any of the terms or provisions hereof. All references herein to numbered
sections, unless otherwise indicated, are to sections of this Guaranty
Agreement. Words and definitions in the singular shall be read and
construed as though in the plural and vice versa, and words in the
masculine, neuter or feminine gender shall be read and construed as though
in either of the other genders where the context so requires.
12. SEVERABILITY. If any provision of this Guaranty Agreement, or the
application thereof to any person or circumstances, shall, for any reason
or to any extent, be invalid or unenforceable, such invalidity or
unenforceability shall not in any manner affect or render invalid or
unenforceable the remainder of this Guaranty Agreement, and the application
of that provision to other persons or circumstances shall not be affected
but, rather, shall be enforced to the extent permitted by applicable law.
13. SUCCESSORS. The terms and provisions of this Guaranty Agreement shall be
binding upon and inure to the benefit of the Guarantor and the holders of
the Notes from time to time and their respective permitted successors,
transferees and assigns.
14. ENTIRE AGREEMENT; AMENDMENT. This Guaranty Agreement expresses the entire
understanding of the subject matter hereof; and all other understandings,
written or oral, are hereby merged herein and superseded. No amendment of
or supplement to this Guaranty Agreement, or waiver or modification of, or
consent under, the terms hereof shall be effective unless in writing and
signed by the party to be bound thereby.
15. TERM OF GUARANTY AGREEMENT. The Guaranty Agreement and all guarantees,
covenants and agreements of the Guarantor contained herein shall
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<PAGE>
continue in full force and effect and shall not be discharged until such
time as all of the Guaranteed Obligations shall be paid or otherwise
discharged in full.
16. SURVIVAL. All warranties, representations and covenants made by the
Guarantor herein or in any certificate or other instrument delivered by it
or on its behalf under this Guaranty Agreement shall be considered to have
been relied upon by the holders of the Notes and shall survive the
execution and delivery of this Guaranty Agreement, regardless of any
investigation made by the holder of the Notes or on their behalf.
17. FURTHER ASSURANCES. The Guarantor hereby agrees to execute and deliver all
such instruments and take all such action as the holders of the Notes may
from time to time reasonably request in order to effectuate fully the
purposes of this Guaranty Agreement.
18. GOVERNING LAW. This Guaranty Agreement has been executed and delivered in
the State of New York and shall be governed by, construed and enforced in
all respects in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely therein, without
regard to principles of conflicts of laws.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty Agreement
to be duly executed and delivered as of the date and year first above
written.
QUAKER FABRIC CORPORATION
By /s/ Paul Kelly
--------------------------------
Name: Paul Kelly
Title: Vice President--Finance
<PAGE>
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-------------------
COMMERCIAL LEASE
Between
CLOCKTOWER ENTERPRISES, INC.
(Landlord)
And
QUAKER FABRIC CORPORATION OF FALL RIVER
(Tenant)
<PAGE>
<PAGE>
1. REFERENCE DATA, EXHIBITS
1.1 Reference Data: Each reference in this lease to any of the following
subjects shall be construed to incorporate the data stated for that subject:
LANDLORD: Clocktower Enterprises, Inc. a Massachusetts corporation.
LANDLORD'S ADDRESS: c/o Hamlen & Co., Inc.
54 Canal Street, Suite 310
Boston, MA 02114
TENANT: Quaker Fabric Corporation of Fall River
TENANT'S ADDRESS: 941 Grinnell Street, Fall River, MA 02722
TENANT'S USES: Yarn manufacturing and warehousing.
THE PROPERTY: The land with existing building thereon known and numbered as
54 Graham Road, Fall River, Massachusetts.
THE BUILDING: The existing building on the Property.
THE LOT: The land of the Property.
TENANT'S SPACE: The Building.
THE PREMISES: Tenant's Space and a portion of the Lot, as specified in
Exhibit A.
RENTABLE AREA OF TENANT'S SPACE: 52,000 square feet.
TOTAL RENTABLE AREA OF THE BUILDING: 52,000 square feet.
TERM: Commencing August 1, 1997 and ending July 31, 2002, subject to the
provisions of Section 2.2 hereof.
FIXED RENT: Fixed Rent per annum shall be equal to the amount computed by
multiplying With respect to the Rentable Area of Tenant's Space
<TABLE>
<S> <C>
following periods: times:
----------------- -----
August 1, 1997 - July 31, 1998 $3.25
August 1, 1998 - July 31, 1999 $3.35
August 1, 1999 - July 31, 2000 $3.45
</TABLE>
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<TABLE>
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August 1, 2000 - July 31, 2001 $3.55
August 1, 2001 - July 31, 2002 $3.65
August 1, 2002 - July 31, 2003 $4.10* ) or Fair Rental Value,
August 1, 2003 - July 31, 2004 $4.10* ) as determined per
August 1, 2004 - July 31, 2005 $4.40** ) Exhibit 1.1, whichever
August 1, 2005 - July 31, 2006 $4.40** ) is greater
</TABLE>
* Only if First Extension Option is exercised pursuant to Section 2.2.
** Only if Second Extension Option is exercised pursuant to Section 2.2
INSURANCE AMOUNTS:
Bodily Injury: $1,000,000 per person and $2,000,000 per occurrence.
Property Damage: $ 2,500,000
ESTIMATED OCCUPANCY DATE: August 1, 1997
1.2 Exhibits: The Exhibits attached to this lease are incorporated as a
part of this lease. Each party agrees to perform all obligations stated therein
to be performed by such party.
1.3 Nature of Lease: Notwithstanding anything else herein contained to the
contrary, Landlord and Tenant acknowledge that this is intended to be a
so-called "net" lease such that Landlord shall not be obligated, unless the
provisions hereof expressly so require, to bear any expense necessary or
appropriate in connection with the ownership, repair, operation or maintenance
of the Property except only (i) any interest and amortization on mortgages
encumbering the fee title at any time and (ii) any estate, inheritance, income
or other personal taxes of Landlord.
2. LEASE, TERM, FIXED RENT, EXPANSION OF PREMISES
2.1 Landlord hereby leases to Tenant and Tenant hires from Landlord the
Premises.
2.2 Term: TO HAVE AND TO HOLD for a period beginning on the first day of
the Term, and continuing for the Term, unless sooner terminated as hereinafter
provided. So long as this lease is in full force and effect without default by
Tenant beyond the applicable grace period, Tenant may extend the Term for two
(2) periods of two (2) years each by written notice to Landlord given no sooner
than twelve (12) months and no later than six (6) months prior to the
commencement of the applicable extension period. The term of the First Extension
Period shall be from August 1, 2002, through July 31, 2004. The term of the
Second Extension Period shall be from August 1, 2004 through July 31, 2006. All
terms and provisions of this lease shall remain in effect throughout such
extension period, except that Tenant shall be entitled to no further extension
of the Term.
2.3 Rent: YIELDING AND PAYING for the Term, the Fixed Rent in equal monthly
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installments equal to 1/12 of the Fixed Rent for each full calendar month, and a
proportionate part thereof for any part of a month, payable in advance on the
first day of each month at the office of Landlord, and Additional Rent as
hereinafter specified. Payments shall be made to Landlord at Landlord's address.
All checks shall be made payable to Landlord or order.
2.4 Right of First Refusal to Rent Additional Space. During the term of
this Lease and any renewal or extension thereof, and provided that Tenant is not
in default or breach of any of the terms of this Lease, Tenant shall have a
right of first refusal to rent any additional building space on the Property as
hereinafter provided. If Landlord intends to construct and lease additional
building space on the Property, then Landlord shall notify Tenant of such
intention. If Landlord and Tenant are unable to agree on terms for the lease of
such additional building space within forty-five (45) days after receipt by
Tenant of such notice, then this right of first refusal shall terminate and
Landlord shall thereafter be free to lease such additional building space to any
person.
2.5 Expansion of Premises. Provided that Tenant is not in default hereunder
beyond the expiration of any applicable notice, grace or cure period, Landlord
agrees to use reasonable efforts to expand the Premises upon written request of
Tenant on the terms set forth in this Section 2.5. The expansion option set
forth herein is conditioned upon Landlord's ability to obtain financing at
commercially reasonable rates and the obtaining of all governmental permits
required for the expansion and the negotiation of mutually agreeable amendments
to the provision of this lease with respect to the Premises to be leased, the
Term of the Lease and the Fixed Rent payable under the Lease. If the parties are
unable to reach such agreement within forty-five (45) days after receipt of
Tenant's written notice of request for expansion, Tenant's right to expand
hereunder shall be deemed terminated and of no further force or effect.
3. CONSTRUCTION AND OCCUPANCY
3.1 Installation of Fixtures and Additions and Improvements by Tenant:
Landlord agrees to permit Tenant, pursuant to plans and specifications approved
by Landlord, to make additions and improvements and install fixtures after the
Tenant takes Occupancy of the Building. All such work shall be at Tenant's sole
risk and liability. Landlord has approved certain work to be performed by Tenant
as set forth on Exhibit B.
3.2 Repairs, Fixtures and Improvements: All repairs, alterations, additions
and restoration by Tenant or Landlord hereafter required or permitted shall be
done in good and workmanlike manner, including satisfactory materials, and in
compliance with all applicable laws and lawful ordinances, bylaws, regulations
and orders of governmental authority, and requirements of the insurers of the
Property and of any mortgagee. All improvements, alterations, and additions to
the building and fixtures and equipment appurtenant to it made or installed at
any time by either Landlord or Tenant shall be part of the Building, except that
signs, machinery, and equipment which are installed by Tenant and used solely in
the conduct of Tenant's business, and any items which Landlord has agreed prior
to installation by Tenant to be removable by Tenant, such as movable office
partitions and special air conditioning, shall not
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become part of the Building. Each party doing any construction or other work
agrees to pay for such work and discharge promptly any liens arising therefrom.
4. ADDITIONAL RENT: TAX EXPENSES, OPERATING EXPENSES, REPAIRS.
4.1 Additional Rent: Tenant's Additional Rent shall mean payments on
account of real estate taxes and assessments as provided in Section 4.2 and of
Operating Expenses for the Property (as defined in Section 4.3).
4.2 Tax Expenses: On or before the thirtieth (30th) day following receipt
by Tenant of the certified statement referred to below in this Section, Tenant
shall pay to Landlord, as additional rent, Landlord's Tax Expenses Allocable to
the Premises, prorated in the case of any fraction of a Tax Year falling within
the Term.
Not later than ninety (90) days after Landlord's Tax Expenses Allocable to
the Premises are determinable for the first such Tax Year or fraction thereof
and for each succeeding Tax Year or fraction thereof during the Term, Landlord
shall render Tenant a statement in reasonable detail certified by representative
of Landlord. The statement shall show, for the year or fraction thereof, as the
case may be, Real Estate Taxes on the Building and Lot, abatement receipts,
Landlord's Tax Expenses Allocable to the Premises, the calculation of the Tax
Base, and the amount payable by Tenant. Credit shall be given Tenant for any
amounts paid under the following paragraph.
In addition, commencing with the first day of the first month following the
delivery to Tenant of each statement referred to above and on the first day of
each month thereafter Tenant shall pay to Landlord, on account toward Tenant's
share of tax expenses anticipated for the then current year, one-twelfth of the
total annualized amount which Tenant was required to pay to Landlord with
respect to the tax period as shown on the most recent statement of tax expenses
delivered to Tenant.
Terms used herein are defined as follows:
(i) "Tax Year" means the twelve-month period beginning July 1 each year
during the Term or if the appropriate governmental tax fiscal period shall begin
on any date other than July 1, such other date.
(ii) "Landlord's Tax Expenses Allocable to the Premises" means 100% of
Landlord's Tax Expenses.
(iii) "Landlord's Tax Expenses" with respect to any Tax Year means the
aggregate real estate taxes on the Property with respect to that Tax Year,
reduced by abatement receipts with respect to that Tax Year.
(iv) "Real estate taxes" means all taxes and special assessments of every
kind and
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nature assessed by any governmental authority on the Lot or the building or the
Property which the Landlord shall become obligated to pay because of or in
connection with the ownership, leasing and operation of the Lot, the Building,
and the Property (including without limitation the excise prescribed by
Massachusetts General Laws Chapter 121A, Section 10 and amounts in excess
thereof paid to the City of Fall River pursuant to any agreement between
Landlord and said municipality) and reasonable expenses of any proceedings for
abatement of taxes. The amount of special taxes or special assessments to be
included shall be limited to the amount of the installment (plus any interest,
other than penalty interest, payable thereon) of such special tax or special
assessment required to be paid during the year in respect of which such taxes
are being determined. There shall be excluded from such taxes all income,
estate, succession, inheritance and transfer taxes; provided, however, that if
at any time during the Term the present system of ad valorem taxation of real
property shall be changed so that in lieu of the whole or any party of the ad
valorem tax on real property, there shall be assessed on Landlord a capital levy
or other tax on the gross rents received with respect to the Lot or Building or
Property, or a federal, state, county, municipal, or other local income,
franchise, excise or similar tax assessment, levy or charge (distinct from any
now in effect in the jurisdiction in which the Property is located) measured by
or based in whole or in part, upon any such gross rents, then any and all of
such taxes, assessments, levies or charges, to the extent so measured or based,
shall be deemed to be included within the term "real estate taxes" but only to
the extent that the same would be payable if the Lot, Building or Property were
the only property of Landlord.
4.3 Operating Expenses: The "Operating Expenses for the Property" means the
cost of operation of the Property, which shall exclude costs of special services
rendered to tenants (including Tenant) for which a separate charge is made, but
shall include, without limitation, the following: premiums for insurance,
carried with respect to the Property (including without limitation insurance
against loss of rent, additional rent, and other expenses paid or reimbursed by
tenants of the Property in case of fire or casualty); compensation and all
fringe benefits, workmen's compensation insurance premiums and payroll taxes
paid to, for or with respect to all persons engaged in the operating,
maintaining, or cleaning of the Building or Lot; steam, water, sewer, electric,
gas, oil and telephone charges (excluding utility charges separately chargeable
to tenants); a management company fee equal to $500 per month; cost of building
and cleaning supplies and equipment; cost of maintenance, cleaning and repairs
(other than repairs not properly chargeable against income or reimbursed from
contractors under guaranties); costs of snow removal and care of landscaping;
payments under service contracts with independent contractors; and all other
reasonable and necessary expenses paid in connection with the operation,
cleaning and maintenance of the Building and Lot and properly chargeable against
income.
4.4 Except as otherwise specifically provided herein, any sum, amount, item
or charge designated or considered as Additional Rent in this lease shall be
paid by Tenant to Landlord on the first day of the month following the date on
which Landlord notified Tenant of the amount payable or on the tenth day after
the giving of such notice, whichever shall be later. Any such notice shall
specify in reasonable detail the basis of such Additional Rent. Fixed and
Additional Rent shall be paid by Tenant to landlord without offset or deduction.
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5. INSURANCE
5.1 Liability Insurance: During the Term, Tenant shall maintain with
respect to the Premises, comprehensive liability insurance (including Bodily
Injury and Property Damage insurance) with limits at least as high as the amount
respectively stated therefor under Section 1 of this lease, or such higher
limits as a mortgagee may from time to time reasonably require.
5.2 Named Insured: All insurance carried by Tenant as hereinabove required
shall include provisions designating Landlord, Tenant and any mortgagee each as
one of the named insured, and shall otherwise include terms and conditions
reasonably acceptable to Landlord and such mortgagee. Each party,
notwithstanding any provisions of this lease to the contrary, waives any rights
of recovery against the other for loss or injury against which the waiving party
is protected by insurance, so long as the applicable policy is not thereby
prejudiced and the other party pays any resulting excess premium, reserving,
however, any rights with respect to any excess of loss or injury over the amount
covered by the insurance. No deductible in excess of $10,000 shall be permitted
on any insurance without the express written consent in advance of Landlord and
any mortgagee, and if consented to, Tenant hereby agrees to indemnify and hold
harmless Landlord and the mortgagee to the full extent of any deductible and to
the extent of any additional amount not covered by insurance.
6. ADDITIONAL COVENANTS OF TENANT
Tenant agrees during the Term and such time as Tenant occupies any part of
the Premises:
6.1 To pay when due the Fixed and Additional Rent, and all charges by
public authority or utility for water, gas, oil, electricity (including without
limitation gas, oil and electricity used to produce heat and air conditioning),
telephone, sewer and other services rendered to the Premises and service
inspections made therefor, whether called charge, tax assessment, fee or
otherwise.
6.2 To keep the Premises neat and clean and in the same order and repair as
they are in on the commencement of the Term or may be put in during the Term,
reasonable wear and tear and damage by fire and casualty only excepted. Tenant's
obligation hereunder includes the making of all repairs as needed, including
without limitation interior repainting, replacement of glass injured or broken,
keeping exterior windows and doors watertight, and keeping all plumbing,
lighting, heating, air conditioning, sprinkler and other utility systems
servicing the Premises (wherever located) in good operating condition. In the
event capital expenditures (i.e. expenditures not properly chargeable against
income or reimbursed from contractors under guaranties) are required to replace
structural elements of the Building, Landlord shall bear the full cost thereof.
6.3 Not to permit in the Premises any auction sale, or the emission from
the Premises
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of any odor, or activity which is in violation of applicable laws or ordinances,
or liable to invalidate the insurance premiums or liable to make necessary any
alteration or addition to the Property.
6.4 Not, without on each occasion first obtaining Landlord's approval, to
erect any signs on the Premises, or to make any alterations or additions.
6.5 Not to overload or deface the Premises nor permit any use contrary to
law, or lawful ordinance, by-law, regulation or order of public authority,
whether with respect to safety appliances or to alterations, repairs, or
additions required as a condition for continuance of use, or otherwise.
6.6 Tenant will be responsible for all costs, if any, and compliance with
the Americans With Disabilities Act and agrees to indemnify Landlord against any
and all costs, expenses, and liabilities arising out of any failure to comply
with such Act.
6.7 To use the Premises only for the Tenant's Uses, and for such other uses
as are specifically permitted in writing by Landlord, and to procure any
licenses and permits from time to time required therefor.
6.8 To assume exclusive control of the Premises, and to defend, indemnity
and save Landlord harmless from any liability for injury, loss, claim, or damage
to or of any person or property while on the Premises unless arising from any
omission, fault, negligence or other misconduct of Landlord; and to defend,
indemnify and save Landlord harmless from all injury, loss, claim or damage to
or of any person or property anywhere occasioned by any omission, fault,
negligence or other misconduct of Tenant; and to keep all Tenant's employees and
contractors on the premises covered by Worker's Compensation insurance
(including the right to self insure in compliance with Worker's Compensation
requirements).
6.9 That all of the furnishings, fixtures, equipment, effects and property
of every kind, nature and description of Tenant, and of all persons claiming by,
through or under Tenant, which during the continuance of this lease or any
occupancy of the Premises, may be on the Premises, shall be at the sole risk and
hazard of Tenant, and if the whole or any part thereof shall be destroyed or
damaged by fire, water, or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, or by theft or from any other cause, no part
of said loss or damage is to be charged to or be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any other person, for any injury, loss, damage, or
liability to the extent prohibited by law.
6.10 To pay on demand Landlord's expenses, including reasonable attorney's
fees, incurred in enforcing any obligation of Tenant under this lease after
Tenant's failure to perform any such obligation, or in curing any default by
Tenant under this lease, and to reimburse Landlord promptly on demand for all
reasonable expenses, including attorney's fees, incurred by Landlord in
connection with all requests by tenant for consent or approval hereunder.
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6.11 To permit Landlord and others designated by Landlord (including
without limitation prospective purchasers, lenders and tenants) to examine the
Premises at reasonable times, subject to Tenant's reasonable security
regulations and business convenience, and, during the year prior to expiration
of the Term, to permit Landlord to keep affixed in suitable places without
obstruction of Tenant's signs or displays, notices for letting; and
6.12 At the expiration of the Term or earlier termination of this lease,
promptly and peaceably to yield up, broom clean and neat, the Premises and all
improvements, alterations and additions thereto, and all fixtures and equipment
servicing the building, in the same good order and repair as the same are in at
the commencement of the term or shall be put in during the Term, reasonable wear
and tear excepted, provided however that in the event of fire, casualty or
taking, Tenant's obligations in this regard shall be as provided in Section 8.
Tenant agrees thereupon to remove Tenant's signs, goods and effects, and
machinery, fixtures and equipment used solely in the conduct of Tenant's
business (and at the request of Landlord, any alterations or additions not
approved by landlord under this Section 6) and to repair any damage caused by
the removal and to restore the Premises to their former condition. Such removal,
repair and restoration shall be completed by the expiration of the Term, or
within thirty days of any earlier termination of this lease.
6.13 Tenant covenants and agrees that the Tenant shall not cause or permit
any hazardous or toxic wastes, hazardous or toxic substances or hazardous or
toxic materials (collectively, "Hazardous Materials") to be used, generated,
stored or disposed of on, under or about, or transported to or from, the
Property (collectively, "Hazardous Materials Activities") without first
receiving Landlord's written consent, which may be withheld for any reason and
revoked at any time. If Landlord consents to any such Hazardous Material or
Hazardous Materials, Tenant's shall conduct them at Tenant's expense and in
strict compliance with all applicable Regulations, as hereinafter defined, and
using all necessary and appropriate precautions to prevent any spill, discharge,
release or exposure to persons or property. Landlord shall not be liable to
Tenant for any loss, cost, expense, claims, damage or liability arising out of
any Hazardous Materials Activities by Tenant, Tenant's employees, agents,
contractors, licensees, customers or invitees, whether or not consented to by
Landlord. Tenant shall indemnify, defend with counsel acceptable to Landlord,
and hold Landlord harmless from and against any and all loss, costs, expenses,
claims, damages or liabilities arising out of all Hazardous Materials Activities
on the Property by Tenant, whether or not consented to by Landlord, which
obligation shall survive the termination of this Lease. For purposes hereof,
Hazardous Materials shall include but not be limited to substances defined as
"hazardous substances", "toxic substances", or "hazardous wastes" in the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the Federal Hazardous Materials Transportation Act, as amended; the
Federal Resource Conservation and Recovery Act, as amended ("RCRA"); those
substances defined as "hazardous wastes" in the Massachusetts Hazardous Waste
Facility Siting Act, as amended (Massachusetts General Laws Chapter 21D); those
substances defined as "hazardous materials" or "oil" in Massachusetts General
Laws Chapter 21E, as amended; and as such substances are defined in any
regulations adopted and publication promulgated pursuant to any of said laws
(collectively, "Regulations").
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If Landlord consents to any Hazardous Materials Activities, prior to using,
storing or maintaining any Hazardous Materials on or about the Property, Tenant
shall provide Landlord with a list of the types and quantities thereof, and
shall update such list as necessary for continued accuracy. Tenant shall also
provide Landlord with a copy of any Hazardous Materials inventory statement
required by any applicable Regulations, and any update filed in accordance with
any applicable Regulations. If Tenant's activities violate or are alleged by any
public authority to violate any Regulations or cause a spill, discharge, release
or exposure to any persons or property, Tenant shall cease such activities
immediately upon notice from Landlord. Tenant shall immediately notify Landlord
both by telephone and in writing of any spill, discharge, release or exposure of
Hazardous Materials or of any condition constituting an "imminent hazard" under
any Regulations. Landlord, Landlord's representatives and employees may enter
the Premises at any time during the Term to inspect Tenant's compliance
herewith, and may disclose any spill, discharge, release, or exposure or any
violation of any Regulations to any governmental agency with jurisdiction.
7. COVENANTS OF LANDLORD
7.1 Covenant of Quiet Enjoyment: Landlord agrees that Tenant, in paying the
Fixed and Additional Rent and performing Tenant's obligations under this lease,
shall peacefully and quietly have, hold and enjoy the Premises through the Term
or until this lease is terminated as hereinafter provided. Landlord, may,
however, enter the Premises for the purpose of making such repairs or
renovations as Landlord may desire to make, or as may be necessary for the
maintenance of the building, or as may be required of Landlord under the terms
of this lease, provided that such entry shall not unreasonably interfere with
the conduct of Tenant's business.
7.2 [Intentionally omitted]
7.3 Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from the necessity of Landlord or its agents entering the
Premises for any of the purposes authorized in this lease, or for repairing the
Premises or any portion of the Building, however, the necessity may occur. In
case Landlord is prevented or delayed from making repairs, alterations or
improvements, or furnishing any services or performing any other covenant or
duty to be performed on Landlord's part by reason of any cause reasonably beyond
Landlord's control, Landlord shall not be liable to tenant therefor, nor, except
as expressly otherwise provided in case of fire or taking, shall Tenant be
entitled to any abatement or reduction of rent by reason thereof, nor shall the
same give rise to a claim in Tenant's favor that such failure constitutes actual
or constructive, total or partial, eviction from the Premises.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary repairs have
been completed; provided however, that in each instance of stoppage, Landlord
shall exercise reasonable diligence to eliminate the cause thereof. Except in
case of emergency repairs Landlord will give Tenant reasonable advance notice of
any contemplated stoppage and will use reasonable efforts to avoid
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unnecessary inconvenience to Tenant by reason thereof.
8. CASUALTY OR TAKING
8.1 In case during the Term all or any substantial part of the Premises or
the Building or the Lot are damaged materially by fire or other casualty or by
action of public or other authority in consequence thereof, or are taken by
eminent domain or Landlord receives compensable damage by reason of anything
lawfully done in pursuance of public or other authority, this Lease shall
terminate at Landlord's election, which may be made notwithstanding Landlord's
entire interest may have been divested, by notice given to Tenant within
forty-five (45) days after the election to terminate arises, specifying the
effective date of termination. The effective date of termination specified by
Landlord shall be not less than fifteen (15) nor more than thirty (30) days
after the date of notice of such termination. Unless terminated pursuant to the
foregoing provisions, this lease shall remain in full force and effect following
any such damage or taking, subject, however, to the following provisions. If in
any such case the Premises are rendered unfit for use and occupation and this
lease is not so terminated, Landlord shall use reasonable efforts (following the
expiration of the forty-five (45) day period in which Landlord may terminate
this lease) to put the Premises, or in case of taking what may remain thereof
into proper condition for use and occupation (excluding in case of both casualty
and taking any items installed or paid for by Tenant which Tenant may be
required to remove pursuant to this lease). Landlord shall not be required to
expend sums in excess of the net proceeds received on account of such casualty
or taking. A just proportion of the Fixed Rent and Additional Rent according to
the nature and extent of the injury shall be abated until the Premises or such
remainder shall have been put by Landlord in such condition. In case of a taking
which permanently reduces the area of the Premises, a just proportion of the
Fixed Rent and Additional Rent shall be abated for the remainder of the Term.
8.2 Landlord reserves to itself any and all rights to receive awards made
for damages to the Premises and Building and Lot and the leasehold hereby
created, or any one or more of them, accruing by reason eminent domain or by
reason of anything lawfully done in pursuance of public or other authority.
Tenant hereby releases and assigns to Landlord all Tenant's rights to such
awards, and covenants to deliver such further assignments and assurances thereof
as Landlord may from time to time request, hereby irrevocably designating and
appointing Landlord as its attorney-in-fact to execute and deliver in Tenant's
name and behalf all such further assignments thereof.
8.3 In the event of any taking of the Premises or any part thereof for
temporary use, (i) this lease shall be and remain unaffected thereby and rent
shall not abate, and (ii) Tenant shall be entitled to receive for itself such
portion or portions of any award made for such use with respect to the period of
the taking which is within the Term, provided that is such taking shall remain
in force at the expiration or earlier termination of this lease, Tenant shall
then pay to Landlord a sum equal to the reasonable cost of performing Tenant's
obligations with respect to surrender of the Premises and upon such payment
shall be excused from such obligations.
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8.4 Notwithstanding any provisions to the contrary contained in this
Section or elsewhere in this lease, (a) in the event that any of its property
otherwise removable hereunder is taken, Tenant may, seek compensation therefor
from the taking authority and (b) in the event that a portion of the Premises is
taken and the remainder thereof, in the reasonable judgment of Tenant, is not
suitable for the conduct of Tenant's business operations, Tenant may terminate
this lease by notice given to Landlord within fifteen (15) days following such
partial taking. Any termination by either party pursuant to this Section 8 shall
be without prejudice to any rights accruing prior thereto.
9. DEFAULTS OF TENANT
9.1 Events of Default: This lease is upon the further condition that if (a)
Tenant shall default in the due and punctual payment of rent or any other sum
payable hereunder and such default shall continue for five (5) days after
written notice from Landlord; or (b) Tenant shall neglect or fail to perform or
observe any of Tenant's other covenants herein, and such neglect or failure
shall continue for a period of thirty (30) days after written notice to Tenant
(or Tenant shall not within said period have commenced to cure such neglect or
failure and shall not thereafter prosecute such curing to completion with due
diligence); or (c) the leasehold hereby created shall be taken on execution, or
by other process of law, or (d) Tenant shall commence a voluntary case under the
federal bankruptcy laws or shall admit in writing its insolvency or its
inability to pay its debts as they become due, or shall make an assignment for
the benefit of creditors, or shall apply for, consent to or acquiesce in the
appointment of, or taking possession by, a trustee, receiver, custodian or
similar official or agent for itself or any substantial part of its property or
shall generally not pay its debts as they become due; or (e) Tenant shall have
an order or decree for relief in an involuntary case under the federal
bankruptcy laws entered against it, or a petition seeking reorganization,
readjustment, arrangement, composition, or other similar relief as to it under
the federal bankruptcy laws or any similar law for the relief of debtors shall
be brought against it and shall be consented to by it or shall remain
undismissed for forty-five (45) days; or (f) a trustee, receiver, custodian or
similar official or agent shall be appointed to take charge of all or any party
of Tenant's property then, and in any of said cases, Landlord lawfully may,
immediately or at any time thereafter while such condition continues and without
demand and without prejudice to any remedies which might otherwise be used for
arrears of rent or preceding breach of covenant, give notice to Tenant
terminating the lease. Upon such notice, this lease shall terminate. Landlord
may thereafter enter upon the Premises or any part thereof and expel Tenant and
those claiming through or under it and remove its and their effects, forcibly if
necessary, without being deemed guilty of any manner of trespass.
Tenant covenants that, in case of such termination, Tenant will pay
forthwith to Landlord, as compensation, the excess of the total rent reserved
for the residue of the Term over the rental value of the Premises for said
residue of the Term. In calculating the rent reserved there shall be included,
in addition to the Fixed Rent and all Additional Rent, the value of all other
considerations agreed to be paid or performed by tenant for said residue. Tenant
further covenants as an additional and cumulative obligation after any such
termination to pay punctually to Landlord all the sums and perform all the
obligations which Tenant covenants in
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this lease to pay and to perform in the same manner and to the same extent and
at the same time as if this lease had not been terminated. In calculating the
amounts to be paid by Tenant under the last covenant Tenant shall be credited
with any amount paid to Landlord as compensation as in this paragraph provided
and also with the net proceeds of any rent obtained by Landlord by reletting the
Premises, after deducting all Landlord's expenses in connection with such
reletting, including, without limitation, all repossession costs, brokerage
commissions, fees for legal services and expenses of preparing the Premises for
such reletting. It is agreed by Tenant that Landlord may (i) relet the Premises
or any part or parts thereof, for a term or terms which may at Landlord's option
be equal to or less than or exceed the period which would otherwise have
constituted the balance of the Term and may grant such concessions and free rent
as Landlord in its reasonable judgment considers advisable or necessary to relet
the same and (ii) make such alterations, repairs and decorations in the Premises
as Landlord in its reasonable judgment considers advisable or necessary to relet
the same, and not action of Landlord in accordance with the foregoing or failure
to relet or to collect rent under reletting shall operate or be construed to
release or reduce Tenant's liability as aforesaid. Landlord agrees to use
reasonable efforts to relet Premises.
In lieu of any other damages or indemnity and in lieu of full recovery by
Landlord of all sums payable under all the foregoing provisions of this section,
Landlord may by written notice to Tenant, at any time after this lease is
terminated under any of the provisions contained in this section or is otherwise
terminated for breach of any obligation of Tenant and before such full recovery,
elect to recover, and Tenant shall thereupon pay, as liquidated damages, an
amount equal to the aggregate of the Fixed Rent and Additional Rent accrued
under this lease in the twelve (12) months ended next prior to such termination
plus the amount of Fixed Rent and Additional Rent of any kind accrued and unpaid
at the time of termination and less the amount of any recovery by Landlord under
the foregoing provisions of this Section up to the time of payment of such
liquidated damages.
Nothing herein contained shall, however, limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by
reason of the termination, an amount equal to the maximum allowed by any statute
or rule of law in effect at the time when, and governing the proceedings in
which the damages are to be proved, whether or not the amount be greater, equal
to, or less than the amount of the loss or damage referred to above.
For the purpose of this Section 9, the term "Tenant" shall also include any
assignee, sublessee, transferee, and guarantor of Tenant under this Lease.
9.2 Landlord's Right to Cure Tenant's Default: If Tenant shall default in
the performance or observance of any agreement, condition or other provision in
this lease contained on its part to be performed or observed, and shall not cure
such default within thirty (30) days after notice in writing from Landlord
specifying the default (or shall not within said period commence to cure such
default and thereafter prosecute the curing of such default to completion with
due diligence), Landlord may, at its option, without waiving any claims for
breach of agreement, at any time thereafter cure such default for the account of
Tenant and Tenant shall, on
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the next installment of rent due, reimburse Landlord for any amount paid,
including reasonable attorney's fees, and any expense or contractual liability
so incurred. However, if it is necessary to protect the Property or Landlord's
interest therein or to prevent injury or damage to persons or property that
certain action be taken within thirty (30) days, the notice shall so specify,
and Landlord shall have the right to cure such default on behalf of Tenant if no
action is initiated by Tenant prior to the time specified in the notice.
10. DEFAULT OF LANDLORD, MORTGAGE HOLDER'S RIGHTS
10.1 Default of Landlord: Landlord shall in no event be in default in the
performance of any of its obligations hereunder unless and until landlord shall
have failed to perform such obligations within thirty (30) days or such
additional time as is reasonably required to correct any such default after
written notice by Tenant to Landlord properly specifying wherein Landlord has
failed to perform any such obligation. If it is necessary to prevent injury or
damage to persons or property by action within thirty (30) days, the notice
shall so specify, and Tenant shall have the right to cure such default on behalf
of Landlord if no action is initiated by Landlord prior to the time specified in
the notice. Tenant shall be entitled to recover from Landlord its reasonable
costs of curing Landlord's default, including reasonable attorney's fees, if
any, but shall not be entitled to any set-off, deduction or other right to
withhold rent.
10.2 Mortgage Holder's Rights: After receiving written notice from a bank,
trust company or insurance company that it holds a mortgage which includes the
Premises as part of the mortgaged premises, Tenant shall, so long as such
mortgage is outstanding, be required to give such holder the same notice and
opportunity to correct any default on the part of Landlord as is required to be
given to Landlord in the immediately preceding paragraph, but such notice may be
given by Tenant to Landlord and such holder concurrently.
10.3 Status of Lease: Tenant shall, on ten (10) days request by Landlord or
any mortgagee, execute, acknowledge and deliver to Landlord, the mortgagee or a
prospective purchaser, a statement in writing certifying that this lease is
unmodified, or, if modified, terms of the modification and that as so modified,
this lease is in full force and effect; that Landlord and Tenant have fully
complied with the terms and provisions thereof, and if there is a claim of
non-compliance is claimed; that Tenant has not defenses, offsets or
counterclaims against Tenant's obligations under the lease, and if there are,
setting out the details thereof; and certifying the date to which rent and other
charges have been paid. This certification shall be in such form as may
reasonably be requested by Landlord or a mortgagee.
10.4 Lease Subordination: This lease shall be subject and subordinate to
any mortgage now or hereafter on the Lot or Building or the Property, and to
each advance made or hereafter to be made under any mortgage, and to all
renewals, modifications, consolidations, replacements and extensions thereof and
all substitutions therefor. This provision shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute and deliver promptly any certificate that
Landlord or any mortgagee may request. In the event that any mortgagee or its
respective successor in title shall succeed to the
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interest of Landlord, then, this Lease shall nevertheless continue in full force
and effect and Tenant shall and does hereby agree to attorn to such mortgagee or
successor and to recognize such mortgagee or successor as its Landlord. Any
mortgagee may subordinate its mortgage to this lease, without Tenant's consent,
by notice in writing to Tenant. Thereupon this lease shall be deemed to be prior
in lien to such mortgage or deed of trust without regard to their respective
dates of execution and delivery but to have been assigned by Landlord to such
mortgagee.
11. MISCELLANEOUS PROVISIONS
11.1 Recording of Lease: Tenant agrees not to record this lease or any
notice thereof. Upon request of either party, however, both parties shall
execute and deliver as notice hereof an instrument in form appropriate for
recording acknowledging the date the Term begins, and if this lease is
terminated before the Term expires, an instrument in such form acknowledging the
date of termination.
11.2 Implied Acts: No consent or waiver, express or implied, by Landlord or
tenant to or of any breach of any agreement or duty to the other shall be
construed as a consent or waiver of any other breach of the same or any other
agreement or duty.
11.3 Approval: Whenever any approval or consent by Landlord or Tenant is
expressly required by this lease, the approval or consent shall not be
unreasonably withheld or delayed. Whenever any approval, consent or request is
given pursuant to this lease, it shall be in writing.
11.4 Payment and Notice: Communications, notices and payments, unless
otherwise specified by fifteen (15) days' prior notice, shall be addressed to
the party's address stated in Section 1 above. Any communication so addressed
shall be deemed duly served, if in writing and mailed by registered or certified
mail, return receipt requested. If Landlord by notice to Tenant at any time
designates an agent to receive payments or notices, any payment or notice
thereafter by Tenant shall be paid or given to the agent designated until notice
is received by Tenant from Landlord of termination of the agency.
11.5 Binding Effect: The obligations of this lease shall run with the land,
and this lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. No owner of the Property
shall be liable under this Lease except for breaches of Landlord's obligations
occurring while owner of the Property. The obligations of Landlord shall be
binding upon the assets of Landlord which comprise the Property but not upon
other assets of Landlord. No individual partner, trustee, stockholder, officer,
director, employee or beneficiary of Landlord or any of its affiliates shall be
personally liable under this lease and Tenant shall look solely to Landlord's
interest in the Property in pursuit of its remedies upon an event of default
hereunder, and the general assets of the individual partners, trustees,
stockholders, officers, employees or beneficiaries of Landlord and its
affiliates shall not be subject to levy, execution or other enforcement
procedure for the satisfaction of the remedies of tenant; provided that the
foregoing provisions of this sentence shall not constitute a waiver of any
obligation evidenced by this Lease and provided further than the foregoing
provisions of this
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sentence shall not limit the right of Tenant to name Landlord or any individual
partner or trustee thereof as party defendant in any action or suit in
connection with this Lease so long as no personal money judgment shall be asked
for or taken against any individual partner, trustee, stockholder, officer,
employee or beneficiary of Landlord.
11.6 Arbitration: At the election of Landlord, any controversy or claim
arising out of or relation to this agreement or the breach thereof, shall be
determined by arbitration in accordance with the Rules of the American
Arbitration Association then applicable, in the City of Boston by a single
arbitrator. The decision of the arbitrator shall be binding upon the parties
hereto and judgment upon any award made by the arbitrator may be entered in any
court having jurisdiction thereof.
11.7 Security Deposit: Landlord acknowledges receipt from Tenant of Fifteen
Thousand Dollars ($15,000) (the "Security Deposit") to be held by Landlord, as
security, without interest, for and during the Term. The Security Deposit shall
be returned to Tenant at the termination of this lease, provided there has been
no breach of the undertakings of Tenant. In no instance shall the amount of the
Security Deposit be considered a measure of liquidated damages. All or any part
of the Security Deposit may be applied by Landlord at its discretion in total or
partial satisfaction of any default by Tenant but such application shall not
deprive Landlord of any other rights or remedies Landlord may have. Upon any
conveyance by Landlord of its interest under this lease, the Security Deposit
may be turned over by Landlord to Landlord's grantee or transferee. Upon any
such delivery of the deposit, Tenant hereby releases Landlord of any and all
liability with respect to the Security Deposit, its application and return, and
Tenant agrees to look solely to such grantee or transferee. This provision shall
also apply so subsequent grantees and transferees.
11.8 Late Payments: Any Rent due under this Lease that is not paid to
Landlord within five (5) days after receipt of notice from Landlord shall bear
interest at the rate of fifteen percent (15%) per annum from the date due until
fully paid. The payment of interest shall not cure any default by Tenant under
this Lease. In addition, Tenant acknowledges that the late payment by Tenant to
Landlord of rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult and impracticable
to ascertain. Those costs may include, but are not limited to, administrative,
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any Rent due from Tenant shall not be received by
Landlord or Landlord's designee within five (5) days after receipt of notice
from Landlord, then Tenant shall pay to Landlord, in addition to the interest
provided above, a late charge in the amount of five percent (5%) of the
delinquent installment of Rent. Acceptance of a late charge by Landlord shall
not constitute a waiver of Tenant's default with respect to the overdue amount,
nor shall it prevent Landlord from exercising of its other rights and remedies.
All amounts payable under this Section 11.8 shall be deemed to be Additional
Rent.
11.9 Assignment, Subletting, Etc.: Tenant shall not assign, sublet,
underlet, mortgage, pledge, or encumber this Lease or the Premises in whole or
in part (collectively referred to as
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"Transfer") without first obtaining on each occasion the consent in writing of
Landlord, which consent may be granted or withheld in the sole discretion of the
Landlord. Tenant shall reimburse Landlord promptly for reasonable expenses,
including legal expenses, incurred by Landlord in connection with any request
for Landlord's consent. No such Transfer shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any Transfer on a
particular instance shall be deemed to be a waiver of the obligations to obtain
Landlord's approval in the case of any other assignment or subletting. As used
herein, the term "assign" or "assignment" shall be deemed to include, without
limitation any transfer of the Tenant's interest in the Lease by operation of
law, the merger or consolidation of the Tenant with or into any other firm or
corporation unless the Tenant is the surviving entity; but shall not include any
transfer of the Tenant's interest in the Lease to a parent company or a wholly
owned subsidiary so long as Tenant remains obligated on the Lease.
11.10 Holding Over: Any holding over by the Tenant after the expiration of
the term of this lease without the written consent of the Landlord shall be
treated as a tenancy at sufferance at 150% of the Rent specified in Sections 1.1
and 2.3 herein (prorated on a daily basis) and shall otherwise be on the terms
and conditions set forth in this Lease, so far as applicable.
11.11 Right of First Refusal to Purchase Property. During the term of this
Lease and any renewal or extension thereof, and provided that Tenant is not in
default or breach of any of the terms of this Lease, Tenant shall have a right
of first refusal to purchase the Property as hereinafter provided. If Landlord
receives a bona fide offer to purchase the Property, and Landlord intends to
accept such offer, then Landlord shall notify Tenant of its intention to sell
the Property on such terms and conditions and shall offer the Property for sale
to Tenant upon the same terms and conditions. Tenant shall have ten (10) days
after receipt of such offer to deliver to Landlord a written acceptance and
purchase agreement reasonably acceptable to Landlord. If Tenant fails to accept
such offer and deliver such purchase agreement or if Tenant (for any reason
other than refusal of Landlord to perform its obligations under the purchase
offer or agreement) fails to purchase the Property within forty-five (45) days
after receipt of such offer, then this right of first refusal shall terminate
and Landlord shall thereafter be free to sell the Property to any person.
11.12 Governing Law: This agreement shall be governed by and construed
under the laws of The Commonwealth of Massachusetts.
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11.12 Entire Agreement: This lease contains all of the agreements of the
parties with respect to the subject matter thereof and supersedes all prior
dealings between them with respect to such subject matter.
WITNESS the execution hereof under seal as of the 1st day of August, 1997.
LANDLORD: TENANT:
CLOCKTOWER ENTERPRISES, INC. QUAKER FABRIC CORPORATION OF
FALL RIVER
By: Devens H. Hamlen By: Cynthia L. Gordon
------------------------- --------------------------
Devens H. Hamlen, Chairman Vice President
By: James A. Dulude
--------------------------
Vice President
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LEASE
This Lease dated this 22nd day of October, 1997, between ROBBINS
MANUFACTURING CO., INC., a duly organized Massachusetts corporation with a usual
place of business at 1200 Airport Road, Fall River, Massachusetts, 02720,
hereinafter referred to as the "Lessor" and QUAKER FABRIC CORPORATION OF FALL
RIVER, a corporation duly organized and having a place of business at 941
Grinnell Street, Fall River, Massachusetts, 02720, hereinafter referred to as
the "Lessee".
The parties hereto further covenant with each other as follows:
1. The Lessor hereby lets to the Lessee, and the Lessee
hereby hires from the Lessor, the following premises:-
A 28,000 square foot manufacturing building located at 1325 Airport
Road, Fall River, Bristol County, Massachusetts for the term of two (2) years
commencing October 22, 1997, yielding and paying therefor a net monthly rent
during the term hereof in the sum of nine thousand three hundred thirty three
and 00/100 dollars ($9,333.00). Payments of rent are to be made in advance on
the first day of each month during such term, or any renewal thereof, which the
Lessee hereby covenants to pay without demand at the office of the Lessor, or at
such other place as the Lessor may require in writing, rent to begin on the 22nd
day of October, 1997 with the rent for the month of October, 1997 and the final
month of this lease to be prorated.
2. It is the intention of the Lessor and the Lessee that the rent
herein specified shall be net to the Lessor in each year during the term of this
Lease, including all extensions thereof, that all costs, expenses, real estate
taxes and obligations of every kind relating to the leased property (except as
otherwise specifically provided in this Lease) which may arise or become due
during the term of this Lease shall be paid by the Lessee, and that the Lessor
shall be indemnified by the Lessee against such costs, expenses and obligations.
The Lessee shall, however, be under no obligation to pay interest on any
mortgage on the fee of the leased property, any franchise or income tax payable
by the Lessor, or any gift, inheritance, transfer, estate or succession tax by
reason of any present or future law which may be enacted during the term of this
Lease.
3. The Lessee agrees that the demised premises shall be used and
occupied only for the storage business and for no other purpose or purposes
without the Lessor's written consent.
4. The Lessee, during the term of this Lease or any extension or
renewal of this Lease, shall, at its expense, make all repairs as shall be
reasonably necessary to keep said leased
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premises in good condition and repair provided such repairs are properly
chargeable against income in accordance with GAAP. The Lessee further agrees
that all damage or injury done to the premises by the Lessee or by any person
who may be in or upon the premises, except the Lessor, Lessor's agents, servants
and employees, shall be repaired by the Lessee at its expense. The Lessee agrees
at the expiration of this Lease or upon the earlier termination thereof, to quit
and surrender said premises in good condition and repair, reasonable wear and
damage by act of God, fire or other causes beyond the control of Lessee
excepted. The Lessee shall maintain all portions of the leased property and
adjoining areas in a clean and orderly condition, free of dirt, rubbish, snow,
ice and unlawful obstructions. Lessor shall be responsible for maintenance of
the roof, for structural defects of the building and for all other costs and
expenses associated with maintenance of the building except such costs and
expenses as are properly chargeable against income in accordance with GAAP.
5. The Lessee shall not assign this Lease or any interest therein nor
let or underlet the said premises or any part thereof or any right or privilege
appurtenant thereto, nor permit the occupancy or use of any part thereof by any
other person without the written consent of the Lessor first had and obtained;
provided, however, Lessor's consent shall not be required for assignments to
affiliates of Lessee or assignments by operation of law. Consent to assignment
shall not be unreasonably withheld or delayed by the Lessor.
6. If any proceedings in bankruptcy or insolvency be filed against the
Lessee or if any writ of attachment or writ of execution be levied upon the
interest herein of the Lessee and such proceedings or levy shall not be released
or dismissed within ninety (90) days thereafter, or if any sale of the leasehold
interest hereby created or any part thereof should be made under any execution
or other judicial process, or if the Lessee shall make any assignment for
benefit of creditors or shall voluntarily institute bankruptcy or insolvency
proceedings, the Lessor, at Lessor's election, may re-enter and take possession
of said premises and remove all persons therefrom and may, at Lessor's option,
terminate this Lease.
7. In the event of any litigation between the parties hereto arising
out of this Lease, or the leased premises, the prevailing party therein shall be
allowed all reasonable attorney's fees expended or incurred in such litigation
to be recovered as a part of the costs therein.
8. This Lease is made upon the express condition that if the Lessee
fails to pay the rental reserved hereunder or any part thereof after the same
shall become due, and such failure shall continue for a period of ten (10) days
after written notice thereof from the Lessor to Lessee, or if the Lessee fails
or neglects to
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perform, meet or observe any of the Lessee's other obligations hereunder and
such failure or neglect shall continue for a period of thirty (30) days after
written notice thereof from the Lessor to Lessee, then the Lessor at any time
thereafter, by written notice to the Lessee, may lawfully declare the
termination hereof and re-enter said premises or any part thereof, and by due
process of law, expel, remove and put out the Lessee or any person or persons
occupying said premises and may remove all personal property therefrom without
prejudice to any remedies which might otherwise be used for the collection of
arrears of rent or for preceding breach of covenant or conditions.
Notwithstanding any other provisions of this Lease, where the curing of
an alleged default requires more than payment of money, and the work of curing
said default cannot reasonably be accomplished within the time otherwise
permitted herein, and where the Lessee has commenced upon the said work of
curing said default and is diligently pursuing same, then the Lessee shall be
entitled to reasonable time extensions to permit the completion of said work of
curing said default, as a condition precedent to any re-entry by the Lessor or
termination of this Lease by the Lessor, and any defect that is cured shall not
thereafter be grounds for re-entry or for termination.
9. The subsequent acceptance of rent hereunder by the Lessor shall not
be deemed a waiver of any preceding breach of any obligation hereunder by the
Lessee other than the failure to pay the particular rental so accepted, and the
waiver of any breach of any covenant or condition by the Lessor shall not
constitute a waiver of any other breach regardless of knowledge thereof.
10. The Lessee hereby agrees to indemnify the Lessor against and to
hold the Lessor harmless from any and all claims or demands for loss of or
damage to property or for injury or death to any person from any cause within
Lessee's control while in, upon, or about said demised premises or the sidewalks
adjacent thereto during the term of this Lease or any extension hereof.
11. The Lessee shall, at its sole cost and expense, procure and
maintain during the term of this Lease and any renewal or extension thereof,
public liability insurance, protecting the Lessor and the Lessee from any
liability arising in connection with the use or occupancy of the leased
premises, with a company or companies acceptable to the Lessor, in an amount not
less than one million dollars ($1,000,000.) for one person, and two million
dollars ($2,000,000.) for more than one person injured or killed in the same
accident, and one hundred thousand dollars ($100,000.) for property damage; and
such policy of insurance, or a certificate thereof, shall be delivered to, and
left in the possession of, the Lessor.
Lessor shall procure and maintain during the term of this Lease and any
renewal or extension thereof, insurance to keep the buildings on the demised
premises insured against all loss or
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damage by fire and other hazards insured against under the so-called extended
coverage fire policy in an amount not less than the replacement value of said
buildings, with an eighty percent (80%) co-insurance clause, by policies that
shall be in the name of the Lessor and that shall provide that the loss if any,
shall be payable to the Lessor. The amounts of premiums paid for such insurance
by the Lessor shall be deemed rent, and shall be payable with the installment of
rent next thereafter due under the terms of this Lease.
The Lessee shall do no act or thing upon the demised premises which may
make void or voidable any insurance on said premises or the buildings thereon
against fire, or may render any increased or extra premium payable for any such
insurance. On demand, the Lessee shall reimburse the Lessor for any increased
cost of insurance on the Lessor's property due to the Lessee's use of the
demised premises.
12. The Lessor does hereby release the Lessee of liability with respect
to any destruction or damage caused by the default or negligence of Lessee or
its agents, servants or employees, to the extent that the Lessor's insurance
actually in force at the time of any destruction or damage covers the loss
incurred and permits such release, and provided the Lessor collects on such
coverage, it being understood that it shall make a proper claim on account
thereof under such coverage and shall fully and faithfully prosecute such claim,
including timely suit upon such policy; it being specifically understood and
agreed that such release is not and shall not be effective to the extent that it
is not permitted by the terms of any policy or policies in force when the
destruction or damage occurs, and shall not be effective as to the amount of any
destruction or damage which is so caused in excess of the amount recoverable by
the Lessor under insurance policies in force when the destruction or damage
occurred.
The Lessee does hereby release the Lessor of liability with respect to
any destruction or damage caused by the fault or negligence of the Lessor or its
agents, servants or employees, to the extent that the Lessee's insurance
actually in force at the time of any destruction or damage covers the loss
incurred and permits such release, and provided the Lessee collects on such
coverage, it being understood that it shall make a proper claim on account
thereof under such coverage and shall fully and faithfully prosecute such claim;
provided, however, Lessee shall not be obligated to file suit upon such policy;
it being specifically understood and agreed that such release is not and shall
not be effective to the extent that it is not permitted by the terms of any
policy or policies in force when the destruction or damage occurs, and shall not
be effective as to the amount of any destruction or damage which is so caused in
excess of the amount recoverable by the Lessee under insurance policies in force
when the destruction or damage occurred.
Each party agrees to use its best efforts to cause all of its
insurers to include in all insurance policies issued to it the
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waivers of subrogation referred to in the two paragraphs above. The Lessee will
deliver to the Lessor a written endorsement or certificate of such waivers
within thirty (30) days after occupancy, at no charge to the Lessor.
13. The Lessee agrees to pay for all water, sewer, fuel, gas, oil,
heat, electricity, power, materials and services which may be furnished to it or
used by it in or about the demised premises and to keep said demised premises
free and clear of any lien or encumbrance of any kind whatsoever created by
Lessee's act or omission.
14. The Lessee shall permit the Lessor and their agents to enter the
demised premises with prior notice during normal business hours (except during
an emergency in which case prior notice need not be given and entry may be at
any reasonable time) for any of the following purposes: to inspect the same; to
maintain the building in which the said premises are located; to make such
repairs to the demised premises as the Lessor may elect to make; to post notices
of nonresponsibility for alterations or additions or repairs. The Lessor shall
have such right of entry and the right to fulfill the purpose thereof; provided,
however, the rent reserved to be paid hereunder shall be equitably adjusted to
compensate the Lessee for any loss of occupancy or quiet enjoyment of the
demised premises thereby occasioned.
15. If the demised premises shall be so damaged by fire, casualty or
other cause or happening as to be substantially destroyed, or if any authority
having jurisdiction shall order the demolition or removal of any building herein
demised, then this lease shall cease and come to an end and any unearned rent
paid in advance by the Lessee shall be refunded to it.
If the demised premises shall be partially destroyed by fire, casualty,
or other cause or happening, or be declared unsafe by an authority having
jurisdiction then the demised premises shall be promptly restored by the Lessor
to their previous condition and/or made safe and a just proportion of the rent
herein reserved, according to the extent to which said premises have been
rendered untenantable or declared unsafe, shall abate until the demised premises
shall have been restored and put in proper condition for use and occupancy;
provided, however, that should said premises not be restored to their former
condition and/or made safe within sixty (60) days from the date of said partial
destruction or declaration of unsafe condition thereof, then, in that event, the
Lessee or Lessor may, at the option of either party, cancel and terminate this
Lease in its entirety, and should the Lessor or Lessee exercise its option to
cancel said Lease as aforesaid, then any unearned rent paid in advance by the
Lessee shall be refunded to it.
16. The Lessee shall not make, or suffer to be made, any alterations
of the real property improvements in excess of five
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thousand dollars ($5,000.) in value without the written consent of the Lessor
first had and obtained, and any additions to, or alterations of, the said real
property improvements shall become at once a part of the realty and belong to
the Lessor. If written consent of the Lessor to any proposed alterations by the
Lessee shall have been obtained, the Lessee agrees to advise Lessor in writing
of the date upon which such alterations will commence in order to permit the
Lessor to post notices of nonresponsibility. The Lessee shall keep the demised
premises free from any and all liens arising out of any work performed,
materials furnished, or obligations incurred by Lessee.
17. If the whole of the premises hereby demised shall be taken or
condemned by any competent authority for any public use or purpose, then the
term hereby granted shall cease on the day prior to the taking of possession by
such authority or on the day prior to the vesting of title in such authority,
whichever first occurs, and rent hereunder shall be paid to and adjusted as of
that day.
If a portion of said demised premises shall be condemned or taken and,
as a result thereof, there shall be such a major change in the character of the
premises as to prevent Lessee from using the same in substantially the same
manner as theretofore used, then and in that event, the Lessee may either cancel
and terminate this Lease, as of the date when the part of the premises so taken
or condemned shall be required for such public purpose, or said Lessee may
continue to occupy the remaining portion, provided, however, the Lessee shall
give written notice to the Lessor, within fifteen (15) days after the date of
any taking or vesting of title, of its election. In the event the Lessee shall
remain in possession and occupation of the remaining portion, all the terms and
conditions of this Lease shall remain in full force and effect with respect to
such remaining portion, except that the rent reserved to be paid hereunder shall
be equitably adjusted according to the amount and value of such remaining space.
The entire award of damages or compensation for the premises taken, or
the amount paid pursuant to private purchase in lieu thereof, whether such
condemnation or sale be total or partial, shall belong to and be the property of
the Lessor, and the Lessee hereby assigns to Lessor any and all such award or
purchase price. Nothing herein contained shall be deemed or construed to prevent
Lessee from interposing and prosecuting in any condemnation proceeding for a
claim for moving expenses and the value of any trade fixtures installed in the
demised premises by the Lessee and in the case of a partial condemnation of the
demised premises, the cost, loss or damages sustained by Lessee as the result of
any alterations, modifications, or repairs which may be reasonably required of
the Lessee in order to place the remaining portion of the demised premises not
so condemned in a suitable condition for Lessee's further occupancy.
18. The Lessee agrees not to vacate or abandon the premises
at any time during the demised term. Should the Lessee vacate or
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abandon said premises or be dispossessed by process of law or otherwise, such
abandonment, vacation, or dispossession shall be a breach of this Lease and, in
addition to any other rights which the Lessor may have, the Lessor may remove
any personal property belonging to the Lessee which remains on the demised
premises and store the same, such removal and storage to be for the account of
the Lessee and at Lessee's expense.
19. Lessee, at its own cost and expense, shall comply with all laws,
ordinances, statutes, rules, regulations and requirements of the local state and
federal governments and shall comply with all the requirements of the board of
health, municipal and state authorities and police and fire departments and of
the federal government and of any and all their departments and bureaus
applicable to the demised premises, and will not create or permit any nuisance
in or about the demised premises to the annoyance of neighboring occupants.
Lessee agrees to comply with the responsibilities of all health, safety, zoning,
building and environmental laws, statutes, ordinances, regulation, rules, orders
and restrictions of any municipal, state, federal or other governmental
authority having jurisdiction with respect to the demised premises and to assume
all of the responsibilities imposed by all such laws, statutes, ordinances,
regulations, rules, orders and restrictions with respect to the demised premises
and to hold Lessor harmless in connection therewith. Lessee further agrees to
indemnify and hold Lessor harmless from any liability, costs and expenses
(including, but not limited to, attorneys' fees and litigation costs) arising
after the execution of this Lease from any claim for personal injury, property
damage, or damage to the environment made, asserted or prosecuted by or on
behalf of any person or entity relating in any way to the demised premises
either (i) arising or alleged to arise under any environmental law, statute,
regulation, ordinance, rule or order or (ii) asserted as a result of actual,
threatened or alleged pollution or contamination by, or exposure to, toxic or
hazardous substances, pollutants, contaminants, products, raw materials or other
chemicals or substances used in connection with or produced by the demised
premises, in each case without regard to the form of action, and whether based
on strict liability, gross negligence, negligence or any other theory of
recovery at law or in equity. Lessee represents, covenants and warrants that
Lessee shall not use the demised premises in such manner as to become liable
under the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601 et seq. ("CERCLA"). In the event that there shall be filed a lien
against the demised premises pursuant to and in accordance with CERCLA arising
from the intentional or unintentional action or omission of Lessee or Lessee's
employees, agents, contractors, licensees, invitees, assigns or subtenants, then
Lessee shall, within thirty (30) days from the date Lessee is given notice of
the lien or in such shorter period of time in the event that the United States,
or any agency or subdivision thereof, has commenced steps to cause the demised
premises to be sold
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pursuant to the lien, pay the claim and remove the lien from the demised
premises. If Lessee fails to do so by said period, Lessor shall be entitled to
resort to such remedies as are provided in this Lease as in the case of any
default of this Lease, in addition to such as are permitted by law. Lessor
agrees to indemnify and hold Lessee harmless from any liability, costs and
expenses (including, but not limited to, attorneys' fees and litigation costs)
arising before the execution of this Lease from any claim for personal injury,
property damage, or damage to the environment made, asserted or prosecuted by or
on behalf of any person or entity relating in any way to the demised premises
either (i) arising or alleged to arise under any environmental law, statute,
regulation, ordinance, rule or order or (ii) asserted as a result of actual,
threatened or alleged pollution or contamination by, or exposure to, toxic or
hazardous substances, pollutants, contaminants, products, raw materials or other
chemicals or substances used in connection with or produced by the demised
premises, in each case without regard to the form of action, and whether based
on strict liability, gross negligence, negligence or any other theory of
recovery at law or in equity. The Lessor further warrants that at the inception
of this Lease, it has no knowledge of any violation of any laws, rules or orders
of any federal, state or municipal government or department which may be
applicable to the leased premises.
20. All notices to be given to the Lessee shall be in writing,
deposited in the United States mail, certified or registered, with postage
prepaid, and addressed to the Lessee at 941 Grinnell Street, Fall River,
Massachusetts, 02720. Notices by the Lessee to Lessor shall be in writing,
deposited in the United States mail, certified or registered, with postage
prepaid, and addressed to the Lessor at 1200 Airport Road, Fall River,
Massachusetts, 02720. Notices shall be deemed delivered when deposited in the
United States mail, as above provided. Change of address by either party must be
by notice given to the other in the same manner as above specified.
21. Any holding over after the expiration of said term, with the
consent of the Lessor, shall be construed to be a tenancy from month to month,
and shall be on the terms and conditions herein specified, so far as applicable.
22. The Lessee shall have the privilege, subject to the prior approval
of the Lessor, of placing on the demised premises such signs as it deems
necessary and proper in the conduct of its business, provided the Lessee pays
all permit and license fees which may be required to be paid for the erection
and maintenance of any and all such signs, provided such signs are legally
permitted to be installed. The Lessee agrees to exonerate, save harmless,
protect and indemnify the Lessor from and against any and all losses, damages,
claims, suits or actions for any damage or injury to the person or property
caused by the erection and
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maintenance of such signs or parts thereof, and insurance coverage for such
signs shall be included in the public liability policy which the Lessee is
required to furnish hereunder.
23. The Lessee agrees that this Lease shall be subordinate to any
mortgages or trust deeds that may hereafter be placed upon the premises, to any
and all advances made or to be made under them, to the interest and all
obligations secured by them, and to all renewals, replacements and extensions of
them. If any mortgagee or beneficiary elects to have this Lease superior in its
mortgage or deed of trust and gives notice of its election to Lessee, then this
Lease shall be superior to the lien of any mortgage or trust deed whether this
Lease is dated or recorded before or after the mortgage or trust deed.
24. It is understood and agreed that the relationship of the partes
hereto is strictly that of landlord and tenant and that the Lessor has no
ownership in the Lessee's enterprise and that this Lease shall not be construed
as a joint venture or partnership. The Lessee is not and shall not be deemed to
be agent or representative of the Lessor.
25. The Lessor acknowledges that the Lessor has no interest in any
personal property or equipment or furniture and fixtures which may be installed
by the Lessee upon the leased premises, and the Lessor agrees in the future to
furnish the Lessee, upon request, such Landlord's Waiver or Mortgagee's Waiver
or similar document as may be reasonably required by an institutional lender or
equipment lessor in connection with the Lessee's acquisition or financing
respecting such personal property, equipment, furniture and fixtures. The Lessee
shall have the right to remove same at the termination of this Lease and shall
be obligated to repair any damage caused by removal.
26. During the term of this Lease, Lessee shall have use of Lessor's
racks, shelving, fixtures and equipment located at the demised premises at the
commencement of this Lease. Lessee agrees it will, during the term of this
Lease, make all necessary repairs to same and maintain the Lessor's racks,
shelving, fixtures and equipment, which may be necessary to maintain the said
racks, shelving, fixtures and equipment in good repair and condition, and it
will upon the expiration or other termination of the term of this Lease yield up
peaceably to Lessor the said racks, shelving, fixtures and equipment in good
repair and condition, subject to reasonable wear and tear.
27. Lessee shall have the right to renew this Lease for an additional
six (6) month period on the terms and conditions set forth herein; provided,
however, the net monthly rent payable during the renewal period shall be
increased to nine thousand nine hundred sixteen and 00/100 dollars ($9,916.00).
Lessee shall provide written notice to Lessor at least sixty (60) days prior to
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the end of the term of its election to renew. If Lessee fails to provide said
notice, said right to renew shall be null and void.
28. Lessor agrees to modify the premises by (a) removing all or a
portion of the existing office space and (b) adding another working door. It is
understood and agreed that the modifications referred to above will be completed
by November 10, 1997 and that Lessee shall be responsible for the costs and
expenses associated therewith.
29. All the terms, covenants, and conditions hereof shall be binding
upon and inure to the benefit of the heirs, executors, administrators,
successors, and assigns of the parties hereto, provided that nothing in this
paragraph shall be deemed to permit any assignment, subletting, occupancy, or
use contrary to the provisions of paragraph 3.
Witness the signatures and seals of the above parties, the corporate
parties by their proper officers hereunto duly authorized, the day and year
first written.
ROBBINS MANUFACTURING
CO., INC., Lessor
[illegible] By: /s/ Barry Robbins
- -------------------------- ---------------------------------------
Witness Barry Robbins, President
and Treasurer
QUAKER FABRIC CORPORATION
OF FALL RIVER, Lessee
[illegible] By: /s/ Cynthia L. Gordan
- -------------------------- ---------------------------------------
Witness Cynthia L. Gordan,
Vice President
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[Letterhead of Tilly Realty Associates]
QUAKER FABRIC CORP OF FALL RIVER
C/O GUS ANTONUCCI
941 Grinnell Street, Plant C
Fall River, MA 02721
December 9, 1997
The following is the lease agreement between TILLY REALTY ASSOCIATES (lessor)
and QUAKER FABRIC CORP OF FALL RIVER (lessee).
LEASED SPACE: approximately 23408 square feet on the third floor of the West
Mill, located at Fr. DeValles Blvd., Fall River, MA.
OCCUPANCY DATE: Lessee to begin occupying the space on or about December 13,
1997.
LENGTH OF LEASE: Lease will be for a period of one (1) year commencing December
15, 1997.
TERMS: Effective December 15, 1997, the rent will be $2438.34 per month.
EXTENSION OF LEASE: Lessee has option to extend lease for an additional term of
1 year at a rate not to exceed 10% above the first term.
RENT CHARGE: Rent is due and payable on or before the first of every month in
advance.
ELECTRIC CHARGE: Electric will be metered and invoiced by lessor on the first of
every month according to the rates supplied by Eastern Utilities, with a minimum
charge of $50.00 per month. The electric is due upon receipt of the invoice.
"Bills rendered for which payment has not been received within 25 days from the
date rendered, shall be considered past due and subject to a late payment charge
of 1 1/2% per month (18% annually) on any unpaid balance." "If it becomes
necessary to discontinue service for non-payment", all past due amounts and "a
$10.00 reconnection charge must be paid before service is restored and lessor
may not be able to restore service immediately."(1)
- -----------------
(1) "EASTERN UTILITIES"
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FIRST MONTH'S RENT: $2438.34 due prior to occupancy.
DEPOSIT REQUIRED:
<TABLE>
<S> <C>
damage deposit $2438.34
electric deposit 50.00
door lock deposit 25.00
---------
total $2513.34*
</TABLE>
*due prior to occupancy
PERCENTAGE OF SPACE OCCUPIED BY LESSEE: Lessee occupies 10% of the total square
footage of the property located at Fr. DeValles Blvd., Fall River, MA.
HEAT, INSURANCE, PROPERTY TAXES, WATER, AND SEWER CHARGES: Lessee will be
invoiced 10% of any increases in the costs of heat, insurance, property taxes,
water, or sewer (each figured individually) over and above the base year. The
lessor shall provide to the demised premises water for sanitary purposes and
fire sprinklers only.
BASE YEARS:
HEAT = 1996/1997
Heat Season = October 15 through April 15
INSURANCE = 1997/1998
PROPERTY TAXES = assessed January 1, 1997
WATER = 9/96 - 9/97
SEWER = 9/96 - 9/97
SNOW REMOVAL: Lessee will be invoiced 10% of any increases in the cost of snow
removal over and above the base year of 1993/1994.
ELEVATOR CHARGES:Lessee will be invoiced 10% of any increases in the cost of
maintaining the elevator over and above $1200.00 per year. Maintaining includes
inspections, maintenance, repairs, and electric.
INSURANCE (PUBLIC AND PROPERTY): Lessee will be responsible for own Public
Liability Insurance in the minimum amount of coverage of $100,000.00/$300,000.00
for liability of bodily injury and $50,000.00 for property damage liability. The
coverage must be with an insurance company licensed to do business in
Massachusetts. Lessee must indemnify Lessor and hold entirely harmless for all
losses and claims and confirm to Lessor that they are co-named on the policy.
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NOTIFICATION OF INSURANCE COVERAGE: Lessee should have insurance company or
agent send the necessary Certificate of Insurance with Lessor being listed as
co-named on the policy.
NO CERTIFICATE OF INSURANCE: In the case of no Certificate of Insurance on file,
lessor will invoice lessee annually.
INSURANCE (CONTENTS): Lessee's inventory, machinery, and equipment are not
covered by Lessor's insurance. Lessee should secure own insurance on contents in
case of fire, theft, vandalism, water damage, etc...
ALTERATIONS: Lessee shall not remodel, paint or make any structural changes to
the premises, nor shall the lessee attach or remove any fixtures without
lessor's prior written permission. Lessee hereby has permission to make the
alterations listed on Attachment A.
LEASEHOLDS: Lessee may move Lessor's lights, electrical wiring, vents, fans,
boxes and switches, fire extinguisher, alarms, and metal floor plates which are
on the leased premises at time of lessee's occupancy, as lessee deems necessary
for the conduct of it's business. Upon vacating the premises, the lessee must
leave the structural integrity of the premises as found prior to lessee's
occupancy.
PLUMBING: The water closets and waste pipes shall not be used for any purpose
other than those for which they were constructed, nor shall any sweepings,
rubbish, or any other improper articles be thrown into them. Any damage to the
building caused by the negligent misuse of such equipment by the lessee shall be
paid by you (lessee).
ELECTRICAL WIRING: Lessor will supply wiring and meter to leased space. Lessee
is responsible for any and all electrical installation required in leased space.
Electrical work must be approved and installed by Lessor.
ELECTRIC LIGHT BULBS: Lessor shall supply leased space with necessary electric
light bulbs at the time of occupancy. Lessee agrees to furnish replacements and
install thereafter.
HOUSEKEEPING: No trash or flammable materials is to be left in the lessee's area
or in the hallways.
HALLWAYS: No receptacles, boxes, trash, cartons or other articles or
obstructions shall be placed in the hallways or other common areas or
passageways.
RUBBISH REMOVAL: Lessee is responsible for own rubbish removal. If not removed,
lessor has the right to evict and/or charge lessee for it's removal.
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NO SMOKING: There is to be NO SMOKING in the building except in designated
areas.
FIRE HAZARDS: Lessee shall not permit any hazardous act which might cause fire
or that will increase the rate of insurance on the premises. If the premises
become in-operable by reason of fire not caused by lessee's negligence, the
rental herein shall be suspended until the same has been restored to an operable
condition or at the lessee's option, the lease shall be terminated. The lessor
is not obligated to rebuild or restore the premises.
ENVIRONMENTAL INDEMNIFICATION: Tenant shall defend, with counsel reasonably
approved by Landlord, all actions against Landlord with respect to, and pay,
protect, indemnify and save harmless, to the extent permitted by law, Landlord
from and against any and all Costs and Expenses arising out of, or claimed to be
arising out of any "Environmental Conditions" (as defined hereinafter) by the
lessee. Without limiting the foregoing, the term Costs and Expenses as used in
this Section shall include remedial or response costs, expert consultant fees
and expenses, and bodily injury or property damage. Tenant and Landlord agree
that "response costs", as defined in the "Environmental Laws" (as defined
hereinafter), shall not be deemed consequential damages.
For purposes of this Section, "Environmental Laws" shall mean any federal, state
and/or local statute, ordinance, bylaw, code, rule and/or regulation, now or
hereafter enacted, pertaining to any aspect of the environment or human health,
including, without limitation, Chapter 21C, Chapter 21D, and Chapter 21E of the
General Laws of Massachusetts and the regulations promulgated by the
Massachusetts Department of Environmental Protection ("DEP"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. - 9601
et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. - 6901 et
seq., the Federal Water Pollution Control Act and the Federal Clean Air Act.
For purposes of this Section, "Hazardous Substances" shall mean any "oil",
"hazardous material... .. hazardous waste", or "hazardous substance"
(collectively referred to herein as "Hazardous Substances"), as the foregoing
terms (in quotations) are defined in the Environmental Laws.
For purposes of this Section, "Environmental Conditions" shall mean any
"disposal", "release" or "threat of release" of Hazardous Substances on, from or
about the Premises or storage of Hazardous Substances on, from or about the
Premises, other than in compliance with the Environmental Laws.
Notwithstanding the foregoing anything in this Lease to the contrary, Landlord
agrees that Tenant shall not be responsible for Environmental Conditions to the
extent that such Environmental Conditions (a) exist as of the commencement of
the term of this Lease or (b) result from (i) the actions or omissions of
Landlord
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either before the commencement of this Lease, during the term hereof or after
the termination of this Lease or (ii) the actions or omissions of any preceding
or succeeding tenant or owner of the Premises. Landlord further agrees that
Tenant shall have no obligation to Landlord under this Lease for Environmental
Conditions arising from the actions or omissions of any person or entity who or
which is not an agent, employee or invitee of Tenant.
Landlord shall defend, with counsel reasonably approved by Tenant, all actions
against Tenant, with respect to, and pay, protect, indemnify and save harmless,
to the extent permitted by law, Tenant from and against any and all Costs and
Expenses of any nature arising out of, or as claimed to be arising out of, any
Environmental Conditions to the extent that such Environmental Conditions (a)
exist as of the commencement of the term of this Lease or (b) result from (i)
the actions or omissions of Landlord either before the commencement of this
Lease, during the term hereof or after the termination of this Lease or (ii) the
actions or omissions of any preceding or succeeding tenant or owner of the
Premises. Tenant agrees that Landlord shall not be responsible for any
Environmental Conditions to the extent that such Environmental Conditions result
from the actions or omissions of Tenant, or Tenant's agents, employees or
invitees. Tenant further agrees that Landlord shall have no obligation to Tenant
under this Lease for Environmental Conditions arising during the term of this
Lease from the actions or omissions of any person or entity who or which is not
an agent, employee or invitee of Landlord.
SUBLETTING AND/OR RETAILING: Lessee may sublet and/or retail on the premises
providing lessee receives lessor's prior written consent, which consent shall
not be unreasonably withheld. As a condition of subletting and/or retailing,
such other persons shall be bound by the terms of this agreement and shall
acknowledge such fact by executing a copy of this agreement. Lessee agrees to be
bound by this agreement until the term shall expire and the security deposit
shall not be released until the expiration of the term.
USE AND OCCUPANCY: Lessee shall use the premises in such a manner as to comply
with all local, county, and state laws and shall not use the premises or permit
it to be used for any disorderly or unlawful purpose or in any manner offensive
to any other tenants in the building.
DAMAGES TO PREMISES: Lessee agrees to pay for repair of the premises when caused
by lessee's negligent misuse or that of lessee's employees or visitors.
VACATING THE PREMISES: A thirty day notice to vacate the premises is required by
both parties, unless the lessee vacates at the end of the term. This notice must
be in writing. Also, the space must be left broom clean.
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ABANDONMENT: If during the term of lessee's occupancy, prior to the expiration
of this agreement, lessee deserts, vacates, or abandons the leased space, the
lessor has the right to enter and repossess the premises.
ATTORNEY'S FEES: If we (lessor) are compelled to incur any expenses including
reasonable attorney's fees in instituting and prosecuting any action or
proceeding by reason of any default of yours (lessee) hereunder, the sum or sums
so paid by us (lessor) with all interests, costs, and damages shall be deemed to
be additional rent hereunder and shall be due from you (lessee) to us (lessor)
on the first (1st) day of the month following the incurring of such respective
expenses, only if the lessor prevails in such litigation.
REPRESENTATIONS AND APPLICATIONS: We (lessor) enter into this agreement with you
(lessee) on the basis of the representations contained in the application which
is made part of the agreement, and, in the event any of the representations
contained in the application shall be found to be materially misleading,
incorrect or untrue, we (lessor) shall have the right to cancel this agreement
and repossess the premises.
LATE CHARGE: Lessee will be invoiced 2% interest charge on any monies over 30
days past due.
REMOVAL OF LESSEE PROPERTY: If after violation of any provisions of this
agreement, or upon the expiration of this agreement, you (lessee) move out and
fail to remove your (lessee) property being kept in the leased space by your
(lessee) volition, then the property shall be deemed abandoned and we (lessor)
shall have the right to remove it and will not be responsible for its security.
Also, lessor has the right to sell the abandoned property for expenses incurred.
REMEDY FOR BREACH: If for any reason you (lessee) breach this agreement, we
(lessor) shall have the right to initiate any action to evict lessee from the
premises and to collect any damages that shall become due us (lessor) for this
action.
DAMAGE DEPOSIT: The full damage deposit shall be returned to the lessee within
thirty days of vacating the premises and returning the keys, except under the
following conditions: The lessee must provide a forwarding address to the
lessor. Lessee agrees to allow lessor to deduct from the security deposit , the
following charges if they apply: (1) Any indebtedness otherwise due the lessor.
(2) Unpaid late charges. (3) Attorney's fees and any court costs incurred by a
breach of any provisions of this lease by the lessee, or enforcement of any of
the terms of this agreement by lessor. (4) The cost of any repairs,
replacements, redecorating and/or refurnishing of the premises, or any fixtures,
systems, caused by "other" than reasonable wear. (5) A reasonable cleaning
expense, in the event that the lessee fails to leave premises in a clean
rentable condition. IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT
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THE LESSEE MAY NOT APPLY THE DAMAGE DEPOSIT TOWARDS RENTAL PAYMENTS.
Call if you have any questions.
Sign below and return both copies, lessor will then sign and return one to
lessee for record keeping.
If the agreement is not returned signed to the lessor, within 30 days, lessor
will consider it valid.
AGREED AND ASSENTED TO:
Sincerely,
TILLY REALTY ASSOCIATES
/s/ James A. Dulude
- -----------------------------
James A. Dulude
QUAKER FABRIC CORP OF FALL RIVER
508-678-1951
FED ID#04-2822940
/s/ Erwin E Strasmich
---------------------------------
Erwin E Strasmich
Manager
Page #7
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EXHIBIT 10.68
COMMERCIAL LEASE
1. Parties. 1 Lewiston Street, LLC, a Massachusetts corporation with a principal
mailing address of P.O. Box 1109, Fall River, MA 02722, LESSOR, which expression
shall include its heirs, successors and assigns where the context so admits,
does hereby lease to Quaker Fabric Corporation of Fall River, a Massachusetts
corporation, with a principal mailing address of 941 Grinnell Street, Fall
River, MA 02721, LESSEE, which expression shall include its successors,
executors, administrators and assigns where the context so admits, and LESSEE
hereby leases the following described premises:
2. Premises. The leased premises shall consist of a total of 61,762 square feet
in the property at 1 Lewiston Street, Fall River, MA, as follows:
Building No. 2, Main Chace Mill:
4,254 of first floor north annex, for delivery on or before June 1,
1998; 24,500 of the second floor of the main building, for delivery upon
lease execution; 4,254 of the second floor north annex, for delivery
upon lease execution; 24,500 of the third floor of the main building,
one-half of third floor for delivery upon lease execution, the second
half of third floor for delivery on or before May 1, 1998, and LESSEE
shall be granted three months of free rent on the second half of the
third floor from the delivery of the space; and 4,254 of the third floor
north annex, for delivery upon lease execution.
LESSOR's failure to deliver one or more of the above spaces on time
shall not be a breach hereunder so long as LESSOR uses reasonable efforts and
does deliver such space within a reasonable time following the promised date.
LESSOR's failure to delivery any of such spaces shall not affect LESSEE's lease
of such other spaces as are actually delivered.
3. Term. The term of the lease shall be for 24 months (2 years) commencing on
March 30, 1998 and ending on March 29, 2000.
4. Rent. LESSEE shall pay LESSOR rent for space actually delivered to LESSEE in
24 monthly installments, in advance, due on the first day of the month beginning
March 30, 1998, as follows:
$1.50 per square foot.
Base rent for 61,762 square feet of space, calculated at such rate,
would be $92,643.00 per year, payable in monthly installments of
$7,720.25 each.
Tenant shall also promptly pay, as additional rent, all costs of removal of its
trash, and all utilities to the leased premises that are separately metered to
the leased premises or any part thereof, whether such separate metering exists
at the commencement of this lease or is established by LESSOR at any time during
the term of this lease.
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5. Last Month's Rent. Upon the execution of this lease, LESSEE shall pay to
LESSOR the amount of $7,720.25, which shall be last month's rent.
6. First Month's Rent. Upon the execution of this lease, LESSEE shall pay LESSOR
the amount of $5,125.50, representing first month's rent, which rent shall
immediately become the property of LESSOR.
7. Utilities. LESSEE shall pay for all of its requirements for utilities,
including, but not limited to, gas, steam, water, electricity, garbage
collection, sewer charges, and heating and air conditioning its premises. In the
event that LESSOR shall elect to supply any of such utilities, LESSEE agrees to
purchase the same from LESSOR, providing the rate does not exceed the rate which
LESSEE would be required to pay to the utility company furnishing the same.
LESSOR may elect to require separate metering of any such utility. LESSEE
accepts the leased premises unheated (except as provided for herein), and agrees
to obtain LESSOR's written approval of the type of heating apparatus LESSEE
intends to use, which approval shall not be unreasonably withheld or delayed. In
all events, LESSEE shall have the right to separately meter any and all
utilities to the premises.
LESSOR agrees to light passageways and stairways during LESSEE's
business hours, and to furnish such cleaning service to common areas as is
customary in similar buildings in said city or town, all subject to interruption
due to any accident, to the making of repairs, alterations or improvements, to
labor difficulties, to trouble in obtaining fuel, electricity, service or
supplies from the sources from which they are usually obtained for said
building, or to any cause beyond LESSOR's control.
8. Use of Premises. It is understood, and LESSEE so agrees, that during the term
of this lease or any renewal thereof, the demised premises shall be used and
occupied by LESSEE only for its current business activity. LESSEE shall not use
any portion of the premises for storage or other services except in conjunction
with its business use and shall use the premises only for use that is permitted
under applicable federal, state and municipal laws and regulations.
9. Compliance with Laws. LESSEE acknowledges that no trade or occupation shall
be conducted in the leased premises or use made thereof which will be unlawful,
improper, noisy or offensive, or contrary to any law or any municipal by-law or
ordinance in force in the city or town in which the premises are situated.
10. Fire Insurance. LESSEE shall not permit any use of the leased premises which
will make voidable any insurance on the property of which the leased premises
are a part, or on the contents of said property or which shall be contrary to
any law or regulation from time to time established by the New England Fire
Insurance Rating Association, or any similar body succeeding to its powers.
LESSEE shall on demand reimburse LESSOR, and all other tenants, all extra
insurance premiums caused by LESSEE's use of the premises.
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11. Maintenance of Premises. LESSEE agrees to maintain the leased premises in
the same condition as they are at the commencement of the term or as they may be
put in during the term of this lease, reasonable wear and tear, damage by fire
and other casualty only excepted, and whenever necessary, to replace plate glass
and other glass therein, acknowledging that the leased premises are now in good
order and the glass whole. LESSEE shall not permit the leased premises to be
overloaded, damaged, stripped, or defaced, nor suffer any waste. LESSEE shall
obtain written consent of LESSOR before erecting any sign on the premises, which
consent shall not be unreasonably withheld or delayed.
12. Alterations. LESSEE shall not make structural alterations or additions to
the leased premises, but may make non-structural alterations provided LESSOR
consents thereto in writing, which consent shall not be unreasonably withheld or
delayed. All such allowed alterations shall be at LESSEE's expense and shall be
in quality at least equal to the present construction. LESSEE shall not permit
any mechanic's liens, or similar liens, to remain upon the leased premises for
labor and materials furnished to LESSEE or claimed to have been performed at the
direction of LESSEE and shall cause any such lien to be released of record
forthwith without cost to LESSOR. Any alterations or improvements made by LESSEE
shall become the property of LESSOR, except as set forth in Exhibit B attached,
at the termination of occupancy as provided herein. All alterations and
improvements shall be done by licensed tradesmen and companies, under all
necessary local permits and according to all local building codes and
regulations, using first-class materials. All such tradesmen and companies shall
have worker's compensation insurance in effect prior to beginning work on the
premises, and all activities of such tradesmen and companies shall be covered by
existing comprehensive general liability and property damage insurance policies
in limits equal to those set forth in paragraph 17 of this lease. LESSEE shall
provide LESSOR with written proof of all such insurance prior to commencement of
work.
13. Assignment - Subleasing. LESSEE shall not assign or sublet the whole or any
part of the leased premises without LESSOR's prior written consent, which
consent shall not be unreasonably withheld or delayed. Notwithstanding such
consent, LESSEE shall remain liable to LESSOR for the payment of all rent and
for the full performance of the covenants and conditions of this lease.
14. Subordination. This lease shall be subject and subordinate to any and all
mortgages, deeds of trust and other instruments in the nature of a mortgage, now
existing or existing at any time hereafter, and LESSEE shall, when requested,
promptly execute and deliver such written instruments as shall be necessary to
show the subordination of this lease to said mortgage, deeds of trust or other
instruments in the nature of a mortgage, provided, however, that all such
lenders shall execute a standard Non-Disturbance Agreement.
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15. LESSOR's Access. LESSOR or agents of LESSOR may, at reasonable times, enter
to view the leased premises and may remove placards and signs not approved and
affixed as herein provided, and make repairs and alterations as LESSOR should
elect to do so, without unreasonably interfering with LESSEE's right of quiet
enjoyment, and may show the leased premises to others, and at any time within
three (3) months before the expiration of the term, may affix to any suitable
part of the leased premises a notice for letting or selling the leased premises
or property of which the leased premises are a part and keep the same so affixed
without hindrance or molestation.
16. Snow and Ice. The removal of snow and ice from the sidewalks and parking lot
bordering upon the leased premises shall be LESSOR's responsibility.
17. LESSEE's Liability Insurance. LESSEE shall maintain with respect to the
leased premises and the property of which the leased premises are a part,
comprehensive public liability insurance in the amount of $1,000,000/$2,000,000,
with property damage in limits of $500,000.00, in responsible companies
qualified to do business in Massachusetts and in good standing therein insuring
LESSEE against injury to persons or damage to the property as provided and also
naming LESSOR as additional insured. LESSEE shall deposit with LESSOR
certificates for such insurance prior to the commencement of the term, and
thereafter within thirty (30) days prior to the expiration of any such policies.
All such insurance certificates shall provide that such policies shall not be
canceled without at least ten (10) days prior written notice to each assured
named therein.
18. Fire, Casualty, Eminent Domain. Should a substantial portion of the leased
premises, or of the property of which they are a part, be substantially damaged
by fire or other casualty, or be taken by eminent domain, LESSOR or LESSEE may
elect to terminate this lease. When such fire, casualty, or taking renders the
leased premises substantially unsuitable for their intended use, a just and
proportionate abatement of rent shall be made.
19. Default/LESSOR's Remedies. It is covenanted and agreed that (a) if LESSEE
shall neglect or fail to perform or observe any of the covenants, terms,
provisions or conditions contained in this lease and on its part to be performed
or observed within fifteen (15) days after written notice of default, or such
additional time as is reasonably required to correct any such default (except
for payment of rent or other charges, in which case no notice shall be required
and said period shall be ten (10) days); or (b) if LESSEE shall desert or
abandon the demised premises (whether or not the keys shall have been
surrendered or the rent shall have been paid); or (c) any event shall occur or
any contingency shall arise whereby this lease, or the term and estate hereby
created, would (by operation of law or otherwise) devolve upon or pass to any
person, firm, or corporation other than LESSEE except as expressly permitted
herein; or (d) if the estate hereby created shall be taken on execution or by
any other process of law; or (e) if LESSEE shall be judicially declared bankrupt
or insolvent according to law; or (f) if any assignment shall be made of the
property of LESSEE for the benefit of creditors; or (g) if a receiver, guardian,
conservator, trustee in involuntary bankruptcy or other similar officer
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shall be appointed to take charge of all or any substantial part of LESSEE's
property by a Court of competent jurisdiction; or (h) if a petition shall be
filed for the reorganization of LESSEE under any provisions of the Bankruptcy
Code now or hereafter enacted, and such proceeding is not dismissed within sixty
(60) days after it is begun; or (i) if LESSEE shall file a petition for such
organization, or for arrangement under any provisions of the Bankruptcy Code now
or hereafter enacted and providing a plan for a debtor to settle, satisfy or
extend the time for the payment of debts - then, and in any of said cases
(notwithstanding any former breach of covenant or waiver of the benefit hereof
or consent in a former instance), LESSOR lawfully may, immediately or at any
time thereafter, and without demand or notice, enter into and upon the said
premises or any part thereof in the name of the whole and repossess the same as
of his former estate, and expel LESSEE and those claiming through or under it
and remove its or their effects (forcible, if necessary) without being deemed
guilty of any manner of trespass, and without prejudice to any remedies which
might otherwise be used for arrears or rent or preceding breach of covenant, and
upon entry as aforesaid, this lease shall terminate; and LESSEE covenants and
agrees, notwithstanding any entry or re-entry by LESSOR, whether by summary
proceedings, termination, or otherwise, to pay and be liable for on the days
originally fixed herein for the payment thereof, amounts equal to the several
installments of rent and other charges reserved as they would, under the terms
of this lease, become due if this lease had not been terminated or if LESSOR had
not entered or reentered, as aforesaid, and whether the demised premises be
relet or remain vacant, in whole or in part, or for a period less than the
remainder of the term, and for the whole thereof, but in the event the demised
premises be relet by LESSOR, LESSEE shall be entitled to a credit in the net
amount of rent received by LESSOR in reletting, after deduction of all expenses
incurred in reletting the demised premises (including, without limitation,
remodelling costs, brokerage fees, and the like), and in collecting the rent in
connection therewith. As an alternative, at the election of LESSOR, LESSEE will
upon such termination pay to LESSOR, as damages, such a sum as at the time of
such termination represents the amount of the excess, if any, of the then value
of the total rent and other benefits which would have accrued to LESSOR under
this lease for the remainder of the lease term if the lease terms had been fully
complied with by LESSEE over and above the then cash rental value (in advance)
of the premises for the balance of the term.
Should LESSEE continue in possession of the premises after the end of
the term herein with permission of LESSOR, it is agreed that the tenancy thus
created can be terminated by either party giving to the other party not less
than thirty (30) days written notice to expire on the day of the month from
which the tenancy commenced to run. In so continuing, LESSEE agrees to pay the
last minimum monthly rental plus twenty-five percent thereof and to keep and
fulfill all the other covenants and conditions of this lease.
If the LESSEE shall default, after reasonable written notice thereof, in
the observance or performance of any conditions or covenants on LESSEE's part to
be observed or performed under or by virtue of any of the provisions in any
article of this lease, the LESSOR, without being under any obligation to do so
and without thereby waiving such default, may remedy such default for the
account and at the expense of the
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LESSEE. If the LESSOR makes any expenditures or incurs any obligations for the
payment of money in connection therewith, including but not limited to,
reasonable attorney's fees in instituting, prosecuting or defending any action
or proceeding, such sums paid or obligations incurred with interest at the rate
of twelve (12%) percent per annum and costs, shall be paid to the LESSOR by the
LESSEE as Additional Rent.
The specified remedies to which LESSOR may resort hereunder are
cumulative and not intended to be exclusive of any remedies or means of redress
to which LESSOR may at any time be lawfully entitled.
20. Notice. Any notice from LESSOR to LESSEE relating to the leased premises or
to the occupancy thereof shall be deemed duly served if left at the leased
premises, addressed to LESSEE. Any notice from LESSEE to LESSOR relating to the
leased premises or to the occupancy thereof shall be deemed duly served if
mailed to LESSOR by registered or certified mail, return receipt requested,
postage prepaid, addressed to LESSOR at such address as LESSOR may from time to
time advise in writing. All rent and notice shall be paid and sent to LESSOR at
P.O. Box 1109, Fall River, MA 02722. Any notices sent from LESSOR to LESSEE will
also be sent to Quaker Fabric Corporation of Fall River, ATTN: Vice President
and General Counsel.
21. Security Measures. LESSEE shall have sole legal and financial responsibility
for providing reasonable and adequate security measures for its employees,
invitees, and property in and about the leased premises and to insure a safe and
secure work area. LESSEE's responsibilities include proper lighting, proper
locks for doors, and any other measures deemed proper by LESSEE. LESSEE holds
LESSOR harmless from any claim, loss, or damage resulting from conditions on the
premises deemed to have been unsafe or lacking in proper security and not caused
by LESSOR's negligence.
22. Parking. LESSEE's employees may make use of parking spaces in the parking
lot in numbers consistent with LESSEE's number of employees and in common with
all others entitled to use such area. LESSEE may leave up to two trailers
overnight at its loading docks, and may, with LESSOR's consent (which consent
shall not be unreasonably withheld or delayed), arrange to leave more than two
trailers overnight.
23. Broker. LESSEE and LESSOR warrant and represent to each other that no
broker, finder or agent introduced LESSEE to LESSOR or to the demised premises
and LESSEE and LESSOR agree to indemnify, defend and hold harmless each other of
and from any claims for a fee or commission by a broker, finder or agent with
whom LESSEE or LESSOR have dealt.
24. Unenforceable Clauses. If any provision of this lease shall be deemed to be
void or unenforceable by a court of competent jurisdiction, the remaining
provisions shall not thereby be affected.
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25. Default/Construction. The captions in this lease are for convenience and do
not affect the meaning of this lease. This lease shall be interpreted in
accordance with the laws of the Commonwealth of Massachusetts and may be amended
only by an instrument in writing signed by LESSOR and LESSEE. This lease shall
be binding upon and inure to the benefit of LESSOR and LESSEE and their
respective legal representatives, heirs, successors, and assigns, except as
otherwise specifically provided. This lease contains the entire and only
agreement between the parties and any and all statements and representations,
written and oral, including previous correspondence and agreements between the
parties hereto, are merged herein. LESSEE acknowledges that all representations
and statements upon which it relied in executing this lease are contained herein
and that LESSEE in no way relied upon any other statements or representations,
written or oral.
26. Pest Control. LESSEE shall at all times during the term of this lease
maintain the leased premises free of all mice, rats, cockroaches, and any and
all other pests, so-called, caused by or resulting from LESSEE's own use of the
premises, and pursuant thereto LESSEE shall at least once annually, and more
frequently if reasonably necessary, cause a thorough inspection to be made of
the leased premises by a licensed pest exterminating company or individual. And,
in the event that any pests, so-called, are discovered within the leased
premises, or in any other portion of the building of which they form a part,
LESSEE shall, forthwith, take all necessary steps for the eradication and
extermination of same. The duties and obligations of this paragraph shall be at
the LESSEE's sole cost and expense.
27. LESSEE Regulations. LESSEE further agrees to conform to the following
provisions during the entire term of this lease:
(a) No auction, fire, or bankruptcy sales may be conducted within the
premises without the previous written consent of LESSOR;
(b) LESSEE shall not use the areas or sidewalks adjacent to the premises
for business purposes without the previous written consent of the LESSOR;
(c) LESSEE shall secure LESSOR's written approval (which shall not be
unreasonably withheld or delayed) as to location of LESSEE's self contained
trash unit/compactor and trash removal plans and LESSEE shall refrain from
dumping, disposal, reduction, incineration or other burning of any trash,
papers, refuse or garbage of any kind in or about the premises;
(d) LESSEE shall not drill or make holes in any stone or brick work or
place or suffer to be placed or maintained on any exterior door, wall or window
of the premises, any sign awning or canopy, or advertising matter or other thing
of any kind, and will not place or maintain any decoration, lettering or
advertising matter on the glass of any window or door of the premises without
first obtaining LESSOR's written consent and approval, which won't be
unreasonably withheld or delayed;
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(e) LESSEE shall not perform any act or carry on any practice which may
injure the premises or any other part of LESSOR's property or cause any
offensive odors or constitute a nuisance or menace to any other occupant or
other persons in said property and in no event shall any noises or odors be
emitted from the premises;
(f) Except as herein otherwise provided, LESSEE shall open its business
in the premises at the beginning of the term of this lease, and diligently
conduct such business during the entire term hereof;
(g) No conduct or manner of occupancy by other tenants of the property
of which the premises are a part shall give rise to any claim against LESSOR for
damages or, unless 30 days' written notice of the problem and the opportunity to
cure are given by LESSEE to LESSOR, constitute a total or partial eviction,
constructive or otherwise;
(h) At the termination or expiration of this lease, LESSEE shall remove
such of its goods and effects as are not permanently affixed to the premises and
shall remove such of its alterations and additions as LESSOR may request or as
specifically identified on Exhibit B. LESSEE shall repair any damage caused by
such removal and shall peaceably yield up the premises and all alterations,
additions and improvements thereto (except such as the LESSOR has requested the
LESSEE to remove, or as specifically identified on Exhibit B) and all fixtures,
furnishings, floor coverings and equipment which are affixed to the demised
premises, which shall thereupon become the property of the LESSOR, clean and in
good order, repair and condition, damage by fire or casualty and reasonable and
ordinary wear and tear excepted;
(i) LESSEE shall supply and maintain at its own expense any fire
extinguishers, smoke detectors or other fire prevention equipment (except
sprinkler system, which shall be LESSOR's responsibility) now or hereafter
required by the law, rules, orders, ordinances and other regulations of the
city, county, or state in which the herein demised premises are located, and/or
required by any underwriters association, or any other similar body or agency
having jurisdiction involving the premises;
(j) LESSEE shall perform no act or carry on any practices that may be a
nuisance or detract from the attractiveness of LESSOR's property as a whole;
(k) LESSEE shall refrain from committing or suffering to be committed
any strip or waste upon, or any unlawful, improper or offensive use of, the
premises, common facilities, or land or any public or private nuisance or act or
thing which may disturb the quiet enjoyment of any other LESSEE, concessionaire,
or licensee or occupant of the property or customers or business invitees of the
LESSEE's thereof; and
(l) In addition to the foregoing, LESSEE shall at all times during the
term hereof comply with all other rules and regulations which LESSOR may at any
time or from time to time establish in LESSOR's sole discretion concerning the
use of the
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premises; provided, however, that any such rule or regulation so made shall not
be inconsistent with this lease, shall not be unreasonable, shall not interfere
with LESSEE's use and enjoyment of the premises for permitted uses, and shall be
enforced without discrimination among lessees similarly affected.
28. Indemnification of LESSOR. LESSEE agrees to indemnify and save LESSOR
harmless against and from any and all claims by or on behalf of any person, firm
or corporation, arising from the conduct or management of or from any work or
thing whatsoever done in the leased premises or done by LESSEE or any of its
agents, contractors, servants, employees or licensees or sub-lessees in or about
the leased premises. LESSEE also agrees to indemnify and save LESSOR harmless
against and from any and all claims arising from the date of this lease and
during the term of this lease or any extension, from any breach or default on
the part of LESSEE in the performance of any covenant or agreement on the part
of LESSEE to be performed, pursuant to the terms of this lease, or arising from
any act of negligence of LESSEE or any of its agents, contractors, servants,
employees, sub-lessees or licensees, arising from any accident, injury or damage
whatsoever caused to any person, firm or corporation occurring during the term
of this lease in the leased premises or upon or in the building and from and
against all costs, counsel and legal fees, expenses and liabilities incurred in
or about any such claim or action or proceeding brought against LESSOR by reason
of any such claim. LESSEE upon notice from LESSOR shall at its expense resist or
defend such action or proceeding by counsel reasonably satisfactory to LESSOR.
LESSEE covenants to pay and to indemnify LESSOR against all costs and
charges, including counsel and legal fees, lawfully and reasonably incurred in
obtaining possession of the leased premises and establishing LESSOR's title free
and clear of this lease and any leasehold mortgage of the leased premises upon
expiration or earlier termination of this lease or in enforcing any agreement by
LESSEE herein contained.
29. Indemnification of LESSEE. LESSOR agrees to indemnify and save LESSEE
harmless against and from any and all claims by or on behalf of any person, firm
or corporation, arising from the conduct or management of or from any work or
thing whatsoever done in the leased premises or building done by LESSOR or any
of its agents, contractors, servants, employees or licensees or sub-lessors in
or about the leased premises or building. LESSOR also agrees to indemnify and
save LESSEE harmless against and from any and all claims arising from any breach
or default on the part of LESSOR in the performance of any covenant or agreement
on the part of LESSOR to be performed, pursuant to the terms of this lease, or
arising from any act of negligence of LESSOR or any of its agents, contractors,
servants, employees, sub-lessors or licensees, arising from any accident, injury
or damage whatsoever caused to any person, firm or corporation occurring during
the term of this lease in the leased premises or upon or in the building and
from and against all costs, counsel and legal fees, expenses and liabilities
incurred in or about any such claim or action or proceeding brought against
LESSEE by reason of any such claim. LESSOR upon notice from LESSEE shall at its
expense resist or defend such action or proceeding by counsel reasonably
satisfactory to LESSEE.
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LESSOR covenants to pay and to indemnify LESSEE against all costs and
charges, including counsel and legal fees, lawfully and reasonably incurred in
obtaining possession of the leased premises and establishing LESSEE's title free
and clear of this lease and any mortgage of the leased premises upon expiration
or earlier termination of this lease or in enforcing any agreement by LESSOR
herein contained.
30. Surrender. The LESSEE shall at the expiration or other termination of this
lease, remove all LESSEE's goods and effects from the leased premises,
(including, without hereby limiting the generality of the foregoing, all signs
and lettering affixed or painted by the LESSEE, either inside or outside the
leased premises).
LESSEE shall deliver to the LESSOR the leased premises and all keys and
locks thereto, and other fixtures connected therewith and all alterations and
additions made to or upon the leased premises, with the exception of those
defined on Exhibit B, in the same condition as they were at the commencement of
the term, or as they were put in during the term hereof, reasonable wear and
tear and damage by fire or other casualty only excepted. In the event of the
LESSEE's failure to remove any of LESSEE's property from the premises, LESSOR is
hereby authorized, in its discretion and using whatever means LESSOR chooses, to
dispose of, sell, trade, discard, and otherwise deal with such property, all
such proceeds of such actions to be the property of the LESSOR without
obligation to account to LESSEE in any way.
31. Environmental Default Provision. Any unreasonable and material interference
with LESSEE's operations resulting from the presence of toxic or hazardous
substances on, under, in or adjacent to the premises or from remedial work not
caused by LESSEE and which continues to exist after thirty (30) days' written
notice of same to LESSOR shall be a material default for which LESSEE may
exercise any remedies set forth in this lease, including, but not limited to:
(a) abating rent, or (b) terminating this lease. LESSOR indemnifies and holds
LESSEE harmless from any loss or damage caused to LESSEE as the result of a
spill or presence of hazardous or toxic materials caused by the actions of
LESSOR.
32. Quiet Enjoyment. As long as the LESSEE shall perform the covenants and
agreements on its part herein made, it shall, at all times during the term
hereof, have the peaceable and quiet enjoyment of the leased premises without
let, hindrance or disturbance from the LESSOR, or from any person lawfully
claiming the said premises; but, nevertheless, the LESSOR shall have free access
to the leased premises at all reasonable times upon prior notice to LESSEE for
the purpose of making any alterations or repairs to the building that the LESSOR
may deem necessary or to show the premises to persons wishing to lease the same.
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33. Arbitration. In the event of any disputes arising as to the interpretation
or implementation of any of the terms hereof, such matter shall be settled by
submission to arbitration, and the same shall be settled in Fall River, MA, in
accordance with the procedural rules then obtaining of the American Arbitration
Association or any successor thereto.
34. LESSOR's Improvements. LESSOR shall complete the improvements listed on
Exhibit A hereto with reasonable promptness and in no event later than the dates
listed on Exhibit A, at its expense, but these improvements shall not delay the
commencement of this lease or reduce the rent due from LESSEE.
35. LESSEE's Improvements. LESSOR hereby consents to LESSEE's completion of the
improvements listed on Exhibit B hereto, at LESSEE's expense, all such work to
be done in compliance with the terms of this lease, including Sections 12 and 17
hereof.
IN WITNESS WHEREOF, LESSOR and LESSEE have hereunto set their hands and
common seals this 31st day of March, 1998.
1 Lewiston Street, LLC
By: Vincent J. Geoffroy
-----------------------------------
LESSOR: Vincent J. Geoffroy,
Authorized Member
Quaker Fabric Corporation of Fall River
By: Cynthia L. Gordan, V.P.
-----------------------------------
, duly authorized
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EXHIBIT A - LESSOR'S IMPROVEMENTS
LESSOR will:
1. remove cement pad in front of dock #5 within 30 days of lease
execution;
2. paint and upgrade west and center entrances to the building
within 45 days of lease execution;
3. relocate temporary electrical service running on the second floor
within 30 days of lease execution;
4. provide adequate fire alarm system with proper emergency signs,
pull stations and horns within 30 days of lease execution;
5. complete necessary upgrade to existing freight elevator to
finalize permit - COMPLETED;
6. widen opening leading to the freight elevator of the first floor
annex from 4 feet 6 inches to a minimum of 8 feet within 21 days
of lease execution; and
7. within 90 days relocate existing interior wall on first floor
currently establishing a travel aisle to elevator measuring 8
feet 4 inches wide to a minimum of 10 feet.
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EXHIBIT B - LESSEE'S IMPROVEMENTS
LESSOR approves LESSEE's completion of one or all of the following:
1. Prepare facility to support Quaker's operation -
* Ceilings - remove obsolete fixtures and hardware which may hinder
installation of equipment and operation. Scrap and paint (white).
* Walls - scrap, repair holes and paint (two tone gray).
* Utilities - color code and identify with markings.
* Windows - repair and paint units located on north side of
building and annex.
* Floors - lightly sand and seal.
2. Construct access to utilities.
3. Install several window intake and exhaust fans throughout second and
third floors including north annex to improve ventilation.
4. *Install exterior lights at dock area and entrances to minimize security
risks and potential injury to personnel entering or exiting facility.
5. Remove and dispose interior structures located in annex building first,
second and third floors.
6. Remove old existing electric wiring, conduit and boxes replacing with
new services.
7. Refurbish bathrooms located on second and third floors.
8. Construct new offices on second and third floor of annex building.
9. Construct new cafeteria on second or third floor of annex building.
10. *Install a 50 to 75 horsepower air compressor (oil free cooling system)
with air dryer and tank.
11. *Install 10 to 12 ceiling suspended natural gas heaters taking
combustible air from exterior of building and exhaust of outside via
window.
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12. *Install ceiling suspended humidifiers throughout the second floor of
main building.
13. *Install a central vacuum system with piping suspended from ceiling and
filter canisters placed in annex building mounted to small gantry
depositing waste through floor to disposal unit.
14. *Cut opening on second floor of annex building to support to Toledo
scale flush with floor designed to weigh yarn cases.
15. *Install a vacuum hoist crane to assist associates with lighting yarn
cases onto skids.
16. *Install battery charging stations to support material handling
equipment.
17. *Install small steam box with water connection and drain to condition
novelty yarns.
18. *Install Quaker Fabric signs in clear view of street and driveway.
19. *Temporary store trash bin (BFI) at west side of main facility just
below overhead garage door.
20. Install concrete pad outside of main facility to support transformer
that can meet initial power requirements of 2,000 AMPS.
21. *Construct small room in annex building to house an electric switch
gear.
22. *Install additional phone, fax and data lines to support operations.
23. *Install antenna and repeater to transmit data to Brayton Avenue
facility via radio wave (bar code transmittal).
24. *Install interior lighting.
25. *Install compressed air to machinery.
26. *Install several vacuum systems (to clean lint off associates) stationed
along wall perimeter exhausting to outside via window.
27. *Diamond plate travel aisles located on third floor housing new raw
material storage.
28. *Install additional fire extinguishers strategically placed within
leased areas.
29. *Install systems to insure the highest level of security.
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30. Make any modification to leased areas to meet building code, fire and
insurance (IRI) regulations.
31. *Possibly install a vertical reciprocal lift connecting first floor
annex with second.
32. Possibly activate existing conveyor system located in annex building
connecting second floor with third.
NOTE: Items prefixed with an asterisk may be purchased and installed by Quaker
and removed following termination of lease.
15
<PAGE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 10, 1998 incorporated by reference or
included in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File No. 33-88264) and Form S-3 (File No. 33-88236).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 31, 1998
<PAGE>
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