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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
QUAKER FABRIC CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-1933106
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
(ADDRESS PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (508) 678-1951
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES: X NO:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant, computed by reference to the closing sales
price as quoted on NASDAQ on March 25, 1999 was approximately $76.7 million.
As of March 25, 1999, 15,650,442 shares of Registrant's common stock, par value
$0.01 per share were outstanding.
Documents Incorporated by Reference
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Description of document Part of the Form 10-K
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Portions of the Proxy Statement to be used in Part III (Item 10 through Item 13)
connection with the Registrant's 1999 Annual and Part IV
Meeting of Stockholders.
1998 Annual Report to Shareholders Part II (Item 5 through Item 8)
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Exhibit Index on Page 21
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PART I
ITEM 1. BUSINESS
OVERVIEW
Quaker is a leading designer, manufacturer and worldwide marketer of
woven upholstery fabrics for residential furniture and one of the largest
producers of Jacquard upholstery fabrics in the world. The Company is also a
leading developer and manufacturer of specialty yarns and management believes it
is the world's largest producer of chenille yarns, which Quaker both sells and
uses in the production of its fabrics. The Company's vertically integrated
operations provide Quaker with important design, cost and delivery advantages.
The Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues have grown from
$123.4 million in 1992 to $252.6 million in 1998, a compound annual growth rate
("CAGR") of 12.7%.
Quaker has been producing upholstery fabric for over fifty years and is
a full-service supplier of Jacquard and plain woven upholstery fabric to the
furniture market. Quaker's current product line consists of over 3,000
traditional, contemporary, transitional and country fabric patterns intended to
meet the styling and design, color, texture, quality and pricing requirements of
promotional through middle to higher-end furniture manufacturers, and the
Company introduces approximately 700 new products to the market annually.
Management believes that Jacquard fabrics, with their detailed designs, provide
furniture manufacturers with more product differentiation opportunities than any
other fabric construction on the market. In addition, technological advances in
the speed and flexibility of the Jacquard loom have reduced the cost of
producing Jacquard fabrics, enabling them to compete more effectively with
prints, velvets, flocks, tufts and other plain woven products.
The Company sells its upholstery fabrics to over 600 domestic furniture
manufacturers, including virtually every significant domestic manufacturer of
upholstered furniture. Quaker also distributes its fabrics internationally. In
1998, fabric sales outside the United States of $41.5 million represented
approximately 18.1% of gross fabric sales. Quaker's October 1996 introduction of
its Whitaker Collection'TM', a branded line of a select group of the Company's
better-end products, has resulted in incremental sales to a number of well-known
higher-end furniture manufacturers. Management estimates that approximately 85%
of the Company's fabric sales in recent years have been manufactured to customer
order.
During the past five years, Quaker has invested more than $94.0 million
in new manufacturing equipment to expand its yarn and fabric production
capacity, increase productivity, improve product quality and produce the more
complex fabrics associated with the Company's successful penetration of the
middle to better-end segment of the upholstery fabric market. During 1999,
Quaker plans to spend approximately $11.0 million on additional manufacturing
equipment to further its marketing, productivity, quality, service and
financial objectives.
The Company produces all of its yarn and fabric products in its seven
manufacturing plants in Fall River and Somerset, Massachusetts, where Quaker has
over one million square feet of manufacturing and warehousing space. In 1998,
Quaker also began using warehouse space in Brockton, Massachusetts. In addition
to distribution from the Company's facilities in Fall River, Quaker maintains
domestic distribution centers in High Point, North Carolina, Tupelo,
Mississippi, and Los Angeles, California. To provide better service to its
international customers, the Company also has a distribution center in Mexico.
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HISTORY
In 1998, the Company consummated an underwritten public offering of
3,200,000 shares of Common Stock, of which 3,000,000 shares were sold by the
Company and 200,000 shares were sold by selling stockholders (the "Offering").
The price to the public per share of Common Stock was $13.00.
THE INDUSTRY
Total domestic upholstery fabric sales, exclusive of automotive
applications, are estimated to be approximately $2.0 billion annually.
Management estimates the size of the international fabric market to be at least
twice that of the domestic market. Due to the capital intensive nature of the
fabric manufacturing process and the importance of economies of scale in the
industry, the domestic industry is concentrated, with the top 15 upholstery
fabric manufacturers, including Quaker, accounting for over 80% of the total
market. Most of the largest U.S. fabric producers have expanded their export
sales, capitalizing on their size, distribution capabilities, technology
advantages and broad product lines. Management believes that over the last
several years furniture manufacturers have moved toward more highly-styled
Jacquard fabrics. Within the Jacquard segment, price is a more important
competitive factor in the promotional-end of the market than it is in the middle
to better-end of the market, where fabric styling and design considerations
typically play a more important role.
Demand for upholstery fabric is a function of demand for upholstered
furniture. The upholstered furniture market has grown from $5.4 billion in 1991
to a projected $10.0 billion in 1998. Total upholstered furniture demand is
affected by population growth and demographics, consumer confidence, disposable
income, geographic mobility, housing starts, and home sales. Although the
domestic residential furniture industry is cyclical, periods of decline have
been relatively brief.
The upholstery fabric covering a sofa, chair, or other piece of
furniture is one of the most significant factors influencing a furniture buyer's
selection. Purchase decisions are based primarily on the consumer's evaluation
of aesthetics, comfort, durability, quality and price. As a result, the fabric
decisions a furniture manufacturer makes play a critical role in its ability to
gain a product differentiation advantage at the retail level.
Management believes the long-term outlook for the Company's upholstery
fabric sales will be influenced by certain trends:
(i) 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.
(ii) 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.
(iii) Pushed by consumers demanding immediate product delivery, the furniture
industry has increased its focus on just-in-time manufacturing methods and
shorter delivery lead times.
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(iv) Both consumers and furniture manufacturers have placed increased emphasis
on product quality, enabling fabric manufacturers with effective quality
control systems to gain a competitive advantage.
(v) Technological advances in the speed and flexibility of the Jacquard loom
have reduced the cost of producing Jacquard fabrics, enabling them to
compete more effectively with prints, velvets, flocks, tufts and other
plain woven products.
(vi) 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 benefited
from a growing demand for American styles and designs by foreign
consumers.
STRATEGY
Quaker's strategy to further its growth and financial performance
objectives includes:
Increasing Sales to the Middle to Better-End Segment. To capitalize on
the consolidation trend in the furniture industry, the Company has positioned
itself as a full-service supplier of Jacquard and plain woven fabrics by
increasing the breadth and depth of its product line. Sales of the Company's
middle to better-end fabrics, which the Company first began emphasizing in the
early 1990s, have increased from $66.3 million, or 56.3% of total fabric sales
in 1992, to $173.8 million, or 76.0% of total fabric sales in 1998, a CAGR of
17.4%.
Expanding International Sales. The Company has made worldwide
distribution of its upholstery fabrics a key component of its strategy. Quaker
has built an international sales and distribution network, dedicated significant
corporate resources to the development of fabrics to meet the specific styling
and design needs of its international customers, and put programs in place to
simplify the purchase of product from Quaker. As a result, the Company's
international sales have increased from $18.3 million in 1992 to $41.5 million
in 1998, a CAGR of 14.7%.
Penetrating Related Fabric Markets. The company believes that the
superior styling and performance characteristics of its fabrics, as well as the
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 Ankyra'TM' chenille fabrics and Quaker Plush products will provide the
Company with a product advantage in these markets.
Growing Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns and management believes it is the world's largest producer of chenille
yarns. Approximately 82% of the chenille yarn manufactured by the Company is
used in the production of the Company's fabric. The balance is sold to apparel
and home textile firms throughout the United States through Quaker's yarn sales
division, Nortex Yarns. Sales of the Company's specialty yarns have increased
from $7.8 million in 1992 to $30.1 million in 1998, a CAGR of 25.2%. In addition
to the popularity of the Company's current line of specialty yarns, including
its proprietary, abrasion-resistant Ankyra chenille yarns, Quaker's yarn design
and development staff regularly creates innovative new specialty yarns for use
in the Company's fabrics and sale to the Company's yarn customers.
Considering Acquisition Opportunities. Although all of Quaker's growth
to date has been the result of internal initiatives, the Company has evaluated a
number of acquisition candidates in the past and will continue to consider
acquisition opportunities in the future. An ideal acquisition candidate would
either support the Company's new market development objectives or offer a unique
and complementary product, manufacturing or technical capability.
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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 long-term growth strategy:
Product Design and Development Capabilities. Management believes that
Quaker's reputation for design excellence and product leadership is, and will
continue to be, the Company's most important competitive strength.
Focus on Jacquard Fabrics. Management believes the detailed, copyrighted
designs of the Company's Jacquard fabrics have enabled it to compete primarily
based on superior styling and design, rather than price.
Broad Product Offering. The breadth and depth of Quaker's product line
enables the Company to be a full-service supplier of Jacquard and plain woven
fabrics to virtually every significant domestic manufacturer of upholstered
furniture.
Vertical Integration. Using Quaker's own specialty yarns in the
production of its fabrics provides the Company with significant design, cost and
delivery advantages.
State-of-the-Art Manufacturing Equipment. Management believes the
Company has one of the most modern, efficient and technologically advanced
manufacturing bases in the industry.
PRODUCTS
The Company offers a broad assortment of contemporary, traditional,
transitional and country fabrics to manufacturers of both promotional-end and
middle to better-end furniture at prices ranging from $2.50 to $25.00 per yard.
While most of the Company's fabrics are sold under the Quaker label, the Company
began marketing a select group of its middle to better-end fabrics under its
Whitaker label in October 1996. In 1998, the Company's promotional-end fabric
line and its middle to better-end fabric line had average gross sales prices of
$3.44 per yard and $5.05 per yard, respectively, compared to $3.41 and $4.72,
respectively, in 1997. The average gross sales price per yard of the Company's
fabrics was $4.54 in 1998, compared to $4.23 in 1997.
Quaker's product line is focused on fabrics with complex designs
referred to in the industry as "Jacquards," because of the special Jacquard
equipment, or heads, required to produce them, and also includes a broad
assortment of striped, plaid, and plain fabrics. All of Quaker's looms are
equipped with Jacquard heads. The use of these heads makes it possible to vary
the pattern, color, and texture of both the filling and warp yarns in a fabric.
Fabrics manufactured on looms without Jacquard heads have a much more limited
range of possible designs.
Quaker's product offerings are noted for their wide use of chenille
yarns, which have a soft, velvet-like appearance and feel. To take advantage of
casual furniture trends, and to capitalize on the growth of the motion furniture
segment, Quaker developed a soft chenille yarn with superior abrasion resistance
to compete effectively with flocks, velvets and tufted fabrics. The Company
markets the line of chenille fabrics it produces using these yarns under its
Ankyra label. Through a licensing agreement with Solutia (f/k/a Monsanto), a
number of the Company's Ankyra-based chenille fabrics, as well as certain other
fabrics in its line, have been "Wear-Dated" by Solutia.
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The Company has taken steps to expand both the breadth and depth of the
Company's product portfolio by increasing the number of fabrics designed to meet
the needs of manufacturers of middle to higher-end upholstered furniture
products, and expanding the number of fabrics and styles offered at each price
point and in each styling category to provide all of the Company's customers
with more product choices. Quaker's broad product line is very important from a
competitive standpoint. It enhances the ability of the Company's customers to
meet most of their fabric needs through one full-service supplier while, at the
same time, allowing them to purchase fabrics in a wide enough range of designs
to enable them to differentiate their own new lines of upholstered furniture
from those of their competitors. In 1996, to generate additional business from
manufacturers of higher-end upholstered furniture, the Company began offering a
select group of its middle to better-end products exclusively to those customers
under its Whitaker label. Sales of the Company's middle to better-end fabrics
have increased from $66.3 million, or 56.3% of total fabric sales in 1992, to
$173.8 million, or 76.0% of total fabric sales in 1998.
NEW PRODUCT DEVELOPMENT AND DESIGN
Although management believes fashion trends in the upholstery industry
do not change significantly from year to year, consumer tastes in upholstery
fabric do change over time. Therefore, it is important to identify emerging
fashion needs and to develop new products responsive to those needs. Management
believes Quaker's design staff has an established reputation for design
excellence and product leadership.
The Company's design department has overall responsibility for the
development of new upholstery fabric patterns for sale by the Company. Although
the Company purchases artwork from independent artists, the Company's staff of
professional designers and designer technicians creates the majority of the
designs on which the Company's fabric patterns are based and also determines the
construction of those patterns. The design department uses state-of-the-art CAD
equipment to reduce the new product development cycle.
The development of each new fabric line requires four to five months.
The first step in the new product development process is the preparation of a
merchandising plan for the line. The Company's merchandising plans are based on
extensive input from Quaker's sales representatives, senior managers, and major
customers and provide both a broad outline of the number of new products to be
included within each major styling category (e.g., contemporary, traditional,
transitional, and country), as well as the number of new products to be created
for sale at each of the major price points within those styling categories.
In addition, because of the design, cost, and delivery advantages of
Quaker's vertically integrated manufacturing operations, substantial emphasis is
placed on making maximum use of the Company's internally produced yarns during
the fabric development process. After each new fabric merchandising plan is
developed, members of the Company's fabric design and yarn development staffs
meet to identify the design staff's yarn requirements for the Company's next
fabric line and many of Quaker's proprietary yarns trace their origins to this
design-driven process. Quaker's engineering and manufacturing staffs also play a
key role in the new product development process by reviewing each proposed new
product to evaluate its impact on the Company's raw material costs, equipment
utilization rates and quality performance. Although some plain, striped and
plaid fabrics remain in the Company's product line for 10 years or more, a
successful product typically has a life of two to three years.
Quaker's design staff also regularly creates custom patterns for
customers seeking to differentiate their products for distribution purposes, hit
a certain price point at the retail level, or meet a particular styling need in
the market they serve. These patterns, which are not part of Quaker's "open
line," are known in the industry as "Specials."
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SALES AND MARKETING
UPHOLSTERY FABRICS
Net fabric sales during 1998 were $223.9 million, or approximately 88.6%
of the Company's net sales. The Company sells its upholstery fabrics to over 600
furniture manufacturers worldwide, including substantially all of the largest
domestic manufacturers of upholstered furniture. Fabric sales to the Company's
top 25 customers accounted for approximately 38.6% of 1998 net sales. None of
the Company's customers accounted for more than 5% of net sales during 1998.
The Company uses a direct marketing force of 22 sales representatives,
four of whom are based in Quaker's Mexico City distribution center, to market
its fabrics in the United States and Mexico. All such sales representatives are
paid on a commission basis and represent the Company exclusively. Quaker's
fabrics are distributed internationally through a network of 25 independent
commissioned agents appointed to represent the Company in Europe, the Far East,
Australia, New Zealand, the Middle East, and Central and South America. All
agents located outside the United States are supervised by the Company's
Director - International Business, and by Quaker's Vice President - Sales and
Marketing.
Quaker's United States customers market their products through two
annual national furniture industry trade shows held in April and October in High
Point, North Carolina, as well as through various regional shows. These shows
provide most of Quaker's customers with the opportunity to introduce their new
furniture lines to their major retail customers in a single setting. Quaker's
design and marketing process is closely linked to these trade shows. The Company
develops two major lines for introduction to the Company's customers at the
Showtime Fabric Fairs held in High Point in January and July of each year.
Almost all major U.S. furniture manufacturers attend Showtime to begin selecting
fabric for the new lines of sofas and other upholstered furniture products that
they will exhibit at the April and October High Point Furniture Markets. The
Company also introduces two less extensive lines in April and October of each
year to respond to competitive opportunities identified at the January and July
Showtime trade shows.
Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, Dubai, Germany,
Italy, and Mexico, as well as certain trade shows in the United States aimed at
the international market. Foreign sales of fabric accounted for approximately
18.1% of Quaker's gross fabric sales during 1998.
In addition to distribution from the Company's facilities in Fall River,
Massachusetts, Quaker maintains four distribution centers from which its
customers may purchase the Company's products directly. These facilities are
located in Los Angeles, California; Mexico City, Mexico; High Point, North
Carolina; and Verona, Mississippi.
SPECIALTY YARNS
Net yarn sales during 1998 were $28.7 million, or approximately 11.4% of
the Company's net sales. The Company designs, manufactures and markets several
types of specialty yarns, including fancy spun, fancy twisted, taslan, and
chenille. Quaker is a leading developer and manufacturer of specialty yarns and
management believes it is the world's largest producer of chenille yarn, a soft
pile yarn which produces a velvet-like fabric. Chenille yarns, and fabrics made
out of chenille yarns, have become increasingly popular over the past several
years, in part, as a result of the recent trend toward softer, more casual home
furnishings and apparel. The Company's specialty yarns are sold under the name
of Nortex Yarns to manufacturers of home furnishings products, principally
weavers of upholstery fabric, throws,
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afghans and other products, as well as manufacturers of sweaters and other
apparel. The Company has approximately 55 yarn customers.
Management believes the technical expertise of Quaker's yarn development
staff provides the Company with an important competitive advantage by enabling
Quaker to create and market innovative specialty yarns to meet its customers'
styling and performance criteria. For example, the creation of Quaker's line of
Ankyra chenille yarns was an important product breakthrough for both Quaker and
its yarn customers. Historically, chenille yarns have had difficulty meeting the
durability standards required for use in fabrics which are likely to be
subjected to heavy wear, such as car seats and certain home furnishings
products. Quaker's yarn development staff created a finished chenille yarn with
superior abrasion resistance, and the United States Patent and Trademark Office
has issued a patent to protect the Company's Ankyra process. Quaker's Ankyra
technology has enabled the Company to expand the sale of its chenille yarns to
makers of end products for which both softness and durability are important.
MANUFACTURING
All of Quaker's fabrics and yarns are manufactured at the Company's
seven manufacturing facilities in Fall River and Somerset, Massachusetts, and
management estimates that approximately 85% of the Company's fabric sales in
recent years have been manufactured to customer order. The Company's objective
is to operate its production facilities on a five to five and one half-day week,
three-shift schedule. However, during periods of heaviest demand, Quaker
operates some or all of its production areas on seven-day, three-shift
schedules, and during periods of weaker demand, the Company will decrease its
production rates accordingly.
The Company's vertically integrated manufacturing process begins with
the production of specialty yarns, primarily for use in the production of the
Company's fabrics, but also for sale to manufacturers of home furnishings
products and apparel in the United States. Although the Company purchases all of
its commodity yarns, most of the Company's weft, or filling, yarn needs are met
through internal production. The next stage of the fabric manufacturing process
involves the preparation of beams of warp yarn. The beams are then sent to the
Company's weave rooms, where looms are used to weave the warp and filling yarns
together. The final steps in the fabric production process include routing the
fabric through various fabric finishing processes followed by the application of
a latex backing, to enhance the durability and performance characteristics of
the end product, as well as a stain-resistant finish upon customer request. The
Company's Quaker Plush products benefit from an additional chemical and
mechanical finishing process designed to enhance their appearance and softness.
A final product quality inspection is conducted prior to shipment to the
Company's customers.
Quaker has added approximately 300 new looms to its manufacturing base
since 1989 and plans to move 10 additional looms into production during the
first quarter of 1999. All of the Company's looms are equipped with Jacquard
heads, maximizing the Company's ability to design its products to meet customer
needs, without being limited by equipment-related design constraints.
The Company's fabrics are generally shipped directly to its customers on
an FOB Fall River or FOB warehouse basis. The Company also supplies its
distribution centers with an appropriate selection of fabrics for customers
needing immediate delivery.
During the past five years, the Company placed in service more than
$94.0 million of new manufacturing equipment to increase capacity, improve
manufacturing efficiencies, and support the Company's marketing, quality and
delivery objectives. During 1997 and 1998, the Company implemented a $67.0
million capacity expansion program, and during 1998, the Company temporarily
outsourced a small amount of its manufacturing requirements to provide better
service to its customers until the new
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looms included in this capacity expansion plan were added. All such outsourcing
was discontinued during the fourth quarter of 1998.
QUALITY ASSURANCE
Management believes that product quality is a significant competitive
factor in both the domestic and international fabric markets. Quaker's quality
initiatives include:
The use of incentive programs in certain of its production departments
to factor quality into the overall compensation programs in these
areas.
Inspection of incoming raw materials to ensure they meet the Company's
product specifications and to provide prompt feedback to vendors when
defects are discovered so that corrective actions may be undertaken
immediately.
The assignment of quality control staff to each of the Company's
weaving areas and to various other quality-critical production
departments to identify defects early in the manufacturing process.
A final quality inspection of the Company's yarn and fabric products
before they are released for shipment.
Continuous monitoring of the Company's performance against industry
standards and its own internal quality standards.
ISO 9001 certification of all of the Company's operations.
In addition to these measures, the built-in quality control features and
more precise settings on the new production equipment the Company has placed in
service since 1990 also support the Company's efforts to provide defect-free
products to its customers.
The Company's quality-related return rate, as a percentage of total
yards shipped was 0.4% in both 1997 and 1998, and the Company's sales of
second-quality fabric were $1.3 million in 1997 and $2.1 million in 1998.
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
computer support to the Company's manufacturing operations; (ii) the use of CAD
equipment to reduce the time required to bring its new products to market,
including the design of "Specials"; (iii) the use of bar-coding systems to
improve both the efficiency of its own manufacturing operations and service to
its customers; and (iv) the use of electronic Jacquard heads and other
production equipment equipped with microprocessors to improve manufacturing
efficiencies and reduce unit costs.
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 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.
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The Company first introduced bar-coding technology in certain of its
operations in 1993. During 1998, Quaker introduced bar-coding technology in the
balance of its manufacturing areas so that material movement can be traced
electronically from receiving to shipping.
YEAR 2000
The "Year 2000 issue" is a result of the many existing computer programs
that use only the last two, rather than all four, digits to specify a year. As a
result, it is anticipated that date sensitive programs may only recognize "00"
as signifying the year 1900, and therefore not recognize the year 2000. Although
the exact consequences of such an event are not yet fully known, there is
concern that there could be at least a temporary inability to engage in normal
business operations, which, in the aggregate, could have a negative effect on
the global economy.
The Company has considered and planned for the Year 2000 issue since the
middle of 1996 when the Company began working with outside consultants and
software vendors to both develop its response to the Year 2000 issue, as well as
to update its overall management information system. In addition, the Company
has an internal project team in place to coordinate these efforts. In late 1996,
the Company purchased a new Enterprise Resource Planning system (the "ERP"). The
ERP is intended to enhance the Company's ability to meet its productivity,
service and quality objectives, is represented as fully Year 2000 compliant, and
therefore carries a warranty for the latter purpose. The ERP is designed to read
all four digits of a given year, and to convert two digit year designations, as
well. The Company converted to the ERP during July 1998, and fully implemented
the system by the end of 1998.
The Company has also initiated the process of reviewing its
manufacturing and other critical equipment that may be date-sensitive, including
equipment with embedded technology. The Company has organized an internal team
to conduct a survey of all such equipment. The survey is substantially complete
and remediation of equipment is not expected to be material. A timetable and
approach to the testing of certain critical equipment with embedded technology
is under consideration.
Through January 2, 1999, the Company has spent approximately $4.8
million for product acquisition, planning, conversion, and implementation in
connection with the ERP. Substantially all of the hardware and software costs
have been and will be capitalized.
The Company has sent surveys to its major vendors in an attempt to
ascertain their state of Year 2000 readiness and to determine the extent to
which the Company may be adversely effected by their failure to address the Year
2000 issue appropriately. The Company has received responses to most of those
surveys and a team of Company employees will continue to coordinate the
Company's efforts in this regard. Similarly, the Company has been in
communication with its major customers, and is receiving information from them
as to their state of readiness for the Year 2000.
The Company will continue to assess the state of Year 2000 preparedness
of its major suppliers and vendors. While the failure by these entities to
adequately address their Year 2000 issues could have a material adverse effect
on the Company, it is not presently possible to reasonably estimate the amount
of business that the Company could lose or the other costs that the Company
could sustain in the event of such failure. Similarly, to the extent that other
segments of the global political, financial, economic, transportation and
manufacturing sectors malfunction at the Year 2000, the Company's operations and
financial strength would likely be adversely affected to some presently unknown
degree.
The Company believes that it will be successful in its efforts to
address the Year 2000 issue and will therefore not suffer any material adverse
effect on its operations or financial condition. Although the Company is not
certain as to the nature and complete extent of the risks of failure in this
regard, such failure could lead to a "most reasonably likely worst case
scenario" where it was severely limited in its
10
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ability to perform its manufacturing processes, deliver its products, and
otherwise engage in its ordinary business operations for an unknown period of
time. At present, the Company has no contingency plan in place for such an
occurrence and has no firm plans to initiate the creation of such a contingency
plan or to further study the uncertainty surrounding the risks of failure.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Quaker's raw materials consist principally of polypropylene, polyester,
acrylic, cotton and rayon fibers and yarns for use in its yarn manufacturing and
fabric weaving operations, and latex to backcoat its finished fabrics. In
addition, Quaker purchases commission dyeing services from various dyehouses
which dye, to the Company's specifications, certain of the yarns the Company
produces internally and purchases from other manufacturers. Substantially all of
the raw materials used by the Company are purchased from primary producers with
manufacturing operations in the United States. The Company is dependent upon
outside suppliers for its raw material needs, including dyeing services, and is
subject to price increases and delays in receiving these materials and services.
The Company's raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying market for petrochemicals in
general. Historically, the Company has been able to pass through a substantial
portion of any increases in its raw material costs; however, the Company
experienced significant increases in certain raw material prices in 1995 which
it was not able to pass through fully to its customers during 1995 and which
contributed to a reduction in the Company's 1995 gross margin. During 1998, the
Company experienced no significant increases in raw material prices.
Although other sources are available, the Company currently procures
approximately one-half of its raw material components from two major industry
suppliers, one of which is the sole supplier of a filament yarn used in the
Company's chenille manufacturing operations. Generally, Quaker has not
experienced any significant difficulty in meeting its raw material needs,
expects that it will be able to obtain adequate amounts to meet future
requirements, and seeks to identify alternate sources for all critical raw
material components. A shortage or interruption in the supply of any critical
component could have a material adverse effect on the Company.
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 the market, where competition is weighted more heavy toward
fabric styling and design considerations. Although the Company has experienced
no significant competition in the United States from imported fabric to date,
changes in foreign exchange rates or other factors could make imported fabrics
more competitive with the Company's products in the future. During 1998, the
Company's yarn sales business faced heavy competition from imports of apparel
products from the Far East. Management anticipates this condition will continue
for the foreseeable future.
The Company's principal competitors include: Burlington House Upholstery
Division of Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation and
its Mastercraft Division, and Valdese Weavers, Inc. Several of the companies
with which the Company competes have greater financial resources than the
Company. The Company's products compete with other upholstery fabrics and
furniture coverings, including prints, flocks, tufts, velvets and leather.
11
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BACKLOG
As of January 2, 1999, the Company had orders pending for approximately
$31.9 million of fabric and yarn compared to $53.4 million as of January 3,
1998. The Company's backlog position at any given time may not be indicative of
the Company's long-term performance.
TRADEMARKS, PATENTS, COPYRIGHTS
The Company seeks copyright protection for all new fabric designs it
creates, and management believes that the copyrights owned by the Company serve
as a deterrent to those industry participants which might otherwise seek to
replicate the Company's unique fabric designs. In June 1995, the Company
introduced a new collection of fabrics featuring Quaker's proprietary Ankyra
chenille yarns. In 1997, the United States Patent and Trademark Office issued a
patent to the Company protecting the proprietary manufacturing process developed
by Quaker to produce these yarns. Quaker has also applied to register its
Whitaker mark with the U.S. Patent and Trademark Office. A logo form of the "W"
mark is registered with the U.S. Patent and Trademark Office.
INSURANCE
The Company maintains general liability and property insurance. The
costs of insurance coverage vary generally and the availability of certain
coverages has fluctuated in recent years. While the Company believes that its
present insurance coverage is adequate for its current operations, there can be
no assurance that the coverage is sufficient for all future claims or will
continue to be available in adequate amounts or at reasonable rates.
EMPLOYEES
The Company is the largest manufacturer, and the largest private sector
employer, in Fall River, Massachusetts. As of January 3, 1999, Quaker employed
2,414 persons, including 1,941 production employees, 208 technical and clerical
employees, and 265 exempt employees and commissioned sales representatives. The
Company's employees are not represented by a labor union, and management
believes that employee relations are good.
12
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ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT (See Item 10 herein)
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION SINCE
---- --- -------- -------
<S> <C> <C> <C>
Larry A. Liebenow............55 President, Chief Executive Officer, and Director 1989
Anthony Degomes..............58 Vice President - New Business Development 1991
James A. Dulude..............43 Vice President - Manufacturing 1990
Cynthia L. Gordan............51 Vice President, Secretary, and General Counsel 1989
Mark R. Hellwig..............41 Vice President - Supply Chain Management 1998
Thomas Muzekari..............58 Vice President - Sales and Marketing 1996
Beatrice Spires..............37 Vice President - Styling and Design 1996
Paul J. Kelly................54 Vice President - Finance, Chief Financial Officer
and Treasurer 1989
J. Duncan Whitehead..........56 Vice President - Research and Development 1990
</TABLE>
Larry A. Liebenow. Mr. Liebenow has served as President, Chief Executive
Officer, and a Director of the Company since September 1989. From July 1983
until September 1989, Mr. Liebenow was Chairman of the Board and President of
Nortex International, Inc. ("Nortex International"). From September 1971 to July
1983, Mr. Liebenow served as the Chief Operating Officer of Grupo Pliana, S.A.,
a Mexican yarn and upholstery fabric manufacturing concern.
Anthony Degomes. Mr. Degomes has been employed by the Company since September
1989 and has served as Vice President - New Business Development since March
1996. Mr. Degomes served as Vice President - Styling and Design of the Company
from September 1991 to March 1996. From December 1990 to September 1991, Mr.
Degomes served as the Company's Director of Styling and Design. From September
1989 to November 1990, Mr. Degomes served as the Vice President - Styling,
Design and Development of the Company's Nortex Division. From March 1984 to
September 1989, Mr. Degomes served as the Vice President in charge of Styling
and Development for Nortex International.
James A. Dulude. Mr. Dulude has been employed by the Company since May 1986 and
has served as Vice President - Manufacturing since August 1995. Mr. Dulude
served as Vice President - Purchasing, Planning and MIS from November 1990 to
August 1995. Mr. Dulude served as the Company's Director of Purchasing and
Planning from May 1989 to November 1990, Director of Planning and Scheduling
from July 1988 to May 1989, and Director of Information Systems from May 1986 to
July 1988.
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.
Mark R. Hellwig. Mr. Hellwig has served as Vice President - Supply Chain
Management since October 1998. From January 1996 until October 1998, Mr. Hellwig
was Director - Supply Chain Management for Solo Cup Company. From August 1993 to
January 1996, Mr. Hellwig was Director - Logistics at Solo Cup Company. From
1989 to 1993, Mr. Hellwig was with Deloitte and Touche.
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Paul J. Kelly. Mr. Kelly has served as Chief Financial Officer of the Company
since December 1989, and since November 1993 has also had responsibility for
working with industry and institutional analysts. From January 1988 to December
1989, Mr. Kelly was the co-founder and President of International Business
Brokers and Consultants Ltd., a business broker and consulting firm. From
December 1977 to December 1987, Mr. Kelly served as Chief Financial Officer of
Ferranti Ocean Research Equipment, Inc., an international manufacturing concern.
From February 1973 to December 1977, he was a certified public accountant with
Arthur Andersen & Co.
Thomas H. Muzekari. Mr. Muzekari has served as Vice President - Sales and
Marketing since October 1998, and was Vice President - Marketing from March 1996
until October 1998. From September 1989 until February 1996, Mr. Muzekari was
the Vice President - Marketing for Collins & Aikman's Velvet Division. From 1970
to September 1989, Mr. Muzekari held various management positions in both sales
and marketing with Miliken and Company.
M. Beatrice Spires. Ms. Spires has been employed by the Company since September
1995 and has served as Vice President - Styling and Design since March 1996.
From September 1995 to March 1996, Ms. Spires served as Quaker's Director of
Design. From July 1992 to September 1995, Ms. Spires was Vice President -
Merchandising for Collins & Aikman's Velvet Division. From September 1991 to
July 1992, Ms. Spires was Merchandising Manager at Collins & Aikman.
J. Duncan Whitehead. Mr. Whitehead has served as Vice President - Technology and
Development, and Yarn Sales since August 1995. Mr. Whitehead served as Vice
President - Yarn Sales and Development from May 1990 to August 1995. From
September 1989 to May 1990, Mr. Whitehead was the Vice President - Sales and
Marketing for the Company's Nortex Division. From July 1983 to September 1989,
Mr. Whitehead served as Vice President of Sales and Marketing for Nortex
International.
The Company's President, Secretary, and Treasurer are elected annually by the
Board at its first meeting following the annual meeting of stockholders. All
other executive officers hold office until their successors are chosen and
qualified.
14
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ITEM 2. PROPERTIES
PROPERTIES
Quaker is headquartered in Fall River, Massachusetts where it currently
has seven facilities, six of which are used primarily for manufacturing and
warehousing purposes. The seventh facility houses the Company's executive,
administrative and design areas as well as certain manufacturing operations. In
addition, the Company maintains a manufacturing facility in Somerset,
Massachusetts and warehouse space in Brockton, Massachusetts. The Company has
three distribution centers in the United States and one in Mexico. The table
below sets forth certain information relating to the Company's current
facilities:
<TABLE>
<CAPTION>
LOCATION STATUS PURPOSE BUILDING AREA(SF) OWNERSHIP
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Grinnell Street, Fall River.........Active Manufacturing 728,000 Owned
Quequechan Street, Fall River.......Active Manufacturing 244,000 Owned
Davol Street, Fall River............Active Offices/Warehouse 245,000 Owned
Campanelli Drive, Brockton, MA......Active Warehouse 217,351 Leased(1)
Ferry Street, Fall River............Active Manufacturing 193,000 Owned
Graham Road, Fall River.............Active Manufacturing 52,000 Leased(2)
Airport Road, Fall River............Active Manufacturing 28,000 Leased(3)
Lewiston Street, Fall River.........Active Manufacturing 61,762 Leased(4)
County Street, Somerset, MA.........Active Manufacturing 52,500 Leased(5)
Verona, Mississippi.................Active Distribution Center 20,000 Owned
City of Industry, California........Active Distribution Center 17,286 Leased(6)
Mexico City, Mexico.................Active Distribution Center 9,000 Leased(7)
High Point, North Carolina..........Active Distribution Center 8,500 Leased(8)
</TABLE>
(1) Lease expires December 31, 2003
(2) Lease expires July 31, 2002
(3) Lease expires October 22, 1999
(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
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.
During 1998, the Company announced plans to develop and construct a new
modular manufacturing facility in Fall River. Plans for the development are
underway, and three of the four purchase and sale agreements needed to complete
the site acquisition phase of the project have been executed. The Company
anticipates that the fourth, and final, purchase and sale agreement will be
executed during April 1999.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state, and
local laws and regulations pertaining to the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company's facilities are located in industrial areas and, therefore, there is
the possibility of incurring environmental liabilities as a result of historic
operations at the Company's sites. Environmental liability can extend to
previously owned or leased properties, properties owned by third
15
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parties, and properties currently owned or leased by the Company. Environmental
liabilities can also be asserted by adjacent landowners or other third parties
in toxic tort litigation. In addition, under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), and
analogous state statutes, liability can be imposed for the disposal of waste at
sites targeted for cleanup by federal and state regulatory authorities.
Liability under CERCLA is strict as well as joint and several. Further, certain
of the Company's manufacturing areas are subject to OSHA's "Comprehensive Cotton
Dust Standard." Environmental laws and regulations are subject to change in the
future, and any failure by the Company to comply with present or future laws or
regulations could subject it to future liabilities or interruption of production
which could have a material adverse effect on the Company. In addition, changes
in environmental regulations could restrict the Company's ability to expand its
facilities or require the Company to incur substantial unexpected other expenses
to comply with such regulations.
In particular, the Company is aware of soil and groundwater
contamination relating to the use of certain underground fuel oil storage tanks
at its Fall River facilities. The Company has notified the Commonwealth of
Massachusetts regarding these releases. The Company's ultimate clean-up costs
relating to these underground storage tanks cannot be predicted with certainty
at this time. In addition, during the fourth quarter of 1993 the Company removed
and encapsulated asbestos at two of its facilities and the Company has an
on-going asbestos management program in place to appropriately maintain the
asbestos that remains present at its facilities. During the fourth quarter of
1998 and the first quarter of 1999 oil-contaminated soil resulting from a leak
during the mid-1970s from an underground fuel storage tank at the Company's
former facility in Claremont, New Hampshire, was removed and disposed of at an
asphalt batching plant. The Company has agreed to indemnify the purchaser for
these clean-up costs subject to certain limitations. The Company has also agreed
to indemnify the purchaser of the Company's former facility in Leominster,
Massachusetts, for certain environmental contingencies.
The Company has accrued reserves for environmental matters based on
information presently available. Based on this information and the Company's
established reserves, the Company does not believe that these environmental
matters will have a material adverse effect on either the Company's financial
condition or results of operations. However, there can be no assurance that
these reserves will be adequate or that the costs associated with environmental
matters will not increase in the future.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any legal
proceedings other than routine legal proceedings incidental to its business,
which, in the opinion of management, are immaterial in amount or are expected to
be covered by the Company's insurance carriers.
The Company and certain of its officers and directors have been named as
defendants in two putative class actions filed during September 1998 relating to
the Company's public offering of 3.2 million shares of common stock that was
completed on August 4, 1998 (the "Offering"). The actions are Bruno de Luca, On
Behalf of Himself and All others Similarly Situated v. Quaker Fabric Corp. et
al. filed in the United States District Court for the Eastern District of New
York, and Heng Yang, On Behalf of Himself and All Others Similarly Situated v.
Quaker Fabric Corporation et al. filed in the United States District Court for
the District of Massachusetts. The plaintiffs seek unspecified damages and
rescission as a result of alleged material misrepresentations and omissions in
the registration statement and prospectus for the Offering. The Company believes
the suits to be without merit and plans to defend them vigorously. The cases are
in their initial stages and the Company is not able to predict the outcome of
the litigation at this time. The Company does not believe, however, that the
lawsuits will have a material adverse affect on either its operations or
financial condition.
16
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the captions "Summary Quarterly Financial Data,"
and "Liquidity and Capital Resources" on pages 31 and 29, respectively, of
Quaker's 1998 Annual Report, filed as Exhibit 13 hereto, is incorporated by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data," on page
12 of Quaker's 1998 Annual Report, filed as Exhibit 13 hereto, is incorporated
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," on pages 26 to 30 of
Quaker's 1998 Annual Report, filed as Exhibit 13 hereto, is incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS
As of January 2, 1999, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107. The Company uses
excess cash to reduce borrowings under a credit agreement it has with two banks.
Occasionally the Company will invest excess cash in short-term Euro dollar
deposits or money market accounts that are carried on the Company's books at
amortized cost, which approximates fair market value. Accordingly, the Company
has no quantitative information concerning the market risk of participating in
such investments.
PRIMARY MARKET RISK EXPOSURES
The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk. The Company's primary interest
rate risk is related to borrowings under its Revolving Credit Agreement. The
interest rate on those borrowings fluctuates with changes in short-term
borrowing rates. The Company is also exposed to currency exchange rate
fluctuations as they pertain to its operations in Mexico. Operations in Mexico
are denominated in Mexican pesos. The exchange rate between the U.S. dollar and
Mexican peso has fluctuated during the past five years. The Company has not
engaged in currency hedging activities to date and attempts to minimize exchange
risk by converting excess peso funds to U.S. dollars as often as practicable.
18
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the captions, "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Changes in
Stockholders' Equity," "Consolidated Statements of Cash Flows," "Summary
Quarterly Financial Data," "Notes to Consolidated Financial Statements," and
"Report of Independent Public Accountants," on pages 13 to 24, 31, and 25 of
Quaker's 1998 Annual Report, filed as Exhibit 13 hereto, is incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the directors of the Company required by
this item will be included in the Company's definitive proxy statement for its
1999 Annual Meeting of Stockholders (the "Proxy Statement") to be filed pursuant
to Regulation 14A, and such information is incorporated herein by reference. The
information with respect to the executive officers of the Company required by
this item is set forth in Item 1A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Proxy
Statement to be filed pursuant to Regulation 14A, and such information is
incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K
(i) Financial Statements (incorporated by reference, see Item 8)
Consolidated Balance Sheets --January 2, 1999 and January 3, 1998
Consolidated Statements of Income -- For the years ended January 2, 1999 and
January 3, 1998
Consolidated Statements of Changes in Stockholders' Equity -- For the years
ended January 2, 1999, January 3, 1998, and January 4, 1997
Consolidated Statements of Cash Flows -- For the years ended January 2, 1999,
January 3, 1998, and January 4, 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(ii) Financial Statement Schedules
The following financial statement schedule of the Company included
herein should be read in conjunction with the audited financial statements
incorporated by reference in this Form 10-K.
Schedule II - Valuation and Qualifying Accounts
All other schedules for the Company are omitted because either
they are not applicable or the required information is shown in
the financial statements or notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
3(i) - Certificate of Incorporation of the Company, as amended.1
3(ii) - By-laws of the Company.(1)
10.1 - Loan and Security Agreement, dated as of October 31,
1990, between the Company and Continental Bank N.A., as
amended by Amendments Nos. 1 through 9 thereto.(1)
10.2 - Securities Purchase Agreement, dated April 13, 1993,
among the Company, MLGA Fund II, L.P. and MLGAL Partners,
as amended by Amendment No. 1 thereto.(1)
10.3 - Subscription Agreement, dated March 12, 1993, among the
Company and MLGA Fund II, L.P., Nortex Holdings, Inc.,
QFC Holdings Corporation, and Larry Liebenow.(1)
10.4 - Shareholders Agreement, dated March 12, 1993, by and
among the Company, Larry Liebenow, Ira Starr, and Sangwoo
Ahn.(1)
10.5 - Employment Agreement, dated as of March 12, 1993, between
the Company and Larry A. Liebenow.(1)
10.6 - Director Indemnification Contract, dated October 18,
1989, between the Company and Larry A. Liebenow.(1)
10.7 - Director Indemnification Contract, dated October 18,
1989, between the Company and Roberto Pesaro.(1)
10.8 - Director Indemnification Contract, dated April 15, 1992,
between the Company and Samuel A. Plum.(1)
10.9 - Director Indemnification Contract, dated May 2, 1991,
between the Company and Andrea Gotti-Lega.(1)
10.10 - Severance Contract, dated August 15, 1988, between the
Company and Thomas J. Finneran.(1)
10.11 - Severance Contract, dated May 26, 1989, between the
Company and James Dulude.(1)
10.12 - Severance Contract, dated December 1, 1988, between the
Company and Cynthia Gordan.(1)
10.13 - Equipment Financing Lease Agreement, dated September 18,
1992, between QFR and United States Leasing
Corporation.(1)
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10.14 - Equipment Financing Lease Agreement, dated September 29,
1992, between QFR and KeyCorp Leasing pursuant to a
Notice of Assignment from U.S. Leasing.(1)
10.15 - Equipment Financing Lease Agreement, dated February 16,
1989, between QFR and Key Financial Services, Inc.(1)
10.16 - Equipment Financing Lease Agreement, dated September 22,
1992, between QFR and Dana Commercial Credit Corporation
(Fleet National Bank).(1)
10.17 - Equipment Financing Lease Agreement, dated October 8,
1992, between QFR and Capital Associates International,
Inc.(1)
10.18 - Equipment Financing Loan Agreement, dated August 31,
1992, between QFR and HCFS Business Equipment
Corporation.(1)
10.19 - Equipment Financing Lease Agreement, dated September 13,
1991, between QFR and Sovran Leasing and Finance
Corp/NationsBanc Leasing Corp.(1)
10.20 - Equipment Financing Lease Agreement, dated December 18,
1990, between QFR and IBM Credit Corporation.(1)
10.21 - Equipment Financing Lease Agreement, dated May 5, 1993,
between QFR and The CIT Group.(1)
10.22 - Equipment Financing Lease Agreement, dated June 30, 1993,
between QFR and AT&T Commercial Finance Corporation.(1)
10.23 - Chicago, Illinois Showroom Lease, dated July 1, 1989,
between the Company and LaSalle National Bank,
Trustee.(1)
10.24 - Hickory, North Carolina Showroom Lease, dated June 15,
1993, between the Company and Hickory Furniture Mart,
Inc.(6)
10.25 - High Point, North Carolina Showroom Lease, dated November
6, 1991, between the Company and Market Square Limited
Partnership.(1)
10.26 - Los Angeles, California Showroom Lease, dated September
23, 1992, between the Company and The L.A. Mart.(1)
10.27 - Tupelo, Mississippi Showroom Lease, dated December 14,
1992, between the Company and Mississippi Furniture
Market, Inc.(6)
10.28 - Mexico City, Mexico Warehouse Lease, dated June 6, 1993,
between Quaker Fabric Mexico, S.A. de C.V. and Irene Font
Byrom.(1)
10.29 - Licensing Agreement, dated May 17, 1990, between the
Company as Licensee and General Electric Company.(1)
10.30 - Licensing Agreement, dated September 24, 1990, between
the Company as Licensee and Amoco Fabrics and Fibers
Company.(1)
10.31 - Software Licensing Agreement, dated October 29, 1987,
between the Company as Licensee and System Software
Associates.(1)
10.32 - Licensing Agreement, dated June 5, 1974, between the
Company and E.I. DuPont de Nemours & Company, Inc.(1)
10.33 - Licensing Agreement, dated October 17, 1988, between the
Company as Licensee and Monsanto Company.(1)
10.34 - Licensing Agreement, dated July 28, 1987, between the
Company as Licensee and Phillips Fibers Corporation.(1)
10.35 - Software Licensing Agreement, dated July 7, 1988, between
the Company as Licensee and Software 2000, Inc.(1)
10.36 - Licensing Agreement, dated February 1, 1977, between the
Company as Licensee and 3M.(1)
10.37 - Software Licensing Agreement, dated April 8, 1992,
between the Company as Licensee and Premenos
Corporation.(1)
10.38 - Software Licensing Agreement, dated March 19, 1993,
between the Company as Licensee and Sophis U.S.A.,
Inc.(1)
10.39 - Quaker Fabric Corporation 1993 Stock Option Plan and Form
of Option Agreement thereunder.(1)
10.40 - Option to Purchase Common Stock issued to Nortex
Holdings, Inc., effective April 13, 1993.(1)
10.41 - Amendment No. 1, dated as of October 25, 1993, to
Shareholders Agreement, dated March 12, 1993, by and
among the Company, Nortex Holdings, Inc., MLGA Fund II,
L.P., MLGAL Partners, W. Wallace McDowell, Jr., William
Ughetta, and Ira Starr.(1)
10.42 - Quaker Fabric Corporation Deferred Compensation Plan and
related Trust Agreement.(2)
10.43 - Form of Split Dollar Agreement with Senior Officers.(2)
10.44 - Credit Agreement, dated as of June 29, 1994, by and among
the Company, The First National Bank of Boston, and
Continental Bank, N.A.(3)
10.45 - Equipment Schedule No. 5, dated as of September 14, 1994,
to Master Lease Agreement, dated as of May 5, 1993,
between QFR and the CIT Group/Equipment Financing,
Inc.(4)
10.46 - Commission and Sales Agreement, dated as of April 25,
1994, between QFR and Quaker Fabric Foreign Sales
Corporation.(4)
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10.47 - Stock Option Agreement, dated as of July 28, 1995,
between the Company and Eriberto R. Scocimara.(5)
10.48 - Amended and Restated Credit Agreement, dated December 18,
1995, among the Company, QFR, Quaker Textile Corporation,
Quaker Fabric Mexico, S.A. de C.V., The First National
Bank of Boston, and Fleet National Bank.(5)
10.49 - Note Purchase and Private Shelf Agreement, dated December
18, 1995, among the Company, Prudential Insurance Company
of America, and Pruco Life Insurance Company.(5)
10.50 - Guarantee Agreement, dated as of December 18, 1995, among
the Company, The Prudential Insurance Company of America,
and Pruco Life Insurance Company.(5)
10.51 - Amendment Agreement No. 1, dated as of March 21, 1996, to
that certain Amended and Restated Credit Agreement, dated
as of December 18, 1995, among the Company, QFR, Quaker
Textile Corporation, Quaker Fabric Mexico, S.A. de C.V.,
The First National Bank of Boston, and Fleet National
Bank.(5)
10.52 - 1996 Stock Option Plan for Key Employees of QFR, dated
April 26, 1996.(6)
10.53 - Amendment Agreement No. 2, dated as of October 21, 1996,
to that certain Amended and Restated Credit Agreement,
dated as of December 18, 1995, among the Company, QFR,
Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de
C.V., The First National Bank of Boston, and Fleet
National Bank.(6)
10.54 - Software License Agreement dated October 31, 1996 between
the Company and System Software Associates Inc.(6)
10.55 - Medical Expense Reimbursement Plan.(6)
10.56 - High Point, North Carolina Warehouse Lease, dated April
1, 1996 between QFR and C&M Investments of High Point,
Inc.(6)
10.57 - Standard Industrial Lease Agreement, dated May 10, 1996,
between CIIF Associates II Limited Partnership and
QFR.(6)
10.58 - Rights Agreement dated March 4, 1997 between the Company
and The First National Bank of Boston relating to the
Company's Stockholder Rights Plan.(6)
10.59 - 1997 Stock Option Plan.(6)
10.60 - Amendment, dated as of February 24, 1997, to Employment
Agreement between the Company and Larry A. Liebenow.(6)
10.61 - Amendment No. 4, dated as of December 19, 1997 to the
Amended and Restated Credit Agreement, dated as of
December 18, 1995, by and among QFR, Quaker Textile
Corp., Quaker Fabric Mexico, S.A. de C.V., the Company,
BankBoston and Fleet National Bank.(7)
10.62 - Employee Stock Purchase Plan, dated as of October 1,
1997.(7)
10.63 - Note Purchase Agreement dated October 10, 1997 among QFR,
The Prudential Insurance Company of America, and Pruco
Life Insurance Company.(7)
10.64 - Guaranty Agreement, dated as of October 10, 1997, by the
Company in favor of the Prudential Insurance Company of
America and PrucoLife Insurance Company.(7)
10.65 - Commercial Lease between QFR and Clocktower Enterprises,
Inc., dated as of August 1, 1997.(7)
10.66 - Lease between Robbins Manufacturing Co., Inc. and QFR,
dated as of October 22, 1997.(7)
10.67 - Lease between Tilly Realty Associates and QFR, dated as
of December 9, 1997.(7)
10.68 - Lease between 1 Lewiston Street, LLC and QFR, dated as of
March 16, 1998.(7)
10.69 - Purchase and Sale Agreement, dated August 7, 1998,
between QFR and Rodney Realty Trust.
10.70 - Stock Option Agreement, dated as of October 19, 1998,
between the Company and Mark R. Hellwig.
10.71 - Lease between ADAP, Inc. and QFR, dated as of December
11, 1998.
10.72 - Purchase and Sale Agreement, dated January 6, 1999,
between QFR and Montaup Electric Company.
10.73 - Purchase and Sale Agreement, dated January 22, 1999,
between QFR and Jefferson Realty Partnership.
23
<PAGE>
<PAGE>
10.74 - Amendment No. 6, dated as of March 26, 1999 to the
Amended and Restated Credit Agreement, dated as of
December 18, 1995, by and among QFR, Quaker Textile
Corp., Quaker Fabric Mexico, S.A. de C.V., the Company,
BankBoston and Fleet National Bank.
10.75 - Amendment No. 1, dated as of March 26, 1999 to the Note
Purchase Agreement dated as of October 10, 1997 among
QFR, The Prudential Insurance Company of America, and
Pruco Life Insurance Company.
13 - 1998 annual report to security holders. Included in this
exhibit are those portions of the annual report to
security holders which are expressly incorporated by
reference in this filing.
21 - Subsidiaries.(5)
23 - Consent of Arthur Andersen LLP.
27 - Financial Data Schedule.
1 Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-69002, initially filed with the Securities and
Exchange Commission on September 17, 1993, as amended.
2 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
3 Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 2, 1994.
4 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
5 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
6 Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 333-21957, initially filed with the Securities and
Exchange Commission on February 25, 1997, as amended.
7 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998.
24
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 31, 1999.
QUAKER FABRIC CORPORATION
By /s/ Larry A. Liebenow
_____________________
LARRY A. LIEBENOW
CHIEF EXECUTIVE OFFICER,
PRESIDENT, AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Larry A. Liebenow Chief Executive Officer, President, March 31, 1999
- --------------------- and Director
(Larry A. Liebenow)
/s/ Paul J. Kelly Vice President -- Finance (Chief March 31, 1999
- ----------------- Financial and Accounting Officer)
(Paul J. Kelly)
/s/ Sangwoo Ahn Chairman of the Board March 31, 1999
- ---------------
(Sangwoo Ahn)
/s/ Jerry I. Porras Director March 31, 1999
- -------------------
(Jerry I. Porras)
/s/ Eriberto R. Scocimara Director March 31, 1999
- -------------------------
(Eriberto R. Scocimara)
</TABLE>
25
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS
To Quaker Fabric Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Quaker Fabric
Corporation and subsidiaries' Annual Report to Shareholders incorporated by
reference in this Form 10-K and have issued our report thereon dated February 8,
1999. Our audit was made for the purpose of forming an opinion on those
financial statements taken as a whole. The schedule listed in the index in Item
14(a) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 8, 1999
27
<PAGE>
<PAGE>
SCHEDULE II
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended January 4, 1997, January 3, 1998 and January 2, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Balance at Provisions Deductions Balance
Beginning Charged to from at end
Descriptions of Period Operations Allowances of Period
------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Years Ended January 4, 1997
Bad Debt Reserve $1,356 $921 ($1,002) $1,275
Sales Returns & Allowances Reserves 629 4,923 (4,775) 777
Year Ended January 3, 1998
Bad Debt Reserve $1,275 $55 ($425) $905
Sales Returns & Allowances Reserves 777 4,256 (4,459) 574
Year Ended January 2, 1999
Bad Debt Reserve $905 $779 ($591) $1,093
Sales Returns & Allowances Reserves 574 6,140 (5,868) 846
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ........................... 'TM'
The section symbol shall be expressed as ............................. 'SS'
<PAGE>
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made as of the 7th
day of August, 1998, by and among Terrance D. LaBerge and Gilda M. LaBerge, as
Trustees of Rodney Realty Trust under declaration of trust dated August 3, 1979,
recorded with the Bristol (Fall River) Registry of Deeds in Book 1286, Page 84
("Seller"), Quaker Fabric Corporation of Fall River ("Buyer"), and joined in for
the limited purposes set forth herein by Chicago Title Insurance Company, as
escrow agent ("Escrow Agent").
BACKGROUND
A. Seller is the owner of all that certain real property consisting of
approximately 25 acres of land, more or less, located in Fall River,
Massachusetts, as more particularly described in EXHIBIT A hereto, together with
all easements, rights and privileges appurtenant thereto (the "Property").
B. Seller is prepared to sell, transfer and convey the Property to
Buyer, and Buyer is prepared to purchase and accept the same from Seller, all
for the purchase price and on the other terms and conditions hereinafter set
forth.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties hereto agree:
1. Sale and Purchase. Seller hereby agrees to sell, transfer and convey
the Property to Buyer, and Buyer hereby agrees to purchase and accept the
Property from Seller, in each case for the purchase price and on and subject to
the other terms and conditions set forth in this Agreement.
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be Fifty Thousand Dollars ($50,000) per acre of land included in
the Property, as determined by the survey performed by Buyer in accordance with
Section 4.6 below, which, subject to the terms and conditions hereinafter set
forth, shall be paid to Seller by Buyer as follows:
2.1. Deposit. Upon the execution of this Agreement by Seller and
Buyer, Buyer shall deliver to Escrow Agent, in immediately available funds, to
be held in escrow and delivered in accordance with this Agreement, an initial
cash deposit in the amount of Fifty Thousand Dollars ($50,000). Prior to
expiration of the Inspection Period (as defined in Section 4.5.2 below), Buyer
shall deliver to Escrow Agent, in immediately available funds, to be held in
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<PAGE>
escrow and delivered in accordance with this Agreement, an additional cash
deposit in the amount of Fifty Thousand Dollars ($50,000). Such amounts, with
all interest earned thereon, shall hereinafter be referred to as the "Deposit".
In the event that Buyer has not designated a date for Closing under
this Agreement by October 31, 1998, and thereafter Buyer terminates this
Agreement in accordance with the provisions of Section 4.4 below, Seller shall
be entitled to receive from the Deposit at the time of termination a sum equal
to Ten Thousand Dollars ($10,000.00) per month (or pro rata) portion thereof)
from November 1, 1998 through the date of termination of this Agreement. In the
event that the Closing occurs (a) prior to October 31, 1998, the entire Deposit
shall be applied to the Purchase Price at the Closing, (b) between November 1,
1998 and February 28, 1999, the amount of the Deposit applied to the Purchase
Price at the Closing shall be reduced by Two Thousand Five Hundred Dollars
($2,500.00) per month (or pro rata portion thereof), and (c) between March 1,
1999 and June 30, 1999, the amount of the Deposit applied to the Purchase Price
at the Closing shall be reduced by the sum of (i) Ten Thousand Dollars
($10,000.00) in respect of the period from November, 1998 through February,
1999, plus (ii) Five Thousand ($5,000.00) per month (or pro rata portion
thereof) for the period from March 1, 1999 through June 30, 1999.
2.2. Payment at Closing; Funding Agreement. At the consummation of
the transaction contemplated hereby (the "Closing"), Buyer shall deliver to
Escrow Agent cash in an amount equal to the Purchase Price less the Deposit. The
Purchase Price, subject to adjustments and apportionments as set forth herein,
shall be paid at Closing by wire transfer of immediately available federal
funds, transferred to the order or account of Seller or such other person as
Seller may designate in writing.
3. Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
3.1. Authority. Seller is a trust, duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and has all
requisite power and authority to enter into this Agreement and perform its
obligations hereunder. The execution and delivery of this Agreement have been
duly authorized by the beneficiary of Seller.
3.2. No Conflict. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder on the part of
Seller do not and will not conflict with or result in the breach of any material
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge, or encumbrance upon any of the Property or
assets of the Seller by reason of the terms of any contract, mortgage, lien,
lease, agreement, indenture, instrument or judgment to which Seller is a party
or which is or purports to be binding upon Seller or which otherwise affects
Seller, which will not be discharged, assumed or released at Closing. No action
by any federal, state or municipal or other governmental department, commission,
board, bureau or instrumentality is necessary to make this Agreement a valid
instrument binding upon Seller in accordance with its terms.
<PAGE>
<PAGE>
3.3. No Leases. There are no leases or occupancy agreements
currently in effect which affect the Property.
3.4. No Condemnation. Seller has not received any written notice of
and to the best of Seller's knowledge there is no pending or contemplated
condemnation, eminent domain or similar proceeding with respect to all or any
portion of the Property.
3.5. No Rights in Others. No person or other entity has any right or
option to acquire, lease or occupy all or any portion of the Property.
3.6. Contracts. There are no construction, management, leasing,
service, equipment, supply, maintenance, concession or other agreements in
effect with respect to the Property.
3.7. Compliance. Seller has not received written notice of and to
the best of Seller's knowledge there is no existing violation of any federal,
state, county or municipal laws, ordinances, orders, codes, regulations or
requirements affecting the Property.
3.8. Litigation. There is no action, suit or proceeding pending or,
to the best of Seller's knowledge, threatened against or affecting the Property,
or arising out of the ownership, management or operation of the Property, this
Agreement or the transactions contemplated hereby.
3.9. Environmental Matters. Except as set forth in EXHIBIT B and any
environmental assessment or report listed therein (copies of which shall be
delivered to Buyer within two (2) business days after the full execution and
delivery of this Agreement), to the best of Seller's knowledge, no hazardous
substances or wastes have been generated, stored, released, discharged or
disposed of from or on the Property in violation of law. As used in this
Agreement, the terms "Hazardous Substances" and "Hazardous Wastes" shall have
the meanings set forth in the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, and the regulations thereunder, the Resource
Conservation and Recovery Act, as amended, and the regulations thereunder, and
the Federal Clean Water Act, as amended, and the regulations thereunder, and
such terms shall also include asbestos, petroleum products, radioactive
materials and any regulated substances under any Federal, State or local
environmental law, regulation or ordinance.
3.10. FIRPTA. Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Internal Revenue Code.
3.11 Continuing Obligations. There are no obligations in connection
with the Property which will be binding upon Buyer after Closing, except title
exceptions disclosed to Buyer pursuant to Section 4.7 hereof.
3.12 Bankruptcy. Seller, as debtor, has not filed or been the
subject of any filing of a petition under the Federal Bankruptcy Law or any
insolvency laws, or any laws for composition of indebtedness or for the
reorganization of debtors.
<PAGE>
<PAGE>
3.13 Accuracy of Information. Without limitation, all information
provided, or to be provided, by Seller to Buyer pursuant to this Agreement is or
will be complete and accurate in all material respects.
4. Conditions Precedent to Buyer's Obligations. All of Buyer's
obligations hereunder are expressly conditioned on the satisfaction at or before
the time of Closing hereunder, or at or before such earlier time as may be
expressly stated below, of each of the following conditions (any one or more of
which may be waived in writing in whole or in part by Buyer, at Buyer's option):
4.1. Accuracy of Representations. All of the representations and
warranties of Seller contained in this Agreement shall have been true and
correct in all material respects when made, and shall be true and correct in all
material respects on the date of Closing with the same effect as if made on and
as of such date.
4.2. Performance. Seller shall have performed, observed and complied
with all material covenants, agreements and conditions required by this
Agreement to be performed, observed and complied with on its part prior to or as
of Closing hereunder.
4.3. Documents and Deliveries. All instruments and documents
required on Seller's part to effectuate this Agreement and the transactions
contemplated hereby shall be delivered to Buyer and shall be in form and
substance consistent with the requirements herein.
4.4 Off-Site and Permitting Conditions. Buyer shall have acquired
adjacent parcels of land owned by Montaup Electric Company, Pelletier, and the
Boyd Center, and shall have received from the City of Fall River commitments
satisfactory to Buyer to provide adequate utility service and road and bridge
access to the Property. In addition, Buyer shall have received such permits and
approvals as may be required from federal, state and local officials having
jurisdiction for the development of a facility for Buyer's corporate activities
on the Property. The conditions set forth in this Section 4.4 shall be
acceptable to Buyer in its sole discretion; such conditions are hereafter
referenced as the "Section 4.4 Conditions". At any time during the term of this
Agreement, Buyer may terminate this Agreement by giving written notice that the
Section 4.4 Conditions have not been satisfied, in which event the Deposit shall
be returned forthwith to Buyer (less any amounts to be paid to Seller in
accordance with Section 2.1 above, which shall be disbursed by Escrow Agent to
Seller simultaneous with the delivery of the balance of the Deposit to Buyer)
and, except as expressly set forth herein, neither party shall have any further
liability or obligation to the other hereunder.
4.5. Inspection Period; Access.
4.5.1. During the term of this Agreement, Buyer, its agents and
representatives, shall be entitled to enter upon the Property, upon reasonable
prior notice to Seller, to perform inspections and tests of the Property,
including surveys, environmental studies, examinations and tests. Buyer shall
repair any damage to the Property caused by any tests or
<PAGE>
<PAGE>
investigations conducted by Buyer, and indemnify Seller from any and all
liabilities, claims, costs and expenses resulting therefrom. The foregoing
indemnification shall survive Closing or the termination of this Agreement.
During the Inspection Period, Buyer shall also seek the approval of the
transaction contemplated by this Agreement by its Board of Directors.
4.5.2. The term "Inspection Period," as used herein, shall mean
the period ending on the date which is sixty (60) days after the date of
execution of this Agreement by Buyer and Seller. Buyer may terminate this
Agreement by giving written notice of such election to Seller on any day prior
to and including the final day of the Inspection Period, in which event the
Deposit shall be returned forthwith to Buyer and, except as expressly set forth
herein, neither party shall have any further liability or obligation to the
other hereunder. In the absence of such written notice, the contingency provided
for in this Section 4.5.2 no longer shall be applicable, and this Agreement
shall continue in full force and effect.
4.6. Survey. Buyer shall approve or disapprove the Survey, as
hereinafter defined, in the following manner:
(a) Notice. Within forty-five (45) days after the date hereof,
Buyer shall obtain, at Buyer's expense, a survey of the Property by
a licensed surveyor or civil engineer, in sufficient detail to
provide the basis for an ALTA owner's title insurance policy,
showing the location of all easements, improvements and boundary
encroachments (the "Survey"). On or before the expiration of the
Inspection Period, Buyer shall give notice to Seller of Buyer's
approval of the Survey or disapproval of any matters thereon
("Survey Exceptions"). Buyer's failure to give any notice within the
time limit shall be deemed approval of the Survey, and this
contingency shall be deemed satisfied.
(b) Survey Cure Period. Seller shall use reasonable efforts to
remove any Survey Exceptions at least five (5) days prior to Closing
(c) Waiver of Uncured Matters. If Seller does not cure any
Survey Exceptions within the Survey Cure Period, Buyer shall have
five (5) days to give Seller written notice that Buyer waives its
objections to the Survey Exceptions. If Buyer does not give such
notice, this contingency shall be deemed satisfied.
(d) Approved Survey. The Survey as approved by Buyer is
referred to herein as the "Approved Survey".
4.7. Title. Buyer shall review and approve or disapprove the
condition of title to the Property in the following manner:
(a) Report and Notice. Within forty-five (45) days after the
date hereof, Buyer shall obtain, at Buyer's expense, a title report
("Title Report") on the Property, together with copies of all
documents underlying any encumbrances to title ("Exceptions") shown
on the Title Report. On or before the expiration of the Inspection
<PAGE>
<PAGE>
Period, Buyer shall give notice to Seller of Buyer's approval of the
Title Report or disapproval of any of the Exceptions. Buyer's
failure to give any notice within the time limit shall be deemed
approval of the Title Report, and this contingency shall be deemed
satisfied.
(b) Title Cure Period. Seller shall use reasonable efforts,
within ten (10) days after notice of Buyer's disapproval of any
Exceptions (the "Title Cure Period"), to (i) remove any disapproved
Exceptions or (ii) agree to remove any disapproved Exceptions on or
before the Closing. If Seller gives notice, within the Title Cure
Period, that Seller will remove any such disapproved Exception on or
before the Closing, such Exception shall be deemed removed for
purposes hereof, Seller shall be obligated to remove such Exception
on or before the Closing, and Seller's failure to remove such
exception on or before the Closing shall be a default by Seller
hereunder. With respect to any Exception consisting of a financial
encumbrance such as a mortgage, deed of trust, or other debt
security, or any delinquent real estate taxes outstanding against
the Property, such matter shall automatically be deemed a
disapproved Exception; Seller hereby covenants to remove any
mortgage, tax lien, or other voluntary monetary encumbrance on or
before the Closing, provided that Seller's obligation as to any
involuntary monetary encumbrance shall be limited to the sum of
$25,000. Seller shall not be obligated to make such expenditure
unless the Inspection Period has expired and Buyer has waived the
Section 4.4 Conditions.
(c) Waiver of Uncured Exceptions. If Seller does not remove or
agree to remove any disapproved Exception within the Title Cure
Period, Buyer shall have five (5) days to give Seller notice that
Buyer waives its objections to such Exception. If Buyer does not
give such notice, this contingency shall be deemed satisfied.
(d) Approved Title. The condition of title as approved by Buyer
is referred to herein as the "Approved Title".
(e) Later Changes to Condition of Title. Buyer shall have the
right to approve or disapprove any exceptions to title that are
revealed by the Survey or become of record after there is an
Approved Title. In any event, Seller shall not be obligated to
expend more than the said sum of $25,000 in the aggregate under this
Agreement to undertake any cure of such later exceptions, other than
any mortgage, tax lien, or other voluntary monetary encumbrance.
4.8. Material Adverse Change. Between the expiration of the
Inspection Period and the date of Closing, there shall have been no material
adverse change in the condition of the Property, and no change to title or
survey matters from the Approved Title and the Approved Survey shall have
arisen.
Attached hereto as Exhibit C is a correct and complete copy of Seller's
asphalt, brick and concrete disposal permit for the Property ("ABC Permit").
Buyer hereby agrees that Seller may continue to operate on the Property under
the terms of the ABC Permit during the term of this
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<PAGE>
Agreement, provided that Seller shall conduct such operations in accordance with
the requirements of the ABC Permit and only in the location shown on Exhibit C
identified as "Area Where Solid Fill Can Be Placed."
5. Failure of Conditions. Except as otherwise provided in Section 9.2
hereof, in the event Seller shall not be able to convey title to the Property on
the date of Closing in accordance with the provisions of this Agreement, then
Buyer shall have the option, exercisable by written notice to Seller at or prior
to Closing, of (i) accepting at Closing such title as Seller is able to convey
and/or waiving any unsatisfied condition precedent, with no deduction from or
adjustment of the Purchase Price, or (ii) declining to proceed to Closing. In
the latter event, except as expressly set forth herein, all obligations,
liabilities and rights of the parties under this Agreement shall terminate, and
the Deposit shall be returned to Buyer.
6. Closing; Deliveries.
6.1. Time of Closing. The Closing shall take place at 10:00 a.m. on
a date specified by written notice from Buyer to Seller at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, no later than June
30, 1999, unless otherwise agreed to in writing by both Seller and Buyer.
6.2. Seller Deliveries. At Closing, Seller shall deliver to Buyer
the following, and it shall be a condition to Buyer's obligation to close that
Seller shall have delivered the same to Buyer:
6.2.1. A Massachusetts Quitclaim Deed to the Property from
Seller, duly executed and acknowledged by Seller and in form satisfactory to
Buyer's title insurance company, subject only to such title matters as are
approved by Buyer pursuant to Sections 4.6 and 4.7.
6.2.2. All architectural and engineering drawings and
specifications, utilities layout plans, topographical plans and the like used in
the construction, improvement, alteration or repair of the Property in the
possession of Seller.
6.2.3. Such affidavits or letters of indemnity as the title
insurer shall require in order to issue, without extra charge, an owner's policy
of title insurance free of any exceptions for unfiled mechanics' or
materialmen's liens for work performed by Seller prior to Closing, or for rights
of parties in possession.
6.2.4. A Non-Foreign Affidavit as required by the Foreign
Investors in Real Property Tax Act ("FIRPTA"), as amended, in the form of
EXHIBIT D, duly executed by Seller.
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<PAGE>
6.2.5. A certification by Seller that all representations and
warranties made by Seller in Article 3 of this Agreement are true and correct on
the date of Closing, except as may be set forth in such certificate.
6.2.6 Evidence of the authority of the signatories on behalf of
Seller satisfactory to Buyer's title insurance company to confirm the authority
of Seller to perform its obligations under this Agreement.
6.2.7. All other instruments and documents reasonably required
to effectuate this Agreement and the transactions contemplated hereby.
6.3. Buyer Deliveries. At Closing, Buyer shall deliver to Seller the
following, and it shall be a condition to Seller's obligation to close that
Buyer shall have delivered the same to Seller:
6.3.1. In accordance with Seller's instructions, a wire
transfer in the amount required under Section 2.2 hereof (subject to the
adjustments provided for in this Agreement), transferred to the order or account
of Seller or to such other person or persons as Seller shall designate in
writing.
6.3.2. All other instruments and documents reasonably required
to effectuate this Agreement and the transactions contemplated hereby.
7. Apportionments; Taxes; Expenses.
7.1. Apportionments.
7.1 Taxes and Utility Expenses. All real estate taxes, charges and
assessments affecting the Property ("Taxes"), all charges for water,
electricity, sewer rental, gas, telephone and all other utilities ("Utility
Expenses") shall be prorated on a per diem basis as of the date of Closing. If
any Taxes have not been finally assessed as of the date of Closing for the
current fiscal year of the taxing authority, then the same shall be adjusted at
Closing based upon the most recently issued bills therefor, and shall be
re-adjusted when and if final bills are issued.
7.2. Expenses. Each party will pay all its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, (1) all costs and expenses stated herein to be
borne by a party, and (2) all of their respective accounting, legal and
appraisal fees. Buyer, in addition to its other expenses, shall pay at Closing
(1) all recording charges incident to the recording of the deed for the Real
Property, (2) Buyer's title and survey costs, and (3) all of the fees, costs and
expenses of Escrow Agent and the costs of any taxes assessed thereon. Seller, in
addition to its other expenses, shall pay at Closing (1) all documentary stamps,
deed stamps and realty transfer taxes.
8. Condemnation; Award.
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<PAGE>
If at any time prior to the date of Closing any material portion of
the Property is condemned or taken by eminent domain proceedings by any public
authority, then, at Buyer's option, this Agreement shall terminate, and the
Deposit shall be returned to Buyer, and except as expressly set forth herein,
neither party shall have any further liability or obligation to the other
hereunder.
If there is any condemnation or taking, as above set forth, and if
Buyer elects not to terminate this Agreement as therein provided, then in the
case of a taking, all condemnation proceeds paid or payable to Seller shall
belong to Buyer and shall be paid over and assigned to Buyer at Closing.
9. Remedies.
9.1. Buyer Default. In the event Buyer breaches or fails, without
legal excuse, to complete the purchase of the Property or to perform its
obligations under this Agreement, then Seller shall, as its sole remedy
therefor, be entitled to receive the Deposit (and not as a penalty) in lieu of,
and as full compensation for, all other rights or claims of Seller against Buyer
by reason of such default. Thereupon this Agreement shall terminate and the
parties shall be relieved of all further obligations and liabilities hereunder,
except as expressly set forth herein. Buyer and Seller acknowledge that the
damages to Seller resulting from Buyer's breach would be difficult, if not
impossible, to ascertain with any accuracy, and that the liquidated damage
amount set forth in this Section represents both parties' best efforts to
approximate such potential damages.
9.2 Seller Default. In the event Seller breaches or fails, without
legal excuse, to complete the sale of the Property or to perform its obligations
under this Agreement, Buyer may, as its sole remedy therefor, either (i) enforce
specific performance of this Agreement against Seller, or (ii) terminate this
Agreement and recover from Seller all out-of-pocket expenditures reasonably
incurred by Buyer in connection with this Agreement, and, in the case of any
breach of a representation, warranty or covenant of Seller, Buyer shall also be
entitled to recover its actual damages therefor.
10. Possession. Possession of the Property shall be surrendered to
Buyer at Closing.
11. Notices. All notices and other communications provided for herein
shall be in writing and shall be sent to the address set forth below (or such
other address as a party may hereafter designate for itself by notice to the
other parties as required hereby) of the party for whom such notice or
communication is intended:
11.1. If to Seller: Terrance D. LaBerge and
Gilda M. LaBerge, Trustees of
Rodney Realty Trust
620 Old Fall River Road
Dartmouth, MA 02747
Fax: Same as Ronald J. Lowenstein
<PAGE>
<PAGE>
With a copy to: Ronald J. Lowenstein, Esq.
84 Main Street
Fall River, MA 02722-2700
Fax: (508) 673-5850
11.2. If to Buyer:
Quaker Fabric Corporation of Fall River
941 Grinnell Street
Fall River, MA 02721
Fax No: 508-678-2656
Attn: Cynthia L. Gordan, Vice President/General
Counsel
With a copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Fax No.: 617-526-5000
Attention: Katharine E. Bachman, Esq.
11.3 If to the Escrow Agent:
Chicago Title Insurance Company
75 Federal Street, 4th Floor
Boston, MA 02110
Fax No.: 617-210-0777
Attention: Marie Franco, Esq.
Any such notice or communication shall be sufficient if sent by registered or
certified mail, return receipt requested, postage prepaid; by hand delivery; by
fax with evidence of transmission; or by overnight courier service. Any such
notice or communication shall be effective when deposited with the mail or
overnight courier service, or if by hand, when delivered or when delivery is
refused.
12. Brokers. Buyer and Seller each represents to the other that it has
not dealt with any broker or agent in connection with this transaction
("Brokers"). Each party hereby indemnifies and holds harmless the other party
from all loss, cost and expense (including
<PAGE>
<PAGE>
reasonable attorneys' fees) arising out of a breach of its representation set
forth in this Section 12. The provisions of this Section 12 shall survive
Closing or the termination of this Agreement.
13. Escrow Agent. Escrow Agent shall hold the Deposit in accordance
with the terms and provisions of this Agreement, subject to the following:
13.1. Obligations. Escrow Agent undertakes to perform only such
duties as are expressly set forth in this Agreement and no implied duties or
obligations shall be read into this Agreement against Escrow Agent.
13.2. Reliance. Escrow Agent may act in reliance upon any writing
or instrument or signature which it, in good faith, believes, and any statement
or assertion contained in such writing or instrument, and may assume that any
person purporting to give any writing, notice, advice or instrument in
connection with the provisions of this Agreement has been duly authorized to do
so. Escrow Agent shall not be liable in any manner for the sufficiency or
correctness as to form, manner and execution, or validity of any instrument
deposited in escrow, nor as to the identity, authority, or right of any person
executing the same, and Escrow Agent's duties under this Agreement shall be
limited to those provided in this Agreement.
13.3. Indemnification. Unless Escrow Agent discharges any of its
duties under this Agreement in a negligent manner or is guilty of willful
misconduct with regard to its duties under this Agreement, Seller and Buyer,
severally, shall indemnify Escrow Agent and hold it harmless from any and all
claims, liabilities, losses, actions, suits or proceedings at law or in equity,
or other expenses, fees, or charges of any character or nature, which it may
incur or with which it may be threatened by reason of its acting as Escrow Agent
under this Agreement; and in such connection Seller and Buyer shall indemnify
Escrow Agent against any and all expenses including reasonable attorneys' fees
and the cost of defending any action, suit or proceeding or resisting any claim
in such capacity.
13.4. Disputes. If the parties (including Escrow Agent) shall be in
disagreement about the interpretation of this Agreement, or about their
respective rights and obligations, or the propriety of any action contemplated
by Escrow Agent, or the application of the Deposit, Escrow Agent shall hold the
Deposit until the receipt of written instructions from both Buyer or Seller or a
final order of a court of competent jurisdiction. In addition, in any such
event, Escrow Agent may, but shall not be required to, file an action in
interpleader to resolve the disagreement. Escrow Agent shall be indemnified for
all costs and reasonable attorneys' fees in its capacity as Escrow Agent in
connection with any such interpleader action and shall be fully protected in
suspending all or part of its activities under this Agreement until a final
judgment in the interpleader action is received.
13.5. Counsel. Escrow Agent may consult with counsel of its own
choice and have full and complete authorization and protection when acting in
accordance with the opinion of such counsel. Escrow Agent shall otherwise not be
liable for any mistakes of fact or errors of judgment, or for any acts or
omissions of any kind, unless caused by its negligence or willful misconduct.
<PAGE>
<PAGE>
14. Miscellaneous.
14.1. Assignability. Buyer may not assign or transfer all or any
portion of its rights or obligations under this Agreement to any other
individual, entity or other person without the consent thereto by Seller, such
consent not to be unreasonably withheld or delayed. However, Buyer may assign or
transfer such rights and obligations to any entity controlled by, controlling or
under common control with Buyer.
14.2. Governing Law; Bind and Inure. This Agreement shall be
governed by the law of the Commonwealth of Massachusetts and shall bind and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors, assigns and personal representatives.
14.3. Recording. This Agreement or any notice or memorandum hereof
shall not be recorded in any public record. A violation of this prohibition
shall constitute a material breach of Buyer, entitling Seller to terminate this
Agreement.
14.4. Time of the Essence. Time is of the essence of this
Agreement.
14.5. Headings. The headings preceding the text of the paragraphs
and subparagraphs hereof are inserted solely for convenience of reference and
shall not constitute a part of this Agreement, nor shall they affect its
meaning, construction or effect.
14.6. Counterparts. This Agreement may be executed simultaneously
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.7. Exhibits. All Exhibits which are referred to herein and which
are attached hereto or bound separately and initialed by the parties are
expressly made and constitute a part of this Agreement.
14.8. Survival. Unless otherwise expressly stated in this
Agreement, each of the warranties and representations of Seller and Buyer shall
survive the Closing and delivery of the deed and other closing documents by
Seller to Buyer, and shall not be deemed to have merged therewith; provided,
however, that any suit or action for breach of any of the representations or
warranties set forth herein must be commenced within one (1) year after the
Closing or any claim based thereon shall be deemed irrevocably waived.
14.9. Use of Proceeds to Clear Title. To enable Seller to make
conveyance as herein provided, Seller may, at the time of Closing, use the
Purchase Price or any portion thereof to clear the title of any or all
encumbrances or interests, provided that provision reasonably satisfactory to
Buyer's attorney is made for prompt recording of all instruments so procured in
accordance with the standards of the Massachusetts Conveyancer's Association.
<PAGE>
<PAGE>
14.10. Submission not an Offer or Option. The submission of this
Agreement or a summary of some or all of its provisions for examination or
negotiation by Buyer or Seller does not constitute an offer by Seller or Buyer
to enter into an agreement to sell or purchase the Property, and neither party
shall be bound to the other with respect to any such purchase and sale until a
definitive agreement satisfactory to the Buyer and Seller in their sole
discretion is executed and delivered by both Seller and Buyer.
14.11 No Marketing. Seller shall remove the Property from the
market and cease all discussions with other prospective purchasers, and shall
not solicit nor accept any offers, whether or not binding, regarding the
Property during the term of this Agreement.
14.12 Confidentiality. Prior to and after the Closing, any press
release to the public of information with respect to the sale contemplated
herein or any matters set forth in this Agreement will be made only in the form
approved by Purchaser and Seller. The provisions of this Section 14.12 shall
survive the Closing or any termination of this Agreement.
14.13. Entire Agreement; Amendments. This Agreement and the
Exhibits hereto set forth all of the promises, covenants, agreements, conditions
and undertakings between the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as contained herein. This Agreement may not be changed orally but only by
an agreement in writing, duly executed by or on behalf of the party or parties
against whom enforcement of any waiver, change, modification, consent or
discharge is sought.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SELLER:
--------------------------------
Terrance D. LaBerge, as Trustee
aforesaid
--------------------------------
Gilda M. LaBerge, as Trustee
BUYER: QUAKER FABRIC CORPORATION
OF FALL RIVER
By:
-----------------------------
Larry A. Liebenow
President and Chief
Executive Officer
ESCROW AGENT:
<PAGE>
<PAGE>
CHICAGO TITLE INSURANCE COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
List of Exhibits
<S> <C>
Exhibit A -- Description of Land
Exhibit B -- List of Environmental Reports
Exhibit C -- ABC Permit and Guidelines
Exhibit D -- Non-Foreign Affidavit
</TABLE>
<PAGE>
<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND
(Follows this Page)
Approximately 25 acres of land in Fall River, Massachusetts, shown on
Assessors Map D-3 as Lots 4 and 22.
<PAGE>
<PAGE>
EXHIBIT B
List of Environmental Reports
and Qualifications to
Environmental Representations
None
<PAGE>
<PAGE>
EXHIBIT D
NON-FOREIGN AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by
___________________________________ ("Seller"), the undersigned hereby certifies
the following:
1. Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are
defined in the Internal Revenue Code and Income Tax Regulations);
2. Seller's U.S. taxpayer identification number is [___________]; and
3. Seller's address is ________________________________.
The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by the transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both. Under
penalties of perjury, the undersigned declares that it has examined this
certification and to the best of its knowledge and belief it is true, correct,
and complete, and further declares that it has authority to sign this document.
Date: As of _____________, ____
By:
-----------------------------
Name:
Title:
<PAGE>
<PAGE>
STOCK OPTION AGREEMENT
PURSUANT TO THE
QUAKER FABRIC CORPORATION
1997 STOCK OPTION PLAN
AGREEMENT, dated as of October 19, 1998 by and between Quaker
Fabric Corporation (the "Company") and Mark R. Hellwig (the "Participant").
Preliminary Statement
The Stock Option Plan Committee (the "Committee") of the Board of
Directors of the Company, pursuant to the Quaker Fabric Corporation 1997 Stock
Option Plan, annexed hereto as Exhibit A (the "Plan"), has authorized this grant
to the Participant, as an Eligible Employee of the Company and/or its Designated
Subsidiaries (as defined in the Plan), of a Non-Qualified Stock Option (the
"Option") to purchase the number of shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), set forth below. The parties hereto
desire to enter into this Agreement in order to set forth the terms of the
Option.
Accordingly, the parties hereto agree as follows:
1. Tax Matters: No part of the Option granted hereby is intended
to qualify as an "incentive stock option" under Section 422 of the Internal
Revenue Code of 1986, as amended.
2. Grant of Option: Subject in all respects to the Plan and the
terms and conditions set forth herein and therein, the Participant is hereby
granted, effective as of the date hereof (the "Grant Date"), the Option to
purchase from the Company up to 50,000 shares of Common Stock, at a purchase
price per share of $4.25.
3. Vesting: (a) The Option is exercisable in installments as
provided below, which shall be cumulative. To the extent that the Option has
become exercisable with respect to an installment, the Option may thereafter be
exercised by the Participant, in whole or in part, at any time or from time to
time prior to the expiration of the Option as provided herein. Twenty percent
(20%) of the Option, subject to the terms and conditions contained herein and in
the Plan, shall vest and become exercisable on each anniversary of the Grant
Date (collectively, the "Vesting Dates"), provided that the Participant remains
continuously employed by the Company and/or its Designated Subsidiaries through
each applicable Vesting Date.
(b) Except as otherwise provided in the Plan,
there shall be no proportionate or partial vesting in the periods prior to
each Vesting Date and all vesting shall occur only on the appropriate
Vesting Dates.
<PAGE>
<PAGE>
(c) Subject to Section 8.1(b) of the Plan, upon the
occurrence of a Change of Control, the Option shall immediately become fully
vested and exercisable with respect to all shares of Common Stock subject
thereto.
4. Termination: Unless terminated as provided in Section 5 below
or otherwise pursuant to the Plan (including, without limitation, Section 6.3 of
the Plan), the Option shall expire on the tenth anniversary of this Agreement.
5. Restriction on Transfer: Unless otherwise determined by the
Committee, in its sole discretion, the Option granted hereby is not transferable
otherwise than by will or under the applicable laws of descent and distribution
and during the lifetime of the Participant may be exercised only by the
Participant or the Participant's guardian or legal representative. In addition,
the Option shall not be assigned, negotiated, pledged, or hypothecated in any
way (whether by operation of law or otherwise), and the Option shall not be
subject to execution, attachment, or similar process. Upon any attempt to
transfer, assign, negotiate, pledge, or hypothecate the Option, or in the event
of any levy upon the Option by reason of any execution, attachment, or similar
process contrary to the provisions hereof, the Option shall immediately become
null and void.
6. Rights as a Stockholder: The Participant shall not have any
rights as a stockholder with respect to any shares covered by the Option unless
and until the Participant has become the holder of record of the shares, and no
adjustments shall be made for dividends in cash or other property,
distributions, or other rights in respect of any such shares, except as
otherwise specifically provided for in the Plan.
7. Provisions of Plan Control: This Agreement is subject to all
the terms, conditions, and provisions of the Plan, including, without
limitation, the amendment provisions thereof, and to such rules, regulations,
and interpretations relating to the Plan as may be adopted by the Committee and
as may be in effect from time to time. Any capitalized term used but not defined
herein shall have the meaning ascribed to such term in the Plan. The annexed
copy of the Plan is incorporated herein by reference. If and to the extent that
this Agreement conflicts or is inconsistent with the terms, conditions, and
provisions of the Plan, the Plan shall control, and this Agreement shall be
deemed to be modified accordingly.
8. Notices: Any notice or communication given hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
or by United States mail, to the appropriate party at the address set forth
below (or such other address as the party shall from time to time specify by
sending notice to the appropriate address set forth below):
If to the Company, to:
Quaker Fabric Corporation
2
<PAGE>
<PAGE>
941 Grinnell Street
Fall River, Massachusetts 02721
Attention: Corporate Secretary
If to the Participant, to:
The address indicated after the Participant's signature at
the end of this Agreement.
9. No Obligation to Continue Employment: This Agreement does not
guarantee that the Company or its Designated Subsidiaries will employ the
Participant for any specific time period, nor does it modify in any respect the
Company's or any Designated Subsidiary's right to terminate or modify the
Participant's employment or compensation.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first above written.
QUAKER FABRIC CORPORATION
By: ____________________________
Larry A. Liebenow
President & Chief Executive
Officer
PARTICIPANT
--------------------------------
Name (print)
--------------------------------
Signature
---------------------------------
Street Address
---------------------------------
City/State/Zip Code
3
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION
OF FALL RIVER
By:_________________________
Name:
Title:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_________________________
Name: Kevin J. Kraska
Title: Vice President
PRUCO LIFE INSURANCE COMPANY
By:__________________________
Name: Kevin J. Kraska
Title: Vice President
4
<PAGE>
<PAGE>
SUBLEASE AGREEMENT
WHEREAS on or around the 28th day of February, 1997 a certain Lease
Agreement was entered into by and between Joseph Campanelli, Nicholas
Campanelli, Ronald Campanelli, and Alfred Campanelli as Trustee of Campanelli
Investment Properties (as Landlord thereunder) further assigned to AMB Property,
L.P. (hereinafter "Master Landlord" hereunder) and ADAP, Inc. (as Tenant)(said
original Lease Agreement hereinafter referred to as the "Master Lease".) ;and
WHEREAS, ADAP, Inc. desires to sublease a certain portion of the leased
premises to Quaker Fabric Corporation of Fall River; and
WHEREAS Quaker Fabric Corporation of Fall River agrees to sublease from
ADAP,Inc. upon the terms and conditions herein stated;
NOW, THEREFORE, THIS SUBLEASE AGREEMENT (hereinafter "Sublease") is
entered into on December 11,1998, by and Between ADAP, INC., (hereinafter
"Landlord") and Quaker Fabric Corporation of Fall River, (hereinafter
"Subtenant"). The Landlord subleases to Subtenant the Demised Premises as herein
after defined, together with all improvements and all rights and appurtenances
thereunto belonging. Subtenant will not violate any of the terms and conditions
of the Master Lease to the extent the same are binding on Subtenant. Landlord
warrants that it is currently the rightful Tenant under the Master Lease.
WITNESSETH
The parties hereto agree that this Sublease sets forth all agreements,
covenants and conditions express or implied between the parties, and supersedes
any prior oral or written agreements between the parties with respect to the
premises hereinafter described.
1. PREMISES: Landlord subleases to Subtenant and Subtenant subleases from
Landlord the premises more particularly described as the approximately 214,851
square feet of warehouse space (hereinafter the "Demised Premises") located in
the approximately 249,851 square foot premises along with the parking indicated
on the attached Exhibit A-1, located at 525 Campanelli Drive, in the City of
Brockton and
<PAGE>
<PAGE>
State of Massachusetts. The Demised Premises is shown highlighted on the drawing
labeled Exhibit A-1 attached hereto and made a part hereof.
2. MASTER LEASE: (A) The terms, provisions, covenants, and conditions of the
Master Lease are hereby incorporated herein by reference on the following
understandings:
(1) With respect to work, services, repair, repainting and restoration
or the performance of other obligations required of the Master Landlord under
the Master Lease, and the obtaining of consents and approvals from the Master
Landlord, Landlord's sole obligation shall be to request the same, on request in
writing by Subtenant, and to use reasonable good faith efforts to obtain the
same from the Master Landlord under the Master Lease. With respect to the
obtaining of consents and approvals from the Landlord under this Sublease,
Landlord agrees that upon request in writing by Subtenant, such consent or
approvals will not be unreasonably withheld or delayed.
(2) If there is a conflict between the provisions of the Master Lease
and this Sublease, the provisions of this Sublease shall govern . The lack of a
particular section or subsection in this Sublease shall not be deemed to be a
conflict with a term which is set forth in the Master Lease and in such event,
the section or subsection so contained in the Master Lease shall govern.
(3) Landlord hereby represents and warrants that the Master Lease is in
full force and effect. Furthermore Landlord hereby agrees to hold Subtenant
harmless of, from and against any and all liabilities, losses, damages, suits,
penalties, claims and demands of every kind or nature (including without
limitation, reasonable attorney's fees and expense, of defense by reason
thereof) for any default caused or committed by the Landlord under this Master
Lease.
(B)(1) Subtenant agrees to hold Landlord and Master Landlord
harmless of, from and against any and all liabilities, losses, damages, suits,
penalties, claims and demands of every kind or nature (including without
limitation, reasonable attorney's fees and expense, of defense by reason
thereof) arising from or out of the use or occupancy of the Demised Premises or
of any business conducted therein, or from any work or thing whatsoever done or
any condition created by the act or omission of Subtenant, its Assignees,
employees, Agents, contractors, visitors or licensees, in or about the Demised
Premises.
2
<PAGE>
<PAGE>
(2) Except as otherwise set forth in this Sublease Agreement, the
Subtenant shall faithfully observe and timely perform each and every obligation
of Tenant under the Master Lease (Landlord under this Sublease), except that
subject to timely performance by Subtenant of Subtenant's obligations, Landlord
shall timely pay when due all rents and other sums payable under the Master
Lease. In the event the Landlord fails to submit the rental payment to Master
Landlord in a timely fashion, the Master Landlord shall promptly (but in no
event later then ten (10) days from the original due date) notify Subtenant of
said failure and Subtenant may cure said failure and pursue Landlord for all
remedies available herein, at law or otherwise. In the event Landlord fails to
make timely payments of rent as required under the Master Lease on two occasions
and Subtenant cures both defaults as provided within this subsection, then
Subtenant shall be permitted upon written notice to Master Landlord and
Landlord, to make all future base rent payments directly to Master Landlord.
Neither Landlord nor Subtenant shall violate the Master Lease. Landlord shall
use its best efforts to keep the Master Lease in effect during the term of this
Sublease.
3. TERM AND COMMENCEMENT: The term of this Sublease (the "Term") shall
commence on the same date that this Sublease is fully executed by Landlord and
Subtenant and shall end the 31st day of December, 2003 unless extended as
provided herein. Subtenant shall have the right to terminate this Sublease after
four full years. The notice for this termination will be due six (6) months
prior to the end of the fourth year. The fee for this termination right shall be
equal to six (6) months' rent, which shall be in addition to the remaining six
months of the fourth year.
3.1 RENT COMMENCEMENT: The date of Rent commencement shall be December 11, 1998
provided that a fully executed copy of this Sublease Agreement has been received
by Master Landlord and Landlord and the first months rent and security deposit
has been paid as required hereunder.
4. RENEWAL OPTIONS: Landlord grants to Subtenant two separate two year options
to extend the Term, provided that Tenant is not in default in its obligations
under this Sublease at the time of exercising such option:
<TABLE>
<CAPTION>
OPTION RENT
------ ----
<S> <C>
Year 1 & 2 $4.25/sq. ft. $913,116.75 NNN
Year 3 & 4 $4.45/sq. ft. $956,086.95 NNN
</TABLE>
3
<PAGE>
<PAGE>
During this option period all terms and conditions of this Sublease
shall remain in full force and effect except for the increase in Rent above.
Subtenant shall, pursuant to Section 23 of this Sublease, notify Landlord no
later than July 1, 2003 of its intention to exercise the first two-year option
and shall notify Landlord no later then October 1, 2005 of its intention to
exercise the second two-year option above. If Subtenant fails to notify Landlord
of its intention to exercise said option, the Term shall end on the December 31,
2003, as described herein.
Notwithstanding any other statement contained herein, in the event the
Master Lease is terminated for any reason other than a breach of the Master
Lease by Landlord, the options contained in this Provision shall be null and
void.
5. RENT AND ADDITIONAL RENT: Subtenant agrees to pay to Landlord in advance
and throughout the initial four (4) years of the initial Term, upon and
following Rent commencement, without offset, demand or, except as otherwise
provided herein, abatement, the monthly sum of sixty seven thousand, one hundred
forty dollars and ninety four cents ($67,140.94) (hereinafter called "Rent") on
or before the first day of each calendar month. Beginning on January 1, 2003
until December 31, 2003 the Subtenant agrees to pay to Landlord in advance
without offset, demand or except as otherwise provided herein, abatement, the
monthly sum of seventy four thousand, three hundred two dollars and sixty-four
cents ($74,302.64). If the Commencement Date falls after the first day of the
month, Rent will be prorated to accommodate for partial months occurring during
the beginning or end of this Sublease. Notwithstanding the forgoing, in the
event the parties' reach an agreement and possession is acquired prior to
December 15, the rental payment for the month of December 1998 shall be thirty
four thousand dollars ($34,000.00). Furthermore, in the event that the Landlord
fails to deliver the entire demised premises as required herein, by January 4,
1999 then the monthly rent for January 1999 shall be thirty four thousand
dollars ($34,000.00).
During the option periods, Subtenant agrees to pay to Landlord in
advance without offset, demand or except as otherwise provided herein abatement,
the monthly sum of seventy six thousand, ninety three dollars and six cents
($76,093.06) during the first option term and seventy nine thousand six hundred
seventy three dollars and ninety-one cents ($79,673.91) during the second option
term. All
4
<PAGE>
<PAGE>
payments of rent shall be made payable to ADAP, Inc. and mailed to
AutoZone Excess Property, Dept. 8700, P.O. Box 2198, Memphis, TN 38101-9842,
Attention: Jerry Wagley or to such other person or corporation or at such other
place as shall be designated by Landlord, in writing, from time to time.
In addition to the Rent herein specified, Subtenant agrees to pay
Landlord, as additional rent, five (5) percent of the total monthly Rent for
that month for each monthly payment of Rent that is not received by Landlord on
or before the fifth (5th) day of any month during the Term of this Sublease.
Within 15 days after receipt of a billing from Landlord, Subtenant shall
reimburse Landlord, as additional rent (without offset, further demanded or
except as otherwise provided herein, abatement) for its pro rata share of taxes,
assessments, insurance, utilities, operating expenses, landscaping, and other
payments the Landlord is required to make under the Master Lease; provided
however, that in no event shall Subtenant be required to pay for any repair or
replacement which would be classified as a capital expenditure under GAAP.
Within a reasonable time from the effective date of this Sublease,
Landlord agrees to cause a "notice of cancellation provision" to be included in
each insurance policy held by Landlord in connection with the Demised Premises.
Such provision shall provide for notice to be sent to the Subtenant thirty (30)
days prior to the effective date of cancellation of any insurance held by
Landlord in connection with the Demised Premises. Landlord shall provide
certificates of insurance to Subtenant as evidence of compliance with the
foregoing.
Subtenant agrees to pay, prior to delinquency, any and all taxes and
assessments that may be assessed or levied on or against any of Subtenant's
personal property, fixtures, or equipment placed on or in the Demised Premises,
and/or other taxes or expenses incidental to Subtenant's use thereof and the
operation of Subtenant's business therein.
Subtenant further agrees to pay to Landlord as Additional Rent without
offset, further demand or except as otherwise provided herein, abatement an
amount equal to any excise, privilege, sales or other tax (excluding income tax)
levied at any time during the term hereof on the rentals or on any other sums
payable by Subtenant to Landlord under the terms of this Sublease (including,
but not limited to, reimbursement of taxes,
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maintenance costs, insurance premiums, and utility charges) or on Landlord's
receipt of said rental or other sums.
6. SECURITY DEPOSIT: Prior to delivery of the Premises, Subtenant shall deliver
to Landlord a security deposit in the amount of sixty seven thousand one hundred
forty one dollars ($67,141.00) as security for the full and faithful performance
by Subtenant of each and every term, covenant and condition of this Sublease.
In the event that Subtenant defaults in any of the terms, provisions, covenants
or conditions of this Sublease, including but not limited to payment of any
Rent or additional rent, Landlord may use, apply, retain the whole or any of
the security so deposited for payment of any such sum in default, or for any
other sum which Landlord may expend or be required to expend by reason of
Subtenant's default, including any damages or deficiencies incurred in the
reletting of the Demised Premises or in curing default(s) by Subtenant under
this Sublease, whether such damage or deficiency may occur before or after some
repossession proceeding or other reentry by Landlord. In the event that
Subtenant shall, for the full Term of this Sublease, fully and faithfully
comply with all the terms and conditions of this Sublease, the security deposit
or any balance thereof, shall be returned to Subtenant after expiration of the
Term. The Subtenant shall not be entitled to any interest on the aforesaid
security. If Landlord utilizes the security deposit in payment of Subtenant's
obligations hereunder or in otherwise curing default on the part of Subtenant,
Subtenant shall pay Landlord within ten (10) days from the date of demand, the
amount necessary to restore the security deposit.
7. POSSESSION: (A) Landlord agrees that upon Tenant's performing and observing
the terms, conditions and provisions of the Sublease Agreement, Subtenant shall
and may peaceably and quietly have, hold and enjoy the premises during the Term
without any manner of hindrance from Landlord or anyone claiming under Landlord
(hereinafter "right of quiet enjoyment"). Subject to Subtenant's right of quiet
enjoyment, Subtenant shall permit any inspection, at all reasonable times, of
the Demised Premises by Landlord, or Landlord's agents or representatives.
Furthermore, subject to Subtenant's right of quiet enjoyment, Subtenant shall
allow Master Landlord to enter Demised Premises at all times when required under
the Master Lease. During the six (6) months preceding the expiration of the Term
of this Sublease, Landlord shall upon reasonable notice to Subtenant, have the
right to show the Demised Premises to other potential Subtenants and prospective
purchasers at all reasonable times.
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(b) Subtenant agrees to deliver to Landlord physical possession
of the Demised Premises upon expiration or termination of the Term in good
repair and condition excepting, however, ordinary wear and tear occurring due to
normal and reasonable use and casualty to the extent, if any, permitted by the
Master Lease and excepting repairs and replacements which, if made would be
classified as capital expenditures under generally accepted accounting
principles. Subtenant shall leave the Demised Premises broom clean and except as
set forth on Exhibit "C", free of all personal property, trash and debris. In
the event that Subtenant shall retain possession of the Demised Premises or any
part thereof, without Landlord's consent, after the termination of this
Sublease, whether by lapse of time or otherwise, Subtenant shall become a
Subtenant at sufferance only and pay to Landlord one and one half (1 1/2) the
monthly rent in effect immediately before the termination date and shall pay all
items of additional rent then applicable for each month or portion thereof, and
also shall pay any and all damages sustained by Landlord on account thereof. The
foregoing shall not be deemed consent to holding over. Further, in no event may
Subtenant occupy the Demised Premises or any part thereof beyond the expiration
or termination of the Master Lease except by separate written agreement between
the Master Landlord and Subtenant.
8. USE: (A) Subtenant may use the Demised Premises solely for the purpose of
manufacturing, distributing and warehousing fabrics and materials used in
connection with its operations. Provided however, as to manufacturing, the
Subtenant shall not use the Demised Premises for the manufacturing of fabrics
and materials until Master Landlord consents to said use in a separate writing
signed by Master Landlord a copy of said consent shall be provided to Landlord.
Furthermore, in the event Master Landlord consents to said manufacturing use,
Subtenant represents and warrants that the use will comply with all relevant
codes, rules, regulations and laws. Subtenant shall not use or permit the
Demised Premises to be used for any other purpose without first obtaining the
Landlord's prior written consent. Subtenant shall indemnify and hold Landlord
harmless of and from all fines or penalties imposed by law arising by reason of
the violation by Subtenant of any laws, rules, ordinances or regulations or
other governmental requirements relating to the conduct of business in Demised
Premises, or
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the use or occupancy thereof, issued by any governmental authority having
jurisdiction over the Demised Premises.
(B) Subtenant agrees for itself, its partners, successors and
assigns, its officers, its directors, its parent, affiliated and subsidiary
corporations and any party affiliated with it, that none of the foregoing shall
use, suffer, permit or consent to the use or occupancy of the Demised Premises
or any part thereof as an automobile or truck parts store/warehouse or for the
sale of automobile and truck parts, supplies or accessories for as long as this
Sublease is in effect. Additionally, Subtenant shall not use, suffer, permit or
consent to the use of the Premises or Demised Premises for advertising purposes,
including but not limited to billboards or other signs, whether freestanding or
placed on the building located on the Premises, except as permitted herein, for
so long as this Sublease is in effect.
(C) If, due to any act or omission (or alleged act or omission)
of Subtenant, or its agents or contractors, any mechanic's or other lien, charge
or order for payment of money or other encumbrance shall be filed against
Landlord and/or Master Landlord or any portion of the Demised Premises (whether
or not such lien, charge, order, or encumbrance is valid or enforceable as
such), Subtenant, shall at its own cost and expense cause the same to be
discharged of record or bonded around within ten (10) days after notice to
Subtenant; and Subtenant shall indemnify defend, with counsel approved by
Landlord and Master Landlord, and hold harmless Landlord and Master Landlord and
all mortgagees against and from all costs, liabilities, suits, penalties, claims
and demands, including reasonable attorney's fees, resulting therefrom. If
Subtenant fails to comply with the foregoing provisions, Landlord or Master
Landlord shall have the option of discharging or bonding around any such lien,
charge, order, or encumbrance, and Subtenant agrees to reimburse Landlord or
Master Landlord, as the case may be, promptly upon demand, for all actual costs,
expenses and other sums of money in connection therewith (as additional rent)
with interest accruing at the rate of ten percent (10%) per annum from the date
Landlord notifies Subtenant of such discharge or bonding.
9. ASSIGNMENT AND SUBLETTING: Subtenant shall not mortgage or assign this
Sublease or sublet the Demised Premises or any part thereof, directly,
indirectly, by operation of law or in any manner whatsoever or under any
circumstances, without the prior written consent of Landlord. Any attempt to
mortgage, assign or sublet in violation
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of this Section or for purposes not permitted by this Sublease shall be void. No
mortgage, assignment, or subletting shall relieve Subtenant from Subtenant's
primary liability for the full and timely performance of all of Subtenant's
obligations hereunder. No consent by Landlord to any mortgage, assignment or
sublease shall be deemed to imply consent to any other assignment, mortgage or
subletting.
10. SUBTENANT REPAIRS AND ALTERATIONS: Landlord agrees that on or before January
4, 1999 Landlord shall make or cause to be made the repairs set forth on Exhibit
"B". Landlord agrees to make or cause to be made the said repairs in an
expedient manner. . Except for the express repair obligations of the Master
Landlord, if any, and those "repairs" and replacements which would be classified
as capital expenditures under generally accepted accounting principals (said
obligation for such repairs and replacements, to the extent required to be made
under Master Lease by Landlord (as that term is defined herein) shall remain
with Landlord) Subtenant shall maintain, in good order and condition and make
all necessary repairs and replacements, at Subtenant's sole cost and expense,
all aspects of the Demised Premises, all fixtures, equipment, and improvements
whether exterior, interior, structural and non-structural, and any and all
improvements made by Subtenant.Subtenant hereby agrees to make, at Subtenant's
expense, such repairs, alterations, modifications, and improvements to the
Demised Premises as may be required by any governmental authorities with
jurisdiction over the Demised Premises, including but not limited to any
required under the Americans with Disabilities Act ("ADA"), except to the
extent, if any that such repairs fall within the scope of repairs to be made by
Master Landlord and excepting repairs and replacements which, if made would be
classified as capital expenditures under generally accepted accounting
principles.
Upon obtaining Landlord's and Master Landlord's (if applicable) written
approval of plans and specifications, but not sooner, Subtenant may make and
shall pay for any alterations and improvements to Demised Premises so approved.
Subtenant agrees that all such alterations and improvements shall be made in a
good and workmanlike manner and in a fashion so as not to diminish the value or
utility of Demised Premises, and shall not violate the Master Lease or this
Sublease and shall be in compliance with all laws, rules, regulations, building
codes applicable to such alterations and improvements. Subtenant may paint,
erect or authorize the installation of signs which Subtenant deems necessary to
the operation of its business on the Demised Premises,
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but only after securing written approval of sign design from Landlord and Master
Landlord, which approval shall not be unreasonably withheld by Landlord and
Master Landlord unless Landlord deems the names, marks, colors, logos and/or
other symbols found on said design to be similar to those of Landlord's or
unless not permitted by the Master Lease or Master Landlord. Except as expressly
provided to the contrary herein, Landlord shall not be required to perform any
alterations, repairs, replacements or improvements. Landlord shall reasonably
cooperate with Subtenant in requesting that the Master Landlord perform its
repair obligations, if any, under the Master Lease.
Notwithstanding any other provision to the contrary in this section or any
other section of this Sublease Agreement, any repair, replacement, alteration,
modification or improvement which is required because of the nature of
Subtenant's use or occupancy of the Demised Premises shall be made at
Subtenant's sole cost and expense irregardless of its classification as a
capital expenditure or otherwise.
11. SUBTENANT'S FIXTURES: Subject to Section 5.2.3 of the Master Lease,
Subtenant may install in Demised Premises such trade fixtures, equipment and
other personal property as Subtenant deems desirable and subject to Exhibit "C",
all of said items shall remain Subtenant's property whether or not affixed or
attached to Demised Premises and shall be removed from Demised Premises prior to
the expiration or termination of the Term of this Sublease. Subtenant shall,
prior to the expiration of the Term, repair any and all damage to Demised
Premises caused by Subtenant's installation, maintenance, use and/or removal of
all such trade fixtures, equipment or personal property.
12. COMPLIANCE WITH LAWS: Subject to the obligations of the Master Landlord
under the Master Lease, Subtenant shall make and pay for all improvements and
alterations required by order or authority of any governmental entity with
jurisdiction over the Demised Premises. Provided however, Subtenant shall not
be required to make improvements and alterations which, if made would be
classified as capital expenditures under generally accepted accounting
principles. Notwithstanding the previous statement, if alterations and
improvements are .required by any governmental entity with jurisdiction over
the Demised Premises due to the nature of Subtenant's use and occupancy of the
building or are required by any authority as a condition to make Subtenant's
desired alterations and improvements, Subtenant shall, at its sole cost and
expense make all required alterations and improvements. Subtenant shall comply
with
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all statutes, ordinances, laws, rules or regulations of any governmental
authority promulgated after the commencement of the Term applying to the use,
occupancy and physical condition of the Demised Premises, including but not
limited to the American With Disabilities Act ("ADA").
Landlord represents and warrants that, to the best of its knowledge, the
Demised Premises, as of the date of this Sublease, complies with all statutes,
ordinances, laws, rules and regulations.
13. UTILITIES: Landlord shall have no obligation to provide the Demised Premises
with utilities (including, but not limited to sanitary and storm sewer
facilities, water, electric power and gas) nor shall Landlord have obligation or
liability for any interruption or stoppage thereof. Subtenant shall pay any
"tap" fees or other charges for the installation or connection of oil, gas,
electricity, water, telephone, sanitary sewer, storm or drainage sewer or ditch,
and any and all other utilities for the Demised Premises. Subtenant must obtain
Landlord's written approval prior to making additions or material alterations to
existing utilities. Subtenant agrees to reimburse Landlord for a pro rata share
of the utilities consumed in Demised Premises, during the Term, or any
subsequent Renewal Period. The amount to be reimbursed by the Subtenant shall be
calculated by multiplying the monthly utility bill by a fraction, the numerator
of which shall be the approximate square footage leased (214,851) and the
denominator of which will be the approximate square footage of the entire
premises (249,851).
14. DELIVERY OF THE DEMISED PREMISES: On the effective date of this Sublease,
Landlord shall deliver 75 % of the Demised Premises. The entire Demised Premises
shall be delivered on January 1, 1999. The Demised Premises shall be in broom
clean condition and subject to Section 21, the Demised Premises shall contain
mechanical and heating systems, roof, electrical, lighting, loading dock doors,
seals, levelers, sprinkler system and plumbing systems in current good working
order.
15. PUBLIC LIABILITY INSURANCE: Throughout the Term, or any extensions thereof,
Subtenant shall maintain insurance against public liability for injury to
persons(s) (including death) or damage to property occurring on, about or within
the Demised Premises or the building and improvements thereto or the adjoining
sidewalks with insurance companies reasonably acceptable to Landlord and
qualified to transact business in the State in which the Demised Premises is
located. Such insurance shall be with minimum single limits of $2,000,000.00 per
occurrence for personal injury, death
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or property damage and destruction, or such greater limits as may be
required by the Master Lease. Subtenant shall deliver to Landlord continuous
certificates of such insurance naming Landlord herein and the Master Landlord as
additional insureds and an agreement by the insurer that said policy may not be
canceled without at least thirty (30) days' prior written notice delivered to
Landlord and Master Landlord. The first of said certificates shall be delivered
to Landlord prior to Subtenant's occupancy of Demised Premises. Said policy
shall provide for a waiver of subrogation and/or indemnity by the insurer and
Subtenant against Landlord and Master Landlord. Subtenant shall, at Subtenant's
cost, maintain continuously throughout the Term, Workman Compensation insurance
in the amount required by applicable law.
Upon failure at any time on the part of Subtenant to provide insurance
as required herein, Landlord may (but is not required) from time to time, as
often as such failure shall occur, without advance notice to Subtenant, obtain
such insurance and pay premiums therefor, or pay any premiums due on any policy
obtained by Subtenant, and any and all sums thus paid for insurance by Landlord
shall be additional rent under this Sublease and shall become and due and
payable on the next day when payment of rent is due, or at Landlord's option, on
any succeeding day. Payment of any such premium by the Landlord shall not be
deemed a waiver of the default in payment by the Subtenant and the Landlord,
whether or not the Landlord shall have paid such premiums, shall have recourse
to all remedies herein before or hereinafter provided in the event of default by
the Subtenant in the performance of the terms and conditions of this Sublease.
16. INDEMNIFICATION: Subtenant agrees to defend, with counsel approved by
Landlord and indemnify and hold Landlord and Master Landlord harmless of and
from any and all liability, including but not limited to damages, expenses,
causes of action, suits, claims, or judgments, resulting from injury or death of
persons or damage or destruction of property on or about or within the Demised
Premises or on or about or within the building located on the Demised Premises
(including but not limited to attorney's fees and court costs) or on or about
the adjoining driveways and sidewalks accruing during the Term of this Sublease
or which arise out of Subtenant's use or occupancy of the Demised Premises.
17. AUTOMOBILE INSURANCE: Subtenant shall carry Automobile Liability Insurance
with an aggregate limit of $2,000,000.00 and to include comprehensive and
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collision coverage. Landlord shall be named as an additional insured. Said
policy shall provide for a waiver of subrogation and/or indemnity by the insurer
and Subtenant against Landlord and Master Landlord. Additionally, said insurance
shall contain a "notice of cancellation provision" providing for notice to the
Landlord thirty (30) days prior to the effective date of cancellation.
18. CONDEMNATION & CASUALTY: (A) Termination of this Sublease will be effective
as of the date Landlord and Subtenant mutually agree to terminate or Master
Landlord terminates the Master Lease due to casualty or condemnation under power
of eminent domain (including but not limited to any conveyance in lieu thereof).
(B) Subtenant may terminate this Sublease due to casualty or
condemnation upon the occurrence of any event that would permit Landlord to
terminate the Master Lease provided that Subtenant actually delivers to Landlord
a notice of termination of this Sublease at least five (5) week days, exclusive
of federal holidays prior to the outside date, if any, for termination of the
Master Lease by Landlord. Notwithstanding the foregoing, in the event of a
casualty or taking which results in damage which can not be restored within
three (3) months after the date thereof, Subtenant's election to terminate this
Sublease shall be made within thirty (30) days after the casualty or taking.
(C) Landlord will have no obligation to repair or restore any damage or
destruction due to casualty or condemnation or to pay for or restore any of
Subtenant's personal property or improvements lost as a result of casualty or
condemnation. In cases in which this Sublease is not terminated as provided
above and in which the Master Landlord does not restore, the Subtenant under
this Sublease may restore or have an additional right to terminate this Sublease
if the premises are not reasonably useable for Subtenant's business. If
Subtenant should elect to restore, Subtenant shall promptly restore the Demised
Premises to the same quality and character as existed prior to the casualty, at
Subtenant's cost except to the extent, if any, which proceeds are made available
therefor by Master Landlord.
(D) Subtenant under this Sublease shall have no right to any
condemnation award that would reduce the amount of the reward otherwise payable
to Master Landlord or to Landlord. Landlord shall not be entitled to any portion
of the award made directly to Subtenant for the value of Subtenant's fixtures or
other personal property. Subtenant shall not be entitled to any damages for the
unexpired part of the Term of this Sublease, or injury to its leasehold
interest.
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(E) Subtenant shall have no claim to insurance proceeds of Master
Landlord or Landlord due to casualty. Subtenant is to insure all its property
and improvements against fire and casualty in the amount of the full replacement
value thereof and said policy shall provide for a waiver of subrogation and/or
indemnity by the insurer and Subtenant against Landlord and Master Landlord. In
no event shall Landlord or Master Landlord be obligated to insure any of
Subtenant's property and/or improvements and neither shall have an obligation to
replace or pay for any of the same in any event.
(F) Subtenant releases Landlord, Landlord's officers, directors,
employees, and agents from liability or responsibility for any loss or damage to
the Demised Premises, the improvements thereto, and Subtenant's equipment,
fixtures and any of Subtenant's merchandise or other property or improvements
which may arise as a result of a fire or any other event.
(G) The foregoing releases shall apply not only to the liability and
responsibility of the parties to each other; they shall also extend to the
liability and responsibility of anyone claiming through or under either party as
a result of a right of subrogation.
(H) Subtenant shall cause its insurer to include a waiver of subrogation
in the policies insuring against the loss or damage referred to in this Section.
(I) In the event of casualty or condemnation, Rent and additional rent
under this Sublease will abate but only to the extent, if any, the occurrence of
such casualty or condemnation claim allows for the abatement of Rent and
Additional Rent under the Master Lease.
19. SUBTENANT'S DEFAULT: In the event that Subtenant: (A) allows any default to
occur by some action or inaction on its part; (B) fails to pay, on a timely
basis (which is hereinafter defined as paid prior to the date a late charge
becomes due) any portion of any Rent or any other sum when due hereunder ; (C)
fails to furnish certificates of Subtenant's required insurance to Landlord or
fails to maintain same in full force and effect; (D) becomes bankrupt, insolvent
or files any debtor proceeding, takes action or has action taken against it for
all or a portion of Subtenant's assets, files a petition for corporate
reorganization, makes an assignment for the benefit of creditors or in any other
manner then Subtenant's interest hereunder shall pass to another by operation of
law; (E) commits waste to or abandons the Premises; or (H) is otherwise in
default hereunder, then Subtenant is in default under this Sublease.
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In the event of any default in Subtenant's obligations under this
Sublease, Landlord may, at Landlord's option, with or without court order
re-take possession of the Premises by force or otherwise, terminate this
Sublease or exercise any and all other remedy lawfully available under the
circumstances from time to time and Landlord shall have the right to remove
Subtenant's personal property from the Premises. Except in the instance that the
Master Lease is terminated due to a breach by Landlord thereunder, Subtenant
hereby indemnifies and holds Landlord harmless for any loss or damage that
Landlord may incur as a result of termination of this Sublease, re-entry without
termination of this Sublease and/or removal of Subtenant's property. No re-entry
by Landlord or termination shall terminate Subtenant's obligations under this
Sublease.
Subtenant agrees to pay all costs of collection, including reasonable
attorney's fees, if all or any part of Rent or additional rent or other sums due
hereunder or damages are collected after maturity with the aid of an attorney.
Subtenant also agrees to pay reasonable attorney fees in the event it is
necessary for the Landlord to employ an attorney to force the Subtenant to make
any such payments or comply with the covenants, obligations, or conditions of
this Sublease.
The above rights and remedies are not exclusive and in the event of any
default of Subtenant that is not cured within the notice period aforesaid,
Landlord may pursue and all rights and remedies available at law or in equity.
Upon terminating this Sublease or otherwise re-entering the Demised Premises due
to default of Subtenant, Landlord shall be obligated to use good faith efforts
to re-let Demised Premises and Landlord may re-let to such persons, and for such
lengths of time, and rents and other terms as Landlord deems best, without
relieving Subtenant of Subtenant's obligations under this Sublease. In the event
the Demised Premises are re-let, Subtenant shall be liable to Landlord for all
costs incurred in such re-letting including but not limited to broker fees and
commissions, difference in the rent due hereunder and rent obtained and attorney
fees.
Additionally, if Subtenant fails to pay or perform any of its
obligations under this Sublease, Landlord may cure such defaults at Subtenant's
cost, and Subtenant shall reimburse Landlord's cost of cure upon demand, as
additional rent payable hereunder.
20. NON-WAIVER (A) Neither acceptance of Rent (or any portion thereof) or any
other sums payable by Subtenant hereunder (or any portion thereof) by Landlord
nor
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failure by Landlord to complain of any action, non-action or default of
Subtenant shall constitute a waiver as to any breach of any covenant or
condition of Subtenant contained herein nor a waiver of any of Landlord's rights
hereunder. Waiver by Landlord of any right for any default of Subtenant shall
not constitute a waiver of any right for either a prior or subsequent default of
the same obligation or for any prior or subsequent default or any other
obligation. No right or remedy of Landlord hereunder or covenant, duty or
obligation of Tenant hereunder shall be deemed waived by Landlord unless such
waiver be in writing, signed by Landlord.
(B) Any failure by Subtenant to declare a default against Landlord shall
not constitute a waiver as to any breach of any covenant or condition of
Landlord contained herein nor a waiver of any of Tenant's rights hereunder.
Waiver by Subtenant of any right for any default of Landlord shall not
constitute a waiver of any right for either a prior or subsequent default of the
same obligation or for any prior or subsequent default of any other obligation.
No right or remedy of Subtenant hereunder or covenant, duty or obligation of
Landlord hereunder shall be deemed waived by Subtenant unless such waiver be in
writing, signed by the Subtenant.
21. SUBTENANT'S RIGHT TO INSPECT: Subject to the work to be performed by
Landlord hereunder and as set forth on Exhibit "B" and pursuant to the terms of
this Sublease, Subtenant accepts the Demised Premises in an "AS IS" condition.
Subtenant shall have a period of seven (7) calendar days from the date this
Sublease is fully executed to inspect the Demised Premises (hereinafter
"Inspection Period"). Subtenant shall be responsible for all of its obligations
under this Sublease, during this Inspection Period. During this Inspection
Period, Subtenant may, subject to approval when required by the terms of this
Sublease, alter, modify, and commence any construction of the Demised Premises.
Subtenant may waive any portion of the Inspection Period by furnishing written
notice and thereby fully accepting the Demised Premises "AS IS." In
consideration for such inspection, Landlord hereby disclaims and, to the maximum
extent permitted by law, Subtenant hereby waives all claims for breach of
representation or warranty as to the condition of the Demised Premises, whether
express or implied, including without limitation, any implied warranty of
suitability or fitness for any particular purpose. In the event Subtenant
determines during the Inspection Period that the systems which are represented
to be in good working condition in Section 14 are not, Subtenant shall notify
Landlord in writing and Landlord,
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at its sole cost and expense and within a reasonable period, shall investigate
and rectify the same or, to the extent the Master Landlord is responsible for
repairs, if any, under the Master Lease, Landlord shall use its best efforts to
cause MasterLandlord to rectify the same. If Subtenant fails to provide such
notice to Landlord prior to the expiration of the Inspection Period, Subtenant
shall be deemed to have accepted the Demised Premises in "AS IS" condition and
any claims to the contrary shall be deemed to have been waived and of no further
force or effect.
Notwithstanding the foregoing, the representations made in Section 12
shall survive the Inspection Period.
22. HAZARDOUS SUBSTANCES: Subtenant shall not use in any way, or permit or
suffer the use of Demised Premises or any part thereof, either directly or
indirectly, for the preparation, production, generation, manufacturing,
refining, treatment, transportation, storage, maintenance, handling, disposal
of, transfer, or processing of any Hazardous Substance except for storage and
removal of goods customary to Subtenant's business, which shall in all ways
comply with all the requirements of governmental authorities applicable thereto,
and all of which shall be removed by Subtenant from Demised Premises in
compliance with all requirements of governmental authorities applicable thereto
prior to the expiration or termination of this Sublease and all at Subtenant's
sole cost and expense. "Hazardous Substance" means any pollutant, contaminant,
toxic or hazardous waste, dangerous substance, potentially dangerous substance,
noxious substance, toxic substance, flammable, explosive, radioactive material,
urea formaldehyde foam insulation, asbestos, PCB's, or any other substances the
removal of which is required, or the manufacture, preparation, production,
generation, use, maintenance, treatment, storage, transfer, handling, disposal,
discharge or ownership of which is restricted, prohibited, regulated or
penalized by any federal, state, county or municipal statutes or laws, rules or
regulations now or at any time hereafter in effect, including but not limited
to, the Comprehensive Environmental Response, Compensation, and Liability Act
(42 USC 'SS' 9601 et, seq.); and the Resource Conservation and Recovery Act
(42 USC 'SS' 6901 et seq.) as these laws have been or may be amended or
supplemented.
Subtenant represents and warrants that no Hazardous Substance will be
stored (except as expressly permitted in this Section) on the Demised Premises
and that during the Term of this Sublease, no Hazardous Substance will be
discharged, spilled or
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leaked on or within Demised Premises or the improvements thereto. Subtenant
agrees that such representations and warranties shall survive any termination of
this Sublease and Subtenant agrees to indemnify and hold harmless the Landlord
and Master Landlord from any and all costs, expenses, claims and damages,
including but not limited to attorney's fees and costs of remediation, arising
from Subtenant's breach of any of the agreements, prohibitions, representations,
and/or warranties of this Section. Landlord acknowledges that Subtenant shall
have no liability for existing environmental conditions on the Demised Premises
as of the date of this Sublease, nor shall Subtenant be responsible for any
environmental conditions hereafter caused by Landlord or any other tenant of the
Property or said tenant's agents, employees, or contractors.
23. NOTICE:All notice or demands required or permitted to be
given or served pursuant to this Sublease shall be deemed to have been given or
served only if in writing, postage and or shipping charges pre-paid and sent by
Federal Express or Certified Mail, Return Receipt Requested:
If via U.S. Mail:
<TABLE>
<S> <C>
LANDLORD: SUBTENANT:
ADAP, Inc. Quaker Fabric Corporation of Fall River
C/O AutoZone, Inc. 941 Grinnell St.
P.O Box 2198 Fall River, Massachusetts 02721
Dept. 9999 Attention: Vice President and General Counsel
</TABLE>
Memphis, TN 38101-9842
Attention: Sr. Vice President, Distribution.
If via Federal Express:
ADAP, Inc.
C/o AutoZone, Inc.
60 Madison Ave.
Memphis, TN 38103
Attention: Sr. Vice President, Distribution.
Address may be changed by either party by serving notice as above
provided.
24. GENERAL PROVISIONS: (A) If and as long as Subtenant shall pay the
Rent and additional rent and other sums payable hereunder when due and shall
perform and observe all covenants, conditions and obligations herein and in the
Master Lease
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contained on the part of the Subtenant to be performed and observed, the
Landlord covenants that the Subtenant may quietly hold, occupy and enjoy the
Demised Premises for the uses and purposes permitted by this Sublease.
(B) The captions and numbered Sections of this Sublease are inserted for
convenience only and are not a part of this Sublease and do not in any way limit
or amplify the terms and provisions of this Sublease.
(C) All the provisions of this Sublease shall be construed as covenants
and agreements as though the words importing such covenants and agreements were
used in each separate Section hereof, and all of the provisions hereof shall
bind and enure to the benefit of the parties hereto, their respective heirs,
legal representatives, successors and assigns.
(D) No amendment or modification of this Sublease shall be effective
unless in writing executed by two corporate officers of the Landlord and by duly
authorized representative(s) of Subtenant.
(E) Time is of the essence of all Landlord's and Subtenant's obligations
and the exercise of all of rights under this Sublease, including but not limited
to any or all rights to terminate this Sublease.
(F) The Sections of this Sublease are intended to be severable. If any
Section or provision shall be held to be unenforceable by any court of competent
jurisdiction, this Sublease shall be construed as though such Section had not
been included in it. If any Section or provision of this Sublease shall be
subject to two constructions, one of which would render such Section or
provision invalid, then such Section or provision shall be given the
construction which would render it valid.
(H) This Sublease shall be governed by and construed in accordance with
the law of the State of Massachusetts.
(I) In the event of default by Landlord hereunder, the officers,
directors, shareholders, agents, or employees of Landlord shall not be held
personally liable.
25. NO OPTION: The submission of this Sublease for examination does not
constitute a reservation of or option for the Demised Premises and this Sublease
becomes effective as a Lease only upon execution and delivery thereof by
Landlord and Subtenant.
26. BROKERAGE: Landlord shall be responsible for the payment of a brokerage fee
equal to six (6) percent of the first year's annual rent and three (3) percent
of the
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annual rent for the second, third, fourth and one-half of the fifth years annual
rent. In the event Subtenant remains in possession of the Demised Premises for
the entire term (that is Subtenant does not exercise its right to cancel) and
has faithfully performed its obligations hereunder, Landlord shall pay broker a
brokerage fee, upon invoicing, equal to three (3) percent of one-half the fifth
year's annual rent. The fee shall be split between Campanelli Companies as
Landlord's exclusive broker and Bob Gibson of CB Richard Ellis as exclusive
broker for Subtenant. Both brokers will be required to sign documentation
required by Landlord evidencing a waiver of claims for nonpayment or for any
other cause upon receipt of payment of the broker fee discussed herein. No
waiver will be required for the potential fee in the fifth year. Subtenant
agrees to indemnify Master Landlord, Landlord, brokers and managers or other
named party from third party brokerage fee claims and lawsuits associated with
this transaction and claimed or asserted to be owing in connection with services
rendered to Subtenant, including, but not limited in any manner to any claim
made by Cushman & Wakefield for fees claimed owing. Landlord agrees to indemnify
Subtenant, brokers and managers or other named party from third party brokerage
fee claims and lawsuits associated with this transaction and claimed or asserted
to be owing in connection with services rendered to Landlord.
THIS SUBLEASE SHALL NOT BE RECORDED.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
LANDLORD: SUBTENANT:
ADAP, Inc.
By:____________________________ By:__________________________
Title:_________________________ Title:_________________________
By:____________________________ By:__________________________
Title__________________________ Title:_________________________
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EXHIBIT B
Landlord shall, at its sole cost and expense, in an expedient manner, perform or
cause to be performed the following:
1. Remove Dumpster from Door 1;
2. Repair existing leaks in roof;
3. Remove all racks and conveyors in building including floor
bolts/ceiling mounts;
4. if required by local code, install a demising wall, isolating the
warehouse from the office space as set forth on Exhibit A-1;
5. Designate on Exhibit A-1 twenty-nine (29) parking spaces to be used
exclusively by Subtenant and its invitees. Provided however, Landlord
is under no obligation to take any steps now or in the future to
ensure that Subtenant and its invitees are in fact the sole user of
said parking areas.
6. Designate on Exhibit A-1 twenty (20) trailer storage bays to be used
exclusively by Subtenant and its invitees with the understanding that
Landlord is under no obligation to take any steps now or in the
future to ensure that Subtenant and its invitees are in fact the sole
user of said parking areas.
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EXHIBIT C
As part of this Sublease, Quaker, at its sole cost and expense and upon
consent when required by the terms of the Sublease, may
1. *Install a business sign on the building in the existing Sign Box;
2. *Mount a business sign on the chain link fence by the road;
3. *Install racking;
4. Remove large room in corner of the building;
5. Remove small room in center of the warehouse;
6. Change the central office area and add a small cafeteria;
7. *Install a battery charging area;
8. *Add local air conditioning/heating;
9. *Add office furniture/cafeteria furniture/office equipment;
10. Remove unused roof heating units and scrap;
11. *Install lighting in offices and warehouse;
12. *Install security cameras;
13. *Install fire extinguishers;
14. Cut concrete, Install manual loading dock levelers at some doors;
15. *Install time clock;
16. *Install phone system and telecommunications equipment;
17. Put a window in the loading dock door in front of the office;
18. Install a ramp to new door at end of the building for drive in access;
19. Paint Walls/ceiling;
20. *Install guard rails/curbs for controlling forktruck activity;
21. Construct a QC Office near front center of Demised Premises;
22. Install trailer pad of concrete if/where applicable;
23. Made modifications to meet code/fire/insurance;
24. *Construct a propane storage area for 1,000 gallon tank outside;
25. *Add intercom system;
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26. Remove and scrap some defective loading dock door seals;
27. Remove and reinstall some of the better seals onto used doors;
28. *Install and emergency spill kit;
29. *Install a first aid kit;
30. *Install a truck battery transfer unit;
31. *Suspend vacuums from the walls; and
32. *Install a radio frequency system for inventory management purposes.
All the aforementioned, excepting those items preceded by an "*" shall become
part of the Demised Premises. Neither Landlord nor Subtenant shall be required
to remove the same. Those items preceded by an "*" are items which Subtenant
reserves the option to remove upon the expiration or termination of the
Sublease. In the event Subtenant elects not to remove these items the Landlord
shall have the option, but in no event be required to remove the same.
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made as of the 6th
day of January, 1999 by and among Montaup Electric Company, a Massachusetts
corporation ("Seller"), Quaker Fabric Corporation of Fall River, a Massachusetts
corporation ("Buyer"), and joined in for the limited purposes set forth herein
by James P. Killoran, Esq., as escrow agent ("Escrow Agent").
BACKGROUND
A. Seller is the owner of all that certain real property consisting of
approximately 8.82 acres of land, more or less, located in Fall River,
Massachusetts, as more particularly described in EXHIBIT A hereto, together with
all easements, rights and privileges appurtenant thereto (the "Property").
B. Seller is prepared to sell, transfer and convey the Property to
Buyer, and Buyer is prepared to purchase and accept the same from Seller, all
for the purchase price and on the other terms and conditions hereinafter set
forth.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties hereto agree:
1. Sale and Purchase. Seller hereby agrees to sell, transfer and convey
the Property to Buyer, and Buyer hereby agrees to purchase and accept the
Property from Seller, in each case for the purchase price and on and subject to
the other terms and conditions set forth in this Agreement.
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be Two Hundred Five Thousand Dollars ($205,000) which, subject to
the terms and conditions hereinafter set forth, shall be paid to Seller by Buyer
as follows:
2.1. Deposit. Upon the execution of this Agreement by Seller
and Buyer, Buyer shall deliver to Escrow Agent, in immediately available funds,
to be held in escrow and delivered in accordance with this Agreement, an initial
cash deposit in the amount of Twenty-Five Thousand Dollars ($25,000). Prior to
expiration of the Inspection Period (as defined in Section 4.5.2 below), Buyer
shall deliver to Escrow Agent, in immediately available funds, to be held in
escrow and delivered in accordance with this Agreement, an additional cash
deposit in the amount of Twenty-Five Thousand Dollars ($25,000). Such amounts,
with all interest earned thereon, shall hereinafter be referred to as the
"Deposit".
<PAGE>
<PAGE>
2.2. Payment at Closing; Funding Agreement. At the
consummation of the transaction contemplated hereby (the "Closing"), Buyer shall
deliver to Escrow Agent cash in an amount equal to the Purchase Price less the
Deposit. The Purchase Price, subject to adjustments and apportionments as set
forth herein, shall be paid at Closing by wire transfer of immediately available
federal funds, transferred to the order or account of Seller or such other
person as Seller may designate in writing.
3. Representations and Warranties of Seller. Seller represents
and warrants to Buyer as ollows:
3.1. Authority. Seller is a corporation, duly organized and
validly existing under the laws of the Commonwealth of Massachusetts and has all
requisite power and authority to enter into this Agreement and perform its
obligations hereunder.
3.2. No Conflict. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereunder on the part of
Seller do not and will not conflict with or result in the breach of any material
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge, or encumbrance upon any of the Property or
assets of the Seller by reason of the terms of any contract, mortgage, lien,
lease, agreement, indenture, instrument or judgment to which Seller is a party
or which is or purports to be binding upon Seller or which otherwise affects
Seller, which will not be discharged, assumed or released at Closing. No action
by any federal, state or municipal or other governmental department, commission,
board, bureau or instrumentality is necessary to make this Agreement a valid
instrument binding upon Seller in accordance with its terms.
3.3. No Leases. There are no leases or occupancy agreements
currently in effect which affect the Property.
3.4. No Condemnation. Seller has not received any written
notice of and to the best of Seller's knowledge there is no pending or
contemplated condemnation, eminent domain or similar proceeding with respect to
all or any portion of the Property.
3.5. No Rights in Others. No person or other entity has any
right or option to acquire, lease or occupy all or any portion of the Property.
3.6. Contracts. There are no construction, management,
leasing, service, equipment, supply, maintenance, concession or other agreements
in effect with respect to the Property.
3.7. Compliance. To the best of Seller's knowledge, Seller has
not received written notice of any existing violation of any federal, state,
county or municipal laws,
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ordinances, orders, codes, regulations or requirements affecting the Property,
except for the correspondence attached hereto as Schedule 3.7.
3.8. Litigation. There is no action, suit or proceeding
pending or, to the best of Seller's knowledge, threatened against or affecting
the Property, or arising out of the ownership, management or operation of the
Property, this Agreement or the transactions contemplated hereby.
3.9. Omitted.
3.10. FIRPTA. Seller is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code.
3.11 Omitted.
3.12 Bankruptcy. Seller, as debtor, has not filed or been the
subject of any filing of a petition under the Federal Bankruptcy Law or any
insolvency laws, or any laws for composition of indebtedness or for the
reorganization of debtors.
3.13 Accuracy of Information. Without limitation, all
information provided, or to be provided, by Seller to Buyer pursuant to this
Agreement is or will be complete and accurate in all material respects to the
best of Seller's knowledge.
4. Conditions Precedent to Buyer's Obligations. All of Buyer's
obligations hereunder are expressly conditioned on the satisfaction at or before
the time of Closing hereunder, or at or before such earlier time as may be
expressly stated below, of each of the following conditions (any one or more of
which may be waived in writing in whole or in part by Buyer, at Buyer's option):
4.1. Accuracy of Representations. All of the representations
and warranties of Seller contained in this Agreement shall have been true and
correct in all material respects when made to the best of Seller's knowledge,
and shall be true and correct in all material respects on the date of Closing
with the same effect as if made on and as of such date.
4.2. Performance. Seller shall have performed, observed and
complied with all material covenants, agreements and conditions required by this
Agreement to be performed, observed and complied with on its part prior to or as
of Closing hereunder.
4.3. Documents and Deliveries. All instruments and documents
required on Seller's part to effectuate this Agreement and the transactions
contemplated hereby shall be delivered to Buyer and shall be in form and
substance consistent with the requirements herein.
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4.4. Off-Site and Permitting Conditions. Prior to the Closing,
Buyer shall have acquired adjacent parcels of land owned by Terrance LaBerge,
Pelletier, and the Boyd Center, and shall have received from the City of Fall
River commitments satisfactory to Buyer to provide adequate utility service and
road and bridge access to the Property. In addition, Buyer shall have received
such permits and approvals as may be required from federal, state and local
officials having jurisdiction for the development of a facility for Buyer's
corporate activities on the Property. The conditions set forth in this Section
4.4 shall be acceptable to Buyer in its sole discretion; such conditions are
hereafter referenced as the "Section 4.4 Conditions". At any time during the
term of this Agreement, Buyer may terminate this Agreement by giving written
notice that the Section 4.4 Conditions have not been satisfied, in which event
the Deposit shall be returned forthwith to Buyer and, except as expressly set
forth herein, neither party shall have any further liability or obligation to
the other hereunder.
4.5. Inspection Period; Access; Purchase "As Is".
4.5.1. During the term of this Agreement, Buyer, its agents
and representatives, shall be entitled to enter upon the Property, upon
reasonable prior notice to Seller, to perform inspections and tests of the
Property, including surveys, environmental studies, examinations and tests.
Buyer shall repair any damage to the Property caused by any tests or
investigations conducted by Buyer, and indemnify Seller from any and all
liabilities, claims, costs and expenses resulting therefrom. The foregoing
indemnification shall survive Closing or the termination of this Agreement.
During the Inspection Period, Buyer shall also seek the approval of the
transaction contemplated by this Agreement by its Board of Directors. Buyer
shall cause its agents to provide evidence of public liability insurance which
names Seller as an additional insured in the minimum amount of One Million
Dollars ($1,000,000.) as a condition of such entry.
4.5.2. The term "Inspection Period," as used herein, shall
mean the period ending on the date which is sixty (60) days after the date of
execution of this Agreement by Buyer and Seller. Buyer may terminate this
Agreement by giving written notice of such election to Seller on any day prior
to and including the final day of the Inspection Period, in which event the
Deposit shall be returned forthwith to Buyer and, except as expressly set forth
herein, neither party shall have any further liability or obligation to the
other hereunder. In the absence of such written notice, the contingency provided
for in this Section 4.5.2 no longer shall be applicable, and this Agreement
shall continue in full force and effect.
4.6. Survey. Buyer shall approve or disapprove the Survey, as
hereinafter defined, in the following manner:
(a) Notice. Within forty-five (45) days after the date hereof,
Buyer shall obtain, at Buyer's expense, a survey of the Property by a
licensed surveyor or civil engineer, in sufficient detail to provide
the basis for an ALTA owner's title insurance
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policy, showing the location of all easements, improvements and
boundary encroachments (the "Survey"). On or before the expiration of
the Inspection Period, Buyer shall give notice to Seller of Buyer's
approval of the Survey or disapproval of any matters thereon ("Survey
Exceptions"). Buyer's failure to give any notice within the time limit
shall be deemed approval of the Survey, and this contingency shall be
deemed satisfied.
(b) Survey Cure Period. Seller shall use reasonable efforts to
remove any Survey Exceptions within sixty (60) days after Buyer's
notice of disapproval ("Survey Cure Period"). In the event that any
such Survey Exceptions are not reasonably capable of cure, or if such
cure would have a cost which exceeds $5,000, either party may terminate
this Agreement, unless the other party agrees to assume the cost of
such cure (or, if the same cannot be cured, Buyer may waive the same).
(c) Waiver of Uncured Matters. If Seller does not cure any
Survey Exceptions within the Survey Cure Period, Buyer shall have five
(5) days to give Seller written notice that Buyer waives its objections
to the Survey Exceptions. If Buyer does not give such notice, this
contingency shall be deemed not satisfied.
(d) Approved Survey. The Survey as approved by Buyer is
referred to herein as the "Approved Survey".
4.7. Title. Buyer shall review and approve or disapprove the
condition of title to the Property in the following manner:
(a) Report and Notice. Within forty-five (45) days after the
date hereof, Buyer shall obtain, at Buyer's expense, a title report
("Title Report") on the Property, together with copies of all documents
underlying any encumbrances to title ("Exceptions") shown on the Title
Report. On or before the expiration of the Inspection Period, Buyer
shall give notice to Seller of Buyer's approval of the Title Report or
disapproval of any of the Exceptions. Buyer's failure to give any
notice within the time limit shall be deemed approval of the Title
Report, and this contingency shall be deemed satisfied.
(b) Title Cure Period. Seller shall use reasonable efforts,
within sixty (60) days after notice of Buyer's disapproval of any
Exceptions (the "Title Cure Period"), to (i) remove any disapproved
Exceptions or (ii) agree to remove any disapproved Exceptions on or
before the Closing. If Seller gives notice, within the Title Cure
Period, that Seller will remove any such disapproved Exception on or
before the Closing, such Exception shall be deemed removed for purposes
hereof, Seller shall be obligated to remove such Exception on or before
the Closing, and Seller's failure to remove such exception on or before
the Closing shall be a default by Seller hereunder. With respect to any
Exception consisting of a financial encumbrance such as a mortgage,
deed of trust, or other debt
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security, or any delinquent real estate taxes or mechanic's liens
outstanding against the Property, such matter shall automatically be
deemed a disapproved Exception; Seller hereby covenants to remove any
such Exception on or before the Closing. Except as to voluntary
monetary encumbrances as to which there shall be no limit upon Seller's
obligations hereunder, Seller shall not be obligated to expend more
than $5,000 in the cure of any disapproved Exceptions.
(c) Waiver of Uncured Exceptions. If Seller does not remove or
agree to remove any disapproved Exception within the Title Cure Period,
Buyer shall have five (5) days to give Seller notice that Buyer waives
its objections to such Exception. If Buyer does not give such notice,
this contingency shall be deemed satisfied.
(d) Approved Title. The condition of title as approved by
Buyer is referred to herein as the "Approved Title".
(e) Later Changes to Condition of Title. Buyer shall have the
right to approve or disapprove any exceptions to title that are
revealed by the Survey or become of record after there is an Approved
Title.
(f) Relocation of Electrical Easement. Seller hereby
acknowledges that Buyer's obligations under this Agreement are
expressly conditioned upon the agreement by Seller to permit the
relocation of the electrical easement and all equipment and facilities
associated therewith which encumbers the Premises, as well as the
relocation of the electrical easement and all equipment and facilities
associated therewith which encumbers land owned by LaBerge and
Pelletier (collectively, the "Relocation"), in such a manner as to
enable Buyer to undertake the development of its proposed facilities on
such properties in a manner acceptable to Buyer and Seller,
substantially as shown on Exhibit B1.
To accomplish the foregoing, Seller and Buyer hereby agree as follows:
(i) Seller hereby agrees to hire by January 31, 1999 an
outside consultant to assist in the preparation of a
design and cost analysis of the Relocation (the
"Relocation Study"). During the month of January,
Buyer shall seasonably provide such engineering
information regarding its proposed project as Seller
may reasonably require to enable the Relocation Study
to proceed, including soil borings for proposed pole
relocation areas as shown on the attached Exhibit
B-1. Simultaneously with the execution of this
Agreement, Buyer shall pay Seller the non-refundable
sum of $80,000.00, which sum shall be used by Seller
to pay for the outside consultant and all of Seller's
other costs associated with the Relocation Study.
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(ii) After Seller has engaged its outside consultant,
Buyer shall work cooperatively with Seller, and with
the outside consultant as needed, to determine the
design and cost for the Relocation which accommodates
Buyer's proposed project and Seller's easement
transmission line and is as economical as possible,
all in accordance with sound engineering practices.
The period from such engagement through March 31,
1999 is referred to herein as the "Study Period").
During the Study Period, Seller shall commission its
retail business service department to prepare its
proposal for the design and cost of electrical
service to Buyer's proposed project (the "Project
Service"). By no later than March 31, 1999 (provided
that Buyer has provided to Seller the information
required under item (i) above by January 31, 1999),
Seller shall make a final proposal to Buyer for the
design and cost of the Relocation and the Project
Service. By no later than April 30, 1999, Buyer shall
either accept Seller's proposal, in which case this
Agreement shall remain in full force and effect, or
Buyer shall reject Seller's proposal, in which case
this Agreement shall terminate, the Deposit (but not
the $80,000.00 paid under item (i) above) shall be
returned to Buyer, and neither party shall have
further recourse hereunder.
(iii) During the Study Period, Seller and Buyer shall agree
upon the schedule upon which the Relocation and
Project Service work shall be completed. Buyer
acknowledges that the schedule must contemplate a
spring or fall service change over, that Seller must
be given an adequate time period to order the
equipment necessary for the approved plans, and that
appropriate financial arrangements for the cost of
the equipment and the relocation must be made before
the same is ordered and/or undertaken by Seller.
Buyer further acknowledges that the schedule for
performance of the work is subject to approval by the
ISO, Buyer's acquisition of the Premises and other
properties on which the Relocation is to be
accomplished and completion of permitting at the time
contemplated in the schedule, and is further subject
to delay occasioned by adverse weather conditions,
labor difficulties, strikes, earthquakes, and other
similar Acts of God. On its part, Seller acknowledges
that the Relocation and Project Service are critical
elements of Buyer's proposed project, and agrees to
work as expeditiously as possible to meet the agreed
upon schedule.
(iv) Buyer shall be responsible for obtaining all
governmental permits and approvals necessary for the
Relocation and the Project Service, provided that (a)
Seller shall cooperate with Buyer in the permitting
process, (b) Buyer shall promptly submit to Seller
for its review and approval upon preparation of the
same all permit applications and studies affecting
the Relocation and Project Service, and (c) Seller
agrees to respond promptly
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to Buyer's submissions so as to enable Buyer's
permitting process to proceed to its targeted
conclusion of June, 1999. As a condition of closing,
Buyer shall certify to Seller that Buyer has obtained
all governmental permits and approvals required for
the Relocation and the Project Service, and shall
provide Seller with copies of the same.
(v) Buyer shall provide to Seller as a condition of
closing an owner's policy of title insurance issued
by a title insurance company acceptable to Seller and
an ALTA survey of the Relocation, which insurance
shall be in the amount of $500,000.00, and shall
insure Seller's easement rights subject only to such
matters of record as may be reasonably approved by
Seller's counsel. Seller and Buyer shall agree upon
the form of the specimen title policy, inclusive of
the ALTA survey, and the easement for the Relocation
prior to Closing, provided that Seller shall have no
less than sixty (60) days to review the same. In
addition, Seller shall have the right to review and
approve the status of record title to the proposed
area for the Relocation, which approval or
disapproval shall be given by Seller by written
notice to Buyer by no later than March 31, 1999.
Buyer shall further provide to Seller whatever title
reports and information it presently has in its
possession. Prior to March 31, 1999, Seller and Buyer
shall agree upon the easement document/language for
the relocated easement, and, should they fail to do
so, either party may elect to terminate this
Agreement, in which case this Agreement shall
terminate, the Deposit (but not the $80,000.00 paid
under item (i) above) shall be returned to Buyer, and
neither party shall have further recourse hereunder.
4.8. Material Adverse Change. Between the expiration of the
Inspection Period and the date of Closing, there shall have been no material
adverse change in the condition of the Property, and no change to title or
survey matters from the Approved Title and the Approved Survey shall have
arisen.
5. Failure of Conditions. Except as otherwise provided in Section 9.2
hereof, in the event Seller shall not be able to convey title to the Property on
the date of Closing in accordance with the provisions of this Agreement, then
Buyer shall have the option, exercisable by written notice to Seller at or prior
to Closing, of (i) accepting at Closing such title as Seller is able to convey
and/or waiving any unsatisfied condition precedent, with no deduction from or
adjustment of the Purchase Price, or (ii) declining to proceed to Closing. In
the latter event, except as expressly set forth herein, all obligations,
liabilities and rights of the parties under this Agreement shall terminate, and
the Deposit shall be returned to Buyer.
6. Closing; Deliveries.
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6.1. Time of Closing. The Closing shall take place at 2:00
p.m. on a date specified by written notice from Buyer to Seller at the offices
of James P. Killoran & Associates, P.C. 45 North Main Street, Fall River,
Massachusetts 02720, no later than June 30, 1999, unless otherwise agreed to in
writing by both Seller and Buyer. The Closing may be extended by Buyer upon
written notice to Seller prior to the originally scheduled date for Closing for
up to thirty (30) days, to enable Buyer to satisfy the Off-site Conditions (as
defined in Section 4.4)
6.2. Seller Deliveries. At Closing, Seller shall deliver to
Buyer the following, and it shall be a condition to Buyer's obligation to close
that Seller shall have delivered the same to Buyer:
6.2.1. A Massachusetts Quitclaim Deed to the Property
from Seller, duly executed and acknowledged by Seller and in form reasonably
satisfactory to Buyer, subject only to such title matters as are approved by
Buyer pursuant to Sections 4.6 and 4.7.
6.2.2. Omitted.
6.2.3. Such reasonable and customary affidavits or
letters of indemnity as the title insurer shall require in order to issue,
without extra charge, an owner's policy of title insurance free of any
exceptions for unfiled mechanics' or materialmen's liens for work performed by
Seller prior to Closing, or for rights of parties in possession.
6.2.4. A Non-Foreign Affidavit as required by the
Foreign Investors in Real Property Tax Act ("FIRPTA"), as amended, in the form
of EXHIBIT C, duly executed by Seller.
6.2.5. A certification by Seller that all
representations and warranties made by Seller in Article 3 of this Agreement are
true and correct on the date of Closing, except as may be set forth in such
certificate.
6.2.6 A Clerk's Certificate of Vote from Seller in
form satisfactory to the title insurer to confirm the authority of Seller to
perform its obligations under this Agreement.
6.2.7. All other instruments and documents reasonably
required to effectuate this Agreement and the transactions contemplated hereby.
To the extent possible, all closing documents shall be submitted to Seller's
counsel for its review and approval at least seven (7) days prior to Closing.
6.3. Buyer Deliveries. At Closing, Buyer shall deliver to
Seller the following, and it shall be a condition to Seller's obligation to
close that Buyer shall have delivered the same to Seller:
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6.3.1. In accordance with Seller's instructions, a
wire transfer in the amount required under Section 2.2 hereof (subject to the
adjustments provided for in this Agreement), transferred to the order or account
of Seller or to such other person or persons as Seller shall designate in
writing.
6.3.2. All other instruments and documents reasonably
required to effectuate this Agreement and the transactions contemplated hereby.
7. Apportionments; Taxes; Expenses.
7.1. Apportionments.
7.1 Taxes and Utility Expenses. All real estate taxes, charges
and assessments affecting the Property ("Taxes"), and any water and sewer
charges, shall be prorated on a per diem basis as of the date of Closing. If any
Taxes have not been finally assessed as of the date of Closing for the current
fiscal year of the taxing authority, then the same shall be adjusted at Closing
based upon the most recently issued bills therefor, and shall be re-adjusted
when and if final bills are issued.
7.2. Expenses. Except as otherwise specifically provided in
this Agreement, each party will pay all its own expenses incurred in connection
with this Agreement and the transactions contemplated hereby, including, without
limitation, (1) all costs and expenses stated herein to be borne by a party, and
(2) all of their respective accounting, legal and appraisal fees. Buyer, in
addition to its other expenses, shall pay at Closing (1) all recording charges
incident to the recording of the deed for the Real Property and the easement
relocation documents, and (2) Buyer's title and survey costs. Seller, in
addition to its other expenses, shall pay at Closing all documentary stamps,
deed stamps and realty transfer taxes.
8. Condemnation; Award.
If at any time prior to the date of Closing any material
portion of the Property is condemned or taken by eminent domain proceedings by
any public authority, then, at Buyer's option, this Agreement shall terminate,
and the Deposit shall be returned to Buyer, and except as expressly set forth
herein, neither party shall have any further liability or obligation to the
other hereunder.
If there is any condemnation or taking, as above set forth,
and if Buyer elects not to terminate this Agreement as therein provided, then in
the case of a taking, all condemnation proceeds paid or payable to Seller shall
belong to Buyer and shall be paid over and assigned to Buyer at Closing, less
any expenses incurred by Seller in obtaining such award.
9. Remedies.
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9.1. Buyer Default. In the event Buyer breaches or fails,
without legal excuse, to complete the purchase of the Property or to perform its
obligations under this Agreement, then Seller shall, as its sole remedy
therefor, be entitled to receive the Deposit (and not as a penalty) in lieu of,
and as full compensation for, all other rights or claims of Seller against Buyer
by reason of such default. Thereupon this Agreement shall terminate and the
parties shall be relieved of all further obligations and liabilities hereunder,
except as expressly set forth herein. Buyer and Seller acknowledge that the
damages to Seller resulting from Buyer's breach would be difficult, if not
impossible, to ascertain with any accuracy, and that the liquidated damage
amount set forth in this Section represents both parties' best efforts to
approximate such potential damages. Notwithstanding the foregoing, Buyer shall
be liable to Seller for all amounts owed by Buyer to Seller in accordance with
the terms of Section 4.7(f) in the event of a default or termination of this
Agreement, in addition to the Deposit as aforesaid.
9.2 Seller Default. In the event Seller breaches or fails,
without legal excuse, to complete the sale of the Property or to perform its
obligations under this Agreement, Buyer may, as its sole remedy therefor, either
(i) enforce specific performance of this Agreement against Seller, or (ii)
terminate this Agreement and receive its Deposit from Escrow Agent.
10. Possession. Possession of the Property shall be surrendered to
Buyer at Closing.
11. Notices. All notices and other communications provided for
herein shall be in writing and shall be sent to the address set forth below (or
such other address as a party may hereafter designate for itself by notice to
the other parties as required hereby) of the party for whom such notice or
communication is intended:
11.1. If to Seller: Montaup Electric Company
c/o EUA Service Corporation
750 West Center Street
West Bridgewater, MA 02379
Attn: Ms. Marilyn L. Wayne,
Sr. Real Estate/
Contract Agent
Fax No.: 508-559-1168
With a copy to: James P. Killoran, Esq.
48 North Main Street
Fall River, MA 02720
Fax No.: 508-678-1550
11.2. If to Buyer: Quaker Fabric Corporation of
Fall River
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<PAGE>
941 Grinnell Street
Fall River, MA 02721
Fax No: 508-678-2656
Attn: Cynthia L. Gordan,
Vice President/General Counsel
With a copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Fax No.: 617-526-5000
Attention: Katharine E. Bachman, Esq.
Any such notice or communication shall be sufficient if sent by
registered or certified mail, return receipt requested, postage prepaid; by hand
delivery; or by overnight courier service. Any such notice or communication
shall be effective when deposited with the mail or overnight courier service, or
if by hand, when delivered or when delivery is refused.
12. Brokers. Buyer and Seller each represents to the other that it has
not dealt with any broker or agent in connection with this transaction
("Brokers"). Each party hereby indemnifies and holds harmless the other party
from all loss, cost and expense (including reasonable attorneys' fees) arising
out of a breach of its representation set forth in this Section 12. The
provisions of this Section 12 shall survive Closing or the termination of this
Agreement.
13. Escrow Agent. Escrow Agent shall hold the Deposit in accordance
with the terms and provisions of this Agreement, subject to the following:
13.1. Obligations. Escrow Agent undertakes to perform only
such duties as are expressly set forth in this Agreement and no implied duties
or obligations shall be read into this Agreement against Escrow Agent.
13.2. Reliance. Escrow Agent may act in reliance upon any
writing or instrument or signature which it, in good faith, believes, and any
statement or assertion contained in such writing or instrument, and may assume
that any person purporting to give any writing, notice, advice or instrument in
connection with the provisions of this Agreement has been duly authorized to do
so. Escrow Agent shall not be liable in any manner for the sufficiency or
correctness as to form, manner and execution, or validity of any instrument
deposited in escrow, nor as to the identity, authority, or right of any person
executing the same, and Escrow Agent's duties under this Agreement shall be
limited to those provided in this Agreement.
13.3. Indemnification. Unless Escrow Agent discharges any of
its duties under this Agreement in a negligent manner or is guilty of willful
misconduct with regard to its duties
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<PAGE>
under this Agreement, Seller and Buyer, severally, shall indemnify Escrow Agent
and hold it harmless from any and all claims, liabilities, losses, actions,
suits or proceedings at law or in equity, or other expenses, fees, or charges of
any character or nature, which it may incur or with which it may be threatened
by reason of its acting as Escrow Agent under this Agreement; and in such
connection Seller and Buyer shall indemnify Escrow Agent against any and all
expenses including reasonable attorneys' fees and the cost of defending any
action, suit or proceeding or resisting any claim in such capacity.
13.4. Disputes. If the parties (including Escrow Agent) shall
be in disagreement about the interpretation of this Agreement, or about their
respective rights and obligations, or the propriety of any action contemplated
by Escrow Agent, or the application of the Deposit, Escrow Agent shall hold the
Deposit until the receipt of written instructions from both Buyer or Seller or a
final order of a court of competent jurisdiction. In addition, in any such
event, Escrow Agent may, but shall not be required to, file an action in
interpleader to resolve the disagreement. Escrow Agent shall be indemnified for
all costs and reasonable attorneys' fees in its capacity as Escrow Agent in
connection with any such interpleader action and shall be fully protected in
suspending all or part of its activities under this Agreement until a final
judgment in the interpleader action is received.
13.5. Counsel. Escrow Agent may consult with counsel of its
own choice and have full and complete authorization and protection when acting
in accordance with the opinion of such counsel. Escrow Agent shall otherwise not
be liable for any mistakes of fact or errors of judgment, or for any acts or
omissions of any kind, unless caused by its negligence or willful misconduct.
14. Miscellaneous.
14.1. Assignability. Buyer may not assign or transfer all or
any portion of its rights or obligations under this Agreement to any other
individual, entity or other person without the consent thereto by Seller, such
consent not to be unreasonably withheld or delayed. However, Buyer may assign or
transfer such rights and obligations to any entity controlled by, controlling or
under common control with Buyer. In the event of any such permitted assignment,
Buyer shall remain liable hereunder.
14.2. Governing Law; Bind and Inure. This Agreement shall be
governed by the law of the Commonwealth of Massachusetts and shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.
14.3. Recording. This Agreement or any notice or memorandum
hereof shall not be recorded in any public record. A violation of this
prohibition shall constitute a material breach of Buyer, entitling Seller to
terminate this Agreement, in which event Seller shall be entitled to the Deposit
hereunder.
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14.4. Time of the Essence. Time is of the essence of this
Agreement.
14.5. Headings. The headings preceding the text of the
paragraphs and subparagraphs hereof are inserted solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
14.6. Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
14.7. Exhibits. All Exhibits which are referred to herein and
which are attached hereto or bound separately and initialed by the parties are
expressly made and constitute a part of this Agreement.
14.8. Survival. Unless otherwise expressly stated in this
Agreement, each of the warranties and representations of Seller and Buyer shall
survive the Closing and delivery of the deed and other closing documents by
Seller to Buyer, and shall not be deemed to have merged therewith; provided,
however, that any suit or action for breach of any of the representations or
warranties set forth herein must be commenced within one (1) year after the
Closing or any claim based thereon shall be deemed irrevocably waived.
14.9. Use of Proceeds to Clear Title. To enable Seller to make
conveyance as herein provided, Seller may, at the time of Closing, use the
Purchase Price or any portion thereof to clear the title of any or all
encumbrances or interests, provided that provision reasonably satisfactory to
Buyer's attorney is made for prompt recording of all instruments so procured in
accordance with the standards of the Massachusetts Conveyancer's Association.
14.10. Submission not an Offer or Option. The submission of
this Agreement or a summary of some or all of its provisions for examination or
negotiation by Buyer or Seller does not constitute an offer by Seller or Buyer
to enter into an agreement to sell or purchase the Property, and neither party
shall be bound to the other with respect to any such purchase and sale until a
definitive agreement satisfactory to the Buyer and Seller in their sole
discretion is executed and delivered by both Seller and Buyer.
14.11 No Marketing. Seller shall remove the Property from the
market and cease all discussions with other prospective purchasers, and shall
not solicit nor accept any offers, whether or not binding, regarding the
Property during the term of this Agreement.
14.12 Confidentiality. Prior to and after the Closing, any
press release to the public of information with respect to the sale contemplated
herein or any matters set forth in this Agreement will be made only in the form
approved by Buyer and Seller. The parties hereby agree not to disclose the terms
of this Agreement to any third party, except as may be necessary for Buyer to
secure financing, permits or public support for the development of the Property.
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The provisions of this Section 14.12 shall survive the Closing or any
termination of this Agreement.
14.13. Entire Agreement; Amendments. This Agreement and the
Exhibits hereto set forth all of the promises, covenants, agreements, conditions
and undertakings between the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as contained herein. This Agreement may not be changed orally but only by
an agreement in writing, duly executed by or on behalf of the party or parties
against whom enforcement of any waiver, change, modification, consent or
discharge is sought.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SELLER: MONTAUP ELECTRIC COMPANY
By:___________________________
Kevin A. Kirby
Vice President
BUYER: QUAKER FABRIC CORPORATION
OF FALL RIVER
By:____________________________
Larry A. Liebenow
President and Chief Executive Officer
ESCROW AGENT:
------------------------------------
James P. Killoran, Esq.
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<PAGE>
List of Exhibits
<TABLE>
<S> <C>
Exhibit A - Description of Land
Exhibit B - Plan Showing Proposed Relocation of Electrical Easement
Exhibit C - Non-Foreign Affidavit
Schedule 3.7 - Correspondence regarding alleged legal violations
</TABLE>
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EXHIBIT A
DESCRIPTION OF THE LAND
The premises described in a deed from Slade Realty Corp. to Seller
dated November 4, 1965, recorded with the Bristol (Fall River) Registry of Deeds
in Book 866, Page 326, a copy of which is attached hereto.
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EXHIBIT B
Relocation of Electrical Easement
Seller and Buyer hereby agree that the electrical easement shall be
relocated substantially as shown on the plan attached hereto as Exhibit B-1.
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EXHIBIT C
NON-FOREIGN AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by ____________________________
("Seller"), the undersigned hereby certifies the following:
1. Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms
are defined in the Internal Revenue Code and Income Tax
Regulations);
2. Seller's U.S. taxpayer identification number is [___________];
and
3. Seller's address is ________________________________.
The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by the transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both. Under
penalties of perjury, the undersigned declares that it has examined this
certification and to the best of its knowledge and belief it is true, correct,
and complete, and further declares that it has authority to sign this document.
Date: As of _____________, ____
By:________________________
Name:
Title:
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<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made as of the 22nd
day of January, 1999, by and among Jacqueline A. Pelletier, as Executrix of the
Estate of Philip E. Pelletier and James Araujo, co-partners doing business as
Jefferson Realty Partnership, a Massachusetts general partnership ("Seller"),
Quaker Fabric Corporation of Fall River, a Massachusetts corporation ("Buyer"),
and joined in for the limited purposes set forth herein by Chicago Title
Insurance Corporation, as escrow agent ("Escrow Agent").
BACKGROUND
A. Seller is the owner of those certain parcels of land located in Fall
River, Massachusetts, more particularly described in Exhibits A, B and C hereto,
together with all easements, rights and privileges appurtenant thereto (the
"Property").
B. Seller is prepared to sell, transfer and convey the Property to
Buyer, and Buyer is prepared to purchase and accept the same from Seller, all
for the purchase price and on the other terms and conditions hereinafter set
forth.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties hereto agree:
1. Sale and Purchase. Seller hereby agrees to sell, transfer and convey
the Property to Buyer, and Buyer hereby agrees to purchase and accept the
Property from Seller, in each case for the purchase price and on and subject to
the other terms and conditions set forth in this Agreement.
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be One Hundred Twenty-Five Thousand Dollars ($125,000) which,
subject to the terms and conditions hereinafter set forth, shall be paid to
Seller by Buyer as follows:
2.1. Deposit. Upon the execution of this Agreement by Seller
and Buyer, Buyer shall deliver to Escrow Agent, in
immediately available funds, to be held in escrow and
delivered in accordance with this Agreement, an initial
cash deposit in the amount of Five Thousand Dollars
($5,000). Such amount, with all interest earned thereon,
shall hereinafter be referred to as the "Deposit".
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<PAGE>
2.2. Payment at Closing; Funding Agreement. At the consummation
of the transaction contemplated hereby (the "Closing"), Buyer shall deliver to
Escrow Agent cash in an amount equal to the Purchase Price less the Deposit. The
Purchase Price, subject to adjustments and apportionments as set forth herein,
shall be paid at Closing by wire transfer of immediately available federal
funds, transferred to the order or account of Seller or such other person as
Seller may designate in writing.
3. Representations and Warranties of Seller. Seller
represents and warrants to Buyer as follows:
3.1. Authority. Seller is a general partnership, duly organized
and validly existing under the laws of the Commonwealth of Massachusetts and has
all requisite power and authority to enter into this Agreement and perform its
obligations hereunder.
3.2. No Conflict. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereunder on the part of
Seller do not and will not conflict with or result in the breach of any material
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge, or encumbrance upon any of the Property or
assets of the Seller by reason of the terms of any contract, mortgage, lien,
lease, agreement, indenture, instrument or judgment to which Seller is a party
or which is or purports to be binding upon Seller or which otherwise affects
Seller, which will not be discharged, assumed or released at Closing. No action
by any federal, state or municipal or other governmental department, commission,
board, bureau or instrumentality is necessary to make this Agreement a valid
instrument binding upon Seller in accordance with its terms.
3.3. No Leases. There are no leases or occupancy agreements
currently in effect which affect the Property.
3.4. No Condemnation. Seller has not received any written
notice of and to the best of Seller's knowledge there is no pending or
contemplated condemnation, eminent domain or similar proceeding with respect to
all or any portion of the Property.
3.5. No Rights in Others. No person or other entity has any
right or option to acquire, lease or occupy all or any portion of the Property,
except as disclosed in this Agreement.
3.6. Contracts. There are no construction, management, leasing,
service, equipment, supply, maintenance, concession or other agreements in
effect with respect to the Property.
3.7. Compliance. Seller has not received written notice of any
existing violation of any federal, state, county or municipal laws, ordinances,
orders, codes, regulations or requirements affecting the Property.
3.8. Litigation. There is no action, suit or proceeding pending
or, to the best of Seller's knowledge, threatened against or affecting the
Property, or arising out of the ownership,
<PAGE>
<PAGE>
management or operation of the Property, this Agreement or the transactions
contemplated hereby.
3.9. FIRPTA. Seller is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code.
3.10 Bankruptcy. Seller, as debtor, has not filed or been the
subject of any filing of a petition under the Federal Bankruptcy Law or any
insolvency laws, or any laws for composition of indebtedness or for the
reorganization of debtors.
3.11 Accuracy of Information. Without limitation, all
information provided, or to be provided, by Seller to Buyer pursuant to this
Agreement is or will be complete and accurate in all material respects to the
best of Seller's knowledge.
4. Conditions Precedent to Buyer's Obligations. All of Buyer's
obligations hereunder are expressly conditioned on the satisfaction at or before
the time of Closing hereunder, or at or before such earlier time as may be
expressly stated below, of each of the following conditions (any one or more of
which may be waived in writing in whole or in part by Buyer, at Buyer's option):
4.1. Accuracy of Representations. All of the representations
and warranties of Seller contained in this Agreement shall have been true and
correct in all material respects when made to the best of Seller's knowledge,
and shall be true and correct in all material respects on the date of Closing
with the same effect as if made on and as of such date.
4.2. Performance. Seller shall have performed, observed and
complied with all material covenants, agreements and conditions required by this
Agreement to be performed, observed and complied with on its part prior to or as
of Closing hereunder.
4.3. Documents and Deliveries. All instruments and documents
required on Seller's part to effectuate this Agreement and the transactions
contemplated hereby shall be delivered to Buyer and shall be in form and
substance consistent with the requirements herein.
4.4. Off-Site and Permitting Conditions. Prior to the Closing,
Buyer shall have acquired adjacent parcels of land owned by Terrance LaBerge,
Montaup Electric Company, and the Boyd Center, and shall have received from the
City of Fall River commitments satisfactory to Buyer to provide adequate utility
service and road and bridge access to the Property. In addition, Buyer shall
have received such permits and approvals as may be required from federal, state
and local officials having jurisdiction for the development of a facility for
Buyer's corporate activities on the Property. The conditions set forth in this
Section 4.4 shall be acceptable to Buyer in its sole discretion; such conditions
are hereafter referenced as the "Section 4.4 Conditions". At any time during the
term of this Agreement, Buyer may terminate this Agreement by giving written
notice that the Section 4.4 Conditions have not been satisfied, in which event
the Deposit shall be returned forthwith to Buyer and, except as expressly set
forth herein, neither party shall have any further liability or obligation to
the other hereunder.
<PAGE>
<PAGE>
4.5. Inspection Period; Access; Purchase "As Is".
4.5.1. During the term of this Agreement, Buyer, its
agents and representatives, shall be entitled to enter upon the Property, upon
reasonable prior notice to Seller, to perform inspections and tests of the
Property, including surveys, environmental studies, examinations and tests.
Buyer shall repair any damage to the Property caused by any tests or
investigations conducted by Buyer, and indemnify Seller from any and all
liabilities, claims, costs and expenses resulting therefrom. The foregoing
indemnification shall survive Closing or the termination of this Agreement.
During the Inspection Period, Buyer shall also seek the approval of the
transaction contemplated by this Agreement by its Board of Directors. Buyer
shall cause its agents to provide evidence of public liability insurance which
names Seller as an additional insured in the minimum amount of One Million
Dollars ($1,000,000.) as a condition of such entry.
In the event that Buyer's investigations during the
Inspection Period discover environmental matters which require remediation under
applicable law, Buyer agrees to reimburse Seller up to $25,000.000 for the cost
thereof, and Seller shall undertake and complete such remediation with a
licensed site professional approved by Buyer prior to the Closing. The
obligation of Buyer to reimburse Seller for remediation costs of up to
$25,000.000 as aforesaid shall be binding upon Buyer, whether or not Buyer
elects to terminate this Agreement under the provisions of Section 4.5.2 or any
other provision of this Agreement.
4.5.2. The term "Inspection Period," as used herein, shall
mean the period ending on the date which is sixty (60) days after the date of
execution of this Agreement by Buyer and Seller. Buyer may terminate this
Agreement by giving written notice of such election to Seller on any day prior
to and including the final day of the Inspection Period, in which event the
Deposit shall be returned forthwith to Buyer and, except as expressly set forth
herein, neither party shall have any further liability or obligation to the
other hereunder. In the absence of such written notice, the contingency provided
for in this Section 4.5.2 no longer shall be applicable, and this Agreement
shall continue in full force and effect.
4.6. Survey. Buyer shall approve or disapprove the Survey, as
hereinafter defined, in the following manner:
(a) Notice. Within forty-five (45) days after the date hereof, Buyer
shall obtain, at Buyer's expense, a survey of the Property by a licensed
surveyor or civil engineer, in sufficient detail to provide the basis
for an ALTA owner's title insurance policy, showing the location of all
easements, improvements and boundary encroachments (the "Survey"). On or
before the expiration of the Inspection Period, Buyer shall give notice
to Seller of Buyer's approval of the Survey or disapproval of any
matters thereon ("Survey Exceptions"). Buyer's failure to give any
notice within the time limit shall be deemed approval of the Survey, and
this contingency shall be deemed satisfied.
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<PAGE>
(b) Survey Cure Period. Seller shall use reasonable efforts to remove
any Survey Exceptions within sixty (60) days after Buyer's notice of
disapproval ("Survey Cure Period"). In the event that any such Survey
Exceptions are not reasonably capable of cure, or if such cure would
have a cost which exceeds $25,000, either party may terminate this
Agreement, unless the other party agrees to assume the cost of such cure
(or, if the same cannot be cured, Buyer may waive the same).
(c) Waiver of Uncured Matters. If Seller does not cure any Survey
Exceptions within the Survey Cure Period, Buyer shall have five (5) days
to give Seller written notice that Buyer waives its objections to the
Survey Exceptions. If Buyer does not give such notice, this contingency
shall be deemed not satisfied.
(d) Approved Survey. The Survey as approved by Buyer is referred to
herein as the "Approved Survey".
4.7. Title. Buyer shall review and approve or disapprove the
condition of title to the Property in the following manner:
(a) Report and Notice. Within forty-five (45) days after the date
hereof, Buyer shall obtain, at Buyer's expense, a title report ("Title
Report") on the Property, together with copies of all documents
underlying any encumbrances to title ("Exceptions") shown on the Title
Report. On or before the expiration of the Inspection Period, Buyer
shall give notice to Seller of Buyer's approval of the Title Report or
disapproval of any of the Exceptions. Buyer's failure to give any notice
within the time limit shall be deemed approval of the Title Report, and
this contingency shall be deemed satisfied.
(b) Title Cure Period. Seller shall use reasonable efforts, within
sixty (60) days after notice of Buyer's disapproval of any Exceptions
(the "Title Cure Period"), to (i) remove any disapproved Exceptions or
(ii) agree to remove any disapproved Exceptions on or before the
Closing. If Seller gives notice, within the Title Cure Period, that
Seller will remove any such disapproved Exception on or before the
Closing, such Exception shall be deemed removed for purposes hereof,
Seller shall be obligated to remove such Exception on or before the
Closing, and Seller's failure to remove such exception on or before the
Closing shall be a default by Seller hereunder. With respect to any
Exception consisting of a financial encumbrance such as a mortgage, deed
of trust, or other debt security, or any delinquent real estate taxes or
mechanic's liens outstanding against the Property, such matter shall
automatically be deemed a disapproved Exception; Seller hereby covenants
to remove any such Exception on or before the Closing. Except as to
voluntary monetary encumbrances as to which there shall be no limit upon
Seller's obligations hereunder, Seller shall not be obligated to expend
more than $25,000 in the cure of any disapproved Exceptions.
<PAGE>
<PAGE>
(c) Waiver of Uncured Exceptions. If Seller does not remove or agree
to remove any disapproved Exception within the Title Cure Period, Buyer
shall have five (5) days to give Seller notice that Buyer waives its
objections to such Exception. If Buyer does not give such notice, this
contingency shall be deemed satisfied.
(d) Approved Title. The condition of title as approved by Buyer is
referred to herein as the "Approved Title".
(e) Later Changes to Condition of Title. Buyer shall have the right
to approve or disapprove any exceptions to title that are revealed by
the Survey or become of record after there is an Approved Title.
(f) Title Clearance Matters. Seller hereby agrees to complete the
following title clearance matters prior to or at the time of Closing,
the completion of which shall be a condition to the performance of Buyer
hereunder:
(i) Release of lease to A.H. Leeming & Sons, Inc., including the
option to purchase thereunder, as to the Property to be conveyed hereunder;
(ii) Release of leasehold mortgage to Fleet Bank, as to the
Property to be conveyed hereunder;
(iii) Release of mortgage held by Ida Shaw and the William R.
Meyer Revocable Trust, as to the Property to be conveyed hereunder;
(iv) Release of flowage rights over land owned by Terrance D.
LaBerge and Gilda M. LaBerge, Trustees of Rodney Realty Trust;
(v) Amendment of Covenant regarding the height of Bleachery Pond
to ensure that adjacent premises cannot be subject to flowage therefrom.
(g) Right of Way Easement to Seller. Buyer hereby agrees to grant to
Seller a right of way easement over an accessway to be constructed by Buyer from
the existing Frontage Road to Succor Brook in the approximate location shown on
the plan attached hereto as Exhibit A (the "Right of Way Easement"), such
easement to be granted to Seller upon completion of such accessway by Buyer.
4.8. Material Adverse Change. Between the expiration of the
Inspection Period and the date of Closing, there shall have been no material
adverse change in the condition of the Property, and no change to title or
survey matters from the Approved Title and the Approved Survey shall have
arisen.
4.9 Seller Approvals. Prior to the expiration of the Inspection
Period, Seller shall deliver to Buyer written confirmation that Seller has
received the approval of Seller's Board of Directors and any and all regulatory
approvals required for Seller to enter into this Agreement and perform its
obligations hereunder.
<PAGE>
<PAGE>
4.10 Pelletier Estate. The parties acknowledge that the partnership
interest of Philip Pelletier in Seller is now held in his estate. In the event
of a reorganization of Seller occassioned thereby, Seller confirms that any
successor corporation or other entity shall be bound by this Agreement, and
shall cause such successor entity to become a signatory to this Agreement.
Seller further agrees to deliver such title clearance and probate documents as
may be necessary to enable Seller to deliver clear title hereunder as a result
of the death of Mr. Pelletier.
5. Failure of Conditions. Except as otherwise provided in Section 9.2
hereof, in the event Seller shall not be able to convey title to the Property on
the date of Closing in accordance with the provisions of this Agreement, then
Buyer shall have the option, exercisable by written notice to Seller at or prior
to Closing, of (i) accepting at Closing such title as Seller is able to convey
and/or waiving any unsatisfied condition precedent, with no deduction from or
adjustment of the Purchase Price, or (ii) declining to proceed to Closing. In
the latter event, except as expressly set forth herein, all obligations,
liabilities and rights of the parties under this Agreement shall terminate, and
the Deposit shall be returned to Buyer.
6. Closing; Deliveries.
6.1. Time of Closing. The Closing shall take place at 2:00 p.m. on a
date specified by written notice from Buyer to Seller at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts 02109, no later than June 30,
1999, unless otherwise agreed to in writing by both Seller and Buyer. The
Closing may be extended by Buyer upon written notice to Seller prior to the
originally scheduled date for Closing for up to thirty (30) days, to enable
Buyer to satisfy the Off-site Conditions (as defined in Section 4.4)
6.2. Seller Deliveries. At Closing, Seller shall deliver to Buyer the
following, and it shall be a condition to Buyer's obligation to close that
Seller shall have delivered the same to Buyer:
6.2.1. A Massachusetts Quitclaim Deed to the Property from
Seller, duly executed and acknowledged by Seller and in form reasonably
satisfactory to Buyer, subject only to such title matters as are approved by
Buyer pursuant to Sections 4.6 and 4.7.
6.2.2. The Title Clearance Matters referenced in Section 4.7(f)
above.
6.2.3. Such affidavits or letters of indemnity as the title
insurer shall require in order to issue, without extra charge, an owner's policy
of title insurance free of any exceptions for unfiled mechanics' or
materialmen's liens for work performed by Seller prior to Closing, or for rights
of parties in possession.
6.2.4. A Non-Foreign Affidavit as required by the Foreign
Investors in Real Property Tax Act ("FIRPTA"), as amended, in the form of
Exhibit D, duly executed by Seller.
<PAGE>
<PAGE>
6.2.5. A certification by Seller that all representations and
warranties made by Seller in Article 3 of this Agreement are true and correct on
the date of Closing, except as may be set forth in such certificate.
6.2.6 A Clerk's Certificate of Vote from Seller in form
satisfactory to the title insurer to confirm the authority of Seller to perform
its obligations under this Agreement.
6.2.7. All other instruments and documents reasonably required
to effectuate this Agreement and the transactions contemplated hereby. To the
extent possible, all closing documents shall be submitted to Seller's counsel
for its review and approval at least seven (7) days prior to Closing.
6.3. Buyer Deliveries. At Closing, Buyer shall deliver to Seller the
following, and it shall be a condition to Seller's obligation to close that
Buyer shall have delivered the same to Seller:
6.3.1. In accordance with Seller's instructions, a wire transfer
in the amount required under Section 2.2 hereof (subject to the adjustments
provided for in this Agreement), transferred to the order or account of Seller
or to such other person or persons as Seller shall designate in writing.
6.3.2. All other instruments and documents reasonably required
to effectuate this Agreement and the transactions contemplated hereby.
7. Apportionments; Taxes; Expenses.
7.1. Apportionments.
7.1 Taxes and Utility Expenses. All real estate taxes, charges and
assessments affecting the Property ("Taxes"), and any water and sewer charges,
shall be prorated on a per diem basis as of the date of Closing. If any Taxes
have not been finally assessed as of the date of Closing for the current fiscal
year of the taxing authority, then the same shall be adjusted at Closing based
upon the most recently issued bills therefor, and shall be re-adjusted when and
if final bills are issued.
7.2. Expenses. Each party will pay all its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, (1) all costs and expenses stated herein to be
borne by a party, and (2) all of their respective accounting, legal and
appraisal fees. Buyer, in addition to its other expenses, shall pay at Closing
(1) all recording charges incident to the recording of the deed for the Real
Property and the easement relocation documents, and (2) Buyer's title and survey
costs. Seller, in addition to its other expenses, shall pay at Closing all
documentary stamps, deed stamps and realty transfer taxes.
8. Condemnation; Award.
<PAGE>
<PAGE>
If at any time prior to the date of Closing any material portion of
the Property is condemned or taken by eminent domain proceedings by any public
authority, then, at Buyer's option, this Agreement shall terminate, and the
Deposit shall be returned to Buyer, and except as expressly set forth herein,
neither party shall have any further liability or obligation to the other
hereunder.
If there is any condemnation or taking, as above set forth, and if
Buyer elects not to terminate this Agreement as therein provided, then in the
case of a taking, all condemnation proceeds paid or payable to Seller shall
belong to Buyer and shall be paid over and assigned to Buyer at Closing, less
any expenses incurred by Seller in obtaining such award.
9. Remedies.
9.1. Buyer Default. In the event Buyer breaches or fails, without
legal excuse, to complete the purchase of the Property or to perform its
obligations under this Agreement, then Seller shall, as its sole remedy
therefor, be entitled to receive the Deposit (and not as a penalty) in lieu of,
and as full compensation for, all other rights or claims of Seller against Buyer
by reason of such default. Thereupon this Agreement shall terminate and the
parties shall be relieved of all further obligations and liabilities hereunder,
except as expressly set forth herein. Buyer and Seller acknowledge that the
damages to Seller resulting from Buyer's breach would be difficult, if not
impossible, to ascertain with any accuracy, and that the liquidated damage
amount set forth in this Section represents both parties' best efforts to
approximate such potential damages.
9.2 Seller Default. In the event Seller breaches or fails, without
legal excuse, to complete the sale of the Property or to perform its obligations
under this Agreement, Buyer may, as its sole remedy therefor, either (i) enforce
specific performance of this Agreement against Seller, or (ii) terminate this
Agreement and receive its Deposit from Escrow Agent.
10. Possession. Possession of the Property shall be surrendered to Buyer
at Closing.
11. Notices. All notices and other communications provided for herein
shall be in writing and shall be sent to the address set forth below (or such
other address as a party may hereafter designate for itself by notice to the
other parties as required hereby) of the party for whom such notice or
communication is intended:
11.1. If to Seller: Jefferson Realty Partnership
753 Davol Street
Fall River, MA 02720
Attn: Ms. Michelle Pelletier
Fax No.: 508-
11.2. If to Buyer:
<PAGE>
<PAGE>
Quaker Fabric Corporation of Fall River
941 Grinnell Street
Fall River, MA 02721
Fax No: 508-678-2656
Attn: Cynthia L. Gordan, Vice President/
General Counsel
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Fax No.: 617-526-5000
Attention: Katharine E. Bachman, Esq.
Any such notice or communication shall be sufficient if sent by
registered or certified mail, return receipt requested, postage prepaid; by hand
delivery; or by overnight courier service. Any such notice or communication
shall be effective when deposited with the mail or overnight courier service, or
if by hand, when delivered or when delivery is refused.
12. Brokers. Buyer and Seller each represents to the other that it has
not dealt with any broker or agent in connection with this transaction
("Brokers"). Each party hereby indemnifies and holds harmless the other party
from all loss, cost and expense (including reasonable attorneys' fees) arising
out of a breach of its representation set forth in this Section 12. The
provisions of this Section 12 shall survive Closing or the termination of this
Agreement.
13. Escrow Agent. Escrow Agent shall hold the Deposit in accordance with
the terms and provisions of this Agreement, subject to the following:
13.1. Obligations. Escrow Agent undertakes to perform only such
duties as are expressly set forth in this Agreement and no implied duties or
obligations shall be read into this Agreement against Escrow Agent.
13.2. Reliance. Escrow Agent may act in reliance upon any writing or
instrument or signature which it, in good faith, believes, and any statement or
assertion contained in such writing or instrument, and may assume that any
person purporting to give any writing, notice, advice or instrument in
connection with the provisions of this Agreement has been duly authorized to do
so. Escrow Agent shall not be liable in any manner for the sufficiency or
correctness as to form, manner and execution, or validity of any instrument
deposited in escrow, nor as to the identity, authority, or right of any person
executing the same, and Escrow Agent's duties under this Agreement shall be
limited to those provided in this Agreement.
13.3. Indemnification. Unless Escrow Agent discharges any of its
duties under this Agreement in a negligent manner or is guilty of willful
misconduct with regard to its duties under this Agreement, Seller and Buyer,
severally, shall indemnify Escrow Agent and hold it
<PAGE>
<PAGE>
harmless from any and all claims, liabilities, losses, actions, suits or
proceedings at law or in equity, or other expenses, fees, or charges of any
character or nature, which it may incur or with which it may be threatened by
reason of its acting as Escrow Agent under this Agreement; and in such
connection Seller and Buyer shall indemnify Escrow Agent against any and all
expenses including reasonable attorneys' fees and the cost of defending any
action, suit or proceeding or resisting any claim in such capacity.
13.4. Disputes. If the parties (including Escrow Agent) shall be in
disagreement about the interpretation of this Agreement, or about their
respective rights and obligations, or the propriety of any action contemplated
by Escrow Agent, or the application of the Deposit, Escrow Agent shall hold the
Deposit until the receipt of written instructions from both Buyer or Seller or a
final order of a court of competent jurisdiction. In addition, in any such
event, Escrow Agent may, but shall not be required to, file an action in
interpleader to resolve the disagreement. Escrow Agent shall be indemnified for
all costs and reasonable attorneys' fees in its capacity as Escrow Agent in
connection with any such interpleader action and shall be fully protected in
suspending all or part of its activities under this Agreement until a final
judgment in the interpleader action is received.
13.5. Counsel. Escrow Agent may consult with counsel of its own
choice and have full and complete authorization and protection when acting in
accordance with the opinion of such counsel. Escrow Agent shall otherwise not be
liable for any mistakes of fact or errors of judgment, or for any acts or
omissions of any kind, unless caused by its negligence or willful misconduct.
14. Miscellaneous.
14.1. Governing Law; Bind and Inure. This Agreement shall be
governed by the law of the Commonwealth of Massachusetts and shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.
14.2. Recording. This Agreement or any notice or memorandum hereof
shall not be recorded in any public record. A violation of this prohibition
shall constitute a material breach of Buyer, entitling Seller to terminate this
Agreement, in which event Seller shall be entitled to the Deposit hereunder.
14.3. Time of the Essence. Time is of the essence of this Agreement.
14.4. Headings. The headings preceding the text of the paragraphs
and subparagraphs hereof are inserted solely for convenience of reference and
shall not constitute a part of this Agreement, nor shall they affect its
meaning, construction or effect.
14.5. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
<PAGE>
14.6. Exhibits. All Exhibits which are referred to herein and which
are attached hereto or bound separately and initialed by the parties are
expressly made and constitute a part of this Agreement.
14.7. Survival. Unless otherwise expressly stated in this Agreement,
each of the warranties and representations of Seller and Buyer shall survive the
Closing and delivery of the deed and other closing documents by Seller to Buyer,
and shall not be deemed to have merged therewith; provided, however, that any
suit or action for breach of any of the representations or warranties set forth
herein must be commenced within one (1) year after the Closing or any claim
based thereon shall be deemed irrevocably waived.
14.8. Use of Proceeds to Clear Title. To enable Seller to make
conveyance as herein provided, Seller may, at the time of Closing, use the
Purchase Price or any portion thereof to clear the title of any or all
encumbrances or interests, provided that provision reasonably satisfactory to
Buyer's attorney is made for prompt recording of all instruments so procured in
accordance with the standards of the Massachusetts Conveyancer's Association.
14.9. Submission not an Offer or Option. The submission of this
Agreement or a summary of some or all of its provisions for examination or
negotiation by Buyer or Seller does not constitute an offer by Seller or Buyer
to enter into an agreement to sell or purchase the Property, and neither party
shall be bound to the other with respect to any such purchase and sale until a
definitive agreement satisfactory to the Buyer and Seller in their sole
discretion is executed and delivered by both Seller and Buyer.
14.10 No Marketing. Seller shall remove the Property from the market
and cease all discussions with other prospective purchasers, and shall not
solicit nor accept any offers, whether or not binding, regarding the Property
during the term of this Agreement.
14.11 Confidentiality. Prior to and after the Closing, any press
release to the public of information with respect to the sale contemplated
herein or any matters set forth in this Agreement will be made only in the form
approved by Buyer and Seller. The parties hereby agree not to disclose the terms
of this Agreement to any third party, except as may be necessary for Buyer to
secure financing, permits or public support for the development of the Property.
The provisions of this Section 14.12 shall survive the Closing or any
termination of this Agreement.
14.12. Entire Agreement; Amendments. This Agreement and the Exhibits
hereto set forth all of the promises, covenants, agreements, conditions and
undertakings between the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as contained herein. This Agreement may not be changed orally but only by
an agreement in writing, duly executed by or on behalf of the party or parties
against whom enforcement of any waiver, change, modification, consent or
discharge is sought.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SELLER: JEFFERSON REALTY PARTNERSHIP
By: _________________________________
Jacqueline A. Pelletier, as Executrix
of the Estate of Philip E. Pelletier,
General Partner
By: _________________________________
James Araujo, General Partner
BUYER: QUAKER FABRIC CORPORATION
OF FALL RIVER
By: _________________________________
Larry A. Liebenow
President and Chief Executive Officer
ESCROW AGENT: CHICAGO TITLE INSURANCE COMPANY
------------------------------------
By:
Its:
<PAGE>
<PAGE>
List of Exhibits
----------------
Exhibit A, B, C and D - Description of Land
Exhibit D - Non-Foreign Affidavit
<PAGE>
<PAGE>
EXHIBITS A, B AND C
DESCRIPTION OF THE LAND
(Follows this Page)
The premises to be conveyed hereunder are Parcels A and B as shown on
Exhibit A, Parcel G as shown on Exhibit B, and the highlighted parcels shown on
Exhibit C (being Lot 1 on Assessors Plat D-20, Lot 4 on Assessors Plat D-4 and
Lot 5 on Assessors Plat D-3.
<PAGE>
<PAGE>
EXHIBIT D
NON-FOREIGN AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by ___________________________
("Seller"), the undersigned hereby certifies the following:
1. Seller is not a foreign person, foreign corporation, foreign
partnership, foreign trust, or foreign estate (as those terms are
defined in the Internal Revenue Code and Income Tax Regulations);
2. Seller's U.S. taxpayer identification number is [___________]; and
3. Seller's address is ________________________________.
The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by the transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both. Under
penalties of perjury, the undersigned declares that it has examined this
certification and to the best of its knowledge and belief it is true, correct,
and complete, and further declares that it has authority to sign this document.
Date: As of _____________, ____
By:
--------------------------------------
Name:
Title:
<PAGE>
<PAGE>
SIXTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Sixth Amendment dated as of March 26, 1999 (the "Amendment"), by and
between (a) QUAKER FABRIC CORPORATION OF FALL RIVER, a Massachusetts corporation
(the "Company"), QUAKER TEXTILE CORPORATION, a Massachusetts corporation
("Quaker Textile") and QUAKER FABRIC MEXICO, S.A. de C.V., a Mexican corporation
("Quaker Mexico", and along with the Company and Quaker Textile, the
"Borrowers"), (b) QUAKER FABRIC CORPORATION, a Delaware corporation (the
"Parent"), (c) the banks (collectively, the "Banks") listed on the signature
pages hereto, and (d) BANKBOSTON, N.A. (f/k/a The First National Bank of Boston)
as agent (the "Agent") for the Banks, amending certain provisions of the Amended
and Restated Credit Agreement dated as of December 18, 1995 (as amended and in
effect from time to time, the "Credit Agreement") by and between the Borrowers,
the Parent, the Banks and the Agent. Terms not otherwise defined herein which
are defined in the Credit Agreement shall have the same respective meanings
herein as therein.
WHEREAS, the Borrowers, the Parent and the Banks have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Amendment;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
'SS' 1. Amendment to Section 2 of the Credit Agreement. Section 2.20(a)
of the Credit Agreement is hereby amended by replacing the table appearing
therein with the following table:
<TABLE>
<CAPTION>
- ------------------- --------------- ----------------- ----------------- -----------------
Applicable Applicable
Eurodollar Reference Applicable
Leverage Rate Rate Applicable Commitment
Ratio Margin Margin L/C Fee Fee
- ------------------- --------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Greater than or
equal to 3.00 :1.00 1.625% 0% 0.375% 0.375%
- ------------------- --------------- ----------------- ----------------- -----------------
</TABLE>
<PAGE>
<PAGE>
2
<TABLE>
<S> <C> <C> <C> <C>
- ------------------- --------------- ----------------- ----------------- -----------------
Less than 3.00 :
1.00 but greater
than or equal to
2.50 : 1.00 1.375% 0% 0.375% 0.375%
- ------------------- --------------- ----------------- ----------------- -----------------
Less than 2.50 :
1.00 but greater
than or equal to
2.00 : 1.00 1.25% 0% 0.375% 0.375%
- ------------------- --------------- ----------------- ----------------- -----------------
Less than 2.00 :
1.00 but greater
than or equal to
1.50 : 1.00 1.125% 0% 0.30% 0.30%
- ------------------- --------------- ----------------- ----------------- -----------------
Less than 1.50 :
1.00 but greater
than or equal to
1.00 : 1.00 0.875% 0% 0.25% 0.25%
- ------------------- --------------- ----------------- ----------------- -----------------
Less than 1.00 :
1.00 0.75% 0% 0.25% 0.25%
- ------------------- --------------- ----------------- ----------------- -----------------
</TABLE>
'SS' 2. Amendment to Section 5 of the Credit Agreement. Section 5.23(b) of
the Credit Agreement is hereby amended in its entirety to read as follows:
"(b) Debt Service Coverage Ratio. The Parent and the
Company shall not permit the Debt Service Coverage Ratio,
calculated as of the last day of each fiscal quarter of the
Parent and its Subsidiaries, to be less than (A) 1.00 to 1.00 for
the period of four consecutive fiscal quarters ending April 3,
1999, (B) 0.85 to 1.00 for the period of four consecutive fiscal
quarters ending July 3, 1999, (C) 1.25 to 1.00 for the period of
four consecutive fiscal quarters ending October 2, 1999 and (D)
1.50 to 1.00 for each period of four consecutive fiscal quarters
ending after October 2, 1999."
'SS' 3. Conditions to Effectiveness. This Amendment shall not become
effective until the Agent receives the following:
(a) a counterpart of this Amendment, executed by the each
of the Borrowers, the Parent and the Majority Banks; and
(b) an amendment fee of $50,000 paid by the Borrowers to the
Agent for the pro rata account of each Bank based on such Bank's Commitment
percentage.
'SS' 4. Representations and Warranties. The representations and
warranties of the Borrowers and the Parent contained in the Credit Agreement
were true and correct when made
<PAGE>
<PAGE>
3
and continue to be true and correct on and as of the date
hereof as if made on the date hereof except to the extent of changes resulting
from transactions contemplated or permitted by the Credit Agreement and to the
extent that such representations and warranties relate expressly to an earlier
date. No Default or Event of Default has occurred and is continuing.
<PAGE>
<PAGE>
4
'SS' 5. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Amendment shall be read and construed as a single
agreement. All references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the Credit Agreement
as amended hereby.
'SS' 6. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or the Parent or any rights of the Agent or the Banks consequent
thereon.
'SS' 7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
'SS' 8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a
document under seal as of the date first above written.
QUAKER FABRIC CORPORATION OF FALL RIVER
By:______________________________________
Title:
QUAKER TEXTILE CORPORATION
By:______________________________________
Title:
QUAKER FABRIC MEXICO, S.A. de C.V.
By:______________________________________
Title:
QUAKER FABRIC CORPORATION
By:______________________________________
Title:
BANKBOSTON, N.A., (f/k/a The First National
Bank of Boston) as Agent, as Issuing Bank and
as a Bank
By:______________________________________
Title:
FLEET NATIONAL BANK
By:______________________________________
Title:
<PAGE>
<PAGE>
AMENDMENT NO. 1 effective as of March 26, 1999 to the Note Agreement
dated as of October 10, 1997 (the "Agreement") between Quaker Fabric Corporation
of Fall River (the "Company"), Pruco Life Insurance Company ("Pruco") and The
Prudential Insurance Company of America ("Prudential"; and collectively with
Pruco, the "Noteholders"). Capitalized terms used herein have the meanings
ascribed to such terms in the Agreement unless otherwise defined herein.
W I T N E S S E T H
WHEREAS, the Noteholders and the Company have executed and delivered
the Agreement; and
WHEREAS, the parties hereto wish to amend certain terms of the Agreement
and agree to such other matters, all as set forth below.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment to the Agreement. The Agreement is hereby such that:
1.1. Subparagraph 6A. Subparagraph 6A is hereby amended to read in its
entirety as follows:
"6A. Debt. (i) Senior Debt Ratio. The Company shall not permit
the Senior Debt Ratio, calculated as of the last day of each
fiscal quarter of the Company, to exceed 3.5 to 1.00.
(ii) Total Debt Ratio. The Company shall not permit the Total
Debt Ratio, calculated as of the last day of each fiscal quarter
of the Company to exceed 4.0 to 1.0."
1.2. Subparagraph 6D. Subparagraph 6D is hereby amended to read in its
entirety as follows:
"6D. Maintenance of Fixed Charge Coverage. The Company will not
permit the Fixed Charge Ratio at any time to be less than the
ratio set forth opposite the applicable period below:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Period Ratio
--------------------------------------------------------------
<S> <C>
January 3, 1999 through October 1, 1999 1.00 : 1.00
--------------------------------------------------------------
October 2, 1999 through December 31, 1999 1.25 : 1.00
--------------------------------------------------------------
January 1, 2000 and thereafter 1.50 : 1.00
--------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
1.3. Section 10B. Subparagraph 10B is hereby amended to add the
following definition of "Senior Debt Ratio," "Subordinated Debt" and
"Total Debt Ratio" in alphabetical order:
"'Senior Debt Ratio' means, as of any date of determination, the
ratio of (i) the result of (a) Debt as of such date minus (b) the
outstanding amount of the Subordinated Debt as of such date to
(ii) Consolidated EBITDA for the four fiscal quarters of the
Company then ended.
`Subordinated Debt' shall mean subordinated indebtedness of the
Company or any Subsidiary so long as the Company has demonstrated
compliance with the covenants set forth in subparagraphs 6A and
6C both immediately before and immediately after the incurrence
of such indebtedness.
`Total Debt Ratio' means, as of any date of determination, the
ratio of (i) Debt as of such date to (ii) Consolidated EBITDA for
the four fiscal quarters of the Company then ended."
2. Conditions to Effectiveness. This Amendment No. 1 shall be effective as
of the date first above written and the Agreement shall be deemed
amended hereby upon (i) payment to the Noteholders of an amendment fee
in the aggregate amount of $56,250, and (ii) delivery of a fully
executed copy hereof to Prudential.
3. Company Representations. The Company hereby represents and warrants that
no Default or Event of Default has occurred or is continuing.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF PARTIES SHALL BE GOVERNED BY, THE
LAWS OF THE STATE OF NEW YORK.
5. Effect on Agreement. Except as expressly provided herein, the Agreement
shall remain in full force and effect and this Amendment No. 1 shall not
operate as a waiver of any right, power or remedy of any holder of a
Note, nor constitute a waiver of any provision of the Agreement.
6. Counterparts. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Amendment to produce or account
for more than one such counterpart.
2
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers as of the date and year first above
written.
QUAKER FABRIC CORPORATION
OF FALL RIVER
By:_________________________
Name:
Title:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_________________________
Name: Kevin J. Kraska
Title: Vice President
PRUCO LIFE INSURANCE COMPANY
By:__________________________
Name: Kevin J. Kraska
Title: Vice President
3
<PAGE>
<PAGE>
FINANCIAL
HIGHLIGHTS
QUAKER
FABRIC
CORPORATION
AND
SUBSIDIARIES
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Financial Highlights ....................................................... 1
Letter to our Shareholders ................................................. 2
The Company ................................................................ 4
Selected Financial Data ....................................................12
Financial Statements .......................................................13
Notes to Financial Statements ..............................................17
Report of Independent
Accountants ................................................................25
Management's Discussion
and Analysis ...............................................................26
Summary Quarterly
Financial Data .............................................................31
General Information ........................................................32
</TABLE>
Quaker Fabric Corporation is a leading manufacturer of woven upholstery fabrics
for residential furniture markets in the United States and abroad. The company's
broad product line includes over 3,000 individual patterns, and Quaker's
manufacturing operations are vertically integrated, beginning with the
production of yarns for use in the manufacture of its fabrics and continuing
through fabric weaving and finishing. The company also sells a portion of the
yarn it produces to manufacturers of home furnishings products and apparel
throughout the United States.
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
----------------------------------
Fiscal Fiscal Percent
1998 1997 Change
----------------------------------
<S> <C> <C> <C>
Net sales .................................. $252,558 $219,174 15.2%
Operating income ........................... 13,989 19,462 (28.1)%
Net income ................................. 5,770 11,113 (48.1)%
Earnings per common share-diluted .......... 0.40 0.85 (52.9)%
Working capital ............................ 72,694 42,634 70.5%
Funded debt ................................ 71,572 54,934 30.3%
Shareholders' equity ....................... 124,993 82,313 51.9%
</TABLE>
[PERFORMANCE GRAPHS]
1
<PAGE>
<PAGE>
TO OUR SHAREHOLDERS
Net sales for 1998 of $252.6 million were up 15.2% over 1997, but net income
dropped from $11.1 million in 1997 to $5.8 million last year. Diluted and basic
earnings per share fell to $0.40 and $0.42, respectively, compared to $0.85 and
$0.90 in 1997.
We began last year with an aggressive set of objectives in place. The
new fabrics we had introduced over the past few years, including our middle to
better-end Whitaker Collection'TM' and our brand-new Quaker Plush'TM' products,
had generated enormous demand, and our production backlog was at a record high.
We were determined to take full advantage of our market strength -- and the
unprecedented demand our new products had created -- and were moving forward as
quickly as possible to complete the $67.0 million capacity expansion plan we had
begun implementing in 1997. Moving the new equipment included in our expansion
program into production fast was part of our answer to providing improved
service and shorter delivery lead times to our customers. But, improving our
approach to the management of all of our supply chain functions was also
critical to our ability to add a service advantage to the product advantage we
already enjoyed. And we were committed to doing that. In addition, we had been
working for more than a year on a new, integrated, Y2K-compliant, Enterprise
Resource Planning system to provide additional computerized support to our
production operations, and we were gearing up for a conversion to this new
system in July.
As we pursued these objectives, our financial performance during the
first half of the year was reasonably strong -- with sales up 20% and net income
of about $4.5 million. But the second half of 1998 was a major disappointment.
By the end of the second quarter, the costs and inefficiencies associated with
our capacity expansion plan had diminished -- our margins were starting to
improve -- and we felt confident that the second half would see a significant
increase in our revenues, margins and bottom-line profitability. But during the
third quarter our production rates were depressed by systems-related issues
associated with the conversion to our new management information system. And
during the fourth quarter our order rate was significantly below our
expectations. As a result, our revenues for the final two quarters of last year
came in well below our forecasts, reducing our ability to absorb our fixed
overheads, and net income for both the third and fourth quarters dropped to the
$600,000 range, compared to over $3.0 million for 1997's third quarter and $2.7
million for that year's fourth quarter.
Despite its disappointing finish, last year was marked by a number of
important achievements, and we accomplished many of our objectives. We
successfully maintained our product leadership position. We completed our
1997-98 expansion program, the largest in the company's history. We began a
whole new approach to supply chain management -- and put in place the resources
and processes needed to get our products to our customers when they want them.
We converted to our new management information system. And we strengthened our
sales and marketing teams, both domestically and internationally.
2
<PAGE>
<PAGE>
Looking ahead, we are working aggressively to improve both our operating
and financial performance. Our approach to this rests on the clear product
advantage we continue to enjoy and the service advantage we are working to
achieve. Our fabrics have been well represented at each of the major domestic
and international fabric fairs and furniture shows held since the first of the
year -- and we are looking forward to the upcoming April furniture market in
High Point, North Carolina.
Our sales and marketing teams will continue to take full advantage of
our product strength in the residential fabric segment, in both the domestic and
export markets. We are working to restore our yarn sales program to the levels
it previously enjoyed. And we remain focused on streamlining our operations to
increase productivity, reduce costs, and improve service through further
refinements in our approach to supply chain management issues.
As a result of the significant capital investments and other important
changes that we have made, we remain excited about our longer-term potential.
Our objective is to maximize shareholder value by becoming the market leader. We
are confident that we have built the solid foundation necessary to do that. We
know we can count on the continued hard work and dedication of every Quaker
employee as we move closer to this goal, and we remain deeply appreciative of
your support.
Sincerely,
/s/ Larry A. Liebenow /s/ Sangwoo Ahn
Larry A. Liebenow Sangwoo Ahn
President and Chief Executive Officer Chairman of the Board
3
<PAGE>
<PAGE>
THE
COMPANY
Quaker designs and produces some of the finest upholstery fabric
available in the world today. In business for over 50 years, Quaker has earned
its position as a leading designer, manufacturer and worldwide marketer of woven
upholstery fabrics. But the Quaker story does not end with our fabrics - we are
also the world's largest producer of chenille yarn. Chenille yarns are soft,
velvet-like yarns that have helped direct the evolution of our industry to its
present state - largely because of the leadership role we've played in the
development of durable chenilles and our incorporation of them into fabrics of
the highest quality. That's a reflection of one of our most important
characteristics - our operations are vertically integrated, from specialty yarn
design and manufacturing through fabric weaving and finishing.
The cornerstone of Quaker's success has been, and will continue to be,
the styling and design characteristics of our fabrics. That's our greatest
competitive strength, because product is the single most important factor in our
industry. Jacquard fabrics form the core of our product line, and we're one of
the largest producers of Jacquard upholstery fabric in the world. Jacquards are
distinguished by the highly detailed designs that are woven directly into the
fabric itself using specially equipped looms. Quaker's product line is one of
the most comprehensive in the industry and includes over 3,000 fabric patterns,
with more than 700 new fabric designs introduced each year. In recognition of
the uniqueness and quality of our products, we seek copyright protection for all
of our Jacquard fabrics.
Our product strength begins with our design process. Quaker is the
industry's design leader. Using state-of-the-art computer-aided design (CAD)
equipment, our design team continually creates new fabrics covering all of the
important price points and styles, for not only the high volume promotional
segment, but also the middle and high-end portion of the market, where our
Whitaker Collection'TM' fabrics provide our higher-end customers with an
exciting and differentiated product. Participation by our sales representatives
and major customers in the design process is also integral to our success in
understanding and responding to changes in the way our customers define value.
An important component in many of our Jacquard fabrics is our
Ankyra'TM' chenille yarns. Our patented Ankyra manufacturing process has allowed
us to construct durable and abrasion-resistant chenille yarns and fabrics that
are critical to our on-going efforts to take advantage of new opportunities in
related markets, such as the contract or office furniture market. We've made
significant strides in that direction - our first contract line, consisting of
60 fabrics, was introduced in 1998 to a very encouraging reception, and we are
now working to build on that initial response.
Our Ankyra yarns and fabrics are an example of another important
competitive strength Quaker enjoys - we are an industry leader when it comes to
technical innovation. This leadership is seen in our highly popular line of
Quaker Plush'TM' fabrics that
4
<PAGE>
<PAGE>
-----------
left
PATTERN
Bella
COLOR
Nutmeg
------
right
PATTERN
Bimini
COLOR
Nutmeg
-----------
<PAGE>
<PAGE>
-----------
------
PATTERN
Rosenburg
COLOR
Spice
-----------
<PAGE>
<PAGE>
THE
COMPANY
(CONTINUED)
combine durability with extraordinary softness - and demand for these products
has been very strong.
Our design and technical expertise are also evident in the other
innovative specialty yarns we design and produce. These yarns contribute to the
distinctive look of our products, and we produce nearly all the specialty yarns
we need to weave our fabrics. In addition, our Nortex Yarns division is an
important supplier of novelty and specialty yarns to manufacturers of home
furnishings and apparel products throughout the United States. Although our yarn
sales business has been hurt recently by cheaper imports of apparel products
from the Far East, it will nevertheless continue to play an important role in
our business, as will every other aspect of our design and technical
capabilities.
These strengths - design and technical abilities, and yarn expertise -
are all part of Quaker's vertical integration. Vertical integration is central
to Quaker's strategy and has historically been a significant contributor to our
gross margin performance. Our designers attempt to maximize the use of our
internally produced specialty yarns - creating distinctive fabrics while
providing us with important cost advantages and reducing our dependence on
external suppliers when it comes to meeting our delivery lead time objectives.
Quaker is also vertically integrated in its fabric finishing operations -
providing us with both innovation and quality control advantages.
The superiority of our product styling and design is widely recognized,
and that's why our customer base includes virtually every significant domestic
furniture manufacturer. But our focus is also on the global market, where we've
positioned Quaker to become a significant player.
We are grateful for our customers' continued confidence in us, and we
are constantly striving to be their "supplier of choice." Although Quaker
already enjoys a product advantage, we are determined to add a service advantage
to our arsenal as well. To do this, we have recently completed our 1997-1998
capacity expansion program - spending approximately $67.0 million to give us the
modern manufacturing base we need. We're also working to build our supply chain
management function by improving the flow of product through our manufacturing
facilities, all of which are located in the greater Fall River, Massachusetts
area, and looking at ways to improve the service we provide to our customers
through our distribution centers in High Point, North Carolina; Tupelo,
Mississippi; Los Angeles, California and Mexico City, Mexico. Our objective is
to maximize our efficiencies and reduce our costs, while at the same time doing
a better job of getting our products to our customers when they want them.
Our quality control program is another key aspect of our commitment to
consistently improving our levels of customer service. It's a comprehensive
program - every raw material component, all work-in-process - yarns and fabric,
and each finished product is inspected by our quality control staff to ensure
that our exacting standards are met and that our customers will receive products
of uniformly high quality. And, consistent
7
<PAGE>
<PAGE>
THE
COMPANY
(CONTINUED)
with our integrated approach to quality management, Quaker is ISO 9001 certified
on a company-wide basis, from new product design through final product shipment.
We believe that we are one of the very few companies in our industry to have
earned this comprehensive certification.
Quaker's strategy has been in place since 1990 and is intended to
maximize shareholder value by producing sustained, superior growth over the long
term despite the maturity of the domestic furniture market. One aspect of this
strategy is for Quaker to continue designing and producing fabrics for the
middle- to better-end of the market while maintaining its strong position in the
higher-volume, promotional-end of the market. This strategy has diversified our
product mix and added new manufacturers to our customer base.
Not only did we expand our sales to the middle- to better-end of the
market; we also aggressively began a concentrated effort to build an export
business. This, too, has been successful, and we are continuing to lay the
groundwork necessary for further expansion of our international business. This
global approach has not only provided us with opportunities for increased sales
but also allowed us to diversify our market risks.
Quaker has been at the forefront in the design and production of the
livable, yet stylish fabrics that today's residential furniture buyers demand.
We plan to continue to take full advantage of our design and technical
expertise, as well as our soft yet durable chenille yarns, to further benefit
from the growth of the casual furniture segment.
The unique combination of styling and durability found in our fabrics
has given us the opportunity to penetrate new markets closely related to our
core residential furniture market, and we are aggressively pursuing those
opportunities. The office furniture market is just one example of the growth
opportunities that we are seeking to exploit. That market requires a high level
of durability and abrasion resistance. We believe our Ankyra yarns, and our yarn
development expertise in general, will allow us to compete strongly in that
arena. The decorative jobber market has also been an important source of
increased sales for Quaker, due to the popularity of our Whitaker Collection and
Quaker Plush products in that segment.
Efforts are already underway to grow our specialty yarn sales business
to first restore, and then expand, that segment of our business. That will not
be easy, given current global economic conditions. But we remain convinced that
our status as the world's largest manufacturer of chenille yarn, our broad range
of novelty spun yarns, and the expertise of our yarn development staff, will
allow us to do that - and to identify new markets and applications for all of
our yarn products.
Although we remain committed to internally-generated growth, we will
also consider acquisition opportunities at appropriate times that we believe
will either provide Quaker with a new and complementary product or capability,
or support our existing products and objectives.
8
<PAGE>
<PAGE>
-----------
left
PATTERN
Impreza
COLOR
Sage
------
right
PATTERN
Belden
COLOR
Ivy
-----------
<PAGE>
<PAGE>
THE
COMPANY
(CONTINUED)
Although Quaker has enjoyed a level of unprecedented top line growth
over the past few years, the past two quarters have been disappointing. We know
that there are things to be taken care of in the near term, and we have already
taken a number of steps to move closer to our financial goals. Our aggressive
new approach to managing our supply chain, as well as the new management
information system we installed last year, both of which we believe will lead to
improved efficiencies and reduced costs, are but two examples. And while we
address the present, we also have our sights set firmly on where we want to be
in the not-too-distant future - the undisputed market leader in product,
service, and shareholder value. We remain committed to our long-term strategy
and believe that it will continually move us closer to that goal. Every Quaker
employee is dedicated to that mission.
10
<PAGE>
<PAGE>
-----------
left
PATTERN
Widewale
COLOR
Aubergine
------
right
PATTERN
Sandy Island
COLOR
Sachet
-----------
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share and per yard data)
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
The following table sets forth certain consolidated financial and operating data
of the Company for the periods indicated, which data has been derived from the
Consolidated Financial Statements of the Company and the Notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants. This
selected financial and operating data should be read in conjunction with the
Consolidated Financial Statements, the Notes thereto and the other financial
information included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------------
January 2, January 3, January 4, December 30, December 31,
1999 1998 1997(1) 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales .................... $ 252,558 $ 219,174 $ 198,856 $ 173,487 $ 180,842
Cost of products sold ........ 199,886 167,401 152,787 137,083 133,168
-------------------------------------------------------------------------
Gross margin ................. 52,672 51,773 46,069 36,404 47,674
Selling, general and
administrative expenses ..... 38,683 32,311 29,121 26,176 27,560
-------------------------------------------------------------------------
Operating income ............. 13,989 19,462 16,948 10,228 20,114
Other expenses:
Interest expense, net ...... 5,405 3,700 4,092 3,898 3,863
Other, net ................. (28) 65 77 98 34
-------------------------------------------------------------------------
Income before provision for
income taxes ................ 8,612 15,697 12,779 6,232 16,217
Provision for income taxes ... 2,842 4,584 4,217 712 6,691
-------------------------------------------------------------------------
Net income ................... $ 5,770 $ 11,113 $ 8,562 $ 5,520 $ 9,526
=========================================================================
Earnings per common
share(2) - basic ............ $ .42 $ .90 $ .71 $ .46 $ .79
=========================================================================
Earnings per common
share(2) - diluted .......... $ .40 $ .85 $ .69 $ .44 $ .77
=========================================================================
Weighted average shares
outstanding(2) -basic ....... 13,861 12,412 12,032 12,032 12,015
=========================================================================
Weighted average shares
outstanding(2) - diluted .... 14,477 13,022 12,498 12,440 12,451
=========================================================================
SELECTED OPERATING DATA:
EBITDA(3)..................... $ 24,633 $ 28,479 $ 24,569 $ 16,821 $ 25,920
Depreciation and amortization 10,616 8,511 7,437 6,462 5,603
Net capital expenditures(4) .. 41,487 25,484 11,979 13,165 18,727
Unit volume (in yards) ....... 50,397 44,976 43,552 40,761 41,641
Average gross sales price per
yard ........................ $ 4.54 $ 4.23 $ 4.05 $ 3.88 $ 4.06
BALANCE SHEET DATA:
Working capital .............. $ 72,694 $ 42,634 $ 32,620 $ 30,780 $ 30,994
Total assets ................. 234,766 178,088 148,832 138,117 130,476
Long-term debt, net of current
portion, and capital leases.. 69,011 52,772 42,235 45,118 43,845
Stockholders' equity ......... 124,993 82,313 66,572 57,850 52,589
</TABLE>
(1) The fiscal year ended January 4, 1997 was a 53-week period.
(2) Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding during the year. Earnings per
share and weighted average shares outstanding reflects a three-for-two stock
split paid on June 19, 1998.
(3) Represents income from continuing operations plus interest, taxes,
depreciation, amortization and other non-cash expenses. Although the Company has
measured EBITDA consistently among the periods presented, EBITDA as a measure of
liquidity is not governed by GAAP and, as such, may not be comparable to other
similarly titled measures of other companies. The Company believes that EBITDA,
while providing useful information, should not be considered in isolation or as
an alternative to either (i) operating income determined in accordance with GAAP
as an indicator of operating performance or (ii) cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
(4) Net capital expenditures reflect assets acquired by purchase and capital
lease.
12
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 432 $ 234
Accounts receivable, less allowances of $1,939 and $1,479 at
January 2, 1999 and January 3, 1998, respectively,
for doubtful accounts and sales returns and allowances 40,661 32,996
Inventories 46,594 32,176
Prepaid and refundable income taxes 1,311 25
Prepaid expenses and other current assets 6,791 4,688
-------------------------
Total current assets 95,789 70,119
Property, plant and equipment, net of depreciation and amortization
of $47,514 and $37,709 at January 2, 1999 and January 3, 1998,
respectively 132,420 101,307
Other assets:
Goodwill, net of amortization 6,011 6,204
Deferred financing costs 252 251
Other assets 294 207
-------------------------
Total assets $ 234,766 $ 178,088
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 700 $ 995
Current portion of capital lease obligations 1,861 1,167
Accounts payable 13,754 18,203
Accrued expenses 6,780 7,120
-------------------------
Total current liabilities 23,095 27,485
Long-term debt, less current portion 65,536 47,436
Capital lease obligations, net of current portion 3,475 5,336
Deferred income taxes 15,874 13,771
Other long-term liabilities 1,793 1,747
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;
15,646,551 and 12,601,026 shares issued and outstanding at January 2,
1999 and January 3, 1998, respectively 156 126
Additional paid-in capital 83,410 46,530
Retained earnings 42,842 37,072
Cumulative translation adjustment (1,415) (1,415)
-------------------------
Total stockholders' equity 124,993 82,313
-------------------------
Total liabilities and stockholders' equity $ 234,766 $ 178,088
-------------------------
-------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
January 2, January 3, January 4,
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Net sales $ 252,558 $ 219,174 $ 198,856
Cost of products sold 199,886 167,401 152,787
------------------------------------------------
Gross margin 52,672 51,773 46,069
Selling, general and administrative expenses 38,683 32,311 29,121
------------------------------------------------
Operating income 13,989 19,462 16,948
Other expenses:
Interest expense, net 5,405 3,700 4,092
Other, net (28) 65 77
------------------------------------------------
Income before provision for income taxes 8,612 15,697 12,779
Provision for income taxes 2,842 4,584 4,217
------------------------------------------------
Net income 5,770 11,113 8,562
------------------------------------------------
Earnings per common share - basic $ 0.42 $ 0.90 $ 0.71
------------------------------------------------
------------------------------------------------
Earnings per common share - diluted $ 0.40 $ 0.85 $ 0.69
------------------------------------------------
------------------------------------------------
Weighted average shares outstanding - basic 13,861 12,412 12,032
------------------------------------------------
------------------------------------------------
Weighted average shares outstanding - diluted 14,477 13,022 12,498
------------------------------------------------
------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Additional Cumulative Total
Common Paid-in Retained Translation Stockholders'
Stock Capital Earnings Adjustment Equity
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 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 -- -- 5,770 -- 5,770
Proceeds from sale of 3,000,000 shares
of common stock, net of expenses 30 36,454 -- -- 36,484
Proceeds from stock options exercised,
including tax benefits -- 426 -- -- 426
------------------------------------------------------------------------------
BALANCE, JANUARY 2, 1999 $ 156 $ 83,410 $ 42,842 $ (1,415) $ 124,993
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
January 2, January 3, January 4,
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 5,770 $ 11,113 $ 8,562
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization .............................. 10,616 8,511 7,437
Stock option compensation expense .......................... -- 571 261
Deferred income taxes ...................................... 2,103 1,570 1,134
Changes in operating assets and liabilities-
Accounts receivable ........................................ (7,665) (6,735) (2,050)
Inventories ................................................ (14,418) (5,219) (4,581)
Prepaid expenses and other assets .......................... (3,476) (455) 657
Accounts payable and accrued expenses ...................... (4,789) 2,512 4,078
Deferred income taxes ...................................... -- 552 (8)
Other long-term liabilities ................................ 46 (1,335) (684)
---------------------------------------
Net cash provided (used)
by operating activities .............................. (11,813) 11,085 14,806
---------------------------------------
Cash flows from investing activities:
Net purchases of property, plant and equipment ................. (41,487) (25,484) (11,979)
---------------------------------------
Net cash used for investing activities ................. (41,487) (25,484) (11,979)
---------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ....................... -- 45,000 --
Borrowings (repayments) of debt ................................ 17,805 (33,251) (1,278)
Repayments of capital leases ................................... (1,167) (1,533) (1,249)
Capitalization of financing costs .............................. (50) (25) (14)
Proceeds from issuance of common stock,
net of offering expenses ..................................... 36,484 3,267 --
Proceeds from exercise of common stock options ................. 426 790 --
---------------------------------------
Net cash provided (used)
by financing activities .............................. 53,498 14,248 (2,541)
Effect of exchange rates on cash ................................... -- -- (101)
---------------------------------------
Net increase (decrease) in cash and cash equivalents ............... 198 (151) 185
Cash and cash equivalents, beginning of period ..................... 234 385 200
---------------------------------------
Cash and cash equivalents, end of period ........................... $ 432 $ 234 $ 385
========================================
Supplemental disclosure of cash flow information:
Cash paid for-
Interest ................................................... $ 5,290 $ 3,108 $ 3,916
Income taxes ............................................... $ 2,055 $ 3,648 $ 829
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
16
<PAGE>
<PAGE>
QUAKER FABRIC CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands
except per share amounts)
1 OPERATIONS
Quaker Fabric Corporation and subsidiaries (the "Company" or "Quaker") designs,
manufactures and markets woven upholstery fabrics primarily 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 2, 1999 and January 3,
1998 contained 52 weeks while the fiscal year ended January 4, 1997 contained 53
weeks.
(c) INVENTORIES Inventories are stated at the lower of cost or market and
include materials, labor and overhead. Cost is determined by the last-in,
first-out (LIFO) method. Inventories consist of the following at January 2, 1999
and January 3, 1998:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
------------------------
<S> <C> <C>
Raw materials .................... $20,137 $14,430
Work-in-process .................. 12,439 9,917
Finished goods ................... 14,297 8,092
------------------------
Inventory at FIFO ............. 46,873 32,439
LIFO reserve ..................... 279 263
------------------------
Inventory at LIFO ............. $46,594 $32,176
========================
</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>
<CAPTION>
<S> <C>
Buildings and improvements 32-39 years
Machinery and equipment .. 3-20 years
Furniture and fixtures ... 10 years
Motor vehicles ........... 4-5 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated life of the assets or the remaining lease term.
(e) GOODWILL Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. Accumulated amortization is $1,700 and $1,507
at January 2, 1999 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 $458 and $409 as
of January 2, 1999 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 shares
outstanding and dilutive potential common shares.
17
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------
January 2, January 3, January 4,
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding 13,861 12,412 12,032
Dilutive potential common shares ........... 616 610 466
-------------------------------------
Weighted average common shares outstanding
and dilutive potential common shares .... 14,477 13,022 12,498
=====================================
Antidilutive options ....................... 239 -- --
=====================================
</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
Fiscal 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 and 1998, 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 stockholders' equity. In accordance with SFAS No. 52, Foreign
Currency Translation, the translation adjustments for periods prior to Fiscal
1997 remain as a separate component of equity.
(j) IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses the
realizability of its long-lived assets in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Based on its review, the Company does not believe that any
material impairment of its long-lived assets has occurred.
(k) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The
presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the reporting periods.
Operating results in the future could vary from the amounts derived from
management's estimates and assumptions.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments
consist mainly of cash and cash equivalents, accounts receivable, current
maturities of long term debt, accounts payable, and long term debt. The carrying
amount of these financial instruments as of January 2, 1999 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 to the presentation of the Fiscal 1998
Financial Statements.
(n) STOCK SPLIT On May 28, 1998, the Board of Directors declared a three-for-
two stock split effected by means of a stock dividend paid on June 19, 1998 to
stockholders of record on June 8, 1998. All share and per share amounts give
effect to such stock split.
3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
-------------------------
<S> <C> <C>
Land ................................................ $ 236 $ 236
Buildings and improvements........................... 19,983 18,408
Leasehold improvements .............................. 2,165 485
Machinery and equipment ............................. 151,966 112,927
Furniture and fixtures .............................. 1,736 1,428
Motor vehicles ...................................... 333 331
Construction in progress ............................ 3,515 5,201
-------------------------
179,934 139,016
Less - Accumulated depreciation and amortization..... 47,514 37,709
-------------------------
$132,420 $101,307
=========================
</TABLE>
18
<PAGE>
<PAGE>
Included in machinery and equipment is equipment under capital lease of $10,919
as of January 2, 1999 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 2, January 3,
1999 1998
-------------------------
<S> <C> <C>
Accrued workers' compensation ...................... $1,100 $1,300
Accrued medical insurance .......................... 1,193 1,492
Accrued other, including taxes ..................... 4,487 4,328
-----------------------
$6,780 $7,120
======================
</TABLE>
5 DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
------------------------
<S> <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
Unsecured credit facility payable
to several banks ................................ 20,500 1,700
9.73% Note payable in monthly principal
and interest installments of $81 through
August 1999, secured by certain equipment ....... 628 1,498
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%
(8.75% at January 2, 1999 and 9.50%
at January 3, 1998), secured by
certain equipment ............................... 108 233
------------------------
66,236 48,431
Less - Current portion ............................. 700 995
------------------------
$65,536 $47,436
========================
</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 are
unsecured and bear interest at fixed rates of 7.18% and 7.09%, payable
semiannually. The Senior Notes may be prepaid in whole or in part prior to
maturity, at the Company's option, subject to a yield maintenance premium, as
defined. Required principal payments of the Senior Notes are as follows:
<TABLE>
<CAPTION>
7.18% Note 7.09% Note
<S> <C> <C>
October 10, 2003 ...................... $ -- $ 5,000
October 10, 2004 ...................... -- 5,000
October 10, 2005 ...................... -- 5,000
October 10, 2006 ...................... 15,000 --
October 10, 2007 ...................... 15,000 --
---------------------------
$30,000 $15,000
===========================
</TABLE>
Under the terms of the unsecured credit facility (the "Credit Agreement"), the
Company may borrow up to $70,000 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 0.75% to 1.625%. 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 2, 1999, the commitment fee is
19
<PAGE>
<PAGE>
0.375% of the unused portion of the Credit Agreement which was $48,745, net of
$86 of outstanding letters of credit. As of January 2, 1999, the Company had
$20,500 outstanding under the Credit Agreement at an effective interest rate of
6.45%. 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, and purchase, merge or consolidate with or
into any other corporation. As of January 2, 1999, the Company is in compliance
with all debt covenants.
As of January 2, 1999, debt principal payments for each of the next five fiscal
years and thereafter are as follows:
<TABLE>
<S> <C>
1999 ................ $ 700
2000 ................ 36
2001 ................ --
2002 ................ 20,500
2003 ................ 5,000
Thereafter .......... 40,000
---------
$66,236
=========
</TABLE>
6 INCOME TAXES
Income before provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 2, January 3, January 4,
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Domestic ................. $ 8,818 $ 14,471 $ 12,200
Foreign .................. (206) 1,226 579
------------------------------------------
$ 8,612 $ 15,697 $ 12,779
==========================================
</TABLE>
The following is a summary of the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
January 2, January 3, January 4,
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Federal
Current ...................... $ 597 $ 2,544 $ 2,510
Deferred ..................... 1,814 1,341 1,300
-------------------------------------
$ 2,411 $ 3,885 $ 3,810
-------------------------------------
State
Current ...................... $ 360 $ 410 $ 573
Deferred ..................... 71 (195) (166)
-------------------------------------
$ 431 $ 215 $ 407
-------------------------------------
Foreign
Current ...................... $ 72 $ 60 $ --
Deferred ..................... (72) 424 --
-------------------------------------
$ - $ 484 $ --
-------------------------------------
$ 2,842 $ 4,584 $ 4,217
=====================================
</TABLE>
20
<PAGE>
<PAGE>
A reconciliation between the provision for income taxes before extraordinary
item computed at U.S. federal statutory rates and the amount reflected in the
accompanying consolidated statements of income is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------
January 2, January 3, January 4,
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Computed expected tax provision ...................................... $ 2,928 $ 5,494 $ 4,345
Increase in taxes resulting from:
Amortization of goodwill ................................ 67 67 67
State and foreign income taxes, net of federal benefit... 456 893 583
Decrease in taxes resulting from:
State investment tax credits, net of federal provision... (1,124) (813) (319)
Reversal of tax reserves no longer required ............. -- (1,081) (308)
Foreign sales corporation benefit ....................... (476) (485) (245)
Valuation allowance ..................................... 959 488 --
Other ................................................... 32 21 94
-------------------------------------
$ 2,842 $ 4,584 $ 4,217
=====================================
</TABLE>
At January 2, 1999, 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 $1,350 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 $3,700 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.
The significant items comprising the domestic deferred tax asset/liability are
as follows:
<TABLE>
<CAPTION>
January 2, 1999 January 3, 1998
------------------------ -----------------------
Current Long-term Current Long-term
----------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards ....... $ 270 $ 355 $ 270 $ 355
Tax credit carryforwards ............... 322 3,792 192 2,555
Receivable reserves .................... 137 -- 197 --
Other .................................. 880 2,233 1,112 1,245
----------------------------------------------------
Total assets ..................... $ 1,609 $ 6,380 $ 1,771 $ 4,155
Valuation allowance .............. -- (1,447) -- (488)
====================================================
Total assets, net of valuation allowance $ 1,609 $ 4,933 $ 1,771 $ 3,667
====================================================
Liabilities:
Property basis differences ............. $ -- $(20,807) $ -- $(17,582)
Inventory basis differences ............ (1,002) -- (1,177) --
----------------------------------------------------
Total liabilities ................ $ (1,002) $(20,807) $ (1,177) $(17,582)
----------------------------------------------------
Net assets (liabilities) ......... $ 607 $(15,874) $ 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 2, 1999 January 3, 1998
----------------------------------------------
Current Long-term Current Long-term
----------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards....... $ 144 $ -- $ -- $ 144
Liabilities:
Inventory ............................. $(569) $ -- $ (569) $ --
----------------------------------------------
Net assets (liabilities)......... $(425) $ -- $ (569) $ 144
==============================================
</TABLE>
21
<PAGE>
<PAGE>
7 COMMITMENTS AND CONTINGENCIES
(a) LITIGATION AND ENVIRONMENTAL CLEANUP MATTERS The Company, its directors, and
certain of its officers were named as defendants in two putative class action
lawsuits filed during September 1998 relating to the Company's public offering
of 3.2 million shares of common stock that was completed on August 4, 1998 (the
"Offering"). While the plaintiffs seek unspecified damages and rescission for
alleged material misrepresentations and omissions in the registration statement
and prospectus for the Offering, the Company does not believe that these
lawsuits will have a material adverse impact on its operations or financial
condition.
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 2004. As of January 2, 1999, the aggregate minimum
future commitments under leases are as follows:
<TABLE>
<CAPTION>
Capital Operating Total
Leases Leases Leases
-----------------------------------
<S> <C> <C> <C>
1999 ................................. $ 2,240 $ 2,289 $ 4,529
2000 ................................. 1,094 1,886 2,980
2001 ................................. 2,080 1,528 3,608
2002 ................................. 725 1,260 1,985
2003 ................................. -- 1,117 1,117
Thereafter ........................... -- 114 114
-----------------------------------
$ 6,139 $ 8,194 $14,333
====================
Less--Amount representing interest ... 803
-------
$ 5,336
Less--Current portion ................ 1,861
-------
$ 3,475
=======
</TABLE>
Rent expense for operating leases for the years ended January 2, 1999, January
3, 1998 and January 4, 1997 was $1,982, $953, and $1,276, respectively.
(c) LETTERS OF CREDIT In the normal course of its business activities, the
Company is required under certain contracts to provide letters of credit which
may be drawn down in the event the Company fails to perform under the contracts.
As of January 2, 1999 and January 3, 1998, the Company has issued or agreed to
issue letters of credit totaling $86 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 2, 1999, Mr. Liebenow would have been entitled to
receive $1,800 (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 953,692 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
22
<PAGE>
<PAGE>
were granted to certain officers under the 1993 Stock Option Plan. The
difference of $348 between the fair market value at the grant date and the
exercise price of these options was charged to compensation expense over five
years. The 1993 Stock Option Plan provided that all options granted under the
plan would vest over five years and be exercisable for ten years except in the
event of a change in control, in which case all outstanding options granted
pursuant to the plan would vest immediately. Upon the consummation of the
Company's public offering of common stock in 1997, all previously unvested
options granted under the 1993 Stock Option Plan became immediately exercisable
in full, and the amount of unamortized compensation expense of $480 was recorded
as a charge to the statement of income at that time.
During 1996, the Company adopted the 1996 Stock Option Plan for key middle
managment employees. Options are granted at not less than fair market value,
vest over a five year period, and are exercisable for ten years. A total of
300,000 shares are reserved under this plan, and options to purchase 210,000
shares have been granted.
During 1997, the Company adopted the 1997 Stock Option Plan. Options to purchase
700,000 shares of common stock have been 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 1995, options to purchase 7,500 shares of common stock were granted to a
director of the Company. During 1997, options to purchase an aggregate of 15,000
shares of common stock were granted to two directors of the Company. During
1998, options to purchase an aggregate of 30,000 shares of common stock were
granted to three directors of the Company. All options issued to directors vest
over three years and are exercisable for ten years.
During 1997, the Company recorded $571 as stock option compensation expense.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which sets forth a fair-value-based method of
recognizing stock-based compensation expense. As permitted under SFAS No. 123,
the Company has elected to continue to apply APB No. 25 to account for its
stock-based compensation plans. Had compensation cost for awards granted in
Fiscal 1998, Fiscal 1997 and Fiscal 1996 under the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method set forth in SFAS No. 123, the effect on the
Company's net income and earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Net income
As reported ........................ $ 5,770 $ 11,113 $ 8,562
Pro forma .......................... $ 5,195 $ 10,787 $ 8,500
Earnings per common share - diluted
As reported ........................ $ 0.40 $ 0.85 $ 0.69
Pro forma .......................... $ 0.36 $ 0.83 $ 0.68
</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>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Volatility ............................... 60.13% 44.83% 60.13%
Risk-free interest rate .................. 4.99% 6.69% 6.44%
Expected life of options ................. 5.98 years 6.48 years 10 years
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions used
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
23
<PAGE>
<PAGE>
STOCK OPTION ACTIVITY A summary of the Company's stock option activity is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------------
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 ............... 1,549,080 $ 4.74 1,092,311 $1.73 881,561 $1.36
Granted ............................ 379,000 $10.03 586,500 $9.97 213,000 $3.31
Exercised .......................... (37,350) $ 4.09 (119,381) $2.83 -- --
Forfeited .......................... (54,300) $10.24 (10,350) $5.91 (2,250) $5.50
Expired ............................ -- -- -- -- -- --
Options outstanding, end of year ... 1,836,430 $ 5.71 1,549,080 $4.74 1,092,311 $1.73
Options exercisable ................ 1,004,080 $ 2.33 912,705 $1.33 526,926 $1.34
Options available for grant ........ 124,400 -- 270,300 -- 80,100 --
Weighted average fair value
per share of options granted..... -- $ 5.56 -- $5.50 -- $4.05
</TABLE>
A summary of the status of the Company's stock options as of January 2, 1999 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- 2.75 873,930 4.66 $ 1.27
1996 Plan ........................... $ 5.50-17.67 210,000 8.58 $ 8.58
1997 Plan ........................... $14.25-10.17 700,000 8.90 $ 8.91
Directors ........................... $ 7.33-13.00 52,500 8.80 $11.38
</TABLE>
9 EXPORT AND PRODUCT SALES
Export sales from the United States to unaffiliated customers by major
geographical area were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
January 2, January 3, January 4,
1999 1998 1997
--------------------------------------
<S> <C> <C> <C>
North America (excluding USA)...... $15,500 $11,900 $ 9,900
Middle East ....................... 9,000 11,300 13,000
South America ..................... 2,300 1,800 700
Europe ............................ 4,500 2,900 2,500
All other areas ................... 4,100 4,600 4,000
--------------------------------------
$35,400 $32,500 $30,100
======================================
</TABLE>
Gross sales by product category are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
January 2, January 3, January 4,
1999 1998 1997
--------------------------------------
<S> <C> <C> <C>
Fabric ........................... $228,704 $190,183 $176,418
Yarn ............................. 30,116 32,979 26,750
--------------------------------------
$258,820 $223,162 $203,168
======================================
</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 $10,000) to the 401(k) Plan. All contributions made by an employee are
fully vested and are not subject to forfeiture. Each year the Company
contributes on behalf of each participating employee an amount equal to 100% of
the first $200 contributed by each employee and 25% of the next $800 contributed
by such employee, for a maximum annual Company contribution of $400 per
employee. An employee is fully vested in the contributions made by the Company
upon his or her completion of five years of participation in the 401(k) Plan.
24
<PAGE>
<PAGE>
11 RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which is effective for the Company's financial statements for the fiscal year
ended January 2, 1999. This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses). Components of comprehensive income are net earnings and all other
changes that are currently reflected in Stockholders' Investment. This statement
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
adoption of this statement did not affect the Company's financial statements.
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in the fiscal year ended January 2, 1999.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions about how to
allocate resources and assess performance. The Company's chief decision-maker,
as defined under SFAS No. 131, is the Chief Executive Officer. To date, the
Company has viewed its operations and manages its business as principally one
segment. As a result, the financial information disclosed herein, represents all
of the material financial information related to the Company's principal
operating segment. See Footnote 9.
In February 1997, FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. The Company believes that the adoption of
this new accounting standard will not have a material effect on the Company's
financial statements.
- --------------------------------------------------------------------------------
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 2, 1999 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 2, 1999. 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 2, 1999 and January 3, 1998, and the
results of their operations and their cash flows for each of the three years
ended January 2, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 8, 1999
25
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations of
the Company should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this report.
GENERAL
OVERVIEW Quaker is a leading designer, manufacturer and worldwide marketer of
woven upholstery fabrics and one of the largest producers of Jacquard upholstery
fabrics in the world. The Company also manufactures specialty yarns, most of
which are used in the production of the Company's fabric products. The balance
is sold to manufacturers of apparel and home furnishings products throughout the
United States.
During 1995, management developed a comprehensive performance improvement plan
designed to increase margins and earnings by growing sales, reducing raw
material costs and improving manufacturing efficiencies. Following management's
implementation of this plan, the Company's sales and profitability improved in
comparison to prior periods in each of the last three quarters of 1996 and
during the first three quarters of 1997. However, during the second half of
1997, record order rates for the Company's fabric and yarn products caused the
Company's production backlog and delivery lead times to increase significantly.
To respond to this growing demand for the Company's products and to support its
new market development efforts, Quaker began implementing an aggressive capacity
expansion plan involving the expenditure of approximately $67.0 million during
1997 and 1998. Period costs associated with the implementation of this plan,
including the cost of identifying and preparing the space needed to house the
new equipment included in the plan, costs related to the hiring and training of
the more than 350 new employees needed to run this new equipment, and some
deterioration in the Company's productivity and internal quality performance
resulting from the addition of these new employees adversely affected the
Company's margin performance during the third and fourth quarters of 1997. In
addition, heavy overtime expenses incurred to meet customer demand despite
existing capacity constraints, also put pressure on the Company's margins during
the second half of 1997.
These cost factors continued to exert downward pressure on the Company's margins
during 1998, but their effect had begun to diminish by the end of the second
quarter, the Company's margins were beginning to improve and Quaker's financial
performance during the first half was reasonably strong. However, production
delays encountered during the Company's conversion to a new management
information system during the third quarter, coupled with a significant decline
in the Company's new order rate during the latter part of the year, resulted in
a disappointing second half. Management believes the decline in the Company's
order rate to be attributable to a number of facturs, including order rate
adjustments made by Quaker's customers later in the year to account for
improvements in the Company's delivery lead times. International economic
conditions, which continued to weaken throughout the year, hurt Quaker's yarn
sales business, which faced heavy competition from imported apparel products
from the Far East during 1998.
Management believes that a relatively strong U.S. economy will continue to
provide the Company with a business environment which is generally favorable to
the achievement of Quaker's growth and marketing objectives. Uncertainty
surrounding the global economic environment, however, is expected to continue to
depress the Company's revenues from its yarn and export businesses over the near
term.
QUARTERLY OPERATING RESULTS The following table sets forth certain condensed
unaudited consolidated statements of income data for the eight fiscal quarters
ended January 2, 1999, as well as certain data expressed as a percentage of the
Company's total net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL 1998 Fiscal 1997
-------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH First Second Third Fourth
-------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... $62,730 $64,075 $60,331 $65,422 $53,198 $52,475 $55,130 $58,371
Gross margin ...................... 13,591 14,594 12,137 12,350 13,099 13,006 12,656 13,012
Gross margin percentage ........... 21.7% 22.8% 20.1% 18.9% 24.6% 24.8% 23.0% 22.3%
Operating income .................. 4,193 5,376 2,456 1,964 4,631 5,020 4,873 4,938
Operating income percentage ....... 6.7% 8.4% 4.1% 3.0% 8.7% 9.6% 8.8% 8.5%
Income before provision for
income taxes ..................... $ 2,978 $ 3,911 $ 1,066 $ 657 $ 3,747 $ 4,181 $ 3,925 $ 3,844
-------------------------------------------------------------------------------------------
Net income ........................ $ 1,936 $ 2,542 $ 692 $ 600 $ 2,510 $ 2,801 $ 3,080 $ 2,722
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Earnings per common share-basic ... $ 0.15 $ 0.20 $ 0.04 $ 0.04 $ 0.21 $ 0.22 $ 0.25 $ 0.22
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Earnings per common share-diluted . $ 0.15 $ 0.19 $ 0.04 $ 0.04 $ 0.20 $ 0.21 $ 0.23 $ 0.21
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
(1) The data reflected in this table has been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for the fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this report.
26
<PAGE>
<PAGE>
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
and 1998, the first week of the annual shutdown period occurred in the second
fiscal quarter.
PRODUCT MIX Over the past several years, Quaker has taken steps to expand both
the breadth and depth of the Company's product line by increasing the number of
higher margin, middle to better-end fabrics in its line and by expanding the
number of fabrics it offers at each price point and in each styling category. As
a result, the Company has added new manufacturers of higher-end furniture to its
customer base and positioned itself as a full service supplier of Jacquard and
plain woven fabrics to all of its customers. The following table sets forth
certain information relating to the changes that have occurred in the Company's
product mix and the average gross sales price of its fabrics since 1996:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------
PERCENT Percent Percent
OF of of
AMOUNT SALES Amount Sales Amount Sales
------------------------------------------------------------------------------
(in thousands, except per yard data)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales (dollars):
Promotional-end fabrics ......... $ 54,913 24.0% $ 57,395 30.2% $ 54,716 31.0%
Middle to better-end fabrics .... 173,791 76.0 132,788 69.8 121,702 69.0
------------------------------------------------------------------------------
Gross fabric sales ............ $228,704 100.0% $190,183 100.0% $176,418 100.0%
------------------------------------------------------------------------------
Gross fabric sales (yards):
Promotional-end fabrics ......... 15,951 31.7% 16,822 37.4% 16,074 36.9%
Middle to better-end fabrics .... 34,446 68.3 28,154 62.6 27,478 63.1
------------------------------------------------------------------------------
Gross fabric sales ............ 50,397 100.0% 44,976 100.0% 43,552 100.0%
------------------------------------------------------------------------------
Average gross sales price per yard:
Promotional-end fabrics ......... $ 3.44 $ 3.41 $ 3.40
Middle to better-end fabrics .... 5.05 4.72 4.43
Average per yard - all fabrics 4.54 4.23 4.05
</TABLE>
GEOGRAPHIC DISTRIBUTION OF SALES To develop markets for upholstery fabric
outside the United States, the Company has placed substantial emphasis on
building both direct exports from the United States as well as sales from its
Mexico City, Mexico distribution center. The Company's 1998 foreign sales were
up by $1.8 million, or 4.6% above 1997. 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 1996:
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------------
PERCENT Percent Percent
OF of of
AMOUNT SALES Amount Sales Amount Sales
------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales:
Domestic sales ......... $187,231 81.9% $150,525 79.1% $140,717 79.8%
Foreign sales(1) ....... 41,473 18.1 39,658 20.9 35,701 20.2
------------------------------------------------------------------------------------
Gross fabric sales $228,704 100.0% $190,183 100.0% $176,418 100.0%
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
(1) Foreign sales consists of both direct exports from the United States as well
as sales from the Company's Mexico City distribution center.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997 Net Sales. Net sales for 1998 increased
$33.4 million, or 15.2%, to $252.6 million from $219.2 million in 1997. Gross
fabric sales were higher while gross yarn sales were lower 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 24.4%, to
$187.2 million in 1998 from $150.5 million in 1997. Foreign sales increased
4.6%, to $41.5 million in 1998 from $39.7 million in 1997. This increase was due
to improved sales in Canada as well as increased penetration of other
international markets. Gross yarn sales decreased 8.7%, to $30.1 million in 1998
from $33.0 million in 1997.
The gross volume of fabric sold increased 12.1%, to 50.4 million yards in 1998
from 45.0 million yards in 1997. The average gross sales price per yard
increased 7.3%, to $4.54 in 1998 from $4.23 in 1997. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 22.3% more yards of middle to better-end fabrics and 5.2% fewer
yards of promotional-end fabrics in 1998 than in 1997. The average gross sales
price per yard of middle to better-end fabrics increased by 7.0%, to $5.05 in
1998 from $4.72 in 1997. The average gross sales price per yard of
promotional-end fabrics increased by 0.9%, to $3.44 in 1998 from $3.41 in 1997.
27
<PAGE>
<PAGE>
Gross Margin. The gross margin percentage for the first half of Fiscal 1998
decreased to 22.2% as compared to 24.7% for the first half of 1997. The decrease
in the gross margin percentage was due to 1.) lower operating efficiencies and
other period costs associated with a two-year capacity expansion plan, which the
Company began implementing in 1997, and 2.) heavy overtime expenses associated
with operating almost all of the Company's manufacturing areas on a six and
one-half day per week schedule to meet customer demand. For the second half of
Fiscal 1998, the gross margin percentage was 19.5% as compared to 22.6% during
the second half of 1997. This decrease was due to 1.) systems-related issues
which depressed the Company's production rates during the third quarter of 1998,
2.) a significant shortfall in expected sales during the fourth quarter of 1998
due to an order rate approximately 40% below the comparable period of 1997, and
3.) a significant increase in the sale of seconds in the second half of the year
as compared to both the first half of Fiscal 1998 and the second half of Fiscal
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $38.7 million in 1998 from $32.3 million in
1997 due to increases in sales commissions, labor and fringes, freight expenses
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 were 15.4% in 1998 and 14.7% in 1997.
Interest Expense, Net. Interest expense increased to $5.4 million in 1998 from
$3.7 million in 1997. Higher levels of senior debt financing at higher rates of
interest was the primary reason.
Effective Tax Rate. The effective tax rate increased to 33.0% in 1998 from 29.2%
in 1997. The unusually low effective tax rate in Fiscal 1997 was due to the
reversal of tax reserves no longer required and an 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 in this report.
FISCAL 1997 COMPARED TO FISCAL 1996 Net Sales. Net sales for 1997 increased
$20.3 million, or 10.2%, to $219.2 million from $198.9 million in 1996. Both
gross fabric sales and gross yarn sales were higher during the period. Gross
fabric sales increased due to increases in both domestic and foreign fabric
sales. Gross fabric sales within the United States increased 7.0%, to $150.5
million in 1997 from $140.7 million in 1996. Foreign sales increased 11.1%, to
$39.7 million in 1997 from $35.7 million in 1996. This increase was due to
improved sales in Mexico and Canada as well as increased penetration of other
international markets. Gross yarn sales increased 23.3%, to $33.0 million in
1997 from $26.8 million in 1996.
The gross volume of fabric sold increased 3.3%, to 45.0 million yards in 1997
from 43.6 million yards in 1996. The average gross sales price per yard
increased 4.4%, to $4.23 in 1997 from $4.05 in 1996. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 2.5% more yards of middle to better-end fabrics and 4.7% more yards
of promotional-end fabrics in 1997 than in 1996. The average gross sales price
per yard of middle to better-end fabrics increased by 6.5%, to $4.72 in 1997
from $4.43 in 1996. The average gross sales price per yard of promotional-end
fabrics increased by 0.3%, to $3.41 in 1997 from $3.40 in 1996.
Gross Margin. The gross margin percentage for the first half of 1997 increased
to 24.7% as compared to 21.9% for the first half of 1996. The increase in the
gross margin percentage was due to 1.) increased sales volume in the
higher-margin middle to better-end and foreign/export fabric categories, 2.)
lower manufacturing costs resulting from improved manufacturing efficiencies,
and 3.) improved manufacturing quality performance resulting in a decrease in
sales of second quality fabric. For the second half of 1997, the gross margin
percentage was 22.6% as compared to 24.3% in 1996. This decrease is attributable
to the effects of the capacity expansion program initiated during the third
quarter of 1997. The adverse effects on gross margin included higher training
costs, reorganization of manufacturing facilities and operations, internal
quality slippage, and higher overtime.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $32.3 million in 1997 from $29.1 million in
1996 due to increases in sales commissions, labor and fringes, and freight
expenses associated with the Company's higher net sales for the period. Selling,
general and administrative expenses as a percentage of net sales were 14.7% in
1997 and 1996.
Interest Expense, Net. Interest expense decreased to $3.7 million in 1997 from
$4.1 million in 1996. Lower capital loans and term debt obligations and lower
fees were the primary reasons for this decrease.
Effective Tax Rate. The effective tax rate decreased to 29.2% in 1997 from 33.0%
in 1996. The decrease in the effective tax rate was due to the reversal of tax
reserves no longer required and the increase in the foreign sales corporation
benefit partiallly offset by an increase in state and foreign income taxes. See
Note 6 of Notes to Consolidated Financial Statements included elsewhere in this
report.
28
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and capital requirements
through a combination of internally generated funds, borrowings under the Credit
Agreement, and debt and equity offerings. The Company's capital requirements
have arisen principally in connection with the purchase of equipment to expand
production capacity and improve the Company's quality and productivity
performance and with an increase in the Company's working capital needs related
to its sales growth.
The primary source of the Company's liquidity and capital resources has been
operating cash flow. The Company's net cash provided by (used in) operating
activities was $14.8 million, $11.1 million and ($11.8) million in 1996, 1997
and 1998, respectively. The Company has supplemented its operating cash flow
with borrowings. Net borrowings (repayments) were ($2.5) million in 1996, $10.2
million in 1997 and $16.6 million in 1998. The Company also raised $3.3 million
from the offering of 450,000 new common shares in 1997, and $36.5 million from
the offering of 3,000,000 new common shares in 1998.
Over the last five years, the Company has placed in service new manufacturing
equipment with an aggregate cost of $94.0 million. Capital expenditures in 1997
and 1998 were $25.5 million and $41.5 million, respectively. Capital
expenditures during 1998 were funded by operating cash flow, borrowings and
proceeds from the 1998 Offering (as hereinafter defined). Management anticipates
that capital expenditures will total approximately $24.0 million in 1999,
consisting of $10.9 million primarily for new production equipment to expand
finishing capacity and support the Company's marketing, productivity, quality,
service and financial performance objectives. Management believes that operating
income and borrowings under the Credit Agreement will provide sufficient funding
for the Company's capital expenditures and working capital needs for the
foreseeable future.
As discussed in Note 5 of Notes to Consolidated Financial Statements, the
Company issued $45.0 million of Senior Notes due October 2005 and 2007 (the
"Senior Notes") during 1997. Proceeds from the Senior Notes were used to replace
the 6.81% Series A Notes and reduce borrowings under the Credit Agreement. The
Senior Notes bear interest at a fixed rate of 7.09% on $15.0 million and 7.18%
on $30.0 million. Annual principal payments begin on October 10, 2003 with a
final payment due October 10, 2007.
The Company also has a $70.0 million Credit Agreement with two banks which
expires December 31, 2002. In 1998, the Company amended its Credit Agreement to
increase the amount of the facility from $50.0 million to $70.0 million and to
eliminate covenant limitations with respect to capital expenditures. As of
January 2, 1999, the Company had $20.5 million outstanding under the Credit
Agreement and unused availability of $48.7 million, net of outstanding letters
of credit. See Note 5 of Notes to Consolidated Financial Statements, herein.
In 1998, the Company completed a public offering of 3.2 million shares of its
common stock of which 3.0 million shares were sold by the Company and 0.2
millions shares were sold by a selling stockholder (the "1998 Offering"). The
Company applied its share of the net proceeds from the 1998 Offering, or
approximately $36.5 million, to repay amounts borrowed under the Credit
Agreement.
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 the
Company's results of operations for the periods presented. Historically, the
Company believes it has been able to minimize the effects of inflation by
improving its manufacturing and purchasing efficiency, by increasing employee
productivity, by reflecting the effects of inflation in the selling prices of
the new products it introduces each year and, to a lesser degree, by increasing
the selling prices of those products which have been included in the Company's
product line for more than one year.
29
<PAGE>
<PAGE>
FOREIGN CURRENCY TRANSLATION
All of the Company's sales are denominated in U.S. dollars except sales through
the Company's Mexico City distribution center. These sales are denominated in
pesos and are, therefore, subject to currency fluctuations. Accounts receivable
in pesos at January 2, 1999 were $2.0 million.
Mexico has been designated as a "highly inflationary country" for purposes of
applying Statement of Financial Standards No. 52, Foreign Currency Translation.
Accordingly, the Company has recorded translation gains and losses in the income
statement rather than as a separate component of equity in Fiscal 1997 and
Fiscal 1998. See Note 2(i) of Notes to Consolidated Financial Statements
included elsewhere in this report.
YEAR 2000
The "Year 2000 issue" is a result of the many existing computer programs that
use only the last two, rather than all four, digits to specify a year. As a
result, it is anticipated that date sensitive programs may only recognize "00"
as signifying the year 1900, and therefore not recognize the year 2000. Although
the exact consequences of such an event are not yet fully known, there is
concern that there could be at least a temporary inability to engage in normal
business operations, which, in the aggregate, could have a negative effect on
the global economy.
The Company has considered and planned for the Year 2000 issue since the middle
of 1996 when the Company began working with outside consultants and software
vendors to both develop its response to the Year 2000 issue, as well as to
update its overall management information system. In addition, the Company has
an internal project team in place to coordinate these efforts. In late 1996, the
Company purchased a new Enterprise Resource Planning system (the "ERP"). The ERP
is intended to enhance the Company's ability to meet its productivity, service
and quality objectives, and is represented as fully Year 2000 compliant, and
therefore carries a warranty for the latter purpose. The ERP is designed to read
all four digits of a given year, and to convert two digit year designations as
well. The Company converted to the ERP during July 1998, and fully implemented
the system by the end of 1998.
The Company has also initiated the process of reviewing its manufacturing and
other critical equipment that may be date-sensitive, including equipment with
embedded technology. The Company has organized an internal team to conduct a
survey of all such equipment. The survey is substantially completed and
remediation of equipment is not expected to be material. A timetable and
approach to test certain critical equipment with embedded technology is under
consideration.
Through January 2, 1999, the Company has spent approximately $4.8 million for
product acquisition, planning, conversion, and implementation in connection with
the ERP. Substantially all of the hardware and software costs have been
capitalized.
The Company has sent surveys to its major vendors in an attempt to ascertain
their state of Year 2000 readiness and to determine the extent to which the
Company may be adversely effected by their failure to address the Year 2000
issue appropriately. The Company has received responses to most of those surveys
and a team of Company employees will continue to coordinate the Company's
efforts in this regard. Similarly, the Company has been in communication with
its major customers, and is receiving information from them as to their state of
readiness for the Year 2000.
The Company will continue to assess the state of Year 2000 preparedness of its
major suppliers and vendors. While the failure by these entities to adequately
address their Year 2000 issues could have a material adverse effect on the
Company, it is not presently possible to reasonably estimate the amount of
business that the Company could lose or the other costs that the Company could
sustain in the event of such failure. Similarly, to the extent that other
segments of the global political, financial, economic, transportation and
manufacturing sectors malfunction at the Year 2000, the Company's operations and
financial strength would likely be adversely affected to some presently unknown
degree.
The Company believes that it will be successful in its efforts to address the
Year 2000 issue and will therefore not suffer any material adverse effect on its
operations or financial condition. Although the Company is not certain as to the
nature and complete extent of the risks of failure in this regard, such failure
could lead to a "most reasonably likely worst case scenario" where it was
severely limited in its ability to perform its manufacturing processes, deliver
its products, and otherwise engage in its ordinary business operations for an
unknown period of time. At present, the Company has no contingency plan in place
for such an occurrence and has no firm plans to initiate the creation of such a
contingency plan or to further study the uncertainty surrounding the risks of
failure.
30
<PAGE>
<PAGE>
SUMMARY QUARTERLY FINANCIAL DATA
(Unaudited)
The following is a summary of the results of operations for each of the quarters
within the years ended January 2, 1999 and January 3, 1998.
<TABLE>
<CAPTION>
In thousands, except per share data
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ....................... $62,730 $64,075 $60,331 $65,422
Gross margin .................... 13,591 14,594 12,137 12,350
Operating income ................ 4,193 5,376 2,456 1,964
Net income ...................... $ 1,936 $ 2,542 $ 692 $ 600
Earnings per common share-basic . $ 0.15 $ 0.20 $ 0.04 $ 0.04
Earnings per common share-diluted $ 0.15 $ 0.19 $ 0.04 $ 0.04
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ....................... $53,198 $52,475 $55,130 $58,371
Gross margin .................... 13,099 13,006 12,656 13,012
Operating income ................ 4,631 5,020 4,873 4,938
Net income ...................... $ 2,510 $ 2,801 $ 3,080 $ 2,722
Earnings per common share-basic . $ 0.21 $ 0.22 $ 0.25 $ 0.22
Earnings per common share-diluted $ 0.20 $ 0.21 $ 0.23 $ 0.21
</TABLE>
-----------------------------------------------------------
The following summarizes common stock prices for the years ended January 2, 1999
and January 3, 1998.
<TABLE>
<CAPTION>
PRICE PER SHARE
1998 HIGH LOW
- ------------------------------------------------------------------------------
<S> <C> <C>
First Quarter ...................... $17.67 $11.42
Second Quarter ..................... $20.17 $13.00
Third Quarter ...................... $17.00 $ 4.38
Fourth Quarter ..................... $ 7.63 $ 3.91
<CAPTION>
PRICE PER SHARE
1997 HIGH LOW
- ------------------------------------------------------------------------------
<S> <C> <C>
First Quarter ...................... $12.33 $ 8.67
Second Quarter ..................... $11.33 $ 8.67
Third Quarter ...................... $15.92 $10.00
Fourth Quarter ..................... $16.17 $11.00
</TABLE>
(1) The Company's common stock is traded over the counter and is quoted on the
Nasdaq National Market under the symbol "QFAB."
(2) No dividends have been paid on the Company's common stock.
(3) As of March 22, 1999, there were approximately 96 record holders of common
stock.
(4) The Company's Credit Agreement and Senior Notes contain restrictive
covenants which limit the Company's ability to declare and pay dividends. Under
the most restrictive of these covenants, $20.7 million was available for the
payment of dividends as of January 2, 1999.
(5) On May 28, 1998, the Board of Directors declared a three-for-two stock split
effected by means of a stock dividend paid on June 19, 1998 to stockholders of
record on June 8, 1998. All share amounts give effect to such stock split.
31
<PAGE>
<PAGE>
GENERAL
INFORMATION
<TABLE>
<CAPTION>
DIRECTORS
- --------------------------------------------------------------------------------
<S> <C>
SANGWOO AHN, Chairman DR. JERRY I. PORRAS
Partner Lane Professor of Organizational
Morgan Lewis Githens & Ahn Behavior and Change
Stanford University Graduate
LARRY A. LIEBENOW School of Business
President and CEO
Quaker Fabric Corporation ERIBERTO R. SCOCIMARA
President and Chief Executive Officer
Hungarian-American Enterprise Fund
</TABLE>
<TABLE>
<CAPTION>
COMMITTEES
- --------------------------------------------------------------------------------
<S> <C>
AUDIT COMMITTEE COMPENSATION COMMITTEE
Sangwoo Ahn Sangwoo Ahn
Eriberto R. Scocimara Larry A. Liebenow
Jerry I. Porras
STOCK OPTION COMMITTEE
Sangwoo Ahn
Jerry I. Porras
</TABLE>
<TABLE>
<CAPTION>
OFFICERS
- --------------------------------------------------------------------------------
<S> <C>
LARRY A. LIEBENOW PAUL J. KELLY
President and Chief Vice President - Finance,
Executive Officer Treasurer and Chief Financial Officer
ANTHONY DEGOMES THOMAS H. MUZEKARI
Vice President Vice President
New Business Development Sales and Marketing
JAMES A. DULUDE BEATRICE SPIRES
Vice President Vice President
Manufacturing Styling and Design
CYNTHIA L. GORDAN J. DUNCAN WHITEHEAD
Vice President, Secretary Vice President
and General Counsel Research and Development
MARK R. HELLWIG
Vice President
Supply Chain Management
</TABLE>
<TABLE>
<CAPTION>
CORPORATE DATA
- --------------------------------------------------------------------------------
<S> <C>
CORPORATE OFFICE NASDAQ (National Market System)
Quaker Fabric Corporation Trading Symbol - QFAB
941 Grinnell Street
Fall River, Massachusetts 02721 INDEPENDENT AUDITORS
(508) 678-1951 Arthur Andersen LLP
225 Franklin Street
ANNUAL MEETING Boston, Massachusetts 02110
11:00 a.m., May 21, 1999
BankBoston N.A. LEGAL COUNSEL
100 Federal Street Proskauer Rose LLP
Boston, Massachusetts 02105 1585 Broadway
New York, New York 10036
TRANSFER AGENT AND REGISTRAR
BankBoston N.A. FORM 10-K
c/o Equiserve Limited Partnership The Company's Form 10-K Report,
P.O. Box 8040 as filed with the Securities and
Boston, MA 02266-8040 Exchange Commission, is available
(781) 575-3170 to stockholders without charge
http://www.equiserve.com upon request to the Corporate Office,
Attn: Corporate Secretary
</TABLE>
32
<PAGE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 8, 1999 incorporated by reference or
included in this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File No. 33-88264) and Form S-3 (File No. 33-88236).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 29, 1999
26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 432
<SECURITIES> 0
<RECEIVABLES> 40,661
<ALLOWANCES> 1,939
<INVENTORY> 46,594
<CURRENT-ASSETS> 95,789
<PP&E> 179,934
<DEPRECIATION> 47,514
<TOTAL-ASSETS> 234,766
<CURRENT-LIABILITIES> 23,095
<BONDS> 69,011
0
0
<COMMON> 156
<OTHER-SE> 124,837
<TOTAL-LIABILITY-AND-EQUITY> 234,766
<SALES> 252,558
<TOTAL-REVENUES> 252,558
<CGS> 199,886
<TOTAL-COSTS> 199,886
<OTHER-EXPENSES> (28)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,405
<INCOME-PRETAX> 8,612
<INCOME-TAX> 2,842
<INCOME-CONTINUING> 5,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,770
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.40
</TABLE>
