<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUAKER FABRIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-1933106
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
(508) 678-1951
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LARRY A. LIEBENOW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
(508) 678-1951
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ARNOLD S. JACOBS, ESQ. NEIL GOLD, ESQ.
PROSKAUER ROSE LLP FULBRIGHT & JAWORSKI L.L.P.
1585 BROADWAY 666 5TH AVENUE
NEW YORK, NEW YORK 10036-8299 NEW YORK, NEW YORK 10103
(212) 969-3000 (212) 318-3000
FAX (212) 969-2900 FAX (212) 752-5958
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest investment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED PER UNIT(2) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share................... 4,312,500 shares(1) $17.50 $75,468,750 $22,264
</TABLE>
(1) Includes 562,500 shares of Common Stock which the Underwriters have an
option to purchase to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee, using
the average high and low trading price on The Nasdaq Stock Market's National
Market on May 28, 1998, after giving effect to a three-for-two stock split
which will occur prior to the effectiveness of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JUNE 3, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
[Logo]
3,750,000 Shares
QUAKER FABRIC CORPORATION
Common Stock
- --------------------------------------------------------------------------------
Of the 3,750,000 shares of common stock, par value $.01 per share (the 'Common
Stock'), offered hereby, 3,000,000 are being sold by Quaker Fabric Corporation
('Quaker' or the 'Company') and 750,000 are being sold by a stockholder of the
Company (the 'Selling Stockholder'). See 'Principal and Selling Stockholders.'
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder.
The Common Stock is included in The Nasdaq Stock Market's National Market (the
'Nasdaq National Market') under the symbol 'QFAB.' On June 1, 1998, the last
reported sales price for the Common Stock on the Nasdaq National Market was
$17.67 per share, after giving effect to a three-for-two stock split payable on
June 19, 1998 to holders of record of shares of Common Stock on June 8, 1998.
See 'Price Range of Common Stock.' All share and per share numbers in this
Prospectus reflect this stock split.
SEE 'RISK FACTORS' ON PAGES 9 THROUGH 13 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholder (2)
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total (3).................................. $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the 'Securities Act'). See
'Underwriting.'
(2) Before deducting offering expenses estimated to be $400,000 payable by the
Company.
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 562,500 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$ , the Underwriting Discounts and Commissions will be $ , the
Proceeds to Company will be $ and the Proceeds to Selling Stockholder
will be $ . See 'Underwriting.'
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholder and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made through the facilities of the Depository Trust Company, New York, New
York on or about , 1998.
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
WHEAT FIRST UNION
June , 1998
<PAGE>
<PAGE>
Photograph of
PATTERN
Astrology
COLOR
Cobalt
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION
IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE 'UNDERWRITING.'
2
<PAGE>
<PAGE>
[Photograph]
<PAGE>
<PAGE>
Photograph of
left
PATTERN
Pleasant Manor
COLOR
Amethyst
Photograph of
right
PATTERN
Pleasant Valley
COLOR
Amethyst
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), through the Electronic Data Gathering, Analysis and Retrieval
System ('EDGAR'), a Registration Statement on Form S-3 (the 'Registration
Statement') under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, filed as part of the Registration Statement, does not
contain all of the information included in the Registration Statement and the
exhibits and schedules thereto, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus by reference
as to the contents of any contract, agreement or other document referred to are
not necessarily complete and in each such instance, reference is made to the
copy of such contract, agreement or other document filed as an exhibit to the
Registration Statement for a more complete description of the matters involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge and copied at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained at the prescribed rates from the Commission's Public Reference
Section at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Electronic registration statements filed through EDGAR may also be
accessed electronically through the Commission's home page on the World Wide Web
at http://www.sec.gov.
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith, it files reports, proxy statements and other information
required thereby with the Commission via EDGAR. Copies of such material may be
inspected and copied at the offices of the Commission set forth above and
accessed electronically through the Commission's home page on the World Wide
Web. The Common Stock is quoted for trading on the Nasdaq National Market and
reports, proxy statements, information statements and other information
concerning the Company may also be inspected at the Nasdaq Stock Market, 1735
K Street, Washington, D.C. 20006-1500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(1) the Company's Annual Report on Form 10-K for the year ended
January 3, 1998;
(2) the Company's Quarterly Report on Form 10-Q for the quarter ended
April 4, 1998; and
(3) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, Registration No. 0-22592.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be modified or superseded,
for purposes of this Prospectus, to the extent that a statement contained herein
or in any subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, upon written or oral request, without charge to
each person to whom a copy of this Prospectus has been delivered, including any
beneficial owner, a copy of any or all of the documents which have been or may
be incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to: Corporate
Secretary, Quaker Fabric Corporation, 941 Grinnell Street, Fall River,
Massachusetts 02721; (508) 678-1951.
3
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein. Except as
otherwise indicated, the information in this Prospectus (a) assumes that the
Underwriters' over-allotment option will not be exercised and (b) reflects a
three-for-two stock split of the Common Stock payable on June 19, 1998 to
stockholders of record on June 8, 1998. References to financial or statistical
data for a particular year refer to the Company's corresponding fiscal year,
which is currently a 52 or 53-week period ending on the Saturday closest to
January 1. For example, '1996' means the fiscal year ended January 4, 1997 and
'1997' means the fiscal year ended January 3, 1998.
THE COMPANY
GENERAL
Quaker is a leading designer, producer and marketer of woven upholstery
fabrics for residential furniture markets in the United States and around the
world. The Company also designs and produces specialty yarns, primarily for use
in the production of its fabrics. Quaker's specialty yarns are also sold to
manufacturers of apparel and home furnishings products throughout the United
States. In 1997, Quaker had net sales of $219.2 million, with 85.5% of net sales
represented by the sale of fabric and 14.5% of net sales represented by the sale
of specialty yarns.
Quaker is a product design and development leader with over 3,000 fabric
patterns in its product line, the majority of which are copyrighted Jacquards
with detailed designs woven directly into the fabric. Quaker also offers a full
range of plain, plaid and striped woven fabrics to complement its core line of
unique Jacquard designs. Each year, the Company creates and adds more than 700
new fabric patterns to its product line. The Company's new product
introductions, including its Ankyra chenille yarns and fabrics, its Whitaker
Collection fabrics and its Quaker Plush products, have substantially increased
demand for the Company's fabrics. Since 1992, the Company has expanded its
fabric line significantly by increasing the number of middle to better-end
fabrics in its line, as well as the number of products it offers at each price
point and in each styling category. The Company's expanded product offerings
have enabled it to sell more products to its existing customers and add new
higher-end furniture manufacturers to its customer base.
In 1997, Quaker sold over $150.5 million (gross) of fabric to its domestic
customers, which include virtually every major manufacturer of upholstered
furniture in the United States. Quaker's key domestic accounts include Furniture
Brands International (Action by Lane, Broyhill and Thomasville), Klaussner,
La-Z-Boy, Lifestyle Furnishings International (Berkline, Benchcraft and others),
Rowe Furniture and Simmons. The continued expansion of Quaker's better-end
product line has resulted in sales to a number of well-known higher-end
furniture manufacturers, including Bernhardt, Century, Henredon and Sherill. In
addition, in 1997, Quaker sold over $39.7 million (gross) of fabric to its
foreign customers in over 40 countries.
The Company's manufacturing operations are vertically integrated, beginning
with the production of specialty yarns for use in its fabrics and continuing
through fabric weaving and finishing. The Company's ability to produce its own
specialty yarns, a critical fabric component, combined with Quaker's product
styling and design expertise, allow the Company to offer a broad range of
distinctive fabrics at competitive prices.
The Company invests continuously to improve its operating performance and
capitalize on increased customer demand. The success of Quaker's new product
introductions has resulted in customer demand which substantially exceeds
Quaker's current production capacity. To meet this demand and improve customer
service, in 1997, Quaker began implementing an $80.0 million capital investment
program. This program includes the purchase of new weaving, yarn manufacturing
and fabric finishing equipment and the installation of a new Enterprise Resource
Planning system. By the
4
<PAGE>
<PAGE>
end of 1998, the Company expects to have the capacity to manufacture
approximately 63.0 million yards of upholstery fabric annually. In 1996 and
1997, the Company sold 43.6 million and 45.0 million yards of fabric,
respectively. To support the Company's long-term growth, Quaker is developing a
new capital investment program. This new program would provide for the
investment of approximately $50.0 million to construct or acquire and to equip a
modular manufacturing facility in the Fall River, Massachusetts area. Management
believes that adding capacity at a separate facility will allow the Company to
increase production with minimal disruption to its existing operations.
The Company's net sales increased from $123.4 million in 1992 to $219.2
million in 1997, representing a compound annual growth rate ('CAGR') of 12.2%.
Reflecting strong demand for the Company's products, Quaker's backlog of
unfilled customer orders at the end of the first quarter of 1998 was $69.9
million, a 131% increase over the backlog at the end of the first quarter of
1997 and a 31% increase over the backlog at the end of 1997.
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:
Innovative Product Design and Development. Management believes that
Quaker's product design and development expertise is the Company's most
important competitive strength. Each year, Quaker creates and adds more than 700
new fabric patterns to its product line. All of the Company's fabrics benefit
from the use of Quaker's proprietary yarns and advanced finishing methods which
enhance their appearance, durability and softness.
Broad and Differentiated Product Assortment. Quaker is a full-service
supplier of Jacquard and plain woven fabrics and the Company is one of the
largest producers of Jacquard fabrics in the world. Management believes that the
breadth of the Company's product line will allow Quaker to further increase its
market share at each price point and in each styling category.
Vertical Integration. Management believes that the Company's vertically
integrated operations are an important factor in Quaker's ability to maintain
its product leadership position and achieve its customer service and operating
objectives. Quaker produces approximately 70% of the specialty yarns used in its
upholstery fabrics and weaves and finishes substantially all of its fabrics.
Management believes that Quaker's vertically integrated operations enhance its
design capabilities, improve its quality performance and reduce its customer
delivery lead times.
State-of-the-Art Operations. Management believes that the Company has one
of the most modern manufacturing operations in the industry and that the
Company's ongoing investments in state-of-the-art equipment, a well-trained
workforce and new information systems technology will allow Quaker to gain a
service advantage over its competitors.
GROWTH STRATEGY
Quaker's strategy to further its growth and improve its financial
performance includes:
Capitalize on Increased Demand. To meet increased customer demand, the
Company has been investing aggressively to expand its production capacity and
improve customer service. During the 15-month period ended April 4, 1998, the
Company invested $37.8 million in capital expenditures, and has budgeted
additional capital expenditures of $42.2 million through the end of 1998. In
addition to this $80.0 million capital investment program, the Company is
developing a plan to invest approximately $50.0 million in capital expenditures
to increase capacity.
Enhance Product Mix. Since 1992, the Company has expanded the number of
middle to better-end fabrics in its line, enabling the Company to increase sales
of higher margin products to its existing customers and to add new higher-end
furniture manufacturers to its customer base. As a result, sales of the
Company's middle to better-end products have increased from $66.3 million in
1992 to $132.8 million in 1997, and the average gross sales price per yard of
the Company's fabrics has increased from
5
<PAGE>
<PAGE>
$3.66 in 1992 to $4.23 in 1997. The success of Quaker's Whitaker Collection and
Quaker Plush fabrics has resulted in additional favorable product mix shifts,
causing the average gross sales price per yard of the Company's middle to
better-end product category to increase from $4.70 during the first quarter of
1997 to $5.04 during the first quarter of 1998.
Continue Development of International Sales. Quaker has built an
international sales and distribution network to develop and market fabrics which
meet the styling and design needs of its international customers. Key existing
international markets include Canada, Mexico and the Middle East, and management
believes that significant opportunities exist for additional sales in Europe,
Australia, Latin America and the Far East.
Penetrate Related Fabric Markets. The Company believes that the superior
styling and performance characteristics of its fabrics and recent ISO 9001
certification of its operations provide opportunities to penetrate the contract
market and increase Quaker's share of the interior decorator and recreational
vehicle markets. Management believes Quaker's Jacquard Ankrya chenille fabrics
and Quaker Plush products will provide the Company with a product advantage in
these markets.
Expand Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns. Management believes it is the world's largest producer of chenille yarns,
including its proprietary, abrasion-resistant Ankyra chenille yarns. Management
believes additional planned expansion of the Company's yarn manufacturing
capacity will allow Quaker to increase sales of its specialty yarns to producers
of apparel and home furnishings products.
Pursue Strategic Acquisitions. Management believes that the execution of
its business strategy has created the design, production, service, information
systems and administrative infrastructure to manage a much larger business. The
Company intends to seek strategic acquisitions of businesses with complementary
products, manufacturing equipment or distribution capabilities.
Quaker's executive offices are located at 941 Grinnell Street, Fall River,
Massachusetts 02721 and the Company's telephone number is (508) 678-1951.
Ankyra'tm', Quaker'tm', Quaker Plush'tm' and Whitaker'tm' are trademarks
of the Company.
RECENT DEVELOPMENT
In June 1998, the Company amended its senior unsecured revolving credit
agreement which matures December 31, 2002 (the 'Credit Agreement') to increase
the amount available thereunder from $50.0 million to $70.0 million and to
eliminate convenant limitations with respect to capital expenditures. After
consummation of this offering and application of the net proceeds therefrom as
set forth in 'Use of Proceeds,' the Company will have approximately $69.9
million of availability under the Credit Agreement.
6
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company............................... 3,000,000 shares
Common Stock Offered by the Selling Stockholder................... 750,000 shares
Common Stock to be Outstanding after the Offering(1).............. 15,641,053 shares
Use of Proceeds................................................... To repay amounts outstanding under the
Credit Agreement and for capital
expenditures, working capital and
potential acquisitions. See 'Use of
Proceeds.'
Nasdaq National Market Symbol..................................... QFAB
</TABLE>
- ------------
(1) Based on 12,641,053 shares of Common Stock outstanding as of May 28, 1998.
Does not include (i) 1,202,792 shares of Common Stock which may be issued
pursuant to the Company's stock option plans, of which options to purchase
1,029,992 shares of Common Stock were outstanding on May 28, 1998, (ii)
22,500 shares of Common Stock which may be issued upon exercise of options
granted to three directors and (iii) 555,538 shares of Common Stock which
may be issued upon exercise of an option issued to Nortex Holdings, Inc.
('Nortex Holdings'), the Selling Stockholder. All share and option numbers
give effect to the three-for-two stock split payable on June 19, 1998
(without reflecting any adjustment for fractional shares which will not be
issued in connection with the stock split).
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact from various events that could
adversely affect the Company's business. See 'Risk Factors.'
7
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED --------------------
---------------------------------------------------------------------- APRIL APRIL
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4, JANUARY 3, 5, 4,
1994 1994 1995 1997(1) 1998 1997 1998
---------- ------------ ------------ ---------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $147,867 $180,842 $173,487 $198,856 $219,174 $53,198 $62,730
Gross margin................. 37,114 47,674 36,404 46,069 51,773 13,099 13,591
Operating income............. 14,822 20,114 10,228 16,948 19,462 4,631 4,193
Income before provision for
income taxes and
extraordinary item......... 9,587 16,217 6,232 12,779 15,697 3,747 2,978
Income before extraordinary
item....................... 5,369 9,526 5,520 8,562 11,113 2,510 1,936
Net income applicable to
common stock............... $ 2,749 $ 9,526 $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
---------- ------------ ------------ ---------- ---------- ------- -------
---------- ------------ ------------ ---------- ---------- ------- -------
Earnings per common share --
basic(2)(3)................ $ 0.32 $ 0.79 $ 0.46 $ 0.71 $ 0.90 $ 0.21 $ 0.15
Earnings per common share --
diluted(2)(3).............. $ 0.30 $ 0.77 $ 0.44 $ 0.69 $ 0.85 $ 0.20 $ 0.15
SELECTED OPERATING DATA:
EBITDA(4).................... $ 19,710 $ 25,920 $ 16,821 $ 24,569 $ 28,479 $ 7,162 $ 6,713
Depreciation and
amortization............... 5,019 5,603 6,462 7,437 8,511 1,969 2,535
Net capital
expenditures(5)............ 10,558 18,727 13,165 11,979 25,484 2,440 12,312
Backlog of unfilled customer
orders..................... 28,000 24,619 24,459 29,063 53,427 30,275 69,904
Unit volume (in yards)....... 36,289 41,641 40,761 43,552 44,976 11,013 12,224
Average gross sales price per
yard....................... $ 3.87 $ 4.06 $ 3.88 $ 4.05 $ 4.23 $ 4.26 $ 4.52
</TABLE>
<TABLE>
<CAPTION>
APRIL 4, 1998
-----------------------
AS
ACTUAL ADJUSTED(6)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 47,651 $ 82,536
Total assets....................................................................................... 194,852 229,737
Long-term debt and capital leases, net of current portion.......................................... 65,321 50,521
Stockholders' equity............................................................................... 84,261 133,946
</TABLE>
- ------------
(1) The fiscal year ended January 4, 1997 was a 53-week period.
(2) Earnings per share for fiscal 1993 give effect to the early extinguishment
of debt in connection with a recapitalization in March 1993, which resulted
in an extraordinary loss of $2.6 million, and the use of proceeds from the
Company's initial public offering of Common Stock in November 1993 as though
both events had occurred at the beginning of 1993.
(3) Reflects a three-for-two stock split payable on June 19, 1998 to
stockholders of record on June 8, 1998.
(4) Represents income from continuing operations before extraordinary items plus
interest, taxes, depreciation, amortization and other non-cash expenses.
Although the Company has measured EBITDA consistently between the periods
presented, EBITDA as a measure of liquidity is not governed by generally
accepted accounting principles ('GAAP'), and, as such, may not be comparable
to other similarly titled measures of other companies. The Company believes
that EBITDA, while providing useful information, should not be considered in
isolation or as an alternative to either (i) operating income determined in
accordance with GAAP as an indicator of operating performance or (ii) cash
flows from operating activities determined in accordance with GAAP as a
measure of liquidity.
(5) Net capital expenditures reflect assets acquired by purchase and capital
lease.
(6) Adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered hereby by the Company (at an assumed public offering price of $17.67
per share, the split-adjusted last reported sales price for the Common Stock
on the Nasdaq National Market on June 1, 1998) after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company and the application of the estimated net proceeds to the Company
therefrom. See 'Use of Proceeds' and 'Capitalization.'
8
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<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute 'forward-looking
statements' within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations; (ii) the Company's capital expenditure and financing
plans; (iii) the Company's business and growth strategies; (iv) the use of the
proceeds to the Company of this offering; and (v) the declaration and payment of
dividends. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
accompanying information contained or incorporated by reference in this
Prospectus, including without limitation the information set forth herein under
the headings 'Risk Factors,' 'Use of Proceeds,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Business,'
identifies important factors that could cause such differences.
POTENTIAL INABILITY TO SUSTAIN GROWTH OR INCREASE PRODUCTION CAPACITY. In
recent years, the Company has experienced significant growth in demand for its
products. As a result of this demand, the Company is devoting substantial
resources to increasing its production capacity. However, capacity constraints
have caused the Company's production backlog and delivery lead times to increase
substantially, with orders pending for fabric and yarn increasing to
approximately $69.9 million as of April 4, 1998 from $30.3 million as of April
5, 1997. The costs associated with increasing capacity, including hiring,
training and overtime costs, as well as decreased manufacturing efficiency as
new employees are integrated into the Company's work force, adversely affected
the Company's gross margin percentage in the second half of 1997 and the first
quarter of 1998. There can be no assurance that: (i) this increased demand for
the Company's products will continue; (ii) increased delivery lead times will
not cause customers to seek other sources of upholstery fabric; (iii) the
Company can profitably increase its production capacity; or (iv) the costs
associated with increasing the Company's capacity will not continue to adversely
affect the Company's gross margin percentage. Sustaining growth will also
require enhancement of the Company's operational, management and financial
systems and the continuing recruitment, training and retention of qualified
personnel. There can be no assurance that the Company will be able to manage its
expanding operations effectively or maintain or accelerate its growth. Any of
these occurrences could have a material adverse effect on the Company's
business, financial condition and results of operation.
GENERAL ECONOMIC CONDITIONS. Domestic demand for the Company's upholstery
fabrics is principally a function of consumer demand for, and production levels
of, upholstered furniture which, in turn, fluctuate with U.S. economic
conditions and consumer sentiment. For most individuals, a decision to buy
upholstered furniture represents both a discretionary purchase and a relatively
large expenditure. Accordingly, demand is, in general, higher during periods of
economic strength and lower during periods of economic weakness or uncertainty.
Key economic conditions influencing demand for Quaker's products are housing
starts, sales of existing homes, consumer confidence and spending levels,
population demographics, trends in disposable income, prevailing interest rates
for home mortgages and the availability of consumer credit. Adverse economic
conditions could have a material adverse effect on the Company.
NEW COMPUTER SYSTEMS AND YEAR 2000 SOFTWARE RISK. The Company is in the
process of implementing a new management information, or Enterprise Resource
Planning, system and anticipates that conversion to this system will be
completed by July 1998, with full implementation expected by the end of 1998. In
addition to providing new systems applications, the related software is year
2000 compliant. However, to the extent that the new software or any software in
the Company's machinery or desktop computers is unable to recognize the year
2000, the Company may incur expenses in
9
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<PAGE>
connection with the need to remediate such software in addition to the potential
expense of any disruptions that may be caused by the software's impaired
functioning as the year 2000 approaches. There can be no assurance that any such
remediation efforts will be successful or that the Company's operations will not
be adversely affected during the process of implementing this new system. In
addition, if any of the Company's significant customers or suppliers do not
successfully and timely achieve year 2000 compliance, the Company's business
could be materially affected.
FOREIGN SALES. The Company anticipates that an increasing portion of its
revenues will be derived from foreign and export sales (together 'foreign
sales'). In 1997, foreign sales totaled $39.7 million (gross), or 20.9% of the
Company's gross fabric sales. A reduction in the volume of international trade,
fluctuations in currency exchange rates, political instability in any of the
export markets important to the Company, any material restrictions on
international trade, or a downturn in the economy of any of the export markets
important to the Company, could have a material adverse effect on the Company.
In addition, the Company's 1997 gross fabric sales to customers in four foreign
countries were $28.4 million in the aggregate, representing 71.6% of the
Company's total foreign sales and 14.9% of the Company's gross fabric sales.
There can be no assurance that economic, political or other events in any
foreign market will not have a material adverse effect on the Company. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business -- Growth Strategy.'
PRICING AND AVAILABILITY OF RAW MATERIALS. The Company is dependent upon
outside suppliers for all of its raw material needs, including dyeing services,
and is subject to price increases and delays in receiving these materials and
services. The raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying petrochemical market in general.
Future price levels of raw materials will depend upon world-wide supply and
demand conditions, the general inflation rate and overall economic conditions.
Historically, the Company has been able to pass through a substantial portion of
any increases in its raw material costs; however, the Company experienced
significant increases in certain raw material prices in 1995 which it was not
able to pass through fully to its customers during 1995 and which contributed to
a reduction in the Company's 1995 gross margin. Similar conditions in the future
could have a material adverse effect on the Company. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General.' Although other sources of supply are available, the
Company currently procures approximately one-half of its raw materials from
Unifi, Inc. and Amoco Fabric and Fibers Company ('Amoco'), and Amoco is the sole
supplier of a filament yarn used in the Company's chenille manufacturing
operations. A shortage or interruption in the supply of any critical component
could have a material adverse effect on the Company.
POTENTIAL INABILITY TO CONSUMMATE ACQUISITIONS AND INTEGRATE ACQUIRED
BUSINESSES. An element in the Company's growth strategy is the strategic
acquisition of other businesses that will add to the growth of or complement its
existing business. The Company has never acquired another business and therefore
has no experience in integrating an acquired business. There can be no assurance
that the Company will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses into the
Company without substantial costs, delays or other operational or financial
problems. Customer dissatisfaction or performance problems at an acquired
business could have an adverse effect on the reputation of the Company and the
Company's sales and marketing initiatives. There can be no assurance that any
business acquired in the future will achieve anticipated revenues and earnings.
Further, acquisitions involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of management's
attention, failure to retain key personnel at an acquired business, risks
associated with unanticipated events or liabilities and amortization of goodwill
or other acquired intangible assets, some or all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATIONS. In May 1998, the U.S. Consumer Product Safety
Commission (the 'CPSC') conducted a hearing to receive scientific and technical
information relating to the toxicity, exposure, bioavailability and
environmental effects of flame retardant chemicals that may be suitable for use
in residential upholstered furniture, particularly in upholstery fabrics. The
CPSC intends to evaluate the information obtained from the hearing as part of
its deliberations on whether to propose a standard to address the hazards
associated with small open flame ignitions of upholstered furniture. The
10
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<PAGE>
Company is unable to predict when or if any such standard will be adopted and
the effect any such standard would have on the Company. Any requirement to treat
fabrics for upholstered furniture with flame retardant chemicals would increase
the Company's production costs. There can be no assurance that the Company would
be able to pass any of such increased costs on to its customers. In addition,
any such requirement could adversely affect the aesthetics of the Company's
products resulting in lower demand.
ENVIRONMENTAL MATTERS. The Company's operations are subject to numerous
federal, state and local laws and regulations pertaining to the discharge of
materials into the environment or otherwise relating to the protection of the
environment. The Company's facilities are located in industrial areas, and,
therefore, there is the possibility of incurring environmental liabilities as a
result of historical operations at the Company's sites. Environmental liability
can extend to previously owned or leased properties, properties owned by third
parties, and properties currently owned or leased by the Company. Environmental
liabilities can also be asserted by adjacent landowners or other third parties
in toxic tort litigation. In addition, under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ('CERCLA'), and
analogous state statutes, liability can be imposed for the disposal of waste at
sites targeted for cleanup by federal and state regulatory authorities.
Liability under CERCLA is strict as well as joint and several. Further, certain
of the Company's manufacturing areas are subject to OSHA's 'Comprehensive Cotton
Dust Standard.' Environmental laws and regulations are subject to change in the
future and any failure by the Company to comply with present or future laws or
regulations could subject it to future liabilities or interruption of production
which could have a material adverse effect on the Company. Changes in
environmental regulations could restrict the Company's ability to expand its
facilities or require the Company to incur substantial unexpected other expenses
to comply with such regulations.
In particular, the Company is aware of soil and groundwater contamination
relating to the use of certain underground fuel oil storage tanks at its Fall
River facilities. The Company has notified the Commonwealth of Massachusetts
regarding these releases. The Company's ultimate clean-up costs relating to
these underground storage tanks cannot be predicted with certainty at this time.
In addition, during the fourth quarter of 1993, the Company removed and
encapsulated asbestos at two of its facilities and the Company has an on-going
asbestos management program in place to maintain appropriately the asbestos that
remains present at its facilities. At the Company's former facility in
Claremont, New Hampshire, it has been determined that there is oil-contaminated
soil, as well as groundwater contamination, resulting from a leak during the
mid-1970s from an underground fuel storage tank. The Company has agreed to
indemnify the purchaser of such facility for clean-up costs, subject to certain
limitations. The Company also has agreed to indemnify the purchaser of the
Company's former facility in Leominster, Massachusetts for certain environmental
contingencies.
The Company has accrued reserves for environmental matters based on
information presently available. However, there can be no assurance that these
reserves will be adequate or that the costs associated with environmental
matters will not increase in the future. See 'Business -- Environmental
Matters.'
COMPETITION. The markets for the Company's products are highly competitive.
Competitive factors in the upholstery fabric business include product design,
styling, price, customer service and quality. The Company's products are
predominantly Jacquard and plain woven fabrics. The Company's products compete
with other upholstery fabrics and furniture coverings, including prints, flocks,
tufts, velvets and leather. Several of the companies with which the Company
competes have greater financial resources than the Company. See
'Business -- Competition.' 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.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the efforts and abilities of Larry A. Liebenow, its President and
Chief Executive Officer, and other members of senior management. The loss of the
services of one or more of these key employees could have a material adverse
effect on the Company. See 'Management.'
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's certificate
of incorporation and bylaws may make it more difficult for a third party to
acquire, or may discourage acquisition bids for,
11
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<PAGE>
the Company and could limit the price that certain investors might be willing to
pay in the future for shares of Common Stock. These provisions, among other
things: (a) require the affirmative vote of the holders of at least 66 2/3% of
the votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors to approve any merger or
consolidation of the Company with any other corporation or a sale, lease,
transfer or exchange of all or substantially all the assets of the Company or
the adoption of any plan for the liquidation or dissolution of the Company; (b)
require the affirmative vote of 80% of the voting power of all the shares of the
Company entitled to vote in the election of directors to remove a director; and
(c) require the affirmative vote of 80% of the voting power of all the shares of
the Company to amend or repeal certain provisions of the certificate of
incorporation and the bylaws. Moreover, the Board of Directors (the 'Board') has
the authority to issue, at any time, without further stockholder approval, up to
50,000 shares of preferred stock and to determine the price, rights, privileges
and preferences of those shares, which may be senior to the rights of holders of
the Common Stock. Such issuance could adversely affect the holders of Common
Stock and could have the effect of dissuading a potential acquiror from
acquiring outstanding shares of the Common Stock at a price that represents a
premium to the then current trading price. Under certain conditions, Section 203
of the Delaware General Corporation Law (the 'DGCL') would prohibit an
'interested stockholder' (in general, a stockholder owning 15% or more of the
Company's outstanding voting stock) from engaging in a 'business combination'
with the Company for a period of three years. The Board has adopted a
stockholder rights plan (the 'Rights Plan'), the purpose of which is to protect
stockholders against unsolicited attempts to acquire control of the Company that
do not offer a fair price to all stockholders. The Rights Plan may have the
effect of dissuading a potential acquiror from acquiring outstanding shares of
Common Stock at a price that represents a premium to the then current trading
price. The Rights Plan will not apply to certain acquisitions by Nortex
Holdings, a principal stockholder of the Company, and certain of its
transferees.
VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the public offering price herein.
Developments in the upholstery and home furnishings industries or changes in
general economic conditions could adversely affect the market price of the
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume volatility. These fluctuations may be unrelated to the
operating performance of particular companies whose shares are traded and may
adversely affect the market price of the Common Stock. See 'Price Range of
Common Stock.'
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have 15,641,053 shares of Common Stock outstanding (16,203,553
shares if the Underwriter's over-allotment option is exercised in full). Of
these shares, a total of 13,827,616 shares (14,390,116 shares if the
Underwriters' over-allotment option is exercised in full), including the shares
offered hereby, will be freely tradable without restrictions or further
registration under the Securities Act. The remaining 1,813,437 shares of Common
Stock are 'restricted securities' as that term is defined in Rule 144
promulgated under the Securities Act. In general, under Rule 144 as currently in
effect, an affiliate of the Company or any person (or persons whose shares are
aggregated in accordance with Rule 144) who has beneficially owned such
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the outstanding shares of Common Stock (approximately 156,411 shares based upon
the number of shares outstanding after this offering) or the reported average
weekly trading volume in the over-the-counter market for the four weeks
preceding the sale. Sales under Rule 144 are also subject to certain manner of
sale restrictions and notice requirements and to the availability of current
public information concerning the Company. Persons who have not been affiliates
of the Company for at least three months and who have held these shares for more
than two years are entitled to sell such restricted securities without regard to
the volume, manner of sale, notice and public information requirements of Rule
144. All of these restricted securities are currently eligible for sale in the
public market pursuant to Rule 144. Additional shares of Common Stock, including
shares issuable upon exercise of options, will also become eligible for sale in
the public market pursuant to Rule 144 from time to time. The Company has
registered 1,202,792 shares of Common Stock issuable upon the exercise of stock
options which will be available for sale in the open market upon exercise. As of
May 28, 1998, an aggregate of 440,667 shares were
12
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<PAGE>
subject to presently exercisable stock options and, when issued, would be freely
tradeable without restriction. The Company, its directors and executive officers
and the Selling Stockholder each has agreed (except as to an aggregate of
150,000 shares previously pledged) that they will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock or any
security convertible into, or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company, or any right to purchase or
acquire Common Stock or other capital stock of the Company for a period of 180
days, in the case of the Company, the Selling Stockholder and certain of their
affiliates, and 90 days in the case of other directors and executive officers,
after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except for
bona fide gifts or transfers effected by such stockholders other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to be bound by similar agreements and except for issuances by the
Company and sales of shares by Nortex Holdings pursuant to the exercise of
certain outstanding stock options, which shares will be subject to similar
restrictions on transferability. Prudential Securities Incorporated may, in its
sole discretion, at any time and without notice, release all or any portion of
the shares of Common Stock subject to such agreements. The Company is unable to
predict the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the market
price for the Common Stock and could impair the Company's future ability to
obtain capital through offerings of equity securities. See 'Principal and
Selling Stockholders' and 'Underwriting.'
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered hereby by the Company are estimated to be approximately $49.7
million ($59.1 million if the Underwriters' over-allotment option is exercised
in full) based on an assumed public offering price of $17.67 per share (the
split-adjusted last reported sales price on the Nasdaq National Market for the
Common Stock on June 1, 1998) after deducting underwriting discounts and
commissions and estimated expenses payable by the Company. The Company will not
receive any of the proceeds from the sale of shares of Common Stock being
offered by the Selling Stockholder.
The Company intends to apply a portion of the net proceeds from the
offering to repay the amounts outstanding under the Credit Agreement (which are
expected to total approximately $30.0 million at the closing of the offering).
Indebtedness under the Credit Agreement has been used for working capital and
capital expenditure purposes, is due December 31, 2002 and bears interest at an
annual variable rate (6.9% as of May 29, 1998). See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.' Amounts repaid under the Credit Agreement, which provides
for maximum borrowings, including letters of credit, of $70.0 million, may be
reborrowed.
The Company will use the remaining net proceeds for capital expenditures,
working capital and potential acquisitions. The Company currently has no
agreements or understandings with respect to any potential acquisitions.
The Company intends to complete the $80.0 million capital investment
program it began implementing in 1997 by investing $42.2 million during the last
three quarters of 1998. To support the Company's long-term growth, Quaker is
developing a new capital investment program. This new program would provide for
the investment of approximately $50.0 million to construct or acquire and to
equip a modular manufacturing facility in the Fall River area. The Company is
planning to use the balance of the net proceeds of this offering, together with
cash flow from operations and borrowings under the Credit Agreement, to fund its
capital investment programs.
Pending such applications, the Company intends to invest in short-term,
investment grade securities, certificates of deposit or direct or guaranteed
obligations of the U.S. government, or a combination thereof.
14
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PRICE RANGE OF COMMON STOCK
The Common Stock is included in the Nasdaq National Market under the symbol
'QFAB.' The following table sets forth the range of the high and low sales
prices of the Common Stock as reported by the Nasdaq National Market, adjusted
to reflect a three-for-two stock split payable on June 19, 1998 to stockholders
of record on June 8, 1998.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 4, 1997:
First Quarter............................................................................... $6.33 $3.79
Second Quarter.............................................................................. 6.50 4.83
Third Quarter............................................................................... 7.08 4.67
Fourth Quarter.............................................................................. 9.67 6.17
FISCAL YEAR ENDED JANUARY 3, 1998:
First Quarter............................................................................... 12.83 8.50
Second Quarter.............................................................................. 11.50 8.50
Third Quarter............................................................................... 16.16 9.75
Fourth Quarter.............................................................................. 16.33 11.16
FISCAL YEAR ENDING JANUARY 2, 1999:
First Quarter............................................................................... 17.50 10.75
Second Quarter (through June 1, 1998)....................................................... 21.58 17.00
</TABLE>
On June 1, 1998, the last reported sales price of the Common Stock on the
Nasdaq National Market was $17.67 per share after giving effect to the stock
split described above. As of May 29, 1998, there were 47 record owners of the
Common Stock.
DIVIDEND POLICY
The Company has not declared or paid dividends on the Common Stock since
its initial public offering in 1993, does not intend to declare or pay any cash
dividends for the foreseeable future and intends to retain earnings, if any, for
the future operation and expansion of the Company's business. Future cash
dividends, if any, will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, the Company's future earnings,
operations, capital requirements and surplus, availability of cash, general
financial condition, contractual restrictions and such other factors as the
Board may deem relevant. Currently, the Company is restricted in its ability to
pay dividends under the terms of the Credit Agreement and the Senior Notes (as
hereinafter defined). See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources' and Note
5 of Notes to Consolidated Financial Statements.
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CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of April 4, 1998, and as adjusted to give effect to the sale of
the 3,000,000 shares of Common Stock offered by the Company (at an assumed
public offering price of $17.67 per share, the split-adjusted last reported
sales price for the Common Stock on the Nasdaq National Market on June 1, 1998)
and the application of the estimated net proceeds therefrom as described under
'Use of Proceeds.' This table should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
APRIL 4, 1998
--------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt.................................................... $ 994 $ 994
Current portion of capitalized leases(1)............................................. 1,185 1,185
-------- --------
Total current portion of long-term debt and capitalized leases.................. $ 2,179 $ 2,179
-------- --------
-------- --------
Long-term debt:
Credit Agreement..................................................................... $ 14,800 $ 0
Capitalized leases(1)................................................................ 5,034 5,034
Senior Notes......................................................................... 45,000 45,000
Other................................................................................ 487 487
-------- --------
Total long-term debt............................................................ $ 65,321 $ 50,521
-------- --------
-------- --------
Stockholders' equity(2):
Common Stock, par value $.01 per share, 20,000,000 shares authorized; 12,602,110
shares issued and outstanding; and 15,602,110 shares issued and outstanding as
adjusted............................................................................ 126 156
Additional paid-in capital........................................................... 46,542 96,197
Retained earnings.................................................................... 39,008 39,008
Cumulative translation adjustment(3)................................................. (1,415) (1,415)
-------- --------
Total stockholders' equity...................................................... 84,261 133,946
-------- --------
Total capitalization............................................................ $149,582 $184,467
-------- --------
-------- --------
</TABLE>
- ------------
(1) For information concerning capital lease commitments, see Note 7(b) of Notes
to Consolidated Financial Statements.
(2) Reflects a three-for-two stock split payable on June 19, 1998 to
stockholders of record on June 8, 1998.
(3) For information concerning this item, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and Note 2(i) of
Notes to Consolidated Financial Statements.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain consolidated financial and operating
data of the Company for the periods indicated. The data for the Company's fiscal
years have 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. The selected consolidated financial data for the
three months ended April 5, 1997 and as of and for the three months ended April
4, 1998 have been derived from the unaudited consolidated financial statements
of the Company included elsewhere herein which, in the opinion of management,
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the consolidated results of operations and
financial position of the Company. The results of operations for the three
months ended April 4, 1998 are not necessarily indicative of the results that
may be achieved for the fiscal year ending January 2, 1999. This selected
consolidated 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 1, DECEMBER 31, DECEMBER 30, JANUARY 4, JANUARY 3,
1994 1994 1995 1997(1) 1998
----------- ------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $ 147,867 $180,842 $173,487 $198,856 $219,174
Cost of products sold................ 110,753 133,168 137,083 152,787 167,401
----------- ------------ ------------ ----------- -----------
Gross margin......................... 37,114 47,674 36,404 46,069 51,773
Selling, general and administrative
expenses........................... 22,292 27,560 26,176 29,121 32,311
----------- ------------ ------------ ----------- -----------
Operating income..................... 14,822 20,114 10,228 16,948 19,462
Interest expense, net................ 4,936 3,863 3,898 4,092 3,700
Other expenses, net.................. 299 34 98 77 65
----------- ------------ ------------ ----------- -----------
Income before provision for income
taxes and extraordinary item....... 9,587 16,217 6,232 12,779 15,697
Provision for income taxes........... 4,218 6,691 712 4,217 4,584
Net income........................... 2,819 9,526 5,520 8,562 11,113
Preferred stock dividends............ 70 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net income applicable to common
stock.............................. $ 2,749 $ 9,526 $ 5,520 $ 8,562 $ 11,113
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
Earnings per common
share -- basic(2)(3)............... $ 0.32 $ 0.79 $ 0.46 $ 0.71 $ 0.90
Earnings per common
share -- diluted(2)(3)............. $ 0.30 $ 0.77 $ 0.44 $ 0.69 $ 0.85
Weighted average shares
outstanding -- basic(2)(3)......... 12,015 12,015 12,032 12,032 12,412
Weighted average shares
outstanding -- diluted(2)(3)....... 12,804 12,451 12,440 12,498 13,022
SELECTED OPERATING DATA:
EBITDA(4)............................ $ 19,710 $ 25,920 $ 16,821 $ 24,569 $ 28,479
Depreciation and amortization........ 5,019 5,603 6,462 7,437 8,511
Net capital expenditures(5).......... 10,558 18,727 13,165 11,979 25,484
Backlog of unfilled customer
orders............................. 28,000 24,619 24,459 29,063 53,427
Unit volume (in yards)............... 36,289 41,641 40,761 43,552 44,976
Average gross sales price per yard... $ 3.87 $ 4.06 $ 3.88 $ 4.05 $ 4.23
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 5, APRIL 4,
1997 1998
-------- --------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $ 53,198 $ 62,730
Cost of products sold................ 40,009 49,139
-------- --------
Gross margin......................... 13,099 13,591
Selling, general and administrative
expenses........................... 8,468 9,398
-------- --------
Operating income..................... 4,631 4,193
Interest expense, net................ 875 1,200
Other expenses, net.................. 9 15
-------- --------
Income before provision for income
taxes and extraordinary item....... 3,747 2,978
Provision for income taxes........... 1,237 1,042
Net income........................... 2,510 1,936
Preferred stock dividends............ -- --
-------- --------
Net income applicable to common
stock.............................. $ 2,510 $ 1,936
-------- --------
-------- --------
Earnings per common
share -- basic(2)(3)............... $ 0.21 $ 0.15
Earnings per common
share -- diluted(2)(3)............. $ 0.20 $ 0.15
Weighted average shares
outstanding -- basic(2)(3)......... 12,096 12,602
Weighted average shares
outstanding -- diluted(2)(3)....... 12,706 13,273
SELECTED OPERATING DATA:
EBITDA(4)............................ $ 7,162 $ 6,713
Depreciation and amortization........ 1,969 2,535
Net capital expenditures(5).......... 2,440 12,312
Backlog of unfilled customer
orders............................. 30,275 69,904
Unit volume (in yards)............... 11,013 12,224
Average gross sales price per yard... $ 4.26 $ 4.52
</TABLE>
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 4,
1994 1994 1995 1997(1) 1998 1998
----------- ------------ ------------ ----------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 25,915 $ 30,994 $ 30,780 $ 32,620 $ 42,634 $ 47,651
Total assets............................ 109,908 130,476 138,117 148,832 178,088 194,852
Long-term debt and capital leases....... 35,172 43,845 45,118 42,235 52,772 65,321
Stockholders' equity.................... 43,574 52,589 57,850 66,572 82,313 84,261
</TABLE>
(footnotes on next page)
17
<PAGE>
<PAGE>
(footnotes from previous page)
(1) The fiscal year ended January 4, 1997 was a 53-week period.
(2) Earnings per share for fiscal 1993 give effect to the early extinguishment
of debt in connection with a recapitalization in March 1993, which resulted
in an extraordinary loss of $2.6 million, and the use of proceeds from the
Company's initial public offering of Common Stock in November 1993 as though
both events had occurred at the beginning of 1993.
(3) Reflects a three-for-two stock split payable on June 19, 1998 to
stockholders of record on June 8, 1998.
(4) 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.
(5) Net capital expenditures reflect assets acquired by purchase and capital
lease.
18
<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, including the Notes thereto, contained elsewhere in this
Prospectus.
GENERAL
OVERVIEW
Quaker is a leading designer, producer and marketer of woven upholstery
fabrics for residential furniture markets in the United States and around the
world. The Company also designs and produces specialty yarns primarily for use
in the production of its fabrics. Quaker's specialty yarns are also sold to
manufacturers of apparel and home furnishings products throughout the United
States.
The new products the Company has introduced since 1994 have resulted in
record demand for Quaker's products and significant increases in the Company's
order rates, sales and backlog of customer orders pending. To meet this demand
and improve customer service, in 1997, Quaker began implementing an $80.0
million capital investment program to expand capacity in the Company's weaving,
yarn manufacturing, and fabric finishing areas and to upgrade the Company's
management information and production planning and control systems. By the end
of 1998, the Company will have the capacity to manufacture approximately 63.0
million yards of upholstery fabric annually. In 1996 and 1997, the Company sold
43.6 million and 45.0 million yards of fabric, respectively. Pending completion
of this program, the Company has focused on meeting customer demand by incurring
significant overtime expenses and outsourcing a portion of its manufacturing
requirements, reducing the Company's gross margin percentage. Further, since the
second quarter of 1997, the Company's gross margin percentage has also been
adversely affected by expenses related to its expansion program, including
facilities planning and set-up costs, hiring and training expenses, and
manufacturing inefficiencies related to the installation and start-up of new
equipment and operations within its existing manufacturing facilities.
The Company intends to complete the $80.0 million capital investment
program it began implementing in 1997 by investing $42.2 million during the last
three quarters of 1998. To support the Company's long-term growth, Quaker is
developing a new capital investment program. This new program would provide for
the investment of approximately $50.0 million to construct or acquire and to
equip a modular manufacturing facility in the Fall River area. Management
believes that adding capacity at a separate facility will allow the Company to
increase production, with minimal disruption to its existing operations.
During 1995, the Company reported a decrease in net sales and lower gross,
operating and net margins principally as a result of adverse economic and
industry conditions in the Company's U.S. and international markets. Significant
market price increases for the Company's most important raw materials adversely
affected the Company's gross margin, as the Company was unable to fully pass
along these cost increases to customers until 1996. Finally, the Company
experienced a number of sharp changes in its order rates which adversely
affected equipment utilization rates, quality performance and overtime costs.
In 1996, management implemented a comprehensive performance improvement
plan to increase sales, margins and earnings. The successful implementation of
this plan caused the Company's sales and margins to improve compared to prior
periods in each of the last three quarters of 1996 and during the first two
quarters of 1997 primarily as a result of (i) increased domestic and
international sales of higher margin, middle to better-end fabrics, (ii)
improved manufacturing efficiencies related to the acquisition of newer, more
efficient manufacturing equipment and more efficient use of the Company's
existing equipment, (iii) improved quality performance, and (iv) decreased raw
material costs.
19
<PAGE>
<PAGE>
QUARTERLY OPERATING RESULTS
The following table sets forth certain condensed unaudited consolidated
statements of income data for the nine fiscal quarters ended April 4, 1998.
<TABLE>
<CAPTION>
FISCAL
FISCAL 1996(1) FISCAL 1997(1) 1998(1)
---------------------------------------- ---------------------------------------- -----------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $43,254 $51,025 $46,436 $58,141 $53,198 $52,475 $55,130 $58,371 $62,730
Gross margin............... 9,297 11,312 10,751 14,709 13,099 13,006 12,656 13,012 13,591
Gross margin percentage.... 21.5% 22.2% 23.2% 25.3% 24.6% 24.8% 23.0% 22.3% 21.7%
Operating income........... 2,673 4,014 4,053 6,208 4,631 5,020 4,873 4,938 4,193
Operating income
percentage............... 6.2% 7.9% 8.7% 10.7% 8.7% 9.6% 8.8% 8.5% 6.7%
Income before provision for
income taxes............. $ 1,696 $ 2,972 $ 2,984 $ 5,127 $ 3,747 $ 4,181 $ 3,925 $ 3,844 $ 2,978
------- ------- ------- ------- ------- ------- ------- ------- -----------
Net income................. $ 1,136 $ 1,992 $ 1,999 $ 3,435 $ 2,510 $ 2,801 $ 3,080 $ 2,722 $ 1,936
------- ------- ------- ------- ------- ------- ------- ------- -----------
------- ------- ------- ------- ------- ------- ------- ------- -----------
Earnings per common
share -- basic........... $ .09 $ .17 $ .17 $ .29 $ .21 $ .22 $ .25 $ .22 $ .15
------- ------- ------- ------- ------- ------- ------- ------- -----------
------- ------- ------- ------- ------- ------- ------- ------- -----------
Earnings per common
share -- diluted......... $ .09 $ .16 $ .16 $ .27 $ .20 $ .21 $ .23 $ .21 $ .15
------- ------- ------- ------- ------- ------- ------- ------- -----------
------- ------- ------- ------- ------- ------- ------- ------- -----------
</TABLE>
- ------------
(1) The data reflected in this table have been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere
in this Prospectus.
The Company follows industry practice by closing its operating facilities
for a one-to-two week period during July of each year. In 1996, this shutdown
period, and the resulting effect on sales, occurred in the third fiscal quarter.
In 1997, the first week of the annual shut down period occurred in the second
fiscal quarter, as it will again in 1998.
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>
FIRST
FISCAL YEAR FISCAL QUARTER
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold..................................... 79.0 76.8 76.4 75.4 78.3
----- ----- ----- ----- -----
Gross margin.............................................. 21.0 23.2 23.6 24.6 21.7
Selling, general and administrative expenses.............. 15.1 14.7 14.7 15.9 15.0
----- ----- ----- ----- -----
Operating income.......................................... 5.9 8.5 8.9 8.7 6.7
Interest expense, net..................................... 2.2 2.1 1.7 1.7 1.9
Other expenses, net....................................... 0.1 -- -- -- --
----- ----- ----- ----- -----
Income before provisions for income taxes................. 3.6 6.4 7.2 7.0 4.8
Provisions for income taxes............................... 0.4 2.1 2.1 2.3 1.7
----- ----- ----- ----- -----
Net income................................................ 3.2% 4.3% 5.1% 4.7% 3.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
FIRST QUARTER OF 1998 COMPARED TO FIRST QUARTER OF 1997
Net Sales. Net sales for the first three months of 1998 increased $9.5
million, or 17.9%, to $62.7 million from $53.2 million for the first three
months of 1997. The average gross sales price per yard increased 6.1%, to $4.52
for the first three months of 1998 from $4.26 for the first three months of
1997. This increase was principally due to an increase in the average selling
price of middle to better-end
20
<PAGE>
<PAGE>
fabrics and an increase in foreign and export sales, which have a higher than
average selling price. The gross volume of fabric sold increased 11.0%, to 12.2
million yards for the first three months of 1998 from 11.0 million yards for the
first three months of 1997. The Company sold 13.0% more yards of middle to
better-end fabrics and 7.1% more yards of promotional-end fabrics in the first
three months of 1998 than in the first three months of 1997. The average gross
sales price per yard of middle to better-end fabrics increased by 7.2%, to $5.04
in the first three months of 1998 as compared to $4.70 in the first three months
of 1997. The average gross sales price per yard of promotional-end fabric
increased by 2.3%, to $3.49 in the first three months of 1998 as compared to
$3.41 in the first three months of 1997.
Gross fabric sales within the United States increased 16.1%, to $45.1
million in the first three months of 1998 from $38.9 million in the first three
months of 1997. Foreign and export sales increased 26.7%, to $10.1 million in
the first three months of 1998 from $8.0 million in the first three months of
1997. Gross yarn sales increased 19.2%, to $8.8 million in the first three
months of 1998 from $7.4 million in the same period of 1997.
Gross Margin. The gross margin percentage for the first three months of
1998 decreased to 21.7% as compared to 24.6% for the first three months of 1997.
The decrease in the gross margin percentage was primarily due to (i) lower
operating efficiencies and other period costs associated with the implementation
of the Company's $80.0 million capital investment program and (ii) 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9.4 million for the first three months of
1998 from $8.5 million for the first three months of 1997. The increase in
selling, general and administrative expenses was primarily due to an increase in
labor and fringe benefits, yarn development expenses, continued expansion of the
design staff and period costs associated with the Company's entry into the
contract market. Selling, general and administrative expenses as a percentage of
net sales decreased to 15.0% in the first three months of 1998 from 15.9% in the
first three months of 1997. The decrease in selling, general and administrative
expenses as a percentage of net sales was due to a $480,000 non-cash increase in
stock option amortization expense in the first quarter of 1997. This charge was
due to the accelerated vesting of certain stock options as a result of the stock
offering during the first quarter of 1997. Adjusting for this charge would have
resulted in selling, general and administrative expenses as a percentage of net
sales of 15.0% in the first three months of 1997.
Interest Expense, Net. Interest expense increased to $1.2 million for the
first three months of 1998 from $875,000 for the first three months of 1997 due
to higher borrowings to fund the Company's capacity expansion plan and related
period costs together with a general increase in domestic interest rates.
Effective Tax Rate. The effective tax rate was 35.0% for the first three
months of 1998, and 33.0% for the first three months of 1997.
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
21
<PAGE>
<PAGE>
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 (i) increased sales volume in the
higher-margin middle to better-end and foreign/export fabric categories, (ii)
lower manufacturing costs resulting from improved manufacturing efficiencies,
and (iii) 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, production
inefficiencies and higher overtime.
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
both 1997 and 1996.
Interest Expense, Net. Interest expense decreased to $3.7 million in 1997
from $4.1 million in 1996 principally due to the use of proceeds from the sale
of 450,000 shares of Common Stock in March 1997 to repay amounts borrowed under
the Credit Agreement.
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 partially offset by an increase in state and foreign income
taxes. See Note 6 of Notes to Consolidated Financial Statements included
elsewhere herein.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales for 1996 increased $25.4 million, or 14.6%, to $198.9
million from $173.5 million in 1995. Both gross fabric sales and gross yarn
sales were higher during the period. Gross fabric sales increased due to
increases in both domestic and foreign fabric sales. Gross fabric sales within
the United States increased 4.2%, to $140.7 million in 1996 from $135.0 million
in 1995. Foreign sales increased 54.0%, to $35.7 million in 1996 from $23.2
million in 1995. This increase was due to improved sales in Mexico, Canada and
the Middle East as well as increased penetration of other international markets.
Gross yarn sales increased 42.0%, to $26.8 million in 1996 from $18.8 million in
1995.
The gross volume of fabric sold increased 6.8%, to 43.6 million yards in
1996 from 40.8 million yards in 1995. The average gross sales price per yard
increased 4.4%, to $4.05 in 1996 from $3.88 in 1995. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 15.8% more yards of middle to better-end fabrics and 5.7% fewer
yards of promotional-end fabrics in 1996 than in 1995. The average gross sales
price per yard of middle to better-end fabrics increased by 3.7%, to $4.43 in
1996 from $4.27 in 1995. The average gross sales price per yard of
promotional-end fabrics increased by 1.5%, to $3.40 in 1996 from $3.35 in 1995.
Gross Margin. The gross margin percentage for 1996 increased to 23.2% from
21.0% for 1995. This 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.
22
<PAGE>
<PAGE>
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 Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital
requirements through a combination of internally generated funds, borrowings and
equipment leasing. The Company's capital requirements have arisen principally in
connection with expansion of the Company's production capacity and increased
working capital needs associated with the growth of the Company's sales.
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, $11.1 million and $67,000 in 1995,
1996, 1997 and the first quarter of 1998, respectively. Net cash provided by
operating activities decreased significantly during the first quarter of 1998
primarily due to (i) an increase in accounts receivable related to increased
sales during the first quarter and (ii) an increased investment in inventory
needed to support higher anticipated production levels during the second quarter
in response to a significant increase in the Company's backlog. The Company has
supplemented its operating cash flow with borrowings. Net borrowings
(repayments) and equipment leases were $1.3 million in 1995, $(2.5) million in
1996, $10.2 million in 1997 and $12.6 million in the first quarter of 1998. The
Company also received net proceeds of $3.3 million from the public offering and
sale of 450,000 shares of Common Stock in March 1997.
Capital expenditures in 1995, 1996, 1997 and the first quarter of 1998 were
$13.2 million, $12.0 million, $25.5 million and $12.3 million, respectively.
Capital expenditures during 1997 were funded by operating cash flow, borrowings
under the Credit Agreement and the March 1997 public offering. Capital
expenditures during the first quarter of 1998 were funded primarily by
borrowings under the Credit Agreement. Management anticipates that capital
expenditures will total approximately $42.2 million in the remainder of 1998,
primarily for new production equipment to expand capacity in the Company's yarn
manufacturing, weaving and fabric finishing areas, and to complete the upgrade
of the Company's management information systems. In addition to this $80.0
million capital investment program, the Company is developing a new program to
invest approximately $50.0 million in capital expenditures to increase capacity.
Management believes that the net proceeds to the Company from this offering,
together with cash flow from operations and borrowings under the Company's
Credit Agreement, will provide sufficient funding for the Company's capital
expenditures and working capital needs for at least the next 18 months.
As discussed in Note 5 of Notes to Consolidated Financial Statements
included elsewhere herein, 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. One Senior Note in the principal amount of $15.0 million
bears interest at a fixed rate of 7.09% per year and the other Senior Note in
the principal amount of $30.0 million bears interest at a fixed rate of 7.18%
per year. Annual principal payments begin on October 10, 2003 with a final
payment due October 10, 2007.
In December 1997, the Company amended its Credit Agreement to extend its
maturity to December 31, 2002. The Credit Agreement provides for interest at a
variable rate based on LIBOR plus an applicable margin or the prime rate, at the
Company's option. As of May 29, 1998, the interest rate under the Credit
Agreement was 6.9% per year. As of April 4, 1998, the Company had $14.8 million
outstanding under the Credit Agreement and unused availability of $35.1 million,
net of outstanding letters of credit. In June 1998, the Company further amended
its Credit Agreement to increase the amount of the facility from $50.0 million
to $70.0 million and to eliminate covenant
23
<PAGE>
<PAGE>
limitations with respect to capital expenditures. The Company intends to use a
portion of the proceeds from the offering to repay all amounts outstanding under
the Credit Agreement. After such repayment, the Company will have approximately
$69.9 million of availability under the Credit Agreement, 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, 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
Quaker'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
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, 'Reporting Comprehensive Income.' SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components (e.g. foreign currency translation adjustments and unrealized
gains and losses on certain marketable securities). 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 April 4, 1998
were $1.8 million. Mexico has been designated as a 'highly inflationary country'
for purposes of applying SFAS No. 52, Foreign Currency Translation. Accordingly,
in 1997 and 1998 the Company recorded translation gains and losses in the income
statement rather than as a separate component of equity.
YEAR 2000
During 1996, the Company began a project to review all of its computer
systems. Among the considerations at that time was the effect, if any, the year
2000 would 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 is year
2000 compliant.
The Company is in the process of implementing a new management information,
or Enterprise Resource Planning, system and anticipates that conversion to this
system will be completed by July 1998 with full implementation expected by the
end of 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 results of operations. See 'Risk Factors -- New
Computer Systems and Year 2000 Software Risk.'
24
<PAGE>
<PAGE>
BUSINESS
GENERAL
Quaker is a leading designer, producer and marketer of woven upholstery
fabrics for residential furniture markets in the United States and around the
world. The Company also designs and produces specialty yarns, primarily for use
in the production of its fabrics. Quaker's specialty yarns are also sold to
manufacturers of apparel and home furnishings products throughout the United
States. In 1997, Quaker had net sales of $219.2 million, with 85.5% of net sales
represented by the sale of fabric and 14.5% of net sales represented by the sale
of specialty yarns.
Quaker is a product design and development leader with over 3,000 fabric
patterns in its product line, the majority of which are copyrighted Jacquards
with detailed designs woven directly into the fabric. Quaker also offers a full
range of plain, plaid and striped woven fabrics to complement its core line of
unique Jacquard designs. Each year, the Company creates and adds more than 700
new fabric patterns to its product line. The Company's new product
introductions, including its Ankyra chenille yarns and fabrics, its Whitaker
Collection fabrics and its Quaker Plush products, have substantially increased
demand for the Company's fabrics. Since 1992, the Company has expanded its
fabric line significantly by increasing the number of middle to better-end
fabrics in its line, as well as the number of products it offers at each price
point and in each styling category. The Company's expanded product offerings
have enabled it to sell more products to its existing customers and add new
higher-end furniture manufacturers to its customer base.
In 1997, Quaker sold over $150.5 million (gross) of fabric to its domestic
customers, which include virtually every major manufacturer of upholstered
furniture in the United States. Quaker's key domestic accounts include Furniture
Brands International (Action by Lane, Broyhill and Thomasville), Klaussner,
La-Z-Boy, Lifestyle Furnishings International (Berkline, Benchcraft and others),
Rowe Furniture and Simmons. The continued expansion of Quaker's better-end
product line has resulted in sales to a number of well-known higher-end
furniture manufacturers, including Bernhardt, Century, Henredon and Sherill. In
addition, in 1997, Quaker sold over $39.7 million (gross) of fabric to its
foreign customers in over 40 countries.
The Company's manufacturing operations are vertically integrated, beginning
with the production of specialty yarns for use in its fabrics and continuing
through fabric weaving and finishing. The Company's ability to produce its own
specialty yarns, a critical fabric component, combined with Quaker's product
styling and design expertise, allow the Company to offer a broad range of
distinctive fabrics at competitive prices.
The Company invests continuously to improve its operating performance and
capitalize on increased customer demand. The success of Quaker's new product
introductions has resulted in customer demand which substantially exceeds
Quaker's current production capacity. To meet this demand and improve customer
service, in 1997, Quaker began implementing an $80.0 million capital investment
program. This program includes the purchase of new weaving, yarn manufacturing
and fabric finishing equipment and the installation of a new Enterprise Resource
Planning system. By the end of 1998, the Company will have the capacity to
manufacture approximately 63.0 million yards of upholstery fabric annually. In
1996 and 1997, the Company sold 43.6 million and 45.0 million yards of fabric,
respectively.
To support the Company's long-term growth, Quaker is developing a new
capital investment program. This new program would provide for the investment of
approximately $50.0 million to construct or acquire and to equip a modular
manufacturing facility in the Fall River area. Management believes that adding
capacity at a separate facility will allow the Company to increase production,
with minimal disruption to its existing operations.
The Company's revenues increased from $123.4 million in 1992 to $219.2
million in 1997, representing a CAGR of 12.2%. Reflecting strong demand for the
Company's products, Quaker's backlog of unfilled customer orders at the end of
the first quarter of 1998 was $69.9 million, a 131% increase over the backlog at
the end of the first quarter of 1997 and a 31% increase over the backlog at the
end of 1997.
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INDUSTRY
In 1997, total domestic residential upholstery fabric sales were
approximately $2.0 billion. 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.
Demand for upholstery fabric is a function of consumer demand for
upholstered furniture. Domestic shipments of upholstered furniture on a
wholesale basis have grown from $5.8 billion in 1992 to $8.7 billion in 1997, a
CAGR of 7.8%. Total upholstered furniture demand is affected by population
growth, consumer confidence, and economic and demographic factors, including
housing starts, disposable income 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. 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.
Upholstery fabric is also sold to the contract (office, commercial and
institutional applications), automotive and recreational vehicle industries.
Fabrics sold into these non-residential market segments must be more abrasion
resistant and meet more stringent performance standards than fabrics sold into
the residential market.
Industry Consolidation. The furniture industry has been consolidating at
both the retail and manufacturing levels for several years. As a result, fabric
suppliers are required to deal with larger customers that require shorter
delivery lead times, customer-specific inventory management programs, and
additional information technology-based support services. Large integrated
fabric suppliers have an advantage over smaller competitors because of their
ability to meet the volume and delivery requirements of the large furniture
manufacturers and retailers and offer a broader range of product choices.
Trend Toward Casual Lifestyles. The Company believes that there is a
growing trend in the United States toward a more casual lifestyle, as evidenced
by 'casual Fridays' in the workplace and product shifts in the apparel and home
furnishings industries. Management believes this trend has resulted in growing
demand for less formal furniture upholstered with more comfortable fabric.
Increased Usage of and Applications for Jacquard Fabrics. 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. 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.
Expanding Export Sales. Management believes most of the largest U.S. fabric
producers have expanded their export sales, leveraging their size and broad
product lines. U.S. fabric producers with international distribution
capabilities have also benefitted from a growing demand for American styles and
designs by foreign consumers.
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:
Innovative Product Design and Development. Management believes that
Quaker's product design and development expertise is the Company's most
important competitive strength. The Company's designers work directly with
furniture retailers and Quaker's customers to assess general market trends and
specific design, color, quality and price point requirements. Each year, Quaker
creates and adds more than 700 new fabric patterns to its product line. The
Company's most important new product developments include its abrasion-resistant
Ankyra chenille fabrics first sold in 1995, the elegant, high-end Jacquard
fabrics included in its Whitaker Collection first introduced in 1996, and the
finishing
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process marketed as Quaker Plush which the Company first began using in 1997 to
enhance the appearance and softness of its middle to better-end fabrics.
Management believes that the Company's focus on the creation of unique Jacquard
products is the primary reason for Quaker's reputation as a value-added supplier
to its customers and a design leader in its industry.
Broad and Differentiated Product Assortment. Quaker is a full-service
supplier of Jacquard and plain woven fabrics and the Company is one of the
largest producers of Jacquard fabrics in the world. Management believes that the
breadth of the Company's product line will allow Quaker to further increase its
market share at each price point and in each styling category.
Vertical Integration. Management believes that the Company's vertically
integrated operations are an important factor in Quaker's ability to maintain
its product leadership position and achieve its customer service and operating
objectives. Quaker produces approximately 70% of the specialty yarns used in its
upholstery fabrics and weaves and finishes substantially all of its fabrics.
Management believes that Quaker's vertically integrated operations enhance its
design capabilities, improve its quality performance and reduce its customer
delivery lead times.
State-of-the-Art Operations. Management believes that the Company has one
of the most modern manufacturing operations in the industry and that the
Company's ongoing investments in state-of-the-art equipment, a well-trained
workforce and new information systems technology will allow Quaker to gain a
service advantage over its competitors. In addition, management is committed to
building quality into each product manufactured by the Company and, consistent
with that commitment, Quaker achieved ISO 9001 certification of its operations
in December 1997.
GROWTH STRATEGY
Quaker's strategy to further its growth and improve its financial
performance includes:
Capitalize on Increased Demand. To meet increased customer demand, the
Company has been investing aggressively to expand its production capacity and
enhance its customer service. During the 15-month period ended April 4, 1998,
the Company invested $37.8 million in capital expenditures, and has budgeted
additional capital expenditures of $42.2 million through the end of 1998. In
addition to this $80.0 million capital investment program, the Company is
developing a plan to invest approximately $50.0 million in capital expenditures
to increase capacity. Management believes that adding capacity at a separate
facility will allow the Company to increase production, with minimal disruption
to its existing operations.
Enhance Product Mix. Since 1992, the Company has expanded the number of
middle to better-end fabrics in its line, enabling the Company to increase sales
of higher margin products to its existing customers and to add new higher-end
furniture manufacturers to its customer base. As a result, sales of the
Company's middle to better-end products have increased from $66.3 million in
1992 to $132.8 million in 1997 and the average gross sales price per yard of the
Company's fabrics has increased from $3.66 in 1992 to $4.23 in 1997. The success
of Quaker's Whitaker Collection and Quaker Plush fabrics has resulted in
additional favorable product mix shifts, causing the average gross sales price
per yard of the Company's middle to better-end product category to increase from
$4.70 during the first quarter of 1997 to $5.04 during the first quarter of
1998.
Continue Development of International Sales. Quaker has built an
international sales and distribution network to develop and market fabrics which
meet the styling and design needs of its international customers. Key existing
international markets include Canada, Mexico and the Middle East. To support its
sales into the Mexican market, the Company has operated a distribution and
customer service center in Mexico City since 1991. With the establishment of
additional distribution and customer service centers modeled after the Company's
existing Mexico City operation and aggressive marketing efforts by Quaker's
international sales staff, management believes that significant opportunities
exist for additional sales in Europe, Australia, Latin America and the Far East.
Penetrate Related Fabric Markets. The Company believes that the superior
styling and performance characteristics of its fabrics and recent ISO 9001
certification of its operations provide opportunities to penetrate the contract
market and increase Quaker's share of the interior decorator and recreational
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vehicle markets. Management believes Quaker's Jacquard Ankrya chenille fabrics
and Quaker Plush products will provide the Company with a product advantage in
these markets.
Expand Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns and management believes it is the world's largest producer of chenille
yarns, including its proprietary, abrasion-resistant Ankyra chenille yarns.
Sales of the Company's specialty yarns have increased from $7.8 million (gross)
in 1992 to $33.0 million (gross) in 1997, a CAGR of 33.4%. In addition to the
popularity of the Company's current line of chenille and other specialty yarns,
Quaker regularly creates innovative specialty yarns for use in the Company's
fabrics and for sale to the Company's customers in the domestic apparel and home
furnishings markets. In addition, the Company believes that important markets
exist for its specialty yarns outside the United States. Management believes
additional planned expansion of the Company's yarn manufacturing capacity will
allow Quaker to increase sales of specialty yarns to producers of apparel and
home furnishings products.
Pursue Strategic Acquisitions. Management believes that the execution of
its business strategy has created the design, production, service, information
systems and administrative infrastructure to manage a much larger business. The
Company intends to seek strategic acquisitions of businesses with complementary
products, manufacturing equipment or distribution capabilities.
PRODUCTS
The Company's primary products are upholstery fabrics (85.5% of the
Company's 1997 net sales) and specialty yarns (14.5% of the Company's 1997 net
sales).
Upholstery Fabrics. The Company offers a broad assortment of contemporary,
traditional, transitional and country fabrics at promotional to better-end
prices ranging from $2.50 to $20.00 per yard. While most of the Company's
fabrics are sold under the Quaker label, in late 1996, the Company began
marketing a select group of its higher margin, middle to better-end fabrics
under its Whitaker brand. In 1997, the Company introduced its new line of Quaker
Plush products, which benefit from an additional finishing process to enhance
their appearance and feel and which are known for their softness, vibrant colors
and rich appearance.
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 offering more
products 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. Quaker's broad product line allows its customers to meet most of their
fabric needs through one full-service supplier and to create coordinated fabric
groupings that differentiate their new lines of upholstered furniture from those
of their competitors.
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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>
FIRST FISCAL
FISCAL YEAR QUARTER
---------------------------------------------------------------- -----------------
1995 1996 1997 1997
------------------ ------------------ ------------------ -----------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES
-------- -------- -------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross fabric sales (dollars):
Promotional-end fabrics........ $ 57,023 36.0% $ 54,716 31.0% $ 57,395 30.2% $12,992 27.7%
Middle to better-end fabrics... 101,201 64.0 121,702 69.0 132,788 69.8 33,874 72.3
-------- -------- -------- -------- -------- -------- ------- --------
Gross fabric sales......... $158,224 100.0% $176,418 100.0% $190,183 100.0% 46,871 100.0%
-------- -------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- -------- ------- --------
Gross fabric sales (yards):
Promotional-end fabrics........ 17,042 41.8% 16,074 36.9% 16,822 37.4% 3,809 34.6%
Middle to better-end fabrics... 23,719 58.2 27,478 63.1 28,154 62.6 7,204 65.4
-------- -------- -------- -------- -------- -------- ------- --------
Gross fabric sales......... 40,761 100.0% 43,552 100.0% 44,976 100.0% 11,013 100.0%
-------- -------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- -------- ------- --------
Average gross sales price per yard:
Promotional-end fabrics........ $ 3.35 $ 3.40 $ 3.41 $ 3.81
Middle to better-end fabrics... 4.27 4.43 4.72 4.70
Average per yard -- all
fabrics...................... 3.88 4.05 4.23 4.26
<CAPTION>
1998
-----------------
PERCENT
AMOUNT OF SALES
------- --------
<S> <C> <C>
Gross fabric sales (dollars):
Promotional-end fabrics........ $14,222 25.7%
Middle to better-end fabrics... 41,047 74.3
------- --------
Gross fabric sales......... $55,269 100.0%
------- --------
------- --------
Gross fabric sales (yards):
Promotional-end fabrics........ 4,080 33.4%
Middle to better-end fabrics... 8,144 66.6
------- --------
Gross fabric sales......... 12,224 100.0%
------- --------
------- --------
Average gross sales price per yard:
Promotional-end fabrics........ $ 3.49
Middle to better-end fabrics... 5.04
Average per yard -- all
fabrics...................... 4.52
</TABLE>
Quaker's product line consists of low to medium pick (from 6 through 14
picks per inch) woven fabrics, purchased primarily by manufacturers of
promotional-end furniture; and medium to high pick (from 15 through 60 picks per
inch) woven fabrics, purchased primarily by manufacturers of middle to
better-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 copyrighted Jacquard fabrics
manufactured using special Jacquard equipment. All of Quaker's looms are
equipped with Jacquard heads that can also be used to produce striped, plaid and
plain woven fabrics. The use of Jacquard heads makes it possible to produce
complex woven designs by varying the pattern, color and texture of both the
filling and warp yarns in the fabric. The Company's copyrighted Jacquard designs
allow Quaker to compete effectively with printed flat-woven and textured
fabrics. Fabrics manufactured on looms without Jacquard heads have a much more
limited range of styling and design options.
Quaker's fabrics 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 its line of
chenille fabrics under its Ankyra label. Through a licensing agreement with
Solutia, Inc., formerly 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.
On request, Quaker will create custom patterns for customers seeking to
differentiate their products for distribution purposes, hit a certain retail
price point 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.'
Specialty Yarn. Quaker is a leading developer and manufacturer of specialty
yarns, including a variety of chenille and spun yarns. Management believes the
Company is the world's largest producer of chenille yarns, 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. In 1997, net sales of Quaker's specialty yarns were
$31.7 million.
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PRODUCT DESIGN AND DEVELOPMENT
Upholstery Fabric. Management believes that Quaker's design staff has an
established reputation for design excellence and product leadership. The
Company's 52-person design staff has overall responsibility for developing the
Company's new upholstery patterns. Substantially all of the Company's fabric
designs and construction specifications are created using state-of-the-art
computer aided design ('CAD') equipment to reduce the new product development
cycle.
Quaker's designers monitor new product directions in the domestic and
international home furnishings and apparel industries to identify consumer
fashion and styling trends. Designers shop international fashion centers,
including New York, San Francisco, London, Paris and Milan, to identify emerging
color, furniture silhouette and shape, fabric construction and other styling
trends at the consumer level. The Company's designers then interpret these
fashion and styling trends to develop current and innovative upholstery fabrics
to satisfy consumer preferences in the promotional-end and middle to better-end
furniture categories. The development of each new fabric line requires four to
five months and begins with the preparation of a merchandising plan for the
line. Merchandising plans are based on extensive input from Quaker's design
staff, sales representatives, senior managers and major customers and provide
the Company's designers with detailed guidelines to follow as they develop the
new products the Company plans to introduce in each major styling category and
at each major price point.
In addition, Quaker's vertically integrated manufacturing operations enable
the design of products featuring the Company's unique yarns and advanced fabric
finishing practices. After each new fabric merchandising plan is developed,
members of the Company's fabric design and yarn development staff meet to
identify the Company's yarn requirements for its next fabric line. Many of
Quaker's proprietary yarns trace their origins to this design-driven process.
Quaker's process engineering and manufacturing staffs evaluate each proposed new
fabric for its effect on raw material costs, equipment utilization rates and
quality performance. Although some plain, striped and plaid fabrics remain in
the Company's product line for ten years or more, a successful product typically
has a life of two to three years.
Specialty Yarn. Management believes that the technical expertise of
Quaker's yarn development staff provides the Company with an important
competitive advantage by enabling Quaker to create and market innovative
specialty yarns to meet its customers' styling and performance criteria. For
example, the creation of Quaker's line of Ankyra chenille yarns was an important
product breakthrough for both Quaker and its yarn customers. Historically,
chenille yarns have had difficulty meeting the durability standards required for
use in fabrics which are likely to be subjected to heavy wear, such as car seats
and certain home furnishings products. Quaker's yarn development staff created a
finished chenille yarn with superior abrasion resistance and, in 1997, the
United States Patent and Trademark Office awarded patent protection to Quaker
for its Ankyra process.
SALES AND MARKETING
Upholstery Fabrics. 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 compared
with 40.8% of 1996 net sales. None of the Company's customers accounted for more
than 5% of net sales during 1997.
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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
--------------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES
-------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales:
Domestic sales............ $135,037 85.3% $140,717 79.8% $150,525 79.1%
Foreign sales(1).......... 23,187 14.7 35,701 20.2 39,658 20.9%
-------- -------- -------- -------- -------- --------
Gross fabric sales.... $158,224 100.0% $176,418 100.0% $190,183 100.0%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
<CAPTION>
FIRST FISCAL QUARTER
----------------------------------------
1997 1998
----------------- -------------------
PERCENT PERCENT
AMOUNT OF SALES AMOUNT OF SALES
------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gross fabric sales:
Domestic sales............ $38,868 82.9% $45,336 81.7%
Foreign sales(1).......... 8,003 17.1 10,165 18.3
------- -------- ------- --------
Gross fabric sales.... $46,871 100.0% $55,501 100.0%
------- -------- ------- --------
------- -------- ------- --------
</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.
Quaker's domestic fabric customers include manufacturers focused on the
higher volume, promotional-end of the market and those focused on the lower
volume, middle to better-end of the market. These two customer groups have
different styling, design, volume, pricing and service requirements, and Quaker
is organized to be responsive to their differing needs. Quaker's promotional-end
customers typically place large orders with the Company for a particular fabric
or family of fabrics at one time and they place a high value on Quaker's ability
to meet their volume requirements and pricing needs. Quaker's middle to
better-end fabric customers are generally less price sensitive but focused on
the Company's product styling, design and quality performance. The orders placed
by Quaker's middle to better-end customers are generally smaller and more
diverse than those placed by promotional-end manufacturers.
The Company employs a direct marketing force of 23 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 sales representatives are paid
on a commission basis. The Company maintains showrooms and sales offices in Fall
River, Massachusetts; Mexico City, Mexico; Hickory and High Point, North
Carolina; Chicago, Illinois; Tupelo, Mississippi; and Los Angeles, California.
Quaker's United States customers market their products through the
International Home Furnishings Market (the 'High Point Market') held each year
in April and October in High Point, North Carolina, and several regional shows.
Quaker's design and marketing process is closely linked to these trade shows.
The Company introduces its two major lines, each with over 350 new patterns, at
the 'Showtime Fabric Fair' ('Showtime') held in High Point in January and July
of each year. Almost all major U.S. furniture manufacturers attend Showtime to
begin selecting fabric styles for the new lines of upholstered furniture they
intend to introduce at the next High Point Market. The Company also introduces
two less extensive product lines in April and October of each year to respond to
competitive opportunities identified at the January and July Showtime trade
shows.
The Company distributes its products from facilities in Fall River,
Massachusetts; Los Angeles, California; Mexico City, Mexico; High Point, North
Carolina; and Verona, Mississippi. The Company also maintains inventory in
Roosendaal, Holland.
Quaker's fabrics are distributed internationally through a network of 27
independent commissioned agents appointed to represent the Company in Europe,
the Far East, Australia, New Zealand, the Middle East, and Central and South
America. 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. 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 and sales from its Mexico City, Mexico
distribution center.
Specialty Yarns. Net yarn sales during 1997 were $31.7 million, or
approximately 14.5% of the Company's net sales. 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 to manufacturers of sweaters and other apparel. The Company
is widely
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known for its chenille yarns and substantially all of its yarn revenues are
attributable to sales of this particular yarn type.
Among the special services offered by Quaker to its yarn customers is the
preparation of color forecasts reflecting emerging color trends within the
industry. The Company's customers use these color forecasts when selecting the
yarns they intend to feature in their product offerings. The Company's technical
expertise in the yarn development and yarn manufacturing areas is highly valued
by its yarn customers, and Quaker frequently develops custom yarns for
particular uses by its larger customers.
In 1997, Quaker began supplying its Ankyra chenille yarns for use in the
interiors of General Motors' GEO Prism line, and the Company was recently
selected to supply the yarn requirements for the 1999 GEO Prism model year.
Management believes that this ongoing relationship has provided Quaker with the
expertise required to sell additional yarn, and potentially fabric, into the
automotive market.
MANUFACTURING
Quaker's manufacturing operations are vertically integrated from the
production of specialty yarns through the weaving and finishing of upholstery
fabrics. Substantially all of the Company's fabrics and yarns are produced in
Quaker's four manufacturing facilities in Fall River, Massachusetts, and
beginning in July 1998, the Company will begin manufacturing yarn in a fifth
manufacturing facility. In addition, the Company is planning to build or acquire
a new modular manufacturing facility to further increase its production
capacity. Management believes that adding capacity through a separate facility
will allow the Company to expand production capacity in the future, with minimal
disruption to its existing operations.
Production Planning and Control. To reduce the Company's manufacturing
costs and inventory risks and to improve productivity and quality, Quaker uses a
fully automated management information system for production planning and
control purposes. Quaker's detailed daily and weekly production schedules are
fully integrated, from raw materials sourcing through the receipt of finished
fabrics and yarns in the Company's finished goods warehouses and, with the
exception of fabrics produced for sale through the Company's four distribution
centers, each schedule is based on actual customer orders. The Company is in the
process of upgrading its management information system to an Enterprise Resource
Planning system to (i) take advantage of the more sophisticated technology and
capacity planning software currently available, and (ii) further the Company's
quality, customer service and productivity objectives. Management expects to
make the conversion from the Company's current management information system to
its new Enterprise Resource Planning system in July 1998. Full implementation of
the system is expected to be completed by the end of 1998.
Raw Materials Sourcing. 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 sources 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.
Yarn Production. The Company manufactures most of the specialty filling
yarns used in its upholstery fabric, including chenille yarns, Taslan yarns and
spun yarns. The production of each yarn type requires the use of specialized
yarn manufacturing equipment and methods and Quaker's current yarn manufacturing
capacity is sufficient to meet approximately 70% of its specialty yarn needs.
Weaving. The Company produces Jacquard, plain, striped and plaid woven
fabrics. The Company weaves substantially all of its fabrics using its 450
looms, all of which are equipped with Jacquard heads. The Company has
increasingly emphasized the use of electronic Jacquard heads featuring
microprocessors that reduce the amount of time required for equipment
changeovers as the Company switches from the manufacture of one fabric pattern
to the next. To provide better service to its customers and to take full
advantage of the reduced equipment set-up times achievable through the use of
the Company's electronic Jacquard heads, Quaker schedules most of its shorter
production runs on this equipment, including those which typically result from
the smaller orders placed by its middle to better-end customers. The Company has
organized a 'mini-mill' operation, with special staffing levels and
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operating procedures, for this purpose. In addition, Quaker is currently making
a transition from a traditional 'batch and queue' manufacturing process to a
cell manufacturing approach in certain of its production areas. Management
believes that the use of these cell manufacturing techniques will further the
Company's productivity, quality and operating efficiency.
Finishing. Quaker's vertically integrated manufacturing base includes a
comprehensive fabric finishing operation. During the finishing process, a latex
backing is applied to most of the Company's fabrics to enhance their durability
and performance characteristics, and on customer request, a stainproofing agent
is also used. The Company's Quaker Plush products benefit from an additional
chemical and mechanical finishing process designed to enhance their appearance
and softness.
QUALITY ASSURANCE
The Company believes that product quality is a significant competitive
factor in both the domestic and international fabric markets. Quaker's quality
initiatives include: (i) a group incentive program in certain of its production
departments to factor quality into the overall compensation programs in these
areas; (ii) inspection of all incoming raw materials to ensure they meet the
Company's product specifications and to provide prompt feedback to vendors when
defects are discovered so that corrective actions may be undertaken immediately;
(iii) the assignment of quality control staff to each of the Company's weaving
areas and various other quality-critical production departments to identify
defects early in the manufacturing process; (iv) a final quality inspection of
the Company's yarn and fabric products before they are released for shipment;
(v) continuous monitoring of the Company's performance against industry and its
own internal quality standards; and (vi) ISO 9001 certification of all of its
operations.
As a result of these quality initiatives, the Company's quality-related
customer return rate, as a percentage of total yards shipped, improved from 0.8%
in 1995 to 0.6% in 1996 and 0.4% in 1997, and the Company's sales of
second-quality fabric as a percentage of total sales decreased from 2.2% in 1995
to 1.1% in 1996 and 0.6% 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 management information system to provide
computerized support to the Company's manufacturing operations; (ii) the use of
CAD equipment to reduce the new product development cycle time required to bring
its new products to market, including the design of 'Specials'; (iii) the use of
bar-coding systems to improve the efficiency of its manufacturing operations and
customer 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 production costs.
During 1996, the Company and a leading consulting firm completed a
comprehensive re-evaluation of its data processing systems and developed a
long-range information systems plan intended to meet the Company's future
management information needs and to provide new technology solutions to the
Company's customers. As a result of this study, the Company is in the process of
moving from its current management information system to an Enterprise Resource
Planning system, with conversion to the new system scheduled to take place in
July 1998 and full implementation of the system expected to be completed by the
end of 1998. Management believes that the installation of the Company's new
Enterprise Resource Planning 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; (iii) providing
computerized support to the Company's quality control system; and (iv) assisting
the Company in maintaining its ISO 9001 certification.
The Company's CAD equipment is used to develop new fabric designs and to
prepare plastic Jacquard cards for use with the Company's mechanical Jacquard
heads and computer disks for use with
33
<PAGE>
<PAGE>
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.
The Company first began introducing 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.
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 heavily toward fabric
styling and design considerations. The Company's principal competitors include
Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation (including the
Mastercraft Division purchased from Collins & Aikman Corporation in 1997) and
Valdese Weavers, Inc. Several of the companies with which the Company competes
have greater financial resources than the Company. The Company's woven fabrics
products compete with other upholstery fabrics and furniture coverings,
including prints, flocks, tufts, velvets and leather. 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.
BACKLOG
At April 4, 1998, the Company had orders pending for approximately $69.9
million of fabric and yarn compared to $30.3 million at April 3, 1997. At
January 3, 1998, the Company had orders pending for approximately $53.4 million
of fabric and yarn compared to $29.1 million at 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 that 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 awarded
the Company a patent for the proprietary manufacturing process the Company
developed to produce these yarns. Quaker owns a federal registration issued by
the U.S. Patent and Trademark Office for its 'W' logo mark for upholstery
fabrics and for its 'WHITAKER' mark for textiles for use in the manufacture of
upholstery fabrics. The Company has also filed applications with the U.S. Patent
and Trademark Office to register its 'QUAKER PLUSH' and 'QUAKER FABRIC & Design'
marks. In addition, the Company has filed applications to register the mark
'QUAKER' in Canada, the European Union, Mexico and Turkey.
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 May 22, 1998, Quaker employed
2,177 people, including 1,802 production employees, 135 technical and clerical
employees, and 240 exempt employees and commissioned sales representatives.
Management believes that employee relations are good. None of the Company's
employees are represented by a collective bargaining agreement.
34
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<PAGE>
PROPERTIES
Quaker is headquartered in Fall River, Massachusetts, where it currently
has eight facilities, four used primarily for manufacturing purposes and three
for warehouse space. The eighth facility houses the Company's executive,
administrative and design areas as well as certain manufacturing operations.
Quaker is in the process of setting up a ninth facility in the Fall River area
for yarn manufacturing. The Company has three distribution centers in the United
States and one in Mexico. The table below sets forth certain information
relating to the Company's current facilities:
<TABLE>
<CAPTION>
APPROXIMATE
ENCLOSED AREA
LOCATION PRIMARY USE (SQUARE FEET) OWNERSHIP
- ------------------------------------------ -------------------- ------------- ------------
<S> <C> <C> <C>
Grinnell Street, Fall River............... Manufacturing 728,000 Owned
Quequechan Street, Fall River............. Manufacturing 244,000 Owned
Davol Street, Fall River.................. Offices/Manufacturing 245,000 Owned
Ferry Street, Fall River.................. Manufacturing 193,000 Owned
Graham Road, Fall River................... Manufacturing 52,000 Leased(1)
Airport Road, Fall River.................. Warehouse 28,000 Leased(2)
Fr. DeValles Blvd., Fall River............ Warehouse 23,408 Leased(3)
Lewiston Street, Fall River............... Warehouse 61,762 Leased(4)
County Street, Somerset, MA............... Manufacturing 52,500 Leased(5)
Verona, MS................................ Distribution Center 20,000 Owned
City of Industry, CA...................... Distribution Center 17,286 Leased(6)
Mexico City, Mexico....................... Distribution Center 9,000 Leased(7)
High Point, NC............................ Distribution Center 8,500 Leased(8)
</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 May 20, 2000.
(6) Lease expires October 1, 2001.
(7) Lease expires February 5, 2000.
(8) 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
environmental or otherwise relating to the protection of the environment. The
Company is aware of soil and groundwater contamination relating to the use of
certain underground fuel oil storage tanks at certain of its present and former
facilities and 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.
35
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<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Larry A. Liebenow(1)............... 54 President, Chief Executive Officer and Director
Anthony Degomes.................... 57 Vice President -- New Business Development
James A. Dulude.................... 42 Vice President -- Manufacturing
Thomas J. Finneran................. 58 Vice President -- Sales
Cynthia L. Gordan.................. 51 Vice President, Secretary and General Counsel
Paul J. Kelly...................... 53 Vice President -- Finance, Treasurer and Chief Financial
Officer
Thomas H. Muzekari................. 57 Vice President -- Marketing
M. Beatrice Spires................. 36 Vice President -- Styling and Design
J. Duncan Whitehead................ 55 Vice President -- Technology and Development, and Yarn Sales
Sangwoo Ahn(1)(2)(3)............... 59 Chairman of the Board
Jerry I. Porras(1)(3).............. 59 Director
Eriberto R. Scocimara(2)........... 62 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Stock Option Committee.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There are no family relationships among any
of the Company's directors or executive officers.
Larry A. Liebenow. Mr. Liebenow has served as President, Chief Executive
Officer and a director of the Company since September 1989. From July 1983 until
September 1989, Mr. Liebenow was Chairman of the Board and President of Nortex
International, Inc., a manufacturer and distributor of specialty yarns which was
merged into the Company in 1989 ('Nortex International'). From September 1971 to
July 1983, Mr. Liebenow served as the Chief Operating Officer of Grupo Pliana,
S.A., a Mexican yarn and upholstery fabric manufacturing concern. Mr. Liebenow
is also a trustee of Eastern Utilities Associates; a director of the U.S.
Chamber of Commerce, Chairman of its Western Hemisphere Task Force and a member
of its International Policy Committee; and a director of the American Textile
Manufacturers Institute.
Anthony Degomes. Mr. Degomes has been employed by the Company since
September 1989 and has served as Vice President -- New Business Development
since March 1996. Mr. Degomes served as Vice President -- Styling and Design of
the Company from September 1991 to March 1996. From December 1990 to September
1991, Mr. Degomes served as the Company's Director of Styling and Design. From
September 1989 to November 1990, Mr. Degomes served as the Vice
President -- Styling, Design and Development of the Company's Nortex Division.
From March 1984 to September 1989, Mr. Degomes served as the Vice President in
charge of Styling and Development for Nortex International.
James A. Dulude. Mr. Dulude has been employed by the Company since May 1986
and has served as Vice President -- Manufacturing since August 1995. Mr. Dulude
served as Vice President -- Purchasing, Planning and MIS from November 1990 to
August 1995. Mr. Dulude served as the Company's Director of Purchasing and
Planning from May 1989 to November 1990, Director of Planning and Scheduling
from July 1988 to May 1989, and Director of Information Systems from May 1986 to
July 1988.
Thomas J. Finneran. Mr. Finneran has been employed by the Company since
January 1982 and has served as Vice President -- Sales since March 1996. Mr.
Finneran served as Vice President -- Marketing from July 1988 to March 1996 and
Vice President -- Sales from January 1982 to July 1988. From 1973 to
36
<PAGE>
<PAGE>
January 1982, Mr. Finneran was responsible for sales and marketing of velvets,
Jacquard and dobbie product lines at Joan Fabrics Corporation.
Cynthia L. Gordan. Ms. Gordan has been employed by the Company since March
1988 and has served as Vice President, Secretary and General Counsel of the
Company since March 1989. Ms. Gordan is also responsible for the Company's Risk
Management, Investor Relations and Human Resources functions. From April 1986 to
November 1987, Ms. Gordan served as a Senior Associate in the Corporate
Department of the Chicago law firm of Katten Muchin & Zavis. From November 1981
to April 1986, Ms. Gordan was employed by The General Electric Company where she
served first as the Vice President and General Counsel of General Electric's
life, property and casualty insurance affiliates in Providence, Rhode Island,
and later as the strategic planner and acquisition specialist for a division of
General Electric Capital Corporation.
Paul J. Kelly. Mr. Kelly has served as Vice President -- Finance, Treasurer
and Chief Financial Officer of the Company since December 1989 and, since
November 1993, has also had responsibility for working with industry and
institutional equity research analysts. From January 1988 to December 1989, Mr.
Kelly was the co-founder and President of International Business Brokers and
Consultants Ltd., a business broker and consulting firm. From December 1977 to
December 1987, Mr. Kelly served as Chief Financial Officer of Ferranti Ocean
Research Equipment, Inc., an international manufacturing concern. From February
1973 to December 1977, he was a certified public accountant with Arthur Andersen
& Co.
Thomas Muzekari. Mr. Muzekari has served as Vice President -- Marketing
since March 1996. From September 1989 until February 1996, Mr. Muzekari was the
Vice President -- Marketing for the Velvet Division of Collins & Aikman Group,
Inc. ('C&A').
M. Beatrice Spires. Ms. Spires has been employed by the Company since
September 1995 and has served as Vice President -- Styling and Design since
March 1996. From September 1995 to March 1996, Ms. Spires served as Quaker's
Director of Design. From July 1992 to September 1995, Ms. Spires was Vice
President -- Merchandising for the Velvet Division of C&A. From September 1991
to July 1992, Ms. Spires was Merchandising Manager of C&A.
J. Duncan Whitehead. Mr. Whitehead has served as Vice
President -- Technology and Development, and Yarn Sales since December 1996. Mr.
Whitehead served as Vice President -- Research and Technology, and Yarn Sales
from August 1995 to December 1996. Mr. Whitehead served as Vice President, Yarn
Sales and Development from May 1990 to August 1995. From September 1989 to May
1990, Mr. Whitehead was the Vice President -- Sales and Marketing for the
Company's Nortex Division. From July 1983 to September 1989, Mr. Whitehead
served as Vice President of Sales and Marketing for Nortex International.
Sangwoo Ahn. Mr. Ahn has served as a director of the Company since March
12, 1993 and Chairman of the Board since May 19, 1993. Mr. Ahn has served as a
general partner of MLGAL Partners, the general partner of MLGA Fund since 1987
and as a managing director of its affiliate, Morgan Lewis Githens & Ahn, Inc.,
an investment banking firm, since 1982. Mr. Ahn also serves as a director of
Gradall Industries, Inc., Kaneb Services, Inc., Kaneb Pipe Line Partners, L.P.,
ITI Technologies Inc., PAR Technology Corp. and Stuart Entertainment, Inc.
Jerry I. Porras. Mr. Porras has served as a director of the Company since
May 21, 1997. Mr. Porras is the Lane Professor of Organizational Behavior and
Change at Stanford University's Graduate School of Business, where he has taught
varied courses on organizational behavior and change for the last 25 years.
Since 1970, Mr. Porras has been the President of Jerry I. Porras Associates,
Inc., a consulting firm which advises a wide variety of public and private
organizations. Mr. Porras is also a co-owner of Stream Analytics, Inc., a
software firm which develops applications for organizational diagnosis and
change management. Mr. Porras also serves on the boards of directors of State
Farm Life Insurance Company and State Farm General Insurance Company.
Eriberto R. Scocimara. Mr. Scocimara has served as a director of the
Company since December 14, 1993. Since April 1, 1994, Mr. Scocimara has been the
President and Chief Executive Officer of the Hungarian-American Enterprise Fund,
a private tax-exempt Delaware corporation established pursuant to Federal law
for the purpose of promoting private enterprise in Hungary. Mr. Scocimara has
been the
37
<PAGE>
<PAGE>
President and Chief Executive Officer of Scocimara & Company, Inc., a financial
consulting firm, since 1984. Mr. Scocimara also serves as a director of Carlisle
Companies Incorporated, Cofinec N.V., Euronet Services, Inc., Harrow Industries,
Inc. and Roper Industries, Inc.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
The Company's President, Secretary and Treasurer are elected annually by the
Board at its first meeting following the annual meeting of stockholders. All
other executive officers hold office until their successors are chosen and
qualified.
Pursuant to Section 145 of the DGCL, Article NINTH of the Company's
certificate of incorporation provides that the Company shall indemnify its
directors and officers against liability for certain of their acts. Article
EIGHTH of the Company's certificate of incorporation provides that, except to
the extent prohibited by the DGCL, no director of the Company shall be liable to
the Company for monetary damages for breach of his fiduciary duty as a director.
In addition, the Company has entered into indemnification agreements with
certain of its directors indemnifying such persons against judgments and other
expenses incurred in connection with pending or threatened litigation resulting
from that director's position with the Company. The Company also provides its
directors and officers with coverage under a director's and officer's liability
insurance policy.
COMMITTEES
The Board of Directors has established an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee, currently composed
of Messrs. Ahn and Scocimara, meets periodically with management and the
Company's independent accountants to determine the adequacy of internal controls
and other financial reporting matters. The Compensation Committee, currently
composed of Messrs. Ahn, Liebenow and Porras, reviews general policy matters
relating to compensation and benefits of employees generally and has
responsibility for reviewing and approving compensation and benefits for all
officers of the Company. The Stock Option Committee, currently composed of
Messrs. Ahn and Porras, administers the Company's stock option plans.
38
<PAGE>
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of May 20, 1998 and as adjusted to reflect the
completion of this offering, by (i) each of the Company's directors and
executive officers, (ii) all directors and executive officers of the Company as
a group, (iii) each person who is known by the Company to own beneficially more
than five percent of the outstanding shares of the Common Stock (including the
Selling Stockholder). All share information reflects a three-for-two stock split
payable on June 19, 1998 to stockholders of record on June 8, 1998.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED
OFFERING AFTER THE OFFERING
-------------------- SHARES --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Nortex Holdings, Inc.(1).................................. 3,024,094 22.9 750,000 2,274,094 14.0
Larry A. Liebenow(2)(3)................................... 3,051,094 23.1 750,000 2,301,094 14.2
Anthony Degomes(3)(4)..................................... 3,033,094 23.0 750,000 2,283,094 14.1
J. Duncan Whitehead(3)(5)................................. 3,033,694 23.0 750,000 2,283,694 14.1
FMR Corp.(6).............................................. 1,484,100 11.7 0 1,484,100 9.5
Neumeier Investment Counsel LLC(7)........................ 717,300 5.7 0 717,300 4.6
Dimensional Fund Advisors Inc.(8)......................... 695,250 5.5 0 695,250 4.4
Sangwoo Ahn(9)............................................ 93,781 * 0 93,781 *
Jerry I. Porras(10)....................................... 2,500 * 0 2,500 *
Eriberto R. Scocimara(10)................................. 7,500 * 0 7,500 *
James A. Dulude(3)(11).................................... 102,864 * 0 102,864 *
Thomas J. Finneran(3)(10)................................. 9,000 * 0 9,000 *
Cynthia L. Gordan(3)(10).................................. 99,864 * 0 99,864 *
Paul J. Kelly(3)(10)...................................... 63,864 * 0 63,864 *
Thomas H. Muzekari(3)(10)................................. 54,000 * 0 54,000 *
M. Beatrice Spires(3)(10)................................. 79,500 * 0 79,500 *
All executive officers and directors as a group (12
persons)................................................ 3,582,567 26.2 750,000 2,832,567 17.0
</TABLE>
- ------------
* Less than 1%
(1) Consists of (a) 2,468,556 shares of Common Stock owned directly by Nortex
Holdings and (b) 555,538 shares which Nortex Holdings has the right to
acquire upon exercise of an option granted by the Company in 1993 at an
exercise price of $0.80 per share. The address of Nortex Holdings is 941
Grinnell Street, Fall River, Massachusetts 02721.
(2) Consists of (a) 27,000 shares of Common Stock issuable upon exercise of
options and (b) the shares of Common Stock beneficially owned by Nortex
Holdings. See footnote (1). Mr. Liebenow owns 70.5% of the outstanding
shares of Nortex Holdings and is the President and a director of Nortex
Holdings and, as such, may be deemed to beneficially own the shares owned
by Nortex Holdings.
(3) The address for the named individual is c/o Quaker Fabric Corporation, 941
Grinnell Street, Fall River, Massachusetts 02721.
(4) Consists of (a) 9,000 shares of Common Stock issuable upon exercise of
options and (b) the shares of Common Stock beneficially owned by Nortex
Holdings. See footnote (1). Mr. Degomes owns 12.0% of the outstanding
shares of Nortex Holdings and is an officer and director of Nortex Holdings
and, as such, may be deemed to beneficially own the shares owned by Nortex
Holdings.
(5) Consists of (a) 9,000 shares of Common Stock issuable upon exercise of
options, (b) the shares of Common Stock beneficially owned by Nortex
Holdings and (c) 600 shares of Common Stock held by Mr. Whitehead's
children. See footnote (1). Mr. Whitehead owns 17.5% of the outstanding
shares of Nortex Holdings and is an officer and director of Nortex Holdings
and, as such, may be deemed to beneficially own the shares owned by Nortex
Holdings.
(6) Based solely upon information obtained from a Schedule 13G filed with the
Commission on February 10, 1998, as amended. The address for FMR Corp. is
82 Devonshire Street, Boston, Massachusetts 02109.
(7) Based solely upon information obtained from a Schedule 13G filed with the
Commission on February 6, 1998. The address for Neumeier Investment Counsel
LLC is 26435 Carmel Rancho Blvd., Carmel, California 93923.
(8) Based solely upon information obtained from a Schedule 13G filed with the
Commission on February 10, 1998. Consists of shares deemed beneficially
owned by Dimensional Fund Advisors Inc. ('Dimensional'), a registered
investment advisor. Such shares are held in portfolios of advisory clients
of Dimensional. Dimensional disclaims beneficial ownership of such shares.
The address for Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
(9) Consists of (a) 76,281 shares of Common Stock owned directly by Mr. Ahn,
(b) 2,500 shares of Common Stock issuable upon exercise of options and (c)
15,000 shares of Common Stock held by Mr. Ahn's children. Mr. Ahn disclaims
beneficial ownership of the shares owned by his children.
(10) Consists of shares of Common Stock which the named individual has the right
to acquire upon the exercise of options.
(footnotes continued on next page)
39
<PAGE>
<PAGE>
(footnotes continued from previous page)
(11) Consists of 99,864 shares of Common Stock which Mr. Dulude has the right to
acquire upon the exercise of options and 3,000 shares of Common Stock held
by his children. Mr. Dulude disclaims beneficial ownership of the shares
owned by his children.
Except as noted in the footnotes, the Company believes the beneficial
holders listed in the table above have sole voting and investment power
regarding the shares shown as being beneficially owned by them. Except as noted
in the footnotes, none of such shares is known by the Company to be shares with
respect to which the beneficial owner has the right to acquire such shares.
40
<PAGE>
<PAGE>
UNDERWRITING
The Underwriters named below (the 'Underwriters'), for whom Prudential
Securities Incorporated, The Robinson-Humphrey Company, LLC and Wheat First
Union, a division of Wheat First Securities, Inc., are acting as representatives
of the Underwriters (the 'Representatives'), severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company and the Selling Stockholder the number of shares of Common Stock set
forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated.......................................................
The Robinson-Humphrey Company, LLC.......................................................
Wheat First Securities, Inc..............................................................
Total............................................................................... 3,750,000
---------
---------
</TABLE>
The Company and the Selling Stockholder are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby, if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholder that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the public offering, the offering price
and the concessions may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 562,500 additional shares of
Common Stock at the public offering price, less underwriting discounts and
commissions, as set forth on the cover page of this Prospectus. The Underwriters
may exercise such option solely for the purpose of covering over-allotments
incurred in the sale of the shares of Common Stock offered hereby. To the extent
such option to purchase is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to 3,750,000.
The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
The Company, its directors and executive officers and the Selling
Stockholder have agreed (except as to an aggregate of 150,000 shares previously
pledged) that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock or any security convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, or any right to purchase or acquire Common Stock or other
capital stock of the Company for a period of 180 days, in the case of the
Company, the Selling Stockholder and certain of their affiliates, and 90 days in
the case of other directors and executive officers, after the date of this
Prospectus, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for bona fide gifts or
transfers effected by such stockholders other than on any securities exchange or
in the over-the-counter market to donees or transferees that agree to be bound
by similar agreements and except for issuances by the Company and sales by
Nortex Holdings pursuant to the exercise of certain outstanding stock options,
which shares will be subject to similar restrictions on
41
<PAGE>
<PAGE>
transferability. Prudential Securities Incorporated may, in its sole discretion,
at any time and without notice, release all or any portion of the shares of
Common Stock subject to such agreements.
In connection with this offering, certain Underwriters (and selling group
members if any) who are qualified market makers on the Nasdaq National Market
have engaged in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act, as amended, during the business day prior to the pricing of the
offering before the commencement of offers of sales of the Common Stock. Passive
market makers must comply with applicable volume and price limitations and must
be identified as such. In general, a passive market maker must display its bid
at a price not in excess of the highest independent bid for such security; if
all independent bids are lowered below the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded.
In connection with the offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Exchange Act, pursuant to which such
persons may bid for or purchase Common Stock for the purpose of stabilizing its
market price. The Underwriters also may create a short position for the account
of the Underwriters by selling more Common Stock in connection with the offering
than they are committed to purchase from the Company and the Selling
Stockholder, and in such case may purchase Common Stock in the open market
following completion of the offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 562,500 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, Prudential Securities
Incorporated, on behalf of the Underwriters, may impose 'penalty bids' under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the offering) for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
Certain matters with respect to the legality of the shares of Common Stock
offered hereby will be passed upon for the Company by Proskauer Rose LLP, New
York, New York. Certain legal matters relating to this offering will be passed
upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York.
Certain members of Proskauer Rose LLP have acted as counsel to Nortex Holdings
and its affiliates in certain matters.
EXPERTS
The consolidated financial statements and financial statement schedules
included in or made a part of this Prospectus and Registration Statement, to the
extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
42
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets -- January 4, 1997 and January 3, 1998 (audited) and
April 4, 1998 (unaudited)................................................................................ F-3
Consolidated Statements of Income -- For the years ended December 30, 1995,
January 4, 1997 and January 3, 1998 (audited) and the three months ended April 5, 1997 and April 4, 1998
(unaudited).............................................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity -- For the years ended December 30, 1995,
January 4, 1997 and January 3, 1998 (audited) and the three months ended April 4, 1998 (unaudited)....... F-5
Consolidated Statements of Cash Flows -- For the years ended December 30, 1995, January 4, 1997 and January
3, 1998 (audited) and the three months ended April 5, 1997 and April 4, 1998 (unaudited)................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
After the three-for-two stock split discussed in Note 11 to Quaker Fabric
Corporation and subsidiaries' consolidated financial statements is effected, we
expect to be in a position to render the following report.
ARTHUR ANDERSEN LLP
February 10, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To QUAKER FABRIC CORPORATION:
We have audited the accompanying consolidated balance sheets of Quaker
Fabric Corporation (a Delaware corporation) and subsidiaries as of January 4,
1997 and January 3, 1998, 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 4, 1997 and January 3, 1998,
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.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 1998 (except for the matter
discussed in Note 11, as to which the
date is May 28, 1998)
F-2
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, APRIL 4,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................... $ 385 $ 234 $ 567
Accounts receivable, less allowances of $2,052, $1,479 and $1,659 at
January 4, 1997, January 3, 1998 and April 4, 1998, respectively, for
doubtful accounts and sales returns and allowances................... 26,261 32,996 34,504
Inventories............................................................ 26,957 32,176 37,944
Prepaid income taxes................................................... 694 25 33
Prepaid expenses and other current assets.............................. 3,617 4,688 4,044
---------- ---------- -----------
Total current assets.............................................. 57,914 70,119 77,092
Property, plant and equipment, net of depreciation and amortization.... 84,045 101,307 111,158
Other assets:
Goodwill, net of amortization.......................................... 6,397 6,204 6,154
Deferred financing costs............................................... 322 251 227
Other assets........................................................... 154 207 221
---------- ---------- -----------
Total assets...................................................... $148,832 $178,088 $194,852
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt................................................ $ 951 $ 995 $ 994
Current portion of capital lease obligations........................... 1,532 1,167 1,185
Accounts payable....................................................... 14,384 18,203 17,679
Accrued expenses and taxes............................................. 8,427 7,120 9,583
---------- ---------- -----------
Total current liabilities......................................... 25,294 27,485 29,441
Long-term debt, less current portion........................................ 35,731 47,436 60,287
Capital lease obligations, less current portion............................. 6,504 5,336 5,034
Deferred income taxes....................................................... 11,649 13,771 14,041
Other long-term liabilities................................................. 3,082 1,747 1,788
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:
12,031,645, 12,601,026 and 12,602,110 shares issued and outstanding
as of January 4, 1997, January 3, 1998 and April 4, 1998,
respectively......................................................... 120 126 126
Additional paid-in capital............................................. 41,908 46,530 46,542
Retained earnings...................................................... 25,959 37,072 39,008
Cumulative translation adjustment...................................... (1,415) (1,415) (1,415)
---------- ---------- -----------
Total stockholders' equity........................................ 66,572 82,313 84,261
---------- ---------- -----------
Total liabilities and stockholders' equity........................ $148,832 $178,088 $194,852
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------- ----------------------
DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1995 1997 1998 1997 1998
------------ ---------- ---------- --------- ---------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $173,487 $198,856 $219,174 $53,198 $62,730
Cost of products sold.............................. 137,083 152,787 167,401 40,099 49,139
------------ ---------- ---------- --------- ---------
Gross margin....................................... 36,404 46,069 51,773 13,099 13,591
Selling, general and administrative expenses....... 26,176 29,121 32,311 8,468 9,398
------------ ---------- ---------- --------- ---------
Operating income................................... 10,228 16,948 19,462 4,631 4,193
Other expenses:
Interest expense, net......................... 3,898 4,092 3,700 875 1,200
Other, net.................................... 98 77 65 9 15
------------ ---------- ---------- --------- ---------
Income before provision for income taxes........... 6,232 12,779 15,697 3,747 2,978
Provision for income taxes......................... 712 4,217 4,584 1,237 1,042
------------ ---------- ---------- --------- ---------
Net income......................................... $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Earnings per common share -- basic................. $ 0.46 0.71 $ 0.90 $ 0.21 $ 0.15
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Earnings per common share -- diluted............... $ 0.44 $ 0.69 $ 0.85 $ 0.20 $ 0.15
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Weighted average shares outstanding -- basic....... 12,032 12,032 12,412 12,096 12,602
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Weighted average shares outstanding -- diluted..... 12,440 12,498 13,022 12,706 13,273
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ---------- -------- ------------ -------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994......................... $120 $41,340 $11,877 (748) $52,589
Stock option compensation expense............. -- 229 -- -- 229
Net income.................................... -- -- 5,520 -- 5,520
Issuance of 15,927 shares of common stock
under stock option plan..................... -- 78 -- -- 78
Foreign currency translation adjustment....... -- -- -- (566) (566)
------ ---------- -------- ------------ -------------
Balance, December 30, 1995......................... $120 $41,647 $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........................... $120 $41,908 $25,959 $ (1,415) $66,572
Stock option compensation expense............. -- 571 -- -- 571
Net income.................................... -- -- 11,113 -- 11,113
Proceeds from sale of 450,000 shares of common
stock, net of expenses...................... 5 3,262 -- -- 3,267
Proceeds from stock options exercised,
including tax benefits...................... 1 789 -- -- 790
------ ---------- -------- ------------ -------------
Balance, January 3, 1998........................... $126 $46,530 $37,072 $ (1,415) $82,313
------ ---------- -------- ------------ -------------
Net income (unaudited)........................ -- -- 1,936 -- 1,936
Proceeds from stock options exercised,
including tax benefits (unaudited).......... -- 12 -- -- 12
------ ---------- -------- ------------ -------------
Balance, April 4, 1998 (unaudited)................. $126 $46,542 $39,008 $ (1,415) $84,261
------ ---------- -------- ------------ -------------
------ ---------- -------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------- -----------------------
DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1995 1997 1998 1997 1998
------------ ---------- ---------- ---------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 6,462 7,437 8,511 1,969 2,535
Stock option compensation expense................... 229 261 571 571 --
Deferred income taxes............................... (200) 1,134 1,570 371 270
Changes in operating assets and liabilities:
Accounts receivable................................. 1,398 (2,050) (6,735) (874) (1,508)
Inventories......................................... (871) (4,581) (5,219) (774) (5,768)
Prepaid expenses and other current assets........... (1,374) 657 (455) 839 622
Accounts payable and accrued expenses............... 1,158 4,078 2,512 (862) 1,939
Deferred income taxes............................... (53) (8) 552 -- --
Other long-term liabilities......................... (245) (684) (1,335) (155) 41
---------- ---------- ---------- --------- ----------
Net cash provided by operating activities...... 12,024 14,806 11,085 3,595 67
---------- ---------- ---------- --------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment............... (13,165) (11,979) (25,484) (2,440) (12,312)
Sale of equipment........................................ 212 -- -- -- --
---------- ---------- ---------- --------- ----------
Net cash used for investing activities......... (12,953) (11,979) (25,484) (2,440) (12,312)
---------- ---------- ---------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of short-term and long-term debt.. 34,500 -- 45,000 -- 13,100
Repayments of debt....................................... (31,912) (1,278) (33,251) (4,223) (250)
Repayments of capital leases............................. (1,171) (1,249) (1,533) (325) (284)
Capitalization of financing costs........................ (135) (14) (25) -- --
Proceeds from issuance of common stock, net of offering
expenses............................................... -- -- 3,267 3,267 --
Proceeds from exercise of common stock options........... 78 -- 790 -- 12
---------- ---------- ---------- --------- ----------
Net cash provided (used) by financing
activities................................... 1,360 (2,541) 14,248 (1,281) 12,578
Effect of exchange rates on cash.............................. (566) (101) -- -- --
Net increase (decrease) in cash and cash equivalents.......... (135) 185 (151) (126) 333
Cash and cash equivalents, beginning of period................ 335 200 385 385 234
---------- ---------- ---------- --------- ----------
Cash and cash equivalents, end of period...................... $ 200 $ 385 $ 234 $ 259 $ 567
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest............................................ $ 4,043 $ 3,916 $ 3,108 $ 370 $ 279
Income taxes........................................ $ 1,881 $ 829 $ 3,648 $ 1,419 $ 939
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. OPERATIONS
Quaker Fabric Corporation and subsidiaries (the 'Company' or 'Quaker')
designs, manufactures and markets woven upholstery fabrics for residential
furniture markets and specialty yarns for use in the production of its own
fabrics and for sale to manufacturers of home furnishings and other products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Quaker Fabric Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
(B) FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest to January 1 of each
year. The fiscal years ended January 3, 1998 and December 30, 1995 contained 52
weeks while the fiscal year ended January 4, 1997 contained 53 weeks. The
consolidated statements of income for the three month periods ended April 5,
1997 and April 4, 1998 contain 13 weeks each.
(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 4, 1997, January
3, 1998 and April 4, 1998:
<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, APRIL 4,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................................... $11,127 $14,430 $15,779
Work-in-process......................................... 8,421 9,917 12,393
Finished goods.......................................... 7,500 8,092 10,035
---------- ---------- -----------
Inventory at FIFO.................................. 27,048 32,439 38,207
LIFO reserve............................................ 91 263 263
---------- ---------- -----------
Inventory at LIFO.................................. $26,957 $32,176 $37,944
---------- ---------- -----------
---------- ---------- -----------
</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.
F-7
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(E) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired. Goodwill is amortized on a straight-line basis
over 40 years. Accumulated amortization is $1,314 and $1,507 at January 4, 1997
and January 3, 1998, 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 $313 and $409 as of January 4, 1997 and
January 3, 1998, respectively.
(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 common shares outstanding and
dilutive potential common shares.
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1995 1997 1998 1997 1998
------------ ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding.... 12,032 12,032 12,412 12,096 12,602
Dilutive potential common shares.............. 408 466 610 610 671
------------ ---------- ---------- ----------- -----------
Weighted average common shares outstanding and
dilutive potential common shares............ 12,440 12,498 13,022 12,706 13,273
------------ ---------- ---------- ----------- -----------
</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,
F-8
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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 and April 4, 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.
(N) INTERIM FINANCIAL STATEMENTS
The financial information as of and for the three months ended April 4,
1998 and for the three months ended April 5, 1997 has been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission and is not subject to audit by independent public accountants.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
information furnished reflects all adjustments (consisting of only normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair statement of results for the interim periods. It should also be noted that
results for the interim periods are not necessarily indicative of the results
expected for any other interim period or the full year.
F-9
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3,
1997 1998
---------- ----------
<S> <C> <C>
Land.................................................................. $ 236 $ 236
Buildings and improvements............................................ 17,559 18,408
Leasehold improvements................................................ 309 485
Machinery and equipment............................................... 94,541 112,927
Furniture and fixtures................................................ 1,292 1,428
Motor vehicles........................................................ 330 331
Construction in progress.............................................. 1,899 5,201
---------- ----------
116,166 139,016
Less -- Accumulated depreciation and amortization..................... 32,121 37,709
---------- ----------
$ 84,045 $101,307
---------- ----------
---------- ----------
</TABLE>
Included in machinery and equipment is equipment under capital lease of
$12,644 as of January 4, 1997 and $11,419 as of January 3, 1998. 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 4, JANUARY 3,
1997 1998
---------- ----------
<S> <C> <C>
Accrued workers' compensation......................................... $1,500 $1,300
Accrued medical insurance............................................. 1,766 1,492
Accrued other, including taxes........................................ 5,161 4,328
---------- ----------
$8,427 $7,120
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, APRIL 4,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
7.18% Senior Notes due October 10, 2007................. $ -- $30,000 $30,000
7.09% Senior Notes due October 10, 2005................. -- 15,000 15,000
6.81% Series A Notes due December 15, 2002.............. 30,000 -- --
Unsecured credit facility payable to several banks...... 4,000 1,700 14,800
9.73% Note payable in monthly principal and interest
installments of $81 through August 1999, secured by
certain equipment..................................... 2,287 1,498 1,288
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% (9.25% at January 4, 1997 and 9.50% at January 3,
1998), secured by certain equipment................... 395 233 193
---------- ---------- -----------
36,682 48,431 61,281
Less -- Current portion................................. 951 995 994
---------- ---------- -----------
$35,731 $47,436 $60,287
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
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>
F-11
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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 4, 1997, the Company had $4,000 outstanding under the
Credit Agreement at an effective interest rate of 7.0%. As of January 3, 1998,
the Company had $1,700 outstanding under the Credit Agreement at an effective
interest rate of 8.5%.
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
----------------------------------------
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Domestic........................................................ $6,184 $12,200 $14,471
Foreign......................................................... 48 579 1,226
------------ ---------- ----------
$6,232 $12,779 $15,697
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
F-12
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following is a summary of the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Federal
Current.............................................................. $ 725 $2,510 $2,544
Deferred............................................................. 1,703 1,300 1,341
------------ ---------- ----------
$ 2,428 $3,810 $3,885
------------ ---------- ----------
State
Current.............................................................. $ 187 $ 573 $ 410
Deferred............................................................. (1,903) (166) (195)
------------ ---------- ----------
$ (1,716) $ 407 $ 215
------------ ---------- ----------
Foreign
Current.............................................................. $ -- $-- $ 60
Deferred............................................................. -- -- 424
------------ ---------- ----------
$ -- $-- $ 484
------------ ---------- ----------
$ 712 $4,217 $4,584
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
A reconciliation between the provision for income taxes 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
----------------------------------------
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Computed expected tax provision........................................... $ 2,119 $4,345 $ 5,494
Increase in taxes resulting from:
Amortization of goodwill........................................ 67 67 67
State and foreign income taxes, net of federal benefit.......... 385 583 893
Decrease in taxes resulting from:
State investment tax credits, net of federal provision.......... (452) (319) (1,075)
Reversal of state deferred taxes due to change in tax law, net
of federal provision.......................................... (1,050) -- --
Reversal of tax reserves no longer required..................... (48) (308) (1,081)
Foreign sales corporation benefit............................... (270) (245) (485)
Valuation allowance............................................. -- -- 750
Other........................................................... (39) 94 21
------------ ---------- ----------
$ 712 $4,217 $ 4,584
------------ ---------- ----------
------------ ---------- ----------
</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.
F-13
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The significant items comprising the domestic deferred tax asset/liability
are as follows:
<TABLE>
<CAPTION>
JANUARY 4, 1997 JANUARY 3, 1998
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards............................... $ 259 $ 599 $ 270 $ 355
Tax credit carryforwards....................................... 191 951 192 2,817
Receivable reserves............................................ 718 -- 197 --
Other..................................................... 1,311 1,123 1,112 1,245
------- --------- ------- ---------
Total assets.............................................. $ 2,479 $ 2,673 $ 1,771 $ 4,417
Valuation allowance....................................... -- -- -- (750)
------- --------- ------- ---------
Total assets, net of valuation allowance....................... $ 2,479 $ 2,673 $ 1,771 $ 3,667
------- --------- ------- ---------
Liabilities:
Property basis differences..................................... $ -- $(14,832) $ -- $(17,582)
Inventory basis differences.................................... (1,292) -- (1,177) --
------- --------- ------- ---------
Total liabilities......................................... $(1,292) $(14,832) $(1,177) $(17,582)
------- --------- ------- ---------
Net assets (liabilities)............................. $ 1,187 $(12,159) $ 594 $(13,915)
------- --------- ------- ---------
------- --------- ------- ---------
</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 4, 1997 JANUARY 3, 1998
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards............................... $ -- $ 510 $ -- $ 144
Liabilities:
Inventory...................................................... $ (506) $ -- $ (569) $ --
------- --------- ------- ---------
Net assets (liabilities).................................. $ (506) $ 510 $ (569) $ 144
------- --------- ------- ---------
------- --------- ------- ---------
</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:
F-14
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<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 December 30, 1995,
January 4, 1997 and January 3, 1998 was $1,561, $1,276 and $953, 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 4,
1997 and January 3, 1998, the Company has issued or agreed to issue letters of
credit totaling $472 and $273, respectively.
(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 953,693 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 141,000 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
F-15
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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 1995, options to purchase 7,500 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
15,000 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 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
150,000 shares are reserved under this plan, and options to purchase 130,950
shares have been granted.
During 1997, the Company adopted the 1997 Stock Option Plan. Options to
purchase 495,000 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 750,000 shares are reserved under this
plan.
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 1995, 1996 and 1997 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>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Net income
As reported.......................................................... $5,520 $8,562 $11,113
Pro forma............................................................ $5,513 $8,500 $10,787
Earnings per common share -- diluted
As reported.......................................................... $ 0.44 $ 0.69 $ 0.85
Pro forma............................................................ $ 0.44 $ 0.68 $ 0.83
</TABLE>
Compensation expense for options is reflected over the vesting period;
therefore, future compensation expense may be greater as additional options are
granted.
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>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Volatility........................................................ 60.13% 60.13% 44.83%
Risk-free interest rate........................................... 7.25% 6.44% 6.69%
Expected life of options.......................................... 10 years 10 years 6.48 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
F-16
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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>
1995 1996 1997
-------------------------- -------------------------- --------------------------
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...................... 889,988 $1.33 881,561 $1.36 1,092,311 $1.73
Granted........................ 7,500 $7.33 213,000 $3.31 586,500 $9.97
Exercised...................... (15,927) $2.75 -- -- (119,381) $2.83
Forfeited...................... -- -- (2,250) $5.50 (11,550) $5.91
Options outstanding, end of
year......................... 881,561 $1.36 1,092,311 $1.73 1,547,880 $4.74
Options exercisable............ 349,625 $1.31 526,926 $1.34 912,705 $1.33
Options available for grant.... 141,000 -- 80,100 -- 270,300 --
Weighted average fair value per
share of options granted..... -- $4.16 -- $4.05 -- $5.50
</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.......................................... $0.80-$ 2.75 899,430 5.70 $ 1.26
1996 Plan.......................................... $5.50-$ 8.67 130,950 8.90 $ 7.31
1997 Plan.......................................... $10.17 495,000 9.40 $ 10.17
Directors.......................................... $7.33-$10.17 22,500 8.80 $ 9.22
</TABLE>
9. EXPORT SALES
Export sales from the United States to unaffiliated customers by major
geographical area were as follows:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
North America (excluding USA)............................................. $ 8,500 $ 9,900 $11,900
Middle East............................................................... 5,800 13,000 11,300
South America............................................................. 200 700 1,800
Europe.................................................................... 1,800 2,500 2,900
All other areas........................................................... 3,200 4,000 4,600
------------ ---------- ----------
$19,500 $30,100 $32,500
------------ ---------- ----------
------------ ---------- ----------
</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
F-17
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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.
11. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF AUDITOR'S REPORT
On May 28, 1998, the Board of Directors declared a three-for-two stock
split effected by means of a stock dividend payable on June 19, 1998 to
stockholders of record on June 8, 1998. All share and per share amounts give
effect to such stock split.
F-18
<PAGE>
<PAGE>
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<PAGE>
<PAGE>
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<PAGE>
<PAGE>
Photograph of
top
PATTERN
Zen
COLOR
Meteor
Photograph of
bottom
PATTERN
Zoe
COLOR
Meteor
<PAGE>
<PAGE>
__________________________________ _________________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................................................................... 4
Risk Factors................................................................................................................. 9
Use of Proceeds.............................................................................................................. 14
Price Range of Common Stock.................................................................................................. 15
Dividend Policy.............................................................................................................. 15
Capitalization............................................................................................................... 16
Selected Consolidated Financial and Operating Data........................................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 19
Business..................................................................................................................... 25
Management................................................................................................................... 36
Principal and Selling Stockholders........................................................................................... 39
Underwriting................................................................................................................. 41
Legal Matters................................................................................................................ 42
Experts...................................................................................................................... 42
Index to Financial Statements................................................................................................ F-1
</TABLE>
3,750,000 Shares
[Logo]
Common Stock
--------------------
PROSPECTUS
--------------------
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
WHEAT FIRST UNION
June , 1998
__________________________________ _________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An estimate of the fees and expenses of issuance and distribution (other
than underwriting discounts and commissions) of the Common Stock offered hereby
(all of which will be paid by the Company) is as follows:
<TABLE>
<S> <C>
SEC registration fee...................................................................... $ 22,264
NASD Fee.................................................................................. 8,047
Printing and engraving expenses........................................................... 100,000
Legal fees and expenses................................................................... 150,000
Accounting fees and expenses.............................................................. 70,000
Transfer agent fees....................................................................... 1,000
Miscellaneous expenses.................................................................... 48,689
----------
Total........................................................................... $ 400,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
'DGCL') grants each corporation organized thereunder the power to indemnify its
officers and directors against liability for certain of their acts. Article
NINTH of the Company's Certificate of Incorporation provides that the Company
shall indemnify any person who was or is a party to any action by reason of the
fact that he is or was or has agreed to become a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise against any liability incurred by him in connection with such action,
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Company, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interest of the Company and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. Article EIGHTH of the Company's Certificate of Incorporation provides,
except to the extent prohibited by the DGCL, that no director of the Company
shall be liable to the Company for monetary damages for breach of fiduciary duty
as a director. In addition, the Company has entered into indemnification
agreements with certain of its directors indemnifying such persons against
judgments and other expenses incurred in connection with pending or threatened
litigation resulting from that director's position with the Company. The Company
also provides its directors and officers with coverage under a directors' and
officers' liability insurance policy.
Section 8 of the Underwriting Agreement provides for reciprocal
indemnification between the Company and its controlling persons on the one hand
and the Underwriters and their controlling persons on the other hand against
certain liabilities in connection with this Offering, including liabilities
under the Securities Act of 1933.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1 -- Form of Underwriting Agreement
5 -- Opinion of Proskauer Rose LLP
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Proskauer Rose LLP (contained in opinion to be filed as Exhibit 5)
24 -- Power of Attorney (set forth on page II-3)
27 -- Financial data schedule
</TABLE>
II-1
<PAGE>
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of the registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Fall River, Commonwealth of Massachusetts on June 1,
1998.
QUAKER FABRIC CORPORATION
By /S/ LARRY A. LIEBENOW
...................................
LARRY A. LIEBENOW
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Larry A. Liebenow, Paul
J. Kelly and Cynthia L. Gordan, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-3, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) and the Securities Act of 1933, to file the same
with all exhibits thereto and all other documents in connection therewith with
the Securities and Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do all such other acts and
things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the persons whose signatures
appear below in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ LARRY A. LIEBENOW President, Chief Executive Officer and June 1, 1998
......................................... Director (principal executive officer)
(LARRY A. LIEBENOW)
/s/ PAUL J. KELLY Vice President -- Finance (principal June 1, 1998
......................................... financial and accounting officer)
(PAUL J. KELLY)
/s/ SANGWOO AHN Director June 1, 1998
.........................................
(SANGWOO AHN)
/s/ JERRY I. PORRAS Director June 1, 1998
.........................................
(JERRY I. PORRAS)
/s/ ERIBERTO R. SCOCIMARA Director June 1, 1998
.........................................
(ERIBERTO R. SCOCIMARA)
</TABLE>
II-3
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................ 'tm'
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
1 -- Form of Underwriting Agreement....................................................
5 -- Opinion of Proskauer Rose LLP.....................................................
23.1 -- Consent of Arthur Andersen LLP....................................................
23.2 -- Consent of Proskauer Rose LLP (contained in opinion to be filed as Exhibit 5).....
24 -- Power of Attorney (set forth on page II-3)........................................
27 -- Financial data schedule...........................................................
</TABLE>
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION
3,750,000 Shares*
Common Stock
UNDERWRITING AGREEMENT
, 1998
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST SECURITIES, INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
Quaker Fabric Corporation, a Delaware corporation (the "Company"),
Nortex Holdings, Inc. (the "Selling Securityholder") and Larry A. Liebenow, J.
Duncan Whitehead and Anthony Degomes (together, the "Nortex Owners") hereby
confirm their agreement with the several underwriters named in Schedule 1 hereto
(the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters an aggregate of
3,000,000 shares (the "Company Firm Securities") of the Company's Common Stock,
par value $0.01 per share ("Common Stock") and Nortex Holdings proposes to sell
to the several Underwriters 750,000 authorized and outstanding shares of Common
Stock (the "Selling Securityholder Firm Securities" and together with the
Company Firm Securities, the "Firm Securities"). The Company also proposes to
issue and sell to the several Underwriters not more than 562,500 additional
shares of Common Stock if requested by the Representatives as provided in
Section 3 of this Agreement. Any and all shares of Common Stock to be purchased
by the Underwriters pursuant to such option are referred to herein as the
"Option Securities," and the Firm Securities and any Option Securities are
collectively referred to herein as the "Securities".
- --------
* Plus an option to purchase from the Company up to 562,500 additional shares
to cover over-allotments.
<PAGE>
<PAGE>
2. Representations and Warranties. (a) The Company represents and
warrants to, and agrees with, each of the several Underwriters that:
(i) The Company meets the requirements for use of Form S-3
under the Securities Act of 1933, as amended (the "Act"). A registration
statement on such Form (File No. 333- ) with respect to the
Securities, including a prospectus subject to completion, has been filed
by the Company with the Securities and Exchange Commission (the
"Commission") under the Act, and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A) if
such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (1) if
the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Securities, that shall identify the
Preliminary Prospectus (as hereinafter defined) that it supplements and,
if required to be filed pursuant to Rules 434(c)(2) or 424(b), an
Integrated Prospectus (as hereinafter defined), in either case,
containing such information as is required or permitted by Rules 434,
430A and 424(b) under the Act or (2) if the Company does not rely on
Rule 434 under the Act, a prospectus in the form most recently included
in an amendment to such registration statement (or, if no such amendment
shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and in the case of either clause
(A)(1) or (A)(2) of this sentence as have been provided to and approved
by the Representatives prior to the execution of this Agreement, or (B)
if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an
amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved
by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for the purpose of
registering certain additional Securities, which registration shall be
effective upon filing with the Commission. As used in this Agreement,
the term "Original Registration Statement" means the registration
statement initially filed relating to the Securities, as amended at
the time when it was or is declared effective, including (A) all
financial schedules and exhibits thereto, (B) all documents
incorporated by reference therein filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (C) any information
omitted therefrom pursuant to Rule 430A under the Act and included in
the Prospectus (as hereinafter defined) or if required to be filed
pursuant to Rule 434(c)(2) and 424(b), in the Integrated Prospectus;
the term "Rule 462(b) Registration Statement" means any registration
statement filed with the Commission pursuant to Rule 462(b) under the
Act (including the Registration Statement and any Preliminary Prospectus
or Prospectus incorporated therein at the time such Registration
Statement becomes effective); the term "Registration Statement" includes
both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term
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<PAGE>
<PAGE>
"Preliminary Prospectus" means each prospectus subject to completion
filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective) including all documents incorporated by reference
therein filed under the Exchange Act; the term "Prospectus" means:
(1) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements;
(2) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act; or
(3) if the Company does not rely on Rule 434 under the Act
and if no prospectus is required to be filed pursuant to Rule
424(b) under the Act, the prospectus included in the Registration
Statement including, in the case of clauses (1), (2) or (3) of
this sentence, all documents incorporated by reference therein
filed under the Exchange Act;
the term "Integrated Prospectus" means a prospectus first filed with the
Commission pursuant to Rules 434(c)(2) and 424(b) under the Act; and the term
"Term Sheet" means any abbreviated term sheet that satisfies the requirements of
Rule 434 under the Act. Any reference in this Agreement to an "amendment or
supplement" to any Preliminary Prospectus, the Prospectus or any Integrated
Prospectus or an "amendment" to any registration statement (including the
Registration Statement) shall be deemed to include any document incorporated by
reference therein that is filed with the Commission under the Exchange Act after
the date of such Preliminary Prospectus, Prospectus, Integrated Prospectus or
registration statement, as the case may be; any reference herein to the "date"
of a Prospectus that includes a Term Sheet shall mean the date of such Term
Sheet. For purposes of the preceding sentence, any reference to the "effective
date" of an amendment to a registration statement shall, if such amendment is
effected by means of the filing with the Commission under the Exchange Act of a
document incorporated by reference in such registration statement, be deemed to
refer to the date on which such document was so filed with the Commission.
(ii) The Commission has not issued any order preventing or
suspending use of any Preliminary Prospectus. When any Preliminary
Prospectus and any amendment or supplement thereto was filed with the
Commission it (A) contained all statements required to be stated therein
in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (B) did not include any untrue statement of a material
fact or omit to state any material
-3-
<PAGE>
<PAGE>
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, it (A) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act, the Exchange Act
and the respective rules and regulations of the Commission thereunder
and (B) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading. When the Prospectus or any Term Sheet that is a
part thereof or any Integrated Prospectus or any amendment or supplement
to the Prospectus is filed with the Commission pursuant to Rule 424(b)
(or, if the Prospectus or part thereof or such amendment or supplement
is not required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and on the Firm Closing Date
and any Option Closing Date (both as hereinafter defined), each of the
Prospectus, and, if required to be filed pursuant to Rule 434(c)(2) and
424(b) under the Act, the Integrated Prospectus, as amended or
supplemented at any such time, (A) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act, the Exchange Act and the respective rules and regulations
of the Commission thereunder and (B) did not or will not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (ii) do not apply to statements or
omissions made in any Preliminary Prospectus or any amendment or
supplement thereto, the Registration Statement or any amendment thereto,
the Prospectus or, if required to be filed pursuant to Rules 434(c)(2)
and 424(b) under the Act, the Integrated Prospectus, or any amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(iii) If the Company has elected to rely on Rule 462(b)
and the Rule 462(b) Registration Statement has not been declared
effective, (A) the Company has filed a Rule 462(b) Registration
Statement in compliance with and that is effective upon filing pursuant
to Rule 462(b) and has received confirmation of its receipt and (B) the
Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under
the Act or the Commission has received payment of such filing fee.
(iv) The Company and each of its subsidiaries have been
duly organized and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation and
are duly qualified to
-4-
<PAGE>
<PAGE>
transact business as foreign corporations and are in good standing under
the laws of all other jurisdictions where the ownership or leasing of
their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(v) The Company and each of its subsidiaries have full
corporate power to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement
and each of the Prospectus and any Integrated Prospectus or, if the
Prospectus and any required Integrated Prospectus are not in existence,
the most recent Preliminary Prospectus; and the Company has full
corporate power to enter into this Agreement and to carry out all the
terms and provisions hereof to be carried out by it.
(vi) The issued shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and, except as otherwise set forth in each
of the Prospectus and any Integrated Prospectus or, if the Prospectus
and any required Integrated Prospectus are not in existence, the most
recent Preliminary Prospectus, are owned beneficially by the Company
free and clear of any security interests, liens, encumbrances, equities
or claims, except for shares of Quaker Fabric Mexico, S.A. de C.V. owned
by directors of such corporation.
(vii) The Company has an authorized, issued and
outstanding capitalization as set forth in each of the Prospectus and
any Integrated Prospectus or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus. All of the issued shares of capital stock of the Company,
including the Selling Securityholder Firm Securities and the Option
Securities, have been duly authorized and validly issued and are fully
paid and nonassessable. The Company Firm Securities have been duly
authorized and at the Firm Closing Date, after payment therefor in
accordance herewith, will be validly issued, fully paid and
nonassessable. No holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to
subscribe for any of the Securities, and no holder of securities of the
Company has any right which has not been fully exercised or waived to
require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated
by this agreement.
(viii) The capital stock of the Company conforms to the
description thereof contained in each of the Prospectus and any
Integrated Prospectus or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary Prospectus.
(ix) Except as disclosed in each of the Prospectus and
any Integrated Prospectus (or, if the Prospectus and any required
Integrated
-5-
<PAGE>
<PAGE>
Prospectus are not in existence, the most recent Preliminary
Prospectus), there are no outstanding (A) securities or obligations of
the Company or any of its subsidiaries convertible into or exchangeable
for any capital stock of the Company or any such subsidiary, (B)
warrants, rights or options to subscribe for or purchase from the
Company or any such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C)
obligations of the Company or any such subsidiary to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(x) The consolidated financial statements and schedules of
the Company and its consolidated subsidiaries included in the
Registration Statement and each of the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated Prospectus
are not in existence, the most recent Preliminary Prospectus) fairly
present the financial position of the Company and its consolidated
subsidiaries and the results of operations and changes in financial
condition as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected
financial and operating data set forth under the caption "Selected
Consolidated Financial and Operating Data" in each of the Prospectus and
any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus) fairly present, on the basis stated in each of the
Prospectus and any Integrated Prospectus (or such Preliminary
Prospectus), the information included therein.
(xi) Arthur Andersen LLP, which has certified the
financial statements of the Company and its consolidated subsidiaries
and delivered its report with respect to the audited consolidated
financial statements and schedules included in the Registration
Statement and each of the Prospectus and any Integrated Prospectus are
(or, if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus), are independent
public accountants as required by the Act and the applicable rules and
regulations thereunder.
(xii) The execution and delivery of this Agreement have
been duly authorized by the Company and this Agreement has been duly
executed and delivered by the Company, and is the valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms.
(xiii) No legal or governmental proceedings are pending to
which the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or each of the
Prospectus and any Integrated Prospectus and are not described therein
(or, if the Prospectus and any required
-6-
<PAGE>
<PAGE>
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the
Company or any of its subsidiaries or with respect to any of their
respective properties; and no contract, other document required to be
described in the Registration Statement or the Prospectus or any
Integrated Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus) or filed as required.
(xiv) The issuance, offering and sale of the Company Firm
Securities to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions of
this Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained, such as may be required under state
securities or blue sky laws and, if the registration statement filed
with respect to the Securities (as amended) is not effective under the
Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (B)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of their respective properties are bound,
or the charter documents or by-laws of the Company or any of its
subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to the Company or any of its subsidiaries.
(xv) Subsequent to the respective dates as of which
information is given in the Registration Statement, the Prospectus or
any Integrated Prospectus, or, if the Prospectus or any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus, neither the Company nor any of its subsidiaries has
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding and there has not been any
material adverse change, or, to the knowledge of the Company, any
development involving a prospective material adverse change, in the
condition (financial or otherwise), management, business prospects, net
worth, or results of the operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by
each of the Prospectus and any Integrated Prospectus or, if the
Prospectus and any required Integrated Prospectus are not in existence,
the most recent Preliminary Prospectus.
(xvi) The Company has not, directly or indirectly, (A)
taken any action designed to cause or to result in, or that has
constituted or which might
-7-
<PAGE>
<PAGE>
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Securities or (B) since the filing of the Registration
Statement (1) sold, bid for, purchased, or paid anyone any compensation
for soliciting purchases of, the Securities or (2) paid or agreed to pay
to any person any compensation for soliciting another to purchase any
other securities of the Company (except for the sale of Securities under
this Agreement).
(xvii) Subsequent to the respective dates as of which
information is given in the Registration Statement and each of the
Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), (A) the Company and its subsidiaries have not
incurred any material liability or obligation, direct or contingent,
other than in the ordinary course of business, nor entered into any
material transaction not in the ordinary course of business; (B) the
Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock; and (C) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except in each case as
described in or contemplated by each of the Prospectus and any
Integrated Prospectus are (or, if the Prospectus and any required
Integrated Prospectus not in existence, the most recent Preliminary
Prospectus).
(xviii) The Company and each of its subsidiaries have good
and marketable title in fee simple to all items of real property and
marketable title to all personal property owned by each of them, in each
case free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such properties taken as a whole and do
not materially interfere with the use made or proposed to be made of
such properties by the Company or such subsidiary, and any real property
and buildings held under lease by the Company or any such subsidiary are
held under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not materially interfere with the
use made or proposed to be made of such property and buildings by the
Company or such subsidiary, in each case except as described in or
contemplated by each of the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
(xix) No labor dispute with the employees of the Company
or any of its subsidiaries exists or is threatened or imminent that
could reasonably be expected to result in a material adverse change in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except as
described in or contemplated by each of the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any
-8-
<PAGE>
<PAGE>
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
(xx) The Company and its subsidiaries own or possess, or
can acquire on reasonable terms, all material patents, patent
applications, trademarks, service marks, trade names, licenses,
copyrights and proprietary or other confidential information currently
employed by them in connection with their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
infringement of or conflict with asserted rights of any third party with
respect to any of the foregoing which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would result
in a material adverse change in the condition (financial or otherwise),
business prospects, net worth or results of operations of the Company
and its subsidiaries, except as described in or contemplated by each of
the Prospectus and any Integrated Prospectus (or, if the Prospectus and
any required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus). The Company has received a patent (Serial No.
08-457,757) from the United States Patent and Trademark Office for
patent protection of the proprietary manufacturing process owned and
developed by the Company to produce Ankyra'tm' chenille yarn (the
"Ankyra Patent") and the Ankyra Patent does not conflict with any other
patent or violate the rights of any other person.
(xxi) The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as the Company believes are prudent and
customary in the businesses in which they are engaged; neither the
Company nor any such subsidiary has been refused any insurance coverage
sought or applied for; and neither the Company nor any such subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, except as described in or contemplated by each of the Prospectus
and any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus).
(xxii) No subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any dividends to the
Company, from making any other distribution on such subsidiary's capital
stock, from repaying to the Company any loans or advances to such
subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as described in or contemplated by each of the
Prospectus and any Integrated Prospectus (or, if the Prospectus and any
required Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
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<PAGE>
(xxiii) The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess any
certificate, authorization or permit would not materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company and its subsidiaries,
taken as a whole, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole except as described in or contemplated by each of the Prospectus
and any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus).
(xxiv) Each of the Company and its subsidiaries has timely
filed all foreign, federal, state and local tax returns that are
required to be filed or has requested extensions thereof (except in any
case in which the failure so to file would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole) and has
paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is
due and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as described in or
contemplated by each of the Prospectus and any required Integrated
Prospectus (or, if the Prospectus and any required Integrated Prospectus
are not in existence, the most recent Preliminary Prospectus).
(xxv) Neither the Company nor any of its subsidiaries is
in violation of any foreign, federal or state law or regulation relating
to occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and its
subsidiaries have received all permits, licenses or other approvals
required of them under applicable foreign, federal and state
occupational safety and health and environmental laws and regulations to
conduct their respective businesses, and the Company and each such
subsidiary is in compliance in all material respects with all terms and
conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, except as described in or contemplated by each of the Prospectus
and any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent Preliminary
Prospectus).
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<PAGE>
(xxvi) Each certificate signed by any officer of the
Company and delivered to the Representatives or counsel for the
Underwriters shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
(xxvii) Except for the shares of capital stock of each of
the subsidiaries owned by the Company and such subsidiaries, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in
or contemplated by each of the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
(xxviii) There are no holders of securities of the
Company, who, by reason of the filing of the Registration Statement,
have the right (and have not waived such right) to request the Company
to register under the Act, or to include in the Registration Statement,
securities held by them.
(xxix) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxx) No default exists, and no event has occurred which,
with notice or lapse of time or both, would constitute a default in the
due performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or any of their
respective properties is bound or may be affected in any material
adverse respect with regard to property, business or operations of the
Company and its subsidiaries.
(xxxi) The Company has made all filings required to be
made by it under the Exchange Act.
(xxxii) The Company has not distributed and, prior to the
later of (A) the Closing Date and (B) the completion of the distribution
of the Securities, will not distribute any offering material in
connection with the offering and sale of the Securities other than the
Registration Statement or any amendment
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thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or other materials, if any permitted by the Act.
(xxxiii) The three-for-two stock split of the Common Stock
declared in 1998 and paid on , 1998 (the "Stock Split")
was made in compliance with the provisions of the Company's certificate
of incorporation and by-laws and in compliance with all applicable
federal, state or other governmental securities or other laws and the
requirements of the Nasdaq Stock Market.
(b) The Selling Securityholder represents and warrants to, and
agrees with, each of the several Underwriters that:
(i) The Selling Securityholder has full corporate power to
enter into this Agreement and to sell, assign, transfer and deliver to
the Underwriters the Securities to be sold by the Selling Securityholder
hereunder in accordance with the terms of this Agreement; the execution
and delivery of this Agreement have been duly authorized by all
necessary corporate action of the Selling Securityholder; and this
Agreement has been duly executed and delivered by the Selling
Securityholder.
(ii) The Selling Securityholder is the lawful owner of the
Securities to be sold by the Selling Securityholder hereunder and upon
sale and delivery of, and payment for, such Securities, as provided
herein, the Selling Securityholder will convey good and marketable title
to such Securities, free and clear of any security interests, liens,
encumbrances, equities, claims or other defects.
(iii) The Selling Securityholder has not, directly or
indirectly, (i) taken any action designed to cause or result in, or that
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or (ii) since
the filing of the Registration Statement (A) sold, bid for, purchased,
or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company
(except for the sale of Securities by the Selling Securityholder under
this Agreement).
(iv) To the extent that any statements or omissions are
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by the
Selling Securityholder specifically for use therein, such Preliminary
Prospectus did, and the Registration Statement and the Prospectus and
any amendments or supplements thereto, when they become effective or are
filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act, the
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Exchange Act and the respective rules and regulations of the Commission
thereunder and will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Selling
Securityholder has reviewed the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and the information regarding the Selling
Securityholder set forth therein under the caption "Principal and
Selling Stockholders" is complete and accurate.
(v) The sale by the Selling Securityholder of Securities
pursuant hereto is not prompted by any adverse information concerning
the Company that is not set forth in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(vi) The sale of the Securities to the Underwriters by the
Selling Securityholder pursuant to this Agreement, the compliance by the
Selling Securityholder with the other provisions of this Agreement and
the consummation of the other transactions herein contemplated do not
(i) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, such as may be required under state securities or blue
sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with or
result in a breach or violation of any of the terms and provisions of,
or constitute a default under any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Selling
Securityholder or any of its subsidiaries is a party or by which the
Selling Securityholder or any of its subsidiaries or any of their
respective properties are bound, or the charter documents or by-laws of
the Selling Securityholder or any of its subsidiaries or any statute or
any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Selling
Securityholder or any of its subsidiaries.
(vii) The Selling Securityholder has not distributed and,
prior to the later of (A) the Closing Date and (B) the completion of the
distribution of the Securities, will not distribute any offering
material in connection with the offering and sale of the Securities
other than the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or other materials, if any permitted by the Act.
(c) Each Nortex Owner represents and warrants to, and agrees
with, each of the several Underwriters that the representations and warranties
of Nortex Holdings in Section 2(b) hereof are true and correct in all respects.
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3. Purchase, Sale and Delivery of the Securities. (a) On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Company Firm Securities, and the Selling Securityholder
agrees to sell the Selling Securityholder Firm Securities to the Underwriters
and each of the Underwriters, severally and not jointly, agrees to purchase from
the Company and the Selling Securityholder, at a purchase price of $ per
share, the number of Firm Securities set forth opposite the name of such
Underwriter in Schedule 1 hereto. The number of Firm Securities to be purchased
from the Company and the Selling Securityholder, respectively (as adjusted by
the Representatives to avoid fractions), by each of the Underwriters shall be
determined by multiplying the aggregate number of such Firm Securities to be
sold by the Company or the Selling Securityholder, as the case may be, as set
forth opposite the name of such Underwriter on Schedule 1 hereto and the
denominator of which is the total number of Firm Securities set forth on
Schedule 1 hereto. One or more certificates in definitive form for the Firm
Securities that the several Underwriters have agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Representatives request upon notice to the Company and the Selling
Securityholder at least 48 hours prior to the Firm Closing Date, shall be
delivered by or on behalf of the Company and the Selling Securityholder to the
Representatives for the respective accounts of the Underwriters, against payment
by or on behalf of the Underwriters of the purchase price therefor by wire
transfer in same-day funds to the respective accounts of the Company and the
Selling Securityholder. Such delivery of and payment for the Firm Securities
shall be made at the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue,
New York, New York 10103 at [9:30 A.M.], New York time, on , 1998, or at
such other place, time or date as the Representatives, the Company and the
Selling Securityholder may agree upon or as the Representatives may determine
pursuant to Section 9 hereof, such time and date of delivery against payment
being herein referred to as the "Firm Closing Date." Each of the Company and
the Selling Securityholder severally will make such certificate or certificates
for the Firm Securities to be sold by it available for checking and packaging
by the Representatives at the offices in New York, New York of the Company's
transfer agent or registrar or of Prudential Securities Incorporated at least
24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Securities from time to time within thirty days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock Exchange is open for
trading). The Underwriters shall not be under any obligation to purchase any of
the Option Securities prior to the exercise of such option. The Representatives
may from time to time exercise the option granted hereby by giving
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notice in writing or by telephone (confirmed in writing) to the Company setting
forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to issue and sell to each of
the several Underwriters, and, subject to the terms and conditions herein set
forth, each of the Underwriters (severally and not jointly) shall become
obligated to purchase from the Company, the same percentage of the total number
of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section 3,
except that reference therein to the Firm Securities and the Firm Closing Date
shall be deemed, for purposes of this paragraph (b), to refer to such Option
Securities and Option Closing Date, respectively.
(c) Each of the Company and the Selling Securityholder hereby
acknowledges that the wire transfer by or on behalf of the Underwriters of the
purchase price for any Shares does not constitute closing of a purchase and sale
of the Shares. Only execution and delivery of a receipt for Shares by the
Underwriters indicates completion of the closing of a purchase of the Shares
from the Company and the Selling Securityholder. Furthermore, in the event that
the Underwriters wire funds to the Company and the Selling Securityholder prior
to the completion of the closing of a purchase of Shares, each of the Company
and the Selling Securityholder hereby acknowledges that until the Underwriters
execute and deliver a receipt for the Shares, by facsimile or otherwise, the
Company and the Selling Securityholder will not be entitled to the wired funds
and shall return the wired funds to the Underwriters as soon as practicable (by
wire transfer of same-day funds) upon demand. In the event that the closing of a
purchase of Shares is not completed and the wire funds are not returned by the
Company or the Selling Securityholder to the Underwriters on the same day the
wired funds were received by the Company and the Selling Securityholder, each of
the Company and the Selling Securityholder severally agree to pay to the
Underwriters in respect of each day the wire funds are not returned by it, in
same-day funds, interest on the amount of such wire funds in an amount
representing the Underwriters' cost of financing as reasonably determined by
Prudential Securities Incorporated.
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(d) It is understood that any of you, individually and not as one
of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants. (a) The Company covenants and agrees with each of the
Underwriters that:
(i) The Company will use its reasonable best efforts to
cause the Registration Statement, if not effective at the time of
execution of this Agreement, and any amendments thereto to become
effective as promptly as possible. If required, the Company will file
the Prospectus or any Term Sheet that constitutes a part thereof and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rules 434 and 424(b) under the Act.
During any time when a prospectus relating to the Securities is required
to be delivered under the Act, the Company (A) will comply with all
requirements imposed upon it by the Act and the Exchange Act and the
respective rules and regulations of the Commission thereunder to the
extent necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and of each of
the Prospectus and any Integrated Prospectus, as then amended or
supplemented, and (B) will not file with the Commission the Prospectus,
Term Sheet or the amendment referred to in the third sentence of Section
2(a) hereof, any amendment or supplement to such Prospectus, Term Sheet
or any amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives shall not previously
have been advised and furnished with a copy for a reasonable period of
time prior to the proposed filing and as to which filing the
Representatives shall not have given their consent, which consent will
not be unreasonably withheld. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the
Commission, promptly upon reasonable request by the Representatives or
counsel for the Underwriters, any amendments to the Registration
Statement or amendments or supplements to the Prospectus and any
Integrated Prospectus that may be necessary or advisable in connection
with the distribution of the Securities by the several Underwriters, and
will use its reasonable best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as
promptly as possible. The Company will advise the Representatives,
promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus and any Integrated Prospectus or
any amendment or
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supplement thereto has been filed and will provide evidence satisfactory
to the Representatives of each such filing or effectiveness.
(ii) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (A) the
issuance by the Commission of any stop order suspending the
effectiveness of the Original Registration Statement or any Rule 462(b)
Registration Statement or any amendment thereto or any order directed at
any document incorporated by reference in the Registration Statement or
any order preventing or suspending the use of any Preliminary
Prospectus, the Prospectus or any Integrated Prospectus or any amendment
or supplement thereto, (B) the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, (C) the
institution, threatening or contemplation of any proceeding for any such
purpose or (D) any request made by the Commission for amending the
Original Registration Statement or any Rule 462(b) Registration
Statement, for amending or supplementing any Preliminary Prospectus, the
Prospectus or any Integrated Prospectus or for additional information.
The Company will use its best efforts to prevent the issuance of any
such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(iii) The Company will arrange for the qualification of
the Securities for offering and sale under the securities or blue sky
laws of such jurisdictions as the Representatives may reasonably
designate and to continue such qualifications in effect for as long as
may be necessary to complete the distribution of the Securities,
provided, however, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction.
(iv) If, at any time prior to the later of (A) the final
date when a prospectus relating to the Securities is required to be
delivered under the Act or (B) the Option Closing Date, any event occurs
as a result of which each of the Prospectus or any Integrated
Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus or any Integrated Prospectus to comply with the Act, the
Exchange Act or the respective rules or regulations of the Commission
thereunder, the Company will promptly notify the Representatives thereof
and, subject to Section 5(a)(i) hereof, will prepare and file with the
Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus or any
Integrated Prospectus that corrects such statement or omission or
effects such compliance.
(v) The Company will, without charge, provide (A) to the
Representatives and to counsel for the Underwriters a conformed copy of
the
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registration statement originally filed with respect to the Securities
and each amendment thereto (in each case including exhibits thereto) or
any Rule 462(b) Registration Statement, certified by the Secretary or an
Assistant Secretary of the Company to be true and complete copies
thereof as filed with the Commission by electronic transmission, (B) to
each other Underwriter, a conformed copy of such registration statement
or any Rule 462(b) Registration Statement and each amendment thereto (in
each case without exhibits thereto) and (C) so long as a prospectus
relating to the Securities is required to be delivered under the Act, as
many copies of each Preliminary Prospectus, the Prospectus or any
Integrated Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request; without limiting the application
of clause (C) of this sentence, the Company, not later than (A) 6:00 PM,
New York City time, on the date of determination of the public offering
price, if such determination occurred at or prior to 10:00 A.M., New
York City time, on such date or (B) 2:00 PM, New York City time, on the
business day following the date of determination of the public offering
price, if such determination occurred after 10:00 A.M., New York City
time, on such date, will deliver in New York City to the Underwriters,
without charge, as many copies of the Prospectus and any amendment or
supplement thereto as the Representatives may reasonably request for
purposes of confirming orders that are expected to settle on the Firm
Closing Date.
(vi) The Company, as soon as practicable, will make
generally available to its securityholders and to the Representatives a
consolidated earnings statement of the Company and its subsidiaries that
satisfies the provisions of Section 11(a) of the Act and Rule 158
thereunder.
(vii) The Company will apply the net proceeds from the
sale of the Company Firm Securities as set forth under "Use of Proceeds"
in the Prospectus or any Integrated Prospectus.
(viii) The Company will not, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated,
on behalf of the Underwriters, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose
(or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of
180 days after the date hereof, except pursuant to this Agreement and
except for issuances pursuant to the exercise of outstanding employee
stock options, pursuant to options granted under the Company's stock
option plans, or pursuant to the existing option to Nortex Holdings.
(ix) The Company will not, directly or indirectly, (A)
take any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the
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price of any security of the Company to facilitate the sale or resale of
the Securities or (B) (1) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Securities or (2) pay or
agree to pay to any person any compensation for soliciting another to
purchase any other securities of the Company other than as provided by
this Agreement.
(x) The Company will obtain the agreements described in
Section 7(h) hereof prior to the Firm Closing Date.
(xi) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the
Option Closing Date, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion
the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus and
any Integrated Prospectus), the Company will, after notice from you
advising the Company to the effect set forth above, forthwith prepare,
consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event.
(xii) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees in
accordance with Rule 111 promulgated under the Act by the earlier of (A)
10:00 P.M. Eastern time on the date of this Agreement and (B) the time
confirmations are sent or given, as specified by Rule 462(b)(2).
(xiii) The Company will ensure that the Securities remain
included for quotation on the Nasdaq National Market or a national
securities exchange following the Firm Closing Date.
(b) Each of the Selling Securityholder and the Nortex Owners
severally covenants and agrees with each of the Underwriters that:
(i) Such person will not, directly or indirectly, (A) take
any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (B) (1) sell, bid for, purchase,
or pay anyone any compensation for soliciting purchases of, the
Securities or (2) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company other
than as provided by this Agreement.
(ii) Such person will not, directly or indirectly, without
the prior written consent of Prudential Securities Incorporated, offer,
sell, offer to sell,
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contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of
sale, pledge, grant of any option to purchase or other sale or
disposition) of any Securities legally or beneficially owned by such
person or any securities convertible into, or exchangeable or
exercisable for, Securities for a period of 180 days after the date
hereof, except for (a) up to 33,701 shares that may be sold by Nortex
Holdings pursuant to the Holdings Option (as defined in the Company's
1998 Proxy Statement as filed with the Commission on April 15, 1998 (the
"1998 Proxy Statement")) and (b) 150,000 shares subject to a pledge
granted by Nortex Holdings.
(iii) As soon as such person is advised thereof, such
person will advise the Representatives (and immediately thereafter
confirm such advise in writing), (i) of receipt by such person or by any
representative or agent of such person, of any communication from the
Commission relating to the Registration Statement, the Prospectus or any
Preliminary Prospectus, or any notice or order of the Commission
relating to the Company or such person in connection with the
transactions contemplated by this Agreement and (ii) of the happening of
any event which makes or may make any statement of a material fact made
in the Registration Statement, the Prospectus or any Preliminary
Prospectus relating to such person untrue or that requires the making of
any change in the Registration Statement, Prospectus or Preliminary
Prospectus, as the case may be, in order to make such statement, in
light of the circumstances in which it was made, not misleading.
6. Expenses. The Company will pay all costs and expenses incident to the
performance of its obligations and those of the Selling Securityholder under
this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus, the Prospectus and any Integrated Prospectus and any
amendment or supplement thereto, this Agreement and any blue sky memoranda, (ii)
all arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) the
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities approved by the
Company
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(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters). If the sale of the Securities provided for
herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company, the Selling Securityholder or
any Nortex Owner to perform all obligations and satisfy all conditions on its
part to be performed or satisfied hereunder other than by reason of a default by
any of the Underwriters, the Company will reimburse the Underwriters severally
upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities. The Company shall not in any event
be liable to any of the Underwriters for the loss of anticipated profits from
the transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company, the Selling Securityholder and
the Nortex Owners contained herein as of the date hereof and as of the Firm
Closing Date, as if made on and as of the Firm Closing Date, to the accuracy of
the statements of the Company's officers made pursuant to the provisions hereof,
to the performance by the Company, the Selling Securityholder and the Nortex
Owners of their respective covenants and agreements hereunder and to the
following additional conditions:
(a) If the Original Registration Statement or any amendment
thereto filed prior to the Firm Closing Date has not been declared effective as
of the time of execution hereof, the Original Registration Statement or such
amendment and, if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have been declared effective not later than
the earlier of (i) 11:00 A.M., New York time, on the date on which the amendment
to the registration statement originally filed with respect to the Securities or
to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Securities has been filed
with the Commission and (ii) the time confirmations are sent or given as
specified by Rule 462(b)(2), or with respect to the Original Registration
Statement, or such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any Integrated Prospectus and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rules 434 and 424(b) under the Act; no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereto and no order directed at any document incorporated by
reference in the Registration Statement, the Prospectus or any Integrated
Prospectus shall have been issued, and no proceedings for that purpose shall
have been instituted or threatened or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission; and the Company shall
have complied with any request of the Commission for additional information (to
be included
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in the Registration Statement, the Prospectus or any Integrated Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Proskauer Rose Goetz & Mendelsohn LLP, counsel for the
Company, to the effect that:
(i) the Company and each of its subsidiaries listed in
[Exhibit 22] to the Registration Statement (the "Subsidiaries") have
been duly organized and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of the
jurisdictions listed on Schedule 2 to this Agreement;
(ii) the Company and each of the Subsidiaries have
corporate power to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement
and the Prospectus or any Integrated Prospectus, and the Company has
corporate power to enter into this Agreement and to carry out all the
terms and provisions hereof to be carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are held of record by the Company or another
Subsidiary and, to such counsel's knowledge, beneficially by the
Company, to such counsel's knowledge free and clear of any adverse
claims (within the meaning of Section 8-302 of the New York Uniform
Commercial Code);
(iv) the Company has authorized, issued and outstanding
capital stock as set forth in the Prospectus or any Integrated
Prospectus; all of the issued shares of capital stock of the Company,
including the Selling Securityholder Firm Securities and the Option
Securities, have been duly authorized and validly issued and are fully
paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws and were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities created by statute or the Company's
certificate of incorporation; the Company Firm Securities have been duly
authorized by all necessary corporate action of the Company and, when
issued and delivered to and paid for by the Underwriters pursuant to
this Agreement, will be validly issued, fully paid and nonassessable;
the Securities have been duly included for trading on the Nasdaq
National Market; no holders of outstanding shares of capital stock of
the Company are entitled under statute or the Company's certificate of
incorporation as such to any preemptive or other rights to subscribe for
any of the Securities; and, to such counsel's knowledge, no holders of
securities of the Company are entitled to have such securities
registered under the Registration Statement;
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(v) the statements set forth in the Company's registration
statement on Form 8-A, insofar as such statements purport to summarize
certain provisions of the capital stock of the Company, provide a fair
summary of such provisions; and the statements set forth under the
headings "Business -- Trademarks, Patents, Copyrights", "Business --
Environmental Matters" and "Business -- Legal Proceedings" in the
Prospectus and any Integrated Prospectus, insofar as such statements
constitute a summary of the legal matters, documents or proceedings
referred to therein, provide a fair summary of such legal matters,
documents and proceedings;
(vi) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Company
and this Agreement has been duly executed and delivered by the Company;
(vii) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or any of the
Subsidiaries is a party or to which the property of the Company or any
of the Subsidiaries is subject that are required to be described in the
Registration Statement, the Prospectus and any Integrated Prospectus and
are not described therein, and, to the best knowledge of such counsel,
no such proceedings have been threatened against the Company or any of
the Subsidiaries or with respect to any of their respective properties
and (B) no contract or other document is required to be described in the
Registration Statement, the Prospectus and any Integrated Prospectus to
be filed as an exhibit to the Registration Statement or incorporated
therein by reference that is not described therein or filed or
incorporated as required;
(viii) the issuance, offering and sale of the Securities
to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement
and the consummation of the other transactions herein contemplated do
not (A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained and such as may be required under state securities or blue
sky laws, or (B) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, filed as an exhibit to the Registration Statement or
incorporated by reference therein, or the charter documents or by-laws
of the Company or any of the Subsidiaries, or any statute or any
judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel and
applicable to the Company or any of the Subsidiaries;
(ix) the records of the United States Patent and Trademark
office indicate that the Company is the owner of U.S. Patent application
serial no. 08-457,757 and that the United States Patent and Trademark
Office has approved such application; such counsel has no knowledge of
asserted or
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unasserted claims of any person relating to the scope or ownership of
such patent, nor liens which have been filed against the patent; and in
the course of such counsel's review such counsel noted no material
defect of form in the preparation or filing of the application for such
patent;
(x) the Registration Statement is effective under the Act;
any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof and any Integrated Prospectus, pursuant to
Rules 434 and 424(b) has been made in the manner and within the time
period required by Rules 434 and 424(b); and to the best knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement, the Prospectus and any Integrated Prospectus has
been issued, and no proceedings for that purpose have been instituted or
threatened by the Commission;
(xi) the Registration Statement originally filed with
respect to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement, the Prospectus and any Integrated Prospectus (in
each case, other than the financial statements and other financial
information contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder;
(xii) if the Company elects to rely on Rule 434, the
Prospectus is not "materially different", as such term is used in Rule
434, from the prospectus included in the Registration Statement at the
time of its effectiveness or an effective post-effective amendment
thereto (including such information that is permitted to be omitted
pursuant to Rule 430A); and
(xiii) the Stock Split was made in compliance with the
provisions of the Company's certificate of incorporation and by-laws and
in compliance with all applicable federal, state or other governmental
securities or other laws and the requirements of the Nasdaq Stock
Market.
Such counsel shall also deliver a separate letter to the effect that
they have no reason to believe that the Registration Statement, as of its
effective date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus and any Integrated
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the
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Company and public officials and, as to matters involving the application of
laws of any jurisdiction other than the State of New York, the General
Corporation Law of the State of Delaware or the United States, to the extent
satisfactory in form and scope to counsel for the Underwriters, upon the
opinions of Cynthia L. Gordon, Jorge Sanchez-Devanny, and Hunter Colianny Cole
& Turner and the opinion of Gottlieb Rackman & Reisman as to patent matters. The
foregoing opinion shall also state that the Underwriters are justified in
relying upon such opinions, and copies of such opinions shall be delivered to
the Representatives and counsel for the Underwriters.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (b) shall include any amendment or
supplement thereto at the date of such opinion.
(c) The Selling Securityholder and the Nortex Owners shall have
furnished to the Representatives the opinion of Proskauer Rose Goetz &
Mendelsohn LLP, counsel for the Selling Securityholder and the Nortex Owners,
dated the Closing Date, to the effect that:
(i) The Selling Securityholder has full corporate power
and authority to enter into this Agreement and to sell, transfer and
deliver the Securities being sold by the Selling Securityholder
hereunder in the manner provided in this Agreement; the execution and
delivery of this Agreement have been duly authorized by all necessary
corporate action of the Selling Securityholder; this Agreement has been
duly executed and delivered by the Selling Securityholder and Nortex
Owner;
(ii) the delivery by the Selling Securityholder to the
several Underwriters of certificates for the Securities being sold
hereunder by the Selling Securityholder against payment therefor as
provided herein, will convey good and marketable title to such
Securities to the several Underwriters, free and clear of any adverse
claims (within the meaning of Section 8-302 of the New York Uniform
Commercial Code); and
(iii) the sale of the Securities to the Underwriters by
the Selling Securityholder pursuant to this Agreement, the compliance by
the Selling Securityholder and Nortex Owner with the other provisions of
this Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under
state securities or blue sky laws, or (ii) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute
a default under any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Selling Securityholder or any of
its subsidiaries is a party or by which the Selling Securityholder or
any of its subsidiaries or any of their respective properties are bound,
or the charter documents, by-laws or partnership agreement of the
Selling Securityholder or
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any of its subsidiaries or any statute or, to the knowledge of such
counsel, any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Selling
Securityholder or any of its subsidiaries or any Nortex Owner.
In rendering such opinion, such counsel may rely, as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
of the Company and public officials.
References to the Registration Statement, the Prospectus or any
Integrated Prospectus in this paragraph (c) shall include any amendment or
supplement thereto at the date of such opinion.
(d) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Fulbright & Jaworski L.L.P., New York, New York, counsel
for the Underwriters, with respect to the issuance and sale of the Firm
Securities, the Registration Statement, the Prospectus or any Integrated
Prospectus, and such other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(e) The Representatives shall have received from Arthur Andersen
LLP a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to the
effect that:
(i) they are independent accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the Act,
the Exchange Act and the applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the
Registration Statement and the Prospectus comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(iii) on the basis of a reading of the latest available
interim unaudited financial statements of the Company, carrying out
certain specified procedures (which do not constitute an examination
made in accordance with generally accepted auditing standards) that
would not necessarily reveal matters of significance with respect to the
comments set forth in this paragraph (iii), a reading of the minute
books of the shareholders, the board of directors and any committees
thereof of the Company and each of its consolidated subsidiaries, and
inquiries of certain officials of the Company and its consolidated
subsidiaries who have responsibility for financial and accounting
matters, nothing came to their attention that caused them to believe
that (A) at a specific date not more than five days prior to the date of
such letter, there were any changes in the
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capital stock or long-term debt of the Company and its consolidated
subsidiaries or any decreases in net current assets or stockholders'
equity of the Company and its consolidated subsidiaries, in each case
compared with amounts shown on the April 4, 1998 consolidated balance
sheet included in the Registration Statement and the Prospectus, or (B)
for the period from April 5, 1998 to such specified date net sales, net
income and earnings per share of the Company and its consolidated
subsidiaries were not at least %, % and %, respectively, of the
comparable amounts for the comparable period in the prior year, except
in all instances for changes, decreases or increases set forth in such
letter; and
(iv) they have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages
and financial information that are derived from the general accounting
records of the Company and its consolidated subsidiaries and are
included in (A) the Registration Statement, the Prospectus and any
Integrated Prospectus under the captions "Prospectus Summary," "Risk
Factors," "The Company," "Use of Proceeds," "Capitalization," "Selected
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business,"
"Management" and "Principal and Selling Stockholders," (B) the Company's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998 and
(C) the 1998 Proxy Statement and have compared such amounts, percentages
and financial information with such records of the Company and its
consolidated subsidiaries and with information derived from such records
and have found them to be in agreement, excluding any questions of legal
interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (e) with respect to either letter
referred to above shall include any amendment or supplement thereto at the date
of such letter.
(f) The Representatives shall have received a certificate, dated
the Firm Closing Date, of the principal executive officer and the principal
financial or accounting officer of the Company, on behalf of the Company, to the
effect that:
(i) the representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does not
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include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading,
and the Prospectus and any Integrated Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to
the best of the Company's knowledge, are contemplated by the Commission;
and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement, the Prospectus and
any Integrated Prospectus, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding, and there has
not been any material adverse change, or, to the knowledge of the
Company, any development involving a prospective material adverse
change, in the condition (financial or otherwise), management, business
prospects, net worth or results of operations of the Company or any of
its subsidiaries, except in each case as described in or contemplated by
the Prospectus and any Integrated Prospectus (exclusive of any amendment
or supplement thereto).
(g) The Representatives shall have received a certificate from
the Selling Securityholder, signed by the principal executive officer and the
principal financial or accounting officer of the Selling Securityholder, and
each Nortex Owner, dated the Closing Date, to the effect that:
(i) the representations and warranties of the Selling
Securityholder or Nortex Owner in this Agreement are true and correct as
if made on and as of the Closing Date;
(ii) to the extent that any statements or omissions are
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any Integrated Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by the Selling Securityholder or Nortex Owner
specifically for use therein, the Registration Statement, as amended as
of the Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus or any Integrated Prospectus,
as amended or supplemented as of the Closing Date, does
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not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
and
(iii) the Selling Securityholder or Nortex Owner has
performed all covenants and agreements on its or his part to be
performed or satisfied at or prior to the Closing Date.
(h) The Representatives shall have received from each person who
is a director or officer of the Company an agreement to the effect that such
person will not, directly or indirectly, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of an option to purchase or other sale or disposition) of
any shares of Common Stock or any securities convertible into, or exchangeable
or exercisable for, shares of Common Stock for a period of 180 days after the
date of this Agreement; provided, however, that the period for any officer of
the Company who is not a Nortex Owner shall be 90 days.
(i) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company, the Selling Securityholder and the Nortex Owners.
(j) Prior to the commencement of the offering of the Securities,
the Securities shall have been included for trading on the Nasdaq National
Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company, the Selling Securityholder and the
Nortex Owners shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives and counsel for the Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution.
(a) The Company and Larry A. Liebenow ("Liebenow"), jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or
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Section 20 of the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made
by the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus, or any
Integrated Prospectus or any amendment or supplement thereto or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities
exchange (each an "Application"),
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus, or any Integrated Prospectus or any
amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading or
(iv) any untrue statement or alleged untrue statement of
any material fact provided by the Company in writing or relating
specifically to the Company and contained in any audio or visual
materials used in connection with the marketing of the Securities,
including without limitation, slides, videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company and Liebenow
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any Integrated Prospectus or any amendment or supplement thereto
or any Application in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein; and provided, further, that the Company and
Liebenow will not be liable to any Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability
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purchased Securities from such Underwriter but was not sent or given a copy of
the Prospectus (as amended or supplemented) at or prior to the written
confirmation of the sale of such Securities to such person in any case where
such delivery of the Prospectus (as amended or supplemented) is required by the
Act, unless such failure to deliver the Prospectus (as amended or supplemented)
was a result of noncompliance by the Company with Section 4(a)(iv) and (v) of
this Agreement. Notwithstanding anything to the contrary in this paragraph (a),
including the joint and several nature of the obligations of the Company and
Liebenow, each Underwriter and each person who controls such Underwriter agrees
not to assert its rights to indemnity under this paragraph (a) against Liebenow
for losses, claims, damages or liabilities (or actions in respect thereof)
unless and until (i) such Underwriter or controlling person has requested
indemnification and reimbursement from the Company for such losses, claims,
damages or liabilities (including any legal or other expenses reasonably
incurred) and (ii) the Company does not within 30 days of such request (A) agree
to so indemnify such Underwriter or controlling person and (B) reimburse in full
such Underwriter or controlling person for any such losses, damages or
liabilities (including legal and other expenses) incurred. In the event that
litigation between the parties with respect to this paragraph (a) results in a
joint or joint and several judgment against the Company and Liebenow, each
Underwriter, and each person who controls such Underwriter, agrees that it will
not attempt to enforce such judgment against Liebenow unless and until any part
of such judgment shall remain unsatisfied by the Company for more than 30 days.
This indemnity agreement will be in addition to any liability which the Company
or Liebenow may otherwise have. The Company will not, without the prior written
consent of the Underwriter or Underwriters purchasing, in the aggregate, more
than fifty percent (50%) of the Securities, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) The Selling Securityholder and the Nortex Owners severally
agree to indemnify and hold harmless the Company, each of its directors, each of
its officers who signs the Registration Statement, each Underwriter and each
person who controls the Company or any Underwriter within the meaning of the Act
or the Exchange Act and each other Nortex Owner against any losses, claims,
damages or liabilities to which the Company, any such director, officer, such
Underwriter or any such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement made by the Selling
Securityholder or such Nortex Owner in Section 2 of this Agreement, (ii) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any Integrated Prospectus or any amendment or supplement
thereto, or
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any Application or (iii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any Integrated
Prospectus or any amendment or supplement thereto, or any Application or
necessary to make the statements therein not misleading, provided, that, with
respect to clauses (ii) and (iii), in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Selling Securityholder or Nortex
Owner for use therein; and, subject to the limitation set forth immediately
preceding this clause, will reimburse, as incurred, any legal or other expenses
reasonably incurred by the Company, any such director, officer, such Underwriter
or any such controlling person in connection with investigating or defending any
such loss, claim, damage, liability or any action in respect thereof. This
indemnity agreement will be in addition to any liability which the Selling
Securityholder or Nortex Owner may otherwise have. The Selling Securityholder or
Nortex Owner will not, without the prior written consent of the Underwriter or
Underwriters purchasing, in the aggregate, more than fifty percent (50%) of the
Securities, settle or comprise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such Underwriter or
any person who controls any such Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action, suit
or proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(c) Each Underwriter will, severally and not jointly, indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Securityholder, each Nortex Owner
and each person, if any, who controls the Company, the Selling Securityholder or
Nortex Owner within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company, any such director or officer of the Company, the Selling
Securityholder, such Nortex Owner or any such controlling person of the Company,
the Selling Securityholder or such Nortex Owner may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any Integrated Prospectus or any amendment or
supplement thereto, or any Application or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any Integrated Prospectus or any amendment or supplement thereto,
or any Application or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information
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furnished to the Company by any Underwriter through the Representatives
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such director, officer or
controlling person, the Selling Securityholder or such Nortex Owner in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. Notwithstanding anything to the contrary in this paragraph (d),
failure by an indemnified party to give notice of the commencement of any action
to any indemnifying party shall not relieve the indemnifying party from any
liability under this Section 8 unless such failure causes actual material
prejudice to such indemnifying party. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
8, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the
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<PAGE>
<PAGE>
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, the Selling
Securityholder and the Nortex Owners on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (before deducting expenses) received by the Company and the Selling
Securityholder bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Securityholder, the
Nortex Owners or the Underwriters, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company, the Selling Securityholder, the Nortex Owners and
the Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable considerations
referred to above in this paragraph (e). Notwithstanding any other provision of
this paragraph (e), no Underwriter shall be obligated to make contributions
hereunder that in the aggregate exceed the total public offering price of the
Securities purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Prudential Securities Incorporated Master
Agreement Among Underwriters. For purposes of this paragraph
-34-
<PAGE>
<PAGE>
(e), each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement and each
person, if any, who controls the Company or any Selling Securityholder within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company or the Selling
Securityholder, as the case may be.
(f) The liability of the Selling Securityholder under this
Section 8 shall not exceed an amount equal to the public offering price of the
Securities sold by the Selling Securityholder to the Underwriters (after
deducting underwriting discounts and commissions) and the aggregate liability of
Nortex Owners under this Section 8 shall not exceed an amount equal to the
public offering price of the Securities sold by Nortex Holdings; provided,
however, that if Nortex Holdings shall distribute all of the proceeds of the
sale of Securities pursuant to this Agreement to the Nortex Owners, Nortex
Holdings shall have no liability under this Section 8 and the liability of each
Nortex Owner shall be equal to the amount of such proceeds distributed to him.
9. Default of Underwriters. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters as
described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
-35-
<PAGE>
<PAGE>
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its officers, the
Selling Securityholder, the Nortex Owners and the several Underwriters set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Securityholder, the Nortex Owners, any Underwriter or any
controlling person referred to in Section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. (a) This Agreement may be terminated with respect to
the Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company and the Selling Securityholder given
prior to the Firm Closing Date or the related Option Closing Date, respectively,
in the event that the Company or the Selling Securityholder shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
their part to be performed or satisfied hereunder at or prior thereto or, if at
or prior to the Firm Closing Date or such Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in
the sole judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended
by the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market system;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
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<PAGE>
<PAGE>
(iv) there shall have been (A) an outbreak or escalation
of hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended as
of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by Underwriters. The stabilization legends on
the inside front cover page of the Preliminary Prospectus and the statements set
forth in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriters) constitute the only information
furnished by any Underwriter through the Representatives to the Company for the
purposes of Sections 2(b) and 8 hereof. The Underwriters confirm that such
statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; if sent to the Company, Nortex Holdings or the Nortex
Owners, shall be delivered or sent by mail, telex or facsimile transmission and
confirmed in writing to the Company, Nortex Holdings or the Nortex Owners at 941
Grinnell Street, Fall River, Massachusetts 02721; with a copy to Proskauer Rose
Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036-8299, Attention:
Arnold S. Jacobs, Esq.
14. Successors. This Agreement shall inure to the benefit of and shall
be binding upon the several Underwriters, the Company, the Selling
Securityholder, the Nortex Owners and their respective successors and legal
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company, the Selling Securityholder and the Nortex Owners contained in Section 8
of this Agreement shall also be for the benefit of any person or persons who
control any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and (ii) the indemnities of the Underwriters contained in
Section 8 of this Agreement shall also be for the benefit of the directors of
the Company, the officers of the Company who have signed the Registration
Statement and any person or persons who control the Company or the Selling
Securityholder within the meaning of Section
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<PAGE>
<PAGE>
15 of the Act or Section 20 of the Exchange Act, the Selling Securityholder and
the Nortex Owners. No purchaser of Securities from any Underwriter shall be
deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Company, the Selling
Securityholder and each Nortex Owner accepts for itself and in connection with
its properties, generally and unconditionally, the nonexclusive jurisdiction of
the aforesaid courts and waives any defense of forum non conveniens and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Nortex Holdings and each Nortex Owner designates and
appoints Larry A. Liebenow and such other persons as may hereafter be selected
by the Selling Securityholder or Nortex Owner irrevocably agreeing in writing to
so serve, as its agent to receive on its behalf service of all process in any
such proceedings in any such court, such service being hereby acknowledged by
the Selling Securityholder and Nortex Owner to be effective and binding service
in every respect. A copy of any such process so served shall be mailed by
registered mail to the Selling Securityholder or Nortex Owner at its or his
address provided in Section 13 hereof; provided, however, that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of such process. If any agent appointed by the Selling
Securityholder or Nortex Owner refuses to accept service, the Selling
Securityholder or Nortex Owner hereby agrees that service of process sufficient
for personal jurisdiction in any action against the Selling Securityholder or
Nortex Owner in the State of New York may be made by registered or certified
mail, return receipt requested, to the Selling Securityholder or Nortex Owner at
its or his address provided in Section 13 hereof, and the Selling Securityholder
or Nortex Owner hereby acknowledges that such service shall be effective and
binding in every respect. Nothing herein shall affect the right to serve process
in any other manner permitted by law or shall limit the right of any Underwriter
to bring proceedings against any Selling Securityholder or Nortex Owner in the
courts of any other jurisdiction.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter
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<PAGE>
<PAGE>
shall constitute an agreement binding the Company, the Selling Securityholder,
the Nortex Owners and each of the several Underwriters.
Very truly yours,
QUAKER FABRIC CORPORATION
By ________________________
President
NORTEX HOLDINGS, INC.
By ________________________
President
___________________________
Larry A. Liebenow
___________________________
Anthony Degomes
___________________________
J. Duncan Whitehead
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST SECURITIES, INC.
By PRUDENTIAL SECURITIES INCORPORATED
By _____________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
-39-
<PAGE>
<PAGE>
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
- ----------- -------------
<S> <C>
Prudential Securities Incorporated......................................
The Robinson-Humphrey Company, Inc......................................
Wheat First Securities, Inc.............................................
Total.................................... 3,750,000
=========
</TABLE>
-40-
<PAGE>
<PAGE>
Schedule 2
Subsidiaries
Quaker Fabric Corporation of Fall River (qualified in California,
Florida, Illinois,
Mississippi, New York,
North Carolina,
Pennsylvania and Texas)
Quaker Textile Corporation
Quaker Fabric Mexico, S.A. de C.V.
Quaker Fabric Foreign Sales Corporation
-41-
<PAGE>
<PAGE>
[LETTERHEAD OF PROSKAUER ROSE LLP]
June 2, 1998
The Board of Directors
Quaker Fabric Corporation
941 Grinnell Street
Fall River, MA 02721
Ladies and Gentlemen:
You have requested our opinion in connection with the filing by Quaker Fabric
Corporation, a Delaware corporation (the 'Company'), with the Securities and
Exchange Commission of a Registration Statement on Form S-3 (the 'Registration
Statement') under the Securities Act of 1933, as amended (the 'Securities Act'),
with respect to 4,312,500 shares of common stock, par value $.01 per share, of
the Company (the 'Company Stock'), of which 3,000,000 shares of Common Stock are
being sold by the Company (the 'Primary Shares'), 562,000 shares are subject to
a 30-day over-allotment option granted to the underwriters by the Company
(together with the Primary Shares, the 'Company Shares') and 750,000 shares are
being sold by a stockholder (the 'Selling Stockholder Shares').
We have examined such records, documents and other instruments as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth. We
have also assumed without investigation the authenticity of any document
submitted to us as an original, the conformity to originals of any document
submitted to us as a copy, the authenticity of the originals of such latter
documents, the genuineness of all signatures and the legal capacity of natural
persons signing such documents.
Based upon the foregoing, it is our opinion that the Company Shares and the
Selling Stockholder Shares have been duly authorized and that (a) the Company
Shares when issued and delivered against payment therefor in accordance with the
underwriting agreement, a form of which is filed as an exhibit to the
Registration Statement, will be legally issued, fully paid and nonassessable and
(b) the Selling Stockholder Shares have been legally issued and are fully paid
and nonassessable.
The foregoing opinion relates only to matters of the General Corporation
Law of the State of Delaware and does not purport to express any opinion on the
laws of any other jurisdiction.
<PAGE>
<PAGE>
PROKAUER ROSE LLP
The Board of Directors
June 2, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption 'Legal
Matters' in the prospectus contained in the Registration Statement. In so doing,
we do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Proskauer Rose LLP
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our reports dated February 10, 1998
included in Quaker Fabric Corporation's Form 10-K for the year ended January 3,
1998 and to all references to our firm included in this registration statement.
Arthur Andersen LLP
Boston, Massachusetts
June 2, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-START> JAN-3-1998
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-2-1999
<PERIOD-END> APR-4-1998
<CASH> 567
<SECURITIES> 0
<RECEIVABLES> 34,504
<ALLOWANCES> 1,659
<INVENTORY> 37,944
<CURRENT-ASSETS> 77,092
<PP&E> 151,328
<DEPRECIATION> 40,170
<TOTAL-ASSETS> 194,852
<CURRENT-LIABILITIES> 29,441
<BONDS> 65,321
0
0
<COMMON> 126
<OTHER-SE> 84,135
<TOTAL-LIABILITY-AND-EQUITY> 194,852
<SALES> 62,730
<TOTAL-REVENUES> 62,730
<CGS> 49,139
<TOTAL-COSTS> 49,139
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 2,978
<INCOME-TAX> 1,042
<INCOME-CONTINUING> 1,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,936
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
